Copyright Case Teaches How to Deal with Trolls

A recent decision dealt with a “copyright troll,” an attorney that had filed over 500 copyright cases in the Southern District of New York alone.  Pereira v. 3072541 Canada Inc.  Although the case denied attorney’s fees to the defendant, the history of the case recites several procedural steps that defense counsel used to thwart the plaintiff, who had sought a substantial settlement ($25,000) largely on the procedural burden of litigating the case.

The case teaches valuable lessons in how to effectively deal with a troll

Court Opinion Doubling $130 Million Jury Verdict Provides a Roadmap for What Not to Do When Accused of Patent Infringement

A recent decision in a patent infringement case from the Central District of California, Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp. awarded enhanced damages for patent infringement, doubling a jury verdict of $130 Million.  The case (which involved cochlear implant technology used for the hearing impaired) reads like a primer of what not to do as a defendant in a patent case.

            While the court weighed a variety of factors to arrive at the decision to double the damages award, perhaps the most glaring was the defendant’s reaction after the jury verdict.  Its Annual Report stated that the jury’s verdict “will not disrupt Cochlear’s business or customers in the United States.”  Combined with the fact that the evidence indicated that the infringing products generated $1.8 billion in revenue (with gross profit margins of 75% to 92%), it was apparent that the defendant had not gotten the message. 

Honey Badger Case Shows Limits of First Amendment Protection in Trademark Cases

A recent Ninth Circuit decision, Gordon v. Drape Creative, Inc. (2018), involving two well-known “Honey Badger” trademarks, shows the limits of the First Amendment defense in trademark cases. 

Parties that seek to use trademarks in creative ways would be well advised to consider its facts when determining whether to proceed or risk legal exposure.

Federal courts have adopted a special set of rules for trademark infringement cases involving expressive content, which, for First Amendment reasons, makes it harder for a trademark owner to enforce its rights when the accused use involves expressive content, such as the title or content of movies, video games, etc.  The test originates in Rogers v. Grimaldi (2d Cir. 1989), but has most often been applied by the Ninth Circuit in a long line of cases. 

The Honey Badger case, however, involved very minimal creativity – the mark was used on greeting cards with virtually no embellishment, and it appears that there was a deliberate intent to exploit the mark.  The Ninth Circuit reversed a grant of summary judgment for the defendant, finding that there was an issue for trial as to whether the mark was used in a way that was “explicitly misleading as to [the] source or content” of the product. 

The Gordon opinion is helpful in understanding the limits of the First Amendment defense in these types of cases.

Getting into Trouble Again for Copying, Balenciaga This Time Gets Sued by a Car Freshener Company

Fashion companies depend on new designs and ideas to differentiate them from their competitors.  But allowing designers free creative rein without vetting the new designs for legal issues can get a company in trouble.  A recent case illustrates the point well.

We recently blogged about a copyright infringement suit by a New York souvenir company against Balenciaga for copying its designs.  Balenciaga has now gotten in trouble again – this time for copying the well-known design of a commonly used car freshener (shaped like a pine tree and usually hung from the rearview mirror). 

Although these items are far from being luxury items – a package of three sells for $3 at Target – their design is well known.  This is now the second time that Balenciaga has been sued (in New York’s Southern District court) for misappropriation of the design of an inexpensive product for use as a luxury product, in this case, a $275 key chain.

Second Circuit Recognizes Broad Trademark Priority Even for New Channels of Trade

In American trademark law, trademark rights are gained through use – use of the mark in connection with the goods and services.  A recent Second Circuit decision, Excelled Sheepskin & Leather Coat Corp. v. Oregon Brewing Company (2018), indicates that the rights gained through use can be broader than might have been previously supposed.

