IP Update, Vol. 10, No. 6, June 2007
June 2007
Patents / Obviousness - Over Three Dissents, Federal Circuit Denies Rehearing in Norvasc® Decision
Patents / Public Use - “Public Use” Means Use for Invention’s Intended Purpose
Patents / Lost Profits - No Lost Profits from Sales Prior to Patentee’s Market Entry
Patents / Interferences - Appeals Board Must Base Decisions on Record, Not Its Own Expertise
Patents / Damages - Reasonable Royalty Calculation—Expanding Beyond “Established” Royalties
Patents / Litigation / Procedure - How Many Feet of Fruit Does It Take to Be a “Successor”?
Trademark / TTAB Practice - ASPIRINA Merely Descriptive of Analgesic Goods
Trademarks / Litigation - More Than Breach Required to Set Aside Consent Judgment
Copyrights / Fair Use - Google’s Use of Thumbnails of Perfect 10’s Copyrighted Images Are Fair Use
Patents / Legislation - Recent Developments in Patent Reform Legislation
Failure to Update Examiner of Status of Related Applications May Result In Inequitable Conduct
By Astrid R. Spain and Demetria A. Buncum
Affirming a district court ruling which had taken the relatively rare step of holding an asserted patent unenforceable due to inequitable conduct, the U.S. Court of Appeal for the Federal Circuit emphasized several categories of information that a patent prosecutor must disclose to the U.S. Patent and Trademark Office (USPTO) in order to satisfy a patent applicant’s duty of candor. McKesson Information Solutions, Inc. v. Bridge Medical, Inc., Case No. 06-1517 (Fed. Cir., May 18, 2007) (Clevenger, J.; Newman, J., dissenting).
The district court found that McKesson’s patent was unenforceable due to inequitable conduct during prosecution based on failure by the patent attorney to submit three material pieces of information during prosecution of three related applications, two examined by one examiner (Trafton) and a third by a different examiner (Lev). The materials included a prior art patent that had been brought to the attorney’s attention by Examiner Lev in a co-pending application, the rejection of claims in that same co-pending application and the allowance of another co-pending application.
The first item of non-disclosed information was a prior art patent that had been brought to the patent attorney’s attention by Examiner Lev. While the patent attorney notified Examiner Trafton of the co-pending application, the cited prior art patent was not expressly disclosed. The Court concluded that the prior art patent was material and non-cumulative as it described the relevant three-node system (relied on by applicant for patentability in the application before Examiner Trafton) in greater detail than any other reference. The Court concluded that the high materiality of the reference and lack of a credible explanation for the non-disclosure supported the conclusion that the district court did not commit clear error. In particular, the Court found that the prosecuting attorney’s cancellation of claims directed to both a three-node communication and a unique address in response to a rejection in view of the prior art patent gave rise to an inference that he recognized the patent would present a significant obstacle to patentability in the related application.
The second item of non-disclosed information was the prosecuting attorney’s failure to inform Examiner Trafton about the grounds of rejection of substantially similar claims pending before Examiner Lev. The Court analogized the facts to those in its own precedent, Li Second Family Ltd. v. Toshiba Corp., and found significant similarities. As in Li Second Family, the examiner of one application (Trafton) was not apprised of the adverse decisions by another examiner (Lev) in a closely related application. The patent attorney failed to mention the adverse decisions in the related application, and the patent attorney also made statements to the examiner inconsistent with the other examiner’s decisions, i.e., that nothing in the prior art disclosed relevant three-node communication. The Court also rejected the argument that disclosure to Examiner Trafton of the existence of the application being examined by Examiner Lev was sufficient to discharge the attorney’s Rule 56 duty of disclosure.
Finally, the Court held that failure to disclose the allowance of a different co-pending application constituted a third instance of inequitable conduct. According to the Court, the allowance gave rise to a “conceivable double patenting rejection” and therefore should have been disclosed. The Court affirmed on this basis despite the fact that the same USPTO examiner reviewed both applications, citing the Manual of Patent Examining Procedure (MPEP) provision that counsels attorneys not to assume that an examiner remembers every detail of every file.
Judge Newman dissented. In her view, there was no clear and convincing evidence of deceptive intent simply because the prosecuting attorney did not inform the examiner of a related case of common parentage or of a reference cited in the related case. “To avoid the inequity resulting from litigation driven distortion of the complex procedures of patent litigation, precedent firmly requires that the intent element … must be established by clear and convincing evidence of deceptive intent—not of mistake, if there were such, but of culpable intent.”
Practice Note: This decision significantly increases the extent to which the duty of candor extends to activities occurring during prosecution of related applications.
