Intellectual Property Bulletin - Spring 2018

Fenwick & West LLP

An Untraceable Currency? Bitcoin Privacy Concerns

By Tyler G. Newby and Ana Razmazma

Bitcoin is often portrayed as an untraceable method of payment that facilitates illicit activities by enabling criminals to make and receive payments without being tracked. This depiction implies that users transacting in bitcoin can do so completely anonymously — that their identities will not be exposed. However, that is not necessarily the case. While bitcoin offers increased privacy compared to traditional payment methods involving a third-party intermediary such as a credit card provider, it is still not as anonymous as a cash transaction. In fact, there are many ways a person’s identity could potentially be exposed in bitcoin transactions.

An Overview of the Blockchain

Bitcoin is not anonymous. As we explain below, it is pseudonymous — an important distinction. It is also a decentralized, peer-to-peer digital currency, having no third-party intermediary (for instance, a credit card issuer, merchant processor or bank) that is involved to verify a transaction between a buyer and seller. Since there is no third party, there must be another way to verify a transaction between two users and avoid the “double-spending” problem (i.e., a way of ensuring that a user does not spend bitcoin they have previously transferred).

This is where the blockchain, the truly revolutionary aspect of cryptocurrencies such as bitcoin, comes into play. A blockchain is a public, distributed ledger, in which every transaction is recorded. Unlike traditional payment systems in which the ledger is maintained by a single third party, a blockchain ledger is distributed across a group of computers (thousands of them), each with its own copy of the blockchain transactions. Each block of transactions in a blockchain is confirmed by users in the peer-to-peer network, called “miners,” who compete to solve a complex computational problem. The first successful miner to validate the transaction broadcasts it to the network, which then checks the results. Once checked, the new transactions are added as a new block to the blockchain. In the case of bitcoin, the miner who first successfully verified this transaction gets rewarded by the network with newly created bitcoins. As of July 2016, the reward was reduced from 25 to 12.5 bitcoins, and it is expected that the reward will be further reduced to 6.25 bitcoins in 2021.

Anonymity vs. Pseudonymity

Because the bitcoin blockchain is a permanent public record of all transactions accessible by anyone at any time, it is not anonymous. Instead, the transactions in the blockchain are encrypted with public key cryptography that masks the real identities of the individuals behind the transactions. This makes bitcoin pseudonymous. In each bitcoin transaction, each user is assigned two digital keys: (1) a public key or address — the address is actually a hash derived from the public key, but for purposes of this article, we use these terms interchangeably — which everyone can see and is published on the bitcoin blockchain, and (2) a private key, which is only known to the user and is the user’s “signature.” The private key is used by others to verify that the transaction was in fact signed by that user. The bitcoin blockchain will only show that a transaction has taken place between two public keys (an identifier of 34 random alphanumeric characters), indicating the time and amount of the transaction.

Tracing Bitcoins Back to Individuals

Encryption might create the impression that these transactions are viewable but unmatchable to specific individuals. However, bitcoin is not as untraceable as encryption may imply. Tying an encrypted transaction to an actual individual is possible — it is not a remote risk. There are several ways this could occur.

Users who rely on a bitcoin trading exchange (such as Bitfinex, Binance or Kraken) to exchange currency for bitcoin have to divulge their personal information to that exchange to create an account. The information collected by the exchange varies, but normally includes, at a minimum, a user’s first and last name, and, possibly, a phone number. The exchange may also collect a user’s IP address. If these exchanges were subject to a data security breach, a user’s personal information could be exposed. In addition, some centralized exchanges offer to manage users’ bitcoin funds and users’ private keys on their behalf.

There are also online wallet service providers that manage users’ wallets on their behalf. A wallet is a software program that stores a collection of a user’s public and private key pairs. The storage of private keys makes these centralized exchanges, and online wallet service providers, prime targets for criminals because, as discussed above, anyone with access to a user’s private key will be able to create a valid bitcoin transaction. A hacker who accesses a user’s private key can send all of that user’s bitcoins to him or herself, or to any intermediary of their choosing. There have been several high-profile breaches of exchanges in the past, including the February 2014 hack of Mt. Gox, once the world’s largest bitcoin exchange. The Mt. Gox attack resulted in a loss of 850,000 bitcoins then valued at $450 million. Thus, hackers who gain control over a user’s exchange or online wallet account not only gain access to a user’s personal information and transaction history but also to a user’s bitcoin funds.

