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Topics covered in our latest newsletter:
Supreme Court Issues Decision in Kirtsaeng v. John Wiley & Sons
Technology companies, online retailers, book publishers, libraries and museums—these are but a handful of the groups that have been watching the Kirtsaeng v. John Wiley & Sons case with a keen interest, waiting for the Supreme Court's decision on the correct interpretation of five words found in Section 109(a) of the Copyright Act. The interpretation promised to have a profound impact on the abovementioned industries, and on March 19, 2013, the Supreme Court delivered. In a 6-3 vote, Justice Breyer delivered the majority ruling, holding that the words "lawfully made under this title" mean manufactured in accordance with U.S. copyright law.
At issue was a Second Circuit holding that the first sale doctrine does not apply to copies of copyrighted work made outside of the United States. The first sale doctrine, codified at 17 U.S.C. § 109, provides that "the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." At odds with this language was Section 602(a)(1), which provides that importation into the United States of copies acquired outside the United States, without permission of the copyright holder, constitutes an infringement of the exclusive rights granted in Section 106. Section 602(a) grants broad control to copyright owners over importation, while Section 109 inhibits the extent to which a copyright owner may limit distribution following an initial sale.
The earlier case of Quality King already established that Section 602(a) is subject to Section 109. However, the copies in that case were manufactured in the United States and then sent abroad. The Court observed, "This case is like Quality King but for one important fact. The copies at issue here were manufactured abroad. That fact is important because §109(a) says that the 'first sale' doctrine applies to 'a particular copy or phonorecord lawfully made under this title.' And we must decide here whether the five words, 'lawfully made under this title,' make a critical legal difference." The answer depended on which meaning of "lawfully made under this title" was adopted: manufactured within the United States, or manufactured in accordance with U.S. copyright law. The Supreme Court decided on the latter, refusing to read a geographical limitation into the clause.
The case originated when book publisher John Wiley & Sons, Inc. filed suit against Kirtsaeng upon discovering that he was re-selling foreign editions of Wiley textbooks. Kirtsaeng, a college student who had recently moved to the U.S. from Thailand, was subsidizing his education costs by having friends and family abroad send him foreign editions of Wiley textbooks printed in Asia, which he would then resell online. As the foreign editions used different quality paper and bindings, they were sold by Wiley for lower prices. Many of these books came with disclaimer language, indicating that they were not to be sold in the United States. Kirtsaeng made a significant profit selling the books online. The district court rejected Kirtsaeng's first sale defense, and found him liable for willful copyright infringement, setting damages at $600,000. Kirtsaeng appealed, and the Second Circuit affirmed the lower court decision.
The Supreme Court found that the language itself, as well as the legislative history, favored a non-geographical interpretation of "lawfully made under this title." However, the Court also appeared to be swayed by practical considerations: "Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner's permission? In our view, the answers to these questions are, yes." Additionally, the Court questioned whether a geographical interpretation would "promote the Progress of Science and useful Arts," noting that museums and libraries would be encumbered. Museums would be required to obtain permission from copyright owners before displaying many works, and oftentimes the artist cannot be found or his or her heirs are locked in arguments over who owns which copyright. Libraries and booksellers have numerous foreign-printed books on their shelves for which they would have to locate copyright owners. Average consumers would feel the effect too. The Court noted that over $2.3 trillion of foreign goods were imported in 2011. A geographical interpretation would prevent the resale of everyday goods, such as foreign cars, without the permission of the copyright holder for each piece of copyrighted automobile software. The Court doubted "that Congress would have intended to create the practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial, and consumer activities."
The dissent, penned by Justice Ginsburg, argued that the majority's holding stripped Section 602(a) of its effectiveness as an importation ban. It furthermore noted that the decision would be bad for certain businesses. Citing different economic conditions across the globe, Justice Ginsburg pointed out that "copyright owners have a financial incentive to charge different prices for copies of their works in different geographic regions. Their ability to engage in such price discrimination, however, is under-mined if arbitrageurs are permitted to import copies from low-price regions and sell them in high-price regions." The majority does not deny that this is a consequence of the decision. The Court admitted as much, but asserted that "the Constitution's language nowhere suggests that [copyright owners'] limited exclusive right should include a right to divide markets or a concomitant right to charge different purchasers different prices for the same book, say to increase or to maximize gain."
While the holding may seem harsh to some copyright owners, others are celebrating, particularly within the multi-billion dollar e-commerce sector. Companies like eBay and Amazon, which depend on grey and secondary market goods, had a great deal at stake in this case. Consumers, too, would have felt the impact of a geographical interpretation, as online shoppers would have seen fewer discount options available. The Copyright Act requires the successful balancing of owners' rights to control against the public's right of access. In this case, it would seem that the public came out ahead.
