Intellectual Property Group

Sale of Secondhand Software: Vernor v. Autodesk round II

2009-10-12T10:18:00.001-04:00

Autodesk makes design software, copies of which were bought by Cardwell/Thomas Associates, an architectural firm in Seattle. Mr. Vernor bought used copies of the software at a sale of the architects’ office equipment. When he put them up on eBay, Autodesk issued several take-down notices claiming that the proposed sales infringed Autodesk’s copyright in its software. Vernor contested each notice and finally brought an action for declaratory judgment against Autodesk. In round one, Autodesk moved to dismiss Vernor’s complaint, but the court found that Autodesk’s right to control the disposition of used copies had been exhausted upon the initial sale to the architectural firm. Vernor v Autodesk, 555 F. Supp. 2d 1164 (W.D. Wash. 2008). On September 30, 2009, a year and a half later, the court issued an order on the parties’ cross-motions for summary judgment. (Case 2:07-cv-01189-RAJ.) The opinion reviews the history of the case, discusses some intervening decisions, and reviews and reaffirms the reasoning of the original decision. In short, when the architectural firm acquired the software copies, it acquired ownership of them and was free to dispose of them as it pleased under the first sale doctrine codified in § 109 of the Copyright Act, despite provisions in the license forbidding the transfer of the software to others. Given the conflicting decisions noted by the Vernor opinion even between the Ninth Circuit’s precedents, the debate over the exhaustion of copyright in software copies is likely to go for additional rounds at the appellate level.

Made in the USA: Using Copyright to Protect U.S. Publisher From Imports

2009-10-06T10:22:00.004-04:00

In his Memorandum Opinion and Order in the case of Pearson Education, Inc. v. Ganghua Liu, 1:08-cv-06152-RJH, September 25, 2009, Judge Holwell of the Southern District Court of New York has ruled that the import and sale of books published and first sold abroad with the authority of the copyright holder infringes the U.S. copyright of the publisher. The result is in accord with the recent decision in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), which held that copyright exhaustion – the “first sale doctrine” – does not apply to articles manufactured outside the United States. Holwell’s opinion is notable in that he first engages in an analysis of the Copyright Act and the history, purposes and policies of the first sale doctrine and concludes that there is no justification for limiting the exhaustion doctrine to domestically manufactured articles. But in Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), the case in which the Supreme Court held that authorized foreign sales of copyrighted products that were manufactured in the United States did exhaust the U.S. copyright in them, the Court in dicta suggested that the statutory first sale doctrine would not apply in the case of copies manufactured abroad, even if manufactured with the copyright holder’s authorization. Judge Holwell reluctantly considered himself to be constrained to rule in accordance with the Supreme Court’s dicta. His considered opinion on the merits of this rule, however, could end up being more fuel for the fire as the Supreme Court considers whether to grant Costco’s petition for certiorari, which was filed on May 21st of this year.

Turning the Tide on Claims of Fraud on the USPTO: The Bose WAVE Decision

2009-09-08T16:07:00.004-04:00

Ever since the Medinol case in 2003, the Trademark Trial and Appeal Board has applied a very exacting standard to statements of use filed with the U.S. Patent and Trademark Office, requiring the signatory owners to investigate whether each and every item on a list of goods and services was actually in use. If the statement was wrong, the registration could be canceled, even in case of negligent error, if the TTAB found that the signatory knew or should have known the statement to be false or misleading. The TTAB’s expanded application of fraud on the USPTO has been especially troublesome for foreign owners of U.S. trademark registrations, since most countries do not require the same level of detail in listing goods and services in a trademark registration and do not require affirmative statements of use. In In re Bose Corporation, 2008-1448, Opposition No. 91/157,315 (C.A.F.C., August 31, 2009), the Federal Circuit has now addressed the TTAB’s practice, finding that it goes a bit overboard.

In this case, Bose opposed an application for the mark HEXAWAVE by Hexawave, Inc., citing its prior registration of the mark WAVE. Hexawave countered by claiming that the statement of continuing use signed by Bose’s general counsel in conjunction with Bose’s renewal of its WAVE mark was false and that the WAVE mark should be canceled, since the statement included audio tape recorders and players, which were then no longer manufactured by Bose. Bose claimed that its general counsel believed that the statement of use was true since it continued to repair and transport audio tape recorders and players to its customers. The TTAB found that the repair and transport activities did not constitute use in commerce and ordered the cancellation of the WAVE mark in its entirety.

In reversing the TTAB’s ruling, the Federal Circuit held that the standard applied by the TTAB – making a statement that the signatory knows or should know to be false or misleading – erroneously lowered the standard of fraud to that of simple negligence. The decision makes it clear that subjective intent to deceive is an indispensible element in the analysis of fraud, even if it is difficult to prove. While even after this decision it will be important for owners of U.S. trademark registrations to pay attention to the statements they submit to the USPTO, at least the more draconian effects of a mistake can now be averted.

