• IP BLAWG

    When a Friendly Beer Turns Unfriendly

    Beverly A. Berneman
    10/13/20

    Brooklyn Brewery (“Brewery”) has been around for more than 30 years. Brewery sells craft beers all over the country. Brooklyn Brew Shop (“Brew Shop”) was founded in 2009 and sells beer brewing kits.

    In 2010, Brewery started receiving calls from customers trying to reach Brew Shop. So Brewery emailed Brew Shop about it and suggested that Brew Shop “keep an eye on it”.

    Apparently, neither side was too worried about customer confusion at that time. Brewery and Brew Shop started collaborating on projects related to beer making, including co-branded beer-making kits, promotional events, books on beer making and educational beer making programs.

    It was a match made in beer heaven. Until May 2015. That’s when Brewery found out that Brew Shop registered its trademarks in 2011 and had another application pending. Brewery launched an internal investigation into how Brew Shop’s business was impacting Brewery’s business. The results of Brewery’s investigation led it to oppose Brew Shop’s pending application and to file cancellation proceedings against the registered marks with the Trademark Trial and Appeal Board (“Board”).

    Brew Shop defended the actions with arguments that were two sides of the same beer mug.

    As to the opposition proceeding, Brew Shop said that Brewery’s opposition was barred by laches. Laches is an unreasonable delay to assert one’s rights that results in material prejudice to a party’s use of the trademark. Normally, laches isn’t available in an opposition proceeding because there’s a narrow 30 day window within which to bring an opposition proceeding. But in this case, the Board held that laches is available because Brew Shop had prior registered marks that are similar to the applied for mark. So the opposition proceeding was barred by laches.

    As to the cancellation proceedings, the Board held that Brewery had both waited too long to act and acquiesced to Brew Shop’s marks. Acquiescence is when (1) the owner of the trademark receives assurances for the other that it was ok to use the mark; (2) the owner relied on the assurance; and (3) the owner would experience undue prejudice if it now had to cease use of the mark. Brewery knew about Brew Shop and even collaborated with it for years. During this time, Brew Shop built its business using those trademarks. So to stop Brew Shop now would cause extreme hardship to Brew Shop’s business. The Board held that Brewery’s participation in joint activities for over four years established acquiesce.

    Brewery had some arguments for why it waited so long. Brewery argued that it thought Brew Shop was just a small, local company and didn’t know how big Brew Shop was until it discovered the trademark registrations and applications. This argument is called “progressive encroachment”. That means a trademark owner is not forced by the rule of laches to sue until the likelihood of confusion caused by the accused use presents a significant danger to the mark. The Board rejected this argument.

    Brew Shop was allowed to keep its trademarks.

    WHY YOU SHOULD KNOW THIS. Brewery’s problem was not having a cohesive branding plan. It saw a great opportunity for collaboration. But Brewery was aware of actual confusion and didn’t seem to mind while the collaboration was going well. Collaboration between like-minded businesses can strengthen both businesses. But, it shouldn’t stop either party from protecting their own brand. There might have been a better outcome if there had been a cross-licensing agreement. Then both sides would have known about the extent of the other side’s trademarks and they could have created an exit strategy that didn’t hurt either side when the collaboration ended.

  • IP BLAWG

    Booked that Title

    Beverly A. Berneman
    10/6/20

    “Engirlneer” may be hard to pronounce. But once you know its message, it makes sense.

    Shannon DeVivo, a professional environmental engineer, wanted to encourage women and girls to seek careers in the STEM fields (science, technology, engineering and math). So Shannon wrote a series of books titled “The Engirlneers”. The books also invite readers to visit www.engirlneer.com to “Learn how to become an Engirlneer”. The books and the website feature fictional female characters with interests in STEM-related fields.

    After Shannon’s website went live and the books became available for purchase, Celeste Ortiz filed an intent to use application to register ENGIRLNEER as a trademark for sweatshirts and shirts, cups and mugs, and lanyards.

    Shannon then filed two trademark applications to register the trademark for her books, advice services and educational website. She immediately filed an opposition with the Trademark Trial and Appeal Board (the “Board”) to block Celeste’s application.

    The matter went to trial before the Board.

    Celeste had two major arguments. First, she argued that Shannon lacked standing to oppose Celeste’s trademark because Shannon hadn’t applied to register the mark before Celeste did. The Board found that the dates of Shannon’s trademark applications don’t control whether or not she had standing. The date of first use of the trademark controlled. So Shannon had standing.

    Celeste next argued that she wasn’t going to use the mark for a book or website so there’d be no likelihood of confusion with Shannon’s mark. The Board held that the marks are exactly the same and Celeste’s products tend to be the kind of collateral goods that a consumer would connect with Shannon’s works. So customers could be confused as to whether Shannon was the source of Celeste’s products.

    The Board sustained the opposition.

    WHY YOU SHOULD KNOW THIS. This case brings up two really important things to remember about trademarks. First, trademark rights are based on use. That’s why Shannon’s date of first use of her clever Engirlneer trademark was so important to her ability to oppose Celeste’s registration. Even if Shannon hadn’t filed applications to register the mark at all, there’s a good chance she would have won the day anyway. That’s because anyone who feels that the registration of a trademark will interfere with their rights can oppose the registration. But it’s better not to take a chance and file your trademark application as soon as possible. Second, trademark rights can sometimes extend beyond the goods and services identified by the owner. This happens when goods or services are related to the ones identified in the owner’s application. In this case, the Board pointed out the relatedness between books and a website and collateral goods (e.g. wearing apparel) that a consumer would connect with books and a website.

  • IP BLAWG

    A Copyright Application is Just a Form. Or is it?

    Beverly A. Berneman
    9/29/20

    Registering the copyright in a work has a lot of advantages, including establishing ownership, access to federal courts for litigation and the ability to recover statutory damages and attorneys’ fees for infringement. So far so good. But to register a copyright, you have to fill out an application following Copyright Office rules.

    Unicolors, Inc. creates, purchases and gets exclusive rights to a large inventory of graphic works that are printed on fabrics and sold to fashion brands. Unicolors filed suit against H&M, the low cost clothing store that originates out of Sweden. Unicolors complained that H&M was selling garments that used graphics substantially similar to those owned by Unicolors.

    Unicolors is no stranger to copyright infringement cases. Unicolors has been accused of being a copyright troll because it has filed over 700 copyright infringement lawsuits over the last few years.

    The district court entered judgment for Unicolors in the amount of $266,209.33 in damages, $508,709.20 in attorney’s fees, and $5,856.27 in costs. H&M appealed. The Ninth Circuit Court of Appeals reversed the judgment. The reversal had nothing to do with whether or not H&M committed copyright infringement. Instead, the Ninth Circuit found problems with Unicolors’ application to register its copyrights.

    Unicolors had filed the registration for the work at issue as part of a “collection” that included 31 separate designs. In order to file as a “collection”, the works have to be published in a single unit. That definitely wasn’t the case with Unicolors’ fabric designs. In fact, some of the designs in the "collection" had never been made public. So Unicolors knew that the application was inaccurate.

    Once a defendant alleges inaccuracies in a copyright application, the district court is supposed to submit a request to the Register of Copyrights “to advise the court whether the inaccurate information, if known, would have caused it to refuse registration.” So the Ninth Circuit sent the case back to the district court to follow through on the required process.

    WHY YOU SHOULD KNOW THIS. This case demonstrates the importance of filing accurate copyright applications. Clawing in multiple works for a group application may save on the filing fees ($55.00 per work). But the cost savings comes at a cost (pun intended) when suing for infringement. Also, it’s interesting that the Ninth Circuit didn’t say that H&M had to prove an “intent to defraud” the Copyright Office. The inaccuracy in the application is enough.

