May 2007

Patents and Infringement Actions

Patent Rights

A patent is a property right that the federal government gives to an inventor with respect to an invention in exchange for his full disclosure of how to make, use and practice the invention. The property right granted by the government is the right to exclude others from making, using, selling, offering for sale, or importing the patented invention without the inventor’s permission for the limited period specified by the patent statute. A person or other entity that makes, uses, sells, offers for sale, or imports the invention covered by the patent may be liable for violating the patent owner’s rights through a legal theory referred to as “infringement”. Patent infringement is classified by the law as a “tort,” which is a wrong committed by a person against another person for which the law provides a remedy.

Because the nature of patent rights is an exclusive right, it does not matter if an infringer is innocent, i.e. that he does not know that the thing that he or she makes, uses, sells, offers for sale or imports is protected by a patent. This means that even if a second inventor invents an already patented invention completely independently of the first inventor and without any awareness of the existence of the earlier invention or patent, the first patent owner can prevent the second inventor from infringing any of his patent rights. Although the second inventor in such a case is said to be an “innocent infringer,” the second inventor is still liable for patent infringement.

Embodiment

When a patented invention is manufactured and sold, it is not the patent that is sold but rather an embodiment of the patent. When sold, the inventor’s rights in the physical embodiment of the patent are said to have been exhausted, and unless the manufactured product is sold under a contract restricting any resale of the product, the buyer of the manufactured product can freely use the product, offer the product for sale, or sell that product, notwithstanding the existence of the patent. The buyer of that particular embodiment of the patent may not, however, make new embodiments of the invention or import other embodiments of the invention without infringing the patent. The buyer may also repair the product, as long as the repair of the product is not so extensive that it amounts to a completely new manufacturing of the patented invention as to infringe the patent.

Promotional Activity

There is no requirement that the patented invention actually be sold, made or used in the United States. A party may be liable for direct infringement for the sale or offering for sale of a device covered by the patent, even if the patented invention is not sold, manufactured or imported into the United States. In addition, any unauthorized promotional activity of a device covered by a patent may infringe the patent owner’s rights, even if the promotion does not amount to an actual sale of the patented invention. However, the promotion or offer for sale must be connected with an act that would itself be infringing. Therefore, promotional activity of a patented invention anticipating the expiration of a patent or an offer to sell a patented product after the patent expires does not infringe the patent.

Jurisdiction

The United States Patent and Trademark Office, which issues patents under the authority of the patent statute, has no jurisdiction over patents once they are issued; thus, patent infringement lawsuits must be brought in the appropriate federal district court. Remedies for patent infringement include an injunction, which is a court order which requires that any activities which infringe the patent owners rights cease, and monetary damages which may be used to compensate any economic losses sustained by the patent owner or to recoup any profits which the infringer received as a result of their infringing activities.


Defending Patent Infringement Actions

As stated previously, a grant of a patent allows an inventor to exclude others from making, using, selling, offering for sale, or importing the patented invention into the United States without the inventor’s permission for a limited period of time. Patent rights are granted by federal law, which also provides that an inventor whose patent is infringed may seek a remedy in federal court. There are several defenses to patent infringement that may be asserted by one who is sued for patent infringement. One defense that not only will negate infringement liability but will also destroy the validity of a patent is inequitable conduct on the part of the inventor in procuring the patent. Another defense is Laches and estoppel and a third defense is the shop rights doctrine.

Shop Rights Defense

If the one enters into an employment relationship, as an employee, the ownership of any intellectual property created by that employee may be governed by well-established rules including the “shop rights” doctrine. A “shop right” refers to the right of an employer to use an employee’s invention in the employer’s business without the payment of a royalty to the employee. In essence, the employer is not required to pay the employee twice for his work for the employer. Typically, this doctrine may be applied as a defense to an infringement action, which is usually initiated by a former employee against the former employer for infringement of a patent listing as an inventor, the former employee. The rationale for the rule is that when an employee creates an invention during his employment with the employer and when the employee uses the employer’s resources to conceive, develop or perfect the invention, the employee was paid for creating the invention and the employer has an equitable right to practice the invention. According to this rule, the employee-inventor must in equity allow his or her employer to continue to practice the invention under a non-exclusive, non-transferable right.

