IP Update, Vol. 9, No. 11, November 2006
November 2006
Patents / Anticipation - Anticipation Does Not Require Appreciation
Patents / Priority / Licensee Estoppel - Go Medical Specification Didn't Go Far Enough
Patents / Litigation - Follow the Local Rules -- Carefully!
Trademarks / Generic Designations - A Rose (or Grass) by Any Other Name...
Trademarks / Laches - "Progressive Encroachment" Does Not Justify a Quarter Century of Delay
Anticipation Does Not Require Appreciation
By David M. Beckwith
The U. S. Court of Appeals for the Federal Circuit, reversing a bench ruling on the issue of validity, relied on the long-held rule that prior art compositions anticipate even when there was no knowledge of the relevant properties of the composition to find the patent-in-suit anticipated. Abbott Laboratories and Central Glass Company, Ltd. v. Baxter Pharmaceutical Products, Inc., Case No. 06-1021 (Fed. Cir., Nov. 9, 2006) (Gajarsa, J.).
Baxter Pharmaceutical filed an Abbreviated New Drug Application (ANDA) to market sevoflurane, an inhalation anesthetic, certifying that Abbott Laboratories' patent on the compound was non-infringed and invalid. Abbott's patent solved the problem that sevoflurane was highly susceptible to Lewis acids degradation occurring during shipping and storage and claimed compositions and methods of combining water and sevoflurane to prevent Lewis acid degradation.
Following a bench trial finding of the patent to be not invalid but not infringed, both sides appealed. Baxter argued invalidity based on a prior art patent that described sevoflurane saturated with water as an interim step in the technique for preparing purified sevoflurane for use as an inhalation anesthetic. The Federal Circuit rejected the argument that because the beneficial nature of the water-sevoflurane mix to inhibit Lewis acid degradation was unknown at the time, the prior art did not anticipate the claims. The Federal Circuit noted that it has consistently held a reference anticipates even when the relevant properties of the thing disclosed were not appreciated at the time.
In rejecting the argument based on Bristol-Myers Squibb, that new uses of known processes may be patentable, the Federal Circuit explained that in both the prior art and the claimed invention, the description of the process of using a water/sevoflurane mixture had the purpose of ensuring that sevoflurane would be of high purity at the time it was administered to patients, and both relied upon the same method of achieving that end, i.e., adding water. The Court found the fact that the addition of water described in the patent included a newly discovered property of also guarding against impurities generated by the presence of Lewis acids was immaterial, since the steps of the method and its objective were the same as those of the prior art. An inventor may not obtain a patent on a process having the same steps as a prior art process, in which the new process merely identifies a new, advantageous property of the prior art process.
Patents / Claim Construction / Doctrine of Equivalents
Court Narrows Literal Construction, But Catches Infringer in Equivalence Net
By Krista Vink Venegas, Ph.D.
The U.S. Court of Appeals for the Federal Circuit reversed the district court's claim construction and holding of literal infringement, but affirmed its holding that Mayne's generic product infringed Abraxis' (formerly AstraZeneca's) three patents covering DIPRIVAN. Abraxis Bioscience, Inc. v. Mayne Pharma (USA) Inc., Case No. 06-1118 (Fed. Cir., Nov. 15, 2006) (Lourie, J.).
This patent case revolved around a preservative called edetate (or EDTA) found to be "unexpectedly effective in retarding microbial growth," thereby preventing post-operative infections resulting from the infusion of the anesthetic DIPRIVAN. Abraxis filed suit following Mayne's Abbreviated New Drug Application (ANDA) submission for a generic version of DIPRIVAN including a structural derivative of EDTA called calcium trisodium salt of diethylene triamine pentaacetic acid (DTPA). Each patent claim asserted by Abraxis included the claim element "edetate," which the district court construed as "EDTA as well as compounds structurally related to EDTA regardless of how they are synthesized." Consequently, the court found that Mayne's compositions including the structural analog, DTPA, met this claim element and infringed literally and under the doctrine of equivalents.
