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Category Archives: Litigation

Do You Know What’s In Your NDA?

You’d better.  If you don’t you’re going to screw it up.  Earlier this year, Convolve lost a trade secrets case against Seagate and Compaq because the personnel involved either didn’t know or forgot what was in the NDA.  The NDA required that in order to trigger any obligation of confidentiality, disclosed information must be: “(1) marked as confidential at the time of disclosure; or (2) unmarked, but treated as confidential at the time of disclosure, and later designated confidential in a written memorandum summarizing and identifying the confidential information.” Why they included the second provision is beyond me.  In this post I wrote that it is important to have a bright line test concerning what is confidential because you don’t want to litigate whether about whether the information was appropriately identified.  What does it mean for information to be treated as confidential at the time of the disclosure?  Who is going to remember to send a memorandum and why would one want such a memorandum describing the confidential information to exist?

In any event, sure enough Convolve disclosed unmarked information in meetings and failed to follow-up with a written memorandum, and then sued based on alleged misuse of that information.  Convolve lost summary judgment.  Convolve tried to argue that, notwithstanding the words in the written contract, everyone knew the information at issue was confidential and marking wasn’t necessary.  The Federal Circuit would have none of it.  The court wrote:  “the NDAs do not appear to be reasonably susceptible to the interpretation Convolve urges. Convolve’s assertion that the parties understood that all oral and visual disclosures were under the purview of the NDAs absent a written follow-up memorandum so stating is contrary to the terms of the NDAs. Thus, Convolve’s interpretation is unreasonable and would render paragraph 7 of the NDA a dead letter.”

Copyright Litigation: Analyzing Substantial Similarity

A new article I’ve written, Copyright Litigation: Analyzing Substantial Similarity has just been published by the Practical Law Company.  Think of it as Substantial Similarity in Copyright Law light.  It discusses just the very basics of what you need to know when evaluating a copyright infringement claim.  If you want detailed information, you still have to get the book.

2013 Substantial Similarity Shipped

I sent the 2013 update of Substantial Similarity in Copyright Law to the publisher PLI earlier this week.  This will be the tenth anniversary edition.  We’ve included more illustrations of the works at issue in the cases discussed, a significant revision of the chapter on useful articles, and more.  Look for it in on the PLI website and Amazon around May or June.

The Latest From the Federal Circuit on Injunctions, Sunset Royalties, and Future Royalty Rates

Even if you win your patent infringement case, you still may not get an injunction prohibiting ongoing infringement.  In a case decided last month by the Federal Circuit, ActiveVideo v. Verizon, a jury found that Verizon infringed ActiveVideo’s method patents pertaining to video-on-demand technology, but the Federal Circuit held that the district court erred by imposing a permanent injunction prohibiting Verizon from future infringement.  This is a stark example of the impact of the Supreme Court’s 2006 ruling in Ebay v. MercExchange that injunctions should not automatically issue in patent infringement cases, and worthy of analysis.  Also worthy of scrutiny is what Federal Circuit wrote concerning the appropriate royalty Verizon should be required to pay for future use.

I.               Injunction

There are four elements courts must consider when deciding whether to impose an injunction after liability has been established:  (1) whether the harm to the patent owner is irreparable; (2) whether the harm is compensable with money damages; (3) the balance of the hardships on each of the parties depending on whether the court issues the injunction; and (4) the public interest.

A.             Irreparable Harm/Efficacy of Money Damages

The Court determined that the injury suffered by ActiveVideo as a result of Verizon’s infringement would be compensable by money damages, and would not be irreparable.  The following chart depicting the manner in which the court weighed facts pertaining to irreparable injury.

