Blog: The IP Law Blog

The California Supreme Court in the 2008 case, Edwards v. Arthur Andersen LLP, ruled that a provision in an employment agreement that prevented an employee from competing with his former employer following the termination of his employment was an invalid restraint on trade in violation of section 16600 of the California Business and Professions Code.  The Court held that subject to certain statutory exceptions, i.e., to protect the value of goodwill in connection with the sale of one’s business interest, section 16600 invalidated all contractual provisions that constituted a restraint on an employee’s ability to practice his or her trade or profession.  What the Court has not addressed since that 2008 decision was whether provisions that acted as a restraint on trade in business contracts (i.e. exclusive distribution agreements, franchise agreements, etc.) would suffer a similar fate.    On August 3, 2020, the California Supreme Court issued its decision in Ixchel Pharma, LLC v. Biogen, Inc., and ruled that non-compete provisions in business to business contracts were not per se invalid, but rather subject to a rule of reasonableness.

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Imagine litigating an infringement case for two years, and after a nine day jury trial, obtaining a jury’s verdict that says you’ve established infringement and awards your client $5,000,000.  Then you realize that the jury has awarded your client $0 in actual damages, and the entire $5,000,000 sum is for punitive damages.  The Ninth Circuit in an unpublished opinion in Monster Energy Company v. Integrated Supply Network, LLC (July 22, 2020), reiterated that a party is not entitled to punitive damages without a finding of actual damages.

Monster Energy Company is a well-known energy drink giant that does a lot of sponsorship in the motorsports area with its distinctive green M logo.  In 2017, it sued Integrated Supply Network for infringement of its Monster marks.  Integrated Supply is a Florida automotive-supply company that sold various Monster Mobile and ISN Monster lines of goods that Monster Energy Company claimed infringed on its marks.

In November 2018, after a nine day jury trial, Monster Energy Company received a favorable jury verdict that found that ISN had infringed on some of its marks and trade dress, that the infringement was not willful and awarded Monster Energy Company $0 in actual damages. The jury found, however, that Monster Energy Company was entitled to $5,000,000 in punitive damages.  After post-trial motions, the trial court, perhaps in an attempt to fix this defect, awarded Monster Energy Company $1 in nominal damages in addition to the $5 Million in punitive damages.

Both sides appealed various rulings by the trial court to the Ninth Circuit.  This article will focus only on the issue of the interplay between actual damages and punitive damages.

Monster Energy Company appealed the denial of its motion for new trial on actual damages by claiming that the jury’s verdict awarding $0 in actual damages was not supported by the evidence.  The Ninth Circuit rejected this argument and concluded that the “verdict reflects the jury’s determination that [Monster Energy Company] failed to carry its burden of proving the amount of damages if any.”  The Ninth Circuit continued by further rejecting an argument that the award of $5,000,000 in punitive damages showed that the jury must have made a mistake with regard to its finding of $0 in actual damages.  The Ninth Circuit reasoned, “[a]ny tension between the jury’s punitive and actual damages awards does not lead to the conclusion that the actual damages verdict had no reasonable basis.”  Thus, the Ninth Circuit affirmed the lower court’s denial of Monster Energy Company’s motion for a new trial on the issue of actual damages.

The Ninth Circuit later turned its attention to Integrated Supply’s appeal of its motion to vacate the punitive damages award, which was denied by the trial court.  The Ninth Circuit held that the jury’s findings of $0 in actual damages precluded an award of punitive damages to Monster Energy Company: “Because ‘actual damages are an absolute predicate for an award of exemplary or punitive damages’ in California and the jury awarded $0 in actual damages, the punitive damages award should have been vacated.”

The Ninth Circuit continued by recognizing that the trial court’s attempt to fix the issue by awarding $1 in nominal damages to Monster Energy Company was not proper.  The Ninth Circuit concluded, “Moreover, although an award of nominal damages may be mandatory in a 42 U.S.C. §1983 in some circumstances [i.e. civil rights actions], the district court erred in overriding the jury’s $0 damages verdict and awarding $1 in nominal damages in this case.”  The Ninth Circuit ordered that the award of nominal and punitive damages be vacated.  However, given that the Ninth Circuit was remanding the case for the trial court to address other issues raised by Monster Energy Company, specifically its unfair competition law claim and its Lanham Act disgorgement claim, there could be a later basis for an award of punitive damages.  Nevertheless, that would be up to the trial court to determine after further litigation between the parties.

