The “Ballers” In Your Court: Defending Copyrightable Expression

HBO’s hit series Ballers came under attack in the U.S. District Court for the Central District of California by a copyright infringement claim filed by plaintiffs, the owners of an original copyrighted work entitled Off Season. The court, after a thorough comparison of the two works, determined plaintiffs failed to satisfy the extrinsic test of substantial similarity and dismissed the case with prejudice on July 25, 2016.1

1. The Copyrighted Works at Issue

Beginning in May 2007, plaintiffs began sharing their original motion picture trailer, a shortened trailer, a screenplay, and a treatment of their story, the Off Season, with colleagues in the television industry. These materials consisted of four separate copyrights, which were the subject of plaintiffs’ single copyright infringement claim in this case.2 According to the complaint, the Off Season materials found their way to a group of producers, a production company, Dwayne “The Rock” Johnson, Mark Wahlberg, and his manager, Stephen Levinson. In or around December 2008, Wahlberg, Johnson, and Levinson confirmed their interest in producing Off Season with plaintiffs, but negotiations ended when removing plaintiffs’ names from the credits became a condition of the proposed agreement.3

The Off Season tells the story of Nathaniel Brandon Hall (“NBH”), the owner of a nightclub called “The Off Season,” which caters to professional football’s elite clientele who need anonymity so that they may engage in their vices out of the public eye, including bribing a detective to ignore the prostitution, violence, and drugs that frequent the club.4 True to its name, the story line takes place entirely during professional football’s off season.

Ballers tells the story of Spencer Strasmore (“Strasmore”), a retired NFL linebacker who currently works for Anderson Financial, a finance management company with a newly opened sports division.5 Strasmore is played by lead actor, Dwayne Johnson, who counsels his young football protégés not to fall into the same financial mistakes he made during his career as a professional athlete.6 The general story line of Ballers also takes place entirely during professional football’s off season.7

Plaintiffs alleged that the Ballers television series borrowed heavily from the Off Season materials and that both works have substantial similarities in plot, setting, characters, theme, mood, dialogue, and pace.8 Plaintiffs depicted both works as “follo[wing] an African American football player who is essentially a business man who tries to monetize his friendships with other professional football players and athletes to help grow his business.”9 However, the court would find on defendants’ motion to dismiss that “the only actual alleged similarities between the two works relate to unprotected elements.”10 “[A]lthough there are some generic similarities between Ballers and the Off Season, there are no similarities between the actual objective details of the works.”11

2. Ballers Defeats the Off Season’s Claims Under the Extrinsic Test

To demonstrate copyright infringement, a plaintiff must show “(1) ownership of a valid copyright, and (2) copying of constituent elements of that work that are original.”12 Copying may be established by demonstrating (1) “that the [defendant] had access to plaintiff’s copyrighted work,” and (2) “that the works at issue are substantially similar in their protected elements.”13

Under Ninth Circuit law, courts employ a two-part test to determine if works are substantially similar: an intrinsic test and an extrinsic test.14 The intrinsic test is a subjective comparison of the total concept and feel of the two works, whereas the extrinsic test is an objective comparison of specific expressive elements which seeks to find “articulable similarities between the plot, themes, dialogue, mood, setting, pace, characters, and sequence of events in two works.”15 As was the case here, a court may dismiss a complaint on a 12(b)(6) motion for failing to satisfy the extrinsic test “because a jury may not find substantial similarity without evidence on both the extrinsic and intrinsic tests.”16

Because access was not in dispute and plaintiffs alleged that defendants read or viewed the Off Season materials, the court further applied the inverse ratio rule to plaintiffs’ claims.17 In so doing, the court “require[s] a lower standard of proof of substantial similarity when a high degree of access is shown.”18 Even under this liberal inverse ratio rule, plaintiffs failed to state a claim of copyright infringement because the alleged similarities between the protected elements of the works were not actual similarities that could result in a finding of substantial similarity under the extrinsic test.19

3. No Similarities Found Between the Actual Objective Details of the Works

The court engaged in a detailed analysis of plot, setting, characters, theme, mood, dialogue, pace and other miscellaneous alleged similarities between Ballers and the Off Season and held that the protectable elements of the works are significantly different.20 By filtering out and disregarding non-protectable elements, the inquiry was “whether the protectable elements, standing alone” were substantially similar.21

Plaintiffs argued that when determining whether Ballers is substantially similar to the Off Season, the court must consider the Ballers script and disregard the television series.22 The court rejected this argument because “published works cause injury under copyright law, [therefore] courts consider the final version of a film, rather than unpublished scripts, when determining substantial similarity.”23

Consequently, upon comparison of the Ballers television series and the Off Season materials that were distributed to defendants, the court found only a few actual similarities between the works, all of which were not protectable expression: (1) the stories are set entirely during professional football’s off season; (2) NBH and Strasmore are both well-dressed football players who are sexually promiscuous, drive fancy cars, and have a cocky attitude; and (3) the basic plot premise is a story about football players during the football off season.24 Even NBH and Strasmore’s respective Latina love interests were held to be “stock characters,” not subject to copyright protection because they were not “sufficiently delineated and especially distinctive.”25

4. Takeaways

Procedurally, the result of defendants’ motion to dismiss provides a powerful message for IP litigators: without specific allegations of extrinsic, objective similarities in copyrightable expression between competing works, a claim for copyright infringement is subject to dismissal with prejudice.26 Plaintiffs’ complaint suffered from overarching generalities with respect to articulable similarities. Moreover, the court considered all the specific documents and materials referenced in the complaint, even though they were not attached to it, without converting defendants’ 12(b)(6) motion into a summary judgment motion.27 This resulted in a comprehensive diagnosis of the content comprising the Off Season and Ballers story line in more than one format at an early stage in the proceedings. Even under a liberal inverse ratio standard, plaintiffs’ complaint failed to state a claim because copyright law “protects expression of ideas, not the ideas themselves,” stock scenes and themes “are not protected against copying.”28

