Vedder Thinking | Articles Fall 2015 Case Law Review
I. B&B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015)
In B&B Hardware, Inc. v. Hargis Industries, Inc., the Supreme Court held that the standard used to determine whether a likelihood of confusion exists for purposes off trademark registration in disputes before the Trademark Trial and Appeal Board (TTAB) is the same standard used for purposes of infringement in district court litigation. According, "[s]o long as the other ordinary elements of issue preclusion are met, when the usages adjudicated by the TTAB are materially the same as those before the district court, issue preclusion should apply." As a result, the Trademark Trial and Appeal Board's finding that a likelihood of confusion between the parties' marks precluded the parties from relitigating that issue before the district court.
For more information, see Vedder Price's client alert on B&B Hardware, Inc. v. Hargis Industries, Inc.
- Proceedings before the Trademark Trial and Appeal Board must be taken seriously, as a decision could be binding in a subsequent district court action for trademark infringement.
II. Hana Financial, Inc. v. Hana Bank, 134 S. Ct. 2842 (2014)
The Supreme Court clarified that in cases where a jury trial is requested, the issue of whether tacking is available to determine trademark priority is generally a question of fact for the jury. Tacking is available when original and revised marks are "legal equivalents" in that they created the same commercial impression. Because this inquiry is from the perspective of an ordinary purchaser or consumer, a jury should make the determination. However, if warranted by the facts, a judge may decide a tacking question on a motion for summary judgment or for judgment as a matter of law.
For more information, see Vedder Price's client alert on Hana Financial, Inc. v. Hana Bank.
- Whether older uses of one version of a mark may be "tacked on" to a new version of the mark to establish an earlier priority date is a factual question that generally must be decided by the jury.
III. Kimble v. Marvel Entm't, LLC, 135 S. Ct. 2401 (2015)
In Kimble v. Marvel Entm't, LLC, the Supreme Court reaffirmed its long-standing precedent that a patentee may not continue to receive royalties based on a patent after that patent expires.1 As noted by the Court, "[p]atents endow their holders with certain powers, but only for a limited time."2 During a patent's term, the patentee possessive exclusive rights to the invention covered by the patent. Those rights may be sold or licensed to others for royalty payments.3 However, when the patent expires, rights to the invention enter the public domain.4 Accordingly , the Court upheld that post-expiration royalties for patents remain per se unlawful.
Petitioner Kimble obtained a patent on a toy that allows children to role-play as a "spider person" by shooting webs (i.e., pressurized foam string) from the palm of the hand, which he licensed to Marvel in exchange for a lump sum payment and a 3% royalty on all of Marvel's future sales of the product. Notably, the license had no specified end date for the royal payments. Upon expiration of the patent, Marvel sought a declaratory judgment in Federal District Court to cease the royalty payments. The district court, relying on Brulotte, held that the royalty provision was unenforceable once the patent expired.5
On appeal to the Supreme Court, Kimble argued that the rationale behind Brulotte was economically unsound and "the decision interferes with the ability of parties to negotiate licensing agreements that reflect the true value of a patent" by encompassing a bright-line rule rather than a flexible case-by-case analysis. The Supreme Court acknowledged that although there may be support for this argument, "that [an] elaborate inquiry produces notoriously high litigation costs and unpredictable results."6 However, the Court noted that because Brulotte has governed licensing agreements for over half a century, there exists a presumption that parties rely on it as the default rule. Overturning this default rule would upset contractual expectations and bring dormant patents to life. The Supreme Court further elaborated that Congress, not the courts, has the prerogative to change the policy wherein after a patent lapses the invention is available to all for free and noted that there exist multiple provisions to circumnavigate the default rule to allocate risks and rewards associated with commercializing inventions (i.e., the time between licensing a patent and bringing a product to market.)
A full copy of the opinion is available here.
- Contractual provisions granting a patentee royalties beyond the expiration of the patent are unenforceable.
- However, contracts may provide for ongoing payments following a patent's expiration in a variety of ways, including: (i) deferring royalty payments for pre-expiration use of a patent into the post-expiration period; (ii) granting a royalty covering multiple patens (royalties are enforceable until the last patent expires); and (iii) tying post-patent expiration royalties to a non-patent right and decreasing the royalty when the patent expires (e.g., licensing both a patent and a trade secret with the royalty dropping upon expiration of the patent).
