Design Patents on Truck Parts Are Valid

Author: Susan Meyer

In a recent decision, the Federal Circuit Court of Appeals ruled that design patents on Ford truck hoods and headlights are not invalid as functional articles, holding “the aesthetic appeal of a design to consumers is inadequate to render that design functional.” Automotive Body Parts Association v. Ford Global Technologies, LLC, No. 2018-1613 (Fed. Cir., July 23, 2019).

Design patents protect a “new, original and ornamental design for an article of manufacture.” 35 U.S.C. § 171(a). Established law prohibits design patents on primarily functional designs due to their lack of ornamentality. Utility patents, on the other hand, must be functional to be patentable. Valid design patents may contain some functional elements but may not claim a “primarily functional” design. “If a particular design is essential to the use of the article, it cannot be the subject of a design patent.” L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1123 (Fed. Cir. 1993).

This case was brought by the Automotive Body Parts Association (ABPA), who asked the court to hold that the aesthetic appeal, and not the mechanical or utilitarian aspect, of a patent design may render it functional. The court declined to adopt the ABPA’s unique argument.

The designs at issue are below.

Ford testified that a design team, and not engineers, designed the ornamental features for the hood and headlights, and although engineers reviewed the final designs, there were no changes to the aesthetic designs based on engineering or functional requirements. The court stressed the importance of prior tests that looked at the presence or absence of alternative designs. Of course, there are a variety of hood and headlight designs available.

Overall, the court found the ABPA’s arguments that designs that derive commercial value from their aesthetic appeal are functional, would gut the principles of design patents: “The very thing . . . for which [the] patent is given is that which gives a peculiar and distinctive appearance, its aesthetic.” The commercial edge the design may give a patent owner is “exactly the type of market advantage manifestly contemplated by Congress in the laws authorizing design patents.”

This recent ruling from the Federal Circuit clarifies that design patent defendants should not focus on whether a design’s aesthetic appeal is functional, but rather focus on the functionality of the article of manufacture itself. Patent owners will do well to develop evidence early of invention by designers and not engineers, and of a variety of design options in the field to show the lack of functional necessity for the particular patented design.

About the author: Susan B. Meyer is a partner and co-chair of Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. She is a registered patent attorney whose practice focuses on intellectual property litigation, prosecution, and counseling for clients in a wide variety of industries and technologies. Ms. Meyer’s biography can be found here.

Effective August 3, 2019, the U.S. Patent and Trademark Office Makes a Big Splash through the Adoption of its New Trademark Law Concerning Foreign Trademark Applicants in an Effort to Preserve and Protect the Trademark Registry

Author: Gregory Brescia

On August 3, 2019, non-U.S. domiciliaries will require representation by a U.S. licensed attorney for all matters related to trademark applications, registrations, and parties to Trademark Trial and Appeal Board Proceedings (collectively referred herein as, “foreign applicants”). See Federal Register – Trademark Laws as of August 3, 2019. In addition to the adoption of the above, the USPTO is requiring all U.S. licensed attorneys representing foreign trademark applicants to submit proof of their active state bar membership. The purpose of this recent adoption resonates from the USPTO’s efforts to (1) improve the quality of the federal trademark register; (2) stop the unlicensed practice of law before the USPTO; and (3) assist in regulatory compliance.

Many foreign applicants may ask: “how will this impact me?” Prior to the adoption of this new rule, foreign applicants had the ability to prosecute and handle all trademark-related matters on their own behalf. Of course, foreign applicants had the ability to retain foreign counsel as well, so long as certain requirements were met. With the adoption of this new rule, foreign applicants will be required to retain U.S. counsel to file applications, respond to office actions, correspond with examining attorneys at the USPTO, and handle post registration submissions.

The primary changes that foreign applicants will see through the adoption of this new rule include the following:

  1. New applications filed by foreign applicants on or before August 3, 2019 under Sections 1 or 44 of the Lanham Act must obtain U.S. counsel to prosecute a complete application from inception through maintenance.
  2. New applications filed by foreign applicants on or after August 3, 2019 under section 66(a) of the Lanham Act, a subsection of the Madrid Protocol, will not require U.S. counsel for the initial filing so long as prior to the publication, the foreign application submitted satisfies all formalities and statutory requirements. In the event the application does not meet all the formalities and statutory requirements, U.S. counsel is required.
  3. For applications filed by foreign applicants prior to August 3, 2019 that require further action, applicants must retain U.S. counsel to handle any actions, including post-registrations maintenance.
  4. Retaining U.S. counsel is not necessary for applications filed by foreign applicants prior to August 3, 2019; however, U.S. counsel must be retained for any subsequent actions.
  5. Retaining U.S. counsel is required for marks registered by foreign applicants prior to August 3, 2019 for handling any post registration actions, as well as any post registration maintenance on or after August 3, 2019.

As discussed above, the adoption and implementation of this new rule is cornerstone of the USPTO’s initiative to preserve and protect the quality of the U.S. Trademark Registry. We encourage foreign applicants to take these recent changes seriously as they can have a significant impact on the validity and their current and future U.S. trademark portfolios. Moving forward, Gordon Rees Scully Mansukhani’s Intellectual Property team will monitor the development and implications associated with the USPTO’s recent rule adoption. Should you have any questions, comments or concerns regarding the USPTO’s new rule, please feel free to contact our offices.

About the author: Gregory Brescia is a registered patent attorney and a member of Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. His practice focuses on intellectual property prosecution and litigation. He also counsels clients on intellectual property enforcement and corporate transactions involving formation, compliance, and licensing. Mr. Brescia’s biography can be found here.

Damages in Trademark Infringement: Is Willfulness Required for Defendant’s Profits?

Author: Patrick Mulkern

Introduction

On June 28, 2019, the Supreme Court agreed to take up a case that looks to settle an equally-divided circuit split regarding the threshold evidentiary showing required before a trademark infringement plaintiff can recover the infringer’s profits. In Romag Fasteners, Inc. v. Fossil, Inc. et al., Case No. 18-1233, the petitioner sought a writ of certiorari on the question of: “Whether, under section 35 of the Lanham Act, 15 U.S.C. § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits for a violation of Section 43(a), 15 U.S.C. § 1125(a).”

Underlying Dispute

The case stems from a long-standing dispute between Petitioner Romag Fasteners, Inc. (“Romag”) and Respondents Fossil, Inc. and its retailers (collectively, “Fossil”). Romag sells patented magnetic snap fasteners under the ROMAG trademark. Fossil designs and distributes various items like handbags. In 2002, Romag and Fossil entered into an agreement where Fossil would use Romag’s fasteners in its products. In 2010, however, Romag discovered certain Fossil products were being sold in the United States with counterfeit fasteners bearing the ROMAG mark.

