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Seventh Circuit redefines Federal Circuit refuses registration photographer’s copyright interest to Hotels.com as generic
In Gracen v. Bradford Exchange, 698 F.2d 300 (7th Cir. 1983), the U.S. Court of Appeals for the Seventh Circuit appeared to suggest that the creator of a derivative work (a work based on one or more preexisting works, such as an art reproduction or other form in which a work is recast, transformed or adapted) needed permission from the owner of the copyright in the preexisting underlying work in order to register a copyright in the derivative work. The Court has now clarified that a photographer who creates photos depicting copyrighted subject matter with the owner’s permission has a legal right to register the copyright in those photos, as long as the photos satisfy the other requirements for a copyright registration and the parties did not have an agreement providing otherwise. The controversy concerned photos taken by Daniel Schrock, a photographer hired by Learning Curve International to take photos of its licensed “Thomas & Friends” toy train figures for use in promotional materials. After Learning Curve stopped using Schrock’s services but continued to use some of the photos in promotional materials, Schrock registered copyrights in the photos and sued Learning Curve and its licensor, HIT Entertainment, for copyright infringement. The U.S. District Court for the Northern District of Illinois granted summary judgment to Learning Curve and HIT on the basis that Schrock did not own the copyrights in the photos and could not register them (registration is a prerequisite to a copyright infringement suit). The court held that the photos were “derivative works” of the Thomas & Friends characters, owned by HIT, and that Schrock needed Learning Curve’s permission to register copyrights in the photos. In reversing that decision, the Seventh Circuit assumed without deciding that the photos were indeed derivative works and concluded that the right to register the copyright for a derivative work arises Single word “.com” domain names are popular as they are easy to remember. However, if that single word is the generic word for the goods or services being offered, such as “cruise,” “tea,” “jewelry,” or the like, adding “.com” to that word is probably not going to create a composite word that will be a registrable trademark. The U.S. Court of Appeals for the Federal Circuit has issued several decisions refusing registration to such composite terms as generic, despite evidence that the applicant provided to show that the public perceived the proposed mark as distinctive and indicative of the source of the goods or services. The Federal Circuit recently issued another such decision, concluding that HOTELS.COM is generic and non-registrable for the services of “providing information for others about temporary lodging; travel agency services, namely making reservations and bookings for temporary lodging by means of telephone and the global computer network.” The decision relied in part on In re Reed Elsevier Props. Inc., 482 F.3d 1376 (Fed. Cir. 2007), in which the Federal Circuit previously denied registration for LAWYERS.COM because the term was generic for online database services “featuring information exchange in the fields of law, legal news and legal services.” In this case, the trademark examiner denied registration to Hotels. com LP for “HOTELS.COM” because it was merely descriptive of hotel reservation services and there was insufficient evidence that it had acquired distinctiveness. The examiner indicated that the mark might also be generic for those services but did not make that determination. The significance of a generic finding is that, although it is possible to register a descriptive term (either on the Principal Register with evidence that the mark has acquired distinctiveness or on the Supplemental Register without such evidence), a generic term cannot be registered.
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On appeal to the Trademark Trial and Appeal Board (“TTAB”), Hotels.com argued that HOTELS.COM is not generic because Hotels.com does not provide lodging and meals for its web site users and the examiner did not carry the heavy burden of proof of showing that the term was generic. Hotels.com further contended that HOTELS.COM had become a term widely accepted and recognized by the public and has thereby gained distinctiveness (or “secondary meaning”). Hotels.com’s evidence included 64 declarations from customers, vendors and competitors stating that the term HOTELS.COM was not a common or generic name of any product, service or field of study. It also submitted a “national probability double blind telephone survey” (of the type used to show that “Teflon” was not generic) that resulted in its expert’s conclusion that approximately 76% of respondents regarded the mark HOTELS.COM as a brand name for a business that makes hotel reservations and provides information about hotels. However, the TTAB rejected the declarations because they were identical form documents that did not explain the conclusion. It rejected the survey results on the grounds that the methodology did not adequately instruct the consumers in the difference between a brand name and domain name. The TTAB also analyzed the dictionary, encyclopedia and thesaurus definitions of “hotel,” “temporary lodgings,” and “.COM” in concluding that HOTELS.COM was a generic term for the services. In addition, the TTAB considered various other domain names that contain the term “hotel,” as well as other web sites that provide hotel information and reservation services and found that “it is clear from the website and promotional materials of the applicant as well as the websites of third-parties that consumers who are interested in finding information about hotels or making reservations at hotels, would immediately understand that HOTELS. COM identifies a website that provides such services.” The TTAB found that, to be competitive, third parties need to use the word “hotel” as part of their own domain names. It reasoned that the word “hotels,” as included in a domain name, indicates the genus of hotel information and reservation services and thus supports the determination that HOTELS.COM is generic. On appeal to the Federal Circuit, Hotels.com argued that the TTAB’s reasoning was flawed because the contested term is not simply the single word “hotels” but the composite term HOTELS. COM. It pointed out that HOTELS.COM is used to indicate an information source and travel agency—something other than the plain meaning of “hotel” - so HOTELS.COM is not a generic term for a “hotel” such that addition of “.com” negated a genericness finding. The Federal Circuit found that the TTAB considered that hotels were the “focus” and a “key aspect” of the services and had reviewed Hotels.com’s advertisements, where it appeared that HOTELS.COM had the same meaning as the word “hotels” by itself. The Court concluded that the TTAB correctly separated the word
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“hotel” from the suffix “.com,” which would not add to the registrability of the term. The Court concluded that addition of “.com” to “hotel” did not produce a new meaning in combination and did not indicate source, only that Hotels.com operates a commercial Internet web site that provides information about hotels. Although the Court did not specifically consider whether the survey evidence was sufficient to show secondary meaning, it considered the entirety of the evidence before the TTAB, including the large number of similar usages of “hotels” with a “.com” suffix, in addition to the ordinary meaning and dictionary definition of “hotels,” combined with the standard usage of “.com” to show a commercial internet domain, and found that there was sufficient evidence before the TTAB to support its findings that the mark was indeed generic. It appears that the Federal Circuit will not deviate from the position that even strong evidence of secondary meaning will not save a “.com” mark joined with a generic term. Most recently, the Court applied both the LAWYERS.COM and the HOTELS. COM cases to reject registration of 1800MATTRESS.COM as generic. In Re 1800MATTRESS.COM IP, LLC., 2009 U.S. App. LEXIS 24383 (Nov. 6, 2009). It has long been the position of the U.S. Patent and Trademark Office (“USPTO”) that addition of a top level domain name such as .com, .net or .org will not add to the registrability of a mark, because such terms are merely descriptive of Internet commerce. Trademark Manual of Examining Procedures § 1209.03(m). However, the USPTO does recognize that there could be rare cases where addition of a top level domain could improve the registrability of a mark. An ironic note was that the TTAB disagreed with the examiner that the evidence of secondary meaning was insufficient. If the Federal Circuit had concluded that the mark was merely descriptive rather than generic for the services and sent the case back to the TTAB, the Board would have approved the application based on the mark having acquired distinctiveness.