Over Three Dissents, Federal Circuit Denies Rehearing in Norvasc® Decision
By Astrid R. Spain
With three judges filing dissenting opinions, the U.S. Court of Appeals for the Federal Circuit denied Pfizer’s petition for rehearing and rehearing en banc of its April 2007 decision finding a new salt form of a composition obvious in view of the prior art and holding that a motivation to combine references can be gleaned from the nature of the problem to be solved. Pfizer Inc. v. Apotex, Inc., Case No. 06-1261 (May 21, 2007) (Michel C.J.; Newman J.; Lourie J.; Rader J., dissenting)
Pfizer owns U.S. Patent No. 4,879,303 (the ’303 patent), which relates to amlodipine besylate, marketed as Norvasc®. Pfizer was previously awarded U.S. Patent No. 4,572,909 (the ’909 patent), which discloses 10 pharmaceutically acceptable acid addition salts of amlodipine and describes maleate as the preferred salt. Pfizer scientists subsequently encountered two problems with the amlodipine maleate tablet formulation: chemical instability and stickiness. After testing seven other acid addition salts of amlodipine, Pfizer settled on amlodipine besylate and filed a further U.S. patent application that matured into the ’303 patent. During prosecution, the examiner initially rejected the claims as obvious over the ’909 patent in view of secondary references. Pfizer overcame the rejection by filing a declaration from one of its scientists stating that the besylate salt of amlodipine is a unique compound and not an obvious one.
As reported in the IP Update (Vol. 10, No. 4), the original panel decision stated that “obviousness cannot be avoided simply by a showing of some degree of unpredictability in the art so long as there was a reasonable probability of success” and pointed to Pfizer’s supplemental FDA filing, which indicated that the besylate salt of amlodipine would work for its intended purpose. The panel also rejected Pfizer’s assertion that amlodipine besylate would have been, at most, obvious to try, noting that only one parameter needed to be varied via routine testing and that the prior art taught a specific approach to the problem rather than only a “general approach that seemed to be a promising field of experimentation.” The panel further rejected the district court’s finding of unexpected results because the record showed no evidence of what the skilled artisan would have expected. Summarizing its findings, the panel concluded that “[a]t most, then, Pfizer engaged in routine, verification testing to optimize selection of one of several known and clearly suggested pharmaceutically acceptable salts to ease its commercial manufacturing and marketing of the tablet form of the therapeutic amlodipine.” Pfizer subsequently filed a petition for a rehearing en banc.
Although en banc rehearing was denied, three judges dissented. In her dissent, Judge Newman accused the panel of misapplying the obvious-to-try standard as well as declining to consider the unexpected result represented by the stability and lack of stickiness of the besylate salt. Judge Newman alleged that the panel changed “the criteria and analysis of patentability.” Judge Lourie, in his dissent, charged the panel with erring in its legal determinations and predicted that the panel’s errors will confuse the law relating to the rebuttal of a prima facie case of obviousness for a chemical compound. Judge Rader, in the final dissent, noted that three separate district courts held trials involving the patent in suit and came to the same factual conclusion regarding the non-obviousness of amlodipine besylate. Echoing Judge Lourie’s dissent, Judge Rader concluded that, given that the district court’s factual determinations were not clearly erroneous, the panel should have deferred to those factual findings. With regard to the panel’s “obvious to try” analysis, Judge Rader noted that “[w]ith unpredictable pharmaceutical inventions, this court more wisely employs a reasonable expectation of success analysis,” and since salt selection is unpredictable, there would be no reasonable expectation of success in this case.
“Public Use” Means Use for Invention’s Intended Purpose
By Paul Devinsky and Thomas George
Addressing whether a “public use” resulted when an ergonomic keyboard not connected to any device (e.g., a computer) was publicly displayed more than one year prior to the application filing date, the U.S. Court of Appeals for the Federal Circuit overturned a summary judgment that the patents in suit were invalid under § 35 U.S.C. § 102(b) because the keyboard was not used in public to enter data into a computer. Motionless Keyboard Co. v. Microsoft Corp., Case No. 2005-1497 (Fed. Cir., May 29, 2007)(Rader, J.).
Motionless Keyboard Company (MKC) is the owner of the U. S. patents directed respectively to an ergonomic keyboard designed to accommodate the architecture of the human hand, where only slight finger gestures are needed to actuate the keys and to a hand-held device that frees the thumb to actuate the keys within a keyboard disposed entirely within a cavity. The inventor developed a prototype keyboard that allegedly embodied both patents; the prototype was designated the Cherry Model 5. MKC sued Microsoft and others for infringement of the two patents.
The inventor, Gambaro, disclosed the prototype to various people, including his business partner, a friend, potential investors and a typing tester. In all these disclosures, except for the typing tester, the prototype was not connected to a computer or any other device. The district court reasoned that these disclosures evidenced that the invention entered the public domain prior to the critical date because the inventor’s business partner was under no secrecy obligation and that, notwithstanding a non-disclosure agreement (NDA), the demonstrations to potential investors were public uses. MKC appealed.
