Intellectual Property Bulletin - Spring 2020

How COVID-19 is Changing IP Law – What You Need to Know

By Stuart P. Meyer

The rapid spread of COVID-19 brought about massive global events that led to a dizzying array of changes—including in intellectual property law, shaking up administrative procedures, court rules, and law firm best practices. As the legal community settles into the new reality brought about by the COVID-19 pandemic, we thought it would be helpful to outline a number of the changes and provide links to help readers stay updated.

US Patent and Trademark Office

Following a short period during which various on-site hearings, examiner interviews and other events had been cancelled on an ad hoc basis, the USPTO campus offices were closed to the public on March 16 like many other federal facilities. Much of the USPTO’s business had already been conducted remotely, with many examiners and Patent Trial and Appeal Board judges “hoteling” or otherwise operating remotely for years, so this expansion of remote operation was not as disruptive as it otherwise might have been.

Initially, the USPTO expressed concern that it had limited power to help impacted parties deal with pandemic-related issues. It could readily do things such as relax “wet signature” requirements for certain procedures or payments and it took such actions quickly. On March 16, USPTO Director Andrei Iancu issued a notice that the USPTO considered the coronavirus outbreak to be “an ‘extraordinary situation’ within the meaning of 37 CFR 1.183 and 37 CFR 2.146 for affected patent and trademark applicants, patentees, reexamination parties, and trademark owners.”

Accordingly, Director Iancu said the USPTO will waive petition fees needed to revive certain abandoned patent applications and treat inclusion of the March 16 notice as a representation that the delay in responding to an office action was due to the outbreak. While inclusion of the notice itself is sufficient for the fee waiver, the petition still needs to assert that the delay “was because the practitioner, applicant, or at least one inventor, was personally affected by the Coronavirus outbreak such that they were unable to file a timely reply.” There are time limitations on this waiver, so action should still be taken as quickly as possible.

A similar fee waiver and process for trademark petitions (those set by waiver rather than statute) is provided for in the notice. The USPTO having been powerless to waive statutory requirements, the notice made clear that it did not grant waivers or extensions of dates or requirements set by statute.

The situation changed dramatically on March 27, when the Coronavirus Aid, Relief and Economic Security Act—or CARES Act—was signed into law. The Act gives Director Iancu the power to “toll, waive, adjust, or modify, any timing deadline established by [the patent and trademark statutes] or regulations promulgated thereunder.”

Since March 27, the USPTO has taken additional actions including waiving original handwritten signature requirements and extending some deadlines (both statutory and regulatory) related to filing patents and trademarks, and paying associated fees. One issue not yet clear is whether the USPTO will address the pandemic’s impact on continuous use of a trademark (once a registered mark has been in continuous use for five years, the registration can become incontestable upon filing of a corresponding declaration). It is likely that there are numerous such secondary issues that will play out over time to a greater or lesser degree based on how long the impacts of the pandemic persist.

On April 14, members of Congress asked the USPTO for a status update on its operations during the pandemic, including the extent to which trademark applications are declining and how the financial implications of that might impact future USPTO operations.

Other Patent/Trademark Offices

The European Patent Office issued a blanket extension of time limits expiring on or after March 15 to May 4, 2020 (an end date that could be extended further), and provided certain remedies for earlier time limits “for users located in areas directly affected by disruptions due to the COVID-19 outbreak.” Likewise, oral proceedings in examination and opposition proceedings have been postponed until further notice, and the EPO has determined that it “may use additional means of communication (e.g., email)” for further notifications.

The Canadian Intellectual Property Office has authorized extensions of deadlines for trademark oppositions, in addition to patent-related deadlines.

In Geneva, the World Intellectual Property Organization, which is responsible for administering the PCT System for international patent applications and the Madrid System for international trademark applications (among other things), announced that it is remaining operational through remote working arrangements for most WIPO personnel. That said, all events/meetings of WIPO through the end of May are either cancelled or postponed. Additionally, the WIPO has stopped sending paper PCT forms and will only send documents by email. The organization called for all PCT users to ensure that the International Bureau has an email address on file for their international applications. And on April 9, the International Bureau of WIPO announced that the current global pandemic is considered a “natural calamity” triggering the force majeure provision in its rules regarding delay in meeting PCT time limits. Not only will WIPO itself delay issuance of certain withdrawal notifications (e.g., for failure to pay fees) until May 31, it is recommending that other “receiving offices” (national/regional patent offices) do the same and for at least another month delay such notifications and waive PCT late payment fees.

More proactively, the Korean Intellectual Property Office has launched multiple initiatives to encourage innovative responses to the pandemic, including a fast-track examination for related technologies. Brazil implemented similar measures on April 7.

