K&L IP News Archives - Kinney & Lange

Federalization of Trade Secret Law

Posted on June 2, 2016 by Kinney & Lange, P.A.

The Defend Trade Secrets Act of 2016 (DTSA) was signed into law by President Obama on May 11, 2016. The DTSA creates a private civil cause of action in federal court for misappropriation of a trade secret “related to a product or service used in, or intended for use in, interstate or foreign commerce.” The DTSA amends the existing Economic Espionage Act of 1996 (EEA), which criminalizes trade secret theft, and makes trade secrets a national priority, affording a level of protection already provided for patents, copyrights, and trademarks.

Prior to enactment of the DTSA, plaintiffs were limited to civil remedies under state law. While 48 states have adopted some form of the Uniform Trade Secrets Act (UTSA), trade secret owners have criticized differences in the laws, as well as differences in application of the law, discovery rules, and procedural requirements between states for creating unpredictability and hampering their ability to develop a uniform policy for protecting intellectual property.

In a nutshell, the DTSA shares similarities with the UTSA, including award for attorneys’ fees, double damages for willful and malicious misappropriation, and a three-year statute of limitations, but it also contains important distinctions. Most significant are provisions allowing for ex parte seizures, limiting injunctions against a former employee’s employment with a competitor, and providing protections for whistleblowers. The DTSA also adopts the EEA definition for “trade secret,” which may be broader than the UTSA.

Ex Parte Seizures

Under the DTSA, courts can impose an ex parte seizure of “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Under the ex parte seizure, no advanced notice is provided to the defendant. To prevent or limit abuse, the law places several limitations on the property seizures including restricting issue of a court order to “extraordinary circumstances.” Nonetheless, it is a remedy that is currently unavailable under the UTSA.

Protection of Employee Mobility

Unlike the UTSA, the DTSA explicitly bars courts from providing injunctive relief that would “prevent a person from entering into an employment relationship” or “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” Furthermore, any orders placing conditions on a former employee’s employment relationship must be “based on evidence of threatened misappropriation and not merely on the information the person knows.” This is in contrast to the inevitable disclosure doctrine applied by some states, which allow a party to enjoin a former employee from entering into employment with another company if it would inevitably result in the use of the party’s trade secrets.

Whistleblower Immunity

The DTSA grants immunity from civil and criminal liability under both state and federal trade secret law for whistleblowers who disclose trade secrets “in confidence to a Federal, State or local government official, either directly or indirectly, or to an attorney” where such disclosure is “solely for the purpose of reporting or investigating a suspected violation of law.” Additional protection is provided to individuals filing “a lawsuit for retaliation by an employer for reporting a suspected violation of law” provided the filing is made under seal. Most importantly, the law requires employers to provide notice of the whistleblower immunity the DTSA provides. The law states that employers must “provide notice of the immunity set forth in the [the DTSA] in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” “Employee” is defined as including “any individual performing work as a contractor or consultant for an employer.” Notice is required for “contracts and agreements that are entered into or updated after the date of enactment.” Under the DTSA, employers who fail to comply with the notice requirement may not be awarded exemplary damages and attorney fees in an action against the employee to whom notice was not provided.

“Trade Secret”

The DTSA defines “trade secret” to mean:

all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.

Although similar to the eight categories listed in the UTSA (formula, pattern, compilation, program, device, method, technique, or process), there are variations among state laws that trade secret owners need to be aware of.

Takeaways

In order to take advantage of the DTSA, owners of trade secrets must take reasonable measures, as required under state law, to keep such information secret.
Trade secret owners should carefully consider the variations in the state and federal laws and application of those laws before seeking remedies for misappropriation. The DTSA does not preempt state law, but provides another forum.
Employers should take action now to modify policies and new or updated employment agreements to ensure compliance with the DTSA’s whistleblower immunity notice provision.

Summary of Amendments to the Federal Rules of Civil Procedure and a Potential Impact on NPEs

Posted on June 2, 2016 by Kinney & Lange, P.A.

By: Tony Salmo

On December 15, 2015 amendments to the Federal Rules of Civil Procedure went into effect. Congress passed and the Supreme Court adopted amendments to Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, 55, and 84. The amendment to rule 84 effectively eliminated the Appendix of Forms. On April 28, 2016, the Supreme Court approved amendments for review by congress for: Federal Rules of Appellate Practice, Rules 4, 5, 21, 25, 26, 27, 28, 28.1, 29, 32, 35, and 40, and Forms 1, 5, and 6, new Form 7 and new Appendix; Bankruptcy Rules 1010, 1011, 2002, 3002.1, 7008, 7012, 7016, 9006, 9027, and 9033, and new Rule 1012; Civil Rules 4, 6, and 82; and Criminal Rules 4, 41, and 45.