Romag brought suit against Fossil in November 2010, alleging both patent and trademark infringement. In April 2014, a jury found that Fossil had infringed Romag’s trademark, infringed Romag’s patent, but that none of Fossil’s violations were willful. The jury then awarded about $90,000 in Fossil profits to Romag “to prevent unjust enrichment” and another $6.7 million in profits to Romag “to deter future trademark infringement”—attributing 1% of Fossil’s profits to its trademark infringement. The district court ultimately determined, however, that “Romag is not entitled to any award of profits as a result of [its] failure to prove that Fossil’s trademark infringement was willful.”

Romag appealed to the Federal Circuit, which affirmed the district court’s ruling, though noting the circuit split on the issue of whether willfulness was required for an award of an infringer’s profits. Romag then filed a writ petition, seeking resolution of two questions: (1) the trademark question raised here, and (2) an unrelated patent question involving laches. The Supreme Court had addressed the second patent question in an intervening decision and so Romag’s petition was granted, the Federal Circuit’s decision was recalled, and the case was remanded to the district court for evaluation of that patent damages issue.

In November 2017, the district court entered an amended judgment. Romag again appealed, though Fossil opposed review of the trademark issue claiming it had already been litigated. In February 2019, the Federal Circuit agreed with Fossil and limited the appeal to the patent damages issues. Romag then petitioned the Supreme Court for review.

Petition for Certiorari

Romag’s petition is predicated on the significant and stark split among the circuits with respect to whether a trademark plaintiff must establish willful infringement before it can be entitled to an award of the infringer’s profits. Six have said “yes, they do”; six have said “no, they do not.”

The Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits do not require a willfulness showing before an award of profits. Instead, the infringer’s intent is just one of several factors in a flexible analysis. See, e.g., Quick Techs., Inc. v. Sage Grp. PLC, 313 F.3d 338, 349 (5th Cir. 2002) (“plain language of 1117(a)” includes no bright-line rule; “willful infringement” is instead “an important factor which must be considered”).

The First, Second, Eighth, Ninth, Tenth, and D.C. Circuits do require a threshold showing of willfulness before a plaintiff can litigate their entitlement to recover an infringer’s profits. The Second, Eighth, Ninth, Tenth, and D.C. Circuits require that willfulness showing in all instances. See, e.g., Stone Creek, Inc. v. Omnia Italian Design, Inc., 875 F.3d 426, 441 (9th Cir. 2017) (“willfulness remains a prerequisite for awarding a defendant’s profits”). The First Circuit requires a willfulness showing only if the litigants are not direct competitors. See, e.g., Fishman Transducers, Inc. v. Paul, 84 F.3d 187, 191 (1st Cir. 2012) (describing the direct-competition context as the “primary exception” to the “usual[] require[ment]” of willfulness).

Against this backdrop, Romag argued that a willfulness requirement “often determines whether the mark holder can recover any monetary remedy for a trademark violation” for compensation based on a plaintiff’s actual damages “is often difficult to measure and obtain.” Pet. at 20. While many courts require actual confusion to receive damages, “literally hundreds of cases . . . have universally acknowledged that proof of actual confusion is extremely difficult, if not almost impossible, to secure.” Id. Therefore, Romag explained, “[a]n award of the infringer’s profits . . . can be the difference between a meaningful recovery for trademark infringement and no recovery at all.”

Next Steps

The Supreme Court granted the petition without comment. Though not yet formally set, a joint motion following the petition being granted suggests the case will be heard during the January 2020 term—with a decision likely announced in Summer 2020. Given the binary outcome that is likely to result—yes, willfulness is required; or no, willfulness is not required—the decision may potentially have a significant impact on the scope of damages available in trademark cases for half the country. Whether they become easier or more difficult to secure for that half, though, remains to be seen.

About the author: Patrick J. Mulkern is an associate in Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. His practice focuses on intellectual property litigation and transactional matters, with a particular emphasis on patent, trademark, and trade secret litigation. Mr. Mulkern is a registered patent attorney and his biography can be found here.

Is Playing a Video Game on YouTube a Public Performance?

Author: Jing Zhao

In October 2017, Epic Games sued Konstantin Vladimirovich Rak and two other individuals.1 You may have never heard of Epic Games, but you have likely heard of Fortnite – an online battle-royale game that has become widely popular among the teen and pre-teen populace. Epic Games is Fortnite’s developer and publisher.

The Defendants in Epic Games’ lawsuit created software cheats that allowed players to modify Fortnite to give themselves competitive advantages—known as “cheats” in gaming parlance—over other players. Mr. Rak then created and posted a video on YouTube to advertise his cheats. The video features gameplay and a demonstration of the cheat in action. This was the hook Epic Games needed. In its lawsuit, Epic Games alleges copyright infringement by accusing Defendants of “displaying Fortnite publicly without Epic’s permission.”2

The copyright violation Epic Games refers to is based on 17 U.S.C. § 106(4), which states “[the owner of copyright under this title has the exclusive rights to do and to authorize] in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly.”3

On Epic Games’ Motion for Default Judgment, the United States District Court for the Northern District of California touched upon the “fundamental question of whether playing a video game and posting footage of that gameplay to YouTube, constitutes ‘perform[ing a] copyrighted work publicly’ for the purposes of 17 U.S.C. § 106(4) in the first place.”4 While the Court declined to make a ruling, it did not grant default judgment to Epic Games.5 By late 2018, Epic Games voluntarily dismissed this case.

This raises the question: is playing a video game and posting it online for others a public performance that violates copyright?

In 1989, the Fourth Circuit Court of Appeals in Red Baron-Franklin Park, Inc. v. Taito Corp., found an arcade infringed a video game company’s copyright on a video game when the arcade purchased the video game circuit boards without consent for use in its arcades. The court ruled that video games qualify as an “audiovisual work” as defined by 17 U.S.C. § 1016 and a performance upon activation.7 Thus, the court concluded that playing the video game in an arcade constitutes “public performance.”8

In 1996, in Allen v. Academic Games League of America, Inc., a game developer for board games sued a nonprofit organizer of a tournament for students playing the board game.9 The plaintiff alleged the organizer violated his 17 U.S.C. § 106(4) right to publicly “perform” his games. The Ninth Circuit Court of Appeals affirmed summary judgment in favor of the defendant, holding “the interpretation of ‘play,’ as used to define ‘perform’ in § 101 of the Copyright Act, has generally been limited to instances of playing music or records.”10 The court refused to extend the term “play” to “the playing of games” because “[t]o do so would mean interpreting the Copyright Act in a manner that would allow the owner of a copyright in a game to control when and where purchasers of games may play the games and this court will not place such an undue restraint on consumers.”11

