Second COVID Relief Bill Brings Relief to Trademark Plaintiffs, Expressly Restoring Presumption of Irreparable Harm to Trademark Cases

Author: Patrick Mulkern

On December 27, 2020, the President signed the Consolidated Appropriations Act for 2021. Although this legislation garnered considerable attention for its COVID-related relief provisions, it also incorporated the Trademark Modernization Act of 2020 (“TMA”)—first introduced back in March of 2020 as H.R. 6196. The TMA makes several sweeping changes to the trademark examination process, including new methods to address the growing number of registrations covering marks not actually used in commerce; protects the administrative law judges of the Trademark Trial and Appeal Board against certain challenges; and reinstates the presumption of irreparable harm (for those Circuits that had rejected it in recent years). On the whole, commentators speculate the changes brought about by the TMA may turn out to be some of the most consequential changes in the last thirty years.

Part I – Restoration of Presumption of Irreparable Harm

First, and foremost, the TMA expressly restores the presumption of irreparable harm that trademark infringement plaintiffs used to enjoy prior to the Supreme Court’s decision in eBay v. MercExchange, LLC, 547 U.S. 388 (2006). Specifically, the TMA amends the Lanham Act to state a “plaintiff seeking an injunction shall be entitled to a rebuttable presumption of irreparable harm” upon a finding of a violation or likelihood of success. See H.R. 6196 § 6 (amending 15 U.S.C. § 1116) (emphasis added). This change directly addresses a circuit split in how some trademark plaintiffs were treated when seeking injunctive relief—codifying what some Circuits (i.e., Fifth and Eighth) already applied in trademark litigation, and rejecting what other Circuits (i.e., Third, Ninth, and Eleventh Circuits) had been doing post-eBay. Prior to the TMA, a trademark owner’s change of success in obtaining injunctive relief was therefore entirely dependent on the geographic location of its case—clearly encouraging forum shopping. Now, such inconsistencies should be resolved.

Two questions remain, however, with respect to the presumption. One, while the other sections of the TMA expressly state when they are to become effective (see infra), the irreparable harm portion of the TMA contains no such express language. Instead, Section 6(b) of the TMA simply states that this amendment “shall not be construed to mean that a plaintiff seeking an injunction was not entitled to a presumption of irreparable harm before the date of the enactment of this Act.” While not a paragon of clarity, this language appears to invoke arcane and technical rules regarding “enactment” more fit for Schoolhouse Rock1—all of which suggest the presumption was restored the moment the President signed the bill into law.2 It is possible this language may result in a deluge of motions for reconsideration similar to those seen in the patent context following the Supreme Court’s ruling on venue in T.C. Heartland LLC v. Kraft Foods Grp. Brand LLC, 137 S.Ct. 1514 (2017).

Two, there is uncertainty with respect to whether the “restored” presumption shifts the burden of persuasion or merely the burden of production. It would appear that the presumption that existed prior to eBay was merely one of production—with courts requiring the movant satisfy its burden of persuasion in establishing irreparable harm.3 The default, as provided for by the Federal Rules of Evidence, further supports such an interpretation—with Fed. R. Evid. 301 explaining that any presumption is one “of producing evidence to rebut the presumption” and “does not shift the burden of persuasion.” Ultimately, notwithstanding the presumption, a defendant could potentially put the onus back on plaintiff where the defendant is able to present prima facie evidence regarding the lack of irreparable harm.

Part II – Changes to TM Examination and Post-Registration Review Processes

Next, the TMA provides changes to both inter partes trademark examination procedures and ex parte challenges to existing registrations.

1. Codification of Letters of Protest Procedures

Section 3 of the TMA expressly permits submission of third party evidence, formalizing the previous “Letters of Protest” process. The new formalities now require the submission include a description/identification of the relevant ground for refusal and requires the PTO to act on any such submissions within two months. The amendments also permit the PTO to charge a fee for submitting such evidence.

2. Allowing Shortened Time to Respond to Office Actions

Section 4 of the TMA amends the previously ubiquitous six month deadline for responses to office actions, and grants the PTO authority to prepare and promulgate regulations which will govern how and what the new/different response periods will be. The new response deadlines will range from two to six months, and the TMA also allows for extensions of time under those same forthcoming regulations.