    The Copyright Office recognizes that filing applications in single units can be cost-prohibitive for some content creators. So, there are some works that can be filed in batches even if they weren’t originally published together. Up to 750 photographs can be registered in a group. However, published photos have to be registered separately from unpublished photos. There are also ways to register groups of non-photographic works which is kind of complicated. For more information you can consult the Copyright Office’s Circular No. 34.

  • IP BLAWG

    “Delivery Failed” Has Been Ghosted

    Beverly A. Berneman
    9/22/20

    The US Supreme Court decision in Alice Corp. v. CLS Bank International held that abstract ideas cannot be patented. Electronic Communication Technologies, LLC (“ECT”) is the one of latest patent holders to feel a ghostly pinch from Alice.

    ECT sued ShopeerChoice.com for patent infringement. ECT alleged that ShoppersChoice infringed on its patent for an “automated notification system” that gives someone information about the delivery of goods or services. The components of the system allows a party to initiate a session, provide authentication information and then the party gets access to particulars regarding a pick up, delivery or failure of delivery. Does this sound kind of familiar?

    ShoppersChoice moved to dismiss the case because the claims were invalid as abstract ideas. The district court granted the motion and ECT appealed to the Federal Circuit Court of Appeals.

    The Federal Circuit affirmed the decision. The Federal Circuit used Alice’s two part analysis to determine if the claims were invalid. First, the court must determine if a patent claim involves judicially-excluded patent subject matters like a law of nature, a natural phenomenon, or an abstract idea. If it does, the second step decides whether any element or combination of elements in the claim are sufficient to ensure that the claim amounts to significantly more than the excluded claims from the first step. Elements or combinations of elements that are well-understood, routine, and conventional are not enough to satisfy the second part of the analysis.

    In this case, the Federal Circuit agreed with the lower court that the claims describe abstract ideas. And the described abstract ideas are business practices that have been around for decades, if not longer (which is why they probably sounded familiar). ECT argued that its authentication system was enough to satisfy the second part of the test. The Federal Circuit found that the features were described at too high a level and could mean just about anything. ECT argued that it had been open during the prosecution process and its application “sailed through”. The Federal Circuit didn’t find that very persuasive.

    Coda: ShoppersChoice moved for reimbursement its attorneys’ fees. The Patent Act allows a prevailing party to seek attorneys’ fees in “exceptional circumstances”. Among the special circumstances cited by ShoppersChoice was ECT’s practice of sending standardized demand letters and filing hundreds of repeat patent infringement actions for the purpose of obtaining low-value license fees and forcing settlements. The district court denied ShoppersChioce’s motion. ShoppersChoice appealed and the matter was remanded back to the district court with instructions on the proper analysis for “exceptional circumstances”.

    WHY YOU SHOULD KNOW THIS. Software patents are not necessarily dead after Alice. But, applications to patent software have to meet a pretty high threshold. Before Alice the vagueness of software patents led to a lot of cease and desist letters and low-value license fees or forced settlements. Those types of cease and desist letters are not completely gone. But they are much reduced.

  • IP BLAWG

    Get Me the One with the Pretty Colors

    Beverly A. Berneman
    9/15/20

    This blog recently discussed the inability to protect movement during a sightseeing tour as trade dress (“Emotionally Yours”, 6/2/2020). Other types of trade dress can also have problems.

    Forney Industries wanted to register its colorful packaging for welding and machining tools and accessories as trade dress. Forney described the trade dress as “the colors red into yellow with a black banner located near the top as applied to packaging for the goods. The dotted lines merely depict placement of the mark on the packing backer card” (See picture). Forney started using this packaging in 2008.

    The USPTO refused registration. The USPTO decided that the packaging wasn’t inherently distinctive without a showing of secondary meaning. Secondary meaning is when the consumer sees a connection with a descriptive mark and the goods or source of the goods. Forney argued that the colors on its packaging was inherently distinctive and not merely descriptive. So it doesn’t have to show that the trade dress acquired secondary meaning. The USPTO rejected this argument.

    Forney appealed. The Trademark Trial and Appeal Board (“Board”) affirmed the USPTO. The Board held that packaging can be inherently distinctive. But a color mark applied to packaging cannot be inherently distinctive unless it’s applied to a specific shape.

    Forney appealed to the Federal Circuit Court of Appeals. The Federal Circuit rejected the Board’s holding that color on packaging cannot be inherently distinctive. The Federal Circuit held the Board must review the relevant factors to determine whether “it is reasonable to assume that customers in the relevant market will perceive the trade dress as an indicator of source.” Those factors are whether the trade dress: (1) is a common, basic shape or design; (2) is unique or unusual in the particular field; (3) is a mere refinement of a commonly adopted and well-known form or ornamentation for a particular class of goods; or (4) is capable of creating a commercial impression distinct from any accompanying words.

    Forney didn’t exactly win the day yet because the application has to go back to the Board for an evaluation of the factors.

    WHY YOU SHOULD KNOW THIS. Inherent distinctiveness must always be viewed from the perspective of the consumer. The factors cited by the Federal Circuit give a handy set of consumer based factors. So when adopting trade dress as a source or product identifier, keep these factors in mind.

  • IP BLAWG

    The Devil is in the Contract Details

    Beverly A. Berneman
    9/1/20

    Next time you look at a bottle of Listerine, think of it as a lesson in contract drafting.

    It all started in 1881 when Dr. Joseph Lawrence sold the secret formula for his mouthwash to Jordan Lambert in exchange for royalties on sales as long as the mouthwash was manufactured. The transfer document granted royalty payments to Dr. Lawrence, “his heirs, executor and assigns”. The problem was that the royalty payments had no time limit.

    For over 75 years, Lambert and his successors have had to pay Lawrence and his heirs. Even after the secret formula was published in the Journal of the American Medical Association in 1931. By 1956, the manufacture and sale of the Listerine was costing Warner Lambert about $1.5 million a year (that would be over $10 million in 2020 dollars). So it sued to end the payments. Warner Lambert argued that because the formula is no longer a trade secret, it shouldn’t have to keep paying royalties. The court ruled that the language in the contract had “no ambiguity or uncertainty in this language. Nor can I ascertain any alternative or hidden meanings lurking within it.” The royalty payments were not conditioned on the formula remaining secret. So Warner Lambert had to keep paying.

    After 1956, shares in the royalties have been passed around and split. Owners of shares have included New York real estate broker, John J. Reynolds, the Roman Catholic Archdiocese of New York, The Salvation Army, the American Bible Society, Wellesley College and former New Jersey Governor, Chris Christie (who gets an annual income of about $24,000.00). The Royalty exchange (https://www.royaltyexchange.com/), which usually sells entertainment related royalties, recently sold some shares for $560,000.00. Caveat Emptor. It’s going to take about 18 years to break even at the current annual income of $32,000.00 for those shares.

    WHY YOU SHOULD KNOW THIS. Unlike other types of Intellectual Property, trade secrets have an infinite life. That is, as long as the trade secret remains secret. To be fair to the drafter of the 1881 agreement, trade secret law was barely a blip on the Intellectual Property horizon at the time. They may not have realized that a perpetual royalty was going to last for 139 years and counting. Trade secret law emerged as a player in the latter half of the 20th Century. But, the lesson for us today is clear. Anticipating new and emerging technologies will always be a challenge for contract drafters. 

  • IP BLAWG

    These Are Not the Patent Droids You Are Looking For

    Beverly A. Berneman
    8/11/20

    The US Patent Office (“USPTO”) has bad news for CP30, R2D2 Wall-E and all of their robot friends. They don’t qualify as an inventor of a patent.

