Acacia Communications got tired of paying a license fee to Viasat, Inc. for trade secret protected technology. So Acacia supposedly created replacement technology. The problem? Acacia used Viasat’s trade secrets.
Viasat sued Acacia for trade secret misappropriation. During the litigation, Acacia’s defenses shifted. Acacia started out denying any copying. But, through discovery, Viasat found a slew of emails between Acacia’s co-founders, Christian Rasmussen and Mehrdad Givehchi, sent via their personal email addresses. They discussed how to give a new Acacia engineer a white paper on the technology. They ultimately decided to give him a USB drive containing Viasat’s trade secrets. In one email, Rasmussen wrote, "... I don't want to mail it from the company account, just in case silly things should happen down the road." Well, $49.3 million of silly things happened. The jury found that Acacia acted willfully and maliciously and awarded the huge judgment to Viasat.
In a twist of irony, on a counterclaim by Acacia, the jury found that Viasat misappropriated Acacia's trade secrets, but that it was not done willfully. The jury awarded Acacia just $1.
WHY YOU SHOULD KNOW THIS. Acacia’s solution to getting out of paying license fees was not ideal. In fact, it was exactly the wrong thing to do. To make matters worse, the co-founders heavily ‘papered’ their scheme. Hiding behind personal email accounts only supported the jury’s determination that Acacia’s co-founders acted willfully and maliciously. The end result was a ‘break your company’ judgment (less $1).
If you needed a crown or root canal lately, your dentist may have used a fancy wand to scan and send a picture of your mouth to the dental lab. Chances are that the scanner was the Itero Element scanner, a computer scanning system that is manufactured by Align Technologies. The Itero scanner requires a disposable sleeve for the wand. One of Align’s competitors, Strauss Diamond Technologies, began selling a competing sleeve, called “MagicSleeve”. In its advertisements, Strauss used Align’s trademarks in hashtags, product descriptions and product images.
Align brought suit against Strauss and sought a preliminary injunction to stop Strauss from using its trademarks. Strauss argued that its use of the Align trademarks was “nominative fair use”. The nominative fair use defense has 3 parts: (1) the trademark is the only word available to accurately describe the product; (2) the mark is used only as is “reasonably necessary” to identify the product; and (3) the user does nothing that would suggest endorsement by the trademark owner. Putting aside the fact that the first and second elements are contradictory, the court determined that Strauss’ defense was full of cavities. Strauss’ various uses of Align’s trademarks failed at least two out of three of the nominative fair use test. Align’s motion for preliminary injunction was granted.
WHY YOU SHOULD KNOW THIS. Nominative fair use can be a useful tool in a competitive industry. Sometimes you have to refer to your competitor’s products in order to differentiate yourself in the market. Deciding what crosses the line can be tricky. One thing we know is that Strauss crossed that line.
In 1981 the well-known photographer, Lynn Goldsmith, took a series of photographs of the pop star, Prince. Goldsmith interpreted the photographs as describing a vulnerable and uncomfortable person. In 1987, Vanity Fair magazine commissioned Andy Warhol to create illustrations from the Goldsmith photos for their article titled “Purple Fame”. Warhol created “The Prince Series” consisting of 19 paintings of Prince, some of which used an orange wash of color.
After Prince died, Vanity Fair again published copies of the Warhol works. Goldsmith says that that’s when she learned about the "Prince Series" for the first time. Goldsmith sued the Warhol Foundation, the owner of the works, for copyright infringement. A New York District court entered summary judgment for the Foundation on the basis of fair use. The court described the Warhol paintings as having removed the protectable elements of the photographs to turn Prince into an iconic, larger than life figure.
WHY YOU SHOULD KNOW THIS. The court used the transformative nature of Warhol’s orange take on the Purple One to find fair use. Although, in this case it might take an art critic’s eye to see the court’s argument.
You may recall the scene in the Ghostbusters movie where, Rick Moranis’ character begs diners in a swanky Central Park restaurant to save him from a Terror Dog. That restaurant is the famous “Tavern on the Green” that has been owned by New York City since 1934. The Tavern’s trademark has a bit of a complicated history. NYC leased the restaurant to Tavern on the Green LP (TOTG). NYC decided not to renew TOTG’s lease in 2009. That’s when NYC discovered that TOTG registered the trademark in 1978. NYC sued TOTG to cancel the registration because NYC was the owner of the trademark and not TOTG. TOTG and NYC entered into a settlement agreement that allowed TOTG to use the name outside of NYC as long as TOTG didn’t use the words “Central Park”. TOTG went ahead and used the Tavern trademark along with the words “Central Park” thereby breaching the agreement. NYC sued again. And won.
