Intellectual Property

Cases & Materials

Thomas G. Field, Jr.
Professor of Law

Fundamentals of

University of New Hampshire School of Law

Copyright 2011 Thomas G. Field, Jr. All rights reserved No copyright is claimed in government works.

If this page and the title page are included, this book is subject to a royalty-free non-commercial license for partial or full reproduction.

University of New Hampshire School of Law 2 White Street, Concord, NH 03301

Preface
In 1906 Mark Twain argued,1 There is no property on earth that does not derive pecuniary value from ideas. More recently, Alan Greenspan, as Federal Reserve Chair, said:2 Over the past half century, the increase in the value of raw materials has accounted for only a fraction of the overall growth of U.S. gross domestic product. The rest of that growth reflects the embodiment of ideas in products and services that consumers value. This shift of emphasis from physical materials to ideas as the core of value creation appears to have accelerated in recent decades. Such assets have become not only increasingly important but also more visible when disputes involving such things as business method patents and internet distribution of music receive attention in general news media. Such visibility generates increased demand for informed attorneys who help to capture the value of ideas and information and help firms avoid infringing others rights. This is the domain of intellectual property (IP) law. Because IP issues arise in many common transactions, most lawyers should have a grasp of basics. The aim of this book is to identify fundamentals for specialists as well as generalists. Absent such a foundation, neither type of lawyer can evaluate the cumulative and alternative strategic value of a wide range of options and the capacity to make such evaluations cannot be developed in specialized courses addressing substantively isolated options. Editing Except for condensation indicated by ellipses and missing footnotes, included cases are generally faithful to originals, but all parallel citations, and many others, are omitted. Also, oft-repeated terms such as Patent and Trademark Office appear as, e.g., PTO, Register or Board, regardless of usage in originals. All reported dissents and concurrences are at least indicated. To the extent that they remain, however, they and remaining footnotes deserve as much attention as the body of majority opinions. Acknowledgments Over three decades of working with students and colleagues at Franklin Pierce Law Center were critical to the selection and organization of these materials. Yet the assistance of my son, TG, in assembling the first draft, and later help from Zachary Miles, Daniel Sepanik and Hiba Zarour warrant special mention as proof reading by many, including Kathi Hennessy abd an ever larger number of students, most recently including Sebastien Delisle. I also appreciate software and hardware support by Marc Gosselin and Paul LaClair, as well as continuing WestLaw access and research support by Jon Cavicchi and Barry Shanks.

1 Statement of Mr. Samuel L. Clemens, Hearings on S. 6330 & H.R. 19853 before the Senate and House Comms. on Patents, 55th Cong., 1st Sess. (1906). 2 Market Economies and Rule of Law, presented at a Financial Markets Conference, Apr. 4, 2003, online at <http://www.federalreserve.gov/BoardDocs/Speeches/2003/20030404/default.htm> (visited May 20, 2007).

Fundamentals of Intellectual Property

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Chapter 1 Patent Background A. Historical, Social and Business Perspectives Fritz Machlup, An Economic Review of the Patent System . . Victor Abramson, The Role of Patents in a Competitive System Justice Story, On the Patent Laws . . . . . . . . . . . . How Patents Spur Innovation . . . . . . . . . . . . . . B. Patents as Property Continental Paper Bag Co. v. Eastern Paper Bag Co. . . . . . eBay and Qualified Rights to Injunctions . . . . . . . . . Scott Paper Co. v. Marcalus Mfg. Co. . . . . . . . . . . C. Exhaustion of Rights Wilson v. Simpson . . . . . . . . . . . . . . . . . . Keeler v. Standard Folding-Bed Co. . . . . . . . . . . . General Talking Pictures Corp. v. Western Electric Co. . . . . Chapter 2 Patent Basics A. Disclosure and Claims Evans v. Eaton . . . . . . . . . . . . . . . . . OReilly v. Morse . . . . . . . . . . . . . . . Tilghman v. Proctor . . . . . . . . . . . . . . . Flick-Reedy Corp. v. Hydro-Line Mfg. Co. . . . . . B. Scope of Claims White v. Dunbar . . . . . . . . . . . . . . . . Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. C. Subject Matter Funk Bros. Seed Co. v. Kalo Inoculant Co. . . . . . . Diamond v. Chakrabarty . . . . . . . . . . . . . Diamond v. Diehr . . . . . . . . . . . . . . . Merrill Lynchs Application . . . . . . . . . . . Federal Jurisdiction in Patent Cases . . . . . . . . State St. Bank & Trust Co. v. Signature Financial Group Chapter 3 Other Patent Requirements A. Utility Brenner v. Manson . . . . . . . . Fregeau v. Mossinghoff . . . . . . In re Cortright . . . . . . . . . . Juicy Whip v. Orange Bang . . . . . B. Novelty Pennock v. Dialogue . . . . . . . Pfaff v. Wells Electronics . . . . .

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Fundamentals of Intellectual Property

Group One, Ltd. v. Hallmark Cards . . . . . . C. Nonobviousness Eibel Process Co. v. Minnesota & Ontario Paper Co. Graham v. John Deere Co. . . . . . . . . . . United States v. Adams . . . . . . . . . . . KSR Intl. Co. v. Teleflex . . . . . . . . . .

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Chapter 4 Limitations on Rights A. During Patent Terms Morton Salt Co. v. G. S. Suppiger Co. . . . . . . Mallinckrodt v. Medipart . . . . . . . . . . . Lifescan v. Can-Am Care Corp. . . . . . . . . . Jazz Photo Corp. v. ITC . . . . . . . . . . . . B. Related to Source Confusion Singer Mfg Co. v. June Mfg Co. . . . . . . . . . Kellogg Co. v. National Biscuit Co. . . . . . . . . Sears, Roebuck & Co. v. Stiffel Co. . . . . . . . . Vornado Air Circulation Systems v. Duracraft Corp. Wal-Mart Stores v. Samara Bros. . . . . . . . . TrafFix Devices v. Marketing Displays . . . . . .

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Chapter 5 Copyright Basics A. Historical Perspectives on Formalities and Terms Wheaton v. Peters . . . . . . . . . . . . . . . . . . Samuel Clemens on Copyright . . . . . . . . . . . . . B. Subject Matter Baker v. Selden . . . . . . . . . . . . . . . . . . . Morrissey v. Procter & Gamble Co. . . . . . . . . . . . Lotus Development Corp. v. Borland Intl . . . . . . . . . Bleistein v. Donaldson Lithographing Co. . . . . . . . . . Mazer v. Stein . . . . . . . . . . . . . . . . . . . . Masquerade Novelty v. Unique Industries . . . . . . . . . Oddzon Products v. Oman . . . . . . . . . . . . . . . British Leyland Mtr. Corp. Ltd. v. Armstrong Patents Co., Ltd. C. Originality Feist Publns. v. Rural Telephone Service Co. . . . . . . . . Meshwerks, Inc. v. Toyota Motor Sales U.S.A. . . . . . . Paul Morelli Design v. Tiffany and Co. . . . . . . . . . . Chapter 6 Copyright Ownership and Enforcement A. Ownership Oddo v. Ries . . . . . . . . . . . . . . . Konigsberg Intl v. Rice . . . . . . . . . . . Community for Creative Non-Violence v. Reid . . Tasini v. The New York Times Co. . . . . . . On further review . . . . . . . . . . . . B. Proof of Infringement ABKCO Music v. Harrisongs Music, Ltd. . . . . Benson v. Coca-Cola Co. . . . . . . . . . . . Kisch v. Ammirati & Puris . . . . . . . . . .

