Intellectual Property

A recent case out of the Ninth Circuit, Oracle USA, Inc. v. Rimini Street, Inc. (July 13, 2017), illustrates some of the risks third party software vendors run concerning copyright issues.  Oracle develops and licenses proprietary “enterprise software” for business around the world.  A business using Oracle’s enterprise software would pay a one-time licensing fee to download the software and then can elect to buy a license maintenance contract that provides for periodic software updates.

Rimini provides third party support for Oracle’s enterprise software in lawful competition with Oracle’s own maintenance services. In the course of providing third party services, Rimini also is required to provide software updates to its customers.  It appears that between 2006 and 2007, Rimini obtained software and/or updates from Oracle’s website with automated downloading tools on behalf of several of its customers.

Oracle sued Rimini in 2010 and obtained partial summary judgment on parts of its copyright infringement claim.  After trial, the jury found in favor of Oracle on other claims (including computer abuse claims which are not discussed in this article) and awarded Oracle damages that totaled more than $120 million after interest, attorney’s fees and costs were added.  Rimini appealed the Court’s decision to the Ninth Circuit.

One of the primary issues addressed by the Ninth Circuit was whether Rimini copied Oracle software in a manner that gave rise to copyright infringement.  The evidence was undisputed that Rimini used Oracle’s enterprise software to help develop and test updates that it would then push out to its customers.  It appears that Rimini, while using the license for one of its customers to obtain the Oracle download, would then use the software to provide updates to other customers who either had Oracle licenses or were considering obtaining them.

Rimini argued that it should have prevailed on the copyright infringement claims by asserting two affirmative defenses, express license and copyright misuse.  As to the express license defense, the U.S. Supreme Court has long recognized that “anyone who is authorized by the copyright owner to use the copyrighted work in a way specified in the statute … is not an infringer of the copyright with respect to such use.”  However, a person could be liable for copyright infringement to the extent they exceed the scope of the license granted by the copyright holder.  Thus, the Ninth Circuit’s inquiry focused on whether Rimini was acting in excess of the scope of the licenses held by its customers.

The District Court had instructed the jury that it would not necessarily be copyright infringement by Rimini if it had used a customer’s license to develop updates for that particular customer.  However, it would be unlawful if Rimini was to use the license from one particular customer to develop updates to be used by others. The Ninth Circuit reasoned that Rimini’s use of one customer’s license to develop updates for other of its customers amounted to “cross use” and rejected Rimini’s claims that “cross use” is not infringement.  The Court found it significant that Rimini acknowledged that “cross use“ allows it to reduce expense to its customers by essentially “reusing work” performed for one customer.  The Ninth Circuit rejected this argument and agreed with Oracle by focusing on the language of the licenses that limited the scope of any authorized use to be done on behalf of that particular licensee.  By performing work for other customers, Rimini was exceeding the scope of any license and therefore was liable for copyright infringement.

Next, the Ninth Circuit turned to Rimini’s claim that Oracle was guilty of “copyright misuse.”  The copyright misuse doctrine prohibits copyright holders “from leveraging their limited monopoly to allow them control of areas outside the monopoly.”  In essence, the doctrine is intended to prevent copyright holders from stifling competition; however, it is not intended to prohibit the copyright holder from using conditions “to control use of copyrighted material.”  As a result, the copyright misuse defense should only be used “sparingly.”

Rimini argued that in essence, Oracle was “misusing” its copyright to prevent competition in the “aftermarket for third party maintenance.”  The Ninth Circuit rejected this argument finding that there was nothing wrong with requiring third party maintenance vendors to respect and comply with Oracle’s copyrights.

The Ninth Circuit’s decision in Oracle is a reminder that third party software vendors relying on their customer’s licensing of software or other computer programs need to be careful of running afoul of copyright laws.  Such vendors should obtain legal advice as to whether any of their proposed services run afoul of the software owners’/developers’ copyright interests.

The U.S. District Court for the Central District of California recently issued its opinion in TCL Communications v. Ericsson (SACV 14-341 JVS(DFMx) and CV 15-2370 JVS (DFMx)) on standard-essential patents and whether a commit to license them was on terms that are fair, reasonable and nondiscriminatory, or FRAND.  The Court determined Ericsson did not offer to license its standard essential patents on reasonable terms, and instead become only the fourth U.S. Court to determine a royalty rate for essential patents.

Patent holders that own patents essential to industry standards often offer (or are required by the standard setting body to offer) to license their patents on FRAND terms when a patent is, or may become, essential to practice a technical standard, such as the wireless communications standards.  A patent becomes standard-essential when a standard-setting organization sets a standard that adopts the patented technology.  The acceptance of a patent holder’s patent into a standard is of great value to the patent holder, and enhances the monopoly which the patent holder has by virtue of the patent.  The accepted patents are often referred to as standard essential patents, or “SEPs.”  Anyone who wishes to manufacture products or provide services in accordance with the standard must now secure a license from the patent holder.  However, in exchange for acceptance of the patent as part of a standard, the patent holder must agree to license that technology on FRAND terms, which is typically a lower license rate than a standard (or non-FRAND) patent license in a comparable setting and with little ability to refuse to license.

