In This Issue
Supreme Court Expands Discretion to Award Enhanced Damages for Patent Infringement and Eliminates the Federal Circuit’s ‘Seagate Test’
In Halo Electronics, Inc. v. Pulse Electronics, Inc., the U.S. Supreme Court changed the law regarding when enhanced damages should be awarded in patent infringement cases by eliminating the two-part test for determining whether a district court may increase (or decline to increase) damages pursuant to 35 U.S.C. § 284, as required by the 2007 en banc Federal Circuit Court of Appeals decision, In re Seagate Technology. — Michael J. Sacksteder and Scott Tolchinsky
The TPP’s Intellectual Property Chapter (Chapter 18) establishes complex, detailed provisions pertaining to patents, copyrights, and trademarks, as well as rules regarding procedure, enforcement, and remedies. — Ciara N. McHale and Andrew P. Bridges
Second Circuit Finds DMCA Grants Safe Harbor to Service Providers for Pre-1972 Sound Recordings — Kathleen Lu and Jennifer Stanley
“Reaching Back” to Acts of Continuing Misappropriation Under the Defend Trade Secrets Act — Ronnie Solomon and Patrick E. Premo
TTAB Precedential Decision on Marijuana: How the TTAB Got It Wrong — Moira Lion
U.S. Government Accountability Office Releases Two Reports on the United States Patent & Trademark Office and a Survey of USPTO Examiners — Lauren E. Whittemore
Supreme Court Expands Discretion to Award Enhanced Damages for Patent Infringement and Eliminates the Federal Circuit’s ‘Seagate Test’
By Michael J. Sacksteder and Scott Tolchinsky
In Halo Electronics, Inc. v. Pulse Electronics, Inc., the U.S. Supreme Court changed the law regarding when enhanced damages should be awarded in patent infringement cases by eliminating the two-part test for determining whether a district court may increase (or decline to increase) damages pursuant to 35 U.S.C. § 284, as required by the 2007 en banc Federal Circuit Court of Appeals decision, In re Seagate Technology. By abandoning the Seagate Test, the Court has broadened the standard to an inquiry centering on whether the circumstances of a particular case represent an “egregious” example of misconduct that goes “beyond typical infringement.” The new standard emphasizes the subjective state of mind of the accused willful infringer at the time of infringement, removing an objective threshold that had made the issue more amenable to summary judgment during litigation.
History of Enhanced Damages
Enacted as part of the 1952 codification of the Patent Act, § 284 provides that, in a case of patent infringement, courts “may increase the damages up to three times the amount found or assessed.” In Aro Manufacturing Co. v. Convertible Top Replacement Co., the Supreme Court described § 284 as providing that “punitive or ‘increased’ damages” could be recovered “in a case of willful or bad-faith infringement.”
Shortly after the creation of the Federal Circuit, the court fashioned a standard for willful infringement: “[w]here... a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.” Underwater Devices Inc. v. Morrison-Knudsen Co. Over time, this duty of due care standard focused on the egregiousness of the defendant’s conduct based on all the facts and circumstances, such as in Read Corp. v. Portec, Inc.
In applying this “totality of circumstances” test, certain factors were developed to help guide courts: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer’s behavior as a party to the litigation; (4) defendant’s size and financial condition; (5) closeness of the case; (6) duration of defendant’s misconduct; (7) remedial action by the defendant; (8) defendant’s motivation for harm; and (9) whether defendant attempted to conceal its misconduct.
In 2007’s Seagate decision, the en banc Federal Circuit rejected the duty of care standard articulated in Underwater Devices, adopting instead a two-part test that focused on “objective recklessness.” The first step of the Seagate Test was entirely objective– the patent owner was required to “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” The Federal Circuit later held that this first step was a question of law for the court. See Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc. Second, if the first part of the test was satisfied, the patentee was required to demonstrate, also by clear and convincing evidence, that the objectively high likelihood of infringement “was either known or so obvious that it should have been known to the accused infringer.” The Seagate Test generally made it more difficult for patentees to prevail on a claim of willful infringement. Accused infringers could often avoid facing a willfulness claim before trial by pointing the judge to reasonable defenses regarding noninfringement or invalidity. Even if those defenses were ultimately unsuccessful, courts often found them to negate any “objectively high likelihood… [of] infringement of a valid patent.”
