Business and Technology Law

What is the standard for determining whether the use of a similar mark is likely to cause consumer confusion and lead to trademark infringement?

If you don’t think handbags carry important legal issues, consider the Second Circuit’s statement,

We cannot help but observe that for the person carrying it, a handbag may serve as a practical container of needed items, a fashion statement, or a reflection of its owner's personality; it may fairly be said that in many cases a handbag is so essential that its owner would be lost without it.

Louis Vuitton Malletier v. Dooney & Bourke, 454 F.3d 108 (2d Cir. 2006).

In assessing the likelihood of confusion in a trademark infringement case, courts will consider the non-exclusive multi-factor Polaroid test which includes, (1) the strength of the mark, (2) the similarity of the two marks, (3) the proximity of the products, (4) actual confusion, (5) the likelihood of plaintiff's bridging the gap, (6) defendant's good faith in adopting its mark, (7) the quality of defendant's products, and (8) the sophistication of the consumers. Id. at 116. The similarity of the marks is a key factor in determining likelihood of confusion, and was particularly important in the battle of the handbags trademark infringement case.

The Second Circuit noted that the district court made a mistake in its likelihood of confusion analysis by “inappropriately focusing on the similarity of the marks in a side-by-side comparison instead of when viewed sequentially in the context of the marketplace”. Id. at 117. The Second Circuit recognized that a side-by-side comparison can be useful, as long at the court remains focused on the issue of consumer confusion, and that the law only requires confusing similarity and not identity. Id. at 117. So, while the Louis Vuitton bag and the Dooney & Burke bag look very different side-by-side, the court must consider whether the differences between the marks are “likely to be memorable enough to dispel confusion on serial viewing” in the context of the marketplace. Id. at 177, citing, Louis Vuitton Malletier v. Burlington Coat Factory Warehouse Corp., 426 F.3d 532, 538 (2d Cir.2005).

The Second Circuit recognized that the district court overemphasized the side-by-side comparison, and held that “because no single factor is dispositive, we must remand for the district court to revisit the entire analysis, under the new standard,” keeping in mind the context of the marketplace. Id. at 118.

So, in a trademark infringement case, the standard for determining whether the use of a similar mark is likely to cause consumer confusion is sequential viewing in the context of the marketplace, and not merely a side-by-side comparison.

There is currently a bill working its way through Congress to establish a pilot program among district courts, aimed at the better treatment of patent cases. One purpose or objective is to create “rocket dockets” in those districts with a high volume of intellectual property and patent cases. Another purpose of the program is to establish a sort of “IP certified” judicial roster, under the theory that there are a sufficient number of technologically-savvy judges out there to refer these cases to under circumstances where assignment is warranted.

Patent litigators in Texas have likely become accustomed to, and spoiled by, the sua sponte innovation assumed by the Eastern District, which is considered the second most efficient patent and intellectual property “rocket docket” in the nation. Third in the race to adopt specialized local “patent rules,” the Eastern District drafted its patent mandates in accordance with the first in judicial patent legislating, the Eastern District of Virginia. It interprets those rules however in keeping with the current developer of the intellectual property landscape, the Northern District of California, and in doing so, has remained nationally and locally relevant and respected.

Our Eastern District judiciary, not unaware of the national recognition and sudden press, has risen to the challenge by outfitting the sleepy Marshall town courtrooms with the latest in technology, so that those visiting to litigate their billion dollar patent matters are unable to note any offering provided elsewhere that cannot be found there. Moreover, the intellectual ability of our Eastern District judges to digest the tech-laden presentations that big city firms bring to bear upon those courtrooms is nothing less than impressive.

The question then must be, how many rocket dockets and intellectual-property certified judicial rosters is a state entitled to have? The rumor is that our Northern District has applied and is lobbying heavily for inclusion in the new Pilot Program. Should they win their campaign, Texas will soon be on every intellectual property litigation firm’s radar. An irony that should not go unappreciated. And a down-home advantage that cannot go unnoticed. For the few firms, such as this one, truly skilled in the intellectual property and patent litigation arena, that is good news. Large clients and large firms, however, should be wary. With issues of forum selection dominating the IP litigation field, a friend in the courtroom is imperative. It’s the reason that most lawyers serious in the intellectual property practice have moved to boutiques, so they can specialize, and so that the jury perceives them less as the big firm enemy with their big corporate client. With intellectual property litigation moving towards rocket dockets in down home towns like Marshall and down home states like Texas, that seemingly irrelevant consideration could now be more relevant than ever.

Until December of 2006, the Federal Rules of Civil Procedure related to production of documents in a civil case made no mention at all of electronically stored information. The scope of Rule 34 has now been expanded to include electronic evidence:

Rule 34. Production of Documents, Electronically Stored Information, and Things and Entry Upon Land for Inspection and Other Purposes.

(a)Scope. Any party may serve on any other party a request (1) to produce and permit the party making the request, or someone acting on the requestor's behalf, to inspect, copy, test, or sample any designated documents or electronically stored information -- including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations stored in any medium from which information can be obtained -- translated, if necessary, by the respondent into reasonably usable form, or to inspect, copy, test, or sample any designated tangible things which constitute or contain matters within the scope of Rule 26(b) and which are in the possession, custody or control of the party upon whom the request is served*** (emphasis added)

The adversary demanding the production of electronic information is now authorized to specify the manner in which the information is produced. Fed R. Civ P 34(b). The manner of production demanded by the adversary may not correspond with the format in which the data is maintained. The manner in which the demand is framed may impose a substantial burden on the responding party. When served with such a demand, it is critical first step to ensure that timely and specific objection is made to the manner of production. It is important to remember however that the making of those objections merely preserves them for resolution by the Court. While some Judges are technically adept, we advise clients involved in responding to electronic discovery to develop and document a protocol as to document retention and manner of storage as a proactive measure. Sharing the protocol may result in an agreement by adversary counsel to formulate demands in a manner in which the information is maintained or in the absence of an agreement, to show the Court that the manner of production demanded is out of synch with the manner, presents an unreasonable burden and should not be allowed.