Here, this case focused on the licensing of patents in the telecommunications field affecting 2G, 3G, and 4G1 cellular technologies.  Potential licensees TCL Communication Technology Holdings, Ltd. TCT Mobile Limited, and TCT Mobile (US) Inc. ( collectively “TCL”) manufacture and distribute cell phones on a world-wide scale.  Patent holders Telefonaktiebolaget LM Ericsson and Ericsson Inc. ( collectively “Ericsson”) hold an extensive portfolio of telecommunications patents.  TCL sought to license Ericsson’s patents, but the parties could not agree on terms.  The relevant standard setting organization at issue in this dispute is the European Telecommunications Standards Institute, or “ETSI.”

In beginning its analysis, the Court laid out the three tasks it needed to undertake.  The Court had to first “determine whether Ericsson met its FRAND obligation, and then whether Ericsson’s final offers before litigation, Offer A and Offer B, satisfy FRAND.  If they are not, the Court must determine what terms are material to a FRAND license, and then supply the FRAND terms.”

There were two principal schemes presented to the Court to consider in determining the proper FRAND rate, and if Ericcson offered to license at that FRAND rate.  One approach, offered by TCL, is a “top-down” approach which begins with an aggregate royalty for all patents encompassed in a standard, then determines a firm’s portion of that aggregate.  There other, offered by Ericcson, is an “ex ante,” or ex-Standard, approach which seeks to measure in absolute terms the value which Ericsson’s patents add to a product.  However, instead of just using one approach or another, the Court combined the two approaches.  Essentially, the Court undertook a non-discrimination analysis based principally on the review of comparable licenses.

At the end of the day, after conducting its analysis based on the combined hybrid non-discrimination approach, the Court reached the following conclusions:  “Ericsson negotiated in good faith and its conduct during the course of negotiations did not violate its FRAND obligation.  It is unnecessary for the Court to determine whether the failure to arrive at an agreed FRAND rate violated Ericsson’s FRAND obligation. Regardless of the answer to that question, the Court is required to assess whether FRAND rates have been offered in light of the declaratory relief which both sides seek.”

The Court then determined that Ericsson’s Offer A and Offer B were not FRAND rates and proceed to determine its own FRAND rates.  The court prescribed that the parties enter into a 5-year license agreement reflecting the FRAND rates, and TCL must pay Ericsson approximately $16.5 million for past unlicensed sales.  The FRAND rates determined by the Court were as follows:

In sum, if it stands, this case will likely make it easier for lower end product vendors like TCL to negotiate lower FRAND rates, and in turn more competitively offer their products in major markers.  It will also set a precedential approach to be used in future FRAND license negotiations and determinations.  However, Ericcson has already appealed this ruling to the Federal Circuit, so the final outcome is still far from over.

Did you ever wonder why some movies use fictional names for companies or sports teams? TV and movie producers intentionally avoid using brand or company names in order to avoid any potential of an entanglement with a trademark owner.  Some studio lawyers insist that no third-party brands may be used under any circumstances without permission (I have had these discussions).  How do they explain that other producers, including the producers of HBO’s series, “Ballers”, use the actual names and logos of NFL teams within the show’s story without NFL permission?  Hopefully, the Ninth Circuit’s decision in 20th Century Fox Television v. Empire Distribution, Inc. will provide the legal framework by which these reticent studio lawyers may now approve the uncleared use of a third-party trademark.

Empire Distribution is a record label that records and releases albums in the urban music genre, which includes hip hop, rap, and R&B.  In 2015, Fox launched the TV series, “Empire”, a drama about a fictional New York based record label.  The show features music in each episode, including some original music.  Under an agreement with Fox, Columbia Records distributes the music from the show under the brand Empire.

Believing that its marks were being infringed, Empire Distribution sent Fox a cease and desist letter; Fox filed suit on March 23, 2015, seeking a declaratory judgment that the Empire show and its associated music releases do not violate Empire Distribution’s trademark
rights. Empire Distribution promptly filed a counterclaim for, among other claims, trademark infringement.

In most instances, likelihood of confusion is the method for determining trademark infringement.  However, when the allegedly infringing use is in connection with an expressive work, courts in the 9th Circuit will apply a different test developed by the Second Circuit in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).  Courts apply this different test primarily because such situation implicates the First Amendment right of free speech which must be balanced against the public’s interest in avoiding consumer confusion.   Sometimes a brand will acquire cultural significance and a storyteller may seek to use such significance to advance a storyline.

Under the Rogers test, the use of a third-party mark in an expressive work in not trademark infringement if the use of the third-party mark has artistic relevance and is not expressly  misleading as to the source or the content of the work.  Trademarks that do more than just identify goods, marks that “transcend their identifying purpose”, are more likely to be used in artistically relevant ways.  However, a trademark mark that has no meaning beyond being a source identifier is more likely to be used in a way that has “no artistic relevance.”

The court easily found that Fox’s use of “Empire” for both the title of its series and the name of the record label at the center of the show’s drama had artistic relevance and its use was not misleading.  However, Empire Distribution took issue with use of the “Empire” mark “as an umbrella brand to promote and sell music and other commercial products” such as appearances by cast members in other media, radio play, online advertising, live events, and the sale or licensing of consumer goods.