New Standard for Enhanced Damages Announced in Halo v. Pulse
In June of this year, the Supreme Court rejected the Seagate Test in Halo Electronics, Inc. v. Pulse Electronics, Inc., describing it as an “unduly rigid” test that “encumbers the statutory grant of discretion to district courts.” The Court noted that the “principal problem” was that the test “requires a finding of objective recklessness in every case” and that such a threshold excludes from punishment many of the “most culpable offenders,” who may have acted without regard to whether reasonable defenses could later be raised.
In a broadening of the standard for enhanced damages, the Court explained that “the pertinent language of § 284 contains no explicit limit or condition on when enhanced damages are appropriate” and noted that “although there is ‘no precise rule or formula’ for awarding damages under § 284, a district court’s ‘discretion should be exercised in light of the considerations’ underlying the grant of that discretion.” In exercising this discretion, courts are to “take into account the particular circumstances of each case.” The ultimate question for courts is whether the facts of a particular case represent an “egregious” example of “misconduct” that goes “beyond typical infringement.” Given the vagueness of this new standard, perhaps courts will look for guidance in the factors used in the totality of circumstances test before Seagate. Because of the breadth of the standard and the wide variety of potential factual scenarios, the law concerning which types of behavior are sufficiently egregious to support an award of enhanced damages will likely be slow to develop.
Questions Arising from the Halo Decision
The Court’s emphasis on the “particular circumstances” of the case suggests that there are factual issues to resolve before the court exercises its discretion to award enhanced damages. However, the Court did not make clear who would be the arbiter of the facts in determining whether the infringement is sufficiently “egregious” or “willful” to permit the court to exercise its discretion under § 284. That task remained for the Federal Circuit, which in WBIP, LLC v. Kohler Co. recently resolved the issue in favor of sending at least the underlying facts to the jury: “[w]e do not interpret Halo as changing the established law that the factual components of the willfulness question should be resolved by the jury.” A purely factual finding of willfulness by the jury, however, somewhat divorces the concept of willfulness from the ultimate determination of statutorily prescribed enhanced damages by the court.
With the question of willfulness treated as a factual inquiry determined at least partly by the jury, accused infringers face the danger of substantial prejudice not just on the issue of willfulness, but also concerning infringement, invalidity, and damages. Willfulness evidence at trial often focuses on characterizing the accused infringer as a “bad actor” in the eyes of the jury, and the resulting mindset may sometimes poison the minds of the jury against the accused infringer regarding unrelated issues. Seagate’s objective prong often allowed accused infringers to keep such evidence from the jury entirely. Doing so under Halo appears significantly more difficult, requiring a showing of no willfulness that satisfies the summary judgment standard: that no genuine issues of material facts exist, and that the accused infringer is entitled to judgment on willfulness as a matter of law. See, e.g., TransData, Inc. v. Centerpoint Energy Houston Elec. LLC et al (vacating summary judgment of no willfulness, in light of Halo, since it was based on lack of objective recklessness). In order to avoid such prejudice, some courts may choose to bifurcate willfulness such that it is tried after a jury has reached a verdict on liability. See Peter S. Menell et al., Patent Case Management Judicial Guide, UC Berkeley (July 29, 2015).
Other Impacts on Patent Litigation Moving Forward
One essential consequence of Halo’s broader standard is a greater likelihood of enhanced damages being awarded against an accused willful infringer. This possibility may change a defendant’s strategy in negotiating settlements. Without the threshold requirement of “objective recklessness,” which has allowed courts to grant summary judgment earlier in litigation, defendants may be more reluctant to risk the issue – and the evidence that goes with it – going to the jury. Hence, settlements may be reached earlier and/or increase under a greater threat of enhanced damages.
The new standard also might result in an increased reliance on opinion of counsel letters. Prior to Seagate, under the duty of due care standard, accused willful infringers commonly asserted an advice of counsel defense. See Underwater Devices (“Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”). Under this defense, the accused willful infringer attempted to establish that its continued activities were reasonable due to reliance on advice of counsel – typically concluding that the patent is invalid, unenforceable, and/or not infringed. In 2004, because of concerns regarding waiver of privilege when disclosing opinion of counsel, the Federal Circuit held in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corporation that an accused infringer’s failure to obtain legal advice does not give rise to an adverse inference with respect to willfulness. Congress later codified this holding in 35 U.S.C. § 298. But now that the Supreme Courthas abrogated the objective standard set in Seagate, courts will be focused more on the subjective state of mind of the accused infringer. Thus, it may often be advisable to obtain an exculpatory opinion of counsel, even though failure to obtain such an opinion cannot be used against the accused infringer.
