On 9 March 2018, Byron Bay brewery Stone & Wood lost an appeal in the Australian Full Federal Court of Appeal to Brunswick based brewer Thunder Road with respect to their respective uses of the word PACIFIC for their rival beers.
Stone & Wood sells craft beer, including its best-selling beer “Pacific Ale”. Thunder Road launched its “Thunder Road Pacific Ale” in 2015, which it renamed “Thunder Road Pacific” later that year following letters of demand from Stone & Wood.
In 2016, Stone & Wood’s claims against Thunder Road for misleading or deceptive conduct, false or misleading representations and for passing off were rejected by Justice Moshinsky as was Stone & Wood’s trade mark claim.
Stone & Wood appealed that decision on the grounds that the primary judge failed to recognise that the form of passing off that had occurred in this case was to an impression of an association between the Stone & Wood and Thunder Road products. Stone & Wood’s critical submission was that in January 2015, the only connotation of “Pacific Ale” or “Pacific” in the context of the craft beer market was an association with Stone & Wood or its Pacific Ale. The trade mark claim was not pursued on appeal.
However, Chief Justice Allsop, and Justices Nicholas and Katzmann rejected each of the appeal grounds and found there was no error in the primary judge’s decision.
It is doubtful that this will be the end of this dispute. In separate proceedings in relation to Stone & Wood’s trade mark application for “Pacific Ale”, Thunder Road has appealed the Australian Trade Mark Office’s decision that it failed to establish either of its grounds of opposition to the trade mark. The Federal Court has listed the appeal to be heard in August 2018.
The Automotive Body Parts Association (ABPA) brought a declaratory judgement action against Ford Global Technologies (Ford), the holding company for much of Ford Motor Company’s patent portfolio. ABPA argued that design patents are inappropriate for auto-body parts and, in the alternative, that Ford’s design patents were unenforceable against the members of ABPA because the patent rights had exhausted upon the first sale of the vehicle. (Automotive Body Parts Association v. Ford Global Technologies, LLC, Case No. 2:15-cv-10137 (E.D. MI Feb. 20, 2018).) The Court held that Ford’s designs for their vehicle components were indeed eligible for patent protection and further that the design patent rights were not exhausted when the vehicle was first sold. Id. at 2.
A declaratory judgement action is only appropriate when there is a substantial controversy between the parties. In the case of ABPA, Ford had sent warning letters to New World International (New World), a member of ABPA, warning New World that their production of vehicle parts infringed Ford’s design patents. Id. at 3. This led ABPA to file the declaratory judgement action. Ford later agreed to never sue New World on the two design patents at issue in the case, attempting to render the declaratory judgement action moot. Id. at 7. However, this covenant was not extended to the rest of ABPA members, including National Autobody Parts Warehouse, which attempted to purchase for resale patented products and was refused. Id. at 6 and 8. Because ABPA properly brought the suit on behalf of New World and would be able to also bring suit on behalf of other ABPA members, including National Autobody Parts Warehouse, the court found that the controversy between Ford and National Autobody Parts Warehouse was “just substantial and just immediate enough” that the issue was not moot and that ABPA’s declaratory judgement action was proper. Id. at 7 (emphasis in original).
With regard to ABPA’s summary judgement of invalidity, ABPA argued that Ford’s designs were “not ‘a matter of concern’ and the two designs are ‘dictated by function.’” Id. at 10. The Court found that the proper inquiry was not whether a purchaser of the replacement part was driven by functionality, as argued by ABPA, but instead whether the purchaser of the vehicle at any point (initial purchase or supplemental purchase) was driven by the design of the patented component. Id. at 13. In this regard, the Court noted that in many prior instances, courts had found that design played no role at “any time in the commercial process” or that the “design . . . was never a matter of concern to the purchaser.” Id. (citing Best Lock Corp. v. ILCO Unican Corp., 896 F. Supp. 836, 843 (S.D. Ind. 1995)). Conversely, “the design of an auto-body part is important to consumers at least when they are deciding which car to buy.” Id. at 14.
