2017 In Review – Trademarks, Copyrights and Patents

by McNees Wallace & Nurick LLC
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Trademark Law

Let Them Register Offensive Trademarks!
In June of 2017, in Matal v. Tam, the Supreme Court held that the disparagement clause of the federal Lanham Act violates the Free Speech Clause of the First Amendment. In 2011, Simon Tam, founder of the Asian-American band “The Slants,” attempted to register THE SLANTS with the USPTO. The mark was refused registration for being disparaging to “persons of Asian descent.” In affirming a decision by the Federal Circuit, which found the disparagement clause unconstitutional, the Supreme Court reasoned that because trademarks are private speech, they are fully protected by the First Amendment. As a result, marks such as THE SLANTS cannot be denied federal trademark registration on the grounds they are “offensive.” The Supreme Court’s decision impacted a similar case involving the Washington Redskins. In January of 2018, the Fourth Circuit finally vacated a lower court decision that canceled the Washington Redskins’ federal trademark registrations.

The Matal v. Tam decision invoked a similar constitutional challenge to the Lanham Act’s ban on scandalous and immoral trademarks. In December of 2017, the Federal Circuit ruled this ban unconstitutional, which reversed the USPTO’s decision to refuse registration for the trademark FUCT.

For a more detailed analysis of Matal v. Tam, take a look at our June client alert here.

Dot-com Bubble of Trademarks
In August of 2017, a federal court in Virginia held that several BOOKING.COM marks could achieve federal trademark registration, even though the marks consist of adding a top-level domain (TLD) (e.g., “.com”) to an otherwise generic term (e.g., “booking”). The Federal Circuit has previously held the combination of a generic term with a TLD to not be registrable, barring marks like Mattress.com and Hotels.com from federal trademark registration. However, the Virginia court noted this was a case of first impression for the Fourth Circuit and held that adding a TLD to a generic term could potentially make the mark descriptive and registrable, provided the mark has the requisite level of consumer recognition to show secondary meaning. The applied-for BOOKING.COM marks are still pending before the United States Patent and Trademark Office.

Breakfast at Costco?
Several years ago, Tiffany & Co. discovered that Costco Wholesale Corp. was advertising and selling “Tiffany” engagement rings and slapped Costco with a trademark infringement lawsuit. Costco claimed it was using TIFFANY as a generic term to refer to a “Tiffany setting” style of ring. However, in 2015 a court found that Costco had willfully infringed Tiffany’s trademark rights, and a jury awarded Tiffany millions of dollars in profits and punitive damages. In 2017, a judge reduced the jury’s award, but awarded Tiffany treble damages for Costco’s willful infringement to the tune of $11.1 million in trebled profits and $8.25 million in punitive damages.

This case demonstrates the high cost of using another brand’s trademark to describe the same or similar goods or services. A purportedly “generic” use of the trademark could be willful infringement in the eyes of the trademark owner and a judge or jury. Even if the trademark has become common (e.g., Google, Kleenex), trademark owners vigorously protect their trademarks from so-called “genericide.” Check out this creative public service announcement the Velcro Brand Companies legal team released in 2017, defending VELCRO from becoming generic through improper use by the public as a noun or verb instead of as a trademark.

Driving a Wedge Between Kia and Allstate
In November of 2017, a jury found that Kia’s DRIVE WISE trademark infringed Allstate’s DRIVEWISE trademark. For over seven years, Allstate had been using the mark DRIVEWISE in connection with a driver safety program. In 2017, Kia began using its DRIVE WISE trademark in connection with driver safety features available in Kia vehicles. While Allstate focused on similarities between the goods and services and Kia’s prior knowledge of Allstate’s DRIVEWISE program, Kia focused on the differences between the goods and services. Although the jury found in favor of Allstate, in early January of 2018 a judge reversed the jury’s “advisory” verdict, finding no likelihood of confusion between the marks. Notably, the judge found that Allstate’s DRIVEWISE mark was weak, that the goods and services were not closely related, and that there was no evidence of actual consumer confusion.

As this case shows, the test for trademark infringement—likelihood of consumer confusion—is extremely subjective and highly fact-specific. It is often difficult to predict whether a factfinder will believe confusion is likely and which factors will be most persuasive in making this determination.

