K&L IP News Archives - Page 2 of 3

‘Means’ Or Not ‘Means’, That Is The Question

Posted on November 1, 2015 by Kinney & Lange, P.A.

■ John D. Leighton

The presence or absence of the word “means” in a claim has long been accompanied by one of two comp-lementary presumptions. Using the word “means” in a claim element creates a rebuttable presumption that §112, para. 6 applies and means-plus-function claiming occurs. Conversely, failure to use the word ‘means’ also creates a rebuttable presumption — this time that §112, para. 6 does not apply. Since 2004, however, these presumptions have been asymmetric ones. The Federal Circuit first established this asymmetry with the Lighting World, Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354, 1358 (Fed. Cir. 2004) decision, which established that “the presumption flowing from the absence of the term ‘means’ is a strong one that is not readily overcome.” (Emphasis added).

The Federal Circuit has recently returned symmetry to these complementary presumptions. The Federal Circuit stated in Williamson v. Citrix Online, LLC., No. 13-1130, 15 (Fed. Cir. 2015) that “Henceforth, we will apply the presumption as we have done prior to Lighting World, without requiring any heightened evidentiary showing and expressly overrule the characterization of that presumption as ‘strong.’”

Background and Procedural History:

In 2011, Williamson filed suit in the United States District Court of California against Citrix Online, et al., for infringement of Williamson’s U.S. Patent No. 6,155,840. “The ‘840 patent describes methods and systems for ‘distributed learning’ that utilize industry standard computer hardware and software linked by a network to provide a classroom or auditorium-like metaphor – i.e., a ‘virtual classroom’ environment.” On September 4, 2012, the district court issued a claim construction order, concluding, inter alia, that the “distributed learning control module” limitation of claim 8 was a means-plus-function term under 35 U.S.C. §112, para. 6. Williamson appealed the district court’s construction of this term. Williamson argued “that the district court failed to give appropriate weight to the ‘strong’ presumption against means-plus-function claiming that attaches to claim terms that do not recite the words ‘means.’”

Williamson v. Citrix Online, LLC:

To overcome the presumption that a “means”-less limitation is not a means-plus-function element, either: i) the claim term must fail to recite sufficiently definite structure; or ii) the claim term must recite function without reciting sufficient structure for performing that function.

The Federal Circuit then turned its attention to the claim limitation in dispute, which recites:

A distributed learning control module

1) for receiving communications transmitted between the presenter and the audience member computer systems and

2) for relaying the communications to an intended receiving computer system and

3) for coordinating the operation of the streaming data module

The court observed that the claim limitation in dispute is in a format consistent with traditional means-plus-function claim limitations. The term “module” replaces the tradition means-plus-function flag term – “means” – and then recites three functions performed by the “distributed learning control module.”

i) Does the claim term recite sufficient definite structure?

The court then observed that the term “module” is a well-known nonce word that can operate as a substitute for “means” in the context of §112, para. 6. Generic terms such as “module,” “mechanism,” “element,” “device,” etc., typically do not connote sufficiently definite structure, by themselves, to remove a claim limitation from the reach of §112, para. 6 claim construction. The court next held that the prefix “distributed learning control” does not impart structure into the term “module.” To determine this, the court construed the prefix in view of the specification. Although “distributed learning control module” is described in the written description, such descriptions failed to impart any structural significance to the term. Furthermore, the court found nothing in the prosecution history that could lead it to construe the expression as something with “sufficient definite structure as to take the overall claim limitation out of the ambit of §112, para. 6.”

ii) Does the claim term recite function without reciting sufficient structure for performing that function?

Although the court conceded that portions of the disputed limitation do describe certain inputs and outputs at a very high level (e.g., communications between the presenter and the audience member computer systems), the claim does not describe how such the recited functions operate “in a way that might inform the structural character of the limitation-in-question or otherwise impart structure.” Williamson attempted to rescue the sought-for structure by pointing to figures of the specification. But the only figures provided therein were exemplary display interfaces and were not considered disclosures of the algorithm corresponding to the claimed function.