Source: In re Hotels.com, 573 F.3d 1300 (Fed. Cir. 2009)
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by operation of law, not through the authority of the owner of the copyright in the objects depicted in the photos. The Court corrected the impression given in Gracen that such permission was necessary. Rather, the author of a derivative work owns a copyright in the “incremental expression” contributed to that work, extending to the material contributed by the author of that work, not to any preexisting material employed in the work. That copyright may be “thin,” as it extends only to the original expression created by the author. The Court also clarified another statement in Gracen it said had been “misapplied” – that there was a “heightened standard of originality” in a derivative work that required the work to be “substantially different” from the underlying work in order to be copyrightable. Derivative works, noted the Court, need not contain any more originality than necessary to distinguish them from public domain or other existing works in some meaningful way. As the Court found that Schrock’s photos contained that much originality, they were copyrightable. A photograph’s originality can lie in the effect created by the photographer’s choices of perspective, angle, lighting, shading, focus, lens and the like. Only in cases where the goal is to reproduce the underlying work exactly, such as in slide transparencies of paintings, would there be insufficient individual expression to constitute originality. Photographs can still constitute original work even if they are intended, as here, for a purely utilitarian commercial use. Even accurate product photos can therefore be copyrightable. Because the Court could not determine from the record on appeal if the parties’ agreements and other dealings (1) prohibited Schrock from registering the copyright in his photos or (2) gave Learning Curve an implied license to keep using the photos, the Court sent the case back to the district court for additional proceedings. A contract provision barring registration of a copyright could override what the photographer might otherwise be allowed to do under the Copyright Act. As noted in the opinion, there is disagreement in the courts over whether photographs of a copyrighted work are actually derivative works or are original works. The Seventh Circuit declined to decide the question in this case but merely assumed that they were derivative works for purposes of the decision. If the photographs had constituted “works for hire,” the owner of the copyright in those photos would have been Learning Curve or HIT (depending on the agreements between those parties), not Schrock. However, that was not an issue in the case. Photographs are not specifically mentioned among the categories of works in Sec. 101 of the Copyright Act that can be defined as works made for hire, although they could be fit into the defined category of a collective work in the right case.
Source: Schrock v. Learning Curve International, Inc., U.S. Court of Appeals for the Seventh Circuit, No. 08-1296, November 5, 2009
Clothing designer can use his name in competition with owner of trademark rights
This trademark infringement and breach of contract action demonstrates the importance of clearly spelling out, in detail, the intent of the parties in every trademark licensing transaction. J.A. Apparel Corp. (“JA”) thought it was unambiguously obtaining exclusive rights to market men’s clothing under the Joseph Abboud name when it purchased from the world-famous designer and philanthropist the commercial use of the name “Joseph Abboud,” and trademarks containing that name for $65.5 million. Abboud, however, had other ideas. Since 1988, JA manufactured, marketed and sold products using “Joseph Abboud” trademarks under a license from Abboud. New licenses were issued to JA by Abboud in 1996. In 2000, Abboud sold certain assets to JA, including the “names, trade names, service marks, logos, insignias, and designations,” related trademark registrations and applications and “all other Intellectual Property.” The agreement defined “Intellectual Property” as “all of the trademark registrations, service mark registrations and applications and copyright registrations and applications currently used by [Abboud] in connection with the Trademarks.” JA and Abboud also entered into a personal service agreement under which Abboud agreed not to compete with JA until 2007. Near the end of Abboud’s non-compete period, he made plans to market a new line of high-end men’s clothing under the brand “jaz” and to use his name in advertising that line so that customers would know he was the designer. JA objected because it believed that it had purchased all rights to use the Abboud name in connection with the sale of men’s clothing. The U.S. District Court for the Southern District of New York agreed with JA that the agreement was unambiguous and therefore refused to consider Abboud’s evidence about the meaning of the provisions in the agreement. The District Court ruled in JA’s favor, concluding that JA received “all of Abboud’s rights to use his name for commercial purposes” and that Abboud’s planned use of his name to market the “jaz” line constituted both breach of contract and trademark infringement. Although Abboud believed that using his name to advise consumers that he was the source of the new goods was a descriptive “fair use,” the District Court felt that consumers would be “utterly confused” about whether “Joseph Abboud” products by JA and “jaz” products by Abboud came from the same source. Abboud was enjoined from “using his personal name to sell, market, or otherwise promote, goods, products, and services to the consuming public.” However, on appeal, the U.S. Court of Appeals for the Second Circuit reversed and remanded the case to the District Court for further proceedings. The Second Circuit determined that the
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agreement between JA Apparel and Abboud was ambiguous enough to require consideration of Abboud’s evidence about the meaning of the contract terms and his “fair use” defense. Where contract language is unambiguous, the parties’ intentions cannot be determined using evidence outside the words of the contract. However, when contract language is ambiguous, evidence outside of the contract language, including evidence of the parties’ intent, can be used. The Second Circuit did not find any provision in the agreement specifically transferring all of Abboud’s rights to use his name to refer to himself in a nontrademark sense for commercial purposes, as opposed to the transfer of brand names. The agreement did not provide unambiguously for exclusive use of the names “Abboud” and “Joseph Abboud” outside the use of those names in trademarks, nor did it prohibit Abboud from making non-trademark use of his name after the expiration of his non-compete agreement. The District Court must therefore consider Abboud’s evidence of the parties’ intentions in using the term “names” in deciding whether Abboud breached the contract. The Second Circuit also directed the District Court to reconsider Abboud’s “fair use” defense in the context of the actual advertising mock-ups presented by the parties, and to determine whether Abboud’s use was (1) “other than as a mark, (2) in a descriptive sense, and (3) in good faith.” J.A. Apparel might have anticipated when it signed the deal in 2000 that Abboud, who was just 50 years old at the time, might wish to return to the fashion design world when his non-compete expired seven years later. The decision is also instructive for licensees whose business depends on the exploitation of valuable brands. Had J.A. Apparel considered this possibility, the agreement could have been drafted to avoid this expensive and unfortunate result.