Even though the Court agreed that the patentee had specially defined edetate in the specification as EDTA and derivatives thereof, it disagreed with the district courts' extension of EDTA "derivatives" to include, within the literal claim scope, EDTA structural analogs. Instead, the Court found that the definition of edetate should be limited to "the salts or anions of EDTA," which is consistent with the undisputed ordinary meaning of the term, as well as the intrinsic evidence. In particular, the Court relied upon examples in the specification describing EDTA salts useful in the invention and noting that none of the examples were structural analogs. Further, the Court relied upon the fact that the unexpected microbial properties related to edetate salts only, and not to a large number of derivative compounds. Given that Abraxis admitted during oral argument that "DTPA is not a edetate salt," the Court reversed the district court's finding of literal infringement by Mayne.
Although the Court limited the literal scope of the term edetate, it found that Mayne's composition including DTPA did fall within the scope of equivalents because it indisputably performed in broadly the same way in the composition as edetate -- to sequester metal ions to retard microbial growth. Further, the patentee did not limit or surrender claim scope during prosecution, where the patentee could have attempted to obtain claims to polyaminocarboxylic acids, a broad class of structural analogs including EDTA and DTPA. The Court found that the unforseeability of DTPA's efficacy supported a lack of disclaimer by the patentee. Further, the Court did not find error in the district court's determination that the separate patentability Mayne's composition with DTPA did not outweigh evidence of the substantial similarity between EDTA and DTPA which support the finding of equivalence.
Patents / Priority / Licensee Estoppel
Go Medical Specification Didn't Go Far Enough
By Natalia Blinkova
Addressing the issues of whether one must satisfy the best mode requirement in the first application to enjoy the priority date of that filing and what criteria must be met by a licensee seeking to invoke the Lear doctrine, the U.S. Court of Appeals for the Federal Circuit upheld the district court's refusal to award priority to the original foreign filing which failed to disclose the inventor's best mode but found that the court misapplied the doctrine of Lear v. Adkins in reducing the jury's award of damages based on trademark infringement and breach of contract. Go Medical Indus. Pty., Ltd. v. Inmed Corp., Case Nos. 05-1241, -1267, -1588 (Fed. Cir., Oct. 27, 2006) (Michel, J.).
The technology at issue pertained to urinary catheters that avoided the increased risk of urinary tract infections by using a sheath that did not extend beyond the first 1.5 to 2 centimeters of the urethra (where most bacteria resides). The placement of the sheath prevented the catheter from pushing bacteria back into the bladder thereby reducing the risk of bladder infection. The inventor, Dr. O'Neil, filed his original application in Australia and subsequently sought patent protection in the United States. Dr. O'Neil also founded Go Medical, which licensed exclusive U.S. distribution rights to the defendants.
The district court found that the patent was anticipated because Go Medical was not entitled to rely on the priority date of the original Australian patent application to establish an early prior art date. In affirming the district court's ruling, the Federal Circuit emphasized Dr. O'Neil's acknowledgement that he failed to disclose the preferred length of the sheath and the district court's finding that one of ordinary skill in the art could not discern the preferred length from what was disclosed. Because the best mode of practicing the patent was not disclosed in the Australian application, plaintiffs could not claim the benefit of that filing date. Accordingly, the Federal Circuit upheld the district court's finding that Dr. O'Neil's own article anticipated the patent.
The Court, however, reversed the district court's grant of judgment as a matter of law (JMOL) that the Lear doctrine relieved one of the defendants (MMG) of royalty payments to Go Medical owed after March 1999, when the patent was found invalid in a separate suit between Go Medical and C.R. Bard. The doctrine articulated by the Supreme Court in Lear. v. Adkins allows a licensee to cease royalty payments under a license while it challenges the validity of the licensed patent in the courts. In reversing the JMOL, the Federal Circuit reasoned that because Go Medical appealed the district court's invalidity ruling in its case against C.R. Bard, that ruling had no effect on the contractual relationship between Go Medical and MMG in March 1999. Indeed, MMG acknowledged as much in its notice letter to Go Medical by promising to place its royalty payments in escrow pending the outcome of Go Medical's appeal.
The Court further reasoned that MMG failed to properly avail itself of Lear's protections. The doctrine only shields the licensee who actually ceases payment and provides notice to the patentee that it has ceased payment because it has deemed the relevant claims of the patent invalid. MMG's notice did not satisfy the second prong, as it merely indicated that MMG was placing its royalty payments in escrow until the validity of the patent was resolved on appeal. The Federal Circuit concluded that MMG could not "have it both ways." It cannot urge Go Medical to sue C.R. Bard, yet refuse to pay royalties upon the district court's invalidity ruling; it cannot fail to file its own declaratory judgment action to challenge that ruling, yet benefit from its reversal on appeal.