Notably, although the Italian Patent and Trademark Office announced that certificates and IP titles expiring between January 31 and April 15 will remain valid until June 15, trademark deadlines in Italy—one of the countries that has been hardest hit by COVID-19—have not been extended.

India is an important jurisdiction for many companies because of the need to obtain foreign filing licenses for patent applications having inventors who are Indian residents. The lockdown in India, which originally extended through April 14, was extended further in mid-April and those with upcoming deadlines need to communicate with their counsel early to ensure this requirement is addressed.

US Copyright Office

The facilities of the U.S. Copyright Office were also closed due to the pandemic, but like the USPTO, it promptly moved to teleworking for its staff. Electronic copyright registration applications are still being processed, and “special handling” for prompt action (e.g., as needed in advance of bringing a copyright infringement action in court) is promised with a five-day turnaround time. It appears that paper applications and paper deposit materials, however, will not be processed until such time as the Library of Congress building reopens for workers.

Also, as noted above, the new CARES Act gives the Register of Copyrights additional authority similar to that given to the Director of the USPTO.

Following the passage of the CARES Act, the acting Register extended copyright registration and other deadlines in situations where an applicant can demonstrate that the delay resulted from the COVID-19 pandemic. The Copyright Office has also implemented new filing options for copyright registration applications and other services as a result.

IP Matters in Federal and State Courts

There has been no uniform response to the pandemic by courts to date, and different jurisdictions have widely varying and quickly changing procedures. The sampling of court orders provided below shows a range of approaches. While these have undoubtedly helped dispel some confusion, it is also clear that the pandemic has had a real impact on the ability of the legal system to work. For example, an ongoing patent trial in the U.S. District Court for the Southern District of California between Finjan and ESET was declared a mistrial on March 16 in midstream, with the judge citing the pandemic as the cause. Nevertheless, the courts are doing what they can, as indicated below.

The U.S. Supreme Court provided a blanket 150-day extension for petitions for a writ of certiorari and noted that other extensions will be routinely granted by the Clerk. The Court also postponed oral arguments scheduled for the April session and determined to hear oral arguments by phone in May for certain cases. Additionally, the Court may postpone some cases even further, including ones significant for the technology industry.

The U.S. Court of Appeals for the Federal Circuit issued administrative orders on March 16 and March 20, restricting public access to the court and suspending the requirement for providing paper copies of documents submitted electronically. On March 27, the court issued guidance on alternatives to service via postal mail (given restrictions that might “inhibit access to postal mail”) and in mid-April began hearing oral arguments remotely, reportedly with few glitches. Courts in other countries, such as the UK, have been doing the same.

The California Supreme Court suspended in-person oral arguments until further notice and expanded mandatory electronic filing rules. It also suspended all jury trials for 60 days and empowered trial courts to adopt other pandemic-related rule changes immediately (i.e., without the typical advance circulation). On the federal side, the U.S. District Court for the Northern District of California has consolidated all operations to the San Francisco Courthouse, operating almost entirely by electronic filings and video/teleconferenced hearings.

In New York, both federal (SDNY) and state trials were halted effective March 16, and a March 20 SDNY memo provided that civil case operations are to proceed at the discretion of each judge. The U.S. District Court for the Western District of Washington posted a new General Order on March 30 calling for the Seattle and Tacoma courthouses to remain closed and setting procedures for remote hearings in certain circumstances in criminal cases (as a reminder of relevance, certain copyright and trade secrets actions are criminal rather than civil in nature).

Numerous judges and veteran trial lawyers have been reported as saying that counsel need to carefully consider what they would otherwise label as “emergency” requests and the like, given the other stresses that courts and other public infrastructure facilities are being subjected to by the pandemic. And in a now-famous letter to the local bar, one Florida judge noted that lawyers had appeared before him in extremely inappropriate manners during video hearings: “One male lawyer appeared shirtless and one female attorney appeared still in bed, still under the covers.”

Trade Secrets

One issue of ongoing concern is whether various companies and law firms were sufficiently prepared for mass remote working arrangements to ensure that their own, and their clients’, trade secrets remain adequately protected.

