by Dennis Crouch

The bench was an active inquisitor in the Thryv v. Click-to-Call oral arguments held Dec. 9, 2020 before the U.S. Supreme Court.  This is the third post-AIA Supreme Court case focusing on the no-appeal provision of 35 U.8.C. § 314(d) (“determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable”).   [TRANSCRIPT]

Oral arguments focused on two major issues: (1) the extent that SAS limited Cuozzo; and (2) the importance of the time-bar since there are alternative fora for judging patentability and the patent is invalid anyway.

The first point — SAS limiting Cuozzo: In SAS (2018), Justice Gorsuch explained the holding in Cuozzo (2018) as follows:

Cuozzo concluded that § 314(d) precludes judicial review only of the Director’s “initial determination” under § 314(a) that “there is a ‘reasonable likelihood’ that the claims are unpatentable on the grounds asserted.

SAS. To be clear, if the no-appeal statute’s sole function is to block appeal of the reasonable-likelihood decision, then the decision is foreclosed in favor of the patentee (allowing appeal of the time-bar question).  However, as I suggested in a prior essay, I believe that Justice Gorsuch SAS opinion overstated Cuozzo’s holding. I suspect this was an intentional shading of Cuozzo made possible because of 5-4 split.  A smaller majority allows for a more extreme opinion.

This issue was ripe for discussion in the oral arguments with Thryv’s counsel Adam Charnes attempting to explain that Gorsuch’s SAS statement isn’t “wrong” per se, it just isn’t complete.  Charnes would obviously rather not require overturning of the Supreme Court’s most recent case on the subject in order to win.

JUSTICE GINSBURG: What do you do with the sentence in this Court’s SAS decision that says 314(d) precludes judicial review only of the Board’s initial determination under 314(a) that there is a reasonable likelihood that the claims are unpatentable?

MR. CHARNES: We think that that’s not a complete description of Cuozzo . . . .

JUSTICE GINSBURG: So you think that that was just a wrong sentence?

MR. CHARNES: I wouldn’t say it was wrong. . . . What I’d say is that the Court had no need to describe Cuozzo more broadly … because that was not the factual circumstance of SAS. …

JUSTICE KAVANAUGH: I think you are saying “it’s wrong,” to pick up on Justice Ginsburg’s question, at least the use of the word “only.”

MR. CHARNES: I think it’s not a complete description. I think that’s not the only basis that this Court explained in Cuozzo. I think that’s — that’s a fair point.

Justice Kavanaugh is the only new member of the court since SAS and his vote is likely critical to the outcome in this case. However, the most likely swing vote is Chief Justice Roberts.

The Gov’t attorney, supporting Thryv in its no-appeal argument and agreed that the SAS statement is wrong.

MR. ELLIS: (Representing the U.S. Gov’t and supporting the no-appeal argument)I do think that sentence is wrong, and I think it’s incomplete. . . . Cuozzo concluded more than that. And I think, if you look at the decision, you’ll see that.

The wrongness of Justice Gorsuch’s statement is potentially twofold: (1) it is clearly an unduly narrow statement of the holding in Cuozzo; and (2) it might also be an incorrect interpretation of the statute.  For me, this raises the interesting esoteric question about precedent and primary sources.  What is the precedential and stare decisis role of the Supreme Court’s (mis)description of its prior precedent.  Is the (mis)description now the leading precedent, or is it merely a secondary source helpful in interpreting the original decision.

Mr. Geyser has the easier case on these points — arguing that the patentee clearly wins under SAS, and should also win under Cuozzo.

MR. GEYSER: (Arguing for the patentee) We’re simply reading 314(d) to say exactly what this Court in SAS said it meant, which is it is limited to only the initial patentability threshold in 314(a).

My friend from the government now concedes that they think that [SAS] was wrong. I don’t believe they’ve asked this Court to overturn SAS. We don’t think that the Court was wrong.

JUSTICE KAGAN: Well, it’s not a question of overturning. It’s just — I think what they were saying is that SAS dealt with one issue in which it was unnecessary to recite Cuozzo’s full test, but Cuozzo has a broader test than SAS quoted.

MR. GEYSER: Well, to be very clear, I think that we win under Cuozzo as well, but I don’t think that the reasoning in that statement, which is a very plain statement in SAS, can be limited in that way.

[The “only” language in SAS] is an absolute part of the core holding of the case in rejecting what the government eventually framed as their primary submission in SAS.

The substantive issue on appeal in Thryv was the PTO’s interpretation of the time bar in § 315(b).  Although a lawsuit had been filed and served, the PTAB found that the time-bar was not triggered because that lawsuit had been dismissed without prejudice.  On appeal, the Federal Circuit found that the PTAB had misinterpreted the statute — holding that dismissal does not annul the time-bar.

The Patent Challenger and Government both argue that the a time-bar decision by the PTAB is not appealable. Justice Gorsuch pushed that question in an extreme example, and Charnes held his ground on no appeal:

JUSTICE GORSUCH: Let’s just hypothesize that someone has tried to undo this patent four times or maybe even more in a court of law, failed for various reasons every single time, and then comes to the director of patents, who has a political mission, perhaps, to kill patents, let’s just say. And it is clearly time-barred under the statute. Let’s just hypothesize that. And yet, the director goes ahead and does it anyway. Under your submission to the Court, I believe you’re saying that is a shenanigan this Court cannot review.

MR. CHARNES: It is correct that our submission is that’s not reviewable. The time bar is not reviewable.

JUSTICE GORSUCH: All right. The hypothesis, there’s no good faith, okay? The director of patent has a political desire for whatever reason to destroy this patent and many others. . . . In your circumstance, you’re telling the Court there’s no review of that decision, I believe, or maybe it’s not a shenanigan even in your — your view perhaps.

MR. CHARNES: Well, I think there is
— there is no review under — under 314(d). It may be that it’s an appropriate case for mandamus relief if the circumstances are as egregious as you suggest in your hypothetical. . . .

JUSTICE GORSUCH: So we’re going to just channel all these cases to mandamus? Is that — is that the upshot of your position?

MR. CHARNES: No, because mandamus is a rare relief. I mean, it would only be reserved for really egregious circumstances like your hypothetical.

JUSTICE GORSUCH: If the institution decision is not reviewable at all, how would it be mandamus-able? . . .

Mr. Ellis from the SG’s office added his two-cents with an argument along the lines of “you shouldn’t care about privacy if you have nothing to hide.”  In this case, his argument was that we shouldn’t worry since “you’re going to get review, judicial review of the patentability” question.

MR. ELLIS: What was open for review was that patentability analysis. Now Respondent opted not to challenge that patentability analysis. But, if it had merit, that would be judicially reviewable and then the patent wouldn’t be canceled.

This discussion takes us to the second general topic for discussion — is the time-bar a big deal.  In Cuozzo and in oral arguments here, the justices appeared reluctant to bar appeals of important issues such as due process violations and statutes of limitations.

CHIEF JUSTICE ROBERTS: Well, but, I mean, I don’t think it’s what we were fighting over at Yorktown. I mean, it’s just a question of whether — (Laughter.)

CHIEF JUSTICE ROBERTS: — as you said, the ultimate question, the ultimate issue that affects the property rights in a patent, it’s going to be reached. It’s just a question of whether you use one procedure or another. . . .

