I was greatly amused to read the comments of The Honorable Paul Michel, former Chief Judge of the United States Court of Appeals for the Federal Circuit,  to the  Subcommittee on Courts, Intellectual Property, and the Internet at the House of Representatives.  It appears the good judge is, perhaps, having second thoughts as to the promised benefits of so-called “patent reform” and the hilariously misnamed 2012 “America Invents Act” (aka, “AIA”).  Apparently I, Judge Michel, and perhaps Gene Quinn, are not the only ones to recognize these as fraudulent bills of good, sold to a gullible public and purchased Congress, to protect the established interests of those who, in reality, fear real innovation by others — and a patent system strong enough to protect such innovation.  Let’s take a look:

“The combination of how the Patent and Trademark Office’s Patent Trial and Appeal Board shaped and implemented procedures governing the AIA reviews, unintended consequences of a few design feature in the AIA itself, continuing, aggressive interventions by the Supreme Court, particularly on eligibility, and Rules and practice changes in the lower courts has totally changed perceptions of the current patent system. It is no longer viewed as reliable.”

No kidding.  Current CAFC and Supreme Court case law is opaque and makes a mockery of what the supposedly governing statutes actually say.  It is perhaps more reliable to predict the outcome of a case based on who the parties are, and where the suit was filed, than on the particular facts. (E.g., a fairly good heuristic is that Apple, Google, Amazon, Facebook and Silicon Valley companies in general will always win, plaintiff’s victories from the Eastern District of Texas will be reversed, patents can’t be infringed in Seattle, and the PTAB will find virtually any claim invalid.  You don’t even need to know the facts to make accurate predictions.)

“Our system dropped from its customary first place in the annual Chamber of Commerce global ranking to an embarrassing tenth place, tied with former Soviet Bloc country, Hungary.”

“Patent values have plummeted, by as much as 60% according to several studies by economists, based on public sales and licenses.”

“Start-ups, the source of most new technologies, most economic growth and most net new jobs, are shrinking in number. More now die each year in America than are born, for the first time ever.”

Well, what do you think is going to happen when, as a practical matter, a bright, energetic, creative young person with a great idea has no effective way of protecting that idea from those who, quite literally, know they can simply take it with no real adverse consequence?  Seriously, this is isn’t rocket science.

“Enforcement of valid and infringed patents, always very slow, and very expensive, has become much more so. Inter partes reviews have become less than Congressionally-intended “alternative to expensive court litigation” than the prelude to court action, adding some $500,000 per challenge and typically 2.5 years of delay, as suits are routinely stayed for the duration.”

Since when has the solution to undesired complexity, delay and expense been found in designing and implementing even more complex, time-consuming, expensive and arcane procedures?  Markman hearings, special “Patent Local Rules,”  various forms of post-issuance reviews, etc., however well intentioned, have the very real opposite effect of making patent enforcement almost hopelessly complex rather than swift, efficient, just and inexpensive. Indeed, the greatest and most effective form of “patent reform” might simply be to knock these self-impressed patent litigators and Federal Circuit judges off their pedestals, recognize patent law as simply just another area of law in general, and present the issues to a jury without delay, followed by a review, if appropriate, in the appropriate Circuit Court of Appeals.

“The net impact of these and related changes has convinced most investors that patents are now too unreliable as to validity, and too difficult to enforce, with excessive risk, delay and weak remedies.”

The Judge is absolutely right here.  I do not know why anyone these days would invest in getting patents unless there is cash to burn, or in recognition that misguided investors still see patents as a desirable check-list item when evaluating a company.  Anyone who actually relies on patents to keep competitors at bay (especially well-heeled and/or connected ones) is in for an unpleasant surprise.

However, it is in the following observations that I think Judge Michel makes his most salient points.  Unlike the bulk of us, he has seen these matters close up and, likely, has a better view than most as to the truth of the matter:

“In sum, I must report in candor to the Committee that the health of the American patent system is not good, but has declined sharply in just the past few years.”

“Why? With the best of intentions, the three stewards of the patent system, the Supreme Court, the Congress and the PTO, have worked so hard to root out invalid patents, stem frivolous suits, and curb abusers of the patent system that its efficacy has been diminished or destroyed for the majority of owners who are responsible actors. That seems an absurd and unnecessary price for America to pay. Abusers can be punished and deterred by surgical means and weakening the entire system is surely unnecessary and unwise.”