WHY YOU SHOULD KNOW THIS. When an applicant fills out a trademark application, the applicant has to state under oath that it is the bona fide owner of the trademark. If that isn’t true, the applicant has committed a fraud in the application process. The USPTO will cancel a registration obtained by fraud. TOTG didn’t have the right to register the trademark. And even after getting the right to use the name “Tavern on the Green”, TOTG used the words “Central Park” in breach of the settlement agreement. TOTG couldn’t escape the trademark Terror Dog of its own creation.
CMI Roadbuilding, Inc. is in the business of manufacturing road construction equipment and replacement parts. Through a series of acquisitions and mergers, CMI acquired trade secrets included in engineering documents. CMI sent its engineering documents to vendors without confidentiality notices. Iowa Parts, Inc. is in the business of manufacturing the same kind of replacement parts that CMI manufactured. Over the years, Iowa Parts hired various employees who had worked for companies acquired by CMI. Iowa Parts also reached out to vendors who had CMI’s engineering drawings. In 2002, Iowa Parts began manufacturing competing replacements parts.
CMI knew (or should have known) that Iowa Parts was manufacturing competing replacement parts. Iowa Parts made no secret of it (pun intended). Then in 2016, Iowa Parts lowered its prices and cut deep into CMI’s revenues. That’s when CMI sued for misappropriation of trade secrets under the Defend Trade Secrets Act (“DTSA”). The Eighth Circuit Court of Appeals affirmed summary judgment in favor of Iowa Parts. The DTSA has a 3 year statute of limitations. CMI waited too long to defend its trade secrets.
WHY YOU SHOULD KNOW THIS. Trade secrets have two primary attributes. They are (1) something that’s not generally known or readily ascertainable; and (2) subject to reasonable measures of secrecy. Allowing someone to use your trade secrets for over 14 years is not a reasonable measure of secrecy. If a trade secret is being misappropriated, the owner has to be aggressive and take action immediately. Otherwise, the trade secret is lost forever.
After the Chicago Cubs won the World Series in 2016 (breaking a 108 year losing streak), Ronald Mark Huber filed an intent to use trademark application for the word “Cubnoxious”. The Chicago Cubs Baseball Club LLC opposed the application. The Cubs were able to establish that Ronald had no real intent to use the trademark in commerce. All he had was one sheet of paper showing potential imprints on t-shirts. He submitted a conclusory statement that he intended to use it in no specific geographic area and not specifically to target Cubs fans. He had no business plan, no marketing plan, no established business experience and no experience in the sports industry. It could have ended there but the Cubs also opposed the application on the basis of a likelihood of confusion. That’s where the Trademark Trial and Appeal Board’s decision in favor of the Cubs got fun.
The Board examined the numerous ways that the Cubs use their Cubs trademarks in conjunction with other words. Then the Board found that Cubs fans could perceive “Cubnoxious” as coming from the Cubs and not some other source. The Board conceded that calling fans “obnoxious” isn’t very flattering. But the Cubs submitted compelling evidence that “sports teams or their fans may seek to provoke opposing teams and their fans, thereby embracing an offensive, or obnoxious reputation”. The Cubs argued that Cubs fans are notorious for their undying allegiance to the team and might see being called “obnoxious” as a badge of honor.
WHY YOU SHOULD KNOW THIS. Putting aside the fun of the likelihood of confusion arguments, Ronald’s loss teaches a valuable lesson about what an ‘intent to use’ trademark application really is. A bona fide intent to use has to be something more than “at some point I’d like to use this trademark” which is all that Ronald proved. Ronald’s evidence (or lack thereof) worked against his alleged bona fide intent to use the trademark. Keep in mind that many intent to use applications are not tested as heavily as Ronald’s was. However, before filing an intent to use application, it’s a good idea to have at least sketched a plan of how the trademark is going to be used.
TKC Aerospace, Inc. was justifiably upset when its vice president, Charles Muhs, left and began working closely with Phoenix Heliparts, Inc., a competitor. Then TKC found even more reason to be upset. TKC lost a Department of State contract to Heliparts who used TKC’s trade secrets. TKC sued Heliparts in Arizona. After a 40 day trial, TKC got a $30 million judgment against Heliparts. TKC sued Charles in a concurrent case in Alaska. Based on the Arizona judgment, the district court granted TKC’s motion for summary judgment against Charles in the amount of $20 million. Then Charles filed a Chapter 7 bankruptcy case.