CHIEF JUSTICE ROBERTS: As I understand [Mr. Charnes] answer, at least part of it is more or less that this is small potatoes. It’s just about timing for — for the institution of the matter and that the basic issue of the patent validity is something you’re going to get to. You have a number of avenues to get to it.

The basic idea here is that even if the petition is time-barred, patentability could be raised in an ex parte reexamination or in a district court declaratory judgment challenge, or by a separate petitioner who was not time-barred:

CHIEF JUSTICE ROBERTS: [speaking about ex parte reexam] Well, it’s different, I’ll give you that, but, I mean, it’s focused on the same ultimate question. . . .

JUSTICE KAGAN: But if it’s not with
this Petitioner, it can be another Petitioner. . . And, indeed, even when a petitioner drops out under this statute, the Board can keep the proceeding going without the petitioner. So the fact that it is this Petitioner seems utterly unimportant under this statute.

Justice Ginsburg appeared to recognize that the time-bar is important:

JUSTICE GINSBURG: In Cuozzo, it was a particularity requirement, and that was described as a minor statutory technicality. But, here, we’re not dealing with a minor statutory technicality; we’re dealing with a time bar.

Justice Gorsuch provided a softball for the patentee’s counsel to answer:

JUSTICE GORSUCH: Well, I guess the question, though, that we’re struggling with is so what’s the big deal? If you’re stuck going to ex parte review anyway, why should we care? What’s your answer to that?

MR. GEYSER: … because inter partes review is a very different process than ex parte reexamination.

JUSTICE GORSUCH: Spell that out. Spell that out. Why?

MR. GEYSER: It’s because instead of having an opportunity for a single response, truncated discovery, you’re in an adversarial proceeding. You’re before a panel of three PTAB judges who might give you an hour oral hearing.

You get a long, iterative process with a talented patent examiner who can say this is what I think is wrong, and then you have lots of opportunities to show them exactly why
that concern is unfounded.

And, again, the PTAB is reversed a fourth of the time. It’s not like this process … is perfect or without error. . . .

JUSTICE KAGAN: It just doesn’t seem as though this petitioner makes all that much difference.

MR. GEYSER: Well, Congress felt otherwise in this heavily negotiated process that produced 315(b) as a fundamental safeguard for patents.

JUSTICE GORSUCH:  Why does it matter whether it’s one petitioner or another petitioner?

MR. GEYSER: To make sure that you don’t have someone gaming the system . . .

MR. GEYSER: And [Congress] understood that this [time-bar] is a significant protection for patent owners. And it’s a significant way to divide the authority between the courts on the one hand and the agency on the other.

There is a more detailed statutory interpretation question here — The no-appeal provision is directed to institution determinations “under this section” — i.e., Section 314, and the time-bar is found under Section 315 of the Code.  Under this “chapter”

JUSTICE KAVANAUGH: But “under this chapter” is used in the same provision [314(b)]. If we had “under this chapter” here [in 314(d)], that would solve your problem.

The petitioners here do a nice job of overcoming that argument and so I don’t see it as the basis for the decision, although the court may throw it in as an ancillary matter.

In the end, the case comes down to a strong presumption that agency decisions are subject to appeal in Federal Court. And, the question is whether congress did enough in the statute to overcome that presumption in this case.  Patentee’s counsel (who is aware of many cases) ended his arguments with an appeal to precedent and history:

MR. GEYSER:I would submit that I’m not aware of any case that this Court has ever decided that would find Article III review cut off entirely based on language as indirect as this.

We can look for a decision in this case in the Spring of 2020.  I am expecting a split opinion with the majority affirming — holding that the no-appeal provision has no force in this particular case.

Atlantic Works has had a profound impact on the development of patent law, particularly in shaping the doctrine of obviousness, but more generally providing theoretical frameworks for attacking “bad patents.”  As discussed below, I believe the case also provides some early insight into the new AI inventorship dilemma.

The case addressed the validity of a patent granted to Edwin L. Brady for an improved dredge boat design.  The Supreme Court ultimately reversed the lower court’s decision upholding the patent and found instead that Brady’s claimed invention lacked novelty and did not constitute a patentable advance over the prior art.

(more…)

by Dennis Crouch

The U.S. Court of Appeals for the Federal Circuit recently declined to issue a writ of mandamus directing the U.S. District Court for the Eastern District of Texas (Judge Gilstrap) to dismiss a patent infringement lawsuit against Charter Communications based upon improper venue. In re Charter Commc’ns, Inc., No. 2023-136 (Fed. Cir. Sept. 5, 2023). Although non-precedential, the decision highlights a key difference between motions to dismiss for improper venue under 28 U.S.C. § 1406 and motions to transfer venue for convenience under 28 U.S.C. § 1404. It also shows the high bar for obtaining the “extraordinary remedy” of mandamus relief from denial of an improper venue motion.

The usual rule for appeals is that parties must wait until final judgment.  Assuming that it loses on the merits, Charter will have another opportunity to appeal venue once the case is concluded.

Background: Entropic sued Charter for infringing several of its patents, including US10135682.  The patents cover various aspects of cable network management, focusing on Cable Modem Termination Systems (CMTS) that serve multiple cable modems. The CMTS determines various Signal-to-Noise Ratio (SNR) related metrics for these modems and assigns them to different service groups based on these metrics.

Although Charter derives substantial revenue from customers located in the Eastern District of Texas, it still moved to dismiss the case for improper venue under § 1400(b), arguing it lacked a regular and established place of business in that district.  This statute limits the locations where patent infringement lawsuits can be filed.

1400(b) Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

Id.  The Supreme Court has interpreted this statute to limit actions against corporations to either (1) their state of incorporation or (2) a district where the defendant “has a regular and established place of business” and also infringes the patent by making, using or selling the invention.   Charter is a Delaware company and does not operate its own retail stores in the Eastern District.  Still, the district court denied the motion to dismiss, finding venue was proper because Charter ratified retail stores operated by its subsidiaries in the district and those subsidiaries were Charter’s agents.

Improper vs. Inconvenient Venue

There is an important distinction between improper venue under § 1400(b) and inconvenient venue under § 1404(a). Section 1400 applies when venue is “wrong” or “improper” in the chosen district. If venue is improper, the district court must dismiss the case or transfer it to a proper district.  And, if a case goes to conclusion in an improper venue, a losing defendant would have an opportunity to appeal and at least get a new trial in a proper venue.

In contrast, § 1404 allows transfer “[f]or the convenience of parties and witnesses” even when venue is proper. Courts have greater discretion in deciding § 1404 transfer motions based on case-specific factors like convenience and judicial economy.  And, by the end of a trial, it is almost never “convenient” to retry the case in another venue.  Thus, post-trial section 1404 appeals are basically automatic losers.

Thus, even though “wrong venue” sounds like a bigger deal than “inconvenient venue” the Federal Circuit has historically only granted immediate mandamus actions for the latter.  The difference here is that, absent mandamus, the inconvenient venue issue cannot practically be appealed.

Mandamus Standards

The party seeking a writ of mandamus must show (1) no other adequate means to attain relief; (2) a clear and indisputable right to issuance of the writ; and (3) the writ is appropriate under the circumstances. Cheney v. U.S. Dist. Ct. for D.C., 542 U.S. 367 (2004).  In the past, the court has suggested that 1400(b) issues are unlikely to lead to mandamus relief because “post-judgment appeal is an adequate alternative means for attaining relief” if venue is found improper on appeal. In re Monolithic Power Sys., Inc., 50 F.4th 157 (Fed. Cir. 2022).