    Artificial Intelligence (“AI”) is the theory and development of computer systems to perform tasks that are normally performed by humans. Some computer programmers have found a way for their AI computer systems to create something new without human contribution.

    In July 2019, a team of scientists at the University of Surrey ("the Surrey Team") created an AI system that created “Device for the Autonomous Bootstrapping of Unified Sentience ("DABUS")”. DABUS is a creativity machine that has the ability to generate inventions. It can also determine which inventions are most useful. The Surrey Team’s AI system created DABUS without any human contributions.

    The Surrey Team filed two application with the USPTO for a patent. The applications named the AI system as the inventor. 

    The USPTO rejected the applications because “the plain language of the patent laws as passed by the Congress and as interpreted by the courts" limits patent applications to only naming natural persons as inventors. As part of its decision, the USPTO acknowledged several public policy arguments offered by the Surrey Team. The Surrey Team asserted that allowing an AI system to be listed as an inventor would (i) incentivize innovation; (ii) reduce the improper naming of inventors; and (iii) promote public notice of an invention's actual creator. These considerations, however, were insufficient to overcome the plain meaning of patent law that requires human inventor.

    WHY YOU SHOULD KNOW THIS. So if an AI system can’t be an inventor, how do you protect IP created by AI? Is the solution to have more human intervention in the AI system’s process? Will that slow innovation? Does patent law need to be updated to keep up with the times? The USPTO realizes that these questions need to be answered because AI based patent applications are being filed at a record pace. In August 2019, the USPTO issued two rounds of public comment on the patenting of AI inventions. Among other things, the USPTO sought input on how to ensure that appropriate incentives were in place to encourage further AI-related innovation. Quite a few power house tech companies weighed in on the subject. They argue that enterprise ready AI services, applications and tooling have the possibility of adding tens of trillions of dollars into the global economy. So protection for these AI innovations is a key element of progress. There are no definitive answers yet. You can learn more about patent protection for AI created inventions on the USPTO’s website. https://www.uspto.gov/initiatives/artificial-intelligence.

  • IP BLAWG

    Possession is 9/10ths of Trade Secrets Law

    Beverly A. Berneman
    7/28/20

    Kevin Huber worked for AFS as a full time sales engineer for Advanced Fluid Systems, a hydraulic systems manufacturer. The Virginia Commonwealth Space Authority awarded a contract to AFS to build, install and maintain a launch pad for a NASA facility. Under the contract, the Space Authority owned the plans created by AFS. The plans were marked as confidential and were considered trade secrets. Three years later, the Space Authority ran into financial difficulty and assigned the Agreement to Orbital Sciences Corporation. So now Orbital owned the trade secrets. But, AFS still had a right to possess them so that it could perform on the agreement.

    Here’s where the twisted tale of betrayal begins.

    Kevin reached out to a competitor of AFS, Livingston & Haven. He told them that Orbital was unhappy with AFS. Kevin then gave Livingston AFS’ confidential information and even arranged tours of the AFS facilities. Kevin helped Livingston win a bid for gripper arms. The problem was Kevin was also helping AFS bid for that contract. He inflated AFS’ contract price thereby assuring Orbital’s success.

    Kevin didn’t stop there. He started his own company intending to compete with both AFS and Livingston. He downloaded 98 gigabytes of AFS’ proprietary information. Then, he tendered his notice.

    Kevin continued to help Livingston by sharing more of AFS’ information for a cylinder contract. But, in the end, Orbital awarded a cylinder contract to Kevin’s company.

    AFS eventually figured out what was going on. It sued Kevin, Kevin’s company, Livingston and two of Livingston’s employees for trade secrets misappropriation under the Pennsylvania Trade Secrets Act.

    Kevin and his fellow defendants argued that the AFS didn’t own the trade secrets so it didn’t have standing to sue. The District Court rejected the argument holding that AFS had a right to possess the trade secrets and so it had a right to sue for misappropriation. Kevin and his fellow defendants appealed. The Third Circuit Court of Appeals affirmed the District Court. The Court of Appeals described the situation as a “sorry story of disloyalty and deception piled upon deception [that] resulted in verdicts against the wrongdoers. They’re not happy about that, but, when the tale is told, it’s clear that the result is entirely justified.” The Court of Appeals held that the Trade Secrets Act only requires a plaintiff to demonstrate lawful possession and not ownership in order to seek remedies for wrongful acquisition or improper use of a trade secret. The Court of Appeals cited other jurisdictions that came to the same conclusion.

    WHY YOU SHOULD KNOW THIS. We may never know if Kevin started on the road to “disloyalty and deception” under the misconception that AFS couldn’t sue him without owning the trade secrets. But, it makes sense that one who has the right to use a trade secret would be harmed by its unauthorized disclosure. And so, of course, AFS, would have a right to sue. No matter how you look at it, the unauthorized use of someone else’s trade secrets can lead to dire consequences.

  • IP BLAWG

    The Sky Has Its Limits

    Beverly A. Berneman
    7/21/20

    Retired attorney, Richard Bell, had a cottage industry suing people for copyright infringement of a picture of the Indianapolis skyline. Richard alleged that he took the photo in March 2000 for his law firm’s website. He registered the copyright in 2011, after his former law firm stopped using the photo on its website.

    The skyline photo (see picture) became a popular download. Bell sent out cease and desist letters demanding license fees and even filed about 100 lawsuits for copyright infringement.

    Then Bell came up against Carmen Commercial Real Estate Services. Carmen used the photo in a 2004 blog post. In 2016, Bell contacted Carmen alleging copyright infringement. Carmen refused to pay Bell the $5,000.00 he demanded to settle the matter. So, litigation ensued.

    Carmen had two primary defenses. First, Carmen asserted that Bell didn’t take the photo. Bell said he took the photo in March 2000. But the photo shows green grass, a working fountain and the trees full of leaves. Bell said that he also took a night time photo the same day. Apparently, Indianapolis doesn’t green up until after March; so the daytime photo couldn’t have been taken in March. And the daytime photo was contradicted by the night time photo which showed bare trees. Oops.

    The second defense was that Bell created the photo as part of his duties with this former law firm. So, his photo was a work made for hire and belonged to his employer and not him.
    The jury sided with Carmen and determined that Bell hadn’t proved that he took the photo and owned the copyright. Bell is asking for a new trial. Carmen is seeking reimbursement of its attorney’s fees in the amount of $160,000.00.

    WHY YOU SHOULD KNOW THIS. You’ll notice that Bell asked Carmen to pay $5,000.00 to settle the case. Asking for a small amount for settlement is not unusual. The idea is to make it cheaper for the case to go away than to defend it. But, Carmen didn’t look at the cost benefit analysis that way. By investigating the matter and realizing that it had some good defenses, Carmen decided not to back down. This case also demonstrates that if you’re going to say you own a copyrighted work, you had better make sure you really do. This lesson was also discussed in my blog post “Happy Birthday to All of Us” (10/20/2015).

  • IP BLAWG

    Lucky Shot

    Beverly A. Berneman
    6/23/20

    Alex Cruz was on his way to visit his girlfriend in the Tribeca neighborhood of New York City. He heard a commotion, took out his iPhone and took a snap shot. He thought he was just taking a photo of the police subduing a crazy person. What he really caught was a picture of law enforcement taking down a suspected terrorist. Alex shared the photo with a friend who then posted the photo on Instagram.

    Cox Media, Inc. published the photo without Alex’s permission. Alex sued Cox Media for copyright infringement.

    Cox Media came up with some defenses.