The adversary demanding the production of electronic information is now authorized to specify the manner in which the information is produced. Fed R. Civ P 34(b). The manner of production demanded by the adversary may not correspond with the format in which the data is maintained. The manner in which the demand is framed may impose a substantial burden on the responding party. When served with such a demand, it is critical first step to ensure that timely and specific objection is made to the manner of production. It is important to remember however that the making of those objections merely preserves them for resolution by the Court. While some Judges are technically adept, we advise clients involved in responding to electronic discovery to develop and document a protocol as to document retention and manner of storage as a proactive measure. Sharing the protocol may result in an agreement by adversary counsel to formulate demands in a manner in which the information is maintained or in the absence of an agreement, to show the Court that the manner of production demanded is out of synch with the manner, presents an unreasonable burden and should not be allowed.

The word spoil or spoiled is commonly used in non-litigation contexts. Food spoils if it needs to be refrigerated and is not. Paint spoils if the can if left open. In the litigation context, a spoliator is a party that failed to preserve evidence that was demanded in litigation or fails to preserve relevant evidence for litigation that is reasonably contemplated. What is not commonly understood is that in some State and Federal Courts, a party who spoils evidence may be severely sanctioned even if the loss of the evidence resulted from carelessness.

Where relevant evidence is spoiled, the jury may be invited to infer that the evidence lost was unfavorable to the party who failed to preserve it, with the prospect of devastating results on the outcome. An article written by the author and recently published in the New York Law Journal entitled “Destroyed E-Data Won’t Make Spoliation Sanctions Disappear” discusses these issues in more detail.

The word spoil or spoiled is commonly used in non-litigation contexts. Food spoils if it needs to be refrigerated and is not. Paint spoils if the can if left open. In the litigation context, a spoliator is a party that failed to preserve evidence that was demanded in litigation or fails to preserve relevant evidence for litigation that is reasonably contemplated. What is not commonly understood is that in some State and Federal Courts, a party who spoils evidence may be severely sanctioned even if the loss of the evidence resulted from carelessness.

Where relevant evidence is spoiled, the jury may be invited to infer that the evidence lost was unfavorable to the party who failed to preserve it, with the prospect of devastating results on the outcome. An article written by the author and recently published in the New York Law Journal entitled “Destroyed E-Data Won’t Make Spoliation Sanctions Disappear” discusses these issues in more detail.

In an April 24, 2007 opinion written by Chief Judge Walker of the United States Court of Appeals for the Second Circuit in Arbor Hills Concerned Citizens Neighborhood Assoc. v. Cty of Albany, et al., the Court agreed that the District Court placed undue reliance on the “forum rule” for determining attorneys’ fee awards on Federal statutory claims. Under the forum rule, an attorney whose client prevailed on a statutory claim would have his or her rates set not based upon what the market would be willing to pay for such services or upon their market rate to paying clients but rather based upon the Court’s reference to fee ranges approved in prior cases in that District The result of using the forum rule was a different range of hourly rates for the same type of litigation in the Second Circuit, depending on where the case was venued, with cases in the Southern District of New York (New York City) having the highest rates, those in the Eastern District (Long Island, Brooklyn, Queens, Staten Island) having lesser rates and the upstate Districts (Northern and Western Districts) having the lowest rates. It was not uncommon for the rate differentials for the same work to command rates 25+% higher in the Southern District.

In Arbor Hills, the Second Circuit admitted that its “fee-setting jurisprudence has become needlessly confused-untethered from the free market it is meant to approximate.” It therefore clarified that the District Court is to consider all of the factors that would be relevant in the free market, such as the reputation of the attorney or firm, the complexity of the case, the resources required to handle the matter aggressively and effectively and any professional benefits which would independently motivate counsel to pursue the litigation. The Court concluded that the fee award should compensate counsel in an amount equal to what a reasonable paying client would pay for that same representation.

The New York Court of Appeals’ decision in Thyroff recognizing a conversion claim based on a company preventing a former employee from accessing personal information stored on the company’s computer certainly presents some difficult privacy issues for businesses, who already face enough potential legal troubles when terminating employees. You suggested that to avoid infringing on an employee’s privacy rights in electronic data on a business computer, a business could give a terminated employee access to the computer to retrieve their personal information. That may present practical difficulties because that access would have to be supervised or somehow limited to prevent the former employee from gaining access to confidential business information or even, in the worst case, sabotaging the company’s computer. Do you have any other ideas on how a business might protect its former employee’s privacy rights and avoid potential tort liability?

Many companies allow their employees to blog during work, or off work, about work, and work related issues. Companies should be aware that their employees may be tempted to blog about subjects that include trade secrets. For instance, on their own time, employees may blog about what they do at work, what they are inventing at work, who their company’s customers are, how the company attracts customers, and other proprietary and confidential information. All of these subjects are potentially exposing the company’s trade secrets. A company must take reasonable measures to protect disclosure of its trade secrets, and keep the trade secrets out of the public domain. If a company fails to take reasonable measures to protect its trade secrets from exposure in the public domain, they will no longer be considered trade secrets.

What can a company do to protect its trade secrets from blogging employees?

The simple answer is to create a blogging policy. A policy should outline the parameters that employees must follow while blogging about the company, and should coincide with the company’s policy manual related to confidential and proprietary information. The following items are suggestions to include in a company blogging policy.