Specifically, the Second Circuit held, contrary to the district court’s decision, that a trademark owner had priority in certain types of goods (t-shirts, sweatshirts, hats and other apparel) over the defendant.  Although, at first, the plaintiff had only been using the mark for apparel as an adjunct to support its main business, beer, and even though it did not commence selling these products in clothing stores until after the defendant has already done so, it nevertheless had priority. It could therefore assert an infringement claim after it had begun distributing these products in clothing stores. 

The appellate court held that once the plaintiff established priority in these types of apparel, it has that with respect to any distribution channel for the same goods.

The takeaway is that when researching prior uses of a mark (for example, in clearing use of a mark), one must look to any uses of the mark in connection with the same or similar goods.  That another party might be marketing the goods in a different manner or a different purpose may not change the fact that it has prior rights.

Failure to Do Due Diligence in IP Acquisition Means Copyright Infringement Claim Is Barred

Companies which acquire IP rights must, of course, make efforts to ensure that ownership of what they are acquiring is secure. 

As one company learned in a recent copyright decision by the Second Circuit, Latin America Music Co. v. Spanish Broadcasting System (2018), failure to undertake proper due diligence as to the chain of title may mean the loss of the ability to enforce those rights. 

The takeaway, of course, is that any time rights are transferred (whether through a straight acquisition, merger, or corporate reorganization), the acquiring entity must make sure that no one else has claimed rights in the works at issue.Otherwise, it may discover that it has acquired an unenforceable and hence worthless right

Two Second Circuit Decisions Emphasize Importance of Clear Articulation of Trade Dress Elements

Two recent Second Circuit decisions, International Leisure Products v. Funboy LLC (2018) and Eliya Inc. v. Steve Madden (2018) both upheld dismissal of complaints involving trade dress claims, because the complaints failed to include a clear and enforceable definition of the claimed rights.  Even though they included pictures, and one of them even contained an extensive, seven paragraph list of elements, neither were sufficient to state a claim.

 Trade dress can be a very powerful (and long-lasting) form of IP protection, but it also has many court-imposed requirements, because courts are wary of allowing what could be an anti-competitive weapon. 

 One such requirement is that the putative trade dress owner clearly articulate the elements of what makes its claimed “dress” distinctive from other competitive goods.  This clear articulation allows courts to judge whether the claimed trade dress is functional, whether an accused item is infringing and to formulate an injunction against an infringing defendant.

 In any IP program, foundational work – securing the IP right – is crucial.  The takeaway is that a central part of foundational work is creation of a clear and distinctive list of elements that will pass court muster.  The qualification of the list has to satisfy several legal requirements (distinctiveness, non-functionality, clear warning to competitors). 

 

Use of a Trademark Merely to Maintain a Trademark Registration Does Not Constitute Valid Trademark Use and Causes Loss of Attorney-Client Privilege

 

The federal court in Oregon ruled that a major footwear company committed fraud on the Trademark Office when it applied for renewal of a trademark application, and certified its continued use of the trademark, even though that use had no commercial purpose other than to preserve the trademark registration. 

The submission of the renewal to the Trademark Office constituted fraud – and thus the trademark owner’s communications with its counsel on the renewal lost protection of the attorney-client privilege under the crime-fraud exception.  Adidas America, Inc. v. TRB Acquisitions LLC (D.Ore. 2018).

The decision has important lessons for trademark owners.  Most important is that use of a trademark to establish trademark rights must have a commercial purpose – use cannot be done merely to acquire (or retain) a trademark registration. This is so even where the use is sales in large quantities.

German Website Operator Held Subject to U.S. Jurisdiction

A recent decision by the First Circuit in a trademark infringement case, Plixer Intl v. Scrutinizer GmbH (1st Cir 2018) held that a German website used to sell software services, had done substantial business with U.S. customers, and was subject to a trademark infringement suit in the U.S. by another company claiming that the trademark used to market the services infringed its rights. 

This was the case despite the fact that the website did not specifically target the U.S., but merely offered the services to the world at large (to be paid in Euros).  What clinched the finding of jurisdiction was that the company had done significant U.S. business (about $200,000) over three years.