In sum, the effects of the Halo decision will be borne out as more courts and litigants wrestle with these issues. Given the generalized nature of the new standard and the breadth of potential factual scenarios, it will take time for courts to provide more guidance as to what behavior is sufficiently egregious to give rise to willfulness. Until such time, the less predictable possibility of enhanced damages will loom as a threat during litigation and affect parties’ strategies.
The TPP’s Trademark Provisions: Expanding Power at the Potential Cost of Balance in the Marketplace
The Trans-Pacific Partnership, which a number of nations have signed, now awaits ratification in the United States. It has aroused extensive controversy and has been a topic of discussion in this year’s presidential election. The Intellectual Property Chapter (Chapter 18) among other sections, raises a number of potentially troubling issues. Commentators have paid much attention to the Intellectual Property Chapter’s controversial copyright provisions. The trademark provisions raise similar concerns. As with the copyright provisions, virtually all of the trademark provisions in the TPP appear to favor protections for established trademark claimants over new entrants. While some commentators have suggested that the IP provisions of the TPP generally align with existing U.S. law, a close review of the trademark provisions in the IP chapter reveals that is not the case. In many instances, these provisions significantly extend trademark claimant powers in the Agreement on Trade-Related Aspects of Intellectual Property Rights and are inconsistent with the balance present in relevant provisions in U.S. law. Consequently, the language of the TPP trademark provisions could support arguments that current U.S. law should be changed, and stakeholders should understand and consider carefully the implications of those changes. Those possible changes appear to favor the positions of the largest brand owners, potentially at the expense of small businesses, emerging brand owners, consumers, and the public generally. Here is a look at a number of the TPP’s key trademark provisions.
The Range of Registrable Marks
Article 18.18 of the TPP establishes an expansive range of registrable marks that includes sound and scent marks, which are nontraditional in many countries, although more familiar in the United States. Notably, this is a departure from TRIPS Article 15.1, which provides that members to that agreement may require that marks be visibly perceptible to qualify for registration. But in a departure from established U.S. law and practice (see 37 C.F.R. § 2.52(e)), Article 18.18 does not require that the claimant represent the mark graphically or submit a written description of the mark for registration. Consequently, this provision has the potential to promote indeterminate claims of trademark rights, which could lead to abuse.
Moreover, the TPP does not appear to require any level of distinctiveness of a trademark, for example, that a mark be capable of distinguishing goods or services from others. As a result, the TPP appears to authorize rights in generic and merely descriptive terms or signs.
Registered vs. Common Law Marks
The TPP trademark text appears to favor later-registered trademarks over earlier common law trademarks. For example, Article 18.20 governs the use of identical or similar signs and delineates the exclusive rights in such marks, but it applies only to “the owner of a registered trademark” (emphasis added). Although this language mirrors language in TRIPS Article 16.1, it departs from U.S. trademark law under the Lanham Act, which provides for exclusive trademark rights to owners of both registered and common law marks.
The Presumption of a Likelihood of Confusion
Article 18.20 allows a conclusive presumption of likelihood of confusion for use of identical marks for identical goods or services, mirroring similar language in TRIPS Article 16.1. But there can be occasions where marks that appear to be identical on paper may not be identical in real-life marketplaces, and a presumption of likelihood of confusion could thwart a newcomer’s legitimate noninfringement arguments. For example, a trademark registration for “computers” might appear to preclude a new trademark of another company for “computers,” but if one trademark is only for mainframe computers and the other is only for a smartphone – both of which may accurately be described as “computers” – there may well be no likelihood of confusion. It is not clear what national interest supports including this provision in the agreement.
It is also unclear what effect this presumption could have on the power and discretion that U.S. courts have to issue injunctive relief, as Article 18.20 provides an “exclusive right to prevent third parties... from using” a registered mark, but contains no reference to any equitable limitations on that right (emphasis added).
Absence of Provisions Regarding Use of a Trademark
The TPP contains no provisions that require use of a trademark at any time. For example, Article 18.26 provides a term of protection for trademarks of no less than 10 years for initial registration and each renewal thereafter, but it is silent on the issue of whether registration or renewal requires the registrant to demonstrate trademark use. In contrast, Section 8 of the U.S. Lanham Act provides a virtually identical term of protection but requires that the registrant periodically file affidavits attesting to use of the mark in commerce in connection with goods and services. In the TPP, there is no provision allowing a member country to require anything like the Lanham Act’s Section 8 periodic declaration stating that a mark is in use. Nor does the TPP contemplate cancellation for nonuse. Similarly, it offers no provisions to address any kind of abandonment, including abandonment for nonuse or a presumption of abandonment based upon a period of nonuse. The only provision that touches on the issue of abandonment is in Article 18.32, which governs grounds of opposition and cancellation of Geographical Indications, not trademarks. Consequently, it appears that the TPP promotes trademark rights even absent use in the market to distinguish goods or services, the core function that trademark rights serve. This will potentially allow for “dog-in-the-manger” abuses of trademark rights (where a rights holder with no need of or use for the trademark he owns can prevent others from using the mark) and inefficient holding and warehousing of marks.
