In a growing response to concerns about patent “trolls” and the tactics they use in litigation, the President and Congress are calling for changes in the patent laws to assist the targets of these patent assertion entities (PAEs). Currently, there are six bills pending in Congress that address, in some respect, these concerns. In the final part of this series, we are looking at the four remaining pieces of legislation, which are all narrower in focus, and what changes are being proposed in them. (Parts one and two of our series are here and here.)

PENDING LEGISLATION:
Patent Abuse Reduction Act of 2013 (S. 1013)
Patent Litigation and Innovation Act of 2013 (H.R. 2639)
Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 (H.R. 845—SHIELD Act)
End Anonymous Patents Act (H.R. 2024)
Patent Quality Improvement Act of 2013 (S. 866)
Stopping the Offensive Use of Patents Act (H.R. 2766—STOP Act)

SAVING HIGH-TECH INNOVATORS FROM EGREGIOUS LEGAL DISPUTES ACT OF 2013 (H.R. 845)
The SHIELD Act is designed to shift the costs of litigation to certain kinds of patentees that lose patent infringement lawsuits. Specifically, patentees that (1) are not the original inventor or assignee of the patent, (2) have not made a “substantial investment” to exploit the patent through production or sale of item covered by the patent, or (3) are not a university or a university’s technology transfer organization will be required to pay the full costs and attorneys’ fees of the prevailing party that asserted invalidity or non-infringement, unless the court finds that exceptional circumstances exist.

A party asserting invalidity or non-infringement may move the court for a judgment that the patentee does not fall within one of these three classifications. If the motion is made before initial disclosures are due, the court must stay discovery, except for that necessary to resolve this motion. If the motion is made after the initial disclosures, the court may wait until after entry of final judgment to decide the motion.

There are a couple of interesting points about this proposed litigation. First, there is no good faith or reasonable basis exception explicitly contained in the determination of whether to award fees. Thus, unless courts consider a good-faith basis for filing the suit to be an “exceptional circumstance,” entities that do not fall within one of the three categories must pay a defendant’s costs and fees regardless of the reasonableness of the lawsuit.

Second, the bill does not indicate what happens with mixed verdicts. If a patentee prevails on all but one claim, is a defendant entitled to collect all of its costs and fees, or only some pro-rated amount?

Third, how would this bill affect declaratory judgment actions? The language is not written in terms of plaintiff or defendant, but in terms of the “party asserting invalidity or no infringement.” If a company receives a cease-and-desist letter from an entity that does not fall within one of the three categories and files a declaratory judgment action, is the patentee subject to this rule? Presumably, it would be which means that these kinds of patentees would have to be extremely careful when sending licensing or cease-and-desist letters.

END ANONYMOUS PATENTS ACT (H.R. 2024)
This act is fairly straightforward. It simply requires that a patent owner file a disclosure with the USPTO of the real party in interest of any patent when (1) the patent issues, (2) a maintenance fee is paid, and (3) within 90 days of any transfer of ownership. If a patent owner does not, it cannot collect any damages in a patent infringement lawsuit until it cures its failure to do so.

PATENT QUALITY IMPROVEMENT ACT OF 2013 (S. 866) AND STOPPING THE OFFENSIVE USE OF PATENTS ACT (H.R. 2766)
These two acts are basically mirror images of one another, except one was introduced in the Senate and one in the House. Both remove the sunset provision in 35 U.S.C. § 321 note, subsection (a)(3), which provides for a streamlined post-grant review of financial business method patents, and makes the program permanent. The acts would also expand the scope of review from financial business method patents to all types of business method patents.

The STOP Act also requires the USPTO to work with and support intellectual property law associations with pro bono programs “to assist financially under-resourced re-sellers, users, implementers, distributors, or customers of an allegedly infringing product or process.”

CONCLUSIONS AND FINAL THOUGHTS
All six pieces of legislation target the patent “troll” problem, but do so in different ways. None of these approaches seem to be the silver bullet to solve this problem, however. In fact, some of them are likely to cause significant issues in the traditional patent litigation context. Also, there are many questions and ambiguities about how these laws would be applied. It will be interesting to see if any of these proposals garner enough support to become law (and whether any changes are made to do so).

This blog was originally posted on the PIT IP Tech Blog on July 25. Click here to read the original entry. 