    The first defense was that the photo wasn’t creative enough to be protected by copyright. Cox Media argued that Alex didn’t make any creative choices when he took the photo. The court rejected this argument. Copyright law has long recognized rights based on a bare minimum of creativity. A photograph may be original in three respects: rendition, timing, and creation of the subject. This means that almost any photograph may claim the necessary originality to support a copyright. Alex’s photo met these criteria.

    Cox Media next claimed that its publication of the photo was fair use. The court rejected the argument using four-factor test in the Copyright Act which are: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market or value of the copyrighted work. The court didn’t have to go further than the first factor. The heart of the first factor is whether the use is “transformative”. Transformative use alters the meaning or message of the first work. In other words, does the potential infringer’s use add something new with a different purpose or nature of the work? Cox Media didn’t do anything to transform Alex’s photo. It just republished it without commentary. So the court held that Cox’s use was not transformative. The court felt that buying Cox Media’s fair use defense is “antithetical to the purposes of copyright protection to allow media companies to steal personal images and benefit from the fair use defense by simply inserting the photo in an article which only recites factual information—much of which can be gleaned from the photograph itself.”

    Cox Media’s last defense was the First Amendment. The court rejected this too holding if fair use exists then First Amendment rights are protected too.

    WHY YOU SHOULD KNOW THIS. This case has two takeaways. First, the amount of creativity needed for copyright protection is often misunderstood. All that is needed is a bare minimum of creativity. It doesn’t have to be novel. It doesn’t have to be on the Annie Leibowitz level of artistry. And it isn’t measured by “sweat of the brow”. Alex didn’t have to work hard to take his photo. But he got copyright protection anyway. Second, fair use is not a catch all even for media companies. Reporting on an incident in the news isn’t a blank check to use some else’s protectable content.

  • IP BLAWG

    Sexing for Bovines

    Beverly A. Berneman
    6/16/20

    Sex predicting technology for bovines is an extremely lucrative business. The revenues are $200 million industry worldwide with about $50 million of that in the USA.

    Inguran, Inc. d/b/a Sexing Technologies owns patents that sort bovine semen as it is prepared for artificial insemination. This helps breeders control how many bulls and how many cows will be born. Obviously, the technology is very valuable in the dairy industry and in the cattle breeding business.

    ABS Global Inc. filed an antitrust suit against Sexing Technologies. ABS alleged that Sexing Technologies used anti-competitive contracts and acquired about 60 patents in order to corner the market on sexed bovine semen.

    Sexing Technologies filed a counterclaim against Sexing Technologies for infringing on about 6 patents.

    The matter went to trial in 2016. The jury returned a mixed verdict finding that Sexing Technologies did improperly corner the market but that ABS was not entitled to damages because it didn’t prove anti-competitive harm. The jury found in Sexing Technologies’ favor on the counterclaim and awarded it $2 million. 

    The decision was appealed. The Seventh Circuit Court of Appeals reversed the decision. The Seventh Circuit found the jury verdict “somewhat puzzling” and contradictory. The verdict had invalidated a claim that was dependent on a validated claim. So the Seventh Circuit remanded the matter back to the trial court for a new trial.

    At the conclusion of the new trial, the jury found in Sexing Technologies’ favor again and also found that two other patents were infringed. The jury added another $8.5 million to the original judgment raising the total award to Sexing Technologies to almost $11 million.

    WHY YOU SHOULD KNOW THIS.  Patent infringement litigation can be long, arduous and expensive. Sometimes, there are rewards at the end. Sometimes there aren’t. The outcome of patent litigation is not as easy to predict as breeding livestock with sexed bovine semen. ABS took a huge risk when it pursued antitrust litigation. Patents, by their nature, are anti-competitive. A patent gives the owner a monopoly on the use of the invention for 20 years. The owner can use the invention pretty much any way they want during the life of a patent. That doesn’t mean that a patent forecloses antitrust litigation. It just means that the anti-completive activity has to be more than practicing the patent.

  • IP BLAWG

    Your Joint or Mine?

    Beverly A. Berneman
    6/9/20

    The Hard Rock Café’s operating company, JC Hospitality LLC, tried to register the trademark “The Joint” for its casino based music venues. The USPTO refused registration. On appeal, the TTAB affirmed. Hard Rock then appealed to the Federal Circuit Court of Appeals who also affirmed the refusal.

    Here’s why.

    The most protectable types of trademarks are inherently distinctive. Inherently distinctive trademarks are arbitrary, fanciful or suggestive of the goods or services. Merely descriptive trademarks can eventually be registered as long as they acquired distinctiveness through use.

    The Examining Attorney who reviewed the application thought the words “The Joint” were either merely descriptive or even possibly generic for a restaurant or entertainment space. So the Hard Rock Café argued that The Joint had acquired distinctiveness.

    To determine whether a mark has acquired distinctiveness, the USPTO or a court may consider: (1) purchasers’ association of a mark with its owner (typically by means of consumer surveys); (2) the length, degree, and exclusivity of use; (3) the amount and manner of advertising; (4) sales and number of customers; (5) intentional copying; (6) unsolicited media coverage of the product or service bearing the mark.

    In this case, the Examining Attorney had pointed to the fact that the dictionary defines the word exactly the way that Hard Rock used it. And there were a lot of third parties who used the same words in connection with other restaurants and entertainment venues. Hard Rock tried to argue that adding the word “the” to the word “joint”, distinguished it from other uses. Hard Rock pointed out that there are non-restaurant and entertainment uses for the word, such as another word for prison. So that made Hard Rock’s use more like a trademark. The Examining Attorney, the TABB and the Federal Circuit all rejected these arguments. The Federal Circuit’s opinion pointed out that although Hard Rock has spent millions for over 20 years promoting The Joint, there was no evidence of how much similar restaurant and entertainment venues spend on their promotion. Also, Hard Rock didn’t provide any evidence of unsolicited third party mentions.

    So Hard Rock can’t register “The Joint” as a trademark.

    WHY YOU SHOULD KNOW THIS. This opinion was rather harsh. In some ways, it set an impossible standard of proof for Hard Rock; and maybe others who try to prove acquired distinctiveness. Certainly, Hard Rock had longevity of use, a lot of advertising and a lot of money invested in advertising. But demanding proof of expenditures by other restaurant and entertainment venues? That kind of information isn’t public information. Imagine asking a competitor for that information. It would be unusual to even get a response. Unfortunately, this outcome may make it harder to prove a descriptive trademark acquired distinctiveness.

  • IP BLAWG

    Emotionally Yours

    Beverly A. Berneman
    6/2/20

    A motion trademark is generally considered a type of trademark called “trade dress”. Trade dress protects the visual appearance of a product. Some examples are: (1) the zoom-in view of a female statue at the beginning of every Columbia Pictures' movie (Reg. No. 1,975,999), (2) the "duck march" associated with PEABODY hotels (Reg. No. 2,710,415), and (3) the lighting effects that rotate around the microphone of Apple's SIRI personal assistant and knowledge navigator (Reg. No. 4,471,608).

    But, trying to protect a motion as a trademark isn’t easy.

    Take, for example, a tour bus operator in New York City, The Ride LLC. The Ride offers a twist on the usual sightseeing tour around Manhattan (when such things were done and will be again). At various times, when the bus stops, street performers break out into song and dance. The Ride has gotten a lot of good feedback on this fun sightseeing twist. So it tried to register the sightseeing twist as its trade dress. 

    The Ride submitted a drawing (see the picture) and described the mark as follows:

    The mark consists of the live visual and motion elements of the trade dress of a guided bus tour in which as the bus approaches at least one predetermined location on the tour an entertainer who is dressed as a banker walks normally along the street and then performs a tap dance routine dancing act when the bus stops at the predetermined location as viewed from inside of the bus. The drawing shows two sequential freeze-frames of the mark, in which the top frame shows an entertainer dressed as a banker walking along the street on the side of the bus and in which the bottom frame shows the entertainer performing a tap dance routine at the predetermined location. Dotted lines in the drawing show placement of the mark and are not part of the mark.