“Well-Known Marks” and “Niche” Fame
Article 18.22 governs well-known marks. As a preliminary matter, the well-known marks doctrine, memorialized in Article 6bis of the Paris Convention, provides protection over a mark not in use in a particular nation if it is sufficiently well-known in that nation but used elsewhere. See 5 McCarthy on Trademarks and Unfair Competition § 29:61 (4th ed.). There is disagreement among U.S. circuit courts and commentators as to whether U.S. trademark law, particularly the Lanham Act, has incorporated this doctrine.
The TPP’s well-known marks provision applies pressure to this ambiguity, incorporating and referencing Article 6bis and setting forth provisions relating to well-known marks. Article 18.22(1) provides that “no Party shall require as a condition for determining that a trademark is well-known that the trademark has been registered in the Party or in another jurisdiction, included on a list of well-known trademarks, or given prior recognition as a well-known mark.” This article also expands the reach of the well-known mark doctrine in Article 6bis to apply to goods or services that are not identical or similar to those identified by a well-known trademark if “use of that trademark in relation to those goods or services would indicate a connection between those good or services and the owner of the trademark, and provided that the interests of the owner of the trademark are likely to be damaged by such use.”
Finally, footnote 13 to Article 18.22 opens the door to niche fame, or fame within only a particular (small) geographic area, providing that a member nation determining whether a trademark is well known in that nation “need not require that the reputation of the trademark extend beyond the sector of the public that normally deals with the relevant goods or services.” Stakeholders should be aware that this is a departure from current U.S. law, specifically the Trademark Dilution Revision Act of 2006, as codified at 15 U.S.C. § 1125(c)(2)(A), which specifically repudiated a niche fame basis for dilution claims.
Limited Exceptions/Fair Use
Article 18.21 governs exceptions to trademark rights and maps directly to TRIPS Article 17. Article 18.21 points out that a party may provide for only “limited” exceptions to trademark rights. The provision further specifies that provision of any such limited exceptions must take into account the “legitimate interest of the owner of the trademark and of third parties,” language that resembles the traditional three-step test for copyright exceptions and limitations in other multinational treaties. While this language may not be terribly significant, the text provides no examples of use cases where these limitations are important or where a “limited exception” might actually exist. In this way, it is possible that Article 18.21 will prove to be excessively narrow and favor stronger trademark power, to the detriment of potentially legitimate uses.
Article 18.28 governs domain names and carries potentially significant privacy implications. This provision concerns requirements for member nations’ systems for management of country code top-level domain names, including “an appropriate procedure for the settlement of disputes, based on, or modelled along the same lines as, the principles established in the Uniform Domain-Name Dispute Resolution Policy.” Article 18.28(1)(a).
Notably, Article 18.28(1)(b) requires that the member nation maintain “online public access to a reliable and accurate database of contact information concerning domain-name registrants.” This language jeopardizes privacy protections where domain owners wish to remain anonymous. Although 18.28(1) establishes these procedures and systems “in accordance with each Party’s law and, if applicable, relevant administrator policies regarding protection of privacy and personal data,” this caveat is unclear and provides no assurance that this provision of the TPP will not degrade the privacy rights of domain registrants.
The benefits of the TPP’s trademark provisions to American citizens and enterprises are not apparent, and they may be detrimental to small and medium-sized enterprises that try to enter new markets. While some might consider the TPP trademark provisions to be in line with current U.S. law, this is not entirely the case, and it is unclear why the TPP departs from the balancing provisions of current U.S. trademark law. To date, there has not been a readily apparent forum or mechanism for obtaining authoritative answers to questions about the agreement and its text from the United States Trade Representative. Any potential explanation that only expansion provisions need to be explicit, and that limiting principles need not be expressed, is not satisfying. In this way, the text of the TPP’s trademark provisions are emblematic of a disturbing trend at the core of the TPP: the bolstering of statutory monopoly powers on an international scale, often to the benefit of large, multinational companies in a manner that departs from current U.S. law, and the loss of Congress’ sovereignty to depart from TPP provisions and decide intellectual property issues in the best interest of U.S. consumers, smaller brand owners, domestic companies, and the public.
