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American Express Wins Trademark Battle Over “My Life. My Card.”

Last week, the Second Circuit affirmed a summary judgment against an advertising consultant in a suit against American Express. The consultant, Stephen Goetz, sued American Express for misappropriation and trademark infringement for the slogan “My Life, My Card” that Goetz claimed to have introduced to American Express. The court affirmed the summary judgment stating that Goetz never actually used the slogan in commerce. Since Goetz never used the slogan in commerce, he had no trademark rights in the mark.

In the summer of 2004, Goetz worked as a consultant for Mez Design. While at Mez Design, Goetz formulated an idea to allow credit card customers to personalize their credit cards by choosing a photograph to be displayed on the face of the card. Goetz then developed software to produce these cards with the idea of selling or licensing the software to credit card companies. After developing the software, Goetz mailed proposals to large credit card companies, including American Express. In these proposals, Goetz prominently displayed the slogan “My Life, My Card.” On July 30, 2004, Goetz mailed a proposal to American Express.

In addition to sending out these proposals, Goetz created an internet-based demonstration of his concept. The website also prominently displayed the slogan “My Life, My Card.” On September 7, 2004, Goetz registered the domain name www.mylife-mycard.com, and he also filed an application to register his trademark with the United States Patent and Trademark Office. Although American Express never expressed interest in the concept, MasterCard replied to his proposals. MasterCard viewed Goetz website which included the slogan “My Life, My Card.”

During this same time period, American Express was searching for a new global advertising campaign. They hired an agency which was brought in to develop the new campaign. On July 22, 2004, a week before Goetz sent his proposal, the agency proposed the slogan “My Life. My Card.” to American Express. American Express pursued the idea and asked the agency’s counsel to conduct a full trademark search on the slogan. This trademark search did not produce any results that referenced Goetz. American Express proceeded with the campaign, and on September 1, 2004 they registered the domain name www.mylifemycard.com. On September 15, they filed an intent to use application for the trademark “My Life. My Card.” A few months later, the global campaign featuring numerous celebrities was launched on television, print and internet ads.

Shortly after American Express’s campaign began, Goetz filed an action claiming that American Express infringed his trademark rights. The court in that case dismissed Goetz’ claims because Goetz had no protectable trademark rights in the slogan because he did not use the mark in commerce. Goetz also did not dispute the fact that American Express independently developed the slogan. Goetz appealed the ruling to the Second Circuit and argued that he was the first to use the mark in commerce based on his sales proposals to several credit card companies. This included his presentation to MasterCard. Goetz argued that since he used the slogan in commerce before American Express, he is the senior user of the mark.

After hearing these arguments, the Second Circuit affirmed the previous ruling. The court held that under the Lanham Act, a trademark or service mark is “any combination of words, names, symbols or devices that are used to identify and distinguish goods or services and to indicate their source.” On the other hand, copyright law protects the content of the creative work. A trademark identifies the source of the product and does not protect the creative content of the product. For example, a title of a song or movie may be a trademark, but the content of the song or movie is not. The court noted that an advertising agency that creates a slogan does not have a trademark in that slogan. The slogan is the agency’s creative work and does not usually identify the source of goods and services of that agency. The slogan, however, can become a trademark for the company that uses the agency’s slogan on their goods. Until the slogan is used by the company in commerce, it will not become a trademark.

Goetz, however, claims that his slogan was used in commerce by Mez Design where Goetz was employed. The court disagreed. The court stated that “My Card, My Life” slogan did not distinguish the goods of the advertising agency. It is merely the creative work of the agency. The court examined the facts of the case and found that Goetz never used the slogan in commerce to sell his agency. Rather, he used the content of the slogan as part of an overall campaign to sell the credit card company’s products. The court found that the slogan never referenced the agency nor Goetz himself. In fact, each letter contained the Mex Design logo. This logo identified the source of the services of the agency. The slogan was merely the creative work of the agency, and was used to entice credit card companies to use his services.

Because Goetz never used the slogan in commerce as a trademark, Goetz had no protection from trademark laws. The slogan was the creative work of Goetz and did not identify his services. Goetz could pursue his claims under copyright law, but since he did not argue against the fact that both slogans were created independently, he would not be able to show such infringement.

Ownership Issues Underlying the “Work Made for Hire” Doctrine

By Andrea Anapolsky

The “work made for hire” doctrine is a major exception to the fundamental principle that copyright ownership vests in the person who created the work. The significance of this doctrine is that, as the copyright owner of the work, an employer will own all exclusive rights to the work and may freely commercialize the property to its fullest extent. This article examines the provisions and case law underlying the “work made for hire” doctrine and provides some practical advice for employers when hiring an independent contractor or an employee who may create an original work during the course of the parties’ relationship.

The U.S. Supreme Court first recognized the “work for hire” doctrine as early as 1903, when it held that copyright to certain advertisements created by an employee during the course of his employment belonged to his employer. (Bleistein v. Donaldson Lithography Co., 188 U.S. 239 (1903)). The courts did not truly examine the meaning of “ownership” of a work “for hire” until the Copyright Act codified this doctrine, which defines the word “author” as including “an employer in the case of works made for hire” (17 U.S.C. ¬ß 26). Accordingly, an employer may claim to be the “author” of a work under one of two prongs: first, if the work is prepared by an employee within the scope of the employee’s employment; and second, if an independent contractor and employer agree in writing that the work created by the independent contractor shall be considered a “work made for hire”.