How far would Fox’s legitimate use extend?  According to the 9th Circuit, quite far.  The court acknowledged that while the above promotional efforts “technically fall outside the title or body of an expressive work, it requires only a minor logical extension of the reasoning of Rogers to hold that works protected under its test may be advertised and marketed by name.”  If the court did not extend Rogers to cover legitimate marketing and advertising endeavors, Fox would not have been able to effectively promote and market its TV program.

This is a good case for TV and movie producers and also the studios that market and promote their works.  For brand owners (like Empire Distribution), it’s also clear that acceptable use under Rogers is broad enough to include any activity whose purpose includes the promotion and marketing of the creative work.

There is no federal court jurisdiction for disputes involving patents where the claimant does not actually own the patents. The possibility that one might own a patent, if a contingent future event occurs, is not enough. This seems like an obvious rule, but it ended up before the Federal Circuit Court of Appeals.

The case is First Data Corp. v. Inselberg  (Fed. Cir. 9/15/17).  The defendants were Eric Inselberg, an inventor, and his company, Inselberg Interactive, LLC.  Inselberg Interactive owned several of the inventor’s patents.  In connection with a loan transaction in which Interactive borrowed money from Frank Bisignano, Interactive gave Bisignano a security interest in the patents.  After Interactive defaulted on the loan, Interactive was required to, and did, enter into an assignment agreement with Bisignano. Interactive assigned all of its rights in the patents to Bisignano.  Bisignano then became the CEO of First Data Corp.

Several years later, Inselberg told Bisignano that First Data was infringing the patents and did not have a license. Inselberg demanded that First Data either buy the patents or license them, contending that the assignment Interactive had made to Bisignano was not valid. Bisignano then licensed the patents to First Data. Inselberg continued to assert that First Data was infringing the patents. Inselberg’s counsel sent Bisignano and First Data a draft complaint that Inselberg stated he intended to file in state court, alleging that Inselberg owned the patents and could sue First Data for patent infringement.

Bisignano and First Data jumped the gun and filed suit in the federal district court for the District of New Jersey.  The complaint sought a declaratory judgement that Bisignano owned the patents and that the license to First Data was valid. The complaint also sought a declaratory judgement that First Data did not infringe the patents because Bisignano owned the patents and had licensed them to First Data.

Inselberg and Interactive filed suit in New Jersey state court, seeking a declaratory judgment that they owned the patents because the assignment to Bisignano was invalid. Bisignano and First Data answered the complaint and filed counterclaims seeking a declaratory judgement of noninfringement of the patents and of invalidity of one of the patents. The defendants then removed the state court action to federal court, relying on the district court’s jurisdiction over patent cases.

In the federal court action, Inselberg and Interactive moved to dismiss Bisignano and First Data’s complaint and their counterclaims in the removed action, and sought remand of the state law claims.

The district court granted the motion to dismiss on the grounds that the federal court had no jurisdiction because there was no federal question. The district court found that Inselberg and Interactive had conceded that Bisignano owned the patents by seeking to invalidate the assignment agreement in their state court complaint, and, therefore did not own the patents. The district court held that Inselberg and Interactive did not have a claim for patent infringement and would not have such a claim unless they obtained ownership of the patents under their state law claims. Thus, the patent claims were contingent on the outcome of Inselberg and Interactive’s state law claims.

On appeal, the Federal Circuit affirmed the district court’s order dismissing Bisignano and First Data’s federal claims and remanding the state law claims. The court held that there was no federal question jurisdiction because Inselberg and Interactive did not, and could not, assert a threat of infringement against First Data as Inselberg and Interactive did not own the patents. In addition, the court held that Bisignano and Frist Data had no standing to assert their declaratory judgement claims.  For similar reasons, the court also held that Bisignano and Frist Data’s claims were not ripe for adjudication because all of the claims were based on a contingent future event, the state court awarding ownership of the patents to Inselberg and Interactive.

The U.S. Supreme Court’s May 22, 2017 ruling in TC Heartland v. Kraft Foods held that personal jurisdiction alone does not convey venue for patent cases under the patent venue statute.  Previously, the Court of Appeals for the Federal Circuit and the United States district courts had interpreted the patent venue statute, 28 U.S.C. §1400(b), to allow plaintiffs to bring a patent infringement case against a domestic corporation in any district court where there is personal jurisdiction over that corporate defendant.  Specifically, the patent venue statute provides that “[a]ny civil action for patent infringement may be brought in either 1) the judicial district where the defendant resides” or 2) “where the defendant has committed acts of infringement and has a regular and established place of business.”  But, TC Heartland, held that a domestic corporation resides only in its state of incorporation for purposes of the patent venue statute, and not just anywhere it is subject to personal jurisdiction as had previously been the case.

Following TC Heartland, corporate defendants filed a flurry of motions to dismiss for lack of venue or, in the alternative, to transfer cases.  Corporations argued they had been improperly sued in venues where they had no regular and established place of business, and where they are not incorporated and thus did not reside.  But, the Supreme Court’s ruling in TC Heartland led to confusion as to whether such challenges could be made in on-going cases where the defendant had not previously raised the issue of improper venue.  Specifically, Federal Rule of Civil Procedure 12(h)(1)(A), provides for waiver, based on the incorporated terms of Rule 12(g)(2), when a defendant omits an available venue defense from an initial motion to dismiss.  This confusion led to widespread disagreement among District Courts on the issue.

