Supreme Court to Review AT&T v. Microsoft Case Regarding Extraterritorial Reach of Patents

Case: AT&T v. Microsoft, S.Ct. No. 05-1056 (10/27/06)

The Supreme Court's heightened interest in patent law continues with its decision on October 27, 2006, to review the Federal Circuit's
opinion (blogged here) in a dispute between AT&T and Microsoft. The Federal Circuit had held that Microsoft was liable for supplying master disks containing infringing Windows software that were used to make software copies abroad.

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Eighth Circuit Allows Lanham Act Claims Arising From Alleged Misuse of Auto Parts Service Marks To Proceed To Trial

Case: Mid-State Aftermarket Body Parts, Inc. v. MQVP, Inc. (8th Cir. 10/19/06 - No. 05-3057)

The One Sentence Summary: Summary judgment was improper where factual questions as to the use of a service mark existed and where defendants' use of the service mark allegedly confused end-users of products who might therefore discourage vendors from signing up for use of plaintiff's service.


What They Were Fighting About: MQVP was the registered owner of a service mark "MQVP" for its service "Manufacturers' Qualification and Validation Program." MQVP offered a service of providing software that tracked high quality automotive parts from manufacturer to use and also allowed complaint tracking from buyers. Defendant Mid-State had been advertising that it had MQVP parts available, but declined to license the service mark and participate in the MQVP program. MQVP sued Mid-State in the Eastern District of Arkansas for violations of the Lanham Act (unauthorized use of the service mark that was likely to cause confusion as to origin under 15 U.S.C. § 25 (a)(1)(A) and false advertising under 15 U.S.C. § 1125 (a)(1)(B)). The district court granted summary judgment for defendants on both of these claims.

Eighth Circuit Holdings:

• The district court erred in criticizing the fact that plaintiff's MQVP mark had been used to refer to products and services although it was registered as a service mark. The panel noted that a service mark can be used in association with products as long as the mark continues to identify the presence of some services. Moreover, there were factual issues as to whether plaintiff had authorized the use of its mark as an identifier for parts.
• The district court erred in finding that plaintiff had misused its service mark as a certification mark. Plaintiff was entitled to go to trial on claims that it had used its service mark properly to define its service of providing automotive parts tracing software and complaint tracking software. The questions of whether this mark had been misused and turned into a certification mark were questions for trial.
• The district court erred in its likelihood of confusion analysis by noting that only parts buyers would be confused by defendant's use of plaintiff's mark, and that the confusion of these buyers was not relevant because plaintiff sold its service to parts vendors rather than buyers. The panel noted that the Lanham Act does not always require confusion in the mind of the customer for the services. It can also provide relief when confusion exists in the minds of persons in a position to influence the purchasing decision or persons whose confusion represents a significant risk to the sales, good will or reputation of the trademark owner. Here, confusion as to whether parts were provided in accordance with MQVP standards would harm MQVP because other vendors who might purchase MQVP would be discouraged from paying MQVP to participate in the program.
  
  

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Tillamook Cheese Maker Waited Too Long to Sue Tillamook Smoked Meat Company

Case: Tillamook Country Smoker, Inc. v. Tillamook County Creamery Ass'n, No. 04-35843 (9th Cir. October 11, 2006)

The One Sentence Summary: Laches barred plaintiff's trademark infringement suit when it knew of and approved defendant's use of the mark, and waited 26 years to bring infringement claims.


What They Were Fighting About: Plaintiff Tillamook Creamery had registered marks for "Tillamook" for cheese, and had used the mark since 1918. In 1976, Defendant Tillamook Country Smoker began to use its mark for smoked meats in the same town as plaintiff. Plaintiff knew of Country Smoker's use and did not object, and even sold Country Smoker's meats through its store and catalog. After defendant began distributing in supermarkets, plaintiff began to object. Country Smoker sued for declaratory relief, and the trial court granted defendant's motion for summary judgment on its defense of laches.