Factors Favoring Irreparable Harm Factors Weighing Against Irreparable Injury Non-Factors
The parties are not direct competitors Litigation costs – the Federal Circuit held that litigation costs cannot constitute irreparable harm
License non-exclusive – ActiveVideo could maintain its existing license to Cablevision and also license Verzion Loss of market share by ActiveVideo’s licensee Cablevision – the Federal Circuit held that if Verizon takes a customer away from ActiveVideo’s licensee Cablevision, the only harm ActiveVideo suffers is loss of a license fee from Verizon
Ease of quantifying a license fee – Cablevision paid ActiveVideo 17 cents a month per subscriber, Verizon could be required to pay monthly per subscriber also Loss of business opportunity or brand recognition could constitute irreparable injury, but neither was proven
Verizon is able to pay the license fee – the Federal Circuit distinguished the Bosch v. Pylon Mfg. case, in which the Federal Circuit held that the fact that the defendant might not be able to pay a license fee contributed to irreparable injury
No evidence of damage to ActiveVideo’s brand name because Cablevision markets its service using the “io” name, not the Activevision name, so retail customers are unlikely to associate Activision with the service
Verizon’s service increases demand for VOD overall and therefore increases opportunities for ActiveVideo
No evidence of price erosion
ActiveVideo sought to broadly license its patents, including to Verizon
ActiveVideo wiling to extend sunset licensing period

B.             Balance of Hardships

The Federal Circuit held that the balance of hardships favored the infringer.  It analyzed the factors as follows.

Factors Favoring Patent Owner Factors Favoring Infringer Non-factors
Sunset licensing fee alone would generate, in one month, 70% of what patent owner earned in its entire 23 year history Patent owner’s small size
Patent owner would only suffer if not compensated

C.            Public Interest

The Federal Circuit upheld the district court’s finding that the public interest in enforcing the patent owner’s right to exclude outweighed the interest the infringer’s customers may have in maintaining their access to entertainment.  But the court held that the public interest factor could not outweigh the other two, explaining:

If the general public interest in upholding patent rights alone was sufficient to mandate injunctive relief when none of the other three factors support injunctive relief, then we would be back to the general rule that a patentee should always receive an injunction against infringement. But the Supreme Court rejected the idea that there is a general rule that courts should issue permanent injunctions against patent infringement. eBay, 547 U.S. at 393-94. We vacate the grant of a permanent injunction in this case and remand for the district court to consider an appropriate ongoing royalty rate for future infringement by Verizon.

II.             Sunset Royalties

A sunset royalty is, as its name implies, a royalty an infringer must pay while it phases out its infringing product.  The district court imposed a sunset royalty far greater than the amount paid by ActiveMedia’s licensee, Cablevision.  The Federal Circuit upheld the higher royalty amount, explaining:

The district court accepted ActiveVideo’s expert testimony that Verizon received an incremental profit of $6.86 per FiOS-TV subscriber per month. The court analyzed the respective bargaining positions of the parties post-verdict, and concluded that “it would have been reasonable for the parties to make an agreement whereby Verizon would receive 60% of the profits and ActiveVideo would receive 40% of the profits.”  This results in the $2.74 per subscriber per month royalty. The district court rejected Verizon’s suggestion that it should pay the same rate as Cablevision. The district court found that after the patent is held not invalid and infringed by Verizon, ActiveVideo is in a much better bargaining position with Verizon than it was with Cablevision in 2009. Based on the fact that Verizon may be able to design around, but does not know precisely how effective such a design around might be, the court discounted the profit split from the 50/50 to 60/40 (in favor of Verizon).

This may seem high, and while it is likely true that Verizon would not have agreed to that amount prior to litigation, Verizon has been adjudicated to infringe and the patent has been held not invalid after a substantial challenge by Verizon. See Paice [LLC v. Toyota Motor Corp.], 504 F.3d at 1317 (Rader, J., concurring) (“[P]re-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors.”); Amado [v. Microsoft], 517 F.3d at 1362 (“Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved.”). The district court is correct; there has been a substantial shift in the bargaining position of the parties. See Amado, 517 F.3d at 1362 (“There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement.”). We reject Verizon’s argument that the district court erred in concluding that the jury verdict placed ActiveVideo in a stronger bargaining position.