Laches

To be able to obtain monetary compensation for patent infringement, there are certain requirements that are placed upon the patent owner. One requirement is that a patent owner must not be guilty of “laches.” Laches is a doctrine or judge-made law that requires one who has a cause of action to prosecute that cause of action without a delay that might prejudice the party against whom the lawsuit is brought. “Prejudice” is a general term that refers to harm experienced by a party. In the patent context, a party can be found to be prejudiced by a patent owner’s failure to act because such failure could be taken as an indication that no patent right exists or that the patent owner is not interested in enforcing the patent right. Another party might rely on that apparent lack of patent right for a particular product and expend much time and money in making or using that product and would be prejudiced if it was ordered to cease its operation.

If more than six years passes after a patent owner discovers infringing conduct before a lawsuit is filed, the law presumes that the patent owner is guilty of laches and will not be able to recover any monetary damages between the beginning of the infringing conduct and the time the lawsuit was commenced. However, that presumption can be rebutted by the patent owner by showing that there was a reasonable cause for the delay or that the alleged infringer was not prejudiced by the delay. In either case, the presumption is destroyed and a monetary recovery is available. Because laches is an “equitable” defense, a determination of whether laches will prevent a monetary recovery will depend upon whether the parties–both the patent owner and the alleged infringer–conducted themselves in good faith. If an alleged infringer does not have a good faith belief that no valid patent protection exists but rather simply gambles that a patent lawsuit will not be brought, a court may conclude that any prejudice suffered by the alleged infringer was caused by its own actions than the delay by the patent owner in bringing a lawsuit.

Equitable estoppel

Another doctrine of judge-made law that is closely related to laches is equitable estoppel. Estoppel means that a party’s own conduct prevents the party from asserting rights that might have been asserted had the party not behaved as it did. In the patent context, equitable estoppel arises when a patent owner takes actions that would lead a reasonable person to believe that he or she was not infringing the patent. Another factor necessary for a finding of estoppel is that the alleged infringer relied upon the patent owner’s conduct. Finally, it must be found that, because of the patent owner’s conduct and the alleged infringer’s reliance upon that conduct, that the alleged infringer would be prejudiced if a patent infringement lawsuit was allowed.

A simple example of equitable estoppel would be if a manufacturer was interested in making a particular item but was concerned that making the item would amount to the infringement of a patent. The manufacturer might submit details of its proposed item to the patent owner and voice its concerns about possible infringement. If the patent owner expresses to the manufacturer that its proposed item does not infringe upon the patent owner’s patent, the manufacturer might invest substantial time and money into setting up manufacturing operations for the item. In this example, all the necessary elements for a finding of equitable estoppel are present: the patent owner’s own conduct gave the manufacturer a reason to believe that it would not infringe upon the patent by making the item; the manufacturer relied upon that conduct in going ahead with its manufacturing operation; and the manufacturer would be prejudiced if a patent infringement action was allowed to proceed because it would have to abandon the time and money it invested in its manufacturing operation. Even though the patent owner might have a valid patent, and even though the manufacturer was in fact infringing upon that patent, equitable estoppel would prevent the patent infringement lawsuit from proceeding.


Confronting Consumer Confusion

The hallmark of Trademark law is consumer confusion. The law protects the use of a mark in business from other users of other marks, or the identical mark, in confusing ways. Because trademark law seeks to proactively prevent consumer confusion, it does not require proof of actual consumer confusion to bring an infringement action. All that is necessary is that the trademark owner prove that a there is a likelihood of confusion based upon a hypothetical, “reasonably prudent” consumer who would likely be confused by the use of the same or a similar trademark, as the alleged infringer, on potentially competing products. The hypothetical purchaser is not expected to make detailed, side-by-side comparisons nor are they required to have perfect recall regarding what they observed.

Infringement Includes Consumer Confusion of any Kind

A party may bring an infringement action based upon confusion of consumers as to the source of a good or service or based upon confusion of any kind with respect to consumers or potential consumers. Courts have even found a likelihood of confusion to exist where the public at large could be confused, even though the actual purchasers themselves were not confused.

