For patent law, 2008 was a year on the verge of upheaval. Patent law, and patent office policy, is in a state of flux. Many proposals have been circulated for patent “reform.” A common refrain is the need to reduce backlogs and application pendency, increase patent “quality”, and rein in business method and software patents. These issues are being debated in Congress, in academic circles, and at the Patent Office. Meanwhile, the courts are taking their opportunity to clarify, and sometimes correct, the existing law as the opportunity arises.

What follows are summaries of a few of the biggest patent stories of 2008.

USPTO Continuation and Claims Rules

In 2007, the United States Patent and Trademark Office proposed new rules, with retroactive applicability, limiting the number of claims and continuations an application is allowed. The rules would have essentially limited an application to 5 independent claims and 25 total claims. Under the rules a maximum of two continuation applications and one Request for Continued Examination (RCE) would be allowed for each application.

Late in 2007, suit was filed by pharmaceutical company GlaxoSmithKline (GSK) and inventor Triantafyllos Tafas to enjoin the USPTO from implementing the new rules. The District Court for the Eastern District of Virginia granted a preliminary injunction just before the rules were to have gone into effect.

In 2008, the suit continued to its conclusion, with the Judge granting Tafas’ and GSK’s motions for summary judgment. The Judge held that the proposed rules were substantive in nature, and thus went beyond the USPTO’s rulemaking authority in violation of the Administrative Procedure Act.

The case is currently on appeal at the Federal Circuit, where oral argument was held in December. Based on the facts and on the questioning at the oral argument, most believe that the Federal Circuit will uphold the lower court’s decision.

Other USPTO Proposed Rules

Besides the claims and continuations rules, the USPTO promulgated a number of other new regulations related to appeal briefs, Information Disclosure Statements (IDS), and Markush claims. The new appeal brief rules were meant to deal with the crush of new appeals that would be filed in response to the new limitation on the number of continuations and RCEs that would follow from the continuations rules. Ostensibly, the new appeal rules were meant to streamline the appeal process, however they appear to impose onerous and unnecessary burdens on applicants, greatly increasing the cost of appeal.

The new IDS rules would require an applicant submitting more than 20 references relevant to the examination of an application to give a detailed explanation of each one. This would greatly increase the cost of filing new applications and would expose practitioners to allegations of unethical conduct if mistakes were made in the detailed explanation.

The USPTO released these rules with the claim that they would add no significant regulatory burden on applicants. Unfortunately, there was no data to back up that claim. David Boundy, the Vice President of Intellectual Property for Cantor Fitzgerald L.P., and Dr. Richard Belzer, a former staff economist in the Office of Management and Budget (OMB) led the drive to submit estimates of the enormous burden of complying with the new regulations to the OMB.

The OMB took note, and the USPTO was forced to shelve the new rules for the time being. Shortly thereafter, incoming President Obama requested that all new agency rulemaking be suspended to give him an opportunity to review it as the new administration took over. It remains to be seen whether these proposed rules will be revived in 2009.

Patent Reform Legislation

The Patent Reform Act of 2007 (S. 1145) was passed by the House in September, 2007 and reported by the Senate Judiciary Committee in January, 2008. However, the Act was a lightning rod for various interest groups and got bogged down in committee. With U.S. patents valued in the tens of billions of dollars, any change in patent rights is sure to draw great interest from a number of different industries willing to bring their lobbying clout to bear. As a result, the bill never reached the Senate floor and was removed from the Senate calendar.

The bill would have made a number of important changes to patent law. For example, it would have changed the U.S. patent system from first-to-invent to first-to-file. In a first-to-invent system, under many circumstances the person with the earliest invention date is given priority, regardless of the date their patent application is filed. Under a first-to-file regime, priority is given to the application with the earliest filing date, regardless of the date of invention.

The switch from first-to-invent to first-to-file would bring the U.S. in line with the rest of the world and avoid the need for costly interference proceedings to determine who was truly the first to invent when the issue is disputed. However, the change would also disadvantage small inventors who are typically less experienced with the patent system.

