We first wrote on this topic nearly a year ago. Since then, courts have had an opportunity to interpret some of the provisions of the federal Defend Trade Secrets Act (DTSA). Indeed, since it was signed into law, more than 360 DTSA claims have been filed, with more than 343 complaints filed in federal court. California has seen more of these cases than any other state, finding itself host to over 15% of all DTSA claims.
As we addressed in our previous blog, there are some key distinctions between the DTSA and California’s Uniform Trade Secret Act (CUTSA) that may inform companies how to run their businesses and prepare for litigation should it be necessary. Some of these distinctions have come into greater focus as courts have interpreted the DTSA, at times with surprising results.
Inevitable Disclosure. When enacted, the DTSA was generally thought to reject the doctrine of inevitable disclosure like CUTSA. The doctrine of inevitable disclosure enables a plaintiff to “prove a claim of threatened misappropriation by demonstrating that the nature of a former employee’s new employment will ‘inevitably’ lead him to rely on the plaintiff’s trade secret.” The DTSA provides that a court may enjoin “any actual or threatened misappropriation . . . provided the order does not prevent a person from accepting an offer of employment under conditions that avoid actual or threatened misappropriation.” 18 U.S.C. § 1836(b)(3)(A)(i)(I)).
Nevertheless, some courts have issued inevitable disclosure injunctions under the DTSA. For example, in Mickey’s Linen v. Fischer, the district court for the Northern District of Illinois granted a preliminary injunction, finding that the defendant-former employee would “inevitably use or disclose [the plaintiff’s] trade secrets during his employment with [a competitor]. Thus, notwithstanding DTSA’s prohibition on injunctions that preclude employment, there may be jurisdictions where it is possible to obtain an injunction based on inevitable disclosure (although California is unlikely to be one of them). This is somewhat ironic since one of the purposes in enacting DTSA was uniformity across jurisdictions.
Whistleblower Immunity. Unlike CUTSA, the DTSA expressly provides for whistleblower immunity. The thought was that whistleblowers would be more likely to whistleblow if they did not have to worry about the cost and burden of a resulting DTSA lawsuit. But that is not how it has turned out, at least based on Unum Group v. Loftus. There, defendant employee moved to dismiss the plaintiff employer’s trade secret misappropriation claims on whistleblower immunity grounds. He claimed that he had turned over the documents that he took to his attorney in order to report and investigate a violation of law. The court denied the motion, reasoning that such defense cannot be adjudicated at the pleading stage and, instead, a defendant must submit to discovery and present evidence to justify the whistleblower immunity. Although this requirement may burden the putative whistleblower defendant, it may also prevent a defendant from evading litigation based on a mere cry of whistleblowing.
Ex Parte Seizure Order. Unlike CUTSA, the DTSA expressly allows a plaintiff to request – without any notice to the defendant — a court order directing enforcement officials to seize property to prevent further misappropriation. Given the potential power and disruptive nature of such a remedy, there was a lot of talk and concern about this aspect of the DTSA before and after its enactment. But, with the DTSA having over a year under its belt, practice shows that ex parte seizures are rarely sought and courts almost never issue them. The remedy is treated as truly extraordinary. Mission Capital Advisors LLC v. Romaka,  is one of the few cases where a DTSA ex parte seizure order was actually granted. The court there reasoned that the requisite extraordinary circumstances were present in light of the forensic evidence and misrepresentations about data deletion. The result in OOO Brunswick Rail Management v. Sultanov  – denial of an ex parte seizure order — is more the norm. There, the plaintiff argued that the seizure was necessary to stop data deletion and destruction of the evidence. In denying the seizure requests in that case, the court instead ordered document preservation and delivery of devices to the court at the time of a scheduled preliminary injunction hearing.
Sheppard Mullin attorneys have extensive experience litigating trade secret disputes, as well as navigating clients through the nuances of trade secret law outside of litigation.
 Rebecca Edelson and Jesse Salen, Federal DTSA versus California UTSA, California Business Law Practitioner, Vol. 32, No. 2, p. 38 (Spring 2017).
 No. 17 C 2154, 2017 WL 3970593, at *12-13 (N.D. Ill. Sept. 8, 2017); see also Molon Motor & Coil Corp. v. Nidec Motor Corp., No. 16 C 03545, 2017 WL 1954531, at *5 (N.D. Ill. May 11, 2017)(denying motion to dismiss because there was “enough to trigger the circumstantial inference that the trade secrets inevitably would be disclosed by [the former employee] to [the defendant-competitor].”); see also Panera, LLC v. Nettles, No. 4:16-cv-1181-JAR, 2016 WL 4124114 (E.D. Mo. Aug. 3, 2016) (finding the doctrine helpful for understanding why an employee’s duties at Papa John’s would almost certainly require him to draw upon and use Panera’s trade secrets).
 The DTSA prohibits injunctions that conflict with applicable state law precluding restraints on employment. 18 U.S.C. §1836(b)(3)(A)(i).
 A whistleblower is ordinarily thought to be someone who brings to light illegal activity of her company (e.g., by disclosing the matter to the attention of the authorities). Without laws to protect them, whistleblowers may risk reprisal and retaliation. The DTSA’s whistleblower immunity provision is one such law.
 No. 16-cv-40154-TSH (D. Mass. December 6, 2016)
 No. 1:16-cv-05878-LLS (S.D.N.Y. July 29, 2016)
 No. 5:17-cv-00017-EJD, 2017 WL 67119 (N.D. Cal. Jan. 6, 2017); see also Balearia Caribbean Ltd., Corp v. Calvo, No. 16-23300-CIV-WILLIAM, (S.D. Fla. Aug. 5, 2016) (denying a DTSA seizure request for failure to satisfy the “extraordinary circumstances” test and instead issuing a temporary restraining order).
 Id. (Plaintiff sought seizure of a laptop, mobile phone, and digital copies of Google and Rackspace email accounts of two former employees which allegedly contained plaintiff’s trade secrets.).
