April 2019 Newsletter

‘Secret’ Sales Treated the Same Under the AIA’s ‘On-Sale Bar,’ Supreme Court Says

The “on-sale bar” in the America Invents Act (AIA) is no different regarding so-called “secret sales” than the bar that existed before the passage of that legislation, the Supreme Court ruled recently. In its decision in Helsinn Healthcare S.A., v. Teva Pharmaceuticals USA, Inc., the Court concluded “an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential can qualify as prior art under §102” of the AIA.

The speed with which the unanimous decision came down, a mere seven weeks after oral arguments, indicates it was not a close call, says James Sanner, an associate in Leydig’s Chicago office.

“The justices looked at the revised language in Section 102 and were simply unconvinced that the change was enough to justify a different interpretation,” he says.

Before the AIA, 35 U.S.C. §102 barred the patentability of an invention that was “patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent.”

The AIA amended §102 to bar the patentability of an “invention [that] was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.”

At issue in Helsinn Healthcare was the effect of the “otherwise available to the public” language in the post-AIA version of §102. Helsinn, as well as the government, had argued that this phrase means that a sale now must make the invention’s details available to the public to trigger the “on-sale bar.”

Writing for the Court, Justice Clarence Thomas noted that the Court’s pre-AIA “precedents suggest that a sale or offer of sale need not make an invention available to the public.” As such, “The addition of ‘or otherwise available to the public’ is simply not enough of a change for us to conclude that Congress intended to alter the meaning of the reenacted term ‘on sale.’”

Taken in conjunction with the Federal Circuit’s 2016 decision in The Medicines Co. v. Hospira, Inc., this case further clarifies how small companies with limited resources should structure arrangements with third parties when seeking help manufacturing a product, says Salim Hasan, a shareholder in Leydig’s Chicago office.

“If you cannot file a patent application first and you want to avoid any issues with the on-sale bar when contracting with a company to produce your product, do not sell the product to that company,” Hasan says. “Instead, one solution is to enter into a manufacturing services agreement. By doing so, a company can outsource its manufacturing without worrying about triggering the on-sale bar.”

One difference in the amended section is that a sale no longer needs to be in the U.S. to trigger the on-sale bar.

“Since the AIA removed the qualifier ‘in this country,’ Helsinn paves the way to expand the universe of secret sale prior art under the AIA,” Hasan says.

Supreme Court Resolves Circuit Splits on Copyright Registration and Recoverable Costs

In two recent decisions, the Supreme Court resolved circuit splits regarding the requirements for filing a copyright infringement suit and what costs a prevailing party can recover in such litigation. In Fourth Estate Public Benefit Corporation v. Wall-Street.com, the Court held that a copyright registration – not an application for registration – is the prerequisite for filing suit. In Rimini Street v Oracle USA, it ruled that “full costs” means only the “full” amount of costs available in the general federal costs statutes.

“The Court essentially concluded that the terms “full” and “made” in the Copyright Act mean what they say,” says Kevin Parks, a shareholder in Leydig’s Chicago office.

Registration required before filing copyright infringement suit

The Copyright Act provides that a copyright owner cannot bring an infringement suit in federal court until “registration of the copyright claim has been made” with the Copyright Office.

Different circuits had reached competing conclusions as to when registration “has been made.” The U.S. Courts of Appeals for the Fifth and Ninth Circuits took the position that “registration … has been made” upon the owner’s initial submission of an application, fees, and supporting materials to the Copyright Office. The Tenth and Eleventh Circuits concluded that the Copyright Office must either issue a certificate of registration or reject an application before the owner may file suit.

In a unanimous opinion written by Justice Ruth Bader Ginsburg, the Court agreed with the latter interpretation. Affirming the Eleventh Circuit’s decision in Fourth Estate, the Court held that opening sentences of Section 411(a) of the Copyright Act “focus not on the claimant’s act of applying for registration, but on action by the Copyright Office – namely, its registration or refusal to register a copyright claim.”

Ginsburg acknowledged this interpretation might burden copyright owners with administrative delays before they can enforce their rights, but noted that such delays cannot change the language or meaning of the law.