Further ABPA argued that the designs protected by the Ford patents were dictated by function, noting that the replacement products need to physically fit into the previous space and mate with surrounding parts to match the vehicle’s overall aesthetic and that insurance provisions and government regulations dictate the design of covered products. Id. at 15–16. Regarding the second point, the court noted that “a stroll through a used-car lot (or autotrader.com) reveals” that these alleged regulations do not require replacement parts to be identical. Id. at 16. Regarding the first point, aesthetic-functionality, the Court declined to import in established trademark law to design patent law for three reasons: 1) no court had done so to date, despite the over 100 years of coexistence between the two bodies of law, 2) the two areas of intellectual property serve different purposes (ensuring customer protection and increasing competition versus providing exclusionary rights), and 3) trademark exclusionary rights are perpetual, whereas design patents have a finite term. Id. at 17. The Court further found that there were a number of alternatives that both could be, and had been, used as replacement parts that did not infringe Ford’s design patents, fitting into the vehicles and performed their intended function. Id. at 18. Accordingly, by distinguishing trademark protection from design patent protection, finding that numerous non-infringing alternatives provided the same function as the infringing components, and finding that the alleged governmental and insurance regulations were not as controlling as ABPA alleged, the designs protected by Ford were eligible for design patent protection.
With regard to ABPA’s summary judgement of unenforceability, the Court held that while repair of a patented item is permitted and the replacement of a sub-component of a patented item is permitted, the doctrine of patent exhaustion does not permit a replacement patented item to be made. Id. at 21. The key distinction regarding the auto-body components covered by the design patent was that the patents covered the auto-body components themselves, not the vehicle as a whole. Id. at 23. In this regard, while the purchaser of a vehicle is permitted to use and repair patented headlamps or a patented hood, the purchaser is not authorized to make or have made replacement patented headlamps or a patented hood. Id. As there is “no case dividing patent law . . . creating separate exhaustion doctrines for utility and design patents,” the analysis of what is patented plays key for both utility and design patents. In a multi-component machine where the entire machine is patented, the end purchaser is permitted to replace parts. However, where a purchased product is made up of multiple components all covered by patents, the end user is subject to the patent rights governing those discrete components. Id. at 24.
In summary, trademark law and design patent law remain two distinct bodies of law, patent exhaustion does not provide purchasers a license to have made a patented item, and declaratory judgement actions, while a substantial controversy between two parties is needed, can be properly brought by a trade organization when the original accused infringer no longer is subject to the original controversy.
A federal district court in New York recently held that embedded tweets could violate the exclusive right to display a copyrighted image. In 2016, Plaintiff Justin Goldman snapped a photo of New England Patriots quarterback, Tom Brady, with Boston Celtics General Manager, Danny Ainge. Goldman then uploaded the photo to his Snapchat Story. The image went viral, making its way onto Twitter, where it was uploaded and re-tweeted by several users. From there, media outlets and blogs published articles which featured the photo by embedding the tweets on their webpages. Goldman sued the media outlets for copyright infringement.
Under the Copyright Act, a copyright owner has several exclusive rights, including the right to “display the copyrighted work publicly.” To display a work is to “show a copy of it, either directly or by means of a film, slide, television image, or any other device or process.” It was undisputed Goldman held a copyright in the image. At issue in the case was whether the media outlets’ “embedding” the Twitter links violated Goldman’s right to display the image, even though the media outlets did not copy or save the photo on their own servers. The court construed the display right broadly, pointing out that the drafters of the Copyright Act intended the right to encompass a wide array of technologies, including those not yet contemplated when the law was drafted.
The defendants urged the court to rely on the Ninth Circuit’s ruling in Perfect 10 v. Amazon, and employ the “Server Test.” Under that test, “whether a website publisher is directly liable for infringement turns entirely on whether the image is hosted on the publisher’s own server, or is embedded or linked from a third party server.” Defendants argued that the photo was hosted on servers not owned or controlled by defendants, but by third parties. Embedding a tweet merely provided “instructions” for a user to navigate to a third-party server where the photo ultimately resided.
The court rejected this reasoning, holding that the Copyright Act does not suggest possession of an image is necessary to display it. Moreover, the act of embedding the tweets created a “seamless” presentation of the photo on the news outlets’ webpages. By including the URL of the tweet in the embedding code, all defendants “took active steps to put a process in place that resulted in a transmission of the photos so that they could be visibly shown.” Additionally, the court highlighted a recent Supreme Court decision, American Broadcasting Cos., Inc. v. Aereo, Inc., in which a transmitter of content could not avoid liability based on “purely technical distinctions.”