In 2004, in Valve Corp. v. Sierra Entertainment, Inc., the game developer and publisher Valve sued another game developer and publisher Sierra Entertainment for breach of a software publishing agreement involved in Sierra Entertainment’s distribution of Valve’s game in a cyber-café.12 The District Court for the Western District of Washington addressed, in passing, the right to publicly perform video games. Rejecting Sierra Entertainment’s reliance on Allen in its argument that playing video games in public is not a public performance, the court interpreted Allen’s ruling as “whether the performance is fee-based is an important factor in determining whether the performance is public.”13 The court declined to make a definitive ruling on whether playing video games constitutes a public performance, but noted “Red Baron involved the same ‘pay-for-play’ gaming transaction that is at issue in this case [involving playing a video game in a cyber-café].”14

In 2010, in Miller v. Facebook, Inc., the plaintiff is Miller, a software developer and owner of the copyright of a video game called “Boomshine.”15 Miller sued an individual, Yao Wei Yeo, who unlawfully reproduced the “look and feel” of Miller’s game and distributed the game, under the name “ChainRxn,” through Facebook.16 The United States District Court for the Northern District of California held that “Yeo’s alleged publication of the ChainRxn video game for play by Facebook users constituted a public performance of plaintiff’s copyrighted work under 17 U.S.C. § 106(4). Just as Congress considered the ‘reading a literary work aloud’ as a performance rather than display of a literary work, the reading of Boomshine’s copyrighted source or machine code by a computer (resulting in the presentation of the video game to the user) could be seen as an analogous performance of the underlying work. Admittedly, this area of the law is still developing.”17

Under these authorities, it would appear that the Fortnite-cheat video may be a public performance because it involves a pay-for-play gaming transaction. Not only did Mr. Rak publish his video with the intent to sell his cheat software, but each click of his video on YouTube also generates profit. Thus, the profit-driven nature of the video may place it in within the reach of 17 U.S.C. § 106(4).

About the author: Jing Zhao is a registered patent attorney and a member of Gordon Rees Scully Mansukhani’s Intellectual Practice Group. Ms. Zhao has a degree in computer science, and her practice focuses on commercial litigation, employment law and intellectual property, with a special interest in emerging legal issues in the eSports industry. Ms. Zhao’s biography can be found here.
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1 Epic Games, Inc. v. Mendes, Case Number 3:17-cv-06223-LB, U.S. District Court for the California Northern District (San Francisco).
2 Epic Games, Inc. v. Mendes, Case Number 3:17cv6223, Complaint, ¶9.
3 17 U.S.C. § 101 defines what it means to “perform a work” as “to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.” 17 U.S.C. § 101 also defines “public” performance as “(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or (2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”
4 Epic Games, Inc. v. Mendes, 2018 U.S.Dist.LEXIS 98719, at *19-20 (N.D. Cal. June 12, 2018) (edits in original).
5 Id. at *22-23.
6 Red Baron-Franklin Park, Inc. v. Taito Corp, 883 F.2d 275, 278 (4th Cir. 1989).
7 Id. (citations omitted) (“the television monitor displays a series of images and the loudspeaker makes audible their accompanying sounds. The exhibition of its images in sequence constitutes a ‘performance’ of an audiovisual work. Indeed, it is the sequential showing of its images that distinguishes the ‘performance’ of an audiovisual work from its ‘display,’ which is defined as a nonsequential showing of individual images”).
8 Id. at 278-79.
9 Allen v. Academic Games League of Am., Inc., 89 F.3d 614 (9th Cir. 1996).
10 Id. at 616 (citations omitted).
11 Id.
12 Valve Corp. v. Sierra Entm’t, Inc., 431 F.Supp.2d 1091 (W.D. Wash. 2004).
13 Valve Corp., 431 F.Supp.2d at 1097.
14 Id.
15 Miller v. Facebook, Inc., 2010 U.S.Dist.LEXIS 61715, at *1-2 (N.D. Cal. May 28, 2010).
16 Id. at *2.
17 Id. at *14 (citing H.R. REP. NO. 94-1476, at 63 (1976)).

Supreme Court Holds that Offensive Marks Are Registrable

Author: Lara Garner

As predicted in an earlier post here, the Supreme Court has held that the Lanham Act’s prohibition on registration of “immoral[ ] or scandalous” trademarks violates the First Amendment. Iancu v. Brunetti, No. 18–302, 588 U.S. ___ (2019).

Erik Brunetti, a counter culture artist, sought to trademark “FUCT.” Brunetti’s streetwear clothing line used the brand, which stands for “Friends U Can’t Trust” and is pronounced as the four letters “Eff U Cee Tee.” The Court noted one might read it differently, and if you did “you would hardly be alone.” Because of that common perception, when Brunetti discovered knockoffs using the brand, he attempted to register the trademark. His application was denied under a provision of the Lanham Act that prohibits registration of trademarks that consist of or comprise “immoral[ ] or scandalous matter,” 15 U. S. C. §1052(a). Brunetti challenged the denial under the First Amendment. The Federal Circuit invalidated the “immoral or scandalous” bar.

Two years ago, in Matal v. Tam, 137 S. Ct. 1744, 1763 (2017) the Court had declared unconstitutional the Lanham Act’s ban on registering marks that “disparage” any “person[ ], living or dead.” §1052(a). The ban was found to be the essence of viewpoint discrimination: allowing marks that are “positive” about a person and disallowing marks that are “derogatory.” In Brunetti, Justice Elena Kagan wrote for the majority, “[t]oday we consider a First Amendment challenge to a neighboring provision of the act.” In a 6-3 vote, the Justices held that the ban on “immoral[ ] or scandalous” trademarks also violates the Constitution: “We hold that this provision infringes the First Amendment for the same reason: It too disfavors certain ideas.”

The divided Court in Matal had agreed on two propositions: (1) if a trademark registration bar is viewpoint based, it is unconstitutional; and (2) the disparagement bar was viewpoint based. In Iancu, the Court found the “immoral or scandalous” bar similarly flawed because it discriminates on the basis of viewpoint. Supported by a review of the dictionary definitions of “immoral” and “scandalous,” the statute was found facially biased in favor of messages that are in accord with society’s sense of decency. And in practice, the Court noted, the PTO has refused to register marks that are at odds with society’s views regarding topics such as drug use, religion, and terrorism but has approved registration of marks on those same topics that comport with society’s views.

The Government argued that the statute could be preserved by a limiting construction, narrowing the bar to marks that are lewd, sexually explicit, or profane. But the language is not ambiguous and to do so, the Court found, would be to rewrite, rather than interpret, the statute. Fairly interpreted, the viewpoint bias of the bar ends the inquiry and the bar must be invalidated.