“How then did we arrive at this worrisome circumstance?”

“Three myths pervaded the policy debates even before and particularly since passage of the AIA:”

“The first myth is that most asserted patents are ‘bad.’ Not so.”

“The second myth is that most suits are frivolous. No so.”

“The third myth is that the courts are unwilling or unable to deal with the limited number of actual abusers of the patent system. Also not so.”

There you have it from a Chief Judge of the Federal Circuit who, better than most, was and is in a position to know, and who saw this stuff first hand.  I have never understood how patents can be “clearly invalid,” how cases can be clearly and objectively “baseless” and “frivolous,” and yet it somehow takes five to ten million dollars in attorneys’ fees to demonstrate these “clear” and “obvious” truths. Are the lawyers collecting these fees incompetent?

All in all, fascinating comments, and I thank Judge Michel for his candor and insight.  What a refreshing change from those who simply parrot “troll” and “patent abuse” when supposedly addressing a matter of importance to the future of our country.

It is interesting to note that in recent months, Internet giant Amazon.com has started to pay heed to complaints regarding counterfeit, “knock-off” goods being sold through the site.  Through the years, Amazon, aided by an apparently sympathetic judiciary,  has enjoyed effective legal immunity from claims of patent, copyright and trademark infringement by arguing that it doesn’t actually “sell” anything but, rather, merely “facilitates” sales by others.  While acknowledging that many of its suppliers blatantly copy and knock-off others, Amazon’s position is largely, “Hey, leave us alone and go after the guys who are infringing.”

While the suggestion to “go after the guys who are infringing” has a superficial logic and appeal, the problem, of course, is that these crooks are located overseas, are almost always unknown, and, as a practical matter, are beyond the reach of U.S. courts.  To legitimate domestic businesses and consumers victimized by such widespread and blatant copying, both Amazon and the Courts say, “tough luck.”  Small consolation to those who (unlike the overseas, infringing, fast-buck artists) help build the courthouses and pay the judge’s salaries.

I am glad to see that this unfortunate state of affairs is becoming more widely known and a matter of larger concern.  I have a particular interest in this given that, on December 12, I will be delivering oral argument at the Court of Appeals for the Federal Circuit in support of our appeal in Milo & Gabby v. Amazon.com, Inc. (16-1290).  While expressing sympathy to my client, the lower court nevertheless absolved Amazon of liability, relying on the old claim that Amazon neither “sells” nor “offers to sell” products.

Regardless of what the CAFC does in our case, the basic problem and issue remain.  By opening the U.S. market to literally anyone with a computer and willingness to click the box saying, “yes, I agree to the terms of service,” Amazon, as long as it remains legally protected, provides a huge end-run around the Intellectual Property laws of this country — a loophole that benefits admitted foreign fraudsters over the legitimate businesspeople of this country and those who wish to buy their genuine products.

This situation cannot continue and, one way or another, will be addressed, either through controlled voluntary action on the part of those concerned, or through the blunt action of the legal hammer.  Whether our case reflects the last dying gasp of the fiction that Amazon doesn’t actually sell anything, or marks a needed change in a new direction, remains to be seen.  Stay tuned.

 

I was saddened to learn that Ray Niro died yesterday while vacationing in Italy.  For those of us engaged in contingent-fee patent litigation, Ray was the superstar, the source of inspiration — in short, the best there ever was.

I was fortunate to know Ray, although it came at a real cost to my client and more than a bit of personal humiliation for myself.  You see, we were on opposite sides of a patent infringement case that went to trial in Chicago in the early 2000s.  I, as lead trial counsel for our side, had the “pleasure” of hearing the jury award $12 million against my client. Ray, for reasons of his own, elected not to be there when the verdict was read.  Later that night my dejected team and I retired to the Italian Village (my favorite Chicago Restaurant) to lick our wounds and drown our sorrows.  Eventually the waitress came by and said that “Mr. Niro had seen us come in and wanted to buy us dinner.” After first thinking “that won’t be necessary,” I quickly decided that was, in fact, a very nice gesture on Ray’s part and that we would indeed take him up on it.  At the end of the night, I went down to find Ray, thank him for the dinner and congratulate him on his victory.  He enthusiastically shook my hand, slapped me on the back, confided he actually feared he had lost the case, and said we did a great job ourselves.  At no point did he gloat, make snide comments or act anything other than a gentleman and gracious winner.  A class act all the way around.