Ninth Circuit Holdings:

• There was a presumption of laches when plaintiff had waited to protect its trademark until after the statute of limitations on the most closely analogous state cause of action.
• The senior user, Tillamook Creamery, had an obligation to protect its mark in 1976 when it first learned of Tillamook Smoker's use. The entry of Tillamook Smoker into supermarkets in 1998 did not reset the laches clock.
• The district court properly rejected plaintiff's claim of "progressive encroachment." Defendant had not entered new markets or regions, and its mark had not become closer to plaintiff's mark.
• Defendant acted in good faith as necessary for a laches defense when plaintiff had said that defendant could use the Tillamook mark unless defendant opened a cheese factory, and where plaintiff had sold defendant's products.
• The "inevitable confusion" exception to laches did not require an injunction as there was no danger to the public in denying an injunction.
• The district court correctly held that plaintiff's response to a request for admission must be construed as an admission that the Tillamook Country Smoker name did not cause a likelihood of confusion before 1997. This finding supported the district court's ruling that the registration of a ribbon design of a Tillamook Country Smoker should not be cancelled, and that Tillamook Country Smoker should be allowed to register "Tillamook Country Smoker" as a word mark.
  
  

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Statute Allowing Patent Reissue Should Be Interpreted Broadly to Allow Correction of Any Error

Case: Medrad, Inc. v. Tyco Healthcare Group LP, No. 06-1082 (Fed. Cir. October 16, 2006)

The One Sentence Summary: Reissue patent could be issued under 35 U.S.C. § 251 when earlier patent claimed more than it had a right to claim even though there was no error in the language of the patent.

Federal Circuit Holdings:

• 35 U.S.C. § 251 was not limited to correcting errors in the language of the original patent. The statute is a remedial statute that should be interpreted broadly to allow correction of any error that causes a patentee to claim more or less than patentee had a right to claim.
  
  

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Waiver of Attorney-Client Privilege for Advice of Counsel Defense Extends to Communications with Other Counsel and to Communicated Work Product

Case: In re EchoStar Communications, Fed. Cir. (Misc. No. 803, 805, 5/1/06)

The Two Sentence Summary: An advice of counsel defense waiver of the attorney-client privilege for communications with in-house counsel constituted a waiver as to all communications with outside counsel on the same subject matter. Work product of the outside counsel was also subject to production if it constituted or reflected communications with the client on the subject matter.


What They Were Fighting About: EchoStar had asserted an advice of counsel defense against a claim of willful patent infringement brought by Tivo. In support of its defense, EchoStar had produced non-infringement opinions given by in-house counsel, but withheld opinion letters and work product of outside counsel on the issue. The district court ordered production of outside counsel's advice and analysis on infringement, including uncommunicated work product.

Federal Circuit Holdings:

• The issue of the scope of waiver would be determined using the law of the Federal Circuit rather than the regional circuit because it concerned issues of patent law.
• EchoStar's decision to waive privilege for communications with in-house counsel regarding non-infringement also waived the privilege for communications with outside counsel on the subject.
• The panel divided the work product at issue in this case into three categories: "(1) documents that embody a communication between the attorney and client concerning the subject matter of the case, such as a traditional opinion letter; (2) documents analyzing the law, facts, trial strategy, and so forth that reflect the attorney’s mental impressions but were not given to the client; and (3) documents that discuss a communication between attorney and client concerning the subject matter of the case but are not themselves communications to or from the client."
• Category 1 documents, those that embody communications, must be produced due to the waiver of privilege.
• The waiver is not cut off at the start of litigation. When ongoing willful infringement is at issue, advice received after the start of litigation on the same subject matter as the waiver is relevant.
• Category 2 documents, counsel's analysis documents that were not communicated to the client, should not be produced. Because these documents were not shared with the accused infringer, such documents have little value in determining the infringer's state of mind as to whether infringement was willful. This is "opinion work product", and it has the highest level of protection under the work product doctrine.
• Category 3 documents referencing a communication between counsel and client should be produced, but may be redacted to withhold legal analysis that was not communicated to the client.
  