Whether on the offense or the defense, the distinct similarities of a copyrighted work should either be alleged with specificity on the one hand, or articulated with sufficient detail to show no substantial similarity on the other.
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1 Everette Silas, et al. v. Home Box Office, Inc., et al., No. CV 15-9732-GW(FFMx), 2016 U.S. Dist. LEXIS 107944, at *57 (C.D. Cal. July 25, 2016).
2 The court noted that although subject of four separate copyrights, it would discuss the Off Season as a whole on defendants’ motion to dismiss. However, the court conducted a separate evaluation of the treatment, screenplay, trailer, and 10 minute trailer in determining that the Off Season is not substantially similar to Ballers. Id. at n. 7.
3 Id. at *7.
4 Id. at *2-4.
5 Id. at *7.
6 Id. at *27-28.
7 Id. at *34-36.
8 Id. at *10, 23-24.
9 Id. at *26.
10 Id. at *23-24.
11 Id. at *26.
12 Feist Publ’ns, Inc. v. Rural Tel. Servs. Co., 499 U.S. 340, 361 (1991).
13 Cavalier v. Random House, Inc., 297 F.3d 815, 822 (9th Cir. 2002).
14 Id. at *22-23 (citing Cavalier, 297 F.3d at 822).
15 Cavalier, 297 F.3d at 822 (citing Kouf v. Walt Disney Pictures & Television, 16 F.3d 1042, 1045 (9th Cir. 1994)).
16 Home Box Office, Inc., 2016 U.S. Dist. LEXIS 107944, at *20-23 (quoting Kouf, 16 F.3d at 1045).
17 Id. at *22-23.
18 Three Boys Music Corp. v. Bolton, 212 F.3d 477, 485 (9th Cir. 2000).
19 Home Box Office, Inc., 2016 U.S. Dist. LEXIS 107944, at *23-24.
20 Id. at *53-54.
21 Cavalier, 297 F.3d at 822 (quotations omitted) (emphasis in original).
22 Home Box Office, Inc., 2016 U.S. Dist. LEXIS 107944, at *14.
23 Id. at *14-15 (citing Meta-Film Assocs., Inc. v. MCA, Inc., 586 F.Supp. 1346, 1360 (C.D. Cal. 1984)).
24 Id. at *35-36, 41, 49
25 Id. *42-44.
26 See, e.g., Gilbert v. New Line Prods., Inc., No. CV 09-02231 RGK, 2009 U.S. Dist. LEXIS 130675, at *21 (C.D. Cal. Nov. 16, 2009) (dismissing plaintiff’s claim with prejudice after determining there was no substantial similarity because “no additional facts would allow [plaintiff] to prevail in her case”).
27 Id. at *13-14 (citing Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).
28 Cavalier, 297 F.3d at 823 (citing Berkic v. Crichton, 761 F.2d 1289, 1293 (9th Cir. 1985)).

New Cancer Immunotherapy Pilot Program at the Patent Office

The United States Patent and Trademark Office (“USPTO”) recently announced the “Cancer Immunotherapy Pilot Program,” (“CIPP”) which will provide FREE accelerated examination for cancer immunotherapy patent applications. i   The goal of the program is to complete examination of an application within 12 months of qualifying for the program. ii

To qualify for the program, the application must be a non-provisional, non-reissue utility application with at least one claim directed to a method of ameliorating, treating, or preventing malignancy in a human subject wherein the steps of the method assist or boost the immune system in eradicating cancerous cells.iii  The claims are limited to twenty claims with no more than three independent claims.  The request must be filed before the issuance of any Office Action (including those with just a restriction requirement) or with a request for continued examination.  The program is slated to end on June 29, 2017; however, it may be extended or added as a permanent program as we have seen happen with other pilot programs.iv

One practical benefit of using this program is the potential increase in patent term extension (“PTE”).v  PTE extends the term of a patent beyond the 20 year limit to compensate patent owners for lost patent term due to pre-market approval requirements before a regulatory agency.vi  PTE only applies to the time from when a patent issues to when regulatory approval is granted.  Thus, the earlier your patent issues, the more potential PTE.

Another practical benefit of using this program is the increased value that an issued patent brings to a potential investor.  Issued patents are a commodity that can be licensed, enforced, traded, or contributed to a patent pool.  Pending patent applications are not.  Having an issued patent within one year as opposed to the standard three to five years may make all the difference in the success of a start-up company.

If you would like more information on the Cancer Immunotherapy Pilot Program or patent term extension, please contact Kathryn Hull or Susan Meyer of the Intellectual Property Practice Group at Gordon Rees Scully Mansukhani.

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[i] See Federal Register notice on 6/29/2016 (https://www.federalregister.gov/articles/2016/06/29/2016-15533/cancer-immunotherapy-pilot-program#page-42328)

[ii] Examination is complete upon the issuance of a final Office Action or Notice of Allowance

[iii] For example, this can include the administration of cells, antibodies, proteins, or nucleic acids that invoke an active (or achieve a passive) immune response to destroy cancerous cells. The Pilot Program also will consider claims drawn to the co-administration of biological adjuvants (e.g., interleukins, cytokines, Bacillus Comette-Guerin, monophosphoryl lipid A, etc.) in combination with conventional therapies for treating cancer such as chemotherapy, radiation, or surgery. Claims to administering any vaccine that works by activating the immune system to prevent or destroy cancer cell growth are included. The Pilot Program also will consider in vivo, ex vivo, and adoptive immunotherapies, including those using autologous and/or heterologous cells or immortalized cell lines.

[iv] Pilot programs that have been extended or made permanent include the After Final Consideration program, the Patent Prosecution Highway program, the Quick Path Information Disclosure Statement program, and the First Action Interview program.

[v] 35 U.S.C. § 156

[vi] Agencies include the Food and Drug Administration and the U.S. Department of Agriculture

Federal Circuit Clarifies “On Sale” for Purposes of 102(b)

On February 11, 2016, the Federal Circuit, sitting en banc, issued a precedential opinion in The Medicines Company v. Hospira, Inc., in which it clarified the meaning of “on sale” for purposes of 102(b). According to the Federal Circuit, to be “on sale,” a product “must be the subject of a commercial sale or offer for sale,” and that “a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.”1

The Dispute

Hospira had submitted two Abbreviated New Drug Applications (“ANDAs”) seeking FDA approval to sell bivalirudin – the generic form of Angiomax – before the expiration of two patents owned by The Medicines Company (“MedCo”).  MedCo sued Hospira, alleging that Hospira’s two ANDA filings infringed its patents. In response, Hospira asserted several grounds of invalidity. In one of these arguments, Hospira argued that the invention had been sold or offered for sale more than one year before MedCo had filed for patent protection.  Hospira contended that the on-sale bar was triggered when MedCo paid Ben Venue Laboratories (“Ben Venue”) to manufacture Angiomax before the critical date.2 Hospira also contended that the on-sale bar was triggered because MedCo offered to sell Angiomax produced according to the patents to its distributor, ICS, before the critical date.3

