Ninth Circuit Holds CDA Immunity Does Not Extend to Anti-Competitive Conduct

A recent decision by the Ninth Circuit, Enigma Software Grp. USA, LLC v. Malwarebytes, Inc. (9th Cir. 2019), holds that immunity under the Communications Decency Act (CDA) does not extend to claims of anti-competitive conduct by a software manufacturer. 

The parties to the case are competitors in the market for software used by parents to protect minors from undesirable online content, such as pornography, violence and “otherwise objectionable conduct.” 

Malwarebytes allegedly programmed its software to flag Enigma’s software products as “Potentially Unwanted Programs” or PUPs. Enigma sued for false advertising under the Lanham Act and three state-law theories. 

The district court held that these claims were protected by the CDA’s immunity for providers of means to block objectionable conduct, codified at 47 USC § 230(c)(2).  But the Ninth Circuit reversed, holding that the immunity did not reach blocking of content done for anti-competitive purposes, as the complaint alleged. 

The Enigma Software decision is important in that it shows the limits of the immunities contained in the CDA. 

Although the issue in Engima Software concerned distribution of blocking software, a closely related CDA immunity has often been invoked by websites and other hosts of third-party content.  That immunity allows websites to remove or retain content without fear of liability.  But the new decisions suggest that there are limits to how far the courts will allow these immunities to apply.

Cannabis Related Businesses Must Still Follow Federal Laws

Many states have begun legalizing marijuana and other cannabis-related products, nevertheless they remain illegal under the federal Controlled Substances Act (CSA).  As cannabis-related businesses expand, courts are still working out how various laws apply in this legal grey area.

A recent Tenth Circuit decision, Kenney v. Helix TCS, Inc.  (10th Cir. 2019), held that the Federal Labor Standards Act (FLSA), which provides for mandatory overtime, applies to a cannabis − related business.  It rejected arguments that because the business arguably violated the CSA it was exempt from this federal law.  Although such arguments have been adopted in the context of trademarks, they were rejected in the employment law context.

Counsel advising cannabis businesses should assume that, as a general matter, most federal laws will apply to it, and only a few narrow areas, like trademark law, might be exempt.

Federal Circuit Decision Allows IPR Challenges to Pre-AIA Patents

The 2011 America Invents Act (AIA) created a robust procedure, known as Inter Partes Reviews (IPRs), brought in the Patent Office to challenge issued patents on the grounds of anticipation and/or obviousness.  Since then, defendants in patent suits have used IPRs to great effect to challenge the validity of patents.

But what if the patent was issued prior to the AIA?  A recent Federal Circuit decision, Celgene Corp. v. Peter (Fed.Cir. 2019), upheld a Constitutional challenge to an IPR proceeding brought against a patent issued before the AIA.

Experience has shown that IPRs can be a powerful tool for companies to defend themselves against charges of patent infringement – often significantly less expensive and less burdensome to company operations than litigation.

Companies are often confronted with claims of patent infringement, whether by patent trolls or competitors, and that in turn raises the spectre of onerous and expensive litigation.  The Celgene decision re-emphasizes that a powerful defensive weapon – IPRs – is available for all unexpired patents.  Even the threat of initiating an IPR might be employed to fend off or compromise a claim of patent infringement.  Companies faced with claims of patent infringement should be aware of this procedural tool.

Second Circuit Decisions Show Need for Clear and Timely Work for Hire Agreements

Two Second Circuit decisions, issued in the same month, considered “work for hire” agreements, and their efficacy in transferring copyright interests.

Estate of Kauffmann v. Rochester Institute of Technology (2d Cir. 2019) held that a work for hire agreement signed five years after the copyrighted works were submitted to the publisher was too late to reflect a pre-existing agreement that the works would be treated as works for hire.

