March 2011

From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH and Aspen Publishers intellectual property and computer law publications.

If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to john.arden@wolterskluwer.com.



Presidential Order Creates IP Advisory Enforcement Committees

President Barack Obama signed an Executive Order in February establishing intellectual property enforcement advisory committees pursuant to the Prioritizing Resources and Organization for Intellectual Property Act of 2008 (PRO-IP Act). The PRO-IP Act was designed to enhance remedies for violations of intellectual property laws and created a "coordinator" or "Intellectual Property Czar" in the White House to enforce federal anti-piracy laws and protect intellectual property owners’ rights in the U.S. and abroad. Victoria A. Espinel, Intellectual Property Enforcement Coordinator, will chair two enforcement advisory committees.


Registration Established Presumption of Ownership

A district court erroneously ruled that a fabric designer failed to establish ownership and, therefore, lacked standing to pursue an infringement claim against a clothing retailer, the U.S. Court of Appeals in San Francisco has held.

The designer purchased a fabric design from an Italian firm, modified the design, and registered it as a part of a collection of designs. The designer alleged that the clothing retailer’s fabric and garments infringed its copyrighted designs. The district court held that evidence of the transfer of the source artwork from the Italian design house to the designer was insufficient to establish ownership of the underlying design and dismissed the action.

Under Sec. 410(c), of the Copyright Act, a copyright registration is prima facie evidence of validity of the copyright and the facts stated in the certificate. An accused infringer bears the burden of rebutting the facts set forth in the copyright certificate. Although the retailer argued that the designer failed to establish the chain of title to the underlying artwork, it did not set forth facts that rebutted the presumption of validity to which the designer's copyright was entitled.

The district court ignored the statutory presumption of validity when it reasoned that the burden to show standing was an indispensable part of the designer's case. There was no authority stating that the presumption of validity of a copyright does not apply when standing is at issue (United Fabrics International, Inc. v. C&J Wear, Inc., 9thCir, CCH Copyright Law Decisions ¶30,031; IntelliConnect User Link).


Action Based on Time-Barred Ownership Claim Dismissed

A book editor's copyright infringement action against a publisher was barred by the Copyright Act's three-year statute of limitations, the U.S. Court of Appeals in New York has determined. Accordingly, summary judgment in favor of the book publisher was affirmed.

The book editor entered an agreement with the publisher to edit a book on the use of the Internet. She was to be given a credit or byline on the title page as editor. Feeling that she had actually "ghostwritten the book," the editor sought more credit. After the publisher stopped paying her royalties, she filed the copyright infringement lawsuit.

The core issue of the editor's copyright claim was ownership, not infringement, as it involved who wrote the book in the first place. Therefore, the statute of limitations began to run when the editor first knew the publisher disputed her claim of rights to the book. The editor knew that the publisher disputed her rights in the book no later than 1999, when the first edition of the book was published without listing her as an author. Because she did not file suit until December 2004, any ownership claim relating to the book was untimely (Kwan v. Schlein, 2ndCir, CCH Copyright Law Decision ¶30,032; IntelliConnect User Link).


Rights Conveyed by License Insufficient to Establish Exclusivity

As a non-exclusive licensee, an information management company with a license to use insurance processing software did not have the kind of interest in the software that entitled it to sue insurance companies for copyright infringement, the U.S. Court of Appeals in Chicago has ruled. Therefore, it could not sue insurance companies that also had a license to use the software. Accordingly, a district court's dismissal of the management company's infringement claim was affirmed.

Under Sec. 501(b) of the Copyright Act, only "the legal or beneficial owner of an exclusive right under a copyright" is entitled to bring an action for infringement.  The fact that the license agreement used the term "exclusive license" was not dispositive. The management company's license agreement provided that it could not rent, sell, lease, transfer, or sublicense the software, and that all right, title, and interest in and to the software would remain the exclusive property of the software owner. The owner did not convey enough rights to the management company to make it "the legal or beneficial owner of an exclusive right" under the Copyright Act.