The policy should contain provisions that the employee shall not blog about proprietary and confidential information. The company should provide a definition of proprietary and confidential information.

The policy should contain a provision requiring that the employee shall not post any obscene, defamatory, libelous, abusive or hateful remarks about any the company, company employees, company’s competitors, or company’s customers or partners.

The policy should contain a provision requiring the employee to gain permission from the company before using the company’s symbols, trademarks, or graphics.

For employees who have personal blogs unrelated to the company, the company may want to incorporate a provision that requires the blogger to place a disclaimer on its blog, that all content is that of the author and does not reflect the views of the company.

The policy should not stifle creativity or treat the employee as though they cannot write about work-related topics, but must inform the employee about the legal boundaries of their actions related to blogging about trade secrets, and that the company must take reasonable steps to protect its trade secrets so that they do not lose their status as trade secrets.

Part I – Microsoft Corp. v. AT&T, 550 U.S. ____ (2007)

The question presented to the Supreme Court was whether Microsoft’s liability would extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States?

Generally, no patent infringement occurs when a patented product is made and sold in another country, except where the patented invention’s components are supplied from the United States for combination abroad. 35 U.S.C. § 271(f)(1).

AT&T holds a patent on a computer used to digitally encode and compress recorded speech. Microsoft’s Windows incorporates software that enables a computer to process speech in the manner claimed by AT&T’s patent. Microsoft sends its software on a master disk to foreign manufacturers, who then make copies of the disk and install them onto computers that they sell. The master disk is not installed.

AT&T sued Microsoft and argued that Microsoft infringed on its patent by supplying from the United States, for combination abroad, components of AT&T’s patented computer, and therefore Microsoft would be liable under § 271. Microsoft argued that the copies were not supplied from the United States and were not a component under § 271.

The Supreme Court answered the question presented in the negative, and characterized the copies of the Windows operating code as a blueprint giving instructions rather than a component as AT&T argued. The Supreme Court reasoned that a blueprint may contain precise instructions related to components of a patented instrument, but the blueprint itself is not a component of the patented instrument. Specifically, the court ruled that if the code is sent abroad, the copy made from it will not be considered a component under § 271. The Court explained that AT&T’s only options would be to seek foreign patent prosecution or seek a change in § 271 from Congress.

The Eastern District of Texas originally claimed fame partially through its implementation of its original local patent rules. Patterned after the local patent rules of districts like the Northern District of California with heavy intellectual property dockets, and the original “rocket docket” in the Eastern District of Virginia, the Eastern District of Texas used the patent rules to speed up its patent trials, as well as its civil case docket in general. Typically complex, drawn-out affairs, patent litigation suddenly became streamlined in a Texas federal court located in the tiny Texas town of Marshall, drawing national attention.

Now, with its recent implementation of its own set of local patent rules, the Northern District of Texas attempts to make headway of its own on the national intellectual property scene and demonstrates its seriousness about its participation in the new federal pilot program. Whether it achieves the same notoriety as the Eastern District remains to be seen. Certainly the Eastern District boasts more than simply a speedy docket. It has gained its reputation by stacking its bench with a judiciary that has become highly savvy in the worlds of engineering and technology. But the Northern District bench does not sit light in those areas itself, and it has the advantage of being located in a major metropolitan area. Thus, if the Northern District manages to accomplish the same speedy “rocket docket” trial reputation, and combines it with expertise and its desirable geography, it will certainly give the Eastern District a run for its money in the “something to talk about” department. Not least because it will be a district most attractive to the multi-million dollar corporate clientele that tends to take up the space on each side of those intellectual property case captions.

Certainly, though, the Northern District has its work cut out for it. The patent rules contain numerous mechanisms to eliminate the traffic jams typically caused by intellectual property litigation. They allow the district to conduct speedier patent trials and civil cases in general by placing strict time constraints on parties’ pretrial activities, such as discovery and claim construction, and by clarifying positions early in the case. The rules eliminate discovery disputes by scheduling mandatory early conferences with the court, with obligations that push parties to be liberal in their disclosure and production, and to produce any relevant materials. Claim term lists and proposed claim constructions must be served early. These provisions, among others, ensure the relatively smooth and continuous flow of patent cases, and prevent them from obstructing the smooth and continuous flow of other cases. Nevertheless, it will be truly interesting to watch as the Northern District implements the pilot program and attempts to remedy the congestion of a docket for one of the busiest metropolitan districts in the nation. Interesting and, if successful, a true achievement and benefit to the bar and the state.

Article 9 of the New York Civil Practice Law and Rules (CPLR) governs class actions. CPLR 901(b) provides that a suit that seeks to collect on a liability imposed by statute that is in the nature of a penalty may not be maintained as a class action. Notwithstanding 901(b), where the enabling legislation creating the statutory remedy authorizes a class action, maintenance of such a suit is permissible. In Sperry v. Compton Corp., 8 N.Y.2d 204, 863 N.Y.S.2d 1012 (2007), the New York Court of Appeals ruled that the legislative history of the amendment to the Donnelly Act that authorized treble damages confirmed that it was intended as an incentive for an individual plaintiff above compensatory losses and therefore could only be construed as a penalty. Inasmuch as the Court of Appeals found the authorization for treble damages to be a penalty, and the Donnelly Act did not expressly authorize a class action, class certification was denied.

The lesson to be learned from this decision is that while courts generally don’t go behind the plain language of a statute, where the intent of the legislation is at issue, legislative history may drive the outcome of the case as happened here.

The Supreme Court unanimously rejected the Federal Circuit’s strict application of the teaching-suggestion-motivation (“TSM”) test for obviousness – making it easier to invalidate patents on obviousness grounds.