Source: J.A. Apparel Corp. v. Joseph Abboud, U.S. Court of Appeals for the Second Circuit, No. 08-3181-CV, June 10, 2009
Ninth Circuit Court examines required proof of access to copyrighted work
In reviewing a challenge to MGA Entertainment, Inc.’s (“MGA”) “Bratz” dolls unrelated to Mattel’s widely-publicized suit (Bryan v. Mattel, Inc., U.S. District Court for the Central District of California, No. CV 04-9049, December 3, 2008), the U.S. Court of Appeals for the Ninth Circuit has upheld a judgment in favor of MGA. Since, 1993, Art Attacks, a small airbrush art business primarily specializing in custom-made T-shirts, had sold T-shirt designs from booths at county fairs, as well as at a few Wal-Mart and other stores in Arizona and California. One of Art Attacks’ best selling designs was its “Spoiled Brats” character concept, copyrighted in 1996. The Spoiled Brats character designs, which could be tailored to resemble individual customers, featured cartoonish, predominately female characters with oversized eyes, disproportionally large heads and feet, makeup and bare midriffs. MGA began selling dolls under the name “Bratz” in 2001. The dolls also featured oversized eyes, disproportionally large heads and feet, makeup and bare midriffs. In 2004, Art Attacks filed suit against MGA alleging trademark, trade dress and copyright infringement. A jury found for MGA on the trademark claim, but could not reach a verdict on the remaining claims. MGA then moved for judgment as a matter of law and the district court judge granted the motion. The Ninth Circuit agreed with the district court that Art Attacks failed to demonstrate that MGA had access to copyrighted works or that Art Attacks’ designs constituted distinctive trade dress that had acquired secondary meaning. As Art Attacks had no direct evidence of copying by MGA, proof that MGA had access” to the Spoiled Brats designs was necessary. See Three Boys Music Corp. v. Bolton, 212 F.3d 477, 481 (9th Cir. 2000). A copyright owner must show a reasonable possibility, not merely a bare possibility, that an alleged infringer had the chance to view the protected work to prove “access.” If, as here, there is no direct evidence of access, circumstantial evidence may be used to prove access by either (1) establishing a chain of events linking the owner’s work to the alleged infringer or (2) showing that the owner’s work has been widely disseminated. However, the Ninth Circuit found that Art Attacks had failed to prove MGA’s access to the Spoiled Brats designs through either form of circumstantial evidence. Art Attacks neither established a chain of events linking its copyrighted works to MGA nor showed that its protected work had been widely disseminated. Although an MGA designer testified that she may have attended the Los Angeles County Fair between 1998 and 2001, when Art Attacks was displaying the Spoiled Brats designs, Art Attacks could not prove that the designer actually visited the Los Angeles County Fair during that relevant time period or that the designer ever saw Art Attacks’ booth. The Court noted that there could have been a minimal chance that the designer did visit the fair sometime during the relevant time period but that such a chance did not create a “reasonable possibility” of access under the chain of events theory.