Exchanges are also increasingly subject to regulatory requirements that could lead to government entities accessing a user’s personal information. Bitcoin valuation plunged recently when the U.S. Securities and Exchange Commission released a statement warning that online platforms trading digital assets that meet the definition of “securities” would be considered exchanges under the securities laws and need to register with the SEC or show exemption from registration. Although the SEC has not taken any action to date, this means that cryptocurrency exchanges could be subject to the stringent securities regulations applicable to national securities exchanges. Similarly, South Korea announced greater regulation of bitcoin earlier this year. Under the new South Korean regulation, users will only be able to deposit into their exchange wallets if the name used on the exchange matches the name on the user’s bank account. Exchanges are also already subject to certain legal requirements, such as responding to subpoenas, which could require them to share personal information with governmental authorities if required by law. For instance, the U.S.-based exchange Coinbase was recently ordered by a court to turn over to the Internal Revenue Service information regarding approximately 14,000 of its customers. A brief review of several exchanges’ online privacy policies indicates that exchanges will share a user’s information as needed to comply with their legal and regulatory obligations.

Blockchain Analytics

It is also possible to identify users simply by analyzing transactions on the blockchain. Companies like Elliptic and Chainanalysis have built businesses based on blockchain forensics. These companies use analytics on the bitcoin blockchain to link bitcoin addresses to web entities and help their customers assess the risk of illegal activities. Their customers include exchanges but also government entities. In fact, it became public last year that the IRS is using Chainanalysis’s software to track potential tax evaders.

Several studies have also shown that it is possible to use network analysis and other methods to observe and potentially tie back blockchain transactions to certain websites and individuals. Specifically, one 2013 study by researchers at the University of California, San Diego and George Mason University showed that it was possible to tag bitcoin addresses belonging to the same user by using clustering analysis of bitcoin addresses. A small number of private transactions with various services were used to identify major institutions (such as exchanges or large websites). From there, the researchers were able to get information on the structure of the bitcoin network, where transaction funds are going and which organizations are party to it. Another study by researchers at ETH Zurich and NEC Laboratories Europe that looked at bitcoin transactions in a small university sample found that using behavior-based clustering techniques could unveil in a typical university environment the profiles of up to 40 percent of the users.

How Bitcoin Users Can Enhance Their Privacy

Despite these privacy issues, bitcoin users need not despair — there are ways to enhance one’s privacy on the bitcoin blockchain. First, a bitcoin user can use a new bitcoin address for each transaction and will thus receive a new public key for each transaction, making it more difficult to trace one specific individual’s transactions to the same address. This is actually the approach that was envisioned by Satoshi Nakamoto, bitcoin’s pseudonymous (and still unknown) founder, who recommended in the paper that first introduced bitcoin using “a new key pair … for each transaction to keep them from being linked to a common owner.” Second, a bitcoin user can take some additional precautions to minimize the risk of traceability on third-party exchanges. The user could use the anonymous Tor browser to access the exchange and create an account without including any real personal information; the user’s IP address and personal information would not be exposed. Third, the user could avoid storing bitcoins in online third-party wallets, and only use offline desktop wallets; that reduces the exposure to exchange hacks. Fourth, bitcoin mixing algorithms, such as CoinJoin, link users and allow them to pay together such that the bitcoins are mixed. This makes it harder to identify a particular user because only a group of transactions is published on the blockchain (although studies and research have shown that even CoinJoin presents weaknesses and could allow linking back to a particular individual).

The Monero Alternative

These privacy issues have not gone unnoticed and alternative cryptocurrencies with an increased privacy focus have emerged. Monero is the most prominent of these alternatives. Unlike the bitcoin blockchain, which, as we have noted, is based on a two-key (public and private key) cryptography, the Monero blockchain is based on unique one-time keys and ring signatures. With ring signature technology, the actual signer is pooled together with a group of possible signers, forming a “ring.” This creates a distinctive signature that can authorize a transaction. When an individual initiates a Monero transaction, the verifier is able to establish that a transaction came from a group but is not able to determine the identity of the initiator whose private key was used to produce the signature. As a result, the Monero blockchain does not identify a specific sender, and the receivers’ addresses and the transaction amounts are hidden. Monero has become the cryptocurrency of choice for privacy-focused users.

