Patent infringement suits today are quite the rich man’s game.  From the moment it is initiated, a patent infringement suit takes an enormous toll on a defendant, of which arguably the greatest portion includes attorneys’ fees and litigation costs in federal court.  As such, proceedings before the newly renamed Patent Trial and Appeal Board (PTAB), formerly Board of Patent Appeals and Interferences, can be very attractive for litigants.

Typically, proceedings before the PTAB are more efficient and less expensive than those filed in federal court.  Partly in light of the ever-growing costs of litigating patents, the relatively new American Invents Act (AIA) has established the inter partes review (IPR) and post-grant review (PGR) processes in order to, at least in part, discourage litigation.  In particular, under the AIA, an IPR proceeding must be resolved within three months, and though the costs to petition for an IPR before the PTAB is steep at $20,000, the amount is very often low compared to the staggering millions that may be spent on litigation.  Furthermore, the AIA prescribes the stay of federal action once an IPR is instituted.

In a recent decision by the United States District Court for the Eastern District of Pennsylvania, the court granted a defendant’s motion to stay proceedings pending a decision by the PTAB.  In Destination Maternity v. Target, Target was accused of copying Destination Maternity’s patented designs for maternity pants that have flexible material over the stomach area in order to adjust for different stages of the pregnancy.  In opposition, Target petitioned for IPR before the PTAB for twenty-seven of the twenty-nine claims asserted against it by Destination Maternity, and plans to petition for review of the remaining claims as well.

In deciding to grant the stay, the court weighed several factors, promulgated by common law and formalized in the AIA, including (1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the nonmoving party; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether discovery is complete and whether a trial date has been set.  The AIA also includes a fourth factor, namely, whether a stay will reduce the burden of litigation on the parties and on the court (AIA § 18(b)).  Regardless, the court was swayed by the first three factors enough to grant a stay.

Destination Maternity argued that Target had waited too long to petition for IPR and that it would be prejudiced by losing valuable market share to Target due to the delay.  The court, however, decided that Target was just one of several of Destination Maternity’s main market competitors and any market share loss in the interim would not be substantial enough to constitute prejudice.  The court noted that Destination Maternity had many competitors in the market, including H&M, Babies R’ Us, Walmart, Old Navy, J.C. Penney, and Gap, the latter two of which Destination Maternity had threatened, but failed, to sue over the same infringement claims as it did Target.  Furthermore, the court also decided with respect to the second factor that the PTAB decision would simplify the issues and streamline the case, and with respect to the third factor, that discovery was not yet complete and the case was not at an advanced stage.

In addition to the new review processes and associated preclusion effects that may hinder patent litigation generally, it remains to be seen whether the nascent AIA can help to stem the tide of rising costs of litigating patent infringement claims, or at least avoid them altogether.  For now at least, it seems as though courts are at least willing to give it a chance.

Promoting the advancement of science through a system of guaranteeing certain exclusive rights to inventors of new and useful articles reaches back to the very foundation of the United States Constitution.  Article II, Section 8 specifically provides that Congress shall have the power “[t]o promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”  Ever since that enigmatic phrase was scribed, patent law in the United States has struggled with identifying just what types of subject matter are eligible for patent protection.

Patent law defines four categories of patentable subject matter, into at least one of which any invention must fall to be eligible for patent protection: process, machine, manufacture, or composition of matter.  In contrast, laws of nature, physical phenomena, and abstract ideas cannot receive patent protection.  As discovery and innovation grow, courts continue to struggle with categorizing new inventions as either patentable or not patentable subject matter.

The most recent struggle, looming for the U.S. Supreme Court in June of 2014, is whether new software, arguably the most prevalent current form of innovation, will definitively be deemed too abstract to patent.  Decisions to date have been adjudicated mostly with respect to the principles determining the patentability of mathematical algorithms set out in the Supreme Court Trilogy decisions (Gottschalk v. BensonParker v. Flook, and Diamond v. Diehr) and the patentability of business methods in the seminal 2010 Bilski v. Kappos decision.  In so doing, the Supreme Court has mostly decided the eligibility of software for patent protection on a case-by-case basis, maintaining unclear standards and divisive majority opinions on whether software patents categorically can be considered patentable or not.

In May of 2013, in Alice Corp. Pty Ltd v. CLS Bank Int’l, an extremely divided ten-judge panel of United States Court of Appeals for the Federal Circuit ruled that Alice Corp.’s patented software, which provides a way to reduce the settlement risk in financial transactions between two parties, was actually ineligible for patent protection, but produced seven different opinions on the patentability of computer software inventions.  In the end, the court failed to settle on a cognizable standard that would once and for all determine the eligibility of computer software for patent protection.  This decision has been granted certiorari by the Supreme Court, with oral arguments currently set for March 31, 2014.  In the meantime, the upcoming decision has drawn the attention of many scholars and players in the software industry, evidenced by over forty amicus curiae briefs filed by third parties.  It seems that many hope the Supreme Court will finally either deem software definitively patentable subject matter, or force software engineers to look to other legal means through which to protect their innovations.        

Licensing a trademark makes sense for many companies in order to broaden a trademark’s exposure and enter into financially lucrative relationships for both the trademark owner and licensee. However, there are some common pitfalls which are easily avoidable, yet can create big problems for trademark owners if not addressed early on in the licensing process.