  

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Google's Use Of Trademark As A Search Term Did Not Constitute "Trademark Use" Necessary For Infringement Claim

Case: Rescuecom Corporation v. Google, (N.D.N.Y. No. 5:04-CV-1055 NAM/GHL 9/28/06)

The One Sentence Summary: A district court in the Northern District of New York dismissed trademark infringement and dilution claims against Google arising from use of plaintiff's registered trademark as a search term, holding that this did not constitute a "trademark use" within the meaning of the Lanham Act.


What They Were Fighting About: Plaintiff Rescuecom had a registered trademark for Rescuecom. It claimed that Google had infringed its trademark by allowing competitors to use Rescuecom as a search term for their competitive services. It further noted that Google's software suggested "Rescuecom" as a search term when competitors were buying advertisements for their services. Google moved to dismiss the complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

District Court Holdings:

• The district court granted defendant Google's motion to dismiss under rule 12 (b)6 of the Federal Rules of Civil Procedure on the claims for trademark infringement under section 32 (1) of the Lanham Act, 15 U.S.C. § 1114 (1) and False Designation of Origin under section 43 of the Lanham Act, 15 U.S.C. 1125 (a)(1). The court noted that other district courts had split on the issue of whether use of a trademark as a search term was a trademark infringement use, citing Geico v. Google, 330 F. Supp. 2d 700 (E.D. Va 2004), Edina Realty, Inc. v. MLSonline.com, 2006 WL 737064 (D. Minn. March 20, 2006) and Google v. American Blind and Wallpaper Factory, Inc. 2005 WL 832398 (N.D. Cal. March 30, 2005) and other decisions.
• Citing 1-800 Contacts v. WhenU.com, 414 F. 3d 400 (2d Circuit 2005), the district court held that use of the trademark as a search term was not a "trademark use" in commerce for trademark purposes. With respect to the claim that defendant was trading on plaintiff's good will, the court noted that there was no allegation that there was "trademark use" such as labeling a product or search result. Similarly, with respect to the claim that defendant's use of the trademark prevented internet users from reaching plaintiff's website, the court noted that there was no allegation that any of the ads displayed in response to the search included plaintiff's trademark. Thus, there was not a "trademark use" of the term. Similarly, with respect to allegation that there was an alteration of the search results by using Rescuecom's trademark, the court noted that the presentation of other choices was similar to product placement of competing products in retail stores next to popular trademarked goods, and was not a misuse of the trademark. The court further noted that internal use of the trademark to trigger sponsored links was not "use of a trademark" because it was not placing the trademark on goods, containers, displays or advertisements and the internal use was not visible to the public.
• Similarly, plaintiff's claim for dilution of trademark was dismissed because there was no allegation of trademark use.
• The court dismissed without prejudice pendent state law claims because no federal claims were remaining.
  
  

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Factual Questions as to First Use Require Reversal of Judgment as a Matter of Law

Case: Quicksilver, Inc. v. Kymsta Corp., No. 04-55529 (9th Cir. 10/6/06)

The One Sentence Summary: Factual questions as to first use of the ROXY trademark required reversal of judgment as a matter of law.


What They Were Fighting About: Plaintiff was the registered owner of trademarks for "QUIKSILVER ROXY" and "ROXY". Plaintiff filed suit against defendant for use of the name "ROXYWEAR". Both sets of trademarks had been used for sale of women's clothing. After an 8 day trial, the trial court determined that plaintiff's QUIKSILVER ROXY and ROXY marks were valid and that plaintiff was the senior user. The trial court further held that latches barred the plaintiff from enjoining the defendant's use of ROXYWEAR as a mark.