Separate opinions dissenting in part with the majority were written by Chief Justice Roberts and Justices Breyer and Sotomayor. Each agreed with the majority in striking the “immoral” portion of the law. But all three agreed with each other that “scandalous” can be read to prohibit only marks that are “obscene, vulgar, or profane.” The three, along with Alito in his concurrence, expressed concern for a flood of new, crude trademarks and the creation of public spaces that would be repellant to some. As Justice Sotomayor explained, lamenting the expected result of the Court’s decision, the Government will have no choice but to begin registering the “coming rush” of “marks containing the most vulgar, profane, or obscene words and images imaginable.”

Justice Alito noted in his concurrence that the mark at issue could be denied under a narrower statute banning vulgar terms as the mark expresses no idea (and signifies the “severely limited vocabulary” of its user). But, that “[a]t a time when free speech is under attack, it is especially important for this Court to remain firm on the principle that the First Amendment does not tolerate viewpoint discrimination.”

Justice Roberts, concurring in part and dissenting in part, observed that the trademark registration system merely confers additional benefits. Denying registration does not restrict or punish speech. And First Amendment protections do not extend to require “the Government to give aid and comfort to those using obscene, vulgar, and profane modes of expression.”

Justice Breyer concurred in part and dissented in part at length, writing that precedents warn against interpretation of statutes that renders them unconstitutional. Agreeing with Justice Sotomayor’s narrow interpretation of “scandalous,” he proceeded to address the question of whether the benefits of trademark registration can be denied on the basis of the narrowly construed statute without offending the First Amendment. He concluded in the affirmative.

According to Justice Breyer, the category-based approach taken by the majority is inadequate. The speech-related categories for First Amendment analysis (such as “viewpoint discrimination”) should be viewed, not as outcome-determinative rules but rather as “rules of thumb.” They are not absolute rules; they sometime give weight to competing interests. And they are sometimes applied, as here, too rigidly. Justice Breyer urged that the Court look to the values the First Amendment seeks to protect and refrain from striking down ordinary regulations that pose little threat to free speech interests. The Court should ask whether the regulation at issue “works speech-related harm that is out of proportion to its justifications.”

The statute in this case, Justice Breyer wrote, does not fit neatly into the categories. It is an open question whether the trademarks statue merely regulates “commercial speech.” And it cannot be straightforwardly described as regulating “government speech.” The concept of “public forum” does not apply, although “limited public forum” may have some application as may cases involving government subsidies of private speech. The bounds between “viewpoint discrimination” and “content discrimination” may be hazy, and the denial of the benefits of federal trademark registration to highly vulgar or obscene words would not offend the Constitution. While emotion-laden, such words do not, standing alone, convey a viewpoint labeling them content-based should not be, according to Justice Breyer, outcome determinative.

A proportionality analysis of the statute, as interpreted by Justice Sotomayor, results in a conclusion that it does not offend the Constitution. A ban merely on registration does not bar businesses from using the words, and trademarks are highly regulated with the specialized aim of assisting customers with identification of goods. Those regulations necessarily limit speech. The Government has an interest in avoiding involvement in, and protecting children from such speech, which scientific evidence suggests may be different in kind – they have a physiological and emotional impact that most words do not. As such, in Justice Sotomayor’s view, risks to the First Amendment are minor in light of these objectives.

Justice Sotomayor’s concurrence in part and dissent in part was joined by Justice Breyer. An alternative to the majority’s interpretation is, according to Justice Sotomayor, “equally possible” and saves the statute rendering it a reasonable, viewpoint neutral-restriction. The Government does not have to confer trademark benefits at all but also cannot do so in a viewpoint-discriminatory way. However, the term “scandalous” should not be collapsed with “immoral” as the majority does because the term is ambiguous and the text of the statute comports with a narrow reading of its meaning.

In Justice Sotomayor’s view, “scandalous” can be read broadly to cover both idea and manners of expressing them, or narrowly to cover only manners of expression. Congress used the “scandalous,” “immoral,” and “disparage” to describe separate prohibited features. While “immoral” and “disparage” target offensive ideas, “scandalous” can be read, not as a synonym of “immoral,” but with a distinct, non-redundant meaning, as offensive due to the mode in which it is expressed. The most obvious such mode of expression is with the use of obscenity, vulgarity, or profanity. Justice Sotomayor does not propose a list (other than “the apparent homonym of Brunetti’s mark,” and “at least one particularly egregious racial epithet”) but would leave it to the USPTO to identify the “small group” of such words.

A limiting construction, according to Justice Sotomayor, is appropriate here and consistent with precedent. It is reasonable in the context of an ancillary benefit as compared to, for example, criminal statutes that threaten freedom. Brunetti would not even be prohibited from using his mark, merely from registering it. “Properly narrowed, ‘scandalous’ is a viewpoint-neutral form of content discrimination that is permissible in the kind of discretionary governmental program or limited forum typified by the trademark-registration system.”

The impact of this decision remains to be seen. But, notwithstanding the worries of some Justices, it seems unlikely that the USPTO will see a flood of attempts to register vulgarities. The value of a trademarks is in the goodwill associated with it. Building a mark’s positive reputation takes a considerable investment of time and care. The novelty of registering a mark that is unlikely, by its nature, to appeal to a wide class of consumers is outweighed by the expense of doing so. Registrations may still be rejected on the basis of other criteria, such as similarity to exiting marks. And it remains to be seen whether Congress will address the issue as it seems likely that a narrower prohibition would be upheld. As Justice Alito wrote in his concurrence, it is up to Congress, if it wants, to devise a “more carefully focused statute that precludes the registration of marks containing vulgar terms that play no real part in the expression of ideas.”

About the author: Lara Garner is a partner in Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. Her practice focuses on Intellectual Property litigation and counseling for patents, copyrights, trademarks, and trade secrets, and in a broad range of matters, including contract, technology, and privacy issues. Ms. Garner’s biography can be found here.

Amazon’s Patent Infringement Evaluation Program

Author: David Heckadon

Amazon has been quietly testing a program called “Utility Patent Neutral Evaluation” that allows patent owners who sell their products on Amazon’s website to challenge potential infringers who also sell products on Amazon’s website. At present, the program is by invitation only. The overall objective of the program is to reach decisions very quickly and relatively affordably. Since almost half of American retail ecommerce sales already passes through Amazon’s website (projected to reach 50% by 20211), the ability to have a patent infringer’s product quickly and fairly cheaply removed from the website is a very powerful tool for patent owners. Patent owners who simply don’t have the money to spend on a traditional patent lawsuit can now go after their infringers efficiently on Amazon.

The system itself is simple, and the full decision process takes no more than 4 months. First, the patent owner approaches Amazon and identifies the potential infringer (or infringers), selects 1 claim of a US utility patent that it believes is infringed, and requests an evaluation. The patent owner must also identify the purported infringing product by its Amazon Standard Identification Number or “ASIN.”

The patent owner pays Amazon $4,000. Amazon then notifies the potential infringer(s) and the infringer(s) must also pay $4,000 to Amazon.

