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The City of New York has reignited the battle over the trademark TAVERN ON THE GREEN. Last month the City of New York filed a lawsuit for trademark infringement against Tavern on the Green International LLC, the successor-in-interest to Tavern on the Green operator, LeRoy Adventures, Inc. LeRoy Adventures operated Tavern on the Green from 1976 until approximately 2009 under a license from New York City.

In 1973 New York City and LeRoy entered into a license agreement for the operation of Tavern on the Green as a “restaurant and cabaret.” The license agreement provided that New York City had various rights over the operation of the facility, including approval of the manager, approval of employee uniforms, approval of use of signs or any other means of soliciting business, and the right to regulate the times and manner of operation. The City maintained the right of inspection at all times, and the City retained the right to terminate the license under numerous conditions, including unsatisfactory operations.

In 2009 when LeRoy and Tavern on the Green, LP lost a bid to renew the restaurant lease, they filed for bankruptcy protection and ceased operations. A fight over trademark rights quickly erupted. In 1978, LeRoy registered TAVERN ON THE GREEN with the United States Patent and Trademark Office for restaurant services. New York City filed suit seeking a declaration of its prior right under New York law to use the mark for its restaurant facility in Central Park, and to cancel LeRoy’s Federal trademark registration due to fraud on the USPTO.

In the lawsuit, the City established its own independent, common law right to the TAVERN ON THE GREEN trademark. Further, the City was able to show that LeRoy’s application to register the mark contained numerous misstatements and omissions of material facts, including the claim that 1973 was the date of first use when the City had used the mark for over three decades prior, and based thereon was able to cancel LeRoy’s registration on the grounds it was obtained fraudulently.

Ultimately, the City of New York, the bankruptcy trustee and Tavern on the Green International, LP entered into various agreements regarding the City’s ownership of the trademark and Federal registration and International’s right to use the mark. Specifically, the City and International entered into a “Use Agreement” in connection with International’s use of the mark for both products and restaurants outside of the City of New York. The Use Agreement restricted International’s use of the mark for restaurants within New York City and certain counties within the State of New Jersey. The Use Agreement included other restrictions on International’s use of the mark for products and services and included the requirement of a disclaimer.

On February 24, 2017 the City of New York sued International claiming that it breached the Use Agreement. Specifically, the City claimed that franchising material and other materials distributed by International failed “to use the disclaimers required by the [Use Agreement] on all products and promotional materials, by improperly trading on the goodwill associated with the City’s Tavern on the Green restaurant in direct violation of the [Use Agreement] and by falsely stating in promotional materials that it was a licensee of the City.” In the complaint, the City alleged trademark infringement and other related causes of action.

If the City can establish that International beached the Use Agreement, that such breach was not de minimis and the City complied with all applicable notice provisions, the City would be entitled to withdraw its consent to use the TAVERN ON THE GREEN trademark and pursue claims against International for infringement.

It is ironic that the impetus of the 2010 litigation is what provides the City with significant leverage in this current case. In the 2011 settlement with the bankruptcy trustee for Tavern on the Green LP, the City was assigned the Federal registration for TAVERN ON THE GREEN which was filed by LeRoy in 1978. With ownership of the Federal registration, the City has presumptive nationwide rights as of the date the application was filed in 1978. Had LeRoy not filed for Federal registration in 1978, the City’s trademark rights would have been based on common law and potentially geographically limited. As such, LeRoy or International’s use of TAVERN ON THE GREEN for a restaurant in Las Vegas might not be infringing.

In Life Technologies v. Promega Corporation, the U.S. Supreme Court addressed whether supplying a single component from the United States of a multicomponent invention assembled abroad constitutes patent infringement under 35 U.S.C. §271(f)(1).    Under §271(f)(1), a party can be liable for patent infringement if it supplies from the United States “all or a substantial portion of the components of a patented invention.”  Interpreting this statute in Promega, the Court determined that supplying one component is not enough to constitute infringement of a multicomponent invention because a single component is not “a substantial portion” within the meaning of this statute.

In this case, Promega was the exclusive licensee of the Tautz patent, which claims a toolkit for genetic testing that can be used in law enforcement as well as in clinical and research work.   Promega sublicensed the Tautz patent to Life Technologies.  Under the sublicense, Life Technologies’ patent rights were limited to manufacturing and selling kits for use in certain law enforcement fields.  Life Technologies was not given a license to manufacture or sell kits for use in clinical or research work.