Teleflex sued KSR for patent infringement. Teleflex held the exclusive license to the patent entitled “Adjustable Pedal Assembly With Electronic Throttle Control.” KSR International Co. v. Teleflex, Inc., 127 S.Ct. 1727, 1734 (2007). The case revolved around Claim 4 of Teleflex’s patent. Claim 4 describes a mechanism for combining an electronic sensor with an adjustable automobile pedal so that the position can be transmitted to a computer that controls the throttle in the automobile. Id. KSR added an electronic sensor to one of its previously designed automobile pedals, and Teleflex sued for patent infringement. KSR claimed that Teleflex’s Claim 4 was invalid under the Patent Act, 35 U.S.C. § 103, because the Claim was obvious. Section 103 provides that a patent cannot be issued when “the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art.” Id.

The District Court granted summary judgment in favor of KSR, reasoning the KSR had demonstrated that Claim 4 was obvious. Id. at 1737. The District Court also held that KSR satisfied the TSM test. Id. at 1738. The Federal Circuit reversed, reasoning that the District Court did not apply the TSM test strictly enough. Id.

The Supreme Court held that the Federal Circuit addressed the obviousness question in a “rigid” manner, reasoning that helpful insights like the TSM test need not become “rigid and mandatory formulas,” and the TSM test as applied did not follow Supreme Court precedent. The court threw out the TSM test, explaining that the Federal Circuit made four errors. First, the Circuit erred by holding that courts should only look to the problem the patentee is trying to solve. According to the Supreme Court, “any need or problem” can provide the patentee with a reason for combing elements. Id. at 1741-42. Second, the Federal Circuit erred by holding that a person of ordinary skill would only look to solve a problem with prior art elements designed to solve the same problem. The Supreme Court explained that a person of ordinary skill will be able to fit the teachings of multiple patents together. Id. Third, the Federal Circuit erred by reasoning that a patent cannot be obvious where it is shown that the combination was obvious to try. Instead, a person of ordinary skill attempting to solve a problem will use common sense and ordinary skill to identify and pursue known options in the field, and if success results it is not innovation. Id. Fourth, the Federal Circuit erred by making a wrong conclusion about the risk of hindsight bias. The Supreme Court held that rigid rules denying recourse to common sense are inconsistent with the Court’s caselaw. Id.

It is likely that the change in the obviousness standard will likely increase the amount of patent litigation. This litigation will involve attempts to invalidate patents on obviousness grounds, and many patents will likely be invalidated. Furthermore, it is likely that inventors will not easily resist an infringement claim and will litigate rather than settle the case. In fact, the Federal Circuit’s first decision interpreting KSR was issued May 9, 2007, Leapfrog Enterprises, Inc. v. Fisher-Price, Inc. and Mattel, Inc., No. 06-1402 (Fed.Cir. May 9, 2007). The Federal Circuit affirmed a lower court ruling invalidating Leapfrog’s patent on the grounds of obviousness. There is no doubt that KSR will have a substantial impact on the patent litigation landscape.

Litigants regularly seek advice from counsel before settling or declining to settle a claim or a case. If that litigant subsequently seeks to recover the amount paid from a third party, such as an insurance company in a breach of contract action or under an indemnification agreement, is the attorney-client privilege waived? Proponents of waiver argue that access to the adversary’s work product and communications are critical to the getting to the question of reasonableness or intent of the opponent. Opponents argue that the privilege must be protected. In two decisions, one from New York and the other from Florida, the trial courts held that the privilege was waived by the act of seeking to recover on such claims, but the appellate courts reversed.

In the New York case, Deutsche Bank Trust Co. of America v. Tri-Links Investment Trust, et al., 2007 WL 1412886 (App. Div. 1st Dep’t 2007), the Appellate Division of the Supreme Court of the State of New York, First Department rejected the lower court’s conclusion that Deutsche Bank’s pursuit of the litigation had worked such a waiver. An “at issue” waiver of attorney-client privilege occurs when a party affirmatively places the subject matter of its own privileged communication at issue in the litigation, such that invasion of the privilege is required in fairness to the adversary so as to provide the opponent information vital to its defense. The Appellate Division distinguished between the existence of a privileged communication that contains information relevant to the issues in the case, which does not effect a waiver, and the invocation of a claim or defense which relies upon such privileged materials. In the latter case, selective disclosure is not permitted and will effect a waiver. If Deutche Bank, in pleading its claim, anticipated the defense that the third party settlement was unreasonable by pleading that it relied upon the advice of counsel, the outcome would have been entirely different.

In the Florida case, XL Speciality Ins. Co. v. Aircraft Holdings, LLC, 929 So.2d 578 (1st Dist. 2006), the Florida District Court of Appeal, First District granted a writ quashing an order compelling XL Speciality to produce privileged documents related to the underlying claim. The lower court ruled that because the question of whether the carrier’s refusal to pay the claim was in bad faith, the communications with its counsel and counsel’s work product were relevant to the issue of objective reasonableness. In granting the writ, the Court of Appeal held that that because the statutory cause of action for bad faith did not indicate a legislative intent to waive the attorney-client privilege, no waiver would be found by the filing of such a claim.

The teaching of these decisions is that to avoid a waiver of the privilege, a litigant must be careful not to plead or refer to the advice of counsel to advance its claim or defense.