Anecdotes abound regarding insecure networks, shared computers being used by a parent for company business one moment and by a teenager for homework or a remote class stream the next. Employees will undoubtedly want to work on the larger monitors and ergonomic keyboards of their home computers rather than the small screens and cramped keyboards of their work laptops, and will be using flash drives and personal email accounts for work materials as a result. Employers touting secure systems to their customers will unknowingly become more susceptible to phishing schemes, ransomware and other malware attacks, and those will now implicate greater exposure for company trade secrets. Added to that, concerns about hand washing, social distancing and family health can well distract employees from all of the measures they need to keep thinking about regarding trade secret protection, at the same time that the risk increases due to changes in the physical locations from which they are working. Speaking of which, physical security remains an important consideration—not only for the laptops that may be less secure from theft while at home, but also for any paper that attorneys may be printing at home and leaving on desks or dining room tables. To learn more about important COVID-19-related privacy considerations, including work-at-home practices, see this article. For additional insights, also see this video covering the top five challenges employers face as a result of the pandemic, as well as Fenwick’s COVID-19 Resource Center.

Other Related Matters

Unsurprisingly, the pandemic has had wide-ranging impacts on IP. New legislation has been proposed throughout the world. Various private agreements have been made. There are those who are seeking to take advantage of the pandemic. The variety of IP repercussions has been reflected in numerous stories that have emerged over the past month or so. For example:

• Multiple sources have been tracking the growing numbers of trademark applications that are being filed worldwide for marks relating to the pandemic, including COVID-19; these are likely to be unsuccessful as generic or descriptive. Nonetheless, as of mid-April hundreds of such applications have been filed worldwide.
• Labrador Diagnostics (a subsidiary of Fortress Investment Group), the current owner of certain Theranos patents related to blood testing, brought an infringement complaint against coronavirus test developer bioMérieux SA only to change course soon thereafter and offer to make licenses freely available.
• After public outcry, on March 25, Gilead Sciences requested the U.S. Food and Drug Administration to rescind “the orphan drug designation it was granted for the investigational antiviral remdesivir for the treatment of COVID-19.”
• U.S. Customs and Border Protection seized apparently counterfeit COVID-19 test kits at Los Angeles International Airport.
• Auto manufacturers and others rushing to create medical equipment such as face shields and ventilators must do so with little opportunity to consider possible third-party patent or other IP rights.
• Manufacturers of personal protection equipment such as facemasks have taken to bringing lawsuits under trademark law to stem alleged price gouging by some suppliers of their products. Other manufacturers are bringing trademark actions to address misleading representations being made to the public regarding test kits.
• While in 2001 there was widely reported consideration by the U.S. government to override Bayer’s patent on the Anthrax antibiotic Cipro, no similar indication has been reported to date regarding this pandemic. Nonetheless, there has been speculation that the U.S. government may seize patents for COVID-19 drugs in an effort to control costs and make them widely accessible to all. Support for such moves could come from several statutory and treaty provisions such as the “march-in” rights provision of the Bayh-Dole Act for inventions supported by federal funding, 28 USC 1498 for non-funded innovations, and Article 31 of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. A Senate bill, the Facilitating Innovation to Fight Coronavirus Act, has been promulgated with provisions that would broadly exempt steps to address the virus from various federal and state laws, apparently including patent laws.
• Outside the U.S., other countries have already taken steps in this general direction. Part 12 of Canada’s new COVID-19 Emergency Response Act amends the country’s Patent Act to authorize the government and anyone specified in a patent application “to make, construct, use and sell a patented invention to the extent necessary to respond to a public health emergency that is a matter of national concern.” Israel’s attorney general allowed a special compulsory license to be issued that permits generic versions of the patented Kaletra drug to be imported to treat COVID-19—the first compulsory license that the country has issued for a patented drug in more than two decades. As a result, AbbVie, the creator of Kaletra, has determined not to enforce its patents for the drug worldwide. Israel’s decision and the process by which the country reached it has been met with criticism from some in the patent community, despite the extraordinary circumstances. In other countries, such as India, compulsory licensing has been part of patent law for years.
• Similar voluntary initiatives are underway by various groups. The Open COVID Pledge grants free, albeit temporary, access to IP rights for the sole purpose of addressing the pandemic. Various universities have agreed to rapid, royalty-free licensing of related technologies as well.

These examples illustrate the wide range of ripple effects of the pandemic on intellectual property. In addition to the momentous issues regarding how our legal system can continue to address issues of justice with such dramatic changes, smaller issues have arisen, too. The International Olympic Committee announced that although the upcoming Tokyo Games will begin in July 2021 rather than 2020, the “Tokyo 2020” name will continue to be used, obviating the need to scramble for new trademark registrations.

We hope the links provided here will help readers find the information they need as we all adjust to working in a manner very different than what we’re used to. We will publish IP-related updates as they arise and also encourage readers to regularly check the WIPO’s COVID-19 Policy Tracker, another helpful resource to learn about developments worldwide.