The Federal Circuit reversed, citing In re Smith and noting that under § 102(b), a “public use” means any use of the claimed invention by a person other than the inventor who is under no limitations, restrictions or obligation of secrecy to the inventor. Because the prototype was not connected to any device, the Court ruled that the disclosures did not amount to “public use” because these disclosures only visually displayed the keyboard design without putting it into use, i.e., without disclosure of the prototype’s ability to translate finger movements into actuation of keys to transmit data.
With respect to the typing tester, testing was performed after the critical date of one patent but prior to the critical date of the other. The typing tester signed a NDA on the same day that the typing test was performed, and the testing was only done once. The Court ruled that the typing test did not amount to a “public use” because it was merely a one-time typing test coupled with a signed NDA.
Practice Tip: If the claimed invention is publicly disclosed before the critical date, then determine if the invention was used for its intended purpose (the purpose can be found, e.g., in the specification or the preamble of the claim); if it was displayed but not used for its intended purpose, then the display will not be a “public use.” Even where a claimed invention is used for its intended purpose prior to the critical date, the issue of whether a § 102(b) “public use” arose must be analyzed based on factors such as the number of uses, whether the uses were for testing purposes (i.e., experimental use) and whether the use occurred under some restriction such as a NDA.
No Lost Profits from Sales Prior to Patentee’s Market Entry
By Rachel Repka
The U.S. Court of Appeals for the Federal Circuit reversed the jury’s award of lost profit damages and the district court’s grant of judgment as a matter of law (JMOL) that the defendant was personally liable for inducing patent infringement. Wechsler v. Macke Int'l Trade, Inc., Case Nos. 05-1242, -1243 (Fed. Cir., May 18, 2007) (Prost, J.).
Defendant O’Rourke is president, lone stockholder and sole employee of Macke International Trade. O’Rourke was sued by Wechsler for patent infringement. At the time of the lawsuit, Macke was selling the accused device, but subsequently took the device off the market. Approximately one year after Macke stopped selling the device, Wechsler began to manufacture and sell a similar product.
On motions for summary judgment, the district court held that Mr. O’Rourke was not an alter ego of Macke International and was not personally liable for infringement. Following trial, the jury returned a special verdict, finding Macke and O’Rourke willfully infringed and granted Wechsler lost profits and reasonable royalties for the infringement. The jury, however, found that O’Rourke was not personally liable for inducing Macke’s infringement. Nevertheless, the district court granted Wechsler’s motion for JMOL that O’Rourke was personally liable for inducing infringement. Macke appealed.
The Federal Circuit overturned a jury verdict that Wechsler was entitled to lost profits damages. Generally, there can be no lost profits if a patentee is not selling a product. The “only exception is where the patentee has the ability to manufacture and market a product, but for some legitimate reason does not.” Even then, “[o]nly if it is indicative of the ability to manufacture and market the patented device during the period of infringement is it relevant.” Here, the Court concluded that, “despite his later success manufacturing and marketing a product, Wechsler lacked the capability to manufacture his device during the period of infringement.” Further, evidence did not show Macke’s infringing sales pre-empted subsequent sales by Wechsler or eroded the market price.
Similarly, in reversing the district court’s grant of JMOL that O’Rourke was personally liable for inducing patent infringement, the Court emphasized the distinction between a finding of willful infringement of a company and a finding of personal liability for inducing willful infringement by a corporate officer. The Court said, “personal liability for inducement must be supported by personal culpability … requires the officer to have possessed a specific intent to ‘aid and abet’ the infringement.” On the other hand, willful infringement “is whether the infringer had a good faith belief that the patent was invalid and/or not infringed.”
Appeals Board Must Base Decisions on Record, Not Its Own Expertise
Contact: Paul Devinsky
In an appeal of an interference decision, the U.S. Court of Appeals for the Federal Circuit reversed a decision of the Board of Patent Appeals and Interferences (the Board) of the U.S. Patent and Trademark Office (USPTO) because the Board impermissibly relied on its own expertise to reach a conclusion not supported by substantial evidence in the record. Robert D. Brand v. Thomas A. Miller, Case No. 06-1419 (Fed. Cir., May 14, 2007) (Dyk, J.).
U.S. Patent No. 5,865,232 naming as inventor Thomas Miller of Miller Veneers is directed to a method of more efficiently cutting wood veneer from logs. U.S. patent application Serial No. 09/377,120 names Robert Brand, of Capital Machine Co., as an inventor and claims the same invention. Miller was one of Capital’s customers, and the two companies had had a close working relationship. Miller argued that he was the first to conceive and reduce to practice. Miller further argued that Brand had derived the invention from Miller.