The bill would also allow assignees to file patent applications on behalf of inventors, ban tax planning patents, allow third-party submission of documents relevant to patent examination, provide a new method for post-grant challenge of patents, and reduce damage awards for infringement by changing the way they are calculated. The bill was generally believed to reduce the value of patents.

Late in the year Senator Jon Kyl introduced a revised patent reform bill to compete with the original bill put forward by Senator Patrick Leahy. Both bills are likely to be reintroduced early this year.

The New Administration

Of course, with the patent reform bill likely to be reintroduced, the question becomes whether the new administration will support it. It is unclear where President Obama stands on patent reform issues. During the campaign, he introduced a “gold-plated-patent” proposal, whereby applications could be given a very rigorous examination and would issue as patents with a special presumption of validity. However, this idea seems to have fallen by the wayside, as it was later dropped from Obama’s website.

One of President Obama’s top intellectual property advisors is Professor Arti Rai of the Duke University School of Law, who co-signed an amicus brief in support of the USPTO in Tafas v. Dudas. However, she has also opined that the proposed new USPTO rules would not have improved the application backlog and that the people in charge at the PTO should have a background in patent law. The administration has also been taking a balanced approach and considering input from a variety of sources, including practitioners.

Many speculate that with the ongoing economic crisis, policy issues such as patent reform will be relegated to the back burner. However, President Obama was formerly a law school professor and has expressed interest in the issue. It remains to be seen whether President Obama will choose to bring the issue to the forefront in 2009.

Two Important Cases

Two of the more important cases that were decided in 2008 were In re Bilski and LG v. Quanta.

In In re Bilksi the Federal Circuit handed down a new rule for subject matter eligibility, holding that a claim must be tied to a particular machine or apparatus or transform a particular article into a different state or thing in order to be patentable. In order for transformation of data to satisfy the transformation test, the data must be representative of a physical object or substance. For a complete analysis, see my article here.

In June, 2008, the Supreme Court of the United States decided LG v. Quanta, taking the opportunity to clarify the rule of patent exhaustion. The exhaustion doctrine has generally been applied to patented articles, holding that once such a product has been sold, there are no remaining restrictions on its use. The purchaser is free to resell it or use it in any way desired, without restriction.

In Quanta, the Supreme Court held that the doctrine extends to method claims when components are sold which substantially embody a method claim. Thus, the products sold can trigger the exhaustion doctrine even if they do not fully practice the claimed method.

Of note is that there were no contractual provisions in the license at issue in this case which would have restricted the actions of the purchaser. The Supreme Court noted that such provisions would present a different case. Most likely, such restrictions can be accomplished by contract law, through careful drafting of licensing agreements. Licensors should be aware of these issues during licensing negotiations, knowing that patent law may offer them no protection in this area.

Summary

All in all, 2008 was a year when patent practitioners and industry fought successfully against radical new regulations proposed by the Patent Office and by Congress.  The question for 2009 is whether the reform proposals will themselves be reformed, and if not whether their implementation will once again be successfully opposed.

Trademark Law

Trademark law is generally considered to be functioning well, and therefore not to be in need of the kind of regulatory overhaul pondered with respect to patent law. Rather, trademark law tends to evolve more steadily though new case law. Last year brought a number of interesting and timely cases.

Surname Rarity Rises to the Forefront

A debate has emerged among the judges of the TTAB as to the proper test for whether a mark is primarily merely a surname and must be refused registration. This issue first emerged in In re Joint Stock Company “Baik”, 84 USPQ2d 1921 (TTAB 2007), a case in which I wrote the winning brief that resulted in the reversal of the Trademark Examiner’s refusal to register the mark BAIK as primarily merely a surname.

In its decision, the Board relied on the rarity of the surname (several hundred listings nationally) and the fact that other similar surnames were also very rare. In a concurrence, one Judge argued against the use of similarity of the mark in sound and appearance to other surnames as a basis to refuse registration.

The purpose of refusing to register surnames is not to avoid exposing consumers to surnames, but only to ensure that other business owners with that surname can use their own surname in their business. From that perspective, it should make little difference whether a given surname has the look or feel of another common surname. Rather, the focus of the analysis should be on rarity, which determines the likelihood that a person with that surname will want to use it in business and be unable to.