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Art Attacks argued that the Spoiled Brats designs were widely disseminated in three ways: (1) on the Art Attacks booth; (2) on Spoiled Brats T-shirts, which serve as “walking billboards”; and (3) via the Internet on its web site. Art Attacks displayed Spoiled Brats images along with their other designs on the walls of its 20’ x 10’ fair booths, on store kiosks and in a binder on the booth’s counter. Although there was evidence that millions of people had attended the relevant county fairs, Art Attacks had no evidence of how many people noticed the Art Attacks booths among all the others. As for whether the T-shirts served as “walking billboards,” the Ninth Circuit previously held that a video that sold 19,000 copies over a thirteen-year period could not be considered widely disseminated and that book sales of no more than 2,000 copies nationwide and no more than 700 copies in Southern California did not create more than a bare possibility of access. See Rice v. Fox Broadcasting Co., 330 F.3d 1170, 1178 (9th Cir. 2003); Jason v. Fonda, 698 F.2d 966 (9th Cir. 1982). Art Attacks contended that books and videos require more attention to view than T-shirts but, on average, Art Attacks only sold about 2,000 Spoiled Brats T-shirts per year. The Ninth Circuit concluded that approximately 2,000 T-shirts per year were insufficient to demonstrate that the Spoiled Brats designs were widely disseminated, no matter how little attention was required to view a design on a shirt. Art Attacks also attempted to argue that by maintaining a website it had widely disseminated the Spoiled Brats designs. But in 1996 the website took two full minutes to load due to all the images it contained. The Spoiled Brats design was only one of several images on the page, an image that could not be viewed unless the reader scrolled down the page after waiting for it to load. Most importantly, the website did not contain “metatags” to identify the Art Attacks site to Internet search engines. Without metatags, a potential viewer who typed “Spoiled Brats” into a search engine probably would not have been led to Art Attacks’ website. The Ninth Circuit found that a reasonable jury could not have concluded that there was more than a bare possibility that MGA had access to Art Attack’s Spoiled Brats designs, not the required reasonable possibility that MGA had viewed the protected work. Thus, Art Attacks was unable to establish access to the copyrighted works by MGA. The Ninth Circuit also rejected Art Attacks’ contention that its product design constituted trade dress that had acquired distinctiveness in the mind of the public, because there was no evidence that Art Attacks had made exclusive use of the alleged trade dress. In addition, the Ninth Circuit rejected the probative value of evidence of actual public confusion between the Art Attacks and MGM designs because the witnesses were Art Attacks’ employees and personal friends of its founder. Source: Art Attacks Ink, LLC v. MGA Entertainment Inc., U.S. Court of Appeals for the Ninth Circuit, No. 07-56110, September 16, 2009
Copyright licensee’s merger without licensor’s approval causes infringement
When a company that holds a copyright or patent license merges with another company, the parties might not consider whether the merger constitutes a legal transfer of the license that requires the approval of the copyright or patent owner. After all, the licensed invention or copyrighted work might still be used by the same personnel at the same location as prior to the merger. However, the U.S. Court of Appeals for the Sixth Circuit has ruled that such a merger constitutes an invalid license transfer resulting in copyright infringement, whether the license contains a clause requiring the licensor to agree to transfer of the license and whether state law considers the merger to cause the license to transfer. Cincom Systems, Inc. develops, licenses and services software. Cincom licensed two of its copyrighted software products to Alcan Rolled Products Division for use on a single designated computer in Alcan’s facility in Oswego, New York. Both companies were Ohio-based. Ohio law governed the interpretation and enforcement of the license. The license barred Alcan from transferring its rights without Cincom’s prior written approval. Through a long series of internal restructurings, mergers and a name change among related companies, Alcan became a part of Novelis Corp. The licensed software never left the licensed computer in the Oswego facility but Alcan ceased to exist and the facility and computer became Novelis’s property as a result of the mergers. Alcan did not seek or obtain Cincom’s authorization before undergoing the restructure. When Cincom discovered the mergers, it sued Novelis for copyright infringement, contending that the mergers caused the license to be transferred to Novelis without Cincom’s permission. The U.S. District Court for the Southern District of Ohio agreed and entered a judgment for nearly $460,000, an amount equal to Cincom’s initial licensing fee. On appeal, Novelis argued that the transfer was lawful because Novelis was not a competitor of Cincom and Cincom could not object to a mere internal corporate reorganization. Novelis also contended that, under Ohio law, Alcan’s merger did not result in a transfer of the license. The Sixth Circuit held that its previous decision in PPG Industries, Inc. v. Guardian Industries Corp., 597 F.2d 1090 (6th Cir. 1979) governed this case. In PPG, the Court found that a company that received a patent license in a merger was an infringer because Ohio law provided that licenses automatically transferred to and vested in the successor company in a merger and the license required written consent of the patent owner prior to a transfer. In addition, the Court determined that, as a matter of federal common law, a patent or copyright license is “presumed to be nonassignable and non-transferable” if there are no express license provisions to the contrary. Because Ohio law, whatever its nature, cannot override federal law, Ohio law cannot authorize transfer of
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Federal Circuit dissects use of licenses to prove damages for patent infringement
In 2002, Lucent Technologies, Inc. sued Gateway, Inc. for patent infringement over a method for entering information into fields on a computer screen without using a keyboard. Microsoft intervened in the case. The jury rejected Microsoft’s claim that the patent was invalid and found that Microsoft infringed some of the patent claims in suit. The jury awarded Lucent nearly $358 million in a lump-sum royalty payment as damages for infringement related to Microsoft’s Outlook program and two other applications, Microsoft Money and Windows Mobile. The infringing feature was called the “date picker,” a calendar tool allowing a user to choose a date and enter it into a field in an appointment form without typing the date on a keyboard. Microsoft moved for judgment as a matter of law but the U.S. District Court for the Southern District of California upheld the jury’s verdict. The U.S. Appeals Court for the Federal Circuit affirmed the jury’s verdict that the patent claims at issue were not obvious and that Microsoft had infringed the patent. However, the Court held that the damages award was not supported by substantial evidence and sent the case back for new trial on the damages issue. The federal Patent Act provides that patent infringement damages should be “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer….” 