Newsletter - Volume 50, March 2010
U.S. Supreme Court Holds Section 411(a)'s Copyright Registration Requirement Non-Jurisdictional
On March 2, 2010, the Supreme Court issued its decision in Reed Elsevier, Inc. v
Muchnick, holding that Section 411(a) of the United States Copyright
Act, which mandates registration as a prerequisite to suing for copyright
infringement, is not a jurisdictional requirement, meaning a copyright owner's
failure to register its work does not restrict a federal court's subject-matter
jurisdiction over claims involving the unregistered work. While the decision is
meaningful for class-action suits and claims for declaratory or equitable
relief, the impact of the decision, if any, on the standard
copyright-infringement claim for damages remains to be seen.
The case follows the Court's decision in New York Times Co. v Tasini, 533
U.S. 483 (2001), in which the Court affirmed the Second Circuit ruling that
several online databases and publishers, including Google Books, infringed the
rights of six freelance authors by electronically publishing their works
without permission. The case was consolidated with several other suits by other
freelance authors in the United States District Court for the Southern District
of New York, which due to the complexity of the case ultimately referred the
parties to mediation. Three years later, the freelance authors, databases and
publishers reached a settlement agreement, dubbed the "Google Books Settlement"
and moved the District Court to certify a class and approve the settlement.
Over the objections of several freelance authors, including Irvin Muchnick, the
District Court approved the Class, consisting of authors owning both registered
and unregistered copyrights in their works, and approved the settlement.
Muchnick respondents appealed the decision on both procedural and substantive
grounds. The Court of Appeals for the Second Circuit sua sponte ordered
a briefing on the question of whether Section 411(a) of the Copyright Act
deprives federal courts of subject-matter jurisdiction over infringement claims
involving unregistered works.
Section 411(a) provides:
"Except for an action brought for a violation of the rights of the
author under section 106(A), and subject to the provisions of subsection (b),
no civil action for infringement of the copyright in any United States work
shall be instituted until preregistration or registration of the copyright
claim has been made…The Register may, at his or her option, become a party to
the action with respect to the issue of registrability of the copyright claim
by entering an appearance within sixty days after such service, but the
Register's failure to become a party shall not deprive the court of
jurisdiction to determine that issue."
Although all parties asserted in their briefs that the District Court did have
subject-matter jurisdiction to approve the Class, the Court of Appeals held
that it lacked subject-matter jurisdiction to approve both the Class and the
Settlement. Judge Walker dissented, arguing that Section 411(a) is more like a
non-jurisdictional claim-processing rule.
The Supreme Court granted the copyright owners and publishers' petition for writ
of certiorari to answer whether Section 411(a) restricts the subject matter
jurisdiction of federal courts, appointing amicus curiae to defend the
Court of Appeal's judgment, since neither party supported its holding.
The Supreme Court began its analysis by looking to the general approach to
distinguishing jurisdictional conditions from claim-processing rules or
elements of a claim as laid out in Arbaugh v Y & H Corp., 546 US 500
(2006), which states that if the legislature does not "clearly state" that a
statutory limitation is jurisdictional, and does not rank it as such, then the
courts should treat it as non-jurisdictional in character.
Applying this test to Section 411(a), the Court found that the provision does
not "clearly state" that its registration requirement is jurisdictional. The
Court rejected the argument from amicus, that the use of the word
"jurisdiction" in the last sentence of the provision indicates that the first
sentence of the provision is meant to be read with a jurisdictional cast as
well. Rather, the Court explained that the last sentence in 411(a) was added to
the Act in 1976 to clarify that federal courts can decide an issue of
registrability even if the Register does not appear in the relevant
infringement suit, and that as used, it says nothing with regard to the federal
court's subject-matter jurisdiction over claims involving unregistered works.
Further, the Court found that the provision also does not rank the registration
requirement as jurisdictional. Section 411(a)'s registration requirement is
located in a provision wholly separate from those provisions in the Act
covering jurisdiction, namely Sections 1331 and 1338, and neither of these
provisions conditions jurisdiction on whether the relevant copyright owners
have registered their works. The Court pointed to the fact that Section 411(a)
expressly grants courts jurisdiction to adjudicate claims involving
unregistered works in three instances: 1) where the work is not a U.S. work, 2)
where the claim also concerns moral rights under 106A, or 3) where the author
attempted to register his work but registration was refused. The Court reasoned
that if Section 411(a) was meant to be read in a jurisdictional light, it would
be odd for the provision to contain these exceptions.