Although bitcoin is a decentralized and unregulated payment method, users should understand that this does not mean that their bitcoin transactions are anonymous and hidden from scrutiny. The public nature of the blockchain combined with the increasing threat of government regulation can lead to the identification of users engaged in transacting the currency.


Federal Circuit Rehearing Denial Gives Clues to Post-AIA On-Sale Bar

By Daniel R. Brownstone and Christopher P. King

U.S. patent law has long included an “on-sale bar,” which limits the time for filing a patent application to one year from the date the invention was sold or offered for sale. Perhaps the strongest public policy justification for the on-sale bar is to incentivize inventors to promptly apply for their patents.

The 2011 Leahy-Smith America Invents Act overhauled U.S. patent law and, among other changes, altered the wording of the provision that includes the on-sale bar.

Before the AIA, 35 U.S.C. § 102(b) prevented the grant of a patent if “the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States” (emphasis added).

The AIA version of the on-sale bar, now codified at § 102(a)(1), bars a patent if “the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention” (emphasis added).

The change in language — in particular, the addition of the phrase “or otherwise available to the public” — left commentators wondering whether under the AIA, a so-called “secret sale” — a sale that takes place unbeknownst to the public and subject to confidentiality obligations — avoids triggering the on-sale bar.

The Helsinn Case

The U.S. Court of Appeals for the Federal Circuit found an opportunity in 2017 to interpret the on-sale bar under the AIA. In Helsinn Healthcare v. Teva Pharmaceuticals USA, the court addressed the question of whether private and non-public offers for sale are considered the same post-AIA as pre-AIA. More recently, the Federal Circuit declined to review the issues en banc, with Judge Kathleen O’Malley elaborating in a non-precedential concurrence on the reasoning for and implications of the 2017 Helsinn panel decision.

Helsinn owned four patents related to reducing the side effects of chemotherapy-induced nausea and vomiting. Three of the patents were subject to pre-AIA law, and the fourth was evaluated under the AIA. More than a year before applying for the patents, Helsinn and another company, MGI Pharma, agreed that MGI would pay Helsinn an initial sum, together with future royalties on distribution of the products in the United States. The agreement was publicly disclosed by MGI in a public filing with the SEC, although the filing did not include the price terms or specific dosage formulations.

Teva challenged the validity of Helsinn’s patents. The district court found that the contract for sale constituted a sale under pre-AIA § 102(b), but not under the AIA’s § 102(a)(1). The court held that the AIA had changed the meaning of the on-sale bar to require that the sale or offer for sale be public, rather than secret, and that in this case, since the dosage amount was not disclosed, the sale was not public.

At the Federal Circuit, Helsinn and the United States, with the support of several amici, argued that by adding “otherwise available to the public” to § 102, Congress intended to exclude secret sales from the prior art. While acknowledging the argument, the court “decline[d] the invitation by the parties to decide this case more broadly than necessary.” Instead, the court pointed out that the existence of the agreement was not secret, having been disclosed by MGI in its public filing, and considered only the narrower question of whether the exclusion of the price and dosage amounts from the public filing saved the invention from being (publicly) “on sale.” The court answered that question in the negative, concluding that, “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.” So, while Helsinn provides some insight on the Federal Circuit’s approach to the on-sale bar under the AIA, many related questions — as the court acknowledged — remain to be addressed another day.

Rehearing Denied

Helsinn petitioned the Federal Circuit for rehearing, which the court denied on January 16, 2018. Judge O’Malley, one of three judges on the original panel, wrote a detailed concurrence to the denial, offering a glimpse into her approach.

Several of Judge O’Malley’s points reiterated the Helsinn panel’s emphasis on the flexible nature of the (pre-AIA) “offer for sale” test — which focuses on whether the parties’ activities would be understood as commercial offers for sale in the commercial community — and the non-determinativeness of the individual factors. For example, she rejected the suggestion that all sales disclosed to the public will necessarily trigger the on-sale bar, regardless of the exact nature of the disclosure. Rather, she determined, the confidentiality of a transaction is but one factor in determining whether there has been an offer for sale. Judge O’Malley similarly rejected the assertion that all supply-side arrangements for future sales will invalidate a later-filed patent, theorizing that — although admittedly difficult — it would not be impossible to structure a supply-side arrangement that does not trigger the on-sale bar.