Growing frustration in the fashion community regarding weak or non-existent intellectual property laws has finally caught the attention of some nations. Nigeria is one nation that currently is trying to alleviate this frustration by reforming its intellectual property laws. This reform is driven, in part, because, Lagos, Nigeria has quickly risen as a fashion hub, and has been compared with such fashion centers as London, Paris, Milan, and New York. Nigerian designers have recently experienced great global success and visibility. For example, Amaka Osakwe has been pushing the limits of Nigerian fashion and has gained the attention of fashionistas in the United States and abroad. In 2014, she was invited to the White House by Michelle Obama, an admirer of her work, and her “Maki Oh” designs have been worn by Lupita Nyongo and other A-list celebrities. Last year, Ms. Osakwe was named a LVMH Louis Vuitton Moët Hennessy Finalist, placing her among the most notable young fashion designers in the world today. Other talented Nigerian designers include Duro Olowu, Deola Sagoe, Lisa Folawiyo, and Lanre DeSilva-Ajayi. As these designers continue to gain worldwide recognition, they must protect their designs from infringement both within Nigeria and globally.
The first hurdle — protecting their fashion designs in Nigeria — is not a simple task. Copyright protection is typically sought for the two-dimensional aspects of clothing design, while design law may protect the three-dimensional design and shape of the piece. However, under both Nigeria’s copyright and design laws, designers have encountered significant difficulty protecting their works. Section 1(3) of Nigeria’s Copyright Act states: “An artistic work shall not be eligible for copyright, if at the time when the work is made, it is intended by the author to be used as a model or pattern to be multiplied by any industrial process.” As a result, protection under the Nigerian Copyright Act is not available where a designer intends to mass produce his or her garments. This creates an inadvertent disincentive for Nigerian designers striving for global success because commercially marketed designs are unprotected under the Copyright Act.
Alternatively, Nigerian designers may seek protection by obtaining a design patent, which permits mass production, but is also difficult to secure. Designers who chose this route are often impeded by the lengthy processing time required to obtain the patent, the fees associated with the application and registration process, and the burden to prove that their designs are entirely “new,” varying significantly from each prior design in every country across the world. Each of these obstacles, particularly the last, may preclude protection under Nigeria’s Patents and Design Act: “Any anticipation of the design anywhere in the world, by any means whatsoever before the date of the application for registration of the relevant priority date destroys novelty.” This high standard for proving novelty is often difficult to meet, especially for designers known for their particular aesthetic, as displayed in their prior works, and because fashion designs are often derivative of prior designs.
Nigerian intellectual property scholars have recognized these dilemmas facing Nigerian fashion designers in light of Nigeria’s ascension in the world fashion marketplace and suggested intellectual property reform to remedy them. In an interview with The Guardian, Professor Adebambo Anthony Adewopo, an intellectual property law scholar at Lagos State University and Senior Advocate of Nigeria stated, “[Nigerian intellectual property] laws have remained largely unsuited to the emergent commercial and technological development” and “[w]hat [Nigeria] need[s] is a holistic reform of IP in substance and in form, including a well-articulated national IP and innovation policy.”
Such reform could result in laws that better protect fashion designs, as exemplified in the laws of some nations in the European Union. For instance, France’s Copyright Act lists fashion designs as works of art that are afforded full copyright protection, regardless of production intent. If such a law were implemented in Nigeria, it could help propel Nigeria’s growing fashion industry by protecting its designers from infringement.
Also, in 2002, the European Union established a Fashion Design and Unregistered Community Design right. It also empowered fashion designers to litigate infringement claims before the Court of Justice of the European Union (“CJEU”) asserting that “individual in character” designs, meaning designs for which the overall impression is different from that of one or more earlier designs, were copied by someone within the jurisdiction of one of the member states. This standard, upheld by the CJEU in Karen Millen Fashions Ltd. v. Dunnes Stores, et al., differs from that in Nigeria, which requires not only that the impression of the design be different, but that the design be completely unanticipated elsewhere in the world.
Nigeria is not the only country that could benefit from reforms similar to those highlighted. Australia’s copyright law is similar to Nigeria’s in that a design loses copyright protection if it is applied to more than fifty articles. According to the World Intellectual Property Organization (“WIPO”) on Australian design, “copyright protection is . . . available for works of artistic craftsmanship, such as one-off fashion garments and jewelry. However, if you intend to mass produce or make multiple copies of items, you should rely on design law rather than copyright law.” The organization then states, though, that, “[i]f you have publicly disclosed your designs (e.g., if your designs have appeared in fashion magazines, paraded garments at a fashion show, or sold it as a product) prior to registration you may have lost your ability to protect your design.” Should designers fall into this disclosure trap, perhaps in their haste to debut their new “it” pieces during the long pre-registration period and before the fashion trend expires, they may be without protection.
The United States also has unsuccessfully attempted copyright reform to protect fashion designs, and the debate about the adequacy of its current copyright protections continues. The United States Supreme Court’s holding in Star Athletica, L.L.C. v. Varsity Brands, Inc., (“Star Athletica”), expanded the scope of the separability analysis by affirming the Sixth Circuit decision that the design features incorporated in a useful article, such as the cheerleading costumes in the case, are protected under the Copyright Act when they can be separated from, and are capable of existing independently of, the design’s utilitarian aspects. Following the Star Athletica precedent, the “separability doctrine” has been successfully used to protect fashion designs in the United States. Yet, debate persists about the impact of the decision. Some scholars still advocate the need for copyright reform to clarify the separability doctrine and to ensure consistent protection for fashion designs in the United States. Regarding potential design protection, the United States’ Congress has yet to pass legislation specifically protecting fashion designs, although a few bills have been introduced in recent years.
In addition to the hurdle of gaining protection for designs in Nigeria, Nigerian designers also must determine whether they have recourse under international law to bring actions against infringers in other countries — which options are problematic. The Berne Convention for the Protection of Literary and Artistic Works (the “Convention”) does not recognize fashion designs as copyrightable works. WIPO has not interpreted the Berne Convention as permitting protection for fashion designs per se. Certain protections are afforded to copyrights and designs in other jurisdictions but often the situs of creation is the determining factor for analyzing copyright protection, while the situs of infringement is the determining factor for the laws applied in any potential lawsuit.