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Today, the United States Supreme Court unanimously ruled in Association for Molecular Pathology v. Myriad Genetics, Inc., No. 12-398, that a naturally-occurring DNA segment (or gene) is not patent eligible even if it has been isolated from a genome (reversing the Federal Circuit). The Court also ruled that cDNA (complementary DNA) is patent eligible because it is not naturally occurring (affirming the Federal Circuit). Justice Thomas wrote the opinion for the unanimous Court, and Justice Scalia wrote a short concurrence. We have been following this case for some time (see here, here, and here).

The Court began by restating its position that laws of nature, natural phenomena, and abstract ideas are not patentable subject matter under 35 U.S.C. § 101. The question for the Court was whether Myriad’s patents claimed any new and useful composition of matter.

To answer this question, the Court looked at what Myriad claimed. With respect to the DNA claims, Myriad claimed the DNA segment it found in nature, and it did not change or alter any of the genetic information in that segment. Because it claimed something naturally found in nature, it was not patent eligible subject matter.

With respect to the cDNA claims, the Court reached a different result. The cDNA is not found in nature, but is created in the laboratory. This key difference meant that it was patent eligible subject matter. The Court did not address whether these claims met the other requirements of the patent statute, such as §§ 102, 103, and 112.

The Court was also very clear on what it was not deciding in this case. There were no method claims at issue, such as an innovative method for manipulating genes. Similarly, there were no  claims directed to how this new knowledge might be applied to achieve some useful result. The Court suggested (without holding) that those types of claims would be patent eligible. Finally, it noted that the claims were not directed to naturally occurring genetic code that had been altered to create some new and not natural DNA. The Court refused to suggest how it might address claims like those.

In the end, the Court stated that “[w]e merely hold that genes and the information they encode are not patent eligible under § 101 simply because they have been isolated from the surrounding genetic material.”

This blog was originally posted by Robert Wagner on June 13 on the PIT IP Tech Blog, An Intellectual Property and Technology Law Blog from the Pittsburgh Law Firm of Picadio Sneath Miller & Norton, P.C. Click here to see the original post. 


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On February 20, 2013, department stores  J.C. Penney Inc. and Macy’s Inc. faced off in a new arena – a New YorkState courtroom.  The two retailers are going to trial over Martha Stewart.  Macy’s suit accuses J.C. Penney of attempting to convince Martha Stewart to break her company’s exclusive merchandise contract with the department store chain – a contract Macy’s says gives them the exclusive rights to sell certain Martha Stewart products until 2018.  Part of Macy’s lawsuit reads: “J.C. Penney want[s] to rob Macy’s of market share and destroy the competitive advantage that it enjoys as a result of its existing exclusive agreement with (Martha Stewart Living).”

J.C. Penney argues that Macy’s rights to the Martha Stewart merchandise are not nearly as broad as Macy’s claims.  According to J.C. Penney: “Macy’s should stop competing in the courtroom and start competing in the marketplace.”

The move to market the Martha Stewart line is one of several initiatives by J.C. Penney to revive its struggling business.  As part of its new plan, J.C. Penney acquired a 16.6% stake in Martha Stewart’s company in December of 2011, subsequently announcing its plan to open up Martha Stewart ‘mini shops’ in most of its stores.  In response, Macy’s immediately sued J.C. Penney and was granted a preliminary injunction prevent the sale of the Martha Stewart goods at J.C. Penney while the trial played out.

A central issue of the case is whether or not the court agrees that the mini-shops fall under the exclusivity clause of the Macy’s/Stewart agreement.

Macy’s, J.C. Penney go to court over Martha Stewart

As originally posted on February 22 at sportslawinsider.com

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We previously discussed the troubling issues of:  a)whether your company’s insurance policy(ies) actually provides coverage for claims of IP infringement, and b)which of your policies is the one(s) you should be looking to for possible coverage when you get sued for infringement.

And for a great discussion of insurance coverage for IP infringement claims generally under the “Advertising Injury” clause of a standard commercial general liability policy, see Dan Graham’s article in the DRI insurance coverage newsletter.

This week we’ll get more specific:  a claim that was found by one California appeals court to be covered under a standard commercial general liability policy, and one that was found by a different division of the same appeals court not to be covered – both under the very same “advertising injury” clause of the policy.