Practice Note: Be sure that any foreign filings that might be used to obtain an earlier priority date for a United States patent comply with all of the requirements of Section 112, and not just the enablement requirement. Moreover, any licensee that wishes to avail itself of the Lear doctrine must follow the specific requirements set out by the Federal Circuit in drafting its notice letter to the patentee.
Follow the Local Rules -- Carefully!
By Paul Devinsky
In a second case in less than four weeks where a party literally lost its claim on a failure to adhere to a procedural order, the U.S. Court of Appeals for the Federal Circuit affirmed a grant of summary judgment of non-infringement based on a district court's insistence on adherence to the local patent rules (in this case, the Northern District of California) and refusal to permit the patent owner to modify its infringement contentions or supplement its expert report. 02 Micro International Limited v. Monolithic Power Systems, Inc., Case No. 06-1064 (Fed Cir., Nov. 15, 2006) (Dyk, J.).
The Northern District of California has long since adopted local rules that require parties to state early in the litigation and with specificity their contentions with respect to infringement and invalidity. The ability of parties to amend those contentions is restricted. Apart from amendments designed to take account of the district court's claim construction, amendments are permitted only for "good cause."
02 Micro is the holder a patent for converting DC battery current to AC to power fluorescent lamps that provide the lighting for computer monitors. The claims required that the state of certain switches be controlled "only if" a certain signal was above a predetermined threshold. 02 Micro timely filed preliminary infringement contentions, as required by the local rules, relying on a so-called "Isense" (current sensing) theory of infringement to satisfy the "only if" limitation. Under the local rule, after the claim construction ruling 02 Micro had 30 days to amend its infringement contentions without leave of the court. 02 Micro timely served its final infringement contentions, still relying solely on its Isense infringement theory. After 02 Micro deposed Monolithic Power Systems' chief integrated circuit engineer and learned about the operation of a certain open lamp pin, it developed a new open lamp theory of infringement to satisfy the "only if" limitation.
Approximately two months after the period for serving amended infringement contentions expired, 02 Micro served proposed supplemental infringement contentions which included its new open lamp theory. Monolithic Power responded that same day objecting to 02 Micro's "entirely new infringement theories" and stating that amendment of 02 Micro's contentions would "greatly prejudice" Monolithic Power. 02 Micro also timely served its opening expert report on infringement, which addressed only the open lamp theory. 02 Micro moved to amend its infringement contentions, claiming "good cause" because of the open lamp theory had been developed based on new evidence disclosed in discovery only after it served its infringement contentions.
The magistrate judge denied 02 Micro's motion to amend the infringement contentions, finding that 02 Micro's almost three-month delay between the deposition and the service of its proposed amended contentions constituted a lack of diligence. She also held that the existence of negotiations over the proposed stipulation did not justify the delay in amending the contentions because no enforceable agreement was reached and any such agreement would not be binding on the court in any event. Finally, the magistrate judge found that Monolithic Power would be prejudiced by the delay because it would be unable to address the amended contentions in its expert report and would need additional discovery. 02 Micro filed an objection to the magistrate judge's order with the district court judge.
In an attempt to address the prejudice concerns, 02 Micro moved to amend the case management schedule to allow Monolithic Power to submit a supplemental expert report addressing the open lamp theory. Monolithic Power moved for summary judgment of non-infringement. The district court overruled 02 Micro's objection to the magistrate judge's order and denied 02 Micro's motion to extend the case management schedule.
02 Micro responded to the summary judgment motion relying for the first time on a "Vsense" (voltage sense) infringement theory (with regard to the "only if" limitations) and including expert declarations describing this theory. The district court refused to consider these untimely expert reports and granted MPS summary judgment of non-infringement. 02 Micro appealed.
The Federal Circuit noted that the Northern District of California patent rules are essentially a series of case management orders and the deadlines for submission of contentions in this case were explicitly included in a supplemental case management order. Citing FRCP 16(f), the Federal Circuit noted that a court may impose any "just" sanction for the failure to obey a scheduling order, including "refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence."