The District Court Decision

Applying the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court found that the Angiomax Ben Venue had manufactured for MedCo did not trigger the on-sale bar. Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting.4 While the district court concluded that the claimed invention was ready for patenting under the second prong of Pfaff – because MedCo had developed two enabling disclosures prior to the critical date, or, alternatively, reduced the invention to practice before the critical date – the court found that the first prong of Pfaff was not met because the claimed invention was not commercially offered for sale prior to the critical date. The district court agreed with MedCo that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in which “title to the Angiomax always resided with MedCo.”5 Because the Angiomax made by Ben Venue were for “validation purposes,” the court held that they were not made for commercial profit, thereby avoiding the on-sale bar. The court also held that MedCo’s distribution agreement with ICS did not constitute an invalidating sale as the agreement was merely “an agreement for ICS to be the sole U.S. distributor of Angiomax.”6

The Appellate Decision

On appeal, Hospira’s argument concerning the application of the on-sale bar focused on whether the invention was the subject of a commercial offer for sale. Hospira took issue with the district court’s conclusion that no commercial sale or offer for sale had occurred. According to Hospira, “any transaction that provides a commercial benefit to the inventor is enough to trigger the on-sale bar.”7 In agreeing with Hospira, a three-judge panel of the Federal Circuit reversed the district court’s ruling regarding the applicability of the on-sale bar. Although the panel acknowledged that Ben Venue had invoiced the sale as manufacturing services and title to the pharmaceutical batches did not change hands, it disagreed with the district court’s conclusion that Ben Venue’s sale of services did not constitute a commercial sale of the claimed product. According to the panel, “where the evidence clearly demonstrated that the inventor commercially exploited the invention before the critical date, even if the inventor did not transfer title to the commercial embodiment of the invention,” the on-sale bar applies.8

En Banc Rehearing

On rehearing en banc, the Federal Circuit began by tracing the history of the on-sale bar. For many years the Federal Circuit had used a “totality of circumstances” standard in applying the on-sale bar. Under that test “no single finding or conclusion of law [was] a sine qua non” to a holding that the statutory bar arose.9 Rather, courts were to consider all the facts and circumstances surrounding any particular transaction in light of the policies underlying section § 102(b). Although a “definite offer for sale” was required, the Federal Circuit had found that this did not necessarily require commercial activity that rose to the level of a formal “offer” under contract law principles.10 This changed with Pfaff, when the Supreme Court replaced the “totality of the circumstances” test – which the Court noted had been criticized as “unnecessarily vague” – with a two-pronged test: § 102(b) applies when, before the critical date, the claimed invention (1) was the subject of a commercial offer for sale; and (2) was ready for patenting.11 Since Pfaff, the Federal Circuit has applied this two-part test without balancing the various underlying policies according to the totality of the circumstances.

The Federal Circuit has previously stated that “the question of whether an invention was the subject of a commercial sale or offer for sale … [should] be analyzed under the law of contracts as generally understood.12 In doing so, the Federal Circuit has said that a court should focus on those activities that would be understood to be commercial sales and offers for sale “in the commercial community.”13 And, as a general proposition, “we will look to the Uniform Commercial Code (‘UCC’) to define whether . . . a communication or series of communications rises to the level of a commercial offer for sale.”14 After Pfaff, “[t]he transaction at issue must be a ‘sale’ in a commercial law sense,” and that “[a] sale is a contract between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.”15

Applying § 102(b) in light of Pfaff, the Federal Circuit concluded that the transactions at issue between MedCo and Ben Venue did not constitute commercial sales of the patented product. According to the court, “the mere sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a ‘commercial sale’ of the invention.”16 Rather, the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.”17 Further, the Federal Circuit explained that “stockpiling” by the purchaser of manufacturing services is not improper commercialization under § 102(b).18

The Federal Circuit offered three reasons for its conclusion: “(1) only manufacturing services were sold to the inventor – the invention was not; (2) the inventor maintained control of the invention; and (3) ‘stockpiling,’ standing alone, does not trigger the on-sale bar.”19 According to the court, Ben Venue acted as a pair of “laboratory hands” to reduce MedCo’s invention to practice in accordance with its instructions.20 The court noted that Ben Venue’s invoices for the manufacturing service stated, “Charge to manufacture Bivalirudin lot.”21 Moreover, the absence of title transfer further underscored that the sale was only of Ben Venue’s manufacturing services. Because Ben Venue never held title, “it was not free to use or sell the claimed products or to deliver the patented products to anyone other than MedCo, nor did it do so.”22 The Federal Circuit found the absence of title transfer significant “because, in most instances, that fact indicates an absence of commercial marketing of the product by the inventor.”23

Like the absence of title transfer, the Federal Circuit also considered the confidential nature of the transactions a factor weighing against the conclusion that the transactions were commercial in nature. In this case, the Federal Circuit found that the scope and nature of the confidentiality imposed on Ben Venue “supports the view that the sale was not for commercial marketing purposes.”24 Further, the Federal Circuit explained that stockpiling, “when not accompanied by an actual sale or an offer for sale of the invention, [is] mere pre-commercial activity in preparation for future sale.”25 According to the court, “the on-sale bar is triggered by actual commercial marketing of the invention, not by preparation for potential or eventual marketing.”26

In expressly overruling inconsistent language in prior decisions, the Federal Circuit took pains to note that it still does not recognize a blanket “supplier exception” to what would otherwise constitute a commercial sale.27 Although the fact that a transaction is between a supplier and inventor “is an important indicator that the transaction is not a commercial sale, it is not alone determinative.”28 According to the court, “the focus must be on the commercial character of the transaction, not solely on the identity of the participants.”29  In concluding its opinion, the Federal Circuit concisely restated its holding: “a contract manufacturer’s sale to the inventor of manufacturing services where neither title to the embodiments nor the right to market the same passes to the supplier does not constitute an invalidating sale under § 102(b).”30

Analysis

The Federal Circuit’s holding in this case provides important guidance in preserving the right to patent inventions to those whose development efforts involve contract manufacturing. While a wide variety of different industries employ contract manufacturers, they are commonly used by the pharmaceutical industry and especially by virtual and specialty pharmaceutical companies. For such companies, preserving the right to seek patent protection is essential. As a result, the lack of clarity as to how relationships with contract manufacturers should be structured can have devastating effects. But by applying the guidance now provided by the Federal Circuit, contract manufacturers may be used with greater confidence that patent rights will not be lost.