What to Expect in 2018
There are several notable trademark cases on the horizon for 2018. Costco appealed the $19 million damages award it owes Tiffany to the Second Circuit. In NantKwest Inc. v. Matal, the Federal Circuit will decide whether applicants who appeal a decision of the USPTO to a federal district court must pay the USPTO’s attorneys’ fees, no matter who wins the case, to comply with the statutory requirement that the applicant pay “all expenses” of the proceeding. The Federal Circuit will also hear a trade dress infringement case appealed by Converse Inc. from the U.S. International Trade Commission, where Converse seeks to prevent companies such as Wal-Mart and Skechers from selling shoes that look like Converse’s Chuck Taylor All-Stars.

Copyright Law

Hip, Hip, Hooray!
In March of 2017, the Supreme Court held in Star Athletica LLC v. Varsity Brands, Inc. that the arrangements of lines, chevrons, and colorful shapes on cheerleaders’ uniforms are copyrightable. For many years, the fashion industry has pushed for greater intellectual property protection for clothing. While this decision maintains that clothing is a “useful article,” and therefore not copyrightable, the Court clarified when a standalone design element on clothing is copyrightable. According to the Court, the test to determine whether an element incorporated into the design of a useful article could be copyrightable is: (1) the design must be “perceived as a two- or three-dimensional work of art separate from the useful article” and (2) the design will still be copyrightable “if it were imagined separately from the useful article into which it was incorporated.” Although the Court declined to opine whether the uniforms’ design elements were sufficiently original to be copyrightable, the Court clarified the applicability of the separability test to two-dimensional features of a useful article, which had divided lower courts.

For a more detailed analysis of Star Athletica LLC v. Varsity Brands, Inc., take a look at our March client alert here.

How the Grinch Stole Fair Use!
In Lombardo et al. v. Dr. Seuss Enterprises LP, a federal court in New York held that an off-Broadway parody play of Dr. Seuss’s How the Grinch Stole Christmas! was protected under fair use. The play, Who’s Holiday!, chronicles the life of Cindy-Lou Who, who narrates in rhyming couplets and finds herself in “outlandish, profanity-laden, adult-themed scenarios….” While the Seuss estate called the play an unauthorized sequel to the holiday classic, the court called the play a parody. The case is on appeal to the Second Circuit.

In another fair use case, Penguin Random House LLC et al. v. Frederick Colting d/b/a Moppet Books et al., the same federal court in New York found kid-friendly versions of classic novels were not protected under fair use. The defendant created a series of “KinderGuides” based on works such as The Old Man and the Sea by Ernest Hemingway and On the Road by Jack Kerouac. In its opinion, the court noted, “Fair use…is not a jacket to be worn over an otherwise infringing outfit.” The court found defendants’ works were “unauthorized derivative work[s]” and added nothing to transform the classic novels under the first fair use factor, even though the KinderGuides condensed, abridged and illustrated the classic novels and provided a few pages of commentary.

The four fair use factors are: (1) the purpose and character of the use (“transformative use”); (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used; and (4) the effect of the use upon the potential market or value of the copyrighted work. As these 2017 cases demonstrate, fair use analyses are notoriously inconsistent and unpredictable. Generally, a fair use defense should not be relied upon to excuse copyright infringement.

What to Expect in 2018
This year, in Fox News Network, LLC v. TVEyes Inc., we expect the Second Circuit to issue an opinion on the long-running fair use battle between Fox News and TVEyes, a search engine for broadcasted content. TVEyes records television and radio broadcasts 24/7 and allows users who want to study and monitor broadcast media to search its database for clips. In 2013, Fox News sued TVEyes for copyright infringement. In two separate rulings, a district court judge said the service is fair use, but that specific features of the service, such as the ability to download and email clips, are not fair use. TVEyes appealed the district court’s ruling, and the case was argued before the Second Circuit in March of 2017.

