California Supreme Court to Decide Whether Narrow Restraints on Competition Are Allowed In California

Case: Edwards v. Arthur Andersen, S147190 (Cal. Supreme Court, 11/29/06)

The California Supreme Court has decided to review the question of whether narrowly drawn non-compete agreements can be enforced in California despite the rule against restraints on competition set out in section 16600 of the California Business and Professions Code. In the case of Edwards v. Arthur Andersen LLP, No B178246 (Cal. 2d App. Dist. August 30, 2006), the Second District California Court of Appeal had held that even narrowly drawn non-competes could not be allowed under Bus. & Prof. Code § 16600 despite federal court interpretations of the California statute allowing narrow restraints.

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Local Patent Rule Deadlines Cause Summary Judgment Against Plaintiff

Case: 02 Micro Int'l Ltd. v. Monolithic Power Sys., Inc., No. 06-1064 (Fed. Cir. 11/15/06)


The One Sentence Summary: Plaintiff's delay in submitting amended infringement contentions under the Northern District of California's local patent rules prevented a showing of "good cause", and district court properly granted summary judgment against plaintiff.


What They Were Fighting About: Plaintiff had a patent on a technology for using feedback signals to control the current provided to a computer monitor from a battery. Plaintiff sued for patent infringement in the Northern District of California. It filed preliminary infringement contingents in accordance with the local patent rules of the Northern District of California identifying one theory of patent infringement. After a deposition ten months later, plaintiff sought to amend its preliminary infringement contentions to add additional theories of infringement revealed in the deposition. Plaintiff unsuccessfully sought a stipulation from defendant allowing amendment. Plaintiff then filed a motion to amend its infringement contingent three months after the deposition. The district court denied the motion to amend the preliminary infringement contentions and subsequently refused to allow amended expert reports served after the deadline for expert reports incorporating the new theories of infringement. The district court found that the plaintiff had not acted with adequate diligence to amend its infringement contentions and therefore did not have good cause for amendment. The district court subsequently granted summary judgment against plaintiff.

Federal Circuit Holdings:

• The validity and interpretation of the local patent rules for the Northern District of California would be determined as a matter of Federal Circuit law because it involved issues unique to patents.
• The local rules must be consistent with the letter and purpose of federal rules in order to be valid. Therefore, local rules cannot unduly restrict discovery or prevent parties from refining their liability contentions in light of new developments in discovery. However, the discovery rules are also intended to force a plaintiff to reveal its theories of liability and the court can set reasonable deadlines for revealing those theories.
• The Northern District local patent rules may require a showing of good cause in order to amend infringement contentions and a party's diligence in seeking amendment is part of a showing of good cause.
• The district court acted within its discretion in finding that plaintiff was not diligent in seeking amendment of its contentions.
• The discussions of a possible stipulation did not excuse the necessity of promptly seeking to amend.
• Plaintiff did not adequately show that the three month delay after discovering the issue at a deposition was necessary for it to bring the motion to amend.
• The district court did not abuse its discretion in rejecting plaintiff's attempts to amend its expert reports to state its new theories of infringement. The reports were untimely and plaintiff had failed to show diligence in submitting the amended reports. The district court did not act improperly in excluding the expert reports and the amended infringement contentions, even though this resulted in dismissal of plaintiff's case. Quoting Wong v. Regents of University of California. 410F.3(d) 1052, 1060 (9th Cir. 2005), the court stated "Parties must understand that they will pay a price for failure to comply strictly with scheduling and other orders, and that failure to do so may properly support severe sanctions and exclusions of evidence."
  
  

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Section 230 of the Communications Decency Act Provides Broad Immunity for Internet Publishers

Case: Barrett v. Rosenthal, California Supreme Court (No. S122953 11/20/06)

The One Sentence Summary: Section 230 of the Communications Decency Act provides broad immunity for all publishers and computer users who publish information provided by other computer users.


What They Were Fighting About: The Communications Decency Act of 1996 ("CDA") provides in 47 U.S.C. § 230(c)(1) that "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." 47 U.S.C. § 230(e)(3) provides "No cause of action may be brought and no liability may be imposed under any state or local law that is inconsistent with this section." Plaintiffs alleged that defendants had committed libel by defaming them in Internet postings. Only one posting was at issue on appeal, the reposting of an article accusing plaintiff Polevoy of stalking a Canadian radio producer. Defendant Rosenthal had posted a copy of an article alleging this after receiving it via e-mail from a co-defendant.