In order to benefit from this guidance, those who rely on the services of contract manufacturers should ensure that their agreements with such manufacturers recite the purchase of manufacturing services – not the goods themselves. Such agreements should also require confidentiality and should make clear that the contract manufacturer neither takes title to the goods it makes nor has the right to freely market such goods. By employing such terms and restrictions, transactions with contract manufacturers should not be viewed as commercial sales that trigger the on-sale bar of § 102(b).

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1 Meds. Co. v. Hospira, Inc., 2016 U.S. App. LEXIS 12667, at *3 (Fed. Cir. 2016).
2 Id. at *10.
3 Id.
4 Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 67-68 (1998).
5 Meds. Co., 2016 U.S. App. LEXIS 12667, at *12.
6 Id. (quoting Meds. Co. v. Hospira, Inc., 2014 U.S. Dist. LEXIS 43126, at *38 (D. Del. 2014).
7 Id. at *14.
8 Id. at *15 (quoting Meds. Co. v. Hospira, Inc., 791 F.3d 1368, 1370-71 (Fed. Cir. 2015).
9 Lacks Indus. v. McKechnie Vehicle Components USA, Inc., 322 F.3d 1335, 1347 (Fed. Cir. 2003).
10 Lacks Indus., 322 F.3d at 1347 (citing RCA Corp. v. Data Gen. Corp., 887 F.2d 1056, 1062 (Fed. Cir. 1989)).
11 Pfaff, 525 U.S. at 67-68.
12 Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1047 (Fed. Cir. 2001).
13 Id.
14 Id.
15 Trading Technologies International, Inc. v. eSpeed, Inc., 595 F.3d 1340, 1361 (Fed. Cir. 2010).
16 Meds. Co., 2016 U.S. App. LEXIS 12667, at *25-26.
17 Id. at *26.
18 Id.
19 Id.
20 Id. at *29.
21 Id. (emphasis in original).
22 Id. at *30.
23 Id. at *32.
24 Id. at *34.
25 Id. at *36.
26 Id.
27 Id. at *43.
28 Id.
29 Id. at *44.
30 Id. at *46-47.

Is the Enfish Case “A New Hope” For Software Patents?

Since the Supreme Court’s Alice¹ decision in 2014, the courts have found many software patents to be invalid as simply being “abstract ideas.” The Patent Office has also been rejecting many new software patent applications as being abstract ideas. Such Patent Office rejections are coming both at the initial examination stage and under various post-grant review systems. Many software patent owners have been feeling rather defeated and frustrated at the odds they have been facing.

A new hope may have arisen. On May 12, 2016, a three-judge Federal Circuit panel offered much needed good news for software patent holders in the case of Enfish LLC v. Microsoft². The issue (as seemingly always for software patents) was whether the claims were patent eligible subject matter under S.101.

The Court held the claims to be patentable subject matter, and this was particularly important since Enfish, the patent applicant, simply claimed a “self-referential” database. There was no physical structure claimed. However, the Court held that this non-physical structure was not simply an abstract idea. The Court in Enfish stated: “[w]e do not read Alice to broadly hold that all improvements in computer-related technology are inherently abstract…”

To date, a common strategy among patent practitioners when writing software patent applications has been to try to claim a physical component of the surrounding computer system or otherwise try to make the claims look as “physical” or as “structural” as possible in an attempt to slip through Alice’s fingers.

Importantly, the Court found that the claims were directed to an improvement to computer functionality versus being directed to an abstract idea. The Court was both influenced by claim language and evidence in the patent’s detailed description that the claimed self-referential table functions differently than a conventional database. The specification described the specific advantages of faster search times, smaller memory requirements and improved flexibility in database configuration. Basically, the Court was convinced that the claimed database structure functioned differently from existing database structures. Moreover, the advantages all related to solving longstanding software problems. Notably, the described advantages were all technical solutions to computer problems.

Therefore, the takeaway from Enfish for patent drafters is that the specification can be as important as the claims. To the greatest degree possible, the specification should explain how the software invention improves the functioning of the overall computer system in which it operates.

The Court also noted that “fundamental economic and business practices are often found to be abstract ideas.” Therefore, it appears to be important to patentablility to not present claims where a general purpose computer is simply being added to a fundamental economic practice or a mathematical equation. The Court had no appetite for these sorts of claims.

Two days later, the Court in TLI Communications LLC v. AV Automotive³ invalidated software claims to a system of organizing digital images. The Enfish case was distinguished with the Court stating that the claims in TLI were not directed to a specific improvement in computer functionality. The Court pointed out that the “specification fails to provide any technical details for the tangible components”. In addition, the Court held that the claims were not directed to a “solution to a technical problem”. Instead, the claims simply described “physical components [that] behave exactly as expected according to their ordinary use.”

On May 19, 2016, the Patent Office issued a Memo4 to its examiners discussing both the Enfish and TLI cases. The Memo stated that the Enfish decision did not change the framework for determining subject matter eligibility, but instead provided “additional clarity” for identifying abstract ideas.

The Memo seemed to raise the bar for discarding software patents as simple abstract ideas. Specifically, it instructed examiners to first identify the abstract idea in the claim and then why it is considered to be abstract. Examiners should also explain their reasoning by reference to previous judicial decisions. The Memo also warned examiners against making sweeping, overbroad statements and requested that they consider the Applicants’ rebuttals.

The Memo urges examiners to look at “the character as a whole” of the claims, as opposed to dissecting the claims. As such, a claim is not doomed simply because it runs on a general-purpose computer. The Memo specifically notes that software can improve computer technology just as much as hardware can. Therefore, an examiner can determine that a claim is not an abstract idea without having to look at additional elements that would confer patentability in the two-part Alice test5. Importantly, the Memo urged examiners to look at the teachings of the specification. It also reminded them that an improvement does not need to be defined by “physical” components. The Memo stated that TLI only referred to “generalized steps to be performed on a computer”, and that is why it was not patentable.

So where does this leave us now?

When writing patent applications, one should focus the claims on the improvements to the computer functionality itself. Both the claims and the specification should preferably be directed to specific improvements to the way computers operate.

Patentable claims are not required to have a physical hardware component. A data structure may be all the “structure” that is required for patentability. That is the good news. However, one should always avoid claims of undue breadth. Also, the writing of the specification was very important in Enfish. A minimalistic specification that merely describes how the claims are enabled, or simply describes what the claims mean is to be avoided. Instead, the specification should be drafted to list advantages of the invention and show how the claimed software structure makes a computer system operate better. The specification is the place to tell a story. Tell a story about the benefits of the invention. Simple claims to business methods performed on computers with the computer operating in an ordinary capacity are still likely to be rejected.