As to whether the AIA narrowed the scope of the on-sale bar, the concurrence relied heavily on textual canons of statutory construction, such as using grammar-based analysis to reject the notion that the language “otherwise available to the public” implies that all activities triggering the on-sale bar must be fully available to “the public.” Judge O’Malley also concluded that the legislative history does not suggest a desire to alter the on-sale bar, characterizing Helsinn’s citations to senatorial statements as “at best equivocal.”

Finally, Judge O’Malley pointed out that public policy considerations behind the on-sale bar remain unchanged, and that in any event, the Supreme Court’s two-step Pfaff test is rigid and affords little room for the Federal Circuit to apply its own policy considerations.

Although there remain open questions about the on-sale bar’s application as applied to secret sales, it may be instructive to summarize the pertinent law, as set forth by the Supreme Court in Pfaff and elaborated upon in Helsinn and The Medicines Company v. Hospira. At the outset, as required by Pfaff, for the on-sale bar to apply to an offer for sale of a product embodying a claimed invention, (1) “the product must be the subject of a commercial offer for sale,” and (2) “the invention must be ready for patenting.” 

Commercial Character and Coverage of Agreement

Regarding the first Pfaff prong, The Medicine Company decision held that for the on-sale bar to apply, the activity constituting the alleged offer for sale must be found to have the appropriate commercial character when “analyzed under the law of contracts as generally understood.” Relevant factors include (1) whether communications between the parties rise to the level of a commercial offer for sale under the UCC, (2) whether there is passage of title, (3) whether the transaction is confidential and (4) whether there is commercial marketing of the invention, although — as emphasized by Judge O’Malley in her concurrence — none of these factors is itself dispositive.

In addition, Helsinn clarified that “the offer or contract for sale must unambiguously place the invention on sale, as defined by the patent’s claims” (emphasis in original). Thus, it must be clear from the agreement that the claims themselves are covered.

Readiness for Patenting

Regarding the second prong of Pfaff, the Helsinn panel stated that “[u]nder Pfaff, there are at least two ways in which an invention can be shown to be ready for patenting: ‘by proof of reduction to practice before the critical date; or by proof that prior to the critical date the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.’” Reduction to practice is established when “the inventor (1) constructed an embodiment … that met all the limitations and (2) determined that the invention would work for its intended purpose.” One need only show that an invention would work for its intended purpose “beyond a probability” of failure, not “beyond a possibility” of failure. In particular, official government approval (e.g., FDA approval) is not required, and later, more refined tests do not imply that the “probability” threshold was not already met earlier. Evidence that the “probability” threshold was met can include statistical studies, statements of the inventors, meeting minutes of the engineering team, press releases and inventor declarations.

Conclusion

Given the emphasis of the Federal Circuit — and Judge O’Malley — on the non-determinative nature of any given one of the factors pertinent to the applicability of the on-sale bar, uncertainty remains, both as to private and to public agreements. Helsinn has filed a request for a writ of certiorari to clear up some of this uncertainty by addressing the question: “Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.” Unless and until the Supreme Court takes up and resolves this question, however, inventors should take a conservative approach and presume that even a non-public sale or offer for sale will serve as the beginning of the one-year grace period within which to file an application.


Quick Updates

Three Key Changes the Music Modernization Act May Bring

By William Brenc and Jennifer Stanley

Despite the turmoil and gridlock in Washington, D.C., the Senate and House of Representatives appear poised to pass sweeping legislation that would overhaul the music copyright licensing infrastructure. On December 21, 2017, a bipartisan group of 52 members of Congress introduced the Music Modernization Act of 2017. Only a month later, nine Senators, both Republicans and Democrats, introduced nearly identical legislation, the Music Modernization Act of 2018.

The bills would fundamentally alter § 115 of the Copyright Act, which regulates compulsory licenses in nondramatic musical works, or songs outside of a movie, television show or play. If passed, the new law would make three key changes:

  • First, the Act would create a new agency to handle licensing and royalties. That agency would be led by a board composed of a currently undefined number of representatives from various sectors, including publishers and songwriters. It would have the power to issue blanket mechanical licenses to digital services — like a streaming service. The new agency should provide certainty and consistency for artists and streaming services alike. The Music Modernization Act tasks this agency with identifying rights holders and, from there, collecting and paying royalties. For songwriters, this means getting paid with fewer complications. Streaming services would no longer have to identify rights holders and — perhaps more importantly — would not be exposed to statutory damages for failing to identify the correct rights holder. The bill would require that digital services collectively pay for the agency’s operating costs.
  • Second, songwriters would receive a mechanical royalty every time someone makes a copy of their track. And, more notably, this rate would be a negotiated one, rather than fixed (as rates currently are).
  • Finally, the bill would alter the rate court system. Rate courts hear disputes over royalties paid by digital services. Currently, one judge hears all rate court cases for ASCAP and another decides all for BMI, the largest music publishing performance rights groups. The Music Modernization Act would have a judge from the Southern District of New York randomly assigned to each individual case. Relatedly, the act would repeal Copyright Act § 114(i) to allow rate courts to consider sound recording royalty rates. This, in theory, would allow judges to more accurately gauge the market for musical compositions.