However, in In re Micron Tech, Inc., No. 2017- 138, 2017 WL 5474215 (Fed. Cir. Nov. 15, 2017) (“In re Micron”) the Federal Circuit recently clarified that TC Heartland was a change-of-law relevant to waiver under Rule 12(g)(2) and (h)(1)(A).  The Federal Circuit held that TC Heartland changed the controlling law such that at the time of an initial motion to dismiss, before the Supreme Court decided TC Heartland, a venue defense based on TC Heartland’s interpretation of the venue statute was not “available,” thus making the waiver rule of Rule 12(g)(2) and (h)(1)(A) inapplicable.  In other words, the venue objection was not available until the Supreme Court decided TC Heartland because, before then, it would have been improper given controlling precedent, for a district court to dismiss or to transfer for a lack of venue.

In further explaining its reasoning, the Federal Circuit first noted “[t]he crucial condition for Rule 12(g)(2) to apply, and hence for the unmade venue objection to be waived under Rule 12(h)(1)(A), is that the venue defense had to be ‘available to the [defendant]’ when the defendant made the initial Rule 12(b) motion.”  The Federal Circuit continued, “[w]here controlling law precluded the district court, at the time of the motion, from adopting a defense or objection and on that basis granting the motion, it is natural to say, in this context, that the defense or objection was not ‘available’ to the movant.  The law of precedent is part of what determines what law controls. The language ‘was available’ focuses on the time of the motion in the district court, not some future possibility of relief on appeal, thus pointing toward how the district court may permissibly act on the motion at the time—i.e., where the motion is for dismissal, whether it can dismiss the case and thereby avoid wasting resources on continued litigation. Because what Rule 12(g)(2) addresses is the omission of a defense or objection from an initial motion for one of the forms of relief specified in the Rule, subsection (g)(2) is naturally understood to require the availability of that relief at the time of the initial motion (here, dismissal based on improper venue).”

Importantly, however, the Federal Circuit limited its holding to only waiver under Rule 12(g)(2) and h(1)(A), and said there are still circumstances in which a district court can find that a defendant has forfeited its venue defense.  “[T]hat waiver rule, we also conclude, is not the only basis on which a district court might reject a venue defense for non-merits reasons, such as by determining that the defense was not timely presented.”  For example, “nothing in the Federal Rules of Civil Procedure would preclude a district court from applying other standards, such as those requiring timely and adequate preservation, to find a venue objection lost if, for example, it was not made until long after the statutory change took effect.”  Thus, the Federal Circuit concluded, “it clear that, apart from Rule 12(g)(2) and (h)(1)(A), district courts have authority to find forfeiture of a venue objection.”  Moreover, the Federal Circuit also made clear it was not exploring the contours of timeliness outside Rule 12(g)(2) and (h)(1)(A), or how to assess what constitutes consent to venue, or what if any other considerations could justify a finding of forfeiture even when the defendant has not waived its objection under Rule 12(g)(2) and (h)(1)(A).  In other words, the Federal Circuit limited its holding and left a number of open issues for District Courts.

Indeed, in Intellectual Ventures II LLC v. FedEx Corporation et al, 2-16-cv-00980 (TXED November 22, 2017, Order), a District Court in the Eastern District of Texas has already found that defendants waived their venue defense through litigation conduct in light of In Re Micron, and denied defendants’ motion to dismiss plaintiff’s patent infringement action for improper venue.  In reaching its decision, the District Court first noted that the Federal Circuit in In re Micron “explained that district courts possess an inherent power to find a venue objection forfeited based on conduct or other circumstances.”  The District Court then reasoned that “it was not until a few days after their IPR petitions were denied and more than two months after [TC Heartland LLC] was decided that Defendants finally sought to dismiss this case for improper venue.”  The District Court continued that In re Micron “does not invite defendants who have substantially engaged in a case to reassert an abandoned defense once it becomes convenient or advantageous for them. . . . Moreover, before TC Heartland was decided . . . Defendants sought to transfer this case to the Western District of Tennessee under § 1404 rather than § 1406. This is particularly significant because a motion under § 1404 is premised on venue being proper in the transferor court whereas a motion under § 1406 reflects an objection to the current venue as being improper.”  Accordingly, the District Court concluded that Defendants’ venue objection has been waived based on their own conduct, the judicial resources already expended in this case by the Court, the prejudice to Plaintiff in reopening a dormant venue dispute simply because it has become convenient for Defendants to litigate the issue now, and in light of all of these considerations taken together.

In sum, although In Re Micron clarified waiver of venue under Rule 12(g)(2) and (h)(1)(A) in light of TC Heartland, there are still a number of issues that need to be worked out at the District Court level.  And, it is likely there will be differing application across District Courts until more of these issues are worked out.

According to cannabis folklore, cannabis cultivators in 2010, Josey Whales and Lone Watie  created a strain of marijuana that was so sticky, Mr. Whales, during a phone call, commented that the plant made his hands “stick to things like Gorilla Glue.”  From that, Whales and Watie came up with a name of their strain – Gorilla Glue#4.   Since that time, the strain has won numerous competitions and has become extremely popular with consumers.  Whales and Waite formed GG Strains, LLC which certified and authorized select cultivators around the country to market cannabis as “Gorilla Glue #4”; they operated the website <gorillaglue4.com> which sold clothing and other merchandise; and they applied to register certain trademarks with the state of Colorado which incorporate GORILLA GLUE.