Takeaways:

First takeaway: There is now a heightened risk when claiming elements functionally, that a future court may construe the claims according to §112(f), formerly §112, para. 6. Simply omitting the word “means” may not be enough to avoid a §112(f) construction.

Second takeaway: The court gave a test for attorneys to use to evaluate if a claim term is a “nonce” word. The court articulated the test as follows: “Here, the word [insert test word] does not provide any indication of structure because it sets forth the same black box recitation of structure for providing the same specified function as if the term ‘means’ had been used.”

Third takeaway: The written description must disclose sufficient structure for every claim element recited. Disclosed structure is required: i) to rescue a limitation from the reach of §112(f), if so desired, and ii) in construing a §112(f) means-plus-function element, regardless of whether the limitation was intended to be construed so. The court summarized its §112(f) construction requirement “that the specification [must] disclose an algorithm for performing the claimed function.”

Ex parte Kenichi Miyazaki:

The Williamson decision is further illuminated by the Ex parte Miyazaki, 89 U.S.P.Q.2d 1207 (BPAI 2008), decision of the USPTO Board of Patent Appeals and Interferences (BPAI). In Miyazaki, the BPAI grappled with the proper construction of a claim limitation that “is a purely functional recitation with no limitation of structure.” The BPAI noted that “’purely functional claim language’ is … permissible but only under the conditions of 35 U.S.C. § 112, sixth paragraph.” (emphasis added). “[A]ny claim that includes purely functional claim language, and which is not subject to the limited construction under 35 U.S.C. § 112, sixth paragraph, fails to meet the requirements of 35 U.S.C. 112, first paragraph [].”

The BPAI then articulated some concerns addressed by these rules of construction. One concern related to the Williamson decision “is that such unlimited purely functional claiming may reasonably be construed to encompass any and all structures for performing the recited function, including those which are not what the applicant invented.” The USPTO’s main concern is simply “to guard the public against patents of ambiguous and vague scope. Such patents exact a cost on society due to their ambiguity that is not commensurate with the benefit that the public gains from disclosure of the invention.”

In addition to the two above articulated reasons that structure must be disclosed, disclosed structure is also required: iii) to rescue a non-§112(f) limitation from a §112(a) rejection which would automatically attach to non-§112(f) limitations that are purely functional.

The Federal Circuit’s Second En Banc Decision In Akamai Technologies v. Limelight Networks

Posted on November 1, 2015 by Kinney & Lange, P.A.

■ John P. Fandrey

In August of 2015, the Federal Circuit Court of Appeals issued its second en banc decision in Akamai Techs., Inc., v. Limelight Networks, Inc., Nos. 2009-1372, 2009-1380, 2009-1416, 2009-1417 (Fed. Cir., August 13, 2015), a case which began in 2006. The underlying issue is whether there is liability for so-called “divided” or “split” infringement involving multiple actors. The Federal Circuit explained that in patent infringement cases the acts of one actor may be attributed to another where the other “conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.” This test is in addition to the agency relationships, contractual relationships, and joint enterprises that may give rise to direct infringement attributable to a single entity. Despite Akamai’s long procedural history, the Supreme Court’s 2014 opinion and the Federal Circuit’s most recent en banc decision provide two straightforward propositions. First, the Supreme Court has stated that a party cannot be liable for induced infringement where no direct infringement has occurred. Second, the Federal Circuit has expanded the scope of what constitutes direct infringement, holding that where “more than one actor is involved in practicing the steps [of a claimed method], a court must determine whether the acts of one are attributable to [another] such that a single entity is responsible for the infringement.”