35 U.S.C. § 284. Two methods for determining damages are the patent owner’s lost profits and the reasonable royalty the owner would have received if the parties had bargained for a license prior to the infringement. In this case, the parties chose the reasonable royalty method, with Lucent asking for a “running royalty” based on ongoing sales or usage of the patented method and Microsoft presenting evidence that the damages should be no greater than a $6.5 million lump-sum, paid-up royalty. The Federal Circuit observed that the hypothetical negotiation employed in determining a reasonable royalty “necessarily involves an element of approximation and uncertainty.” Nevertheless, in assessing the evidence supporting the nearly $358 million verdict, the Court concluded that there was an insufficient basis for awarding what amounted to an 8% royalty on the sales price of the Outlook program for infringement by the date picker, a tiny feature of that program. Applying the damages factors set forth in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), the Federal Circuit compared the licenses Lucent had placed in evidence to Microsoft’s specific Outlook product and concluded that the hypothetical license Lucent and Microsoft would have reached was not sufficiently comparable to those licenses for the licenses to have supported the jury’s damage award. In particular, Lucent provided no evidence for how often the patented method would be used by Microsoft’s customers and little testimony explaining how license agreements structured with running royalties could be used to prove what lump-sum payment the parties would have accepted
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in the hypothetical negotiation. The Court observed that a minimally-used feature, such as the date picker, would usually support a lower lump-sum royalty payment than a feature expected to be used more frequently in the licensed product. Because Lucent did not introduce any evidence of expected use of the date picker feature, the jury had no support to conclude that the parties would have estimated that it would be frequently used or so highly valued as to command a payment amounting to 8% of the sales price of the Outlook program. According to the Federal Circuit, the eight license agreements introduced into evidence by Lucent were “radically different” from the hypothetical agreement at issue and the Court could not determine the value of the others because their subject matter was unknown. Of the lumpsum agreements provided by Lucent, none approached the size of the jury’s award and they were directed at situations “vastly different” than the Microsoft Outlook program or at situations that could not be determined from the testimony. A lump-sum damages award, noted the Court, requires more than an expert witness’s superficial testimony about royalty numbers, particularly without any explanation of how the technology of those licenses compares to the technology in the case. The four running royalty licenses that Lucent introduced to support the jury’s verdict were fundamentally different from the Microsoft situation. Although a running royalty license can be used as a basis to award lump-sum damages, the jury must hear testimony about how to recalculate the value of those running royalties to arrive at a lump sum award. None of the licenses introduced as evidence supported the size of the jury’s award. Nor did the nature of the patented invention, the character of Lucent’s commercial embodiment or the benefits to users support the award, where the infringing feature was a tiny element of one part of the much larger and complex Outlook program with hundreds of other features. Thus, the Federal Circuit concluded that most of Microsoft’s profit from the Outlook program was attributable to non-patented elements. That “glaring imbalance” must be factored into the analysis of how much profit can be attributed to
the “exceedingly small” use of the data picker feature. Another Georgia-Pacific factor is the extent to which the infringer has made use of the patented invention and the value of that use. Although the hypothetical negotiation is assumed to take place prior to any infringement, the Federal Circuit noted that facts occurring after the date of the infringement begins, such as how often the invention has been used by infringers, can be considered. Although the parties to the hypothetical negotiation would not have precise data about future usage of the invention, they could have rough estimates. That information could be considered by the jury but, in this case, there was no such evidence so the damage award was not correlated to the extent that consumers used the infringing data picker method. Although substantial evidence supported the jury’s verdict that Microsoft infringed, there was no evidence about how many consumers used the invention or how many times they did so. Moreover, Lucent did not show that the data picker was the basis for customer demand for the Outlook program, so the jury could not base its damage award on applying a royalty percentage to the Microsoft’s entire sales of the Outlook program (the “entire market value rule”) without applying a royalty rate in proportion to the size of the data picker feature in relation to the entire Outlook program. As the Federal Circuit held that no reasonable jury could have found that Lucent provided enough evidence to support nearly $358 million in damages, the Court returned the case to the district court for a new trial on the damages issue. Although the Federal Circuit was careful to recognize that companies in the high-tech computer industry often make licensing deals that do not link the royalty paid to the number of times consumers could be expected to use a patented feature, this decision returns many times in the course of the analysis to the importance of such evidence and its absence in the trial record. Patent owners who may wish to rely on a reasonable royalty theory of damages should keep that in mind.
Source: Lucent Technologies, Inc. v. Gateway, Inc., U.S. Court of Appeals for the Federal Circuit, Nos. 2008-1485, 2008-1457, 2008-1495, September 11, 2009
South Dakota considers Lanham Act abandonment test for state trademarks
Section 45 of the Lanham Act (15 USC §1127) provides a rebuttable presumption that a trademark has been abandoned when the mark has not been used for three years. Although not adopting that presumption, the South Dakota Supreme Court has considered it in the context of state trademark registrations. Dakota Industries, Inc. (“DI”), a manufacturer of outerwear products, registered the trademark DAKOTA for its products with the Secretary of State of South Dakota in 1968 and renewed that registration in 2006. When Cabela’s.com, Inc. (“Cabela’s”) sold clothing using “Dakota Vest” and “Dakota Jacket,” DI sued Cabela’s for state trademark infringement. Cabela’s moved for summary judgment, claiming that DI had abandoned the mark by failing to make or sell any DAKOTA-branded goods after 1997 and failing to collect royalties from licensees after 2001. The trial court granted judgment to Cabela’s, finding that DI had not rebutted the evidence of abandonment. DI appealed, and the South Dakota Supreme Court affirmed that decision. Although the Supreme Court acknowledged that abandonment is a defense to trademark infringement which the alleged infringer has the initial burden to establish, the Court noted that once that initial case of abandonment has been made, the trademark owner is required to respond to that evidence with specific facts from which current