After declining to decide whether Federal Circuit (or regional circuit) law governs the validity and interpretation of all procedural rules unique to patent case, the Court noted that the specific local rules in question "are not only unique to patent cases but also are likely to directly affect the substantive patent law theories that may be presented at trial," and thus concluded "that issues concerning the validity and interpretation of such local rules are "intimately involved in the substance of enforcement of the patent right,'" and would be governed by Federal Circuit law.
The Court quickly dismissed 02 Micro's argument that amendments to contentions must be permitted as a matter of course when new information is revealed in discovery, noting that the discovery rules are not designed solely to enable a claimant to develop information to support its claim. Rather, the local patent rules in issue here were designed to require both the plaintiff and the defendant in patent cases to provide early notice of their infringement and invalidity contentions and to proceed with diligence in amending those contentions in the event new information come to light in the course of discovery. The Court found nothing in the Federal Rules that was inconsistent with local rules requiring the early disclosure of infringement and invalidity contentions and requiring amendments to contentions to be field with diligence. To the contrary, the Court noted that "[i]f the parties were not required to amend their contentions promptly after discovery new information, the contentions requirement would be virtually meaningless as a mechanism for shaping the conduct of discovery and trial preparation." The Court thus rejected 02 Micro's argument that "good cause" existed for its amended infringement contentions, irrespective of diligence because new evidence was revealed during discovery. Rather, the Court agreed with the district court that "good cause" requires a showing of diligence.
As for the diligence standard, the Court noted that "decisions enforcing local rules in patent cases will be affirmed unless clearly unreasonable, arbitrary, or fanciful; based on erroneous conclusions of law; clearly erroneous; or unsupported by any evidence." Here, the Court did not find the district court's holding on diligence to be "unreasonable or arbitrary." Rather, "given three-month delay in moving to amend its infringement contentions and its lack of adequate explanation for this delay, the Court concluded that the district court had not abused its discretion in finding a lack of diligence and therefore a lack of "good cause.'"
On the issue of the timing of expert reports, the Court found that the denial of leave to supplement the expert report was an evidentiary ruling to which it would apply the Ninth Circuit's abuse of discretion standard. Citing FRCP 37(c)(1) authorizing the exclusion of evidence that was not disclosed as required by FRCP 26(a), the Federal Circuit noted that since 02 Micro's Vsense theory was not disclosed in these expert reports, the court did not abuse its discretion in excluding such evidence.
02 Micro also contented that even if the district court's rulings taken individually were not erroneous, the combination of the court's denial of its amendment of the infringement contentions and refusal to allow supplementation of the expert reports was effectively a dismissal, and that the district court abused its discretion in imposing such a sanction, rather than a lesser sanction that would allow resolution of the case on the merits. In response to this argument, the Federal Circuit simply noted that the district court excluded the evidence because of the failure to comply with the disclosure deadlines required by the local patent rules and the case management order. "While there may be circumstances in which the exclusion of evidence as a sanction for the failure to comply with a case management order would be an abuse of discretion, both the Ninth Circuit and this court have concluded that the exclusion of evidence is often an appropriate sanction for the failure to comply with such deadlines."
Don't Be Caught Holding an Empty Bag -- Put Adverse Party on Notice of All Theories
By David Larson
In a recent decision reflecting its substantial deference to district courts' application of their own procedural rules, even when the result is termination of the case, the U.S. Court of Appeals for the Federal Circuit affirmed the dismissal of a patent infringement case after plaintiff's elaboration of its infringement theory (in response to a motion for summary judgment) was found to constitute a "new theory," rather than simply a more detailed explanation of its Final Infringement Contentions (FICs). The Federal Circuit noted that what the district court found to be a "new theory" could reasonably have been interpreted as a more detailed explanation of its previously-disclosed theory, but deferred to the district court's finding. Safeclick v. Visa Int'l Serv. Ass'n, CaseNo. 06-1182 (Fed. Cir., Oct. 23, 2006) (Clevenger, S.J.) (non-precedential).
After the claim construction hearing, the plaintiff served its FICs. In its FICs, the plaintiff asserted that the claim limitation "private identification code" was met by the password that users must enter to authenticate their identity to an online merchant's computer. In response to defendant Visa's subsequent motion for summary judgment, Safeclick elaborated by explaining that the password entered by the user in the defendant's system is encrypted and that the encrypted version of the password constitutes the "private identification code" recited in the patent claims.