The Federal Circuit’s Decision

In a short opinion authored by Judge Cunningham, the Federal Circuit denied Charter’s petition for mandamus, finding no justification for immediate review of the district court’s order:

At most, CCI’s arguments present a record-specific dispute: whether CCI exerts control sufficient to impute its subsidiaries’ in-district operations to CCI under Fifth Circuit law. . . . CCI’s petition does not raise the type of broad, fundamental, and recurring legal question or other considerations that might warrant mandamus review.

In re Charter Commc’ns, Inc., (Fed. Cir. Sept. 5, 2023) (internal citations and quotation marks omitted). The court here emphasized that mandamus is an “extraordinary remedy” and Charter had not shown the district court’s decision was clearly wrong or raised a novel legal issue requiring prompt resolution. Rather, Charter seemed to “present[] a record-specific dispute” about imputing its subsidiaries’ activities to Charter for venue purposes. The court also explained that Charter could still challenge venue on direct appeal after final judgment, which provided an adequate alternative remedy.

Conclusions

The court has refused to take the bait and expand mandamus relief to improper venue challenges under § 1400(b). Defendants must generally wait to appeal after final judgment, even if venue may have been erroneous. Note though that mandamus may be still be justified for improper venue decisions implicating unsettled areas of law or where the party can show a major resulting injustice. But disagreements about case-specific facts and analysis are unlikely to clear the high mandamus bar.

Guest Post by Samuel F. Ernst[1]

As Dennis reported, the Supreme Court has granted certiorari in the case of Vidal v. Elster to determine if the PTO violated Steve Elster’s First Amendment right to free speech when it declined to federally register his trademark TRUMP TOO SMALL in connection with T-shirts. The PTO had denied registration under 15 U.S.C. § 1052(c), which provides that a mark cannot be registered if it “[c]onsists of or comprises a name, portrait, or signature identifying a particular living individual except by his written consent.” In February, the Federal Circuit held that this provision is unconstitutional as applied to TRUMP TOO SMALL, a mark intended to criticize defeated former president Donald Trump’s failed policies and certain diminutive physical features.[2] The Federal Circuit held that, as applied to marks commenting on a public figure, “section 2(c) involves content-based discrimination that is not justified by either a compelling or substantial government interest.”[3] The question presented before the Supreme Court is “[w]hether the refusal to register a mark under Section 1052(c) violates the Free Speech Clause of the First Amendment when the mark contains criticism of a government official or public figure.”

Under the Supreme Court’s precedent in Matal v. Tam and Iancu v. Brunetti, the Federal Circuit’s decision was almost certainly correct.[4] Unlike the provisions at issue in those cases, which barred the registration of disparaging, immoral, and scandalous marks, section 1052(c) does not discriminate based on the viewpoint expressed; it bars registration of a famous person’s name whether the mark criticizes praises or is neutral about that person. But the provision does discriminate based on content, because it bars registration of marks based on their subject matter. The Supreme Court has held that “a speech regulation targeted at specific subject matter is content based even if it does not discriminate among viewpoints within that subject matter.”[5] Even though viewpoint discrimination “is a more blatant and egregious form of content discrimination,” both viewpoint discrimination and content-based discrimination are subject to strict scrutiny.[6] Even if we view trademarks as purely commercial speech – an issue the Supreme Court has never decided – laws burdening such speech are subject to at least the intermediate scrutiny of Central Hudson, which is the level of scrutiny the Federal Circuit applied in finding section 1052(c) unconstitutional as applied to TRUMP TOO SMALL.

To survive the Central Hudson test, section 1052(c) must advance a substantial government interest and be narrowly tailored to serve that interest.[7] The government argues that the provision advances a government interest in protecting the right of publicity of public figures from having their names used in trademarks without their consent. However, even if the government has a substantial interest in protecting the state right of publicity, the provision is not narrowly tailored to serve that interest. This is because every state’s right of publicity law incorporates some sort of defense to protect First Amendment interests,[8] and “recogniz[es] that the right of publicity cannot shield public figures from criticism.”[9] But the PTO takes no countervailing interests into account before denying registration to a mark under Section 1052(c). The PTO merely inquires into whether “the public would recognize and understand the mark as identifying a particular living individual” and whether the record contains the famous person’s consent to register the mark.[10] Accordingly, section 1052(c) is unconstitutionally overbroad because it burdens speech that the right of publicity would not burden. The provision is therefore far more extensive than necessary to serve the government’s purported interest and is facially unconstitutional.

A peculiar aspect of the Supreme Court’s First Amendment jurisprudence in the context of trademark registration is that a trademark registrant is not only asserting a right to free speech, but also to obtain an exclusionary right to prevent others from using the same speech in commerce (at least to the extent it would cause consumer confusion). In other words, if we are concerned with burdening Elster’s right to proclaim that Trump is too small, it is odd to remedy that concern by giving him a right to prevent others from saying the same thing. Section 1052(c) is not equipped to deal with this larger concern with marks containing political commentary because it only prevents the registration of marks by persons other than the named political figure, and only if they contain the name of that political figure. Outside of this narrow context, the Lanham Act can do great harm to free political speech because it allows for the federal registration of all manner of marks containing pollical commentary. Anyone can register a mark containing political commentary so long as it does not name the political figure without her consent. And politicians are free to register marks making political commentary whether or not they contain their own names. For example, the Trump Organization has a federal registration for the mark MAKE AMERICA GREAT AGAIN.[11] This grant of a federal registration does more harm to free speech than the denial of any registration would, because it allows the trademark holder to prevent others from making the same political comment in commerce to the extent it would result in a likelihood of confusion (or to the extent they are unwilling to incur the expense of defending against a federal lawsuit).

This raises a broader critique of the Supreme Court’s rigid approach to the First Amendment. The Court deals in inflexible categories of scrutiny that focus solely on the rights of the speaker (in these cases, the trademark registrant), without considering how the absolute protection of those rights might affect the speech rights of others. For example, in Boy Scouts of America v. Dale, the Court decided that the First Amendment rights of the Boy Scouts were violated by a New Jersey law requiring it to rehire a gay scoutmaster it had fired.[12] But the Court did not consider how the Boy Scouts’ assertion of their First Amendment rights affected the rights of the fired scoutmaster or of other New Jersey employees to publicly express their sexual orientation without fear of being fired. And in Citizens United, the Court vindicated the First Amendment rights of private corporations to support political candidates without considering how the resulting flood of corporate political propaganda could drown out the speech of less powerful private citizens.[13] The trademark registration cases put this issue in stark relief, because in protecting the rights of the trademark registrant to say scandalous, immoral, disparaging, or political things, the Court utterly fails to consider the ways in which the resulting rights of exclusion might prevent other people from saying the very same things. This was the point Justice Breyer made in his Brunetti concurrence, where he argued that “[t]he First Amendment is not the Tax Code.”[14] Rather than focusing on inflexible, outcome-determinative categories, he urged the Court to adopt a balancing test: “I would ask whether the regulation at issue works speech-related harm that is out of proportion to its justifications.”[15] Even under such a test, section 1052(c) would likely not survive, because it is far broader than its purported justification to protect the right of publicity. But such an approach would at least allow the Supreme Court to consider in these trademark registration cases that it is not only protecting a right to speak, but a right to exclude others from speaking.