When determining who owns a written work, the first question to ask is whether the creator of the work falls under the employee prong or the independent contractor prong. Generally, if the creator of the work is an employee, it is presumed that the employer owns the copyright. Any unease under this prong rests on whether the creator was an actual employee of the employer. The U.S. Supreme Court resolved much of the tension underlying this issue in 1989, in Community for Creative Non-Violence (“CCNV”) v. Reid, which involved a dispute over ownership of a sculpture commissioned by a nonprofit organization. (CCNV, 490 U.S. 730 (1989)) The Court held that the artist was an independent contractor and not an employee since the sculptural works did not fall within one of the nine specific categories of “commissioned” works listed in the Copyright Act, and no written agreement between the parties existed. In reaching this conclusion, the Court examined the common law agency principles, which include: (1) the hiring party’s right to control the manner and means of creation, (2) who provided the materials and tools, (3) the skill required by the hired person, (4) the location of the work, (5) the length of the relationship between the parties, (6) how the hired party was paid, (7) who hired and paid assistants, (8) whether the work is part of the regular business of the hired party and (9) the tax treatment of the hired party. CCNV has been viewed as a major legal victory for independent contractors in that creators who produce work at the request and expense of a third party do not necessarily give up their copyrights in the process. For hiring parties, it stands as a warning that the hiring party does not automatically own the copyright just because they paid for the commissioned work.

If the creator of the work is not an employee, then three requirements of the independent contractor prong must be satisfied in order for the hiring party to own the original work. The requirements are: (1) prior to the commencement of the work, the parties must agree in writing that the work shall be considered a “work for hire”; (2) the work must have been “specially ordered” or “commissioned” by the employer; and (3) the work must fall within at least one of nine statutorily mandated categories of commissioned works listed in the Copyright Act. The nine categories include: using the work as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. (17 U.S.C. ¬ß 101). An original must fall into one of these nine categories; otherwise a “work made for hire” provision in an agreement does not always result in a work becoming “for hire.” A novel, for example, can never be a work made for hire because it does not fall into one of these nine categories.

To avoid problems concerning copyright ownership with independent contractors, the hiring party should always reduce its intentions to writing, and include a provision in the written agreement which contains a clause stating that the work created by the independent contractor is considered a “work made for hire.” The agreement should also contain a “back up” clause which states that in the event the work does not qualify as a “work made for hire”, the employer may obtain the exclusive rights to a copyrightable work created by an independent contractor through an assignment.

E-Discovery Ethical Rules Remain Unchanged

Lawyers can’t turn around without being bombarded with CLE brochures announcing yet another e-discovery workshop. Electronic discovery is a new medium for storing information, but the time-tested rules concerning an attorney’s ethical duty to the court and opposing counsel in connection with discovery have not changed. On January 7, 2008, Magistrate Judge Barbara L. Major on the United States District Court, Southern District of California, issued an order granting sanctions against Qualcomm Incorporated and several of its attorneys in connection with discovery abuses. ( See Qualcomm Incorporated v. Broadcom Corporation, U.S.D.C., S.D. Cal. Case No. 05-CV-1958-B (BLM). The Qualcomm decision commands the attention of all corporate counsel and litigators involved in the discovery process. As stated by Magistrate Judge Major, the decision “provide[s] a roadmap to assist counsel and corporate clients in complying with their ethical and discovery obligations and conducting the requisite ‘reasonable inquiry.’”

Plaintiff Qualcomm sued defendant Broadcom alleging Broadcom’s infringement of several Qualcomm patents. Broadcom filed a counterclaim alleging inequitable conduct and waiver. Broadcom’s waiver defense was based upon Qualcomm’s participation in the Joint Video Team (“JVT”) in 2002 and early 2003 during which the digital video signals standards were adopted. Whether Qualcomm participated in the JVT in 2002 and early 2003 was a crucial fact because, if Qualcomm did participate, it would have to have granted royalty-free licenses to its technology.

Broadcom served document demands requesting all documents reflecting Qualcomm’s participation in the JVT and also requesting any emails received or sent by Qualcomm setting standards for processing digital video signals. Qualcomm, in response to those document demands, said that it produced all non-privileged documents it located after a reasonable inquiry.

Broadcom also took the deposition of the person most knowledgeable under Rule 30(b)(6). The court found the counsel’s conduct during the preparation and designation of the PMK to be extremely troubling. Qualcomm initially designated one PMK who did not have personal knowledge concerning Qualcomm’s participation, or lack of participation, in the JVT in late 2002 to early 2003 despite being so designated. Qualcomm recognized this deficiency and designated a new representative. That new representative testified falsely that Qualcomm did not participate until December 2003. Broadcom was able to impeach the witness with the only email it had in its possession dated December 2002, reflecting Qualcomm’s earlier participation. Nevertheless, Qualcomm and its counsel continued to deny any earlier participation in the JVT and even doubted that the December 2002 email was even received by Qualcomm.

While preparing a witness for trial, the trial team reviewed the witness’s laptop and discovered 27 separate emails dating back to August 6, 2002, which made it clear that Qualcomm had been involved with the JVT and in establishing the standards for digital signals prior to late 2002. The Qualcomm trial team decided not to produce the emails yet call the witness at trial, asking carefully-tailored questions if the witness had ever “read” emails from the JVT. During cross-examination, Broadcom’s attorney asked if the witness ever received such emails, to which she answered truthfully that she had. Broadcom demanded the immediate production of the emails.

Even after knowing of the 21 emails, trial counsel argued a motion in limine to exclude the one December 2002 email in Broadcom’s possession by arguing there was no evidence that the email was actually sent to Qualcomm and that there was no evidence of anything ever being sent. Trial counsel made these representations to the court after he had been made aware of the 21 emails on the witness’s computer.

Broadcom immediately demanded the production of all emails after the witness admitted she had several on her laptop. In a side-bar conversation, trial counsel, despite having participated in the decision not to produce them, told the court that he had seen the emails and was not even sure if Broadcom had previously requested or if they fell within a previously request of Qualcomm. Qualcomm turned over the 21 emails over the lunch hour.

The jury returned verdicts in favor of Broadcom, finding that Qualcomm was guilty of inequitable conduct and the patents were unenforceable due to waiver.