Procedural History:

In 2006, Akamai Technologies sued Limelight Networks for infringement of three of Akamai’s patents, U.S. Patent No. 6,108,703, U.S. Patent No. 6,553,413, and U.S. Patent No. 7,103,645. Akamai Techs. Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1316 (Fed. Cir. 2011). Akamai’s patents claim methods for serving web page content over the internet. A jury found that Limelight infringed Akamai’s 6,108,703 patent and awarded over $40 million to Akamai. Akamai Techs. Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1316 (Fed. Cir. 2011). Akamai proceeded on a theory of joint liability because the defendant, Limelight, did not perform all the steps of the asserted claims itself. Instead, Limelight’s customers performed a step known as tagging. The jury was instructed that Limelight could only be found liable if the jury found that Limelight’s customers were acting under Limelight’s direction and control.

Limelight moved for judgment as a matter of law after the jury returned its verdict. At first, the district court denied the motion. However, shortly after the jury returned its verdict the Federal Circuit Court of Appeals issued its decision in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). Limelight then moved for reconsideration and the district court granted Limelight’s motion finding that Limelight did not infringe Akamai’s patents. On appeal, the Federal Circuit affirmed the district court’s finding of noninfringement citing its decision in Muniauction for the proposition that there can be no infringement unless every step of a patented process is carried out under the control or direction of one party.

The Federal Circuit reheard the case en banc and reversed the district court. Akamai Techs. Inc. v. Limelight Networks, Inc., 629 F.3d 1301 (Fed. Cir. 2012); See also Katherine J. Rahlin, Induced Infringement Broadened, K&L IP News™ (Winter 2012). The Federal Circuit explained that the trial court was correct in its holding that Limelight did not directly infringe Akamai’s patent because it did not direct and control the actions of content providers. However, the Federal Circuit reversed and remanded because it believed Limelight could be liable for inducing infringement.

The United States Supreme Court granted certiorari on the question of “whether a defendant may be liable for inducing infringement of a patent under 35 U.S.C. §271(b) when no one has directly infringed the patent under §271(a) or any other statutory provision.” The Supreme Court, citingAro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336, 341 (1961), provided that one cannot be liable for inducement if there has been no direct infringement. Limelight Networks, Inc. v. Akamai Techs., No. 12-786 (United States Supreme Court, June 2, 2014). The Court also stated that “[a] method patent claims a number of steps; under this Court’s case law, the patent is not infringed unless all the steps are carried out.”

On remand a three judge panel of the Federal Circuit affirmed the district court’s finding of non-infringement. Akamai Techs. Inc. v. Limelight Networks, Inc., 786 F.3d 899 (Fed. Cir. 2015). The panel, with one judge dissenting, held that Akamai did not show that the allegedly infringing activities of Limelight’s customers could be attributed to Limelight. The panel relied on the fact that Akamai did not show that Limelight’s customers were Limelight’s agents, that they were contractually obligated to Limelight or that they were acting in a joint enterprise with Limelight.

2015 En Banc Decision:

The Federal Circuit granted rehearing en banc and ultimately reversed the district court, holding that the jury had substantial evidence upon which to base its verdict of infringement. Akamai Techs. Inc. v. Limelight Networks, Inc., Nos. 2009-1372, 2009-1380, 2009-1416, 2009-1417 (Fed. Cir. August 13, 2015).

The Federal Circuit stated that in a case of divided infringement “a court must determine whether the acts of one entity or party are attributable to another such that a single entity is responsible for the infringement.”

The Court explained that in applying the direction or control test it continues to consider general principles of vicarious liability, such as agency, contractual relationships and joint enterprises. Direction or control will be found if there is an agency relationship or one party contracts with another to perform one or more steps of a claimed method. However, the Court added that liability can also be found when a party “conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance. In those instances, the third party’s actions are attributed to the alleged infringer such that the alleged infringer becomes the single actor chargeable with direct infringement.”

In supporting this rule, the court cited Metro-Goldwyn-Mayer Studios, Inc. v. Grokster. 545 U.S. 913 (2005). In Grokster, the Supreme Court found that distributors of software could be held liable for inducing copyright infringement where the distributors knew their software was primarily used for copyright infringement and the distributors encouraged such use.

