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Feldman Gale IP Bulletin

Spring 2006 (Printable PDF)

In this issue:

Fraud - The Trademark Trial And Appeal Board Once Again Confirms The Ruling In Medinol ... This Time In A Citable Decision1

By: Stephanie C. Alvarez and Erica W. Stump

Medinol Ltd. v. Neuro Vasx, Inc., 67 U.S.P.Q.2d 1205 (TTAB 2003) and its progeny should serve as a warning for trademark practitioners and trademark owners in the United States. In Medinol, Neuro Vasx, Inc. ("NVI") filed an intent-to-use application for NEUROVASX for "medical devices, namely, neurological stents and catheters." NVI then filed a statement of use, indicating that it was using the mark in commerce on or in connection with these goods. In fact, however, NVI had not used the mark NEUROVASX in connection with stents. In a subsequent cancellation proceeding against NVI, NVI requested that the word "stent" be deleted from the list of goods. The TTAB held that a fraud is committed when the applicant makes material representations of fact in a declaration, which it knows or should know to be false or misleading. Additionally, in response to NVI's argument that there was no fraudulent intent when procuring its registration, the TTAB stated that it need not inquire about NVI's subjective intent; it need only inquire about the objective manifestations of that intent. Accordingly, the TTAB canceled the entire registration.

Fraud in securing and maintaining the registration of a federal trademark constitutes grounds for cancellation within 15 U.S.C. § 1064. A false statement will not be excused. Moreover, as evidenced by the TTAB's ruling in Medinol, false statements cannot be cured during a TTAB proceeding by a subsequent amendment when the issue of fraud is raised. In fact, even though the cases on this point are inconsistent, there is support for the notion that fraud cannot be "cured" even if the applicant attempts to do so before the claim of fraud is raised in an opposition or cancellation proceeding.

As recently as January 10, 2006, Medinol was again affirmed by the TTAB in a citable decision, Standard Knitting, Ltd. v. Toyota Judosha Kabushiki Kaisha, Opposition No. 91116242. In Standard Knitting, the TTAB found that a registrant had committed fraud when it submitted sworn statements attesting to the use of a mark in conjunction with certain identified goods, when in fact the mark was not actually being used for all of the goods identified. As a result, the TTAB canceled three registrations in their entireties and went on to confirm, once again, that fraud cannot be later cured during a TTAB proceeding by a request to delete certain goods from the registrations.

Medinol has been affirmed by the TTAB on numerous other occasions and with respect to declarations of use, although these decisions are not citable.2 See J.E.M. Int'l, Inc. v. Happy Rompers Creation Corp., Cancellation No. 92043073 (TTAB 2005) (Statement of Use); Physicians Formula Cosmetics, Inc. v. Cosmed, Inc., Cancellation No. 92040782 (TTAB 2005) (Statement of Use); Jimlar Corp. v. Montrexport S.P.A., 2004 WL 1294397 (TTAB 2004) (combined declaration of continued use under Sections 8 & 15); Orion Electric Co., Ltd. v. Orion Electric Co., 2004 WL 624762 (TTAB 2004) (use based application); Hawaiian Moon, Inc. v. Doo, 2004 WL 1090666 (TTAB 2004) (Statement of Use); This Little Piggy Wears Cotton v. Toes, 2004 WL 1701272 (TTAB 2004) (use based application).

The question that remains unanswered is whether the fraud can be "cured" even if the applicant attempts to do so before a claim of fraud is raised. Regardless of the answer, Medinol should serve as a caution to trademark practitioners and owners regarding sworn declarations of use. Moreover, trademark practitioners should continuously monitor their client's use of a mark on identified goods or services in order to amend that client's application and/or registration, if necessary, and before the issue of fraud arises.

1 On April 12, 2006, the Supreme Court adopted a historic rule change that will permit the citation of unpublished opinions in federal courts starting next year. Previously, many courts' rules prohibited the citation of these opinions, giving them no precedential value. Under the new rule, attorneys will be able to cite the "unpublished opinions," and courts will provide them with weight given to other non-binding, but illuminating, legal precedent.

2 But see fn 1, supra

Copyrights And Wrongs: Common Misconceptions

By: Samuel A. Lewis

Benjamin Disraeli said that "[t]o be conscious that you are ignorant is a great step to knowledge." Unfortunately, incorrect assumptions and common misconceptions regarding copyright law often result in costly mistakes that can be easily avoided if they are addressed and corrected in time.

The following is a sampling of common misconceptions:

  • If you pay to have a copyrightable work created, then you own it. This is perhaps the most common misconception. It is also the most complex. The general rule is that the person who creates a work owns the copyrights to the work, even if that work was created for someone else. When applied to a typical situation where you contract to have someone create a copyrightable work, the result is that even if you have paid for the work, all you have actually received is a non-exclusive, non-transferable license to the work, and the person who created it retains ownership of the copyrights. The situation is different when dealing with full-time employees who create copyrighted works within the scope of their employment. In order to ensure that you own the rights to copyrightable works that are created for you-whether by a contractor or by a full-time employee within the scope of his or her employment-it is best to use formal agreements that formally transfer the rights, including the copyrights, to all creations to the employer.