Second Circuit Finds DMCA Grants Safe Harbor to Service Providers for Pre-1972 Sound Recordings
By Kathleen Lu and Jennifer Stanley
In Capital Records v. Vimeo, the Second Circuit Court of Appeals issued an important decision on the Digital Millennium Copyright Act § 512 safe harbor. Capitol Records and a number of other record labels had sued Vimeo, a video-hosting platform, over user-uploaded videos that contained songs in which plaintiffs claimed copyright ownership. Capitol Records had never sent any takedown notices for these videos, and Vimeo claimed the DMCA safe harbor’s immunity from monetary damages.
Reversing the district court, the Second Circuit found that the safe harbor covers state copyrights in pre-1972 sound recordings. Section 301 of the Copyright Act of 1976 specified that the Act’s preemption of state copyright law rights and remedies for pre-1972 sound recordings would not kick in until February 2047. The 1998 amendments extended copyright terms and the time period before preemption for 20 years. Rejecting a 2011 Copyright Office statutory interpretation, which concluded that § 512 did not give protection against state law copyright claims due to § 301 and its amendment in 1998 at the same time Congress passed the DMCA, the Second Circuit found that the Copyright Office had misread the statute and incorrectly applied canons of statutory interpretation. Leaving state copyright law out of the safe harbor’s scope was at odds with the DMCA’s wording and would have substantially defeated its purpose to allow Internet service providers to store materials at the direction of users without expensive monitoring or screening. This decision puts the Second Circuit, the only federal appellate court to rule on the issue, directly at odds with a New York state appellate court decision in UMG v. Escape Media, which held that the safe harbor does not apply to state law copyright claims on pre-1972 sound recordings. While the Second Circuit did not address the conflict, this new ruling may give future defendants incentive to push any New York state law copyright claims to federal courts under the Second Circuit’s umbrella.
The Second Circuit also affirmed the district court’s ruling that plaintiffs had not shown systematic willful blindness by Vimeo. Vimeo did not proactively screen for potentially infringing audio in the videos users uploaded, though it did screen against some visual elements, and in isolated instances, some Vimeo employees appeared to encourage infringement in communications with specific users. This was insufficient. Plaintiffs’ interpretation was at odds with § 512(m)’s statement that service providers had no general obligation to monitor for infringements to enjoy the safe harbor’s protection, and the isolated instances of encouragement did not concern the songs at issue (where they might have been red flags of specific infringements).
As to specific videos, the Second Circuit affirmed the district court’s grant of summary judgment to Vimeo, stating that plaintiffs had no evidence that Vimeo employees had viewed them. It also remanded to the district court with instructions to grant summary judgment to Vimeo as to any videos where plaintiffs had failed to present evidence of specific disqualifying knowledge. Building on Viacom v. YouTube, which held that disqualifying “red flag” knowledge requires actual knowledge of facts that would make the specific infringement at issue objectively obvious to a reasonable person, the court ruled that the “reasonable person” under this test is an ordinary person with no specialized knowledge or expertise concerning music or copyright law (emphasis added). Under this test, the mere fact that an employee viewed a video containing all or nearly all of a “recognizable” song, without more, is insufficient. Furthermore, while the initial burden of proof for demonstrating safe harbor qualification is on the service provider, the burden of proof for showing disqualifying “red flag” knowledge lies on the party claiming infringement (although it is entitled to discovery on the service provider’s knowledge, a holding that may exacerbate service providers’ defense costs in future cases). Thus, as to each specific video, unless plaintiffs could point to subjective belief of infringement or “facts making that conclusion obvious to an ordinary person,” Vimeo was entitled to summary judgment.
“Reaching Back” to Acts of Continuing Misappropriation Under the Defend Trade Secrets Act
By Ronnie Solomon and Patrick E. Premo
On May 11, 2016, the Defend Trade Secrets Act of 2016 was enacted, creating federal jurisdiction for a civil claim for trade secret misappropriation. The DTSA applies to the misappropriation of trade secrets for which “any act occurs on or after” May 11, 2016. The DTSA has a three-year statute of limitations, and for purposes of the limitations period, the act states that “a continuing misappropriation constitutes a single claim of misappropriation” (emphasis added).