In the bankruptcy case, TKC used the Alaska judgment to have the $20 million debt held non-dischargeable on summary judgment. Charles appealed to the district court and lost. But the Fourth Circuit Court of Appeals reversed and remanded the case for further hearing. The Fourth Circuit held that a trade secret misappropriation judgment can be held non-dischargeable under the Bankruptcy Code only if the misappropriation is both willful and malicious. The Arizona judgment didn’t make those findings against Charles. The Alaska judgment didn’t make those findings either. So neither the Arizona judgment nor the Alaska judgment could be used to determine if the trade secret misappropriation debt was non-dischargeable.
WHY YOU SHOULD KNOW THIS. TKC thought it had a slam dunk. It had two judgments for trade secret misappropriation. But, bankruptcy is a whole new world. Bankruptcy is designed to give a debtor a fresh start. So non-dischargeability of a debt is strictly construed. TKC’s result can be avoided. A plaintiff can lay the groundwork for non-dischargeability if the defendant happens to file bankruptcy.
Erik Brunetti wanted to register the word “FUCT” as a trademark for clothing. The United States Patent and Trademark Office (“USPTO”) refused registration saying it was too “scandalous” because it was “extreme nihilism”, evidence of “anti-social behavior” and “extreme misogyny”. Erik appealed to the Trademark Trial and Appeal Board (“TTAB”), who affirmed the refusal. Erik didn’t give up and appealed to the Federal Circuit Court of Appeals who reversed the refusal (See IP Blawg Post Dated 1/16/18). The director of the USPTO, Andre Iancu, appealed to the U.S. Supreme Court who affirmed the Federal Circuit thus allowing the trademark to proceed to registration.
Justice Elena Kagan, writing for the majority, adopted the reasoning in Matal v. Tam which held that a disparaging trademark like “The Slants” for an Asian American band is protected free speech (See IP Blawg Post Dated 9/9/17). Like the now-prohibited ban on disparaging trademarks, the USPTO’s ban on scandalous marks was based on the view-point of the observer. Justice Kagan stated that the USPTO allows registration for trademarks that are consistent with society’s sense of rectitude and morality. But the USPTO discriminates against trademarks that, in its viewpoint, don’t fit into a standard of morality. The USPTO’s view-point analysis is not neutral. Therefore, the prohibition against the registration of scandalous trademarks is an unconstitutional violation of First Amendment Free Speech.
WHY YOU SHOULD KNOW THIS. Erik’s trademark projects a certain sensibility; one that Erik obviously believes his customers share. Trademarks that don’t fit into society norms may be fun, interesting and good marketing tools. But, a trademark reflects the values of the owner of the products or services. So when choosing a trademark, know your customer base and be careful about the impression your trademark makes.
Return Mail, Inc. obtained a patent for a computerized system of bar coding so that companies can track returned and undelivered mail. The U.S. Postal Service was interested in licensing the technology. Before they could ink a licensing agreement, the Postal Service walked away and developed its own system. And that’s when the litigation began.
The Postal Service tried to invalidate Return Mail’s patent before the Patent Trial and Appeal Board. The Board held that the patent was valid. Return Mail sued the Postal Service under the Federal Claims Act for using a patented process without a license. Using a proceeding that was created by the America Invents Act (“AIA”), the Postal Service got a ruling that invalidated the patent. Return Mail appealed. The case landed before the U.S. Supreme Court. Justice Sonya Sotomayor, writing for the 6 to 3 majority stated that the AIA proceeding is only available to a “person”. Governmental units such as the Postal Service were not included in the definition of a “person” under AIA. So the Postal Service can’t use the AIA to invalidate the patent.
WHY YOU SHOULD KNOW THIS. When faced with any dispute, don’t assume anything. In this case, Return Mail, Inc. questioned whether the Postal Service had standing to challenge its patent. Following the 11th Commandment, “Thou shall not assume”, Return Mail, Inc. won the day.
Violent Hues Productions published a tourism guide that used a stock photograph depicting the Adams Morgan neighborhood of Washington D.C. The problem is Violent Hues used it without the permission of the photographer, Russell Brammer.