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Key IP Considerations in Corporate Venture Capital Transactions

By Ian Goldstein, Christopher D. Joslyn, Jonathan Sagot and Ryan M. McRobert

Corporate venture capital—venture investing by large corporations and other institutions for both financial and strategic objectives—has grown significantly over the last decade and has become an integral part of the innovation and growth strategy for a broad range of companies. According to Global Corporate Venturing Analytics, in 2019 there were 1,854 active CVC units worldwide who invested over $130 billion globally in over 3,300 investment transactions (compared to 382 CVC units investing $22 billion globally in roughly 850 investment transactions in 2011). As part of this significant expansion, CVC units have gained a greater understanding of the startup and venture capital ecosystem and how to build collaborative investment partnerships, which in turn has led to broader acceptance of CVC participants as value-added contributors to a startup’s investment syndicate. In addition to the significant increase in new CVC units, existing units have gained traction and influence within their parent companies, leading not only to a greater number of transactions, but also to transactions of significant complexity where commercial relationships and critical intellectual property considerations are an increasingly integral part of the overall transaction.

It is still too early to tell how the recent market downturn resulting from the novel coronavirus will impact the overall CVC ecosystem, but based on discussions with numerous CVC clients and others in the industry we believe most CVC units will continue to drive forward in search of valuable investment partnerships to help their parent companies innovate through the challenging times ahead. During this time, supporting and developing valuable commercial relationships and properly addressing key IP considerations in evaluating investment transactions will likely play an even more critical role in building successful investment partnerships. We explore the key IP and commercial due diligence areas that need to be evaluated in connection with such transactions below.

First, Understand the Strategic Objectives

What motivates a CVC unit’s behavior in any particular transaction depends on the objectives underlying such investment. While traditional venture capital and CVC investments both desire to achieve positive financial results, CVC units and their parent organizations often have equally important strategic objectives for their investment programs. The range of desired strategic benefits to a CVC and its parent company of a particular investment often include one or more of the following:

• Obtaining direct access to innovations to enhance existing IP assets, technologies, products and services through potential future commercial agreements or acquisitions
• Seeding an ecosystem to build demand for its own IP assets, technologies, products and services
• Exploring new technologies and businesses without diverting its own R&D resources
• Participating in business segments it may not be able to engage in directly
• Branding itself as innovative by engaging with noteworthy emerging technologies or business sectors
• Establishing or enhancing an internal culture of innovation
• Monitoring technology and industry trends

The path to achieving these strategic objectives will vary, depending on the depth of the relationship between the portfolio company, the CVC and its parent organization. At the one extreme, the relationship between a portfolio company and the CVC’s parent organization may be more passive because a financial objective dominates or strategic objectives are less direct. That relationship often becomes more intentional and integrated as one moves along the continuum toward transactions with greater strategic alignment, in particular when a future commercial relationship or the possibility of licensing or acquiring IP or data assets (or entire businesses) down the road are critical to the investment’s potential strategic success. The CVC’s strategic objectives for a given transaction will define how it approaches IP and commercial due diligence when evaluating an investment opportunity.

Next, Align IP and Commercial Due Diligence Considerations with Strategic Intent

Regardless of an investment’s objectives, we can expect that a CVC transaction will include a baseline level of IP and commercial due diligence similar to the due diligence required in traditional venture capital deals:

• IP Ownership. At a minimum, the CVC unit will want to ensure that the company, to the extent it has developed any existing IP assets, has clear title to its intellectual property, and that there are no actual or potential third-party ownership claims. This means ensuring a proper chain of title such that the founders and any other employees or consultants have cleanly assigned to the company all rights they may have in any pre-existing intellectual property (and any intellectual property that such personnel develop during the course of providing services to the company) that is used in or relates to the company’s business, as well as ensuring that no third party may have competing claims to that intellectual property—for example, if the intellectual property at issue was created at a time when the founder was employed by or acting as a consultant to another company. This includes situations where a founder may have developed technology under the auspices of a university or government-funded research program. Special attention will also be paid to situations where the company has engaged in bespoke or joint-development efforts with third parties to ensure that the company has retained all relevant IP rights.
• IP Protection. Like traditional venture capital firms, CVCs will look to see what steps the company has taken to protect core IP assets, such as applying for patent protection for innovative technology and safeguarding trade secret information. While it is less common for companies to register copyrights in software, a CVC will want assurances that a company appropriately ​stores, monitors and restricts access to source code and any other valuable data the company may own. Likewise, sensitive business and other technical information should be protected by confidentiality agreements and disseminated in a responsible way. Finally, it is essential particularly in the consumer context that the company has diligently managed its brand, including by seeking trademark registrations in key markets and undertaking a thoughtful monitoring and enforcement program.
• Data Protection and Compliance. For many businesses, data is itself a separate and critical IP asset that a company needs to develop, properly collect and secure, and maintain and use in compliance with an expanding set of applicable regulations. Baseline diligence for any company where data is an applicable IP asset (and, more importantly, for data-centric companies) involves identifying a company’s sources and uses of different types of data; evaluating a company’s privacy policies and its processes for collecting and storing different types of data; and reviewing the implementation and effectiveness of a company’s compliance programs for the various local, federal and international regulations that apply to the company’s business (as well as any plans to remediate existing compliance breaches and/or plans to adapt to new compliance regimes that might become applicable when entering new markets).
• IP Claims. While smaller companies will typically be below a potential plaintiff’s radar and thus not have received any claims of infringement, companies can expect traditional venture capital and CVC units to dig into any actual or threatened claims. This includes patent licensing and similar letters and notices from nonpracticing entities (i.e., patent trolls); claims by former founders or employees and their former employers; cease and desist letters and opposition notices received in the exploitation or prosecution of the company’s branding; and indemnification claims tendered by customers and partners. Likewise, there will be an examination of the company’s use of third-party technology to ensure that proper licenses have been obtained and adhered to. This is particularly important for the use of open source software that is licensed under terms that include so-called “copyleft” provisions, to confirm that the company has not inadvertently exposed its own proprietary code in a manner that would require disclosing that code to the public to comply with the license terms.
• Material Commercial Agreements. Like traditional venture capital investors, CVC units will also typically conduct a baseline level of diligence on a company’s critical licenses, supplier and vendor agreements, and other material contracts. In reviewing such agreements, attention typically focuses on identifying areas of material risk and potential liability exposure (e.g., critical agreements that terminate on a sale transaction) and evaluating whether certain material agreements support key business and financial assumptions on which an investment is based (e.g., revenue-generating agreements that are terminable at-will or on short notice from the customer). Recent economic and related events stemming from the current pandemic may also force CVCs to scrutinize commercial agreements more carefully as a baseline to any investment transaction, including whether or not the company can, in fact, perform its obligations and/or how such events may impact a company’s supply chain or other business operations both now and in the future.

CVC investment offers many benefits to the portfolio company. First, the CVC and its parent organization will bring in-depth industry knowledge and experience that can help foster the company’s success. Additionally, the parent organization may later pursue a broader commercial relationship or other transaction with the company. These benefits come with the need for the company to understand the business dynamics of a large organization, where investments with greater importance or strategic alignment require the CVC to complete a deeper level of diligence before making such an investment. For example:

• Evidence of Misappropriation. While inadvertent patent infringement can often be understood as a risk of doing business, trade secret claims in particular and some copyright claims have at their core an element of scienter and intentionality. Even where the objective of a CVC investment is largely financial, a CVC and its parent organization will not want to tarnish its own brand and reputation through association with a company that carries the stigma of a bad actor. The same effect can flow from a company’s blatant or reckless misuse of open source software, particularly in consumer-oriented products where the open source community tends to be highly vocal and intolerant of noncompliance. CVCs will often look more carefully at data security and protection of any valuable customer or other data held by the company to ensure that the company is not at risk of a potential data breach, which not only potentially undermines the CVC parent’s reputation, but may also invite significant regulatory or class action risk.
• Patent Matters. CVCs in certain technology sectors will pay additional attention to a company’s positioning in patent matters. In crowded fields, CVCs may be more prone to examine the quality and strength of a company’s patent portfolio to determine if its investment is worthwhile or if others will simply be able to freely replicate the technology in the short term. On the other side of the coin, a CVC’s parent organization may have specialized knowledge and be wary of patent thickets, causing it to at least enquire about any freedom-to-operate analyses that have been conducted. In some cases (although somewhat rare) the parent organization may even require a company to undertake such analyses as a condition of investment, so there is opportunity to develop a design-around before committing large amounts of time or money to the relationship. Finally, a CVC’s parent organization with an established patent portfolio will take a long, hard look at the company’s participation and membership in standards setting organizations, multi-source agreements and similar projects that may require the parent, if a future acquisition is a desired objective, to grant patent licenses to third parties, including its competitors, on a F/RAND or any other basis, or otherwise restrict the parent from asserting its patents.
• Additional Material Commercial Agreement Considerations. Early in its lifecycle, a company may find itself granting exclusive rights or agreeing to sole supplier, most favored nations, rights of first refusal, and other restrictive contractual provisions with customers, partners and suppliers in order to gain traction. Unless such rights/restrictions are artfully cornered-off or time limited to serve their legitimate purpose, the result can be an unintended poison pill for a CVC’s parent organization that is targeting a future potential strategic partnership or acquisition. Similarly, a company’s commercial entanglements with, or dependencies on, competitors of the CVC’s parent or its group companies may sour a transaction, even if the parent’s investment motivation is largely financial.
• Important Operational and Compliance Matters. Due to market size, applicable regulatory frameworks and self-industry regulations, as well as market-based scrutiny, CVC parent organizations are continuing to develop a broad and more robust range of company-wide policies and procedures for legal, compliance and operational matters. Those policies and procedures typically apply to all subsidiaries of a CVC parent and some of those policies may also be applied from time to time in the context of building a strategic partnership with a CVC parent. In the context of a potential CVC investment where the desired intent is to develop a future strategic partnership (e.g., joint venture, material collaboration or customer relationship) or possibly acquire the business down the road, a CVC may scrutinize a company’s existing legal, compliance and operational policies and procedures and require the company to ensure that they are current with, or can in the future be brought current with, the applicable compliance requirements and needs of the CVC parent if such a transaction were to occur.