In applying the test above the Federal Circuit, in Akamai, focused on several facts to find that the jury had substantial evidence to support a finding that performance of the claimed steps was a condition to participating in Limelight’s service. Specifically, Limelight’s contract with its customers outlined the steps that customers had to perform in order to use the service. Limelight’s contract also required that customers provide Limelight with all the “cooperation and information reasonably necessary” for Limelight to implement its service. The court also found that there was substantial evidence to support a finding that the timing or manner of performance was established by Limelight. Here the court highlighted: Limelight’s assignment of a technical account manager to each customer to implement Limelight’s service; Limelight providing a hostname for customers to integrate into their webpages; and Limelight’s engineers assisting with installation and performing quality assurance testing.

Implications:

It’s easy to see that some method claims provided little protection to patentees. Prior to the Federal Circuit’s most recent Akamai decision, a would-be infringer could avoid infringement liability by doing two things: 1) allowing a third party to practice some of the steps of a claimed method while 2) avoiding creating an agency relationship, a contractual relationship, or a joint enterprise with the third party.

The most recent Akamai decision may strengthen some patents that were not previously seen as being infringed by the acts of single entities or persons. This is because the decision adds to the list of ways to establish liability for direct infringement when the alleged infringement involves more than one actor. In its second en banc opinion the Federal Circuit provided that “a court must determine whether the acts of one are attributable to [another] such that a single entity is responsible for the infringement.” In addition to the traditional tests of vicarious liability such as, agency and contractual relationships, now an entity that “conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and [establishes] the manner or timing of that performance” may be liable for direct infringement.

Akamai may strengthen some method claims. However, attorneys drafting claims should always try to structure the claims so that only one actor’s conduct will be needed to establish direct infringement. This may not always be possible. If the claims involve computer networks this may be extremely difficult. This is because of the ease with which the steps can be distributed among different actors.

SUPREME COURT RULES TRADEMARK TACKING IS A QUESTION FOR THE JURY

Posted on May 1, 2015 by Kinney & Lange, P.A.

■ Andrew R. Swanson

In Hana Financial, Inc. v. Hana Bank, 135 S.Ct. 907 (2015), a unanimous Supreme Court held that the determination of whether two trademarks may be “tacked” for the purpose of determining priority is a question for the jury. Prior to Hana, circuit courts were split as to whether tacking was a question of law for the judge, or a question of fact for the jury. While the Court determined that the jury is in the best position to determine if the tacking doctrine applies, the Court did leave open the judge’s ability to determine the tacking issue at various points during litigation, such as on summary judgment or motions for judgment as a matter of law.

The rights to a trademark are determined based on the mark’s use in commerce. While the first date of use in commerce establishes the priority date of a mark, a party may sometimes clothe a new mark with the priority granted to an old mark. Clothing the new mark with the old mark’s priority is known as “tacking.” The tacking doctrine evolved to allow trademark users to make slight, insubstantial changes to an existing mark without risking the loss of an established priority date. Tacking is available in very limited circumstances, where the new mark is considered to be the “legal equivalent” of the original mark. To be legal equivalents, trademarks must “create the same, continuing commercial impression,” such that an ordinary consumer would consider the old mark and the new mark as the same mark.

While tacking is generally available to allow a new mark to claim an earlier priority date, courts apply tacking in “exceptionally narrow circumstances.” As such, the tacking doctrine is an exceedingly narrow doctrine, such that even the use of a mark that contains portions of the earlier mark may not qualify for tacking. It is not the similarity of the old mark and the new mark when viewed in the abstract that determines whether the new mark is entitled to the priority date of the old mark; instead, it is the impression that the mark creates within the ordinary consumer that controls. For example, in One Industries, LLC v. Jim O’Neal Distributing, 578 F.3d 1154, 1161 (9th Cir. 2009), the Ninth Circuit compared a “Rounded O’” graphical mark, shown below on the left, with an “Angular O’” graphical mark, shown below on the right, to determine if the “Angular O’” could tack to the earlier priority date of the “Rounded O’”.

