Newsletter - Volume 60, January 2011
Attorneys' Fees—Seventh Circuit Defines "Exceptional Cases" Under the Lanham Act
Under the Lanham Act, a prevailing party can obtain an award of attorneys' fees
in "exceptional cases." 15 U.S.C. § 117(a). Parties in Lanham Act litigation
are keen to recover their attorneys' fees, of course. But what constitutes an
"exceptional case" is not defined in the statute, and the rulings on what
"exceptional case" means and how to prove it have been inconsistent. In Nightingale
Home Healthcare, Inc. v. Anodyne Therapy, LLC., decided Nov. 23, 2010,
the Seventh Circuit reviewed the relevant cases and announced that an
"exceptional case" is one in which a losing plaintiff is guilty of abuse of
process in bringing the suit, or in which a losing defendant has no defense,
but persists in the trademark infringement or false advertising for which he is
being sued in order to impose costs on his opponent.
The opinion, written by Judge Posner, focuses on claims or defenses that are
pursued to inflict economic harm or to wrest an unfair advantage in some matter
not involved in the suit from the opposing party. An example of an "exceptional
case," according to Judge Posner, is the owner of a trademark bringing suit
against a new entrant into its market, alleging infringement, but really trying
to drive the new competitor out of the market by imposing heavy litigation
costs. Another example is a large corporate defendant mounting a scorched-earth
defense to a valid claim of infringement, in order to burden a small plaintiff
with litigation costs. The rules are the same for plaintiffs and
defendants—both "predatory initiation of suit" and "predatory resistance of
valid claims" may result in an award of attorneys' fees.
In the actual case, Nightingale, a provider of home healthcare services, sued
Anodyne, a manufacturer of infrared lamps, claiming that Anodyne's sales
representative had falsely represented that the lamps were approved by the FDA
for treatment of peripheral neuropathy. In fact, the lamps were approved by the
FDA for other uses and peripheral neuropathy was an "off-label" accepted usage
of the product. The District Court found that Nightingale made the claim in
order to coerce a price reduction from Anodyne, and not because of any lack of
FDA approval. The Seventh Circuit upheld the District Court's award of
attorneys' fees, and awarded Anodyne fees and costs related to the appeal, as
well.
Abuse of process is an intentional tort, of course, but the opinion indicates
that it may not be necessary to prove the entire tort in order to obtain an
award of attorneys' fees:
"An elaborate inquiry into the state of mind of the party from whom
reimbursement of attorneys' fees is sought should be avoided. It should be
enough to justify the award if the party seeking it can show that his
opponent's claim or defense was objectively unreasonable—was a claim or defense
that a rational litigant would pursue only because it would impose
disproportionate costs on his opponent."
Punishing abusive claims and scorched-earth defenses is obviously good for the
justice system, but the decision is somewhat disturbing because it might limit
creative thinking in settlement negotiations. Sometimes a price reduction or
other economic incentive not directly related to the litigation is just the way
to resolve a knotty extended conflict. If discussing one can come back to haunt
a litigant as evidence that an award of attorneys' fees is in order, parties
and their attorneys may steer clear of proposing incentives that could result
in settlement. In most cases such creative solutions should be fine—and
encouraged. Settlement discussions can be shielded from use in the litigation
by "no prejudice" agreements. But if your client wants to bring a weak Lanham
Act claim in order to get some "leverage" over a competitor, tread carefully.
It could wind up costing much more than you think.
—Carolyn Knecht
Federal Circuit Court of Appeals Holds that Rejected Patent Claim Construction Does Not Render Case "Objectively Baseless" in Exceptional Case Analysis
In a patent infringement lawsuit, a finding that that plaintiff's claim is
objectively baseless and brought in subjective bad faith can lead to a court
finding the case "exceptional" and awarding attorneys' fees, costs, and
expenses to the defendant. In iLOR, LLC v. Google, Inc. the Federal
Circuit (CAFC) overturned the district court's exceptional case finding,
holding that the plaintiff's rejected patent claim construction does not
necessarily render the case "objectively baseless."