The Supreme Court’s 2006 decision in eBay, Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (2006), continues to reverberate, with the Federal Circuit applying it just last month to vacate and remand a permanent injunction granted under the previous “general rule” of patent cases. Under that rule, courts would issue injunctions against patent infringement absent circumstances justifying the denial of injunctive relief. In eBay, the Supreme Court held that it is inappropriate to automatically issue an injunction following a finding of patent infringement. Instead, the Supreme Court held that a request for injunctive relief in patent cases is only available if the elements of the traditional four-factor test for injunctive relief are established. In Acumed, LLC v. Stryker Corp., 483 F.3d 800 (Fed. Cir. 2007), after affirming findings of infringement, and willfulness, the Federal Circuit reversed the district court’s decision to grant a permanent injunction. The district court’s decision to issue a permanent injunction had been made before the Supreme Court articulated its new standard for injunctive relief in patent cases. The Federal Circuit rejected Acumed’s argument that the facts underlying the district court’s finding of infringement and willfulness could serve as independent support for the injunction, concluding that making such a determination on appeal would require the appellate court to “weigh the evidence ourselves to reach a conclusion on injunctive relief.”

Acumed is only the latest case to demonstrate the wide-reaching effect that the eBay decision continues to have on patent infringement jurisprudence. Those who have injunctions in place should be wary of challenges under eBay, as Acumed signals the unwillingness of the Federal Circuit to affirm the granting of injunctions by applying the Supreme Court’s rule during an appeal. Moreover, it makes every injunction issued under the previously-existing “general rule” of patent cases vulnerable to reconsideration, and clarifies that evidence separate and independent from that supporting the infringement will be necessary to support the injunction. The resonating message sent by Acumed is that the appellate courts will not only apply eBay to require that there be evidence on the four factors before an injunction issued pre-eBay will be affirmed, but more importantly that the appellate court will not conduct an eBay analysis on appeal. The Federal Circuit’s conclusion in Acumed that evaluating the eBay factors in light of the evidence would be tantamount to weighing the evidence dictates that it cannot affirm any injunction issued prior to eBay, as no district court could have known to conduct the four-factor analysis prior to that time, and the Federal Circuit’s decision precludes it from doing so on appeal. Acumed signals that if injunctions granted in patent infringement cases under the former general rule are challenged on appeal, remand will be necessary for reconsideration of the issues by district courts.

Patent holders contemplating patent litigation in the Northern District should carefully prepare their complaint, taking every available opportunity to carefully and thoroughly analyze infringement contentions prior to filing. They should additionally take every opportunity to reevaluate and update those contentions throughout the course of the litigation. The reason is the Northern District’s newly-adopted local patent rules. Just another symbol of the District’s commitment to the federal pilot program, the rules have particular significance to patent infringement plaintiffs, since Federal Circuit decisions are decidedly unambiguous in allowing district courts considerable discretion when enforcing procedural requirements of the respective local rules. Such requirements can be outcome determinative, and the Federal Circuit has similarly demonstrated no hesitation in affirming the summary dismissal of infringement claims where infringement contentions were not first properly served or updated pursuant to a district’s local rules, or where a party otherwise failed to comply with local patent rule requirements. See 02 Micro International Limited v. Monolithic Power Systems, Inc., 467 F.3d 1355 (Fed. Cir. 2006); Safeclick, LLC v. Visa International Service Assn., 2006 WL 3017347 (Fed. Cir. 2006) (unpublished decision). In both Safeclick and 02 Micro, the federal circuit upheld the discretionary power of a district court to eliminate certain infringement contentions or arguments that were not raised in the final infringement contentions advanced by each Plaintiff. In each case, the Plaintiffs’ argued that the contentions were based on new material revealed in discovery after submission of the final infringement contentions, or advanced as a refined “scope and clarity” of earlier contentions. The district courts in each case rejected these arguments, finding that the Plaintiffs were not diligent in disclosing the theories, and the Federal Circuit affirmed, demonstrating that local patent rules have real teeth, and the district courts that use and apply them have real power.

The Federal Circuit’s jurisprudence evaluating local patent rules therefore provides district court judges with considerable discretionary power to facilitate patent litigation and move along their dockets through enforcing local rule requirements, even where the exercise of that discretion can be outcome determinative. There has been no hesitation to use that discretion among Texas district courts enforcing local patent rules. MGM Well Servcs., Inc. v. Mega Lift Sys., LLC, 2007 WL 433283 (S.D. Tex. 2007) (granting plaintiff’s motion to exclude invalidity contentions, expert testimony, evidence, and argument regarding prior art patents on grounds that Defendant failed to accurately, timely, or properly disclose same in accordance with the patent rules, and with the Court’s discovery and docket control orders); SoftVault Sys., Inc. v. MicroSoft Corp., 2007 WL 1342554 (E.D. Tex. 2007) (denying plaintiff’s motion for leave to amend its claims and contentions disclosures to change the asserted priority date of the claims at-issue, acknowledging that the importance of the priority dates to the overall case weighed in favor of granting the motion, but denying on grounds that plaintiff had access to information earlier in litigation and thus could have amended in accordance with rules and order deadlines, preventing prejudice to opposing party and need for continuance). Thus, patent holders contemplating litigation in the Northern District should take particular care to heed all the procedural requirements of that District’s recently-enacted local patent rules, as the failure to comply could determine the outcome of litigation. Further, given the “abuse of discretion” standard of review on appeal, any discretionary rulings, including dismissals, based upon a failure to comply with local rule requirements in a patent case will likely prove difficult to overturn on appeal. The lesson to take away here is therefore that any patent infringement plaintiff or defendant must take seriously all discovery and procedural obligations imposed by local rule requirements – and in particular the obligations to disclose infringement and invalidity contentions – seeking experienced and knowledgeable counsel to draft and prepare them, and to review and re-examine them at every possible opportunity. All infringement and invalidity theories should be regularly re-examined and updated in accordance with local rule requirements, or should be amended in accordance with a prompt request for leave to amend in the event new information is learned during the course of discovery. Alternatively, given the broad discretion accorded district courts to enforce their local rule requirements, parties will have to be prepared to lose valid infringement and invalidity theories in the face of untimely disclosure under local rules, even where it means losing the litigation as a whole.