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Contents

C. Further Consideration of Sanctions Lipton v. The Nature Company . . . United States v. LaMacchia . . . . . Natl Football League v. White . . . Derek Andrew v. Poof Apparel Corp.

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Chapter 7 Owners Rights and Copyright Defenses A. Exclusive Rights Mirage Editions v. Albuquerque A.R.T. Co. . . . . . . . . Lee v. A.R.T. Co. . . . . . . . . . . . . . . . . . . B. Defenses Belcher v. Tarbox . . . . . . . . . . . . . . . . . . . Olan Mills v. Eckerd Drug of Texas . . . . . . . . . . . Keep Thomson Governor Comm. v. Citizens for Gallen Comm. Campbell v. Acuff-Rose Music . . . . . . . . . . . . . Sony Corp., America v. Universal City Studios . . . . . . . Metro-Goldwyn-Mayer Studios v. Grokster . . . . . . . Princeton U. Press v. Michigan Doc. Services . . . . . . . Ty v. Publications Intl, Ltd. . . . . . . . . . . . . . . Sandoval v. New Line Cinema Corp. . . . . . . . . . . . Chapter 8 Trade Secrets A. Early Cases Peabody v. Norfolk . . . . . . . . . . Tabor v. Hoffman . . . . . . . . . . B. Current Sources of Law E.I. duPont deNemours & Co. v. Christopher Metallurgical Ind. v. Fourtek . . . . . . Hoechst Diafoil Co. v. Nan Ya Plastics Corp. C. Patents and Trade Secrets Kewanee Oil Co. v. Bicron Corp. . . . . Group One, Ltd. v. Hallmark Cards . . . Taborsky v. State . . . . . . . . . . Chou v. University of Chicago . . . . .

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Chapter 9 Preemption and Privity A. Parties in Privity Downey v. General Foods Corp . . . . . . . . On further appeal . . . . . . . . . . . . Apfel v. Prudential-Bache Securities Inc. . . . . Aronson v. Quick Point Pencil Co. . . . . . . . B. Parties not in Privity Bonito Boats v. Thunder Craft Boats . . . . . . National Basketball Assn v. Motorola . . . . . United States ex rel. Berge v. University of Alabama C. When Does Privity Matter? ProCD v. Zeidenberg . . . . . . . . . . . . Bowers v. Baystate Technologies . . . . . . . Chapter 10 Trademark Rights A. Related to Use

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Fundamentals of Intellectual Property

The Trade-Mark Cases . . . . . . . . . . . . . . Hanover Star Milling Co. v. Metcalf . . . . . . . . . Manhattan Industries v. Sweater Bee by Banff, Ltd. . . . In re Taylor . . . . . . . . . . . . . . . . . . . Larry Harmon Pictures Corp. v. Williams Restaurant Corp. B. Subject Matter Limitations Revisited Jacob Siegel Co. v. FTC . . . . . . . . . . . . . . Eastern Air Lines v. New York Air Lines . . . . . . . Two Pesos v. Taco Cabana . . . . . . . . . . . . . Qualitex Co. v. Jacobson Products Co. . . . . . . . . C. Effects of Registration Burger King of Florida v. Hoots . . . . . . . . . . . Morehouse Mfg. Corp. v. J. Strickland & Co. . . . . . Natural Footwear Ltd. v. Hart, Schaffner & Marx . . . . Lucent Information Mgmt. v. Lucent Tech. . . . . . . Chapter 11 Scope of Trademark Rights A. Fair Use Champion Spark Plug Co. v. Sanders . . . . . . . . . Smith v. Chanel . . . . . . . . . . . . . . . . . B. Proximity of Goods and Services California Fruit Growers Exchange v. Sunkist Baking Co. . In re E. I. duPont de Nemours & Co. . . . . . . . . . McGregor-Doniger v. Drizzle . . . . . . . . . . . . Intl Star Cl. Yacht Racing Assn v. Tommy Hilfiger, USA Moseley v. V Secret Catalogue . . . . . . . . . . . C. Geographic Considerations Dawn Donut Co. v. Harts Food Stores . . . . . . . . Copy Cop v. Task Printing . . . . . . . . . . . . . D. On the Internet Juno Online Services, L.P. v. Juno Lighting . . . . . . Planned Parenthood Federation, America v. Bucci . . . . Ty v. Perryman . . . . . . . . . . . . . . . . .

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Chapter 12 Speech-Related Concerns A. Reputational Interests Auvil v. CBS 60 Minutes . . . . . . . . . . . . . Mikohn Gaming Corp. v. Acres Gaming . . . . . . . . . Coca-Cola Co. v. Gemini Rising . . . . . . . . . . . . L.L. Bean v. Drake Publishers . . . . . . . . . . . . . Proctor & Gamble Co. v. Haugen . . . . . . . . . . . B. Free Riding Zacchini v. Scripps-Howard Broadcasting Co. . . . . . . White v. Samsung Electronics America . . . . . . . . . Wendt v. Host International . . . . . . . . . . . . . Hoffman v. Capital Cities/ABC . . . . . . . . . . . . Cardtoons, L.C. v. Major League Baseball Players Assn . . Rock and Roll Hall of Fame and Museum v. Gentile Prodns

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Table of Cases
A A. & P. Tea Co. v. Supermarket Corp., 3.27 Abbott Laboratories v. Andrx Pharmaceuticals, Inc., 2.11, 10.26 Abbott Laboratories v. Brennan, 12.5 Abercrombie & Fitch Co. v. Hunting World, Inc., 4.25, 10.16, 10.20, 11.14 ABKCO Music, Inc. v. Harrisongs Music, Ltd., 6.15 Adams v. Burke, 1.18, 1.19, 1.20, 3.39 Advanz Behavioral Management Resources, Inc. v. Miraflor, 5.8, 10.26 Affiliated Hosp. Prod., Inc. v. Merdel Game Mfg. Co., 11.18 Ainsworth v. Walmsley, 10.5 Aktiebolaget Electrolux v. Armatron International, Inc., 11.32 Aktieselskabet AF 21. November 2001 v. Fame Jeans Inc., 10.14 Allison v. Vintage Sports Plaques, 12.29 n. 7 Allred v. Cook, 12.16 American Chicle Co. v. Topps Chewing Gum, Inc., 10.20, 11.45 American Fruit Growers, Inc. v. Brogdex Co., 2.25 American Geophysical Union v. Texaco Inc., 7.26, 7.28 American Greetings Corp. v. Easter Unlimited, Inc., 6.19 American Home Products Corp. v. Johnson & Johnson, 10.18 American Safety Table Co. v. Schreiber, 11.6 Andersons-Black Rock, Inc. v. Pavement Salvage Co., 3.38, 3.39 Andreas v. Volkswagen, Am., Inc., 6.32 Andrews v. Hovey, 3.18 Apfel v. Prudential-Bache Securities Inc., 9.5 Arnstein v. Porter, 6.15, 6.18, 6.419 Aro Mfg. Co. v. Convertible Top Replacement Co., 4.6, 4.10 Aronson v. Quick Point Pencil Co., 9.8, 9.11, 9.27 In re Arzberger, 2.27 Associated Press v. All Headline News Corp., 9.22 Atari Games Corp. v. Nintendo of America, Inc., 9.29, 9.30 Atari Games Corp. v. Oman, 5.27, 5.40 n. 3 ATC Distr. Group, Inc. v. Whatever It Takes Transmissions & Parts, Inc., 5.39 Autogiro Co. of America v. United States, 2.15 Autoskill, Inc. v. National Educ. Support Sys., Inc., 5.11, 5.14 Auvil v. CBS 60 Minutes, 12.1 Avon Shoe Co. v. David Crystal, Inc., 10.35 Axelbank v. Rony, 6.18 B B. Sanfield Inc. v. Finlay Fine Jewelry Corp., 10.19 Baden Sports, Inc. v. Molten USA, Inc., 10.19 Baker v. Selden, 5.7, 5.8, 5.11, 5.12, 5.21, 5.23 Baltimore Orioles, Inc. v. Major League Baseball Players Assn, 12.28 Barclays Capital Inc. v. theflyonthewall.com, 9.22