Background
In Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., Charlotte Russe, a clothing retailer, requested its insurance company, Travelers, to defend it in a lawsuit brought by Versatile Entertainment, Inc. (Versatile v. Charlotte Russe – the “underlying lawsuit”).  Versatile is a manufacturer of “premium” clothing marketed under the brand “People’s Liberation.”  In the underlying lawsuit, Versatile alleged that Charlotte Russe had harmed the People’s Liberation “brand” of “high-end” and high-priced clothing by offering Versatile’s clothing for sale at deep discounts and at “close-out” prices, amounting to a “fire sale.”

Charlotte Russe’s request that Travelers defend it in the underlying lawsuit was based on the “Advertising Injury” clause in the Travelers’ policy issued to Charlotte Russe.  Travelers denied Charlotte Russe’s request.  Because of the disagreement between Charlotte Russe and Travelers, Travelers filed a separate lawsuit requesting a judicial determination of whether it was required to provide coverage to Charlotte Russe (Travelers v. Charlotte Russe – the “coverage lawsuit”).

Travelers Policy Defines Advertising Injury
In the Travelers policy, “Advertising Injury” was defined in several ways.  One of the definition of “Advertising injury” was, “injury . . . arising out of . . . material that . . . disparages a person’s or organization’s goods, products, or services.” In the coverage lawsuit, Travelers contended that Versatile’s allegations against Charlotte Russe in the underlying lawsuit did not amount to a claim that Charlotte Russe had “disparaged” the People’s Liberation brand.  A retailer’s mere reduction of a product’s price is not, argued Travelers, a disparagement of that product.  In order to satisfy the definition of “disparagement” under the policy, Travelers argued, Versatile would have to be alleging the elements of the tort of trade libel under California law against Charlotte Russe.

Trade Libel Not A Requirement for Committing Disparagement
Trade libel, in turn, requires the publication of an injurious false statement about a company or its goods or services.  The trial court in the coverage lawsuit agreed with Travelers’ position on the meaning of the term “disparagement” and granted summary judgment in its favor – meaning that Travelers had no obligation to defend Charlotte Russe in the underlying lawsuit.  Charlotte Russe appealed from this decision.

The California appeals court reversed, holding that Company A’s publication of an injurious false statement against Company B or Company B’s goods or services (i.e., the definition of trade libel) is not a requirement for establishing that Company A may have committed “disparagement” under the insurance policy.  In other words, reading the allegations in the underlying lawsuit, Charlotte Russe may have “disparaged” the People’s Liberation brand of clothing by implication, by selling the clothing at “fire sale” prices.  The gist of the underlying lawsuit, said the court, is that Versatile was accusing Charlotte Russe of impliedly telling the world that the People’s Liberation brand of clothing is not a premium, high-end line, which, according to Versatile, is false. According to the court, that is disparagement.  Lastly, the court said that there was nothing in the language of Travelers’ policy that said the definition of “disparagement” is equal to the legal definition of trade libel.  Accordingly, the appeals court reversed the trial court, and held that Travelers was required to defend Charlotte Russe in the underlying lawsuit.  Travelers appealed this decision to the California Supreme Court, but its petition for appeal was denied.

Sister Appeals Court Comes to Opposite Conclusion
A little more than three months later, a different panel of the same California appeals court came to exactly the opposite conclusion in the case of Hartford Casualty Ins. Co. v. Swift Distribution, Inc.  In this case, the issue was whether Hartford had to defend its insured, Swift, in a lawsuit brought by Gary-Michael Dahl.  Dahl sells an item called the “Multi-Cart.”  Swift started advertising and selling an item called the “Ulti-Cart.”  Swift’s advertisements made no mention of Dahl or the “Multi-Cart.”  Dahl sued Swift for patent infringement, trademark infringement, unfair competition, trademark dilution, and misleading advertising (Dahl v. Swift – the “underlying lawsuit”).  Among other things, Dahl alleged that Swift’s advertisements for the Ulti-Cart “disparaged” Dahl’s Multi-Cart by implication.  Swift requested that its insurance company, Hartford, defend it in the lawsuit brought by Dahl.  Swift requested coverage under the “Advertising Injury” clause of the policy.