Apparently, the Ohio-based Gorilla Glue Company became aware of the existence of the Gorilla Glue Strain in late 2016.  Not surprisingly, the Gorilla Glue Company was not pleased.  In March, 2017 the Gorilla Glue Company sued GG Strains, LLC for trademark infringement and trademark dilution.  In October, 2017 the parties settled the dispute and, as a condition of settlement, GG Strains must transition away from “Gorilla Glue” as a strain brand name.  This rebranding is not inexpensive; GG Strains estimates it will cost $250,000 to rebrand.

While we will never know the outcome of this case, it is interesting to look into what the outcome could have been had GG Strains mounted a defense.

Under section 43 of the Lanham Act, infringement occurs when the use by one party of a mark is likely to cause confusion, or to cause mistake, or deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship or approval of his or her goods, services, or commercial activities by another person.  Under the Ninth Circuit’s ruling in AMF Incorporated v. Sleekcraft Boats, the determination of “likelihood of confusion” is made by examining the following factors:  1) the strength of the mark; 2) the proximity of the goods; 3) the similarity of the marks; 4) the evidence of actual confusion; 5) the marketing channels used; 6) the type of goods and the degree of care likely to be exercised by the purchaser; 7) the defendant’s intent in selecting the mark; and 8) likelihood of expansion of the product line.  This line of analysis is similar for most jurisdictions.

Strength of the Marks

Generally, arbitrary and fanciful marks are entitled to wide protection while marks that are suggestive are entitled to a restricted range of protection.  Where a suggestive mark is the subject of a suit, infringement will be found only if the marks in question are very similar and the goods are closely related.

While the word “Glue” is merely descriptive of glue, “Gorilla” certainly is not.  As such, the mark would be considered a strong mark – either arbitrary or only slightly suggestive.  As a strong mark, it is entitled to a wider degree of protection.

Relatedness of the Goods/Services

For related goods, the danger is that the public will mistakenly assume there is an association between the producers of the related goods, even though no such association exists.  Where the goods are complementary and the public is more likely to make such an association, the less similar in appearance the marks need to be to support a finding of likelihood of confusion.

How related are marijuana and marijuana products to glue?   In general, it is not common for a single manufacturer to sell both products.  Further, both products are not sold in the same type of stores and do not have any discernable overlap in consumer groups.  If the goods or services in question are not related or marketed in such a way that they would be encountered by the same persons in situations that would create the incorrect assumption that they originate from the same source, then, even if the marks are identical, confusion is not likely. See, e.g., Coach Servs., Inc. v. Triumph Learning LLC, 668 F.3d 1356, 1371, 101 USPQ2d 1713, 1723 (Fed. Cir. 2012).  Due to the unrelated nature of the goods, this factor would not favor a finding of confusion.

Similarity of the Marks

Similarity of the marks is tested on three levels: sight, sound, and meaning.  Each must be considered as they are encountered in the marketplace.  Although similarity is measured by the marks in their entirety, similarities weigh more heavily than differences.

It is not necessary that every word of a trademark be appropriated in order for there to be an infringement.  Where the marks are exactly the same and the goods are competitive, infringement is almost always found.  Where there are differences between the marks, those differences must be looked at in tandem with the similarities or differences in the goods or services.  Where the goods or services are directly competitive, the degree of similarity required to prove a likelihood of confusion is less than in the case of dis-similar goods or services.

Here both parties use the words “Gorilla Glue.”  However, because GG Strains incorporates “Gorilla Glue” into a logo that is unique and different from that of the Gorilla Glue Company, this factor may tend to favor a finding of no likelihood of confusion.

Evidence of Actual Confusion

Evidence that use of the two marks has already resulted in consumer confusion is persuasive proof that future confusion is likely.  Where a plaintiff is able to introduce evidence of actual confusion, it’s likely the court will find infringement.  Since we have no facts which show actual confusion, this factor is neutral in our analysis.

Marketing Channels

Convergent marketing channels increase the likelihood of confusion.  This is because likelihood of confusion is not determined in a vacuum; it is determined by the context that a customer perceives the marks in the marketplace.

The Gorilla Glue Company uses all media platforms to market its product.  It runs advertisements on television, radio and in print, and also uses the Internet.  While it’s not clear the extent to which GG Strains markets its products, it does have a website.

Intent

Evidence showing that the defendant intended to incorporate elements of the plaintiff’s mark favors a finding of likelihood of confusion.  Courts presume that the defendant can accomplish his purpose: that is, that the public will be deceived.  Here it is alleged that GG Strains adopted the use of “Gorilla Glue” due to the sticky quality of its cannabis.

Likelihood of Expansion

Inasmuch as a trademark owner is afforded greater protection against competing goods, a “strong possibility” that either party may expand his business to compete with the other will weigh in favor of finding that the present use is infringing.  When goods are closely related, any expansion is likely to result in direct competition.  Here, it is not likely that either party will begin producing competing products.

If this case had moved forward, based only on the information in the complaint, I suspect that the Gorilla Glue Company would have had difficulty with its trademark infringement claim.  Given the differences in the marks themselves, and primarily based on the unrelated nature of the goods, it is reasonable to conclude that a trier of fact would find consumer confusion not likely.