In losing that trial I got a great education.  Ray was easily the best trial lawyer I have personally seen.  My experience with that trial and observation of Ray’s practice induced me to begin a contingent-fee practice of my own.  When I decided to take the plunge I called Ray to seek his guidance and counsel.  Ray was gracious enough to meet with me in his Chicago office where he gave me valuable advice and guidance.  I mentioned that I did not intend to compete with him and asked that, if they had otherwise good cases that might be too small to be of interest to him, he send them my way.  He said he would, and he did — many times.

Over the subsequent years Ray and I stayed in touch and he was always ready and willing to speak and offer advice.  Ray was the champion of the underdog and was more than willing to stand up to those in power.  He also had the legal chops to make things happen in the courtroom.  How many young lawyers start with the same lofty intentions before being seduced by the money, power and creature comforts of big law corporate practice.  Ray was the real thing and again, losing to him in court was the best thing that ever happened in my legal career.

Bashing Ray Niro has been a popular pastime among lawyers for quite a while.  I suspect much of it comes from jealousy and envy.  But that is testimony to his greatness. He was good — in fact, the best there ever was.

 

I have now handled a couple of cases for small business people victimized by the irresistible on-line juggernaut known as Amazon.com.

In both cases, our clients were innocent victims of overseas scam artists who operate covertly, anonymously and well beyond the reach of U.S. courts.  In both cases, Amazon provided these scam artists with easy entry into the U.S. market and the monetary incentive to engage in infringement.   In both cases, the ultimate question was whether Amazon should answer for the blatantly and admittedly infringing actions of those who sign up as Amazon “affiliates” and “sellers.”

Not surprisingly, our federal judiciary here in Seattle sided with Amazon, essentially telling our clients, “well, tough luck.”  (So much for “Equal Justice Under The Law.”)

Sadly, one of these cases resulted in an unpublished appellate decision from the Ninth Circuit upholding the lower court.  Good news for Amazon.  Not so good for my client who was essentially forced out of business by unchecked copying.

The other of these cases, Milo & Gabby v. Amazon (12-cv-1932) is currently up on appeal at the Federal Circuit (Appeal No. 16-1290) however,  and we expect to argue the case in the next few months.  While I continue to believe there is a thinly concealed bias among the courts in favor of big business (hey, can he say that on the Internet?), I am encouraged by what seems to be a growing awareness that all is not well with the current situation.  In particular, it appears others are starting to question whether unlimited access to cheap, foreign goods of dubious quality and infringing pedigree is really such a good thing after all.

Yesterday,  Birkenstock announced it was leaving Amazon due to widespread counterfeiting and unauthorized selling on the Amazon site. “The Amazon marketplace, which operates as an ‘open market,’ creates an environment where we experience unacceptable business practices which we believe jeopardize our brand,” said a Birkenstock spokesman. (Gee, welcome to the club!)  “Policing this activity internally and in partnership with Amazon.com has proven impossible.” (No kidding.)

Earlier this month, local Seattle station KING-5 reported that others are suffering as well.  According to KING-5, Amazon “is being criticized for its often slow response to rogue sellers offering counterfeit goods…Many of these bad players are based overseas and hide in the shadows of Amazon’s massive operation, frustrating loyal customers and threatening to put legitimate companies out of business.”

So far, the courts have shielded Amazon and others like them (e.g., eBay) essentially holding that their only obligation is to remove listings when notified of infringement.  As noted by KING-5, this is hardly a workable solution given the number of infringing listings and the fact that, even when removed, the listings simply reappear two hours later under a new name.

However, the patent laws of this country clearly state that anyone who “sells” or “offers to sell” a patented product is liable for patent infringement.  (This particular law was written in 1952 when Congress still used standard English and legislators more-or-less said what they meant.) So, the question is, does Amazon, the country’s “largest Internet retailer,” actually sell anything?  Does the enormously successful Amazon website actually offer anything for sale?  Do we really need to ask these questions?  Could this be why the lay public holds lawyers and the legal system in such high esteem?