The result in the Monster Energy Company case is a reminder that plaintiffs in infringement actions must focus on establishing actual damages if they have any hope of holding on to an award of punitive damages.  Otherwise, the time and expense incurred in litigating for a number of years could all be for naught.

An unpublished decision from the Northern District of California emphasizes how important it is for attorneys to follow patent local rules.

Patent local rules are rules that many federal district courts have for patent infringement cases. These rules supplement the regular local rules for that court and the Federal Rules of Civil Procedure, and allow the courts that have a lot of patent infringement cases to more efficiently manage those cases. Patent local rules are also helpful to the parties and their counsel, as they provide a standard structure and some certainty to the litigation process.

Patent local rules usually include due dates for the plaintiff to disclose its infringement contentions and the defendant to disclose its invalidity contentions; whether a Markman hearing needs to be held, and if so, what terms need to be construed, the due date for the parties to propose claim terms and to exchange claim constructions, and the date of the Markman hearing; and whether the court or the parties will have technical experts testifying at the Markman hearing. The Northern District of California has long had patent local rules that address all of these issues and more. In most courts, the patent local rules provide that the parties may modify the rules with approval of the district court judge.

If a party fails to follow the patent local rules, the rules may provide that the district court may sanction the party, including by striking the contentions, or, in more serious cases, striking claims. That is exactly what happened in Xiaohua Huang v. MediaTek USA, Inc., 2020 U.S. App. LEXIS 17482. It’s hard to believe that such a case would make it all the way to the Federal Circuit, but it did.

In MediaTek, a patent owner in pro per filed a suit in the Northern District of California for patent infringement against defendant MediaTek. The patents-in-suit were two patents for memory technology used in semiconductor chips. The patent owner served infringement contentions before the case management conference was held. At the case management conference, MediaTek told the court that the contentions were premature and improper. The court informed the patent owner that he would have to follow the patent local rules or risk the case being dismissed.

Twice more, the patent owner served the same infringement contentions on the defendant, despite MediaTek offering to allow the patent owner time to amend. After the third set of deficient infringement contentions, MediaTek moved to strike the contentions as not compliant with the patent local rules and to dismiss the action with prejudice.

The district court granted MediaTek’s motion, but provided the patent owner leave to amend the infringement contentions, and again warned the patent owner that non-complaint contentions would likely result in a dismissal of the case with prejudice. The patent owner served a fourth set of infringement contentions, containing the same defects as the prior sets. The district court again found the contentions insufficient, and, this time, dismissed the case with prejudice.

On appeal, the Federal Circuit Court of Appeals affirmed the district court’s decision. The court explained that the patent owner’s infringement contentions were defective because thr claim chart did not tie the claim limitations to the features of the accused products, but instead tied the claim limitations to the drawings in the patent itself. The patent owner also failed to set forth the contentions with the required specification. Thus, the contentions were not proper and did not comply with the patent local rules.

The court explained that it “gives broad deference” to the district court’s patent local rules whose purpose was to help the district court manage its cases. The court held that the district court had not abused its discretion in striking the infringement contentions after the patent owner had repeatedly failed to correct the deficiencies in the contentions. The appellate court further held that the district court had not abused its discretion in dismissing the case.

In f’real Foods, LLC et al v. Hamilton Beach Brands, Inc. et al, 1-16-cv-00041 (DDE 2020-07-16, Order) (Colm F. Connolly), plaintiffs freal Foods, LLC and Rich Products Corporation sued defendants Hamilton Beach Brands, Inc. and Hershey Creamery Company for infringement of four patents on four accused products that are high performance blenders manufactured by Hamilton Beach. After a four-day jury trial, the jury found that all four accused products infringed various claims of the asserted patents, and that none of the asserted patents are invalid. The Court then turned to the plaintiffs’ motion for a permanent injunction.

The Court first noted that a plaintiff seeking a permanent injunction must demonstrate the four eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388,391 (2006) factors: “( 1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and ( 4) that the public interest would not be disserved by a permanent injunction.” To satisfy the irreparable injury factor, a patentee must establish ( 1) that absent an injunction it will suffer irreparable injury and (2) that a sufficiently strong causal nexus relates the injury to the infringement. The Court also noted that the Supreme Court has cautioned lower courts that “[a]n injunction is a drastic and extraordinary remedy, which should not be granted as a matter of course” and when “a less drastic remedy … [is] sufficient to redress [ a plaintiffs] injury, no recourse to the additional and extraordinary relief of an injunction [is] warranted.”