Visa asserted that Safeclick's explanation constituted a "new theory of infringement" not disclosed in its FICs. The district court agreed and refused to permit plaintiff's contention that the encrypted password, rather than the textual password typed by the user, was the private identification code. Finding that the textual version of the password did not fall within the court's interpretation of "private identification code," the district court granted summary judgment for Visa and dismissed the case. In affirming, the Federal Circuit, citing Genentech v. Amgen, held that:
While it might have been reasonable for the district court to interpret Safeclick's latest infringement contentions as a restatement of its earlier infringement contention with a mere change of "scope and clarity," [citation omitted], it was also reasonable for the district court to interpret Safeclick's latest contentions as impermissibly different than its previous contentions. Consequently, we are unable to conclude that the district court erred by adopting one of two reasonable interpretations.
Practice Note: The district court did not find that Safeclick's "new" theory was unreasonable, inconsistent with its claim interpretation or prejudicial to the defendant. Rather, the court rejected the plaintiff's theory solely on the grounds that its introduction into the case violated the local rules. Thus, under Safeclick, if a district court finds that an elaboration, clarification or explanation of what was stated in the FICs reasonably constitutes a "new" theory and refuses to accept it, the Federal Circuit will not disturb that finding, even if the supposedly new theory is otherwise meritorious.
Although this decision was designated as non-precedential, it nevertheless serves as a reminder to be as detailed as possible when drafting infringement (or invalidity) contentions prescribed by local patent rules.
Two-Part Inquiry Required to Determine Whether an Issue Is Referable to Arbitration
By Robert Greenfeld
The U. S. Court of Appeals for the Federal Circuit, applying Ninth Circuit law to the issue of arbitrability of a defense, vacated a district court's denial of stay of litigation pending arbitration finding it had not performed the correct inquiry for arbitrability. Qualcomm, Inc. v. Nokia Corp., Case No. 2006-1317 (Fed. Cir., Oct. 20, 2006) (Prost, J.).
Qualcomm and Nokia are parties to a license agreement that contains an arbitration clause covering "[a]ny dispute, claim or controversy arising out of or relating to this Agreement." Qualcomm filed suit against Nokia and, six weeks later, Nokia initiated an arbitration proceeding against Qualcomm. Qualcomm later amended its complaint to exclude any product licensed under the license agreement. Two issues asserted by Nokia in the arbitration proceeding, an estoppel defense and a license defense, were not raised in Qualcomm's district court complaint, but were asserted as affirmative defenses by Nokia in the district court action. Nokia moved under Section 3 of the Federal Arbitration Act (FAA) to stay the litigation in favor of arbitration of Nokia's defenses pursuant to the license agreement. The district court denied the motion, holding that the litigation did not concern products covered by the license agreement. Nokia appealed.
The issue was not whether the defenses that Nokia sought to refer to arbitration were arbitrable; but rather whether the arbitrability of those defenses was itself arbitrable. After determining that Ninth Circuit law governs this case, the Federal Circuit set forth the "satisfied" standard of Section 3 of the FAA. The district court must inquire as to whether the parties "clearly and unmistakably" intended to delegate arbitrability decisions to an arbitrator and, if so, then determine whether the assertion of arbitrability is "wholly groundless." If the parties did not "clearly and unmistakably" intend to delegate such decisions to an arbitrator or if the assertion of arbitrability is wholly groundless, the district court may deny a motion to stay a litigation pending arbitration.
Regarding the first prong of the inquiry, the Court recognized that under federal law and under California law (under which the agreement was to be construed), the general rule is that the district court, not an arbitrator, determines the question of arbitrability. However, the Court recognized that the 1995 Supreme Court decision in First Options of Chicago, Inc. v. Kaplan allows for an arbitrator to "arbitrate arbitrability" if there is "clear and unmistakable evidence" that the parties so agreed.
Regarding the second ("wholly groundless") prong of the inquiry, the Court looked to California case law. Without the "wholly groundless" inquiry, the Court warned that a party could assert "any claim at all, no matter how divorced from the parties' agreement, to force an arbitration." In determining whether a claim is "wholly groundless," the Court stated that the district court should "look to the scope of the arbitration clause and the precise issues" sought to be arbitrated, but the district court "need not, and should not, determine whether [such] issues are in fact arbitrable."