The patented kit consists of five components.   Life Technologies manufactured four of the five components in the United Kingdom.  It manufactured the fifth component, an enzyme called Taq polymerase, in the United States and shipped it to the United Kingdom where it was combined with the other four components to form the kit.

This dispute arose when Promega alleged that Life Technologies began selling these kits in the clinical and research markets, which was outside the scope of Life Technologies’ license.  As a result, Promega sued Life Technologies alleging patent infringement under §271(f)(1), which prohibits the supply from the United States of “all or a substantial portion of the components of a patented invention” for combination abroad.

The jury found that Life Technologies had infringed the patent, but the district court granted judgment as a matter of law for Life Technologies, holding that §271(f)(1)’s phrase “all or a substantial portion” did not encompass the supply of a single component of a multicomponent invention.  The Federal Circuit reversed finding that a single important component could constitute a “substantial portion” of the components of an invention and that the Taq polymerase met that standard.  The Supreme Court, however, reversed the Federal Circuit holding that the supply of a single component of a multicomponent invention assembled abroad does not constitute patent infringement under §271(f)(1) because a single component of a multicomponent invention cannot be a “substantial portion.”   The Court found that the importance of the single component is irrelevant.

In reaching its conclusion the Supreme Court considered 1) whether the term “substantial portion” refers to a qualitative or quantitative measure, 2) whether a single component can ever constitute a “substantial portion,” and 3) whether the history of §271(f) supports the Court’s conclusion.

The Court first had to determine whether “substantial portion” refers to a qualitative or quantitative measure.  The Court acknowledged that the term “substantial” in isolation is ambiguous because in some instances it “might refer to an important portion” whereas in other instances it might refer “to a large portion.”  Promega argued that a quantitative approach would be too narrow and invited the Court to adopt a “‘case-specific approach’ that would require a factfinder to decipher whether the components at issue are ‘a substantial portion’ under either a qualitative or quantitative test.” The Court, however, declined to adopt Promega’s approach noting that it would compound the ambiguity rather than resolve it.  Instead, the Court looked to the text of the statute, including the language surrounding the word “substantial,” for clarification.  The Court pointed out that the surrounding words “‘all’ and ‘portion’ convey a quantitative meaning” rather than relative importance.  Further, the phrase “substantial portion” is modified by the phrase “of the components of a patented invention,” which according to the Court would be an unnecessary phrase if the intent had been a qualitative rather than quantitative meaning.  Therefore, in the context of this statute, the Court determined that the term “substantial portion” should be interpreted as a quantitative measure.

Applying the quantitative measure, the Court next had to determine, as a matter of law, whether a single component can be “a substantial portion” of a multicomponent invention.  Looking again to the text of the statute, the Court noted that §271(f)(1) “consistently refers to ‘components’ in the plural.”  For example, the Court explained that additional language in §271(f)(1) shows the statute “is targeted toward the supply of all or a substantial portion ‘of the components,’ where ‘such components’ are uncombined, in a manner that actively induces the combination of ‘such components’ outside of the United States.”

The Court further noted that the overall “structure of §271(f) reinforces this reading.”  Section §271(f)(2), the companion provision to §271(f)(1), prohibits supplying from the United States “any component of a patented invention that is especially made or especially adapted for use in the invention.”  The Court noted that the two provisions work in tandem under the Court’s interpretation because a party would be liable under §271(f)(1) for supplying more than one component whereas a party would be liable under §271(f)(2) for providing a single component if it was especially made or adapted for use in the invention.  Therefore, the Court found that only supplying a single component from the United States of a multicomponent invention cannot infringe under §271(f)(1).

Finally, the Court stated that “[t]he history of §271(f) bolsters” its conclusion.  Congress enacted 35 U.S.C. §271(f) in response to the U.S. Supreme Court’s ruling in Deepsouth Packing Co. v. Laitram Corp.  Under the law applicable in Deepsouth, the Court determined that making or using a patented product outside of the United States did not constitute patent infringement.  But with the subsequent enactment of §271(f), Congress expanded patent protection to cover certain instances where components of a patented invention are made in the United States but assembled in another country.  The Court found that its ruling in Promega “comports with Congress’ intent” because “[a] supplier may be liable under §271(f)(1) for supplying from the United States all or a substantial portion of the components (plural) of the invention, even when the components are combined abroad” and liable under §271(f)(2) for supplying even a single component “if it is especially made or especially adapted for use in the invention.”  The Court was persuaded that when “all components but a single commodity [rather than especially made or adapted] article are supplied from abroad, this activity is outside the scope of the statute.”