Ennio Morricone Music Inc. v. Bixio Music Grp Ltd. (2d Cir. 2019) held that an assignment effected in Italy under Italian law did not suffice to create a “work for hire.”  Although the agreement did affect an assignment, the question of whether the work was “for hire” was critical to whether the author’s assignee could terminate the assignment 35 years after the fact, as the Copyright Act provides for.

Taken together these decisions emphasize the importance of having clear and timely agreements that expressly recite that the work is “for hire,” if that is what is being agreed to and is legally applicable. And, this applies to transfers in foreign countries, which can often implicate U.S. rights.

Must-Know Basics of Design Patent Law for the Fashion and Luxury Goods Industry

Prior blog entries discussed copyright protection for fashion and luxury goods product designs (www.springutlaw.com/blog/2019/6/3/must-know-basics-of-copyright-law-for-the-fashion-and-luxury-goods-industry)

 U.S. law has another, albeit a less well-known way, to protect designs:  design patents. 

Once thought of as the stepchild of intellectual property, design patents have come into their own, becoming popular among both fashion and other industries. 

 In the well-known Apple v. Samsung lawsuit, Apple was awarded half-a-billion dollars in damages for infringement of three design patents, causing many to take a second look at this option.

 Design patents have both advantages and disadvantages over copyright protection. 

 Where appropriate, they can be very powerful tools to protect a design.  Understanding the fundamentals of design patent law, and the relative advantages and disadvantages over copyright protection, strengthens the ability of fashion and luxury goods companies to protect their designs. 

Commonly Used Copyright Assignment Language Is Invalidated by Appeals Court

Assignments of copyright and other intellectual property rights are common both in employment and other types of agreements. 

For copyrights, many form agreements include standard assignment clauses that use some variation of language that the work will be deemed a “work for hire” and hence owned by the hiring party. 

In T.D. Bank v. Hill (3d Cir. 2019), the Third Circuit considered such widely used language in an agreement meant to transfer copyright in a manuscript.  It held that language invalid.     

Work for hire is a creation of the Copyright Act, whereby a work created by an employee in the scope of his employment is deemed to have been authored by the employer. 

Parties cannot agree to “deem” a work one for hire – it has to be one under the Copyright Act through application of the factors set out by the Supreme Court.

T.D. Bank now squarely calls into question the use of such language in assignment agreements and counsel involved in drafting such assignments should strongly consider using different language if the intended result is to be achieved.. 

It is recommended that additional language be included, to the effect that if the work is not deemed “for hire,” then alternatively the person agrees to assign all rights to the hiring party.

Federal Circuit Decision Highlights Power of Design Patents

Design patents protect new ornamental designs for “articles of manufacture.” 

A recent Federal Circuit decision Auto Body Parts v. Ford Global Techs. (Fed. Cir. 2019), rejected a limitation on design patents, and highlights how design patents can be a powerful tool to secure demand in the after-market for parts and components.

The case involved design patents owned by Ford for certain components of its cars – a vehicle hood and a head lamp.  Auto Body Parts wanted to manufacture replacement parts for Ford Cars with the same designs.

Auto Body Parts argued that the design patents were “functional” and hence invalid, because consumers want to buy replacement parts to match their cars.  While arguably that would be a valid argument under trade dress law, the Federal Circuit rejected it under design patent law.  So, Ford’s component design patents were valid.

This decision highlights what can be a powerful strategy for manufacturers of products that have components that may need replacements. 

A design patent on components of a whole product (e.g., the headlamp of a car) can be leveraged to cover sales of replacement components.

Appeals Decision Provides Valuable Guidance to Companies in Maintaining Their Intellectual Property When Participating in Industry Collaboration

It is common in some industries that when new technologies are being developed and introduced, the persons involved will meet to collaborate to develop standards for use and implementation of the technology. 

This can be beneficial to consumers, as it facilitates implementation of standard features for the technology that competitors can incorporate into their products, giving consumers greater choice of products compatible with the standard.