Since then, the issue has arisen in other cases, but other judges have been unwilling to alter the surname test in light of this argument. The question that no one is bringing up is what exactly the threshold level is for rarity. How rare does a name have to be before it is registrable? This seems to be a question the Board does not want to answer. This issue is one to look out for in 2009.

The Doctrine of Fraud in Trademark Law – Strict liability, Danger for Foreign Mark Owners

Strict Standard

Trademark practitioners and applicants are held to a strict standard with respect to statements made to the Trademark Office. Several 2008 cases reaffirmed the TTAB’s strict stance with regard to fraud, namely that “fraud occurs when an applicant or registrant makes a false material representation that the applicant or registrant knew or should have known was false.” General Car and Truck Leasing Systems, Inc. v. General Rent-A-Car Inc., 17 USPQ2d 1398, 1401 (S.D. Fla. 1990) (emphasis added).

This issue often arises when a statement of use is filed listing goods or services on which the mark was not actually used. In in Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., 86 USPQ2d 1572 (TTAB 2008), the TTAB confirmed that such a misrepresentation is considered fraud and will invalidate the trademark for an entire class of goods and services, and not only those goods incorrectly included in the statement of use.

As the Board stated in that case, “Statements under oath are made with a degree of solemnity requiring thorough investigation prior to signature and submission to the USPTO.” Therefore, a lack of investigation will not excuse a false statement, nor will lack of legal advice, language difficulties, or inadvertent mistake. Actual fraudulent intent is not material.

The Board even held in Bose Corp. v. Hexawave, Inc., Opposition No. 91157315 (November 6, 2007) that a novel and untested legal argument that a trademark was used for a certain good is not enough to avoid a finding of fraud. Bose argued that the repair and transport of certain goods constituted use of the mark for those goods, but the Board found that argument, unsupported by case law, did not give Bose a reasonable belief that their statement of use was accurate. The mark was invalidated for fraud.

Correction of False Statements

In University Games Corp. v. 20Q.net Inc., 87 USPQ2d 1465 (TTAB 2008), the board held that correction of a false statement before publication of a mark gives rise to a rebuttable presumption that the applicant did not have the requisite willful intent to deceive the PTO. Someone seeking to invalidate the mark on fraud grounds would therefore have to produce sufficient evidence to overcome this presumption, a difficult task in most cases.

However, in Grand Canyon West Ranch, LLC v. Hualapai Tribe, 88 USPQ2d 1501 (TTAB 2008), the Board held that correction of a false statement after publication, but before any allegation of fraud, was not sufficient to avoid a finding of fraud.

A Trap for the Unwary Foreign Owner

Foreign owners are held to this strict standard as well. In most countries, unlike the United States, registration of a mark does not require use. As a result, many foreign registrations contain very broad listings of goods and services, not all of which the mark is necessarily used with. Foreign mark owners can rely on their foreign registration under Section 44 as the basis for a U.S. application and register their mark in the U.S. without claiming actual use and without verifying use of their mark on all listed goods and services prior to registration.

However, Section 8 of the Trademark Act requires a Declaration of Use between five and six years after registration of a mark in the U.S. In this declaration, the mark owner must certify that the mark is currently in use in the U.S. for all listed goods and services. If the mark is not being used on one or more of the listed goods and services, they must be canceled at this time to avoid a charge of fraud.

In Sierra Sunrise Vineyards v. Montelvini S.p.A., Cancellation No. 92048154 (September 10, 2008), a Statement of Use was filed verifying use of a mark on wines, spirits, and liquers, when the mark was not in use on liquers. This was found to be fraud and resulted in cancellation of the trademark registration. The Board held that confusion regarding the listed goods due to legal, language, and cultural differences between countries is not an excuse to fraud. It is the mark owner’s obligation to verify the precise meaning of the Statement of Use before signing it.