The Board denied Miller’s priority claim, which he did not appeal. Miller based his derivation argument on two drawings that he had allegedly shown Brand before Brand’s conception of the invention. The Board accepted Miller’s argument, reasoning that one skilled in the art would have recognized the suitability of the subject of one of the drawings for securely supporting a component in a position depicted in the other drawing. Furthermore, the Board held that one of the drawings alone was sufficient to teach one of ordinary skill in the art how to practice the invention. However, the Board did not cite any testimony or any support in the written record to support its conclusions.
On appeal, the Federal Circuit found that the Board’s decision was not supported by the evidence in the record. According to the Court, because the dispute was “a contested proceeding involving ‘resolution of conflicting, private claims to a valuable privilege,’ it is particularly important that the agency’s decision on issues of fact be limited to the written record made before the agency.” The Court noted that a patent interference is a contested case, and the Board must act as an “impartial adjudicator.” The Court reminded the Board that “it is impermissible for the Board to base its factual finding on its expertise, rather than on evidence in the record, although the Board’s expertise appropriately plays a role in interpreting record evidence.” Here, the Board found that a person of skill in the art would have determined how to make the invention from drawings without any testimony to that effect. Thus, the Court concluded that the Board “substituted” rather than “interpreted” the evidence.
Reasonable Royalty Calculation—Expanding Beyond “Established” Royalties
By Sabrina Chang
The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s calculation of “reasonable royalties” that accounted for intangible benefits conferred on the market by the patentee’s licensing program. Monsanto Co. v. McFarling, Case Nos. 05-1570, -1598 (Fed. Cir., May 24, 2007) (Perry, J.).
In order to purchase Monsanto’s patented, genetically modified soybean seeds, farmers were required to sign a “Technology Agreement,” which granted them a license to use the seeds, subject to various obligations: payment of a “Technology Fee” directly to Monsanto; a promise to purchase seeds only from authorized Monsanto dealers; and a promise to use the seeds only for that season. McFarling violated the terms of this agreement by improperly replanting seeds containing the patented technology. Monsanto successfully sued for infringement.
Pursuant to 35 U.S.C. § 284, Monsanto sought damages equivalent to “reasonable royalties” expected from the infringing period. The district court denied McFarling’s motions to limit these damages to only the Technology Fee, or $6.50 per bag of seed, and the jury returned an award of $40 per bag of seed.
The district court found, and the Federal Circuit affirmed, that because the Technology Agreement imposed an obligation to purchase from authorized distributors that charged an additional $19 to $22 per bag, “[i]n effect, the amount … that can be characterized as a pure royalty payment was $25.50 to $28.50.” However, despite recognizing that “[a]n established royalty is usually the best measure of a ‘reasonable’ royalty,” the Federal Circuit held that it would have been improper to limit the calculation of Monsanto’s damages to only that amount.
Evidence presented at trial showed that the licensing program was of great intangible value to Monsanto by protecting its reputation among the farmers and providing leverage with seed distributors. Even though it is difficult to assign a dollar value to these benefits, they “nonetheless justify the jury’s finding that a reasonable royalty for a license to engage in conduct like Mr. McFarling’s would exceed the amount of the payments made by farmers who participated in the licensing program.”
The Court also relied on expert testimony to determine the actual dollar benefit conveyed to the farmers in having access to Monsanto’s technology through increased crop yield and cost savings. The Court noted that, based on those advantages alone, it was reasonable for the jury to suppose that, in a hypothetical negotiation, a purchaser would pay a royalty of $40 per bag for the seed. Noting that a jury’s award will be affirmed unless “grossly excessive or monstrous, clearly not supported by the evidence or based only on speculation or guesswork,” the Court found sufficient reasons to affirm the jury’s verdict.
Practice Note: Under McFarling, practitioners will have more evidence at their disposal to define a “reasonable royalty.” The Patent Reform Act of 2007 reflects the same flexible standard by proposing that in addition to the terms of non-exclusive licensing agreements, courts “may also consider … any other relevant factors under applicable law.” Sec. 5(a)(4).
Inventor Need Only Appreciate Invention Corresponding to Court for Reduction to Practice
By Nathaniel McQueen
In addressing the issue of the extent to which a party need appreciate an embodiment of its invention to show that the party was first to actually reduce the claimed invention to practice, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a judgment by the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (the Board), finding that in terms of the scope of the interference count, the appellant did appreciate the invention at the time of its alleged actual reduction to practice. Henkel Corp. v. Proctor & Gamble Co., Case No. 06-1542 (Fed. Cir., May 11, 2007) (Linn, J.)
Henkel and P&G each invented a dishwashing tablet comprised of a solidified solution (or melt) portion and a compressed portion that dissolved at a faster rate than the melt portion. In an interference proceeding concerning the invention, the Board awarded priority to P&G based on the priority date of its application for patent being earlier than the priority date of Henkel’s two German priority applications. During the interference proceeding, Henkel argued priority on the basis that it had both conceived and reduced the invention to practice at the same time.