This article includes a brief discussion of amendments and proposed amendments to the Federal Rules of Civil Procedure, followed by a discussion of the impact caused by the amendment to Rule 84 of the Federal Rules of Civil Procedure, specifically the impact of the elimination of Form 18 on non-practicing entities (NPEs).

2015 Amendments to Federal Rules of Civil Procedure

On December 15, 2015 amendments to Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, 55, and 84 of the Federal Rules of Civil Procedure went into effect. The amendments are each briefly explained below.

Rule 1 was amended to emphasize that all parties to a suit share with the court the responsibility to employ the rules in favor of a just, speedy, and inexpensive manner. See Fed. R. Civ. P. 1, committee notes 2015, available at

http://uscode.house.gov/view.xhtml?path=/prelim@title28/title28a/node85/titleI&edition=prelim.

The most significant change to Rule 4 reduced the time to serve a defendant from 120 days to 90 days. Accompanying the change to rule 4 was a change to Rule 16 which reduced the time to issue a scheduling order to the earlier of 90 days (from 120 days) after any defendant has been served, or 60 days (from 90 days) after any defendant has appeared before the court. The committee noted that the changes to Rules 4 and 16 are in effort to reduce delays in early stages of litigation.

Perhaps the most expansive amendment is that of Rule 26(b)(1), which now requires discovery to be relevant to a party’s claim or defense and restores the requirement that discovery must be proportional to the needs of the case. Rules 30, 31, and 33 were amended in parallel to reflect the recognition of proportionality in Rule 26. Rule 26 was also amended to allow for requests for production after 21 days of serving that party, even if that request is prior to the Rule 26(f) conference.

Rule 34 was amended to reduce potential unreasonable burdens from being imposed by objections to requests to produce documents and things. Rule 34(b)(2)(B) now requires that objections to Rule 34 requests be stated with specificity. This requirement is tied to the amendment to Rule 34(b)(2)(c), which provides that objections to Rule 34 requests must state whether anything is withheld on the basis of the objection. Additionally, Rule 34(b)(2)(B) now explicitly allows for the production of copies of documents or electronically stored information as opposed to inspection, provided that the response to the request states what copies will be produced.

New Rule 37(e) seeks to address growing problems presented by electronically discoverable information. Rule 37(e) provides guidelines for the court when electronically stored information was not preserved that should have been preserved and cannot be recovered, the court may act: (1) upon determining the loss of information causes prejudice to another party; and (2) upon finding the party failing to preserve the electronically stored information acted with intent to deprive the other party. If the court determines these conditions exist, the court may: (A) presume the information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action under a default judgment.

Rule 55 was amended to clarify that a default judgment failing to dispose of all claims among all parties is not a final judgment unless the court directs entry of final judgment. The amendment to rule 55 relates to the issue of parallel proceedings, such as those in the United States Patent and Trademark Office.

Rule 84, which previously contained the Appendix of Forms, has been abrogated. The committee notes state that the purpose of the forms, “to demonstrate the simplicity and brevity of statement which the rules contemplate,” has been fulfilled and therefore the forms are no longer necessary. See Fed. R. Civ. P. 84, advisory committee’s note (2015), available at

http://uscode.house.gov/view.xhtml?path=/prelim@title28/title28a/node85/titleI&edition=prelim.

Patent Trolls Without Form 18 — Amended Rule 84

Patent Trolls, or non-practicing entities (NPEs), leverage the high cost of patent defense to obtain nuisance settlements for questionable claims of infringement. A typical strategy consists of filing a large number of suits against potential infringers; but filing large volumes of lawsuits comes with associated costs of preparing pleadings. NPEs often minimized legal fees by filing bare minimum complaints based on Form 18. Now-abrogated Form 18, which was specific to patent suits, only required: (1) a statement that the patent at issue is owned by the plaintiff; (2) that the defendant’s product infringed the plaintiff’s patent; and (3) infringement resulted in damages suffered by the plaintiff. The simplicity of Form 18 allowed NPEs to easily file a large number of complaints for a given patent.