The court ordered a post-trial investigation into the discovery abuses. Qualcomm objected to the investigation and argued that it had performed an adequate search for documents. Despite Qualcomm’s argument that it conducted an adequate search, the post-trial investigation revealed that a simple word search of archived emails searching for “JVT” and other single search terms readily revealed the existence of 46,000 documents containing over 300,000 pages. Qualcomm’s in-house counsel wrote a letter to the court advising it of these further findings, apologizing to the court for not conducting a more thorough search earlier, and further acknowledging that the located documents were inconsistent with argument made by counsel at trial.

The court focused on Federal Rule 26(g)(2), which provides for sanctions against individual attorneys who failed to comply with their ethical obligations. Rule 26(g)(2) provides that every discovery response must be signed by an attorney and that the attorney’s signature “constitutes a certification that to the best of the signer’s knowledge, information, and belief, formed after a reasonable inquiry,” the response is consistent with the rules of law. The courts have confirmed that Rule 26(g)(2), like Rule 11, requires that the court impose “an appropriate sanction” on the attorney if a discovery response is not formed after a reasonable inquiry and therefore is without substantial justification.

Qualcomm argued in opposition to the sanctions that at no time did Broadcom file a motion to compel the production of documents. The court gave no weight to this argument, noting that the responding attorney has a duty to respond to discovery in good faith and the court will not require the asking party to file motions if the responding party affirms that it will produce all responsive documents. This is especially the case here, where Qualcomm had already affirmed that it would produce all non-privileged responsive documents. Litigants are not required to file motions to compel in order to preserve their rights in the event the opponents fail to properly discharge their obligations to produce relevant information.

The court emphasized that the parties and the attorneys have a duty to respond to discovery in good faith. That good faith must be after a reasonable inquiry, which will be dependent upon individual facts and circumstances. The court noted that, in the age of electronic discovery where clients and attorneys cannot physically touch each document, the attorneys must work closely with their clients to ensure that the attorney and the client have discharged their duty to respond in good faith after reasonable inquiries. “Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.”

The attorneys at Qualcomm produced no substantial justification for their failure to produce the 46,000 documents. This lack of justification is reinforced by the fact that trial counsel did not disclose the 21 emails when found, surgically asked questions of the witness to avoid disclosing that she had received the 21 emails, and did not voluntarily search for any additional documents after locating the first 21.

In view of all the factors, the court noted the following factors influencing its decision on sanctions: Trial counsel did not properly designate the Rule 30(b)(6) deponents; did not require a search of archived emails; did not give the 30(b)(6) witness relevant documentation; and, did nothing to ensure that the witness would be knowledgeable. The attorney has the obligation to ensure that the Rule 30(b)(6) witness is fully knowledgeable of the facts upon which he/she will testify. Secondly, Qualcomm’s attorney repeatedly argued that the court and the jury should to ignore the December 2002 email that Broadcom had obtained and repeatedly tried to discredit that the email ever existed in an effort to distort the evidence. Qualcomm even brought a motion for summary judgment, offering testimony that it had not participated in the JVT during 2002 and had not received any information from the JVT.

The court issued sanctions against Qualcomm and several of its attorneys; this article will focus on the duties of the attorneys and the sanctions imposed on them. The court relied upon the Rules of Professional Conduct, Rule 5-200, which provides that a lawyer shall not seek to mislead the judge or jury by a false statement of fact or law, and Rule 5-220, that a lawyer shall not suppress evidence when the lawyer or the lawyer’s client has a legal obligation to reveal or produce. The court, in reviewing the rules and in reviewing counsel’s activities, referred several attorneys to the State Bar for investigation. The court emphasized that it was inconceivable that Qualcomm had actively and successfully hidden this information so effectively from its lawyers that the lawyers could not know or suspect that suppressed documents existed. The court also immediately rejected any thought that the retained attorneys were so inept or disorganized that they could not have discovered this information if a reasonable inquiry had been made. The court then questioned whether there was sufficient evidence that the counsel actively participated with Qualcomm to hide the documents and all evidence of Qualcomm’s early involvement in the standards. The court noted that Qualcomm continued to exert the attorney-client privilege and, therefore, evidence on this issue was limited, although there was circumstantial evidence based on trial counsel’s failure to disclose the 21 emails promptly upon their discovery.

Ultimately, the court found the evidence supported a finding that Qualcomm did not tell its retained lawyers about the evidence. The lawyers suspected there was additional evidence or information but chose not to conduct a reasonable search. This was not a case where only one or two smoking-gun documents were not found, but instead 46,000 critical documents had not been produced. These documents were not from just one employee, but dozens of employees, several of whom testified falsely at trial and in depositions.

The court noted that different attorneys had different levels of culpability, but emphasized that lead counsel are responsible for the activities of the individuals working under their direction and that junior attorneys have an ethical obligation to comply with the rules and the ethical obligations independent of what they may be instructed by supervising attorneys. Emails and other electronic discovery impose differing challenges which attorneys must overcome in order to discharge their discovery obligations. The ethical rules and discovery obligations have not changed with e-discovery – an attorney must still make a reasonable inquiry and may sign a discovery response only if it is “formed after a reasonable inquiry.”

Dale is a shareholder with Weintraub Genshlea Chediak practicing in the Litigation and Intellectual Property Sections. Dale has a broad range of litigation experience in all areas of business, intellectual property and real estate litigation. He has tried over forty jury trials to conclusion and has had numerous court trials and binding arbitrations since his admission to practice law in 1981.

Election of Statutory Damages for Counterfeiting Bars Attorney’s Fees

Plaintiffs in trademark infringement cases may not be eligible for attorney fees depending on their election of damages. This last December, the Ninth Circuit Court of Appeals examined whether or not electing statutory damages for trademark counterfeiting claims under 15 U.S.C. § 1117(c) precludes the awarding of attorney fees under 15 U.S.C. § 1117(b). The court held that an election for statutory damages does indeed bar the plaintiff from recovering attorney fees in counterfeiting cases.