3. Ex Parte Challenges to Subsisting Registrations

Section 5 of the TMA creates two new avenues for cancelling registrations, both of which serve as ex parte alternatives to traditional cancellation proceedings—all meant to address the growing concern of an overcrowded registration. The first, creating a new Section 16A entitled “Ex Parte Expungement,” allows for the expungement of registrations that have never been used in commerce. Challenges under this new section can be filed during the first 3 years of a registration’s existence. The second, creating a new Section 16B entitled “Ex Parte Reexamination,” allows for a challenge to registrations that were not in use (a) as of the date of first claimed use, or (b) when the application was filed. Challenges under this new section can be filed during the first 5 years of a registration’s existence. As above, the PTO Director was also authorized to develop and promulgate enacting regulations.

Unlike the changes identified above in Section 6 (restoring the presumption of irreparable harm), the changes enacted in Sections 3, 4, and 5 are all set to take effect in one year. This will provide the PTO time to ramp up the administrative infrastructure needed to implement these changes.

Part III – Confirming Independence of TTAB ALJs

Finally, Section 8 of the TMA provides express statements regarding the scope of the PTO Director’s authority with respect to the administrative law judges (ALJs) of the Trademark Trial and Appeal Board (TTAB). Specifically, it amends the Lanham Act to entrust the Director with “the authority to reconsider, and modify or set aside, a decision of the Trademark Trial and Appeal Board.” The changes, of course, do not require the Director to reconsider, modify, or set aside any particular TTAB decisions—it simply provides the Director authority to do so. These changes come in response to recent challenges in which litigants have attempted to argue that the TTAB’s ALJs are unconstitutional “Officers of the United States” (as they are not confirmed by the Senate) because of a perceived lack of control by the PTO Director.4

Conclusion

While the restoration of the presumption of irreparable harm may capture the most attention, and despite providing harmony to the circuits in resolving a long-standing split, it is unclear whether such a change will result in much change in practice. Its most lasting effect may simply be one of procedure—reducing the amount of forum shopping. For trademark prosecutors, the changes to examination procedures are much more likely to have real world, day-to-day impact—with suddenly differing deadlines (no longer uniform 6 month responses), formalized requirements for Letters of Protest submissions, and new methods of seeking cancellation of unused registrations.

About the author: Patrick J. Mulkern is senior counsel and a member of 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 Lander and Berkowitz, P.C. v. Transfirst Heatlh Servs., Inc., Case No. 05-cv-527 (E.D. Mo.), Dkt. 21 at n.1 (holding the date of a law’s “enactment” was “the day when it was signed into law by the President” and observing: “Although it is certainly not binding precedent, the parties may recall a popular episode of the television series Schoolhouse Rock” titled I’m Just a Bill. In that episode, Bill sang, “I’m just a bill/Yes, I’m only a bill/And if they vote for me on Capitol Hill/Well, then I’m off to the White House/Where I’ll wait in a line/With a lot of other bills/For the president to sign/And if he signs me, then I’ll be a law/How I hope and pray that he will/But today I am still just a bill.”).
2 See, e.g., Gozlon-Peretz v. United States, 498 U.S. 395, 404 (1991) (“It is well established that, absent a clear direction by Congress to the contrary, a law takes effect on the date of its enactment.”); Garnder v. Collector of Customs, 73 U.S. 499, 406 (1867) (“The simple signing of his name at the appropriate place is the one act which the Constitution requires of [the President] as the evidence of his approval, and upon his performance of this act the bill becomes a law.”).
3 See, e.g., Peter Letterese & Assoc., Inc. v. World Inst. of Scientology Enterps., Inc., Case No. 04-cv-1178, 2005 WL 8167094, at *1 (S.D. Fla. May 27, 2005) (finding plaintiff failed to establish irreparable harm despite presumption).
4 See Schiedmayer Celesta GmbH v. Piano Factory Grp., Case No. 2020-1196 (Fed. Cir. No. 8, 2019); Coca-Cola Co. v. Somohano-Soler, Case No. 2020-1245 (Fed. Cir. Nov. 27, 2019).