After the Supreme Court holdings in Iqbal and Twombly set a heightened pleading standard of plausibility, many argued that “plausible” pleadings should be required for patent infringement complaints. Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). In 2012, the United States Court of Appeals for the Federal Circuit in In re Bill of Lading addressed the patent pleadings issue, holding that Form 18 satisfied the Iqbal and Twombly pleading standards for cases of direct infringement, but not for indirect infringement. In re Bill of Lading Transmission and Processing System Patent Litigation, 681 F.3d 1323, 1334; 1336 (Fed. Cir. 2012). In re Bill of Lading therefore allowed NPEs to continue their practice of filing complaints using Form 18.

Now that Form 18 has been eliminated by the abrogation of Rule 84, experts anticipate that suits for patent infringement will be required to meet the heightened pleading standards of Iqbal and Twombly. However, as the Iqbal and Twombly cases are not patent-specific, a new set of case law is likely to emerge to address patent-specific pleadings. While there is uncertainty as to the exact pleading standard for patent infringement complaints, NPEs may be required to provide more detailed pleadings than under old Form 18. One possible requirement is a fact-specific statement from a plaintiff explaining how a defendant’s product infringes the patent at issue.

More detailed pleadings mean more work for NPE attorneys and heightened pleading standards may cause an increase in Rule 12(b)(6) motions to dismiss (failure to state a claim for which relief can be granted), both of which will increase an NPE’s cost of doing business. Neither the additional cost of pleadings or the cost of responding to more 12(b)(6) motions will cripple the NPE economic model. However, additional up-front operating expenses will shift the economic model for NPEs and may at least curb the number of suits filed by NPEs.

2016 Proposed Amendments to Federal Rules of Civil Procedure

On April 28, 2016, the Supreme Court approved amendments for review by congress for the Federal Rules of Civil Procedure, Rules 4, 6, and 82. These proposed rules must pass through congress before they are implemented in December of 2016. The proposed amendments are each briefly explained below.

Rule 4 is proposed to be amended to address time limits for service and correct an ambiguity regarding service abroad on a corporation. Proposed Amendments to Federal Rules of Civil Procedure Adopted by The Supreme Court for Congressional Review (April 28, 2016), available at http://www.uscourts.gov/file/document/2016-04-28-final-package-congress. The amendment clarifies that the time limit set forth in Rule 4(m) (90 days) does not include service under Rule 4(h)(2) (service on a corporation outside the United States judicial district).

The proposed amendment to Rule 6 addresses an ambiguity from the term “after service” that was added in the 2005 amendment. The term “after service” could be interpreted as meaning either the party performing service or the party receiving service. To reduce confusion, Rule 6(d) is proposed to be amended to replace “after service” with “after being served,” to indicate the party being referenced is the party served.

The proposed amendment to Rule 82 is a technical amendment to address venue for admiralty and maritime claims, deleting reference to now-repealed §1391 and 1392 and adding reference to §1390 of venue statutes of Title 28.

Federal Circuit Reaffirms Patent Exhaustion Doctrine

Posted on June 2, 2016 by Kinney & Lange, P.A.

By: Andrew Swanson

In Lexmark Int’l, Inc. v. Impression Prods., Inc., 16 F.3d 721 (Fed. Cir. 2016) (en banc), the Federal Circuit was asked to determine the applicability of the doctrine of patent exhaustion in two contexts. First, the court was asked to determine whether the sale of a patented article to end users under a restriction that is otherwise lawful and within the scope of a patent grant nonetheless gives rise to patent exhaustion. The court held that a patentee may reserve its patent rights by selling a patented article under otherwise-proper restrictions on resale and reuse that are properly communicated. Second, the court was asked to determine whether a sale of a patented item outside the United States gives rise to patent exhaustion for a U.S. patent. The court held that the doctrine of patent exhaustion is not triggered by a foreign sale of a U.S.-patented article.

A patent gives the patentee the right to exclude others from engaging in certain acts–whoever “without authority” “makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention” infringes that patent. 35 U.S.C. § 271(a). The patentee may, however, grant authority to another to engage in one or more of the enumerated acts, such that an otherwise infringing action is non-infringing. The court notes that each of the enumerated acts is joined by the disjunctive “or,” such that the patentee may grant “authority” to engage in as few or as many of the enumerated acts as the patentee wishes.