The Court then considered the amicus argument, relying on Bowles v Russell,
551 US 205 (2007), that it is improper to characterize a statutory condition as
non-jurisdictional if doing so would override a "century's worth of precedent." Amicus
argued that Bowles stands for the proposition that if a provision is
silent as to whether its condition is to be considered jurisdictional, then a
court should treat it as jurisdictional if that is how the condition has been
consistently interpreted over the years. The Court rejected this interpretation
of Bowles, concluding that it instead stands for the proposition that
context is relevant, albeit not dispositive, of the question. The Court further
rejected the amicus argument that the Court should nonetheless affirm
the Court of Appeals decision on estoppel grounds because the circumstances
required for application of the doctrine simply did not exist in this case.
Ultimately, the Court held that Section 411(a)'s registration requirement is
simply a precondition to filing a copyright infringement claim, and nothing
more. A copyright owner's failure to register his or her work does not restrict
a federal court's subject-matter jurisdiction over infringement claims
involving unregistered works.
The decision clarifies that class actions for copyright infringement can be
filed on behalf of owners of both registered and unregistered works. The Google
Books Settlement, however, was amended following the Second Circuit's now
reversed 2007 Muchnick decision to specifically exclude owners of
unregistered works to avoid this issue. While it is unlikely that they will be
added back as a result of the decision, it now raises the question of whether
the settlement will be approved as it stands. The Court could ask the litigants
to renegotiate the settlement again, to include authors of unregistered works,
or the authors themselves could request reconsideration of the settlement along
these terms.
Although it is clear that a claim for damages based on an unregistered work will
fail, the Court left unanswered whether a district court should sua sponte
dismiss copyright cases where the Plaintiff is asserting rights based on an
unregistered copyright. As a result of the decision, courts may become more
lenient in allowing actions to proceed even if filed while an application for
registration of the involved work is still pending. Courts are currently
divided on this issue, with some taking the "registration approach" and
dismissing those claims where the application is still pending, and others
following the "application approach."
Now, it will likely be easier for an alleged infringer to bring a
declaratory-judgment action against a claim involving an unregistered work. In
addition, it could be less risky for an author to file suit for immediate
equitable relief, rather than for damages, based on an unregistered work.
Trademark Customs Recordal Back on the Menu in the United Kingdom
As of March 10, 2010, British Customs will be able to treat as abandoned for
seizure and destruction purposes items where the owner has either consented to
destruction or failed to oppose destruction of the goods within 10 days from
notice or any extensions granted to that period. The new procedure is set out
in the Goods Infringing Intellectual Property Rights (Customs) (Amendment)
Regulations 2010.
Historically, Customs measures in the United Kingdom were very favorable to
rights owners in that once an objection was received by Customs and upheld, it
fell to the owners of the products in issue to bring an appeal against the
action of Customs in confiscating the goods. The practice was changed in 2009
as a result of a court action. The amended rules brought British practice into
line with that of most other European countries whereby it fell to the
objecting rights holder to either obtain consent to forfeiture from the owners
of the goods or else to bring a formalized proceeding to have the goods
declared counterfeit and seized, something which is onerous and expensive.
Under the latest revision, which became effective on March 10, consent to
forfeiture will be presumed if the owner of the goods does not affirmatively
object to forfeiture within the specified period of 10 days plus any
extensions. While this still puts most of the burden on the rights holder to
make sure that the counterfeit goods do not enter the market, it does mean that
the owner of the offending goods has to take some sort of action in order to
secure release and it cannot just sit back and take a wait-and-see approach.
Another problem under the prior regimen was that consignee contact information
provided with shipping documents was often bogus and unreliable. The amended
rules mean that owners of the goods will have to step forward and potentially
expose themselves to direct legal liability for dealing in counterfeits. The
new approach makes Customs recordation once more an attractive option insofar
as the UK is concerned.
Federal Circuit Decision Highlights Importance of Full Disclosure between Inventor and Patent Attorney When Conducting Prior Rights Analyses
A recent decision from the Federal Circuit Court of Appeals demonstrates the
importance of full disclosure between an inventor and patent attorney hired to
conduct a prior rights analysis, such as a freedom-to-operate opinion. Under
Section 271(b) of the U.S. Patent Act, "whoever actively induces infringement
of a patent shall be liable as an infringer." The "inducer" must have actual or
constructive knowledge of the patent-in-suit and must have "specific intent to
encourage another's infringement," where specific intent is not defined so
narrowly as to allow an accused wrongdoer to actively disregard a known risk.