The patent claims are then evaluated by an attorney selected by Amazon, and this attorney must return a decision in a matter of weeks. If the patent claim is found to cover the accused product, then Amazon will remove the product from its website within 10 days of the decision. The accused product will also be removed from the website if its seller does not agree to participate in the program.

The program is very streamlined. There are no depositions, no discovery, no document requests, no hearings, no trial, and no experts. There is also no appeal process. The whole process done in writing.

First, the patent owner contacts Amazon to start the process. After Amazon agrees to start the process, the patent owner has only 21 days to submit its arguments (limited to discussing 1 claim from 1 US utility patent). These written arguments are limited to 20 pages (not including claim charts or exhibits). The patent owner must pay the $4,000 to Amazon within 2 weeks of the start of the program.

Next, the seller must also pay $4,000 and is given 14 days to respond. The seller’s response is limited to 15 pages (not including claim charts or exhibits). The possible arguments the seller can made are actually quite limited. The seller can argue only: (a) non-infringement; or (b) invalidity based on sales of the patented product more than 1 year before the patent’s earliest effective filing date; or (c) that the patent has already been invalidated by a court or the Patent Office. Moreover, should the seller argue that the patented product has been on sale for more than a year before the patent’s earliest effective filing date, the evidence presented must be independently verifiable (i.e., affidavits and declarations are not permitted evidence). Should the seller decide not to participate in the program, or fail to pay their $4,000, the seller’s goods are automatically removed from Amazon’s website.

Finally, the patent owner is given 7 days to submit an optional reply to the seller’s response. No modifications to the above 21-day, 14-day, and 7-day schedule are permitted. Once the clock starts ticking, it cannot be turned off.

The attorney evaluator selected by Amazon is given only 14 days to make their decision. To further speed up the process, the attorney evaluator only has to provide the basis for their findings if they find in in favor of the seller. The evaluator uses a “likely or not likely” standard to determine infringement.

Any product determined to be infringing will be removed from Amazon’s website within 10 days of the evaluator’s final decision. Neither the patent owner nor the seller can contact the attorney evaluator regarding their final decision. The entire process is bound by confidentiality agreements and all parties agree not to seek discovery from the other participants, from Amazon, or from the attorney evaluator after the process has concluded.

After the evaluator makes their final decision, the winner then gets its money back, and the loser’s $4,000 is used to pay the attorney. Amazon states that it does not keep any of the money.

Of course, Amazon cannot run its own court system, and it cannot limit the rights of plaintiffs and defendants in court or at the Patent Office. As such, the patent owner can still go to court and sue for infringement (and damages). Conversely, the accused infringer can still go to court and file a Declaratory Judgement action or go to PTAB for a review of the patent in question. Amazon can’t limit these rights, and Amazon confirms it will respect all judgments and arbitrations concerning the patent in question. Amazon also states that it will comply with the evaluator’s decision pending any litigation or settlement. However, Amazon’s huge market power as the world’s largest retailer makes this new system a very fast, cost-efficient, and effective tool to shut infringing products out of the market.

In addition to pleasing patent owners, this new program can also be good news for defendant sellers. Specifically, prior to this program, sellers’ products were simply removed from Amazon’s website after a charge of patent infringement. As such, these sellers had no recourse other than obtaining a declaration of non-infringement from a federal court.

One important limitation of this program is that it can only be used to challenge products that are sold by third-party sellers on Amazon’s website. As such, it cannot be used against products that are sold by Amazon itself. Currently, about 50% of the sales made through Amazon’s website are made by Amazon itself. 2 3 What this means is that only about half of the goods sold on Amazon’s website can be challenged under this new program (however, that percentage is expected to continually increase as Amazon continues to diversify to more sellers).

The program also has provisions to deal with multiple sellers of the accused infringing products. Specifically, each accused seller has to put up $4,000 to participate in the program. If none of the accused sellers remits its $4,000, then the accused goods are automatically removed from Amazon’s website. If multiple sellers lose, the $4,000 cost is divided evenly among them. Interestingly, however, if more than $4,000 has been paid by multiple sellers, the surplus funds received (i.e.: above the $4,000 paid to the attorney evaluator) are to be given to a charity selected by Amazon.

Other interesting provisions include instances where if the patent owner lists multiple products and only some of them are found to infringe the patent, then the patent owner pays $2,000, and the infringing sellers pay $2,000 (in even shares). Also, if the patent owner and the seller settle prior to the evaluation decision, the evaluator gets $1,000 (or $2,000 if settlement occurs after the patent owner’s reply has been filed).

Lastly, as can be seen, this new program is fundamentally different from traditional “early neutral evaluation” since it is not trying to get the parties to an agreement, or provide a non-binding evaluation of the merits of the case. It is also different from traditional mediation since the program is not intended to get the parties to settle. Amazon’s objective is speed and containment of cost in reaching a decision, not on trying to avoid costly litigation.

Amazon may now be the first private business entity to run its own patent infringement dispute resolution system. It will prove interesting to see what happens next as this system expands and is used more and more. It will also prove very interesting to see whether other retailers will try to develop similar programs or work together to build a system that they could all collaborate on.

About the author: David Heckadon is a registered patent attorney and a member of Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. Mr. Heckadon has a degree in mechanical engineering, and his practice focuses on patent prosecution, with particular emphasis on software technologies. Mr. Heckadon’s biography can be found here.
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1 fortune.com/2017/04/10/amazon-retail/
2 https://www.geekwire.com/2019/first-time-amazons-online-sales-make-less-half-entire-business/
3 https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/

The Tightrope Between First Amendment Violations and Lawful Regulation of Vulgar Trademarks

Author: Sean Flaherty

Trademark attorneys and brand owners alike know that trademark applications are not to be refused registration by the USPTO unless they fall within certain codified prohibitions. 15 U.S.C. § 1052(a) (“Lanham Act Section 2(a)”), for example, bans trademarks which “[c]onsists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute . . .”

But in 2017, the Supreme Court ruled in Matal v. Tam, 137 S. Ct. 1744, 1763 (2017), that the “disparagement clause” of Section 2(a) was unconstitutional as amounting to viewpoint discrimination. This set the stage for subsequent challenge to the remaining part of 2(a)—the “immoral/scandalous” clause. This issue was recently argued on April 15, 2019 before the Supreme Court in Iancu v. Brunetti, Case No. 18-302.