California Supreme Court Holdings:

• The California Supreme Court followed what it called the leading case on immunity under section 230, Zeran v. America Online, Inc. 129 F.3d 327 (4th Cir. 1997).
• The Supreme Court reject the Court of Appeals' analysis that section 230 retained the common law distinction between publishers and distributors and that distributors were not immunized under section 230. Rather, the California Supreme Court agreed with the Zeran court that distributors were a type of publisher and that the broad grant of immunity to publishers necessarily included distributors. The court noted that on the Internet, it would be difficult to determine what constituted a distribution versus an original publication.
• After a review of the legislative history, the court concluded that Congress intended to protect and immunize even publishers who took an active role in republishing third party content and that it would be inconsistent to hold that distributors who might have taken a lesser role would not be protected from liability.
• The court agreed with the analysis in Zeran that providing for notice-based liability of a distributor would have negative effects including the chilling of speech on the Internet. Moreover, noticed-based liability would provide an incentive not to monitor an Internet service because it could potentially cover notice of something that could create liability. Moreover, notice-based liability would allow plaintiffs to create liability by sending ceaseless notices of claims.
• The court also noted that if it were to allow notice-based liability it would provide plaintiffs with an incentive for forum shopping to avoid jurisdictions which have held that the immunity under section 230 is broad.
• The court concluded that the immunity granted to "users" of computer services was broad and did not support a distinction between active and passive users.
• Plaintiffs' libel claims could not be asserted due to the immunity granted under section 230 of the CDA.
  
  

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The Intersection of Trade Dress and Patent Law

The Fall 2006 edition of the Corporate Counselor includes an article entitled "Aesthetics vs. Science: How Protection for a Product's Appearance May Outlast Patent Protections" by Dominique R. Shelton and Michael F. Kelleher. The article discusses recent cases on the issue of when trade dress protection may be asserted for the non-functional aspects of a product disclosed in a utility patent.

The Corporate Counselor is the news letter of the Corporate Law section of the Los Angeles County Bar Association.

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Structurally Similar Compound Did Not Literally Infringe, But Infringed Under the Doctrine of Equivalents

Case: Abraxis Bioscience, Inc. v. Mayne Pharma (USA) Inc., No. 06-1118 (Fed. Cir. 11/15/06)

The One Sentence Summary: A structurally similar preservative compound did not infringe literally, but did infringe under the doctrine of equivalents.


What They Were Fighting About: Abraxis sued under Mayne under patents on the use of edetate as a preservative in an anesthetic. The district court found that defendants' use of a structurally analogous compound infringed literally and under the doctrine of equivalents.

Federal Circuit Holdings:

• The district court erred in construing the term "edetate" in the claim language to include structural analogs of EDTA. Although the patentee acted as its own lexicographer in defining the term "edetate" to mean "EDTA and its derivatives", the specification did not include structural analogs as examples of "derivatives."
• Due to its error in construing the scope of the claims, the district court erred in finding literal infringement.
• However, the district court correctly found infringement under the doctrine of equivalents. After trial, the district court found that the compound in defendant's preservative performed the same function in the same way with the same result.
• Both patentee's compound and defendant's compound worked in the same "way", through metal ion chelation, and the panel rejected defendant's argument that the specific types of chemical bonds needed to be analyzed.
• Even though patentee described its compound as "edetate" rather than the broader category of "polyaminocarboxylates", it was not estopped from claiming infringement under the doctrine of equivalents because it did not make a clear and unmistakable surrender of the equivalents.
• The lack of known interchangeability between the compounds used by patentee and defendant did not prevent a finding of infringement under the doctrine of equivalents. The district court did not err in finding that there were insubstantial differences in the compounds, and that defendant had chosen its compound because of its similar structure and reactivity to the compound used in the patents.
  
  

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Possible Superior Functionality of Label Design Leads Federal Circuit to Reverse Design Patent Preliminary Injunction

Case: PHG Technologies, LLC v. St. John Companies, Inc., No. 06-1169 (Fed. Cir. 11/17/06)

The One Sentence Summary: A preliminary injunction in a design patent case that prohibited use of a medical label sheet design was vacated where there was a substantial question that the patents were invalid because the design was functional.


What They Were Fighting About: PHG sued St. John for infringement of design patents on medical label sheets that had large file labels at the top and wristbands at the bottom. The district court granted a preliminary injunction, finding that the designs were ornamental rather than functional because there were alternate designs available.