In SEB S.A. and T-Fal Corp. v Montgomery Ward & Co., Inc. et al. the
Federal Circuit Court of Appeals established that deliberate indifference of a
patent can satisfy the "knowledge of patent" element in an inducement claim and
determined that the district court record demonstrated adequate deliberate
indifference by co-defendant Pentalpha Enterprises, Ltd. as to the existence of
the patent-in-suit. In SEB, the record demonstrated that: (1) Pentalpha
had copied SEB's product, (2) Pentalpha had hired a patent attorney to conduct
a patent prior-art search, but did not advise the attorney that it had copied
the SEB device, and (3) Pentalpha's president was knowledgeable of U.S. patent
law. The Federal Circuit concluded that this was "adequate evidence to support
a conclusion that [Pentalpha] deliberately disregarded a known risk that SEB
had a protective patent."
On appeal from the district court decision of inducement to infringe, as well as
willful infringement, Pentalpha argued that SEB had not presented any direct
evidence that Pentalpha had actual knowledge of the patent-in-suit before the
lawsuit was filed. Pentalpha argued that the Federal Circuit's decision in DSU
Medical v JMS supported its position by holding that the "requirement
that the alleged infringer knew or should have known his actions would induce
actual infringement necessarily includes the requirement that he or she knew of
the patent."
The SEB Court embarked in a detailed analysis of the "knowledge"
requirement as it pertains to inducement-to-infringe claims, including
discounting the cited language from the DSU Medical decision as dicta.
While the DSU Medical language certainly appeared to support Pentalpha's
position, the DSU Medical decision did not hinge on the "knowledge"
requirement as the accused infringer had actual knowledge of the
patent-in-suit. The court held that "deliberate indifference" to potential
patent rights is sufficient to satisfy the "knowledge" requirement of
inducement charges. While the district court record did not include direct
evidence that Pentalpha was aware of the patent-in-suit, the record did provide
adequate details of Pentalpha's deliberate indifference to SEB's patent rights.
U.S. Trademark Trial and Appeal Board Vacates 2008 Fraud Ruling in Herbaceuticals,
Inc. v Xel Herbaceuticals, Inc., Cancellation No. 92045172
On February 25, 2010, the United States Trademark Trial and Appeal Board vacated
its ruling in Herbaceuticals, Inc. v Xel Herbaceuticals, Inc., where a
partial summary judgment had been entered on the ground of fraud. Though the
finding of fraud was vacated due to procedural reasons, the Board did, sua
sponte, review the original fraud pleadings in light of the 2009 Bose
Corp. v Hexwave decision that revised the test for fraud on the USPTO.
Based on its review, the Board found Petitioner Herbaceuticals, Inc.'s fraud
claim legally insufficient.
In the original March 7, 2008 order, the Board granted summary judgment to
Petitioner Herbaceuticals, Inc. (HCI) on its pleaded fraud claim, ordering
cancellation of four registrations in the name of Respondent, Xel
Herbaceuticals, Inc. (Xel). The Board concluded that Xel filed knowingly false
Statements of Use, signed by the representing attorney. The XEL HERBACEUTICALS
marks were not being used on all goods in the identifications as claimed.
On January 7, 2010, Xel filed a motion to vacate the Board's partial summary
judgment on HCI's fraud claim, relying on the Bose decision which set forth, "a
trademark is obtained fraudulently under the Lanham Act only if the applicant
or registrant knowingly makes a false, material representation with the intent
to deceive the PTO." Bose, 91 USPQ2d at 1941.
The Board granted Xel's motion to vacate, as conceded, because HCI failed to
respond, in any manner, to Xel's motion. However, the Board also sua sponte
reviewed HCI's pleaded fraud claim in the original petition to cancel, finding
it legally insufficient under the Bose decision.
HCI's pleaded fraud claim alleged that Xel "knew or should have known that it
was not using" the marks on all goods identified in each application when the
relevant Statements of Use were filed. However, HCI's claim did not allege that
Xel possessed the requisite "intent to deceive" the United States Patent and
Trademark Office through its actions. Under Bose, the Board noted that
each petitioner must specifically plead "intent to deceive" in raising a claim
of fraud. See Bose, 91 USPQ2d at 1941. An allegation of "knew or should
have known" will not rise to the level of fraud under the Bose standard.