The Supreme Court has not yet decided whether it will resolve a copyright law circuit split over how to determine whether a work is “registered,” such that the owner could file a copyright infringement suit. Although the Copyright Act is clear that a work must be “registered” before an owner files a copyright infringement lawsuit, there are two approaches to determining registration: (1) the registration approach and (2) the application approach. In jurisdictions following the registration approach, a copyright owner can only file a copyright infringement lawsuit once the Register of Copyrights has approved the application. In jurisdictions following the application approach, a copyright owner can file a copyright infringement lawsuit after the Copyright Office receives a completed application and the owner pays the required fee and deposits the work. Because the Copyright Office takes months or up to a year to issue registrations, resolving this circuit split will provide better guidance on the timing and cost of filing a copyright infringement lawsuit. The case pending before the Supreme Court is Fourth Estate Public Benefit Corp. v. Wall-Street.com LLC.

As always, we encourage copyright owners to file copyright applications early to avoid any waiting period before filing a copyright infringement lawsuit and to take advantage of the Copyright Act’s statutory damages and attorneys’ fees provisions for a work registered either within three months of publication or prior to its infringement.

PATENT LAW

In 2017, the Supreme Court continued its special attention on patent law, but shifted from the splashy, media-attracting spectacles of recent years to more mundane process and jurisdictional issues. However, while perhaps of less interest to the general public, these decisions are no less profound and are already having significant impacts on patent enforcement.

The Eastern District of Texas is Dethroned
Marshall, Texas may remain the Cultural Capital of East Texas, but in a unanimous decision, the Supreme Court effectively ended its rule over patent infringement while also dealing a blow to patent trolls who sought refuge there. In TC Heartland LLC v. Kraft Foods Group Brands, Justice Thomas explained in a deceptively dry opinion that for venue purposes in patent litigation, domestic corporations reside only in their state of incorporation that venue does not extend to every location where the corporation is subject to personal jurisdiction. As a result, patent actions may only be brought in judicial districts in the state where the defendant is incorporated or where the defendant has committed acts of infringement and has a regular place of business. Although not mentioning Texas by name, this decision is universally regarded as being primarily aimed at the Eastern District of Texas, which is known as a patent-friendly jurisdiction and for many years has attracted a grossly outsized portion of patent litigation suits, particularly those brought by patent trolls. The TC Heartland decision has already led to a steep drop-off in suits brought in the Eastern District, and a redistribution of many of those cases to California and Delaware.

Patents are Exhausting
Under longstanding precedent, sales of products in the United States with single-use restrictions were possible without exhausting patent rights. That is, a seller could still bring an infringement action regarding the previously sold products if the single-use restriction was violated. Under even longer-standing precedent, foreign sales of patented products did not exhaust patent rights within the U.S., permitting patent holders to adjust prices according to local markets. In Impression Products Inc. v. Lexmark International Inc., the Supreme Court unanimously held that sales with single-use restrictions do in fact exhaust patent rights, meaning that any relief by the patent owner must be found in suits for breach of contract and the like, rather than the more powerful protections offered by a patent. The Supreme Court went a step more and further held that authorized sales outside the U.S. also exhaust all patent rights, bringing international exhaustion for patents into agreement with international exhaustion for copyrights. While the first part of the decision requires relatively mundane adjustments to patent enforcement strategies, the second part of the decision could have profound effects on the abilities of patent owners to effectively segment markets globally, and it may require years for the markets to adjust fully to the new governing regime.

Laches-Key Kids No More
In a more positive development for patent owners, the Supreme Court ruled in SCA Hygiene Products Aktiebolag v. First Quality Baby Products that the defense of laches cannot be invoked as a defense against a claim for damages brought within 35 U.S.C. § 286’s six-year statute of limitations period. Again conforming patent law to copyright law, this decision determined that since laches is a defense developed by courts of equity to protect defendants against unreasonable, prejudicial delay in commencing suit, and Congress had already enacted a statute establishing when a suit is timely, there remained no gap to be filled by a judicial doctrine. As a practical matter, this decision may enable patent owners to allow an infringement to expand sufficiently such that the expected damages would be worthwhile to pursue, without risking having an infringement suit tossed as a result of the delay. Further, this decision may add more flexibility in cease-and-desist letter practice because sending an early warning letter no longer starts a fairness clock toward a possible loss of a later ability to assert a patent.

Developments in trademark, copyright, and patent law in 2017 have set the stage for what’s to come in 2018. We will continue to keep a close eye on cases and issues of interest to our clients.


 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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