Federal Circuit Holdings:

• The panel reversed the preliminary injunction, finding that defendant had succeeded in presenting a substantial question as to invalidity of the design patents. An affidavit by plaintiff had discussed the benefits of a design where the patient wrist band labels were at the bottom of a label sheet for easy removal. This affidavit and statements by plaintiff in the prosecution history of a pending utility patent application indicates that other medical label designs would adversely affect the utility of the medical label sheet. Accordingly, the district court erred in finding a substantial likelihood of success for plaintiff and granting the preliminary injunction.
  
  

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NJ Court Allows Trademark Claims Based on Purchasing a Competitor's Unregistered Trademark as a Keyword for Internet Advertising

Case: Buying for the Home v. Humble Abode, D.N.J. 3:03-cv-02783-JAP-TJB (10/20/06)

The One Sentence Summary: Noting a split in courts ruling on the issue, a New Jersey district court judge ruled that trademark infringement claims under section 43(a) of the Lanham Act should be allowed to go to trial based upon allegations of purchasing the plaintiff's unregistered mark as a keyword for Internet advertising on Google.


New Jersey District Court Holdings:

• The question of whether the unregistered mark TOTAL BEDROOM was descriptive and unprotectable without secondary meaning was a question of fact that could not be resolved on summary judgment.
• The appearance of defendant's advertisement on Google when a user searched for the keywords "total bedroom" allowed an inference that defendant had purchased the phrase as a search term, and this inference was sufficient to defeat summary judgment.
• After observing that court decisions have been split on the issue, the district court concluded that the alleged acts of purchasing advertisements based upon plaintiff's trademark was a trademark use in commerce actionable under section 43(a) of the Lanham Act, 15 U.S.C. §1125(a). The court noted that plaintiff would still be required to prove the other elements of its claim at trial, including likelihood of confusion.
• The court granted the motion to strike an attorneys' fee demand under section 35(a) of the Lanham Act, noting that the unresolved questions of trademark law precluded a finding that this was an exceptional case allowing an award of attorneys' fees.
  
  

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Sloppy Litigation on Trademark Settlement Agreement Not to Use the Word "Blue"

Case: Blue Cross & Blue Shield Ass'n v. American Express Co. (7th Cir. No. 05-4004, 10/30/06)


The One Sentence Summary: The Seventh Circuit criticized carelesss litigation involving an agreement to settle trademark litigation, and remanded the case for consideration of a laches defense.

Great Quotes From This Opinion:

Rule 65(d) . . . is an old rule, easy to understand and easy to follow; that it should be ignored repeatedly by both the judge and counsel in large-stakes commercial litigation is unfathomable.

Gobs of judicial (and law-firm) time have been squandered by the combination of sloppy drafting, repeated violations of Rule 65(d), and inattention to all sources of subject-matter jurisdiction. If these lawyers were physicians, their patients would be dead.

What They Were Fighting About: American Express and Blue Cross had settled earlier trademark litigation by agreeing that American Express would not use the word "blue" on its cards. American Express forgot about the settlement agreement, and introduced its "Blue Cash" card.

Seventh Circuit Holdings:

• The district court's order retaining jurisdiction over the parties' settlement agreement should have been entered as an injunction under Rule 65(d) of the Federal Rules of Civil Procedure, and should not have incorporated the settlement agreement by reference.
• Rule 60(a) should not have been used by the district court to enter a new judgment - it allows correction of court records to reflect what was actually done rather than what should have been done.
• The agreement that American Express could not use the word "blue" on its cards was unambiguous, and its use of the term "Blue Cash" violated the agreement.
• On remand, the district court should consider whether Blue Cross's failure to protest a phone number incorporating the word "blue" prejudiced American Express by causing it to forget about the existence of the settlement agreement.
  
  

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Disney's EPCOT Center Escapes Copyright Claims

Case: Corwin v. Walt Disney Co. (11/02/06 - 11th Cir. No. 04-16554)

The One Sentence Summary: Copyright claims alleging copying of the design of EPCOT Center were properly dismissed on summary judgment where plaintiff had no admissible evidence of access to the copyrighted work and where plaintiff's experts compared unprotectable ideas or concepts of the works.


What They Were Fighting About: The district court had granted summary judgment against plaintiff's copyright claims that alleged that Walt Disney had copied the design for Epcot Center from a painting of a world village. The district court had excluded hearsay evidence that plaintiff attempted to use to show Disney's access to the painting, and had excluded expert reports that discussed similarities of unprotectable ideas rather than similarity of expression of those ideas.

