January 2010 Newsletter
LEYDIG, VOIT & MAYER, LTD. REPORT
Volume 11 Issue 1
Federal Circuit decision in In Re Bose brings return to previous fraud standard
With the recent decision in In Re Bose, the Federal Circuit has reaffirmed the previous definition of fraud under the Lanham Act, asserting that a trademark is only obtained fraudulently if the applicant “knowingly makes a false, material representation with the intent to deceive the PTO.”
This case essentially reverses the standard set by the 2003 decision in Medinol Ltd. v. Neuro Vasx Inc., in which the Trademark Trial and Appeal Board (TTAB) held that a trademark is fraudulently obtained (and subject to cancellation) if a trademark application contains statements that the applicant knew or should have known to be false.
The Federal Circuit decision in In Re Bose originally stems from Bose Corp.’s opposition against the HEXAWAVE trademark application filed by Hexawave, Inc., on the basis that it might be confused with Bose’s WAVE trademark. Hexawave filed a counterclaim seeking cancellation of Bose’s WAVE registration, alleging that Bose committed fraud in its trademark renewal application by claiming it used the mark on goods that it no longer manufactured or sold.
Mark Sullivan, general counsel for Bose, testified that he signed the renewal based on the fact that the company continued to service the products in question (audio tape recorders and players), some of which were still under warranty.
The TTAB concluded that a) repair service alone was not sufficient to maintain a trademark, b) Sullivan was not reasonable in believing that transporting repaired goods constituted use and, c) the use statement in question in the renewal was material. Based on these conclusions, the board ruled that Bose had committed fraud and ordered cancellation of the WAVE trademark in its entirety.
Bose appealed the case, and the Federal Circuit concluded that Bose did not commit fraud. According to the Federal Circuit, “There is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive,” and, “Unless the challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence standard required to establish a fraud claim.”
While reversing the TTAB’s decision, the Federal Circuit affirmed the TTAB’s conclusion that the claim of use regarding the WAVE trademark on audio tape recorders and players was invalid, and the identification of goods in the registration needs to be revised accordingly.
“This decision is important because it returns us to an earlier fraud standard — one which says the accuser must prove that the defendant had intent to deceive the PTO,” says Boris Umansky, an associate in Leydig’s Chicago office. “Honest mistakes on the part of trademark holders should not be used as a means to torpedo an entire registration.”
While the decision is a relief to many trademark registrants, companies still need to be diligent when filing and renewing trademarks.
“This ruling does not mean that trademark registrants are no longer in danger of challenges and countersuits resulting from fraudulent or even negligent claims in trademark applications,” says Mark Liss, a member of Leydig’s Chicago office.
“While this ruling may deter trademark challenges, trademark registrants must be aware that carelessness can still be detrimental,” Liss continues. “Errors and false claims in applications can greatly detract from trademark infringement cases, costing the trademark holder time and money.”
Even in view of this ruling, Leydig advises its clients to continue careful reviews of all trademark applications and renewals. Those who plan to challenge applications and registrations should perform a more thorough investigation of each case to determine the likelihood of a favorable outcome.
Northern District of Illinois establishes local patent rules
The U.S. District Court for the Northern District of Illinois has adopted a set of local patent rules, following in the footsteps of four other federal district courts nationwide. The rules were established to help streamline and expedite patent cases and provide greater predictability for litigants and judges.
The Northern District’s rules differ from those of other federal district courts in several notable ways. For example, the initial disclosures and the document production occur 14 days after the answer, which is much earlier in the schedule than in other jurisdictions. Additionally, the rules have a standardized protective order that is automatically in effect as of the initial disclosures. Earlier implementation of the initial disclosures, the document production, and the protective order, expedites cases by enabling litigants to have the information they need before the exchange of contentions begins.
Like many other jurisdictions, the Northern District’s local patent rules provide a staggered contention process. One divergence from the rules of other jurisdictions is that the Northern District’s rules require preliminary contentions at the beginning of the case and final contentions after several months of discovery. Another difference is the request for non-infringement and unenforceability contentions from the alleged infringer, in addition to invalidity contentions. Also, the patent owner must submit contentions responsive to the alleged infringer’s invalidity and unenforceability contentions.
Another Northern District rule encourages early filing of requests for re-examination. This rule specifies that stays will not be granted if a request for re-examination was filed after the final contention phase.