For over three decades, K&N Engineering (“K&N”) has designed, manufactured and distributed automotive air filters, air intake kits and other related products throughout the country. K&N has a registered stylized trademark that it uses on each of its products. In 2004, K&N became aware that Sarah Bulat and Steve Wandel (“Bulat”) were selling decals of K&N’s registered trademark on Ebay. Bulat made and sold 89 sets (two decals per set) on Ebay for a total of $267. K&N sued Bulat for, among other things, trademark infringement and counterfeiting. K&N elected to seek statutory damages under 15 U.S.C. § 1117(c). The district court granted summary judgment in favor of K&N on all claims and awarded K&N statutory damages in the amount of $20,000. The district court also awarded attorney fees to K&N in the amount of $100,000 under U.S.C. § 1117(b). Bulat appealed the summary judgment and the award of attorney fees. Bulat argued that the district court erred when it awarded attorney fees to K&N. Bulat claimed that K&N’s election of statutory damages precludes them from recovering attorney fees.

Section of 1117 of the Lanham Act which covers trademarks specifically lists the types of damages that can be awarded in trademark actions. 1117(a) covers actual damages and states that damages can be recovered for (1) defendant’s profits, (2) any damages sustained by the plaintiff and (3) the costs of the actions. This section states that the court can award damages in the amount of the actual damages not to exceed three times the amount of such. In addition, the court may, in exceptional cases, award reasonable fees to the prevailing party.

Section 1117(b) covers treble damages for use of counterfeit marks. This section states, “In accessing damages under subsection (a) of this section, the court shall, unless the courts find extenuating circumstances, enter judgment for three times such profit or damages, whichever is greater, together with a reasonable attorney’s fee ….”

The last subsection under 1117 covers statutory damages for counterfeit marks. 1117(c) states that the plaintiff at any time before the rendering of the final judgment may elect to recover, instead of actual damages under subsection (a), an award of statutory damages for an amount not less than $500 and no more than $100,000. If the counterfeiting use is willful, the court can award up to $1,000,000.

In this case, K&N elected to be awarded damages under this last subsection. This election was likely guided by the fact that the sales of the decals were for only $267. The district court, in its discretion under subsection (c) awarded K&N statutory damages in the amount of $20,000. It also awarded attorney fees which was the basis of Bulat’s appeal. Bulat argued that the election of statutory damages under subsection (c) does not include attorney fees. In fact, subsection (b) specifically relates back to subsection (a). The fact that both subsections (a) and (b) include reference to attorney’s fees and subsection (c) does not, led the court to rule in favor of Bulat. The court held that the district court erred in awarding statutory damages and attorney’s fees. Thus, a plaintiff who elects statutory damages is barred from recovering attorney fees.

It is interesting to note that subsection (c) was adopted three years after the other two sections were adopted. Whether or not the drafters intended this result may be decided by the Supreme Court if K&N appeals this ruling. Until then, Plaintiffs will likely be hesitant to elect damages under subsection (c), especially if the party’s attorney’s fees are significant.

Trademark Infringement and the Importance of Establishing Likelihood of Confusion

On December 28, 2007, the Ninth Circuit issued its opinion in the case titled Applied Information Sciences Corp. v. eBay, Inc., in which it clarified the plaintiff’s burden in a federally registered trademark infringement action. The Ninth Circuit’s opinion demonstrates the importance of a plaintiff in a trademark infringement claim being prepared to offer evidence of the likelihood of confusion in order to avoid dismissal of its trademark infringement claims.

Applied Information Sciences Corp. (“AIS”) is a specialized software vendor that applied in 1994 to register a trademark “SmartSearch”. In 1998, the U.S. Patent and Trademark Office issued AIS a registration for use of that mark on “computer software and instruction manuals sold together which allow the user to retrieve information from on-line services via phone line in the fields of agriculture and nutrition, books, chemistry, computers and electronics, education, law, medicine and biosciences, news, science and technology, social sciences and humanities.” AIS marketed a line of SmartSearch products from 1995 to 2004.

AIS claimed that eBay began using its SmartSearch mark without its consent in 2000 in violation of federal trademark and California unfair competition laws. eBay’s website displayed the words “Smart Search” as a link on its home page which allowed the user to utilize advance search options. AIS demanded that eBay pay a license fee or stop using the mark. eBay refused and AIS filed its trademark infringement claim against eBay in 2004. Both parties moved for summary judgment. The District Court granted eBay’s motion on the ground that it found that AIS did not have a valid protected interest in the mark.

The Ninth Circuit began by recognizing that AIS had to establish the following to prevail on its trademark infringement claim: (1) a valid, protectable trademark; and (2) eBay’s use of the mark in a manner likely to cause confusion. Thus, AIS first had to establish “whether the words used by a manufacturer in connection with his product are entitled to protection.” The Ninth Circuit recognized that AIS could satisfy this burden in one of three ways: (1) it has a federally registered mark in goods or services; (2) its mark is descriptive but has acquired a secondary meaning in the market; or (3) it has a suggestive mark which is inherently distinctive and protectable. AIS argued that its trademark was entitled to protection on the basis of its federal registration. Unlike the District Court, the Ninth Circuit agreed with AIS’ position.

The Ninth Circuit ruled that registration of a mark “on the principal register in the patent and trademark office constitutes prima facie evidence of the validity of the registered mark and of [the registrant’s] exclusive right to use the mark on the goods and services specified in the registration.” Without a registration, a plaintiff in a trademark infringement action would have to establish his right to the exclusive use of the mark in a common law infringement action. The Ninth Circuit concluded that AIS, by demonstrating that it held a federal registration, had made a prima facie showing that it held a valid protectable interest in the use of the SmartSearch mark.