One important area not specifically addressed by the language of the DTSA is whether the law applies to acts of continuing misappropriation that commenced prior to the DTSA’s enactment. For example, suppose an individual began misappropriating a former employer’s trade secrets in the years prior to the DTSA’s date of enactment, continuously until his departure sometime after May 11, 2016. Would a plaintiff’s claim alleging trade secret misappropriation under the DTSA be barred? The DTSA is silent on this specific point.
Since the drafters of DTSA purposely looked to the Uniform Trade Secrets Act, and intended to mirror protections afforded under existing state law, one can look to state trade secret misappropriation statutes for guidance, including the California Uniform Trade Secrets Act at California Civil Code § 3426 et seq. Unlike the DTSA, these statutes explicitly address whether acts of continuing misappropriation commencing prior to enactment are covered. The UTSA, when drafted, did not allow a plaintiff to “reach back” and sue for a continuing misappropriation that commenced prior to its effective date. It provides that “the [Act] also does not apply to the continuing misappropriation that occurs after the effective date.” CUTSA, on the other hand, does allow a plaintiff to partially “reach back.” While the part of the misappropriation occurring before CUTSA’s enactment would not be covered by CUTSA, the part occurring on or after the CUTSA enactment date would.
While the issue is one that the courts have yet to resolve, there is an argument that the DTSA’s silence means that the DTSA should be interpreted so that it does cover claims of continuing misappropriation commencing before the statute was enacted on May 11, 2016. This is especially true, given that trade secret statutes that came before the DTSA explicitly addressed the applicability to continuing misappropriation, while Congress chose to be silent and not include equivalent language in drafting the DTSA. Moreover, in a recent DTSA case, Henry Schein, Inc. v. Jennifer Cook, a court granted a motion for a preliminary injunction against a defendant based on alleged misappropriation that commenced on May 10, 2016 – prior to the DTSA’s enactment. Although the court did not explicitly address the issue of whether a plaintiff can “reach back,” that the court enjoined the defendant based on continuing acts that predate the DTSA serves as another strong indication that pre-DTSA continuing acts are covered.
TTAB Precedential Decision on Marijuana: How the TTAB Got It Wrong
By Moira Lion
In a precedential opinion, In re Morgan Brown, the Trademark Trial and Appeal Board affirmed an examiner’s refusal to register the trademark HERBAL ACCESS for use in connection with “retail store services featuring herbs,” on the grounds that the applicant was using the HERBAL ACCESS mark for the sale of marijuana, which is illegal under federal law. To qualify for a federal service mark registration (under Lanham Act §§ 1 and 45, 15 U.S.C. §§1051, 1127), use in commerce must be lawful.
Although the application only identified “retail store services featuring herbs,” the refusal was based on the submitted specimen of use (a retail storefront with a green cross symbol, which signifies marijuana) and a web search by the examiner showing that the applicant’s website states that it sells marijuana. The store is in the state of Washington, where marijuana has essentially been legalized, but federal law prohibits the manufacture, importation, possession, use, and distribution of marijuana under the Controlled Substances Act. Marijuana is a Schedule I prohibited drug under the CSA with no federally acknowledged medical uses.
The examiner did not request additional information about whether the applicant actually provided retail services featuring lawful herbs, as identified in the HERBAL ACCESS application. It is unclear whether the store actually sold lawful herbs, but the TTAB considered the possibility that the store actually sold lawful herbs to be irrelevant.
Given the evidence showing that the applicant’s mark was being used in connection with sales of marijuana, and because the “herbs” identified in the application could encompass marijuana, the TTAB found that the applicant’s “retail store services include sales of a good that is illegal under federal law, and therefore encompasses a use that is unlawful.”
The problem with this decision is that the TTAB relied on a broad interpretation of the lawful use in commerce requirement, interpreting it to mean that “any goods or services to which the mark is applied must comply with all applicable federal laws,” rather than just the identified goods or services for which federal trademark protection is actually being sought. Despite the lawful use in commerce requirement being a basis or precondition for obtaining a federal registration under the Lanham Act, the TTAB construed the requirement to be applicable to uses of the mark with goods and services that are not even being asserted as bases for establishing federal trademark rights in an application.