Russell sued Violent Hues. The District Court originally sided with Violent Hues saying that Violent Hues didn’t infringe because the photograph was used for “informational” purposes. The Fourth Circuit Court of Appeals reversed the decision to the relief of photographers everywhere. The Fourth Circuit rejected all of the defenses brought up by Violent Hues including, some flimsy excuses like, it was an innocent mistake and its use didn’t stop the photographer from licensing it to others. Violent Hues’ fair use defenses didn’t get anywhere. Violent Hues tried to make the case for “transformative use” because it cropped and only used half of the photograph. That doesn’t fit into the definition of transformative use. The Fourth Circuit Court’s opinion was scathing in its rebuke of Violent Hues’ defenses by holding that “fair use is not designed to protect lazy appropriators”.
**WHY YOU SHOULD KNOW THIS. ** Finding a photograph on the Internet is easy. But using it can have harsh results. When using content from the Internet, the default should always be that the work belongs to someone and you need their permission to use it. If you need stock photographs, there are numerous stock photo websites that will license the use. The license fee is substantially less then expensive and time consuming copyright infringement litigation.
Versata Software Inc. licensed its automotive configuration software to Ford Motor Co. The license agreement contained an affirmative acknowledgment that Versata owned the Intellectual Property related to the software, including trade secrets. The license agreement had fairly standard language that prohibited Ford from reverse engineering the software. Ten years later, after updates to the underlying technology for the software, Ford bid Versata adieu and decided not to renew the license. No surprise, Ford developed similar software on its own. No further surprise, Versata sued Ford for violating the anti-reverse engineering clause in the license. In ruling on cross-motions for summary judgment, the court held that the language of the reverse engineering clause was ambiguous when it comes to the current version of the software. So the parties are going to have to go to trial on the interpretation of the clause.
WHY YOU SHOULD KNOW THIS. The Versata anti-reverse engineering language may have been fine at the beginning of the license agreement. But over time, the underlying technology changed and the language did not. To avoid Versata’s dilemma, license agreements should permit updates to defining the scope of Intellectual Property in software license agreements to reflect updates in the technology.
Siny Corp tried to register its trademark “Casalana” for a knit textile used in the manufacture of outerwear, gloves and the like. As its specimen of use in commerce, Siny submitted pages from its website. But the United States Patent and Trademark Office refused the specimen because it was mere advertising and not evidence of use in commerce. Siny appealed the decision all the way up to the Federal Court of Appeals and lost. Where did Siny go wrong?
In order to claim rights in a trademark, the owner has to use the trademark in commerce. Siny argued that the website showed use in commerce because it had the text “For sales information” followed by a phone number. That wasn’t enough. The website has to provide a means for ordering the goods, such as through a “shop online” or “add to cart” button or link, or through information contained on the page. “For sales information” isn’t the same as “order now” or “to order, call this number”. According to the Federal Court of Appeals, “if virtually all important aspects of the transaction must be determined from information extraneous to the web page, then the web page is not a point of sale.” If it’s not a point of sale, it’s not use in commerce. So Siny has to go back to the website drawing board and make some changes.
WHY YOU SHOULD KNOW THIS. At first glance, the Siny decision seems like splitting hairs. But it points out an important distinction between mere advertising and use in commerce. A website that shows pictures of a product doesn’t mean that the product is actually being sold. Even having contact information for the seller, doesn’t mean it’s being sold. The consumer visiting the website has to have enough information about how to actually purchase or get the product.
Stella McCartney, the fashion designer daughter of former Beatle, Paul McCartney and his late wife, Linda, tried to register the trademark “Fur Free Fur”. The United States Patent and Trademark Office (USPTO) rejected it as being merely descriptive of Stella’s use of fake fur in her fashion designs. The Trademark Trial and Appeal Board (TTAB) disagreed and overturned the decision.
The TTAB held that the USPTO failed to recognize the multiple meanings of the use of the word “fur” in the trademark. Judge Thomas Shaw, writing for the TTAB described the “Fur Free Fur” trademark as really being two things at once like Schrödinger’s Cat (see below for more information) being dead and alive at the same time. “In the first instance, ‘Fur Free,’ the term ‘fur’ refers exclusively to animal fur. In the second instance, ‘fur’ alone, the term ‘fur’ refers to imitation fur.” The “internal inconsistency” in “Fur Free Fur” would give consumers pause making the trademark distinctive. In other words, the juxtaposition of the words required some imagination on the part of the consumer to recognize the trademark as being connected to the goods and service.