Henkel’s argument relied on the evidence that its inventors had observed that the melt region of the tablet does not dissolve in the pre-wash cycle, whereas the compressed region of the same tablet lost about 30 percent of its weight during the same cycle. Additional research showed that tablets with a melt region lost a smaller percentage of their weight compared to tablets without a melt region. P&G argued that in order to measure comparative dissolution rates, samples of compressed and melt regions had to be apportioned into equal weights and tested at a constant temperature in separate compartments. Although the Board disagreed with P&G’s standard, the Board held that Henkel’s inventors had failed to appreciate that which they had invented contemporaneously with their conception and reduction to practice because the inventors had not calculated a specific measurement of dissolution rates. Henkel appealed.
The Federal Circuit reversed, finding that the Board held Henkel to a more stringent standard than warranted for the count in interference. The count did not recite specific dissolution rates, only that one portion of the tablet dissolves faster than the other. Since Henkel’s inventors had shown that the two portions of the tablet dissolved at different rates, the Court held that Henkel had enough evidence to demonstrate that its inventors appreciated that the tablet met the “faster rate” limitation as broadly recited in the count. “As a matter of law, we do not require that a junior party in an interference demonstrate that it recognized the exact language of the ultimate count—only the subject matter of the invention.”
Patents / Litigation / Procedure
How Many Feet of Fruit Does It Take to Be a “Successor”?
By Paul Devinsky
In a procedurally complex case spawning a virtual tutorial on civil procedure (Fed. R. of Civil Pro. 12 (b)(6) and 15(a)), the U. S. Court of Appeals for the Federal Circuit, applying regional circuit law, has construed defendants status as a “successor” to a release and settlement agreement and affirmed the dismissal of a counter-claim that the defendant did not replead in response to an amended complaint. General Mills, Inc. v. Kraft Foods Global, Inc., Case Nos. 06-1569, -1606 (Fed. Cir., May 16, 2007) (Linn, J.).
General Mills sells rolled food items under the brand name Fruit by the Foot®. General Mills sued Farley for infringement of certain patents, a dispute resolved through a settlement agreement that released General Mills patent claim and granted Farley (and its successors) a covenant not to sue for past, current or future infringement. “Farley” is defined in the settlement agreement to include Farley’s “parent corporations, subsidiaries, heirs, executors, administrators and corporate predecessors and successors.” (Emphasis added). The settlement agreement also contained various provisions that limited assignment or transfer of rights under the agreement. Specifically, Farley was required to transfer its entire rolled food product business, including all assets, goodwill and trademarks, to the party to whom the rights and obligations are being assigned.
Through an intermediate transaction, Kraft succeeded to the entire rolled fruit product business of Farley. Afterward Kraft transferred certain Farley assets, including the Farley trademark and goodwill, to an entity known as Catterton, but retained a portion of the original Farley assets and Farley’s rolled food business. Kraft later sold the remainder of its rolled food business and transferred whatever rights it had under the settlement agreement to Kellogg.
General Mills brought this action against Kraft, whereupon Kraft filed an answer and a counterclaim alleging that General Mills breached the settlement agreement by filing suit. After General Mills replied to Kraft’s counterclaim, Kraft moved for summary judgment. Subsequently, General Mills filed an amended complaint in which it reasserted the patent infringement claim from the original complaint and asserted a new breach of contract claim, alleging the Kellogg transaction constituted a breach of settlement agreement.
Kraft moved to dismiss both counts of the amended complaint under Fed. R. Civ. P. 12(b)(6). However, Kraft never answered the amended complaint or reasserted its counterclaim. The district court granted Kraft’s motion to dismiss the patent infringement claim and declined to exercise jurisdiction over the remaining state-law contract claim. After entry of judgment, Kraft sought guidance from the district court as to how to proceed with its counterclaim. The district court explained that because Kraft did not reassert its counterclaim in response to the amended complaint, no counterclaim was pending when the district court entered judgment and that the judgment was therefore final and complete. Both parties appealed.
Notwithstanding the fact that the settlement agreement specified Minnesota law, General Mills argued that, under Federal Circuit law, patent licenses are personal and non-transferable. Citing Rhone-Poulenc Agro and rejecting this contention, the Court noted that its “case law recognizes … the “need for a uniform national rule that patent licenses are personal and non-transferable in the absence of an agreement authorizing assignment.”
Next, the Court rejected General Mills argument that the Catterton deal divested Kraft of any rights it might have had under the settlement agreement because without all of the Farley assets Kraft cannot be “Farley” under the settlement agreement. The Federal Circuit noted that the settlement agreement does not prohibit Farley’s retention of the settlement agreement and sale of other assets. Because the Catterton transaction did not purport to assign Kraft’s rights under the settlement agreement, the Court found that restrictions imposed by the settlement agreement simply did not apply to the Catterton deal. The Court pointedly noted that while “General Mills and Farley could have agreed to impose on Farley or Farley’s successor ongoing obligations such as the retention of specified assets, they did not do so. There is simply nothing in the contract that requires Kraft to retain all or any particular assets of the Farley business to preserve Kraft’s status as successor.”