Several prominent scholars have argued that the PTO could prevent the registration of political commentary marks under the “failure to function” doctrine.[16] The Lanham Act’s definition of a “trademark” requires that a trademark must be “used by a person to identify and distinguish that person’s goods from those of others and to indicate the source of the goods, even if that source is generally unknown.”[17] The argument is that political commentary marks are not perceived by the public as source indicators, but, rather, as political commentary. Under the failure to function doctrine, the PTO has denied registration to EVERYBODY VS RACISM and ONCE A MARINE, ALWAYS A MARINE.[18] Denying registration to political commentary marks under this doctrine might not violate the First Amendment because it is clearly a legitimate trademark policy to regulate interstate commerce. However, this issue is not before the Supreme Court in the Elster case because failure to function was not a basis for the denial of registration of TRUMP TOO SMALL in the PTO. In any event, the constitutionality of section 1052(c) cannot be saved by the failure to function doctrine because that has never been the government’s asserted justification for the provision, and because in that context too, the provision would be unconstitutionally overbroad insofar as it would bar the registration of marks containing the names of famous persons that do operate as source indicators.

While predicting the outcome of a Supreme Court case is always hazardous, it appears that if the Court is to follow its own First Amendment precedent, it must either declare section 1052(c) facially unconstitutional or formulate a test for the PTO to apply similar to the First Amendment defenses to the right of publicity, such that a substantial number of the statute’s applications do not violate free speech. (more…)

By Sarah Burstein, Professor of Law at Suffolk University Law School

Jiangsu Huari Webbing Leather Co., Ltd. v. Joes Identified in Schedule A, No. 1:23-cv-02605 (SDNY Jan. 2, 2024), ECF 76.

The Schedule A litigation phenomenon continues apace in the Northern District of Illinois, a court that has become, in the words of Judge Seeger, “an assembly line for TROs.” But Schedule A litigation is not confined to Chicago. It has spread, perhaps most notably to the Southern District of Florida and the Southern District of New York.

One recent decision out of New York merits closer attention. In this case, as in most Schedule A cases, the plaintiff was able to obtain an ex parte TRO that included an order instructing Amazon to freeze the defendants’ seller accounts. The order also required the plaintiff to post a bond of $20,000 “for the payment of any damages any person may be entitled to recover as a result of an improper or wrongful restraint ordered.”

The plaintiff sued 163 defendants, alleging that each was liable for infringing a utility patent directed towards “a rectangular-shaped buckle-and-belt mechanism” for “an outdoor exercise product.”

At the TRO stage, the plaintiff’s “infringement evidence chart” consisted of a series of screenshots (many of them low-resolution screenshots) of the accused products. Here’s an example of all of the evidence submitted in that chart with respect to one of the defendants:

As per usual in a Schedule A case, the defendants did not find out about the case until after their accounts were frozen. When the plaintiff moved to extend the TRO, multiple defendants appeared to object. Judge Rochon refused to extend the TRO and the plaintiff voluntarily dismissed the case.

Two of the defendants, Hyponix and NinjaSafe, moved for bond damages, sanctions, and fees. They argued that the plaintiff had filed to conduct a sufficient pre-suit investigation and had committed various acts of litigation misconduct. They further argued that they each suffered damages from being wrongfully enjoined.

Judge Rochon granted the defendants’ motions for bond damages but denied their motions for sanctions and fees. She agreed that the moving defendants had been wrongfully enjoined because “Hyponix has pointed to at least four elements of claim 1 of the ’673 patent that are not present in its product” and “Ninja Safe has also shown that its products may not infringe claim 1 and has raised questions of invalidity.” Accordingly, Judge Rochon granted each moving defendant bond damages, though less than they asked for: $3,682.28 for Hyponix and $14,641.51 for NinjaSafe.

But she refused to grant sanctions or fees, despite being “troubled by Plaintiff’s conduct in this case.” In particular, Judge Rochon noted the “‘clear discrepancies’ between the protected elements of the ’673 Patent and the products of many of the parties against which Plaintiff secured a TRO.” She also noted other instances of “possible misconduct,” including:

• “Plaintiff represented that most of the 163 parties were difficult to find and contact. In practice, however, contact information for many of the parties was readily available. . . . Plaintiff does not indicate that it tried with any diligence to locate these parties before seeking a TRO.”
• “The pace and prevalence of Plaintiff’s dismissals suggest to the Court that Plaintiff used Rule 41 as part of a broader strategy to freeze the accounts of its competitors, then withdraw its claim against any party that happened to object.”
• “Plaintiff failed to provide Hyponix with documents necessary for its defense. . . . . Plaintiff claims, falsely, that Hyponix did not request these documents.”

(Emphasis added.) Despite all of this, Judge Rochon refused to sanction the plaintiff:

Despite these concerns, the Court does not lightly award sanctions and will not do so in this case. Plaintiff holds a valid patent for its Hanging Exercise Product, its claim was colorable against at least some of the parties, and it dismissed its lawsuit voluntarily at a very early stage in the litigation (presumably in light of the issues raised by the Court at the order to show cause hearing), before any of the defendants responded to the Amended Complaint. Defendants here were made whole for their losses under the bond. Although a close question, the Court exercises its discretion to deny Defendants’ request for sanctions under its inherent powers and 28 U.S.C. § 1927. . . . To the extent that Plaintiff and its counsel engage in similar misconduct in the future, however, the Court will not hesitate to impose sanctions.

As Professor Eric Goldman noted in this blog post, “it would not be lightly awarding sanction when a plaintiff has committed so many violations.” Two additional points stand out as well.

First, the fact that some of the infringement claims might be colorable does not change the fact that the plaintiff brought numerous claims that were not—including the claims brought against the moving defendants. If the plaintiff had sued Hyponix and NinjaSafe separately, would that have changed the court’s analysis? If so, why should the fact of mass joinder insulate the plaintiff from sanctions? Especially in light of the fact that it’s far from clear that any—let alone all—of the defendants were properly joined, as they sell different products and do not seem to be actually connected in any way. See 35 U.S.C. § 299. In any case, the fact remains that this plaintiff brought many claims that were not colorable and used the machinery of the federal judiciary to wrongfully enjoin competitors. That is what should matter in the sanctions calculus, not the fact that some of the other claims (against apparently unrelated defendants) might have potentially had merit.

Second, it is true that the plaintiff dismissed the case at what would be, in a regular case, “a very early stage in the litigation.” But in a Schedule A case, the TRO seems to be the whole game. The plaintiff gets a TRO with an asset freeze, then starts making settlement demands. At that point, the defendants generally either settle or default. It appears that these cases aren’t meant to proceed any further. And as the defendants’ submissions show, significant damage can be done in these cases, even in a short period of time. (One also wonders how much money the plaintiff may have been able to extract in settlements before dismissing the case.)

In the end, the decision to sanction and to award fees is left to the discretion of the judge. And while it is encouraging to see Judge Rochon recognize the damage caused by acts that have become common in Schedule A cases (e.g., using FRCP 41 to dismiss defendants who fight back), it is discouraging to see a result that will only serve to further disincentivize Schedule A defendants from fighting back.