SCOTUS: Willfulness Not Required for Trademark Infringement Plaintiff to Recover Defendant’s Profits

Author: Patrick Mulkern

On April 23, 2020, the Supreme Court resolved a long-standing circuit split regarding whether a trademark infringement plaintiff must show willfulness as a prerequisite to recovery of the defendant’s profits. In Romag Fasteners, Inc. v. Fossil, Inc., Case No. 18-1233 (Apr. 23, 2020),1 a near-unanimous Court2 lowered the bar for half the country, announcing: no, a trademark holder need not show willfulness before it can recover the accused infringer’s profits.

Summary of Underlying Dispute

Petitioner Romag Fasteners, Inc. (“Romag”) sells magnetic snap fasteners for use with leather goods, while Respondent Fossil, Inc. (“Fossil”) sells fashion accessories. The parties entered an agreement under which Fossil would use Romag’s fasteners in Fossil’s handbags. Eventually, Romag learned that Fossil’s manufacturer was using counterfeit fasteners instead of authentic Romag products.

At trial, the jury agreed with Romag, finding that Fossil had infringed and acted “in callous disregard” of Romag’s rights—but ultimately rejected the contention that Fossil had acted “willfully” as that term had been defined by the judge. Therefore, pursuant to then-applicable Second Circuit precedent under which a trademark plaintiff must first prove the infringement was willful, Romag could not recover Fossil’s profits. A well-defined split among the circuit courts on this issue led to the Supreme Court’s grant of certiorari.

Court’s Decision

The Court’s decision can be broken down into three sections: a statutory interpretation portion, a historical analysis portion, and a policy argument portion.

The statutory interpretation segment began with the language of the Lanham Act, noting the only limitation on recovery under Section 1117(a) (including “defendant’s profits”) was “subject to the principles of equity.” The Court explained why this limitation was significant, as the Lanham Act does explicitly require willfulness as a precondition for profits under Section 1125(c) (governing dilution)—but Romag had proceeded under Section 1125(a) (relating to false or misleading use of trademarks). The Court identified a slew of instances in which the Lanham Act clearly required specific mental states,3 and concluded that “this court [does not] usually read into statutes words that aren’t there. It’s a temptation we are doubly careful to avoid when Congress has (as here) included the term in question elsewhere in the very same statutory provision.”

The Court then reviewed Fossil’s argument that “principles of equity” provided a historical basis for requiring willfulness—an argument that the Court characterized as a “curious suggestion.” Citing first to Black’s Law Dictionary, then treatises from the 1800s, as well as several of the Supreme Court’s own decisions, the Court held “principles of equity” is a “trans-substantive” concept and does not relate or call to mind any trademark-specific requirements. Even if the Court were to assume the Lanham Act sought to incorporate common law principles, it was “far from clear whether trademark law historically required a showing of willfulness before allowing a profits remedy.” On this point, the Court acknowledged competing authority—with Fossil’s cases seeming requiring willfulness, and the fact that “Romag cites other cases that expressly rejected any such rule”—and then reiterated “the ordinary, trans-substantive principle that a defendant’s mental state is relevant to assigning an appropriate remedy.”

Finally, the Court’s decision concluded by identifying the parties’ competing policy arguments, then punted, stating, “the place for reconciling competing and incommensurable policy goals like these is before policymakers” (i.e., Congress).

Concurring Opinions

Justices Alito, Breyer, and Kagan wrote one of two concurrences, in which they simply reiterated the point that “willfulness is a highly important consideration in awarding profits under § 1117(a), but not an absolute precondition.” Justice Sotomayor wrote the other concurrence, in which she rejected the majority’s suggestion that profits would (or should) ever be awarded for innocent infringement, but agreed in the ultimately judgment. In so finding, she wrote to explicitly disagree with any interpretation of the Lanham Act in which profits could be awarded “for innocent or good-faith trademark infringement[.]”