The Ninth Circuit continued that “a registered trademark holder’s protectable interest is limited to those goods or services described in its registration.” Specifically, the Court recognized that the scope of validity and the scope of relief for infringement are not the same because “although the validity of a registered mark extends only to the list of goods or services, an owner’s remedies against confusion with its valid mark are not so circumscribed.” Thus, a trademark owner may only seek redress if another’s use of a registered mark on a different set of goods and services is likely to cause confusion with the owner’s use of the mark in connection with its registered goods.

The Ninth Circuit reiterated its holding in Interstellar Starship Services, Ltd. v. Epix Inc., 184 F.3d 1107 (9th Cir. 1999), in which it emphasized that a markholder’s rights to protect its interest in a registered mark were not limited to infringement actions against those using the mark in connection with the specified goods for services. In fact, the Court expressly rejected an argument that the plaintiff was required to show that the scope of its valid interests extended to the defendant’s use of the mark.

The Ninth Circuit recognized that a plaintiff trademark owner, upon establishing a valid protectable interest, could then proceed to the second prong of a trademark infringement analysis, the likelihood of confusion resulting from the defendant’s alleged infringing use. Once a plaintiff, such as AIS, had established a protectable interest by proving it is the owner of a registered trademark, it does not have the additional burden of showing that the defendants allegedly confusing use involves the same goods or services listed in the trademark registration.

Thus, the Ninth Circuit disagreed with the District Court’s analysis which found that AIS’ registration was limited to computer software and instruction manuals in the various fields listed in the registration. This led to the District Court’s erroneous conclusion that “because AIS’ federal registration did not include eBay’s use of the mark as `a hyperlink for its web based training service,’ AIS’ infringement action failed for a lack of a protectable interest.” The Ninth Circuit held that both eBay’s and the District Court’s reading of its previous decision in Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352 (9th Cir. 1985) was “questionable.”

The Ninth Circuit distinguished the Levi Strauss case from the present case by noting that in Levi Strauss the plaintiff was attempting to extend its own use of its registered mark to goods not specified in its federal registration. Specifically, Levi Strauss’ registered trademark was limited to pants pocket tabs but Levi Strauss was seeking to recover for infringement involving clothing pocket tabs generally. The Ninth Circuit concluded that this analysis was largely irrelevant in the present case because, having established a valid protectable interest by demonstrating its federal registration, AIS had discharged its burden of establishing the validity of the SmartSearch mark in connection with those goods listed in the registration. Thus, the sole question to address was the issue of the likelihood of confusion.

The Ninth Circuit held that AIS had failed, in opposing eBay’s motion for summary judgment, to produce any admissible evidence showing a likelihood of confusion or any evidence addressing any of the Sleekcraft [AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979)] factors required for a likelihood confusion analysis. On this sole basis, the Ninth Circuit affirmed summary judgment in favor of eBay.

The Ninth Circuit’s decision in the AIS case reaffirms the necessity and importance of a plaintiff in a trademark infringement claim being prepared to establish the likelihood of confusion to prevail. Although the plaintiff in AIS was able to demonstrate that it had a valid protectable interest, its failure to offer evidence as to the likelihood of confusion factor in opposing a summary judgment resulted in the Ninth Circuit affirming summary judgment in the defendant’s favor.

In The 9th Circuit, May Not Be Worth It To Elect Statutory Damages In Trademark Counterfeiting Claim

In a trademark counterfeiting claim, the successful plaintiff is entitled to recover actual damages or can statutory damages. However, according to a recent decision by the 9th Circuit, depending on the recovery sought, the plaintiff may loose the ability to recover attorney fees.

In K and N Engineering, Inc. v. Bulat the defendants were selling unauthorized decals bearing the K&N logo on eBay. The defendants created vinyl decals in the shape of plaintiff’s logo and sold 89 sets of those decals for a total of $267. After contacting the defendants, K & N filed a complaint alleging trademark infringement, trademark counterfeiting, and other related claims. K&N also elected to seek statutory damages under 15 USC 1117(c). The district court granted judgment in favor of K&N and awarded it statutory damages of $20,000 under 15 USC 1117(c) and $100,000 in attorney’s fees under 1117(b). The defendant appealed the attorney’s fee award and argued that K&N’s election to receive statutory damages under 15 UCS 1117(c) precludes an award of attorney’s fees under 1117(b).

Section 1117 covers damages that may be awarded to a successful plaintiff in a trademark infringement action. Under Section 1117(a), a plaintiff seeking actual damages for trademark infringement, and is entitled to reasonable attorney’s fees in exceptional cases. When counterfeit marks are involved, Section 1117(b) is also applicable. Under this section, a plaintiff may, under 1117(a), recover three times the actual damages plus reasonable attorney’s fees, or may elect to recover statutory damages in the range of $500 to $100,000 per counterfeit mark per type of goods sold or offered for sale.

The defendant argued that K&N is not entitled to an award of attorney’s fees since Section 1117(c) does not authorize an award of attorney’s fees. Section 1117(b)’s attorney’s fee provision, the defendant argued, applies only in cases where actual damages are recovered under 1117(a).

The 9th Circuit agreed with the defendant’s argument. The Court found that because an election to receive statutory damages under 1117(c) precludes an award of attorney’s fees under section 1117(b).

The 9th Circuit’s ruling appears to run counter to the purpose behind the allowance for statutory damages in a counterfeit case. Statutory damages are available to a successful plaintiff in a counterfeit case most likely because actual damages may be difficult to prove. The availability to recover statutory damages may encourage a plaintiff to take early action to catch a counterfeiter. However, where early action is taken, the amount of actual damages is likely to be small. The ability to recover attorney fees and costs would appear to be the only saving grace encouraging early action. Otherwise, in order to be assured recovering damages justifying the cost of litigation a plaintiff would be better to wait until the defendant had sold a significant number of counterfeit goods. This runs contrary to the purpose of the Lanham Act; consumer protection legislation. How would it be to the benefit of consumers to allow counterfeiters to sell knock-off goods.