Of Course, Still Execute at “Venture-Speed”

Whether a CVC is conducting a baseline level of IP and commercial diligence similar to a traditional venture capital investor or diving more deeply for purposes of a potential investment transaction with significant strategic objectives, it is critical for the CVC unit, its parent organization and its outside advisors to be prepared to expedite the diligence process and move with efficiency and practicality to completion and closing. Such is the nature of a venture investment as well as the expectations of startup companies and their other venture investors.

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Quick Updates

How Will SCOTUS Resolve the Circuit Split on Recovery of Profits for Trademark Infringement?

By Troy Sanders

Trademark owners and retailers of trademarked products await the U.S. Supreme Court’s ruling in Romag Fasteners v. Fossil on whether, under Section 35 of the Lanham Act, 15 USC § 1117(a), willful infringement is required for an award of an infringer’s profits for a violation of Section 43(a), 15 USC § 1125(a). This decision will set the standard for awarding a key form of monetary relief sought in trademark infringement litigation.

The U.S. Courts of Appeals have long been divided on this issue. In the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits, a plaintiff is not required to prove the infringement was willful to recover profits. In contrast, the Second, Eighth, Ninth, Tenth and D.C. Circuits require a showing of willfulness to award profits. The First Circuit requires willfulness only when the litigants are not direct competitors.

Romag Fasteners v. Fossil started in the Second Circuit. Romag, a magnetic snap fastener maker, sued Fossil, the fashion design and manufacturing company, for patent and trademark infringement, claiming that Fossil sold handbags, containing counterfeit snaps, to retailers. The district court held that Romag was not entitled to profits because Fossil’s infringement was not willful. On appeal, the Federal Circuit affirmed the district court’s ruling, upheld Second Circuit precedent and concluded that a 1999 amendment to the Lanham Act did not resolve the “conflict among the courts of appeals as to whether willfulness was required for recovery of profits.” The U.S. Supreme Court later granted Romag’s petition for a writ of certiorari and heard oral arguments on January 14, 2020.

In its briefs and before the Court, Romag argued that the text of Section 35 only requires a “violation” of § 1125(a), not a “willful violation,” as required for § 1125(c) after the 1999 amendment. Romag stated that the Lanham Act’s statutory structure, which “contains eight provisions tying monetary relief to a heightened mental state,” makes clear that willfulness is not required to award profits. In its defense, Fossil argued that the phrase “principles of equity” in Section 35 dictates a common law willfulness requirement to award profits, rather than a multifactor analysis as Romag claimed. Regarding the 1999 amendment, Fossil argued that the legislative record shows Congress did not acknowledge or intend to address the willfulness requirement.

During oral arguments, the justices focused on the definition of willfulness. Justices Sotomayor and Ginsburg noted that caselaw does not support a uniform definition of willfulness. Given the uncertainty regarding the definition, Justice Kavanaugh asked why the Court should assume Congress wanted to exclude reckless infringement and what the policy objective would be for doing so. Justice Kagan noted that many cases treat willfulness as “a significant factor, but not a gateway requirement.” Justice Ginsburg also noted the plain language of Section 35 and Justice Gorsuch asked if “principles of equity might be an unusual way of saying willfulness[.]” Justice Alito asked if willfulness as a necessary condition has led to any unjust results. Justice Breyer highlighted a clause in Section 35 giving courts discretion to adjust an award if the amount of recovery based on profits is inadequate or excessive. Finally, Chief Justice Roberts considered the meaning of equity and whether it includes profits.

The Court’s questioning suggests a reluctance to foreclose the recovery of profits in situations where an infringer’s conduct is clearly wrongful. In the absence of clear guidance from Congress, the Court seems unwilling to risk imposing a willfulness requirement when it is not clear whether other culpable mental states, such as recklessness or callous disregard, would be excluded. Therefore, it seems unlikely that the Court will hold that Section 35 requires willful infringement for an award of profits. The decision is expected in late June or early July.