Lexmark sued Impression for importing and selling printer cartridges covered by a number of Lexmark patents. Lexmark offers its buyers a choice when purchasing printer cartridges. A buyer may purchase a “Regular cartridge” at full price, or a buyer may purchase a “Return Program cartridge” at a discount. Sales of the Regular cartridges were subject to no restriction on reuse or resale of the printer cartridges. The Return Program cartridges were subject to a “single-use/no-resale restriction,” however. Under the single-use/no-resale restriction “the buyer may not reuse the Return Program cartridge after the toner runs out and may not transfer it to anyone but Lexmark once it is used.” Third parties gathered spent Return Program cartridges, replaced protective features that prevented the cartridges from being reused, refilled the cartridges, and sold the cartridges to resellers, such as Impression, for sale to consumers to use with Lexmark printers.

Lexmark alleged infringement for two groups of cartridges: (1) Return Program cartridges that Lexmark sold in the United States under the single-use/no-resale restriction; (2) all cartridges sold abroad by Lexmark, including both Regular and Return Program cartridges. It was undisputed that the patents covering the cartridges were valid and enforceable, that both the first purchaser and Impression had adequate notice of the single-use/no-resale restriction, and that the restriction did not violate antitrust law or exceed the scope of the exclusive rights granted by the Patent Act. Impression instead argued that Lexmark had exhausted its U.S. patent rights by its initial sale of the cartridges, regardless of the existence of any restriction and the location of the sale.

Impression filed a motion to dismiss Lexmark’s claims in the district court. First, the district court granted Impression’s motion to dismiss the claims involving the Return Program cartridges first sold in the United States. In finding for Impression on the issue of domestic sales, the district court distinguished articles manufactured and sold by a patentee from articles made and sold by a licensee. Second, the district court ruled against Impression regarding Impression’s argument that patent exhaustion applied to cartridges initially sold abroad. As such, an initial, authorized foreign sale does not exhaust the patentee’s United States patent rights. The Federal Circuit reversed the district court’s ruling regarding the domestically-sold Return Program cartridges. The Federal Circuit affirmed the district court’s ruling regarding foreign sales of both the Regular cartridges and Return Program cartridges.

Patent exhaustion is a doctrine whereby a patentee confers authority to a purchaser to take certain actions, such as selling or using the purchased product in the United States, which action would be infringing without the authority from the patentee. Under the doctrine of patent exhaustion, an unconditional sale “exhausts” the patentee’s right to control the purchaser’s use of the patented device. In such an instance, the patentee’s rights in the patent are “exhausted” by the sale such that the purchaser may use or sell the purchased device without infringing the patent. The patentee may preserve certain rights by communicating a lawful restriction as to post-sale use or resale, however, and such a communication does not confer “authority” to engage in the activity precluded by the communication. So long as the restriction does not violate some other law or policy, such as antitrust law or engaging in patent misuse, then restrictions on the use of patented goods are allowable.

The Federal Circuit was asked to address two questions related to the doctrine of patent exhaustion. First, does the doctrine of patent exhaustion apply to the domestic sale of a product by the patentee, even where an otherwise-lawful restriction has been clearly communicated? Second, does a foreign sale of a U.S.-patented article trigger the doctrine of patent exhaustion?

In addressing the first question, the court reaffirmed the principles of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992). The court noted that Supreme Court precedent clearly leads to the conclusion that a patentee does not exhaust its patent rights upon a first sale where a buyer with knowledge of the restrictions resells or reuses the product in violation of the restrictions. The court was urged to distinguish between patentee sales and licensee sales. The argument behind the distinction was that “any sale of a patented article by a patentee, even when the rights granted are expressly restricted, is automatically an ‘authorized sale,’ causing the patentee to lose all § 271 rights in the item sold.” As such, the argument goes that because Lexmark is both the patentee and the seller, Lexmark has necessarily authorized the sale, thereby exhausting its patent rights regardless of any express restrictions. The court rejected the invitation to draw a distinction between patentee sales and licensee sales, however.

The Federal Circuit reaffirmed the principles of Mallinckrodt and overturned the district court’s ruling as to Return Program cartridges first sold in the United States. In Mallinckrodt, a patentee sold a medical device subject to a single-use restriction. Some purchasers sent used devices to Medipart for refurbishing and Mallinckrodt sued Mediprt for infringement due to the reuse in violation of the single-use restriction. The Federal Circuit found that a sale subject to a lawful, clearly communicated single-use/no-resale restriction does not give rise to patent exhaustion such that buyers, or downstream buyers, have the reuse/resale authority that was expressly denied previously.