In comparing the two marks, the Ninth Circuit noted thinner top and bottom lines on one “O” versus the other, the visual differences between the two apostrophes, and that one “O” was boxy while the other “looks like the outline of a lemon.” These differences led the Ninth Circuit to refuse to allow tacking between the “Angular O’” and the “Rounded O’” marks. Similarly, the Federal Circuit refused to allow the word mark CLOTHES THAT WORK to obtain the priority date of the earlier word mark CLOTHES THAT WORK. FOR THE WORK YOU DO, even though the later mark was simply a shortened version of the earlier mark. Van Dyne-Crotty, Inc. v. Wear-Guard Corp., 926 F.2d 1156 (Fed. Cir. 1991). There, the Federal Circuit determined tacking as a matter of law, and the court concluded that the two marks were not legal equivalents because the two did not create the same commercial impression. However, the Federal Circuit decision shows the difficulty involved when determining tacking as a matter of law, because it is unclear how or why the two phrases would evoke differing commercial impressions when viewed by the ordinary consumer in the context that trademarks are generally viewed.

In Hana, Hana Financial, Inc. (HFI) sued Hana Bank for infringement of the HFI registered mark, a pyramid logo with the words HANA FINANCIAL, when Hana Bank used the mark HANA BANK. Hana Bank was established in 1971 in Korea, and the evolution of the allegedly infringing HANA BANK mark began when Hana Bank started using the name “Hana Bank” in Korea in 1991. Hana Bank did not begin providing financial services in the United States until May 1994, when it specifically targeted those services at Korean expatriates under the name “Hana Overseas Korean Club.” Hana Bank began using the name “Hana Bank” in advertisements in the United States in 1994, though the advertisements contained the name “Hana Overseas Korean Club” in both English and Korean and contained the name “Hana Bank” in only Korean. In 2000, Hana Bank then changed the name of its overseas club to “Hana World Center.” In 2002, Hana Bank began operating a bank in the United States using the name Hana Bank. HFI was established in June 1994 in California, and began using the name “Hana Financial” in commerce in 1995. HFI obtained a federal trademark registration for a pyramid logo with the words HANA FINANCIAL in 1996. HFI sued Hana Bank for trademark infringement in 2007, alleging infringement of the HANA FINANCIAL mark. As such, to prevail on its tacking claim, Hana Bank needed to establish a pre-1995 priority date for a mark that Hana Bank did not begin using until 2002. To establish that the two marks are “legal equivalents,” Hana Bank needed to prove that the later mark, HANA BANK, created the same, continuing commercial impression as the earlier mark, HANA OVERSEAS KOREAN CLUB, such that “consumers ‘consider both as the same mark.’”

After a jury trial in the district court, the jury found that Hana Bank’s use of HANA BANK was the legal equivalent of marks that it was using continuously since a time prior to HFI’s first use in 1995. As such, Hana Bank’s use of the HANA BANK mark was found to be non-infringing. It thus appears that the jury considered the use of “Hana” as the most relevant portion of the mark, and that Hana Bank’s continuous use of that term, which actually translates to “‘number one,’ ‘first,’ ‘top,’ or ‘unity,’” in Korean, created the same impression in consumers regardless of whether it was followed by “Overseas Korean Club” or “Bank.”

HFI put forth four arguments as to why the Court should find that a determination of tacking is a legal, and not a factual, determination. First, HFI argued that the tacking standard requires legal equivalency, which necessarily involves the application of a legal standard. While the Court acknowledged

“Application of a test that relies upon an ordinary consumer’s understanding of the impression that a mark conveys falls comfortably within the ken of a jury.”

that the tacking doctrine requires the application of a legal standard, the Court viewed the tacking test as a “mixed question of law and fact,” of the kind typically decided by juries.