Innovation and technology have revolutionized the fashion industry by increasing the speed of reproduction of materials. This also has hastened the pace of infringement worldwide. The need for reform of Nigerian intellectual property laws to protect Nigerian fashion designs is apparent. Intellectual property law reform in Nigeria would not only be beneficial to protecting designers and the industry at large, but also could provide direct economic advantages which would help protect the prosperity of Nigeria’s fashion designers. Legal scholars in Nigeria and other similarly situated countries are recognizing the need for reform and the economic and reputational benefits that such reform could bestow. For now, designers should first determine to what extent their works can be protected in their native countries and worldwide. As a general matter, the issues discussed here highlight the complexities with designing, selling, and marketing clothing in various countries, especially when designs are not well protected. Designers should consult with their legal advisors to understand the intellectual property laws of different countries so they may fashion an informed business strategy for obtaining international success.
 Chapter C28, Laws of the Federation of Nigeria, 2004.
 Patents and Designs Act (Chapter 344, Laws of the Federation of Nigeria 1990).
Cryptocurrencies and blockchain technology are rapidly emerging as disruptive technologies. As has happened with many new technologies, particularly disruptive ones, a patent arms race is occurring. The number of patents being filed for these technologies is rapidly increasing.
The number of published applications shows roughly a tenfold increase over the number of issued patents.
Despite this increase in patent filing activity, many companies are unaware of what aspects of this technology can be patented and many myths and misconceptions exist. In addition to the usual misconceptions about patents (detailed below), the open source aspect of many blockchain-based inventions leads to greater confusion. The patentability of software and technology platforms does not cease just because some or all of the software is open source or built on a known protocol.
This paper addresses what companies need to know about patent strategies for cryptocurrencies and blockchain technology. The key takeaway is to consult with a patent attorney who focuses on blockchain technology and get an assessment of whether your inventions are patentable. Don’t miss out due to misconceptions or bad advice.
Federal district courts continue to apply the Supreme Court’s ruling in B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S.Ct. (2015) with unpredictable results. The latest such example comes from the Southern District of New York, where Judge Buchman, in reliance on B&B Hardware, precluded the defendant from contesting likelihood of confusion. Cesari S.R.L. v. Peju Province Winery L.P., 1:17-cv-00873-NRB (S.D.N.Y. Dec. 11, 2017).
Plaintiff Cesari is an Italian winery with U.S. trademark rights in the mark LIANO for wines dating back to August 2001. Defendant Peju, a Northern California winery, began using the mark LIANA for wine in 2002. Based on its registration of LIANO, Cesari, in October 2003 initiated opposition proceedings before the Trademark Trial & Appeal Board against Peju’s application to register LIANA, and, in July 2004, the Board granted Cesari’s motion for judgment on the pleadings – which it construed a motion for summary judgment – based on application of the du Pont likelihood of confusion factors.
Peju continued to use the LIANA mark for certain types of wine and expanding its operations after the Board’s ruling. In March 2016, Peju filed another application to register LIANA, which mark was published for opposition despite Cesari’s registration of LIANO. Cesari timely filed an opposition in January 2017 and, shortly thereafter, filed the lawsuit. Not 4 months into the lawsuit, Cesari filed a motion for partial summary judgment, arguing that, per B&B Hardware, Peju was precluded from relitigating the issue of likelihood of confusion based on the Board’s 2004 decision.
The Court identified the four elements necessary to establish issue preclusion: (1) the issue in both proceedings are identical; (2) the issue in the prior proceeding was actually litigated and actually decided; (3) there was a full and fair opportunity for litigation in the prior proceeding; and (4) the issues previously litigated were necessary to support a valid and final judgment on the merits. The Court’s analysis was limited to the first and third elements, the only ones contested by Peju.
As to the first element, the Court identified the different factual bases grounding likelihood of confusion determinations in federal court and the Board. As to the former, “a court determines the likelihood of confusion between the parties’ marks by ‘analyz[ing] the defendant’s ‘use in commerce’ of its mark and compar[ing] that use to that of the plaintiff and its mark.” The Board, on the other hand, “typically analyzes the marks, goods, and channels of trade only as set forth in the application and in the opposer’s registration, regardless of whether the actual usage of the marks by either party differs.” Per B&B Hardware, despite these different standards, a Board’s likelihood of confusion determination may be preclusive “[i]f a mark owner uses its mark in ways that are materially the same as the usages included in its registration application,” such that the Board “is deciding the same likelihood-of-confusion issue as a district court in infringement litigation.”
Applying this law, the Court found issue preclusion appropriate because “[t]he parties each use their mark in ways that are materially the same as the usages adjudicated by the [Board],” namely, both parties use their respective marks for wines. The Court did not find persuasive Peju’s argument that it actually used its LIANA mark in a manner materially different than that considered by the Board, i.e., on new world wines retailing for $40-60 a bottle that were marketed to sophisticated consumers and sold through specific online and brick-and-mortar retail outlets. Each of these distinctions, the Court reasoned, was necessarily encompassed by the Board’s analysis, which “must presume that the goods move through all reasonable trade channels for such goods to all usual classes of consumers for such goods.”
As to the third element, the Court held there could be little doubt that there was a full and fair opportunity for litigation in the Board proceeding. The Court held that Peju could establish it was prejudiced by the Board’s conversion of Cesari’s motion for judgment on the pleadings to a motion for summary judgment. Moreover, the Court reasoned that had Peju been prejudiced, it could have sought review of the Board’s decision, yet it never did.