The definition of “Advertising Injury” in the Hartford policy was exactly the same as the definition in the Travelers policy in the Travelers v. Charlotte Russe case, above.  Hartford refused Swift’s request, arguing that Dahl’s allegations in the underlying lawsuit against Swift weren’t covered under the policy.  To settle the dispute – just as Travelers had done against Charlotte Russe – Hartford filed a coverage lawsuit against Swift.  That is, it sued Swift for a judicial determination of whether it had a duty to defend Swift in the underlying lawsuit.  While Hartford’s coverage lawsuit against Swift was pending, Dahl and Swift settled the underlying lawsuit.

In Hartford’s coverage lawsuit, Swift alleged that Dahl’s claims in the underlying lawsuit came within the definition of “Advertising Injury.”  The trial court ruled in Hartford’s favor, finding that, on the undisputed facts, which, in this case, were:
a) the allegations in Dahl’s complaint against Swift in the underlying lawsuit, and
b) the terms of the Hartford policy issued to Swift, there was no “disparagement” by Swift.  Swift appealed.

Insurer Does Not Have to Provide Coverage
This time, the California appeals court – again, a different division of the very same appeals court that found coverage in the Travelers v. Charlotte Russe case – affirmed the trial court’s decision of no insurance coverage.  The appeals court here found that Dahl’s underlying lawsuit did make a variety of allegations that Dahl and its product, the Multi-Cart, were harmed by Swift’s infringements, by its unfair competition, and by its false and misleading advertising.  Nevertheless, the court found that Swift’s advertisements did not actually disparage – i.e., express an “injurious falsehood” about – Dahl or the Multi-Cart because the advertisements never mentioned Dahl or the Multi-Cart.

Swift then argued that in the underlying lawsuit Dahl had alleged that Swift’s advertisements referred to Dahl’s Multi-Cart by implication.  The court found that even if this were true, Swift’s advertisements mentioned only its own product, the Ulti-Cart.  Regardless of whether Swift’s conduct might constitute trademark infringement and unfair competition against Dahl and the Multi-cart, Swift’s advertisements did not disparage Dahl or the Multi-Cart.

Therefore, the appeals court held that, because Swift’s advertisements had not disparaged Dahl or the Multi-Cart, Dahl’s underlying lawsuit did not come within the Advertising Injury coverage clause of Hartford’s policy issued to Swift, and Hartford was not required to defend Swift in the underlying lawsuit.

Notably, the appeals court in Hartford v. Swift said that its sister court’s decision in Travelers v. Charlotte Russe was wrong.  It said that discounted pricing (which was the operative allegation in the Versatile v. Charlotte Russe lawsuit) is not “disparagement.”  It said that discounted pricing is not the same thing as the publication of an injurious false statement.  The language used by the Hartford v. Swift court in expressing its disagreement with its sister court is about as clear and strong as one finds in court opinions.

Swift has appealed the coverage case to the California Supreme Court, which has not yet decided whether it will hear the case.  I’m guessing the Supreme Court will take the case now that two California appeals courts have come to opposite results in interpreting the same clause in a standard insurance policy.

Takeaway
The lesson here is that claims against you or your client of patent infringement, trademark infringement, unfair competition, trademark dilution, and/or misleading advertising might not constitute “disparagement” under your insurance policy.  If you sell a product, especially one that competes with other similar products on the market, you need to purchase your insurance carefully, and look for policies that will cover you for the types of claims you might face:  infringement- and unfair competition-type claims by your competitors, and products liability-type claims by the purchasers of your product(s).

In the coming weeks and months, we’ll check the status of the appeal in the Hartford v. Swift case and have more to say on insurance coverage issues for intellectual property infringement claims.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics. You can find his original post here

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Misunderstood heroes. Space travel. Alien worlds. Humanoids. Greed. Imperialism. Violence. Exploitation. Intercultural war. Redemption. And Copyright Infringement?

Everyone’s seen the movie Avatar. How many people have read the book Bats and Butterflies? How many people have even heard of it? The author of Bats and Butterflies alleges that James Cameron’s Avatar is a rip-off.

Background
Elijah Schkeiban, author of the book Bats and Butterfliesfiled a lawsuit against Cameron, author, director, and co-producer of Avatar, and Lightstorm Entertainment, Inc., Twentieth Century Fox Film Corporation, and Dune Entertainment LP.  Schkeiban alleges in his lawsuit that he created the Bats and Butterflies “franchise of products” in 1988 based on his script and novel of the same name.  He alleges that he registered the copyrights for the script and novel in 2000 and 2001. 