The district court had relied on Quanta Computer, Inc. v. LG Electronics, Inc., 552 U.S. 617 (2008), as implicitly overturning Mallinckrodt as to a patentee’s sale of a patented article subject to a lawful single-use/no-resale condition. Quanta involved sales made to a manufacturer by a manufacturing licensee, not a patentee. The patentee had authorized the manufacturing licensee to make and sell the articles at issue, and the authorization was not subject to any conditions. The Federal Circuit distinguished Quanta by noting that Quanta involved no patentee sales and there were no restrictions on the sales made by the licensee. The manufacturer in Quanta raised the argument that patentees may preserve patent rights through lawful restrictions. The Court in Quanta responded to the manufacturer’s argument by concluding that there were no restrictions placed on the first sale of the articles, not that there was any meaningful distinction between patentees and licensees for purposes of patent exhaustion. The Federal Circuit thus concluded that the principles of Mallinckrodt remain after Quanta, such that a patentee may place lawful restrictions on the sales of patented articles regardless of whether the articles are made or sold by the patentee or a licensee.

The Federal Circuit concluded that the principle of Mallinckrodt remains good law. As such, “a patentee may preserve its § 271 rights when itself selling a patented article, through clearly communicated, otherwise-lawful restrictions, as it may do when contracting out the manufacturing and sale.” No practical reason exists to distinguish between sales made by the patentee and sales made by a manufacturing licensee. In fact, the court found that a distinction between patentee sales and licensee sales was “unjustifiably formalistic, [and] not founded in relevant economic substance.” Therefore, a patentee may preserve its exclusionary rights detailed in § 271 of the Patent Act through the use of a clearly communicated, otherwise-lawful restriction. A use in violation of the restriction can thus constitute infringement of the patent.

In addressing the second question the court reaffirmed the principles of Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed Cir. 2001). In Jazz Photo, the Federal Circuit concluded that “there is no legal rule that U.S. rights are waived, either conclusively or presumptively, simply by virtue of a foreign sale, either made or authorized by the patentee.” In Jazz Photo, the defendant, Jazz Photo, was importing refurbished disposable cameras originally sold by or with the authority of Fuji Photo Film. The Federal Circuit found that the doctrine of patent exhaustion does not apply to products originally sold abroad, though the circumstances of the sale may confer an express or implied license. As such, a foreign sale alone is insufficient to trigger the doctrine of patent exhaustion. A foreign first sale thus fails to “confer on the buyer ‘authority’ to import the item into the United States or to sell and use it here,” in the absence of an express or implied license.

Impression argued that the Supreme Court decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013), undermines the no-exhaustion holding of Jazz Photo. In Kirtsaeng, the Court addressed the statutory copyright first sale doctrine, and determined that owners of copyrighted articles may take certain actions with the authority of the copyright holder. However, the Federal Circuit found Kirtsaeng inapplicable for several reasons, including that Kirtsaeng is a copyright case that did not address any patent law, and more specifically, Kirtsaeng failed to address the exhaustion issue at hang in Lexmark, even in the context of copyright law. The Federal Circuit concluded that Kirtsaeng was not controlling; instead, the question of patent exhaustion resulting from foreign sales “requires a separate analysis in its own legal setting” distinct from copyrights.

The Federal Circuit concluded that the principle of Jazz Photo remains good law. As such, “[a] U.S. patentee, simply by making or authorizing a foreign sale of an article, does not waive its U.S. rights to exclude regarding the article.” The Federal Circuit went on to explain that the patent grant is a “market reward,” and that the market within which the reward is realized is necessarily the U.S. market subject to U.S. laws. The territorial nature of patent systems provides a strong indication that the first sale doctrine should not apply to purely foreign sales, as the patentee will not have received the same market award through the foreign sale. The court went on to differentiate the standards required for obtaining a patent to those required for obtaining a copyright, and noted that copyrights are generally easy to acquire and that governmental standards vary considerably less for copyrights than for patents. Foreign sales in the context of copyrights are thus distinguishable from foreign sales in the context of patents. The court further discussed the differences between foreign markets and U.S. markets and the practical effects that would result from foreign sales triggering the doctrine of patent exhaustion. The court concluded that a foreign sale of a U.S. patented article does not exhaust the patentee’s U.S. patent rights in the article sold, even where there is no express reservation of U.S. patent rights. The Federal Circuit thus affirmed the district court’s judgment of infringement as to all cartridges initially sold abroad, even though there was no express reservation of U.S. patent rights by Lexmark for the foreign sales.