Factors Used to Determine Likelihood of Confusion

In determining likelihood of confusion, courts evaluate several factors. No one factor is determinative in and of itself, and how important one factor is over another is case specific. The factors are as follows:

 

  • Whether or not the goods or services using the same mark compete with one another. Marks that are used on similar or related goods or services are more likely to confuse consumers as to the source of those goods or services. Even where the plaintiff’s products are not exactly similar, the court may in some cases consider how likely the plaintiff is in the future to sell similar products.
  • Whether or not the goods or services are so closely related that they are being marketed through the same stores or channels of distribution.
  • Whether or not the alleged infringer intended to trick consumers in order to “cash in” on the plaintiff’s business good will.
  • Whether the marks are similar in appearance, phonetic sound, or meaning.
  • How careful the consumer is likely to be prior to purchasing. The more sophisticated the consumer or the more expensive the product,the more discriminating the consumer is expected to be and the less likely confusion will be attributed to them.
  • Whether or not the companies are accessing overlapping customer bases. If the companies both sell mainly to the same groups, there is more likely to be consumer confusion.
  • The legal strength of each of the marks. The greater the public recognition of a mark as a source identifier, the more likely that similar uses will be confusing.
  • Whether there has been any actual confusion. The fact that there has been actual confusion is not conclusive evidence of likelihood of confusion, but it must be weighed together with the other factors.

Control Over Quality of Products

Trademark law frequently refers to the confusion of consumers or the probable confusion of consumers. The reason for this is that trademark law is not as much about protecting business interests as it is about protecting consumers. By providing a business with the incentive of increased profits by the grant of exclusive rights in a mark and imposing a duty upon that owner to stop others from using that same mark on competing products, trademark law gives consumers some amount of control over the quality of products they buy. If one brand satisfied the customer more than another, that customer could easily find the brand they liked without having to read ingredient labels or scrutinize packaging, materials, and workmanship. This saves the consumer time and allows him or her to make informed purchase decisions. For this reason, the standard of when a trademark right is being infringed has entirely to do with whether or not a consumer is going to be confused, and thus deprived of making informed purchasing decisions.

Obligation to Police Trademark

It is because of the focus on consumer protection that businesses are not allowed to ignore infringing uses of their mark. Companies who tolerate infringing uses of their mark risk losing all their rights in the mark if a third-party challenger claims the company abandoned the mark by not enforcing it.


Developing Strong Trademarkable Brands

In today’s economy, trademarks are a valuable business asset which can be leveraged to maintain strong consumer awareness within the marketplace. However, not all trademarks are created equal. The stronger marks include marks which are arbitrary, fanciful and distinctive. These marks can be broadly protected. The weakest and least-protected marks are personal names, descriptive terms, and generic words. Distinctive business names usually receive protection under federal and state trademark law. Common or ordinary names usually do not receive protection under federal and state trademark law.

Fundamental Requirements of a Trademark

Under the Lanham Act, a trademark must meet three fundamental requirements:

  1. It must consist of a word, name, symbol, device or any combination thereof, or any other kind of designation which the courts or the Patent and Trademark Office have found to qualify as a valid trademark
  2. It must be adopted and used by a manufacturer or merchant or qualify for intent to use treatment.
  3. It must identify the manufacturer’s or merchant’s goods and distinguish them from those manufactured or sold by others.

Personal Names

Personal names are names that consumers commonly associate as the name of an individual, such as Smith’s Store. The use of ”name” in the Lanham Act does not mean that all names are considered valid, registrable trademarks. For example, personal names, surnames, and generic names are frequently unprotectible, and are not considered trademarks subject to registration under the Act. There is no paramount right to use a surname in business where it is likely to be confused with a name that has already acquired source indicating significance. When a surname has become strongly connected in the public mind with a certain product and a latecomer bearing the surname attempts to use the name in selling a competing product, the courts will sometimes allow the latecomer use of the name so long as it is accompanied by a prefix, suffix or disclaimer designed to allow the public to distinguish between sources. As with descriptive marks, a surname is registrable and protectable if secondary meaning is shown so that it is no longer primarily merely a surname. A trademark is “primarily a surname” if the public would recognize it first as a surname, or if it consists of a surname and other material that is not registrable. Once a personal name is registrable and protectable, others cannot use the mark on confusingly similar goods, even if they have the same name.

Descriptive Terms

These are words that simply describe the qualities, characteristics, functions or geographic origin of a good or service, such as Car Repair Shop. No trademark rights are granted to merely descriptive marks. However, it is possible for descriptive marks to become distinctive by achieving secondary meaning. Secondary meaning indicates that although the mark is on its face descriptive of the goods or services, consumers recognize the mark as having a source indicating function. Once it can be shown that a descriptive term or phrase has achieved a second meaning then a protectable trademark is developed. Secondary meaning can be achieved through long term use or large amounts of advertising and publicity.