“Delays, in large part, are the result of Copyright Office staffing and budgetary shortages that Congress can alleviate, but courts cannot cure,” she wrote. “Unfortunate as the current administrative lag may be, that factor does not allow this Court to revise §411(a)’s congressionally composed text.”

The Court’s decision will likely lead to an uptick in applications for registration, as owners want to be in a position to assert their rights as quickly as possible, Parks anticipates.

“Not only will there be more registration of new works, but companies with large portfolios of creative works may take stock of their existing inventories and file applications to ensure that they can bring suit immediately when an infringement occurs,” Parks says. “This may have the ironic effect of increasing existing delays in the issuance of registrations.”

Prevailing parties cannot recover non-taxable costs in copyright litigation

In another unanimous ruling resolving a circuit split, the Court held that prevailing parties in copyright litigation can only recover those costs specifically enumerated in the costs provisions of the Federal Rules of Judicial Procedure.

At issue was the language in the Copyright Act providing for a winning litigant’s recovery of “full costs.” In Rimini Street, the U.S. Court of Appeals for the Ninth Circuit had affirmed an award of costs in favor of Oracle for expenses, including expert fees, consultant fees, and electronic discovery costs, none of which are listed in the general costs statutes. The Ninth Circuit’s broad interpretation of “full costs” put it at odds with the Eighth and Eleventh Circuits, which had limited recoveries to taxable costs.

Writing for the Court, Justice Brett Kavanaugh rebuked the Ninth Circuit’s expansive view, holding that “The word ‘full’ operates in the phrase ‘full costs’ just as it operates in other common phrases: A ‘full moon’ means the moon, not Mars. A ‘full breakfast’ means breakfast, not lunch. A ‘full season ticket plan’ means tickets, not hot dogs. So too, the term ‘full costs’ means costs, not other expenses.”

While the Court’s clarification is useful, Parks does not expect material changes in copyright practice because of the ruling.

“The amount of costs a party may receive or have assessed against them has not been a driver of copyright litigation,” he says. “I do not expect potential litigants to become either more trigger-happy or gun-shy because of Rimini Street.”

SCOTUS Seems Ready to End Ban on ‘Immoral and Scandalous’ Trademarks

The final bell may be tolling for Section 2(a) of the Lanham Act. Having declared that section’s ban on “disparaging” trademarks to be unconstitutional in its 2017 Matal v. Tam decision, the Supreme Court appears poised to rule similarly regarding the ban on “immoral and scandalous” marks.

In January, the Court granted certiorari in Iancu v. Brunetti. The government sought the high court’s review after the U.S. Court of Appeals for the Federal Circuit held that “§2(a)’s bar on registering immoral or scandalous marks is an unconstitutional restriction of free speech.”

It is almost inconceivable that the Court will overrule the Federal Circuit given its decision in Tam, says Anne Naffziger, a shareholder in Leydig’s San Francisco Bay Area office.

“If you look at this with intellectual honesty, the same logic and reasoning the Court used in Tam to strike down the ban on ‘disparaging’ marks apply here,” Naffziger says. “It appears the Court agreed to hear the case to button up all issues relating to Section 2(a)’s continued viability.”

The case involves Erik Brunetti’s two applications for the trademark, “FUCT,” for athletic apparel. The United States Patent and Trademark Office (USPTO) refused to register the mark under § 2(a) of the Lanham Act, finding it comprised immoral or scandalous matter. Brunetti appealed to the Trademark Trial and Appeal Board (TTAB), which affirmed the initial findings.

Brunetti then appealed to the Federal Circuit on the heels of the closely watched Tam case. In overturning the TTAB’s decision, the Federal Circuit concluded that Section 2(a) was unconstitutional, regardless of which standard – strict scrutiny or intermediate scrutiny – it used to evaluate the ban’s viability.

“There can be no question that the immoral or scandalous prohibition targets the expressive components of speech” and is, therefore, subject to strict scrutiny, the court held. Since the ban requires the government to make “value judgments about the expressive message behind the trademark,” it cannot survive under the strict scrutiny standard.

Even if intermediate scrutiny applied to Section 2(a) as a regulation of commercial speech, the prohibition would still be unconstitutional because, as the court concluded, “the government does not have a substantial interest in protecting the public from scandalousness and profanities.”