As prevailing parties, the insurance companies were entitled to an award of attorneys' fees under the Copyright Act. The management company's suit was filed in good faith and had some merit. However, the defendants did a good job of litigating the case and were entitled to prevail (HyperQuest, Inc. N'Site Solutions, Inc., 7thCir, CCH Copyright Law Decision ¶30,037; IntelliConnect user Link).



Pocket Stitching Mark Could Dilute Without Being Identical

It was error for a district court to apply an “identical or nearly identical” standard to a claim by apparel maker Levi Strauss & Co. (Levi) that competitor Abercrombie & Fitch (Abercrombie) diluted Levi’s registered trademark consisting of a stitched design on the back pocket of its blue jeans, the U.S. Court of Appeals in San Francisco has held.

Levi’s mark—known as the “Arcuate” design—consisted of two connecting arches that met in the center of the pocket. Abercrombie used a stitching design on the back pockets of its jeans that, according to Levi, incorporated the distinctive arcing elements of the Arcuate mark. Abercrombie's “Ruehl” design consisted of two less-pronounced arches that were connected by a “dipsy doodle” that resembled the mathematical sign for infinity.

Prior to the enactment of the Trademark Dilution Revision Act of 2006 (TDRA), courts had interpreted federal dilution law as requiring a showing that the junior mark was identical or nearly identical to the senior mark, in order to support a claim for “blurring.” The TDRA explicitly included the degree of similarity between the parties' marks as one factor among many in the dilution analysis. The statute did not use words like “very” or “substantial” in connection with the similarity factor, the court noted.

The district court's error was not harmless, in the appellate court’s view. The incorrect standard permeated the district court's analysis and played a pivotal role in the court's determination that the Ruehl design was not likely to dilute the Arcuate mark. The district court's decision was reversed and the case was remanded for further proceedings (Levi Strauss & Co. v. Abercrombie & Fitch Trading Co., 9thCir., CCH Trademark Law Guide ¶61,760; IntelliConnect User Link).


Law Firm Awarded Damages for Infringing Keyword Ads

A law firm that focused its practice on Social Security disability cases was entitled to an award of over $292,000 in damages from a competitor that willfully infringed the firm's registered “Binder and Binder” trademark, the federal district court in Los Angeles has ruled. The competitor was found liable for unlawfully diverting Google users to the competitor's websites via keyword advertising.

The competitor used the firm's mark as a key phrase through Google's “AdWords” program to trigger sponsored links to the competitor's websites when Google users searched for the firm's name. Use of the “Binder and Binder” mark as search engine advertising keywords constituted use in commerce in connection with the sale or advertising of the competitor's services, the court said.

There was a strong likelihood of confusion. The firm's mark and the keyword phrase used by the competitor were identical. The firm's mark had achieved commercial strength through extensive marketing and advertising.  The parties provided identical services, the court noted. The competitor intentionally chose the firm's mark because of its strength and appeal in the market. Potential clients of the firm had sustained actual confusion regarding the mark and the sponsored links triggered by its use in the AdWords program.

The firm showed that it had sustained damages in the form of lost profits in the amount of $146,117. Based on the firm's retention rate of cases for which submission forms were entered on their site, the firm lost roughly eight cases as a result of the infringement. Because the infringement was willful, the court doubled the damages award to $292,235. In addition, the willful nature of the infringement made the case “exceptional,” the court said, warranting an award of attorney’s fees.  The firm was not, however, entitled to an award for corrective advertising because the firm presented no evidence of any expenditures actually made to restore the value of their mark (Binder v. Disability Group, Inc., CDCal., CCH Trademark law Guide ¶61,753; IntelliConnect User Link).


Infringement Claim over Blue Tennis Racket Grips to Proceed

A sporting goods manufacturer could proceed with claims that a competitor infringed the manufacturer's registered trademark consisting of the light blue color of its tennis racket overgrip tape products, the federal district court in Atlanta has decided.

The court rejected the competitor’s contention that the manufacturer’s mark was functional. There was no evidence that the light blue tape was essential to the use or purpose of the tape or that it affected the tape's cost or quality, the court said.