  • Copyright law does not apply to works displayed on the Internet without a copyright notice. Another common misconception, right behind the ownership issue addressed above. While use of the copyright symbol (the "c" in a circle, ©, not to be confused with "@") was mandatory on published works prior to March 1989, that requirement no longer exists and use of the copyright symbol is optional (although practitioners still encourage its use). Thus, copyrighted works commonly appear on the Internet without any sort of copyright notice, and the lack of notice does not in any way impair the legal protections afforded by the Copyright Act. For all works found on the Internet (including text, graphics, photographs, music, etc.), you should presume that the works are protected by copyright law unless the work is being distributed through one of the various public and/or Open Source licensing approaches (such as GNU Public License, Creative Commons, etc.).

  • You can copyright something by mailing it to yourself. Often called the poor-man's version of copyright registration, mailing a copyrightable work to yourself really serves no purpose other than to establish a date after which you created a copyrightable work. It is not, however, a valid substitution for copyright registration. At best, the approach could be described as being penny-wise and pound-foolish. Copyright registration for most works is relatively simple and straight-forward (although there are some exceptions, particularly when dealing with computer software or trade secret materials) and relatively inexpensive (the typical registration fee is $30). In addition, the current Act includes incentives to encourage owners to promptly register their copyrights: in addition to actual damages and injunctive relief, where the copyright was registered before it was infringed, the court may also award statutory damages and attorney's fees. Given how difficult it may be to prove any real loss in a copyright infringement action, statutory damages (currently set at maximum of $30,000 for innocent infringement and up to $150,000 for willful infringement) can make a tremendous difference in the value of a copyright infringement action.

  • Common law copyright still exists. While at one time there was a concept of common law copyright, the concept has largely disappeared. Although copyright laws have existed since 1790 (three years after the U.S. Constitution and one year before the Bill of Rights was ratified), it was not until the last major revision-the Copyright Act of 1976-that the concept of common law copyright was effectively squeezed out. Under the current Copyright Act, federal law applies to copyrightable material once the creation has been fixed (e.g., printed, saved to a hard drive, recorded onto magnetic tape, etc.).

  • Copyrights must be registered before they can be owned. Ownership has nothing to do with registration, and you can own a copyrightable work without registering it. However, copyright registration is, in effect, a way of claiming of ownership over a work. When you register a copyright, you put the world on notice that you own the copyrights to the work being registered. This claim of ownership-the copyright registration-also operates as constructive notice of your ownership. However, it is important to note that registration doesn't prove ownership, and the Copyright Office doesn't review the work being registered beyond merely assessing that it appears to be copyrightable.

  • You can enforce your copyrights even if you haven't registered the copyrights. Registering a copyright is a prerequisite to filing a copyright infringement action. If you haven't registered the copyright, then your options for trying to enforce your rights in the copyright are very, very limited.

As noted above, the most common misconception relates to issues of ownership of copyrighted works created by employees and contractors. The cost of clarifying those rights by way of an agreement is minimal in comparison with the cost of replacing those copyrighted works when you learn that you don't have the rights you think you have.

Copyright's First "License" Doctrine?

By: Lawrence S. Gordon

The first sale doctrine was first codified in the 1909 Copyright Act in response to the United States Supreme Court's decision in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908). In that case, a publisher-copyright holder sold books to R.H. Macy & Co. with a minimum resale price restraint of one dollar per book. A notice was printed on each book, which stated that any violation of the resale price maintenance provision would constitute infringement of the book's copyright. Macy's disregarded the notice and sold the books at a lower price without the publisher's consent. The publisher sued for copyright infringement. The Supreme Court upheld Macy's First Sale defense, rejecting the infringement claim. The Court explained that the right to "vend" only encompasses the right to set the terms of the initial sale and not the right to control the terms of future sales. The decision effectively immunized an original purchaser and any subsequent purchaser from copyright infringement for reselling a book contrary to a provision of the original or prior sales agreement. In so holding, the Court "emphasized the critical distinction between statutory rights and contract rights." Quality King Distributors, Inc. v. L'Anza Research International, Inc., 523 U.S. 135, 143 (1998) (lawful owners of hair care products bearing copyrighted labels did not engage in copyright infringement by importing and reselling products without manufacturer's authority).

This limitation on the exclusive rights afforded under the Copyright Act is currently codified at 17 U.S.C. § 109(a), which provides in relevant part: "the owner of a particular copy ... lawfully made under this title ... is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy." Thus, the original purchaser may sell that particular copy of the work, but not make additional copies for resale. The effect of the statute is to cut-off the copyright owner's control over further or "downstream" transfers to a third party despite the copyright owner's wishes or express language prohibiting further restraints. Quality King Distributors, 523 U.S. at 142-44.