50Canadian law provides that use of a trademark by a licensee has the same effect as that of the trademark owner in most circumstances. Section 50 of the Canadian Trademark Act lends protection to trademark owners, but only upon compliance with the requirements of the law. Licensees must comply as if they are the trademark owners in order to continue protection of the subject trademark.

Some of the important requirements of the law follow.

Section 50 requires that trademark owners exercise control, either directly or indirectly, over the character or quality of the goods or services at issue. Trademark licensing agreements should specifically state

(1) that the licensee shall comply with all standards, specifications and/or instructions given by the trademark owner;
(2) that the trademark owner has a right to inspect any all goods and/or services offered by the licensee in order to ensure compliance with standards of use;
(3) if necessary, that employees of licensee must undergo mandatory training offered by trademark owner;
(4) a prohibition clause against sub-licensing or a clause stating that any sub-licensee is subject to the same requirements set forth in the licensing agreement;
(5) that the trademark owner has the right to terminate the agreement, should the licensee not comply with the requirements set forth in the agreement.

Lastly, a trademark owner must exercise its quality-control rights as set forth in the agreement in order to ensure that the good or services offered under the subject mark are up to par. It is always advisable for trademark owners to consult with an intellectual property attorney before entering into any type of licensing arrangement in order to maintain proper protection of the subject mark.

china3China, having one of the largest trademark offices in the world, has recently passed ground-breaking trademark legislation that will now give trademark owners more teeth when enforcing their rights and send the message that China will no longer tolerate trademark violations.

The new law provisions, with their steep penalties, are designed to deter potential infringers.  Some highlights of the new laws include an increase of six (6) times the previous maximum statutory damages award (from ~ $82,000 to now ~ $500,000); treble damages for acts done in bad faith and an increase in administrative penalties allowing for, inter alia, maximum fines up to 500% of profits obtained illegally.

The new laws also significantly expedite the examination process and introduce a streamlined opposition procedure. Implementation Regulations are currently in the works as China’s Standing Committee of the National People’s Congress seeks to draft regulations which will address the concerns of the industry.

Stay tuned for more as the methods for enforcing these new laws enter the trademark arena…

Beth Anne Powers, Associate
Ryder, Lu, Mazzeo & Konieczny LLC

bpowers@ryderlu.com
215-997-0248

Netgard vs NetgateIn Netgard the applicant filed an intent to use application for the mark “Netgard” for use in computer hardware and software for encryption and controlling access to data over computer networks. The opposer, opposed the registration on the ground of likelihood of confusion with its “Netgate” mark. The Board performed a likelihood of confusion analysis.

The Board first examined the similarity or dissimilarity and nature of the products described in the application and the registration. The opposer’s marks is used to identify computer security software for protecting networks from unauthorized access. The applicant’s mark is intended for use in connection with computer hardware and software for encryption and controlling access to data. The opposer testified that the applicant’s description of goods is broad enough to encompass opposer’s goods. The Board found the products were closely related.

The Board next examined the similarity of or dissimilarity of the likely-to-continue trade channels and classes of consumers. Because there were no restrictions as to channels of trade or classes of consumers in the description of goods in the application or opposer’s pleaded registration, the Board presumed that both opposer and applicant’s goods are sold in all of the normal channels of trade to all of the normal purchasers for such goods. So while the opposer’s goods are sold over the internet whereas the applicant’s goods are sold only to the federal government, the Board found that the goods move in the same channels of trade and are sold to the same classes of consumers.

The next consideration was the conditions under which and buyers to whom sales are made (i.e., “impulse” vs. careful, sophisticated purchasing. The Board found the relevant purchasers would exercise great care and pay careful attention to the trademark for the products as a result of the high cost and level of technology involved in the products.  The Board did not find the opposer’s evidence that its customers do not exercise a high degree of care persuasive as the nature of the product is a complex product, sold to a consumer with a focused need for the product.

The Board next considered the number and nature of similar marks in use on similar goods.  Applicant introduced 17 third-party registrations for marks beginning with the letters N-E-T-G to show that “Netgate” is a weak term. However, absent evidence of actual use, third-party registrations have little probative value because they are not evidence that the marks are in use on a commercial scale or that the public has become familiar with them.

The Board then turned to the du Pont likelihood of confusion factor focusing on the similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation and commercial impression. The Board noted that note that where, as here, the goods are closely related, the degree of similarity necessary to find likelihood of confusion need not be as great as where there is a recognizable disparity between the goods. The Board noted that the prefix “net” was descriptive of the network hardware and software and therefore had little trademark significance. Turning to the suffix of the marks, “gate” and “gard” the Board found the terms to be similar but distinguishable. Under such circumstances, the prior use and registration of a suggestive term should not preclude the subsequent registration of a similarly suggestive, but otherwise distinguishable mark, for related goods. In this case the marks “NETGATE” and “NETGARD” were adopted to indicate that the products offer network access and network protection respectively, and that this indication or suggestion is readily apparent to prospective purchasers.  The Board found the marks more dissimilar than similar.

Because the marks are more dissimilar than similar and because consumers exercise a high degree of care when purchasing network security hardware and software products, the Board found that applicant’s mark “NETGARD, was not likely to cause confusion with NETGATE”.