The doctrine of patent exhaustion extinguishes a patentee’s ability to exert further control over a patented article after an authorized sale of the article. The patentee may, however, reserve its patent rights by selling the patented article under otherwise-proper restrictions on resale and reuse communicated to the buyer at the time of sale. The sale of a patented article may be so restricted regardless of whether the seller and manufacturer are themselves a patentee or a licensee. In addition, where a foreign sale is made by or with the approval of the U.S. patentee, the foreign sale does not exhaust the patentee’s U.S. patent rights, even when no reservation of the rights accompanies the sale. A foreign sale may cause a loss of U.S. patent rights only through an express or implied license.

European Union Trademark Update

Posted on June 2, 2016 by Kinney & Lange, P.A.

By: Lea Westman

The EU has a regional trademark system which has been continually updated and amended. The most recent changes to the EU trademark include changes in names of the organization, a change in the classification of trademarks, and a change to the rules surrounding transit of goods and trademark law. Under these new rules, current trademark owners have until September 2016 to change declared goods and services on old trademark applications.

The Old Community Trade Mark

The Community Trade Mark (CTM) has long been used in the EU in an effort to create uniformity of trademark law. A CTM registration grants uniform protection and effect across all of the EU, as set forth in Article 1(2) of the CTM Regulation, European Council Regulation No. 40/94. This system was introduced in 1996.

Under this system, CTM applications can be filed by EU nationals or other nationals who belong to WTO countries, the Paris Convention, or countries that have agreements with EU nations regarding trademarks. A single application with the Office for Harmonization in the Internal market (OHIM) leads to a trademark registration in the entire EU.

The European Parliament recently approved Regulation 2015/2424, which amends the CTM system. The new EU Trade Mark Regulation and the corresponding EU Trade Mark Directive entered into force on March 23, 2016. The new regulation includes a number of amendments which affect the community trademark regime and trademark owners’ rights.

New Names for the EU Trade Mark

In 2016, the EU adopted many changed to the CTM system. These changes include a change in name for the CTM to the European Union trade mark (EUTM) and a change of name for the OHIM to the European Union Intellectual Property Office (EUIPO), though both will function similarly to the old versions.

Additionally, many substantive changes to trademark holders’ rights have been made. These include a change in class headings, which affect the application process and fees, the allowance of declarations in response to these changes to protect current trademark holders’ rights, and changes in the rules regarding transit of goods.

Class Headings

Under the new legislation, the filing fees for new EU trademark applications will only cover a first class, as opposed to three classes. Additional fees must be paid to secure additional classes. This aligns with longstanding U.S. practice.

Moreover, the provisions of Article 28(8) alter the interpretation of ICGS (International Classification of Goods and Services) class headings. This includes the list of goods and services covered by UE trademarks applied for before June of 2012.

Prior to June 22, 2012, when a trademark was granted under the CTM, it was deemed to be protected for all types of goods and services listed in ICGS list for that class, provided the trademark was registered with reference to the heading of the relevant ICGS class.

This approach, however, was not supported by EU nation states’ domestic legislation. Most EU countries only extend trademark protection to goods or services that were expressly indicated at the time of registration. Additionally, individual national trademark offices apply different approaches in interpreting class headings.

With the new amendments, broad protection using only class headings will stop. Thus, a CTM filed before June 22, 2012 which specified “musical instruments” in class 15 previously covered all possible goods in that class, which included musical instruments and accessories. However, as of March 23, 2016, the new amendments discontinue this kind of broad protection; now, only “musical instruments” would be covered, not anything else in that class.

Trademark holders who applied before June 22, 2012 may adjust their class headings and lists of declared goods and services to ensure their trademarks coverage is sufficient through a formal declaration to the EUIPO. This also applied to trademark holders which have trademarks that do not have any classification listed. Such declarations must be made by September 23, 2016 to be valid. They should specify the exact goods and services that the trademark is intended to cover. If the trademark holder does not file a declaration, then those trademarks will be deemed to only cover goods and services within the literal meaning of the class heading.

It is worth noting that once declarations have been made, and trademark scope has been specified in goods and services beyond an original class heading, there will be defenses available for potential infringers of that trademark that may not have fallen into the scope of the trademark previously. Specifically, a trademark owner will not be able to assert an infringement claim with respect to a newly specified good or service under an Article 28 declaration against a possible infringement that pre-dates the declaration. Thus, it would be prudent for trademark holders to declare goods and services which are substantially similar to those previously protected.

Transit of Goods

Under the old EU rules, the application of trademark law to transit of goods, whether legal or gray market, was not specifically dealt with. The old Regulation generally discussed the rights conferred by a CTM, and what constituted infringement of a trademark. In Section 9, paragraph 2, the old Regulation listed actions that could be considered infringement absent consent of the trademark owner: offering the goods for sale, affixing the trademark to goods or to the packaging thereof, stocking the goods for these purposes under the trademark, or putting goods on the market, among other things.

