On July 1, a new law took effect in the Commonwealth of Virginia that provides trademark owners an additional enforcement tool for trademark infringement actions.  Under the Virginia Trademark Counterfeiting Act, the state’s trademark law is expanded so that marks registered with the USPTO — rather than simply marks registered with the state — are covered by the law.  Thus, owners filing suit in Virginia for infringement of a federally registered trademark can seek remedies under both the federal Lanham Act and the Virginia state act.

The new law also increases the criminal penalties for trademark infringement in Virginia.  The first act of infringement is considered to be a class 1 misdemeanor, with a penalty of up to 12 months in jail and/or a fine of $2,500 (i.e., doubling the sentencing period, and increasing the fine by 150%, compared to the previous law).  If an infringer possesses 100 or more copies of a same infringing merchandise, the penalty may be increased to five years in jail, or in the alternative one year in jail and a $2,500 fine.

For the full text of the changes to Virginia’s trademark law, click here.

The USPTO recently issued a forceful “no” to an applicant who tried to do so.  In 2003, patent attorney Andrew Knight began promoting the idea of “storyline patents”, and he sought claims covering methods of performing and displaying certain combinations of plot elements. 

Thanks to Peter Zura’s 271 Patent Blog for first reporting on a USPTO Office Action that reads more like a legal brief — or perhaps a law review article — than the typical USPTO rejection.  Describing the history of US and English intellectual property laws since 1624, the Office Action lays a constitutional foundation for its rejection, explaining that:

Congress created two separate forms of intellectual property - copyrights (under the Coypright Act of 1790) and patents (under the Patent Act of 1790) to protect the rights of authors and inventors respectively. . . . Throughout the entire history of the republic, Congress has maintained this dichotomy.

The USPTO’s action also included a heavy dose of policy, asserting that “such a class of intellectual propety would actually have the effect of discouraging the progress of science and the useful arts”, and that  “storylines are not subject to improvement.  Storylines may be changed, but not improved.”  The Office Action suggests that patents on storylines would have prevented the publication of Moby Dick, which used portions of a storyline originally created by Owen Chase. 

In May 2008, the applicant filed a detailed response, and this case is likely heading for appeal some time over the next year. 

Early-stage companies seeking to grow, established companies looking to expand or repair facilities, and investment groups seeking to acquire companies often finance transactions with loans that are secured by assets of the company as collateral.  In many such transactions, intellectual property is a large portion of the collateral.  A lender who takes a security interest in IP must perfect its interest in the IP in order to obtain priority over others who might have interests in the IP.

So what are the procedures to perfect a security interest in IP?  It depends on the type of IP that serves as collateral.  Details follow below.

Article 9 of the Uniform Commercial Code (UCC) sets out the general procedures for perfecting security interests – in most cases the method is to file a financing statement with a relevant state agency.  However, this requirement doesn’t apply for items where another law preempts the UCC method.  Thus, the question in each case is whether the statute governing the IP preempts the UCC perfection procedures.

Patents:  The U.S. Patent Act does not expressly require recording of security interests.  Therefore, recording at the USPTO is not required to perfect a security interest in a patent, and UCC filings will perfect the security interest.  However, a lender who does not record a lien at the USPTO still assumes some risk.  Section 261 of the Patent Act states that any assignment or conveyance is void against a subsequent purchaser or mortgagee unless it is recorded with the USPTO within three months of its date or prior to the subsequent purchase or mortgage.  Therefore, a dishonest borrower could assign the patent to someone else, and the lender could lose its ability to obtain the patent if it failed to record the lien with the USPTO.  (In brief:  UCC-1 filing is required. USPTO filing is recommended but not required to perfect.)

Trademarks:  Like the Patent Act, the Lanham Act does not require USPTO recording of security interests in order to perfect.  However, also like the Patent Act, Section 1060 of the Lanham Act states that a trademark assignment is void against a subsequent purchaser unless it is recorded with the USPTO within three months of its date or prior to the subsequent purchase.  Thus, a lender also bears some risk if it does not record a trademark assignment with the USPTO.  In addition to the recording, the lender should ensure that the lien document grants the lender rights not only the mark, but also the goodwill associated with the mark.  (In brief:  UCC-1 filing is required. USPTO filing is recommended but not required to perfect.)

Copyrights:  The law relating to perfecting security interests in copyrights is a bit more complex than that for patents and trademarks.  For registered copyrights, courts addressing the issue have stated that perfection of a lien requires recording evidence of the lien with the Copyright Office.  In contrast, for unregistered copyrights, courts have stated that a UCC filing is all that is required.  To be prudent many lenders record liens in registered copyrights with both the Copyright Office and applicable state financing statement filings, while unregistered copyrights are recorded in state financing statement filings.  (In brief:  For unregistered copyrights, UCC-1 filings are required.  For registered copyrights, Copyright Office filings are required and UCC-1 filings are recommended.)