A recent Seventh Circuit decision sends the clear message that companies should take precautions to secure their trade secrets by limiting the availability of the information to those who need to know it and by protecting information that is not readily available to the public. Judge Posner delivered the opinion in American Family Mutual Insurance Co. v. Bonnie L. Roth, 2007 WL 1309403 (7th Cir. 2007). The defendants had been insurance agents for the plaintiff. The plaintiff was awarded a preliminary injunction against the defendants enjoining them from using trade secrets, including customer information that they stole upon their termination from the company. The issues were governed by Wisconsin law, which has adopted the Uniform Trade Secrets Act. The court found that the customer information was in fact a trade secret because the information derives independent economic value from sources not readily available, and is information that has been kept secret by reasonable means. Specifically, the customer information was filtered based on their likelihood of buying insurance, and the information was only made available to agents who were assigned those specific customers or potential customers. The court held that the plaintiff was entitled to an injunction because the information was clearly a trade secret under the Uniform Trade Secrets Act and Wisconsin law, but the court remanded to the district court so that the district court could rework the injunction to be more inclusive. In the wake of Roth, it appears that the greater precautions a company takes, the greater the likelihood that an injunction will be granted to continue protecting the companies’ trade secrets.

The NASD requires its member firms to complete and file a U-5 termination notice whenever employment ceases, and in the case of an involuntary separation from employment, to disclose the reasons for the discharge of that employee. See NASD By-laws, Art. IV, § 3(a). Some of the reasons listed by member companies on the U-5 forms have included the employee’s refusal to cooperate with the compliance department, suspicion of fraud or suspicion of other misconduct. This report stays with the former employee throughout their career and could substantially impair their ability to gain employment at another NASD member firm. It is not uncommon under these circumstances for the former employee to sue the member company, claiming libel or other damage to reputation or economic advantage. If these cases must be litigated on the merits of truth or falsity, it is likely that fact issues will require an evidentiary hearing or a trial at great cost to the member company.

In a common law claim for damage to reputation, most jurisdictions recognize privileges belonging to the defendant, which, in varying degrees, may defeat the claim as a matter of law. An absolute privilege bars suit over a communication, even if defamatory, because of competing public policy considerations that recognize the chilling effect of such suits. A qualified privilege is less favorable to the employer and depends on the reasonableness of the employer’s conduct and commonly presents an issue requiring a trial for resolution.

In an unpublished opinion, Galligan v. Edward Jones & Co., 2000 WL 785041 (Ct. Super. 2000), the Court expressed what had been the common view that statements made by the member company on the U-5 termination notice are only protected by a qualified privilege defense and therefore refused to summarily dispose of the issue.

At least in cases subject to New York law, member companies will be protected from suit over pertinent information communicated on the U-5 termination notice by virtue of a recently decided New York Court of Appeals case that expanded the absolute privilege to apply it to the completion of the U-5. The Court’s well reasoned decision provides a blueprint for the public policy arguments that should be pursued in other jurisdictions that have decided this issue less favorably to the employer.

In Rosenberg v. MetLife, 8 N.Y.3d 359 (2007), the New York Court of Appeals declared that statements made by the member firm on the U-5 termination notice are absolutely privileged because it is a preliminary step in the quasi-judicial process the NASD uses to investigate and sanction violations of securities laws. The Court of Appeals rejected the former employee’s claim that the completion of the U-5 was too attenuated from any judicial proceeding to fall under the rubric of the litigation privilege. The Court of Appeals found strong public policy considerations required recognition of an absolute privilege as to pertinent communications on the U-5 termination notice because it is a preliminary step in the NASD’s investigation of brokers in furtherance of regulating the industry. Inasmuch as the absolute privilege defeated the defamation claim, the Court of Appeals agreed that the lawsuit against MetLife was properly dismissed.

Member dealers that have a nexus with New York should also evaluate whether its employment documents are written in such a way so as to invoke these immunities to defeat such claims at an early stage of the case..

Companies doing business in Texas should familiarize themselves with how Texas law defines trade secrets. In Texas, courts apply a six-factor test to determine whether a trade secret exists. The factors, however are not dispositive because it is impossible to set out precise criteria for a trade secret. Astoria Industries of Iowa, Inc. v. SNF, Inc., 2007 WL 937533, *10 (Tex.App.-Fort Worth, n.p.h.).

The six factors that will be considered by Texas courts to determine whether a trade secret exists are:

• The extent to which the information is known outside of the business;
• The extent to which the information was known to employees and others involved in the business;
• The extent of the measures taken by the business to protect the secrecy of the information;
• The value of the information to the business and its competitors;
• The amount of effort or money expended by the business in developing the information;
• The ease or difficulty with which the information could be properly acquired or duplicated by others.

In re Bass 113 S.W.3d 735, 739 (Tex. 2003). These six factors are to be weighed in determining whether the information is a trade secret, but all six factors do not have to be present for the information to be considered a trade secret in Texas. Id. at 740.

Of course, the more of these factors that the information meets, the more likely the information will be considered a trade secret. For instance, Texas businesses should be sure that the information is not widely known outside of the business; the information is only known by employees who have a direct need to know the information; the business should take great measures to protect the privacy of the information; the information should be valuable information; the business should expend significant resources in developing the information; and the business should make it difficult for others to acquire the information. Taking these six steps to protect the trade secrets of your business will also help the Texas courts identify that the protected information is in fact a trade secret worthy of protection from misappropriation.

The Ninth Circuit has recently clarified the scope of immunity for internet services provides under the Communications Decency Act. That statute contains an immunity provision, stating that that “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 USC § 230 (c)(1). This immunity is limited, however, in that it does not apply to claims “pertaining to intellectual property.” The Ninth Circuit has now interpreted this provision as only applying to intellectual property as defined under federal law, e.g. patents, trademarks, copyrights. Perfect 10 v. CCBill LLC, 2007 WL 1557475 (9th Cir. 2007).