Ninth Circuit Holdings:

• The panel affirmed the holdings that the QUIKSILVER ROXY and ROXY marks enjoyed a presumption of validity because of their registration by the PTO. The panel rejected a claim of fraud in procuring the mark raised by defendant. Defendant had argued that plaintiff had failed to tell the PTO of its knowledge of the use of the mark ROXYWEAR by defendant. The panel held that judgment as a matter of law on the fraud claim against the defendant was appropriate because mere knowledge of someone using the mark does not constitute fraud if the registrant feels that the rights of the other user are not superior to his.
• The district court erred in granting judgment as a matter of law finding that plaintiff was entitled to use of the term ROXY as a stand alone mark beginning in 1991. Plaintiff's use of the marks together created a question of fact as to whether the mark ROXY alone was entitled to protection.
• The panel also rejected plaintiff's argument that the ROXY mark had gained independent significance from the QUIKSILVER ROXY mark before the defendant first used ROXYWEAR as a mark. The panel found that there was a jury question as to whether the ROXY product mark had obtained independent trademark significance from the QUIKSILVER house mark. The panel noted that plaintiff had used the term QUIKSILVER with ROXY because they feared that ROXY would not be recognized. The panel also noted that there was not promotion of the independent ROXY mark though advertising.
• The panel also reversed the district court's judgment as a matter of law for plaintiff on the tacking doctrine, finding factual questions as to whether plaintiff was entitled to the date of first use of the combined mark as the date of first use of the ROXY mark alone. The panel noted that the standard for tacking first use dates was exceedingly strict and that the marks must create the same continuing commercial impression. Reasonable jurors could have found that the marks were not so similar that consumers would have considered both QUIKSILVER ROXY and ROXY as the same mark.
• The panel also reversed the district court's judgment as a matter of law in favor of plaintiff on the issue of inherent distrinctiveness. Defendant had argued that the term ROXY was not entitled to a presumption of validity because it was a descriptive first name that could only be registered with secondary meaning. Defendant had presented adequate evidence to potentially rebut the finding of secondary meaning by showing that the term was a woman's first name and that it had been used in advertising in connection with the name of the co-founder's daughter. This would have allowed a jury to find that the mark was not valid despite the presumption of validity accompanying registration.
• On the innocent use defense under 15 U.S.C. § 1115(b)(5), the panel rejected plaintiff's argument that defendant was required to prove geographic remoteness in order to show innocent use. The panel noted that this was not in the statutory language and disagreed with other circuits which have held that remoteness is required.
• The panel found that there was a factual question as to whether defendant could establish innocent use because it had presented adequate evidence to meet the requirements of 15 U.S.C. § 115(b)(5) in that it could show that it adopted the ROXYWEAR mark without actual or constructive knowledge of plaintiff's use, that it used the mark before plaintiff had filed trademark applications and that it had continuously used the mark after plaintiff filed its applications.
  

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Defendant Was Entitled to Finding of Factual Innocence of Trade Secret Theft Where No Evidence as to Trade Secret Status Was Presented

Case: People v. Laiwala, Cal. App. 06 CDOS 9529, No. H029001 (10/6/06)

The One Sentence Summary: Defendant was entitled to a finding of factual innocence on claims of grand theft of a trade secret under California Penal Code section 499c where no evidence was presented at trial that the source code taken constituted a trade secret.


What They Were Fighting About: The appellate court had previously reversed defendant's conviction for trade secret grand theft for taking source code containing a master key used to decrypt or descramble a DVD. The Superior Court denied defendant's petition for a declaration of factual innocence under California Penal Code section 851.8(c).

California Court of Appeal Holdings:

• Testimony presented at the Superior Court hearing that the program source code could be used with a descrambler was not sufficient to establish trade secret status of the source code alone. There was no evidence presented at the hearing that the key was a trade secret. Accordingly, defendant was entitled to finding of factual innocence.
  
  

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Narrow Construction of Claim Language Was Improper Despite PTO's Narrow Interpretation During Prosecution

Case: SRAM Corp. v. AD-II Engineering, Inc. (Fed. Cir. 10/02/06 - No. 05-1365)

The One Sentence Summary: Broad claim language could not be limited by the written description even though the Patent Office Examiner had construed the language narrowly during prosecution.


What They Were Fighting About: AD-II sued for a declaration of non-infringement and invalidity of SRAM's patents on bicycle index gear shifters. The district court denied summary judgment of invalidity, construing claim 16 as requiring index shifting.