WHY YOU SHOULD KNOW THIS. The “Fur Free Fur” trademark is a good example of how a trademark can be created from seemingly generic or descriptive words by adjusting word placement. The word placement of “Fur Free Fur” created a play on the words. The key is to make sure the words require some imagination on the part of the consumer when they see the trademark. Note, that this case had a rare dissenting opinion where the judge disagreed that consumers needed any imagination or perception to recognize the words as a trademark. So care must be taken when developing a Schrödinger’s Cat trademark.
More information about Schrödinger’s Cat: In 1935, Erwin Schrödinger illustrated a problem in quantum physics by presenting a hypothetical scenario where a cat may be alive and dead at the same time. For any further explanation, please consult your friendly neighborhood physicist.
Ahlam Ramzy, a former employee of Perfect Brow Art, Inc., left and started her own Tennessee eyebrow threading salon. Perfect Brow brought suit against Ahlam in Chicago for trademark infringement, trade dress infringement, false designation of origin, trade secret misappropriation and unfair competition.
Ahlam brought a motion to dismiss the Chicago case for lack of personal jurisdiction. Personal jurisdiction is dictated by the reach of where the court sits. Ahlam had never been to Chicago and hadn’t done any business there. Ahlam argued that the Chicago court only would have personal jurisdiction over her if she was located in Illinois or she had sufficient minimum contacts with Illinois to justify jurisdiction over her. Perfect Brow sought to get around the fact that Ahlam had no contacts with Illinois by pointing to a clause in Ahlam’s employment agreement where the parties agreed that the employment contract would be interpreted under Illinois law. The District Court dismissed the case for lack of personal jurisdiction without prejudice. The court held that the choice of law term in the contract was not sufficient to confer personal jurisdiction over Ahlam. Note that the case was dismissed without prejudice. That means Perfect Brow can still bring suit against Ahlam in Tennessee.
WHY YOU SHOULD KNOW THIS. Companies often use employment agreements to make sure that an employee won’t take the company’s Intellectual Property with them after the employee leaves. Companies can also use employment agreements to keep any lawsuits in the company’s home state. It’s convenient and tames the costs of litigation. As Perfect Brow learned, getting the benefits of a contractual term is all in how the term is drafted. If the term had specifically stated that any litigation between the parties would take place in Illinois, then the Illinois case would probably not have been dismissed.
Express Oil Change used the service mark “Tire Engineers” for its tire sales, repair and maintenance services. The Mississippi Board of Licensure for Professional Engineers & Surveyors had a problem with that. According to the Board, no one can use the word “engineer” unless they are actually engineers and have registered for a license to practice engineering in Mississippi.
Express Oil Change brought a declaratory judgment action against the Board. On appeal from summary judgment in the Board’s favor, the Fifth Circuit Court of Appeals reversed. In its opinion, the Court held that commercial speech is protected by the First Amendment. Anyone challenging commercial speech has to justify any restrictions. And the challenger has a heavy burden. The Board didn’t meet that burden. The Board tried to argue that Express Oil Change’s use of the word “engineer” was misleading. The Court rejected the argument for two reasons. First, the word engineer is generally defined as someone having technical skills and does not exclusively refer to a person who designs, builds, or maintains engines, machines, buildings or public works. Second, the essential character of how Express Oil Change used the word is not deceptive or misleading.
WHY YOU SHOULD KNOW THIS. What the Board failed to understand is that there’s a difference between holding yourself out as an engineer for engineering services and using the word “engineer” for marketing other types of services. Many professions are regulated for public policy reasons. For example, someone can’t call themselves a medical doctor without proper degrees and registrations. But someone can call their clock and watch repair business “The Clock Doctor” without having to register with a medical professional board. The essential character of using “doctor” for fixing clocks isn’t deceiving the public.
VidAngel Inc. removed nudity and violence from films and then sold the ‘redacted’ versions. Disney Enterprises, Inc. its subsidiary Lucasfilm Ltd. LLC, Twentieth Century Fox Film Corp. and Warner Bros. Entertainment Inc. sued VidAngel for copyright infringement.
This case has boomeranged between the District Court in California and the Ninth Circuit Court of Appeals. The courts have consistently rejected VidAngel’s defenses and affirmed injunctions against them. Among VidAngel’s defenses were First Amendment free speech and fair use. The District Court called these arguments “poorly developed” and “convoluted”. VidAngel also argued that an obscure 2005 statute called the “Family Home Movie Act” allowed it to edit dirty material from films and then sell the edited versions. The courts rejected this argument. The act permits the development of technology for consumers to skip content once they’ve purchased a film. The District Court has now entered summary judgment in favor of the Hollywood studios against VidAngel on the issue of liability. The case will proceed to the damages phase.
