October 2011
From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH and Aspen Publishers intellectual property and computer law publications.
If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to john.arden@wolterskluwer.com.

COPYRIGHTS
Hypothetical License Damage Award Vacated
There was insufficient evidence to support a jury’s $1.3 billion damages award to a software owner based on a “hypothetical license,” the federal district court in Oakland, California has ruled.  The award was grossly excessive and contrary to the weight of the evidence.  The Ninth Circuit has expressly rejected the argument that damage in the form of lost licensing opportunities may be “presumed” as a “natural and probable result” of infringement. Therefore, in order to recover hypothetical license damages, the owner needed to show that it would have agreed to license the use of the copyrighted works at issue. The owner presented no such evidence, even admitting it had never given any entity a license to copy its application software. Thus, the owner could not reasonably claim that the defendant’s infringement diminished the licensing value of the infringed works.  The software owner was given the option of accepting a $272 million reduced award or a new trial on actual damages in the form of lost  profits/infringer’s profits only (Oracle USA, Inc. v. SAP, AG, NDCal,  CCH Copyright Law Decisions ¶30,123; CCH Computer Cases ¶50,257).

Court Erred in Holding File-Sharer Penalty Unconstitutional
A district court erred in reducing a Copyright Act statutory damage award on constitutional grounds without first considering a reduction based on the common law doctrine of remittitur, the Federal Appeals Court in Boston has decided.  A jury had awarded a music recording company $675,000 in damages against a file-sharer who downloaded and willfully infringed 30 songs. Finding that a penalty of $22,500 per downloaded song was so excessive as to violate due process, the district court reduced the award by a factor of ten, for a total of $67,500, or three times the statutory minimum amount per song (CCH Computer Cases ¶49,985).  

The district court’s reduction of damages on due process grounds was unnecessary and contravened the rule of constitutional avoidance, according to the appeals court. The long-standing principle of judicial restraint requires that courts avoid reaching constitutional questions in advance of the necessity of deciding them. The court erred in bypassing the file-sharer’s request for remittitur or a new trial on damages, which could have obviated constitutional due process issues. The case was remanded for consideration of the file-sharer’s motion (Sony BMG Music Entertainment v. Tenenbaum, 1stCir, CCH Computer Cases ¶50,255).

Music Locker Website Liable for Users’ Infringement
An Internet-based music locker storage service (MP3tunes) was contributorily liable, as a matter of law, for its users’ storage of infringing copies of a recording company’s (EMI) works, the federal district court in New York City has held.

MP3tunes allowed users to store music files in personal online storage “lockers.” Songs uploaded to a user's locker could be played and downloaded through any Internet-enabled device. MP3tunes also operated sideload.com, which allowed users to search for free song files on the Internet, link to the third-party website hosting the file, and download songs directly to their personal locker.

In response to EMI’s Digital Millennium Copyright Act (DMCA) notices of infringement, MP3tunes removed links to the identified infringing content on sideload.com, but it did not delete songs downloaded from those links and stored by users in their personal lockers. The court held that MP3tunes materially contributed to its users’ infringement because it (1) had actual knowledge of users who downloaded EMI songs to their lockers from the sideload.com links, and (2) chose not remove the copies, thereby enabling users to continue infringing EMI’s works  (Capitol Records, Inc. v. MP3tunes, LLC, SDNY, CCH Computer Cases ¶50,249).

TRADEMARKS
Competitor Barred From Using “Pillow Pets” Mark for Toys
A toy company that produced a plush toy in the shape of an animal that unfolded into a flat pillow, called a “Pillow Pet,” was entitled to a preliminary injunction barring a competitor from using its registered or common-law “Pillow Pet” family of marks, the federal district court in Brooklyn has determined. The competitor also was enjoined from using the toy company’s marks as search engine advertising keywords.

The complaining company was entitled to a presumption of validity with regard to its registered marks, the court said. In addition, the “Pillow Pet” mark was inherently distinctive and entitled to common law protection, in the court’s view.

The toy company was likely to succeed in showing a likelihood of confusion, the court determined. The competitor’s name for its toy line, “Plushez Pillow Pets,” was quite similar to “Pillow Pets.” The competitor used the term “Pillow Pets” prominently on its labeling, website, and in the Google AdWords program. It also used pillowpets.com as a domain name. The competitor’s website was virtually identical to the complaining company’s site, using the same format, color, fonts, and phrases.  Purchasers of inexpensive toys were not likely to exercise a high degree of care in making purchasing decisions. Moreover, there was evidence of actual confusion. The competitor’s search-engine triggered ads also could result in “initial interest” confusion, the court observed (CJ Products, LLC v. Snuggly Plushez LLC, EDNY, CCH Trademark Law Guide ¶61,861).

ISP Liable for Hosting Websites Selling Counterfeit Goods
An ISP and its principal were jointly and severally liable for $10.5 million in statutory damages for contributory trademark infringement for providing hosting services to websites that sold counterfeit goods bearing marks owned by luxury goods distributor Louis Vuitton Malletier (Vuitton), the U.S. Court of Appeals in San Francisco has held. The ISP contributorily infringed 13 of Vuitton’s marks.

The underlying conduct of the operators of the websites hosted on the ISP’s servers was likely to cause consumer confusion, the court said. The websites advertised, offered for sale, and sold a variety of counterfeit goods imitating Vuitton's products. The ISP contended that the websites selling the counterfeit merchandise were the sole means of infringement, and not the servers or services provided by the ISP.  

However, websites are not ethereal, and they can exist only by means of physical servers and Internet services, the court said.  It was not necessary to prove that the ISP engaged in intentional infringement or “used” the counterfeit marks, the court said. It was sufficient to show that the ISP provided its servers to the direct infringers with actual or constructive knowledge of the infringing activity.

The ISP also was liable for $900,000 in statutory damages under the Copyright Act for unlawfully contributing to the infringement of the Vuitton's copyrights, the court ruled.  The ISP continued to provide hosting and routing services to the direct infringers, despite receiving repeated notices of the direct infringement (Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 9thCir, CCH Trademark Law Guide ¶61,864; CCH Computer Cases ¶50,261).

Sale of Grey Market Japanese Mushrooms Likely to Confuse
The U.S. subsidiary of a Japanese mushroom producer was entitled to a permanent injunction barring a California food importer from selling the Japanese producer’s mushroom products in the United States, the federal district court in Los Angeles has ruled. The subsidiary owned the U.S. rights in the Japanese producer’s “Hokto” marks.

The mushrooms imported by the subsidiary for the U.S. market were grown under special conditions not normally used by the producer; specifically, the growing media was changed to meet the United States Certified Organic standards.  The importer obtained the producer’s mushrooms in Japan from a third-party company. It then sold the mushrooms in the United States, under the Hokto Marks.  

This conduct was likely to result in consumer confusion because the goods sold by the importer—which constituted “gray market” goods—were materially different from the products sold by the subsidiary, the court said. The differences in growing conditions and packaging constituted material differences, such that the goods sold by the importer were not “genuine,” for purposes of the likelihood of confusion analysis. There were also differences in warranty and consumer support offered by the parties, as well as quality control efforts during transportation and storage. An injunction was appropriate under these circumstances (Hokto Kinoko Co. v. Concord Farms, Inc., CDCal, CCH Trademark Law Guide ¶61,859).

COMPUTER AND INTERNET LAW
Blogger Had First Amendment Right to Display County Seal
An ordinance adopted by Fluvanna County, Virginia violated a blogger’s First Amendment right to display the county seal near news articles and commentary regarding the county, the federal district court in Charlottesville, Virginia has decided.

The ordinance provided that “no person shall exhibit, display, or in any manner utilize the seal or any facsimile or representation of the seal of Fluvanna County for non-governmental purposes unless such use is specifically authorized by law.” Violation of the regulation subjected a person to a fine of not more than $100 and/or imprisonment for up to 30 days.

The county argued that the phrase “specifically authorized by law” should be broadly construed to encompass speech protected by the First Amendment. However, use of the adverb “specifically” as a modifier indicated that “legal authorization” under the statute must be precise, definite, or explicit—in this case, most likely meaning uses explicitly permitted by legislative enactment or a county governing body, the court surmised.

While the county has a legitimate interest in preventing private parties from using its seal to convey the false impression of governmental sponsorship or approval, the ordinance was not sufficiently narrowly tailored to further that interest, even under an intermediate standard of scrutiny, according to the court. The ordinance was unconstitutional as applied to the blogger, and the country was enjoined from enforcing it against him (Rothamel v. Fluvanna County, WDVa, CCH Computer Cases ¶50,258).

Methods Used to Trace Stolen Laptop Could Violate Privacy
A teacher could proceed with federal Wiretap Act, Stored Communications Act, and common law invasion of privacy claims against a laptop tracking service that intercepted her communications and webcam transmissions, the federal district court in Dayton, Ohio has determined.

The teacher purchased the laptop from a student for $60, not knowing that it had been stolen from a school district a few months earlier. The laptop was equipped with software that enabled the tracking service to intercept the user’s IP address, keystrokes, e-mail messages, and video transmissions. The service intercepted communications and captured sexually explicit web cam images exchanged between the teacher and her boyfriend. The information was then turned over to city police, who used it as probable cause to arrest the teacher for receipt of stolen property, a charge that ultimately was dismissed.
The threshold question regarding whether the couple had an objective reasonable expectation of privacy in their communications could not be decided on summary judgment.  It would turn on whether the teacher knew, or should have known, that the laptop was stolen. A person who knowingly possesses stolen property does not have a legitimate expectation of privacy in the property.

The teacher’s Wiretap Act and SCA claims could go forward against the tracking service. The court observed that the service could have used IP address information to locate the laptop; it did not need to intercept private communications. The service contended that its interception was not “without authorization” because it was acting on behalf of the school district, the laptop’s rightful owner.  Whether the service acted with authorization was a question to be resolved at trial.

The service’s interception of the teacher’s communications also could constitute an invasion of privacy, according to the court. A reasonable jury could find that the service intercepted the teacher’s private messages and images in a manner that was “outrageous” or would cause a person of ordinary sensibilities to suffer mental anguish, shame, or humiliation (Clements-Jeffries v. City of Springfield, SDOhio, CCH Computer Cases ¶50,251).

Hot Topics
President Obama Signs Patent Law Revamp
President Obama on September 16 signed the Leahy-Smith America Invents Act (H.R. 1249,  Public Law 112-29), the most significant patent reform legislation in decades. The full text of the America Invents Act is available in Intellectual Property practice area of IntelliConnect, directly under the Patent Act. The law also appears in the Guide to Computer Law ¶37,801.

The America Invents Act transitions the United States from a "first to invent" system to a "first inventor to file" system, bringing the U.S. into alignment with most other countries. Some provisions of the law take effect immediately, while others will become effective in the next 12 to 18 months.
Changes that take effect immediately include: (1) elimination of the “best mode” requirement, which no longer provides grounds for invalidity; (2) restriction of a plaintiff’s ability to sue multiple defendants in a single lawsuit if the only justification for the joinder is that all defendants are alleged to have infringed the same patent; (3) elimination of the ability of any person to bring a qui tam false patent marking suit for statutory damages; and (4) establishment of a 15% surcharge on USPTO fees, a new fee of $4,800 for prioritized examination, and a 75% fee reduction for small entities.

Other significant changes to be implemented by the America Invents Act include: (1) adding a post-grant review provision that allows third-party legal challenges to a patent in the first nine months after issuance; (2) revising and expanding the current prior art rules; (3) creation of a prior user defense; and (4) precluding "tax strategy patents" and patent claims encompassing human organisms.

Information regarding Implementation of the America Invents Act is available on the U.S. Patent and Trademark Office website. The website also features a Table of Effective Dates.

Wolters Kluwer Law & Business Publications
Drafting Technology Patent License Agreements by Michael J. Lennon
The 2012 Supplement for Drafting Technology Patent License Agreements recently went live on Wolters Kluwer IntelliConnect in the Intellectual Property practice area. In today’s fast-paced and ultra-competitive high-tech environment, an effectively managed patent licensing program is a must. Drafting Technology Patent License Agreements covers all of the legal and business transactional issues you are likely to encounter while drafting and negotiating patent licensing agreements. It guides you step-by-step through the unique aspects of the implementation of a patent licensing program for computers, electronics, telecommunications, and other industries, and clarifies the issues involved in the enforcement and litigation of these patents.  Included with this key resource are 40 time-saving forms on the bonus CD-ROM.

Highlights of new material included in the 2012 Supplement include: (1) summary of Supreme Court clarification of patentable processes in Bilski v. Kappos, as well as application of those principles in lower courts; (2) discussion of assignment of rights agreements in federally funded projects, including impact of Stanford v. Roche; (3) description of scienter requirements in enhanced-damages and inducement cases, including impact of Global-Tech v. SEB; (4) analysis of the Federal Circuit's significant redefinition of the inequitable conduct defense in Therasense v. Bayer; (5) description of Supreme Court endorsement of the presumption of validity in Microsoft v. i4i; (6) discussion of terms of smartphone litigation settlements and anticipated impact on the market; (7) analysis of "reverse settlements" and the hazards in their extension to technology patents; (8) discussion of NVIDIA-Intel Settlement and Licensing Agreement, including full text of settlement agreement; and (9) discussion of obstacles in proving damages, including limitations on using either the rule-of-thumb formula, or litigation settlements in light of ResQNet.com v. Lansa and Uniloc v. Microsoft.

For more information on Drafting Technology Patent License Agreements, visit the Aspen Publishers Website.

Patent Claim Construction by Robert C. Kahrl
The 2012 Supplement for Patent Claim Construction recently was added to Wolters Kluwer IntelliConnect in the Intellectual Property practice area. Patent Claim Construction is the first comprehensive treatise on claim construction in the U.S. Court of Appeals for the Federal Circuit. This practical resource helps lawyers of all experience levels gain a firm footing in the rapidly evolving rules of claim construction. The book offers expert analysis of emerging methodologies, reflected in current case law for interpreting patents. Patent Claim Construction includes a complete guide to the evidence, or modes of proof, accepted by courts in applying claim construction principles and specific guidance on how the courts are likely to interpret certain phrases, terms, or forms of claims.

Highlights of new material included in the 2011 Cumulative Supplement include discussion and analysis of: (1) the most recent Federal Circuit decisions; (2) the use of an unasserted claim to construe an asserted claim, including analysis of the Federal Circuit's decision in Schindler Elevator Corp. v. Otis Elevator Co.; (3) separate elements of a claim as “distinct components” of the patented invention; (4) the Solvay S.A. v. Honeywell International, Inc.,  decision construing the term "isolating" to mean "separating" from a reaction mixture; (5) disclaimers regarding “data sets” in prior art; (6) the Federal Circuit’s approach to dictionary definition use; and (7) the differences and similarities between a disclaimer in the prosecution history that bars use of the doctrine of equivalents and an argument-based prosecution history estoppel.

 For more information on Patent Claim Construction, visit the Aspen Publishers website.