The Court’s holding, particularly as to the first element of issue preclusion, is an important reminder that courts continue to misunderstand the significant differences between a Board’s determination of likelihood of confusion and that of a district court on an infringement claim. And in the wake of B&B Hardware, theses misunderstandings can have devastating consequences, as it did for Peju. Here, the Court did not consider material Peju’s showing that it and Cesari used their respective marks in different stylizations and with house marks, the different varietals offered by the parties under their respective marks, and the sophistication of the parties’ respective consumers, not to mention Peju’s allegation that in the parties’ long coexistence in the marketplace there had been no instances of actual confusion. By reasoning that the parties’ actual use in commerce is encompassed within the broader circumstances of use considered by the Board, the Court essentially erases the differences between the two likelihood of confusion determinations. Also, the Court intimates that Peju violated Cesari’s rights by continuing to its LIANA mark after the Board decision in 2004, despite the fact that the Board’s decision was limited to Peju’s right to register, not use, the mark.
A summary of the European Commission’s Policy Document on standard essential patents (SEPs).
After considerable preparations and consultation the European Commission has on 29 November 2017 issued a Communication “setting out the EU approach to standard essential patents”. This Communication is part of the wider Europe’s Digital Single Market initiative. Notably, however, this long-awaited paper is not likely to change the current landscape of FRAND litigation and licensing, and intentionally does not address the most controversial issues of the current debate.
The Communication attracted significant controversy within the Commission’s services (including DG Competition, DG Grow, DG Connect) as well as intense lobbying by stakeholders. Key issues initially thought to be included in the paper ultimately were not addressed, notably use-based licensing and licensing-to-all. The Commission defers these issues to an expert group which it will set up to gather industry practices, although without committing to providing further guidance in this area. Given the significant impact any more substantive statements on these topics would have had on either side of the industry, no news is probably good news.
Transparency and Access to Information
In the first section entitled increasing transparency on SEP exposure, the Commission sets out its views on how to increase transparency and access to relevant information relating to SEPs. This is probably the most notable part of the document, as the Commission addresses fundamental requirements for FRAND license negotiations which will hardly be controversial.
This section is partly addressed to SDOs who are encouraged to provide greater transparency, quality and accessibility in their databases and in the way they collect data. The Commission also addresses SEP owners and states that they “necessarily have to invest in substantiating to SEP users why patents from the patent holder’s portfolio are essential of the standard or how these patent are being infringed”. This should be achieved through more up-to-date and precise declarations. The Commission points out that 73% of patents declared essential in ETSI are granted after the standard is set. Final patents might differ considerably from a declared patent application and this should be addressed by a dynamic declaration process and an ongoing obligation to keep records up to date. In addition, the declared SEP should be linked to the relevant section in the standard and interested parties should be given contact details of the SEP owner to facilitate licensing. Finally, SDOs should encourage parties to publish details on judgements relating to litigated SEPs.
The Commission also points to a de facto presumption of essentiality resulting from recorded declarations. It identifies the need of a higher level of scrutiny on essentiality claims. The Commission however falls short of making a concrete proposal and merely states that any benefit of an increased scrutiny of essentiality (by an independent technical expert) must be balanced against the cost associated with such a review.
Overall, the Commission identifies in this section important elements of FRAND negotiations without providing a definitive view on whether (and how) these transparency measures should be applied to existing standards or rather only to new and key standards such as 5G. The Commission might well address these issues directly with SDOs in future. It is likely that it will have to deal with individual complaints against SEP owners who allegedly fall short of the transparency requirements set out in this Communication.
In the second section the Commission recognizes the divergence of interpretation of the meaning of FRAND and offers “signposts” with a view to open a discussion on this subject encouraging stakeholders to engage in a dialogue with each other and the Commission on the meaning of FRAND. This is not a new topic and it remains to be seen which turn the discussion is going to take with the Commission’s involvement.
The Commission lists four principles which “should be taken into account” to assist with the valuation of SEPs without providing a definitive view on the matter. Licensing terms should relate to the economic value of the patented technology and “in principle should not include any element resulting from the decision to include the technology in the standard”. The value of the technology should be based on its present economic value irrespective of the market success of the product while also providing adequate incentives to innovate. The Commission favors a top-down approach in evaluating FRAND value where the value is a proportion of an aggregate rate for the standard assessing the overall added value of the technology. In how far deviation from these evaluation methods will amount to possible infringements and antitrust scrutiny remains to be seen.
In terms of non-discrimination the Commission endorses the position taken by Mr. Justice Birss in the Unwired Planet v Huawei case ( EWHC 711 (Pat)), namely that there should be no discrimination between implementers that are “similarly situated” and suggests a case-by-case, or sector-by-sector approach. The Commission recognizes that those involved in FRAND licensing and litigation have the greatest expertise in this area, and to capture the knowledge for the benefit of the rest of the industry, it will set up an expert group which will look at FRAND licensing practices in more depth. This will not likely result in another policy document but rather assist in creating greater transparency in the market.
Enforcement of SEPs
In the third section the Commission reiterates the limits antitrust law imposes on the use of IP injunctions defined most recently by the CJEU in the case Huawei/ZTE (C-170/13) while also referring to the CJEU’s rules on the ping-pong between SEP owners and willing licensees. The Commission will continue to work with stakeholders to develop and use methodologies which allow for efficient and effective SEP litigation as well as mediation and ADR.
Other initiatives announced today include new Guidance on the Directive on the enforcement of intellectual property rights (IPRED), measures against counterfeiting and piracy, initiatives to reduce the volume of counterfeited goods reaching the EU market. The press release can be found here.
This Communication is the result of a lengthy debate between different Commission services and key stakeholders of the industry, and the lack of clearer policy statements is ample evidence of the high level of controversy continuing to surround SEPs and FRAND licensing.
The Commission emphasizes the importance of the application of EU competition law to SEPs and the concept of FRAND. It has been careful in not trying to steer the debate in favor of one side of the industry. This stands in contrast to a recent statement by the US DOJ’s new assistant attorney general Makan Delrahim, found here.