UPDATE: On April 23, 2020, the Court unanimously ruled in favor of Romag, holding that “[a] plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a precondition to a profits award.” However, the Court also noted that willfulness remains an important factor to consider in trademark infringement cases, with Justice Gorsuch writing that they “do not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.”

Express License for “Uncle” Patent Leads to Implied License for Asserted Patent

By Catherine McCord

In Cheetah Omni v. AT&T Services, the U.S. Court of Appeals for the Federal Circuit recently issued a decision that stresses the importance of meticulously drafting license agreements.

In February, the court denied an attempt by Cheetah, an optical products developer, to revive its patent infringement suit against AT&T and Ciena Communications, ruling that the defendants were impliedly licensed under the patent-in-suit, U.S. Patent 7,522,836. In an earlier suit, Cheetah had asserted a separate patent, U.S. Patent 7,339,714, against Ciena. That suit was settled with Cheetah’s grant of an irrevocable license to Ciena and its affiliates to “Licensed Patents” which, as defined, included the ’714 patent and all parents and related patents. Notably, the ’714 patent is a continuation-in-part of U.S. Patent 6,943,925, which, as the grandparent of the ’714 patent, is an expressly licensed patent under the agreement; the at-issue ’836 patent is a continuation of a continuation of the ’925 patent.

The Federal Circuit was tasked with assessing whether Cheetah had impliedly licensed the ’836 patent because it had already licensed that patent’s “uncle” and “grandparent.” Citing its previous ruling in General Protecht Group v. Leviton Manufacturing Company, the court answered in the affirmative, ruling that an implied license arises “where a patentee has licensed or assigned a right, received consideration, and then sought to derogate the right granted.”

Citing another of its precedents, TransCore v. Electronic Transaction Consultants, the court reasoned that legal estoppel provides an implied license to a related, later-issued patent that was broader than and necessary to practice an expressly licensed patent. In addition, General Protecht held that an express license to a patent includes an implied license to its continuations, including where the continuation claims are narrower than the claims of the expressly licensed patent. Consequently, because Cheetah had expressly licensed the ’925 patent, the grandparent to the ’836 patent, Cheetah had impliedly licensed the ’836 patent to Ciena and its affiliate AT&T, the court said.

This decision also makes clear that “the timing of patent issuance is not material to the policy rationale underpinning [the] implied license presumption.” In short, an implied license may arise regardless of whether the patent in question was issued prior or subsequent to the execution of the agreement.

Because the analysis in General Protecht revolved around an agreement that had been executed before the issuance of the continuation patent the court found was impliedly licensed, Cheetah argued that that holding did not extend to patents existing at the time of the agreement. The Federal Circuit disagreed, concluding that it is easier for parties to identify an already-issued patent and expressly exclude it from a license if it so chooses. Likewise, the court rejected Cheetah’s argument that there was no implied license because the ’836 patent covers a different, narrower invention because “the same inventive subject matter was disclosed in the expressly licensed patents.”

The Cheetah decision reinforces the importance of precisely delineating which patents are and are not included in a license. The license agreement between Cheetah and Ciena did not explicitly identify the ’836 patent, a fact that Cheetah argued weighed against an implied license. Nonetheless the Federal Circuit concluded that the naming of certain patents “does not evince a clear mutual intent to exclude other patents falling within the general definitions in an agreement.” The fact that the license agreement listed broad categories of patents without specifically identifying their numbers further supported the court’s decision.

The Ongoing Importance of Copyright Registration

By Brandon Cheung, Diana Lock and Jennifer Stanley

One year ago, the U.S. Supreme Court held in Fourth Estate Public Benefit Corp. v. Wall-Street.com that an approved or rejected application for registration is a nationwide prerequisite for initiating a copyright infringement suit under § 411(a) of the Copyright Act, serving as a helpful reminder of the importance of prompt and timely registration with the U.S. Copyright Office.

Copyright registration is relatively straightforward. Standard registration requires (1) completing an application, (2) paying an application fee, and (3) depositing material to identify the work with the Copyright Office. Note that the effective date of the registration is the date the Copyright Office receives all completed materials.