Trademark Application and TTAB Appeal

In 2011, Erik Brunetti, “an artist and entrepreneur whose graphics are infused with cultural strands from skateboarding, graffiti culture, punk rock music, and remnants of Situationist Ideal ideologies” sought to register the trademark application no. 85310960 for “FUCT.” In re Brunetti, 2014 TTAB LEXIS 328, *3-4 (T.T.A.B. August 1, 2014). The PTO rejected the application under the prohibition against “immoral/scandalous” marks, and Brunetti appealed to the TTAB. There, Brunetti attempted to argue that the mark did not carry any particular meaning, was not being used for its phonetic equivalent, and instead was “an arbitrary made up word” which evoked an edgy aesthetic. Brunetti further argued that to the extent the term had any meaning, it correlated to each of the first letters of the phrase FRIENDS U CAN’T TRUST. However, the TTAB stated that the foregoing arguments “stretche[d] credulity.”

The TTAB affirmed the refusal, noting that “the threshold for objectionable matter is lower for what can be described as ‘scandalous’ than for ‘obscene,’” citing In re McGinley, 660 F.2d 481, 211 USPQ 668, 673 n.9 (CCPA 1981). The also TTAB recognized its own statutory limitations in noting it was not “the appropriate forum for re-evaluating the impacts of any evolving First Amendment jurisprudence within Article III courts upon determinations under Section 2(a) of the Lanham Act.” In re Brunetti, 2014 TTAB LEXIS 328 at *16.

Federal Circuit Appeal

Brunetti appealed the TTAB to the Federal Circuit. The Court of Appeals did not disturb the TTAB’s factual finding that the mark was vulgar and therefore fell within Section 2(a)’s prohibition against the registration of scandalous marks. In re Brunetti, 877 F.3d 1330, 1338 (Fed. Cir. 2017) (“Dictionaries in the record characterize the word as ‘taboo,’ ‘one of the most offensive’ English words, ‘almost universally considered vulgar,’ and an ‘extremely offensive expression.’”) But, while the case was on appeal, Matal v. Tam1 was decided. Applying that holding to Brunetti’s application, the Federal Circuit found the “immoral/scandalous” prohibition as an unconstitutional content-based restriction on speech. In re Brunetti, 877 F.3d at 1341. The Federal Circuit held that the regulation did not survive even intermediate, much less strict scrutiny, because (i) “the government ha[d] failed to identify a substantial interest justifying its suppression of immoral or scandalous trademarks”; (ii) the government could not show that the “regulation directly advance[d] the government’s asserted interest” (because the ban does not prevent actual use of the vulgarity and thus “does not protect the general population from scandalous material”); and (iii) the government failed to show that the regulation was “carefully tailored” given the significant evidence of inconsistent application and “vague nature of the scandalous inquiry.”

Finally, the Federal Circuit denied the government’s last-stand argument, which was to interpret the ban narrowly so as to uphold its constitutionality, by making the prohibition coextensive with a ban on obscenity. However, the Federal Circuit noted that due to the language used in the statute, no basis was provided to the Court to rewrite the law. Id. at 1357 (“We do not see how the words ‘immoral’ and ‘scandalous’ could reasonably be read to be limited to material of a sexual nature. We cannot stand in the shoes of the legislature and rewrite a statute.”).

Supreme Court Review

The Supreme Court granted certiorari and recently held oral argument.

Brunetti primarily argued that there was no principled distinction between the unconstitutionality of the prohibition against the offensive viewpoints targeted by “disparagement clause” in Tam and the offensive viewpoint targeted by the “immoral/scandalous clause” presently before the Court. Further, the applicant argued that all examination of trademarks necessarily implicated an evaluation of content, and thus the government could not argue that the prohibition amounted only to regulation of the “mode of expression.”

In light of Tam, the government was hard pressed to maintain the facial validity of the regulation. Instead, the government conceded the statute should be narrowed so as to preserve its validity.

At oral argument, Justice Kagan asked: “[J]ust so I could understand, you’re asking us to narrow this statute to exactly what?” Deputy Solicitor General Malcom Stewart replied, “To marks that are offensive, shocking to a substantial segment of the public because of their mode of expression, independent of any views that they may express.” Here, the government essentially argued that the PTO should be permitted to restrict speech akin to fighting words, which are susceptible to regulation because they are not based on viewpoint, but instead voiced merely to anger and incite. The government also distinguished Tam by arguing the prohibition against scandalous words is viewpoint-neutral and applied regardless of the applicant’s intended message.

The oral argument lasted nearly an hour with the Court peppering each party with a great number of questions. At several instances, the Court indicated uneasiness with vagueness of the regulation, as evidenced by the PTO’s track record of inconsistent application. But that is not to suggest an unconstitutionality ruling is assured. The Justices probed whether any speech in the context of trademarks could thereafter be regulated in the event this provision were ruled unconstitutional. Could a trademark registrant owning a vulgar mark for example, not be denied advertising space on the side of a public bus, given that its trademark registration was now approved by the federal government?

Justice Breyer repeatedly raised the point that even today, a limited number of dirty words and racial slurs are well defined and well documented to have a physiological effect on the hearer, and asked why the government should not be permitted to ban those words from the trademark registration program. Similarly, Justice Gorsuch asked with regard to the trademark registration program, “why can’t the people choose to withhold the benefit [of registration] on the basis that there are certain words that are profane and that we, as a matter of civility in our culture, would like to see less of rather than more of, and you can use – you’re free to use them . . .but we are not going to trademark them, and we’ve held just last year that a patent is a public benefit that can be withdrawn without a judge. Why isn’t this also similarly a public benefit rather than a private right?” Additionally, Justice Sotomayor posited, “Why can’t the government say, no, we’re not going to give you space on our public registry for words that we find are not acceptable?”

Although the expected bet is on another decision striking down the prohibition as unconstitutional in light of Tam, don’t be surprised if the Court instead decides to walk a tightrope and find that certain vulgarities do not implicate bona fide viewpoints, are used for no more than to create a shocking response in the hearer, and are thus susceptible to regulation without running afoul of the First Amendment.

About the author: Sean Flaherty is a partner in Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. His practice focuses on litigation matters involving copyright, trademarks, trade secrets, and patents, as well as transactional matters related to intellectual property licensing. Mr. Flaherty is a registered patent attorney with a degree in Civil Engineering. Mr. Flaherty’s biography can be found here.
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1 Prior to this Supreme Court decision, the Federal Circuit had held Section 2(a)’s disparagement provision as unconstitutional under the First Amendment, failing to survive either intermediate or strict scrutiny. See In re Tam, 808 F.3d 1321, 1358 (Fed. Cir. 2015)

Supreme Court: Copyright Owners Must Register with U.S. Copyright Office Before Filing Suit

Author: Joni Flaherty

In a unanimous decision authored by Justice Ginsburg, the Supreme Court has held that copyright owners must register with the U.S. Copyright Office before commencing a lawsuit to enforce their rights. In Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, 586 U.S. ___ (2019), the Supreme Court found that the Copyright Act of 1976 requires that the Copyright Office issue a certificate of registration, and that application for the certificate was not enough prior to commencing suit. The decision resolves a split among circuit courts, favoring the “registration approach” followed by the Tenth and Eleventh Circuits, under which registration by the Copyright Office was required to proceed, and rejecting the “application approach” followed by the Fifth and Ninth Circuit courts. The result turned on the interpretation of the phrase “registration of the copyright claim has been made” in Section 411(a) of the Copyright Act. That section reads:

[N]o civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement if notice thereof, with a copy of the complaint, is served on the Register of Copyrights. The Register may, at his or her option, become a party to the action with respect to the issue of registrability of the copyright claim.

