The Ohio Supreme Court upheld the judgment, explaining that" "Information that constitutes a trade secret . . . does not lose its character as a trade secret if it has been memorized. It is the information that is protected by the UTSA, regardless of the manner, mode, or form in which it is stored -- whether on paper, in a computer, in one's memory, or in any other medium."

While it is premature to tell whether this case signals the beginning of a new nationwide trend, this decision should give companies pause regarding both: (a) what to do when they hire new employees from competing companies; and (b) what to do when prior employees leave to work for a competitor.

The North American Medical Court emphasized, however, that its finding of infringement was narrow and only applicable to the set of facts before them where a likelihood of source confusion was actually found.  In North American Medical, when consumers entered plaintiff’s trademarks into a search engine, the search engine results not only displayed defendant’s competing website, but they also included a brief description of defendant’s website, which description included and highlighted plaintiff’s trademarked terms, thereby suggesting a relationship between plaintiff and defendant.  Thus, the 11th Circuit apparently narrowed its holding from the Brookfield case, wherein the 9th Circuit found a likelihood of confusion even though there was no likelihood of source confusion.  Rather, the 9th Circuit believed that initial interest confusion could be found in the sense that, by using another’s trademark in metatags to divert people looking for the plaintiff’s website, the competitor improperly benefits from the good will that the plaintiff had developed in its mark.  With respect to keywords, the 9th Circuit has suggested a more narrow approach in the factual situation of consumers viewing an ad “clearly labeled” as an ad for the defendant, however, this factual situation has not yet come before the 9th Circuit.

Although the tests for determining whether a “likelihood of confusion” exists differ slightly among the circuits and depending whether the trademarks were used in metatags or keyword searches, the cases are becoming clearer that unless a litigation is brought in the 2nd Circuit, a company may be found liable for trademark infringement for using another’s trademarks in its metatags or in keyword searches.  Nevertheless, there remains a significant split among the circuits which must be considered when selecting a venue and which may one day require a Supreme Court decision to unify the Circuits.

The public has two potential options to avoid some of these construction delays. The first is the old, but expensive, standby of requesting "special handling" provided that the applicant has an articulable need for specific litigation or a genuinely urgent business reason such a closing a loan transaction. Such "special handling" usually yield a registration certificate in 5 to 10 business days. Unfortunately, the speed comes with a price tag. While the regular application costs $45, each and every "special" application costs a whopping $730. The second option is to be adventurous and try out the new electronic filing system. While some applicants may still find it difficult to use because of the nature of the registration and the required deposit (such as a 35mm motion picture print for a theatrically released feature film), others filing for works such as musical compositions and text-based works -- all of which are easily reducible to manageable electronic file formats -- should find the process relatively simple. The electronic process costs only $35 per application. Furthermore, anecdotal evidence suggests that an electronically filed copyright application will be processed relatively quickly with some applicants reporting the issuance of such electronic registrations within three to four weeks of filing.

If neither the special handling nor electronic option is viable, all other applicants will need the patience of a passenger in an airport or a driver stuck behind break lights in a construction zone while the Copyright Office completes its improvements for -- what appears to the casual observer -- the worse.

(2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

(3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that constitutes both mental and physical steps create patent-eligible subject matter?

(4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

(5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

On March 6, 2008, the Patent Office and Bilski’s attorneys filed their supplemental briefs pursuant to the court’s order.  The amici briefs should be filed by April 7, 2008.

Bilski’s Brief

Bilski’s rejected claim relates to “a method of managing the consumption risk costs associated with a commodity sold at a fixed price for a given period.”  In its supplemental brief, Bilski argued that the rejected claim sets forth patentable subject matter because it provides the “useful, concrete, and tangible result” of making “possible the sale, purchase and supply of commodities for a given period of time at a fixed price.”  This result, it argued, establishes that the claim does not cover an idea itself and is adapted and applied to a particular end use consistent with the requirements of the relevant Supreme Court decisions.

Bilski further argued that a process does not need to result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101.  Instead, it took the position that these tests merely inform the determination of whether the claimed subject matter skirts the prohibited categories of “laws of nature, natural phenomena, and abstract ideas” by demonstrating that a “useful, concrete, and tangible result” is derived from the process.

In addition, Bilski argued that State Street and AT&T should not be modified in any respect because they are based on the Patent Statute as properly interpreted in light of legislative history and the Supreme Court precedent.