Table of Cases

Basic Books, Inc. v. Kinkos Graphics Corp., 7.26 Bauer, 4.5 n. 8 Belcher v. Tarbox, 6.20, 7.5, 7.33, 10.15 Bellis v. U.S., 8.23 Bement v. National Harrow Co., 1.10 In re Benson, 2.34 Benson v. Coca-Cola Co., 6.16 In re Bergel, 3.39 In re Bergy, 2.33, 2.42, n. 2 Berlin v. E.C. Publications, Inc., 12.13 In re Bernhart, 2.34 In re Bilski, 2.45 Bilski v. Kappos, 2.45 Bleistein v. Donaldson Lithographing Co., 5.16, 5.18, 6.20, 7.14 Blockbuster Videos Inc. v. Tempe, 10.28 Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 2.11 Bloomer v. McQuewan, 1.18, 1.22, n. 1 Blue Bell, Inc. v. Jaymar-Ruby, Inc., 11.17 Board of Regents v. Taborsky, 8.26 Bobbs-Merrill Co. v. Isidor Straus, 7.4 Boesch v. Graff, 1.18, 1.20, 4.10 Bolger v. Youngs Drug Prods. Corp., 12.16, 12.32 In re Bond, 3.8 Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 2.14, 2.17, 4.23, 4.28, 911, 9.15, 9.30, 9.32 Bora v. Mitchell Brothers Film Group, 7.6 Bosch v. Ball-Kell, 6.9 In re Bose Corp., 10.32, 10.40 Bose Corp. v. Consumers Union of United States, Inc., 12.33 Bosley Medical Institute, Inc. v. Kremer, 12.14 Bourne v. Walt Disney Co., 6.12 Bowers v. Baystate Technologies, Inc., 7.4, 9.25 Bram v. Dannon Milk Prods., 9.4 In re Brana, 3.8 Brandir Internatl, Inc. v. Cascade Pacific Lumber Co., 5.24 n. 8, 5.27, 10.26 In re Bremner, 3.1, 3.2 Brenner v. Manson, 3.1 Bridgeman Art Library, Ltd. v. Corel Corp., 5.39, 5.42 Bridgeport Music, Inc. v. Dimension Films, 7.35 Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 6.15 Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 10.20, 11.22 British Leyland Motor Corp. Ltd. v. Armstrong Patents Co. Ltd., 5.29, 11.3 Britton v. Maloney, 9.30 Broadbridge Media, L.L.C. v. Hypercd.Com, 11.38 Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 6.13 Brown Bag Software v. Symantec Corp., 5.14 n. 14 Brown v. Fowler, 8.7 Brulotte v. Thys Co., 9.10 Brunswick Corp. v. Spinit Reel Co., 4.23

Table of Cases

Bulova Watch Co. v. Steele, 10.13, 10.14 Burger King of Florida, Inc. v. Hoots, 10.27, 10.37 Burrow-Giles Lithographic Co. v. Sarony, 5.18, 5.33, 5.37, 5.39 C C.B.C. Distribution and Marketing, Inc. v. Major League Baseball Advanced Media, L.P., 12.41 Cairns v. Franklin Mint Co., 12.34 California Fruit Growers Exchange et al. v. Windsor Beverages, Ltd., 11.11 California Fruit Growers Exchange v. Sunkist Baking Co., 11.9, 11.14, 11.19 Calmar, Inc. v. Cook Chemical Co., 3.28 Campbell v. Acuff-Rose Music, Inc., 1.12, 6.13, 7.11, 7.26, 7.27, 7.30, 7.33, 7.35 Capitol Records, Inc. v. Mercury Records Corp., 9.21, 12.30 Cardtoons, L.C. v. Major League Baseball Players Assn, 12.34 Cartoon Network LP, LLLP v. CSC Holdings, Inc., 7.23 Carmo v. State, 8.28 Carol Barnhart, Inc. v. Economy Cover Corp, 5.24 n. 8 Carson v. Heres Johnny Portable Toilets, Inc., 12.22, 12.23, 12.25 Castle Rock Entertainment, Inc. v. Carol Pub. Group, Inc., 7.33 CBS, Inc. v. Davis, 12.4 Central Hudson Gas & Elec. Corp. v. Public Serv. Comm., 12.29, 12.38 Chadwick v. Covell, 12.11 Champion Spark Plug Co. v. Reich, 11.2 Champion Spark Plug Co. v. Sanders, 4.6, 4.12, 11.1, 11.5 n. 6, 11.8 Chandon Champagne Corp. v. San Marino Wine Corp., 11.19 Chase v. Public Utility Commn, PA, 9.24 Chemical Corp. of America v. Anheuser-Busch, Inc., 12.13 In re Chemical Dynamics, Inc., 12.44 Cheney Bros. v. Doris Silk Corp., 9.19, 9.21 Chou v. University of Chicago, 8.29 Christoff v. Nestl USA, Inc., 12.30 Christopher Phelps & Assoc., LLC v. Galloway, 6.14, 6.32 City Merchandise, Inc. v. Kings Overseas Corp., 10.26 Clinton E. Worden & Co. v. California Fig Syrup Co., 11.36 Coach v. Peters, 5.42 Coca-Cola Co. v. Gemini Rising, Inc., 12.7, 12.14, 12.41, 12.44 Coca-Cola Company v. Tropicana Products, 10.18 Cochrane v. Deener, 2.31 Coco Rico, Inc. v. Fuertes Pasarell, 11.33 Cohen v. California, 12.37 Colgate-Palmolive Co. v. Cook Chemical co., 3.28 Columbia Broadcasting System, Inc. v. DeCosta, 9.21 Columbia Pictures Television, Inc. v. Krypton Broadcasting of Birmingham, 6.24 Comedy III Prods., Inc. v. Gary Saderup, Inc., 12.32 n. 2, 12.46 Community for Creative Non-Violence v. Reid, 6.5 Compaq Computer Corp. v. Ergonome, Inc., 6.30 Compco Corp. v. Day-Brite Lighting, Inc., 4.22, 4.23, 8.23, 9.1, 9.3, 9.12, 9.13, 9.14, 9.21, 11.4, 11.5, 11.8 Conmar Products Corp. v. Universal Slide Fastener Co., 8.26