Fourth Estate, a public benefit online news producer, licensed articles to Wall-Street.com, a news website. When the license expired and Wall-Street.com failed to remove the articles from its website, Fourth Estate brought a trademark infringement claim. Wall-Street moved to dismiss the claims on the grounds that Fourth Estate had applied for, but had not yet registered, copyrights in its articles. Interpreting Section 411(a) of the Copyright Act, the District Court for the Southern District of Florida granted Wall-Street’s motion to dismiss, and that decision was affirmed by the Court of Appeals for the Eleventh Circuit.

The Supreme Court affirmed, citing the practical implications of litigating prior to the Copyright Office’s grant or denial of registration. The Court found that Fourth Estate’s concerns about depriving copyright owners of the ability to timely enforce their rights was “overstated,” and given that the average registration process takes several months (seven months, on average), there was little danger that a diligent copyright owner would be barred by the three-year statute of limitations. The Court also acknowledged exceptions to the rule, and the opportunity for copyright owners to pay an additional fee to rush their copyright application.

As a practical matter, the decision may encourage some copyright owners to promptly register their creative works. The decision may also cause a delay in some infringement suits or lead to more early dismissals of claims, and may also prevent eager litigants from adding a peripheral infringement claim for an applied-for but not yet registered copyright to a complaint.

About the author: Joni Flaherty is a partner in Gordon Rees Scully Mansukhani’s Intellectual Property and Commercial Litigation Practice Groups. Her practice focuses on intellectual property and business litigation, with an emphasis on unfair business practices, trademark claims, and contractual disputes. Ms. Flaherty’s biography can be found here.

What the FBI’s “Project Titan” Criminal Complaint Reveals About Trade Secret Protection Efforts

Author: Louis Dorny

The FBI’s affidavit presented in support of a January 22, 2019 criminal complaint provides a rare glimpse into Apple’s effort to maintain trade secrets in its secretive Project Titan self-driving car operation. This glimpse was rare because any detailed effort to protect intellectual property in the form of a trade secret is often kept quiet to avoid providing any aid to a would-be thief.

The Background

Widely reported in recent days is the announcement of a second employee in six months to be accused by the FBI of stealing trade secrets from Apple’s self-driving car unit, known as “Project Titan.” Now, the feds have unsealed the January 22, 2019 criminal complaint against Jizhong Chen, a PhD-trained employee of Apple on the Project Titan team as a hardware developer. As alleged, Apple discovered the existence of over 2,000 photographs on Chen’s personally-owned computer, and subsequently learned Chen applied for two external jobs, including one at a China-based autonomous vehicle company — a purported direct competitor. Chen advised Apple he planned on leaving the country for China on January 22, 2019. The criminal complaint was filed the following day in the Northern District of California.

Apple was alerted to Chen after fellow employees spotted him taking photographs of the workspace where the project takes place. The FBI says Chen told Apple’s global security team that he backed up his work computer to a personal hard drive and computer as an insurance policy after being placed on a performance improvement plan by Apple. Apple’s security team found Chen had “over two thousand files containing confidential and proprietary Apple material, including manuals, schematics, and diagrams,” according to the charging document.

Not A Trade Secret Unless You Restrict Access

Similar to many jurisdictions that follow the Uniform Trade Secret Act (“UTSA”), California has specific requirements to protect against misappropriation of trade secrets. To qualify as a trade secret under section 3426.1 of California’s Civil Code, the owner of the trade secret must establish two elements: First, the trade secret must derive actual or potential independent economic value from not being generally known to the public or to other persons who can obtain economic value from the use or disclosure of the claimed secret. Second, the entity claiming trade secret must establish that it undertook “reasonable efforts under the circumstances” to maintain the secrecy of the trade secret.

So How Does Apple Restrict Access?

Excerpted below with highlighting supplied are paragraphs from the eight-page complaint, which can be found here.

Three software controls are evident to protect data. First, each user requires a password to access a database. Second, database access is restricted to a subset of project employees—likely on a need-to-know basis. Third, all access to information  is logged and therefore capable of audit. An administrator must approve access. None of this is surprising. It has long been true that information stored on computer must require some reasonable form of restricted access. Morlife, Inc. v. Perry, 56 Cal.App.4th 1514, 1523 (1997). Trade-secret protection programs need not be as extensive as this to qualify under the statute. The standard is reasonable, which changes depending on the circumstances.

Physical access is restricted by limiting access to “core” employees with badge access while keeping the whereabouts secret. Such efforts are costly and likely warranted on “Project Titan,” but may be cost-prohibitive elsewhere. Again, efforts required to maintain secrecy are those that are “reasonable under the circumstances.” Moreover, “[t]he courts do not require that extreme and unduly expensive procedures be taken to protect trade secrets against flagrant industrial espionage. It follows that reasonable use of a trade secret including controlled disclosure to employees and licensees is consistent with the requirement of relative secrecy.” UTSA, Comment to § 1 (citation omitted); Senate Comment (1984) to California Civil Code § 3426.1.

While essential to put an employee or contractor on notice of the claim of a protected trade secrets with some specificity, a company would be unwise to rely on confidentiality agreements alone as a sufficient secrecy program. Courts have held that “[r]equiring employees to sign confidentiality agreements is a reasonable step to insure secrecy.” Whyte v. Schlage Lock Co. 101 Cal.App.4th 1443, 1454 (2002); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 521 (9th Cir. 1993) (applying California version of UTSA).

Training is often the weak link in an IP protection program due to cost or overreliance on employee agreements. Training is also a problem at the management level, which may not have a firm grip just what exactly compromises the trade secrets. On Project Titan we learn the most interesting tips of all: 1) training includes the importance of keeping details secret and avoiding intended and inadvertent leaks; 2) methods of ensuring protection of trade secrets, as well as device-specific policies; and 3) transmitting documents using secure mechanisms. In sum, an employee who has access to company trade secrets must know what is considered a trade secret. the contours of permissible use and the consequences of misuse—which can only be understood through an active effort to train. While no case in California has held that the failure to implement a training protocol for employees is unreasonable, that case may not be far off.

About the author: Lou Dorny is a partner in Gordon Rees Scully Mansukhani’s Intellectual Property and Commercial Litigation Practice Groups. His practice focuses on intellectual property and high-technology matters, with a particular emphasis on trade secrets. Mr. Dorny’s biography can be found here.