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On Monday, July 13, 2020, the ownership group of the Washington Redskins (the “Team”) announced that it will abandon the Redskins team name after nearly 30 years of controversy. The decision, despite what the Team says, is likely the product of societal pressure, which was reinforced by powerful corporations, such as Nike and Amazon, that refused to sell Redskins merchandise because of the Team’s disparaging moniker. Within days of the corporations refusing to sell their merchandise, the Team announced that it would undertake a “thorough review” of its name. Just over a week later, the Redskins announced that the name would be “retire[d].” But before you give the Team too much credit, let’s consider what it took to get here.

It all started with a decades-long battle between Native Americans and the Team. In 1992, Suzan Shown Harjo, president of the Morning Star Institute, and six other prominent Native Americans petitioned the USPTO’s Trademark Trial and Appeal Board (“TTAB”) to cancel the Washington Redskins trademark registrations. The petitioners argued that the marks are “disparaging, scandalous, contemptuous, or disreputable” and therefore not entitled registration. The legal war was waged for seven years before the TTAB judges agreed to cancel the registrations “on the grounds that the subject marks may disparage Native Americans and may bring them into contempt or disrepute.” The victory was, unfortunately, short-lived. The ownership group appealed the decision to the United States District Court for the District of Columbia, and the decision was reversed, citing insufficient evidence of disparagement. Later appeals were denied on the basis of laches, meaning the Native American petitioners waited too long to pursue their rights. The Supreme Court likewise denied certiorari, choosing not to hear the case.

While the Harjo case was still being litigated, a second set of Native Americans, led by Amanda Blackhorse, filed a petition in the TTAB seeking to cancel the Team’s marks on the same grounds. After years of litigation, a panel of TTAB judges voted to cancel the team’s six trademarks in a two-to-one decision. The judges held that the marks were disparaging to a “substantial composite of Native Americans” and supported their conclusion with evidence demonstrating the cessation of use of the term “redskins” to refer to Native Americans in the 1960s.

Despite another setback, the Team remained confident that it would prevail on appeal and that the TTAB’s decision would not impact the Team’s use of the marks. Before we continue, let that sink in. The Team was involved in multiple actions involving its use of the marks where the opposing parties and the TTAB believed the marks were racially disparaging, and the team didn’t seem to care. Instead, the Team treated it as nothing more than a nuisance and vowed to appeal and continue using the marks regardless of their disparaging nature. Talk about oblivious.

The Team followed through on its promise. It appealed the TTAB’s decision to the United States District Court for the Eastern District of Virginia and continued using the marks in the interim. On July 8, 2015, the court denied the Team’s motion for summary judgment and granted the Blackhorse defendants’ motion for summary judgment, holding that the “evidence before the Court supports the legal conclusion that . . . the Redskin Marks consisted of matter that ‘may disparage’ a substantial composite of Native Americans.” The Team, once again dissatisfied with the trier of fact’s decision, appealed the matter to the United States Court of Appeals for the Fourth Circuit. But after the Team filed its appeal with the Fourth Circuit, the Supreme Court agreed to hear a case involving the same issue—the constitutionality of the Lanham Act’s disparagement clause.

In Matal v. Tam, the Supreme Court held that the disparagement clause of the Lanham Act violates the First Amendment’s free speech clause. This ruling caused the Fourth Circuit to vacate the lower court’s order and remand the Blackhorse matter for further proceedings, consistent with Tam, since the lower court’s ruling was predicated on the now-unconstitutional disparagement clause. In other words, the Tam decision saved the Washington Redskins franchise from losing its trademarks and left the Blackhorse defendants with nothing to show for their efforts other than knowing that they fought the good fight.

But even in the absence of Tam, I’m almost certain the Team would have continued its use of the marks. After two decades of litigation exhibiting the racist and disparaging nature of the marks, you would think the Team would have voluntarily changed its name. Yet it seems the Team would have continued to use the Marks despite any governmental cancellation of their trademark registrations. They were only willing to discontinue use of the Marks when some of their primary merchandise distributors took a stand and refused to sell the Team’s products. They can spin it however they would like, but the objective evidence indicates that the decision was financially motivated by fear of lost revenue and the impact to its bottom line.

So now that the Team has announced its decision to retire the Redskins name, what will its new name be? Many people expected the Team to announce the new name simultaneously with the decision to retire the other, but that wasn’t the case. Instead, the Team announced that it is working to develop “a new name and design . . . that will enhance the standing of [the Team’s] proud, tradition-rich franchise and inspire [its] sponsors, fans[,] and community for the next 100 years.” That may be true, but there are also rumors that the announcement was delayed, in part, by a trademark troll. For those of you who are unfamiliar with the term, a trademark troll is someone who registers a mark without the intent to use it. Their goal is usually to sell the application/registration to someone who intends to use it or to extort a licensing fee from the would-be user.