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1 http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf
2 http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1244.Opinion.5-10-2016.1.PDF
3 http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1372.Opinion.5-12-2016.1.PDF
4 http://www.uspto.gov/sites/default/files/documents/ieg-may-2016_enfish_memo.pdf
5 The Alice case which established a two-step test for patent eligibility, being: (1) determine if a patent-ineligible concept (i.e., law of nature, natural phenomena, or abstract idea) is claimed; and if so, (2) determine whether additional claim elements transform the claim into a patent-eligible application.

Notice Requirements for Employers Under The Defense of Trade Secrets Act

Trade secrets have historically been protected by a patchwork of various state statutes. With the passage of the Defense of Trade Secrets Act (DTSA) on May 11, 2016, trade secrets now have uniform protection under federal law by a powerful set of enforcement tools that can be used in federal court nationwide. The DTSA also grants whistleblower immunity to those who disclose trade secrets to the government for the purpose of reporting suspected illegal conduct.

The DTSA imposes an obligation on employers to notify all employees and contractors that they are entitled to whistleblower immunity. This notice must be provided in every contract with an employee or contractor that governs the use of a trade secret or other confidential information. Applicable contracts may include employment applications containing contractual language, employment agreements, restrictive covenants, non-disclosure agreements, compensation agreements, separation agreements, BYOD agreements that contain confidentiality language, and confidentiality stipulations (entered in lieu of protective orders in court).

If an employer fails to provide the required notice, the DTSA precludes awards for exemplary damages or attorney’s fees in any action against an employee to whom notice was not provided. In view of the many eight- and nine-figure verdicts rendered in recent trade secret cases, this penalty can be substantial.

The DTSA does not articulate specifically what must be included in the notice. While more detail is better than less, anything short of a full verbatim recitation of all of the immunity provisions in the DTSA creates the risk that such notice will be challenged as insufficient. Accordingly, the only way for an employer to eliminate this risk entirely is to provide the complete text of the immunity provisions in the DTSA with every contract that governs the use of a trade secret or other confidential information.

In an apparent recognition of the difficulty of including all of the of the immunity provisions within the text of every such contract, the DTSA provides that employers will be considered in compliance with the notice requirement if they simply provide a “cross-reference” in such contracts to something it calls a “policy document.” According to the DTSA, this policy document must: (1) be provided to the employee or contractor (presumably concurrently with the execution of the contract or agreement); and (2) set forth the employer’s whistleblower policy.

While an employer’s option of only referencing a policy document relieves the burden of including lengthy notice provisions in every agreement, it sheds no light on the what must be included in that document. Ideally, a detailed policy document should identify which individuals are protected, what conduct is protected, and should provide instructions on how to report possible violations of law to appropriate authorities. But, as with providing such notice in contracts themselves, anything less than a complete recitation of the immunity provisions of the DTSA carries risk. Thus, the safest course for an employer to take in crafting its policy document would be to include the entirety of the immunity provisions of the DTSA.

Recommendations

There are several things employers can do to ensure compliance with the DTSA notice requirements, and to minimize the risk of losing the ability to recover exemplary damages and attorney’s fees in future trade secret litigation:

  • Review and update all agreements with employees and contractors which reference confidentiality to ensure that appropriate language is included in all of such agreements going forward.
  • Create a DTSA policy document to be given to every employee and contractor with every contract which references confidentiality.
  • Require all suppliers, vendors, and any other contractors whose employees have access to trade secrets or confidential information to provide appropriate notice to their employees.
  • Verify compliance with the DTSA notice requirements by having counsel review all standard contracts and company policy documents to make sure they contain the required language.

The Rise of Federal Trade Secret Protection

It is done. President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), the nation’s first federal trade secret protection act with civil remedies. The DTSA is effective May 12, 2016 for any misappropriation (as defined in the statute) “for any act which occurs on or after the date of the enactment of this Act.”

The DTSA does not preempt states’ trade secret laws; those state laws remain in effect. Accordingly, there is no requirement that a party even allege a DTSA claim when pursuing a trade secret action. Strategic consideration must be given to bringing a DTSA claim and the impact on jurisdiction. A plaintiff that prefers litigating in state court may wish to forego adding a DTSA cause of action to the lawsuit because doing so would create a federal question. If a state court lawsuit alleges a DTSA claim, the defendant may remove the case to federal court.

Remedies under the DTSA include damages for the loss caused by the misappropriation, damages for unjust enrichment, and injunctive relief for any actual or threatened misappropriation. If a plaintiff can establish that the trade secret was “willfully and maliciously appropriated,” the court can award exemplary damages of up to two times the amount of actual damages. For bringing a claim, reasonable attorney’s fees may also be awarded to the prevailing party, as well as to a defendant if the claim of misappropriation is made in bad faith.

Once an afterthought, trade secrets were the last of the four major types of IP—patent, copyright, trademark, and trade secret—recognized by the courts, and the basic elements of the tort of trade secret misappropriation have been recognized since only the late 1800s and early 1900s.¹ However, as we reported here, the number of trade theft continues to rise, and by one metric, doubled between 1995 and 2004. Until now, trade secrets were the only major type of intellectual property not backed by U.S. federal civil remedies to compensate owners for theft.

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¹ Catherine L. Fisk, Working Knowledge: Trade Secrets, Restrictive Covenants in Employment, and the Rise of Corporate Intellectual Property, 1800–1920, 52 HASTINGS L.J. 441, 441 (2000)

A Lasting Impression: Federal Circuit Credits Own Precedent More Than Recent Supreme Court Authority

In Lexmark International, Inc. v. Impression Products, Inc.,1 the Federal Circuit declined to follow the Supreme Court’s recent decisions in Quanta Computer, Inc. v. LG Electronics, Inc.2 and Kirtsaeng v. John Wiley & Sons, Inc.,3 but instead affirmed its long-standing precedent allowing limits on the post-sale use or resale of patented goods and held foreign sales of patented goods do not exhaust the patentee’s rights in the United States.