Schkeiban alleges that in 2005 he started shopping the script to various people in Hollywood, including an actor named Billy Zane. He alleges that Cameron’s Avatar copied Bats and Butterflies, and that the two stories are “substantially similar” in plot, sequence of events, characters, themes, moods, setting, and pace.  He alleges that Cameron and the other defendants therefore infringe his copyrights.  You can’t watch the movie Bats and Butterflies, to decide for yourself whether Schkeiban’s claims have merit, because the movie hasn’t been made.  But you could read the novel.

Anyway, the court dismissed his Complaint, noting (correctly) that the Complaint was missing an essential element of a copyright infringement claim:  it made no allegation whatsoever that Schkeiban gave or showed his script to Cameron or the other defendants, or that they had access to it. This was a fatal omission. 

Schkeiban then filed an “Amended” Complaint, in which he now alleged that when he gave his script to Zane in 2005, he asked Zane to give a copy of it to Cameron, and that Zane later told him that he had done so.  Again, the court dismissed the Amended Complaint.  The court noted that Schkeiban’s new allegation only alleged that Zane allegedly told Schkeiban that he (Zane) had given the script to Cameron.  This allegation simply wasn’t enough, the court said, to establish that Cameron actually saw the script. 

Schkeiban responded by filing a Second “Amended” Complaint.  In this third pleading, Schkeiban pointed out that Zane is an actor who had been in Cameron’s previous film, Titanic, and therefore was close to Cameron.  Schkeiban further alleged that he had had a telephone call with Zane in 2005 in which Zane assured him that he had given the Bats and Butterflies script to Cameron.  Otherwise, there were no changes from the previous Complaints.

Copyright Law Protects the Expression of Ideas
Before turning to the court’s final decision, a little about copyright law.  Many people who don’t work in intellectual property don’t realize that copyright law cannot and does not protect ideas.  It protects only the actual expression of those ideas. 

  • In literary works, such as novels or scripts, you can’t copyright what are called “scenes a faire,” meaning standard plots, scenes, characters, or themes. 
  • You can’t copyright plots, such as “boy-meets-girl, boy-breaks-up-with-girl, boy-reunites-with-girl, and boy-and-girl-live-happily-ever-after.” 
  • You can’t copyright scenes, such as “boy-meets-girl-in-a-dimly-lit-bar.” 
  • You can’t copyright characters, such as heroes, villains, victims, etc.
  • And you can’t copyright themes, such as “misunderstood and conflicted soldier in invading culture falls in love with a member of the invaded culture, switches allegiance, and leads the invaded culture in repelling his own culture.  This persistent theme in human literature is nicely explored in the Wikipedia entry for the film Avatar.   (Consider:  the novel Tarzan and the film Dances With Wolves.) 
In order for a court to find copyright infringement in a script or novel, there has to be almost exact copying of the actual mode of expression – i.e., the words and sentences.  Therefore, Schkeiban would have to show not only that Cameron saw or had access to his script, but also that Cameron literally or almost literally copied from it.

The Court’s Decision – Avatar Not “Substantially Similar” to Bats and Butterflies
The court again dismissed Schkeiban’s Second Amended Complaint, pointing out that this was Schkeiban’s third attempt to make out a copyright infringement claim.  The court noted that to prove copyright infringement, a claimant must prove: 

1. ownership of a valid copyright, and
2. copying by the alleged infringer (Cameron) of elements of the infringed work (Bats and Butterflies) that are original to that work. 

In turn, copying can be proven by showing that: 
1. the defendant had access to the infringed work, and
2. that the works at issue are “substantially similar.” 

The court noted that, even on his third attempt, Schkeiban’s effort to show that Cameron had access to Bats and Butterflies was vague.  But, even assuming Cameron had access, the court found that the elements of Bats and Butterflies and Avatar are not “substantially similar.” Bats and Butterflies is a fantasy work that involves a bullied human teenager, Joshua, who is magically transported to a planet and finds a war between bats and butterflies.  Joshua helps the butterflies defeat the bats and helps a caterpillar princess mature into a queen butterfly.  As we all probably know, Avatar involves a disabled war veteran/mercenary soldier who flies to a planet; through cloning technology is transformed into one of the native beings on that planet in order to spy on them; and eventually sides with the natives and helps them defeat the invading humans – his own people. 