In addition, HCI based its fraud claim on "information and belief" but failed
to specify facts to support its belief, which also rendered the claim
insufficient.
Thus, while the Board has vacated its partial summary judgment based on fraud,
the Board has also allowed HCI thirty days from the mailing date of this
decision (February 25, 2010) by which to replead its fraud claim under the Bose
standard. As of March 10, 2010, HCI has not yet filed an amended petition to
cancel.
In addition to articulating the Bose standard in the present order, the
Board also discussed the standard for "intent to deceive" in a footnote,
stating, "[t]he standard for finding intent to deceive is stricter than the
standard for negligence or gross negligence. Still open is the question whether
a submission to the PTO with reckless disregard of its truth or falsity would
satisfy the intent to deceive requirement. Bose, 91 USPQ2d at 1942, fn.
2."
eBay France Faces Sanctions for Misspellings
On February 18, eBay France was unsuccessful in the face of charges that it has
enabled the sale of counterfeit goods and harmed Louis Vuitton's reputation,
receiving a fine of €200,000 in damages, including an award of
€30,000 in costs, and a fine of €1,000 for each future violation.
When we last discussed the online auction giant's French site in 2007, it was
facing an objection from the regulatory authority for auction houses in France,
the Council of Sales, which sought to hold eBay to the same standards as those
that apply to France's traditional auction houses. The latest objection,
brought by the owner of the Louis Vuitton brand, LVMH Moët Hennessy Louis
Vuitton SA (LVMH) has resulted in a judgment against eBay France.
The basis of the objection stemmed from eBay's payments for certain keywords to
generate links to eBay's site in search engines such as Yahoo and Google. The
practice of paying for keywords in itself was not the issue. Rather, it was the
fact that eBay was paying for misspellings of "Louis Vuitton" (such as
"Vitton"), that LVMH asserted are often used to advertise the sale of
counterfeits, to generate results pointing to eBay.
The argument for using such misspellings is that potential buyers may simply be
unaware of the correct spelling, or inadvertently type the name incorrectly.
Rather than have a bad customer experience, eBay sought to ensure that such
misspellings still direct the potential buyer to some listings. By the same
token, some frequent users of eBay often intentionally misspell designer names
in their searches as a deliberate strategy for good bargains, under the theory
that the results will be viewed by fewer buyers and they will have less
competition in the bidding.
Brand owners, however, object to this practice under the theory that the sellers
who utilize misspellings do not have poor spelling skills, but use them
intentionally when dealing in counterfeit goods. Consequently, allowing third
parties to pay for misspellings associated with counterfeit goods enables the
counterfeit marketplace.
In the end, the balance weighed in favor of LVMH. So far, this decision in
France is an outlier. In the US, the use of another's trademark as a keyword in
Google AdWords has generally not been found to be a violation of trademark law,
even when it involves competitor's trademarks. However, this decision in France
may very well have turned on the fact that the keywords in question were
closely tied with dealing in counterfeits, even though they actually were not
protected trademarks of another party.
In its response to the decision, eBay stated that the decision did that very
thing which it sought to protect against—it harmed consumers by preventing them
from buying and selling authentic items online.
Perhaps the final word on the issue is yet to come in the EU. A decision from
the Court of Justice due to issue in late March is expected to provide more
clarity as to whether this use of Adwords interferes with the rights of
trademark owners.
What to Make of the Recent Wave of False-Patent-Marking Lawsuits
District courts have seen a recent increase in the number of
false-patent-marking lawsuits that could result in recovery of significant
windfall monetary awards to plaintiffs. While the current landscape of
patent-marking jurisprudence leaves many unanswered questions, careful review
of patent-marking policies should be an issue to consider for companies
manufacturing products under their own or licensed patents to avoid an adverse
false-marking judgment. Section 292 of the U.S. Patent Act covers the improper
marking of an unpatented article with the word "patented," or any word or
number having the same meaning, for purposes of deceiving the public and
provides for fines to be assessed in an amount not to exceed $500 for each
offense. Individuals may file suit in federal court pursuant to Section 292 and
attempt to recover damages that will be split 50/50 with the government.