So far, the courts have bought Amazon’s argument that it neither sells nor offers for sale the countless products appearing on its site, and that those who are victimized by admitted copiers from overseas should leave Amazon alone and try to track down these anonymous, overseas culprits themselves.  Again, great news for Amazon.  However, as evidenced by both Birkenstock and far smaller companies alike, this may not be so good for the country as a whole.  Anyway, we’ll know more when we get the decision on appeal.

 

It’s not often that I get upset over an adverse result in court.  It goes with the territory, and the only way never to lose is never to accept a challenge in the first place.

However, my equanimity in this regard is being tested — sorely.  And the source of my vexation is the Federal Circuit and its reliance on Federal Circuit Rule 36.  This little gimmick enables the court to issue a “summary affirmance” that lets it sidestep difficult issues on appeal and simply affirm a decision it likes without actually having to explain why the decision is correct.  This comes in handy — particularly when the lower decision isn’t correct, but the court likes the outcome anyway.

Last week I delivered an oral argument to the court in connection with our appeal in Hangartner v. Intel (CAFC Case No. 15-1293).  Fewer than 48 hours later we received a Rule 36 summary affirmance telling our client he lost but never explaining why.

What is troubling is that the panel apparently agreed during oral argument that the lower court’s stated basis for the claim construction it adopted was grammatically incorrect and contrary to well established cannons of  claim construction.  Undeterred by that minor inconvenience, the panel then began speculating whether the prosecution history — that was not in the record and was not before the court — might nevertheless support a construction that would let Intel off the hook.  In short, the panel started exploring arguments that even Intel never made.

Now to get to the point I’m trying to make:  We have a case here where all are apparently in agreement that the lower court’s stated basis for its decision is wrong. Nevertheless, the Federal Circuit elected to uphold that decision, despite recognizing the error below.  While it is entirely possible that alternate grounds might support the lower court’s decision, is it asking too much that the Federal Circuit simply write down and tell us what those alternate grounds are?  Or are these people too important and busy to do the job they were appointed to do? (At our expense, no less.)

Not only is my client kept in the dark as to why he lost, there is no way for us to assess whether the panel’s apparent finding of alternate grounds is, in fact, sound.  Nor can we seek meaningful review, either by the court in banc, or at the Supreme Court.  A cynic might suspect that the outcome had more to do with who the players are, and what the court’s agenda is, than with facts and what purports to be “the law.” Widespread use of Federal Circuit Rule 36 does little to allay such suspicions.

So what do you think?  Anyone else think the court has gone too far with this Rule 36 business?  This is not the first time it’s happened to us, though it is perhaps the most blatant abuse.  Hence my decision to speak up.

Recognizing that as participants and advocates in the case our views might be slightly biased, links to the opening, response and reply briefs are provided.  A link to the oral argument appears above.  You are of course free to draw your own conclusions.

 

 

Credit: redskins.com
Credit: redskins.com

THE SLANTS, THE REDSKINS, STOP THE ISLAMISATION OF AMERICA, AMISHHOMO, THE CHRISTIAN PROSTITUTE, AMISHHOMO, MORMON WHISKEY, KHORAN for wine, HAVE YOU HEARD THAT SATAN IS A REPUBLICAN?,  RIDE HARD RETARD, ABORT THE REPUBLICANS, HEEB,  SEX ROD, MARRIAGE IS FOR FAGS, DEMOCRATS SHOULDN’T BREED, REPUBLICANS SHOULDN’T BREED, 2 DYKE MINIMUM, WET BAC/WET B.A.C., URBAN INJUN , SQUAW VALLEY, DON’T BE A WET BACK, FAGDOG, N.I.G.G.A. NATURALLY INTELLIGENT GOD GIFTED AFRICANS

Offensive? Racist? Most certainly. Protectable? You bet.

Regardless of your politics or sensibilities, all of these words were previously denied federal trademark protection because they were all “disparaging” marks, under the Lanham Act 15 U.S.C. § 1052(a). However, in a fairly bold move, the Federal Circuit in its opinion, issued December 22, 2015 held that this aspect of Section 2(a) of the Lanham Act is unconstitutional under both “strict” and “intermediate scrutiny” standards.

The government regulation at issue amounts to viewpoint discrimination, and under the strict scrutiny
review appropriate for government regulation of message or viewpoint, we conclude that the disparagement proscription of § 2(a) is unconstitutional. Because the government has offered no legitimate interests justifying § 2(a), we conclude that it would also be unconstitutional under the intermediate scrutiny traditionally applied to regulation of the commercial aspects of speech…

In Re Tam, p. 4. The CAFC took the time to track the purpose and the history of the Lanham Act, which was essentially passed to further the two goals of (1) consumer protection and (2) protecting business investment from ” misappropriate by pirates and cheats.” With this backdrop, the CAFC held that Section 2(a)’s restrictions preventing deceptive marks is permissible, but that its prohibitions on “expressive aspects” of marks, or whether the marks are “immoral or scandalous” merely amounted to nothing more than a judgment call by a single trademark examiner:

A single examiner, with no input from her supervisor, can reject a mark as disparaging by determining that it would be disparaging to a substantial composite of the referenced group.

"The Yellow Album" from The Slants
“The Yellow Album” from The Slants

Id. at p. 10. It would seem that this same analysis would apply to other aspects of Section 2(a). In other words, it would seem that the Court would have used the same logic to invalidate the ban on “immoral” or “scandalous” marks, or marks that would otherwise promote violations of federal law. But the Court unfortunately limited its decision:

“We limit our holding in this case to the constitutionality of the § 2(a) disparagement provision. Recognizing,
however, that other portions of § 2 may likewise constitute government regulation of expression based on message, such as the exclusions of immoral or scandalous marks, we leave to future panels the consideration of the § 2 provisions other than the disparagement provision at issue here.”

Id. at p. 8 (emphasis added). As a result, if you’re one of the many people attempting to obtain registrations on “immoral” or “scandalous” goods and services, you will still have to side-step this issue until the CAFC receives a direct challenge to it. Thus, if you’re attempting to obtain federal registration on, say, marijuana-related goods and services (which are still listed as a Schedule I drug under the Controlled Substances Act), you will still face these objections from the Trademark Office.

Could this be a sign from the CAFC that it will deplete the Trademark Office’s ammunition within Section 2(a)? It seems like we just need the right case to find out.

Cannabis legalization is getting a lot of attention in the country, and many legal commentators have touched on some of the issues at the intersection of trademark law and cannabis-related goods & services. But what happens when cannabis-related trademarks end up in court?

Last year, we talked about Hershey’s Chocolate, Inc. lawsuit (Case No. 2:14-cv-00815-RSL) for Trademark Infringement against Conscious Care Cooperative (Seattle CCC). That case subsequently settled on July 29, 2014 without addressing many of the fun trademark issues some of us were hoping to play out.

But the publisher of the well-known High Times Magazine Trans-High Corp., Inc. has not been shy about asserting its trademark rights in an uneasy area of trademark law (six, as of this writing):

  • Trans-High Corp. v. 420 Eyewear, Inc. et al, 1:2003-cv-03053
  • Trans-High Corporation, Inc. v. Western et al, 2:2013-cv-01155
  • Trans-High Corporation, Inc. v. North West Harvest Fest et al, 2:2013-cv-01551
  • Trans-High Corporation Inc. v. Mile High Times LLC et al, 1:2014-cv-02039
  • Trans-High Corp. v. Reimers, 2:2014-cv-00279
  • Trans-High Corporation. Inc. v. Kerawala et al, 4:2014-cv-00752

All but one of these cases, again, settled without addressing many substantive trademark issues. However, in Trans-High v. Reimers (2:2014-cv-00279), Trans-High successfully deflected Reimers’ counterclaim attempting to cancel Trans-High’s federal trademarks.

In granting Trans-High’s motion to dismiss, U.S. district court judge Lonny Suko on January 12, 2015 provided two very helpful tips for trademark litigators in this area:

Specifically, a registration may be vulnerable to cancellation if the goods and services for which the registration has been issued, are proven to be unlawful. None of the goods and services for which the registrations have been issued are unlawful. The Controlled Substances Act expressly excludes from its scope a party’s mere advertisement or “promotion” of controlled substances and drug paraphernalia. See 21 U.S.C. § 843(c)(1) (“The term `advertisement’ does not include material which merely advocates the use of a similar material, which advocates a position or practice, and does not attempt to propose or facilitate an actual transaction in a Schedule I controlled substance.”)