Although both works involve humans who go to a distant planet and become involved in a war between two cultures there, the similarities end there, according to the court.  Schkeiban argued that his script and Cameron’s film were similar because both involved ideas of alien lands, deaths of family members, and battles between groups with competing interests.  The court found that the plots and sequences of events between the two stores are substantially different and that any similarities are merely general ideas, which cannot be copyrighted.  Similarities between Schkeiban’s hero, a bullied teenager, and Cameron’s hero, a paraplegic war veteran, are not copyrightable.  Any random similarities of plot scattered between the two stories are “scenes a faire.”  Both stories arguably involve themes of racism, genocide, imperialism, and environmentalism, but, again, themes cannot be copyrighted.  As a result, the court found that, after three attempts, Schkeiban could not prove copyright infringement, and dismissed his claim with finality (“with prejudice”).

Another note about copyright law:  In contrast to the standard “American Rule,” whereby each party in litigation pays its own attorneys’ fees, the copyright statute allows the prevailing party (here, Cameron, et al.) to recover its fees. After persuading the lower court to dismiss Schkeiban’s Complaint, the defendants moved for recovery of their attorneys’ fees.  The court denied their motion.

The court docket reveals that Mr. Schkeiban has filed an appeal to the U.S. Court of Appeals for the Ninth Circuit.   Bats in the Belfry?

Stay tuned.

*This article was originally posted to "The IP Stone" by Walter Judge on December 19, 2012. Read the original post here


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People love to complain, especially online.  There are plenty of places to share feelings about that awful restaurant food, dirty hotel bed sheets, or maybe that lost luggage and lousy airline service.  Meet Canadian Professor Jeremy Cooperstock, the owner and manager of Untied.com.  No, that’s not a typo.  Untied.com is a website where unhappy employees and customers of United Airlines can post their complaints against the airline.  United Airlines has sued Cooperstock in two Canadian courts for this website but not for the reasons one might think.  United’s problems with the website are: 1) the trademarked United logo is on the website; 2) the website looks eerily familiar to United’s own website which United claims causes confusion for those who are looking for the real United.com to file a complaint; and 3) private information is on the website.

Complaining online might be cathartic, but doing so can have its share of legal consequences for hosters and posters alike.  First, beware of intellectual property laws.  Many countries have some kind of intellectual property protection.  Some of these countries have “fair use” or “fair dealing” laws which are exceptions to those protections.  Many of these exceptions are for things like parody, critiques, or satires.  Before posting trademarked or copyrighted material, ensuring that the website or post falls under one of the exceptions is critical to avoiding an infringement claim.  

In addition, owners and posters alike need to be familiar with privacy laws.   Disregarding laws such as HIPAA in the United States by, say, posting confidential medical information about a patient who is extremely aggravating (even when omitting the name of the patient) can cause a lot of problems for everyone, including employers depending on the circumstances.  

Finally, while not a claim in the United case but still relevant to this discussion, hosters and posters need to be careful that complaints are either factual or opinions.  The food can be bad and the service terrible.  But claiming that the restaurant is full of cockroaches when there are none just because the meal was bad is perhaps a step too far and could subject the hoster/poster to various defamation claims, especially if the restaurant suffers economic and/or reputational harm as a result.  

The First Amendment allows complaining, even online.  But familiarity with and following these laws is a good idea, especially if the hoster and poster are not keen on being the subject of another type of complaint.  

This posting has been prepared for general information and is not intended to be relied upon as legal advice.  Please consult an attorney about specific questions.  

John J. Jablonski is a partner and co-chair of Goldberg Segalla LLP’s Cyber Risk and Social Media practice group.

Aaron J. Aisen is an associate with Goldberg Segalla LLP’s Cyber Risk and Social Media practice group.  

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Although by no means a “hell hole” jurisdiction, it is difficult for a peripheral asbestos defendant to obtain summary judgment in Bridgeport Superior Court in Connecticut. Once summary judgment is denied, many asbestos defendants with questionable liability will often settle out rather than risk the financial exposure of an adverse result in a mesothelioma jury trial.  It is helpful for a company to have a well thought out appellate strategy in mind before selecting a jury in that jurisdiction.  One recent asbestos trial did not turn out well for a trade association defendant.. 