What does this mean?

As a defendant service provider it means that you may seek immunity under § 230(c)(1) where state intellectual property claims are brought against you. Of course, if the federal and state claims are similar, you won’t be escaping much because the federal claim will still survive.

As a plaintiff seeking to enforce a state trade secret claim or any other intellectual property interest recognized and created under state law, the results are not so good. It will be much more difficult to bring a state intellectual property claim, or seek an injunction based on a trade secrets claim. For instance, when a service provider hosts user-posted material misappropriating your trade secrets or infringing on other state-recognized intellectual property rights, the service provider will be immune under § 230(c)(1), and your only recourse will be a claim against that user who posted the material.

The original opinion was amended so that the Ninth Circuit could insert a footnote that reiterates that it really did mean that intellectual property means “federal intellectual property” and state intellectual property claims are preempted by § 230. There are two other cases pending before the Ninth Circuit dealing with the same types of questions, and those decisions will indicate just how far the Ninth Circuit believes the immunity provision extends. In the meantime, service providers in particular should take note that they can now invoke section 230 immunity for the acts of third-parties where the claims raised are state intellectual property claims.

It is no secret that patent litigation is a costly endeavor. It can price small defendants out of being able to defend themselves on the merits and can likewise be the prohibitive factor when small plaintiffs want to enforce their claims. For the small or mid-sized company, the amount at issue many times simply does not justify the high-cost and high-risk of patent litigation.

The costs of litigation can be managed and decreased using court rules that promote efficient litigation and provide for speedy resolution of disputes. Courts in the Eastern District of Texas are widely recognized as national leaders in patent litigation, in large measure, because they provide a relatively quick system for resolving patent disputes. For the party that employs experienced counsel and a strategy to maximize those attributes, the cost of preparing a patent case can be reduce on both sides. This efficiency is accomplished in various ways, including the use by several judges of special rules for patent cases and those same judges’ continuation of the district's tradition of early, firm trial settings. Experienced counsel can see that speedy trial settings and discovery limitations can be used not only to the benefit of a plaintiff, but to the small defendants’ favor as well when defending commercial patent cases. In fact, the settings provide a way of defending a case on the merits that would otherwise cost too much. A small patent defendant is best off in the Eastern District when it has a defense on the merits because there it may possibly get the cheapest path to a trial setting of anywhere in the nation. The truth is, with a valid case and good lawyering, there is no reason that tremendous advantage cannot be found and a path to more efficient litigation discovered by all parties by using the resources of the Eastern District.

The Eleventh Circuit has decided to review en banc a ruling refusing to grant immunity to the NASD on the grounds that it was a self-regulating agency. A Florida lawyer named Steven Weissman purchased a substantial amount of Worldcom stock in trust for his minor children. That stock is now virtually worthless. Rather than suing the now-defunct accounting firm of record, Arthur Anderson, or Worldcom’s former CEO Bernard Ebbers and the other directors, Weissman sued the National Association of Securities Dealers and NASDAQ Stock Market, Inc., the latter of which became a for profit enterprise prior to the events in question. In his diversity complaint, filed in Federal District Court in the Southern District of Florida, Weissman asserted claims for false advertising, fraud, and other deceptive practices under Florida law. He contended that his complaint was limited to the defendants’ commercial activities in promoting and vouching for Worldcom, for which the defendants received indirect profits. The District Court rejected the defendants’ argument that as self-regulatory agencies they were immune from suit. On appeal, a three-judge panel of the Eleventh Circuit ruled that this immunity does not apply to commercial for profit activity such as advertising. Weissman v. National Ass’n of Securities Dealers, 468 F.3d 1306 (11th Cir. 2006), vacated, 481 F.3d 1295 (11th Cir. 2007). One judge dissented, concluding that the acts of alleged misconduct by defendants were closely related to core regulatory functions and should not be actionable. The panel’s opinion is available here: http://www.ca11.uscourts.gov/opinions/ops/200413575.pdf

The Eleventh Circuit has agreed to rehear the matter en banc, reflecting the Court’s recognition of the extraordinary impact of the panel opinion. Weissman v. National Ass’n of Securities Dealers, 481 F.3d 1295 (11th Cir. 2007). If the majority opinion prevails and is adopted by other Circuits, for-profit stock exchanges not only face the specter of significant new liabilities in relation to investments solicited in member companies but the added uncertainty because the theory of liability may derive from a myriad of laws that vary from state to state. Stay tuned . . .

A previous posting entitled “Supreme Court to Decide if Parties Can Agree to Judicial Review of an Arbitration Award,” discussed the U.S. Supreme Court’s intention to review the issue of whether parties may agree to expanded judicial review of arbitration awards under the Federal Arbitration Act. Because businesses may be parties to contracts and licenses that will be governed by state arbitration statutes instead of the FAA, companies should also keep an eye on how this issue is being addressed in the state courts.

For instance, while the federal appellate courts have split on the issue, with most courts allowing parties to agree to expanded judicial review, the trend in California has the been the opposite. The California appellate decisions addressing the issue have concluded that parties may not agree to expanded judicial review. In Baize v. Eastridge Companies (2006) 142 Cal.App.4th 293 [47 Cal.Rptr.3d 763], the parties included a provision in their arbitration agreement requiring the arbitrator to apply California substantive law. The court held that despite this provision, the award could not be vacated on the ground that the arbitrator did not apply the proper law. In Cable Connection, Inc. v. Directv, Inc. (2006) 143 Cal.App.4th 207 [49 Cal.Rptr.3d 187], the court even more strongly rejected the parties’ attempt to expand judicial review. The parties in DirecTV included a provision specifically stating that any arbitration award was reviewable for failure to apply the law. The court held that the grounds for vacating or modifying an award listed in the California arbitration act were exclusive and a court is therefore prohibited under California law from vacating or modifying an award on any ground not listed in the statutes. The parties’ agreement to add another basis for vacating or modifying an award was therefore entirely unenforceable.