    The examining attorney refused registration and on appeal, the Trademark Trial and Appeal Board (TTAB) affirmed. There were basically 3 problems with the application.

    First, the TTAB thought the description was incomplete. The description certainly had a lot of words in it. But the description didn’t include every permutation of the street performers’ costumes and their songs and dances. More importantly, the description failed to indicate whether the trade dress is a three-dimensional mark (the act of doing the things) or is a two-dimensional mark that can be interpreted as three dimensional (something animated).

    Second, the specimens of use didn’t match the drawing. The specimens consisted of photographs of various performances inside and outside the bus. But none of them matched the drawing.

    Third, the mark didn’t function as a trademark. The Ride submitted survey evidence from its former riders to show that consumers connect the street performances with The Ride’s services. The TTAB discounted the survey as self-serving. The Ride didn’t provide any evidence that the public at large saw the motion of the street performances as a source or product identifier for The Ride.

    WHY YOU SHOULD KNOW THIS.  This case shows the importance of the connection with the drawing of a trademark and the specimen of use. All 3 issues demonstrate the need to be careful as a trademark is being developed. Let’s focus on the second problem. The failure to match a drawing and a specimen of use happens more than you might think. To avoid this problem, owners should consider developing the specimen of use with an eye towards how the trademark will be featured on it. And, owners always consult with their trademark attorneys to help make the appropriate connection.

  • IP BLAWG

    Star Struck is Struck

    Beverly A. Berneman
    5/26/20

    Kfir Moyal is a pop artist who has created commissioned pieces for celebrities like the Kardashians, Paris Hilton, Gloria Estefan, Flo Rida and Lil’ Kim. His signature style is to take a photograph and add a glittery sheen to it.

    Douglas Kirkland is a Hollywood photographer with a long career who has photographed celebrities like Marilyn Monroe, Elizabeth Taylor and Marlene Dietrich.

    In 2017, Kirkland sued Moyal for copyright infringement. Kirkland alleged that Moyal used some of his photographs, including one of Bridget Bardot. Moyal gave the photograph his classic treatment and titled his creation “Star Struck” (See picture). Moyal didn’t have a license from Kirkland to create the work. As the litigation went on, Moyal’s counsel withdrew from the case. Moyal didn’t appear after that and he didn’t retain substitute counsel. A default judgment was entered against him for $204,787.00 in damages along with a permanent injunction.

    Kirkland discovered that Moyal was going to open an exhibit in a gallery in the Beverly Hills Sofitel hotel. The posters for the exhibit on Instagram and Twitter appeared to feature Star Struck. Since a permanent injunction against using Moyal's version of the photo was still in place, Kirkland went to court to enforce the permanent injunction.

    Moyal says that he had no idea an injunction was entered. But that’s not going to help him.

    WHY YOU SHOULD KNOW THIS. Kirkland’s original photograph was copyrighted in the 1970s. Moyal’s Star Struck was a derivative work of Kirkland’s original photograph. The ability to create derivative works is one of the bundle of rights included in copyright ownership. So, Moyal needed Kirkland’s permission to create the work. Let’s now focus on the injunction. Even though Moyal’s attorney withdraw from the first case, Moyal couldn’t just ignore it. Even if he didn’t know about the injunction, he knew that Kirkland was objecting to his use of the Bridget Bardot photograph. So, the second suit may have more dire consequences if Moyal’s knowledge of the infringement from the prior suit is considered willful infringement. There lies a cautionary tale in two ways. First, don’t use someone else’s content without either seeking permission for the use or getting an opinion of counsel that the use will be non-infringing or fair use. Second, never ignore litigation.

  • IP BLAWG

    Lucky Brand Gets Lucky

    Beverly A. Berneman
    5/19/20

    For about 20 years, Lucky Brand Dungarees, Inc. has been battling Marcel Fashions Group, Inc. over their trademarks. The US Supreme Court finally ended Lucky Brand’s struggle. At least for now.

    Marcel received a trademark registration for “Get Lucky” for jeans. Lucky Brand received a trademark in “Lucky Brand”, also for jeans. Then the parties fought each other through three separate rounds of litigation over 20 years. The first round ended in a settlement in which Lucky Brand agreed not to use “Get Lucky” and Marcel released all claims. In the next round, when Marcel sued Lucky Brand, Lucky Brand brought up the settlement agreement in its pleadings but then didn’t address it again. Then there was the third round that ricocheted between the District Court and the Second Circuit Court of Appeals. At issue was whether Lucky Brand could assert the settlement agreement as a defense in the third round of litigation. The case ended up before the US Supreme Court. Justice Sonia Sotomayor, writing for the Court, held even though Lucky Brand didn’t litigate the defense in the second round, Lucky Brand could still use the defense in the third round.

    The key to the decision was that Marcel was alleging different conduct in the second round than it did in the third round. Justice Sotomayor wrote, “[B]ecause the two suits here involved different marks and different conduct occurring at different times, they did not share a “common nucleus of operative facts.” However, if the third round of litigation involved the same nucleus of operative facts that had already been adjudicated Lucky Brand would not have been able to use the settlement agreement in its defense.

    WHY YOU SHOULD KNOW THIS. When dealing with any type of lawsuit, a party can have a lot of different claims and defenses. Each of them should be addressed as completely as possible during the litigation. That’s because, generally, once an issue is raised and fully litigated, a party can’t try to re-litigate in a subsequent lawsuit. This is generally called “issue preclusion”. In the Lucky Brand case, the courts referred to it as “defense preclusion.” In the world of litigation, the effect would be the same. Lucky Brand wouldn’t be able to use the settlement agreement. But, if the same parties keep suing each other over different issues, claims and defenses may not be lost.

  • IP BLAWG

    States’ Rights: A Loss and a Win

    Beverly A. Berneman
    5/12/20

    Two recent US Supreme Court cases give a loss for the State of Georgia and a win for the State of North Carolina.

    State of Georgia’s Loss

    The State of Georgia makes the simple text of its state statutes available to anyone who wants to look at them. Georgia hired a company to annotate the statutes featuring citations, an analysis of the statutes and opinions from the state’s attorney general. A company named Public.Resource.Org. Inc. copied and distributed the annotated version of Georgia’s statutes without paying for it. Georgia sued Public.Resource.Org for copyright infringement. The Supreme Court ruled that Georgia cannot sue for the copying and distribution of the annotated version of the state’s statutes. Chief Justice John Roberts wrote the opinion for the Court. Justice Roberts invoked the doctrine of “government edict” which means that public officials who create a governmental work cannot copyright their works. Justice Roberts pointed out that allowing a governmental unit to withhold access to government information would create a “first class” and an “economy class” of access to public information.  

    North Carolina’s Win

    In 1996, a marine salvage company found the sunken slave ship, the Revenge. North Carolina commissioned a marine salvage company to resurrect the ship. The Revenge had been captured by the famous pirate Edward Teach (Blackbeard) and he had used the ship to conduct his piratical activities for about a year. The ship ran aground off the coast of North Carolina in 1718. The salvage company hired Frederick Allen to record videos and take pictures of the operation. Frederick registered the copyright in the works. North Carolina published some of the videos and photos. Frederick sued North Carolina for copyright infringement. The US Supreme Court affirmed the dismissal of Frederick’s lawsuit on appeal. Justice Elaina Kagan, writing for the Court, explained that under the doctrine of sovereign immunity, a state cannot be sued without its permission. Frederick tried to rely on the Copyright Remedy Clarification Act of 1990 (CRCA) which was supposed to remove a state’s sovereign immunity from copyright infringement cases. But a prior case decision had held that Congress didn’t have the constitutional authority to abrogate sovereign immunity. It’s interesting to note that Justice Kagan believed that an abrogation statute, if properly drafted, could have created a right of action against a state for copyright infringement.