There was sufficient evidence to support a finding that the mark had acquired distinctiveness prior to the competitor’s first use in 1988, in the court’s view. The manufacturer began selling its light blue grip tape in 1977 and registered its mark in 2001. By 1999, the manufacturer had expended significant resources promoting its light blue mark and had sold more than 50 million light blue grip products. 

With regard to the likelihood of confusion, the only factor favoring the competitor was the lack of actual confusion evidence, which was not dispositive, the court said. The colors used by the manufacturer and the competitor were not identical, but they were similar. The products were directly competitive and the parties used similar advertising strategies and sold their goods in the same types of stores and on the Internet.  Moreover, the competitor had notice of the similarity between the colors because the parties had settled a previous lawsuit regarding the competitor’s alleged infringement of the manufacturer’s light blue mark.

The complaining manufacturer could not proceed with a claim that the competitor violated a final order in a prior lawsuit, the court determined. The final order described the trademark covered by the injunction as any overwrap grip material was light blue with a speckled, chamois surface texture. The manufacturer presented no evidence that the competitor's light blue products also were speckled or had a chamois surface texture (Unique Sports Products, Inc. v. Ferrari Importing Co., NDGa., CCH Trademark law Guide ¶61,752; IntelliConnect User Link).



Website Disclaimer Did Not Bar Users’ Fraud Claims

Disclaimers in an adult dating website’s terms of use about the appearance of fictitious profiles on the site did not bar subscribers’ fraud and civil RICO claims, the federal district court in San Francisco has decided.  The subscribers’ putative class action alleged that the defendants owned and operated a vast “Internet empire” comprised of dozens of fraudulent adult dating websites using fake user profiles designed to deceive “often lonely and vulnerable men” into paying for subscriptions.

The website operator argued that disclaimers in the website’s Terms and Conditions precluded the subscribers from asserting their reliance on the site’s alleged fraudulent practices. The Terms stated that “All profiles are provided for the amusement and entertainment of our members and our users.” The Terms further disclosed that “some of the user profiles posted on this site may be fictitious and are associated with our ‘Online Cupids TM (‘OC’).’” The Online Cupids were hired by the website to “stimulate conversation” and “encourage further and broader participation in” website services.

The disclaimers were ineffective, however, as to the subscribers’ allegations that: (1) the website was “entirely or nearly entirely fictitious”; (2) many of the fictitious profiles and messages were not labeled “OC”; and (3) the website falsely appeared to be a legitimate dating service. Disclaimers do not necessarily defeat reliance, particularly where the wealth of information is intended to create a false impression and the disclaimer is not prominently referenced, the court observed. If the website truly wanted to disclose that it was not a legitimate dating site, it could have prominently posted a clear disclaimer, such as: “THIS WEBSITE USES FICTITIOUS PROFILES—READ THIS DISCLAIMER” (Badella v. Deniro Marketing LLC, NDCal, CCH Computer Cases ¶50,115; IntelliConnect User Link).


Contributory Cybersquatting, Dilution Claims Can Proceed

The federal district court in Seattle has ruled that Microsoft Corp. could proceed with contributory cybersquatting and contributory dilution claims against website operators that allegedly induced third parties to violate Microsoft’s trademark rights.

The website operators allegedly registered deceptive domain names containing Microsoft trademarks in order to drive traffic to their website. Consumers were made to think they were downloading legitimate Microsoft products rather than the website operators’ own products.  The website operators also allegedly induced third parties to engage in infringement and cybersquatting by selling software to create misleading websites incorporating Microsoft marks and by providing instruction on how to use Microsoft marks to increase website traffic.

The website operators argued that contributory cybersquatting and contributory dilution were not “recognized” causes of action. While no federal appeals court has addressed the viability of contributory dilution and cybersquatting, several federal district courts have recognized the claims, the court noted. In addition, traditional principles of tort law have long been applied to find contributory trademark infringement. Like trademark infringement, dilution and cybersquatting were tort-like causes of action naturally suited for a contributory liability, the court explained.