However, the Gorilla Glue Company would likely have had success on its dilution claim.  Under Section 43(c) of the Lanham Act, dilution can exist where there is an “association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark.”  In determining whether a mark is likely to cause dilution, the court will consider: (i) The degree of similarity between the mark or trade name and the famous mark; (ii) The degree of inherent or acquired distinctiveness of the famous mark; (iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark; (iv) The degree of recognition of the famous mark; (v) Whether the user of the mark or trade name intended to create an association with the famous mark; and (vi) Any actual association between the mark or trade name and the famous mark.

There is a lesson to be learned for the burgeoning legal cannabis industry.  The strain brands that incorporate the marks of others (like Girl Scout Cookie), once thought to be “clever” or “humorous”,  are not likely be viewed similarly by the mark owners.  The likelihood that disputes will evolve into lawsuits will only escalate as more states legalize recreational use of cannabis.

The Leahy-Smith America Invents Act (“AIA”) provided for trials before the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office (“USPTO”) in inter partes reviews, post-grant reviews, the transitional program for covered business method patents, and derivation proceedings.  While patent agents are registered to practice before the USPTO, they are not attorneys.  Therefore, it has been unclear whether attorney-client privilege prevents discovery in PTAB proceedings of communications between these non-attorney agents and their clients.  Addressing this ambiguity, the USPTO just issued a final rule for trial practice before the PTAB that explicitly protects communications between patent agents or foreign patent practitioners and their clients.  The amended rule becomes effective December 7, 2017.

Under U.S. Federal law, clients generally can rely on attorney-client privilege to protect communications with their attorneys.  The USPTO, however, allows registered patent practitioners, including patent attorneys and non-attorney patent agents, to prepare and prosecute patent applications and appear before the PTAB.  The USPTO explains “[r]egistered patent practitioners are individuals who have passed the USPTO’s registration exam and met the qualifications to represent patent applicants before the USPTO.”  Registered patent practitioners have met “the requirements of 37 CFR § 11.7, including the legal, scientific, and technical qualifications, as well as good moral character and reputation.”  Specifically, a patent attorney is an attorney who has met these requirements, whereas a patent agent is a non-attorney who has met these requirements.

Thus, the question arose as to whether communications between patent agents, who are not attorneys, and their clients are protected from discovery in PTAB proceedings.  To address this and related questions, in February 2015, the USPTO held a roundtable on domestic and international issues related to privileged communications between patent practitioners and their clients.  This process included a request for comments as to whether privilege should apply to communications between patent applicants or patent owners and their U.S. patent agents or foreign patent practitioners.  Some participants “noted the rules regarding privilege for U.S. patent agents and foreign practitioners in PTAB discovery proceedings were difficult to discern” given the lack of an explicit rule.  Instead, “[w]hen an issue arises before [the] PTAB, Administrative Law Judges make legal determinations as to which communications may be protected from disclosure on a case-by-case basis, based on the Federal Rules of Evidence and common law.”

Taking the various comments it received into consideration, the USPTO issued a final rule on privilege for trials before the PTAB, which will be added as 37 CFR §42.57.  The rule “recognizes that privilege issues will be treated the same for agents as for attorneys within their scope of authorized practice.”  By extending privilege to patent agents, the USPTO recognized that “clients deserve the same protections regardless of which type of authorized … provider they choose.”

It was also noted that “some foreign jurisdictions rely entirely or almost entirely on non-attorney patent agents,” which means “[i]n such jurisdictions, hiring an attorney to handle patent matters can be difficult or impossible.”  The final rule addresses client’s communications with foreign jurisdiction practitioners and protects them from discovery in PTAB proceedings “regardless of whether that jurisdiction provides privilege or an equivalent under its laws.”  It is important to note, however, the final rule “does not have extraterritorial effects.”  The rule does not affect how foreign courts treat communications with U.S. and foreign practitioners.  Whether a foreign court treats those communications as privileged is entirely under the control of the foreign jurisdiction.

Further, the USPTO acknowledged that under Federal law, attorney-client privilege generally protects not only communications between an attorney and the client, but also 1) communications between an attorney and the client’s representative, 2) communications between the client and an attorney’s employee or assistant, and 3) communications between multiple attorneys working for the same client.  Paragraph (c) of the final rule was added to “clarify that the scope of coverage will be the same for practitioners as for attorneys under these types of scenarios and any other situations.”

For further details, see https://www.federalregister.gov/documents/2017/11/07/2017-24190/rule-on-attorney-client-privilege-for-trials-before-the-patent-trial-and-appeal-board

The Ninth Circuit recently addressed an issue as to who may pursue claims for copyright infringement concerning stock photos in the case DRK Photo v. McGraw-Hill Global Education Holdings, LLC, et al. (Sept. 12, 2017).  Apparently there has been a rise in copyright infringement claims involving stock photos and the Ninth Circuit was called upon to determine whether the non-exclusive licensing agent for stock photos had standing to pursue a claim for copyright infringement.

The case involved a stock photography agency, DRK, which markets and licenses photos taken by others.  DRK has a collection of hundreds of thousands of “stock photos” and licensed a number of its photos to McGraw-Hill for use in its text books and other publications from 1992 to 2009.