This decision is of interest to all producers of digital content. Defendants and their amici sounded the alarm, arguing the court’s ruling “would cause a tremendous chilling effect on the core functionality of the web.” But importantly, the court explained there are a number of other defenses available. There is still an open question about whether plaintiff released his image into the public domain when he posted to Snapchat, a “serious and strong” fair use defense, defenses under the Digital Millennium Copyright Act, and limitations on damages as a result of arguably innocent infringement. K&L Gates will continue to monitor the case.
The case caption is Goldman v. Breitbart News Network, et al., No 17-cv-3114 (S.D.N.Y. Feb. 15, 2018).
On January 30, 2018, the USPTO quietly published a new revision (Revision 08.2017) to the Ninth Edition of the Manual of Patent Examining Procedure (MPEP). The revision includes amendments to a number of chapters, including notably the guidance regarding subject matter eligibility under 35 U.S.C. § 101. This includes changes in Chapter 2105 for living subject matter eligibility and Chapter 2106 for products of nature and software eligibility. The revision incorporates the contents of previous subject matter eligibility guidance documents that were provided on the “Subject Matter Eligibility” webpage of the USPTO. Although the MPEP does not have the force of law, unlike the CFR, patent examiners generally tend to follow the guidance provided in the MPEP. Accordingly, patent applicants dealing with Section 101 rejections should generally be starting with these revised MPEP chambers as a basis when crafting arguments to overcome such rejections.
Revised Chapter 2106 discusses the two-part Alice test including guidance regarding whether an invention falls under one of the statutory categories and whether an invention is directed to a judicial exception for an abstract idea. Of particular note, chapter 2106.05 provides expansive guidance for determining whether a claim amounts to something “significantly more” than an abstract idea. These “significantly more” arguments are often the best avenue for overcoming Section 101 rejections.
While the examples and conclusions are not changed from the previous guidance, the revised MPEP provides a consolidation of previous Federal Circuit decisions grouped by the appropriate subject matter eligibility test. For example, Chapter 2106.05 is partitioned into separate sections for claims directed to (a) an improvement to the functioning of a computer, (b) a particular machine, (c) a particular transformation, (d) well-understood, routine conventional activity, (e) other meaningful limitations, (f) mere instructions to apply an exception, (g) insignificant extra-solution activity, and (h) a linking to a particular technological environment or field of use. The Federal Circuit cases discussed within each of these separate sections should make it easier for examiners and patent applicants to identify which set of cases most closely resembles the claims under examination.
A new Chapter 2106.07 provides formal guidance for examiners in making subject matter eligibility rejections and responding to responses from patent applicants. While subject matter eligibility rejections have generally improved, this section provides patent applicants a better foundation for challenging inadequate rejections that are made without sufficient consideration of the claim elements. In addition this section addresses the preemption doctrine, where patent applicants can argue that an invention is not abstract because it does not preempt a certain technical field. Preemption arguments typically do not receive much weight during patent examination. Going forward, chapter 2106.07(b) advises examiners to reconsider the eligibility analysis if the patent applicant argues that the claim is specific and does not preempt all possible applications of an “abstract idea”: “[s]uch reconsideration is appropriate because, although preemption is not a standalone test for eligibility, it remains the underlying concern that drives the two-part framework from Alice Corp.” This formal guidance now in the MPEP should give preemption a greater weight when examiners consider subject matter eligibility.
While the MPEP has been revised, it appears the USPTO is maintaining the “Subject Matter Eligibility” webpage to reflect current Federal Circuit decisions that affect subject matter eligibility as well as to maintain the repository of examples applying the guidance (now MPEP sections) to hypothetical claims. Of particular note, the webpage includes a chart updated February 5, 2018 to reflect the holding from Finjan, Inc., v. Blue Coat Systems, Inc., which is not discussed in the revised MPEP, and which was treated in another recent alert.
K&L Gates will continue to monitor subject matter eligibility criteria and provide updates regarding any developments.