    WHY YOU SHOULD KNOW THIS. These two cases show parameters of copyright protection when dealing with a governmental unit. In the Georgia case, if a private company had owned the annotated statutes, it would have had the right to enforce the copyright. But Georgia owned the annotated statutes so it had to make them available to the public. In the North Carolina case, the problem was a poorly worded statute. Nonetheless, the holding stands. States don’t have to pay to use copyrighted works.

  • IP BLAWG

    Zazzle’s Defense Didn’t Dazzle the Court

    Beverly A. Berneman
    5/5/20

    Zazzle, Inc. is an on-line marketplace for imprinted merchandise. Zazzle will then imprint the image on things like coffee mugs, t-shirts and, these days, face masks. Zazzle uses stock images but it also allows someone to upload their artwork or a graphic.

    Greg Young Publishing Inc. (“GYPI”) is the licensing agent for various artists. GYPI sued Zazzle for using images belonging to its clients. Zazzle’s defense was that it relies on the user certification process so it shouldn’t be held liable. GYPI gave Zazzle a catalog of GYPI’s images and Zazzle kept on using the images anyway. Obviously, the user certification process didn’t work. A jury found that Zazzle’s infringement was willful and returned a verdict in favor GYPI in the amount of $460,800. The trial court reversed the jury’s holding that GYPI didn’t present sufficient evidence that Zazzle acted willfully. The damages were reduced to $351,000. The trial court also denied GYPI’s request for attorneys’ fees despite the fact that GYPI was the prevailing party. The trial court believed that Zazzle’s defense was objectively reasonable.

    The Ninth Circuit Court of Appeals reversed the trial court on the issue of willfulness. The Ninth Circuit held that a reasonable jury could have found that Zazzle acted recklessly by knowingly relying on obviously insufficient oversight mechanisms. The Ninth Circuit did not reverse the trial court’s denial of attorneys’ fees but reserved the issue to be revisited considering the finding of willfulness.

    WHY YOU SHOULD KNOW THIS. The U.S. follows the “American Rule” when it comes to fee shifting in a law suit. The aptly named American Rule means that parties to a lawsuit pay their own attorneys’ fees unless a statute or contract provides otherwise. The Copyright Act allows the recovery of attorneys’ fees by the prevailing party. Fee shifting in a copyright infringement case can vastly change the economic dynamic of bringing or defending a suit. Exposure to attorneys’ fees can have a chilling effect on vigorous advocacy.  So, the courts have developed a standard for fee shifting. A claim or defense has to be “objectively reasonable”. In other words, do you have a good faith basis to argue your position? If you don’t and the other side is the prevailing party, you pay their attorneys’ fees. This leaves room for parties to come up with novel and innovative arguments without fearing an attorneys’ fees burden. In Zazzle’s case, just relying on someone else saying, “Yes, own this”, wasn’t objectively reasonable.

  • IP BLAWG

    Reply All

    Beverly A. Berneman
    4/28/20

    If the words “reply all” sound familiar to you, then you probably use email to communicate with others for various and sundry reasons. Despite their widespread use, these two words became the subject of trademark litigation.

    In 2012, Reply All Corp. started to sell software to let users create and share conversations.

    In 2014, Spotify’s Gimlet Media began producing a podcast named “Reply All”. The hosts, PJ Vogt and Alex Goldman talk about strange stories and trending topics.

    Would you confuse Reply All’s software with the “Reply All” podcast? Gimlet Media was convinced that customers would be.

    Gimlet Media sued Reply All for trademark infringement. After about 5 years of litigation, a judge ruled that almost every factor of a likelihood of confusion weighed against Gimlet Media and in favor of Reply All. The court found that the mark was fairly weak. Gimlet didn’t have a record of sales or marketing expenditures to show commercial strength. And the court acknowledged that the term “reply all” is a common term which is recognized by anyone who uses email. The names might be the same but the logos are different (see the graphic) and the products are different. They don’t compete in the same customer space. The court pointed out that Gimlet Media had no evidence of actual confusion. Note that you don’t have to prove actual confusion; it’s just one factor to look at. In this case, the court thought it was a significant factor.

    WHY YOU SHOULD KNOW THIS.  For registration purposes, most countries, including the US have adopted an international scheme of classes of goods and services. There are 45 of them. It is almost impossible for someone to register a trademark in all 45 classes. The class distinction is helpful when evaluating a likelihood of confusion between trademarks. If someone uses a word for the wholesale distribution of auto parts (Class 035), consumers are unlikely to be confused if someone used the same word for graphic t-shirts (Class 025). In the Reply All case, the words are the same but they were used for totally different goods and services. One caveat though. Some trademarks are so famous that even if the goods and services don’t compete directly, the owner of the famous mark (like Barbie, Rolex, Nike and Jack Daniels) can shut down the use of the trademark even if someone is using it in a different class of goods or services. This is called dilution.

  • IP BLAWG

    Public Exposure

    Beverly A. Berneman
    4/14/20

    For your stay at home pleasure, 2020 has granted us with a whole inventory of content that is now in the public domain.

    In 1976, the Copyright Act was completely overhauled. The system of protecting copyrights changed giving longer protection and making it easier to claim a copyright. But pretty much all of the pre-1976 works were going to be treated differently. So the Copyright Act grandfathered in and extended the protection for these pre-1976 works. Originally, works created in 1923 or before were still in the public domain. On January 1, 2020, any works created from 1924 went into the public domain.

    Those works include (this list is by means exhaustive):

    Silent Films
    o Douglas Fairbank’s, Thief of Bagdad;
    o Clark Gable’s film debut, White Man;
    o Buster Keaton’s, Sherlock Jr.; and
    o The first screen adaptations of Peter Pan and The Age of Innocence.

    Music
    o George Gershwin’s, Rhapsody in Blue;
    o Giacomo Puccini’s opera, Turnadot;
    o Everybody Loves My Baby;
    o It Had to be You; and
    o I’ll See You in My Dreams.

    Literature
    o Edgar Rice Burroughs’, The Land That Time Forgot and Tarzan and the Ant Men;
    o Agatha Christie’s, The Man in the Brown Suit and Poirot Investigates;
    o W. E. B. Du Bois’, The Gift of Black Folk;
    o E. M. Forster’s, A Passage to India;
    o Emma Goldman’s, My Further Disillusionment in Russia;
    o Herman Melville’s, posthumously published Billy Budd;
    o A. A. Milne’s, When We Were Very Young; and
    o Mark Twain’s, Autobiography (posthumous).

    Plays
    o Bertolt Brecht’s, The Life of Edward II of England, adapted from Marlowe;
    o Noël Coward’s, Hay Fever and Easy Virtue; and
    o Eugene O’Neill’s, Desire Under the Elms.

    Artwork
    o Edward Hopper’s, New York Pavements;
    o Paul Klee’s, Asiatic God, Carnival in the Mountains, Flower Garden;
    o Joan Miró’s, the Head of a Catalan Peasant (first work in sequence); and
    o Diego Rivera’s fresco, Day of the Dead.

    WHY YOU SHOULD KNOW THIS. When a work falls into the public domain, it is available for copying, preparing derivative works, distribution, display and performance without having to pay royalties or a license fee. But, be careful, some works may have their own derivative works that haven’t fallen into the public domain. For instance, in a recent case involving the Sherlock Holmes books, the court held that if the characters or situations were created before 1923, they were in the public domain and could be used. But new characters or situations that Arthur Conan Doyle published after 1923 are still protected by copyright.