This interpretation that “any goods or services to which the mark is applied must comply with all applicable federal laws” has become the standard boilerplate language used by USPTO examiners for Sections 1 and 45 unlawful use refusals in office actions, and, unfortunately, the TTAB has now adopted it (emphasis added). This interpretation is attributed to the following excerpt from In re Midwest Tennis & Track Co., 29 USPQ2d 1386 (TTAB 1993): “[i]t is settled that the Trademark Act’s requirement of ‘use in commerce,’ means a ‘lawful use in commerce,’ and [that the sale or] the shipment of goods in violation of [a] federal statute... may not be recognized as the basis for establishing trademark rights ” (emphasis added).
The fact that a lawful use of a mark is required as a basis for establishing federal trademark rights similarly means that the unlawful sale of goods cannot be recognized as the basis for establishing federal trademark rights. However, construing this to mean that any goods or services that are actually offered under a mark in the real world must comply with all federal laws in order to obtain a federal trademark registration for other goods and services is outside the scope of the lawful use in commerce requirement.
Further, in finding that “herbs” encompasses illegal marijuana, the TTAB is essentially telling examiners that, for purposes of the lawful use in commerce requirement analysis, they can now consider whether any identified good or service in an application can encompass illegal goods and services, even though these goods and services are not contemplated by the application. The TTAB analogized this analysis to how goods and services identified in an application are interpreted broadly in descriptiveness refusals because “if [an] application matures into a registration, it will be presumed to include all types of specific goods and services that fall with[in] the identification in the registration.” While this principle is generally true, it is incompatible with the lawful use in commerce requirement. Once a mark is registered, the identification in the registration cannot, by law, contemplate unlawful goods or services; otherwise, the registration would be void for not having had a valid basis for establishing federal trademark rights becauseunlawful uses in commerce simply cannot be a basis for federal trademark rights under the Lanham Act.
To summarize the impact of this opinion, if an applicant is seeking a federal trademark registration based on lawful use of a mark with goods or services (satisfying the lawful use in commerce requirement), the application can still be refused for not being in lawful use in commerce if any unlawful goods or services are additionally provided under the mark in the real world and if the application could be read to encompass these unlawful goods or services. This is the case even though use of the mark for those unlawful goods or services is not being asserted as the basis of the application, and the applicant is not seeking federal trademark protection for the mark as used in connection with those unlawful goods or services.
In re Morgan Brown is a classic example of a case resulting in an outcome that is likely correct, but the legal analysis relied upon to get that outcome misconstrues the law in a way that has broad implications and sets a poor precedent. Realistically, the refusal was probably the right outcome in this case because the HERBAL ACCESS mark is likelyonly used for the sale of illegal marijuana “herbs,” which cannot be the sole basis of a valid federal trademark application. However, the TTAB’s overreaching interpretation of the lawful use in commerce requirement could have been avoided had the examiner:
(1) issued the refusal due to an insufficient specimen of use, as the specimen showed that use of the mark might only be for unlawful services, and the specimen needed to show the mark as used in the sale or advertising of the retail services for lawful herbs (see C.F.R. § 2.56(b)(2)); and
(2) requested additional information concerning circumstances surrounding the mark, including its use, to determine if the store actually used the mark for the sale of any lawful herbs (an examiner has authority to request more information under 37 C.F.R. § 2.61(b)).
The TTAB, similarly, could have affirmed the refusal on the grounds that the specimen of use was insufficient, as it did not show use of the mark for the identified services.
For trademark law practice purposes, In re Morgan Brown is a good reason not to forget the importance of state trademark registrations if marijuana is legalized in the state and the state recognizes it as a basis for establishing state trademark protection. The opinion also suggests that when applying for a federal registration, trademark practitioners with clients whose goods or services are related to marijuana: (1) should not submit specimens that solely highlight use for illegal goods or services; (2) should only be applying for the lawful goods or services that the client provides, such as information services; and (3) should consider expressly excluding marijuana goods and services if any good or service in the application could be viewed by an examiner as encompassing a marijuana-related good or service.
Whether federal trademark protection should be granted for marks used in connection with marijuana goods or services will continue to be a growing issue (one that may implicate constitutional rights). With more states legalizing marijuana, there will surely be more cases (and possibly changes to federal laws) on marijuana that will affect how marijuana is viewed under federal trademark law – and we may see these effects in the not-too-distant future.
U.S. Government Accountability Office Releases Two Reports on the United States Patent and Trademark Office and a Survey of USPTO Examiners
The significant growth of patent litigation over the last seven years and the increasing number of patents found to be invalid by court or the Patent Trial and Appeal Board has led Congress to consider how to ensure newly granted patents are strong. Rep. Bob Goodlatte (R-Va.) in his role as House Judiciary Committee Chairman, asked the Government Accountability Office to study the issue and provide recommendations. The GAO responded on July 20, 2016 with the release of two reports on patent quality at the United States Patent and Trademark Office and the results of a survey of over 2,600 USPTO examiners. Regarding the reports, Rep. Goodlatte stated, “The strength of the U.S. system relies on the granting of strong patents, ones that are truly novel and nonobvious inventions, those that are true innovations and not the product of legal gamesmanship.”
