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Welcome to the Snell & Wilmer intellectual property and technology litigation blog! Check here for useful news and information about patent, trademark, copyright, trade secret, and other IP and technology litigation developments.
The federal false advertising statute, 15 U.S.C. § 1125(a)(1)(B), provides a remedy for some commercial misstatements and half-truths. Specifically, the statute provides,
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any . . . false or misleading description of fact, or false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
On its face, this statute is quite broad, which has led courts to attempt to limit its reach by imposing statutory interpretation standing requirements that, as a practical matter, tended to filter out those who might sue under the statute. In the Ninth Circuit, for example, only a competitor alleging that the accused misstatement caused a competitive injury has been deemed to have statutory standing to assert a federal deceptive advertising claim.
This all changed with the Supreme Court’s March 25, 2014, decision in Lexmark International v. Static Control Components. There, the Court held that statutory interpretation standing requires two — and only two — things. First, the plaintiff’s interests must fall within the zone of interests protected by the statute, i.e., the plaintiff “must allege an injury to a commercial interest in reputation or sales.” Second, the plaintiff’s alleged injury must be proximately caused by the statutory violation, i.e., there must be an “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising . . . [which] occurs when deception of consumers causes them to withhold trade from the plaintiff.”
On these bases, the Court held Lexmark, which sells laser printers and cartridges, subject to suit by Static Control, which sells components for remanufacturing Lexmark cartridges, where Static Control alleged that Lexmark falsely advertised to cartridge remanufacturers that it was illegal to use Static Control’s products to refurbish cartridges. Given that Static Control and Lexmark are not direct competitors, Lexmark accordingly represents a broadening in standing to sue under the federal false advertising statute.
On February 21, 2014, the Federal Circuit, sitting en banc, issued its opinion in the closely-watched case Lighting Ballast Control LLC v. Philips Electronics North America Corp., ___ F.3d ___, Case No. 2012-1014 (Fed. Cir., Feb. 21, 2014). In a 6-4 decision, the court declined to overrule or modify the de novo standard of review for claim construction first articulated in Cybor Corp. v. FASTechnologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc), principally on the ground that stare decisis and considerations of uniformity militate strongly against upsetting the settled practice of the past 15 years.
In Lighting Ballast, the district court construed the claim term “voltage source means” as a means-plus-function claim, and initially ruled on summary judgment that the term rendered the claims invalid for indefiniteness. On motion for reconsideration, however, the district court reversed itself, relying primarily on the testimony of the inventor and the patentee’s expert, both of whom testified that one of skill in the art would understand that the “voltage source means” corresponds to a rectifier or other similar structure because the surrounding claim language and the term itself implied such structure. The case went to a jury with an instruction that the term referred to “a rectifier.” The jury found the claims valid and infringed.
On appeal, the panel reversed. Lighting Ballast, 498 Fed. App’x 986 (Fed. Cir. 2013), withdrawn, 500 Fed. App’x 951 (Fed. Cir. 2013). First, the panel determined that the term “voltage source means” was a means-plus-function claim. The panel started with the presumption invoked by the use of the word “means,” and from there determined that the testimony of the inventor and the patentee’s expert to the effect that particular structure was implied could not cure the absence of structural language in the claim. The panel then found the asserted claims indefinite, because the specification failed to disclose structure capable of performing the recited function.
Subsequently, the full court granted the petition for rehearing en banc, requesting briefing on the issues of (i) whether the court should overrule Cybor, (ii) whether the court should afford deference to any aspect of a district court’s claim construction, and (iii) if so, which aspects of a district court’s claim construction should be afforded deference. Lighting Ballast, 500 Fed. App’x 951 (Fed. Cir. 2013).
Given this procedural backdrop, many in the IP community anticipated that the Federal Circuit would use Lighting Ballast as a vehicle by which to overrule or limit Cybor. The case would appear to have been a perfect vehicle by which to do so, given the district court’s clear reliance on witness testimony to settle a critical issue of fact, i.e., whether a person of skill in the art would understand “voltage source means” to describe a particular structure of class of structures. However, the full court declined to move away from the de novo standard of review applicable to claim construction determinations that has been in place for the past 15 years.