WHY YOU SHOULD KNOW THIS. VidAngel’s sanitized versions of popular films were derivative works. Derivative rights belong solely to the owner of the copyright. Without a license to create, copy and distribute those derivative works, VidAngel’s business model had a shaky foundation. Perceiving and acting on a need is a good business model. Infringing on someone else’s copyright is a bad business model.
Using someone’s trademarks when criticizing their products or services can be tricky. But if you do it the right way, it could be considered nominative fair use.
Applied Underwriters, Inc. owns the trademark “Equity Comp” for financial services. Providence Publications LLC, which describes itself as a provider of informative journalism, offered a webcast seminar titled: “Applied Underwriters’ Equity Comp Program: Like it, Leave it, or Let it be?” The seminar wasn’t very complimentary. Applied Underwriters sued for trademark infringement and unfair competition. Providence Publications moved to dismiss the complaint arguing that the use of the trademark was permitted as nominative fair use. The motion was granted and affirmed on appeal. Relying on the leading case of New Kids on the Block v. News Am. Publ’g, Inc., the Ninth Circuit Court of Appeals showed that the three factors of nominative fair use existed in this case. Those factors were (1) Applied Underwriter’s products and services could not have been readily identifiable without use of the trademark; (2) Providence Publications only used so much of the trademark as was reasonably necessary to identify Applied Underwriter’s products and services; and (3) Providence Publications did nothing that would suggest Applied Underwriters sponsored or endorsed the seminar.
WHY YOU SHOULD KNOW THIS. Providence Publications used Applied Underwriter’s trademarks in a non-competitive, public commentary/free speech kind of way. But what happens if a competitor uses another’s trademark? In other words, how far does commentary and free speech go between competitors? The New Kids on the Block factors should help figure out the answers to those questions.
The famous movie producer, Sam Goldwyn, is credited with saying that “An oral contract isn’t worth the paper it’s written on”. The son of Bob Ross, the Joy of Painting icon, found out that there’s an exception to this rule.
Bob Ross created a company, Bob Ross Inc., along with his wife and Walt and Annette Kowalski, two of their friends. There were no written assignments or other written agreements between Bob and the company. During Bob’s lifetime, the company registered his trademarks and managed his business. The company licensed Bob’s trademarks, his likeness and his name for the manufacture and sale of merchandise and collected the revenues. Bob also executed a trust that was administered by Bob’s brother. The trust had some language about the ownership of intellectual property. After Bob died, his son, Robert Stephen Ross, took over administering the trust and brought suit against the company alleging that the trust and not the company owned all of Bob’s intellectual property. The court entered summary judgment for the company. In granting summary judgment, the court held that it was clear that Bob wanted the right to his name and image to go to the company. He may not have formally assigned the rights on paper, but he did make a verbal grant and otherwise made his intentions clear.
WHY YOU SHOULD KNOW THIS. Bob and the company didn’t have anything in writing. Instead, the company proved years of custom and usage that the judge used as a substitute for a written agreement. But, these results are not typical. The lack of a written agreement can suffer from the passage of time which can cause divergent memories regarding the parties’ intentions. Don’t leave something as important as management of intellectual property to chance. Always choose a written agreement over an oral one.
Swarmfly Inc. and CloudFlare Inc. courted each for a potential acquisition and licensing relationship related to video streaming service technologies. Each party signed non-disclosure agreements. Sadly, the courtship didn’t lead to a marriage proposal and each party went their separate ways. Until, Swarmfly sued CloudFlare for trade secret misappropriation.
Swarmfly’s wings were clipped when the court denied Swarmfly’s motion for preliminary injunction. The court stated that Swarmfly’s trade secret claims were “moving targets” which didn’t bode well for its ability to ultimately prevail on the merits. Four months later, Swarmfly dismissed its case with prejudice. CloudFlare then brought a motion pursuant to the Defend Trade Secrets Act, the California Uniform Trade Secret Act and the court’s inherent powers seeking an award of the attorneys’ fees it incurred between the denial of the preliminary injunction and the dismissal. The motion was granted. It seems that during mediation, new facts came to light that "unquestionably rendered Swarmfly's misappropriation claim objectively specious." The court stated that Swarmfly was "ethically obligated to drop its misappropriation claim” at that time. Since Swarmfly didn’t, Swarmfly has to pay CloudFlare’s attorney’s fees.