Second, HFI argued that tacking determinations necessarily create new law, the creation of which is reserved for judges, not juries. In a related third argument, HFI argued that leaving tacking determinations to the jury will undermine the trademark system by removing predictability. The Court dismissed both of these arguments by analogizing trademarks to torts, contracts, criminal, and various other areas of the law where juries may reach differing decisions based on similar facts. Interestingly, the Court noted that tacking cases are rarely decided based upon similar legal precedent, and that precedent is usually relied upon only to define the relevant legal standard. Instead, the facts of each particular case, and the commercial impression created by the marks, are determinative. Thus, even if there is a previous case where two marks that seem similar in the abstract were found not to tack, that has no bearing on the relatedness of the marks at issue in any other case.

Two trademarks cannot be assessed in a vacuum when making a tacking determination

Finally, HFI argued that judges have historically resolved tacking issues. However, the precedent relied upon by HFI involved tacking disputes resolved by bench trials or on summary judgment, and was thus unpersuasive. The Court did state that though tacking is a question for the jury, judges do have the power to resolve tacking issues when the facts “warrant entry of summary judgment or judgment as a matter of law.” Therefore, a litigant that wishes to keep the tacking determination from the jury may still do so; however, such opportunities are limited.

Two trademarks cannot be assessed in a vacuum when making a tacking determination. No matter how similar the two marks look or sound, it is the overall commercial impression made upon the consumer that determines whether tacking applies. The Supreme Court’s decision in Hana Bank has placed any trademark tacking determination squarely in the hands of the jury, except in those instances where the issue is so clear that summary judgment or judgment as a matter of law is warranted. Hana Bank confirmed the majority interpretation of trademark tacking as a question for the jury. The Supreme Court also confirmed that each trademark tacking inquiry is highly fact-sensitive and regardless of the similarity or difference of the two marks when viewed in the abstract, whether tacking applies depends upon the commercial impression both marks have on an ordinary consumer.

B&B HARDWARE: TTAB PROCEEDINGS CAN CREATE ISSUE PRECLUSION

Posted on May 1, 2015 by Kinney & Lange, P.A.

■ Andrew W. Werner

On March 24, 2015 the U.S. Supreme Court decided in B&B Hardware, Inc. v. Hargis Industries, Inc., 575 U.S. ___ (2015); holding that when trademark usages adjudicated by the Trademark Trial and Appeal Board (“TTAB”) are materially the same as those before a district court, issue preclusion should apply so long as the other ordinary elements of issue preclusion are met.

B&B Hardware stems from a 1996 trademark registration by Hargis Industries, Inc. (“Hargis”) for the SEALTITE mark for “self-piercing and self-drilling metal screws for use in the manufacture of metal and post-frame buildings.” B&B Hardware, Inc. (“B&B”) filed an opposition at the TTAB in response to Hargis’s registration of SEALTITE, due to B&B’s 1993 registration of the mark SEALTIGHT for “threaded or unthreaded metal fasteners and other related hardwar[e]; namely, self-sealing nuts, bolts, screws, rivets and washers, all having a captive o-ring, for use in the aerospace industry.” In its opposition, B&B argued that the SEALTITE mark could not be registered

The TTAB determined there was a likelihood of confusion between the SEALTITE mark and the SEALTIGHT mark

because it is confusingly similar to B&B’s SEALTIGHT mark given both companies have an online presence, the largest distributor of fasteners sells both companies’ products, and consumers sometimes call the wrong company to place orders. Hargis contended that Hargis and B&B sell different products, for different uses, to different types of consumers, through different channels of trade. The TTAB determined that the SEALTITE mark could not be registered because it so resembled the SEALTIGHT mark as to be likely to cause confusion, after concluding that the most critical factors in a likelihood of confusion analysis were the similarities of the marks and the similarity of the goods.