Table of Cases

Continental Paper Bag Co. v. Eastern Paper Bag Co., 1.9, 1.12, 6.14 Copy Cop Inc. v. Task Printing Inc., 11.30 Corning Glass Works v. Sumitomo Elec. U.S.A., 2.19 Corning v. Burden, 2.31, n. 7 In re Cortright, 3.7, 3.9 Courier Lithographing Co. v. Donaldson Lithographing Co., 5.18 CreAgri, Inc. v. USANA Health Sciences, Inc., 10.11, 10.32 Crescent Tool Co. v. Kilborn & Bishop Co., 4.16, 9.13 Cuno Engineering Corp. v. Automatic Devices Corp., 3.30 D Dairy Stores, Inc. v. Sentinel Publishing Co., Inc., 12.4, 12.17, 12.34 Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 12.11 Dann v. Johnston, 2.35, 2.36 Darden v. Peters, 5.42 Darrell v. Joe Morris Music Co., 6.15 Dastar Corp. v. Twentieth Century Fox Film Corp., 9.22, 9.24 Data Gen. Corp. v. Grumman Sys. Support Corp., 9.28, 9.30 Dawn Donut Co., Inc. v. Harts Food Stores, Inc., 11.18 n. 6, 11.26 Dawson Chemical Co. v. Rohm & Hass Co., 7.19, 7.23 In re DC Comics, Inc., 4.30 Decker v. FTC, 3.11, 10.15 Decorative Aides Corp. v. Staple Sewing Aides Corp., 6.19 Deepsouth Packing Co. v. Laitram Corp., 2.33, n. 15 Demetriades v. Kaufmann, 5.31 Derek Andrew, Inc. v. Poof Apparel Corp., 6.31, 10.37 Diamond v. Chakrabarty, 2.23, 2.31, 2.42, 3.12, 5.22 Diamond v. Diehr, 2.30, 2.42 Doe v. Friendfinder Network, Inc., 11.45 Dolch v. United California Bank, 6.2 n. 2 Dominant Semiconductors SDN.BHD. v. Osram GMBH, 12.7 Dow Chemical Co. v. United States, 8.23 Dowling v. United States, 6.25, 6.27, 6.28, 9.24, 10.40 Downey v. General Foods Corp., 9.1, 9.4, 9.32 Dun v. Lumbermen's Credit Assn., 1.12 Dupont Cellophane Co., Inc. v. Waxed Products Co., Inc., 4.19, 10.19 DuPont de Nemours Powder Co. v. Masland, 8.23 Durham Industries, Inc. v. Tomy Corp., 6.19 E In re E.I. duPont de Nemours & Co., 11.12, 11.19 E.I. duPont de Nemours & Co., Inc. v. Christopher, 8.6, 8.17 n. 5, 8.23, 9.1 Eastern Air Lines, Inc. v. New York Air Lines, Inc., 10.16, 11.42 Eastwood v. Superior Court, 12.22, 12.24, 12.25 Eckes v. Card Prices Update, 6.23, 6.24 Eden Toys, Inc. v. Florelee Undergarment Co., 6.4 n. 3 Effects Assocs., Inc. v. Cohen (Effects II), 6.3, 6.4, 6.5 Eibel Process Co. v. Minnesota & Ontario Paper Co., 3.24 Eldred v. Ashcroft, 5.6 Elizabeth v. Pavement Co., 3.18

Table of Cases

Emerson v. Davies, 7.12 Enterprise Mfg. Co. v. Landers, Frary & Clark, 4.16 Environtech Corp. v. Al George, Inc., 3.8 Erie R. Co. v. Tompkins, 4.16, 9.18 Ets-Hokin v. Skyy Spirits, Inc., 5.37, 5.38 ETW Corp. v. Jireh Pub., Inc., 12.46 Evans v. Eaton, 2.1, 5.5 EWP Corp. v. Reliance Universal Inc., 3.36, 3.42, 7.31 Exhibit Supply Co. v. Ace Patents Corp., 2.16 Exxon Corp. v. Exxene Corp., 11.43 Exxon Corp. v. Oxxford Clothes, Inc., 11.11 F Fabrica, Inc. v. El Dorado Corp., 5.25 Fantasy Book Shop, Inc. v. City of Boston, 12.13 Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 5.32, 5.35, 5.37, 6.24, 9.17, 9.21, 9.25 Feltner v. Columbia Pictures Television, 6.24 Ferguson v. NBC, Inc., 6.22 Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 2.14 Fischer v. Viacom International, Inc., 9.29 Flick-Reedy Corp. v. Hydro-Line Mfg. Co., 2.12, 8.6 In re Flook, 2.35 Florida Bar v. Went For It, Inc., 12.32 Florida Lime & Avocado Growers v. Paul, 8.23 Folsom v. Marsh, 7.12, 7.13, 7.14, 7.16 Food Lion, Inc. v. Capital Cities/ABC, Inc., 6.8 Forast v. Brown University, 6.8 Forest Group, Inc. v. Bon Tool Co.,12.7 Fotomat Corp. v. Cochran, 12.46 Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 6.32 Franklin Mint Corp. v. National Wildlife Art Exchange, Inc., 6.18 Fred Fisher, Inc. v. Dillingham, D.C., 5.21 Fregeau v. Mossinghoff, 3.5, 3.9, 3.12 Fromson v. Western Litho Plate and Supply Co., 1.13 FTC v. Winsted Hosiery Co., 11.3 Fuji Photo Film Co., Ltd. v. ITC, 4.12 Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 4.12 Funk Bros. Seed Co. v. Kalo Inoculant Co., 2.20, 2.35, n. 41 Furrs Inc. v. United Specialty Advertising Co., 8.7 G G. Ricordi & Co. v. Haendler, 9.21, 10.20 Gaste v. Kaiserman, 6.22 In re Gastown, Inc., 10.11, 10.13 Gay Toys, Inc. v. Buddy L Corp., 5.24, 5.28 Gaylord v.U.S., 7.16 General Electric Co. v. Alumpa Coal Co., 12.13 General Mills Inc. v. Health Valley Foods, 10.11

Table of Cases

General Motors Corp. v. Lanard Toys, Inc., 10.26, 11.8 General Talking Pictures Corp. v. Western Electric Co., Inc., 1.21, 3.36, 4.4, 7.4 Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers Inc., 1.13 GFI Inc. v. Franklin Corp., 3.19 Girl Scouts of United States of America v. Personality Posters Mfg. Co., 12.9 Goldberg v. Medtronic, Inc., 8.25 Goldstein v. California, 5.6, 8.17, 8.18, 8.23 n. 4, 12.20, 12.29 Gonzales v. Transfer Technologies, Inc., 6.30 Goodyear v. Rubber Co., 1.17 Gordon & Breach Science Publishers, S.A. v. Am. Inst. Physics, 12.15 Gorham Mfg. Co. v. White, 5.21 Gottschalk v. Benson, 2.31, 2.35, 2.36, 6.17 GP Industries, Inc. v. Eran Industries, Inc., 12.7 Graham v. John Deere Co., 2.25, 3.1, 3.27, 3.34, 3.36, 3.38, 3.40, 3.42, 4.38, 8.20, 8.21 Graver Tank & Manufacturing Co. v. Linde Air Products Co, 2.14, 2.15 Great A. & P. Tea Co. v. Supermarket Corp., 2.28., 3.38 Gross v. Seligman, 6.18, 6.19 Group One, Ltd. v. Hallmark Cards, Inc., 3.20, 8.24, 8.29 H Haelan Laboratories, Inc. v. Topps Chewing Gum, Inc., 12.36 Halliburton Oil Well Cementing Co. v. Walker, 2.23 Hammer v. Barnes, 8.5 Hanover Star Milling Co. v. Metcalf, 10.4, 10.35 Harper & Row, Publishers, Inc. v. Nation Enterprises, 5.33, 5.34, 7.12, 7.14, 7.15, 7.27, 7.28, 8.26 (2d Cir.), 9.17, 9.18, 9.24, 10.3, 12.21 Harrington v. Mure, 6.2 Hartford House, Ltd. v. Hallmark Cards, Inc., 4.23 Haughton Elevator Co. v. Seeberger, 11.14 In re Hayes, 10.26 Henry v. A. B. Dick Co., 1.22, n. 2 Herrick v. Garvey, 8.16 Hicktons Patent Syndicate v. Patents & Machine Improvements Co. Ltd., 2.39 Hobbie v. Jennison, 1.18, 1.19, 1.20, 1.23, n. 7 Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 8.13 Hoehling v. Universal City Studios, Inc., 5.36, 9.24 Hoffman v. Capital Cities/ABC Inc., 12.31, 12.46 Holiday Inns of America, Inc. v. B & B Corp, 10.35 Hormel Foods Corp. v. Jim Henson Productions, Inc., 11.43 Hot Shoppes, Inc. v. Hot Shoppe, Inc., 10.28 Hotchkiss v. Greenwood, 3.29, 3.30, 3.38 Hotel Security Checking Co. v. Lorraine Co., 2.43 Hot Wax, Inc. v. Turtle Wax, Inc., 12.30 In re Hruby, 5.22, 5.28 Hunter Douglas, Inc. v. Harmonic Design, Inc., 12.5, 12.6 Hustler Magazine v. Falwell, 12.24, 12.26, 12.37 Hyde Corporation v. Huffines, 8.7 I Illinois High School Assn v. GTE Vantage Inc., 11.44, 11.45