DRK typically entered into a “Representation Agreement” with photographers to license their photos. One form of the representation agreement was for DRK to (1) act as the “sole and exclusive agent” to license the subject photos; and (2) another form of agreement that appointed DRK as a “non-exclusive agent” to license such photos.  Most of the agreements that DRK entered into with photographers were of the non-exclusive variety and these were the ones as issue in the Ninth Circuit’s case.

In 2008, DRK began to attempt to copyright the photographs in its collection.  To assist it with doing so, DRK had its photographers enter into “copyright assignment, registration and accrued causes of action agreements” (“Assignment Agreements”) that purported to assign all copyrights and legal title in the images to DRK for the purpose of completing the copyright registration of the photos and resolving any infringement claims brought by DRK, after any copyright interest in the photographs would revert back to the photographer.   DRK acknowledged that the purpose of these assignment agreements was to affect a transfer of any copyright interest to it so that it could pursue its copyright enforcement efforts.  In fact, DRK admitted that it had no intent to use these interests for any purpose other than pursuing copyright infringement actions.

After DRK sued McGraw-Hill in May 2001 asserting claims for copyright infringement, among others, McGraw-Hill moved for summary judgment as to some of these claims arguing that DRK lacked standing to pursue copyright infringement claims.  The District Court agreed with McGraw-Hill and granted it summary judgment, finding that DRK was not the legal or beneficial owner of the copyrights at interest and thus had no standing to sue.  DRK appealed this decision to the Ninth Circuit.

The Ninth Circuit began by recognizing that section 501(b) of the Copyright Act sets forth the requirements for standing to bring a lawsuit for copyright infringement:  “The legal or beneficial owner of an exclusive right under a copyright is entitled, subject to the [registration] requirements of section 411, to institute an action for any infringement of that particular right committed while he or she is the owner of it.”  DRK argued that it had standing to sue for copyright infringement with regard to the photos as either a legal or a beneficial owner of the subject copyrights. The Ninth Circuit examined each of these claims in turn and rejected both of them.

As to DRK’s claim that it had legal ownership in the photos’ copyrights, it recognized the well-settled rule that “a mere `non-exclusive license’ does not constitute a `transfer of copyright ownership’ and therefore cannot confer standing to assert an infringement claim.”  DRK claimed that it had legal ownership rights in the copyrights because of the Representation and Assignment Agreements.  First, DRK argued that the Ninth Circuit had previously held that a stock photograph agency had standing to bring copyright infringement claims in the case Minden Pictures, Inc. v. John Wiley & Sons, Inc., that was decided in 2015. The Ninth Circuit rejected this argument by concluding that DRK misread the extent of that case, given that what was at issue in the Minden case was an agreement that gave Minden “sole and exclusive” rights with respect to the licensing of the photographs.  The Ninth Circuit distinguished the Representation Agreement at issue in the DRK case by noting that they did not give DRK exclusive rights and lacked “any limitation whatsoever on the photographer’s authority to contract with other licensing agents.”  Thus, the non-exclusive license was insufficient to grant standing to DRK to pursue infringement claims.

DRK next argued that it became a legal owner of the copyrights by virtue of the Assignment Agreements. The Ninth Circuit likewise rejected this argument relying on its 2005 decision in Silvers v. Sony Pictures Entertainment, which held that the assignee of an accrued claim for copyright infringement could not maintain a copyright infringement claim if it had no legal or beneficial interest in the copyright itself.  The Ninth Circuit noted that all of the acts of infringement occurred prior to DRK’s entering into the Assignment Agreements and that even following the execution of the Assignment Agreements, the photographers retained the right to market and sell the covered photographers themselves and through other agents.  In essence, the Ninth Circuit concluded that the Assignment Agreements merely conveyed a “right to sue” to DRK that failed to comply with the Copyright Act; and thus failed to confer standing to pursue infringement actions under the Copyright Act.

Next, DRK argued that it had standing to sue because it was the beneficial owner of the subject copyrights.  The Ninth Circuit recognized that it had not been called upon to fully explore the extent of who may qualify as a beneficial owner and declined to do so in the DRK case.  In essence, DRK was arguing that the Representation and Assignment Agreements, while maybe not making it the legal owner of the copyrights at issue, rendered it a beneficial owner.  The Ninth Circuit concluded that this was nothing but an “end run” around the Copyright Act ruling that “to hold that DRK is a beneficial owner simply on the very basis that it cannot be deemed the legal owner would effectively negate our holding in Silvers and render portions of section 501(b) superfluous.”

Circuit Judge Marsha Berzon concurred in the Court’s ruling solely on the basis that she recognized that Silvers remained good law in the Ninth Circuit and thus, compelled the conclusion reached by the Court.  She wrote in her concurrence, however, that she continued to believe that Silvers was wrongly decided and that the Court should be more pragmatic in determining who had standing to pursue claims for copyright infringement.  Judge Berzon found it significant that DRK is authorized to license photographs on behalf of the photographers and has a “substantial interest” in how the photos it licenses should be used.  This should be sufficient in her view to confer standing for DRK to pursue copyright infringement claims.