Once a judge grants a TRO with an asset freeze, the deck is heavily stacked against the Schedule A defendants. Defendants have strong incentives to settle, even when the cases against them lack merit. In many cases, it’s just too expensive to fight back, especially when your assets have been frozen.

If judges were willing to sanction plaintiffs—or at least shift fees—when Schedule A defendants were wrongfully restrained, that would do a lot to help level the playing field and incentivize the plaintiffs to bring better claims.

Without fee shifting or sanctions, the cost of bringing a nonmeritorious claim in a Schedule A case is virtually zero, while the harms to defendants who are wrongfully restrained—even for a short time—can be devastating. As Judge Hunt has noted, “the extraordinary remedy of freezing all [the defendants’] assets without notice” can “potentially ruin[] a legitimate business.”

Plus, as Casey Hewitt noted on Mastodon, Schedule A “defendants have no choice but to litigate, have no option to meet and confer and avoid a lawsuit . . . They did not ignore demand letters or refuse to negotiate or discuss alleged infringement.” But once they find out that their assets have been frozen, they have to “hire expensive IP litigators or they will lose their businesses.” In these circumstances, it seems like fee shifting for wrongfully enjoined Schedule A defendants should be the norm, not the exception.

Yes, it’s true that a presumption in favor of fee shifting would be a departure from normal federal court practice. But courts routinely use their discretion to grant procedural departures to Schedule A plaintiffs—e.g., email service, ex parte asset freezes, mass joinder upon conclusory (and in many cases, dubious) allegations. Perhaps it is time for judges to start using their discretion to make routine departures for Schedule A defendants, too.

Additional observations:

1. This case is a good example of why patent litigation is a poor fit for the Schedule A litigation model. I’ve written here before about how design patent infringement is ill-suited to ex parte adjudication; so too is utility patent adjudication. If judges are going to keep allowing the Schedule A model in patent cases (and they don’t have to do so, in these cases or in any others), they should consider making it a regular practice to special masters to help analyze the infringement evidence at the TRO stage. And they should, at a minimum, require an individualized claim chart for each and every defendant.
2. It is far from clear that Judge Rochon actually had the power to freeze these defendants’ assets in the first place. As Judge Kendall noted in a recent order, 35 U.S.C. § 284 “does not provide for the equitable relief of accounting and profits,” which is seems to be the standard basis for asset freezes in other types of IP cases. Furthermore, as Judge Seeger has noted, “Schedule A plaintiffs typically don’t request and receive equitable monetary relief” at the end of their cases, even when equitable relief is available. Other judges might be well-advised to start questioning whether they should use their discretion to keep granting these types of asset freezes, even in cases where a remedy of equitable disgorgement is actually available.

For more on the Schedule A phenomenon, see:

• This essay (by Professor Eric Goldman)
• Section II(B) of this draft article (by me)

by Dennis Crouch

I like to think of collateral estoppel alongside binding precedent.  Both involve a set of (at least) two separate cases, and the question is always whether some conclusion drawn in the earlier action forecloses relitigation of same (or similar) issue in the latter action. Precedent is broader because it applies across-the-board regardless of the parties involved.  Collateral estoppel (also known as issue preclusion) is narrower because it only applies when the party being estopped in the latter action was also a party in the earlier action. But, when that same-party requirement is met, collateral estoppel can be much more powerful.

Most importantly, collateral estoppel has the magical quality of binding both horizontally and upwardly. This means that issues decided at the district or administrative court level can be binding on all other courts: district courts, administrative courts, appellate courts, and even the Supreme Court.  On the other hand, precedent feels the gravitational pull and flows downhill.  District court decisions are not binding precedent because they are at the bottom.  The Supreme Court precedent flows down to bind appellate courts whose precedent binds their assigned district courts. Although both the Supreme and Appellate Courts respect their own prior precedent, it is not binding in the same sense as those courts are also self-empowered to modify their own precedent. Another important feature of collateral estoppel is that it applies to both issues of fact and law.  Although some courts have disagreed on this point, precedent is only binding for questions of law.

The Federal Circuit’s recent Uniloc preclusion decision is a tough one and exemplifies an important feature of collateral estoppel power: it is most strident when the original court decision is wrongly decided, but still binds later courts (including later appellate courts). Uniloc USA, Inc. v. Motorola Mobility LLC, 52 F.4th 1340 (Fed. Cir. 2022).  Even though the original lower court decision violated precedent, it still binds the parties.

Some background and how this Played out for Uniloc: HP sold several patents to Uniloc back in 2017 who then sued Apple, Motorola, and Blackboard for patent infringement. Uniloc has a litigation financing relationship with Fortress with the patents serving as collateral for the deal.  The terms of the Fortress financing became important for the subsequent litigation. Basically, if Uniloc failed to meet certain revenue goals, Fortress would be given a license to the patents (including a right to sublicense).  Uniloc then failed to meet the goal, and, by the terms of the deal, those license rights arguably automatically passed to Fortress.

After some venue-action, Uniloc v. Apple ended up before Judge Alsup in the Northern District of California. Apple’s attorneys were able to convince the judge that the license to Fortress meant that Uniloc no longer held full rights to the patent and thus lacked standing to sue.  In my view, Judge Alsup’s conclusion is wrong on the merits.  A patentee who has non-exclusively licensed its patents still has standing to sue.  Judge Lourie detailed the law on this in his “additional views” while the lead opinion simply stated that “there is considerable force to Uniloc’s argument” on the merits. Uniloc v. Motorola, 52 F.4th at 1350 (Fed. Cir. 2022).  Uniloc appealed the Apple decision and (again, in my view) would have likely won on appeal. . . BUT, the parties reached a settlement in the midst of appellate briefing and asked the appellate court to dismiss the appeal. Uniloc did not seek vacatur of the lower court decision as part of the settlement.  So, at the end of the day, Uniloc v. Apple ended with a district court judgment remaining in force, including the decision that the Fortress license left Uniloc without standing.

The two other cases, Uniloc v. Motorola and Uniloc v. Broadcom, were still pending in D.Del on December 4, 2020 when Judge Alsup issued his dismissal order of the Apple case. Two days later, on December 6, Motorola moved to dismiss on the same ground of lack of standing due to the license. Oddly, in its briefing, Motorola indicated that Apple decision was “not binding” but instead only provided persuasive authority. I expect that Motorola’s “not binding” remark was an indication of its precedential value rather than its preclusive impact.  Judge Connolly dismissed the Motorola case, on standing grounds (and without referring to collateral estoppel).  Acting sua sponte, Judge Connolly then dismissed the Broadcom action in a short opinion that might have been based upon issue preclusion (from the prior Motorola decision), but without actually stating as such and without Broadcom making that claim.  One bottom line here, although the parties and the court were all aware of the prior Apple decision, nobody suggested at the district court level that it had issue preclusive effect.

Uniloc appealed the dismissals — arguing that the two decisions wrongly  interpreted the Constitutional requirements of standing with regard to patent infringement actions.  At that point, the two defendants for the first time raised the prospect that Apple had preclusive effect.