Table of Cases

Illinois Tool Works Inc. v. Independent Ink, Inc., 4.2 Intermatic v. Toeppen, 11.39 International Biotical Corp. v. Associated Mills, Inc., 6.18 International News Service v. Associated Press, 5.34, 9.16, 9.18, 9.21, 9.22, 11.45 International Salt Co. v. U.S., 4.2 International Star Class Yacht Racing Assn v. Tommy Hilfiger, U.S.A., Inc., 11.20 Interpart v. Italia, 9.11, 9.14 Intervest Construction, Inc. v. Canterbury Estate Homes, Inc., 5.36 Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 4.25, 4.29, 4.30, 7.19 n. 19, 10.20 In re see partys name, e.g., Cortright. In re Iwahashi, 2.43 J Jay Franco & Sons, Inc. v. Franek, 10.31 J.E.M. Ag Supply Inc. v. Pioneer Hi-Bred International Inc., 2.30 Jacob Siegel Co. v. FTC, 10.15, 11.3, 11.42 Jacobs v. Robitaille, 7.9 Jarrow Formulas, Inc. v. Nutrition Now, Inc., 10.19 Jarvis v. Peck, 8.3 Jazz Photo Corp. v. U.S. International Trade Commission, 4.9, 4.12, 7.23, 7.36, 11.3 Jeoffroy Mfg., Inc. v. Graham, 3.28 Johns Hopkins Univ. v. Cellpro, Inc., 3.7 Jordache Enterprises, Inc. v. Hogg Wyld, Ltd., 12.36 Juicy Whip Inc. v. Orange Bang Inc., 3.10, 4.2, 7.6, 10.15 Jungersen v. Ostby & Barton Co., 1.15 Juno Online Services, L.P. v. Juno Lighting, Inc., 11.34, 12.41 K K & G Tool & Service Co. v. G & G Fishing Tool Service, 8.7 In re Kahn, 3.39 Kassel v. Consolidated Freightways Corp., 12.29 Katz Dochrermann & Epstein, Inc. v. Home Box Office, 9.32 Keeler v. Standard Folding-Bed Co., 1.17, 1.24, 4.4 Keep Thomson Governor Comm. v. Citizens for Gallen Comm., 7.8, 7.16 Kelley v. Southern Pacific Co., 6.7 Kellogg Co. v. National Biscuit Co., 1.14, 4.16, 4.21, 4.22, 4.24, 10.7, 11.5 n. 6, 11.8 Kemart Corp. v. Printing Arts Research Lab., Inc., 12.7 Kendall v. Winsor, 8.22 n. 23 Kewanee Oil Co. v. Bicron Corp, 2.24, 8.16, 8.24, 9.1, 9.9, 9.11, 9.13, 9.32, 12.20 Key Chemicals, Inc. v. Kelite Chemicals Corp., 10.35, 10.36 Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 4.11 King-Seeley Thermos Co. v. Aladdin Industries, 11.14 Kisch v. Ammirati & Puris Inc., 6.18, 6.20, 7.6 Konigsberg Intl, Inc. v. Rice, 6.3, 6.14 Korzybski v. Underwood & Underwood. 7.35 KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 11.8 Kramer v. Thompson, 12.4 KSR Intl Co. v. Teleflex Inc., 3.36, 3.42 L L.L. Bean, Inc. v. Drake Publishers, Inc., 11.25, 12.10, 12.24, 12.26, 12.37, 12.41

Table of Cases

LAiglon Apparrel v. Lana Lobel, Inc., 12.17 Landham v. Lewis Galoob Toys, Inc., 12.31 La Resolana Architects, PA v. Clay Realtors Angel Fire, 6.2 Larry Harmon Pictures Corp. v. Williams Restaurant Corp., 10.12, 10.28, 10.37 Larson v. Correct Craft, Inc., 8.32 Lasercomb America, Inc. v. Reynolds, 11.35 Ex parte Latimer, 2.26 Laws v. Sony Music Entertainment, Inc., 12.30 LB (Plastics) Ltd. v. Swish Products Ltd., 5.30 Lear, Inc. v. Adkins, 8.17, 8.18, 8.23 n. 1, 9.9, 9.12, 9.15 Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 9.15, 12.17 Leavitt v. Leisure Sports Incorporation, 12.5 In re Leblanc, 10.26 Lee v. A.R.T. Co., 7.2, 7.10 Leigh Furniture & Carpet Co. v. Isom, 12.17 Lifescan Inc. v. Can-Am Care Corp., 4.7, 7.23, 9.27 Lincoln Engineering Co. v. Stewart-Warner Corp., 3.32 Linear Technology Corp. v. Micrel, Inc., 3.23 Lipscher v. LRP Publs., Inc, 9.29 Lipton v. The Nature Company, 6.21, 9.20, 9.22 Lloyd Corp. v. Tanner, 12.11, 12.38, 12.39 Loews Drive-In Theatres v. Park-In Theatres, 2.43, n. 15 Lone Ranger v. Cox, 12.26 Lotus Development Corp. v. Borland International, Inc., 5.10, 9.31 Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 12.14 Lowell v. Lewis, 3.10 Lucent Information Mgmt., Inc. v. Lucent Technologies, Inc., 10.38, 11.14, 11.22 Lumley v. Wagner, 8.3 M Mackay Radio & Telegraph Co. v. Radio of America, 2.31, 2.35, n. 41 Mackie v. Rieser, 6.32 Mallinckrodt Inc. v. Medipart Inc., 4.3, 4.10, 4.12, 7.23, 9.27, 11.3 Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., 10.8, 10.26 Manhattan Medicine Co. v. Wood, 4.2 Marbury v. Madison, 2.28 Marcus v. Rowley, 7.30 Marvel Characters, Inc. v. Simon, 6.8 Marx v. U.S., 10.3 Masquerade Novelty, Inc. v. Unique Industries, Inc., 5.23, 5.28 Master Distributors, Inc. v. Pako Corp., 10.23 Mattel, Inc. v. MGA Entertainment, Inc., 8.13 Maternally Yours, Inc. v. Your Maternity Shop, Inc., 10.10 Maxwell v. J. Baker, Inc., 2.19 Mazer v. Stein, 5.18, 5.22, 5.25, 7.19 McGraw-Edison Co. v. Walt Disney Productions, 11.33 McGregor-Doniger Inc. v. Drizzle Inc., 11.14, 11.19, 11.25, 11.29 MercExchange, L.L.C. v. eBay Inc., 1.11, 1.12, 3.42, 6.14, 6.32, 12.7 Merchant v. Levy, 6.3