On August 24, 2012, the Bridgeport Superior Court denied post-trial motions filed by Tile Council of North America (“Tile Council”) inHannibal Saldibar v. A.O. Smith Corp. The Tile Council is a trade association that developed and patented an asbestos-containing formula for dry set mortar. This jury verdict raises the issue whether a trademark licensor may be held liable under a theory of strict liability as the “apparent manufacturer” despite having never manufactured or sold the product at issue.  The Apparent Manufacturer Doctrine seeks to hold the licensor vicariously liable for defective products manufactured by the licensee.

Over the past 50 years, trademark licensing has emerged as a preferred method of producing and marketing goods in the U.S.  According to David J. Franklyn, a professor at Northern Kentucky University, who wrote an article titled, "The Apparent Manufacturer Doctrine, Trademark Licensors and Third Restatement of Torts" in the Case Western Reserve Law Review, some $50 billion dollars of licensed goods are sold each year. 

The Bridgeport Superior Court’s decision is arguably a departure from the precedent established inBurkert v. Petrol Plus of Naugatuck, Inc., 216 Conn. 65 (1990), a well reasoned decision by the Supreme Court of Connecticut. The principal issue in Burkert was whether the distributor of an allegedly defective product, an automatic transmission fluid, was entitled to indemnification against GM, the licensor of a trademark under which the allegedly defective product was marketed. GM, the trademark licensor, did not participate in the production, marketing or distribution of the product.

In Burkert, the Connecticut Supreme Court made two significant rulings: (1) because GM did no more than allow others to use its Dexron® II trademark in the production, marketing and distribution of transmission fluid, absent any further involvement in the stream of commerce, GM could not be deemed a seller under Connecticut’s Product Liability Act; and (2) plaintiff could not rely upon Section 400 of the Restatement of Torts (Second) because that section applied only to those involved in the sale, lease, gift or loan of a product.

The Burkert court cited with approval the holdings of courts in other jurisdictions explicitly holding that liability against a trademark licensor under the Apparent Manufacturer Doctrine is appropriate only when the licensor is determined to have been significantly involved in the manufacturing, marketing or distribution of the defective product. Regardless of whether the plaintiff is proceeding on an “apparent manufacturer” or an “enterprise” theory of liability, the majority of cases emphasize the licensor’s degree of control and involvement exercised over design, manufacturer and sale.

The plaintiff in Saldibar may have raised sufficient factual issues to avoid summary judgment but arguably should not have prevailed on post-trial motions. In rejecting Tile Council’s argument that it was not a “product manufacturer” or “product seller” pursuant to the Connecticut Product Liability Act, the court found that the Tile Council was sufficiently involved in the distribution, marketing and manufacture of its products to “fall within the ambit of the product liability statute.” To add insult to injury, the trial court not only refused to set aside a $1,500,000 verdict in compensatory damages, plus $100,000 in loss of consortium damages, but also upheld an award of $800,000 in punitive damages based on the jury’s finding that Tile Council acted with “reckless disregard” for the safety of product users. Based upon this holding, a trademark licensor in Connecticut is potentially liable for punitive damages resulting from injuries caused by a product it neither manufactured nor sold.

Although the involvement of Tile Council may have been more extensive than that evidenced by GM, the trademark licensor in Burkert, it is questionable whether these factual distinctions warranted a finding of liability, let alone an award of punitive damages. In Saldibar, for example, the court relied upon testimony by a co-defendant, H.B. Fuller, that Tile Council had “developed a market for these products, based upon their formulas, based upon their trademark and hallmark, if you will, of an assurance that if you buy products that contain this logo, you can be sure that it did work.” There us absolutely no  probative value to this testimony.  On the other hand,  If the Plaintiff or Plaintiff's employer had provided testimony that he relied on the presence of the licensor’s logo for assurance that the product was safe, it may have raised a reliance issue. But The co-defendant’s testimony, cited by the trial court, is not relevant to the issue of reliance because it did not purchase the product.  Of more importance is that it does not appear Plaintiff was induced to purchase the asbestos-containing product because of the licensor's involvement. 

Arguably, the licensor should only be potentially liable (as a threshold matter) when it induces the consumer to purchase the product or where plaintiffs can prove that they reasonably relied on the trademark.