The Communication will no doubt be referred to by SEP owners and potential licensees in national litigation to argue their case and judges will be asked to assess the content of the Communication. While the Commission’s new Communication may therefore be of some help, the parties to FRAND negotiations will have to continue to carefully self-assess their behavior on the basis of existing case law and guidance or risk falling under the scrutiny of judges and antitrust authorities who will assess anticompetitive effects of non-FRAND behavior. The Commission will remain an active enforcer in this area and it is also encouraging to see that more and more judges on both sides of the Atlantic take the challenge to rule in this complex area and their judgments will add to the legal certainty.
 Under EU law a Communication is an administrative document with no legally binding effect and merely summarizes current Commission views on a topical issue, here SEPs. A Communication is without prejudice to any interpretation of law by the Court of Justice of the EU and not binding on future Commission enforcement of EU competition law.
A few months ago, we brought to your attention a case initiated by The Turtles, seeking royalties in New York for the unauthorized performance of their pre-1972 sound recordings. In that decision, the Court of Appeals of New York decided, on a question certified to it by the Second Circuit, that New York state law did not recognize a public performance right in pre-1972 sound recordings. We observed that other courts considering this issue, most notably the Supreme Courts of California and Florida (likewise on certified questions respectively from the Ninth and 11th Circuits) may decide likewise, namely, that under their own state laws, there is no public performance right in pre-1972 sound recordings. We now have the most recent pronouncement from the Florida Supreme Court, handed down on October 26, 2017, confirming our observation by failing to find a public performance right in pre-1972 sound recordings under Florida state law. The Court found that Florida never recognized such a right and that it would be inappropriate for a state court to create a new common law right that should normally be the province of the legislature.
Although the U.S. District Court for the Central District of California granted summary judgment in favor of The Turtles, finding that such a right existed under California state law, the Ninth Circuit certified this question in March 2017 to the California Supreme Court which has yet to rule. Because the California Civil Code arguably has an express provision that may be controlling, the California Supreme Court could potentially find a public performance right in pre-1972 sound recordings, putting California at odds with both New York and Florida, and potentially creating confusion in a marketplace that requires nationwide clearance. On the hand, the California Supreme Court could apply a similar public policy rationale that would deny such performance right protection under a California statute that is arguably ambiguous.
At this juncture, regardless of how the California Supreme Court decides this issue, only Congress can untie this Gordian Knot by extending federal copyright protection to pre-1972 sound recordings, thus providing a uniform system that reasonably balances the respective interests of both the owners and users of sound recording regardless of the happenstance of when they were actually recorded.
The U.S. Copyright Office is making changes to the Digital Millennium Copyright Act (DMCA) safe harbor agent registration process. The changes impact both new online service providers as well as existing online service providers who have already registered an agent. Read on for details about what you will need to do.
What do I need to know about the new DMCA agent registration system?
In order to qualify for DMCA safe harbor protections, you must designate an agent to receive notifications of claimed infringement under the DMCA using the Copyright Office’s new electronic system by December 31, 2017. Section 512 of the DMCA provides safe harbors to shield online service providers from certain claims for copyright infringement based on user generated content transmitted, cached, stored, referred, or linked on their website, app, or other online service.
What if you previously registered a DMCA agent using the old paper system prior to December 1, 2016?
You must re-register using the new electronic system by December 31, 2017.
What else is new?
Under the new DMCA regulations, DMCA agent registrations are no longer perpetual – you must renew your registration every three years.
Do you really need to worry about this?
Yes, you should take action if:
You previously registered a DMCA agent using the old paper system prior to December 1, 2016;
You have a DMCA take-down policy in the Terms of Service for your online service; and/or
Your online service stores, transmits, caches, refers, or links content generated by users, including websites that allow users to post, upload, or display text, photos, videos, audio, etc. If users can upload any content to your website, app, or other online service, you are an “online service provider” under the DMCA and should protect yourself with DMCA safe harbor.
Do you need to make any changes to your Terms of Service?
This is a good opportunity to review and update your Terms of Service, especially if you have not done so in the last two or three years.
Musical scores incorporated into films are usually produced with the specific film in mind. In the U.S., we call such works “works made for hire,” meaning that the artist does not retain authorship rights to the music. Instead, the commissioning party, which is typically the film producer or music publisher, is the author of the musical score for copyright purposes.
Internationally, however, most countries attribute authorship only to natural persons. To permit the exploitation of collaborative works, like motion pictures, the legal regimes of most of these countries grant the commissioning party the right to exclusively exercise the economic rights in the work. This does not, however, change the status of each individual creator as the “author” of his or her distinct contribution to the work.
This definitional conflict presents practical problems when United States courts, applying choice of law rules, apply foreign copyright laws through U.S. “work for hire” lenses. In situations where the protections afforded under U.S. copyright law depend on the definition of “authorship,” courts must ask first, what law applies: the U.S. “works made for hire” doctrine or the principle that authorship vests solely in individuals?
Ennio Morricone, an Italian composer who was recently awarded an Oscar for his composition for the movie “The Hateful Eight,” discovered the answer to this question this month. In his case, Ennio Morricone Music Inc. v. Bixio Music Group Ltd., No. 1:16-cv-08475, (S.D.N.Y. 2017) (“Ennio”), Ennio sought to exercise his rights as “author” under Section 203 of the Copyright Act by serving a Notice of Termination of his prior assignment of copyrights to an Italian publisher which, in turn, transferred its rights to Bixio Music Group, Ltd., a New York publishing company. The court needed to determine whether the work was a “work for hire,” a finding that would trigger the statutory exclusion of such works from the benefits of the Notice of Termination provisions.
Under the generally accepted, copyright choice of law principles, U.S. courts should apply the law of the source country of a work when determining issues surrounding authorship and initial ownership of copyrighted works. Although Italian copyright law names the composer as a joint author in motion pictures, the Southern District of New York still held that Morricone was not the author of the music which was, instead, a “work made for hire.” After hearing from conflicting Italian law experts, the Court found that Italian law impliedly contained a “work for hire” doctrine because its provisions granted, by statute, a wide array of economic rights to the commissioning party. Accordingly, Morricone’s musical scores, which were made in Italy on commission, were works made for hire excluded from termination under Section 203.