Table of Cases

Meshwerks, Inc. v. Toyota Motor Sales U.S.A., Inc., 5.36 Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 3.19, 8.19 n. 13, 9.12 Metallurgical Industries Inc. v. Fourtek, Inc., 8.9, 8.24 Met-Coil Systems Corp. v. Komers Unlimited, Inc., 4.7, 4.11 Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 7.23 Metropolitan Opera Assn v. Wagner-Nichols Recorder Corp., 9.18 MGM-Pathe Communications v. Pink Panther Patrol, 11.40 Midler v. Ford Motor Co., 12.22, 12.23, 12.25 Mikohn Gaming Corp. v. Acres Gaming, Inc., 4.6, 12.4 Miller v. Brass Co., 2.13, 2.14 Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 7.1, 7.2, 7.4, 7.10 Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 11.3, 11.6 Mitchell Bros. Film Group v. Cinema Adult Theater, 7.6 Moberg v. 33T LLC, 6.2 Moore v. Regents, University of California, 8.32 Morehouse Mfg. Corp. v. J. Strickland & Co., 10.29, 10.40 Morison v. Moat, 8.2 Morrissey v. Procter & Gamble Co., 5.8, 5.10, 5.14 n. 13, 5.39, 7.35, 9.21 Morton Salt Co. v. G. S. Suppiger Co., 4.1, 4.6, 4.16, 4.21, 5.36, 7.33, 11.35, 11.36 Moseley v. V Secret Catalogue, Inc., 11.22 Motion Picture Patents Co. v. Universal Film Mfg. Co., 1.22, n. 3, 1.23, n. 10, 4.4, 4.5 n. 8 Motschenbacher v. R. J. Reynolds Tobacco Co., 12.22, 12.23, 12.25 Mulcahey v. Cheetah Learning LLC, 6.20, 7.6 Muoz v. Albuquerque A.R.T. Co., 7.2, 7.4 In re Musgrave, 2.34 Mushroom Makers, Inc. v. R.G. Barry Corp., 10.35 Mutual of Omaha Ins. Co. v. Novak, 11.25, 12.14, 12.39 N Nadel v. Play-By-Play Toys & Novelties, Inc., 9.7, 9. 11 National Assoc. of Pharmaceutical Mfrs. v. Ayerst Lab., 9.20 National Basketball Assn v. Motorola, Inc., 9.13, 11.45 National Football League v. Governor of State of Delaware, 9.19 National Football League v. White, 6.30 National Tire Dealers and Retreaders Assn, Inc. v. Brinegar, 11.3 Natural Food Co. v. Williams, 4.17 Natural Foods Co. v. Bulkley, 4.18 n. 4 Natural Footwear Ltd. v. Hart, Schaffner & Marx, 10.32 New Kids On The Block v. New America Publishing, Inc., 11.8 New York Times Co. v. Sullivan, 12.18, 12.31 New York Times Co. v. Tasini, 1.12, 6.13 Newcombe v. Adolph Coors Co., 12.32 Nilssen v. Osram Sylvania, Inc., 3.19 NutraSweet Co. v. Stadt Corp., 10.23 O OBrien v. Pabst Sales Co., 12.41 OCedar Ltd. v. Slough Trading Co. Ltd., 5.30 OReilly v. Morse, 2.4, 2.10, 3.4

Table of Cases

Oddo v. Ries, 6.1, 6.5, 6.5 Oddzon Products, Inc. v. Just Toys, Inc., 3.23, 3.42 Oddzon Products, Inc. v. Oman, 5.26, 5.28, 5.40 n. 3 Olan Mills, Inc. v. Eckerd Drug of Texas, Inc., 7.6 Olan Mills, Inc. v. Linn Photo Co, 6.3 Omega, S.A. v. Costco Wholesale Corp., 4.12, 7.36 Original Appalachian Artworks, Inc. v. Toy Loft, 6.17 In re Owens-Corning Fiberglas Corp., 10.23, 10.25 P Pacific and Southern Co. v. Duncan, 12.21 Pagano v. Charles Beseler Co., 6.18 Painton & Co. v. Bourns, Inc., 8.19, 8.20 Panavision, Intl, L.P. v. Toeppen, 11.40 Parker v. Flook, 2.27, 2.28, 2.32, 2.35, 2.36 In re Patton, 2.43, n. 15 Paul Morelli Design, Inc. v. Tiffany and Co., 5.40, 5.42, 12.13 Paul v. Virginia, 10.2 Paulsen v. Federal Communications Commission, 7.11 Paulsen v. Personality Posters, Inc., 12.9 Peabody v. Norfolk, 8.1, 8.5 Pennock v. Dialogue, 3.12, 3.17, 3.19 People for the Ethical Treatment of Animals v. Doughney, 11.42 Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 6.19 Pfaff v. Wells Electronics Inc., 3.15, 3.19, 3.21, 3.22 Philip Morris, Inc. v. Reilly, 8.3 Pivot Point Intl, Inc. v. Charlene Products, Inc., 5.25 Planned Parenthood Federation of America Inc. v. Bucci, 11.38, 11.45 Playboy Enterprises, Inc. v. Welles, 12.26 Polaroid Corp. v. Polarad Electronics Corp., 11.14, 11.15, 11.19, 11.25, 11.40, 11.45 Potato Chip Institute v. General Mills, Inc., 10.18 Power Test Petroleum Distributors v. Calcu Gas, 12.11 Prestonettes, Inc., v. Coty, 11.2, 11.3, 11.5 n. 6 Princeton University Press v. Michigan Document Services, Inc., 7.25 ProCD, Inc. v. Zeidenberg, 9.24, 9.25, 9.27, 9.29, 9.31, 9.32 Pro Football v. Harjo, 10.32 Procter & Gamble Co. v. Amway Corp., 12.32 Proctor & Gamble Co. v. Haugen, 4.16, 12.15, 12.34 Q-R Qualitex Co. v. Jacobson Products Co., Inc., 4.27, 4.29, 5.10 10.23, 10.25, 10.26 Quality King Distributors, Inc. v. Lanza Research Intl., Inc., 4. 12, 7.36 Quanta Computer, Inc. v. LG Electronics, Inc., 1.24, 4.6, 4.12, 7.4 RCA Corp. v. Data General Corp., 3.20, 3.21 Recording Indus. Assn, Am. v. Diamond Multimedia Sys., Inc., 7.23 Reddi-Wip, Inc. v. Lemay Valve Co., 8.26 Reed Elsevier, Inc. v. Muchnick, 6.3 In re Reed Elsevier Properties Inc., 11.45 Religious Technology Center v. Lerma, 8.15 Religious Technology Ctr. v. Netcom On-Line Comm. Servs., Inc., 8.14