One Friday 9 February, the Federal Court handed down its highly anticipated decision in Meat & Livestock Australia Limited v Cargill, Inc  FCA 51. The matter has attracted substantial media attention in Australia and generated debate about whether patents claiming methods which use genetic information should be allowed.
The principal claims of the application in suit involve method claims for identifying a trait of a bovine subject from a nucleic acid sample. In particular, the invention made use of single nucleotide polymorphisms (SNPs).
In its decision, the Federal Court rejected Meat & Livestock Australia’s (MLA) principal grounds of opposition to the grant of the patent, the result being that the application may proceed to grant subject to amendments to address issues of clarity and definition.
MLA’s principal ground of opposition was that the claims of the patent did not satisfy the “manner of manufacture” requirement, that is, the patent application did not claim patentable subject matter.
MLA had argued that the invention was merely the discovery and use of naturally occurring polymorphisms (ie, SNPs) in nucleotide sequences that are associated with naturally occurring traits. His Honour rejected that argument and found that the principal claims were not simply directed to the SNPs or their association with the trait per se. The Federal Court distinguished the High Court’s decision in D’Arcy v Myriad Genetics Inc  HCA 35 (Myriad), which found that claims to certain isolated nucleic acids were not patentable subject matter. It was noted that all members of the High Court in Myriad were concerned with what in substance was claimed. In this case, the Court found that the invention as claimed involved the practical application of a naturally occurring phenomenon to a particular use.
Of note, MLA also argued that the patent, if granted, would have a chilling effect on future research in the livestock industry in Australia and would be contrary to the interests of the Australian public. The Court found that there was no cogent evidence to support that contention. Further, the Court noted that the breadth of the claims in a separate patent, of which MLA was a co-owner, hardly sat well with MLA’s “chilling effect” argument.
The decision provides assurances that claims directed to the application of genetic material to a particular use continue to be patentable in Australia.
K&L Gates acted for Branhaven LLC, the successful applicant for the patent.
Mr and Mrs Di Latte engaged the plaintiff, Milankov Designs & Project Management Pty Ltd (Milankov), to design and prepare drawings for a home to be built at the Di Lattes’ property. The agreement provided that Milankov would prepare plans for stages of the design and build process – first, the development stage and, second, the construction drawing stage. The Di Lattes agreed to pay Milankov a percentage of the build cost, to be billed to the Di Lattes at various stages throughout the process.
After Milankov had prepared the stage one plans (including plans submitted to council for building licence approval) and the Di Lattes had paid several invoices issued by Milankov, the relationship between the parties broke down. The engagement contract was terminated by the Di Lattes, and Milankov promptly wrote to the Di Lattes putting them on notice that Milankov owned copyright in the plans it had created and that the Di Lattes were not entitled to reproduce the plans without its permission, including by building the house at their property.
Nonetheless, the Di Lattes proceeded to engage an architect to create plans including construction drawings by copying Milankov’s plans, and then to construct a house in accordance with the design.
Milankov commenced proceedings for copyright infringement against the Di Lattes and the architect. The Di Lattes admitted that Milankov owned copyright in the plans and that they had used the plans to proceed with the build, but argued that they were entitled to do so. The Di Lattes claimed that their agreement with Milankov contained an implied term that allowed the plans to be used by them in order to construct the house at their property. The architect claimed that if he had infringed Milankov’s copyright, he was an “innocent infringer” (and so not liable to pay damages) as he believed the Di Lattes were entitled to authorise him to use the plans.
Justice Martino rejected these defences and found that Milankov owned copyright in the plans it had created and that the Di Lattes and the architect had infringed that copyright by creating or authorising the creation of the construction drawings and the Di Lattes’ house. His Honour found that there was no implied licence in the agreement between the Di Lattes and Milankov to use the plans for this purpose. His Honour referred to authorities which establish the general rules that:
contracts between an architect or house designer and client/ owner are a class of contracts into which such a licence is implied unless such a licence is excluded by an express term or is inconsistent with the terms of the agreement; and
the implied licence extends so as to enable parties such as builders, architects or draftspeople engaged by the client/ owner to make copies of the plans and to use them to construct a building at the relevant property.