Having alleged no illegality (nor any other cognizable basis for cancellation), the Court finds Defendants’ legal theory is not cognizable as a matter of law.

(emphasis added)

[1] None of the goods and services for which the registrations have been issued are unlawful. The Defendant never alleged that the goods and services identified in the HIGH TIMES registrations are unlawful. Therefore, if you attempt to assert a trademark that is being used for illegal goods, you can expect it to be cancelled via counterclaim by the defendant.

[2] The Controlled Substances Act expressly excludes from its scope a party’s mere advertisement or “promotion” of controlled substances and drug paraphernalia. See 21 U.S.C. § 843(c)(1). This statement gives trademark holders a bit more flexibility in describing both the legitimacy of common law marks and registered marks as they are asserted in litigation. In essence, following this analysis, you can obtain a trademark for legitimate goods and services, but then use the same mark in promoting the use of controlled substances  – which would otherwise likely be held as “scandalous or immoral” by the USPTO.

If removed from the cannabis context, this holding is pretty plain. But it does provide an important lesson to trademark applicants: even if you don’t describe your services as promoting the use of cannabis in your application, you can still edge into those services and successfully defend against an argument to cancel your mark.

At the moment, federal cannabis trademark litigation is relatively quiet, but with a budding industry (pardon the pun), that is likely to change. Further, it will be interesting to see how state trademarks in this sphere are enforced around potential areas of federal law crossover (stay tuned for The Mary Jane Group v. The Taste of Travel).

On May 26, the Supreme Court finally drew a line in the sand on indirect patent infringement defenses. Enter: COMMIL USA, LLC v. CISCO SYSTEMS, INC.

Previously, the Federal Circuit held that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement,” Commil USA LLC v. Cisco Systems Inc., No. 2012-1042, slip op. at 11 (Fed. Cir. June 25, 2013). The Supreme Court actually read the plain text of the Patent Act and reversed.

Direct infringement is still strict liability. Here, the Supreme Court held that a patent defendant’s so-called “Good Faith Belief of Invalidity” defense to infringement simply does not exist in reality or in law. (Slip Opp. pp. 5-14). Plainly, the Court held that the mental state of a direct infringer is wholly irrelevant. This is wonderful news for fans of stare decisis because SCOTUS held the exact same thing in Global-Tech v. SEB S.A. No real surprises here.

Good-faith belief of non-infringement will probably suffice. However, the Commil opinion reiterated its Global-Tech holding that liability for indirect infringement can only attach if the defendant knew of the patent and knew as well that “the induced acts constitute patent infringement.” In delivering the opinion, Justice Kennedy reiterated that for both induced and contributory infringement, Global-Tech requires “proof the defendant knew the acts were infringing.” (Slip Opp. at 9).

Well … how will a defendant know that an act is infringing without a ruling stating the same? This gives defendants a lot of flexibility in defeating an accusation of indirect infringement. In essence, a defendant can say, “Well how was I supposed to know I was inducing or contributing? Patent Infringement can only be fully known when a court says so.” To be fair, Kennedy hinted that such a belief of non-infringement on the part of the defendant must be “reasonable,” but that still gives defendants plenty of ammunition to defeat an accusation.

Good-faith belief of invalidity is no defense. Citing how different the issues of infringement and invalidity are under the Patent Act, the Court held that a good faith belief of invalidity is NOT a defense to indirect or direct infringement. The Court spilled some ink over how burdensome litigation would become if a good-faith belief of invalidity would be allowed, but indirect infringers can make things just as onerous by maintaining a good-faith belief of non-infringement.

The lesson here for indirect infringement defendants is to play dumb regarding infringement. The lesson here for plaintiffs is to find a direct infringer.  Some are calling this a “win for trolls,” including dissenter Justice Scalia (Roberts also joined in the dissent). But from a practical standpoint, the Court’s ruling will likely not make life any easier for plaintiffs, because a defendant will only need to hodge-podge some good faith belief of non-infringement – as opposed to a good faith belief of invalidity. In light of the Federal Circuit’s recent Akamai decision, that’s getting increasingly easier to do.

At the end of the day, however, the Supreme Court made a lot of patent plaintiffs breathe a collective sigh of relief after reeling from the Federal Circuit’s earlier decision.