The old rules did not address the transit of goods from countries outside the EU into the EU. The Court of Justice of the European Union issued a few decisions regarding transit of goods, which did not categorize the transit of goods or products with a trademark as trademark infringement, but sometimes allowed trademark owners the right to prevent the release and free circulation of trademarked goods without authorization.

The new Regulation, in section 9, paragraph 4, expressly allows trademark holders to opposed transit of trademarked goods without authorization into or out of the EU. This right is granted even if the goods are not released for free circulation or intended to be placed on the EU market. Under the new Regulation, trademark owners may contest other customs such as free zones, warehousing, transshipment, temporary storage, temporary admission or inward processing. Customs authorities of the nation states are entitled to take enforcement actions. However, as a caution to trademark owners, section 9, paragraph 4 of the new Regulation also establishes that trademark rights may not be enforced, during the proceedings to determine infringement, if the shipper in questions proves through evidence that the trademark isn’t protected in the final destination country. Thus, though the new Regulation strengthens trademark owner rights in some respects, there are limitations.

K&L Present Intro to IP Law at SME Chapter Meeting

Posted on March 9, 2016 by Kinney & Lange, P.A.

Kinney & Lange’s Larrin Bergman and Andrew Swanson will present “An Introduction to Intellectual Property Law” at the Society of Manufacturing Engineers’ Minneapolis Chapter meeting on March 16, 2016. Visit http://chapters.sme.org/011/ for more information.

Supreme Court Clarifies Standard of Review for Claim Construction

Posted on November 1, 2015 by Kinney & Lange, P.A.

■ Nicholas J. Peterka

In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 574 U.S. ___, No. 13-854 (2015), the Supreme Court held that the Federal Circuit must apply the clearly erroneous standard when reviewing a district court’s resolution of subsidiary factual matters made during the court’s patent claim construction.

At dispute was the meaning of the term “molecular weight.” Each party presented extrinsic evidence in the form of expert testimony and, relying on patent owner Teva’s expert, the district court determined that “molecular weight” was not indefinite. Sandoz appealed the claim construction to the Federal Circuit, which reviewed de novo all aspects of the district court’s claim construction and determined that “molecular weight” was indefinite. The Supreme Court granted certiorari and found that, while the determination of questions of law (such as the final claim construction) are reviewed de novo, underlying determinations of subsidiary facts are reviewed for clear error. The Court stated that subsidiary factual matters arise when the court uses extrinsic evidence, such as expert testimony, to aid in claim construction. The Court’s holding will factor into whether a party uses extrinsic evidence, for a party aiming to add more finality to a district court’s claim construction may frame the issues so that extrinsic evidence is vital to the court’s claim construction and, conversely, a party seeking to overturn a claim construction may argue that intrinsic evidence is dispositive and extrinsic evidence is unnecessary. This decision will also affect summary judgment. Because the Court’s holding seemingly elevates the importance of factual determinations in claim construction, factual issues may become potential obstacles to summary judgment, which requires no genuine dispute as to any material fact.

Fair Use Avoids Takedown

Posted on November 1, 2015 by Kinney & Lange, P.A.

■ Adam E. Szymanski

In Lenz v. Universal Music Corp., Nos. 13-16106 and 16107 (9th Cir. Sept. 14, 2015), a panel of the 9th Circuit held that the Digital Millennium Copyright Act (DMCA) requires a copyright holder to consider fair use before sending a takedown notice to an online service provider, like YouTube® or Google®. Failure to consider fair use, the court determined, raises a triable offense issue as to whether the copyright holder formed a subjective good faith belief that the use was authorized by law.

The claim arose when Universal Music Corp. sent a takedown notice to YouTube to remove a video uploaded by Stephanie Lenz. The 29-second video, entitled “Let’s Go Crazy’ #1”, showed Lenz’s two young children dancing to the song Let’s go Crazy by Prince. YouTube removed the video after notification from Universal and told Lenz on June 5, 2007. Two days later, Lenz sent a counter-notification to YouTube, seeking to reverse the removal of her video. Universal protested and reasserted that the video infringed its copyright. Universal, however, failed to mention fair use. Lenz sued Universal under 17 U.S.C. §512(f) of the DMCA, alleging that Universal misrepresented that her video was infringing its copyright. That section of the DMCA allows an accused infringer to collect damages, including attorneys’ fees.