What was apparently fatal to Tile Council was the trial court's determination that Tile Council set forth detailed specifications governing “all aspects” of the product, including the percentage and grade of the asbestos fiber to be used. Moreover, in Saldibar, Tile Council drafted the product warnings that appeared on the product. On the basis of these facts, the trial court distinguished Saldibar from Burkert.

Saldibar raises some troubling concerns from a policy standpoint. Saldibar rewards conduct by a licensor that distances it from the ultimate consumer. If Tile Council was in the best position to recommend warnings for the product label, why should this activity alone become a basis for imposing vicarioius liability?  The issue in Saldibar was not whether the warnings were adequate to warn against the risks of asbestos use, but whether the warnings were sufficient to bring Tile Council under the ambit of the Connecticut Product Liability Act as a “apparent manufacturer.” There is no indication that Plaintiff ever read the warnings or that an alleged failure to warn was a proximate cause of plaintiff’s injury. As a practical matter, a plaintiff should be required to demonstrate that he saw the licensor’s logo and was induced to purchase the product on that basis. Whether there was detrimental reliance by the product purchaser was not an issue considered by the court.

Originally published in the Toxic Torts Litigation Blog

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Apple, Samsung and Possible Sanctions

Posted on August 9, 2012 02:33 by Stacy Moon

Apple recently asked a judge hearing a patent infringement case to sanction attorneys for Samsung after those attorneys issued a press release with a link to documents that had been ruled inadmissible.  The actual quote from the press release was apparently, “"fundamental fairness requires that the jury decide the case based on all the evidence.”  Essentially, Samsung’s attorneys decided to try the case in the media, as well as in the courtroom.  Apple took the position that the press release was an attempt to influence the jury.  The attorneys for Samsung argued it was simply a press release.  The Judge has indicated additional investigation may take place after the trial, but that he would not allow “theatrics” or “sideshows” (his words, not mine) to interfere with the trial.

Trial publicity is an issue that crosses various legal disciplines.  It affects criminal and civil cases alike.  In Alabama, a lawyer is not permitted to make “an extrajudicial statement that a reasonable person would expect to be disseminated . . . if . . . it will have a substantial likelihood of materially prejudicing an adjudicative proceeding.”  Ala. R. Prof. Cond. 3.6.  Unfortunately, the vast majority of that rule deals with publicity around a criminal case, not a civil case.

Most clients carefully control the amount and type of publicity regarding a case, recognizing that the publicity can be a two-edge sword.  In many cases, clients do not want any public statements regarding the case.  In my opinion (and my personal opinion only), it is therefore unlikely that Samsung did not approve the press release.  The question is what purpose did it serve?  If it was a backdoor attempt to get the jurors to view the inadmissible documents, the press release and link was clearly improper, and (I would argue) potentially demonstrated contempt for the rules of evidence, and Samsung’s counsel should have refused.  If it was an attempt to put public pressure on the judge to reconsider his ruling on the admissibility of the documents, it failed miserably, and has potentially adversely affected the judge’s opinion of counsel.  Save such an attempt for the appeal.  Now, at trial, if it is a close call, the judge is unlikely to give Samsung’s attorneys the benefit of any doubt.  If it was for neither purpose, it seems like a somewhat pointless exercise (akin to a temper tantrum), which has now brought the attorneys’ credibility and professionalism into question in the middle of a high-profile trial.

All attorneys should ask themselves whether the risk of damaging their credibility in front of a trial judge in such a matter is really in the best interest of their clients.  Additionally, all firms should ensure that they have a clear policy in place, including designating one attorney to respond to press requests for a statement or release regarding a case.  That person should be required to carefully analyze the pros and cons of making any statement to the press before doing so.

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This article from Corporate Counsel provides great advice on how to protect your trade secrets while collaborating with third-parties.  As the article notes, you should consider:


Using a non-disclosure agreement to protect your interests
Limiting the sharing of information to those who need to know
Marking the information "confidential" 
Clearly identifying the items you consider to be trade secrets
Training your staff on how to handle sensitive information

For additional tips and advice, check out DRI's State-By-State Compendium on Trade Secrets and Agreements Not to Compete.  The law on trade secrets and non-disclosure agreements varies greatly by state and the Compendium serves as a fantastic resource for quick answers about the confines of each state's law on these topics.  

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