SCOTUS: AIA Does Not Limit Long-Standing “On Sale” Bar Precedent

Author: Patrick Mulkern

Summary

In a recent unanimous decision, the United States Supreme Court rejected a patentee’s argument that the America Invents Act (“AIA”) narrowed or otherwise affected the “on sale” bar rule governing secret sales, invalidating a patent because the subject matter had been subject to a confidential license agreement years prior to the precipitating application.1

Factual Background

Petitioner Helsinn Healthcare S.A. (“Helsinn”) is a Swiss pharmaceutical company that makes a drug for chemotherapy-induced nausea.2 In September 2000, Helsinn partnered with MGI Pharma, Inc. (“MGI”) to market and distribute the drug in the United States. Their license agreements included specific dosage information and required MGI to keep all Helsinn’s proprietary information confidential, but the fact of the license itself was announced in a joint press release.

In 2003, Helsinn filed a provisional application covering specific doses of its nausea drug.3 In May 2013, Helsinn filed the fourth of four applications that claimed priority to that 2003 date, ultimately issuing as U.S. Patent No. 8,598,219 (“the ‘219 Patent”).

Respondents Teva Pharmaceutical Industries, Ltd. and Teva Pharmaceuticals USA, Inc. (“Teva”) are generic drug manufacturers which sought FDA approval to market a generic version of Helsinn’s drug with the same dosage as that claimed in Helsinn’s ‘219 Patent. Helsinn sued Teva for infringement, but Teva claimedthe ‘219 Patent was invalid because the claimed dosage was “on sale” more than one year before the 2003 provisional application to which the ‘219 patent claimed priority.

The district court determined the “on sale” bar did not apply because, under its interpretation of the AIA, an invention is not “on sale” unless the challenged sale made the invention available to the public.4 The district court reasoned that, because the substance of the Helsinn-MGI license agreement had not disclosed the specific dosage, the sale did not make the invention public.

The Federal Circuit reversed, however, because “the details of the invention need not be publicly disclosed” for a sale to fall within the AIA’s “on sale” bar.5 Instead, it only mattered whether “the existence of the sale is public[.]”  According to the appellate court, here, the fact of the Helsinn-MGI agreement had been publicly announced in a joint press release.

Legal Background

The phrase “on sale bar” refers to the patent statute’s language, which prevents a person from receiving a patent if “the invention was . . . on sale” in the United States “more than one year prior to the date of the [patent] application[.]”6 Similar language has been a part of every patent statute since 1836—including the statute in force immediately before the AIA took effect. Then, in 2012, the AIA merely added the phrase “or otherwise available to the public.” Ultimately, the relevant AIA section read: “A person shall be entitled to a patent unless . . . claimed invention was . . . in public use, on sale, or otherwise available to the public[.]”7

The pre-AIA on sale bar had been held to apply when the product was “the subject of a commercial offer for sale” and was “ready for patenting.”8 The Supreme Court’s precedent had made clear (under the pre-AIA language) that the sale, or offer of sale, need not make the invention itself available to the public. Instead, for example, the Court in Pfaff held the inventor lost his rights without any regard to whether the offer of sale disclosed the details of the invention. Other cases have similarly focused only whether the invention was sold, not whether the details of the invention had been publicly disclosed.9 The Federal Circuit has agreed with these cases, consistently holding that even “secret sales” can invalidate a patent.10

This Decision

The Supreme Court began its analysis with a foundational canon of legislative analysis, presuming that “when Congress reenacted the same [on sale bar] language in the AIA, it adopted the earlier judicial construction of that phrase.”11 Justice Thomas noted how, in arguing as amici, the United States acknowledged that “adding the phrase ‘otherwise available to the public’ . . . would be a fairly oblique way of attempting to overturn that settled body of law.”12 Instead, the Supreme Court held, “[t]he addition of ‘or otherwise available to the public’ is simply not enough of a change for us to conclude that Congress intended to alter the meaning of the reenacted term ‘on sale.’”13 Thus, an inventor’s sale of an invention to a third party—even one who is obligated to keep the invention confidential—can qualify as prior art under § 102(a) of the AIA.14

Impact

While the new language of the AIA may have instilled some uncertainty about the new scope of the on sale bar, this decision answers those questions by clarifying that the on sale bar applies even to sales of an invention to a third party regardless of whether the sale results in the patented information being publicly known. Small companies who may look to license their inventions for testing or (like Helsinn) financial reasons during the development stages are on notice that they must be vigilant in filing their patent applications early. Specifically, in-house counsel should be constantly interfacing between the product development team and product commercialization team to understand the development timeline and what actions are being taken with respect to that product vis à vis any related patent applications.

Although the PTO and AIA’s own sponsor, Rep. Lamar Smith (R-TX), came out in favor of Helsinn’s position—and against the Federal Circuit’s decision as “indefensible”—it is clear that Congress will need to be more explicit if it desires to overturn case law interpreting the on sale bar. Even though the PTO had taken the position that the AIA “does not cover secret sales or offers for sale,” this decision may likely cause an update to the Manual of Patent Examining Procedure.15

About the author: Patrick J. Mulkern is an associate in Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. His practice focuses on intellectual property litigation and transactional matters, with a particular emphasis on patent, trademark, and trade secret litigation. Mr. Mulkern is a registered patent attorney and his biography can be found here.

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1 See Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., Case No. 17-1229, 586 U.S. ___ (Jan. 22, 2019).
2 Id., Slip Op. at 2.
3 Id., Slip Op. at 3.
4 Id., Slip Op. at 4 (citing Helsinn Healthcare S.A. v. Dr. Reddy’s Labs. Ltd., 2016 WL 832089, at *45, *51 (D.N.J. Mar. 3, 2016)).
5 Id. (citing Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., 855 F.3d 1356, 1360 (Fed. Cir. 2017)).
6 Id., Slip Op. at 5-6 (quoting 35 U.S.C. § 102(b) (2006 ed.)).
7 Id., Slip Op. at 6 (quoting 35 U.S.C. § 102(a)(1) (2012 ed.)).
8 See Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998).
9 See, e.g., Elizabeth v. Pavement Co., 97 U.S. 126, 136 (1878) (“It is not a public knowledge of his invention that precludes the inventor from obtaining a patent for it, but a public use or sale of it.”).
10 See, e.g., Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1357 (Fed. Cir. 2001).
11 Helsinn, 586 U.S. at ___, Slip. Op. at 7.
12 Id., Slip Op. at 7-8 (quotations and citations omitted).
13 Id., Slip Op. at 8 (emphasis added).
14 Id., Slip Op. at 9.
15 See Manual of Patent Examining Procedure, § 2152.02(d) (9th Ed., 2018).