October, 2008 Newsletter
LEYDIG, VOIT & MAYER, LTD. REPORT
October, 2008 Volume 9 Issue 4
E-discovery: An evolving art that requires preparation
Two years after federal regulations were updated to include discovery requirements for electronically stored information, courts are still determining how the rules will be applied. Questions such as how extensive e-discovery searches must be and who must pay to conduct them are still being addressed. What is evident, however, is that companies should prepare for e-discovery well in advance.
"Companies that are involved in litigation from time to time need to have good document retention policies governing what information is kept and when other information may be deleted,” says Jeffrey Burgan, a member in LVM’s Chicago office. "And when their information technology (IT) staffs are designing computer systems, they need to keep in mind that someone may at some point have to search through every piece of electronically stored data.”
Larger companies, in particular, should be aware of e-discovery rules, he adds, simply because of the volume of information they generate. Large companies are also often multinational companies, further complicating the issue of reviewing electronic documents in numerous foreign languages.
One way to help control the volume is to consider in advance who is most likely to be involved in patent or trademark litigation, says Michael Hartmann, a member in LVM’s Chicago office.
"Companies should be able to identify the dozen inventors, lab and sales people and others who will be involved in a patent suit — it’s a limited universe,” he says. "Data needs to be in a searchable format, and there should be a way to retain scientific documents longer than routine correspondence.”
A question that remains unresolved is how long any documents, scientific or not, must be retained. Companies involved in litigation may not destroy any data, but there are no hard and fast rules governing the point at which a litigation hold is triggered.
"If you receive a cease-and-desist letter, do you have a reasonable expectation that you will actually be sued?” says Boris Umansky, an associate in LVM’s Chicago office. "If so, you should have a litigation hold in place. But many cease-and-desist letters never evolve into litigation, so it’s not clear-cut.”
Also not clear-cut is what must be preserved when disputes are not taken to court. Trademark cases, for example, are often argued before the Trademark Trial and Appeal Board (TTAB).
"There are no monetary damages or awards through the TTAB, so are litigation holds necessary for those proceedings?” Umansky queries. "You can take the case to federal court if you lose, and federal rules of procedure apply in the TTAB. In theory, then, federal discovery rules should apply, too. But in practice, it’s an evolving area.”
Yet another wrinkle in e-discovery is the format in which information must be provided. Native files — the format in which data is created — contain metadata that details each document’s history and origin. Files in TIF or PDF formats, which may be easier to transmit, have little or no metadata.
Discovery plans and pretrial conferences should clarify the forms in which discovery must be provided, but finances may come into play with large cases.
"If a company with 100,000 employees gets sued and the other side wants all electronically stored data related to the patent or trademark, that could entail going to the hard drive of every employee’s computer, as well every company-issued laptop, BlackBerry® and home computer,” Umansky says. "But it’s unlikely that a judge is going to allow a $10 million fishing expedition in a $2 million case.”
In the end, the question that companies, their IT departments and their attorneys must answer is how best to sift through possibly millions of documents to get to the 30 or so on which an intellectual property case is likely to hinge.
"There is an ever-increasing need for computer tools that can sort and analyze the massive amounts of information we’re dealing with now,” says Hartmann. "In this case, technology is way behind the law.”
Exxon ruling could influence patent damage awards
In a decision that could influence increased damage awards in willful infringement patent cases, the U.S. Supreme Court recently ruled that, absent unusual circumstances, punitive damages should not exceed total compensatory damages under federal maritime law.
The ruling in Exxon Shipping Company v. Baker set a 1:1 ratio for punitive damages to compensatory damages, as the court attempted to add predictability and fairness to damage awards. The court held that punitive awards should be structured to give like defendants a fair probability of suffering in like degree for like damages.
The court weighed various alternatives, but decided on using a ratio to peg punitive damages to compensatory damages. In considering which ratio to use, justices looked at the federal treble-damage statutes in patent and trademark law, but dismissed those ratios as being irrelevant to the case before them and as involving considerations that have no application to maritime law.
Exxon v. Baker concerned the oil spill that resulted when the supertanker Exxon Valdez ran aground in Alaska’s Prince William Sound. Exxon, which stipulated to its negligence and to its liability for compensatory damages in the disaster, was ordered to pay $4.5 billion in punitive damages. That amount was reduced to $2.5 billion on appeal before the case went to the Supreme Court.