Table of Cases

Rice v. Santa Fe Elevator Corp., 9.15 Richardson v. Suzuki Motor Co., Ltd., 8.28 Rickard v. Du Bon, 3.10, 3.11 Ringgold v. Black Entertainment Television, 7.34, 7.35 Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div. Travel Devmt., 11.23 Rio Props., Inc. v. Rio Intl Interlink, 6.32 Robert R. Jones Associates, Inc. v. Nino Homes, 5.31 Rock and Roll Hall of Fame and Museum, Inc. v. Gentile Productions, 12.42 Ryco, Inc. v. Ag-Bag Corp., 2.19 S Safeguard Business Systems, Inc. v. The Reynolds and Reynolds Co., 5.40 Sakraida v. Ag Pro, Inc., 3.36, 3.38, 3.39 Sallen v. Corinthians Licenciamentos, 11.37 Sanchez v. Miller, 11.37 Sandoval v. New Line Cinema Corp., 7.34 Saxlehner v. Wagner, 11.4, 11.6 Schad v. Mount Ephraim, 12.37 In re Schrader, 2.43, n. 10 Schriber-Schroth Co. v. Cleveland Trust Co., 2.16 Schrock v. Learning Curve International, Inc, 7.6 Scott & Williams, Inc. v. Aristo Hosiery Co., 3.10, 3.11 Scott Paper Co. v. Marcalus Mfg. Co., Inc., 1.13 Seabrook Foods, Inc. v. Bar-Well Foods, Ltd., 4.25 Sears, Roebuck & Co. v. Stiffel Co., 4.20, 8.17, 8.18, 8.23, 9.1, 9.3, 9.9, 9.12, 9.15, 9.21, 9.30, 10.20, 11.4 n. 3, 11.5 n. 6, 11.8 SEC v. Sloan, 2.27 Selle v. Gibb, 6.17 Seymour v. Osborne, 3.17 Shapiro, Bernstein & Co. v. Jerry Vogel Music Co., 6.2 Sheldon v. Metro-Goldwyn Pictures Corp., 6.15 Shell Development Co. v. Watson, 2.25 In re Silenus Wines, Inc., 10.11, 10.13 Silkwood v. Kerr-McGee Corp., 9.15 Singer Manufacturing Co. v. Bent, 4.16 Singer Manufacturing Co. v. June Manufacturing Co., 4.13, 4.18, 4.21, 4.24, 4.26, 11.8 Smith v. Chanel, Inc., 11.4, 11.42 Smith v. Dravo Corp., 8.25, 8.26 Smith v. Snap-On Tools, 5.10, 9.5, 9.7 SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharmaceuticals, Inc., 5.36, 7.35 Societe Comptoir de LIndustrie Cotonniere Etablissements Boussac v. Alexanders Dept. Stores, Inc., 11.4, 11.5 Socy Holy Transfiguration Monastery, Inc. v. Archbishop Gregory, 7.16 Sony BMG Music Entertainment v. Tenenbaum, 6.24 Sony Corp., America v. Universal City Studios, Inc., 7.12, 7.14, 7.16, 7.24, 7.27, 7.31, 7.33 Soule v. Bon Ami Co., 9.4 South Corp. v. United States, 690 F.2d 1368 (Fed. Cir. 1982), 2.40 Southeastern Promotions, Ltd. v. Conrad, 12.29

Table of Cases

Specialized Seating, Inc. v. Greenwich Industries, LP, 10.31 Sperry v. Florida, 4.20, 9.15 Stark v. Advanced Magnetics, Inc., 8.32 State Street Bank & Trust Co. v. Signature Financial Group, Inc., 2.41, 5.8 State v. Nelson, 9.24 Stayart v. Yahoo!, 11.46, 12.30 Steele v. Bulova Watch Co., 11.39 Stewart v. Abend, 7.12 Stone & McCarrick, Inc. v. Dugan Piano Co., 4.2, 7.5 Straus v. Notaseme Co., 11.3 Sullivan v. Ed Sullivan Radio & T.V, 12.9 Sweetarts v. Sunline, Inc., 10.36, 10.37 Synergistic Intl, LLC v. Korman, 10.37 T Tabor v. Hoffman, 8.4, 8.13, 8.24, 9.1, 9.11 Taborsky v. State, 8.26 Tandy Corp. v. Malone & Hyde, Inc., 11.33 In re Tarczy-Hornoch, 2.34 Tasini v. The New York Times Company, Inc., 6.9, 6.13; see also, New York Times v. The Taubman Company v. Webfeats, 12.14 In re Taylor, 10.10, 10.32, 10.37 Taylor & Wood Co. v. Quaker Oats Co., 11.21 The Telephone Cases, 3.17 Texas v. Johnson, 12.37 Tiffany & Co. v. Boston Club, Inc., 12.12 Tilghman v. Proctor, 2.8 Time, Inc. v. Hill, 12.18, 12.19 Time Warner Cable, Inc. v. DirecTV, Inc., 10.19 The Trade-Mark Cases, 5.33, 10.1, 10.7, 10.11, 10.14 TrafFix Devices, Inc. v. Marketing Displays, Inc., 4.27, 9.15, 10.26 Twentieth Century Music Corp. v. Aiken, 6.14, 7.28 Twin Peaks Productions, Inc. v. Pubns. Intl, Ltd., 7.33 Two Pesos, Inc. v. Taco Cabana, Inc., 4.26, 4.29, 10.20, 11.45, 12.44 Ty, Inc. v. Perryman, 11.42 Ty, Inc. v. Publications Intl, Ltd., 7.31, 11.45 U U.S. v. Bell Telephone Co., 1.9 UMG Recordings, Inc. v. Augusto, 7.4 United Drug Co. v. Theodore Rectanus Co., 12.44 United States ex rel. Berge v. University of Alabama, 9.22, 9.24 United States v. Adams, 3.33, 3.36, 3.38 United States v. Dove, 6.29 United States v. Dubilier Condenser Corp., 8.18 United States v. General Electric Co., 1.22 United States v. Giles, 10.40 United States v. LaMacchia, 6.25, 9.24 United States v. Martignon, 10.3 United States v. Masonite Corp., 4.10

Table of Cases

United States v. Paramount Pictures, 5.22 United States v. Reese, 10.2 United States v. Wise, 7.1 United States. v. Rumely, 5.35 University Computing Co. v. Lykes-Youngstown Corp., 8.12 University of Colorado Foundation, Inc. v. American Cyanamid Co., 8.31 V Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 12.32 Vacheron & Constantin-Le Coultre Watches, Inc. v. Benrus Watch Co., Inc., 5.42 Van Prods. Co. v. Gen. Welding & Fabricating Co., 8.25 Vanderhurst v. Colorado Mountain College Dist., 6.9 Vault Corp. v. Quaid Software, Ltd., 9.29, 9.30 Veeck v. Southern Building Code Congress Intl, 5.4 Verdegaal Bros. v. Union Oil Co., 3.9 Vent v. Mars Snackfood US, LLC, 9.7 Vernor v. Autodesk, Inc., 7.4 Viavi Co. v. Vimedia Co., 11.4, 11.5 Villanova University v. Villanova Alumni Educational Foundation, 11.3 Virginia Panel Corp. v. MAC Panel Co., 12.6 Virtue v. Creamery Package Mfg. Co., 12.6 Vitronics Corp. v. Conceptronic, Inc., 3.8 Volkswagenwerk Aktiengesellschaft v. Wheeler, 11.32 Volkswagon AG v. Dorling Kindersley Publishing, Inc., 12.46 Vornado Air Circulation Systems, Inc. v. Duracraft Corp., 4.22, 4.24, 4.30, 12.46 W-Z Walker v. Time Life Films, Inc., 6.18, 6.19, 6.22 Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 4.24, 4.28, 10.22, 10.26 Warner Bros. Inc. v. American Broadcasting Cos., Inc, 6.18, 12.28 Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 2.14, 2.15, 2.16, 2.18 Washingtonian Pub. Co. v. Pearson, 5.22 Webber v. Virginia, 3.11 Weiner King, Inc. v. Wiener King, Corp., 10.36, 10.37 Wendt v. Host International, Inc., 12.27 Westinghouse Co. v. Formica Co., 1.14 Wexler v. Greenberg, 8.18 Wheaton v. Peters, 5.1 White v. Dunbar, 2.13 White v. Samsung Electronics America, Inc., 12.21, 12.27, 12.29, 12.30, 12.38 Wickard v. Filburn, 10.13, 10.14 Wilson v. Rousseau, 1.18 Wilson v. Simpson, 1.16, 4.10, 4.12, 5.31 Winans v. Denmead, 2.15 Winters v. New York, 12.37 Yankee Candle Co., Inc. v. Bridgewater Candle Co., LLC, 5.10 Zacchini v. Scripps-Howard Broadcasting Co., 12.18, 12.24 n. 3, 12.28, 12.37, 12.40 Zenith Electronics Corp. v. Exzec, Inc., 12.7