In this case, his Honour found that whilst the contract did not contain an express term excluding the implied licence, the implied licence was inconsistent terms with the contract. In particular, it could not be implied that the Di Lattes were licenced to use the stage one drawings for the purpose of engaging a third party to create construction drawings to build a house given that the contract stated that Milankov would prepare the construction drawings.
His Honour found that the architect’s defence of “innocent infringement” was not made out as the architect did not have a reasonable basis for believing that the Di Lattes were entitled to authorise him to reproduce the plans. The architect knew the plans were created by a third party subject to an agreement and, whilst he had asked the Di Lattes about the terms of that agreement, he never asked to (and did not) actually see the agreement.
The defendants were ordered to pay Milankov almost AUD160,000 in compensatory damages, being the amount that Milankov would have earned if it had continued with creating the stage two drawings for the build under the agreement.
This case serves as a warning to builders, architects and draftspeople, as well as customers. The decision is a reminder of the risks involved in referring to another’s work when creating house plans or building a house, even when those plans were created for the same customer. The case also highlights the issue of implied licences that run with building plans. In this case Milankov was fortunate, but best practice for builders and designers is to have their customer agreements reviewed by a lawyer to ensure that these contain an express exclusion of the implied licence. If not, circumstances can arise where copyright owners are not paid for their work and are helpless to stop further reproduction.
EasyGroup Ltd has suffered a blow in a High Court case against W3 Ltd, with the judge finding that its word mark, EASY, was invalid.
EasyGroup found itself facing a claim from W3 Ltd for groundless threats, in relation to letters of complaint it sent regarding the branding of one of W3’s businesses, EasyRoommate. As a counterclaim, EasyGroup alleged that W3’s use of the registered word mark and logo EASYROOMMATE, infringed its community registered trade mark, EASY, with W3 in turn stating that such a mark should be invalidated for being too descriptive under Article 7(1)(c) of the EU Trade Mark Regulation.
As to W3’s claim, the claimant recognised that the letters of complaint could not in themselves be considered a threat of action in relation to trade mark infringement, as the letters only addressed the services provided by EasyRoommate (which were not considered to constitute actionable threats under the relevant UK legislation that was in force at the time). However, it argued that, as the draft undertakings and draft particulars of claim attached to the letters addressed the use of any mark in relation to either goods or services that could be confused with the EASY mark, the threats made were broad enough in nature so as to come under the threats regime. This claim was dismissed by the judge, who stated that under the reasonable person test, the complaints in question were confined to those set out in the letters.
As to EasyGroup’s counterclaim, Arnold J commented that the trade mark EASY was descriptive in nature and therefore needed to have acquired a distinctive character through use. He concluded that this had not occurred for the relevant industries i.e. advertising / temporary accommodation services because the EASY mark was always used in conjunction with an affix and would not be recognisable, in respect of goods and services falling within those specific categories, on its own. As such, he declared that its registration for those sectors was invalid.
In addition, Arnold J stated that, on the relevant dates, (i) EasyGroup had failed to establish through use, that EASY was both a distinctive and dominant component of EasyGroup’s EU trade marks, and (ii) there was no evidence that EasyGroup’s reputation had extended to the degree that EasyRoommate would have either benefitted from any transfer of image from, or gained an unfair advantage through an association with, EasyGroup. For these reasons, he concluded that the EasyRoommate mark was not an infringement of EasyGroup’s IP rights.
The key takeaways from this case are two fold. Firstly, given the size and wide-reaching brands of EasyGroup, it is clear that the threshold that must be met to prove distinctiveness through use is significant, particularly when the use of a mark in practice deviates from the form in which it is strictly registered. Secondly, although the judgment was decided under the old UK threats regime (such rules having been updated in October 2017), it continues to provide useful guidance under the new regime as to the types of correspondence that could qualify as a claim for groundless threats.
Trade mark holders may need to reassess their commercial and international marketing strategies as the proposed amendments to the parallel importation provisions of the Trade Marks Act 1995 (Cth) (Act) take a step closer to enactment by the Australian Parliament.
The proposed amendments to the Act, contained in the draft Intellectual Property Laws Amendment (Productivity Commission response Part 1 and other measures) Bill (Draft Bill) will favour parallel importers in Australia.