use of the mark can be shown or inferred. Cabela’s produced evidence from DI’s business records that DI had not sold any DAKOTA-branded products or collected any royalties from licensees of its DAKOTA mark from 2001-2006. Cabela’s also produced the deposition testimony of DI’s CEO that DI had not made or sold any DAKOTA-branded products after 1997 and that the DAKOTA mark had not been used or licensed by DI since 2000. DI’s CEO had also testified that he was “not going to waste any time or efforts” determining whether DI’s licensees were continuing to use the mark or even continued to exist. That evidence, the Supreme Court observed, was sufficient to make a prima facie case of abandonment, requiring DI to come forward with specific facts about its current use of the mark. The Court noted that although the South Dakota trademark statute authorized the Secretary of State to cancel a state trademark registration that has been abandoned, the statute did not provide any particular period of non-use that would constitute abandonment. The trial court had looked to the federal Lanham Act for guidance. The trial court did not adopt the Lanham Act’s three-year non-use presumption but also considered that DI’s non-use stretched for almost six years. DI contended that it had not abandoned the mark during either a
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Arnstein & Lehr inteLLectuAL ProPerty newsLet ter | winter 2009
Ninth Circuit rejects Hallmark’s anti-SLAPP challenge to Paris Hilton’s suit
The U.S. Court of Appeals for the Ninth Circuit has allowed Paris Hilton, the controversial heiress who is said to be “famous for being famous,” to proceed with her lawsuit against greeting card giant Hallmark, based on a birthday card captioned “Paris’s First Day as a Waitress.” The Hallmark card portrayed a cartoon waitress with a super-imposed photograph of Hilton’s face, serving a plate of food to a restaurant customer. Hilton says “Don’t touch that, it’s hot,” the customer replies “What’s hot?” and Hilton responds “That’s hot.” Inside the card reads “Have a smokin’ hot birthday.” The setting of the card is allegedly based on an episode of Hilton’s reality television show “The Simple Life,” in which she was employed as a waitress at a “fast food joint,” and often uttered her signature phrase “That’s hot” [registered by Hilton as a trademark for clothing and pending registration as a trademark for alcoholic beverages]. Hilton sued Hallmark for misappropriation of publicity under California common law, false designation of origin under the Lanham Act, 15 U.S.C. § 1125(a), and infringement of a federally registered trademark. The U.S. District Court for the Central District of California dismissed the trademark infringement claim but allowed the other claims to proceed. Hallmark also moved to strike Hilton’s right of publicity claim under California’s anti-SLAPP statute (Cal. Civ. Proc. Code § 425.16). “SLAPP” stands for “strategic lawsuit against public participation.” Anti-SLAPP laws provide a remedy against suits that are brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for redress of grievances. For an anti-SLAPP motion to be successful, the defendant has to show that the plaintiff’s claim was brought under state law, that the claim arose from the defendant’s protected conduct (such as free speech in connection with a public issue) and that the plaintiff does not have a probability of success on the merits of the claim. The claim must be both legally sufficient and supported by enough facts that a judgment could be sustained if those facts were believed. The District Court denied Hallmark’s motion because it required resolving too many factual issues and Hallmark appealed. The Ninth Circuit determined that the birthday card qualified as “speech” under First Amendment law and that the sale of the birthday card was “in connection with a public issue or an issue of public interest.” Although, the California Supreme Court has not clearly established what constitutes an issue of public interest, the anti-SLAPP statute should be interpreted broadly in light of its purpose to encourage participation of matters of public importance or consequence. Hilton admitted that she is a celebrity whose doings interest many people but she argued that her “garden variety private dispute over who profits from her image” does not implicate an issue of public interest. After looking to decisions of the California appellate courts for guidance, the Ninth Circuit concluded that the statute did not require the defendant’s activity to involve questions of civic concern. The topic of the free speech can be a celebrity like Paris Hilton. It need not be a subject of some defined debate -- social or “loww w w. A r n s t e i n . c o m
brow” topics are sufficient. As “The anti-SLAPP statHilton is a person “in the public ute should be intereye” and “a topic of widespread, public interest,” and because preted broadly in light Hilton’s career is something of of its purpose to enconcern to a substantial number courage participation of people, Hallmark’s birthday card constituted free speech “in of matters of public connection with a public issue importance or conseor an issue of public interest.” quence.” Although the public interest is not the same as mere curiosity about a public personage, if the activities of the celebrity are public they become a public issue. In this case, Hallmark’s card spoofed Hilton’s public persona and signature phrase, not some private detail of Hilton’s personal life. Hallmark was not required to show that its card commented on an ongoing public controversy as Hilton’s lifestyle and signature phrase are matters of widespread public interest. Because Hallmark’s threshold showing was made, the Court next analyzed the probability that Hilton’s claim of misappropriation of her right of publicity would succeed, noting that the required probability of prevailing need not be high. If Hilton’s right of publicity claim has even “minimal merit,” the Court noted, it is entitled to proceed. Hallmark contended that even if Hilton had a minimal claim for misappropriation of her right of publicity, Hallmark had two winning defenses --“transformative use” and “public interest” – that would defeat her claim. If a celebrity likeness is only one of the raw materials from which a creative work is made, that use of the celebrity likeness is “transformative.” If the depiction of the celebrity is “the very sum and substance of the work in question,” the use is not transformative. Merely merchandising a celebrity’s image without that person’s consent does not amount to a transformative use. The Court found that as long as Hilton could show some probability of success in arguing that the birthday card is not transformative, Hallmark was not entitled to the transformative use defense as a matter of law. The version of Hilton on the card did almost exactly what she did in her reality show, serve food to a customer. As the factual issue of whether the card is transformative or not transformative must still be resolved, Hilton has some probability of success. California law provides that there is no cause of action against publication of matters in the public interest because of the public’s right to know and the press’s freedom to tell. The Court dismissed Hallmark’s public interest defense because it only applies to liability for publishing or reporting information, which the Hallmark card does not do. A majority of states have anti-SLAPP statutes, including Florida and Illinois. They are most often used to defend against defamation suits.