III.           Future Royalties

Because the Federal Circuit vacated the injunction, it now becomes necessary for the district court to fix a royalty for the infringer to pay going forward.  The court offered the following comparison of sunset and ongoing royalties, and guidance for the district court on remand:

We held in Amado that an assessment of prospective damages for ongoing infringement should “take into account the change in the parties’ bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability.” Amado, 517 F.3d at 1362. And, although Amado dealt with the imposition of royalty damages while an injunction was stayed during appeal, this holding applies with equal force in the ongoing royalty context.  Though we vacate the district court’s injunction, we see no error in its post-verdict royalty calculation. The district court, on remand, should determine an appropriate ongoing royalty, an inquiry that is much the same as its sunset royalty analysis. The district court may wish to consider on remand additional evidence of changes in the parties’ bargaining positions and other economic circumstances that may be of value in determining an appropriate ongoing royalty. See Paice, 504 F.3d at 1315 (“Upon remand, the court may take additional evidence if necessary to account for any additional economic factors arising out of the imposition of an ongoing royalty.”). Indeed, ActiveVideo’s bargaining position is even stronger after this appeal. We leave the procedural aspects of how to proceed on the issue of prospective damages to the discretion of the district court.

The Federal Circuit further explained that some of the Amado factors considered by the district court in its sunset royalty analysis might not be appropriate to consider when calculating an ongoing royalty. Those might include the defendant’s likelihood of success on appeal, the ability of the defendant to immediately comply with the injunction, and the evidence and arguments found material to granting the permanent injunction.

IV.           Effect on Apple v. Samsung

The Federal Circuit’s teachings in the ActiveVideo case are likely to have significant influence on Judge Koh’s upcoming decision on Apple’s request for an injunction prohibiting future sales of infringing smartphones in the Apple v. Samsung case.  In the fist instance, she is likely to be guided by the ActiveVideo opinion in determining whether to impose the injunction Apple wants.  If she decides not to impose the injunction, then she will likely refer to it if she needs to impose an ongoing royalty.

 

 

The Practical Difference Between Contributory Infringement and Inducing Infringement in Patent Cases

The Federal Circuit’s recent decision in Toshiba v. Imation highlights a key difference between the concept of contributory infringement and inducement of infringement in patent cases.  It is that an accused infringer may escape liability for contributory infringement if his product is capable of “substantial non-infringing use”, but if the accused infringer encourages infringing use, the fact that his product is capable of substantial non-infringing use will not save him from inducement liability.

Toshiba illustrates the point.  The Federal Circuit affirmed summary judgment for the defendant on contributory infringement, but reversed on inducement.  The case involved patents for DVD recorders. The court held: (1) Toshiba had not proven that an insubstantial number of Imation users did not take the last step claimed by the patent of “finalizing” their DVDs after recording them; (2) therefore (common sense notwithstanding) a not insubstantial number of Imation users could be skipping that step; and thus (3) Toshiba had not proven that the Imation recorders were not capable of substantial non-infringing use and its claim of contributory infringement therefore failed.

With respect to inducement, however, the Federal Circuit held that because Imation urged users of its product to finalize the DVDs, it was error to grant summary judgment for the defendant.  The Court explained that just because a product is capable of non-infringing use does not mean the defendant is not inducing its users to use it in an infringing manner.  Moreover, in this context, the court explained, where an alleged infringer designs a product for use in an infringing way and instructs users to use the product in an infringing way, there is sufficient evidence for a jury to find direct infringement.

In addition to highlighting the important distinction between contributory infringement and inducement, the case illustrates the potential significance of burdens of proof.  If Imation had been required to prove substantial non-infringing use, it does not seem certain it could have done so.  One might ask whether, as a matter of policy, it is best to place the burden on the plaintiff to prove that an accused product is not capable of substantial non-infringing use, but that is a topic for another day, or for comments to this post.