These questions arose in a dispute between Lexmark, the manufacturer of printers and ink cartridges, and Impression Products, the operator of a refurbished ink cartridge business. Lexmark manufacturers and sells two types of ink cartridges, a full-priced model that includes no use restrictions and a discounted model that limits the consumer’s right to refill and reuse the cartridge. Impression collects the used cartridges—both full-priced and discounted models—and modifies the hardware, allowing them to be reused, then imports and resells them in the United States.

1. Post-Sale Use Limits

In the first portion of its opinion, the Federal Circuit held a patentee’s single-use or no-resale restrictions were permissible limitations on the otherwise presumptive “patent exhaustion” doctrine.4 Specifically, the Court allowed the sales, so long as they were “made under a clearly communicated, otherwise-lawful restriction[.]”5 The Federal Circuit relied heavily on its decision in Mallinckrodt, Inc. v. Medipart, Inc.,6 which paved the way for patentee “single use” restrictions, in part because of the Patent Act’s explicitly grant of a “right to exclude.”7

In reaching its conclusion, the Federal Circuit also declined to follow the Supreme Court’s decision in Quanta.8 The Court noted that Quanta only addressed the sale of patented goods by a manufacturing licensee, not sales by the patentee, “[a]nd the patentee’s authorization to the licensee to make (the first) sales was not subject to any conditions, much less conditions to be embodied in those sales.”9 As such, it did not address a situation where, as here, the sale as made subject to a use restriction. Accordingly, Quanta did not hold an “authorized sale” exhausted patent rights because it, in fact, did not involve any limitations on the buyer’s use. The Quanta decision also implicitly rejected petitioner and amici’s requests that Mallinckrodt be overturned.10

Ultimately, the Federal Circuit rejected the notion that any sale, even when rights are expressly restricted, qualifies as an “authorized sale of a patented item terminat[ing] all patent rights to that item.”11

2. Foreign Sales and U.S. Patent Rights

Next, the Federal Circuit moved to square its decades-old decision in Jazz Photo v. ITC12 with the Supreme Court’s recent decision in Kirtsaeng, and decide if Lexmark’s foreign sales—made without an explicit reservation of U.S. patent rights—granted authorization to import and sell those goods in the United States.13 At the outset, the Court was clear to acknowledge that Jazz Photo held U.S. patent rights are exhausted by a first sale, but only when that initial sale is in the United States.14 Thus, the present situation—where disputed products were sold outside the United States, modified, then imported and sold in the U.S.—was not covered.

The focus then turned to reconciling Kirtsaeng, with the Federal Circuit first noting how patent rights are necessarily different from those granted by copyright.15 The Patent Act, for example, specifically grants a patentee the exclusive right to make, use, sell, or import goods covered by the patent, while no such exclusive right exists the copyright. Therefore, Kirtsaeng was limited because it relied, quite explicitly, on the text of the Copyright Act.16 Although the Copyright Act allows certain actions “without the authority of the copyright owner,” a patent grants its owner broad rights “to exclude.” Accordingly, the Federal Circuit strictly construed the decision, determining “Kirtsaeng is not controlling in this case.”17

Ultimately, patent exhaustion is territorial because “what the statute expressly provides to a U.S. patentee is the reward available from the right to exclude ‘in the United States.’”18 In support of this textual anchor, the Court explained how “American markets differ substantially from markets in many other countries” and, thus, foreign sales of patented goods are inherently different from their domestic counterparts.19 The unauthorized importation of patented articles sold abroad therefore constitutes infringement, because foreign sales do not amount to authority for “the buyer to import the article and sell and use it in the United States.”

3. Implications

Initially, it will behoove all patentees looking to implement post-sale restrictions to use explicit language, but the limitations will only apply to their domestic sales. Next, patentees are urged to keep globalization considerations in mind, but only in so far as foreign customers may be looking to import patented goods purchased abroad. In this regard, other factors may strongly influence the discussion, such as where the first sale actually occurred (i.e. was it domestic or abroad). Finally, caution is warranted for those engaged in foreign transactions because, despite the comprehensive analysis, the Federal Circuit did not address the question of whether U.S. rights may be exhausted by a licensed foreign sale as there was no such licensee before the Court.

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1 Nos. 14-1617, 14-1619, 2016 U.S. App. LEXIS 2452 (Fed. Cir. Feb. 12, 2016)
2 553 U.S. 617 (2008)
3 133 S. Ct. 1351 (2013)
4 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *31-32.
5 Id. at *32.
6 976 F.2d 700 (Fed. Cir. 1992)
7 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *31-40.
8 Id. at *36-40.
9 Id. at *37 (citing Quanta Comp., Inc., 553 U.S. at 636-37) (emphasis in original).
10 Id. at *40.
11 Id. at *41-42.
12 264 F.3d 1094 (Fed. Cir. 2001)
13 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *80-82.
14 Id. at *82-85.
15 Id. at *86-89.
16 Id. at *89 (quoting Kirtsaeng, 133 S. Ct. at 1370) (noting the Supreme Court “stressed that it was determining ‘the best reading of [15 U.S.C.] § 109(a).”) (emphasis in original).
17 Id. at *98.
18 Id. at *98 (quoting 35 U.S.C. §§ 154(a)(1), 271(a)).
19 Id. at *100-03.

Fox’s Empire Secures First-Amendment Win against Trademark Infringement Claims

Last month, in Twentieth Century Fox Television v. Empire Distribution, Inc., 2016 U.S. Dist. LEXIS 13013 (C.D. Cal. Feb. 1, 2016), the United States District Court for the Central District of California ruled that Twentieth Century Fox Television’s use of the word “Empire” in connection with its hit television series of the same name is protected by the First Amendment. In a rebuke of similarly-named Empire Distribution, Inc.’s claim that the Fox series infringed upon and diluted the company’s trademarks, the court found that the show’s title deserved protection as an artistic expression.

Empire, the Fox television series that premiered in 2015, tells the story of Lucious Lyon and his family, all of whom fight for control over Lyon’s music and entertainment company, “Empire Enterprises,” upon learning that the mogul has been diagnosed with a fatal disease. Empire Distribution, meanwhile, is a record label, music distributor and publishing company founded in 2010. Similar to the fictional Empire Enterprises, Empire Distribution is a large producer and distributor of urban, hip hop, rap and R&B music. Empire Distribution also uses the trademark “Empire.”

In response to a cease and desist letter from Empire Distribution claiming it had rights to the Empire name and that the debut of the Empire series caused confusion over the affiliation between Empire Distribution and Fox’s Empire series, Fox filed suit to “protect its intellectual property rights” in the show. Empire Distribution counterclaimed for trademark infringement, trademark dilution, unfair competition and false advertising.