Although the site had a forum selection clause requiring its customers to litigate any disputes in Germany, the plaintiff was not a customer – its claim of trademark infringement lay completely outside any contractual relationship the German company had with its customers.

The decision is significant not only for foreign companies, but also for website operators in the U.S.  Websites that do business with any states might subject their owners to jurisdiction where the site does business – even if the site is not specifically targeted to particular states. 

The plaintiff in the Plixer case brought its claims in the District of Maine, hardly a convenient forum for many large companies.  It is easy to see how, under the same reasoning, a California or New York based website that does significant business throughout the country could be subject to suit in many jurisdictions.

Ninth Circuit Decision Requires Greater Pre-Suit Investigation for Copyright Piracy Cases

A recent Ninth Circuit decision, Cobbler Nevada, LLC v. Gonzales (2018), requires greater due diligence before a copyright enforcement suit can be brought.

Downloading of movies and other copyrighted content is a major problem for many copyright owners, and they have fought back by tracing the illegal downloading to an IP address.  But the Ninth Circuit has held that merely identifying the IP address and its associated subscriber is insufficient to bring suit. 

The take away is that copyright owners are going to need to do a more thorough pre-suit investigation – and perhaps use advances in technology – to more precisely trace infringing downloads before bringing suit.

Jewelry Trademark Case Shows Importance of IP Foundation Work and Selection of Mark

A Sixth Circuit decision, Sterling Jewelers, Inc. v. Artistry Ltd. (2018), demonstrates the importance of (1) legal guidance in picking a trademark and avoiding weak marks that will only provide a narrow scope of protection and (2) proper foundational work to secure trademark rights.  The plaintiff in the case failed to do both, and learned the hard way that the rights it thought it had were far less effective than expected.

Souvenir Company’s Copyright Suit Against Balenciaga Shows Need for Luxury Goods Companies to Undertake Due Diligence

Usually, luxury goods companies are the victims of knockoffs and infringements – an expensive fashions item is copied by a cheap imitator.  However, an interesting twist has come up in a recent copyright suit against Kering’s Balenciaga. A souvenir company selling cheap souvenirs claims copying by the fashion company, at prices 100 times the original!

The takeaway is that high-end companies should not assume that they are immune from getting into trouble by copying others’ designs.  While new designs are the lifeblood of fashion, counsel’s due diligence before they are introduced can avoid major legal headaches.  And, once a charge of copying is made, ignoring it would only make matters worse.  These are lessons that Balenciaga may now learn the hard way.

Delaware Decision Highlights Dilemma for Startups to Protect Their Trade Secrets When They Seek Investment Financing

Counsel advising businesses must often deal with conflicting goals; that is especially true for startups.  Such business want to protect their intellectual property (including trade secrets) but still be able to disclose enough to attract investment capital. A recent Delaware decision highlights the tension in these goals.

 All businesses want to protect their intellectual property, including their trade secrets and other confidential information.  On the other hand, since intellectual property is often a startup’s chief asset, startups need to share their information with investors to convince them of the value of what they have developed.  The standard response is to use a non-disclosure agreement.  But those have their limits – investors often insist on flexibility to invest in other companies, including competitors.

 A recent Delaware Chancery case, Alarm.com Holding, Inc. v. ABS Capital Partners Inc. (2018), highlights this tension.  The court dismissed a trade secret complaint by a technology company against an investment company because the only basis for the claim of misappropriation of trade secrets was the move to the competing firm – which had been expressly agreed was allowed.

 

Counsel advising startups and drafting NDA’s need to be aware of this tension. Startups often lack the negotiation leverage to require more stringent terms in their NDA.  But at minimum they need to be aware of what non-disclosure agreements permit and whether they can tolerate the risk that such would create for their trade secrets. 

 

Review Website Cannot Be Ordered to Take Down Defamatory Posting

Businesses are often faced with negative and harmful information, especially on the internet, and counsel is often tasked with acting to remove or neutralize it.  A recent California decision makes that more difficult, and indicates that using litigation might not be effective in removing offensive content.

