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The construction industry is full of valuable business information including customer lists, pricing information, project budgets, and more. The value of such information may be lost if it becomes known to a competitor or the public at large. That is why it is important to take steps to protect confidential information from disclosure. Such steps may include confidentiality agreements, limiting access on a need-to-know basis, labeling, and other basic security measures. If you fail to take reasonable steps to protect confidential information, then you may not be able to get it back if it falls into the wrong hands.

A federal court in New Jersey explored these issues last week in JRM Construction Management, LLC v. Plescia, 2023 WL 2770479 (April 4, 2023). In that case, two former employees of JRM allegedly kept confidential information and shared it with their new employer, JRM’s competitor. The information at issue included client presentations, estimating procedures, and templates used to prepare final budgets for project bids. JRM sought an injunction to prevent further disclosure and to require immediate return of the information. The court refused to grant an injunction noting that discovery was needed to resolve several key issues of fact.

One of those key issues was whether JRM took reasonable steps to protect the information. While trade secret protection was once the domain of a patchwork of state common law decisions, 48 states (including New Jersey) and the District of Columbia have now adopted a version of the Uniform Trade Secrets Act (UTSA Enactment History), and a federal civil cause of action for trade secret protection was created with the 2016 enactment of the Defend Trade Secrets Act. 18 U.S. Code § 1836(b). Under either regime, the business trying to prevent the unwanted disclosure of its trade secrets will in every instance have to prove that the subject information meets the definition of a trade secret, including that the information was the subject of reasonable efforts or measures (tailored to the circumstances) to maintain the secrecy of the information. See 18 U.S.C. § 1839(3)(A); N.J.S.A. 56:15-2

The employees argued that JRM transmitted budget estimates to clients without any understanding or agreement that the information was confidential while knowing that such estimates were often shared with JRM’s competitors. The employees also claimed that JRM sent Excel file formats instead of .pdfs, so recipients had access to the underlying formulas and calculations. They argued that because JRM failed to protect its information, the information was not confidential or trade secret. As such, they were free to share it with their new employer and could not be required to return it. The court did not rule on whether JRM took adequate measures to protects its information but noted the factual dispute over that issue prevented it from issuing a preliminary injunction.

Whether JRM ultimately succeeds in retrieving its valuable business information remains to be seen. Regardless, the case stands as a good reminder to take steps to protect your confidential information and trade secrets. If you don’t, it could be stolen, and you may not be able to get it back.

Advancing technology and connectivity combined with high employee mobility make it easier than ever to transmit proprietary data. Bradley’s IP attorneys, in partnership with our experienced construction attorneys, can work preemptively to help clients develop appropriate employee agreements, confidentiality agreements, and other strategies and security measures to ensure proper protection of their valuable trade secrets.  

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Last month the Federal Circuit affirmed a PTAB inter partes review (IPR) decision finding that the University of Minnesota’s patent claim directed to the anti-cancer drug sofosbuvir was not adequately supported by the written description in the applications to which it claimed priority. As a result, the appellate court held in Regents of the University of Minnesota v. Gilead Sciences, Inc. that Gilead’s intervening prior art reference invalidated Minnesota’s patent claims. While the case is a straightforward application of written description law, it is consistent with the Federal Circuit’s broader trend towards requiring more of patent applicants to comply with Section 112’s disclosure requirements.

Minnesota’s Claim 1 required a set of compounds having the following structure:

R1 through R7 are each a genus of identified compounds, with the result that the claims are broadly directed to a class of drugs, known as phosphoramidate prodrugs, that target tumor-growing viruses. Suffice it to say that given the number of R groups in these structures, the size of each genus of those R groups, and the options given elsewhere in the claims, the number of potentially infringing compounds was very broad indeed.

The filing date of the patent was March 28, 2014, but it claimed through a chain of priority back to a 2004 provisional patent. In its IPR petition, Gilead submitted that a prior art reference (Sofia), published in 2010, anticipated the claims. The parties agreed that Sofia anticipated claim 1 and all dependent claims. Therefore, the decision turned on whether Minnesota’s claim was entitled to the 2004 priority date of the provisional application (and, thus, made Sofia unavailable for use as prior art based on its later publication date). Because a patent claim must be supported by the written description of the earlier filed application in order to obtain the benefit of its filing date, Minnesota had to show that the claimed compound was adequately supported by the written description of the 2004 provisional application. (The intervening chain of priority claims through an international application and two nonprovisional applications did not materially modify the scope of the disclosure.)

From the above discussion, it would seem that this is a case of whether the genus was sufficiently described in the provisional application to permit Minnesota to claim particular species. In such cases, the Federal Circuit has held that the genus must be described by “either a representative number of members of the genus or structural features common to the members of the genus” such that a person of ordinary skill could visualize or recognize the members of the genus(see Ariad Pharms., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1350-52 (Fed. Cir. 2010) (en banc). But Minnesota did not argue that it had sufficiently disclosed a genus. Rather, it argued that it had actual support in the provisional application for the claimed set of compounds by either literally describing the claimed compounds or providing “blaze marks” to them. A blaze mark is a colored mark or signpost marking the direction of a hiking trail.

Now, a patent claim is often likened to the “metes and bounds” of a real estate deed, or the fence on a land boundary, marking off what the patentee claims as his own exclusive right. To be granted that right, the patentee must also sufficiently describe the invention and its context within the art to demonstrate his possession of the inventive concept. This is like describing the landscape within the borders of the fence. By blaze marks, then, the parties, PTAB, and Federal Circuit mean that the patentee cannot merely run off an exhaustive list of every subcompound that might conceivably be used with the claimed genus, as if naming every tree in the Minnesota Northwoods property that has been purchased. Something more is required: blaze marks directing the artisan to that particular claimed compound, or that particular tree in the woods, such that the artisan can have a reasonable belief that the person making the patent claim actually recognized it as part of the invention.

Returning to the case, the Federal Circuit affirmed the PTAB’s finding that Minnesota failed to make the necessary disclosures in the provisional application to provide that reasonable belief. First, the Federal Circuit rejected Minnesota’s argument that the claimed compounds were literally described in the provisional application. Minnesota relied on the fact that claim 47 in the provisional application, which claimed “the compound of any one of claims 1-46” wherein R7 was a relevant compound (hydrogen or a particular alkyl group), was the literal equivalent of claim 1 of the later filed 2014 patent. The problem, according to the Federal Circuit, was that the number of dependent claims and the “maze-like path” between them gave no assurance that the inventor recognized in 2005 what the patent claimed in 2014 as being particularly inventive.

Minnesota then claimed that even if this was not a literal description, the claim path did provide the necessary blaze marks. Again, the Federal Circuit disagreed, finding that “even if…. claim 47 blazes a trail through the forest that runs close by the later-claimed tree, the priority applications do not direct one to the proposed tree in particular, and do not teach the point at which one should leave the trail to find it.” The Federal Circuit then affirmed the decision to invalidate the Minnesota patent.

This case is important for patentees and patent lawyers for two reasons. First, it continues a trend dating back about 10-15 years whereby the Federal Circuit has required patentees to be more explicit in the specification about the nature of the inventor’s conception of the invention. It is not enough to describe a small number of compounds and then claim a large genus, or alternatively, to rattle off every potential hypothetical compound to try to support a large genus claim. Rather, the Federal Circuit wants to see that the disclosure reflects what the inventor believed to be his invention. While this case involves the written description requirement of Section 112, it is similar to an analogous question about the enablement requirement currently before the Supreme Court in Amgen, Inc. v. Sanofi. The courts want to see what the inventor knew and when he knew it.

This leads to the second point. Minnesota filed the original provisional application in 2004, and the patent in issue was filed 10 years later. The intervening prior art was only published in 2010. Therefore, if there are questions about the sufficiency of the disclosure, it may be worthwhile to file a new patent application with additional disclosure (either as a completely new case or as a continuation in part application) directing the Office to the particularly desired inventive concepts. Had Minnesota filed an adequately supported patent claim any time between 2004 and 2010, it likely would have survived this challenge.

The Federal Circuit’s trend towards requiring more of patent disclosures is not likely to be reversed any time soon. That means that inventors who are blazing trails in their respective technical fields need to make sure to leave enough marks in their patent disclosures for others to follow behind.

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Phillip Morris can’t seem to catch its breath. As discussed in a previous post, just a few weeks ago the Federal Circuit upheld the ITC’s ban on the importation and sale of Phillip Morris’s line of heated tobacco and electronic cigarette products offered under the brand IQOS. Phillip Morris now has to recharge its battery to fight against other allegations of infringement recently revived by the Federal Circuit. Indeed, a recent Federal Circuit decision provided Healthier Choices Management Corp. (HCMC) a second chance to fire up its patent infringement claims against Phillip Morris and its IQOS products.

In November 2020, HCMC filed suit against Philip Morris USA, Inc. and Philip Morris Products S.A. in the United States District Court for the Northern District of Georgia alleging patent infringement. More specifically, Phillip Morris’s IQOS products are purported to infringe claims related to a combustion electronic pipe in U.S. Patent No. 10,561,170. The asserted claims require a combustion reaction, e.g., claim 1 requires that the “heating element initiat[es] a combustion reaction in the combustible material reservoir” and method claim 5 requires a comparable initiating step. HCMC alleged in its original complaint that, notwithstanding Philip Morris’s claims that IQOS products are combustion-less because the tobacco is heated at a low enough temperature that the tobacco does not burn, the IQOS products do initiate a combustion reaction. In making this allegation, HCMC attached an exhibit that Philip Morris submitted to the FDA arguing the lack of combustion.

Phillip Morris moved to dismiss HCMC’s complaint and argued that the exhibit and portions cited by HCMC conclusively demonstrate that the IQOS products do not initiate a combustion reaction as required by the asserted claims of the ʼ170 patent. In addition, even though the amended complaint submitted with HCMC’s motion to amend removed reference to the exhibit, Phillip Morris argued that the exhibit was so essential to HCMC’s argument that the court should deny HCMC’s motion to amend. The district court ruled in Phillip Morris’s favor on all counts, denying HCMC’s motion to amend its complaint, dismissing HCMC’s original complaint, and awarding attorneys’ fees to Phillip Morris.

HCMC appealed. In addition to arguing that the district court erred in denying its motion to amend its case and dismissing the case, HCMC challenged the attorneys’ fees awarded to Phillip Morris and requested a different judge on remand. Phillip Morris countered that, because the court must accept as true all statements contained in an exhibit that was attached to and relied on by the complaint absent HCMC’s express disavowal of any such statements, and there was no such express disavowal, HCMC’s allegation that the IQOS products initiates combustion was implausible, and the lower court did not err in dismissing the complaint.

The appellate panel disagreed and explained that factual assertions made in an exhibit do not always control over contrary factual assertions on the same subject made in a complaint. The panel further expounded that “[w] here a . . . plaintiff attaches a . . . report to his complaint and alleges that it is false, . . . the contents of the report cannot be considered as true for purposes of ruling on a motion to dismiss.” And, while “a plaintiff seeking to disavow statements in an attachment to its complaint [is not required to] recite certain magic words to do so,” the infringement allegations here were “sufficient to disavow the contradictory statements . . . in which Philip Morris self-reported that its products do not combust”:

[O]n information and belief, while Defendants assert that the Accused Infringing Product does not cause combustion of the IQOS® Tobacco Sticks, Defendants’ own testing concludes that 97%, not 100%, of the harmful chemicals associated with combustion are eliminated by the Accused Infringing Product, and the presence of 3% of the two important combustion markers nitrogen oxides and carbon monoxide indicates that at least some combustion occurs when the Accused Infringing Product is operated as designed and intended by Defendants.

Ultimately, the panel concluded that HCMC’s original complaint plausibly alleged that combustion occurs and, thus, stated a valid claim for infringement.  

With respect to the motion to amend and amended complaint, the appellate panel noted that HCMC’s amended complaint includes “allegations, more explicit than those in its original complaint, regarding how the IQOS system initiates combustion of at least a portion of the HeatStick.” The panel disagreed with the district court that the exhibit was so essential to HCMC’s allegations that the complaint could not be amended to remove the exhibit. The panel also explained that, even assuming the exhibit was so integral to HCMC’s allegations that it should be treated as attached to the amended complaint, HCMC expressly disavowed the exhibit’s statements regarding no combustion and raised a plausible allegation of patent infringement. Finally, the panel further noted that combustion testing by Phillip Morris cannot be the sole determinator of combustion at this stage (before claim construction) because Phillip Morris’s definition of combustion may be too narrow. 

The attorneys’ fees award was vacated based on the reversal of the district court’s dismissal of the original complaint. A good win for HCMC, right? For the most part. But the Federal Circuit did not reassign the case on remand as requested by HCMC. While “the fact that the district judge ruled against [HCMC should be] of little impact,” it may nonetheless take some time for the court to thaw. Also, the Patent Trial and Appeal Board issued a Final Written Determination in December 2022 declaring all of the claims in the ʼ170 patent unpatentable. HCMC has filed a notice of appeal to challenge that determination, but the fate of the ʼ170 patent (and this suit) is unclear.

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In a recent precedential decision, the Federal Circuit shot down arguments from appellants Phillip Morris Products S.A., Phillip Morris USA, Inc. and Altria Client Services LLC (Phillip Morris) that challenged the ban on its imported electronic cigarettes handed down from the International Trade Commission (ITC).

The fight between the tobacco competitors started around this time three years ago in 2020 when RAI Strategic Holdings, Inc., R.J. Reynolds Vapor Company, and R.J. Reynolds Tobacco Company (Reynolds) asked the ITC to issue an exclusion order barring Phillip Morris from importing into the U.S. its IQOS line of heated tobacco and electronic cigarette products. Reynolds based this ask on the alleged infringement by the IQOS products of U.S. Patent Nos. 9,901,123 and 9,930,915 (the ʼ123 and 915 patents, respectively). The asserted claims in the ʼ123 patent are directed to “electronically-powered, aerosol-generating smoking articles” that heat tobacco (rather than burning it), which provides an inhalable vapor or aerosol substance. The ʼ915 patent relates to a reusable control unit for use with a disposable smoking article. However, since a successful complainant at the ITC can only obtain such an exclusion order if there is a domestic industry to be protected, Reynolds also asserted in the complaint that its VUSE line of electronic cigarettes satisfied both the economic and technical prongs of domestic industry.

The administrative law judge who oversaw the proceedings agreed with Reynolds on all accounts, including infringement of both the ʼ123 and ʼ915 patents (and non-obviousness of claims 27-30 of the ʼ123 patent), the presence of a domestic industry, and that “the public interest evidence of record [did] not weigh against entry of a remedy.” A limited exclusion order was recommended. With respect to the ʼ123 patent and its obviousness argument (the portion of the decision that is the focus of the remainder of this post), Philip Morris had attempted to plug the hole left by Morgan’s lack of a central heater with a) its expert’s opinion that central heaters were well known and regarded before the effective filing date of the ʼ123 patent and b) reference to the discussion in the ’123 patent that “[s]election of the power source and resistance heating elements can be a matter of design choice.” The ALJ was not persuaded and found that Morgan’s teaching of multiple circumferentially placed heaters around the outside of the housing “shows that it would not have been obvious to modify Morgan to include a centered heater.”

Phillip Morris then told the Commission that the ALJ improperly “require[ed] an express ‘motivation’ to modify Morgan with a centered heater,” even though a person of ordinary skill in the art would have been motivated by the known advantages of central heaters to modify Morgan. However, the Commission sided with the ALJ and explained that (a) since the evidence did not show or support a limited number of design choices, the placement of the heater was not a matter of a simple design choice and (b) the discussion of design choice in the ʼ123 patent was not in reference to the location or type of heater.

On appeal, Phillip Morris argued that it did show that claims 27-30 of the ʼ123 patent asserted claims were obvious and that the “court’s precedent dictates that when a feature is ‘a simple design choice,’ to be selected from among ‘a finite number of identified, predictable solutions,’ it ‘would have been obvious’ to pursue one of the known, predictable solutions.” The Federal Circuit ultimately disagreed and said that “[w]hile the issue of obviousness in view of Morgan is a close one, we are not convinced that the Commission erred in its fact findings or its ultimate conclusion” and extinguished Phillip Morris’s hopes of chipping away at the ITC’s findings.

So, what made this obviousness challenge such “a close one” for the appellate panel?

The ultimate question of obviousness is a legal question that the Federal Circuit reviews de novo with underlying factual findings that it reviews for substantial evidence. The panel seems to suggest that it may not have reached the same non-obviousness conclusion as the ITC under a de novo review. But, since Phillip Morris disputed underlying factual findings, the panel was confined to review the disputed issues under the substantial evidence standard. Under this standard of review, even if some evidence detracts from the Commission’s conclusion, the Federal Circuit “must affirm a Commission determination if it is reasonable and supported by the record as a whole. In fact, “the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency’s finding from being supported by substantial evidence.” Indeed, while the appellate panel reviewed the ʼ123 patent and found that, when

[r]ead in context with the remainder of the specification, the Commission’s understanding [that the discussion of design choice in the ʼ123 patent was referring to the amount of resistance in the resistance heating elements and the voltage and current provided by the power sources rather than the arrangement and positioning of the resistance heating elements] is not unreasonable,

one could likely argue either side based on the excerpt below (in Col. 29, lines 32-50).

In fact, reviewing the first and last sentences of this paragraph, it seems that either or both of the battery selection or the resistance heating elements can vary and be a matter of design:

For all embodiments described above, the selection of battery and resistance heating elements can vary, and can be a matter of design.

. . .

Selection of the power source and resistance heating elements can be a matter of design choice, and be readily apparent to one skilled in the art… (emphasis added)

Yet, it appears that the ALJ and Commission focused instead on the second and third sentences and the particular example discussed therein related to selecting voltage, current, and resistance provided by the resistance heating elements to conclude that the teaching in this paragraph was not in any way referencing to the location or type of heater.

Regardless of whether this was a close one for the Federal Circuit or whether it “would have reached the same result as the Commission had the matter come before [it] for decision in the first instance,” the Commission’s final determination with respect to the validity of the ’123 patent was affirmed, and Phillip Morris is banned from importing and selling its IQOS products. And, as discussed in a related post, Phillip Morris now has to recharge its battery to fight against infringement allegations against the IQOS products brought by Healthier Choices Management and recently revived by the Federal Circuit.

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On April 4, 2023, jazz musician Charles Bertini emerged victorious in his legal battle against the tech giant Apple Inc. To provide some background, in 2015, Apple launched a streaming service and filed for federal trademark protection of its APPLE MUSIC mark in connection with “production and distribution of sound recordings and arranging, organizing, conducting, and presenting live musical performances.” Bertini, with his brother serving as his attorney, opposed the application on the basis that APPLE MUSIC would cause confusion with his “Apple Jazz” brand, which he had used since 1985 in connection with festivals and concerts and eventually with distributing sound recordings under his record label. Although Bertini never registered APPLE JAZZ, he maintained common law trademark rights in the mark, which can defeat an application under Section 2(d) of the Lanham Act (15 U.S.C.A. § 1052(d)) in instances in which the trademarks could be confused.

Initially, the Trademark Trial and Appeal Board (TTAB) found, and both parties agreed, that Bertini’s APPLE JAZZ was distinct and had a priority date of June 13, 1985, in connection with “[a]rranging, organizing, conducting, and presenting concerts [and] live musical performances.” Both parties also agreed that there was a likelihood of confusion between APPLE JAZZ and APPLE MUSIC. Thus, the only issue before the TTAB was deciding who was the senior user of the APPLE mark.

Apple argued that it was entitled to a priority date of August 1968, based on trademark rights it purchased from Apple Corps for the APPLE mark (Reg. No. 2034964). Apple argued that it was entitled to tack its 2015 use of APPLE MUSIC onto Apple Corps’ 1968 use of APPLE, meaning Apple would be the senior user of the APPLE mark. The doctrine of tacking allows trademark owners to modify their marks over time without losing priority, provided that the old and new marks create the same, continuing commercial impression, but the standard for tacking is strict. The TTAB ultimately found that Apple Corps continuously used its APPLE mark on gramophone records, and other recording formats since August 1968, and that Apple was entitled to tack its 2015 use of APPLE MUSIC onto Apple Corps’ 1968 use of APPLE. The TTAB dismissed Bertini’s opposition.

Bertini appealed. The U.S. Court of Appeals for the Federal Circuit found that the TTAB misapplied the doctrine of tacking, that Bertini had priority of use for APPLE JAZZ as to live musical performances, and reversed the Trademark Trial and Appeal Board’s dismissal of Bertini’s opposition to Apple’s application to register APPLE MUSIC. The Federal Circuit noted that this case raised “a question of first impression regarding the appropriate tacking standard in the registration context: whether a trademark applicant can establish priority for every good or service in its application merely because it has priority through tacking in a single good or service listed in its application.” The Federal Circuit found that the TTAB errored in allowing Apple to claim absolute priority for all the services listed in its application based on a showing of priority for one service listed in the application.

The Federal Circuit concluded that the TTAB conflated the tacking standard with the standard for oppositions. “An opposer can block a trademark application in full by proving priority of use and likelihood of confusion for any of the services listed in the trademark application,” the panel said. “The reverse is not true.”

Bertini and his brother were pleased with the Federal Circuit’s decision and hope that “this decision will also help other small companies to protect their trademark rights.” Apple hasn’t yet decided whether to appeal the Federal Circuit’s decision, but we will continue to monitor and provide an update in the event this matter proceeds to the Supreme Court.

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When entering into a trademark license agreement most trademark owners do not consider the possibility that their agreement actually may be a franchise, which would subject them to specific disclosure requirements and a number of relationship responsibilities not normally present in a trademark license.    

Recently, the owner of a restaurant concept entered into what it thought was a routine trademark license agreement with a licensee to operate a “Rooh” branded Indian restaurant in Chicago. To its surprise and dismay, after filing suit in U.S. federal district court in San Francisco to enforce certain terms of the license agreement, the licensor, Good Times Restaurants, found itself entangled in the California Franchise Investment Law (CFIL) when the licensee asserted claims against the licensor under the CFIL and other state franchise laws. 

In the recent case of Good Times Restaurants, LLC v. Shindig Hospitality Group, the licensee, Shindig Hospitality, filed a counter claim alleging fraud and misrepresentation, which the licensor sought to dismiss. In its motion to dismiss, the licensor argued that the grant of the right to open a restaurant using the “Rooh” trademark and business concept did not meet the definition of franchise under the CFIL or any other franchise laws claimed by the licensee to be violated.

Unfortunately for the licensor, the court disagreed, and ruled that there were enough facts to satisfy the four elements of the definition of franchise under the CFIL. By that definition, a franchise is an agreement that:

  • Associates the franchisee’s business with the franchisor’s trademark;
  • Grants the franchisee the right to engage in the business of offering, selling or distributing goods or services;
  • Requires the franchisees to pay, directly or indirectly a franchise fee; and
  • Prescribes in substantial part a marketing plan or system. 

The California statute does not differ materially from the Federal Trade Commission Franchise Rule that governs the sale of franchises on the national level. The FTC Franchise Rule defines a franchise to be where (i) the franchisee sells goods or services that are associated with the franchisor’s trademark, (ii) the franchisor exercises significant control, or gives franchisee significant assistance in the franchisee’s operation of the business, and (iii) the franchisee pays a fee to the franchisor as a condition of obtaining or commencing business. Historically, both the FTC Franchise Rule and the California statute have been broadly applied.

In this case, the licensor claimed that not all of the franchise elements were present in its relationship with the trademark licensee. Specifically, it argued that that the license fee was not for the right to enter into a business, but was for the right to use the Rooh trademark; that the agreement as a whole did not grant the licensee the right to enter into a business; the franchise fee requirement was not met because the licensee never paid it; the agreement did not prescribe a marketing plan; and that, because the agreement was titled a “Consulting and License Agreement,” it was not covered by the franchise definition. 

The court was not persuaded by the licensor’s arguments and found that (i) the fee to be paid by the licensee gave it the right to enter into the business; (ii) the licensee was given the right to open the restaurant (whether or not it actually did so); (iiI) whether or not the licensee paid the required license fee was immaterial (the fact that the fee was required was enough to satisfy the definition); (iv) the significant control or assistance requirement was satisfied by the suggested advertising and sales program; and (v) the title of the agreement was immaterial given that “the title is not an element of the franchise definition” and “[i]f it were[,] franchisor’s could ignore the CFIL definition by simply labeling their agreement in a particular way.”

The court also rejected the licensor’s argument that claims brought under Illinois’s franchise act should also be dismissed. In response to that argument, the court noted that, like the California law, Illinois’s franchise law embraced the FTC Franchise Rule franchise definition. Specifically, it noted that “other franchise related claims all use similar definitions of what constitutes a franchise.”

The court’s decision on the motion reminds us that, when contemplating entering into a trademark license agreement, a licensor should be particularly careful in how it structures its relationship with the licensee in order to avoid the franchise tripwires, which are not always obvious. While a licensor has the right to receive a fee for the grant of trademark rights, and to control how a licensee uses that mark, those rights can easily collide with the franchising model. The definitional prong that trips up the majority of trademark owners who unknowingly find themselves to be franchisors is the significant control or assistance requirement. A trademark licensor whose license agreement contains mandatory advertising or operational requirements, or provides a licensee with operational assistance or marketing recommendations, risks its relationship becoming a franchise thus exposing it to an entire bundle of regulations, obligations, and possible liabilities.    

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On March 29, 2023, Congress held a hearing on collegiate name, image, and likeness (NIL) issues in collegiate sports. The hearing comes a little over a month after the NCAA issued its first ruling in an NIL infractions case and less than a month after former Massachusetts Gov. Charlie Baker assumed duties as president of the NCAA. While the hearing had constructive dialogue on NIL issues, it eventually veered towards discussions on the ramifications of college athletes being deemed employees of their schools. Despite the hearing’s focus shifting away from the specific topic of NIL, many of the witnesses and representatives advocated for a federal NIL standard to provide clarity and uniformity for college athletes.

The Innovation, Data, and Commerce Subcommittee of the House Committee on Energy and Commerce held the first federal hearing on NIL in over two years. The chairman of the subcommittee, Rep. Gus Bilirakis, who recently wrote an op-ed advocating for a national NIL standard, said that passing a federal NIL law would provide transparency and clarity for college athletes. “The lack of uniformity across different states and institutions has created confusion and uncertainty, and a federal standard is needed so that all athletes are playing by the same rules,” Bilirakis said. “In short, we must strike a delicate balance between the rights of college athletes to profit from their NIL while keeping the amateur status for all college athletes.”

Lawmakers questioned six witnesses during the hearing, including two college sports administrators, the president of Virginia State University, former Florida Gator and NFL player Trey Burton, a current Florida State softball player, and the founder of the College Football Players Association (CFBPA). The majority of the witnesses encouraged Congress to act on NIL, expressing a need for a uniform NIL standard and citing concerns over the current patchwork of state NIL laws and the potential for NIL to be used for recruiting and pay-for-play.

“The current NIL chaos means student-athletes are left to fend for themselves,” said Rep. Cathy McMorris Rodgers. “And those at the top of their game must figure out how to maneuver through a multitude of agents, collectives, and high-dollar contract offers, all while maintaining their academic and athletic commitments.”

However, Jason Stahl of the CFBPA was adamant that the federal government did not need to be involved in college NIL. “It is the position of the CFBPA that the federal government should stay out of the NIL free market as they would stay out of the NIL free market for every other American citizen,” Stahl said. “The vast majority of evidence suggests athletes monetizing their NIL has had an overwhelmingly positive effect…to the extent that there are problems in the NIL free market…they are extraordinarily manageable by industry stakeholders, including players through their independent players’ associations.”

New NCAA President Charlie Baker issued a statement after the hearing stating that “the lack of transparency in today’s NIL marketplace puts student-athletes in jeopardy of exploitation by bad actors. Plus, differing state laws regulating NIL (currently more than 30) put student-athletes across the country on an uneven playing field.” The NCAA president stated that he is “optimistic Congress will take action to create fair, equitable, and sustainable NIL guidelines that protect and benefit student-athletes nationwide.” For advocates of a uniform federal NIL law, the hearing is at least a sign that Congress is considering action. The House and Senate have previously held seven hearings on NIL since the topic of NIL gained attention, yet no NIL bill has made it out of committee. So, while the NCAA may be optimistic about a national NIL standard, a federal NIL bill still has a tough hill (pun intended) to climb.

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Well Amgen, that didn’t seem to go so well. 

As a follow up to our post last week, the Supreme Court heard oral arguments in Amgen, Inc. v. Sanofi (No. 21-757). While we obviously don’t have a crystal ball, the questions from the high court suggest that Amgen’s claims are about to be delivered a knock-out punch in this last round. 

As expected, many of the Court’s questions to Amgen centered around how many isolated monoclonal antibodies would actually be covered by the claims-at-issue in U.S. Patent No. 8,829,165 and U.S. Patent No. 8,859,741 given that such antibodies must (i) bind to the featured residues and (ii) block binding of PCSK9 to LDLR. The justices seemed really uncomfortable with the idea that any and all antibodies — known and unknown — that obtain the featured functional results would be covered. In fact, at one point, Justice Clarence Thomas said “I think I’m somewhat confused as to exactly what your invention is” and asked “[s]o what is it exactly?”  The Court also wrestled with the issue of how much experimentation would be required to reach the full scope of the claims. Amgen’s eventual admission during oral argument that its functional genus claims would cover millions of yet unidentified antibodies did not help matters. 

Sanofi and the U.S. government both capitalized on the Court’s noticeable skepticism toward Amgen’s arguments that its claims are enabled and valid despite the broad scope. Sanofi came out swinging and stated that “[t]hey’ve overclaimed, they’ve underenabled, their patent is invalid.” According to Sanofi’s counsel, “functional genus claims are terrible” and “[t]hey retard the science.” The government took its jabs too and contended that a genus claim is only proper if each and every embodiment within the genus has been enabled and suggested that the Court clarify that “you really do need to enable each of the different embodiments that you’re claiming [and] that you can’t say these ones don’t matter…” In this regard, the government told the Court that the 26 antibodies specifically disclosed in Amgen’s patents are all that is enabled.

Will the Court agree with the U.S. government that broad genus claims are “a danger to innovation and especially in the medical field” and deliver the fatal blow to Amgen’s claims? And, if it does, what will that mean for any issued claims with similar functional language? Or will the Court narrowly decide this issue in the context of antibody patents (or similarly unpredictable arts)? We will update you when the Supreme Court renders its decision.

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Patent owners worry about what they can and cannot publicly say about infringement of their patent rights. Accused infringers may believe that certain public statements by patent owners are actionable on the basis that such statements interfere with business, are defamatory, or both. Last month, the Federal Circuit clarified what can and cannot be said about patent rights and infringement when it vacated a preliminary injunction that restricted patent owner Lite-Netics, LLC, from speaking publicly about infringement of its magnetic holiday string lights patents by competitor Holiday Bright Lights (HBL). As a result, Lite-Netics (and other patent owners similarly situated) has the green light to speak publicly about infringing activity, and infringers provided that its patent-related speech is not objectively baseless.   

Background

A few months before bringing suit against HBL in the United States District Court for the District of Nebraska for infringement of U.S. Patent Nos. 7,549,779 and 8,128,264 for magnetic decorative lights (Lite Patents), Lite-Netics sent a first notice to its customers (some of which were shared customers with HBL) making them aware “of recent attempts by other companies to make and sell similar products” as claimed in the Lite Patents and stating its intention to go after these allegedly infringing competitors. Shortly after the suit against HBL was filed, Lite-Netics sent a second notice to its customers specifically identifying HBL as an infringer of the Lite Patents. The second notice included a copy of the first page of the complaint filed against HBL and also threatened suit against any company using or reselling HBL’s Magnetic Cord and Magnetic Clip string light products. In response to the complaint and Second Notice, HBL moved to dismiss the complaint, filed counterclaims based on federal and state-law unfair competition, as well as several other state-law torts, and moved for a temporary restraining order (TRO) and a preliminary injunction based on two of the state law counterclaims (i.e., tortious-interference and defamation) in an attempt to stop Lite-Netics from making accusatory statements about HBL.

Lower Court Decision

The district court initially granted the TRO for 14 days and then extended it for another 14 days. In deciding on the preliminary injunction motion, the district court evaluated the (1) HBL’s likelihood of success on the merits of its tortious-interference and defamation claims; (2) the likelihood of irreparable injury to HBL without the injunction; (3) the balance of equities; and (4) the public interest. With respect to the first factor, the district court acknowledged that state-law tort claims based on the communication of patent rights “are preempted by federal patent laws, unless the claimant can show that the patent holder acted in bad faith.” However, the court found that federal preemption did not apply because Lite-Netics’s infringement allegations lacked any merit and, as such, its assertions to its customers against HBL were made in bad faith.  On that basis, the court ruled that HBL would likely succeed on its tortious-interference and defamation claims and, because the other three factors favored issuance, granted the preliminary injunction.

The injunction ordered Lite-Netics (and its officers, directors, shareholders, and other agents) to refrain:

from making statements via letters, emails, Facebook, Twitter, or any other social media, mass media, direct marketing, robocalls, press releases, blogs, websites or otherwise suggesting “copying” by HBL, suggesting HBL customers will be burdened as additional defendants in this or any lawsuit, or suggesting that HBL is a patent infringer.

Lite-Netics appealed.

Appellate Reversal

While the Federal Circuit agreed that precedent dictated that HBL’s state-law claims could survive federal preemption if there was a showing of bad faith by Lite-Netics in asserting infringement, the panel disagreed with the lower court that there was such a bad-faith showing.  The appellate panel explained that (a) bad faith cannot be met in the absence of a showing that the claims asserted were objectively baseless and (b) an infringement allegation is objectively baseless only if no reasonable litigant could realistically expect success on the merits. In reviewing Lite-Netics’s infringement allegations, the panel found that there was an objectively reasonable basis for a number of those allegations at this stage of the litigation (i.e., before full claim-construction proceedings and/or expert reports). It thus held that the lower court abused its discretion in finding that Lite-Netics could not have “realistically expect[ed] success on the merits” and acted in bad faith.

Key Takeaway

The Federal Circuit noted here that “[t]he First Amendment principles are particularly significant when an injunction against speech is at issue” and previously explained that “[t]his is . . . an injunction against communication, a much more serious matter. . . that must be used with care and only in exceptional circumstances.” Those exceptional circumstances require a showing of bad faith, which requires a showing that the infringement allegations are objectively baseless.  A patent infringement allegation is objectively baseless only if “no reasonable litigant could realistically expect success on the merits.” To be clear, an incorrect allegation of patent infringement is not necessarily objectively baseless (even if claim construction ultimately goes in a direction that does not support the patent owner’s infringement allegations). In fact, a patent owner that is “acting in good faith on its belief as to the nature and scope of its rights, is fully permitted to press those rights ‘even though he may misconceive what those rights are.’”

Enjoining a patent owner’s communication of its patent rights is rare (even if that communication turns out to be incorrect). Patent owners have the green light to speak freely about their rights (and others infringing on those rights) but must do so in good faith. 

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On Wednesday, March 22, the Supreme Court heard a case for the dogs — and trademark law. Whiskey maker Jack Daniel’s Properties, Inc., sued dog toy parody company VIP Products LLC for trademark infringement and dilution over VIP’s Bad Spaniels dog toy, which is a plush toy resembling the Jack Daniel’s Old No. 7 Tennessee whiskey bottle.

The dog toy substitutes the branding that is normally depicted on the Jack Daniel’s bottle with pup-themed phrases, such as 43% POO BY VOL and 100% SMELLY. Further, the “Old No. 7 Brand Tennessee Sour Mash Whiskey” product name is spun into the “Old No. 2 On Your Tennessee Carpet” for a classic scatological joke.

Humorous or not, the issue involves the conflict between the Lanham Act’s grant of federal trademark rights and an individual’s right to free expression under the First Amendment. The district court found both infringement and dilution, finding that the VIP “Bad Spaniels” toy was likely to be confused with, and caused dilution by tarnishment of, Jack Daniel’s trade dress and trademarks in its well-known liquor bottles and labels. However, the Ninth Circuit reversed, finding that VIP’s dog toy was protected speech under the First Amendment.

The Arguments

The primary question presented before the Supreme Court is whether the Rogers test for First Amendment protection of expressive works applies to an artistic, or humorous, use of a trademark, which would trump the standard likelihood of confusion analysis. Secondly, at issue is whether VIP’s parodic use can qualify as “noncommercial” and, therefore, preclude a claim of dilution by tarnishment.

In the party’s brief preceding the oral arguments, VIP argued that this Bad Spaniels product only recreated enough elements from the famous whiskey bottle so “people would get the joke.” Further, it commented that Jack Daniel’s is lacking a “sense of humor.” Contrarily, Jack Daniel’s wrote in its petition for writ of certiorari that “VIP’s profit-motivated ‘joke’ confuses consumers by taking advantage of Jack Daniel’s hard-earned goodwill.” In essence, the case turns on whether the Bad Spaniels toy is a permissible parody, rather than a means of riding the goodwill associated with the Jack Daniel’s brand.

The parties took to the Supreme Court with their oral arguments on March 22, 2023. Jack Daniel’s, insisting that confusion is the cornerstone of trademark infringement, highlighted the consumer surveys that indicated consumers were confused by the dog toy. Further, Jack Daniel’s argued that the Bad Spaniels toy is inherently commercial because its primary purpose is to be bought and sold, subjecting it to a dilution claim.

On the other hand, VIP reinforced its stance that anything involving parody is an “easy case” and does not confuse consumers about source. In its view, poking fun at iconic brands is a form of expression, which should be protected by the First Amendment.

The justices seemed interested in narrowing the kind of confusion the Lanham Act governs. They also wrestled with whether the Rogers test should be thrown out entirely or reconfigured. Further, one of the miscellaneous concerns raised by the justices was an underlying desire for judicial efficiency and an avoidance of costly litigation.

The Implications

This case could have serious implications for the commercial landscape, as demonstrated by the variety of amicus briefs filed in the case from the likes of major brands (i.e., Campbell’s, Levi Strauss, and Nike) and the Biden administration in support of Jack Daniel’s on the one hand, and by a number of law professors in support of VIP. Popular brand owners hope to protect their hard-earned reputation and the goodwill associated with their intellectual property. The advocates of free expression want to flaunt their creativity through parodies, without fear of litigation. Both sides will have to await the Supreme Court’s decision as the justices weigh the issues, and we will update you when they do.