As for its counter-claim, Kraft argued that its timely filing of a Rule 12(b)(6) motion to dismiss tolled the deadline for filing a responsive pleading to the amended complaint until 10 days after the motion was ruled upon. The Federal Circuit noted that the relevant tolling provision is Fed. R. Civ. P. 12(a)(4)(a) and that, under that rule, the filing of a motion to dismiss does not extend the time for filing an answer to an amended complaint. Rather, the Court noted that the deadline for responding to an amended complaint is the 10-day period established by Fed. R. Civ. P. 15(a).
Practice Note: The Court specifically declined to speak to whether the license interpretation rule articulated in Rhone-Poulenc applies in contexts where the parties have not agreed to their own assignment provisions or where other sources of law, such as the Bankruptcy Code, might trump ordinary contract provisions. Another take-away for practitioners is that patent owners, when drafting transfer provisions in license or settlement agreements, are advised to address the requirements (if any) contemplated regarding the retention of all or part of the transferred assets by the initial transferee.
ASPIRINA Merely Descriptive of Analgesic Goods
By Philip Canelli
A divided panel of the U.S. Court of Appeals for the Federal Circuit upheld the Trademark Trial and Appeal Board’s (TTAB’s) mere descriptiveness refusal of the mark “ASPIRINA” for analgesics. In re Bayer Aktiengesellschaft, Case No. 06-1279 (Fed. Cir., May 24, 2007)(Moore, J.; Newman, J. dissenting).
In response, Bayer asserted that the ASPIRINA mark is entitled to U.S. registration because Bayer owns trademark registrations for ASPIRINA in 34 countries, that ASPIRINA is a coined term having no specific meaning in any language, that the term is used only as a trademark for its goods and that ASPIRINA has no other source of origin. Bayer also argued that because of the differences in spelling, pronunciation and meaning, consumers will not view ASPIRINA as merely descriptive.
Applying the substantial evidence standard of review, a panel majority found that despite recognized conflicts in the evidentiary record, the Court deferred to the TTAB’s conclusions that foreign trademark registrations alone are not relevant to U.S. consumer perceptions and that the term ASPIRINA is sufficiently similar to the Spanish word for “aspirin.” The Court therefore affirmed the TTAB’s Section 2(e)(1) refusal to register on the ground that the mark is merely descriptive of analgesics.
In dissent, Judge Newman asserted that the issue is not one of extra-territoriality of unregistered marks, but one of the appropriateness of registration of a well-known foreign mark when the legal requirements for U.S. registration have been met. Judge Newman asserted that “the evidence and the great weight of usage show ASPIRINA as a trademark.” Further, commercial policy and international treaty obligations do not favor depriving trademark owners of valuable commercial rights.
Practice Note: Bayer may try to seek registration under Section 2(f) of 15 U.S.C. 1052, which permits registration of marks that, despite not qualifying for registration in light of Section 2(e), have nevertheless “become distinctive of the applicant’s goods in commerce.” Thus, Section 2(f) is not a provision on which registration can be refused, but is a provision under which an applicant has a chance to prove that he is entitled to a federal trademark registration.
More Than Breach Required to Set Aside Consent Judgment
By Sarah Brown
Weighing in on when it is appropriate to set aside a consent judgment stemming from a trademark infringement dispute, the U.S. Court of Appeals for the Sixth Circuit held that breach of a settlement agreement that is the basis for a consent judgment is not sufficient grounds by itself to set aside the judgment. Ford Motor Co. v. Mustangs Unlimited, Inc., Case No. 06-1567 (6th Cir., May 24, 2007) (Moore, C.J.).
Ford and Mustangs had settled a case Ford brought against Mustangs for trademark counterfeiting, infringement, dilution and unfair competition. Their settlement agreement was the basis for a consent judgment entered by the district court. Ford believed Mustangs had breached the settlement agreement and moved the district court to set aside the consent judgment under Rule 60(b)(6), which allows a judgment to be set aside for “any other reason justifying relief from the operation of the judgment.” The district court vacated the consent judgment, and Mustangs appealed, arguing that Ford had not shown that “extraordinary” or “exceptional” circumstances justified setting aside the judgment.