The Court expressly declined to decide “how close to ‘all’ of the components ‘a substantial portion’ must be” but rather held “only that one component does not constitute ‘all or a substantial portion’ of a multicomponent invention under §271(f)(1).”  Thus the Court left several questions open.  For example, how do you determine how many components are in a claimed invention?  And once you determine the number of components, how many must be supplied from the United States to constitute infringement under §271(f)(1)?   Is it a percentage of the total number of components?  Will courts look to the relative importance of the various components or will it be purely a numbers-based analysis?  What if the invention only has two components?  In that instance, are the terms “all” and “a substantial portion” synonymous?  The only certainty is that these unanswered questions will give rise to future litigation disputes.

Liability for copyright infringement can result when one downloads protected software without the copyright owner’s authorization.  The Ninth Circuit was recently tasked with exploring the scope and reach of copyright protection in such cases in Design Data Corp. v. Unigate Enterprise, Inc.

Design Data is the creator of a computer aided design (CAD) software program SDS/2.  SDS/2 is promoted by Design Data as offering a high quality steel in connection design and drawing production for 3D steel detailing. It uses building and engineering codes to produce detailed drawings and models of steel structural components for use in construction.  A user in creating a steel component design on SDS/2 would create what is called a “job file” that would contain all the information and files related to a particular project.

Unigate Enterprise is located in California and offers outsourced steel detailing services by marketing detailed CAD files created by contractors in China.  At least one of its Chinese contractors had used an unauthorized copy of SDS/2 and sent the resulting job files (“output”) to Unigate Enterprise.  Unigate Enterprise then sold those images to clients in the U.S.  Unigate Enterprise advertised on its website that it uses the SDS/2 program “if required;” however, it apparently never purchased a license to use SDS/2 from Design Data.

Unigate Enterprise also claimed that it had downloaded a free demo version of SDS/2.  Design Data does not offer a free demo of its software.  Design Data visited Unigate Enterprise’s California offices after it grew suspicious that Unigate Enterprise was using its SDS/2 software without a license.  Although there was no evidence that Unigate Enterprise had actually installed SDS/2 on the computers that Design Data were allowed to inspect; those computers did contain SDS/2 generated images and job files suggesting that the CAD program had been used in some fashion and that there were installation files for two versions of SDS/2 in addition to patch files that would allow a user to work around the software’s license protection on the Unigate Enterprise computers.

Based on this evidence, Design Data sued Unigate Enterprise for copyright infringement because of its alleged use of the SDS/2 software and its importation and distribution of SDS/2 generated images and files from outside the United States.  The trial court granted summary judgment to Unigate Enterprise on both of these claims and Design Data appealed this decision to the Ninth Circuit.

The Ninth Circuit began by noting that the unauthorized use of copyrighted software does not impose liability unless it is “significant enough to constitute infringement.”  The Ninth Circuit held that the lower court had erred in deciding that no infringement had occurred because the facts surrounding the alleged infringement were disputed.  For instance, Unigate Enterprise claimed that he had downloaded a “free demo” of the SDS/2 software but Design Data had offered evidence that it did not offer any such demos.  Design Gate further argued that the evidence that there had been SDS/2 generated files suggested that Unigate Enterprise had in fact put the SDS/2 software to use.

The Ninth Circuit found that there was a triable issue of fact as to whether infringement had occurred.  For instance, the evidence showed that Unigate Enterprise had intentionally downloaded a complete copy of SDS/2 and three patch files allowing it to circumvent the software’s licensing protection. Unigate Enterprise had also advertised that it would use SDS/2 software on client jobs “if required.”  Finally, there was evidence that Unigate Enterprise’s computers contained SDS/2 generated files and images.  The Ninth Circuit concluded that this evidence “raises a factual question whether [Unigate Enterprise’s] download was more than an ‘insignificant violation’ of Design Data’s copyright.”  Given that there had been numerous cases that have held upheld copyright infringement “under circumstances in which the use of the copyright work is of minimal consequence,” the Ninth Circuit concluded that it was error to grant summary judgment as to Design Data’s claim.