The Sixth Circuit Court of Appeals recently held that a reasonable jury could find a design pattern on rifle scopes is “nonfunctional” and thus potentially amenable to trade dress protection. Since 2002, Leapers, Inc. has been selling adjustable rifle scopes with knurling on the surface. Knurling is a common manufacturing technique that allows users to grip and fine-tune products more easily.
Leapers asserted “that it uses a unique knurling pattern that is distinctly ‘ornamental’ and by which customers recognize [Leapers] as the source of the product.” Leapers had executed an exclusive manufacturing contract with a Chinese company, but chose to end that relationship in 2011. The manufacturer agreed to cease using all technical specifications and designs, but later a factory manager from the manufacturer formed his own company and began manufacturing scopes allegedly using Leapers’ knurling design.
Leapers sued for trade dress infringement. Under the Lanham Act, “a plaintiff must show that its design is
(2) has acquired secondary meaning, and
(3) is confusingly similar to the allegedly infringing design.”
The nonfunctionality requirement serves to “channel the legal protection of useful designs from the realm of trademark to that of patent.” A plaintiff must demonstrate that its design neither “is essential to the use or purpose of the article” nor “affects the cost or quality of the article.” As the Sixth Circuit explained, “the burden of proving nonfunctionality is unusual because it requires a party to introduce affirmative evidence that a quality is not present—to introduce ‘evidence of an absence’ rather than merely an absence of evidence.” Evidence of a design’s roots in aesthetics can support a finding of nonfunctionality.
Leapers also had to show the knurling design lacked “aesthetic functionality.” Designs have aesthetic functionality when they manifest a “use, purpose, cost, or quality of the product in a way that competitors cannot avoid replicating without incurring costs ‘not to copy but to design around.’” By contrast, a design communicating “the source of the article—rather than anything about the article’s use, purpose, cost, or quality—is not functional.” Leapers offered evidence that its design was chosen for ornamental reasons; the design did not actually enhance functionality (in fact, other designs did the job better); and that competition in the rifle scope market is motivated by a grip’s performance in adjusting the scope, rather than “on the visual appeal of knurling or of adjustment knobs more generally.”
In granting summary judgment in favor of the defendant, the district court found that “Plaintiff’s trade dress is a functional grip, not just decoration.” But on appeal, the Sixth Circuit reversed. Leapers’ testimony that it was unaware of any functional benefit to the design, combined with evidence that the design was chosen merely for aesthetic reasons, was sufficient to support a possible jury finding that Leapers’ “design is purely ornamental and therefore nonfunctional.”
The court thus vacated summary judgment and remanded for further analysis of the remaining infringement elements, including secondary meaning. K&L Gates will continue to monitor this case and other trade dress cases in the consumer retail market. The ability to resolve product design trade dress cases prior to trial remains an important strategic consideration for both plaintiffs and defendants.
The case caption is Leapers, Inc. v. SMTS, et al., No 17-1007 (6th Cir. Jan. 10, 2018). Click here for the opinion.
Looking back at 2017, statistics give us a better understanding of the big picture and help us interpreting the market to guess in which direction the economy is going to go.
Since 2010, trade mark and design applications have seen an exceptional growth. Trade mark filings, annually, exceeded 10% globally and about 7 million trade mark applications were filed worldwide in 2016, which indicates a 16.4% increase compared to the previous year. In terms of design applications, in 2016 we have seen a 10% increase for the second consecutive year with nearly a million applications filed worldwide.
Once again, statistics confirm that growth is driven by China, where more than 50% of the global design applications were filed in 2016 and trade mark applications increased by 30% in the same year. The U.S. performed better than the EU in terms of trade mark filings. However, the EU follows China in the number of design applications filed yearly.
Interestingly, agriculture, research and technology and business services were the top three sectors in which trade marks were filed in 2016. Whereas, furniture was the most registered product worldwide. Additionally, international applications did quite well, considering that Madrid international applications increased by more than 9% and Hague filings grew by 36% in 2016.
Trade mark and design statistics certainly prove that protecting intellectual property has become a priority across industries and an essential asset to fairly compete within the market.