    IN CASE YOU WERE WONDERING: No doubt you noticed that IP News for Business has been gone for a little over a month. Not to worry. Everything’s ok. I had knee replacement surgery in the first week of March. Things are going well and I’m “back in the saddle”.

  • IP BLAWG

    USPTO Has to Go Dutch

    Beverly A. Berneman
    2/25/20

    In the U.S., each side usually pays their own attorney’s fees. This is called the American Rule. Until about six years ago, that rule applied to appeals from USPTO decisions. So, if an applicant appealed the USPTO’s decision not to issue a patent or register a trademark, the applicant paid the applicant’s attorney’s fees and the USPTO paid its staff attorneys their salaries. Then about 6 years ago, the USPTO decided anyone who appealed an adverse ruling should have to pay the USPTO’s attorneys’ fees as well as their own.

    It all started when the USPTO filed a request for an award of more than $36,000 in attorney's fees in a little-known trademark appeal filed by a man named Milo Shammas. The USPTO justified this request by pointing to language in the statute that applicants who file an appeal to the district court have to pay the USPTO “expenses”. The USPTO argued that “expenses” includes attorneys’ fees. To the horror of the Intellectual Property bar, the request was granted. Then the sluices opened and the USPTO started demanding attorney’s fees left and right.

    This state of affairs lasted just this last December 2019 when the U.S. Supreme Court ruled against the USPTO. In Peter v. Nanktwest, Inc., the applicant appealed the USPTO’s rejection of a patent application for a method of treading cancer. The district court denied the USPTO’s motion to recover its legal fees as expenses but granted the request for recovery of expert fees. The Deputy Director of the USPTO appealed to the Federal Circuit Court of Appeals. Federal Circuit affirmed. So the Deputy Director appealed to the U.S. Supreme Court.

    Justice Sotomayor, writing of the Court, didn’t pull any punches. Justice Sotomayor called the “American Rule” the bedrock principal that each party pays its own attorney’s fees, win or lose. The only exceptions are when a contract or statute provides otherwise. Statutes that provide for an award of attorney’s fees say so explicitly. Nothing in the Patent Act suggests that the USPTO can send an attorney’s fee bill to an opposing appellant. As a factual matter, history was on the appellant’s side as well. Up until 2013, the USPTO never paid its personnel from sums collected from adverse parties. So the USPTO has to pay its own attorney’s fees.

    WHY YOU SHOULD KNOW THIS. Certainly, this is a victory for patent and trademark applicants. The process of protecting these types of Intellectual Property can be quite costly. The added burden of the USPTO’s attorney’s fees would have changed the value proposition for rejected applications and damaged the rights of the applicant/appellants. But there’s something else to note here. Often, when parties are gearing up for a dispute, the client asks the attorney, “Can I make the other guy pay your fees”. The answer is spelled out in Justice Sotomayor’s opinion. The answer is “yes” if a statute or contract has a fee shifting clause. But, even then, how the clause is phrased can taketh away from anything that had been giveth. For instance, in a statute, the attorney’s fees recovery may only be available only in “exceptional cases”. In a contract, attorney’s fees recovery may only be available to the “prevailing party”. So devil is in the attorney’s fees clause details.

  • IP BLAWG

    The Cyber Insurance Flip Side

    Beverly A. Berneman
    2/18/20

    We’ve covered denial of insurance coverage for trade secret misappropriation and affirming insurance coverage for copyright infringement. Now we turn our attention to the newer kid on the insurance block, cyber insurance.

    AIG Commercial Insurance Co. offered a “Specialty Risk Protector” insurance policy. Larger companies could bundle a number of coverages in one policy such as coverage for specialty errors and omissions, network security and privacy, event management, crisis fund, network interruption, cyber extortion, media for publishers and broadcasters, media content, and employed lawyers’ professional liability.

    SS&C Technologies Holdings, provides business process services fund administration to the financial industry all over the world. SS&C had a Specialty Risk Protector insurance policy from AIG. While providing fund managing services to one its clients, Tillage Commodities Fund LP, SS&C received six instructions to transfer Tillage’s funds totaling $5.9 million to bank accounts in Hong Kong. The problem? SS&C was the victim of spoofing. That’s where nefarious persons or entities mimic an email address and even the look of an email to fool someone into transferring money or property that evaporates into the pocket of the nefarious.

    A few days after the transfers, SS&C discovered that it had been the victim of a spoofing. It immediately notified Hong Kong’s police and its insurer, AIG, of a potential lawsuit.

    Sure, enough, Tillage filed suit against SS&C. AIG agreed to defend the suit but reserved the right to deny coverage and the cost of defense if the loss resulted from one of the insurance policy’s exclusions, including a “fraud” exclusion. The “fraud” exclusion flag had been raised because Tillage alleged in its complaint that an employee of SS&C had participated in the spoofing scheme. After the case was settled without an admissions, AIG denied coverage.

    SS&C sued AIG for breach of contract and breach of the implied covenant of good faith hand fair dealing (a/k/a “bad faith”). The court denied AIG’s motion to dismiss. AIG’s chief argument was that it could deny coverage when fraud is involved, whether or not the insured committed the fraud. The court rejected that argument. Moving on the lack of good faith count, the court used the policy’s language and AIG’s reservation of rights letter against it. It was clear that AIG could only deny coverage if there was an adjudication that an employee had been involved in the fraud. Since the case was settled without admissions, AIG could tie a SS&C employee to the Tillage loss. So denying coverage could be considered bad faith.

    WHY YOU SHOULD KNOW THIS. The court was able to interpret the policy exclusions in favor of the policy holder. That makes sense. SS&C had a reasonable expectation of coverage a fraud was committed by a third party. The bottom line is that an insurance policy is a contract. It should be interpreted like any other contract.  Insurance companies who contort policy language to deny coverage can find themselves defending a bad faith claim.

  • IP BLAWG

    Insurance Flip Side

    Beverly A. Berneman
    2/11/20

    Last week’s blog covered a situation where an insurance company wasn’t required to cover the costs of defending a misappropriation of trade secrets case. This week’s blog covers a situation where the insurance company was required to cover the cost of defense of an Intellectual Property dispute.

    Photographers and stock photo owners filed 35 separate copyright suits against McGraw-Hill Education Inc. McGraw-Hill had paid for the right to use the images in textbooks and other publications. But the plaintiffs alleged that the images were used “in ways not completed by the parties”. McGraw-Hill settled 27 suits and 8 are still pending. McGraw-Hill’s attorney’s fees up to this point are estimated to be over $45 million.

    McGraw-Hill tendered the defense of these claims to its insurer, Illinois National Insurance, an AIG subsidiary. AIG covered claims for about 3 years and then denied coverage on a going forward basis. McGraw-Hill brought a declaratory judgment action asking the court to affirm that AIG had to defend the cases.

    The trial court denied both McGraw-Hill and AIG’s motion for summary judgment. On appeal, the denial of McGraw-Hill’s motion for summary was overturned. The Appellate Court looked at the relevant policy provision regarding copyright infringement. The policy barred coverage only where it is “judicially determined” that copyright infringement was intentional and was carried out by a senior vice president, or someone more senior. AIG hadn’t sought or obtained the required judicial determination. AIG tried to use the “fortuity doctrine” to deny coverage. According to AIG, the “fortuity doctrine” allows an insurance company to deny coverage for “losses that the policyholder knows of, planned, intended, or is aware are substantially certain to occur”. The Appellate Court rejected AIG’s defense holding that it would render the insurance policy illusory.