As it stands, there is support for the Music Modernization Act from artists, streaming services and labels. However, each interested party is still jockeying and negotiating for more favorable terms. Songwriters associations and the National Music Publishers’ Association have agreed on proposed changes, including increasing the representation of songwriters on the new agency’s board.

The bill is likely to undergo additional changes before it comes to a vote, but, as is, the restructuring proposed by the legislation aims to provide clarity and stability for all parties involved.

Will the ITC Become a New Forum for Fast-Track Trade Secret Lawsuits?

By Shannon Turner

In a case of first impression, Manitowoc Cranes v. Sany America, the U.S. District Court for the Eastern District of Wisconsin held that an International Trade Commission determination regarding trade secret misappropriation has preclusive effect in subsequent litigation.

On June 12, 2013, Manitowoc Cranes sued Sany America and Sany Heavy Industry for patent infringement and misappropriation of trade secrets in violation of Wisconsin law. On the same day, Manitowoc filed a complaint with the ITC alleging that Sany committed unfair trade practices by misappropriating Manitowoc’s trade secrets in violation of § 337 of the Tariff Act (codified at 19 U.S.C. § 1337). The court stayed the case pending resolution of the ITC proceedings. Manitowoc then filed a second complaint asserting a claim for tortious interference with contract. The court consolidated the cases and continued the stay.

On April 16, 2015, the ITC issued a Notice of Final Determination, finding that Sany violated § 337 by misappropriating Manitowoc’s trade secrets and infringing one of Manitowoc’s patents. On October 11, 2016, the U.S. Court of Appeals for the Federal Circuit affirmed the ITC’s decision, and the district court lifted the stay. Manitowoc then moved for partial summary judgment as to Sany’s liability for misappropriation of trade secrets, arguing that the ITC’s trade secret misappropriation determinations are entitled to preclusive effect.

The district court’s opinion first surveyed how federal courts analyze the preclusive effect of ITC determinations in other contexts. The court concluded that federal courts have found that ITC determinations are given preclusive effect in other areas of unfair trade practices, including trademark infringement, as well as antitrust claims. In addition, the court flatly rejected Sany’s argument that Texas Instruments v. Cypress Semiconductor created a general rule against preclusion with respect to all ITC determinations. In Texas Instruments, the Federal Circuit examined the legislative history of § 337 and determined that Congress intended a preclusive effect for cases involving patent determinations. Because the Manitowic case did not involve a patent determination, the court found that ITC determinations on trade secret misappropriation are entitled to preclusive effect in later proceedings.

After finding that ITC determinations regarding trade secret misappropriation are preclusive, the court turned to whether Sany was collaterally estopped from disputing that it misappropriated Manitowoc’s trade secrets. Sany argued that there was no preclusive effect because the ITC determined that it was liable for misappropriation under federal law, not Wisconsin law. The court disagreed and concluded that a Wisconsin court would not apply a different standard under the Wisconsin Uniform Trade Secrets Act than the standard applied by the ITC. Specifically, the ITC relied on both the Uniform Trade Secrets Act and Restatement of Unfair Competition. While the court noted that there are slight variations between the UTSA and the WUTSA, they are minor differences that do not defeat preclusion.

The Manitowoc decision paves the way for litigants to adjudicate trade secret misappropriation claims on an expedited basis before the ITC, potentially saving time and money. While litigants seeking preclusive effect of an ITC determination regarding trade secret misappropriation should be mindful of the differences between federal law applied by the ITC and state law applied in the district court, the enactment of the Defend Trade Secrets Act may provide trade secret plaintiffs with a uniform law to be applied by both the ITC and district courts. Although the Manitowic decision is good news for those seeking fast-track trade secret determinations, it remains to be seen whether other jurisdictions will follow suit.