Impact

This decision lowers the bar for nearly half the country, as the First, Second, Eighth, Ninth, Tenth, and D.C. Circuits had previously used willfulness as a threshold requirement in trademark infringement claims seeking defendants’ profits. Now, it is likely that defendant’s profits analysis will track that which has been used in the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits, where willfulness was 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) (stating that “willful infringement” is “an important factor”).

Ultimately, the following passage from the Court’s opinion (together with the language found in both concurring opinions) will likely serve as support for those circuit courts that wish to make willfulness a key factor in their analysis going forward:

[I]t is a principle long reflected in equity practice where district courts have often considered a defendant’s mental state, among other factors, when exercising their discretion in choosing a fitting remedy. . . . Given these traditional principles, we do not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate. But acknowledging that much is a far cry from insisting on the inflexible precondition to recovery Fossil advances.

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 https://www.supremecourt.gov/opinions/19pdf/18-1233_5he6.pdf.
2 Justice Gorsuch delivered the opinion of the court, with which all but one justice joined. Justice Sotomayor concurred in the judgment only.
3 See, e.g., § 1117(b) (requiring treble damages and attorney’s fees when certain conduct is intentional); § 1117(c) (increasing cap on statutory damages for certain willful violations); § 1118 (permitting courts to destroy infringing items for any violation of section 1125(a) or any willful violation of section 1125(c)); § 1114 (providing certain innocent infringers subject only to injunction); § 1125(d)(1)(A)(i) (prohibiting certain conduct only if undertaken with “bad faith intent”).

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.

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).

Protecting “The Thought That We Hate”

Author: Patrick Mulkern

The Supreme Court’s recent decision in Matal v. Tam, 582 U.S. ___ (2017) changes the trademark landscape by striking down the Lanham Act’s “disparagement clause” and rejecting the notion that trademarks are themselves “government speech.”

The Slants and Re-Appropriation of Derogatory Terms

The case stems from a trademark application filed by Simon Tam, the lead singer of the rock band “The Slants.” Although “slants” is often viewed as a derogatory term for persons of Asian descent, and despite suffering years of bullying growing up, Tam and his fellow band members (all of whom are Asian-American) sought to “reclaim” the term and turn the previously-negative stereotype into a point of pride.

Trademark registration is not required for a person or entity to use a word or phrase in commerce, but the protections afforded by the registration are often crucial in helping avoid or prevent consumer confusion regarding source or affiliation. See Matal, 582 U.S. at ___ (quoting Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 198 (1985)) (“The Lanham Act provides national protection of trademarks in order to secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers.”).

Here, The Slants ran into that exact problem when other bands started to use the same name. So, in 2010, Tam and the band sought to trademark the name but their application was rejected. The U.S. Patent and Trademark Office (“PTO”) denied the application on the basis that the registration would violate the Lanham Act’s “disparagement clause”—specifically, a concern that the trademark may “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead.” See 15 U.S.C. § 1052(a).

Tam appealed at the PTO, but was denied.  He then took his case to federal court, where the en banc Court of Appeals for the Federal Circuit held the disparagement clause to be unconstitutional as an impermissible violation of the First Amendment.  See In re Tam, 808 F.3d 1321 (Fed. Cir. 2015) (en banc).  The Supreme Court affirmed.

Supreme Court Decision

The Supreme Court began by rejecting Tam’s argument that the disparagement clause did not even actually apply to his application because it allegedly only concerned “persons” (that is, individuals and juristic entities) and not racial or ethnic groups. With the scope of the clause decided, the Court then addressed the Government’s claims that (a) trademarks are government speech, and not private speech; (b) trademarks are a government subsidy; and (c) the disparagement clause should be evaluated under a new “government-program” doctrine.

The distinction between “government” speech and “private” speech was the crux of the Government’s case because Supreme Court precedent clearly established that “[t]he Free Speech Clause . . . does not regulate government speech.” Matal, 582 U.S. at ___ (quoting Pleasant Grove City v. Summum, 555 U.S. 460, 467 (2009)). With that broad exception, the Court noted how the doctrine “is susceptible to danger misuse” and for that reason “must exercise great caution before extending” the scope of government speech.