Good News For Brand Owners Seeking Injunctions

A  judge in the Western District of New York (think Buffalo) wrote last week in a case between two beauty pagaent promoters, Mrs. United States and Miss United States of America :

The potential loss of good will and customers by plaintiff, and possible damage to its reputation, as a result of defendants’ alleged infringement of plaintiff’s marks is not easily quantifiable or remediable by damages, and supports a finding of irreparable harm.

This is more evidence that concerns that the Supreme Court decision in eBay v. MercExchange rejecting the presumption of irreparable harm in patent cases would raise the bar to obtaining injunctions in all IP cases, were overblown. Potential loss of good will and customers  and possible damage to reputation are likely to be present in the majority of trademark infringement cases. 

The court in the Mrs. United States case went on to give the following useful summary of the state of the presumption of irreparable harm law in IP cases.

It is unclear whether a court may presume irreparable harm upon a finding of likelihood of success on a trademark claim. The Supreme Court has held that such a presumption is improper in patent or copyright cases, see eBay, 547 U.S. at 392 (noting that Court’s ruling with respect to patent cases “is consistent with our treatment of injunctions under the Copyright Act”); see also Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 996 (9th Cir. 2011) (“under eBay, a presumption of irreparable harm is equally improper in a case based on copyright infringement as it is in a case based on patent infringement”); Salinger, 607 F.3d at 82 (“After eBay, … courts must not simply presume irreparable harm”) (copyright case). To date, however, no consensus has emerged as to whether that holding applies to trademark infringement cases as well. See Peoples Federal Sav. Bank v. People’s United Bank, 672 F.3d 1, 9 n.11 (1st Cir. 2012) (finding it unnecessary, and declining, to decide issue); Southern Co. v. Dauben Inc., 324 Fed.Appx. 309, 318 n.13 (5th Cir. 2009) (same); North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1228 (11th Cir. 2008) (same). At least some district judges from within this circuit have applied eBay to trademark cases, however. See, e.g., Ascentive, LLC v. Opinion Corp., ___ F.Supp.2d ___, 2011 WL 6181452, at *5 (E.D.N.Y. 2011) (“Although prior to Salinger, courts in this circuit presumed irreparable injury in trademark cases where a likelihood of confusion was shown, post-Salinger, this presumption is no longer applicable”); Tecnimed SRL v. Kidz–Med, Inc., 763 F.Supp.2d 395, 402 (S.D.N.Y. 2011) (applying Salinger to a trademark claim), aff’d, 462 Fed.Appx. 31 (2d Cir. 2012). The Second Circuit has not yet spoken directly on this question, though it has suggested that the presumption may still have some force in trademark cases; see Zino Davidoff SA v. CVS Corp., 571 F.3d 238, 246-47 (2d Cir. 2009) (noting presumption in trademark cases, without referencing eBay or Salinger, but finding that even without benefit of presumption, plaintiff had shown irreparable injury).

 

The Damaged are Welcome; the Merely Annoyed are Unwelcome in Federal Court

Two recently-decided cases brought by Apple illustrate the necessity of identifying real harm to one’s business before filing a lawsuit in federal court.  The court dismissed the first, Apple v Motorola, because Apple was unable to show that it had been damaged by the alleged patent infringement.  In contrast, Apple achieved a tremendous victory in Apple v. Samsung.  The court granted a preliminary injunction prohibiting Samsung from selling its new Galaxy Nexus smartphone, because Apple was able to demonstrate that it was likely to suffer irreparable harm if Samsung was permitted to continue to infringe Apple’s patents.

Apple v. Motorola illustrates the types of claims a business should not pursue.  At the end of that case, Apple was left with claims that Motorola had employed two features subject to its patents, the value of which Apple could not quantify.  At bottom, the court’s reaction was “stop wasting everyone's time.”  Finding that Apple would not be able to prove any money damages, and could not prove entitlement to an injunction, the court dismissed the case.  The court gave the back of its hand to Apple’s claims that the court should issue a declaration that Motorola had infringed or award symbolic “nominative” damages.  The court wrote:  “You can’t go into federal court and say you had a contract with X and X broke it and you’re really annoyed even though you sustained no injury of any sort (in fact you made money because you re-contracted at a higher price) so please give me a judgment for $1 that I can pin on my wall.”