In this case, finding that the district court did not apply the correct analysis, the Federal Circuit vacated the denial of the stay of litigation. Applying the correct analysis standard to the case at hand, the Federal Circuit held that the parties clearly and unmistakably intended to delegate to an arbitrator the issue of determining arbitrability. The Court then remanded to the district court the issue of whether Nokia's assertion that its defenses "aris[e] out of or relat[e]" to the license agreement is "wholly groundless."
Trademarks / Generic Designations
A Rose (or Grass) by Any Other Name...
By Paul Devinsky
The U. S. Court of Appeals for the Federal Circuit, in affirming the Trademark Trial and Appeal Board's (the Board) refusal to register the mark "Rebel" for grass seed, agreed that the mark is a generic designation for such seed. In re Pennington Seed, Inc., Case No. 06-1133 (Fed. Cir., Oct. 19, 2006) (Judge Lourie).
Pennington had previously designated the term "Rebel" as the varietal name for a grass seed that was the subject of a plant variety protection (PVP) certificate. The trademark examining attorney refused registration of the applied-for mark on the ground that it was a varietal name for a type of grass seed, and thus was the seed's generic designation. The Board affirmed, finding that the evidence conclusively established that the term "Rebel" is a varietal name for a type of grass seed and concluding that the U.S. Patent and Trademark Office's (USPTO) long-standing precedent and policy of treating varietal names as generic was still valid.
The Board further buttressed its finding in noting that the International Union for the Protection of New Varieties of Plants (UPOV) provides that a name for a new plant variety must be designated and that the designation will be its generic name. The Board also noted that the Plant Variety Protection Act (PVPA) requires that an application for a PVPA certificate include the name of the plant variety. Pennington appealed.
On appeal, Pennington argued that the Board erred in applying the rule (from the D.C. Circuit) of Dixie Rose that varietal names are generic. Pennington also asserted that a per se rule prohibiting trademark protection when another form of intellectual property protection is also procured, e.g., PVPA, is no longer appropriate in light of the Supreme Court's decision in TrafFix. Finally, Pennington argues that the generic treatment of varietal names is inconsistent with public policy; citing to 15 U.S.C. Section 1064, enacted in response to the Ninth Circuit's decision in Anti-Monopoly v. General Mills Fun Group, Inc., that a name may be used to indicate both a product and its source.
Deferring to the D.C. Circuit, the Federal Circuit adopted the holding of Dixie Rose, a case in which the D.C. Circuit determined that the USPTO and district court "might properly conclude that the words 'Texas Centennial,' though originally arbitrary, have come to describe to the public a rose of a particular sort, not a rose from a particular nursery" and reasoned that words which are descriptive cannot be registered.
The Court also reviewed a series of Board decisions refusing trademark registration for varietal names of plants on the grounds that such names designate a particular variety of plant, rather than indicating the source of the product and concluded that it "is well-established that an applicant cannot acquire trademark protection for the generic name for a product." Finding substantial evidence to support the USPTO's determination that "Rebel is a varietal name and is thus generic, the Federal Circuit rejected Pennington's source identifier arrangement.
The Court rejected Pennington's argument that the Supreme Court's TrafFix decision supports its appeal, noting that it is irrelevant here that the applicant's plant protection has expired, and the case does not concern whether a functional aspect of a plant can acquire trade dress protection.
Finally as to the public interest issue, noting that "if an application wishes to establish trademark protection for its variety of grass seed, it can do so by associating a particular brand name with its grass seed," but cannot require trademark protection for the generic and only name of a grass seed. As for Section 1064 of the Lanham Act, the Court noted that this provision provides generally for the cancellation of a registered mark if such a mark becomes generic but does not apply here because the term "Rebel" is not a registered mark.
"Progressive Encroachment" Does Not Justify a Quarter Century of Delay
By Philip Canelli
The U.S. Court of Appeals for the Ninth Circuit denied a laches defense where the senior user had knowledge of the junior user's activities, acquiesced in the junior user's use and only acted when, after 25 years, the channels of trade of the products of both users merged in the supermarket trade. Tillamook Country Smoker v. Tillamook County Creamery Association, Case No. 04-35843 (9th Cir., Oct. 11, 2006) (Silverman, J.).
The Tillamook County Creamery Association (Tillamook Creamery) has marketed cheeses under its name for nearly 100 years. It registered the word mark "Tillamook" with the U.S. Patent and Trademark Office (USPTO) in 1912 and again in 1950. In 1975, a member of the Tillamook Creamery approached the Creamery's general manager about his desire to start a processed meat company under the name Tillamook Country Smoker (Tillamook Smoker). The general manager of the Tillamook Creamery did not object so long as Tillamook Smoker did not build a cheese factory.