In making its decision, the court relied on studies of thousands of tort and contract cases. The median ratio of punitive to compensatory awards in those cases was less than 1:1, and the court concluded that 1:1 was a fair upper limit on punitive damages when: (1) there was an absence of exceptional blameworthiness, such as intentional or malicious conduct or behavior driven primarily by desire for gain, and (2) the compensatory award was substantial.
Courts could use the same rationale to constrain increased damages in patent cases due to willful infringement, because the increase in such cases is discretionary, up to a maximum of treble the award.
Many factors can influence the decision to award enhanced damages, such as the closeness of the case, the tactics of counsel and the conduct of the parties. It could be argued that applying a fixed ratio as a default would be valuable in business planning and perhaps settlement, as a certain degree of unpredictability would be removed from a litigant’s estimate of potential damage awards.
If adopted, the 1:1 ratio could be applied where a defendant had engaged in reckless, rather than malicious, infringement; where the infringement was not linked to financial gain; or where the compensatory award was substantial. Trebling of damages could be further curtailed outside of egregious cases because infringement typically causes no harm to individuals or the public at large and increased awards do not always prompt behavioral modifications on the part of infringers.
The vast majority of courts increase damages by at least twice when finding willful infringement. From 1888 to 1998, in patent cases where enhanced damages were awarded, damages were trebled in 40 cases and doubled in 31 cases. Thus, a default ratio would have a significantly negative effect on monetary remedies awarded by the courts in cases of willful infringement.
Does ‘making available’ constitute copyright infringement?
Five years ago the Recording Industry Association of America (RIAA) launched a massive campaign to stem the tide of peer-to-peer music sharing, eventually filing more than 30,000 lawsuits against individual file sharers. Most have settled, but file sharing continues unabated, and the campaign’s public relations effect has also been dubious.
Just one case, Capitol Records et al v. Jammie Thomas, has proceeded to trial, yielding an award of more than $200,000 against Thomas, a single mother from Minnesota. But post-trial proceedings have cast doubt on the verdict, which relied on a jury instruction that copyright infringement liability could flow from Thomas’ "making available” certain recordings for downloading, even if no other user ever downloaded the songs.
Specifically, Jury Instruction 15 instructed the jury that "the act of making copyrighted sound recordings available for electronic distribution on a peer-to-peer network, without license from the copyright owners, violates the copyright owners’ exclusive right of distribution, regardless of whether actual distribution has been shown.”
In responding to post-trial motions, Minnesota District Court Judge Michael Davis cast doubt on the instruction and the "making available” theory, asking for public comment on whether the instruction was a "manifest error.”
Briefs filed in support of the defendant argue that the plain language in Section 106 of the Copyright Act is "clear, unambiguous and dispositive” in requiring that an actual transfer take place before an infringing distribution can occur. Briefs on behalf of the RIAA contend that a separate "making available” right was acknowledged through the United States’ implementation of certain international copyright treaties and agreements, and that the exclusive distribution right also encompasses the act of "making available.”
During an August 4 hearing Judge Davis suggested he was leaning toward declaring a mistrial; however, as the "making available” theory has not yet been addressed at the appellate or Supreme Court level, the Thomas case is likely to remain a proving ground until the issue is settled on appeal.
Pharmaceutical trademarks: A brave new world
Selecting a trademark for a new pharmaceutical compound is not easy. The new trademark must not only be available based on traditional trademark clearances, it must also pass the scrutiny of the federal Food & Drug Administration (FDA).
The pharmaceutical naming process is rigorous by design. It aims to ensure that pharmaceutical trademarks are truly distinctive. Unique pharmaceutical trademarks allow healthcare professionals, including physicians, pharmacists, and nurses, to reduce prescription errors, and they assist consumers in identifying and choosing the medication that is right for them.
The FDA is not required to approve a name when it approves a drug. Thus, it is possible that a pharmaceutical company could have a new product, a name registered with the U.S. Patent and Trademark Office (USPTO) and its counterparts in Europe and Asia, but still not be able to market the drug because the FDA has not approved the name.
"The FDA and its foreign counterparts are not bound by decisions of other regulatory bodies, such as the USPTO, and the FDA currently has about a 40 percent rejection rate on names,” says Frances Jagla, counsel in LVM’s Seattle office. "So companies may find themselves with a name that has been approved by trademark offices and regulatory authorities around the world, only to have the FDA rule it can’t be used on packaging, labeling or advertising in the United States.”