Although the term “work made for hire” is nowhere to be found in the statutes or legal jurisprudence of most other countries, the Morricone decision is not an outlier among cases dealing with the legal effect of foreign authorship when pursuing statutory rights granted under U.S. law. Instead, Ennio continues the line of cases extending the uniquely U.S. “work for hire” concept to foreign works when determining copyright ownership questions even when applying the laws of such foreign countries. For example, both the Fifth and Ninth Circuits, in Laparade v. Ivanova, 72 USPQ2d 1927 (9th Cir. 2004) and Alameda Films S.A. de C.V. v. Authors Rights Restoration Corp., 66 USPQ2d 1767 (5th Cir. 2003), found that the musical compositions, sound recordings, and screenplays created for certain Mexican films were “works for hire” although Mexican law seemingly limited the definition of authorship to natural persons.
The practical effect of these holdings is to vest control, if not ownership, of copyrighted foreign works in companies, which, in turn, denies to individual creators the benefits of certain provisions of U.S. law which exclude protection for works that are deemed “works made for hire.”
Given the Morricone and other similar “for hire” decisions, care should be given when drafting and interpreting contracts with foreign creators or authors. Drafters should determine what practical effect such contracts may be given when applied or enforced by the courts respectively in the U.S. and abroad.
The critical issue in Helsinn was whether the post-AIA definition of prior art requires public disclosure of the details of an invention in order to trigger the on-sale bar. In the AIA, Congress revised § 102—otherwise known as the “novelty provision.” As revised, the new novelty provision states:
(a) NOVELTY; PRIOR ART. — A person shall be entitled to a patent unless—
(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.
While the AIA maintained the pre-AIA language of “patented,” “described in a printed publication,” “in public use,” and “on sale,” it added the emphasized clause above (the “catch-all clause”). The AIA does not provide any elaboration on the import of the catch-all clause, leaving many to wonder exactly what its presence means for the interpretation of the other, well-known categories of prior art.
Since its enactment in 2011, scholars have debated the effect of the catch-all clause on the “public use” and “on sale” statutory bars.* Helsinn asserted that the catch-all clause modifies prior-art categories such that only disclosures that publicly disclose the details of the invention qualify as prior art. Advocates like Helsinn contend that the intention of Congress was to overrule “secret” use and sale decisions, like Metallizing Engineering.
Others, including Teva, argue that the addition of the catch-all clause does not invalidate the years of case law interpreting “public use” and “on sale.” These advocates contend that interpreting the catch-all clause to impose a “public” requirement would be a foundational change to the purpose and rationale for the public use and on sale bars support—in the absence of a clear repudiation by Congress of the pre-AIA law.
*The number of articles discussing both sides of the debate is far too numerous to provide a full list. You can find a few of these articles listed here.
The facts of Helsinn presented a unique situation in which to consider this important question. Helsinn sued Teva for allegedly infringing four patents directed to a formulation of palonosetron for reducing chemotherapy-induced nausea and vomiting (“CINV”). All the asserted claims covered a specific palonosetron amount in a solution—0.25 mg. The parties agreed that the critical date for all four patents was the same—but different laws were implicated by the patents. Three of the patents were governed by the pre-AIA patent laws, while the last patent fell under the AIA.
Teva alleged that Helsinn’s asserted patents were invalid under § 102. The conduct in question concerned an agreement entered into by Helsinn with another party to market and distribute Helsinn’s palonosetron formulation. Almost two years before the critical date, Helsinn agreed with MGI Pharma, Inc., that MGI would market and distribute one or more formulations of palonosetron, contingent on approval by the FDA. The agreement identified the 0.25 mg dosage as one of the potential formulations to be purchased and sold. Although the existence of the deal was made public (through a required SEC filing), the specific formulation details were redacted.
Thus, the district court faced analyzing the same conduct under two sets of laws: pre-AIA and post-AIA. Under either, however, the same two-prong framework explicated in Pfaff v. Wells Electronics applied: the on-sale bar is triggered where before the critical date (1) there is a sale or an offer for sale and (2) the claimed invention was ready for patenting. Under the Pfaff framework, the district court found that the distribution agreement constituted a sale with respect to the three pre-AIA patents. But the district court interpreted Congress’ addition of the catch-all clause as a modification to the “on sale” category that placed a public requirement on the disclosure itself. The district court found that under the AIA, a § 102-triggering sale must publicly disclose the details of the invention; a public sale that did not disclose the claim limitations was insufficient.
The Federal Circuit reversed this decision and provided an analysis may prove instructive in future cases concerning public uses and other non-informing disclosures. In its opinion, the Federal Circuit noted that the support for Helsinn’s argument that § 102’s requirements changed with Congress’ addition of the catch-all phrase rested outside of the text of the amended provision; Helsinn relied primarily on floor statements by a few individual members of Congress.
The Federal Circuit noted that those floor statements appeared to show “at most” an intent to do away with case precedent concerning “public use” cases, not “on sale” cases. According to the Court, the only “precedent” cited by the Congressmen were cases in which the invention was used in public, but that use did not disclose to the public the details of the claimed invention. E.g., Egbert v. Lippman; Beachcombers International v. Wildewood Creative Products; Jumpsport, Inc. v. Jumpking, Inc. Moreover, the Federal Circuit explained that even assuming the statements could be stretched to cover sale cases as well, the “secret sale” cases “were concerned entirely with whether the existence of the sale or offer was public,” not whether the details of the invention were disclosed. Thus, the Court found the floor statements were of little support for a different interpretation of the statutory meaning of “on sale” under the AIA.
The Federal Circuit further found Helsinn’s argument unpersuasive because imposing a publicity requirement would “work a foundational change in the theory or the statutory on-sale bar.” In fact, the Federal Circuit noted that the issue of whether to impose a publicity requirement was exactly the situation in Pennock v. Dialogue, in which Justice Story created the on-sale bar. In Pennock, Justice Story found that allowing a patent to stand after a sale that did not disclose the claim limitations “would materially retard the progress of science and the useful arts, and give a premium to those who should be least prompt to communicate their discoveries.” Relying heavily on its prior case law, the Court also explained why such a publicity requirement has never been considered necessary. The Federal Circuit concluded by hold that at most, the catch-all clause just requires that the sale must put the patented product in the hands of the public,* not that it must be informed of all the limitations of the claim.