MPEP Updated to Include New Guidance on Subject Matter Eligibility

By Jason Amsel

In late January 2018, the U.S. Patent and Trademark Office published a revision to the Manual of Patent Examining Procedure that includes substantial guidance on patent subject matter eligibility under 35 U.S.C. § 101. While the MPEP has no authority of law in itself, it is the primary resource that instructs patent examiners in all aspects of examination. The update to the MPEP does not purport to change the examination practice set forth in a series of earlier memoranda issued by the USPTO in the years following the 2014 decision in Alice v. CLS Bank. However, the recent revision does consolidate and organize the guidance from these memoranda in a single resource, one that provides new clues as to how examiners will approach the subject matter eligibility question going forward.

Notably for software companies, the revised MPEP expressly recites that “software and business methods are not excluded categories of subject matter,” providing a direct statement rebutting any misconception that such subject matter categories are universally ineligible following Alice. See MPEP 2106.04(a) (emphasis added). Such categories of invention will continue to face elevated scrutiny and will require practitioners to carefully craft claims that meet the eligibility threshold. However, the framework in the revised MPEP sets forth clear paths to eligibility, signaling that applicants may see increased consistency and predictability from the USPTO in finding eligible subject matter.

The revised MPEP organizes the eligibility determination into three possible pathways to eligibility. Under “Pathway A,” examiners may apply a “streamlined analysis” when the claims fall within a statutory category (processes, machines, manufactures and compositions of matter) and when “eligibility is self-evident” (MPEP 2106.III). The streamlined analysis gives an examiner discretion to bypass a more rigorous approach when the claim “clearly improves a technology or computer functionality” (MPEP 2106.06). Claims drafted specifically to highlight such technological improvements should therefore be at an immediate advantage.

Under “Pathway B,” examiners may conclude that a claim is patent eligible if the claim falls within a statutory category and is “not directed to a judicial exception” (MPEP 2106.III). Here, the revised MPEP notes that while not the standalone test, “preemption is the concern underlying the judicial exceptions” (MPEP 2106.04). Thus, drafting claims that are sufficiently specific to not preempt a particular technical field may be critical to a favorable outcome.

Under “Pathway C,” examiners may conclude that a claim is patent eligible if the claim falls within a statutory category and recites elements “that amount to significantly more than the judicial exception.” The revised MPEP characterizes this analysis as essentially a “search for an inventive concept” (MPEP 2106.05). Here, the revised MPEP provides numerous examples contrasting patent-eligible claims directed to technological improvements, particular machines, and particular transformations with patent-ineligible claims that are merely directed to “well-understood, routine, conventional activity.” Applicants may find it useful to draw analogies to the favorable examples in this section when arguing a rejection.

The revised MPEP will become the definitive guide for addressing subject matter eligibility during examination. Examiners will likely give deference to arguments consistent with its framework, so practitioners should become familiar with its teachings and use it to their advantage when approaching subject matter eligibility rejections.

Riding on the Coattails of Crypto-Mania: Regulatory Warnings and Trademark/Tradename Implications

By Moira Lion

Over the last several months, a number of companies that have had no history of pursuing blockchain technology or incorporating it into their commercial offerings have rebranded to add BLOCKCHAIN or other crypto-centric terms to their tradenames. Not surprisingly, these rebrands have led to a new perceived potential in these companies — and with that, a sudden rise in participation in their related initial coin offerings (or, in the case of public companies, in their market caps). Rebranding to a blockchain or crypto-related name and then immediately offering securities — potentially without adequate disclosures about those business changes and the risks involved — has caused the U.S. Securities and Exchange Commission to issue warnings around this practice and the potential SEC scrutiny, investigations and enforcement actions that could follow.

As background, cryptocurrency and blockchain technology have had an increasingly meaningful impact on the way the world thinks about how value can be transferred. With the remarkable rise (and fall) in the price of bitcoin and other cryptocurrencies over the last year, and the resulting hype surrounding the industry, more than just tech and financially savvy individuals have become captivated by cryptocurrency and blockchain technology. Accordingly, what has always been an important and disruptive technology has evolved into a public infatuation, attracting a multitude of everyday, Main Street investors. That in turn has galvanized some companies to try to take advantage of the phenomenon.