That Which We Call a Name, Be it Abboud or Gucci

2009-08-31T15:40:00.003-04:00

As Iago puts it in Othello:

Good name in man and woman, dear my lord,
Is the immediate jewel of their souls.
Who steals my purse steals trash; 'tis something, nothing;
'Twas mine, 'tis his, and has been slave to thousands;
But he that filches from me my good name
Robs me of that which not enriches him,
And makes me poor indeed.

But when a name is also trademark, it clearly can and does enrich the one who buys it. The right to use one’s own name is therefore often a contentious issue, particularly for designers and their families, as illustrated in the cases of J.A. Apparel Corp. v. Abboud, 591 F.Supp. 2d 306 (S.D.N.Y. 2008), vacated and remanded, 568 F.3d 390, (2d Cir. 2009) and Gucci America Inc. v. Gucci, 07-cv-6820 (August 5, 2009, S.D.N.Y).

The clothing designer Joseph Abboud sold his right in his “names, trademarks, trade names, service marks, logos, insignias and designations” to J.A. Apparel Corp. When Abboud started using his own name in advertisements for his new line of clothing, J.A. Apparel sued to enjoin him. The district court agreed and granted the injunction, but the Second Circuit vacated the decision and remanded the case for reconsideration, finding that the district court had applied an erroneous standard when considering whether Abboud had agreed to sell all rights in the commercial use of his personal name, and whether Abboud’s use of his name was good faith non-trademark use (i.e., a factual statement that he was the designer of the new clothing line).

In the Gucci case, the daughter and former wife of the late designer Paolo Gucci were sued by Gucci America, and were found liable for infringement and dilution of the Gucci name and trademarks. Like Paolo Gucci himself, whose Gucci Shops were found to infringe his former employer’s rights in the Gucci name in 1988, they are reminders that having a name and using it commercially are two different things.

Extending Exhaustion Abroad?

2009-08-31T15:30:00.005-04:00

In Quanta Computer, Inc. v LG Electronics, 128 S.Ct. 2109 (2008), the Supreme Court held that the authorized sale of patented computer parts under LG’s license to Intel exhausted LG’s rights under method patents covering the combination of the parts with other standard computer components, finding that the patents on the parts substantially embodied the method patent as well as the product patent.

A pair of subsequent district court cases considered whether the exhaustion doctrine should be extended to apply to foreign sales of products protected by U.S. patents. In LG’s parallel patent infringement case against Hitachi, LG Electronics, Inc. v. Hitachi, Ltd., 2009 WL 667232 (N.D.Cal.), LG argued that its method patents were not exhausted with respect to parts that were sold outside the United States, citing Jazz Photo Corp. v. Int’l Trade Comm'n, 264 F.3d 1094, 1105 (Fed. Cir. 2001). The district court rejected LG’s argument, reasoning that even though the Supreme Court did not address the issue of international exhaustion in Quanta, it was aware of foreign sales and that exempting foreign sales from exhaustion would undermine the Supreme Court’s goal of preventing an “end run around exhaustion” in which a patent holder can first authorize a sale, reaping the benefit of its patent, and then sue a downstream purchaser for patent infringement. On the other hand, in an order filed on June 29, 2009 in the case of LaserDynamics, Inc. v. Quanta Storage America, Inc., et al., Case 2:06-cv-00348-TJW-CE, the district court for the Eastern District of Texas rejected a similar argument, finding no exhaustion on similar facts. The opinion, however, is based solely on the authority of Jazz Photo and its progeny; that Court did not consider the Quanta decision.

Ultimately, it will be up to the Supreme Court to determine whether and to what extent the United States will adopt a doctrine of international patent exhaustion. The Court’s inclinations in this regard may be revealed if it decides to hear an appeal of the decision in Omega S.A. v. Costco Wholesale Corp.; 541, F.3d 982 (9th Cir. 2008), which rejected a defense of international exhaustion of copyright.

Until there is further guidance, the analysis may focus on what constitutes an authorized sale under a U.S. patent. The opinion in Hitachi distinguishes the case of Boesch v. Graff, 133 U.S. 697 (1890), the Supreme Court case cited in the Jazz Photo line of cases, pointing out that the foreign sales in that case occurred outside of any grant of license under the U.S. patent, while foreign sales by Intel were authorized under a worldwide license from LG. Even if the holding in Hitachi is not challenged, it remains to be seen whether it could be extended to apply to sales by a licensee authorized only under foreign patents.