On June 10, the state of Connecticut enacted a new law requiring safeguards on the paper and electronic storage of personal information.  The new law, which takes effect October 1, 2008, may regulate any entity that stores credit card numbers, other account numbers, social security numbers, and other personally identifiable information.

According to a Privacy and Security Alert published by Peter Adler of Pepper Hamilton LLP:

To comply with the safeguard provisions of the Connecticut law, businesses will be required to classify the data they handle, identifying which of the data is personal information and map the flow of the personal information as it is received, processed, stored, transmitted and discarded. . . .  Personal information must by rendered unreadable before disposal. Simply erasing hard drives and other electronic media will not be sufficient, as erasure does not guarantee that electronic information is no longer recoverable.

For more details about the law and the full alert, click here.

The Federal Trade Commission (FTC) recently issued new rules under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (better known as the CAN-SPAM Act).  The new rules clarify, among other things, that the Act covers emails sent by non-profit organizations.  The rules also impose specific requirements on identification of the sender.

Rob Auritt and Sharon Klein of Pepper Hamilton LLP recently wrote a Privacy and Security Alert that describes the new rules in detail.  For example, according to the Alert:

The new rule makes clear that forcing a receipient to visit multiple web pages or providing any information other than an e-mail address and/or a recipients opt-out preferences is a violation of the Act.

To read the full Alert, click here.

This week the U.S. Supreme Court once again took action in the field of patent law.  This time, the Court addressed the “patent exhaustion” doctrine, which limits a patent owner’s right to restrict subsequent sales of a patented item after an initial, authorized sale occurs.  The Court’s decision has been the topic of much attention in the legal media this week.  However, it leaves at least two questions unanswered, and patent holders should consider those questions when drafting license agreements or filing patents in the future.

In the June 2008 decision, Quanta Computers Inc. v. LG Electronics Inc., the Court held that the patent exhaustion doctrine covers not only patented articles, but also patented methods.  As a bit of background:  the patent exhaustion doctrine first arose in 19th-century Court opinions which held that ”when a [patented] machine passes to the hands of the purchaser, it is no longer within the limits of the monopoly.”  (Bloomer v. Millinger, 1 Wall 340, 351 1864.)  Over the years, the Court has stated several reasons for this doctrine, including the desire to “promote the progress of science” rather than “the creation of private fortunes for the owners of patents”, and also to give downstream purchasers certainty as to their right to purchase, sell and resell a used (or re-distributed) item. 

In Quanta, the Court extended the patent exhaustion doctrine to patented methods.  In Quanta, LG licensed to Intel several patents relating to data processing and data traffic management methods.  The license agreement permitted Intel to make, use, and sell microprocessors and chipsets that used the LG patents.  However, the license agreement stated that it granted no license that would permit third parties to use the licensed microprocessors and chipsets with non-LG harware.   After Quanta and other computer manufacturers purchased the microprocessors and chipsets from Intel, LG sued Quanta and the others for patent infringement, asserting that Quanta et al. infringed the LG’s patented methods.

The Court held that LG could not enforce its method claims against Quanta et al. because the defendants purchased the microprocessors from a licensed manufacturer (Intel).  Although the method claims also required use of a bus and cache memory not present in the Intel products, the Court stated that the Intel products “constitute a material part of the invention and all but completely practice the [method claims of the] patent.”  Because the Intel products carried out all of the inventive methods when combined with standard components, the Court held that the Intel’s license to sell patented products barred LG from limiting how Intel’s customers could use those products.

As noted above, the Court’s decision has received much attention this week.  However, two small statements in the Court’s opinion have the potential for wider impact as other courts apply and interpret the case. 

First, in a footnote the Court mentioned that the patent exhaustion doctrine does not necessarily preclude breach of contract claims.  In other words, patent licensors may not be able to pursue infringement actions against downstream purchasers, but if a license agreement imposes conditions on resale, then licensor may be able to pursue a breach of contract claim if the resale does not comply with those conditions.  Licensors may wish to take advantage of this opportunity when drafting license agreements.

Second, the Court noted that, while in general the patent exhaustion doctrine is limited to the licensed patent, the patent exhaustion doctrine may, in some cases, apply across multiple patents.  The Court did not establish standards for when this could occur.  However, the possibility may create a concern for companies that have multiple patents that are closely related.  Depending on how it is applied in the future, it also may cause companies to re-think a common strategy of patenting a product, and later patenting a new method of making or using the product.

When a software license agreement imposes restrictions on transfer or resale of the software, is that restriction legally effective?  A recent decision from a district court in the state of Washington suggests that the answer may be “no” if the license governed a transfer of a physical copy (such as a CD) of the software and did not require the transferee to return the copy at the conclusion of the contract’s term. 

More on the court’s decision in Vernor v Autodesk follows below. 