To that end, the Court reasoned trademarks are not “government speech”—despite being registered by the PTO, an arm of the Federal Government—because the government “does not dream up” the content of the marks, “does not edit” the marks, and (normally) will not reject a registration based on the viewpoint it expresses. Additionally, registration “does not constitute approval” of a mark and “it is unlikely that more than a tiny fraction of the public” knows what trademark registration even means. For these reasons, the Court determined, “it is far-fetched to suggest that the content of a registered mark is government speech.”1

The remainder of the opinion resulted in limited precedent as the Court was split 4-4 in approving differing rationales for the ultimate outcome.2 Justices Alito, Roberts, Thomas, and Breyer rejected the Government’s “subsidy” argument, namely because the PTO is not providing cash or its equivalent to trademark applicants—“quite the contrary[,] an applicant for registration must pay the PTO[.]” These Justices also declined the Government’s invitation to apply a newly suggested “government-program” doctrine to save the disparagement clause, by simply merging the “government speech” line of cases with the “government subsidy” line of cases, because the rights conferred by a trademark registration were not valuable enough to warrant protection.

In any event, Justices Alito, Roberts, Thomas, and Breyer determined viewpoint discrimination has always been forbidden when the government creates a limited public forum for private speech (which trademarks were determined to be, earlier in the opinion). The Justices reminded how “[the Supreme Court has] said time and again that ‘the public expression of ideas may not be prohibited merely because the ideas are themselves offensive to some of their hearers.’” Matal, 582 U.S. at ___ (quoting Street v. New York, 394 U.S. 576, 592 (1969)). Justices Kennedy, Ginsburg, Sotomayor, and Kagan expanded on the application of viewpoint discrimination to trademarks and agreed that the First Amendment’s prohibition of such discrimination was fatal to the disparagement clause.

Finally, Justices Alito, Roberts, Thomas, and Breyer declined to determine whether trademarks are “commercial speech”—thus making the disparagement clause subject to the relaxed scrutiny of Central Hudson—because the disparagement clause could not withstand even that lower standard of review. The clause, these Justices determined, serves no “substantial interest” and is not “narrowly drawn.” Most specifically, the argument that the Government has an interest in preventing offensive speech is completely unavailing because “the broadest boast of our free speech jurisprudence is that we protect the freedom to express ‘the thought that we hate.’” Matal, 582 U.S. at ___ (quoting United States v. Schwimmer, 279 U.S. 644, 655 (1929) (Holmes, J., dissenting)).3

Impact

This decision will likely have wide-reaching impact as individuals (i) attempt to follow in The Slants’ footsteps of reclaiming once-derogatory terms, or, conversely, (ii) attempt to capitalize on the ability to sequester certain offensive words and phrases for commercial gain through trademark registration. The effects of the disparagement clause’s demise cannot accurately be forecasted to affect any one industry and, instead, will most likely impact all commercial streams.

A notable circumstance the decision is sure to impact is the current fight between the Washington, DC NFL team (the “Washington Redskins”) and the PTO, over the “Redskins” moniker. See Pro-Football, Inc. v. Blackhorse et al., Case No. 15-1874 (4th Cir. 2015). Six of the team’s trademarks had been cancelled by the PTO after several Native Americans petitioned that they disparaged Native Americans and had been registered in violation of the Lanham Act’s disparagement clause. Given the Matal v. Tam decision and its attendant striking down of the disparagement clause, however, it is likely the Court of Appeals for the Fourth Circuit will side with the team and reinstate the trademark registrations.

In coming to that conclusion, one must question the import of how Simon Tam chose “The Slants” in an effort to “reclaim” the term whereas the NFL team can make no such claim to its selection of “Redskins.” Given the protections afforded by the First Amendment—and the prohibition on viewpoint discrimination—such a calculus is also likely obsolete.

A copy of the Court’s slip opinion can be found here.