Clock Ticking on Google Settlement

2009-06-23T15:57:00.003-04:00

The opt-out deadline and the hearing date for the proposed Google settlement were delayed by 4 months at the request of a group of authors led by the estate of John Steinbeck. The date for authors and publishers to opt out of the settlement is now September 4, 2009 and the court hearing is set for October 7, 2009. In addition, the Department of Justice antitrust inquiry into the proposed settlement, which was begun in May in response to the requests of groups such as Consumer Watchdog, appears to be ramping up.

Trademark Infringement Claim Rescued by Second Circuit

2009-06-23T15:28:00.003-04:00

Keyword advertising involves the use of particular search terms to trigger online advertisements, so that, for example, a user who types “chocolate” in a search engine would see a sponsored link for a company selling chocolate candy. The use of one company’s trademark as a keyword to activate competitors’ ads has been a contentious issue. Trademark owners consider the practice a kind of passing off, in which their marks are used, invisibly, to draw traffic to the competition, while the search engines who provide keyword advertising treat the practice as mere product placement, like a store that might offer to sell shelf space to Cadbury next to Godiva® candy, or vice versa. The crucial question is whether the use of a trademark to trigger ads for similar products or services should be considered a use of the trademark in commerce. If so, it could be subject to a claim of infringement, depending upon whether there is a likelihood of confusion. If not, the question of infringement does not even arise.

In the case of Rescuecom v. Google, 06-4881 (April 3, 2009), the Second Circuit has taken the position that the use of a trademark in keyword advertising constitutes use of the trademark in commerce by Google, which suggested and sold the trademark keyword to competitors of the mark’s owner. This holding all but reverses the Court’s holding in 1-800 Contacts v. WhenU.com, 414 F.3d 400 (2005), where it held that the use of a website address similar to a trademark and used as a trigger for pop-up ads was not trademark use. The Second Circuit’s earlier position was at odds with every other federal circuit Court of Appeals that had considered the issue. Google will now have to defend its sale of trademarks as keywords against a claim of trademark infringement, and address the issue of whether such use creates a likelihood of confusion among consumers.

Pirates in the Hold?

2009-05-13T16:53:00.001-04:00

On April 17, 2009, a Stockholm court found the proprietors of the website The Pirate Bay guilty of contributory copyright infringement and meted out sentences including fines and prison terms of one year. The Pirate Bay site uses the BitTorrent peer-to-peer file-sharing protocol, which allows visitors to specify a desired file and then to download small pieces of the file from multiple sources and reassemble it on their own computers. Until July 2005, providers of peer-to-peer services in Sweden were protected as long as they themselves did not engage in any unauthorized copying. Effective July 1, 2005, Swedish copyright law was amended to prohibit the contributory act of making copies of copyrighted works “available to the public” without authorization. The convictions are being appealed and the website is still up and running pending the appeal. The question raised by the defendants at trial – now more relevant following the decision – is whether Google and other search engines that can be used to locate files for peer-to-peer sharing are now vulnerable to prosecution under Swedish copyright law.

Taking on Internet Take-Down Notices

2009-04-16T16:54:00.003-04:00

The Digital Millennium Copyright Act (DMCA) established a mechanism for copyright owners to request the removal of unauthorized copies of their material from the Internet by sending “take-down” notices to sites on which their material is posted. Beginning in 2003, recording companies made liberal use of this mechanism to remove non-commercial postings on sites like MySpace and YouTube. However, when the procedure was used to take down a 29 second video that Stephanie Lenz had taken, showing her children dancing to the music of Prince’s Let’s Go Crazy, Lenz fought back, claiming that her video was protected by fair use and that the publisher’s take-down notice constituted a misrepresentation of copyright, making the publisher liable for damages. The publisher moved to dismiss the suit on the ground that it was not required to consider a fair use defense before sending a take-down notice. In Lenz v. Universal Music Corp., 572 F. Supp. 2d 1150 (N.D. California August 20, 2008), the court denied the publisher’s motion, holding that a copyright owner must consider fair use before issuing a take-down notice.

Using the First Amendment to Grandfather Public Domain Use of Restored Copyrights

2009-04-16T16:51:00.004-04:00

Congress amended U.S. copyright law in 1988 in order to provide authors with automatic copyright upon creation of their works, without the formality of registration. In 1994, Congress addressed the issue of existing works of foreign authors, which works had entered the public domain because the authors had not complied with the then-existing (pre-1988) registration requirements. The result was the restoration of the copyrights of many works that had been in the public domain.

Businesses that had relied on public domain rights that were revoked by the 1994 act brought suit, claiming that the act violated First Amendment rights of free expression. The federal district court dismissed the suit in Golan v. Ashcroft, 310 F.Supp.2d 1215 (D. Colo. 2004), but the Court of Appeals for the Tenth Circuit reversed the decision and sent the case back for reconsideration. Upon reconsideration, the district court found that the restoration of copyright to works in the public domain was a violation of the First Amendment. Golan v. Holder (D. Colo., April 3, 2009). However, further appeals by the copyright owners are expected.