Bona Fide Intent to Use Requires Documentation

The Board decided a couple of cases on the grounds of a lack of bona fide intent to use in 2008. The Trademark Office takes an intent-to-use applicant’s required certification of a bona fide intent to use an applied-for mark in commerce at face value. However, that intent can be challenged in an opposition proceeding.

In L.C. Licensing, Inc. v. Berman, 86 USPQ2d 1883 (TTAB 2008) and Boston Red Sox Baseball Club Limited Partnership v. Brad Francis Sherman, Opposition No. 91172268 (September 9, 2008), the Board confirmed its general rule that documents supporting a claimed bona fide intent to use a mark in commerce are required to withstand a challenge on this basis. However, other evidence may be sufficient to explain the lack of documentation and support the existence of a bona fide intent to use.

The Board found in Red Sox v. Sherman that an argument that an online apparel business can be started almost overnight with no forward planning lacked credibility and was insufficient to overcome a lack of documentation. It is unclear what evidence would be sufficient to meet the Board’s test. It may be best for applicants to create supporting documentation in advance of filing an intent-to-use trademark application.

This is another issue that may arise with some frequency for foreign applicants, since bona fide intent to use, but not actual use, is required for Section 44 registrations relying on a foreign registration. Without supporting documentation, these registrations may be vulnerable to a cancellation proceeding (or opposition proceeding prior to registration).

I wish to thank the TTABlog for its insightful coverage of TTAB cases. I rely on the TTABlog throughout the year to keep me updated on the latest trademark cases. Much of the material for this condensed summary was drawn from the much more expansive TTAB year in review.

Copyright Law

The digital revolution, and the resulting difficulty of controlling the distribution of copyrighted works, has brought copyright law to the forefront of public perception. Not everyone needs or cares about patents or trademarks, but everyone has read a book, listened to music, or played a video game. The debates in copyright law center on the tactics employed by industry organizations for these various types of media and the support or lack of support for such tactics under the law.

In 2008, the biggest change to copyright law was brought about by enactment of the Prioritizing Resources and Organization for Intellectual Property (PRO-IP) Act. The PRO-IP Act makes three major changes to existing copyright law in order to help industry groups attack digital piracy.

IP Enforcement Coordinator

First, the Act creates a new government cabinet position, the Intellectual Property Enforcement Coordinator. The IP Enforcement Coordinator will chair an interagency intellectual property enforcement advisory committee (IIPEAC) also established by the Act and will develop and implement a new Joint Strategic Plan against counterfeiting and piracy. The purpose of this Coordinator is essentially to ramp up enforcement of copyright laws, focusing government resources and coordinating interagency actions in support of this goal.

Penalties

Second, it increases the penalties for copyright infringement by broadening the definition of a work. Where previously an entire album was considered a single work, each song on the album is now a separate work. That means that illegally downloading an album of ten songs now exposes you to the penalties inherent in illegally copying ten separate works, instead of only one.

Property Seizure

Third, the Act expands the ability of the government to seize and destroy property involved in copyright violations. “Any property used, or intended to be used, in any manner or part to commit or facilitate the commission of an offense” is now subject to permanent seizure. In other words, an illegally downloaded song may lead to the seizure and destruction of the computers and related equipment in your home or office.

Other Provisions

The bill contains numerous other provisions, most of lesser concern to consumers. The Act increases statutory damages for the use of counterfeit trademarks, increases the resources available to combat copyright infringement and cyber crimes (including the number of FBI agents responsible for investigating these areas), and requires the production of reports on the implementation of the Act.

Also included is a statement of Congressional intent that gives priority to combating organized crime and criminal counterfeiting enterprises, apparently indicating that the Attorney General should not focus on the actions of individual citizens.

Some of the provisions more frequently objected to were removed prior to final passage of the Act. One controversial provision that was removed would have given the Attorney General the power to sue citizens in civil court to enforce copyrights, taking some enforcement burden off of the rights holders. This was widely seen as a handout to industry. Provisions were also inserted to protect the privacy of information obtained by the seizure of property.

For more information, see the full text of the bill at http://thomas.loc.gov/cgi-bin/query/z?c110:S.3325:.