Copyright registration, although not necessary for copyright ownership, offers many benefits, including:

• Evidence of validity. A registered copyright, if registered within five years of publication, establishes a prima facie case of validity for both the copyright itself and the facts stated in the registration certificate.
• Statutory damages. The question of damages in a copyright infringement lawsuit is a fact-specific inquiry that requires a showing of actual damages, such as lost sales and opportunities, and the infringer’s profits attributable to the infringement, each to a high degree of certainty. A valid copyright registration made either (1) prior to infringement, or (2) within three months of publication of the work enables copyright owners to bypass this inquiry and, if they wish, seek statutory damages between $750 and $30,000 per infringement, and up to $150,000 in the case of willful infringement. Moreover, a court may also award filing fees and reasonable attorneys’ fees in favor of a copyright owner.

Additionally, a registered copyright will provide:

• A public record of ownership. While copyright automatically vests in the author of a creative work under the Copyright Act, a copyright registration provides evidence of ownership and can cut off certain defenses of so-called innocent infringement.
• Protection from infringing exports. A registered copyright can be recorded with the U.S. Customs and Border Protection for protection against the importation of infringing works.
• Satisfaction of deposit requirements. The deposited work submitted during the registration process will fulfill the mandatory deposit requirement under § 407 of the Copyright Act.

There are minimal downsides to copyright registration. The registration fee is non-refundable, and the Copyright Office may need four to six months to process an online application and longer for applications sent by mail, especially during the pandemic when paper applications will not be examined. However, unregistered works that are infringed still require registration before filing a lawsuit, which could require payment of an additional Copyright Office fee (currently $800) to expedite review within five to 10 business days. The copyright owner would not be eligible to claim statutory damages or attorneys’ fees if the expedited registration occurs more than three months after first publication. Please note, however, that the CARES Act authorized the Copyright Office to extend the three-month window for those applicants who can show that the pandemic prevented them from complying with the deadline and who submit a statement certifying under penalty of perjury that they would have met the three-month deadline but for the emergency. For instance, an applicant may be eligible for an extension of the three-month window if she is unable to mail physical deposit materials to the Copyright Office or lacks access to a computer.

Given the importance of registration and the additional benefits of completing the process early on, it is always a best practice to register copyrights promptly after publication.

Large Verdict Awarded After Illinois Court Says DTSA Has Extraterritorial Effect in Private Actions

By Jordan Bradford-Shivers

On March 5, 2020, the U.S. District Court for the Northern District of Illinois entered final judgment awarding Motorola Solutions $764.5 million, the maximum damages requested by the company, in a trade secret dispute against radio manufacturer Hytera Communications. Motorola had alleged that Hytera, a competitor, hired three Motorola engineers who stole technical, confidential documents, including trade secrets that Hytera used to develop a radio functionally indistinguishable from Motorola’s.

The large jury verdict was made possible by the Illinois court’s January 31, 2020, order holding that the Defend Trade Secrets Act has extraterritorial effect in private causes of action if either of the requirements in § 1837 of the Economic Espionage Act are met.

In finding that the DTSA has extraterritorial effect, the court applied the Supreme Court’s two-step framework for analyzing extraterritoriality issues promulgated in RJR Nabisco v. European Community. Step one is to determine “whether the statute gives a clear, affirmative indication that it applies extraterritorially.” If the conclusion of step one is no, the court asks whether “the conduct relevant to the statute’s focus occurred in the United States.”

Applying this framework, the court held that the plain language of the DTSA as a whole overcomes the presumption against extraterritoriality. In its analysis, the court focused on § 1837’s broad reference to the Protection of Trade Secrets chapter, including the DTSA as a whole. It also highlighted other requirements in § 1837 indicating that Congress was concerned with actions taking place outside of the United States.

In this case, the court found that extraterritorial application of the DTSA was appropriate because Hytera’s actions satisfy the requirements in § 1837(b)(2), which states that the EEA—and the DTSA by incorporation—applies to conduct occurring outside the United States if “an act in furtherance of the offense was committed in the United States.” It found that Hytera’s marketing and promotion of its products in the United States was an act in furtherance of the use of Motorola’s trade secrets. As such, Motorola was permitted to argue for extraterritorial damages resulting from misappropriation that occurred after May 11, 2016, the effective date of DTSA.

The court proceeded to step two even though step one already established the DTSA applied extraterritorially. It held that this case nonetheless constituted a permissible domestic application of the DTSA. Moving to step two of the framework, the court found that the focus of the DTSA is on “creating a remedy for a trade secret’s owner for misappropriation.” Applying the same logic used in its application of § 1837(b)(2) to this case, it found that Motorola provided sufficient evidence to show that the use of the alleged trade secrets occurred domestically.

Extraterritorial application of the DTSA can lead to significant consequences. Although companies should always take standard measures to protect their trade secrets, this Illinois holding clarifies the expansive reach of the act. It also serves as a reminder to both foreign and U.S. companies to be aware of actions that could trigger extraterritorial application.