Federal Circuit Holdings:

• The district court erred in adding a limitation of "precise index shifting" to the claim language describing a bicycle gear shifter. This term was used in the description, but not the claim language, and could not be added to limit the broad claim language.
• The PTO Examiner erred in narrowly construing the claim language to include the limitation of "precise index shifting." The PTO should have construed the language broadly. The PTO's error did not allow the district court to interpret the claim as including the limitation.
  
  

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Federal Circuit Provides Tutorial on the Motivation-To-Combine Test for Obviousness in Anticipation of Supreme Court

Case: Dystar Textilfarben GMBH & Co. Deutschland KG v. C.H. Patrick, Co., No. 06-1088 (Fed. Cir. October 03, 2006)

The Two Sentence Summary: In finding that four claims of a patent were obvious as a matter of law, the panel reviewed the motivation-to-combine suggestion test for obviousness and argued that this test was required by the law and consistent with Supreme Court precedent. The panel implied that the Supreme Court's decision to hear the pending KSR case was due to confusion caused by reading dicta out of context.

What They Were Fighting About: Plaintiff DyStar sued defendants for infringement of a patent for a process of dying textiles with indigo. A jury found that the patents were valid despite claims of lack of enablement, anticipation and obviousness and awarded damages for infringement. The magistrate judge presiding over the trial denied a motion for judgment as a matter of law, deferring to the jury's findings of validity and infringement.

Federal Circuit Holdings:

• The panel reversed the district court's denial of the motion for judgment as a matter of law of invalidity of the claims for obviousness.
• The panel explained the Federal Circuit's obviousness test in great detail, and in particular explained the suggestion or "motivation-to-combine" test. The panel explained that the motivation-to-combine test was necessary to guard against the use of hindsight in finding that an invention was obvious.
• The panel disagreed with commentators who have said that the suggestion test is a rigid categorical rule. Rather, the panel characterized it as a flexible rule.
• The panel noted that the motivation-to-combine or suggestion need not come from the references to be combined themselves, but could come from the knowledge of one skilled in the art.
• Because the jury did not make explicit factual findings in the form of answers to written interrogatories or special verdicts, the Federal Circuit panel reviewed the jury's implied factual findings by interpreting the evidence consistent with the verdict.
• The panel rejected the plaintiff's view that one of ordinary skill in the art should be someone who simply flipped switches on a dyeing machine. Rather, the panel found that the relevant art was designing an optimal dyeing process and that this art required knowledge of chemistry and systems engineering. Thus, one of skill in the art would have known of the patents which were claimed to invalidate the patent claims as obvious.
• The panel rejected the plaintiff's arguments that the prior art patents were nonanalogous art and properly disregarded by the jury. The panel found that although the prior art patents involved different methods of reducing the indigo, these would be within the knowledge of one who was attempting to design a dyeing process.
• The panel rejected plaintiff's arguments that the prior art teaches a way from the invention. Rather, the panel found that the prior art was merely silent on some of the claims and therefore did not teach away from those elements of the claim.
• The panel found that there was a motivation-to-combine the prior art asserted. The panel first disagreed with commentators who have characterized the Federal Circuit's precedents as requiring that the motivation-to-combine appear in the references themselves. The Federal Circuit criticized this analysis as relying on dicta and incomplete readings of precedents. The panel stated that "obviousness is a complicated subject requiring sophisticated analysis, and no single case lays out all facets of the legal test." The panel stated that when parties do not engage in "careful candid and complete legal analysis" confusion about the law arises and can be compounded. At this point, the court noted that the Supreme Court has granted review of the application of the suggestion test in the KSR case.
• The panel noted that motivation-to-combine can come from the universal desire to enhance commercial properties or even common sense. Motivation-to-combine can arise even though there is nothing in the references to be combined themselves. In this case the panel held that someone designing a dyeing process would have known of the advantages of cutting out the intermediate steps and would thus have been led to combine the cited prior art.
• The panel rejected plaintiff's argument that the decision of another company to discontinue planned marketing of indigo that would have used the process was indication of a secondary consideration of non-obviousness. Rather, the court held that this indicated that another competitor had conceived of it but had decided not to pursue commercial marketing.
• On a claim by claim analysis, the court found that each of the dependent claims was also obvious in light of the prior art.
  