The Tillamook Smoker began operations in 1976 and quickly expanded and started selling its products under the name Tillamook Country Smoker. Not only did the Tillamook Creamery refrain from objecting to the use of the word Tillamook, it actively encouraged the use by selling Tillamook Country Smoker products in its own store and mail-order catalog.
In 1998, the Tillamook Creamery began recording instances of brand confusion between its own products and Tillamook Smoker's. The Tillamook Creamery then sent a cease-and-desist letter to Tillamook Smoker, which prompted Tillamook Smoker to file a declaratory judgment action to seek a ruling that it was not infringing the Tillamook mark. The trial court ruled, in part, that the Tillamook Creamery's objections to the use of the Tillamook Country Smoker were barred by laches. Tillamook Creamery appealed.
The Ninth Circuit affirmed the district court's decision. Holding that the limitations period for laches starts from the time that the plaintiff knew or should have known about its potential cause of action.
When analyzing a laches defense, courts first determine when the statute of limitations period expired for the most closely analogous action under state law. If the plaintiff filed within that period, there is a strong presumption against laches. If the plaintiff filed outside that period, the presumption is reversed. Here, the district court identified two possible limitations periods under state law -- two years or 10 years. Under either period, it was not disputed that Tillamook Smoker began using the Tillamook Country Smoker mark in 1976 and that Tillamook Creamery did not file suit until 2002.
Where, as here, the requisite amount of time had passed without action by the plaintiff, the court must balance the following six factors to determine whether the trademark owner's delay in filing suit was unreasonable and, therefore, barred: strength and value of the trademark rights asserted, plaintiff's diligence in enforcing mark, harm to senior user, good faith ignorance by junior user, competition between senior and junior users and extent of harm suffered by the junior user because of senior user's delay.
With regard to due diligence factor, the court found that Tillamook Creamery knew about the use of the infringing mark on complementary products in the same geographical area but did nothing to prevent it for 25 years. Tillamook Creamery raised the doctrine of progressive encroachment in an effort to explain and excuse its long delay in bringing suit. The doctrine of progressive encroachment allows a trademark owner to wait to sue a junior user until the junior user engages in directed competition. Specifically, Tillamook Creamery claimed that Tillamook Smoker's sales expanded significantly in the late 1990s making the infringement claim timely. The court held that the doctrine of progressive encroachment does not apply under these circumstances because the Tillamook Smoker merely grew its existing business and did not expand into a new product market in competition with the Tillamook Creamery. The court noted that had Tillamook Smoker expanded its business into selling cheese in grocery stores, it would have been a different story.
The court also rejected Tillamook Creamery's argument that an injunction should issue to protect the public from inevitable confusion, holding that inevitable confusion is actionable only where the product is harmful or otherwise a threat to public safety, which was not the case here. Accordingly, the Ninth Circuit found that the Tillamook Creamery was barred from asserting claims for infringement and from obtaining injunctive relief to stop the use of the Tillamook County Smoker mark.
Trademarks / Infringement Defenses
Remoteness Not an Element of "Innocent Use" in the Ninth Circuit
By Sarah Brown
Addressing for the first time the issue of whether remoteness is a requirement of innocent use under the Lanham Act, the U.S. Court of Appeals for the Ninth Circuit found that it was not. The court added that incorporating a remoteness requirement into the law was the job of Congress, not the courts. Quicksilver, Inc. v. Kymsta Corp., Case No. 04-55529, 2006 U.S. App. LEXIS 25029 (9th Cir., 2006) (Rawlinson, C.J.).
Quicksilver began applying the mark ROXY, along with its house mark QUICKSILVER, to a line of junior apparel in the early 1990s. At around the same time, Kymsta also began using the mark ROXYWEAR on clothes for juniors. Quicksilver registered the mark QUICKSILVER ROXY in 1996 and ROXY alone in 1998. It sued Kymsta for trademark infringement. Kymsta interposed affirmative defenses, including innocent use, and counterclaimed for trademark infringement. On cross-motions for judgment as a matter of law (JMOL), the district court ruled in Quicksilver's favor on validity and seniority of use and Kymsta's innocent use defense. Kymsta appealed.