17 U.S.C. §512(c) sets forth the DMCA’s takedown procedures, which allow service providers to avoid copyright infringement liability for removing allegedly infringing material after receiving a takedown notice. 17 U.S.C. §512(c)(3)(A)(v) requires that a takedown notice include, among other things, a statement of a good faith belief that the allegedly infringing use is “not authorized by the copyright holder, its agent, or the law.” 17 U.S.C. §512(f), under which Lenz sued, provides that anyone who knowingly misrepresents that a material or activity is infringing may be liable.

At issue was whether fair use constitutes an authorization under law—pursuant 17 U.S.C. §512(c)(3)(A)—or, rather, an affirmative defense excusing copyright infringement. Looking to the fair use test codified in 17 U.S.C. §107 as a “limitation on exclusive rights”, the court determined that Congress created a specific type of non-infringing use, thereby authorizing it:

“Although the traditional approach is to view ‘fair use’ as an affirmative defense…it is better viewed as a right granted by the Copyright Act of 1976. Originally, as a judicial doctrine without any statutory basis, fair use was an infringement that was excused—this is presumably why it was treated as a defense. As a statutory doctrine, however, fair use is not an infringement.”

Thus, the court held that fair use is an authorization under law for the purposes of 17 U.S.C. §512(c)(3)(A)(v).

The court refused to impose an objective good faith belief requirement to the existing subjective one, as advocated by Lenz, reasoning that Congress could have done so when enacting the DMCA. The court held that the willful blindness doctrine may be used to show that a copyright holder misrepresented a good faith belief regarding fair use. The court ultimately concluded that “[c]opyright holders cannot shirk their duty to consider—in good faith and prior to sending takedown notification—whether allegedly infringing material constitutes fair use, a use which the DMCA plainly contemplates as authorized by law.”

Laches in Patent and Copyright Law: A Different Calculus

Posted on November 1, 2015 by Kinney & Lange, P.A.

■ Adam E. Szymanski

In SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, No. 2013-1564 (Fed. Cir. Sept. 18, 2015), the Court of Appeals for the Federal Circuit, ruling en banc, held that laches remains a defense to legal relief in a patent infringement suit, despite the Supreme Court’s recent decision in Petrella v. Metro Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014) regarding laches in copyright cases.

SCA sued First Quality for infringing U.S. Patent No. 6,375,646 directed to absorbent pants-type diapers. SCA sent a letter to First Quality on October 31, 2003, asserting that First Quality’s Prevail® All Nites™ product infringed its ‘646 patent. First Quality responded on November 21, 2003, saying that U.S. Pat. No. 5,415,649 invalidated the ‘646 patent. SCA requested a reexamination, and, in March 2007, the USPTO found the patent patentable over the ‘649 patent. SCA sued First Quality three-years later on August 2010, in response to which First Quality asserted laches.

In Petrella, however, the Supreme Court held that laches cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window established for copyright infringement actions in 17 U.S.C. §507(b). Paula Petrella sued Metro Goldwyn-Mayer nine years after last contacting the Metro asserting infringement to her copyright in the film “Raging Bull.” The Court determined that the statute of limitations in §507(b) takes account of a delay in suing and removes judicial discretion in addressing timeliness.

The Federal Circuit distinguished its holding from Petrella on its reading of 35 U.S.C. §282(b)(1). Section 282 lists the defenses available in a patent invalidity or infringement action and includes a provision stating “[a]ny other fact or act made a defense by this title.” The Federal Circuit relied on the commentary of P.J. Federico, an original drafter of the 1952 Patent Act, which stated that §282 included equitable defenses like laches. Combining that with Senate and House reports stating the breadth of such defenses, the court concluded that Congress had codified a laches defense into §282 of the Patent Act. The court further concluded that laches as codified can be applied to recovery of legal relief rather than just equitable relief, finding that patent case law supported the use of laches to preclude damages.

The Federal Circuit further noted a distinction between patent and copyright law in proving infringement: “copyright infringement requires evidence of copying, but innocence is no defense to patent infringement.” Proof of access, the court found, ensures that a potential infringer is generally aware of the risk of infringement. As a safeguard, a potential infringer can seek to establish evidence of independent creation. The court concluded that for patents “the calculus is different.” Because patent law lacks independent creation, laches provides the only defense against late claims seeking to collect on a commercial windfall.

Perhaps time will tell whether the Supreme Court agrees with the Federal Circuit’s new math.