Forfeiture/Waiver: From the setup, you should be thinking forfeiture or Waiver. Ordinarily a new defense cannot be raised for the first time on appeal. Rather, a party planning to appeal some issue should first timely raise the issue to the district court. This rule of appellate procedure applies to the res judicata doctrines of issue and claim precl.  Arizona v. California, 530 U.S. 392 (2000) (“res judicata [is] an affirmative defense ordinarily lost if not timely raised”).  Here though, we also have the express statement from Motorola that the Apple case is “not binding.” That appears to create waiver.

On appeal, the Federal Circuit excused the delay by Motorola and Broadcom and found no forfeiture or waiver.  In particular, the court noted that, although the Apple decision was final, it wasn’t final-final.  For issue preclusion to attach, the original action must be “final,” which generally means that the district court reached final judgment on all issues in the case.  But, the Federal Circuit here held that there is no forfeiture unless the first case is what I call final-final–not only reached final judgment, but also exhausted all direct appeals.  That extra step is important for this case because the Apple appeal was still pending as Motorola/Broadcom district court was deciding those cases.  The Federal Circuit noted “strong policy reasons supporting a finding of no forfeiture of collateral estoppel when the argument was first raised after the appeal process of the preclusive case was concluded, and we conclude that forfeiture is not appropriate here.”

As to waiver based upon the “not binding” statement from Motorola, the Federal Circuit concluded that the intent of that statement was with reference to stare decisis  and binding precedent rather than binding as a matter of preclusion.

Finally, the court also issued a catch-all statement that–even if there was an unexcused delay, the court has discretion to excuse the forfeiture. “[W]e have discretion to excuse any forfeiture.”  Id. That claim by the court seems to be an overstatement since an appellate court excusing forfeiture or waiver should consider the equities of the situation before moving forward.

Merits of Issue Preclusion: On the merits, it seems to be a fairly open-and-shut case of issue preclusion:

1. Same Issue: The issue of the license and the resulting no-standing decision was litigated decided in the first case (Apple); and that same issue is now at issue in the second case (Motorola).
2. Actually Litigated: The issue was actually litigated in Apple.
3. Subject to a Valid and Final Judgment: The Apple district court properly entered final judgment (and it was not reversed on appeal).
4. Essential: The license/standing issue was essential to the Apple judgment.

Traditional collateral estoppel had a same-parties rule, parties in first case be the same as those in the second case. In its 1979 Parklane Hosiery decision, the Supreme Court opened the door to “nonmutual issue preclusion” that allows non-parties to assert collateral estoppel. The new rule is a same-party rule and is singular rather than plural; result being that issue preclusion can apply so long as the party against whom nonmutual issue preclusion is being invoked was a party to the previous proceeding that already decided the same issue.  Here, Uniloc was a party to the first case, and the estoppel is being applied against Uniloc in the second case–so this fits the same-party rule.  Courts distinguish between nonmutual defensive and nonmutual offensive issue preclusion; being more resistant to applying issue preclusion in the offensive scenario.  Here, the preclusion is defensive in nature–Motorola is using the doctrine to as a defense against Uniloc’s infringement claim.  With all this together, the appellate court easily concluded preclusion applied and thus that the defendants should automatically win on the issue of standing.

Two aspects of this case make me uncomfortable.  The first part is an underlying feature of issue preclusion — that sometimes the first court reaches the wrong answer, and issue preclusion can still apply.  Here, the wrong-answer is amped-up because it is a Constitutional decision stripping the plaintiff of standing.  Second, and perhaps more importantly is that the appellate court skips over a core rule that prohibits the application of collateral estoppel to work an injustice. In its opinion, the Federal Circuit repeatedly cited Wright & Miller, but skipped that entire section of the treatise.  Here, the seeming error by Uniloc was settling the Apple appeal. Of course, that was a global dispute involving lots of other patents. But, by the time of the Apple settlement, the Delaware court had already issued its decisions in the two later cases and, despite a full opportunity, nothing in any of those cases suggested that the Apple district court decision would have a collateral estoppel impact.  It is not clear to me that these considerations are enough to flip the outcome, but it seems that the court should have at least considered the issues.

by Dennis Crouch

The U.S. Patent and Trademark Office (USPTO) recently published examination guidance and a request for comments on the treatment of inventorship for inventions created with the assistance of artificial intelligence (AI) systems.  Inventorship Guidance for AI-Assisted Inventions.

The key takeaway here is that the USPTO believes that an AI-developed invention is patentable so long as a human satisfies the joint-inventorship standard of “significantly contributing to the invention.” A human who provides a significant contribution may be the sole inventor and original owner, even in situations where the AI provided the greater contribution.

The PTO’s approach here is fairly broad and will likely serve current AI use cases in most situations because most AI invention models of today are tightly controlled and managed by humans rather than simply arising from AI autogeneration or broad prompting. Thus, from a practical effect, there will likely be at least one natural person who satisfies the joint inventorship standard in the vast majority of cases. (Recognizing here that mere control of an AI is insufficient. Rather, the human must provide significant inventive contribution).

Although I am very sympathetic to recognizing human contributions, I also want a patent system that broadly encourages innovation without either prescribing or proscribing particular approaches. The flexibility of this guidance allows room for both human and machine intelligence to intersect in the creative process. But, we should continue monitoring the effects the policy to ensure it does not unduly constrain AI’s eventual capacity to autonomously formulate inventive concepts. But for now, the USPTO’s basic framework reasonably balances competing interests.

But, the USPTO’s approach is not fully grounded in the law because it allows for patenting of an invention in a situation where no human or combination of humans fully conceived of and originated the invention. Rather, we are simply looking for at least one human who provided a significant contribution. The guidance does not particularly address this issue and, by declining to specifically justify the legal grounds why human “significant contributions” suffice even without complete conception, the USPTO leaves the door open to contrary arguments. Opponents could contend that full conception remains legally required for inventorship and that this expansion of the inventorship doctrine exceeds the statutory language.  It is not clear who will have standing to make this particular argument.

(more…)

by Dennis Crouch

Prof. Chris Holman recently characterized Amgen v. Sanofi as an “endorsement of the Federal Circuit’s current interpretation and application of the enablement requirement, and maintenance of the status quo.”  Although I largely align with Holman’s views, I note that the Supreme Court did not explicitly engage with Federal Circuit precedent. More specifically, the Court neither cited nor discussed any Federal Circuit or CCPA decision outside of case-specific historical documents.

The most recent enablement case invoked by the Supreme Court in Amgen is Holland Furniture Co. v. Perkins Glue Co., 277 U. S. 245 (1928). The Court also referenced several other historically significant enablement cases, including Wood v. Underhill, 5 How. 1 (1846); The Incandescent Lamp Patent, 159 U. S. 465 (1895); and Minerals Separation, Ltd. v. Hyde, 242 U. S. 261 (1916). The Court went to lengths to present O’Reilly v. Morse, 15 How. 62 (1854), as an enablement decision, even though in both Alice and Mayo, the court had labeled O’Reilly as an eligibility decision. The approach of Amgen echoes that of the Supreme Court’s 2010 Bilski decision, which advised a simple adherence to established precedents. The only non-Supreme Court decision that Amgen cites is Whittemore v. Cutter, 29 F. Cas. 1120 (C.C.D. Mass. 1813). Notably, Whittemore was adjudicated by Supreme Court Justice Joseph Story while on circuit duty.