It behooves pharmaceutical houses, then, to seek expert counsel regarding trademark selection as soon as they begin considering a new compound. Experienced trademark attorneys can conduct the proper searches and file applications early in the naming process, and they also can alert their clients to potential problem names that might be considered "misleading” under current FDA practice.
"The FDA looks at whether proposed trademark names look or sound enough like other names to be confusing,” says Jagla. "But they also consider whether other aspects of the trademark, unrelated to look or sound, could potentially be misleading or overpromising. In addition, safety testing of the new names is becoming standard. It really can be very difficult to name a new pharmaceutical, and it is important to start early.”
The challenges are similar outside the United States, but the European Medicines Agency — the European equivalent of the FDA — has written guidelines to help.
The FDA has started work on establishing best practices for the United States, and on identifying the type of support data it would require to secure approval of new names. The agency has released a draft white paper in advance of a two-year pilot program to help establish guidelines. The text of the white paper is available at www.fda.gov/cder/drug/MedErrors/meeting_2008. htm, and enrollment in the pilot program is expected to begin by Sept. 30, 2009.
Expect that significant emphasis will be placed not only upon the traditional lookalike/sound-alike confusion tests, but also upon review of "real-life” testing scenarios where the proposed trademark is reviewed throughout the entire medication use system. By that time, most companies have created the packaging and marketing materials necessary to launch the new compound into the marketplace. If the name is rejected, these companies must discard their marketing materials and go back to the drawing board.
Intellectual property law news
—Some patent rules changes will not be retroactive
When and if an injunction against the U.S. Patent Office’s (PTO) final rules is eventually lifted, rules governing related applications will not be applied retroactively, the PTO has announced.
A lawsuit regarding the controversial rules package is unlikely to be settled for months, but the PTO said in August that the provision governing related applications — those naming at least one common inventor and containing patentably indistinct claims — will be applied only to applications filed on orafter the eventual effective date.
—Counterfeiting bill introduced
Sen. Patrick Leahy, D-Vt., has introduced the Enforcement of Intellectual Property Rights Act of 2008 (S. 3325), which would create the position of intellectual property enforcement coordinator in the executive office of the president. The bill also would enable the attorney general to bring civil actions
Mayor Daley recognizes LVM’s anniversary
LVM was pleased to receive a letter from Chicago Mayor Richard M. Daley in recognition of the firm’s 115th anniversary.
LVM Announces
Chicago
Charles S. Cohen, formerly the chief intellectual property counsel at Molex Incorporated, a multi-billion-dollar global manufacturer of electrical and fiber optic interconnect products and systems, joins Leydig, Voit & Mayer as counsel, resident in the Chicago office.
With more than 20 years’ experience in intellectual property law, he will concentrate his practice on client counseling, opinions and technology-focused transactions, as well as patent preparation and prosecution.
At Molex, Mr. Cohen’s practice included developing and implementing strategies for Molex’s worldwide intellectual property protection, portfolio management, licensing and standards committees and litigation with a significant focus on Asia Pacific markets.
The firm is pleased to announce the addition of three technical advisers:
Alan J. Hickman brings a wide range of experience from his prior employment as a patent agent at Caterpillar, Inc. There, he drafted and prosecuted hundreds of patent applications in all product technologies, and successfully defended Caterpillar’s patent rights in oppositions in the European Patent Office.
Jonathan M. Spenner specializes in biotechnology, pharmaceuticals and chemistry, and has managed international patent portfolios for large pharmaceutical companies and small biotech firms. He has drafted and prosecuted U.S. and international patent applications. He received a bachelor’s degree in biological sciences, cum laude, from Northwestern University in 1999; a Ph.D. in molecular biophysics from The Johns Hopkins University School of Medicine in 2004; and is scheduled to complete his J.D. from Fordham University School of Law in May 2009.
Timothy R. Carlson will focus in the area of biotechnology. He previously worked as a senior biologist for Abbott Vascular, supporting the drug eluting stent and atherosclerosis research programs. He received a Ph.D. in human nutrition and nutritional biology from the University of Chicago in 2003, and a B.S. in biology from the University of Illinois in 1998.
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