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1 The Court made quick work to distinguish the Government’s central case, Walker v. Texas Div., Sons of Confederate Veterans, Inc., 576 U.S. __ (2015). Walker, which held Texas’ specialty license plates were government speech, was different for three reasons: (i) license plates have long been used to convey state messages; (ii) license plates are often closely identified with the State, since they are manufactured and owned by the State, designed by the state, and serve as a form of government ID; and (iii) Texas maintained direct control over the messages conveyed on its specialty plates. None of those factors are present in trademark registration.
2 Justice Neil Gorsuch was not on the Court when oral argument was heard and took no part in the consideration or decision of the case.
3 Justices Kennedy, Ginsburg, Sotomayor, and Kagan took the position that, regardless of how the private-commercial speech issue is resolved, the evident viewpoint discrimination of the disparagement clause warrants heightened scrutiny—scrutiny it cannot survive.  These Justices did go on to discuss how trademarks likely are not government speech, however, and provided examples of how trademark registration was different from other “government speech” cases. See Matal, 582 U.S. at ___ (citing Legal Services Corp. v. Valazquez, 531 U.S. 533, 540-42 (2001)) (noting viewpoint discrimination exception “where the government itself is speaking or recruiting others to communicate a message on its behalf).

National Marks: Who Owns the Trademarks to America’s Famous Landmarks

National Park Concessionaires

In September 2015, a seemingly innocuous contract dispute was filed in the United States Court of Federal Claims (“CFC”) that could lead to the United States losing the trademark rights to some of its most popular national attractions.1 Though the suit is ostensibly based on failed contract negotiations between private national park concessionaire DNC Parks & Resorts at Yosemite, Inc. (“Delaware North”) and the United States Department of Interior (“National Park Service”), the damages claimed by Delaware North directly implicate whether a private entity should—or even can—own trademark protection for national landmarks like The Ahwahnee Hotel and even Yosemite National Park itself.

The National Park Service regularly administers guest services operations within its national parks through private companies, awarding “concession contracts” to these various entities. Delaware North was selected as Yosemite National Park’s official concessionaire in 1993, and came to operate over 1,500 hotel rooms, 25 food and beverage stands, and nearly 20 retail establishments.2 During its tenure, Delaware North also registered several trademarks for places traditionally associated with Yosemite National Park, including THE AWAHNEE, CURRY VILLAGE, WAWONA, BADGER PASS, and YOSEMITE NATIONAL PARK.3

As part of the concession contract renewal process, the National Park Service agreed that any successor concessionaire would be required to pay Delaware North “fair value” for its Yosemite-related property. In the dispute, Delaware North argues this should include at least $44 million in compensation for the Yosemite trademarks. The National Park Service, however, contends the trademarks are likely invalid and, thus, “fair value” is more accurately estimated at $3.5 million. In fact, in response to this lawsuit, the National Park Service filed a Consolidated Petition for Cancellation before the United States Patent and Trademark Office’s Trademark Trial and Appeal Board (“TTAB”) in an attempt to cancel Delaware North’s various Yosemite-related trademarks.4 That TTAB proceeding was suspended, however, because of the action already pending at the CFC. Accordingly, the court will likely be forced to wrestle with whether Delaware North’s trademarks are valid as the civil action seeks to determine if Delaware North was properly compensated though the parties vehemently dispute the value of the relevant intellectual property.

Of note, another concessionaire giant, Xanterra, filed a series of similar trademark applications in October and November 2014, for landmarks related to Grand Canyon National Park—EL TOVAR, HERMITS REST, LOOKOUT STUDIO, BRIGHT ANGEL LODGE, and PHANTOM RANCH.5 These applications came during a similar contract dispute with the National Park Service, though each was expressly abandoned in March 2015 after Xanterra was awarded a temporary, one-year contract.

Arguments for Cancellation

As part of the cancellation analysis, it is important to remember a trademark is entitled to protection only where it is functions as “a source identifier.”6 Through this lens, the U.S. Government argues that Delaware North’s trademarks should be cancelled because they falsely suggest a connection to the National Park Service. Delaware North counters that some of these marks have been in use by Yosemite’s concessionaires for nearly 100 years, with The Ahwahnee Hotel, for example, having been established by Delaware North’s predecessor in 1927. The PTO Examiner agreed with the National Park Service, initially, denying Delaware North’s original application for YOSEMITE NATIONAL PARK because of its false suggestion of a connection and descriptiveness.7 That office action was traversed, however, when Delaware North submitted a heavily redacted version of its 1993 concessionaire contract, allegedly establishing the necessary connection, and a declaration of acquired distinctiveness.