In a concurrent suit for trademark infringement, B&B argued to the District Court that Hargis could not contest likelihood of confusion following the TTAB’s decision because of the preclusive effect of the TTAB decision. The District Court disagreed with B&B, reasoning that the TTAB is not an Article III court. The jury returned a verdict for Hargis, finding no likelihood of confusion. Upon appeal to the Eighth Circuit, the District Court’s decision was affirmed for three reasons: first, because the TTAB uses different factors than the Eighth Circuit to evaluate likelihood of confusion; second, because the TTAB placed too much emphasis on the appearance and sound of the two marks; and third, because Hargis bore the burden of persuasion before the TTAB, while B&B bore it before the District Court.

The three issues before the U.S. Supreme Court were:

(1) whether an agency decision can ever ground issue preclusion;
(2) whether there is an “evident” reason why Congress would not want TTAB decisions to receive preclusive effect, even in those cases in which the ordinary elements of issue preclusion are met; and
(3) whether there is a categorical reason why registration decisions can never meet the ordinary elements of issue preclusion.

Agency Decisions & Issue Preclusion
Relying on Astoria Federal Savings & Loan Association v. Solimino, 501 U. S. 104 (1991) and United States v. Utah Construction & Mining Co., 384 U. S. 394, 422 (1966), the Court reasoned that where a single issue is before a court and an administrative agency, preclusion often applies. Proclaiming the common law principle of issue preclusion as “well established”, the Court stated “in those situations in which Congress has authorized agencies to resolve disputes, ‘courts may take it as given that Congress has legislated with the expectation that the principle [of issue preclusion] will apply except when a statutory purpose to the contrary is evident.’” The Court then relied on previous holdings where courts have not hesitated to apply res judicata in situations “[w]hen an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate[.]”

Agency decisions can ground issue preclusion for future Article III determinations when the parties have had an adequate opportunity to litigate

In so reasoning, the Court determined that an agency decision, such as from the TTAB, can ground issue preclusion for future Article III determinations.

“Evident” Congressional Reason for TTAB Non-Preclusion
The Court pointed out that trademark registration is not a prerequisite to an infringement action but is rather a separate proceeding to decide separate rights. In the instance of where exhausting an administrative process is a prerequisite to a suit in court, giving preclusive effect to the agency’s determination in that very administrative process could render the judicial suit “strictly pro forma” and thus issue preclusion could not be grounded. This however was not the instance in this case. Additionally, the Court relied upon

“We conclude that nothing in the Lanham Act bars the application of issue preclusion in such cases. The Lanham Act’s text certainly does not forbid issue preclusion. Nor does the Act’s structure.”

ordinary preclusion law (citing Restatement (Second) of Judgments §28, Comment a and Illustration 1) to assert that if a party to a court proceeding does not challenge an adverse decision, that decision can have preclusive effect in other cases, even if it would have been reviewed de novo. The Court concluded that neither the Lanham Act’s test nor its structure rebuts the “presumption” in favor of giving preclusive effect to TTAB decisions where the ordinary elements of issue preclusion are met.

Categorical Preclusion of Registration Decisions
The Court asserted that it does not matter that the statutory provisions and the factors used to assess likelihood of confusion are different as between trademark registration and trademark infringement. The Court determined the Eighth Circuit had erred in holding that issue preclusion could not apply due to the TTAB relying too heavily on “appearance and sound.” The fact that the TTAB may have erred in placing too much emphasis on certain factors in this instance does not necessarily prevent preclusion in all instances.