*Of course, the Federal Circuit did not mean that the product must be explicitly in the hands of the public. As discussed in the opinion, “our prior cases have applied the on-sale bar even when there is no delivery, when delivery is set after the critical date, or, even when, upon delivery, members of the public could not ascertain the claimed invention.”
Looking at the Federal Court’s reasoning in Helsinn and The Medicines Co. v. Hospira, Inc., that Metallizing Engineering may remain good law under the AIA. As the Federal Circuit made clear, it does not view the floor statements in Congress as evidencing a clear intent to overturn the “on sale” precedent, instead “at most” supporting an argument that the intent was to overturn the “public use” case law. In The Medicines Co., the Federal Circuit referred to Metallizing as an “on sale” case: the conduct at issue in Metallizing was the sale of performing a particular claimed process for compensation before the critical date, i.e. activity triggering the on-sale bar. Thus, the Federal Circuit would likely find mere floor statements to be of little relevance to a factual situation similar to Metallizing. Moreover, as the Federal Circuit identified, the law regarding “secret sales” has always been concerned with whether the existence of the sale itself was publicly disclosed—not the details of the invention. There is no indication in Metallizing that the sales at issue were not publicly known, so the same rationale from Helsinn should apply.
In Helsinn, the Federal Circuit anchored its holding on the fact that imposing a requirement that a triggering sale disclose the details of the invention directly contradicts Justice Story’s reasoning in Pennock for creating the on-sale bar. As Justice Story saw it, to allow an inventor to exploit commercially his or her invention for an extended period and still maintain the ability to seek patent protection would undercut the “progress of science and the useful arts” and promote undesirable behavior. This principle has been consistently reiterated by the Federal Circuit. See The Medicines Co.; Atlanta Attachment Co. v. Leggett & Platt, Inc. (“The overriding concern of the on-sale bar is an inventor’s attempt to commercialize his invention beyond the statutory term.”). The aim of discouraging the inventor from improperly extending the monopoly was one of the underlying reasons behind Judge Learned Hand’s decision in Metallizing. Thus, it is possible that the Federal Circuit may find Metallizing to remain applicable after the AIA, despite the reduced ability for such conduct under the first-to-file concept of the AIA.*
*This is one argument raised in support of the view that the AIA explicitly overrules Metallizing. Under the first-to-invent approach, this type of secret commercialization provided a greater incentive because even if another filed a patent on the claimed invention prior to the commercial exploiter, the exploiter could, in theory, establish prior invention and obtain the patent. As prior invention is no longer a valid argument under first-to-file, the incentive to secretly exploit an invention is diminished. However, the fact that success may be more difficult does not, in and of itself, mean the forfeiture doctrine no longer has value or applicability. As long as one person is still able to commercially exploit his or her invention in a manner like that in Pennock or Metallizing, the reasoning for the doctrine would still apply.
The recent Supreme Court decision in TC Heartland LLC v. Kraft Food Grp. Brands LLC also provides support for the continued relevance of Metallizing. See No. 16-341 (May 22, 2017). At issue in TC Heartland was the impact of Congressional amendment of the general venue statute (28 U.S.C. § 1391(c)) on the interpretation of the patent venue statute that was not amended (28 U.S.C. § 1400(b)). The patent venue statute has remained unchanged since the Supreme Court interpreted its scope, holding that a domestic corporation only “resides” for purposes of venue in a patent infringement action in its state of incorporation. See Fourco Glass Co. v. Transmirra Products Corp. (1957). However, after Congress amended the general venue statute in 1988, the Federal Circuit held that Congress’s amendment also changed the scope of where a corporation “resides” under § 1400(b) (although § 1400(b) remained unchanged). See VE Holding Corp. v. Johnson Gas Appliance Co. (1990). In TC Heartland, the Supreme Court reversed the Federal Circuit’s ruling in VE Holding, emphasizing that “[w]hen Congress intends to effect a change [to the statutory meaning of legal language], it ordinarily provides a relatively clear indication of its intent in the text of the amended provision.”
Accordingly, the TC Heartland decision can be interpreted as requiring clear congressional intent within the text of an amended provision itself to modify the settled meaning of statutory language. Such an interpretation would further undermine the persuasiveness of the minimal floor statements discussed in Helsinn, given that those statements were by individual senators, put forth their interpretations of post-AIA § 102, and are not included within the text of the AIA. Moreover, the Federal Circuit in Helsinn appears to have found the catch-all clause to not be a “clear indication if [Congress’s] intent in the text of the amended provision” to change the interpretation of “on sale” in the statute. In light of the large amount of scholarly debate on the meaning of the clause, it seems unlikely that the Supreme Court would disagree with the Federal Circuit’s apparent determination.
After Helsinn, it appears that on-sale bar precedent has survived the AIA. Applying the Court’s reasoning, and in view of other recent cases such as The Medicines Co. and TC Heartland, it appears the Metallizing Engineering precedent may also have survived the AIA, at least for now. However, there is still the possibility that the Federal Circuit may take the opportunity presented by the ambiguity caused by the catch-all clause to revisit the ultimate decision in Metallizing. Although the Federal Circuit may consider Metallizing to be an “on sale” case, Judge Hand’s opinion does rely on principles underlying both the “public use” and “on sale” bars. As such, the forfeiture doctrine of Metallizing would appear to be an extra-statutory bar, not falling within either the “public use” or “on sale” categories entirely. Because of this, some have questioned whether Judge Hand’s decision is actually correct. See Dimitri Karshtedt, Did Learned Hand Get It Wrong?: The Questionable Patent Forfeiture Rule of Metallizing Engineering, 51 Vill. L. Rev. 261 (2012). Moreover, although the Federal Circuit was not persuaded as to the “clear indication” of intent to change the meaning of “on sale” as advocated by Helsinn and others, that is not to say the Supreme Court would hold the same.