U.S. District Judge Perce Anderson analyzed Empire Distribution’s claims under the two-part test for balancing Lanham Act claims with First Amendment rights first established by the Second Circuit in Rogers v. Grimaldi, 875 F.2d 994 (2nd Cir. 1989) (the “Rogers test”), later adopted by the Ninth Circuit in Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894 (9th Cir. 2002). Under the Rogers test, which is reserved for expressive works, an artistic work’s use of a trademark that would otherwise violate the Lanham Act is not actionable unless the mark has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless it explicitly misleads as to the source or the content of the work.

The first prong of the Rogers test requires showing that the use of a mark has artistic relevance to the underlying work. The court held that the word “Empire” was “clearly relevant to Fox’s work,” as the Empire series “tells the story of characters struggling for literal control over an entertainment company called ‘Empire Enterprises’ and figurative control over the vast ‘empire’ that Lucious Lyon has built. Additionally, the Empire series is set in New York, the Empire State.” Because the word “Empire” had genuine relevance to the Empire series and was not arbitrarily chosen to exploit Empire Distribution’s fame, the court held that the mark satisfied the first Rogers prong.

The second prong of the Rogers test requires a “junior user” – such as Fox – to show that its work does not explicitly mislead as to the source or content of the work. Here, again, the court sided with Fox, stating that it found no evidence of an “explicit indication, overt claim, or explicit misstatement” as to the source of the work. In reaching this determination, the court noted that “consumer confusion” as to the source of the work was irrelevant.

Accordingly, the court granted summary judgment in favor of Fox and ruled that Empire Distribution take nothing by way of its claims. The court’s ruling highlights the importance of First Amendment protections in the United States, particularly as Judge Anderson refused to consider ample evidence of consumer confusion in making his ruling. For example, when Empire Distribution recording artist Shaggy tweeted the record company’s logo, numerous fans immediately mistakenly interpreted it as a reference to the Empire series, retweeting the logo along with the hashtag “#teamcookie” (a reference to a character on the television series). The court’s focus on the behavior of the user, as opposed to the impact of the use, can serve as an important defense in many trademark infringement cases to come.

For Whom the Bell Tolls: The End of Rule 84 (and Form 18 Patent Pleading Standards)

December 1, 2015 marked the end of Rule 84 of the Federal Rules of Civil Procedure and the use of Forms, including various litigation documents, such as summonses, complaints, and answers in civil actions. Rule 84 was enacted in 1937 and simply stated, “The forms contained in the Appendix of Forms are intended to indicate, subject to the provisions of these rules, the simplicity and brevity of statement which the rules contemplate.” Rule 84 was amended in 1946 and 2007 to its current language, “The forms in the Appendix suffice under these rules and illustrate the simplicity and brevity that these rules contemplate.” But all good things must eventually come to an end. On April 29, 2015, the Supreme Court signed an order abrogating Rule 84, effective December 1, 2015.

Rule 84 and its Forms assisted many parties to bring suit under a simplified pleading as exemplified in Form 18. Using Form 18, a patent holder wishing to file a suit for direct patent infringement only needed to identify the infringing party, the infringed patent, the infringing device, and provide statements of jurisdiction and patent notice. Many have argued against the sufficiency of Form 18 based on the standard set out in Bell Atl. Corp. V. Twombly[1] and Ashcroft v. Iqbal.[2] Under Twombly and Iqbal, the Supreme Court held that to “survive a motion to dismiss a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”[3] Further, “a claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[4]

Nevertheless, the sufficiency of Form 18 has been upheld by the Court of Appeals for the Federal Circuit in K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc.[5] and In re Bill of Lading Transmission and Processing System Patent Litigation.[6] Specifically, the Federal Circuit stated in those cases that “a proper use of a form contained in the Appendix of Forms effectively immunizes a claimant from attack regarding the sufficiency of the pleading,”[7] and “to the extent the parties argue that Twombly and its progeny conflict with the Forms create differing pleadings requirements, the Forms control.”[8] This double standard has allowed a patent holder to file a “bare bones” complaint through the use of Form 18 and use discovery to fill in the details. While most “bet the company” litigation probably would not rely on a bare bones infringement complaint, the simplified pleadings benefitted smaller companies or solo inventors who did not have the same resources as larger companies. The abrogation of Rule 84 may make it more difficult and expensive for a small company / solo inventor to bring a suit against an infringer, perhaps even making it impossible.

With the abrogation of Rule 84 and subsequently Form 18, the default patent pleading standard will be the standard set out in Twombly and Iqbal. However, the amount and type of factual matter needed to allow the court to draw the “reasonable inference” or “plausibility” for liability remains unclear. Prior to K-Tech and Bill of Lading, the district courts already varied in their pleading standards.  For example, the District Court for the Central District of California in Medsquire LLC v. Spring Medical Systems Inc., et al.[9] dismissed a Form 18 complaint for failing to recite any facts as to how the accused device infringed the patent. The court stated, “a complaint must contain sufficient factual matter to make its allegations plausible.” Furthermore, the court in Medsquire alluded to a different standard required for pleadings drafted by attorneys as opposed to pleadings drafted by pro se plaintiffs.[10] In contrast, the District Court for the Eastern District of Texas in Traffic Information, LLC v. Yahoo! Inc.[11] held that “Twombly and Iqbal have not affected the adequacy of complying with Form 18.” Yet, even after K-Tech and Bill of Lading, the District Court for the Eastern District of Virginia in Macronix International Co. Ltd. v. Spansion Inc.[12] dismissed a complaint for failing to meet the Twombly and Iqbal standards. The Macronix Court stated:

[B]efore filing a complaint, counsel must ascertain exactly what claims should alleged to be infringed and how they are infringed. That can be done with brevity and clarity if counsel know at the outset their theories of infringement and what can, and cannot, be said about allegedly infringing conduct.  That, in turn, may well, indeed likely will, require expert assistance. And, it will mean taking great care when crafting a succinct, but sufficient, patent complaint. But, that is not asking too much. Indeed, it is high time that counsel in patent cases do all of that work before filing a complaint.[13]

Additionally, the Federal Circuit in K-Tech alluded to a “sliding scale” standard based on the complexity of the case. Specifically, the K-Tech Court stated, “[t]he adequacy of the facts pled depends on the breadth and complexity of both the asserted patent and the accused product or system and on the nature of the defendant’s business activities.”[14] This opens the door for the Courts to implement their own standards. For example, the standard could vary depending on the technology field, claim type (e.g. composition, device, or method), or number of infringed claims. Some Courts could require infringement charts or other detailed analysis of the alleged infringement.