    So, for now, AIG must cover McGraw-Hill’s hefty copyright infringement defense bills.

    WHY YOU SHOULD KNOW THIS. An illusory contract is one where the promise of performance by one party is so insubstantial that it really isn’t a promise of performance at all. Exclusions in insurance policies are common. But exclusions that basically deny coverage for everything, don’t give the insured anything and so are illusory. Most courts will strictly interpret exclusions. And, usually, this ends up in the insurance company’s favor. However, in this case, AIG went a little too far in trying to exclude coverage.

    This is all well and good. But what happens when you have cyber-insurance and there’s a multi-million loss? We’ll see in my next blog post.

  • IP BLAWG

    Taking Candy from a Candy Company

    Beverly A. Berneman
    2/4/20

    If you like Sour Jacks and/or Welch’s Fruit Snacks, a lot goes on behind the scenes for your sugar pleasure. Promotion In Motion, Inc. or PIM holds the formulas and manufacturing process for the sugary snacks as trade secrets. PIM also owns the design of the packaging. Ferrara Pan Candy Co. manufactured and sold the sugar bombs for PIM from 1990 to 2014 pursuant to a confidentiality agreement and license.

    In 2014, Ferrara merged with another company and formed the current iteration of Ferrara. The new Ferrara signed a new confidentiality agreement with PIM for the formulas and manufacturing process of the sugar delivery systems.

    In connection with the merger, Ferrara cancelled its primary insurance policy with Liberty Mutual Fire Insurance Company, and its umbrella general liability insurance with Liberty Insurance Corp.

    In 2015, PIM sued Ferrara alleging that Ferrara had stolen trade secrets to produce and market competing sugar fix enablers named Market Pantry, Black Forest and Sour Buddies. PIM also alleged that Ferrara’s packaging infringed on PIM’s trade dress. Ferrara tendered its defense to Liberty. Liberty agreed to take on the defense with a reservation of rights. Liberty brought a declaratory judgment action to determine if Liberty was obligated to cover the defense.

    Then Ferrara came down from its insurance coverage sugar high. First, after discovery closed, Liberty withdrew from the defense of all but the trade dress infringement count. Liberty argued that trade secret misappropriation and breach of a confidentiality agreement weren’t covered by insurance. Then, Liberty obtained a judgment that it wasn’t obligated to cover the trade dress infringement count. The judgment was affirmed on appeal. The appellate court held that the alleged infringing acts took place post-merger. And there was no coverage post-merger because Ferrara had cancelled the policies. Ferrara now has to pay back all of the fees Liberty paid in defense of the PIM litigation.

    WHY YOU SHOULD KNOW THIS. Most business insurance policies will cover claims for advertising injury. Advertising injury is very limited. Trade secret misappropriation is not an advertising injury. Breach of a confidentiality agreement is not advertising injury either. So Liberty didn’t have to cover the defense of those claims. Trade dress infringement can fall into the category of advertising injury. But Ferrara cancelled the policies. Was this an oversight during the merger process? Could be. But, the bottom line is that by cancelling the policies after the merger and not obtaining new insurance, Ferrara lost the ability to reach into the insurance sugar bowl for the defense of PIM’s claims.

  • IP BLAWG

    Zero is Worth More Than Zero

    Beverly A. Berneman
    1/28/20

    Back in November 2016, this blog covered the case of the trademark, ADD A ZERO, for wearing apparel. The trademark is owned by Christian Faith Fellowship Church (“CFFC”). Adidas, the international sportswear powerhouse, sought to cancel CFFC’s trademark for various reasons. Adidas took on the cause because the USPTO refused registration of Adidas’s trademark, ADIZERO, due to a likelihood of confusion. Adidas argued that CFFC wasn’t using the trademark in commerce because CFFC only sold two items. The Federal Circuit Court of Appeals held that there is no ‘de minimis’ sale rule and so two sales were enough.

    Not one to give up, Adidas continued to challenge CFFC’s trademark. Adidas complained that since the Federal Circuit ruling, CFFC is still only selling one or two items a year which isn’t enough for use in commerce. This argument was rejected, again.

    Then Adidas asserted that the CFFC trademark didn’t function as a source or product identifier. Now before the Trademark Trial and Appeal Board (“Board”), Adidas argued that “Add A Zero” had been used by CFFC solely to inform its members of fundraising efforts. To support this argument, Adidas submitted numerous news articles, webpages and blog posts showing that many third parties used “add a zero” to denote their own fundraising efforts. The Board agreed that “the slogan ‘add a zero’ is informational and would be understood as such by the relevant public.” However, the Board did not cancel CFFC’s mark. The Board held that the design of the trademark was enough to transform the words from a slogan into a trademark. The Board reasoned, “[n]otwithstanding the informational nature of the wording, the specific combination, placement and shading of the wording and design elements of this special form mark create an integrated whole with a single and distinct three-dimensional commercial impression; that is, the mark is unitary.”

    WHY YOU SHOULD KNOW THIS. The “unitary mark” is a unique creature in the world of trademarks. The USPTO’s Trademark Manual of Examining Procedure says that a mark is “unitary” when “it creates a commercial impression separate and apart from any unregistrable component.” The test for unitariness asks whether the elements of a mark are so integrated or merged together that they cannot be regarded as separable. The inseparable nature of the elements of the mark create an independent commercial impression. Creating a unitary mark may not be so easy. For example, just applying a different color or font to a phrase will not be enough. There has to be something else that creates a commercial impression. What’s the line between enough and not enough? An experienced trademark attorney can help with that analysis.

  • IP BLAWG

    Ignorance Is a Catch-22

    Beverly A. Berneman
    1/14/20

    Apparently, some companies have an “ignorance is bliss” policy when it comes to reading patents. The belief is that if you don’t read it, you can’t be accused of knowing about it. And if you don’t know about it, you can’t be accused of willfully infringing on the patent. Willful patent infringement can increase or enhance the damages recoverable by a plaintiff. So a lack of willfulness can change the value proposition of prosecuting or defending an infringement suit. But is an ignorance policy a good idea?

    By way of background, researching existing patents and patent applications is part of due diligence to make sure that: (1) what you have is really new enough to be patented; and (2) you aren’t infringing on an existing patent. A recent survey by Stanford Law School professor Lisa Larrimore Ouellette reported that 37% of researchers in the electronics and software space were instructed not to research other patents. Considering that there are hundreds of thousands of patents in this space, this might be a way of dealing with limited time and resources. It’s just not feasible to look through all of them while developing new inventions. So weighing the risks, companies make a strategic and business decision not to do any due diligence at all.

    One company just learned the hard way that ignorance may not be so blissful.

    Motiva Patents LLC brought an infringement action against HTC Corp. Motiva alleged that HTC was willfully blind to Motiva’s patents by having a policy of not reviewing patents belonging to others. Motiva also alleged that HTC went one step further, claiming that HTC allegedly performed specific acts to implement and enforce the policy. HTC filed a motion to dismiss arguing that Motiva failed to sufficiently allege HTC’s knowledge of Motiva’s patents. The court denied the motion to dismiss. The court held that a policy of not reviewing other patents is a deliberate action to avoid learning of potential infringement and could be construed as willful infringement.

    The complaint stands and the case will now proceed to see if Motiva can prove its allegations.

    WHY YOU SHOULD KNOW THIS. If HTC acted as alleged in Motiva’s complaint, HTC may have implemented the policy as a matter of self-preservation. It would have decided to take the risk of being accused of infringement for short-term cost and time-savings. Unfortunately, the Motiva v. HTC decision says “you’re damned if you do and you’re damned if you don’t”. So implementing an “ignorance is bliss” policy should be done after evaluating the pros and cons.