In an opinion authored by Judge Newman, the court applied the principal of stare decisis as the primary ground of decision. Stating that “[t]he question now is not whether to adopt a de novo standard of review of claim construction, but whether to change that standard adopted fifteen years ago and applied in many hundreds of decisions,” the court determined that the bright-line rule of Cybor was neither unworkable nor unduly burdensome on courts or litigants conducting claim construction. Slip Op., at 16. To the contrary, the court concluded that reversing Cybor or adopting a hybrid standard of review would likely undermine efficiency and predictability and increase the cost of litigation by introducing a “new and uncertain inquiry” prefatory to review of the merits, while affecting the outcome of few if any cases. Slip Op., at 21-22. The majority rejected the argument that Federal Rule of Civil Procedure 52(a)(6) requires deference to factual determinations embedded in claim construction determinations, dismissing the dissent’s reliance on the dictate of the Rule as “simplistic,” and invoked the Supreme Court’s opinion in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996) for the proposition that “the fact/law distinction is not immutable” and has “turned on a determination that, as a matter of the sound administration of justice, one judicial actor is better positioned than another to decide the issue in question.” Slip Op., at 33. At bottom, it appears that the majority was convinced that any standard of review other than de novo would inject yet more complexity into the claim construction process for no offsetting gain, and would undermine the objective of national uniformity that is central to the court’s mission.
Judge Lourie concurred, setting forth additional reasons why rejection of the de novo standard would, in his view, be unwise. The principal point carried in Judge Lourie’s concurrence was that the trial judge’s superior ability to assess witness credibility is largely irrelevant to the process of claim construction given the tight focus on intrinsic evidence and the practical reality that hired experts are unlikely to lie in furtherance of their clients’ objectives. Moreover, Judge Lourie underlined that the ultimate determination of the meaning of claim language would remain a legal issue subject to de novo review even were Cybor to be abrogated, so even if the circuit court were to give formal deference to district court fact determinations “we would be engaging in a kind of sham, giving with one hand and taking back with the other.” Slip Op., Lourie, J., at 7.
The dissent (authored by Judge O’Malley) attacked Cybor on all fronts, echoing themes that are undoubtedly familiar to many in the IP community. First, the dissent sought to knock the support out from under the majority’s reliance on stare decisis, arguing that the de novo standard of Cybor had been wrongly decided, was frequently criticized (even by several judges in the majority) and imposed unnecessary burdens on litigants and courts. There are, according to the dissent, no settled expectations that would be upset by abrogation of Cybor, so stare decisis does not “stand in the way” of a fresh look at the standard of review. Slip Op., O’Malley, J., at 14. The dissent then attacked the majority’s reliance on Markman, asserting that while the Supreme Court had assigned the task of claim construction to district judges it had not settled or even addressed the issue of whether fact issues were subject to deference on appeal. That issue is, argued Judge O’Malley, settled by Rule 52(a)(6), which provides in no uncertain terms that findings of fact “must not be set aside unless clearly erroneous . . . .” Slip Op., O’Malley, J., at 23. Finally, the dissent pointed to a variety of undesirable consequences that purportedly flow from the current regime, including increased uncertainty as to the meaning of claim terms, increased expense due to the incentives for appeal built into the system, and a failure to promote uniformity.
It is fairly clear that all three opinions were crafted with an eye toward Supreme Court review, and given the significance of this issue it would not be surprising were the Court to take this opportunity to finally settle the issue. Of course, were the Supreme Court to accept certiorari, it would feel no obligation to adhere to the “settled practice” of Cybor on the basis of stare decisis. Moreover, the highest tribunal might find much with which it agrees in the dissent, in particular its reliance on Rule 52 for the rule of decision. On the other hand, it is difficult to see how a more deferential standard would serve any real purpose other than that of doctrinal propriety, particularly in light of the dissent’s concession that a district court’s factual determinations “will not resolve the legal question of what construction is to be afforded a claim term.” Slip Op., O’Malley, J., at 42 n.9 (emphasis in original). In the end, each of the three opinions in this important case could well lead practitioners to conclude that even were Cybor to be overruled and a more deferential standard to be applied to fact determinations, the impact on the process and substance of claim construction might well be trivial in relation to the energies expended in debating the issue.
Supreme Court: Patent Owner Bears Burden of Proof in Noninfringement Declaratory Judgment Action By Licensee
When a patent owner sues another for infringement, the patent owner must prove infringement. The Supreme Court ruled on January 22, 2014, in Medtronic, Inc. v. Mirowski Family Ventures, LLC, that this burden of proof still applies when a patent licensee sues the patent owner for a declaratory judgment that certain products do not infringe the patent and therefore do not fall under the license.
Medtronic had a license to certain defibrillator patents owned by Mirowski. Years after the initial license agreement, Medtronic sought a declaratory judgment that its newer products did not infringe the patents (so Medtronic could avoid paying royalties). After a bench trial, the Federal District Court in Delaware found Mirowski had not proved infringement, and Medtronic won. But the Court of Appeals for the Federal Circuit reversed, holding that Medtronic, as the declaratory judgment plaintiff, bore the burden of proof.