The Ninth Circuit however did affirm the granting of summary judgment as to Design Data’s importation and distribution claim.  The Ninth Circuit focused its inquiry here as to whether the copyright protection of the SDS/2 software program extended to the program’s output of images and job files.  The Ninth Circuit noted that there was a dispute among various courts as to how far the copyright protection should extend but noted that some authorities had suggested “that the copyright protection afforded a computer program may extend to the program’s output if the program `does the lion’s share of the work’ in creating the output and the user’s role is so `marginal’ that the output reflects the program’s contents.”  The Ninth Circuit decided to avoid having to resolve the split among authority because it concluded that, even assuming the most favorable legal authority applied, Design Data had not established that the SDS/2 program did the “lion’s share of the work” in creating the job files and images located on the Unigate Enterprise computers.  Given that, the Ninth Circuit affirmed the summary adjudication as to the importation and distribution claim brought by Design Data.

In 2015, the Federal Circuit Court of Appeals cast the net of patent infringement liability even more broadly, to cover direct infringement by “divided” (or “joint”) infringement.  Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (“Akamai V”).  In that case, the Federal Circuit established that a defendant can be liable for direct infringement of a method claim even when the defendant does not personally perform all of the steps of the method, as long as the steps performed by others are attributable to the defendant.  Id. at 1022.  The court held that the steps performed by another party are attributable to the defendant if: (1) the defendant “directs or controls” the other party’s performance; or (2) the parties form a joint enterprise.  Id.  The court further held that directing or controlling exists if two factors are met.  First, the defendant must “condition” the other party’s participation in an activity or receipt of a benefit on the other party’s performance of a step.  Second, the defendant must “establish the manner or timing” of the other party’s performance of the step.  Id. at 1023.  In Akamai V, the court emphasized that its new rule is flexible and that divided infringement may depend on the particular facts of a case.  Id.

In Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., 845 F.3d 1357 (January 12, 2017), the Federal Circuit put into practice its rule of divided infringement, demonstrating just how broad this theory of liability is.

Eli Lilly owned a patent covering a method of treating cancer patients with a chemotherapy drug after pretreatment with doses of folic acid and vitamin B12.  Teva and several other drug manufacturers prepared to make and market generic versions of the chemotherapy drug.  Eli Lilly sued the drug manufacturers for inducing infringement of the patent.

Inducing infringement is a type of indirect infringement.  In order to be liable for inducing infringement, the defendant must have the intent to cause another party to infringe the patent, and the other party must be a direct infringer.  35 U.S.C. § 271(b).  For example, a party induces infringement if it instructs another how to perform the steps of a patented method.

Eli Lilly contended that the defendant drug manufacturers induced physicians to infringe the patent by instructing them, in their written materials provided with the chemotherapy drug, how to pre-treat cancer patients with the folic acid and vitamin B12, and then treat with the chemotherapy drug.  Eli Lilly further contended that the physicians directly infringed the patent.  Eli Lilly agreed with the defendants that no one person performed all of the steps of the claimed method, but argued that this was a case of divided infringement.  The physicians were the direct infringers because they performed the steps of administering vitamin B12 and the chemotherapy drug, and they directed the performance of the patients in administering the folic acid to themselves.

The case was tried to the district court, who ruled that the defendants had induced infringement of the patent, based upon the physicians’ direct infringement.

The Federal Circuit affirmed the decision.  The court found that the district court had correctly determined that the physicians directed or controlled the patients’ performance in administering the folic acid.  The first prong of the “directed or controlled” test was met.  The physicians conditioned the patients’ participation in the chemotherapy drug treatment on the patients taking the folic acid.  The evidence presented by Eli Lilly showed that the physicians would not go forward with the chemotherapy drug treatment unless the patient had properly taken the folic acid.

The court dismissed the defendants’ arguments that the physicians were merely guiding their patients or that the condition had to be a legal obligation imposed on the patients.  The court emphasized that the analysis of attribution is not so narrow, and is fact-specific.

The court held that the second prong of the “directed or controlled” test was also met.  The physicians specifically instructed the patients on the dose and timing of the folic acid.  The patients carried out the physicians’ instructions in taking the folic acid.

Because the steps performed by the patients were attributable to the physicians, the physicians had directly infringed the patent.  The court then addressed the question of inducement.  The court held that the defendants had the specific intent to induce infringement by the physicians.  The defendants had provided clear directions to the physicians on all of the steps of the claimed method (how the chemotherapy drug should be administered, and the pretreatment with vitamin B12 and folic acid).