The Google Settlement: Awarding Custody of Orphan Works?

2009-04-16T16:31:00.004-04:00

The opportunities provided by the Internet for wide and inexpensive dissemination of literary and artistic works have led to efforts by librarians, educators and historians to create a mechanism for the publication of “orphan works” – works whose owners cannot be identified or located by someone who wants to publish them. Large corporations such as Google and Microsoft joined the cause and an orphan works bill passed the Senate but not the House in the last session of Congress. The issue may not be high on the agenda for the current Congress, but in the absence of legislative action, there has been movement along another track.

Faced with copyright infringement lawsuits from publishers and authors over its large digitization project, Google reached a proposed settlement with the authors and publishers on October 28, 2008, under which Google would pay $125 million to the authors and publishers in exchange for being allowed to display whole pages of up to 20% of the digitized books in its repository. Google would also be allowed to sell access to the copyrighted works in the repository, with most of the revenues going to the authors and publishers. All public libraries would have free portals accessing the repository.

The settlement is still subject to court approval and will be considered, along with briefs submitted by interested parties, at a hearing on June 11, 2009. In the meantime, the group Consumer Watchdog has asked the Justice Department to intervene, saying that the settlement gives Google an unfair advantage against its competitors.

G&W Labs: Saving Multi-Class Applications From Fraud Claims

2009-04-16T16:24:00.005-04:00

Ever since the decision in Medinol Ltd. v. Neuro Vasx Inc., 67 U.S.P.Q. 2d 1205 (TTAB 2003), trademark owners have had to risk that a trademark registration covering goods and services spanning multiple classes could be canceled in its entirety for fraud based on a false or erroneous statement regarding use of the mark, even if the false statement affected only one item in one class of goods or services. The risk of such a cancellation has prompted some applicants to forego filing multi-class trademarks in favor of separate applications. In the case of G&W Labs, Inc. v. G.W. Pharma Ltd., Opp. No. 91169571 (Jan. 29, 2009), the Trademark Trial and Appeal Board has now made it clear that the risk of cancellation is limited to the class of goods or services affected by the applicant’s false statement.

Bilski: Le MOT juste?

2009-04-16T16:20:00.004-04:00

In its decision in In re Bilski, 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008), the Court of Appeals for the Federal Circuit adopted the Supreme Court’s “machine or transformation test” (the “MOT test”) of patentability in upholding the USPTO's rejection of a patent application for a method for hedging risks in commodity trading. The MOT test states that a process is patentable (1) if it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” In endorsing the MOT test, the Bilski court expressly rejected tests of patentability which had previously been applied to allow patents on business methods in other cases, such as State Street, 149 F.3d 1368 (Fed. Cir. 1998).

Strict application of this interpretation of the MOT test would apparently disqualify from patent protection a host of information-age processes, where the raw materials may be data, human or computer language, electronic signals, legal obligations, business risks, and organizational relationships. In the absence of a connection to a physical object or a particular machine, manipulation or transformation of such raw materials would not constitute patent-eligible subject matter. The requirement of a physical transformation could also call into question the validity of patents of diagnostic processes in which the transformation involved is a natural process, with the invention being a new interpretation of data from the process. Cases currently wending their way through the courts may help determine whether greater reliance on the MOT test will result in substantial limitations on patent protection.

Quanta's Quantum Effect

2009-04-16T16:10:00.011-04:00

The U.S. Supreme Court’s reinvigoration of the patent exhaustion doctrine in Quanta Computer, Inc. v. LG Electronics, Inc., 128 S.Ct. 2109 (2008), continues to reverberate through the courts.

A Federal district court has now agreed to reconsider an order that had previously upheld Lexmark’s printer cartridge return program. The restriction on re-use is enforced by a smart chip that prevents its cartridges from being reused unless they are refilled by Lexmark. Lexmark is trying to keep others from circumventing its smart chip, but this decision suggests that post-sale restrictions on use will face more scrutiny in light of Quanta. Static Control Components Inc. v. Lexmark International Inc. (E.D. Ky., March 31, 2009).

The U.S. Court of Appeals has affirmed the dismissal of a patent infringement suit on the grounds that the patentee’s covenant not to sue, made as part of a settlement of earlier infringement claims, effectively exhausted its related patent rights, including a patent that had not even issued at the time of the settlement. The decision emphasizes the need for litigants to be particularly careful drafting settlement terms in the wake of Quanta. TransCore LP and TC License Ltd. v. Electronic Transaction Consultants Corp. (Fed. Cir., April 8, 2009).