“In other jurisdictions, defendants may request a stay based on a re-examination at any time during the case,” says John Augustyn, a member of Leydig’s Chicago office. “If the court can encourage earlier filing of re-examinations, it can potentially promote a speedier resolution to the case.”
“This rule may also discourage tactical use of re-examination filings as a way to stall a case,” adds Michael Hartmann, a member of Leydig’s Chicago office. “On the other hand, there is no guarantee that a request for a stay will be granted, even if filed within the appropriate time, so this may have minimal effect on the process.”
The claim construction process in the Northern District rules also differs slightly from other jurisdictions. The schedule provides a later start to claim construction activities — presumably to allow more time for the discovery process. The sequence of the claim construction briefs is reversed in comparison to other jurisdictions. The rules call for the presentation of the alleged infringer’s claim construction first, followed by the patent owner’s presentation, and a claim construction response from the alleged infringer. Also, the number of terms or phrases to be submitted for construction by the court is limited to 10.
“Some see the reversal in the claim construction presentation as favorable to the defendant, but only time and practice will tell how judges will interpret these rules,” says Hartmann.
Another element of the rules that may potentially offer an advantage to defendants is the relatively late deadline for discovery concerning opinion of counsel in defense to a charge of willful infringement. Opinions of counsel are not subject to discovery until 35 days before the close of discovery, potentially allowing alleged infringers more time to decide if they want to base a defense on opinion of counsel.
PTO implements policy changes; most significant changes to 'count system' in decades
The United States Patent and Trademark Office announced in September that it will implement several policy changes, some of which will affect the “count system” for measuring patent examiner productivity. The count system has remained virtually unchanged for decades.
One difference between the old and new system lies in the count distribution. Under the old system, examiners receive one count when they issue a first office action on the merits, and a second count when the application is allowed or abandoned. Under the new system, examiners receive 1.25 counts when they issue a first office action, 0.25 counts when they issue a final office action, and 0.5 counts when the application is allowed or abandoned. This change seeks to improve the quality of the examination process by placing greater emphasis on initial examinations of applications.
Perhaps the most important change to the count system involves the number of counts issued for handling requests for continued examination (RCEs), which allow a patent application to be examined after it is rejected in a final action. Under the old system, initial RCEs, and all subsequent RCEs, were treated as new applications — and were potentially worth a total of two additional counts each.
The PTO believes this system dragged out the examination process, and may have led to unnecessary RCEs. Under the new system, handling a first RCE merits a total of 1.75 counts, and handling of all subsequent RCEs merits a total of 1.5 counts.
Additionally, one hour of “non-examining time” will be granted for the purpose of encouraging examiner-initiated interviews. Under the old system this time was counted against examiners’ allotted count time, which tended to discourage the process.
Recently appointed PTO Director David Kappos says he hopes the changes will “benefit examiners, the agency, and the IP community as a whole.”
The PTO’s stated objective is to encourage examiners to work with patent applicants earlier in the examination process to increase efficiencies and reduce the number of RCEs. By increasing the overall time that examiners are allowed per case, allowing extra time for examiner-initiated interviews and reducing the credit given for RCEs, the PTO hopes to increase customer satisfaction and examiner morale, and “set the foundation for long-term pendency improvements.”
“These changes have the potential to significantly affect the examination process.The new system encourages examiner-initiated interviews, which help identify patentable subject matter early on in the examination process,” says John Conklin, a member of Leydig’s Chicago office and a former patent examiner. “Under the old system, the examiners had little incentive to work toward a quick conclusion because the old system treated the examination of new applications and RCEs the same.”
Jeremy Jay, a member of Leydig’s Washington, D.C., office and also a former examiner, adds, “The amount of time and number of counts examiners receive for each case directly affect the examination process, so by optimizing these aspects, the PTO can potentially improve operating efficiency and job satisfaction among examiners.”
For patent seekers, these changes may mean a more communicative and transparent patent application process, hopefully resulting in quicker and more understandable decisions on patent applications.
Federal Circuit rules that Section 271(f) does not apply to method patent claims
In a move that overrules the previous decision in Union Carbide Chemicals v. Shell Oil Co., the Court of Appeals for the Federal Circuit has ruled en banc that U.S. Code Title 35, Section 271(f), a provision of the patent laws, does not apply to method claims because they do not involve the transfer of tangible product components.