The website operators allegedly induced others to register domain names incorporating Microsoft marks. Such conduct fell squarely within the Anticybersquatting Consumer Protection Act's goal of imposing liability on those who “seek to profit in bad faith by means of registering, trafficking, or using domain names that contain identical or confusingly similar marks,” in the court’s view.   With regard to contributory dilution, Microsoft alleged that the website operators encouraged others to misuse its famous mark in such a way as to cause dilution and loss of good will. The Trademark Dilution Act protects owners of famous marks against exactly the kind of harm alleged by Microsoft, according to the court (Microsoft v. Shah, WDWash, CCH Computer Cases ¶50,108; IntelliConnect User Link).


CAN-SPAM Act Did Not Preempt California Spam Law

An Internet access service provider (IAS) could proceed with claims against online marketing companies under California’s unsolicited commercial e-mail law, a California state appellate court has ruled.

California Business and Professions Code § 17529.5 prohibits entities from advertising in a commercial e-mail message that contains deceptive content. The IAS raised triable issues of fact as to whether the companies violated the statute by advertising in over 45,000 allegedly deceptive e-mails received by the IAS’s customers.

The federal CAN-SPAM Act did not preempt the California law, the court determined. The CAN-SPAM Act savings clause permits states to regulate “falsity or deception” in commercial e-mail. “Falsity or deception,” as used in the CAN-SPAM Act, was broader than common law fraud, according to the court. There was nothing in the statute or its legislative history indicating that Congress intended for states to regulate fraudulent conduct only.

Moreover, the IAS was not required to demonstrate that the companies themselves had sent or had knowledge of the deceptive e-mails, the court said. The California statute imposed liability on any entity that advertised in an e-mail with deceptive content, regardless of knowledge. Thousands of the challenged e-mails were sent by “affiliates” hired by the marketing companies.

The IAS could seek actual damages for any e-mail it received within three years prior to the filing of the complaint or liquidated damages for any e-mail received within one year prior to filing, the court determined. Because the statute’s liquidated damages provision was penal in nature, it was subject to a one-year statute of limitations under California law (Hypertouch, Inc. v. Valueclick, Inc., CalCtApp, CCH Computer Cases ¶50,123; IntelliConnect User Link).


Hot Topics

U.S. Senate Passes Patent Reform Legislation

On March 8, the U.S. Senate voted 95-5 to approve legislation to overhaul the U.S. patent system.  The American Invents Act (S. 23), also known as the Patent Reform Act of 2011, was introduced by Senate Judiciary Committee Chairman Patrick Leahy (D-VT), the Committee’s Ranking Republican Charles Grassley (R-IA), and Sen. Orrin Hatch (R-Utah).  The bill was the product of six years of debate and discussion and represents the first comprehensive reform to the U.S. patent system in nearly 60 years, Sen. Leahy said in a press release.

The American Invents Act (S. 23) implements several reforms designed to improve patent quality, streamline the application process, discourage frivolous lawsuits, and reduce the backlog of over 700,000 patent applications. Some controversial provisions, most notably damages award caps, were stripped from the final Senate bill. 

The legislation proposes to reduce uncertainty regarding patent ownership by replacing the current cumbersome first-inventor system with a simple first-inventor-to-file application process, thus bringing the U.S. patent system in line with other nations.

The bill also proposes to weed out weak and overbroad patents early and help prevent frivolous lawsuits by allowing third-parties to submit prior art challenging patent applications and by establishing a new “first-window” post-grant opposition period of nine months.

The measure would address the application backlog by allowing the U.S. Patent and Trademark Office to set its own  fees and keep its funds instead of diverting them to other government programs.

The legislation now moves to the House of Representatives, where there is no companion bill. House Judiciary Committee Chairman Lamar Smith (R-TX) is nearing completion of a separate patent reform bill. “The Senate bill makes several important changes to our patent system. The House will introduce similar legislation this month that will help turn the ideas of American innovators into companies and jobs,” Rep. Smith said in a statement.