Apple v. Samsung, on the other hand, illustrates precisely the type of case a business should pursue.  In that case Apple was able to show that, unless the court issued a preliminary injunction, Apple would be likely to lose not only phone sales, but immeasurable additional sales when purchasers of the Galaxy Nexus followed that purchase with purchases of other Android products and applications rather than the Apple products and applications they would be likely to purchase if they first purchased an iPhone.  The size of the victory for Apple is reflected in the size of the bond the court required Apple to post: $95 million, the amount of profit Samsung asserted it would lose if it could not sell the Galaxy Nexus.  It seems intuitive that Apple is correct that the smart phone is a “gateway” device that leads one to purchase additional products that use the same operating system as the phone.  Therefore posting the $95 million bond (which is unlikely to be posted in cash, and which will be returned to Apple unless Samsung succeeds in overturning the injunction on appeal or otherwise proving that the court was wrong to grant the injunction) to knock out the Galaxy Nexus seems like it will be good business for Apple.

The take away for businesses should be that there is little utility in starting lawsuits out of spite.  Although you may cause your adversary to incur legal fees and suffer disruption caused by litigation, you are bound to incur costs like that of your own, and to lose momentum when the strong action you trumpeted at the outset of the case turns into fodder for your adversary at the end.  On the other hand, Apple v. Samsung teaches that despite the incessant protests of those who would curtail the protection given to IP owners, those who do suffer actual harm can still obtain not mere vindication, but effective relief in federal court.

 

L.A. Printex v. Aeropostale III – Copyright Registration Errors

This third post discussing the L.A. Printex case concerns the effect of errors in copyright applications. The defendants sought summary judgment on the ground that L.A. Printex’s registration should be held invalid because its designs were registered as an unpublished collection, but included two designs that previously had been published.

The rule, however, is “inadvertent mistakes on registration certificates do not invalidate a copyright and thus do not bar infringement actions, unless the alleged infringer has relied to its detriment on the mistake, or the claimant intended to defraud the Copyright Office by making the misstatement.” The court held that the error did not invalidate the registration or render the certificate of registration incapable of supporting a copyright infringement claim. There was no evidence that L.A. Printex knew that the two designs had been published at the time it submitted its application for copyright registration, or that it intended to defraud the Copyright Office. Upon learning of its registration error, L.A. Printex corrected it. It filed an application for supplementary registration, communicated with the Copyright Office about the error through email and phone correspondence, and filed a second application for supplementary registration. Moreover, the Copyright Office’s decision to issue a supplementary registration after it was told of the two designs’ prior publication shows that the error was not one that “if known, would have caused the Register of Copyrights to refuse registration.

L.A. Printex v. Aeropostale – Part II Substantial Similarity

The Ninth Circuit’s opinion in the L.A. Printex case offers two useful insights with respect to the manner in which courts in that circuit are to evaluate substantial similarity. 

The first is a re-affirmation that a court should not evaluate the intrinsic test, involving a subjective comparison of the two works, on summary judgment.  The subjective comparison should be reserved for trial.  Court’s should only conduct the intrinsic test, the objective listing and comparison of similarities on summary judgment.

The second is the court’s actual application of the intrinsic test.  Here is an excerpt:

C30020 is a repeating pattern of bouquets of flowers and three-leaf branches. The idea of a floral pattern depicting bouquets and branches is not protectible, and C30020 has elements that are not protectible, for example the combination of open flowers and closed buds in a single bouquet or the green color of stems and leaves. However, L.A. Printex’s original selection, coordination, and arrangement of such elements is protectible. Because there is “a wide range of expression” for selecting, coordinating, and arranging floral elements in stylized fabric designs, “copyright protection is ‘broad’ and a work will infringe if it’s ‘substantially similar’ to the copyrighted work.” That is, “there are gazillions of ways” to combine petals, buds, stems, leaves, and colors in floral designs on fabric, in contrast to the limited number of ways to, for example, “paint a red bouncy ball on black canvas” or make a lifelike glass-in-glass jellyfish sculpture. Our comparison of Defendants’ allegedly infringing design and C30020 reveals objective similarities in protectable elements. Both patterns feature two types of small bouquets of flowers, one featuring the largest flower in profile view, the other featuring the largest flower in an open-face view, and both emerging from three buds. Both patterns also depict small, three-leaf branches interspersed between the two types of bouquets. The shape and number of the flower petals and leaves are similar in the two designs. The two types of bouquets are arranged at similar angles in both designs, and the bouquets and branches are coordinated in similar spatial combinations on a grid of similar scale and layout.  Moreover, the color arrangement of C30020 in white/berry is markedly similar to the color arrangement of Defendants’ design…The differences noted by the district court do not compel the conclusion that no reasonable juror could find that Defendants’ design is substantially similar to C30020. Rather, in light of the similarities described above, the differences support the opposite conclusion, that there is a genuine dispute of material fact on substantial similarity. It is true that the flowers, stems, and leaves in Defendants’ design are less detailed than those in C30020, and that Defendants’ design does not use multiple shades of color to give the flowers and leaves definition as does C30020. But a rational jury could find that these differences result from the fabric printing process generally and are “inconsequential,” or could credit Jae Nah’s assertion that these differences result in part from “print[ing] using cruder, lower quality techniques and machinery. Moreover, because we conclude that stylized fabric designs like C30020 are properly entitled to “broad” copyright protection, it is not necessary that Defendants’ design be “virtually identical” to infringe. A rational jury could find that despite some differences between Defendants’ design and C30020, the similarities in the selection, coordination, and arrangement of bouquets and three-leaf branches are sufficiently substantial to support an inference of copying. Accordingly, we hold that objective similarities in the expressive elements of Defendants’ design and C30020 present a genuine dispute of material fact under the extrinsic test.

If you don’t understand the intrinsic/extrinsic distinction, call me up or send an email.  I can probably confuse you even more.  Look for further discussion of this case, hopefully with pictures of the works in question, in the 2013 update of Substantial Similarity in Copyright Law.

 

L. A. Printex v. Aeropostale, Part I-Access

Widespread dissemination of a work sufficient to show a reasonable possibility of access can be confined to particular region and/or industry. That is one of the rulings in the Ninth’s Circuit’s recent decision in L. A. Printex v. Aeropostale.  This is the first of three posts about the case, each addressing a single aspect of the court’s opinion.

Most readers of this blog will know that in order to prove copyright infringement, a copyright owner must prove that the defendant copied the copyrighted work.  In most cases there is no confession, eyewitness or other direct evidence of copying, so plaintiffs typically prove copying by proving that the defendant had access to the plaintiff’s work, and that similarities between the plaintiff’s work and defendant’s suggest copying.

In the Aeropostale case, L. A. Printex claimed that Aeropostale and co-defendant Ms. Bubbles infringed L.A. Printiex’s copyright in a floral fabric design.  L.A. Printex asserted that defendants had access to the copyrighted print because it was widely disseminated in the Los Angeles fashion industry.  The Ninth Circuit agreed, writing:

L.A. Printex and Ms. Bubbles (Aeropostale’s wholesaler and co-defendant) operate in the same industry in the same Los Angeles area. L.A. Printex, a fabric printing company, sold more than 50,000 yards of fabric bearing C30020 to fabric converters. It is a reasonable inference that many or most of these purchasers were in the Los Angeles area. Apparel vendors like Ms. Bubbles purchase fabric from fabric printing companies and fabric converters. In addition, the dissemination of C30020 occurred over a four-year period immediately preceding Defendants’ alleged infringement. A reasonable jury could find that C30020 was widely disseminated in the Los Angeles-area fabric industry, and hence that there was a “reasonable possibility” that Defendants had an opportunity to view and copy L.A. Printex’s design…We hold that L.A. Printex raised a genuine dispute of material fact on access.