But such discussions can impact patent protection of the companies that participate.  A recent Federal Circuit decision, Samsung Electronics v. Infobridge Pte.  (Fed. Cir. 2019), considered an industry paper directed to video coding technology which Samsung claimed invalidated a patent held by Infobridge. 

The key question was whether the dissemination of the paper – at the group’s meeting, on the group’s website, and through the group’s list serve – constituted “publication” of the industry paper sufficient to render it prior art that would invalidate the patent. 

The Federal Circuit ruled that the first two were not publications, but the third had to be remanded for consideration under the correct legal standard.

Companies involved in developing technologies that involve industry cooperation and standards development need to use caution when circulating such standards papers, lest they invalidate patent rights. 

The Samsung case shows that both goals can be achieved, if one is careful to ensure that the dissemination of the information does not turn into potentially invalidating “prior art.”

Miley Cyrus Case Shows Importance of Early Copyright Registration

A recent copyright case, May v. Sony Music Entm't and Cyrus, involving a top-of-the-charts song illustrates the importance of early copyright registration, before any infringement begins.

Later registration will not preclude suit, but it will limit the relief that can be collected.  In some cases, that limitation may turn what seems like a winning case into a loser.

The case also highlights an effective strategy for those defending against copyright infringement claims, especially in cases involving “copyright trolls.”

Lawsuits are about more than who is liable – they are also about remedies, including how much to pay in damages.  If there is a way to limit the awardable damages, that can go a long way towards disposing of a suit.

Seventh Circuit Trade Dress Case Focuses on Functionality Analysis and Potentially Expands Trade Dress Protection

Trade Dress can be very valuable – it protects product and packaging designs as a trademark.  But, one limitation is that a design cannot be “functional.”    

Designs that make the product work better are functional and hence cannot be protected by trade dress.

A recent Seventh Circuit case, Bodum USA Inc. v. A Top New Casting Inc. (7th Cir. 2019), provides important guidance in determining whether a claimed trade dress is functional.  In assessing whether the design is functional, the Seventh Circuit held that the focus must be on more than just the inclusion of functional components in the design.  Rather, the functionality analysis has to focus on whether the specific appearance of each design feature enhances the product’s function or is merely an incidental ornamental feature.

The Bodum decision favors trade dress protection, and represents greater opportunity for owners of well-established and distinctive designs to protect them under trade dress law

Federal Circuit Reverses “Abstract” Patent Claims Dismissal, Holding Targeted Allegations of an Inventive Concept Can Save Patent

A recent Federal Circuit decision, Cellspin Soft, Inc. v. Fitbit, Inc. (2019), reversed a dismissal of a patent complaint at the pleading stage, based on a finding that the patent claims were “abstract.”  Central to the reversal was that complaint allegations were used to bolster the language of the patent claims and explain how they contained an “inventive concept.”

The decision will have a significant impact on companies involved in litigating patents covering business methods and software related patents, which are often asserted by non-practicing entities, the so-called “patent trolls.”  One can expect patent trolls to now attempt to bolster questionable patents by allegations in their complaints, in an attempt to come within the holding of Cellspin and avoid dismissal.

In response, parties seeking early dismissal of patent suits will often need to distinguish Cellspin.  In that case, the Federal Circuit’s holding rested on the fact the allegations in the pleadings were tied to specific sections of the patent claims and explicated how they contain inventive concepts.  Whether the allegations in another case are similarly focused or not will determine whether Cellspin saves the claims from dismissal.

SCOTUS Bankruptcy Decision Has Major Impact on Trademarks and Licenses

The Supreme Court’s recent decision in Mission Product Holdings, Inc. v. Tempnology, LLC (2019) ruled on the effect of a rejection of trademark licenses in bankruptcy. 

 What happens when a trademark license is rejected as an executory contract, as is permitted by Chapter 11 of the Bankruptcy Code? Can the licensee continue using the trademark? 

 The Supreme Court resolved a Circuit split on that question, holding that the licensee may continue to use the license. 