—Angela Kalsi
Inter Partes Review Petition Document Formatting Requirements and Estoppel – An Unusual Strategic Pairing in Petition Drafting
The Leahy-Smith America Invents Act has brought us the Patent Trial and Appeal Board at the USPTO (formerly the Board of Patent Appeals and Interferences) and new procedures for challenging patents in administrative proceedings before the PTAB. One of these procedures, Inter Partes Review (IPR), can be a valuable tool for potential challengers to issued patent claims when a claim for invalidity in federal court litigation is not available to the challenger or the uncertainty and expense of federal court litigation is not a strategy the challenger is looking to pursue. While much analysis and commentary has focused on dissecting the law as it was enacted, IPR petition document formatting requirements cannot be discounted or overlooked and should be taken into account from early on when considering if IPR, as opposed to a federal court claim, is the right strategy.
The AIA mandates that estoppel applies to challenged claims upon issuance of the final written decision by the PTAB. Once estoppel applies, the petitioner and its privies will be barred from again challenging the validity of these claims based on patent or non-patent literature that should have been argued in the original proceeding. Now estoppel, on its own, has consequences serious enough to cause potential petitioners to carefully select the claims to be challenged in an IPR petition. Compounding the effects of estoppel and worthy of consideration by potential IPR petitioners from the beginning of their strategic planning are the page limitations and formatting requirements for IPR petitions set forth in 37 CFR Sect. 42 et seq. A total of 60 pages, double-spaced (except for section headings and claim charts), and printed in size 14 Times New Roman font is provided to petitioners to cover all procedural requirements, case background, and plead the case for invalidity. Addressing procedural issues, i.e., identifying the real parties in interest, counsel of record, Table of Contents, listing of challenged claims, and the case background can easily chew up a quarter to a third of this page allotment.
Depending on the number and complexity of the claims and claim limitations to be challenged and the complexity and number of prior art references to be relied upon, page limitations become a very real issue. The issue requires that a suitable balance be struck between challenging more claims and preparing more arguments to support a challenge to a specific claim or pairing down the number of claims to be challenged or arguments submitted. The "use-it-or-loose-it" effect of estoppel may prompt the petitioner to present more arguments to cover the possibility that the PTAB sees something in a reference that the petitioner did not. It goes without saying that one quality, well-developed argument should always trump multiple, less-developed arguments. In addition, the PTAB's recent decision in Synopsys, Inc. v. Mentor Graphics Corp., declining to even accept the IPR petition, on grounds of insufficient claim construction and on a clear lack of support for certain substantive arguments, demonstrates the significance of using a suitable portion of the petition page allotment to properly set up the substantive, invalidity arguments. The PTAB's dismissal of the petitioner's substantive arguments demonstrates that the PTAB is closely scrutinizing arguments and supporting evidence for unpatentability and is holding petitioners to a high standard.
Understandably so, page limits are not the first thing that jumps to mind when potential challengers to a patent claim's validity are preparing their arsenal of iron-clad arguments. If an Inter Partes Review petition is the desired strategy, proper apportionment of the allotted page limit to cover procedural formalities, background and substantive arguments must be considered at early stages to avoid filing a petition that the PTAB may not accept due to evidentiary deficiencies and to avoid the damaging, broad-reaching estoppel that can result from non-persuasive arguments.
—Sean Swidler
Fraud on the Trademark Office and Its Consequences
Though establishing fraud on the USTPO in the context of acquiring a trademark registration may take a rather hefty showing, if it can be shown, the consequences can be significant. In a very recent decision in an infringement case, Melodrama Publishing v. Danielle Santiago, the U.S. District Court for the Southern District of New York demonstrated just how so.
Under current standards, in order to show fraud in connection with statements made to the USPTO in connection with trademark applications and registrations, it must be demonstrated that the statements at issue were material to obtaining a trademark registration and that they were made with a deliberate intent to deceive the USPTO.
Melodrama publishes books, including a series of novels written under the pen name NISA SANTIAGO. Defendant is an author who at one time was contracted by Melodrama to write books in this series under that pseudonym. However, defendant never delivered any manuscripts and Melodrama terminated the contract, retained other authors and published several books under the NISA SANTIAGO name. Defendant then sought registration of NISA SANTIAGO for a series of fiction books. She claimed that she was the owner of that mark and that the mark was in use in commerce. That registration was granted and defendant then began claiming Melodrama infringed her mark and requested payment. Defendant also alerted Amazon.com and other distributors claiming their sales of NISA SANTIAGO books were contributory infringement. Several distributors stopped selling the publications. Melodrama responded to this by filing suit seeking a declaration that the registration was procured by fraud and should be cancelled.