The Federal Circuit Finds Mental Process Unpatentable

Patentable subject matter (i.e. what kinds of things can be patented) includes processes, machines, articles of manufacture, and compositions of matter. 35 U.S.C. §101. Abstract ideas, natural phenomena, and laws of nature are non-patentable (or non-statutory) subject matter. Computerized methods of doing business are increasingly likely to be rejected as non-patentable subject matter by the PTO, and the courts are becoming more likely to affirm these rejections. In re Comiskey, 499 F.3d 1365 (Fed. Cir. Sept. 20, 2007) is such a case.

Comiskey filed a patent application in 1999, claiming a method for performing mandatory arbitration of one or more documents. Claim 1 contained the following steps: registering the document and its author; inserting an arbitration provision into the document; enabling the complaining party to request arbitration; conducting an arbitration; supporting the arbitration; and determining an arbitration award. Claim 1 did not require the use of a computer, although the specification described an automated system and method and several dependent claims required an Internet connection or other electronic communication.

Not surprisingly, especially to lawyers who have been utilizing arbitration for many years, the PTO rejected most of Comiskey’s claims as obvious under §103 and repeated the rejection in four more office actions through the prosecution of the application. Comiskey appealed to the Board of Patent Appeals and Interferences, who affirmed the examiner’s rejections. Comiskey then appealed to the Federal Circuit.

The appellate court asked Comiskey and the PTO to brief the issue of patentable subject matter under §101. Comiskey contended that the court should not be permitted to rely on a new basis for rejecting the claims, but that even if §101 was considered, the claims satisfied its requirements. The court held that it could decide the case based on §101, even though the examiner had not made a rejection under that section.

The PTO asserted that Comiskey’s claims were not patentable subject matter, arguing that the claims were directed to an abstract idea because they did not require a particular machine and did not alter the state of a starting material. Rather, the PTO argued, Comiskey’s claims dealt with how humans interact in resolving disputes.

The court held that many of Comiskey’s claims were non-patentable subject matter under §101, citing two leading cases on the subject, Diamond v. Diehr, 450 U.S. 175, 188 (1981) and State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 1372 fn 2 (Fed. Cir. 1998). The court emphasized that the questions of novelty and obviousness are never reached unless §101 is first satisfied. “Only if the requirements of §101 are satisfied is the inventor allowed to pass through to the other requirements for patentability, such as novelty under §102 and, of pertinence to this case, non-obviousness under §103.” Id. at 1371.

The court reviewed the case law dealing with the patentability of business method inventions, emphasizing that the courts have clearly found abstract ideas to be non-patentable. The court identified two key concepts. First, abstract ideas with no practical application are not patentable. Id. at 1376. For example, a method for converting binary-coded decimal numerals into binary numerals was found not patentable because the claim would completely pre-empt the mathematical formula and allow a patent on an idea. Gottschalk v. Benson, 409 U.S. 63 (1972). The court explained that a mathematical algorithm must produce “a useful, concrete, and tangible result” to be patentable. Id. at 1376, quoting AT&T Corp. v. Excel Communications, 172 F.3d 1352 (Fed. Cir. 1999).

Second, in order to be patentable, an abstract idea, as used in a method claim, must be embodied in, or operate, transform, or involve another class of statutory subject matter. As explained by the Supreme Court, an abstract idea as used in a method claim must either be tied to a specific apparatus or operate or transform a machine, article of manufacture, or composition into a different state. See Parker v. Flook, 437 U.S. 584 (1978). In other words, a claim that involves an abstract idea as well as one of the other classes of statutory subject matter may be patentable. Id. at 1377. However, a mental process or a process of human thinking is not patentable standing alone even if it does have a practical application. Id.

Based on this analysis, the appellate court held that Comiskey’s claims were not patentable subject matter. The claimed invention was a business system for arbitration that depended on a mental process. Comiskey’s independent claims did not require a machine and did not describe an alteration in the state of another class of patentable subject matter. According the court, “Comiskey…seek[s] to patent the use of human intelligence in and of itself.” Id. at 1379.

With respect to Comiskey’s claims that did require a use of a machine, the appellate court found these claims to contain patentable subject matter. “When an unpatentable mental process is combined with a machine, the combination may produce patentable subject matter…” Id. However, the court believed that these claims were likely to be unpatentable under §103 as obvious. The court stated, “The routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness”. Id. at 1380. The court remanded the case to the PTO to determine whether these claims were nonobvious.

Can A Company Go Too Far In Preventing Its Employees From Being Hired Away By Its Customers?

Can a company go too far in preventing its employees from being hired away by its customers? The Fourth District Court of Appeal recently answered, “yes,” but gave some indication where the line of permissible restrictions is crossed. (VL Systems, Inc. v. Unisen, Inc. (June 2007) 152 Cal.App.4th 708.)

The plaintiff VL Systems (“VLS”) was a computer consulting company and defendant Unisen was its client. VLS employed consultants to work with its customers on their particular projects and billed the customer for the consultant’s time on an hourly basis. The contract between VLS and Unisen included a “no-hire provision” in which Unisen agreed that “[b]uyer will not attempt to hire seller’s personnel” for a period of 12 months after the work was completed. The contract further provided for liquidated damages equal to 60 percent of the employee’s compensation in the event Unisen breached the no-hire restriction.