The California Supreme Court has granted review of the DirecTV case to address whether parties to a commercial arbitration agreement may contractually expand the jurisdiction of the trial court to permit review of an arbitration award for legal error. The case has been fully briefed by the parties and has generated some interest, including a request by L.F.P., Inc – Larry Flint Publications – to file an amicus brief. Oral argument has not yet been scheduled. Because so many companies do business in California and because decisions of the California courts often influence decisions in other states, this case should be watched closely.

Louis Vuitton is once again making headlines by aggressively seeking to protect its valuable trademark and reputation. Louis Vuitton recently filed suit in U.S District Court for the Middle District of Florida in Tampa, Florida alleging trademark infringement by the Home Shopping Network (“HSN”). Louis Vuitton claims that HSN has been selling look-alike Louis Vuitton handbags and thereby violating at least six of its trademarks. The complaint also asserts claims for copyright infringement, misappropriation of advertising ideas, and intentional counterfeiting. In addition to its claims against HSN, Louis Vuitton also makes claims against American Elite Inc., the distributor that sold the merchandise to HSN.

This latest lawsuit is part of Louis Vuitton’s ongoing fight against counterfeiting and trademark infringement. On its website, the company proclaims that it has a special team devoted to fighting counterfeiting and is trying to make consumers aware of the risks inherent in purchasing counterfeit merchandise. Furthermore, Louis Vuitton notes that 13,000 counterfeiting proceedings and 600 raids were launched last year, with 1000 arrests. Finally, Louis Vuitton makes it clear that its products are sold exclusively in its stores and on it websites, so no one can claim they thought they were making a legitimate purchase when they bought a product on the street or at a “purse party.” Louis Vuitton’s actions and strategy are an example to other businesses of the steps that should be taken to protect a valuable trademark. A business that does not actively fight against trademark infringement risks tarnishing the company’s reputation by allowing counterfeiters to sell inferior product and weaken its trademark.

A recent decision by the United States Court of Appeals Sixth Circuit Court of Appeals prohibited the government from secretly accessing the contents of your e-mails . . . or did it? In Warshak v. United States, the Sixth Circuit affirmed an injunction prohibiting the federal government from using an order under the Stored Communications Act to get the contents of “personal e-mail” held by an ISP unless the government either provides notice and an opportunity to be heard or else makes a fact-specific showing that the account holder maintained no reasonable expectation of privacy “with respect to the ISP.” While the court’s decision specifically only applies to residents of the Southern District of Ohio, the implications of the Warshak decision will no doubt be widespread. But the language in Warshak, in particular the acknowledgement that account holders may easily waive any privacy expectations, is troubling.

Steve Warshak ran a company called Berkeley Premium Nutraceuticals selling things like penis enlargement pills and diet pills. The government began investigating him and his company and obtained court orders under the Stored Communications Act to compel two commercial ISPs to disclose material in Warshak’s e-mail accounts. The Act allows the government to compel disclosure of e-mail contents held by ISPs for more than 180 days using less process than a warrant, and, though the language is unclear, may also allow the government to obtain “opened” e-mail stored less than 180 days through similar methods. Warshak found out about the disclosure of his e-mails by the ISPs and filed a civil suit seeking declaratory and injunctive relief on the grounds that the compelled disclosure of his e-mails violated the Act and the Fourth Amendment. Warshak also sought a preliminary injunction blocking the government from using the Act to compel disclosure of the contents of e-mail with less process than a warrant in all future cases in the Southern District of Ohio. The government later indicted Warshak on 107 counts of wire fraud, bank fraud, money laundering, and assorted other crimes.

At issue in Warshak v. United States was 18 U.S.C § 2703, which tells the government by what means it can access user records, subscriber information, and content of electronic messages. More specifically at issue was whether the government could get access to Warshak’s e-mail content under this provision without giving him prior notice. The court made it clear that a constitutional right may be violated when the government obtains the contents of your e-mails without providing notice.

In an age where millions of Americans are under constant video surveillance, our credit card activity is tracked, our personal information is for sale to millions of marketing companies, and GPS systems are ubiquitous, it was almost shocking that the Sixth Circuit found that Warshak had a “reasonable expectation of privacy” in the content of his e-mails. In its lengthy opinion, the court compared the contents of e-mails to the contents of written letters, phone conversations, and safety deposit boxes at banks. With each of these items, we have a reasonable expectation that our “intermediary service provider” (such as the US Postal Service, AT&T, and the local bank), does NOT examine the contents of our conversations, our letters, and our safes merely because they COULD have access in emergency situations. Further, the court noted that postal workers do not read the contents of our mail in the normal course of business.

The Sixth Circuit made a point to examine Warshak’s agreement with his commercial ISP and assess whether this agreement could amount to a waiver of that reasonable expectation of privacy of the e-mail’s contents with respect to the provider. The court recognized that when a user agreement specifically provides that e-mails will be monitored or audited, the user’s knowledge of this fact may well extinguish any reasonable expectation of privacy. In the absence of such statement, “the service provider’s control over the files and ability to access them under certain limited circumstances will not be enough to overcome an expectation of privacy . . ..” Warshak’s agreement with his ISP allowed access only in limited circumstances, “rather than wholesale inspection, auditing, or monitoring of e-mails.” The court further pronounced that “for now, the government has made no showing that e-mail content is regularly accessed by ISPs, or that users are