 What happens when harsh criticism crosses the line into defamation?  A company can sue the poster for defamation and seek money damages, but those are often hard to collect. Can the company obtain an order requiring the website to take down the offending content?  The California Supreme Court’s decision in Hassell v. Bird (2018) indicates that in many cases, the answer is no.  That court held that although a posting to the popular review website Yelp by an individual had been determined to be defamatory, the federal Communications Decency Act bars any order directed at Yelp requiring it to take down the offending post.  

 This makes controlling negative content about a company or a business more difficult – websites that allow third-party posters are immune not only from suit but even a takedown order.  Many websites will still voluntarily take down offensive content, but the legal ability to force the issue has become harder.  Counsel tasked with dealing with such issues should be aware that litigation, and even threats of litigation, are not likely to be effective in removing offensive content.

Google Arbitration Clause for Ad Services Binding on Later Trademark Claims

Arbitration clauses are standard provisions in many contracts, and counsel advising companies about such contracts are generally not surprised by their inclusion.  But a recent federal decision indicates that such clauses may have broader application – including covering intellectual property disputes that do not directly relate to the subject of the contract. 

 Arbitration clauses are common in many contracts, including service contracts with large companies.  They are usually understood to cover disputes over whether the services were properly provided or payments timely made.  But what if a party that signed such an agreement later has a claim that the service is being abused by someone else to infringe its intellectual property rights? 

 A recent decision of a federal court in Connecticut, Edible International, LLC v. Google, LLC (D.Conn. 2018) held that the same arbitration clause would require arbitration of a later trademark infringement claim involving the services.

 Counsel advising businesses signing service agreements, particularly with large providers like Google, need to be aware that service agreements they sign today may affect intellectual property enforcement efforts tomorrow.  They may still conclude that it is worthwhile to do so – the service may be important or valuable to the company.  But at a minimum businesses should understand what they are agreeing to.

Adidas Case Informs Importance of Building a Strong Case of Irreparable Harm in Trademark Cases

            The Ninth Circuit’s recent decision in Adidas America, Inc. v. Skechers USA Inc. (2018) reversed a district court’s preliminary injunction concerning Skechers’ use of a design similar to Adidas’ registered three-stripe trademark for sneakers.[1]  Interestingly, the Ninth Circuit accepted the district court’s finding that Adidas was likely to succeed in showing infringement (including a likelihood of confusion), but  reversed the district court’s finding of a likelihood of irreparable harm. This conclusion is simply remarkable given that, until 2006, federal courts generally presumed irreparable harm upon a showing of likelihood of success on a trademark infringement case. 

            The Adidas decision provides important guidance for counsel seeking a preliminary injunction (and by extension, a permanent injunction) as to how to present a convincing case of irreparable harm in a trademark case.  This is especially so in a case (like Adidas) which involves “post-sale confusion.”

[1] The court did affirm a preliminary injunction on a second claim brought by Adidas, for infringement of a different Adidas design for which Adidas has trade dress rights.

Federal Circuit Further Clarifies Patent Venue in Three Decisions

Patent litigation can be very burdensome for companies big and small − and a major issue in these cases is where the case will be litigated. 

 Last year, in T.C. Heartland LLC v. Kraft Foods Group Brands LLC, 137 S.Ct. 1514 (2017), the Supreme Court overturned 20 years of Federal Circuit precedent, narrowing the legal construction of part of the patent-venue statute, 28 U.S.C. § 1400(b).  But that decision left open a number of issues.

 This past month, the Federal Circuit issued three opinions resolving open issues in determining venue: (1) the patent-venue statute does not apply to foreign corporations; they may be sued anywhere in the United States; (2) the burden of showing venue is proper is on the plaintiff; and (3) in a multi-district state, venue is proper in only one district, generally where the defendant has its headquarters.