IV. Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920 (2015)
In Commil USA, LLC v. Cisco Sys., Inc., the Supreme Court held that a defendant's belief regarding patent validity is not a defense to an induced infringement claim under 35 U.S.C. § 271(b). The Supreme Court reasoned that infringement and validity are separate issues under the Patent Act. Furthermore, the Supreme Court's precedent in Global-Tech requires a plaintiff to prove both that a defendant has knowledge of the patent and the defendant knew the acts were infringing. Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011). Invalidity is a separate ground upon which an accused infringer can prevail. As emphasized by the Supreme Court, a patent is presumed valid. Therefore, if a defendant knows that the patent exists and knows that it is inducing the acts which are covered by the patent, it does not matter whether he believes the patent is valid or not. The court analogized the defendant's belief to the usual case where "I thought it was legal" is no defense.
The Court further clarified its earlier ruling in Global-Tech. In order to induce infringement under 271(b), Global-Tech requires knowledge of the patent and requires proof that the defendant knew the acts were infringing. The Supreme Court stated that if all that was required is knowledge of the patent then, ". . . even if the defendant reads the patent's claims differently from the plaintiff, and that reading is reasonable, he would still be liable because he knew the acts might infringe. Global-Tech requires more." Therefore, the Supreme Court appears to be promulgating a defense for induced infringement that would allow a defendant to assert that at the time of the alleged infringement they reasonably read the claims in such a way that the acts they were inducing would not be covered by the claims. Therefore, they would not have had the requisite knowledge that the acts were infringing.
The dissent by Justice Scalia, joined by Chief Justice Roberts, relates to the majority opinion's strengthening the power of patent trolls who merely sue to recover settlements from accused infringers wanting to avoid the costs of litigation. The dissent stated that this ruling requires an accused infringer to prove invalidity by the high burden of clear and convincing evidence. However, the majority opinion pointed out that rule 11 of the Federal Rules of Civil Procedure provides for sanctions for frivolous cases. Additionally, the courts have discretion to award attorney's fees to the prevailing party and defendants have the ability to obtain rulings on validity. The majority opinion stated that these were adequate safeguards.
A full copy of the opinion is available here.
- Draft claims that can only have one interpretation to prevent a defense of a reasonable alternative reading of the claims.
- If a client is accused of induced infringement and the patent is found valid, a better defense would be to show proof that the client had a reasonable alternative interpretation of the claims.
- Remember, induced infringement always has to be considered with the presumption that the patent is valid.
V. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015)
In a 7-2 decision, the United States Supreme Court held that not all determinations made during the process of claim construction are reviewed de novo upon appeal to the Federal Circuit. The Court left the holding of Markman unchanged and held that while the overall determination of a patent claim's scope (i.e., claim construction) is a matter of law that is reviewed de novo (without deference) on appeal, the process of determining a claim's construction may include the need to resolve subsidiary facts that are in dispute between the parties. The resolutions made by a district court with regard to these extrinsic subsidiary facts n dispute are factual findings, held by the Court, and are reviewed for clear error on appeal Intrinsic evidence, such as the prosecution history of the patent, on the other hand, are legal determinations that will be reviewed de novo on appeal.
For more information, see Vedder Price's client alert on Teva v. Sandoz.
- Due to the heighted level of deference afforded to a district court's factual determinations during claim construction, the presentation of experts and other extrinsic subsidiary evidence at the district court level is critical.
For more information on any of the cases discussed in this article, please contact John K. Burke at +1 (312) 609 7622, Michael B. Scher at +1 (212) 407 6936, or your Vedder Price attorney.
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1 Brulotte v. Thys Co., 379 U.S. 29, (U.S. 1964)
2 Kimble v. Marvel Entm't, LLC, 135 S. Ct. 2401, 2406
3 35 U.S.C.S. § 154(a)(1)
4 35 U.S.C.S. § 154(a)(2)
5 Kimble v. Marvel Enters., 692 F. Supp 2d 1156, 1161 (Ariz. 2010).
6 Kimble, citing Arizona v. Maricopa County Medical Soc., 457 U.S. 332, 343 (1982)