The court ultimately found that at the time defendant filed her trademark application, she was fully aware of Melodrama's rights in the NISA SANTIAGO mark and her own lack of any ownership in that mark. Accordingly, the declaration in support of the application requiring an explicit acknowledgement that applicant owns the mark and is unaware of any other party with greater rights was blatantly false. Additionally, the court found that defendant's claim that the mark was in use and the specimens of use submitted to the USPTO--copies of Melodrama's own publications--were also false. Given defendant's prior knowledge and dealings with Melodrama, the court determined all these statements were made with the intent to deceive the USPTO into issuing a registration for that mark.
Once it found the registration fraudulently obtained, the court ordered cancellation. Further, the Lanham Act provides that in situations where a party is damaged because of a fraudulently obtained registration, it may recover damages from the party that defrauded the USPTO. By this provision, the court awarded Melodrama all costs sustained in bringing its action against defendant as well as lost profits caused by Amazon and other distributors stopping sales based on defendant's claims. Finally, given the egregious nature of defendant's conduct before the USPTO and the brazen fraud, the court found this to be an "exceptional case" and also awarded Melodrama all of its attorney fees.
Though findings of fraud are few and far between, the Melodrama case shows that the ramifications can be far reaching. A party who defrauds the USPTO in the prosecution of a trademark application may likely face cancellation of its mark, civil damages to third parties and even be required to pay attorney fees to those third parties. While establishing fraud in the first instance is extremely difficult, the extent of these potential penalties, especially the possibility of recovery of damages and attorney fees, makes fraud claims in infringement situations at least something to consider.
—Mark A. Nieds
An Introduction to ICANN's Trademark Clearinghouse
The Trademark Clearinghouse is ICANN's attempt to mitigate trademark infringement in anticipation of the launch of hundreds of new gTLDs, or generic top level domains. These are better understood as what is "right of the dot," with the preceding portion being known as the second-level domain. The most common gTLD is the popular .com, but it will soon exist alongside scores of new options, creating a myriad of possibilities for trademark infringement in the second-level domain. The Trademark Clearinghouse is essentially a database in which rights owners can register their marks in order to participate in a type of watch and notification service. It is important to note, however, that no enforcement mechanisms are built into the Trademark Clearinghouse. While the Trademark Clearinghouse leaves much to be desired, it does provide two services which may be of some value to trademark owners in navigating the new internet landscape.
First, the Trademark Clearinghouse offers a sunrise period in which trademark owners get first grab at registering new domain names before each gTLD is open to the public. Taking advantage of the sunrise period might be useful for brand owners who consider it important to have control of "[your mark].amazon", for instance. We expect approximately thirty new gTLDs to open to the public each week. The sunrise period lasts for thirty days, and trademark owners will receive thirty days' notice before the beginning of each sunrise period to determine which gTLDs are of interest.
Next, the Trademark Clearinghouse offers a trademark claims service, which generates a notice whenever a domain is sought to be registered that matches a right owner's trademark. For instance, a notice would be generated if someone attempted to register "[your mark].amazon." The notice is sent to the trademark owner, as well as the applicant, informing them of the match. The service does not block the applicant from registering the domain, however, and notices are only provided for the first 90 days, limiting the overall effectiveness of the service. Additionally, notices are only generated for exact matches. Typos and variations may be included if they have been the subject of a prior UDRP or court proceeding.
Many uncertainties remain with regard to the Trademark Clearinghouse. Trademark owners should review the list of upcoming gTLDs and evaluate which ones they would have a problem with if their mark were registered as the second-level domain. Making this determination will be essential in deciding if and when a mark should be registered with the Trademark Clearinghouse.
In addition to the Trademark Clearinghouse, ICANN is implementing some other changes to keep pace with the launch of the new gTLDs. ICANN is introducing a new rights protection mechanism, the Uniform Rapid Suspension (URS). The URS is designed for "clear-cut" cases of trademark infringement, and it is intended to be a less-expensive and faster alternative to the UDRP. As of now, only two providers have been approved by ICANN—Asian Domain Name Dispute Resolution Centre and the National Arbitration Forum. URS actions are not expected to begin until next year, but this will likely be an attractive alternative for trademark owners in cases of obvious infringement.
—Angela Kalsi
Disclaimer: The contents of this newsletter are presented for information purpose only, and as such are not intended to constitute legal advice and should not be construed as such or acted upon without seeking advice of legal counsel. This information is not intended to and shall not create an attorney-client relationship of any kind or nature with IpHorgan Ltd. Please contact the firm with queries, concerns or for further details regarding the information presented herein. The entire contents are current only as of the date of the newsletter and are not to be interpreted as the opinions of our clients past, present, pending or future. (c)2013, IpHorgan Ltd. All Rights Reserved.
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Newsletter Volume 87, April 2013