The historical underpinning of the first sale doctrine is the common law prohibition on restraints on alienation and on agreements that restrain trade. In this regard, the Eleventh Circuit Court of Appeals recently explained: "the policy favoring an intellectual property right monopoly . . . gives way to the policy opposing restraints of trade and restraints on alienation." Allison v. Vintage Sports Plaques, 136 F.3d 1443, 1448 (11th Cir. 1998) (citations omitted).

Recently, courts confronted with the application of the first sale doctrine to the resale of software have examined the economic realities of the transaction between the software manufacturer and its customer to determine if the transaction comes within the ambit of the first sale doctrine. Indeed, the courts have recognized that: "Software vendors are attempting en masse to 'opt out' of intellectual property law by drafting license provisions that compel their customers to adhere to more restrictive provisions than copyright law would require." Softman Products Co. v. Adobe Systems, Inc. ("Adobe"), 171 F.Supp. 2d 1075, 1083 n.9 (C.D. Calif. 2001) (quoting, Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239 (1995)). Notwithstanding those attempts to circumvent the first sale doctrine by characterizing the transaction as a "license," courts have nevertheless looked behind the language to determine if the transaction in reality is a sale for purposes of the application of the doctrine.

For example, in Adobe the United States District Court for the Central District of California examined a purported "license" and concluded that software manufacturer's license truly constituted a sale notwithstanding language to the contrary; accordingly, the first sale doctrine applied and nullified the manufacturer's claims of infringement. The denominated "license" in question in Adobe provided that the customer "acknowledges that the structure and organization of the Software is proprietary to Adobe and that Adobe retains exclusive ownership of the Software and the Trademarks." 171 F. Supp.2d at 1075, n. 5. The Adobe license also restricted the manner in which its customers could transfer the software, prohibiting the unbundling of the software package, and requiring any subsequent user to agree to the terms of the restricted license. The court, however, looked at the substance of the transaction:

Because we look to the economic realities of the agreement, the fact that the agreement labels itself a "license" and calls the payments "royalties," both terms that arguably imply periodic payment for the use rather than sale of technology, does not control our analysis.

Id. at 1984 (quoting, Microsoft Corp. v. DAK Indus., 66 F.3d 1091, 1095 n. 2 (9th Cir. 1995)). Framing the issue in terms of the first sale doctrine, the court announced its findings that the transaction would constitute a sale for the purposes of the first sale doctrine, notwithstanding the denomination of the agreement as a license:

The Court finds that the circumstances surrounding the transaction strongly suggests that the transaction is in fact a sale rather than a license. For example, the purchaser commonly obtains a single copy of the software, with documentation, for a single price, which the purchaser pays at the time of the transaction, and which constitutes the entire payment for the "license." The license runs for an indefinite term without provisions for renewal.

Based upon those "economic realities," the court in Adobe held: "The Court agrees that a single payment for a perpetual transfer of possession is, in reality, a sale of personal property and therefore transfers ownership of that property, the copy of the software." See also Novell, Inc. v. CPU Distributing, Inc., 2000 U.S. Dist. Lexis 9975 (S.D.Tex.2000) (vacated by agreement after settlement) (Although Novell claimed that it did not sell software, but licensed it to distributors, the court looked at the reality of the transaction, noting that the risk of loss fell on the user and that a sales tax was paid.); but see Adobe Systems, Inc. v. Stargate Software Inc., 216 F.Supp.2d 1051 (N.D.Cal. 2002) (Rejecting Softman and explaining, "as a matter of general principle, this Court finds that no colorable reason exists in this case as to why Adobe and its distributors should be barred from characterizing the transaction that has been forged between them as a license. In light of the restrictions on title that have been incorporated into the OCRA, as well as the Parties' free and willing consent to enter into and execute its terms, the Parties should be free to negotiate and/or set a price for the product being exchanged, as well as set the terms by which the product is exchanged.").

Stephanie C. Alvarez is a partner in the Miami office. Stephanie focuses on trademark prosecution and trademark and patent litigation.

Lawrence S. Gordon is a partner in the Miami office and a member of the Firm's management committee. Lawrence focuses his practice on commercial and intellectual property litigation and appellate law.

Samuel A. Lewis is a partner in the Miami office. Samuel concentrates on copyright and computer/technology-law matters, and commonly advises clients regarding the protection and enforcement of related intellectual property rights.

Erica W. Stump is an associate in the Miami office. Erica focuses her practice on trademark prosecution, trademark litigation and agreements relating to intellectual property.

© 2006 Feldman Gale. The material in this publication may not be reproduced, in whole or part without acknowledgement of its source and copyright. IP Bulletin is intended to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with their Feldman Gale attorney or other professional counsel before acting on the information contained in this publication. The hiring of an attorney is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience.