A former business partner’s “naked licensing” defense was foreclosed by entering into a trademark licensing agreement with the trademark owner, ruled the Eleventh Circuit (the federal court with appellate jurisdiction over the district courts in Florida, Georgia and Alabama). This defense to a trademark violation claim is made when the owner/licensor fails to properly supervise the licensee’s use of the mark, which can constitute abandonment of any rights to the trademark by the licensor.
In Nguyen v. Biondo, the plaintiffs own and operate an upscale hair and nail salon that serves specialty cocktails and wine to customers. The plaintiff created a mark with the word “tipsy” in it to advertise this unique service, and registered the trademark with the United States Patent and Trademark Office. While the application for the mark was pending, the plaintiffs agreed to sell part of the spa business to defendant. However, after acquiring the mark, the business relationship between the plaintiffs and defendant fell out and the plaintiffs sold all ownership rights in the spa to defendant.
The sales agreement was central to this case decision. As part of the sales agreement, defendant was allowed to continue operating the spa business using the name “tipsy” until a certain date. The agreement specifically provided that defendant was not acquiring the rights to the mark “tipsy.” Despite the agreement provisions, defendant continued to use “tipsy” as part of the spa’s name after the date had passed and violated his payment obligations to plaintiffs.
Plaintiffs sued defendant for, among other things, breach of contract and trademark infringement under the Lanham Act. Defendant responded by asserting that plaintiffs’ conduct preceding the sales agreement demonstrated a lack of supervision and control over the mark “tipsy,” and thus defended that the mark had been abandoned. The Eleventh Circuit refused to consider the defendant’s “naked licensing” defense because the facts underlying it occurred before the sale and licensing agreement was signed by the parties. By signing the agreement, the Court held that defendant “expressly recognized that [plaintiff] owned the mark.”
Although the “naked licensing” defense was unsuccessful in this action, companies should ensure that written agreements to license marks contain robust quality control provisions to prevent consumer confusion as to the source of the goods and services sold under the mark. Moreover, businesses must monitor quality through inspections and other activities to avoid this harsh litigation trap.
If an employee misappropriates their current or former employer’s proprietary information, and discloses such information to its new employer and/or any other unauthorized person(s), that is enough to establish a violation under the Virginia Uniform Trade Secrets Act (“VUTSA”) so says the Virginia Supreme Court. There is no requirement under the Act that the employee or new employer actually use the misappropriated information to compete with the former employer.
In the case of Geographic Services, Inc. v. Collelo, et al. (2012), the Virginia Supreme Court held that once an employer establishes the existence of a trade secret, all that they are then required to show is that the trade secret was misappropriated as that term is defined under the Trade Secrets Act. The entity from which the trade secret was misappropriated does not have to show that defendants used the trade secret in order to establish a claim under the VUTSA and recover damages. Disclosure of the trade secret is sufficient where it can be shown that the new employer and/or person to whom the trade secret was disclosed knew, or had reason to know, that the trade secret was acquired by improper means. In such cases, where the plaintiff cannot readily prove measurable damages, then the VUTSA provides that the court can impose a reasonable royalty upon the wrongdoers for the unauthorized disclosure of the trade secret.
This decision by Virginia’s highest court provides a cautionary note for Virginia employers: if you know, or should have known, that an employee has obtained proprietary information from its prior employer without its knowledge, you could be on the hook for damages if the employee discloses the information to your company – even if your company never uses the information. The disclosure, in and of itself, will be enough to expose companies to monetary damages. Conversely, companies in which an employee has taken proprietary information can seek legal redress and possibly obtain damages even if the employee and its new company did not use the information.
© Copyright, PCT Law Group 2013, all rights reserved.
It is clear that the economic downturn has lessened the appetite for companies to spend money on anything not perceived as a “necessary business expense.” The importance of intellectual property (IP) rights in a 21st century, knowledge economy, however, dictates that individual inventors and small- and medium-sized businesses (“SMBs”) find capital to file for patents and trademarks relating to their truly innovative products and services.
The above then begs the question: How can SMBs save money in hiring and engaging IP legal counsel? Well, the answer to this question contains many variables related to the specific IP attorney being hired. Such variables include the region where the IP attorney works, the size of law firm in which they practice, their level of experience, the complexity of the IP involved, etc.
The above variables aside, there is one constant in the price equation that I consistently advise SMBs to pay attention to – the preparation of their disclosure materials BEFORE meeting with any newly-engaged IP counsel. That is, SMBs (and individual entrepreneurs) can directly and significantly control their IP legal cost through careful preparation of their disclosure materials. I have seen $5000 legal bills turned into $15000 legal bills through the needless “back and forth” between an IP attorney who is “on the clock” and a client who has prematurely engaged such IP attorney. So, what do I mean by disclosure materials and how should an SMB prepare them? Well, I answer in two parts:
With respect to an invention needing a patent application, disclosure materials means an SMB gathering and organizing all relevant papers, sketches, drawings, notes, software code, formulations, etc. that provide the IP attorney with the following information:
- Title of the invention
- The full legal names, addresses and citizenship of all inventors
- The full name, address and state of incorporation of the company who will own the patent (if any)
- A description of the problem solved by the invention
- A description of how long the problem has been around and how have others tried to solve the problem
- A description of how the invention solves the problem differently than past solutions or attempted solutions
- System diagrams showing all hardware/software components of the invention
- Flowcharts illustrating the steps of the invention
- A list any known websites, publications, patents, products, services, etc. that are relevant to the subject matter of the invention
- A description of how the invention relates to the launch of a new product or service
- Dates the invention was (or will be): first conceived; implemented as a pilot or otherwise used in the public domain; reduced to actual practice; the subject of a publication or public disclosure; sold or offered for sale; and/or internally exploited
With respect to a mark or logo needing a trademark application, disclosure materials means an SMB gathering and organizing the following information to provide to the IP attorney:
- A description of the mark
- The full name, address and state of incorporation of the entity who will own the trademark
- A description of all the types of products and/or services with which the mark is actually used or will be used
- Date of any first sale of goods bearing the mark in interstate commerce
- Copies of any specimens showing the mark as it is currently (or will be) used on or in connection with the goods or services
- A description of how the mark is actually used or intended to be used
A prepared and organized client is one who receives efficient IP legal services and a reasonable legal bill from their IP attorney, and is consequently glad to pay that reasonable bill!
An Eastern District of Virginia Court has permanently enjoined Verizon from infringing upon patents of a California-based Company, ActiveVideo Networks, Inc. (“ActiveVideo”), including two patents which will have a direct impact upon Verizon’s ability to offer its popular Video on Demand (“VOD”) services. In the case, ActiveVideo Networks, Inc. v. Verizon Communications, Inc., et al., ActiveVideo sued Verizon for allegedly infringing upon several of its patents. After a three-week jury trial, the jury found in favor of ActiveVideo and awarded it $115,000,000 in damages for Verizon’s infringement. ActiveVideo then sought a permanent injunction from the Court enjoining Verizon from continuing to infringe upon the patents.
In analyzing the injunction standard under the Patent Act, Judge Raymond A. Jackson of the Eastern District of Virginia relied heavily upon the four-part test set forth by the United States Supreme Court in the case of ebay, Inc. v. MercExchange, L.L.C. The District Court found in favor of ActiveVideo regarding all four prongs finding that: 1) ActiveVideo had been, and would continue to be, irreparably harmed by Verizon’s unauthorized use of its technology; 2) ActiveVideo did not have an adequate monetary remedy at law because the continuing harm associated with loss of market share and brand recognition of the VOD service were difficult to quantify; 3) the balance of hardships favored ActiveVideo because, as a small company, it relied heavily upon the patents infringed upon by Verizon, while Verizon offered numerous services and would be less affected by having to cease use and/or find alternatives to offering the VOD service; and 4) public interests and public policy were served by protecting patent rights. Regarding this last prong, the Court specifically noted that, “[t]hough Verizon does add other components to be able to offer the completed product, Verizon’s FiOS system, and more specifically the VOD aspect of the FiOS system, could not function without the use of ActiveVideo’s technology.” Mem. Op. at 17.
Nevertheless, have no fear Verizon VOD users. The Court granted Verizon a six-month “sunset” window of time to come up with a non-infringing alternative to its current VOD system, and Verizon claims it has already been diligently working to come up with an alternative system. Therefore, before the time is up, it is likely Verizon will have embarked upon an alternative method to provide the popular VOD service to its customers – thus, enabling it to keep sending out those monthly Verizon bills to its subscribers at a brisk and healthy pace.
© Copyright, PCT Law Group 2011. All rights reserved.
There has been a lot of recent talk, blog posts, articles, court activity and even proposed legislation in Congress around the issue of “False Patent Marking.” What does it all mean and why should small- and medium-sized enterprises (SMEs) care!? Well, I present answers, in brief, to these questions below.
The first thing to know is that the U.S. Patent Laws allow patent owners to give notice to the public by affixing a notice to the patented product (or its packaging if marking the product is not practical or possible) such as “Protected by U.S. Patent No. 3,141,592” See 35 U.S.C. § 287(a). This is colloquially known as the “patent marking” statute. Absent such a marking, in most cases, a patent owner cannot recover damages for patent infringement unless they can prove the infringer was notified of the infringement.
Second, we know that affixing a patent notice to a product (or its packaging) not only acts as a deterrent to competitors by putting them on notice, but it also has some marketing cache! Thus, that is why it is common to see not only actual patent number notices, but also notices of “patent pending” on many products.
Third, there is also what is known as the “false marking” statute which prohibits anyone from marking a product (or its packaging) with:
- an expired patent number
- a false patent number
- with the words “patent applied for” or “patent pending” when no application for patent has been made or is no longer pending, respectively.
See 35 U.S.C. § 292. Each of these three false marking offenses, however, must be shown to have been done “for the purpose of deceiving the public,” and not merely done as a result a good faith mistake.
What makes the false marking statute interesting is that it contains a whistleblower-type provision. That is, any private citizen can sue the manufacturer of a product they believe has been falsely marked to recover “not more than $500 for every such offense.” Thus, one can imagine that if a company produces 1,000,000 units of a product that in some way was falsely marked, a $500M lawsuit becomes very attractive for anyone with the time and the right contingency law firm behind them. See Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009). In fact, over 150 of these types of lawsuits have been filed in the last several months alone! The only drawback is that 50% of any recovery must go to the federal government. (Thus, the private citizen in my example can keep only $250M of the possible recoveries – still not too shabby!)
On June 10, 2010, a federal court of appeals, interpreting the false marking statute, ruled that “the combination of a false [patent marking] and knowledge that the [patent marking] was false creates a rebuttable presumption of intent to deceive the public.” See Pequignot v. Solo Cup Co., Case No. 2009-1547 (Fed. Cir.). A defendant in one of these false marking suits can successfully defend itself by showing via “a clear preponderance of the evidence that it did not have the requisite purpose to deceive.” For example, the defendant in the Solo Cup case successfully obtained a dismissal of the suit by explaining that they knew the patent number on their products had expired but it was prohibitively expensive and disruptive to the business to prematurely replace the manufacturing molds which contained the now-expired patent numbers.
So, what should SMEs glean from all this hoopla? Well, four things:
- If your enterprise manufactures no products covered by U.S. patents, ignore it;
- If your company has no patents that cover a specific product, do not “fake it until you make it” by marking it with one or more non-existent patent numbers;
- If your company has not applied for any patents that cover a specific product, do not use the words “patent pending” in an attempt to obtain marketing cache for such product; and
- If any of your competitors are manufacturing products which you suspect are falsely marked with an intent to deceive the public, consult a plaintiff’s lawyer!
I was recently contacted by a professor who was seeking advice about a piece of intellectually property (IP) he created, and that his university was profitably exploiting. Who owned the IP? Can he exploit it himself? Was he entitled to share in the proceeds above and beyond his university (base) salary? Not surprisingly, these questions are not rare. After all, universities, colleges and research institutions are hot beds of creativity. In 2008, U.S. universities and research institutions spent over $51.47B in R&D and received 3,280 issued U.S. patents, all while forming 595 new companies in IP “spin-outs.” 
Given this setting, who then owns the IP created by someone within a university community? Intuitively, the answer seems simple in the case of a tenured, research professor who develops IP related to their university research duties – the university owns it! But how about the case of an undergraduate student who creates IP totally unrelated to any of her coursework!? The student? How about certain university community citizens, such as university executives, administrators, (exempt or nonexempt) staff, graduate students, postdoctoral fellows, wage payroll employees, adjunct faculty, emeritus or retired faculty, visiting scholars and others? The analysis for those university community citizens is often a fact-intensive endeavor.
In general, under varying applicable state and federal laws where the university employs the individual in question, there is a presumption that the employee owns the rights to their IP, even though it may have been created during the course of their employment. This general rule, however, has two exceptions and one limitation.
- First Exception: If the employee has an express employment agreement, stating the contrary (i.e., an employee agreement assigning all IP to the employer/university), then the general rule does not apply.
- Second Exception: If the employee was specifically “hired to invent,” later directed to solve a specific problem, or his employment requires that he exercise his “inventive faculties,” then the above-stated general rule also does not apply.
- Limitation: Even when none of the two exceptions to the above-stated general rule apply, the employer – in the case of patented inventions – may have a non-exclusive, non-transferable, royalty-free license to practice the employee’s patented invention if it was made using the resources of the employer. This is known as an employer’s “shop right.”
An overwhelming majority of universities have an “official intellectual property policy” that requires employees, as a condition to employment, to assign their IP rights under certain circumstances (e.g., when university funds or facilities are involved in the creation of the IP). Thus, most situations fall under the above-stated first exception even though many professors and postdoctoral fellows fail to read such policies when they sign their employment agreements!
So what about the case of the undergraduate student who created IP totally unrelated to any of her coursework? What if that IP was created without a professor’s help? Well, in a recent reported case having those exact facts, a university’s lawyers demanded a 25% ownership stake and two-thirds of any profits from four undergraduate students who created a popular iPhone® application in their dorm room! Although the university eventually backed down, one campus technology transfer expert has observed that many universities “generally seek to retain ownership, or at least have a formalized mechanism for assessing ownership of a student’s work in much the same way they would regarding a faculty member’s work.”
In sum, those working/learning/creating within a university community should become familiar with their university’s intellectual property policy at the start of their affiliation, and pay attention to the agreements they sign as a part of the new university employee “on-boarding” process. And, when potentially valuable new IP is created, be vigilant about asserting their rights in such IP.
 Association of University Technology Managers, AUTM U.S. Licensing Activity Survey, FY2008: Survey Summary.
Plaintiff’s attempt to litigate in the Rocket Docket because it desired a "quick, efficient and consistent resolution of its claims" was recently thwarted. In an opinion from late January, the United States District Court for the Eastern District of Virginia Federal Court (commonly referred to as the “Rocket Docket”) transferred venue in a patent infringement case to California because it found the plaintiff patent holding company’s connection to this district was tenuous.
Pursuant to the patent venue statute, patent infringement lawsuits may be brought against a defendant anywhere that the company is subject to personal jurisdiction. The purpose of venue statutes is to provide a logical and efficient forum for the resolution of disputes, but the patent venue statute provides plaintiffs with a great deal flexibility in choosing where to litigate.
The case of Pragmatus AV, LLC v. Facebook, Inc., YouTube LLC, LinkedIn Corporation, and Photobucket.com Inc. involves three patents related to the storage, distribution, and playback of media files. The plaintiff company, Pragmatus, is a patent holding company that was incorporated in Virginia a week after it acquired the patent portfolio at issue. A few days after the last patent was issued by the United States Patent and Trademark Office, Pragmatus filed suit alleging the video uploading and linking technology on the defendant companies’ websites infringed on its patents.
The Alexandria Federal Court considered the convenience of the parties, and the witness convenience and access in determining to transfer venue to California. In analyzing this issue, the Court noted that the inventors of the patents and attorney who prosecuted the applications are located in California; and three of the four defendants are headquartered in California, and the other defendant has offices in Denver and San Francisco. The Court determined that these factors weighed in favor of transferring venue to California.
The Rocket Docket is an attractive forum for business litigation due to its efficiency – continuances are rare; weekly motions; relatively short discovery period; and trials within eight months from filing. However, a party must be able to prove a legitimate connection to the forum in order to maintain suit in this Court. As this case illustrates, patent holding companies raise a particular concern in this regard since their business is most often limited to enforcement of IP rights – not invention or development of the technology at issue.
Teaming with a Large Company to Pursue Government Contracts? Watch Your Small Business' Intellectual Property!
In the current recessionary economic climate, there is one customer that is arguably still spending a lot of money to receive goods and services – the U.S. federal government. For many small businesses trying to team with government agencies, the best approach may be to team with a larger company that can supplement your small business' skill sets, and provide leverage and credentials you may not yet have acquired. In pursuit of these contracts, it is vital to pay attention to your small business’ intellectual property (patents, trademarks, copyrights, trade secrets).
By encouraging teaming of large government contract firms with small businesses, government agencies can benefit. Government agencies fulfill their goal in carrying out the principal tenet of the original Small Business Act (1953) – to encourage and develop small business growth. By consolidating their buy requirements with a single contractor, government agency buyers of goods and services can reduce their administrative burden, program management costs and risks, all while expanding opportunities for small business that result in overall increased competition and the fostering of innovation.
So, what’s in it for the large firms? Well, both small and large companies benefit from teaming. While a small company can tap its larger counterpart’s knowledge, experience and purchasing power, the larger firm gains access to small business set-aside opportunities. For example, by partnering with Service-Disabled Veteran Owned Small Businesses (SDVOSB), large firms can access one of the hundreds of monthly set-aside contracting opportunities for which they would otherwise be ineligible to compete. Also, partnering with a small business can enhance a large business’ relationship with various federal contracting agencies as many struggle to meet their set-aside goals. The mutually beneficial relationship of the teaming arrangement results in a highly-efficient and diversified team capable of winning new business and providing excellent customer service to the government.
Regardless of the mechanics of a large government contractor-small business teaming arrangement, smaller firms – simply because they are small and are eager for new business – have to be vigilant about their intellectual property rights. For example, unbeknownst to many small, high-tech firms is that Section 52.227-11(k)(3) of the Federal Acquisition Rules makes it illegal for a large firm to require a small business it is partnering with on a government contract to give up any IP rights as a precondition to working on the contract. Thus, there is a statutory framework that levels the playing field in negotiations with large firms. This statutory level playing field, however, only applies to patent rights. For a small firm’s innovations protected by trade secret, copyright or trademark, extra vigilance is required when negotiating such agreements to preserve these forms of IP rights.
Here is a quick summary of some interesting blogs I have read this week on a variety of business law topics that may be of interest to Virginia businesses:
Brian Hill, of the Employer Lawyer Report, analyzes how Facebook’s new privacy controls will impact the employer-employee relationship. According to Hill, these new privacy control measures could make it more difficult for employers who use Facebook to monitor their employees.
Robin Roberts, of the Startup Lawyer Blog, provides some guidance on how equity should be divided amongst co-founders of a startup company. The primary method described by Roberts is to base the equity split on an assessment of the past, current, and future contributions of each co-founder. Regardless of the method used, Roberts advises that co-founders make the equity-split determination quickly and that they consider vesting founders’ stock over a period of time.
Joshua Heslinga, of the Virginia IP Law Blog, writes that it makes good business sense to enforce your patents before they are reexamined by the United States Patent and Trademark Office (USPTO). As Heslinga notes, the timing of a reexamination decision (where a patent is reexamined by a patent examiner to verify a patent’s validity) can be a crucial determining factor in the outcome of a patent litigation case. If a reexamined patent is determined to be invalid, then that will almost certainly result in the dismissal of a pending patent infringement litigation action.
Joel Greenwald, of the Overtime Advisor Blog, details potential issues an employer may face for having employees work through lunch. According to Greenwald, employers that require "non-exempt" staff (e.g., receptionists, data entry clerks, administrative assistants, secretaries, billing clerks, customer service representatives, etc.) to work during their unpaid break time could face substantial liability under the Fair Labor Standards Act (FLSA). Under the FLSA, non-exempt employees must: (1) be paid for every hour they work; and (2) have all hours worked count towards their potential overtime pay. The website for the Virginia Department of Labor and Industry has a good FAQ section on wage payment issues in Virginia.
Michael Stocker, of the Eyes On Wall Street Blog, discusses a proposed bill by Senator Christopher J. Dodd (D-Conn.), Chairman of the Senate Banking Committee, that would overhaul the U.S. financial system. Senator Dodd’s financial reform plan bill would, among other things, consolidate bank regulators, create a consumer financial protection agency, and impose new restraints on exotic financial instruments and credit rating agencies.
In today’s knowledge economy, intellectual property (copyrights, patents, trademarks, trade secrets) can play a tremendous role in the success of a small or medium-sized business. By gaining a better understanding of trademarks, trade secrets, copyrights, and patents, and how they affect your business, you can effectively manage these tools and use them to your advantage.
Trademarks help you protect the name of your business, products and services. Perhaps the most important asset of any business is its name. Your business name and that of your products or services establish your reputation. Therefore, it is important to protect that name and reputation by applying for trademarks and registering them with the United States Patent and Trademark Office.
Trade secrets also play an important role in your business. Trade secrets include secret recipes, formulas, or manners in which you conduct your business. For someone owning a bakery or manufacturing a certain type of food, the recipe you use should be kept secret in order to ensure that no one can replicate your products. A trade secret can also be process that saves money over known processes.
Copyrights and patents generally relate to creations of the mind. Those in the service businesses will probably not require a patent or a copyright to do business, nor should they worry about the copyrights and patents of another. On the other hand, those who create or develop products for manufacture or sale will probably need to consider obtaining copyrights to protect their writings or other expressions of ideas and patents to protect and enforce their rights to manufacture, use or sell an improved product or service.
Let’s look at Richmond-based company, Reynolds Metals Company (recently acquired by ALCOA). The company, now commonly known for its food storage supplies and containers, was founded in 1919 by R.S. Reynolds, as tin foil supplier for cigarette and candy companies. Shortly after its creation, the company turned its sights towards using thin aluminum foil for food storage. By 1926, Reynolds Metals was producing the first high-speed, gravure-printed foil, aluminum bottle labels, heat-sealed foil bags for foods and foil-laminated building insulation paper. Since then, the company has invented countless food storage devices and has become a household name in America. It currently holds hundreds patents and has a plethora of trademarks and trade secrets. These patents, trademarks, and trade secrets protect Reynolds® brand innovations. Without doubt these patents, trademarks, and trade secrets have aided Reynolds in the success in establishing itself and positioning it among America’s successful companies.
No matter what product your business makes or service it provides, it is likely that your business is frequently using and creating a great deal of intellectual property. So, what is intellectual property? Intellectual property, sometimes referred to by its initials, IP, refers to creations of the human mind that are protected by one or both of state or federal law in a fashion similar to real property (land) or personal property (an automobile). Inventions, literary and artistic works, business secrets, and symbols, names, images, and designs used in commerce are all considered intellectual property. The four forms of intellectual property are patents, copyrights, trademarks and trade secrets.
- Patents provide the right to exclude others from making, using and selling or offering for sale an invention that has been patented.
- Copyrights protect an expression of an idea reduced to a tangible form. For example, a work of art, this blog on intellectual property, a statue or a photograph is protected by copyright.
- A trademark protects a product or service by its name in such a way as to avoid confusion in the marketplace of the source of the product or services.
- A trade secret refers to a secret that one might use in their trade or business but which would provide an unfair advantage to another if taken. An example is the process and formula for making a special soda beverage or a recipe for cookie dough.
These four components all make up what is known as intellectual property. The Constitution defines what may be protected by federal law, namely, patents, copyrights and trademarks. Trademarks may also be registered in a state and both trademarks and trade secrets are regulated by state law. One can only register a copyright or apply for a patent through the federal government and can only enforce their registered copyright or issued patent in federal court. Though it may seem abstract at times, it is important to note that intellectual property is just as valuable as tangible property and is regulated by the federal and governments in this manner.