In looking at the leading Supreme Court precedent case of Holland Furniture, it is telling that the Federal Circuit has invoked this case only twice – in both instances, for discussions regarding means-plus-function claim interpretation, not enablement. Nevertheless, Holland Furniture remains a crucial decision that precludes (a) genus claims built upon on the disclosure of a single species, as well as (b) genus claims that encompass inoperable species.  The case involved a patent covering starch-based glue.  The Supreme Court explained “an inventor may not describe a particular starch glue which will perform the function of animal glue and then claim all starch glues which have those functions, or even all starch glues made with three parts of water and alkali, since starch glues may be made with three parts of water and alkali that do not have those properties.”  Id.  The Federal Circuit’s failure to rely upon Holland Furniture likely stems from the fact that the case served as the foundation for Walker v. Halliburton that was later rejected by the 1952 Patent Act.

Elephants in the Room: The Federal Circuit has adjudicated numerous biotech enablement cases, providing nuanced analysis, none of which was cited or dissected by the Supreme Court.  Perhaps the simply have a tit-for-tat since the Federal Circuit so rarely cites the Supreme Court in enablement cases. The appellate court’s Amgen decision, for instance, cited many Federal Circuit opinions, but nothing from the Supreme Court.  In many ways, the two courts are simply talking past one another without disagreeing.

A critical case absent from the Supreme Court’s Amgen analysis is In re Wands, 858 F.2d 731 (Fed. Cir. 1988). In Wands, the Federal Circuit introduced a set of factual considerations to assess whether a claim is sufficiently enabled or would necessitate undue experimentation – a key factor is the amount of experimentation required.  In Amgen, these elements were handed to the jury for adjudication as mandated by the 7th Amendment. The jury in Amgen sided with the patentee, deeming the claims enabled. However, this pro-patentee verdict was overturned by the district court on JMOL, a decision subsequently affirmed by both the Federal Circuit and the Supreme Court. In its deliberation, the Supreme Court seems to reassess the Wands factors de novo without acknowledging the jury’s verdict. Intriguingly, the Supreme Court’s opinion finds substantial experimentation necessary, but does not even acknowledge the existence of a jury verdict, simply stating that “both the district court and Federal Circuit sided with Sanofi.” This omission marks a significant oversight by the Court.

While the Supreme Court’s decision in Amgen v. Sanofi seems to generally affirm the current approach of the Federal Circuit to enablement, it lacks any depth of engagement with the nuanced analysis often conducted by the Federal Circuit. In particular, the absence of reference to In re Wands and its eight-factor test, is a surprising omission. Even more disconcerting is the Court’s disregard for the jury’s verdict in the original Amgen trial, reflecting a potential underappreciation of the complexities of patent law and the factual determinations involved. It remains to be seen how this lack of engagement with Federal Circuit precedent may influence future patent law decisions.  Most likely, the Federal Circuit will continue its historic approach implicitly suggested by Prof Holman and continue to ignore the Supreme Court precedent on point.

Guest Post by Sarah Burstein, Professor of Law at the University of Oklahoma College of Law

Wepay Global Payments LLC v. PNC Bank, N.A. (W.D.Pa. June 1, 2022) [wepayDecision]

Companies associated with William Grecia have filed over a dozen cases alleging infringement of design patents for “animated graphical user interfaces.” A judge in one of those cases, Wepay v. PNC Bank, recently issued a decision dismissing the case.

The patent asserted in that case, U.S. Patent No. D930,702, was issued in 2021 and claims a “design for a display screen portion with animated graphical user interface.” Wepay alleges infringement of the second embodiment, which includes three images:

Consistent with the USPTO’s rules for “changeable computer generated icons,” see MPEP § 1504.01(a)(IV), the patent specifies that, “[i]n the second embodiment, the appearance of the     sequentially transitions between the images shown in FIGS . 3 through 5. The process or period in which one image transitions to another image forms no part of the claimed design.” Consistent with the USPTO’s general drawing rules, the patent disclaims all matter shown in broken lines “form[] no part of the claimed design.”

So what does this patent cover? According to the court, Wepay seemed to think its patent covered any app with a QR code that lets you send money to other people:

WPG maintains that both its patent and the PNC app include an icon array of three squares that simulate a QR code; both cycle to a functional screen where the user may choose to whom the money will be sent; and both conclude with the display screen with a display of a zero value, where the user may input the amount of money that the user wishes to send.

The court rejected that interpretation—and rightly so. It’s well-established that design patents cover the visual designs that are actually claimed, not the larger design concepts.

The court held that the claimed designs and accused design, shown below as shown in the complaint, were plainly dissimilar and granted PNC’s motion to dismiss.

In doing so, the court recognized that placement and proportion matter in design, noting that “[a]ny similarity between the two designs is limited to basic geometric shapes, but with notable differences in shape size and spacing such that no ordinary observer would mistake the Accused Design with the Asserted Design or vice versa.”

Some may argue that the court erred in considering the placement and proportion of the claimed design fragments, because matter shown in dotted lines “forms no part of the claimed design.” But even if other visual portions of the design are disclaimed, that doesn’t mean courts have to treat the claimed portions as free-floating motifs. (Indeed, sophisticated design patent owner Nike has recognized that placement matters, even when dotted lines are used. See this PTAB decision at 10-13.)

I’ve explained here, placement and proportion are essential elements of design. The differences between the claimed and accused designs here are an excellent example of how different a single motif (e.g., each of the three squares in figure 3 and in the accused design) can look in the context of the design, depending on its proportion to the other elements and where it is located on the screen.

Before diving into the merits, however, the court expressed some doubt over whether infringement was even possible in this case:

[T]he Court notes that the ordinary observer test focuses on a hypothetical purchaser induced to buy a product with an accused design over an asserted design. The cases cited by the parties likewise address designs where there exists a consumer and/or purchaser at play. However, neither the cited cases nor this Court’s research reveals a case where, like the instant matter, the consumer has not voluntarily chosen the design at issue. Instead, the Accused Design is incidental to the PNC customers utilization of the mobile application. The Complaint does not allege that a purchaser would have been or has been involved with the Accused Design. Further, the Complaint does not allege a purchase or transaction by a consumer with regard to the Accused Design over the Asserted Design. Thus, the ordinary observer test would seem not to fit squarely with the designs at issue, and WPG would not be able to assert a design patent infringement claim.

Even though it’s dicta, the court’s suggestion that a design patent owner must plead “a purchase or transaction by a consumer with regard to the Accused Design over the Asserted Design” is worth further discussion.

Like other patents, a design patent is infringed when someone makes, uses, sells, offers to sell, or imports the patented invention without permission. The test for design patent infringement doesn’t change that. It just tells us when someone is making, using, selling, offering to sell, or importing the patented design.

The test for design patent infringement is a test of visual similarity. The “ordinary observer” part just tells us how similar the designs must be. (See this article at page 177.)

So, under current law, no sale is required, let alone—as the court seems to suggest—a direct sale to the end user, “with regard to the Accused Design over the Asserted Design.” Indeed, because there is no working requirement for design patents, there may not be a product embodying the claimed design available for sale.

All the defendant has to do is make (or sell, etc.) a product that looks “the same” as the claimed design. (For more on how the test for design patent infringement works, see this essay or Chapter 12 of this free casebook.)