The first report focused directly on patent quality and examined recent trends in patent litigation. After analyzing current laws and patent litigation data from 2007 to 2015, surveying a sample of patent examiners, and interviewing USPTO officials as well as stakeholders, the GAO made a number of recommendations for the USPTO. As summarized in the report, they include: (1) more consistently defining patent quality and articulating that definition in agency documents and guidance; (2) reassessing the time allotted for examination; (3) using data from PTAB proceedings to improve patent quality; and (4) considering requiring applicants to use additional clarity tools.
The USPTO has no consistent definition of patent quality; stakeholders interviewed by the GAO for the report stated they would define a quality patent as one that would meet the statutory requirements for novelty and clarity, and would be upheld if challenged in a lawsuit or other proceeding. The USPTO has not assessed the effect of the time allotted for patent examination, or the effect of monetary incentives for examiners on patent quality. As the report notes, examiners are rewarded for timeliness and quantity, but are not eligible for bonuses related to patent quality. Approximately 70 percent of examiners believe that with their current workload, they do not have sufficient time to complete a thorough examination. For example, the USPTO “compact prosecution” policy encourages examiners to complete an examination within two office actions and to address all statutory issues of an application in the first office action. As a result, examiners need to guess what unclear claims mean in order to complete a prior art search. Another factor affecting quality of examination is allowing applications with unlimited claims. Not only do numerous claims make it more difficult for the examiner to fully examine the application, but a 2015 study by the USPTO showed that patents with many claims are more likely to be asserted in infringement lawsuits.
The GAO also found that another factor affecting patent quality is the use of very broadly worded patent applications, which nearly two-thirds of patent examiners said increased the difficulty of completing a thorough examination. To address that issue, the GAO recommended additional tools, such as a glossary of key terms. Other tools, such as check boxes to signal functional claiming language and claim charts, would make it easier for examiners to do an effective examination.
The GAO’s second report sought to identify ways to improve patent quality through use of the best available prior art. The GAO considered the challenges that examiners face in identifying relevant prior art, looked at how selected foreign patent offices have addressed challenges in identifying relevant prior art, and assessed the extent to which the USPTO has taken steps to address challenges in identifying relevant prior art. The GAO again surveyed patent examiners and interviewed USPTO officials as well as patent holders, attorneys, academics, and other stakeholders. As summarized in the report, the GAO’s recommendations include that the USPTO: (1) Develop a strategy to identify key sources of nonpatent literature; (2) Establish goals and indicators for prior art search quality; and (3) Collect sufficient information to assess prior art search quality.
While the USPTO is currently in the process of upgrading its search tools, examiners must access a variety of external sources to meet the USPTO’s requirement to consider nonpatent literature. The European Patent Office and the Japanese Patent Office have already included nonpatent literature in their in-house search tools, which results in more efficient searches. However, because the USPTO does not have a documented strategy for identifying additional sources, the GAO concluded that it did not make financial sense to invest in expanding its search tools without a documented strategy in place.
The GAO also found that examiners’ prior art search results are not consistently evaluated, in part because the USPTO has not established goals or indicators for search quality. The average time for a prior art search can differ significantly across technology centers. Without goals or indicators for search quality, it is not possible to understand whether those discrepancies are reasonable. According to the report, written guidance for each technology center about what constitutes a quality search would improve consistency and ensure thorough searches. Further, the USPTO may not be collecting sufficient information on the searches to properly assess quality, including the amount of time an examiner needs to search and document the sources considered, including U.S. patents, foreign patents, and nonpatent literature.
The USPTO has provided its initial responses to each of the recommendations and will continue to analyze them. When Congress reconvenes in the fall, the House Judiciary Committee will likely hold hearings with USPTO representatives to consider what steps to take moving forward. While a number of the recommendations would likely require an additional investment in resources, others can be implemented without great cost. Practitioners, including patent prosecutors and patent litigators, will no doubt debate the effectiveness of these recommendations in the coming months. In the meantime, the GAO’s survey of patent examiners provides a rich trove of data for practitioners to better understand the inner workings of the USPTO.