This case demonstrates that the doctrine of divided infringement is a very strong tool for patent owners and an unexpected trap for would-be infringers.

To read more Intellectual Property articles, visit our IP Law blog at http://www.theiplawblog.com.

On January 17, 2017, the United States District Court for the Northern District of California issued revisions to its Local Patent Rules requiring early disclosure of damages-related discovery and contentions. The revised rules are effective immediately in all patent cases pending in the Northern District.  Local Patent Rules are rules that apply to all civil actions filed in or transferred to the specific District Court which allege infringement of a utility patent or which seek a declaratory judgment that a utility patent is not infringed, is invalid or is unenforceable.  The Local Patent Rules govern the mandatory discovery disclosures that must be given relatively early in a patent case.  Many District Courts across the country have various versions of Local Patent Rules to help govern and streamline often vary complex patent cases.  The Local Patent Rules for the Northern District of California previously had detailed early disclosure requirements for infringement and invalidity positions, but generally not as to damages related issues.

Beginning under new Patent Local Rule 2-1(b)(5), the parties are now to provide the court at the Initial Case Management Conference – in addition to the prior requirements under Rule 2-1 which are still required and in place – with a “non-binding, good faith estimate of the damages range expected for the case along with an explanation for the estimates.”

Under Local Patent Rule 3-1, which relates to a patentee’s initial infringement contentions, patentees are now required to also disclose “the timing of the point of first infringement, the start of claimed damages, and the end of claimed damages,” with their initial contentions and in addition to the prior requirements.  Moreover, under Local Patent Rule 3-2, which governs the document production that must be made concurrent with the initial disclosures under Rule 3-1, the patentee must now also produce:

(1) all licenses and agreements “transferring any interest in any patent-in-suit;”

(2) all license agreements that are “comparable to a license that would result from a hypothetical reasonable royalty negotiation;”

(3) all documents and licenses “comprising or reflecting a F/RAND commitment or agreement with respect to the asserted patent(s);”

(4) documents sufficient to show “sales, revenues, costs and profits” of a patentee’s own products that it asserts practice the assert patent(s) in order “to preserve the right to recover lost profits based on such products;” and

(5) all other agreements that “otherwise may be used to support the party asserting infringement’s damages case.”

The patent’s initial infringement contentions and accompanying document production under Patent Local Rules 3.1 and 3.2 – including the damages related documents and disclosures just mentioned – must all be disclosed, identified, and produced fourteen days after the Initial Case Management Conference.

Local Patent Rule 3-4, governing an accused infringer’s document production accompanying its invalidity contentions, requires an accused infringer, 45 days after receiving the patentee’ initial infringement contentions and production, to now also produce:

1. “all agreements that the party opposing infringement contends are comparable to a license that would result from a hypothetical reasonable royalty negotiation;
2. documents sufficient to show the sales, revenue, cost, and profits for accused instrumentalities identified pursuant to Patent L.R. 3-1(b) for any period of alleged infringement; and
3. all agreements that may be used to support the party denying infringement’s damages case.”

Brand new Local Patent Rule 3-8 requires patentees to then serve “damages contentions” 50 days after the accused infringer’s invalidity contentions and production. The damages contentions must “identify each of the categories of damages it is seeking for the asserted infringement, as well as its theories of recovery, factual support for those theories, and computations of damages within each category.”  The listed damages categories include: lost profits, price erosion, convoyed or collateral sales, reasonable royalty, and any other form of damages.

Under brand new Local Patent Rule 3-9, the accused infringer then must provide responsive damages contentions 30 days after the patentee’s damages contentions. The accused infringers responsive damages contentions must “identify specifically how and why it disagrees with” patentee’s damages contentions and “include the party’s affirmative position on each issue.”

The Northern District’s new Patent Local Rules represent a significant change that could help quicken and streamline litigation by requiring parties to put a definitive dollar figure on disputes early on in the litigation.  The new rules could  also streamline damages related discovery because the rules require parties to self-identify and produce damages documents, theories, and amounts early in the litigation, eliminating the need for later lengthy discussions amongst the parties and their attorneys about what needs to be produced and when it has to be produced.  However, the new rules will also mean more upfront work and cost for parties and their attorneys.  And, it will also require plaintiffs to conduct more damages related investigations before filing suit in ensure they are ready to meet their initial disclosure requirements.