Because Grecia-related companies have filed so many similar cases, it seems likely this decision will be appealed. It is definitely one to watch.

Guest post by Christine Haight Farley (Professor, American University Washington College of Law and Faculty Director, Program on Information Justice and Intellectual Property).

The Court of Appeals for the Federal Circuit has held that color marks on product packaging can be inherently distinctive. On April 8, 2020, the court issued its opinion in In re: Forney Industries, Inc. It stated that “a distinct color-based product packaging mark can indicate the source of the goods to a consumer, and, therefore, can be inherently distinctive.”

Leaving aside the circularity of that statement—if it’s distinct it can be distinctive?—this holding lowers the bar for the acquisition of exclusive rights over colors. For the first time, color marks are instantly protectable (when used in commerce as a mark) and need not wait until they achieve secondary meaning, so long as they are used on packaging.

Because this ruling comes from the Federal Circuit it controls the how the Trademark Office deals with applications for color marks. Companies that want to acquire exclusive rights in colors now have a blueprint for how get a registration quickly: apply for a product packaging mark. So companies like Christian Louboutin should make those shoeboxes red!

The opinion was authored by Judge O’Malley joined by Dyk and Chen. The court reversed the TTAB, which had affirmed the trademark examining attorney’s refusal to register Forney’s mark.

In its use-based application (Serial No. 86269096), Forney identified its mark as a “color mark.” The mark, represented below, was applied for accessories and tools for welding and machining and described as follows: “[t]he mark consists of a solid black stripe at the top. Below the solid black stripe is the color yellow which fades into the color red. These colors are located on the packaging and or labels.”

Because Forney sought to register the mark without showing secondary meaning, the Examining Attorney refused registration on the principle register. Affirming, the TTAB, in a precedential opinion by Kuczma, held that “a color mark consisting of multiple colors applied to product packaging is not capable of being inherently distinctive.” It stated that Supreme Court precedent does not distinguish between color marks for products and color marks for product packaging; both require secondary meaning to be registrable.

Not a Gray Area

The Federal Circuit’s opinion reads like it thought it had carte blanche to write the rules in this area. It stated that “[t]he Supreme Court has [] provided several data points on inherent distinctiveness of trade dress.” (emphasis added) I’ve certainly never thought of the Supreme Court’s trilogy of cases on trade dress as data points; I always thought they were precedent. It later referred to these cases as “guideposts.”

Surprisingly, the Federal Circuit stated that “[a]lthough Qualitex implied that a showing of acquired distinctiveness may be required before a trade dress mark based on color alone can be protectable, it did not expressly so hold.” (emphasis added) This is just flatly wrong. The Qualitex Co. v. Jacobson Products Co. court did not “imply” the rule at all; it set it out in black and white:

over time, customers may come to treat a particular color on a product or its packaging … as signifying a brand. And, if so, that color would have come to identify and distinguish the goods–i.e. to “indicate” their “source”–much in the way that descriptive words on a product … can come to indicate a product’s origin.

In its subsequent decision in Wal-Mart Stores, Inc. v. Samara Brothers, Inc., the Court reconfirmed its rule: “with respect to at least one category of mark— colors—we have held that no mark can ever be inherently distinctive.” It also stated: “In Qualitex, . . . [w]e held that a color could be protected as a trademark, but only upon a showing of secondary meaning.” Nope, no innuendo.

Coloring Outside the Lines

The Federal Circuit stated that “Forney’s multi-color product packaging mark is more akin to the mark at issue in Two Pesos than those at issue in Qualitex.” That’s an odd statement given that the mark at issue in Two Pesos, Inc. v. Taco Cabana, Inc. was a restaurant, while the mark at issue in Qualitex was, wait for it, … a color! But the point here was that the Federal Circuit was judging Forney’s mark as a product packaging mark, as in Two Pesos, and not a product design mark, as in Qualitex. And that was its error.

Yes, Qualitex involved a product design mark, but the rule it announced was about color marks, not product design marks. Again, it stated: “over time, customers may come to treat a particular color on a product or its packaging … as signifying a brand. And, if so, that color would have come to identify and distinguish the goods.” (emphasis added). In anticipating color on “packaging,” the court made clear the holding was about color, not product design.

Black Sheep

The Federal Circuit’s decision here creates a new rule for color marks in product packaging. Although it states that it is “not the only court to conclude that color marks on product packaging can be inherently distinctive,” even the case it cites doesn’t support its new rule. It cites a 10th Circuit decision (Forney Industries v. Daco of Missouri), but that court explicitly stated “we hold that the use of color in product packaging can be inherently distinctive … only if specific colors are used in combination with a well-defined shape, pattern, or other distinctive design.” (emphasis added). The Federal Circuit stated that the 10th Circuit was “considering a mark very similar to the one at issue here,” but that statement may have involved a bit of whitewashing because the 10th Circuit case involved the very same mark owner and the same mark! The only difference was that the mark was described with more definition in the 10th Circuit case, and the court still denied protection.

Red Flag

To the extent this decision is read to hold that color marks on product packaging can be inherently distinctive; it is at odds with both Qualitex and Wal-Mart. Does that make it ripe for reversal by the Supreme Court? While decisions by the Federal Circuit often make the Supreme Court see red, the Court only grants cert. in trademark cases once in a blue moon. The government, however, has a strong record of having its cert. petitions granted. Recall that most doubted cert. would be granted in Brunetti. Another question is whether the government will even petition for cert. or instead decide not to go chasing rainbows.

True Colors

Is there a narrower reading of this decision? Perhaps the holding is only that certain multi-color product packaging marks that are sufficiently definite can be inherently distinctive. As a policy matter, a single color product design mark is much more problematic for competition than a multi-color product packaging mark is.

Even were the holding so limited, it still begins to undermine the policy orientation of Wal-Mart. It’s hard not to understand Wal-Mart as a course correction. Two Pesos’s holding that trade dress can be inherently distinctive did not foresee any of the problems it created. Although Qualitex further extended trade dress to include color, it did claw back a requirement of secondary meaning. The Wal-Mart Court finally saw the policy mess created by Two Pesos. It meant to build on Qualitex’s limitation, not scale it back. Qualitex saved colors from being inherently distinctive, and Wal-Mart saved product design. The Federal Circuit’s decisions pushes in the opposite direction, by narrowing Qualitex’s carve-out.

Unfortunately, the Federal Circuit is not clear that that its new rule is limited to multi-color marks. It simply states: “we hold that color marks can be inherently distinctive when used on product packaging, depending upon the character of the color design;” and “a distinct color-based product packaging mark can indicate the source of the goods to a consumer, and, therefore, can be inherently distinctive.” Requiring a color mark to be “distinct” is not filling any gaps left open by Qualitex, which specifically sated that the green-gold color was distinct for dry cleaning press pads. If the court had in mind a particular kind of color mark, it missed a golden opportunity to say so.

The rationale for both Qualitex and Wal-Mart was that, unlike product packaging, neither color nor product design prompt consumers to “equate the feature with the source.” Is there reason to believe that either multiple colors function more like product packaging than a single color, or that color on a product conveys something different than color on a package? If so, what do we make of the fact that Forney has been using its multi-color mark on packaging for more almost 30 years and yet chose to litigate in two different courts of appeal rather than simply demonstrating its secondary meaning?