The Patent Office’s Brief

In its supplemental brief, the Patent Office argued that Bilski’s rejected claim fails to recite patent-eligible subject matter under section 101 because (1) it is not machine-implemented, and it does not transform any article to a different state or thing, or (2) it constitutes a disembodied abstract idea.

In addition, the Patent Office urged the Federal Circuit to clarify the meaning of State Street and AT&T, which, it argued, have been read inconsistently with Supreme Court precedents.  More specifically, the Patent Office argued that State Street and AT&T have been misunderstood to mean that that any innovation with a beneficial effect is automatically patent-eligible.

Click here to view a PDF copy of the document.

Click here to view a PDF copy of the document.

Now that the Senate is in session in 2008, patent reform remains a topic of interest.  A draft committee report on S. 1145 has been circulated among the Senate, and been described as a "comprehensive and methodological report [] aimed at setting the stage for congressional action in the coming year."  The following bullet point list summarizes the key provisions to the amended Senate bill:

• change the U.S. patent system to a "first-inventor-to-file" system (it is currently first to invent);
• make it simpler for patent applicants to file and prosecute their applications;
• codify and clarify the standard for calculating reasonable royalty damage awards, as well as awards for willful infringement;
• create a relatively efficient and inexpensive administrative system for resolution of patent validity issues before the PTO;
• establish a Patent Trial and Appeal Board;
• provide for eventual publication of all applications and enhance the utility of third parties' submissions of relevant information regarding filed applications;
• improve venue in patent cases and provide for appeals of claim construction orders when warranted;
• give the PTO the ability to set its fees;
• authorize the PTO to require patent searches with explanations when a patent application is filed;
• codify and improve the doctrine of inequitable conduct;
• give the director of the PTO discretion to accept late filings in certain instances; and
• end diversion of PTO user fees to other government programs.

Whether patent reform will occur in 2008 remains a question to be answered only by legislative action.  Some are pessimistic that any patent reform legislation will pass before the November 2008 elections.  Importantly, the House bill only narrowly passed and the Senate bill is expected to be aggressively opposed by small vendors and labor unions, who will target lawmakers supporting the legislation during the 2008 elections.  Further, the Commerce Department, on behalf of the Bush administration, has taken issue with portions of the Senate bill, suggesting that further tinkering with the legislation will be necessary.

Sources:

Gross, Grant, "U.S. patent bill still faces obstacles," InfoWorld, Sept. 10, 2007.

Mossinghoff, Hon. Gerald J. and Kunin, Stephen G., "The Need for Consensus on Patent Reform," Feb. 1, 2008.

"Senate Judiciary Committee Draft Report Suggests Outline for Patent Reform in 2008," Patent, Trademark & Copyright Journal, v. 75, no. 1851 (Jan. 18, 2008).

"Commerce Official Says Bush Administration Opposes Patent Reform's Damages Provisions," Patent, Trademark & Copyright Journal, v. 75, no. 1854 (Feb. 8, 2008).

In 1988, the Court of Appeals for the Federal Circuit first set forth the following legal standard for holding an individual personally liable for inducing infringement: "[A] person infringes by actively and knowingly aiding and abetting another's direct infringement." Water Techs. Corp. v. Calco, Ltd., 850 F.2d 660, 668 (Fed. Cir. 1988) (emphasis in original); see 35 U.S.C. § 271(b).

The Water Techs. standard -- "actively and knowingly aiding and abetting another's direct infringement" -- contained a significant ambiguity. Must the patentee prove that the individual knew or should have known that his or her actions would induce an actual infringement by the company? Or does it suffice to show that the individual intended to cause the acts of the company that constituted direct infringement, regardless of whether the individual also knew or should have known that these acts would constitute direct infringement?

The Federal Circuit resolved this ambiguity in DSU Medical Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006). In DSU, the Federal Circuit held that "[t]he plaintiff has the burden of showing that the alleged infringer's actions induced infringing acts and that he knew or should have known his actions would induce actual infringements," 471 F.3d at 1304 (quotation omitted). In other words, the "alleged infringer must be shown ... to have knowingly induced infringement, not merely knowingly induced the acts that constitute direct infringement." Id. at 1305.

A year later, in Wechsler v. Macke International Trade, Inc., 486 F.3d 1286 (Fed. Cir. 2007), the Federal Circuit reaffirmed that "[u]nless the corporate structure is a sham, we have held that personal liability for inducement must be supported by personal culpability. ... This requires the officer to have possessed a specific intent to 'aid and 'abet' the infringement." Id. at 1292. Thus, there should be no personal liability if the only evidence is that the corporate officer was negligent in his or her reading of a patent. Id. Of course, the corporate officer's negligence can still get the company in hot water, and the line between negligence and intent can be hard to draw in certain cases.

