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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.
Today, the Supreme Court held in B&B Hardware v. Hargis Industries that likelihood-of-confusion decisions by the United States Patent and Trademark Office’s Trademark Trial and Appeal Board (“TTAB”) can have preclusive effect in federal court.
Hargis applied to register the mark SEALTITE and B&B opposed, based on its registration for SEALTIGHT. The TTAB sustained B&B’s opposition, even though the marks would be used for different goods in different markets. In a contemporaneous federal suit, the district court gave no deference to the TTAB decision and held that SEALTITE was not likely to cause confusion with SEALTIGHT. Affirming, the Eighth Circuit reasoned that TTAB decisions are not entitled to preclusive effect because the TTAB applied different factors to determine likelihood of confusion, the TTAB placed too much emphasis on the appearance and sound of the marks, and different parties bore the burden of persuasion in the opposition proceeding and infringement suit.
Reversing, the Supreme Court held that “issue preclusion applies where ‘the issues in the two cases are indeed identical and the other rules of collateral estoppel are carefully observed.’” The same likelihood-of-confusion standard applies in the TTAB and federal courts, as the operative language of the relevant statutes is essentially identical, even though the TTAB does not consider the same list of “factors” as courts in some circuits. Further, any inquiry regarding procedural differences should focus not on the differences themselves, but on the quality of the procedures available in the different tribunals. Rejecting Hargis’s argument that procedural differences in the TTAB weigh against giving preclusive effect to its decisions, the Court found that, at least in general, the TTAB’s procedures are equivalent to those in federal courts.
Not all TTAB decisions will have preclusive effect, because not all will meet the ordinary elements of issue preclusion. For instance, “if the TTAB does not consider the market-place usage of the parties’ marks, the TTAB’s decision should ‘have no later preclusive effect in a suit where actual usage in the marketplace is the paramount issue.’” Even with its limits, B&B Hardware makes TTAB proceedings more important for those who enforce trademarks and those who defend against infringement.
On January 20, 2015, in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., the Supreme Court reallocated power between federal district courts and the Federal Circuit in the patent claim construction process. For many years, the Federal Circuit has reviewed all district court claim constructions de novo, without deference to the district court. Today, the Court held that the Federal Circuit must find clear error before overturning a district court’s resolution of an underlying factual dispute during claim construction.
After the Court’s decision in Markman v. Westview Instruments (1996), the Federal Circuit’s Cybor Corp. v. FAS Technologies, Inc. (1998) decision announced the de novo standard of review. Under this standard, the Federal Circuit has often reversed district court claim construction orders.
Dissolving this longstanding precedent, the Court held that Rule 52(a)(6), Federal Rules of Civil Procedure, requires that claim construction decisions involving “evidentiary underpinnings,” “subsidiary factual findings,” or “underlying factual disputes,” not be set aside unless clearly erroneous. The Federal Circuit still reviews “the ultimate construction of the claim de novo.” And claim constructions that only analyze the intrinsic evidence—the patent, its specification, and the prosecution history—still will be reviewed de novo. “But, to overturn the judge’s resolution of an underlying factual dispute, the [Federal Circuit] must find that the judge, in respect to those factual findings, has made a clear error.”
Recognizing the “need for uniformity in claim construction,” and recalling that Markman aimed to alleviate “damaging…unpredictability” in claim construction, by making it an issue for the court, Justice Thomas’s dissent raises the concern that Teva will “inject uncertainty into the world of invention and innovation.” “At best,” Justice Thomas wrote, Teva will increase “collateral litigation over the line between law and fact.” The majority, in contrast, viewed “subsidiary factfinding [as] unlikely to loom large in the universe of litigated claim construction.” With such a significant change in claim construction, it’s at least certain that it will take some time to see who is right.
On December 5, 2014, the Supreme Court granted certiorari in Commil USA, LLC, v. Cisco Systems, Inc., to decide whether a defendant’s good-faith belief that a patent is invalid is a defense to induced infringement.