The Supreme Court reversed and held, “the burden of persuasion is with the patentee, just as it would be had the patentee brought an infringement suit.” The Court relied on three legal principles: (1) the burden of proving infringement is the patentee’s, (2) the operation of the Declaratory Judgment Act is only procedural, and (3) the burden of proof is a substantive aspect of a claim. Practically, the Court found that burden shifting could create post-litigation uncertainty. A declaratory judgment plaintiff could fail to prove noninfringement, and a patentee plaintiff could fail to prove infringement for the same patent and same allegedly infringing device, meaning the device neither infringes nor does not infringe. A stable burden of proof reduces uncertainty for parties contemplating and engaged in patent litigation.
Privacy services like GoDaddy’s DomainsByProxy service earn money by enabling domain name registrants to obscure their identities. Any trademark owner whose mark has been used in an infringing domain name may confront substantial difficulty in ascertaining the infringer’s identity if the infringer has utilized such a privacy service. Indeed, creating such difficulty might reasonably be considered the privacy services’ primary purpose.
In Petroliam Nasional Berhad v. GoDaddy.com, Inc., the Ninth Circuit nevertheless refused to recognize a “contributory cybersquatting” liability theory under the Anticybersquatting Consumer Protection Act (“ACPA”). The court instead affirmed the trial court’s summary judgment in favor of GoDaddy, which had been sued by Malaysian oil and gas company Petronas for serving as registrar for petronastower.net and petronastowers.net and permitting the registrant to use GoDaddy’s forwarding service to direct those domain names to an adult website. The court acknowledged that secondary trademark infringement liability had long been recognized under the Lanham Act, but refused to recognize a similar secondary liability theory under ACPA. In so doing, the Ninth Circuit rejected contrary recent holdings of several district courts, including district courts in the Ninth Circuit.
Perhaps obviously, this decision is likely to foster even greater indifference, on the part of domain name registrars, as to whether their customers are infringing the trademark rights of others.
Parties competing for rights to a trademark must establish they used the trademark first, or that they have “priority.” One way to prove priority is through “tacking,” which applies the first use date of a similar mark to the mark at issue. On November 22, 2013, in Hana Financial, Inc. v. Hana Bank, the Ninth Circuit affirmed a jury’s verdict that relied on tacking to find the defendant used the trademark before the plaintiff and was not liable for trademark infringement.
The Ninth Circuit maintains that tacking is an “exceptionally narrow” doctrine; it is a question of fact—a “highly fact-sensitive inquiry”—reserved for the jury. Tacking requires that the “two marks are so similar that consumers generally would regard them as essentially the same.” The marks “must create the same, continuing, commercial impression,” and the previously used mark must be the “legal equivalent” of the mark in question. Although other circuits evaluate tacking as a question of law, those circuits also evaluate likelihood of confusion as a question of law, whereas likelihood of confusion is, consistently, a question of fact in the Ninth Circuit.
In Hana Financial, the parties both used the word “Hana” in their names and both offered financial services in the U.S. In 1994, defendant Hana Bank began providing financial services in the U.S. under the name “Hana Overseas Korean Club” and used “Hana Bank,” in Korean, in its advertisements. In 1995, plaintiff Hana Financial began using “Hana Financial” in the U.S. as a trademark and obtained a federal trademark registration for financial services. In 2000, the defendant changed its name to “Hana World Center” and attempted to register the trademark but was not successful. In 2002, the defendant began offering financial services under the name “Hana Bank.” The plaintiff filed suit against the defendant in 2007 claiming that “Hana Bank” infringed its “Hana Financial” trademark. The trademark infringement claims were tried to a jury, which was instructed:
A party may claim priority in a mark based on the first use date of a similar but technically distinct mark where the previously used mark is the legal equivalent of the mark in question or indistinguishable therefrom such that consumers consider both as the same mark. This is called ‘tacking.’ The marks must create the same, continuing commercial impression, and the later mark should not materially differ from or alter the character of the mark attempted to be tacked.
The jury found that the defendant had priority because it used its mark in commerce in the U.S. before plaintiff’s use. The district court denied plaintiff’s motion for judgment as a matter of law and a new trial, and the Ninth Circuit affirmed upon de novo review. The Court recognized there was no consumer survey evidence—which the Ninth Circuit maintains would have been ideal—and “reasonable minds could disagree” about whether “Hana Oversees Korean Club,” “Hana World Center,” and “Hana Bank” were sufficiently similar and conveyed the “same, continuing commercial impression.” But the Court found the jury could have reasonably reached the conclusion it did and that the jury instruction “correctly conveyed the narrowness” of the tacking doctrine. Therefore, it was “arguably dispositive” that the Court characterized tacking as a question of fact, and the Court affirmed.