Generic Words

Generic words are words that are associated with a good or service in general, without identification of any particular source of the product or service, such as aspirin. Generic words receive no trademark protection. Generic “marks” are devices which actually name a product and are incapable of functioning as a trademark. Unlike descriptive marks, generic devices will not become a trademark even if they are advertised so heavily that secondary meaning can be proven in the mind of consumers. The rationale for creating the category of generic marks is that no manufacturer or service provider should be given exclusive right to use words that generically identify a product. A valid trademark can become generic if the consuming public misuses the mark causing the mark to become the generic name for the product.


Digital Copyrights

The laws related to digital recordings is continuing to evolve. As a result of recent changes in the Copyright laws, the owner of copyright has the exclusive rights to do and/or authorize another, in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission. This provision was added to the Copyright Act by the Digital Performance Right in Sound Recordings Act of 1995 (DPRA).

The digital performance right only applies to “public” performances. Under the Copyright Act, “public” performance is defined broadly to include even situations where works are performed to individual members of the public in different places and at different times. The digital performance right is limited to public performances by means of a “digital audio transmission.” For copyright purposes, a performance is transmitted when “sounds are received beyond the place from which they are sent.” A “digital audio transmission” is any transmission of a sound recording made in whole or in part in a digital format; the transmission of an audiovisual work is not a digital audio transmission. Accordingly, while traditional analog radio broadcasts are public performances, they are not covered by the digital performance right because they are not made by means of a digital audio transmission. However, digital radio broadcasts and transmissions by digital cable audio services and music services using the Internet all implicate the digital performance right.

Exemptions

The DPRA provides exemptions from the digital performance right for various specific types of performances, so long as they are not part of an “interactive service.” The DPRA divides these exemptions into three groups: certain nonsubscription transmissions, certain retransmissions of nonsubscription transmissions, and certain other exemptions. There is an additional exemption for certain retransmissions made as part of an interactive service.

Application of Exemptions

In applying exemptions from the digital performance right, it is important to recognize that these exemptions distinguish between initial transmissions and retransmissions. Thus, an initial transmission and any retransmissions of it must be analyzed separately when applying the exemptions. The delivery of a performance only is exempt from its inception through to the listener if an exemption covers each initial transmission or retransmission in the process of delivering the performance.

Availability of Statutory Licenses

If a performance would implicate the digital performance right and not be exempt, a “statutory license” may be available for the performance. A statutory license permits a transmitting entity to render a performance if it pays an established royalty in accordance with established terms. A statutory license is available for a subscription transmission only. To qualify, a subscription transmission must meet certain conditions that are generally designed to disqualify transmissions made under circumstances that facilitate illicit taping of sound recordings.

World Intellectual Property Organization

The World Intellectual Property Organization (WIPO) sought to harmonize the myriad international agreements and conventions, as well as to update copyright laws in anticipation of changes caused by new technologies. Negotiations resulted in the WIPO Performances and Phonograms Treaty of 1996 (WPPT). The treaty is largely prescriptive in that it allows member nations to determine the specifics about the enforcement of the treaty’s terms within a more general framework that seeks to maintain a basic level of harmony in copyright among participating nations. The treaty provides that performers and producers of phonograms be compensated for the public broadcast of their works. Additionally, the treaty provides that, in the absence of agreement in the proportion of compensation divided between the performer and producer, national legislation may be enacted to set the terms by which the parties will abide. WPPT defines broadcasting as both by wire and wireless means, which includes all traditional radio broadcasts as well as cable, satellite, and other digital networks, such as the Internet.

Digital Millennium Copyright Act

Subsequent to the development of the WPPT, the Clinton administration initiated the WIPO Copyright Treaties Implementation Act, later renamed the Digital Millennium Copyright Act (DMCA). The DMCA, passed in 1998, implemented the WPPT treaty and amended the 1995 digital performance right. The DMCA created a new statutory license for the creation of an “ephemeral recording” of a sound recording by certain digital broadcasters. The DMCA also revised the language of the DPRA to clarify that the digital sound performance right applies to non-subscription audio services such as webcasting. In addition, it directed Copyright Arbitration Royalty Panels to use specific standards for judging royalty rates for digital transmissions, which are different than those that are applied to determining other copyright royalties.

Miscellaneous Provisions

The DPRA also added provisions limiting the digital performance right. The DPRA specifically addressed subscription-based, interactive transmissions, while omitting non-interactive, digital subscription transmissions. These rights addressed the concerns of distributors of copyrighted works who believed that on-demand digital transmissions could decrease sales of recorded music. DPRA granted distributors the right to collect royalties on certain transmissions to allay the concerns of copyright holders.

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