In its decision, the Court noted the public policy arguments in favor of finality of judgments on the one hand and settlement agreements on the other. The Court began by citing its precedents holding that “exceptional or extraordinary circumstances” are required to justify relief under Rule 60(b)(6), circumstances not covered by Rule 60(b)(1)-(5). The question therefore was whether breach of a settlement agreement alone constitutes “exceptional or extraordinary circumstances.” The Court observed that a circuit split existed on the issue of whether breach of a settlement agreement entitles the non-breaching party to relief. The Third and Fourth Circuits have held that breach of a settlement agreement does not, without more, justify setting aside a consent judgment under Rule 60(b)(6). Both circuits noted that the non-breaching party has the option of bringing a suit to enforce the settlement agreement. The First and Ninth Circuits, on the other hand, have held that breach of a settlement agreement incorporated into a court judgment entitles the non-breaching party to relief from the judgment.
The Court agreed with the former group, holding that breach of a settlement agreement does not per se justify relief from a court judgment under Rule 60(b)(6). Adopting the Fourth Circuit’s interpretation of the Court’s earlier holding in Aro, the Court said such relief is only to be granted when required in the interests of justice. The Court found that the district court’s opinion offered no reasoning supporting a finding of exceptional or extraordinary circumstances that would justify setting aside the consent judgment. However, the Court did not rule out the possibility that a more thorough evaluation of the facts in the case might in the end justify the relief Ford requested. The Court remanded the case for a determination of whether exceptional circumstances existed.
Google’s Use of Thumbnails of Perfect 10’s Copyrighted Images Are Fair Use
By Christine Pepe
In holding that Perfect 10 was unlikely to succeed in overcoming Google’s fair use defense, the U.S. Court of Appeals for the Ninth Circuit reversed the district court’s ruling that Google’s thumbnail versions of Perfect 10’s images constituted direct infringement and vacated the preliminary injunction. Perfect 10, Inc. v. Amazon.com (No. 06-55405) and Perfect 10, Inc. v. Google Inc. (Case Nos. 06-55406, -55425) (9th Cir., May 16, 2007) (M.D. Smith, J.).
With regard to the in-line linking to images, the Court remanded for further fact finding on the issues of contributory infringement by both Google and Amazon and whether they are entitled to safe harbor immunity under the Digital Millennium Copyright Act (DMCA).
The plaintiff, Perfect 10, markets and sells copyrighted images of non-surgically enhanced nude models and operates a related subscription website on the Internet for “member only” viewing of certain images. Perfect 10 has also licensed a third party to sell and distribute Perfect 10’s reduced-size copyrighted images for download to cell phones. However, certain website publishers republish Perfect 10’s images on the Internet without authorization. Once this occurs, Google’s search engine may automatically index the webpage containing these images and provide thumbnail versions of images in response to user inquiries. When a user clicks on the thumbnail version of an image returned by a Google search, the user’s browser accesses the third-party webpage and “in-line links” to the full-sized infringing image stored on the website publisher’s computer. This image then appears on the lower portion of the window on the user’s computer screen framed by information from Google’s webpage.
In separate actions against Google and Amazon (now consolidated), Perfect 10 sought a preliminary injunction to prevent Google and Amazon from infringing or otherwise contributing to the infringement of Perfect 10’s photographs and from linking to websites that provide infringing versions of the photographs.
Because it merely in-line linked to the thumbnails on Google’s server and to full-size images on third-party websites, the district court refused to enjoin Amazon. However, the district court did enjoin Google’s use of the thumbnails of Perfect 10’s images, noting that a computer owner that stores an image as electronic information and serves that electronic information directly to the user is displaying the electronic information in violation of a copyright holder’s exclusive display right. Applying this definition, the district court held that Perfect 10 was likely to succeed in its claim that Google’s display of the thumbnails constituted direct infringement. However, the district court held that Perfect 10 was not likely to succeed in its claim that Google’s “in-line linking” to full-size images constituted direct infringement, in violation of Perfect 10’s display and distribution rights.
The Ninth Circuit affirmed the district court findings that Perfect 10 was unlikely to succeed in proving direct infringement. Specifically, with regard to the in-line linked images, the Court held that because in-line linking does not involve communicating a copy of the image, but rather only HTML (Hyper Text Markup Language) instructions that direct a user’s browser to a website publisher’s computer that stores the image, there is no direct infringement. Moreover, the Court held that Perfect 10 must also show a likelihood that it will prevail against Google’s fair use defense.
In that regard, the district court held that the commercial nature of Google’s use weighed against its transformative nature and that Google’s use of thumbnails superseded Perfect 10’s right to sell its reduced-size images for use on cell phones. On this issue, the Ninth Circuit reversed, finding that Google used Perfect 10’s images in a new context to serve a different purpose and that the significantly transformative nature of Google’s search engine, in view of its public benefit, outweighed any alleged superseding and commercial use of the thumbnails. The Court therefore vacated the preliminary injunction.