The alleged trademark troll, Philip Martin McCaulay, has applied to register various potential marks that the Team could use as its new mascot, including the Washington Redtails, the Washington Monuments, the Washington Veterans, the Washington Red Wolves, and the Washington Warriors. But according to Mr. McCaulay, he’s not looking to profit from his actions. Instead, he claims that he applied to register the marks to prevent any real trademark trolls from withholding use of the marks from the Team. According to Mr. McCaulay, he just “want[s] them to change the name and [is] embarrassed if [he] did anything that slows that down.” He also claims that he offered to remit the pending applications to the Team for free, but hasn’t heard back. The Team hasn’t confirmed the veracity of Mr. McCaulay’s statements, but it’s possible that he’s not a troll at all. He might just be a loyal fan looking to protect his team. For my own curiosity, I hope we find out, but I’m skeptical that we will since the Team would not likely announce paying for the marks

In the meantime, we have no choice but to sit back and wait for the Team to announce its new mascot. I can’t imagine we’ll be waiting too long since the season, if it happens, is right around the corner. As I said to one of my fellow trademark aficionados, although announcing the decision to retire the former name without announcing the new one may come across as defensive and reactionary, it may allow the Team to build positive anticipation of the announcement without as much focus on the shameful precedent mark. That won’t be the case for everyone, as most of us will not forget how we got here, but it might work on the casual observer. Either way, I’m looking forward to the beginning of a new era and a new team name.

The motion picture Wolf of Wall Street was based on a book of the same title written by Jordan Belmont.  In the book, Andrew Greene, who was director, general counsel, and head of the corporate finance department at Stratton Oakmont between 1993 and 1996, was discussed extensively.  In the book, Greene is referred to by his nickname “Wigwam” (a reference to his toupee) and described as engaging in criminal conduct.  In the motion picture, Wolf of Wall Street a minor character named Nicky Koskoff, who wears a toupee and went by the nickname “Rugrat” is depicted as engaging in unsavory and illegal behavior.  This includes engaging in adulterous/sexual acts at work and participating in criminal money laundering schemes orchestrated by one of the founders of Stratton Oakmont, Jordan Belmont (played by Leonardo DiCaprio).  Greene sued Paramount Pictures and the film’s producers on the grounds that the Koskoff character presented a defaming portrayal of himself.

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Following the America Invents Act, a petition for inter partes review (“IPR”) has become a common method for challenging the validity of a patent before the Patent Trial and Appeal Board (“PTAB”) at the United States Patent and Trademark Office (“USPTO”).  Such challenges are often brought by petitioners in response to a patent owner suing them for patent infringement.  But what happens to the IPR if the parties settle the infringement lawsuit?

When parties settle the underlying dispute, they can request that the IPR be terminated.  Under 35 U.S.C. § 317(a),

An inter partes review instituted under this chapter shall be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the Office has decided the merits of the proceeding before the request for termination is filed.

However, under 35 U.S.C. § 317(b), any settlement agreement, including any collateral agreements that are referenced, must be filed with the USPTO before the termination of the IPR.  Specifically, the statute states:

Any agreement or understanding between the patent owner and a petitioner, including any collateral agreements referred to in such agreement or understanding, made in connection with, or in contemplation of, the termination of an inter partes review under this section shall be in writing and a true copy of such agreement or understanding shall be filed in the Office before the termination of the inter partes review as between the parties. At the request of a party to the proceeding, the agreement or understanding shall be treated as business confidential information, shall be kept separate from the file of the involved patents, and shall be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.

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Unicolors, Inc. creates and markets artistic design fabrics to various garment manufacturers.  Some of these designs are marketed to the public and placed in its showroom while other designs are considered “confined” works that Unicolor sells to certain customers. Unicolors withholds marketing them to the general public for a set period of time. In order to save money, Unicolors often times groups various designs into a “single work” when filing with the U.S. Copyright office for copyright registration.  The Ninth Circuit in Unicolors v. H&M Hennes & Mauritz (May 29, 2020), recently addressed whether this practice, grouping both public and “confined” works into a single registration application, creates a valid copyright that Unicolors could enforce.

The specific design at issue in the case was part of a “single unit registration” of 31 different designs that Unicolor registered with the copyright office in 2011.  In 2015, H&M stores began selling a jacket and skirt that contained art work that Unicolors alleged was identical to its 2011 design and thus infringed on Unicolors’ 2011 copyright.