In iLOR the district court rejected the plaintiff's proposed claim
construction and denied the sought-after preliminary injunctive relief. In an
earlier appeal, the Federal Circuit approved the district court's claim
construction and held that the denial of the injunctive relief was not in
error. Upon disposition of the appeal Google moved the district court to find
the case "exceptional" and award attorneys' fees, costs and expenses. The
district court granted Google's motion on grounds that the case was "not close"
on the merits (i.e., objectively baseless) and that iLOR had acted in
subjective bad faith.
The second appeal to the CAFC focused on the "exceptional case" finding. The
CAFC likened the "exceptional case" standard as applied to plaintiff's claims
to the "willful infringement" standard applied to alleged infringer's conduct
when considering if an award of enhanced damages and attorneys' fees is
warranted. Referring to its earlier decision in In re Seagate Technology, LLC,
the CAFC stated that the exceptional case standard requires an assessment of
both objective and subjective prongs. The CAFC went on to state that the
objective assessment "is to be determined based on the record ultimately made
in the infringement proceedings. In applying this framework, the CAFC
determined that iLOR's proposed claim construction, while not accepted by the
district court, was not objectively baseless as it found some support in the
patent specification. The CAFC bolstered its finding by recognizing that the
first appeal of the district court's claim-construction decision was the
subject of a precedential written opinion—a clear indication that the CAFC did
not find the case to be trivial or frivolous. In conclusion, the CAFC stated
that "simply being wrong about claim construction should not subject a party to
sanctions where the construction is not objectively baseless." Because the
objectively baseless prong of the analysis was not satisfied, the subjective
bad faith prong was moot.
—Sean Swidler
Righthaven, LLC – Copyright Troll or Necessary Enforcement?
Righthaven LLC, a copyright holding company established to seek out unauthorized
online postings of articles from the Las Vegas Review-Journal and Denver Post
and file copyright infringement lawsuits, is now targeting individual bloggers,
without any prior warning. The company has filed at least 203 lawsuits against
website operators and individuals since March 2010, causing some to question
whether copyright law is currently working to create an incentive to litigate
rather than to create.
Righthaven, reportedly part-owned by Stephens Media LLC, an affiliate of the
Review-Journal, operates in an unusual manner. It uses its technology to locate
unauthorized copying of news articles, after which it obtains a transfer of
copyright from the owner and files a lawsuit alleging infringement. What is
most unusual is that Righthaven proceeds with a lawsuit without giving any
prior warning to defendants. With regard to website operators, most newspapers
and content providers will first send a warning letter firmly requesting the
content be taken down. Pursuant to the Digital Millennium Copyright Act (DMCA),
so long as a website operator adheres to certain guidelines and immediately
blocks or removes allegedly infringing content upon such a take-down notice, it
cannot be held contributorily liable for copyright infringement.
Righthaven, however, appears to be taking advantage of the fact that the DMCA
does not make it mandatory to send a take-down request prior to bringing a
lawsuit against a website operator unless the operator has complied with all
provisions of the DMCA, including posting information as to where take-down
notices should be sent. Further, even if the website operator has complied with
all requirements, it may still have to undergo months of discovery and the
financial burden that goes along with it to prove that it has, once a lawsuit
is brought. Thus, while Righthaven did begin by targeting the website
operators, it did not first send a warning, but proceeded immediately with a
lawsuit. Now, however, it is proceeding with lawsuits directly against the
individuals that actually post the content, to which the DMCA is inapplicable.
Most recently, it targeted an individual who posted a Review-Journal article on
airport pat-downs which credited the author, but did not credit the
Review-Journal. In many cases, the postings also link back to original
periodical, but so long as the Review-Journal or Denver Post is not properly
credited, a lawsuit is filed. In each case, Righthaven is demanding $150,000 in
damages and control of the domain on which the content was posted. Many of the
lawsuits filed to date have already settled and others are in various states of
litigation. One case, however, has already been dismissed on fair-use grounds.