With regard to in-line linking to copyrighted images, the Ninth Circuit remanded for further findings on contributory infringement and whether the DMCA safe harbor provision limits injunctive relief. The district court held that Perfect 10 was unlikely to succeed on its contributory infringement claim against either Google or Amazon. However, the Court held that the parties could be held contributorily liable if they had knowledge that infringing Perfect 10 images were available using their systems, could take simple measures to prevent further infringement and failed to do so. Because there were factual disputes over whether there are reasonable and feasible means for Google and Amazon to refrain from providing access to infringing images, the Court remanded these issues to the district court. The Court also remanded for further findings on whether Google and Amazon satisfied the requirements of §512(d) of the DMCA (i.e., whether adequate notices were sent to the parties and whether the responses to the notices were adequate).
Recent Developments in Patent Reform Legislation
By Rita Weeks and Paul Devinsky
The momentum behind the most recent patent reform bill, S. 1145 and H.R. 1908, known as the Patent Reform Act of 2002 (the Act), appears to be slowing as a group of senators have called for a delay in implementing the legislation. Leaders in major technology industries have also voiced their opinions about the controversial Act through testimony before the Senate Judiciary Committee, demonstrating the existence of significant disagreements between industries.
On June 11, 2007, five Republican members of the committee sent a letter asking the committee’s chairman, Patrick Leahy (D-Vt.), to delay the committee’s markup of the bill, scheduled for June 14, 2007. Senators Tom Coburn (R-Okla.), Jeff Sessions (R-Ala.), Chuck Grassley (R-Iowa), Jon Kyl (R-Ariz.) and Sam Brownback (R-Kan.) claimed that the controversial issues associated with patent reform deserve additional hearings. Specifically, the senators identified that the issues of mandatory apportionment of damages, post-grant opposition procedures and the grant of broad rulemaking authority to the U.S. Patent and Trademark Office (USPTO) call for more careful examination to ensure that they “do not undermine innovation, increase frivolous litigation, or undermine property rights.” On the House side, Rep. James Sensenbrenner (R-Wis.) has written asking the subcommittee chairman, Howard Berman (D-Calif.) for more time.
The chief judge of the U.S. Court of Appeals for the Federal Circuit, Judge Michel, has also weighed in, voicing, in a letter to Senator Leahey and Senator Hatch, his opposition to at least two of the proposed reforms: making claim construction (“Markman”) rulings immediately appealable and changes to the law as it relates to apportionment of damages in patent cases. On the apportionment issue, Judge Michel warned that the courts are “ill-equipped” to determine the relative value of an infringed patent over the prior art as the legislation would require. Judge Michel favors retention of the present law on patent damages, which he characterizes as having undergone “decades of refinement,” as being “highly stable” and “well understood by litigators as well as judges.”
Technology companies and related trade groups have also expressed their opinions regarding the Act in recent testimony before the Senate Judiciary Committee. Rep. James Sensenbrenner, speaking on behalf of the Biotechnology Industry Organization (BIO), testified on June 6, 2007, that BIO opposes the Act in its current form, cautioning that the Act’s proposed post-grant opposition procedures would “result in fewer cures for diseases and other breakthrough biotechnology products.” BIO also warned that the Act’s apportionment of damages provision could disincentivize biotech companies from developing improvements to existing technologies.
On June 6, 2007, a senior vice president and general counsel of Palm, Inc, also testified on behalf of Palm and as member of the Coalition for Patent Fairness, a group including Microsoft and Intel (the Coalition). In contrast to BIO, Palm and the Coalition favor the Act’s proposed “second window” post-grant opposition procedures as well as damages apportionment, noting that the proposed post-grant review process should lead to improved patent quality “which will benefit everyone—patent holders, patent users, and consumers” that damages apportionment would “help limit excessive royalty awards and bring them back into line with historical patent law and economic reality.” The Coalition believes the benefits of the bill outweighs any downsides and the bill is needed to “restore balance” to the patent system.
Jon Dudas, the director of the USPTO, also testified as to the provisions in the bill. Dudas stated that the USPTO had not taken a position or could not support them without further review. However, Dudas testified that the USPTO currently supports the provisions that expand the ability of third parties to submit information that they believe is pertinent to a pending application, believing that it “should result in a more efficient examination process and a higher quality, more reliable patent.” The USPTO does not support the Act’s proposals towards apportionment of damages, however. Dudas stated that the USPTO “does not believe that a sufficient case has been made for a legislative provision to codify or emphasize any one or more factors that a court must apply when determining reasonable royalty rates.”
In a related development, on May 18, 2007, three members of Congress introduced a bill that would limit the damages available for infringement of patented tax planning methods—a subcategory of business method patents. Specifically, H.R. 2365 would prohibit a civil action for infringement of a tax planning method patent, as well as the grant of an injunction, award of damages and award of attorneys’ fee. The language of the bill resembles that of 35 U.S.C. § 287(c), which restricts infringement liability for certain surgical procedures.