In the U.S. Copyright Act, the “first sale” doctrine permits a person who owns a lawfully-made copy of a copyrighted work to sell or otherwise transfer the copy.  This doctrine arises under Section 109(a) of the Act, which states:

the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

A critical term in Section 109(a) is “owner”, as numerous courts have held (and the U.S. Supreme Court has acknowledged) that the first sale doctrine does not apply to a mere licensee.

A Washington state district court recently examined a software agreement and, despite the agreement’s use of the term “license”, concluded that the agreement governed a sale of a physical copy, rather than a license.  Concluding that the transaction was a sale with contractual restrictions on use and transfer, the court in Vernor v Autodesk (W.D. Wash. May 20, 2008 ) held that an individual who acquired a physical copy of Autodesk’s copyrighted AutoCAD software could resell that copy on eBay. 

The court reached its conclusion despite contractual language stating that:  (1) the agreement granted a “nonexclusive, nontransferable license to use the enclosed program . . . according to the terms and conditions herein,” and (2) it imposed a “restriction” against the “rent, lease, or transfer [of] all or part of the Software.” 

The Court’s reasoning focused on a 1977 Ninth Circuit decision in United States v. Wise, which examined licenses between movie studios and recipients of film prints, and which focused on whether the applicable agreement expressly reserved title in the physical copy, such as by requiring the licensee to return the physical copy of the print to the movie studio.  In Wise, the Ninth Circuit conluded that contracts which allowed the recipient to keep the physical copy of the film were sales, not licenses, and that the first sale doctrine was available under such contracts.

Since Wise, the Ninth Circuit has examined several software agreements which did not expressly require return of physical copies, and the court concluded that (despite Wise) those agreements were licenses rather than sales.  However, in Vernor the district court declined to follow those later decisions, stating that it was bound by Wise as the earliest decision, despite the “unavoidable” conflict between Wise and the later decisions.

It remains to be seen whether the Vernor case will be appealed, or how the conflict in the Ninth Circuit will be resolved.  Until then, licensors who transfer physical copies of their software may wish to consider adding clauses that expressly retain title and require return of physical copies upon completion of the license term.

My colleague Peter Adler is hosting an online webinar on compliance with information security requirements such as HIPAA, GLBA, FISMA, the FTCA, state laws on privacy and notice of breach laws and private contractual standards such as the Payment Card Industry Data Security Standard (PCIDSS).   The discussion will include a unified approach to security compliance that leads to simultaneous compliance with multiple laws and regulations.

The webinar is scheduled for June 4 at 8:00 am EDT.   For details on how to register, click here.

In the United States and many other countries, it’s common to mark patented products with the patent number.  Although marking is not required, it’s beneficial because marking serves as constructive notice to the world that the product is patented.  Thus, damages for patent infringement can begin to accrue on the data that the patent holder began marking its product in a continuous and conspicuous manner — even if the infringer had no actual notice of the patent at the time. 

Falsely marking a patent product, however, can create liability.  Anyone who falsely marks an unpatented product with a patent number for the purpose of deceiving the public violates Section 292 of the Patent Act and risks liability. 

It’s common for companies to list a “lanudry list” of patents on a product, and patent numbers often remain on the product after the patent expires.  However, this practice creates a risk of liability.  According to the Federal Circuit, an “unpatented article” is one not covered by at least one claim of each patent with which the article is marked.  Thus, whenever a product design changes, companies should review the patent markings to ensure that the patent still covers the product.  Also, the Eastern District of Virginia recently answered “yes” to to the question of whether an expired patent can give rise to a false marking claim.  In Pequignot v Solo Cup,  the court held that going forward from the date of a patent’s declaration, an article becomes “unpatented.”  

Liability under Section 292 still requires evidence of bad faith.  Since bad faith can be a subjective determination, patent holders should regularly review their product lines and remove expired patent numbers, as well as patent numbers that no longer cover the current product, from their marking protocol.

On May 8, 2008, the U.S. House of Representatives passed H.R. 4279, known as the Prioritizing Resources and Organization for Intellectual Property Act  — “PRO IP” for short.  The bill would revise various enforcement-related revisions to U.S. copyright and trademark laws.  Key sections of the bill include:

• a revision to the Copyright Act protecting the validity of copyright registrations that have a harmless error — specifically, the revision will excuse any inaccuracy in a copyright certificate of registration so long as the inaccuracy was not knowingly put into the application and correction of the inaccuracy would not result in refusal of registration;
• sections increasing statutory damages in counterfeiting actions and allowing treble damages in trademark infringement actions involving counterfeit goods if the violation was intentional;
• an expansion of Section 602 of the Copyright Act (which prohibits importation of infringing copies) to also cover exportation;
• a section increasing the government’s authority to sieze property used in connection with copyright infringement; and
• the creation of an IP Enforcement Division in the U.S. Department of Justice, the appointment of an IP adviser to the President, and the appointment of IP enforcement officers in foreign countries.

A companion bill is expected to be introduced into the U.S. Senate soon.