The public, rather than the government, will decide what marks it considers obscene, profane, or offensive once the Court strikes down Section 2(a), Naffziger believes.

“If, as is likely, the Court concludes that it is not the USPTO’s job to regulate commercial speech in this way, it is going to be up to consumers to determine whether they want to engage with goods and services associated with these kinds of marks,” she says.

New Trademark Programs and Rules Affect Registrations, Challenges, and Renewals

With the stated goals of increasing efficiency and clarity while decreasing abuses and improprieties, the United States Patent and Trademark Office (USPTO) has launched several initiatives and changed rules involving trademark registration and challenges to registered marks.

Expedited trademark cancellation for abandonment and nonuse

The federal Trademark Register is a graveyard for countless marks that are no longer in use, never were in use, or were abandoned long ago. Random audits “suggested that over half of active registrations include some goods or services for which the registered mark is not actually being used,” the USPTO said last year.

To help ensure the accuracy and integrity of the Trademark Register, the Trademark Trial and Appeal Board (TTAB) launched a pilot program last year through which it identifies cancellation proceedings that are based solely on abandonment or nonuse claims and offers the parties the option of using the Board's Accelerated Case Resolution (ACR) procedures.

Under these procedures, discovery is minimal, the parties do not take depositions, and cannot file counterclaims. Such streamlined proceedings reduce time and expense for the parties and facilitate quick Board decisions. In fact, the TTAB’s goal is to issue final decisions within 50 days from when a matter is ripe for decision. Both parties must consent to participate in the expedited proceedings.

While the ongoing program offers definite advantages, the parties should consider the potential downsides before agreeing to participate, says Tamara Miller, a shareholder in Leydig’s Chicago office.

“If you have limited resources and commence a cancellation proceeding to clear a path for registration of your mark as quickly as possible, you should absolutely consider this program,” she says. “But if the mark’s owner is going to put up a fight, the lack of available discovery tools, such as depositions, may hinder your chance of success. It is a definite trade-off, but it is a good option to have.”

Foreign trademark applicants will need U.S. attorneys

Effective in July, trademark applicants, registrants, and parties in proceedings before the USPTO must be represented by licensed U.S. attorneys. This move is a response to what the Office calls a “significant surge in foreign filings,” including many that are substantively or procedurally deficient.

This requirement brings the U.S. in line with the majority of other countries, says Laura Schaefer, an associate in Leydig’s Chicago office. She believes the change will reduce the number of “junk” applications – largely from China – that list a plethora of goods and services that applicants will never offer under the proposed marks.

“A foreign lawyer may throw every conceivable class onto an application with little due diligence or concern about propriety and do so with minimal expense to the applicant,” Schaefer says. “These lawyers also do not fully comprehend the use requirements under U.S. law. Most U.S. attorneys, on the other hand, charge per class and are much less likely to put their names on applications that have an absurd number of unrelated goods and services.”

Increased audits to identify marks that are not used in commerce

In a related effort to improve the integrity of the Trademark Register, the USPTO has implemented a vigorous auditing program.

Under the program, the USPTO is now auditing approximately 10 percent of Section 8 and 71 post-registration Declarations of Use. If a registration is audited, the owner must submit proof of current use of the mark for two additional goods or services for each audited class. If that cannot be done, then the owner will need to (a) delete any goods or services from the registration that are not being offered under the mark; and (b) submit proof of current use for all of the remaining goods or services in the registration.

Mark owners need to be aware of possible audits and the corresponding need, as has always been the case, to delete any goods or services that they are not offering under their marks at the time of filing a post-registration Declaration of Use, Miller says.

“Making such deletions in Declarations of Use can spare owners the burden of having to submit specimens for all goods and services that can potentially come about as part of an audit that identifies any one good or service that is not currently offered,” she advises.

Awards

Leydig Awards

•Leydig was named a Top Trademark Law Firm by the World Trademark Review, and attorneys Mark Liss, Tamara Miller, Anne Naffziger, Kevin Parks and Claudia Stangle were ranked as Top Trademark Lawyers.

Mark Liss was honored as a winner of the 2019 Client Choice Award.