After overturning the district court's grant of JMOL on Quicksilver's date of first use, tacking and inherent distinctiveness, and affirming on the issue of fraud in obtaining the registrations, the Ninth Circuit turned to Kymsta's innocent use defense. The court stated that to establish the defense, Kymsta had to prove that it adopted its mark without actual or constructive knowledge of Quicksilver's marks, that it used its mark prior to Quicksilver's trademark applications and that it continuously used its mark after Quicksilver filed its applications. Quicksilver argued that a fourth element should be added: remoteness. This element would require Kymsta to prove that Quicksilver's marks were not known in the geographical and trade area where Kymsta first used its marks. The Ninth Circuit declined to incorporate the remoteness requirement, because it said the text of 15 U.S.C. Section 1115(b)(5) did not contain a remoteness element. It noted that the Fourth Circuit had apparently reached the same conclusion in Emergency One and also used supporting cases in the First and Tenth Circuits.
The Ninth Circuit acknowledged that there were "persuasive reasons to incorporate a remoteness element into Section 1115(b)(5)," citing McCarthy on Trademarks and the Sixth Circuit's decision in Champions Golf Club. Nonetheless, the court said that doing so was up to Congress.
Patents / Computer Programs and Business Methods in U.K.
English Court of Appeal Clarifies Position Regarding Computer Programs and Business Methods
By Justin Hill, Ph.D.
The English Court of Appeal has recently handed down an important decision clarifying its position with regard to the patentability of computer programs and business methods. This decision consolidated issues arising in two first-instance decisions: Aerotel Ltd. v. Telco Holdings, and In re Macrossan's Application, Case Nos. A3/2006/1007 and A3/2006/1067, respectively (Court of Appeal, Oct. 27, 2006) (Lord Justice Chadwick, Lord Justice Jacob and Lord Justice Neuberger).
The Aerotel appeal arose from a patent action in which Aerotel sued Telco for infringement of its patent. Telco counterclaimed for revocation of the patent, alleging the claim related to excluded types of subject matter and was therefore invalid and unenforceable. At first instance, the English High Court agreed and the patent was revoked as relating to an excluded category (of patentable subject matter). The patent related to a method and apparatus for providing telecom services from any telephone via a special exchange which holds and monitors pre-paid credits for individual debit card holders and only connects calls where a special code, assigned to a debit card, is input by a caller and checked to ensure there is sufficient credit associated with the card to make the call. The method also involves a count down of the pre-paid credit amount as the call progresses and a call cut-off when the card holder's credit is consumed.
In the companion case, the Macrossan application under appeal related to a patent application rejected by the comptroller and subsequently also rejected on first appeal to the High Court. The patent application related to an interactive, internet-based computer system capable of generating documents required to incorporate a business.
Both decisions concerned the validity of claims directed to so-called excluded subject matter, which includes, among other things, computer programs, methods of doing business and methods of performing mental acts. The Court of Appeal set out a four-step test that it said clarified similar approaches from the same Court in earlier decisions. The test requires that the Court: properly construe the claim, identify what the contribution of the invention is, determine whether the contribution falls solely within one of the types of excluded matter and determine whether the contribution is technical in nature.
In applying the four-part test, the Court of Appeal concluded both Aerotel's apparatus and method claims to the telephone debit card system were something more than a business method, and as such, were not excluded subject matter. Hence the appeal was allowed. In applying the test to Macrossan's computerized document generation, the Court found that the method claims were flawed on two counts: they were directed to an excluded business method and also to an excluded computer program.
Practice Note: This case has, to some extent, clarified the position in the United Kingdom of what constitutes an excluded category. There are relatively subtle lessons in the manner in which the test for patentable subject matter was applied in each case. This case establishes that while the English practice is similar to that of European Patent Office (EPO), the English Court of Appeal is not prepared to follow the recent trend in the EPO cases towards a narrower interpretation of exclusions to patentable subject matter. At the same time, and in the spirit of harmonization, the Court formulated certain questions which might be put to the EPO's Enlarged Board of Appeal on how to deal with such matters. Interestingly, Germany's federal court (the Bundesgerichtshof, or BGH) has also recently also declined to follow aspects of the most recent EPO case law, in Jesco Schwarzer, Case No. 17W Pat 31/03, Sept. 28, 2004.