 Counsel for parties involved with trademark licenses now need to take this decision into account when drafting these agreements.  If one of the parties seeks bankruptcy protection, then the license terms will become important both in preserving the trademark (by providing for quality control and maintenance of trademark registrations) and regulating the parties’ continuing relationship. 

 On the licensor side, the license could provide, in the case of financial insolvency or bankruptcy, that the licensor would either have to commit in writing to continue the license (including quality control) or agree to assign the trademark.  Provisions for maintenance of any trademark registrations could also be included.

 On the licensee side, the license could provide, in the case of financial insolvency or bankruptcy, that the licensee would have to commit in writing to continuing to pay royalties and cooperate in quality control, or terminate the license. 

FTC Enforcement Highlights Importance of Compliance with Consumer Review Protection Act

As the internet matures, the laws regulating commerce on the internet have matured with it.  One such law is the Consumer Review Fairness Act of 2016 (CRFA), which makes illegal use of contractual provisions that restrict customers from communicating honest reviews of a business and its goods and services. 

 Not only does the CRFA declare such clauses void (and hence unenforceable), they are also construed as a deceptive trade practice – and the Federal Trade Commission (FTC) is empowered to investigate and assess penalties for its violation.  Last month, the FTC brought three separate actions against companies using allegedly illegal clauses in violation of the CRFA.  

 The FTC’s comments made clear that it is taking this enforcement seriously:

“Many online shoppers use customer reviews and ratings to get information, but these companies used gag clauses in their form contracts to stop customers from posting honest but negative feedback,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “These gag clauses are illegal, and companies that know it but use them anyway will be subject to civil penalties.”

 The FTC’s actions should spur companies marketing on the internet to review their selling contracts – including terms which are typically contained as part of the sales transaction – to ensure they are in compliance with the CRFA.

Second Circuit Holds that Statutory Right to Adapt Software Preempts Contractual Terms

A recent Second Circuit decision, Universal Instruments Corp. v. Microsystems Engineering Inc. (2d Cir. 2019) provides important lessons for parties involved in negotiating software and other technology development contracts.

One key holding is that where the copyrighted software was licensed to the customer pursuant to terms of a development contract, then the customer had a statutory right, under Section 117(a) of the Copyright Act, to have a different developer modify and adapt the software for the customer’s use.  And, that statutory right pre-empted any claim that the contract limited such adaptation rights. 

The Second Circuit also construed license terms to allow both MSEI and the second developer to use the software anywhere in the world to service MSEI’s system.  

Together, these rulings meant that once the developer had created and licensed the software, it was powerless to stop the customer from employing other companies to use, adapt, and modify the software, at least for the customer’s own business. 

Parties involved in negotiating development licenses should be aware that the Copyright Act may vest additional rights in a customer beyond that provided in the contract – and that contrary contracts terms will be preempted by the law.

Forum Selection Clause Precludes PTAB Review of Validity

A recent Federal Circuit decision provides an important lesson for patent owners:  forum selection clauses may bar an accused infringer from petitioning the Patent Trial and Appeal Board (PTAB) to review a patent’s validity under the America Invents Act. 

Dodocase Vr, Inc. v. Merchsource, LLC (Fed. Cir. 2019) affirmed an injunction granted by a district court requiring the defendant to withdraw three petitions for review it had filed with the PTAB, based on a forum-selection clause between the parties.

The case was a dispute between a patent owner and its licensee (who had stopped making royalty payments and claimed the patents were invalid).

But the parties’ license agreement contained a forum-selection clause that required all disputes to be resolved in a court located in certain counties in California.  That meant that the claims of invalidity had to be raised in one of those courts, not the PTAB.

PTAB reviews are generally considered to be disadvantageous to patent owners, both for procedural and substantive reasons. 

Given the Dodocase Vr decision, patent owners are well advised to include forum-selection clauses in any agreements concerning their patents. 

And, if a petition for review is filed by a party with whom the patent owner had some sort of contractual relationship, review the contract terms closely to determine whether a forum selection clause might not be applicable.