Attorneys representing companies that are involved in the stock photography industry may want to revisit any applicable licensing agreements regarding stock photos to determine whether or not their client will have standing to pursue copyright infringement claims concerning the photos in their catalogues.

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com. 

The latest issue in the patent world is one no one would have expected – sovereign immunity.

How did this issue arise? Allergan, the company that makes the dry-eye drug Restasis, has employed an aggressive strategy in attempting to protect its $1.5 billion market by selling its Restasis patents to a Native American Tribe.  In September, Allergan sold the patents to the Saint Regis Mohawk Tribe in New York.  Because the Tribe is a sovereign nation, it can claim sovereign immunity from suits in federal court under the 11^th Amendment.  The validity of Allergan’s Restasis patents had been challenged by Mylan and several other generic drug manufacturers in the United States Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) in inter partes review (IPR) proceedings.  (An IPR is like a mini trial, in which both the patent owner and the challenger participate).  Immediately after acquiring the patents, Saint Regis moved to dismiss the IPRs on the grounds that the Tribe has sovereign immunity.  The PTAB has yet ruled.

Allergan brought this problem upon itself.  Allergan sued Mylan and several other generic drug manufacturers in the federal district court for the Eastern District of Texas for infringement of its Restasis patents.  The trial judge in that case is a judge on the Federal Circuit Court of Appeals who is sitting in the district court.

As is typical in patent infringement suits, the defendants filed IPRs in the PTAB, challenging the validity of Allergan’s patents.  The PTAB instituted the IPRs and began the process.  Final oral argument was set for September.  About one week before the hearing, Allergan announced that it had sold its Restasis patents to Saint Regis.  In that deal, Allergan sold six of its Restasis patents to Saint Regis and licensed them back.  Allergan obtained an  exclusive license for all FDA-approved uses, leaving Saint Regis with the rights to the patents for educational purposes.   After the deal was done, Saint Regis asserted sovereign immunity in the IPRs and sought to have the IPRs dismissed.

This move by Allergan triggered a firestorm from the generic drug manufacturer defendants, other drug companies, and Congress.  The defendants contended that Allergan’s deal with Saint Regis was a sham, and will harm consumers who need access to less expensive generic drugs that are of the same quality as the patented drugs.  In Congress, Senator Claire McCaskill has already introduced a bill to preclude Native American Tribes from asserting sovereign immunity in PTAB proceedings.  Senator McCaskill and other Senators have stated that Allergan’s tactic is anticompetitive and an attempt to improperly further the monopoly on its patents.

Meanwhile, in the district court, Allergan moved to add Saint Regis as a joint plaintiff, clearly trying to demonstrate that the deal is not a sham and that Saint Regis really is the patent owner.  In connection with this motion, Saint Regis agreed that it would waive its sovereign immunity for purposes of the litigation.  Not surprisingly, the defendants opposed Allergan’s motion.

Interestingly, the district court has now ruled, after holding a bench trial in early September, that four of Allergan’s patents are invalid as obvious.  In his decision, the judge was very concerned about Allergan’s deal with Saint Regis, stating that the deal was essentially an attempt to “rent” the sovereign immunity of a sovereign nation. The court said that sovereign immunity should not be a commodity that private companies could purchase to avoid proper challenges to their patents.

What will happen next?

• How will the district court rule on Allergan’s motion to add Saint Regis as a joint plaintiff? The courts ruing will depend on how many rights Allergan transferred to Saint Regis.  If Allergan transferred substantial rights, the court could find that Saint Regis is the patent owner, and grant the motion.  However, based on the court’ statements in its decision on invalidity, it appears that the court may deny the motion. Either way, because the district court judge is a Federal Circuit judge, his decision could affect how the Federal Circuit will rule when the issue comes before it.
• How will the PTAB rule on Saint Regis’ motion to dismiss the IPRs on the grounds of sovereign immunity?  Some experts believe that if the district court denies Allergan’s motion to add Saint Regis as a plaintiff in the litigation, the PTAB will conclude that Saint Regis is not really the patent owner and does not need to be a party to the IPRs, and will proceed with the IPRs despite Saint Regis’ claim of immunity.  Others think that the PTAB will decide that sovereign immunity does not apply in PTAB proceedings because these proceedings are not the same as federal court litigation.  Alternatively, it is possible that the PTAB will grant Saint Regis’ motion because in several prior cases, the PTAB has dismissed IPRs against state universities on sovereign immunity grounds.  However, even of the PTAB decides that sovereign immunity does apply, it might rule against Saint Regis if it determines that Saint Regis licensed all substantial rights back to Allergan.
• How will the PTAB rule on the validity of Allergan’s patents in the IPRs? The PTAB will make its decision based on the legal standards that apply in IPRs, which are different from those that the district court applied in the litigation.  In addition to determining the validity of the patents that the district court invalidated, the PTAB will have to decide the validity of two patents that the district court did not invalidate.
• What will Congress do about the 11^th Amendment immunity in these situations? Several Senators have described Allergan’s deal as a loophole that needs to be closed.  If Congress is serious about taking on drug companies and reducing prescription drug costs, this bill may be a winner.

Thus, it seems that Allergan’s strategy has a lot of problems.  After Allergan announced its deal in September, other drug companies began considering the same strategy.  Given the way things have turned out so far, however, these companies may now be reluctant to jump on the bandwagon.