WHY YOU SHOULD KNOW THIS. The best way to avoid Swarmfly’s cataclysmic outcome is to: (1) properly identify your trade secrets; (2) make sure you maintain reasonable measures to keep the trade secrets from public disclosure; (3) if you’re going to sue for trade secret misappropriation, make sure you did (1) and (2); and (4) if you find out that no misappropriation took place, back off immediately.
Marco Guldenaar Holding BV filed a patent application for a casino dice game. The claims in the patent covered unique markings on the dice and the rules of the game. Guldenaar Holding threw snake eyes when the United States Patent and Trademark Office rejected the application and the rejection was affirmed on appeal to the Federal Circuit of Appeals.
According to the Court, the US Supreme Court’s decision in Alice Corp. v. CLS Bank International prohibits patents for abstract ideas like Guldenaar Holding’s casino game. The game rules and markings on the dice lacked an “inventive concept” sufficient to transform the claimed subject matter into a patent-eligible application of that idea. Guldenaar Holdings argued that the dice markings aren’t conventional and the game isn’t just an abstract idea because it involves physical game-playing steps versus just mental game-playing steps. The Court disagreed, ruling that a game can still be abstract even if there are physical steps to playing the game. But, the Court was careful to say that not all games are ineligible for patent protection. In a concurring opinion, Circuit Judge Haldane Robert Mayer wrote, “While games may enhance our leisure hours, they contribute nothing to the existing body of technological and scientific knowledge. They should therefore be deemed categorically ineligible for patent”.
WHY YOU SHOULD KNOW THIS. All types of Intellectual Property Law have limitations on what they protect. Guldenaar Holdings butted up against the patent limitation for abstract ideas. Guldenaar Holdings is not alone. Owners of business process and software have watched their patent applications be denied and the issued patents be cancelled in light of the Alice decision. So if patent protection isn’t available, what then? Assuming the elements exist, other types of Intellectual Property such as copyrights and trade secrets could be available.
The shape of your next burger may be protected by a trademark registration.
Configuration trademarks are not easy to get. So Bubba Foods should rejoice that the USPTO approved its trademark application to register the unusual shape of the Bubba Burger. To show the USPTO that the shape could be registered as a trademark, Bubba Foods presented evidence that it was more costly and less efficient to use the unusual shape so the shape was not functional. The company wrote, "Producing hamburgers utilizing the 'Bubba Burger' design mark requires applicant to fabricate an expensive custom mold and maintain same rather than using an off-the-shelf standard round mold." Bubba Foods also had to prove that the shape acquired secondary meaning, i.e. over the 25 years of its use, customers connect the shape to the Bubba Burger product. Bubba Foods used its millions of dollars in sales and its advertising to show that customers identify the shape with the product. The application will now be published for opposition.
WHY YOU SHOULD KNOW THIS. Configuration trademarks are a species of trade dress. Trade dress is a legal term of art that generally refers to characteristics of the visual appearance of a product or its packaging (or even the design of a building) that signify the source of the product to consumers. Trade dress is not inherently distinctive. That’s why Bubba Foods had to prove 2 things. First, that the design was unusual and memorable and conceptually separable from the product. Second, the design served as a designator of origin of the product.
Anyone with a legitimate interest can oppose the registration of a trademark. But what does “legitimate interest” actually mean. It looks like Rapunzel may help answer that question.
United Trademark Holdings Inc. filed an application to register the name “Rapunzel” as a trademark for dolls. Professor Rebecca Curtin filed an opposition to registration with the Trademark Trial and Appeal Board (TTAB). Professor Curtin argued that the name belonged to a centuries old fairy tale princess so it was too generic to be registered as a trademark. United Trademark Holdings moved to dismiss the opposition. It argued that the Professor wasn’t a competitor and so she didn’t have standing to oppose the registration. The TTAB denied the motion to dismiss saying: “Consumers, like competitors, may have a real interest in keeping merely descriptive or generic words in the public domain, to prevent the owner of a mark from inhibiting competition in the sale of particular goods and to maintain freedom of the public to use the language involved.” This decision allows the Professor to continue the fight. We’ll have to wait and see if Rapunzel can’t be registered because it’s merely descriptive of a princess with the long hair who lived in a tower until she was rescued by a handsome prince.