The scope of the consulting contract between VLS and Unisen was rather small. VLS hired a new employee, David Rohnow (“Rohnow”), after the contract with Unisen was completed. Rohnow never worked on the project with Unisen since it was already completed. Rohnow worked for VLS for six months then elected to seek employment elsewhere. Rohnow responded to an advertisement placed by Unisen seeking a director of information technology. Unisen hired Rohnow knowing he had worked for VLS, but Unisen did not believe the no-hire provision applied since Rohnow had not work on the Unisen project. VLS demanded that Unisen pay the liquidated damages provided for under the contract. Unisen refused and VLS brought suit.

The Court balanced two important public policies. The first is the public policy established in Business and Professions Code section 16600 which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” The second public policy balanced by the Court is the freedom of contract. The Court acknowledged that it should not blithely apply public policy reasons to void contract provisions. (Dunkin v. Boskey (2000) 82 Cal.App.4th 171, 183-84.)

The only case in California that came close to the issues presented in this appeal was Webb v. Westside District Hospital (1983) 144 Cal.App.3d 946 (overturned on other grounds), which upheld a no-hire provision included in a contract between a hospital and temporary employee service. The Court distinguished the Webb case by noting that the no-hire provision in Webb was limited solely to employees who had actually worked for the hospital and that the employment agency had suffered actual damages by the contract being terminated prior to the hospital hiring away its employees.

Without any binding precidence, the Court looked to more general public policies to determine whether VLS’s no-hire provision was enforceable. Narrowly-drawn no-hire provisions that might otherwise limit the employment mobility of individuals if necessary to protect the legitimate business interests of the former employer. Examples include restrictions on a former employee’s right to solicit away other employees and restrictions on former employee’s right to use trade secrets. (See L’Oreal Corp. v. Moyes (1985) 174 Cal.App.3d 268, 279.) Here, the Court found that VLS’s no-hire provision was not so narrowly drawn. It applied to all employees, whether or not they actually worked for the client and whether or not they were actually employed by VLS during the period that VLS worked for the client. The Court found that this broad no-hire provision “is not necessary to protect VL Systems’ interests and is outweighed by the policy favoring freedom of mobility for employees is therefore unenforceable.” (VL Systems, supra, 152 Cal.App.4th at 718.)

VLS attempted to argue that its no-hire provision was not a restraint on employee mobility, noting that the provision did not prohibit a client from hiring away an employee, it only established an agreed-upon price for doing so through the liquidated damages provision. The Court rejected that argument, noting that the liquidated damages provision was sufficiently punitive and would “unfairly narrow the mobility of the employee.”

The Court made it quite clear that its decision was limited to the facts before it and that its decision should not be interpreted to mean that all no-hire provisions were unenforceable under Business and Professions Code section 16600. Conversely, the Court declined to establish a bright line test as to when a no-hire provision goes too far as to become unenforceable. However, some guidance can be gleaned by understanding the factual distinctions the Court noted between the Webb decision and the case before it.

A narrowly-drawn no-hire provision that is reasonable in time and that applies solely to employees who actually work for the client have the best chance of being senforced. The public policy upholding private party contracts should prevail over the public policy favoring employee mobility when necessary to protect the legitimate business interest of the employer. As stated by the VLS Court, “This is not a case where the happy client of a consulting firm attempts to poach an employee.” (Id. at 715.) Contractual no-hire provisions, if narrowly drawn and necessary to protect the business of the company, are quite different than the facts in VL Systems.

Fantasy Sports League Hits It Out Of The Park In Challenging MLB’s Ownership Of Player Statistics

Just how valuable are baseball statistics? Apparently very valuable. In fact, baseball statistics are so valuable that CBC Distribution and Marketing, which has run the CDM Fantasy Sports leagues since 1992, sued Major League Baseball and challenged its ownership claim over player statistics. In a matter which rose all the way to the United States Court of Appeals for the 8th Circuit, CBC agued that baseball statistics become historical facts as soon as a game is over, and that it shouldn’t have to pay for the right to use them. Major League Baseball claimed that the right of publicity belonging to major league baseball players makes it illegal for fantasy leagues to commercially exploit the statistical profiles of its players.

The Major League Baseball Players Association is the bargaining representative for Major League baseball players and is comprised of almost all persons who are employed as Major League baseball players. When a player joins the Players Association it can choose to grant the Players Association certain rights with regard to the player’s name, nickname, likeness, signature, picture, playing record, and/or biographical data.”

CBC sells fantasy sports products online. Its fantasy baseball products incorporate the name, performance and biographical data of actual major league baseball players. Before the commencement of the major league baseball season each spring, participants form their fantasy baseball teams by “drafting” players from various major league baseball teams. Participants compete against other fantasy baseball “owners” who have also drafted their own teams. A participant’s success, and his or her own team’s success, depends on the actual performance of the fantasy team’s players on their respective actual teams during the course of the major league baseball season. Participants in CBC’s fantasy baseball games pay fees to play and additional fees to trade players during the course of the season.

The Players Association and Advanced Media, a company that, in 2005, entered into an exclusive license with the Players Association to use baseball players’ names and performance information for, among other things, providing fantasy baseball games on the MLB website, challenged CBC’s right to use the names of, and information about, major league players from the Players Association in connection with fantasy baseball games. The Players Association and Advance Media claimed that CBC violated the players’ right of publicity in their names and playing records as used in CBC’s fantasy games.

In Missouri, the elements of a right of publicity action include: 1) that the defendant used the plaintiff’s name as a symbol of his identity; 2) use without the plaintiff’s consent; and 3) with the intent to obtain a commercial advantage. These elements are almost exactly the same as California’s: (1) the defendant’s use of the plaintiff’s identity; (2) the appropriation of plaintiff’s name or likeness to defendant’s advantage, commercially or otherwise; (3) lack of consent; and (4) resulting injury.