Tips for protecting corporate officers and directors

The Wechsler and DSU cases present something of a dilemma for corporate officers and directors. On the one hand, an officer or director can try to shield him or herself from personal liability by avoiding knowledge of patents that might apply to the company's processes and products. On the other hand, sticking one's head in the sand leaves the company itself exposed to charges of patent infringement, and might not help the individual if it appears that he or she was trying willfully to remain ignorant of relevant patents. In addition, the officer or director must discharge his or her fiduciary duty to the company. In short, what is an officer or director to do?

The best course of action depends upon the individual situation of the officer or director, and of his or her company. However, as a general matter, an officer or director might establish a patent due diligence program, through which patent counsel regularly apprises the officer or director (or in-house counsel) of patents that might apply to the company's processes and products. Alternatively, the officer or director, in conjunction with patent counsel, might opt to perform individual infringement analyses as to processes and products as they are developed by the company. In some circumstances, the officer or director might decide simply to inform in-house or outside patent counsel as the officer or director learns about patents owned by competitors and other third parties, and let patent counsel analyze whether these patents pose a risk for the company -- either informally or by means of a formal opinion letter.

Regardless of whether the officer or director opts to establish a proactive patent due diligence program, the best practice is to have patents that raise concerns brought quickly to the attention of in-house or outside patent counsel. That way, an officer or director can best minimize the risk of exposure to patent infringement damages, both to the company and to the officer or director individually.

Published in the The Daily Transcript/San Diego Source, January 31, 2008

The New York State Court of Appeals concluded that while the "famous marks doctrine" itself is not recognized by New York law, New York law does provide protection to the owner of a famous mark by virtue of the owner's prior use of the mark in a foreign country under a theory of unfair competition through misappropriation.  The court held that "for certain kinds of businesses (particularly cachet goods/services with highly mobile clienteles), goodwill can, and does, cross state and national boundary lines."  Thus, "when a business, through renown in New York, possesses goodwill constituting property or a commercial advantage in this State, that goodwill is protected from misappropriation under New York unfair competition law.  This is so whether the business is domestic of foreign."  The New York State Court of Appeals also addressed the proof that would be necessary for plaintiff to sustain a claim for unfair competition in this situation.  Plaintiff "would have to show first, as an independent prerequisite, that defendants appropriated (i.e., deliberately copied), [plaintiff's] Bukhara mark or dress for their New York restaurants.  If they successfully make this showing, [plaintiff] would then have to establish that the relevant consumer market for New York's Bukhara restaurant primarily associates the Bukhara mark or dress with those Bukhara restaurants owned and operated by [plaintiff]."

It is somewhat ironic that to the extent the "famous marks doctrine" has been recognized by courts in the United States, two New York lower court decisions from the 1930's and 1950's are uniformly cited as foundational cases.  The New York's highest court, the Court of Appeals, has now held that these decisions do not rely on a new doctrine of law, but instead are conventional unfair competition through misappropriation cases.  In any event, it is now clear that at least in New York, the owners of a trademark, which although not used in New York, has developed goodwill in New York, may protect that mark from deliberate misappropriation under New York common law.  Decisions by New York courts in this area are often widely followed and respected throughout the United States.  Future cases will reveal how widely the reasoning of the New York State Court of Appeals' will be followed.  However, Asian companies should take heart that they may be able to protect their well known trademarks in the United States, even without registration or actual use in the United States.

Granting Boucher's motion to quash, the district court ruled that the government could not compel Boucher to provide the password, even if he merely typed it into the computer without disclosing the actual password to the government. The court found that the act of entering in a password and giving the government access to the drive was testimonial and therefore privileged. By entering the password, Boucher would be forced to disclose the fact that he knew the password and had control over the files on drive Z. In such a situation, Boucher faced the trilemma forbidden by the Fifth Amendment, incriminate himself, lie under oath, or find himself in contempt of court. While a defendant may be required to perform non-testimonial acts such as provide fingerprints, blood, or the sound of his voice, he cannot be required to display the contents of his mind. A password is not like a key but rather like the combination to a safe, which is in the defendant's mind and therefore beyond the reach of a grand jury subpoena.

The government has appealed the decision in part on the grounds that Boucher may have waived his Fifth Amendment by entering the password at the initial border inspection.