Although Unicolors’ 2011 registration consisted of 31 separate designs, a number of these designs were designated as “confined” designs that were made for specific customers and withheld from the public for a couple of months. At the expiration of that waiting period, Unicolors would then place the “confined” works in its show room and/or market them to other customers.  Although Unicolors engaged in this practice with respect to the 2011 registration, it represented in that registration application that the first publication date of the 31 designs was January 15, 2011 which testimony established was the date when Unicolors presented the designs to its employee-sales people and not to the general public.

The trial court allowed Unicolors claim to go to a jury, which returned a verdict in Unicolors favor and awarded it nearly $850,000 in damages.  After denying H&M’s renewed motion for judgment as a matter of law or for new trial (and after Unicolors accepted a reduction of damages to $266,000), the trial court awarded Unicolors more than $500,000 in attorneys’ fees.  H&M appealed these decisions to the Ninth Circuit.

The two elements that a plaintiff must prove to establish copyright infringement are: “(1) ownership of a valid copyright; and (2) copying of constituent elements of the work that are original.”  The Ninth Circuit’s analysis in Unicolors focused only on the first prong – ownership of a valid copyright.  As to this issue, the Ninth Circuit recognized that “a registration certificate issued by the U.S. Register of Copyrights constitutes prima facie evidence of the validity of a plaintiff’s copyright.”

The Ninth Circuit continued by recognizing that the issue of copyright ownership is rarely contested given that “the mere receipt of a registration certificate issued by the Register of Copyrights ordinarily satisfies” this element.  However, the Ninth Circuit cautioned that a registration certificate cannot confer ownership “if the registrant secured the registration by knowingly including inaccurate information in the application for copyright registration that, if known by the Register of Copyrights, would have caused it to deny registration.”  Normally, once a defendant claims that a plaintiff has included inaccurate information in its registration application with knowledge that it was inaccurate, the district court is required to submit this evidence to the Register of Copyrights “to advise whether the inaccurate information, if known, would have caused [it] to refuse registration.”

H&M contended that the district court erred because H&M’s renewed motion had established that while Unicolors had used a single copyright registration for the 31 separate works, they did not offer or sell these works “in some integrated manner.”  In fact, the evidence showed that at least nine of the works were considered “confined” and were sold separately and exclusively to individual customers separate from the other 22 works that comprised the registration.  The district court rejected H&M’s arguments because: (1) it believed that invalidation required that H&M establish that Unicolors intended to defraud the Copyright Office; and (2) although Unicolors may have marketed and sold the various works separately, “that did not mean all of the works were not first made available to the public – i.e., published – on the same day.”

The Ninth Circuit disagreed with both of these findings.  It began by recognizing that it had previously suggested that intent-to-defraud was a requirement for registration validation; however, it noted that it had clarified last year that no such intent-to-defraud requirement existed.

In turning to the next factor, i.e., the issue of “a single unit of publication,” the Court recognized that this was an issue of first impression.  It decided, however, that in looking at the clear language in the Copyright Act, “the plain meaning of `single unit’ … requires that the registrant first publish the collection of works in a singular, bundled collection.”  That is, in looking to the common definitions of the words in the phrase “a single unit of publication,” the Court interpreted these to mean “some singular, bundled item that contains all works identified in the registration.”

The Court reached this interpretation by applying the principle noscitur a sociis, or “birds of a feather flock together,” that requires “that words in statutes are given more precise content by neighboring words.” In applying this to the issue before it, the Ninth Circuit held that “a collection of works does not qualify as a `single unit of publication’ unless all individual works of the collection were first published as a singular, bundled unit.”

After reaching this determination, the Ninth Circuit concluded that the evidence was clear that Unicolors had not established that it “published” these designs as a “singular, bundled unit” because at least some of the designs “were initially made available only to individual, exclusive customers.”  The Ninth Circuit found that the evidence supported a finding that Unicolors knew that the information in its copyright registration application was inaccurate and that the district court, based on this evidence, should have requested the Register of Copyrights to weigh in on whether it would have refused the registration in light of these facts.  Because the trial court had not done this, the Ninth Circuit concluded that it had erred and therefore reversed the entry of judgment and award of attorney’s fees and remanded the case to the trial court to submit an inquiry to the Register of Copyrights as normally required.

The Unicolors decision is a reminder that attorneys litigating copyright infringement should not necessarily take the first prong of proving in infringement case, i.e., ownership of a valid copyright, for granted. Further investigation or discovery on this issue may be warranted, especially in the case where multiple designs or works are registered as a single work.