WHY YOU SHOULD KNOW THIS. Fairy tales can come true. You probably already know that. But you should also know that anyone, even a member of the general public, can oppose the registration of a trademark that will interfere with a general right to use the name. This helps to keep generally accepted expressions and terms in the public domain.
In my blog post of August 1, 2017, I posed the copyright litigation dilemma: “To File or Not to File”. On March 4, 2019, the US Supreme Court resolved the dilemma once and for all.
The Supreme Court affirmed the Eleventh Circuit Court of Appeals’ decision in Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC. The Eleventh Circuit held that plaintiffs must register a work with the Copyright Office before bringing suit. Applying for registration is not enough. In a unanimous ruling, Justice Ruth Bader Ginsburg, writing for the Supreme Court, confirmed that “registered” means, well, “registered” and not just to apply for registration. Fourth Estate argued that a plaintiff might lose the right to enforce a copyright while waiting for the Copyright Office to register the work. Justice Ginsberg wrote that this fear is overrated. The Copyright Office’s average processing time is down to seven months and that’s more than enough time to file suit. Justice Ginsberg acknowledged that the administrative wheels of the Copyright Office might be slower than a litigant would like. But that isn’t a problem that the Supreme Court can solve.
Why You Should Know This. Now there’s no question that a plaintiff must register the infringed upon work with the Copyright Office before filing suit. The problem is that the infringement will continue while the plaintiff is waiting to get a registration certificate. Seven or more months of infringement is a long time to wait for a remedy. The best practice is to register a work as soon as it’s complete and not wait for the work to be infringed upon. The application process is pretty straightforward and the Copyright Office fees are very affordable ($35 to $55 per application). Failing that, the Copyright Office can expedite the process for a filing fee of $800.00 which can shorten the lead time to three weeks. Either way, copyright registration is a “need to have” for copyright owners if they want to protect their valuable works of authorship.
Public information can’t be a trade secret because it’s, well, public. But a combination of public information arranged or organized in a unique, economically advantageous way, can be a trade secret. That’s what Diego DeAmezaga learned to his chagrin. Diego worked for AirFacts, Inc. a software company that licenses auditing software for air fare comparisons. Diego worked painstakingly and expertly to create flow charts that AirFacts used in its software development. When Diego left AirFacts, he attached the flow charts to his resume. AirFacts brought suit against Diego for trade secret misappropriation under the Maryland Uniform Trade Secrets Act (MUTSA). The Maryland District Court dismissed the complaint. The Fourth Circuit Court of Appeals reversed the dismissal. The Court held that the flow charts had independent economic value separate from the public information they contained. AirFacts had taken reasonable measures to keep the flow charts secret by requiring employees to sign confidentiality agreements and giving only a few employees access to certain accounts. So the public information in the flow charts were trade secrets.
WHY YOU SHOULD KNOW THIS. The beauty of trade secrets is that they can encompass a wide range of economically advantageous methods, formulas, business process etc. There’s even room from taking information that everyone knows or is readily accessible and finding new ways to use it. Mark Halligan, the trade secret law guru, calls this the “Combination Analysis”. When does the Combination Analysis qualify as a trade secret? The nuances are many and varied. Experienced trade secret counsel can help with the analysis.
In the olden days, you’d buy an album and when you grew tired of it you’d sell the album to a used record store. That’s because you owned the physical record and once you bought it, that record was yours to do with as you please. This is called the “First Sale Doctrine”. Nowadays most people download their tunes. They still buy or rent it but now they don’t have a physical embodiment of the music. Relying on the First Sale Doctrine, ReDigi Inc. had offered a service whereby you could upload your digital music that you legally purchased from iTunes and resell it. Capitol Records LLC had a problem with that. Capitol Records sued ReDigi for copyright infringement arguing that the First Sale Doctrine doesn’t apply to digital files. The act of uploading the files to ReDigi’s server was creating a copy without permission. The Second Circuit Court of Appeals affirmed a judgment in Capitol Records’ favor. ReDigi also argued that its use was Fair Use. The court held against ReDigi on that as well because ReDigi was commercially motivated, made no changes to the copyrighted works, used the entire works, and resold the digital music files in the same market as the copyright owners.
WHY YOU SHOULD KNOW THIS. This is a good example of ownership in the copyright world. You can own the physical embodiment of a copyrighted work but you don’t own the copyright. You can do what you want with the album, the book or the painting, etc. The problem for ReDigi was that there was no physical embodiment of the music. It was all digital. And the only way to resell the digital file was to copy it and distribute it. Both of those rights belong exclusively to the owner of the copyright.