Eleventh Circuit Holdings:

• The district court properly excluded hearsay evidence about Disney's access to the painting because the witnesses had no personal knowledge.
• The district court properly excluded the plaintiff's initial expert reports for improper methodology when they discussed similarities in unprotectable ideas, and also scenes a faire, elements that are indispensable or standard to treat a topic.
• Plaintiff's supplemental expert reports were properly excluded as late, and nevertheless failed to correct the problem of comparing uncopyrightable ideas and expressions.
• There was no admissible evidence of access to the copyrighted work, so summary judgment was proper.
• Plaintiff had not produced evidence of striking similarity between the works that could allow an inference of access and copying.
• In light of evidence of independent creation by defendants, summary judgment against plaintiff was proper.
  
  

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Newly Discovered Property of Prior Art Drug Mixture Was Anticipated and Unpatentable

Case: Abbot Laboratories v. Baxter Pharm. Prods., Inc., No. 06-1021, 06-1022, 06-1034 (Fed. Cir. 11/9/06)

The One Sentence Summary: Patent for a drug that was mixed with water to prevent degradation was anticipated and invalid due to an earlier patent disclosing the water-saturated drug even though the benefits of preventing degradation were not understood in the prior art.

Federal Circuit Holdings:

• An inherent but newly-discovered property of the prior art cannot be claimed in a new patent.
• The exception that new uses of known processes may be patentable did not apply to the composition claims. As to the process claims, there was no new purpose distinguishing the prior art. Both the prior art and the patent at issue were directed to delivering the drug safely.
  
  

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The GPL Used for Distribution of Open Source Software Did Not Violate Antitrust Law

Case: Wallace v. International Business Machine Corporation (7th Cir. 11/09/06 - No. 06-2454)


The One Sentence Summary: IBM and other distributors of the Linux operating system under the GPL did not violate the antitrust laws by keeping the price of Linux and its derivative works at zero.


What They Were Fighting About: The General Public License or GPL allows a user to copy and use open source software for free provided that derivative works created are also distributed for free. Plaintiff claimed that the distribution of Linux and derivative works violated the federal Sherman Act by preventing other entrants from charging for their new products or derivative products in the market.

Seventh Circuit Holdings:

• The GPL does not violate antitrust laws.
• There is no danger of predatory pricing. Predatory pricing involves the increase of prices after the low prices drive a competitor out. Here, Linux and its derivatives will remain free under the terms of the GPL, so consumers are not harmed.
• The court observed that the presence of Linux in the market has not driven other proprietary operating systems out of the market.
• The GPL is not a conspiracy in restraint of trade because it encourages the production of derivative works.
• The GPL does not constitute "price fixing." The incremental cost of another copy of software is zero, and antitrust law does not require a producer to charge more.
  
  

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REBEL Trademark Registration for Rebel Grass Refused as Generic

Case: In re Pennington Seed, Inc., No. 06-1133 (Fed Cir. October 19, 2006)

The One Sentence Summary: The Trademark Trial and Appeal Board properly refused to register REBEL as a trademark for a variety of grass seed because REBEL was the generic name of the plant varietal.

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Patent Claims Failed Due To Best Mode Problem Yet Plaintiff Recovers On Trademark And Breach of Contract

Case: Go Medical Industries Pty, Ltd. v. Inmed Corp. (10/27/06 - Fed. Cir. No. 05-1241, 05-1267, 05-1588)

The One Sentence Summary: A plaintiff suing for patent and trademark infringement on catheters lost on the patent claims due to a finding that the patent had been anticipated because the application relied upon for an earlier priority date had best mode problems, but plaintiff prevailed on trademark infringement claims.


What They Were Fighting About: Plaintiff's O'Neil and Go Medical held a patent for a urinary catheter that prevented the introduction of bacteria into the bladder. They marketed this catheter using a trademark of O'NEIL pursuant to a contract with defendants. Defendants later withdrew from the contract and began selling their own catheter. Plaintiffs sued for patent infringement and trademark infringement. The district court ruled that the patent was invalid because it had been anticipated by a 1982 article, and the 1979 application relied upon by plaintiffs to establish priority did not satisfy best mode requirements. The jury awarded trademark infringement and breach of contract damages against defendants and awarded punitive damages. The district court reduced the amount of trademark damages and set aside the award of punitive damages.