The Federal Circuit Court of Appeals decision in The Forest Group, Inc. v Bon
Tool Co. outlined the following elements of a Section 292 claim: (1)
marking of an unpatented article; and (2) intent to deceive the public. The
primary question unsettled before Forest Group was what constituted an
offense—a decision to mark a product line, or each marked article put into the
stream of commerce. The monetary implications of the answer to this question
were significant. In Forest Group, the Federal Circuit held that "the
plain language of 35 USC Section 292 requires courts to impose penalties for
false marking on a per article basis." The court reasoned that allowing a range
of penalties provided district courts with necessary flexibility and discretion
to strike a balance between the public policy behind the patent-marking
statute, namely, to give the public notice of patent rights, and imposing
disproportionately large penalties for small, inexpensive items produced in
large quantities. In a case involving inexpensive, mass-produced articles, the
district court would have the discretion to determine that a fraction of a
penny per improperly marked article is a proper penalty.
With the Forest Group decision, particularly its guidance on
determination of damages, courts have experienced a significant increase in the
number of lawsuits being filed on false-patent-marking grounds. In the month of
February 2010 alone, nearly 60 separate lawsuits were filed in district courts
around the country. The next emerging controversy in these cases, the
resolution of which is likely to either promote the filing or stem the tide of
false-marking lawsuits, will likely focus on what plaintiffs must prove to
support the allegation that the defendant marked products "for purpose of
deceiving the public." Under the current rule of law, "a party asserting false
marking must show by a preponderance of the evidence that the accused party did
not have a reasonable belief that the articles were properly marked." An
assertion by a party that it did not intend to deceive, standing alone, "is
worthless as proof of no intent to deceive where there is knowledge of
falsehood."
Another issue that is likely to receive significant attention is the misuse of
Section 292 lawsuits by individuals, coming to be known as "patent-marking
trolls," seeking a windfall judgment by filing lawsuits against products marked
with an expired patent. Some clarity on this issue is likely forthcoming in Pequinot
v Solo Cup Co., which is on appeal to the Federal Circuit and has been
fully briefed.
The increased occurrence of "patent-marking troll" suits could be curtailed or
brought to a halt by Federal Circuit in the Pequinot decision or by
Congress (the Senate Judiciary Committee has recently proposed legislation that
would require patent false-marking plaintiffs to show actual competitive
injury). Until the landscape of Section 292 becomes clearer, the effect of the Forest
Group decision mandates that companies have a firm grasp on their
patent-marking policies.
.CO Domain Names Launching at Second Level; Global Sunrise to begin April 26
The ccTLD for Columbia, .CO, is going to be made available for registration on a
global basis at second level (e.g., YOURCOMPANY.CO), rather than under
previously restrictive terms that limited registrations to third level beneath
various second-level domains such as .COM.CO. The Global Sunrise period for
trademark holders with exact-match domain names registered prior to July 30,
2008 will run from April 26 to June 10, 2010. There will be subsequent Landrush
and General Availability registration periods. In addition to general
registrations, the .CO has also created a "Founders Program" for those
individuals or companies that meet certain requirements, and pledge to be early
adopters and to proactively develop and maintain domains with the .CO extension
prior to the public launch in July. There is also a Grandfather Process,
available through March 31, 2010, for applicants whose existing third-level
domains in the .CO namespace were registered and active on or before July 30,
2008.
The .CO registry was previously run by the University of The Andes in
Bogotá, Columbia, with registration mostly limited to Columbian
companies who could register their trade name or company as an exact match at
the third level. As a result, there were only about 28,000 .CO domains
registered. The registry will now be run by a new partnership formed by a
Colombian company, and Neustar, Inc., which has been involved in providing
expertise for .BIZ, .US, .TRAVEL and .TEL. In addition to continuing to be a
country-code TLD for Colombia, the .CO domains are being promoted for use as a
mainstream extension to represent a number of CO-formatives, including
"COmpany," "COrporation," "COmmerce," "COntent," "COmmunity," "COnsumer," and
"COllaborate."
Of potential concern for trademark holders is the use and registration of these
domain names as a typo for .COM domain names. An IP Clearinghouse and Trademark
Validation process for registered trademarks are being established to assist
brand owners in securing their brands in .CO during the Sunrise period. There
will also be post-registration procedures available to trademark holders
against abusive registrations, including a Rapid Takedown Policy and the UDRP.
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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)2010, IpHorgan Ltd. All Rights Reserved.
Newsletter Volume 72, January 2012