In October 2006, the Central District Court of California in the case U.S. v. Arnold ruled that the government's search of the defendant's laptop, hard drive, and storage devices at the Los Angeles International Airport violated the Fourth Amendment, because the search was not based on an articulable, reasonable suspicion. Unlike suitcases, the court concluded "electronic storage devices function as an extension of own memory. . . . Therefore, government intrusions into the mind--specifically those that would cause fear or apprehension in a reasonable person are no less deserving of Fourth Amendment scrutiny than intrusions that are physical in nature."

Other circuits disagree with the holding in Arnold, which is currently before the Ninth Circuit on appeal. But for now, it remains good law.

1.  In KSR, the Supreme Court lowered the bar for finding invalidity under the Section 103 obviousness standard.  One might say only half in jest that obviousness is now more obvious.  The Court eliminated what had been the Federal Circuit's absolute requirement that there be a teaching or suggestion or motivation to combine two references in the prior art prerequisite to finding obviousness based on the combination.  KSR Int'l. Co. v. Teleflex, Inc., 127 S.Ct. 1727 (2007).

2.  In Microsoft v. AT&T, the Supreme Court in declining to stamp Microsoft an infringer adopted a narrow interpretation of Section 271 (f).  The Court held that software copied outside the United States from a master disk shipped from the United States was not itself a component shipped from the United States within the meaning of Section 271 (f).  The copy of the master disk software was treated as a separate component from the original software.  Therefore, the copied software could be installed on computers overseas without implicating the U.S. patent at issue.  This further restricts the extraterritorial effect of U.S. patents.  Microsoft Corp. v. AT&T Corp., 127 U.S. 1746 (2007).

3.  In Medimmune, the Supreme Court held a patent licensee need not breach its license agreement in order to maintain a declaratory judgment suit for invalidity.  The Court found that a case or controversy existed even though Medimmune continued to pay royalties and could not be sued for infringement.  Thus, certain patent licensees may find it possible to contest the validity of the licensed patent while maintaining the protection afforded by the license agreement.  Moreover, based on the Court's reasoning, it is now generally more likely that a declaratory judgment suit can be brought and maintained.  Medimmune, Inc. v. Genentech, Inc., 127 U.S. 764 (2007).

The Federal Circuit also handed down several decisions which will no doubt prove helpful to accused infringers. 

1.  The Federal Circuit's decision in In re Seagate altered the test to be applied in determining willful infringement and the award of enhanced damages.  The new standard eliminated an individual's "affirmative duty to exercise due care to determine whether or not he is infringing."  Under the new standard a patent owner must prove by "clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent."  In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).

2.  The Federal Circuit in In re Nuijten and In re Comiskey found several types of claims unpatentable for failing to qualify as one of the four statutorily recognized categories of patentable subject matter under Section 101: a process, a machine, an article of manufacture or a composition of matter.  The court found claims directed to an electrical signal (In re Nuijten) and claims directed to an arbitration process implemented solely by a mental process (without any machine interface) to be unpatentable. These decisions will lead practitioners to once again consider raising Section 101 invalidity defenses, especially against so called business method patents.  As held in Comiskey, business methods "standing alone and untied to another category of statutory subject matter" do not pass the threshold test of patentability.  In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007) and In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007).

3.  The remedies available to a successful patent owner (and the ability of an adjudged infringer in certain circumstances to continue selling infringing product) continued to evolve in light of the 2006 decision in the eBay case in which the Supreme Court held that permanent injunctions should not automatically be entered against an infringer.  Instead the Supreme Court directed that courts use the traditional four factor test applied by courts of equity when considering whether to award permanent injunctive relief.  Where a permanent injunction is not issued the question naturally arises as to how the infringer's future sales should be treated.  The Federal Circuit addressed just this situation in the Toyota case.  In Toyota the Federal Circuit recognized the authority of a district court to impose continuing royalty obligations on an adjudged infringer for future sales of the infringing product in lieu of entering a permanent injunction.  eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 946 (2006) and Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed. Cir. 2007).

Even though we are only several weeks into 2008, it looks like this will be another exciting year in the continuing development of patent law.  We start off with quite a show this week.  The Supreme Court will hear oral argument in the Quanta Computer v. LG Electronics, Inc. case.  The decision later this year will (hopefully) clarify certain aspects of the one hundred year old doctrine of "patent exhaustion."  This will no doubt be one of the most significant patent decisions of 2008.

Happy New (Patent) Year

www.bankrupctylawblog.com