The Federal Circuit ruled that Section 271(f), originally designed to close a loophole that allowed companies to skirt U.S. patent laws by assembling part of a product in the United States and shipping the rest to be assembled overseas, applies only to apparatus patents, not method patents. Section 271(f) stipulates that shipping or supplying components abroad to produce a patented product constitutes patent infringement.
This ruling goes against the 2005 Union Carbide decision, which held that method claims — claims that involve intangible methods or processes, usually related to specific products or services — should be covered under Section 271(f).
In Cardiac Pacemaker v. St. Jude, Cardiac claimed St. Jude was liable for exporting heart stimulators under Section 271(f), alleging the devices could be used to infringe upon Cardiac’s method patents abroad. After an appeal to the Federal Circuit, the court found that a “component” of a method claim is defined as a step of that method, not as a “material or apparatus for use in practicing a patented process.” Furthermore, the court found that Section 271(f) requires that components of a method must be “supplied,” and held that this requirement “eliminates method patents from Section 271(f)’s reach … because one cannot supply the step of a method, Section 271(f) cannot apply to method or process patents.”
The ruling in favor of St. Jude is another decision in a series of cases that restricts patent coverage abroad. In another such case, Microsoft Corp. v. AT&T Corp., the Supreme Court held that the shipment abroad of copies of “master” Windows software (which could be used to create AT&T-patented equipment) did not constitute infringement under Section 271(f), because the software programs installed on computers were foreign-made copies of the “master” software. The Court reasoned that the foreign-made copies were supplied from outside the United States, and hence did not fall within the reach of the statute. The Court, however, left open the broader question of whether an intangible method or process could qualify under Section 271(f).
“The Cardiac case now makes it clear that a company’s ability to assert method claims outside the U.S. is restricted,” says John Kozak, a member of Leydig’s Chicago office. “For a certain period, court decisions seemed to be in favor of expanding the reach of method claims. These recent cases enact a narrower definition of patentable material as it relates to method claims.”
“The scope of this decision is relatively limited,” says Robert Wittmann, a member of Leydig’s Chicago office. “However, clients should expect that courts most likely will not extend the extraterritorial reach of patents absent clear congressional intent.”
Leydig announces
The following attorneys have become associated with the firm’s Chicago office:
Anthony R. Friedman received a B.S. in biological sciences, with honors, from the University of Missouri, and a J.D., cum laude, from Washington University in St. Louis.
Kate M. Lesciotto joins the firm with a B.S. in zoology and biological sciences, summa cum laude, from Colorado State University, and a J.D., magna cum laude, from Washington University in St. Louis.
Nimita L. Parekh received a B.S. in political science, summa cum laude, from the University of Wisconsin-Madison, and a J.D. from The Ohio State University Moritz College of Law.
Jonathan M. Spenner completed his J.D. at Fordham University School of Law while working for the firm as a technical advisor focused in the fields of biotechnology, pharmaceuticals, and chemistry. He received a B.A. in biological sciences, cum laude, from Northwestern University, and a Ph.D. in molecular biophysics from The Johns Hopkins University School of Medicine.
Jonathan B. Thielbar received a B.S. in mechanical engineering from the University of Illinois, Urbana-Champaign, and a J.D. from Washington University in St. Louis.
Jessica M. Tyrus joins the firm with a B.S. in chemistry, summa cum laude, from Benedictine University, and a J.D., with high honors, from Chicago-Kent College of Law.
David Van Buskirk received a B.A. in biochemistry, summa cum laude, from the University of Colorado at Boulder, and a J.D., with honors, from the University of Texas.
Marc R. Wezowski joins the firm with a B.S. in biology, with honors, cum laude, and a M.S. in biology, with distinction, from Loyola University. He received a J.D. from The University of Michigan Law School.
Events
H. Michael Hartmann, a member in Leydig, Voit & Mayer’s Chicago office, will participate as a speaker at the American Intellectual Property Law Association’s (AIPLA) 2010 Mid-Winter Institute, Jan. 27-30, in La Quinta, Calif. His presentation, “Litigating Against Acquired Patents,” will focus on the various defense measures and strategies to minimize the tactical advantages of a non-practicing entity in litigation.
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