Righthaven argues that its strategy is absolutely necessary to stop online
infringement of newspaper articles and editorials. It claims that typical
cease-and-desist letters are largely ineffective. Considering the economy is
becoming increasingly information-based, it claims that it is necessary that
copyrights be enforced with greater ferocity.
Critics ague that Righthaven is simply acting as a "copyright troll," comparing
its business model to the lawsuits filed by the Recording Industry Association
of America (RIAA) against individuals engaged in unlawful music file sharing
and also to the lawsuits filed by U.S. Copyright Group against BitTorrent users
unlawfully sharing movies. Critics argue that proceeding with the lawsuits
without warning the defendants and without allowing for a chance for them to
take down the content amounts to an abuse of the court system. Further, critics
argue that going after individuals who will not be able to afford court fees
unfairly leaves them with no choice but to settle, even where a defendant may
have a good chance of winning with a fair-use defense. Already, many of the
individuals targeted by the lawsuits have simply shut down their websites in
their entirety. Service providers similarly worry that the approach will stifle
free speech, making individuals reluctant to comment on materials written by
others for fear of a lawsuit. In line with this, for example, Firefox has
created a plug-in that will block user's access to Righthaven owned content.
The strategy also has opponents urging individuals to petition for an update of
the federal copyright statutes to mandate take-down notices prior to bringing a
lawsuit.
In all likelihood, these lawsuits will continue for some time. Righthaven's CEO
Steve Gibson has already indicated that plans are underway to cover the over 70
other newspapers owned by Stevens Media. Further, Righthaven has reportedly
struck a deal with WEHCO Media, an Arkansas company partnering with Stephens
Media that controls 28 newspapers. In any case, the outcome of these lawsuits,
at least those that reach merits, will likely go far in further defining the
fair use doctrine.
—Carlynn Ferguson Davis
Functionality in Product Configuration before the Trademark Trial and Appeal Board
The Trademark Trial and Appeal Board (TTAB) rendered its first precedential
decision for 2011, denying registration to a product configuration in In re
Charles N. Van Valkenburgh, Serial No. 77025789 on January 7th. The
Board held that Mr. Van Valkenburgh's (the Applicant) design was functional,
and alternatively failed to meet the acquired distinctiveness test under
Section 2(f) of the Trademark Act.
The Applicant filed an application to register the following mark for
"motorcycle stands" in International Class 12:
Applicant sought registration under Section 2(f) (acquired distinctiveness) of
the Trademark Act, claiming first use of the mark in commerce on August 20,
1994. The TTAB affirmed the refusal to register, concluding that the mark was
functional and, alternatively, if not functional, that the mark lacked acquired
distinctiveness.
Functionality
The TTAB affirmed that the mark was functional based upon the Morton-Norwich
analysis factors. The TTAB first determined that the existing design patent
disclosed the utilitarian advantages of the intended product's design. Despite
Applicant's arguments to the contrary, the TTAB noted that Applicant did not
explain why the design of the supporting base of the stand is not essential to
the function or purpose of the stand. Given this, Applicant failed to meet the
"heavy burden of showing that the feature is not functional." Traffix,
58 USPQ2d at 1005. The existing patent weighed heavily in favor of
functionality.
Second, advertising by Applicant's competitors also supported a finding of
functionality. Applicant had no advertising on which to rely, so the Examiner
turned to examples from Applicant's competitors. This advertising described, in
detail, the utilitarian aspects of similar product designs with statements such
as "designed to allow a superb sturdy, non-flex performance," and "universal
design to fit all standard swing arm sportbikes." The TTAB concluded that these
advertisements touting the utilitarian advantages of similar motorcycle stands
support a finding of functionality.