This impact on individual Main Street investors — many of whom approach these investments as if they are purchasing products like an everyday consumer — is one of the primary reasons the government and its regulatory agencies (including the CFTC and FTC, in addition to the SEC) have become more concerned about the hype surrounding blockchain and cryptocurrencies. In the current climate, an existing company changing its name to include BLOCKCHAIN can, on its own, be enough to convince someone to buy shares in an already public company or participate in an initial coin offering without knowing much more.

Regulatory agencies’ concerns about rebrands are intrinsically tied to deceptiveness issues and brand promotion in trademark/unfair competition law. Under Lanham Act § 43(a)(1)(B) (codified at 15 U.S.C. § 1125), anyone who uses trademarks in commercial advertising or promotion in a way that misrepresents the nature, characteristics or qualities of products, services or commercial activities can be liable in a civil action by anyone who believes they are likely to be damaged by that. Further, deceptive marks and deceptively misdescriptive marks are not even registrable as trademarks under Lanham Act §§ 2(a) and 2(e)(1) (codified at 15 U.S.C. § 1052) (with one exception to the latter of these two sections).

Accordingly, the most important lesson learned from the recent mistakes made by some companies rebranding to BLOCKCHAIN or CRYPTO-inclusive names is that the branding and rebranding process in the field of blockchain or cryptocurrency implicates trademark laws, securities laws and various consumer protection regulations, together with the warnings or guidelines provided by relevant regulatory agencies.

In light of this, here are some key things to remember when a company wants to use or rebrand to blockchain or crypto-related names:

  1. A name that includes BLOCKCHAIN, CRYPTO and other related terms — even the term “EXCHANGE” (when used for a digital currency exchange not registered with the SEC) — can easily lead to negative public relations issues, investigations into potential consumer deception, investigations into appropriate SEC disclosures (or exemptions) and, at worst, enforcement actions by the SEC, CFTC or FTC or other consumer or third-party complaints.
  2. Private companies are not off the hook: Securities laws apply to both public and private companies, although differently.
  3. If a company plans to immediately accept investments or advertise/promote offers like initial coin offerings, or ICOs, or if the company is already publicly held, it must make appropriate disclosures involved before doing so, and before announcing a rebrand.
  4. USPTO examining attorneys have a basic knowledge of blockchain technology and may increasingly request further information about an applicant’s plans if a mark contains blockchain or crypto terms, to confirm the mark is not deceptively misdescriptive.
  5. U.S. trademark applications related to these rebrands could be more vulnerable to challenges, particularly based on a lack of bona fide intent to use the mark for blockchain technology or cryptocurrencies. Many companies that have run into trouble by rebranding have not done much more than decide to shift business models or reach out to a blockchain technology company for a potential acquisition before actually offering securities. This type of information could potentially be used to challenge an applicant’s bona fide intent to use a mark for blockchain or cryptocurrency products at the time the trademark application was filed.
  6. The U.S. Trademark Trial and Appeal Board has not had to substantively address blockchain or crypto issues in any ex parte or inter partes proceedings, but there are 160+ active applications for BLOCKCHAIN-inclusive marks pending with the USPTO. As competition in this market grows, companies will inevitably take advantage of potential vulnerabilities in applications when they encounter competitors using similar names that they want to challenge.

Update: Mean Girls vs. the Right of Publicity

By Nicholas A. Plassaras and Jennifer Stanley

In 2016, the Fenwick games team detailed actress Lindsay Lohan’s lawsuit against the makers of “Grand Theft Auto V” for allegedly violating her right of publicity. You can read the full article on Fenwick.com.

On March 29, 2018, New York’s highest court issued a unanimous decision affirming the lower court’s dismissal of Lohan’s case. The appellate court concluded that Grand Theft Auto V character, “Lacey Jonas,” did not implicate Lohan’s publicity rights under New York law.

The decision is notable for two reasons:

First, it reaffirmed the narrowness of New York’s right of publicity statute, which only protects a person’s name, portrait, picture or voice.

Second, it clarified that a “portrait” theoretically encompasses an in-game rendering or depiction of a person, such as a game avatar. But in order to be actionable under New York’s publicity statute, the in-game rendering has to be recognizable as the plaintiff. Although Lohan had a theoretically valid claim, the court concluded that the Jonas character was merely “a generic artistic depiction” of a modern, 20-something, beach-going woman without any particular identifying physical characteristics linking her to Lohan.

In light of the Lohan decision, game developers should remember to consult with counsel early in the development process to avoid potential publicity-related pitfalls.

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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JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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