Federal Circuit Holdings:

• A 1979 patent application failed to adequately disclose the best mode known to the inventor. At his deposition, the inventor had admitted knowing that 1.5 cm insertion of the catheter was superior. However, this was not disclosed in the application, and it would have taken a few weeks of experimentation to find the right distance. Accordingly, the earlier application did not adequately disclose the best mode and therefore could not be used to establish a priority date for a later application. Thus, the district court properly granted summary judgment of anticipation on the patent claims.
• The district court properly denied prejudgment interest on the contract claim by holding that it was not a liquidated contract claim. The district court erred in finding that the doctrine of Lear, Inc. v. Adkins, 395 U.S. 653 (1969), protected defendants from paying royalties after the point where the patent had been declared invalid in other litigation. The patent invalidity ruling did not constitute an invocation of Leer that would allow the licensee to quit paying its patent royalties until the patent was determined to be valid or not. The panel remanded for recalculation of damages on this ground.
• The district court had authority under 15 U.S.C. § 1117 to do a downward adjustment to the damages award from the jury. The damages award was based upon testimony by plaintiff's expert as to the value of the trademark. This evidence was considered arbitrary and the panel agreed with the district court that it was more related to defendant's profits than to any actual showing of an actual royalty rate for the trademark. Accordingly, the district court had authority to reduce the damages for profits based upon the evidence. The district court also gave sufficient reason to set aside the punitive damage award.
• The grant of a permanent injunction preventing use of the O'NEIL mark was supported by evidence that the mark had acquired secondary meaning and that it had not been abandoned.
  
  

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Hummer Look-Alike Toy Dinged By Trademark and Trade Dress Claims

Case: General Motors Corp. v. Lanard Toys, Inc. (10/25/06, 6th Cir. No. 05-2085)

The One Sentence Summary: Toy trucks which looked like Hummers were properly the subject of summary judgment rulings in favor of the plaintiff due to showing of likelihood of confusion and the showing that the trade dress was non-functional and secondary meaning had been established.


What They Were Fighting About: Plaintiffs General Motors Corporation and AM General sued for trademark infringement and trade dress infringement against a toy manufacturer defendant that had manufactured a toy with the appearance of a Hummer including its distinctive and trademarked grille. The district court granted summary judgment for plaintiffs' on trademark and trade dress and the jury awarded damages. The district court also denied summary judgment for defendant on the issue of laches and the jury found that there was no laches.

Sixth Circuit Holdings:

• In granting summary judgment, the district court erred in not addressing the 8 factor likelihood of confusion test used in the 6th Circuit. However, the appellate court went on to analyze these factors de novo.
• The panel found that the weight of the 8 factor test for likelihood of confusion favored plaintiff and that summary judgment on likelihood of confusion was appropriate. The court noted that the mark was strong due to federal registration of the Hummer grille and its use in advertisements. The similarity of the mark and defendant's intent in using the mark were in favor of plaintiff because the defendant had copied the Hummer grille for its toy. The court also observed that customers were likely to be confused because purchasers of toys would not examine them closely to determine whether it came from the maker of the Hummer or another source of goods.
• The court noted that the absence of evidence of actual confusion was understandable and did not preclude summary judgment.
• Plaintiff properly identified its trade dress with sufficient detail by identifying it as the exterior appearance and styling of the vehicle design which includes the "grille, slanted and raised hood, split windshield, rectangular doors, squared edges, etc." This was a sufficiently detailed list to inform the court as to what exactly was being claimed as the combination of protected elements constituting trade dress.
• The district court properly allowed combination of the trade dress of the civilian and military versions of the Hummer vehicle as a single trade dress claim because the shared elements listed by plaintiffs were common to both versions of the vehicle.
• The district court erred in requiring defendants to prove non-functionality of the trade dress. This was an element of plaintiffs' burden in making its trade dress claim.
• The district court correctly ruled that the elements of the Hummer trade dress were proven to be non-functional. By creating a smaller H2 version of the Hummer, General Motors showed that the dimensions could be altered yet the non-functional styling aspects of the trade dress could be retained.
• The survey used by plaintiffs to establish secondary meaning which showed that consumers recognized the exterior of a Hummer as being made by Hummer or General Motors was appropriate evidence of secondary meaning. It was not required that the trade dress customer recognition survey be taken before the infringement of the trade dress began by the defendant. Rather, this factor should simply be taken into account in weighing the strength of the survey.
• Plaintiffs were entitled to summary judgment on trade dress infringement when secondary meaning was shown by strong customer survey evidence regarding recognition of the trade dress and the fact that defendant had intentionally copied the trade dress.
• The district court properly denied summary judgment on the issue of laches. There were disputed issues of material fact as to whether plaintiff knew that defendant had continued to manufacture toys using the trademark grille.
  
  

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