 Taken together, for domestic corporations, the available districts to be sued have been further narrowed.  As we pointed out in a prior post concerning patent venue, this can shift the negotiating leverage towards parties accused of infringement (putative defendants), since would-be plaintiffs now have less options of where to sue.

Apple v. Samsung Verdict Affirms Importance of Design Patents but Leaves the Law of Damages Murky

The second Apple v. Samsung damages trial ended in a remarkable result:  $533 Million verdict for infringement of Apple’s design patents, but only $5.3 Million for infringement of Apple’s utility patents.  The big (and obvious) takeaway:  design patents are no longer the weak sister of the IP world.  Long considered obscure and of marginal importance, the verdict shows that they can be a powerful and invaluable business tool.

Yet the verdict has other lessons for those involved in IP.  The original verdict against Samsung was for $399 Million.  Samsung appealed that all the way up to the Supreme Court – and was victorious there – only to return a second time to trial and be hit with a  verdict a third higher!  Samsung may have had good reason to appeal anyway, but the result highlights the need for caution and strategic thinking – Samsung may well now regret appealing and winning.

The verdict leaves the law of design patent damages murky.  In contrast to utility patents, for design patents the Patent Act allows the plaintiff to recover the infringing defendant’s profits gained from sale of any “article of manufacture” on which the design is used.  35 U.S.C. 289.    What if the design patent covers only a component of a total item that was sold?  The Supreme Court sided with Samsung and held that the profits might only be for a component portion.  But it failed to provide any standards as to how to determine what the “article of manufacture” is in any particular case, leaving it to the lower courts to work out.  The jury apparently decided that Samsung was on the hook for the entire profits.

Determining the “profits” to be awarded in a design patent case remains unpredictable, especially since in some cases it will be left up to the jury to determine how much of the item’s profits are awardable.  This tilts the playing field in any settlement negotiation in favor of design patent owners and away from accused infringers.

LVMH’s Kenzo Sued by Levi Strauss Raises Issues of When There Is Confusion

A recent trademark suit brought by Levi Strauss against Paris luxury house Kenzo raises interesting questions of trademark infringement and when use of a product design may infringe upon another’s design trademark.

On March 20, 2018 Paris luxury house Kenzo, owned by LVMH, introduced a new line of jeans, shorts, and overalls named the Kenzo Britney Spear line.  This line bears a pocket-tab with the word KENZO.  Shortly thereafter, Kenzo was sued for trademark infringement by the famous jeans maker Levi Strauss. Levi Strauss’ core claim is that it owns trademark rights in a pocket-tab design, and Kenzo is infringing those rights by selling apparel items that have a very similar tab. 

Supreme Court IPR Decisions Present Strategic Challenges to Patent Owners and Accused Infringers

The Supreme Court issued two significant decisions on the same day, both of which concern Inter Partes Reviews (IPRs), the administrative procedure to challenge patent validity.  Since their creation, IPRs have been a potent tool for those accused of patent infringement to challenge patent validity while avoiding the expense and burden of district court litigation. 

 In Oil States Energy Services v. Greene’s Energy Group, the Court rejected a constitutional challenge to the IPR regime, finding that because patents are public rights, Congress may allow them to be reviewed and invalidated by a non-court proceeding. 

 In SAS Institute v. Iancu, the Court held that once an IPR is instituted, the PTO must issue a decision as to all patent claims that are challenged – it cannot decide to pass on some claims and avoid others. 

 Both cases will have an important impact on patent litigation practice.

 Oil States means that IPRs will continue to be a significant, and often effective, tool in patent disputes. 

 SAS Institute will impact how parties petitioning for IPRs should structure their petitions.  Before SAS Institute, a part could petition for review of all claims in a patent, and rely on the PTAB to initiate the procedure only on the most promising claims.  But the decision in SAS Institute requires careful strategic thinking to determine whether to challenge all or just some of the claims in a patent.