Previously, a divided panel of the Federal Circuit held that a Texas district court should have allowed evidence that Cisco believed in good faith Commil’s patent was invalid. At trial, Cisco was not permitted to present such evidence to rebut Commil’s claims of induced infringement. The district court relied on Federal Circuit precedent, DSU Medical Corp. v JMS Co., which addressed a good-faith belief of non-infringement, not a good-faith belief of invalidity, as a defense.
Reversing the district court, the Federal Circuit reasoned that, because one necessarily cannot infringe an invalid patent, no principled distinction exists between a good-faith belief of non-infringement and a good-faith belief of invalidity. Accordingly, the court held that evidence of a good-faith belief of invalidity is evidence that “should be considered by the fact-finder in determining whether an accused party knew that the induced acts constitute patent infringement.” In dissent, Judge Newman argued that a good-faith belief of invalidity cannot be a defense to induced infringement of a patent that is actually valid and infringed.
For now, the Federal Circuit’s decision provides accused infringers with two means of defending against induced infringement claims: good-faith belief of non-infringement and good-faith belief of invalidity. Considering the recent patent cases the Supreme Court has reviewed, it is uncertain whether both defenses will persist.
The Arizona Supreme Court decided yesterday in Orca Communications Unlimited v. Noder that Arizona’s version of the Uniform Trade Secrets Act, A.R.S. § 44-401 et seq., does not preempt common law tort claims for misappropriation of confidential information that does not rise to the level of a statutory “trade secret.”
The majority of jurisdictions deciding the preemption issue have held that the uniform act preempts such claims. See, e.g., Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 664 (N.H. 2006) (interpreting New Hampshire Uniform Trade Secrets Act).
But the Arizona Supreme Court observed that the Legislature had not adopted the uniform act’s uniformity clause, and that “[e]ven when the legislature has adopted a uniformity clause, we have not felt compelled to follow other courts’ decisions.” Arizona thus joins the minority of jurisdictions that have held there is no preemption. See, e.g., Burbank Grease Servs., LLC v. Sokolowski, 717 N.W.2d 781, 789 (Wis. 2006) (interpreting Wisconsin Uniform Trade Secrets Act).
After Orca, one can expect Arizonans allegedly victimized by theft of confidential business information to argue that they have an unfair competition claim even if the stolen information does not satisfy the Act’s rather rigorous requirements to qualify the information as a “trade secret.” Broadly speaking, these requirements include that the information derive economic value from not being generally known or ascertainable, and that the information have been subjected to reasonable efforts to maintain its secrecy.
Yet, to hold that the Act does not preempt such a common law unfair competition claim is not exactly the same as holding that theft of non-secret or unprotected, let alone valueless, business information gives rise to such a claim. Indeed, the court took care to note that it had not even decided “whether Arizona common law recognizes a claim for unfair competition.”
At a minimum, Orca likely opens the doors to more claims based on theft of business information. How those claims will fare is another matter.
Patent Assertion Entities (PAEs) acquire patent rights and attempt to generate revenue by licensing or litigating the patents. In September 2013, the FTC announced its decision to collect empirical data to study the effects of PAE activities.
Recently, on November 6, 2014, the FTC agreed to settle charges against MPHJ Technology Investments, LLC, a PAE that sent patent enforcement letters to thousands of small businesses and demanded licensing fees. The FTC charged MPHJ and its law firm with using “deceptive sales claims and phony legal threats” to enforce MPHJ’s patents. This is the first time the FTC has responded to PAE activities using its consumer protection authority. The public may comment on the proposed consent order through December 8, 2014.
The proposed consent order prevents MPHJ from making any deceptive representation (1) that many small businesses have licensed the patents at a particular price or within particular price ranges, or (2) that MPHJ will initiate a lawsuit if MPHJ does not receive a response within a certain period of time. In addition, MPHJ must preserve any patent assertion related communication for inspection and copying for five years.
Jessica L. Rich, director of the FTC’s Bureau of Consumer Protection, said, “Small business and other consumers have the right to expect truthful communications from those who market patent rights.” Whether or not the FTC study spurred this action against MPHJ, the FTC’s prosecution adds a new dimension to the discussion about PAEs.