Next, the Court reasoned that although the TTAB and the district courts often use different procedures, procedural differences by themselves do not defeat issue preclusion. Instead of focusing on whether procedural differences exist, the Court focused on whether the procedures

Procedural differences themselves do not defeat issue preclusion

used in the first proceeding were fundamentally poor, cursory, or unfair. The Court determined there was no categorical reason to doubt the quality, extensiveness, or fairness of the TTAB’s procedures in part because they are exactly the same as in federal court, given the TTAB has adopted almost all of Federal Rule of Civil Procedure 26. Additionally, the Court asserted the ordinary law of issue preclusion already accounts for those “rare” cases where a “compelling showing of unfairness” can be made. The Court then closed by stating that “Congress’ creation of this elaborate [trademark] registration scheme, with so many important rights attached and backed up by plenary review, confirms that registration decisions can be weighty enough to ground issue preclusion.”

Trends
With the holding in this case, it is interesting to compare the Court’s trademark usage centric analysis with Fresenius USA v. Baxter Int’l, No. 2012-1334 (Fed. Cir. July 2, 2013), which considered a similar issue with respect to patent invalidity in reexamination proceedings. In Fresenius, the Federal Circuit ruled that a USPTO decision of invalidity in reexamination prevails over a prior, Federal Circuit affirmed, jury decision of validity and infringement of the same claims in view of the same prior art. With the preclusive effect of TTAB decisions, the IP community has generally received yet another indication of incentivizing the use of administrative procedures to determine who wins and who loses.

FTC REACHES SETTLEMENT WITH MPHJ

Posted on November 1, 2014 by Kinney & Lange, P.A.

■ Nicholas J. Peterka

On November 6, the Federal Trade Commission and MPHJ Technology Investments LLC agreed to settle FTC charges alleging MPHJ used deceptive practices and phony legal threats. The settlement prevents MPHJ and its law firm, Farney Daniels, P.C., from making deceptive representations when asserting its patent rights, with further deceptive conduct bringing with it a penalty of up to $16,000 per misrepresentation.

The settlement comes on the heels of a September ruling by the U.S. District Court for the Eastern District of Texas to dismiss a suit filed by MPHJ against the FTC. The suit, which was filed in January 2014, was an attempt to stop the FTC’s investigation into MPHJ for allegedly sending deceptive demand letters to potential infringers.

The FTC is investigating deceptive representations from patent assertion

MPHJ owns at least five patents related to networked computer scanning programs, also known as “scan-to-email” programs, which it acquired in 2012. Since then, MPHJ has sent at least 16,000 demand letters to potential infringers, mostly small businesses, threatening litigation if the potential infringers did not sign license agreements and pay licensing fees. This caused several state attorneys general to investigate and file actions against MPHJ under their consumer protection laws, alleging that statements made by MPHJ in the demand letters were false.

The FTC, the agency tasked with investigating and policing unfair or deceptive acts or practices affecting interstate commerce, began its own investigation into MPHJ last year. The FTC alleged that the demand letters sent by MPHJ stated that MPHJ would take imminent patent infringement litigation against any potential infringer when MPHJ did not intend to take action and did not take such action. Further, the FTC alleged that MPHJ falsely represented that substantial numbers of businesses have responded to MPHJ’s demand letters by purchasing licenses when, at the time of at least some of the representations, MPHJ had not sold any licenses to potential infringers. As part of this investigation, the FTC sent MPHJ a draft complaint it intended to file if a settlement between the FTC and MPHJ was not reached, but the FTC had not initiated any legal action at the time MPHJ filed suit.

In its suit, MPHJ asserted that the FTC investigation was in violation of MPHJ’s First Amendment rights. The suit alleged that the FTC unlawfully interfered with MPHJ’s lawful, proper, and constitutionally protected efforts to identify and seek redress for infringement of its patents. MPHJ asserted that the FTC violated MPHJ’s First Amendment right to petition the government for redress under the Noerr-Pennington doctrine and its First Amendment right to free speech. In dismissing the case, District Judge Walter Smith found that MPHJ’s suit lacked subject matter jurisdiction and was an attempt by MPHJ to derail the not-yet-completed FTC administrative process.

This settlement is the first time the FTC has taken action under its consumer protection authority against an alleged “patent troll”.