Kardashian Case Limits Standing to Assert Trademark Infringement

The Kardashian sisters are well-known (some say notorious) media personalities and businesswomen. 

Their extensive business activities often result in legal disputes.  And where there are disputes, often interesting and important legal decisions are produced. 

A recent Eleventh Circuit decision, Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc. (2019) involved a suit in which the Kardashians were accused of trademark infringement.  They and their company successfully moved to dismiss the case because the plaintiff – a licensee of the asserted trademark – lacked standing to bring a trademark infringement claim. 

Key to the Eleventh Circuit’s holding was that the license provided that the owner retained all rights, including the right to enforce the mark against infringers.  The licensee’s only remedy was to complain to the trademark owner and be compensated for any infringement damages. 

This arrangement meant that only the trademark owner had standing to sue for trademark infringement.

The lesson for trademark owners and licensees is that, in drafting license agreements. they should carefully consider who will have both the right and responsibility to enforce the mark, and what happens if one party fails to enforce. 

For those accused of infringement, the lesson is to carefully consider whether the plaintiff even has a basis to sue.

Must-Know Basics of Copyright Law for the Fashion and Luxury Goods Industry

Designs are a cornerstone of the fashion and luxury goods industry. The latest design for an item of apparel, an accessory, or a jewelry piece can distinguish it from other products and can be a major selling point.

But as night follows day, a successful design is followed by copyists and pirates.

So, luxury and fashion goods marketers need protection for their designs – and that is where intellectual property rights come in.

One of the most powerful protections for designs is copyright. Copyrights arise immediately upon creation; they are relatively inexpensive to secure through registration, and they last a long time – sometimes over 100 years.

Understanding the fundamentals of copyright law strengthens the ability of fashion and luxury goods companies to protect their designs when making decisions about how to use these designs in their business.

Must-Know Basics of Trademark Law for the Fashion and Luxury Goods Industry

Brand names are the most valuable asset of many luxury goods companies. 

Such famous names as Rolex, Louis Vuitton, Chanel, Cartier, and Hermes each lie at the center of multi-billion-dollar businesses. 

What protects this valuable asset?  Trademark law. 

As an intangible right, trademarks can’t be protected with a security system – only the legal system keeps thieves at bay. 

Understanding the fundamentals of trademark law strengthens the ability of fashion and luxury goods companies to protect this most valuable asset when making business decisions about use of their trademarks. 

Federal Circuit Rules That Use of a Trademark in Advertising Can Infringe Another’s Mark

A federal district court ruled that use of another’s trademark in advertising cannot, as a matter of law, constitute trademark infringement. 

The Federal Circuit reversed that ruling in Versatop Support Systems, LLC v. Georgia Expo, Inc. (Fed. Cir. 2019), holding, to the contrary that advertising use can constitute infringement.

Why should advertising use not qualify as infringement? 

The answer has to do with the convoluted history and language of the Trademark Act.  Briefly, it has long been held that use of a trademark in advertising is not sufficient to acquire trademark rights.  But what many courts struggled with is whether use of a trademark in advertising suffices to infringe on another’s, already established, trademark rights.

The Federal Circuit’s ruling means that advertising now may constitute trademark infringement – giving broader protection to trademark owners.

Fourth Circuit Rules Use of Stock Photo Not Fair Use

Photographs and other graphics are important elements of many commercial websites. 

The internet abounds with photographs that appear to be free for the taking. Many website developers simply search for and copy photographs (and other graphics) that fit their site.

But a recent Fourth Circuit decision, Brammer v. Violent Hues Productions, LLC  (4th Cir. 2019), stands as a warning that commercial websites are expected to pay a license fee for use of a photograph, and in almost all cases, such use will not be excused as a “fair use.”

Caution thus must be used before appropriating photographs or other graphics, as they may well be protected by copyright, and their copying and use will constitute infringement.