Source: Hilton v. Hallmark, 580 F.3d 874 (9th Cir. 2009)
State foreclosure of security interest in patents transfers title without a written assignment from debtor
The U.S. Court of Appeals for the Federal Circuit has determined that a party that obtained its rights to certain patents from a party that obtained those rights through a security interest foreclosure sale has good title to those patents and can sue infringers in its own name. It is not necessary for the purchaser at foreclosure to obtain a written assignment from the original patent owner in order to be able to pass good title to the patents to another party by a written assignment. Cir. 2008), the Federal Circuit held that federal law is used to determine the validity and terms of an assignment but state law controls the transfer of patent ownership by any operation of law not considered to be an assignment. Although the federal Patent Act requires all assignments of patent interests to be in writing, there is nothing in the Patent Act that limits transfer of patent ownership only to assignments. Ownership can be changed by operation of law, such as through the state intestacy laws that determine who owns the property of a person who dies without a will. In Akazawa, the Federal Circuit held that a widow and her daughters who received title to her deceased husband’s patent through state intestacy law could make a valid assignment to a third party, who could then bring a patent infringement suit. Although an assignment of a patent must be in writing, transfers by operation of law are not so limited. As XACP’s foreclosure sale was properly conducted under Massachusetts law, Sky received full title to the patents from XACP’s assignment to Sky.
In 2001, Ozro Inc. (whose owners included Jeffrey Conklin) granted security interests covering five patents to Silicon Valley Bank (“SVB”) and to Cross Atlantic Capital Partners, Inc. (“XACP”). Both SVB and XACP recorded their security interests in the U.S. Patent and Trademark Office. SVB later assigned its security interest to XACP. The XACP security agreement provided that, in the event of default by Ozro, XACP could dispose of the collateral, including the patents, at a public or private sale. XACP could also purchase the collateral, including the patents, at a public sale. “Although no written When Orzo defaulted, XACP issued a foreclosure notice identifying the patents among the collateral to be sold at public auction. Prior to the auction, Jeffrey Conklin negotiated with XACP for XACP to purchase the patents at the auction and to transfer them to Conklin’s new company, Sky Technologies LLC (“Sky”). XACP, the only bidder, purchased all of the assets in foreclosure. Shortly thereafter, XACP assigned its title to the patents to Sky. Orzo never made a written assignment of the patents to XACP.
SAP argued that the Patent Act provides that document assigned the patents can only be owned by a patentee, his heirs or his assigns; that is, persons to whom patent rights to XACP, the patentee makes a written assignment. 35 U.S.C. § 154(a)(1). SAP did not question the the Federal Circuit Akazawa ruling because the widow and daughagreed that patent rights ters were heirs, a class of persons within the statutory language. However, the Federal Circan be transferred by cuit was not persuaded because that statutory ‘operation of law’ in a provision does not cover transfers of patent proper foreclosure sale.” ownership, only the original grant of the patent. Nor does § 9-619 of the Massachusetts UCC require a written assignment. It merely permits such a document to be recognized as legal if it is made. Public policy reasons also support transfer by operation of law. The Federal Circuit concluded that invalidating foreclosures of security interests secured by patents would harm a large number of secured creditors. In addition, restricting transfer of patents to assignments would lessen the value of patents because patent owners could not use them as collateral. Moreover, it would be impractical to require secured parties to obtain written assignments after foreclosure from businesses that might no longer exist. As the Federal Circuit noted, a foreclosure sale must be properly conducted for the title to patents to transfer to the purchaser at the sale. Although it is not necessary to record a security interest with the U.S. Patent and Trademark Office to perfect that security interest in patents, it is good practice to do so, in addition to filing the UCC financing statement that indicates that it covers patents or general intangibles or includes a description of the patents that it covers.
Source: Sky Technologies LLC v. SAP AG, U.S. Court of Appeals for the Federal Circuit, No. 2008-1606, August 20, 2009
Three years later, Sky sued SAP AG and SAP America, Inc. (collectively “SAP”) for patent infringement. SAP moved to dismiss the suit, contending that Sky did not own the patents and therefore did not have “standing” to sue, because Ozro had never made a written assignment of the patents to XACP. The U.S. District Court for the Eastern District of Texas determined that title to the patents legally passed to XACP at the foreclosure sale, as that sale was properly conducted under the Massachusetts Uniform Commercial Code, so that when XACP made the written assignment to Sky, Sky received title to the patents. The Federal Circuit observed that “regardless of how the parties characterize the transaction that conveyed [the patent] rights,” a party that has been granted all substantial rights under a patent has legal title to the patent and, therefore, has standing to sue infringers. Although no written document assigned the patent rights to XACP, the Federal Circuit agreed that patent rights can be transferred by “operation of law” in a proper foreclosure sale. In Akazawa v. Link New Technology Int’l, Inc., 520 F.3d 1354 (Fed
Arnstein & Lehr inteLLectuAL ProPerty newsLet ter
| winter 2009
DAKOTA Continued from Page 3
three-year or a six-year period because the mark was in use by its licensees. It pointed to recently seen DAKOTA-branded clothing for sale by a company in Sioux Falls. However, DI’s attorney admitted that those garments were sold to that company in 1997 and that DI did not have any evidence that the company was still a licensee. Because DI failed to produce any evidence of actual license agreements, income from licensing or affidavits from current licensees, and no specifics about goods or licensees still in the marketplace or alleged royalty-free oral licenses or license supervision, the Supreme Court concluded that the mark was indeed abandoned. Section 45 of the Lanham Act also provides that a mark will be presumed abandoned if the owner’s course of conduct causes the mark to “lose its significance as a mark.” Allowing unlicensed third parties to use a mark can be evidence of such lost significance. A state trademark registration, although providing protection for a mark only within the boundaries of the state of registration, is nonetheless an important tool for protection of marks that are not used in interstate commerce or whose owner is not ready to incur the expense of a federal registration. State trademark registrations are relatively easy and inexpensive to obtain and maintain compared to a federal registration. However, unlike federal applications, which can be based on an intent to use a mark in the future, state trademark applications require that the mark be in current use within the state. The DAKOTA mark at issue in this case would probably have been difficult to register on the U.S. Principal Register, as it would likely have been considered to be geographically descriptive. State registrars are less likely to make such objections.