Both the lower court and the Court of Appeals determined that CBC’s use of the players’ names and playing records implicate all three elements of Missouri’s right of publicity. The players’ names used by CBC are understood by CBC and fantasy baseball players as referring to actual major league baseball players. Additionally, the evidence showed that CBC’s use was without consent.

With regard to whether CBC’s use of the players’ names and statistics was “with the intent to obtain a commercial advantage,” the Court of Appeals noted that CBC’s use does not fit neatly into the more traditional categories of commercial advantage, namely using individuals’ names for advertising and merchandising in a way that states or intimates that the individuals are endorsing a product. Nevertheless, the Court of Appeals found that because CBC uses the baseball players’ identities in its fantasy baseball products for a project, CBC is using the identities for commercial advantage.

CBC argued that in the event it violated the players’ right of publicity, the First Amendment nonetheless trumps the right-of-publicity action provided by state law. CBC argued, and the court agreed, that the information used in CBC’s fantasy baseball games is speech. If previous court decisions have held that pictures, graphic designs, concept art, sounds, music, stories and narrative present in video games can constitute speech, so too can the players’ names, likeness, signatures, pictures, playing records and biographical information.

In determining that the players’ names and statistics are speech, the court found persuasive the fact that the information in question is readily available in the public domain. The court noted that it would be strange law that a person would not have a first amendment right to use information that is available to everyone. Further, the court the recognized the public value of information of the game of baseball and its players. The Court of Appeals noted that baseball is the “national pastime” and is followed by millions of people across the country on a daily basis. The Court noted a California appeals court decision which held that the “recitation and discussion of factual data concerning athletic performance of [players on Major League Baseball’s website] command a substantial public interest, and, therefore, is a form of expression due substantial constitutional protection.”

Based on the above, and the fact that the facts in the instant case barely, if at all, implicate the interests that states typically intend to vindicate by providing rights of publicity to individuals, CBC’s First Amendment rights in offering its fantasy baseball products supersedes the players right of publicity.

Tiffany v. Ebay: Is Ebay Responsible for Trademark Infringement?

The lawsuit Tiffany & Co. brought against Ebay in 2004 for contributory trademark infringement is currently being heard in the U.S. District Court in Manhattan. The outcome of this trial, though likely to continue on appeal, will greatly affect internet auction websites. A victory by Tiffany will not only spawn hundreds of additional lawsuits against Ebay, it will cost the internet auctioneer millions of dollars in policing costs.

Since its inception in 1995, Ebay has seen unprecedented growth. In the first quarter of 2007, Ebay had 588 million new listings. Ebay claims to sell about $2,000 in goods every second. Their gross merchandise volume for all the goods sold on their website was over $52 billions dollars in the first quarter this year. Despite this success, some retailers are not so enthusiastic. These retailers, including Tiffany argue that Ebay does not appropriately police its website to prevent counterfeiters. Based on this claim, Tiffany sued Ebay claiming that Ebay aided violations of the jeweler’s trademarks by allowing counterfeit items to be sold on its website. Tiffany claims that 95% of all the items sold under the Tiffany trademark are fakes. Tiffany’s complaint argues that Ebay is contributing to this trademark infringement by knowingly facilitating the sales between its users. Ebay, on the other hand, has argued that it has created numerous protocols to prevent fraudulent sales of trademarked goods.

In 1982, the US Supreme Court discussed what type of activity or conduct would create liability under contributory trademark infringement. The Court in Inwood Laboratories v. Ives Laboratories stated that liability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another. Even if a manufacturer does not directly control others in the chain of distribution, it can be held responsible for their infringing activities under certain circumstances. The key test in the Ives case was if the manufacturer suggested, even if by implication, that they use their goods to infringe, then the manufacturer was liable for trademark infringement.

In the 1990’s two cases used the Ives test to specifically hold owners of a flea market liable for trademark infringement for counterfeit goods sold at their flea market. Because Ebay is, in essence, an online flea market, the court will likely look to these decisions for guidance in deciding the present case. In both of these cases, a landlord operated a flea market where sellers sold counterfeit goods. In Hard Rock Café Licensing Corp. v. Concession Services, the Seventh Circuit held that “willful blindness” is sufficient for liability under contributory infringement. In Fonovisa v. Cherry Auction, the Ninth Circuit held that landlords of flea markets who do more than merely rent space, and effectively supplies all aspects necessary for a marketplace, can be liable if it knows of infringing activity on the premises. In addition, the landlord who knowingly fails to prevent such action will also be liable. Ebay argues that it has met these standards.

Since the beginning of this lawsuit, Ebay has argued that it is aware of the risks of users selling counterfeit goods. Trying to meet the standards set forth in the above cases, Ebay has established programs to prevent trademark infringement. One of these programs is the VeRO program. VeRO stands for Verified Rights Owner where owners of intellectual property can notify Ebay of suspicious items for sale. Ebay claims that it is very responsive to inquiries through this program and immediately removes any items that are suspicious. From 2003 to 2006, Tiffany sent Ebay 284,000 notices of infringement to Ebay.

Tiffany, however, claims that Ebay’s system is ineffective. They charge Ebay with the responsibility of policing its sites, especially after they have been put on notice that such rampant counterfeiting is taking place. Tiffany claims that Ebay’s methods are ineffective partially because Ebay is profiting off each item sold on Ebay, regardless if the goods are counterfeit or not. Tiffany has argued that as long as Ebay reasonably anticipates the sale of an infringing product, they should be held liable. This standard was mentioned in dicta in the Ives case, and Tiffany would like this stricter standard applied to Ebay.

The outcome of this case will have major implications for Ebay as well as trademark owners whose goods are sold through Ebay. If Ebay is held liable, they will have to systematically change there verification process for goods sold and actively police its site. This would cost Ebay millions to police such activity. The real threat, however, may come from the additional lawsuits that will be filed from trademark owners claiming trademark infringement.