Section 411(a) of the Copyright Act generally requires copyright registration, or a refusal of registration, before a copyright action may be filed. This has led to a variety of decisions from the Circuit and District Courts interpreting the meaning of “registration.” It has even led to an intriguing gloss from the Supreme Court, Reed Elsevier, Inc., v. Muchnick, 559 U.S. 154 (2010), holding that Section 411(a) is not a jurisdictional requirement but merely a precondition. The Circuit Courts are now split into three groups, namely, “registration” (registration means what is says…a certificate or refusal in hand), “application” (all elements necessary for registration – an application, deposit copy and fee filed in the Copyright Office) and undecided. None of these positions can easily be harmonized potentially leading to inconsistent results and forum shopping.
This leads us to ask the most obvious question: WHY? … are seemingly so many willing to spend so much time, effort and money to litigate the most preliminary of copyright questions?
The most recent Circuit to weigh in on this issue, the Eleventh Circuit, in Fourth Estate Public Benefit Corporation v. Wall-Street.com LLC, No. 16-13726 (11th Cir. 2017), finds itself joining the “registration” group, dealing, as it must, with facts and issues presented by the parties before it, but without resolving the “Why.”
Fourth Estate Public Benefit Corporation (“Fourth Estate”), a news organization, granted a license to Wall-Street.com to broadcast Fourth Estate’s news articles on Wall-Street.com’s website. When the license terminated, Wall-Street.com continued to disseminate the articles. So, while Fourth Estate’s copyright application for the articles was pending in the Copyright Office, but before issuance or refusal, it filed a copyright action. Citing Section 411(a) of the Copyright Act, the Eleventh Circuit affirmed the District Court’s dismissal holding that Fourth Estate failed to meet the registration precondition for suit.
Fourth Estate unsuccessfully argued that Section 411(a) has more than one plausible meaning – the proper one being that “registration” is completed after filing the application. If Fourth Estate’s case was initiated in another Circuit, this argument may have been successful. Courts generally understand that registration is a precondition to filing suit for copyright infringement. But, as mentioned, they do not agree on when “registration” occurs.
The Copyright Act defines registration unhelpfully as “a registration of a claim in the original or the renewed and extended term of copyright.” 17 U.S.C. § 101. Section 410(d) adds to the confusion by providing, “[t]he effective date of copyright registration is the day on which an application, deposit, and fee, which are later determined by the Register of Copyright or by a court of competent jurisdiction to be acceptable for registration, have all been received in the Copyright Office.” Nowhere, however, does the Act define when, as required by Section 411, “a copyright registration has been made . . . .” Therefore, Circuit courts have reasoned that either “registration” means registration, or alternatively, when the requirements for eventual registration have been made by filing the application.
The Tenth and Eleventh Circuits follow the registration approach while the Fifth and Ninth Circuits follow the application approach. See, e.g., La Resolana Architects, PA v. Clay Realtors Angel Fire, 416 F.3d 1195 (10th Cir. 2005), abrogated in part by Muchnick, 559 U.S. 154; Positive Black Talk Inc. v. Cash Money Records Inc., 394 F.3d 357 (5th Cir. 2004), abrogated in part by Muchnick, 559 U.S. 154; Cosmetic Ideas, Inc. v. IAC/Interactivecorp., 606 F.3d 612 (9th Cir. 2010). The former construes away language suggesting that the “effective” registration looks back to the application date while the latter overlooks the desirability, possibly implicit in the statutory scheme, of first securing the guidance and expertise of the Copyright Office in determining whether the work in question merits a copyright. The drawback to both approaches is that no one really knows when the infringement action precondition is satisfied. The Supreme Court gloss in Muchnick, that registration is not jurisdictional, is helpful since, even in registration jurisdictions, the courts now at least retain authority to oversee settlement of copyright claims even where they might not have the authority to adjudicate them.
This brings us back to the question…Why?
Because the First, Second, Third, Fourth, Sixth, Seventh and Eighth Circuits have yet to decide the issue, there is still plenty of time for litigation before the Supreme Court ultimately resolves it. But why keep litigating while a very practical alternative, an alternative that the courts have apparently been unwilling to make obvious to litigants, exists? On the one hand, the parties could wait until the Copyright Office issues or refuses the registration. It seems likely, for example, that the Fourth Estate’s registration actually issued sometime during the pendency of the District Court’s and Eleventh Circuit’s decisions. Unfortunately, the Copyright Office is suffering serious administrative delays in part because of an increasing workload aggravated by arguably insufficient financial resources and staffing. Given the current lag time of often six to eight months from the application filing date to issuance, justice delayed might be justice denied.
On the other hand, consider this. The typical copyright application fee is $55. For this, you get a normal turnaround which, as noted above, could be half a year or longer. However, given an allegation of actual or prospective copyright litigation, or some other pressing need, the Copyright Office will issue a registration or refusal generally within 10 business days or less. Special Handling, Copyright Office, available at https://www.copyright.gov/help/faq/faq-special.html. This “special handling” service does cost an additional $800 per application. However, balanced against all the other costs and contingencies in a full-fledged copyright infringement action, it is unclear why more parties haven’t elected this option, or even why the courts have not pressed the parties to avoid spending valuable judicial resources on a preliminary, gate-keeping measure.
One may argue that the $800 “special handling” fee is exorbitant when multiple works are infringed. However, the Supreme Court’s Muchnick decision suggests that once the registration precondition is met for one work, the court could potentially exercise jurisdiction over all related works even if still the subject of pending applications. In any event, absent early registration prior to the first act of infringement, the plaintiff may still find litigation leading to a pyrrhic victory if unable to collect statutory damages or attorneys’ fees under Section 412.
In short, we can only speculate when, if ever, the Supreme Court will take up and resolve the split among the circuits between the registration and application approaches. What requires little speculation, however, is whether the combined cost of all the prior and future disputes over this issue is more or less than $800.