Legislative Efforts

In response to this high profile case, legislatures have taken to banning the registration of trademarks related to popular outdoor destinations. At the federal level, for example, Congress recently enacted a statute intended to prevent similar disputes.8 54 U.S.C. § 302106 prevents the trademark registration of a name historically associated with “buildings and structures on or eligible for inclusion on the National Register (either individually or as part of a historic district), or designated as an individual landmark or as a contributing building in a historic district by a unit of State or local government.” This language would have precluded almost all of Delaware North’s registrations and may prohibit any future attempt to register Xanterra’s presently-abandoned applications.

At the state level, California (home to the most national parks) recently adopted a similar bill that prohibits state park concessionaires from registering or obtaining any ownership interests in “the name or names associated with a state park venue.”9

Overall, these statutory proscriptions appear to embody the notion that parks—national, state, and regional—are held in the public trust, for all people, and thus, their associated property (including trademarks) should be part of that trust, too.10

Moving Forward

The future of this dispute is unclear. In its Opposition to suspend the TTAB proceeding, the National Park Service argues that Delaware North’s CFC complaint intentionally avoids mentioning issues of trademark validity or infringement, though such issues are arguably implicated by Delaware North’s claim for damages. Thus, the Government contends, these issues may not even be addressed.

The National Park Service has also argued the CFC is an inappropriate venue for the trademark dispute because it does not have jurisdiction to either (a) hear Lanham Act claims, or (b) cancel trademark registrations.11 The National Park Service specifically noted cases in which the CFC, itself, proclaimed “we have no jurisdiction over claims for trademark infringement”12 and “this court does not have jurisdiction over plaintiff’s claim for [trademark] cancellation.”13 Delaware North responded to these claims by asserting the CFC has jurisdiction by virtue of its “authority to decide incidental legal issues that arise in the course of deciding a claim within its Tucker Act jurisdiction, even if those issues would be outside the Court’s jurisdiction if asserted as standalone claims.”14 Thus, the issues of trademark validity and infringement may or may not be appropriately raised before the CFC.

Alternatively, the parties may simply come to a settlement, similar to that seen in the National Park Service’s dispute with Xanterra, though the Yosemite contract-at-issue has already been awarded to a different concessionaire. We await further developments.
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1 See DNC Parks & Resorts at Yosemite, Inc. v. United States of America, No. 1:15-cv-01034-PEC (Fed. Cl. 2015).
2 Another popular concessionaire, Xanterra Parks & Resorts, controls operations at Crater Lake National Park, Death Valley National Park, Glacier National Park, Grand Canyon National Park, Rocky Mountain National Park, Yellowstone National Park, and Zion National Park.
3 See U.S. Trademark Reg. Nos. 2772512, 2685968, 2739708, 2720778, and 2715307.
4 United States Dept. of Interior v. DNC Parks & Resorts at Yosemite, Inc., Cancellation No. 92063225 (T.T.A.B. 2016).
5 See U.S. Trademark App. Serial Nos. 86446998, 86444313, 86444295, 86434643, and 86444229.
6 Boston Duck Tours, LP v. Super Duck Tours, LLC, 531 F.3d 1, 12 (1st Cir. 2008) (citing Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 769 (1992)).
7 See DNC Parks & Resorts at Yosemite, Inc., Cancellation No. 92063225, at 1 TTABVUE 12-15.
8 See 54 U.S.C. § 302106 (2016).
9 AB 2249, 2015-2016 Leg. (Cal. 2015).
10 See AB 2249 §§ 2(a), (f).
11 See DNC Parks & Resorts at Yosemite, Inc., Cancellation No. 92063225, at 9 TTABVUE 9-11.
12 Id. at 10 (quoting Lockridge v. United States, 218 Ct. Cl. 687, 690 (1978)).
13 Id. at 10-11 (quoting Boyle v. United States, 44 Fed. Cl. 60, 65 (1999)).
14 DNC Parks & Resorts at Yosemite, Inc., Cancellation No. 92063225, at 15 TTABVUE 10.

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.