Source: Dakota Industries, Inc. v. Cabela’s.com, Inc., S.D. Supreme Court, No. 24950, May 20, 2009
Free Domain Name Trademark Monitoring for Valued Clients
For a limited time, Arnstein & Lehr LLP is offering a free service for valued clients concerned about potential infringers registering domain names with their trademarks. This new service alerts the firm daily to top-level domain names registered with ICANN registrars that contain the client’s trademarks. It is offered as part of Arnstein & Lehr’s emphasis on providing its clients with large firm expertise at mid-market value rates. Hundreds of thousands of new top-level internet domains are registered every week. Often these domains contain valuable trademarks that the registrants are not authorized to use. Good brand management and protection dictates that trademark owners be vigilant about misuse of their marks on the Internet. Services that alert trademark owners to domain registrations using their marks can cost thousands of dollars a year. However, for a limited number of trademarks and a limited time Arnstein & Lehr will, free of charge, add a client’s trademark to the list of marks it monitors for use in new domain registrations. Any alerts the firm receives will be forwarded on to the client for review and legal action, if necessary, at the client’s discretion. Clients or potential clients interested in taking advantage of this new free service are encouraged to contact Judith Grubner in Chicago at 312.876.7885 or jlgrubner@arnstein. com, or Joel Rothman in West Palm Beach at 561.650.8480 or firstname.lastname@example.org.
Novelis’s use of the software constitutes copyright infringement. The Court noted that the changes in Ohio law following the PPG decision were not substantive in determining whether Ohio law causes a license to be transferred to the successor party in a merger. What matters is whether, after the merger, the same legal entity holds the license. If not, a transfer has occurred that, in this case, was unlawful because Novelis did not obtain Cincom’s prior written approval. Therefore, Novelis’s use of the software constituted copyright infringement. This case illustrates the danger in assuming that a license that contains no pre-transfer approval obligations may be freely transferred. If the license has no transfer provisions at all, federal common law will bar a transfer without a prior written authorization. Where the parties wish a license to be freely transferrable, they must expressly provide such a term in the license.
Source: Cincom Systems, Inc. v. Novelis Corp., U.S. Court of Appeals for the Sixth Circuit, No. 07-4142, September 25, 2009
a patent or copyright license where the patent owner’s permission is required. Because it had not considered its PPG decision since 1979, the Sixth Circuit took the opportunity to expand on its reasoning in that case. The Court observed that (1) federal common law governs issues with respect to the assignability of a patent or copyright license, (2) state contract law governs interpretation of patent and copyright licenses, (3) state law determines whether a merger results in the transfer of such licenses but (4) state law cannot allow a patent or copyright license to transfer without the licensor’s express authorization. The fact that Novelis was not a competitor of Cincom is irrelevant because the license specifically prohibited transfers without Cincom’s prior written consent. Even if the license had been silent as to transfer rights, federal common law prohibited a transfer without the licensor’s express approval. If Ohio law transferred the license from Alcan to Novelis as of result of the internal restructuring/mergers, the license was breached and
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COPYRIGHT Continued from Page 5
World Wide Video appeals dismissal of case against Yoko Ono
We reported in the Summer 2009 newsletter that Yoko Ono was allowed to keep possession of and the copyrights to videotapes with footage of John Lennon, Ms. Ono and their family that World Wide Video claimed to own. World Wide Video appealed that ruling to the United States Court of Appeals for the First Circuit on November 6, 2009.
Don’t wait for the next issue to get more IP news and updates
Check out and subscribe to blogs published by Arnstein & Lehr attorney Joel Rothman on nutritional and dietary supplement law at www.nutrisuplaw.com. He also publishes the legal blog www.appslawblog.com for companies competing in the mobile and iPhone applications business. Arnstein & Lehr also publishes General Counselor, our employment law blog for in-house attorneys, business owners and executives with special attention to Illinois employment law. It can be found at generalcounselor.com.
The Intellectual Property Practice Group counsels clients on matters related to the protection of trademarks, copyrights, domain names and trade secrets, including preparation and processing of trademark and copyright applications, unfair competition, rights of privacy and publicity, review of web sites and advertising claims, and preparation and registration of contest and game promotion rules.
Judith L. Grubner 312.876.7885 email@example.com
Ms. Grubner is a partner in the firm’s Chicago office. She concentrates her practice on intellectual property, specializing in trademarks, copyrights, domain names and sweepstakes, contests and game promotions. Ms. Grubner is a speaker for the Chicago and Milwaukee Bar Associations, the Midwest Society of Professional Consultants and Society of Professional Journalists. In July 2009 Ms. Grubner was named to the list of Leading Lawyers in Advertising & Media Law by Leading Lawyers Network. Misha Kerr is an intellectual property associate in the firm’s West Palm Beach office.
Joel B. Rothman 561.650.8480 firstname.lastname@example.org
Mr. Rothman is a Florida Bar board certified Intellectual Property lawyer and a partner in the firm’s West Palm Beach office. Mr. Rothman represents individual and corporate clients in intellectual property infringement litigation involving patents, trademarks, copyrights, trade secrets, trade libel and related commercial matters. His litigation practice also includes significant focus on electronic discovery issues such as e-discovery management and motion practice relating to e-discovery.
The editors acknowledge the contributions to this issue of Misha Kerr and Eric Seidmon.
Arnstein & Lehr inteLLectuAL ProPerty newsLet ter
| winter 2009
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