  

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Award of Both Trademark Infringement and Patent Infringement Damages for Sale of Air Mattresses Was Impermissible Double Recovery

Case: Aero Prods. Int'l, Inc. v. Intex Recreation Corp., No. 05-1283 (Fed Cir. October 02, 2006)

The One Sentence Summary: The panel affirmed district court claim construction rulings that resulted in a judgment of infringement for air mattress inflation valves, but held that the award of both trademark and patent infringement damages for the same sales of air mattresses constituted impermissible double recovery.


What They Were Fighting About: Plaintiff Aero Products was the assignee on a patent for a valve assembly for an inflatable air mattress. It sued defendants Intex Recreation Corp. and Walmart Stores for sales of mattresses with valves that were alleged to infringe the patent. Aero Products also sued for infringement of its trademark "ONE TOUCH" that it used to describe its mattresses and that Intex also used for its mattresses. A jury found infringement on the patents and the trademarks and awarded damages. The district court doubled the patent damages based upon the jury's finding of willful infringement and awarded an additional $1 million in trademark infringement damages.

Federal Circuit Holdings:

• The panel affirmed the district court's claim construction of the term "inflation input" as the point at which air enters the passageway to the air mattress. The panel did not find support in the claim language, the specification or the prosecution history for defendants' proposed construction of the term that the "inflation input" be at the most distal end away from the inflatable air mattress. In reaching this conclusion the district court did not err in having an awareness of the accused device and construing the terms of the patent keeping in mind the accused device so that it focused only on construction of the disputed elements.
• The panel rejected defendants' arguments that the district court improperly changed its claims construction during trial. Rather, the panel found that the district court had simply refused to allow defendants to ask questions of witnesses implying that an alternate claim construction of the language was appropriate when that claim construction conflicted with the district court's interpretation of the terms.
• The panel also affirmed the district court's construction of the terms "substantially hermetic seal" and "complete hermetic seal". The district court properly construed "substantially hermetic seal" to mean that it retained nearly all of the air whereas "complete hermetic seal" referred to the mechanical completeness of the valve assembly. The inclusion of both terms in one claim was not inconsistent and did not render the claim indefinite.
• The panel rejected defendants' arguments that the addition of the language "complete hermetic seal" in an amendment after a rejection by the examiner in the prosecution history indicated that the seal must be completely impervious to air. The applicant had argued that other changes in the claim language responded to the examiner's rejection and that alterations to the claim language including the addition of the term "complete hermetic seal" only served to describe the invention better.
• The panel also rejected the defendants' claim that the inclusion of the term "substantially hermetic" and "complete hermetic" in the same claim rendered the claim language indefinite. Rather, the panel agreed with the district court that the term "complete hermetic seal" refers to mechanical completeness of the seal while the term "substantially hermetic seal" referred to the quality of the seal. The district court had precluded defendants' from arguing indefiniteness to the jury and had held indefiniteness that the claim was not indefinite after trial. This was consistent with expert testimony given in support of plaintiff's in which an expert testified as to his understanding of the claim's terms. Thus, the district court did not err in its finding that the claim was not indefinite.
• With respect to the defendants' claim that remittitur or new trial should have been granted, the panel held that it would apply Federal Circuit law with respect to the question of whether patent infringement and trademark infringement damages were overlapping. It would apply 7th Circuit law in determining whether a new trial should have been granted.
• The panel noted that double recovery of damages in not allowed. However, the district court may allow the jury to award separate elements of damages on different causes of action and adjust those damage awards to prevent double recovery.
• The panel reversed the district courts decision to award $1 million in trademark damages in addition to the reasonable royalty award on the patent. Both amounts were calculated by reference to sale of the infringing air mattresses. Thus, allowing both amounts would be an impermissible double recovery arising from one set of wrongs, the sale of the infringing mattresses.
  
  

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