Third, in analyzing the availability of alternative designs for the stand,
Applicant claimed that over 85 alternative designs existed for this particular
stand type. The TTAB noted, however, that the availability of alternative
designs does not transform a functional design into a non-functional design. In
this case, "registration of the claimed matter could well hinder competitors
who would not know if the features they used in the supporting base of their
motorcycle stands, whose overall configurations are not dissimilar from those
of applicant, might well subject them to a suit for trademark infringement."
Finally, the TTAB looked at whether the design resulted in a comparatively
simple or cheap method of manufacturing the product, noting "the cost and
complexity of manufacturing applicant's product design is comparable to some of
his competitors. Nevertheless, even if applicant's motorcycle stands with this
design are more costly to produce, a higher cost does not detract from its
functionality."
The TTAB concluded that the product configuration was, indeed, functional, but
went further to address Applicant's claim of acquired distinctiveness for
completeness.
Acquired Distinctiveness
The TTAB also affirmed that the proposed mark had not acquired distinctiveness
under Section 2(f) of the Trademark Act.
To support his arguments, Applicant submitted sixteen years of product use,
fourteen declarations from consumers involved in the motorsports industry,
twenty-three consumer surveys, and proof of intentional copying. However, the
TTAB did not find the evidence convincing.
Though the sixteen years of use was substantial, the TTAB stated that
"substantial" and "conclusive" were different. The evidence failed to show that
the mark was actually perceived as a mark for the relevant goods. The surveys
and declarations were also unpersuasive given that many of the participants
overlapped. The TTAB noted that in sixteen years of business in the motorbike
industry, Applicant could only find sixteen people who identified Applicant's
product design as a trademark, which was not enough to meet the burden for
acquired distinctiveness.
Therefore, the mark was ultimately refused on grounds of functionality and on
alternative grounds of lack of acquired distinctiveness under Section 2(f) of
the Trademark Act.
—Amanda R. Peluse
ICANN Planning to Ignore Government Advisory Committee Even Before Meeting Occurs?
TAs previously reported, ICANN has delayed the timeline for the projected start
of applications for new gTLD domain names. The extended period for comments on
the Proposed Final Applicant Guidebook for new gTLDs just closed on January 15,
2011, and ICANN has yet to disclose when its Board will be meeting with the
Government Advisory Committee (GAC) to hash out various concerns voiced by a
number of governments.
The meeting between ICANN and GAC is likely to occur in February, with the next
scheduled ICANN full meeting planned for mid-March in San Francisco. ICANN has
already announced that former President Bill Clinton will be the featured
speaker at the San Francisco meeting, with speculation that the approval of the
new gTLDs program will occur at the end of the meeting. In order for that to
occur, ICANN and GAC would have to reach full agreement on a number of
unresolved issues, such as registry/registrar vertical integration, trademark
protection mechanisms, "morality and public order" objections, and geographic
strings in domain names.
Alternatively, it is possible for ICANN to attempt to reject the
recommendations of the GAC that are still in dispute, and proceed with the new
gTLDs program without full agreement. However, ICANN would need to provide a
thorough and reasoned explanation of ICANN decisions, the rationale thereof and
the sources of data and information on which ICANN relied in order to avoid a
firestorm of criticism that it had breached its Affirmation of Commitments.
Interested intellectual property rights holders may be looking at the last
opportunity to voice their concerns and influence trademark protections at the
meeting with ICANN and GAC. Further concerns should be addressed to the
particular country's GAC representatives (http://gac.icann.org/gac-members),
who seem to be championing intellectual property rights.
In the meantime, brand owners should be evaluating and planning their role in
the new gTLD process, whether it be as an applicant for a .BRAND domain name
registry, as an objector to third-party applications, and/or as a registrant of
domain names within the new gTLDs. While there may be delay in the start of
applications for new gTLDs, the strategizing by corporate hierarchy should have
already begun.
—Gary Saposnik
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)2011, IpHorgan Ltd. All Rights Reserved.
Newsletter Volume 72, January 2012