The patent pleading standards under Twombly and Iqbal in the aftermath of Rule 84’s abrogation will undoubtedly take years, if not decades, to develop. Until then, it would be prudent to do a little more homework before filing your patent infringement complaint, especially if you are filing in districts where the heightened pleading standards of Twombly and Iqbal have been applied to patent infringement complaints.


[1] Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
[2] Ashcroft v. Iqbal, 556 U.S. 662 (2009).
[3] Id. at 663.
[4] Id.
[5]K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc., 714 F.3d 1277 (Fed. Cir. 2013).
[6] In re Bill of Lading Transmission and Processing System Patent Litigation, 681 F.3d 1323 (Fed. Cir. 2012).
[7] K-Tech, 714 F.3d at 1283.
[8] In re Bill of Lading, 681 F.3d at 1334.
[9] Medsquire LLC v. Spring Medical Systems Inc., et al., Case No. 2:11-cv-04504-JHN-PLA, Order granting Motion to dismiss, (C.D. Cal. August 31, 2011).
[10] Id. at 5. The Court stated, “McZeal dealt with a narrow circumstance, which is not at issue here: a lawsuit brought by a pro se plaintiff, who the Federal Circuit held to ‘less stringent standards than formal pleadings drafted by lawyers.’”
[11] Traffic Info., LLC v. Yahoo! Inc., Case No. 2:09-CV-246-TJW-CE, Magistrate Judge Report and Recommendation (E.D. Tex. Apr. 13, 2010).
[12] Macronix International Co. Ltd. v. Spansion Inc., 4 F. Supp. 3d 797 (E.D. Va. Mar. 10, 2014).
[13] Id. at 803.
[14] K-Tech, 714 F.3dat 1287.

9th Circuit Reverses Itself: Clear Labeling and Proper Design of a Website May Avoid Initial Interest Confusion

On October 21, 2015, on a granted petition for panel rehearing, an opinion was filed in the case of Multi-Time Machine, Inc. v. Amazon.com, Inc., et al., No. 13-55575, D.C. No. 2:11-cv-09076-DDP-MAN. The panel granted a petition for rehearing, withdrew its prior July 6, 2015 opinion and filed a superseding opinion in an appeal from the lower court’s summary judgment in a trademark infringement action under the Lanham Act against the defendant, Amazon.com (“Amazon”).

On Amazon’s motion for summary judgment, the District Court granted summary judgment in favor of Amazon on the grounds that Multi-Time Machine, Inc. (“Multi-Time”) did not put forth sufficient evidence from which a jury could determine that there was a likelihood of confusion. Multi-Time appealed. The Ninth Circuit reversed the District Court’s grant of summary judgment, holding that Multi-Time presented sufficient evidence for a jury to determine that Amazon’s search function causes a likelihood of confusion under the “initial interest confusion” test.

Military-style watch manufacturer Multi-Time owns the trademark “MTM Special Ops” and does not sell watches on Amazon.com. When Amazon consumers searched for “MTM Special Ops” on Amazon.com, the search results included several of Multi-Time’s  competitors’ watches bearing the competitors’ labels and marks but without an explicit warning that Amazon does not sell Multi-Time watches.

The District Court focused on particular factors in Sleekcraft to reach its conclusion and up on appeal, the Ninth Circuit seemed to as well. The Ninth Circuit determined that Multi-Time’s trademark, “MTM Special Ops,” is suggestive and conceptually strong because it does not merely describe its military-style watches, but is potentially suggestive of them. Additionally, the Court determined that the “similarity of the goods” factor weighs in favor of infringement because Amazon sells military-style watches and even displays them in response to a search for Multi-Time’s trademark. The Court held that a jury could infer that the search results page, coupled with Amazon’s failure to warn the customer that it does not carry Multi-Time products, gives rise to an initial interest confusion. Therefore, because there was sufficient evidence to demonstrate likelihood of confusion, the Court reversed the District Court’s grant of summary judgment and remanded the case for a jury trial.

On rehearing, the panel of the Ninth Circuit reversed itself and held that the District Court was correct in ruling that there is no likelihood of confusion, but did so for different reasons. In so holding, the Ninth Circuit seemed to dispense with the Sleekcraft factors or a vast majority of the Sleekcraft factors, stating that it “is not particularly apt,” because it was developed for a different problem, “i.e., for analyzing whether two competing brands’ marks are sufficiently similar to cause consumer confusion.”

Here, Multi-Time argued that the design of Amazon’s search results page created a likelihood of initial interest confusion; that is, the issue focuses on a different type of confusion, not caused by a competitor’s mark, but by the design of a webpage that is displaying the competing marks and offering the competing products for sale. Setting aside the multifactor confusion test, the Ninth Circuit focused on the conduct of Amazon.com, as a non-competitor, clear labeling, and the arrangement and design of its webpage stating “the confusion is not caused by the design of the competitor’s mark, but by the design of the webpage that is displaying the competing mark and offering the competing products for sale.”

The panel went on to indicate that this “case can be resolved simply by an evaluation of the webpage at issue and the relevant consumer,” that is “(1) who is the relevant reasonable consumer?; and (2) what would he reasonably believe based on what he saw on the screen?”

First, the Ninth Circuit found that the goods in this case are expensive and that the relevant consumer is a reasonably prudent consumer accustomed to shopping online. In turning to the second question, the panel focused on labeling, stating that “clear labeling can eliminate the likelihood of initial interest confusion in cases involving Internet search terms,” however, instead of focusing on labeling that Amazon did not sell Multi-Time products in the prior appeal, the panel focused on the products themselves and whether they were clearly labeled.

Here, the panel stated, “the products at issue are clearly labeled by Amazon to avoid any likelihood of initial interest confusion by a reasonably prudent consumer accustomed to online shopping.” The Court further stated that products are labeled in bright, bold letters and includes a photograph of the item. Multi-Time argued that the use of “MTM special ops” three times within the page (produced as a result of the customer’s search term) could confuse customers, but the panel found that it would be unlikely, stating, “none of the watches produced are labeled with “MTM” or the phrase, “Special Ops.” Thus, the Court reasoned, the undisputed facts show that it is highly unlikely that a reasonably prudent consumer accustomed to shopping online would be confused as to the source of the goods offered for sale on Amazon’s web page.