Overview
Managing Intellectual Property Infringement Risks
Patent, trademark, copyright and related interests are known as intellectual property (IP). Such interests are secured, maintained and transferred under an umbrella of interrelated federal and state law. IP rights are enforced in the courts. IP law was once exclusively the domain of specialists, so few lawyers and fewer judges knew anything about the subject. This was also true of the general public. Thanks to recent high-profile internet disputes involving things such as MP3 transfers and business method patents, however, things are changing. People are increasingly apt to understand that the fruits of their creative activities may be protected and to be more interested in perfecting rights that may be available. Having perfected their rights, people are also more apt to pursue infringers. Thus, it is important to be mindful of the rights of others. Perfecting and maintaining potential rights often involves consideration of a host of options, but avoiding infringement is often easier. Surveying major types of IP in that light can also highlight their comparative value in forestalling competition. Low Risks of Careless Infringement Unless one takes deliberate advantage of others reputations or work, some forms of IP are unlikely to be infringed. Consider, for example, a Samsung ad that featured a Wheel of Fortune set with a robot wearing a blond wig and evening gown. Identifying it as the Longest-running game show. 2012 A.D. may have flattered owners of the show. Vanna White, the then-hostess, however sued and was ultimately awarded $400,000. Samsung could have easily avoided potential liability by making no unauthorized references to the show or arguably to Ms. White. Careless infringement of trade secrets is also improbable. Information obtained from public sources cannot infringe, but it may be improper to use information obtained by, for example, hiring rivals employees. Nor can independently created work infringe copyrights. Aside from possible difficulty in proving that a newer work is indeed original, liability cannot occur without copying. People often ask: Can I copy this? Is it OK to do that? Maybe, but using others work calls for permission or expert advice. Still, even expert advice cannot eliminate the risk of liability. Moreover, whether one might ultimately win is often less important than whether contemplated activity warrants the risk and cost of litigation. Higher Risks of Careless Infringement Caution is warranted if one plans to use potentially patented technologies. Unlike copyrights or trade secrets, independent creation is not a defense to patent infringement. Patents expire, often within 20 years of filing, and most applications are published 18 months after filing. Thus, it is possible to identify what may be freely used, as well as technology that currently is or may later become protected. Interpreting patent claims, however, is not easy. Any risk of infringement therefore warrants expert advice.

xxiv

Overview

The Highest Risk of Careless Infringement Owners of brand names and other commercial source indicators (marks) can stop others from using them in such a way as to confuse the public. Attempting to free ride on others reputations by copying their marks has especially unpleasant consequences, but, as in the case of patents, copying is unnecessary for infringement. Moreover, avoiding careless infringement is more difficult because trademarks, unlike patents, do not expire and need not be on the public record to exist. First users of distinctive marks including slogans (Only her hairdresser knows for sure), logos (Nikes swoosh) and three-dimensional symbols (the golden arches) automatically get common-law rights in the United States. Consider two brands of toothpaste, Apex and Apecks .* Is confusion not likely? Would it make any difference if, instead of toothpaste, one firm sold tooth brushes, dental floss or a related product? It is also useful to consider more than diversion of sales: If someone thinks that Apex tastes bad, will their friends hear that Apecks does? Prior, unknown users in isolated locations can wreak havoc with national marketing plans. Before adopting marks, firms should start with simple knock-out searches in trade directories or on the internet. As illustrated, they should consider more than identical word marks. Marks that appear to be available warrant expert attention. Professional evaluation is critical to minimizing the risk of potential consumer confusion and loss of good will. The Bottom Line Deliberate efforts to get a boost from others work products or reputations is often risky, even with expert advice. But such activities are often legally justifiable and may warrant possible litigation or even loss when offset by potential gains. The possibility of inadvertent infringement caused by ignorance of the law is a different matter. Few people would buy land or commence construction without clearing real estate titles. Likewise, few would purchase supplies or equipment from sellers unlikely to own what they sell. Yet, many otherwise careful people often do not adequately control risks of patent and trademark infringement. That failure, in addition to litigation costs, may result in loss of inventory and retooling costs. Although such risks are significant, the risk of losing customers who can no longer identify a firms products or services might well prove more serious.

mark.

The superscripted Apex symbol indicates federal registration; Apecks symbol indicates a common-law

Chapter 1 Patent Background

A. Historical, Social and Business Perspectives Fritz Machlup** Patent, the adjective, means open, and patent, the noun, is the customary abbreviation of open letter. The official name is letters patent, a literal translation of the Latin litterae patentes. Letters patent are official documents by which certain rights, privileges, ranks, or titles are conferred. Among the better known of such open letters are patents of appointment (of officers, military, judicial, colonial), patents of nobility, patents of precedence, patents of land conveyance, patents of monopoly, patents of invention. Patents of invention confer the right to exclude others from using a particular invention. When the term patent is used without qualification, it nowadays refers usually to inventors rights. Similarly, the French brevet, derived from the Latin litterae breves (brief letters) usually stands for brevet dinvention. Defined more accurately, a patent confers the right to secure the enforcement power of the state in excluding unauthorized persons, for a specified number of years, from making commercial use of a clearly identified invention. Patents of invention are commonly classed with other laws or measures for the protection of so-called intellectual property or industrial property. This class includes the protection of exclusivity for copyrights, trademarks, trade names, artistic designs, and industrial designs, besides technical inventions; other types of products of intellectual labor have at various times been proposed as worthy of public protection. It has seemed unjust to many, for example, that the inventor of a new gadget should be protected, while the savant who discovered the principle on which the invention is based should be without protection and without material reward for his services to society. Yet, proposals to extend government protection of intellectual property to scientific discoveries have everywhere been rejected as impractical and undesirable. . The oldest examples of grants of exclusive rights by kings and rulers to private inventors and innovators to practice their new arts or skills go back to the 14th century. Probably the first patent law, in the sense of a general promise of exclusive rights to inventors, was enacted in 1474 by the Republic of Venice. In the 16th century, patents were widely used by German princes, some of whom had a well-reasoned policy of granting privileges on the basis of a careful consideration of the utility and novelty of the inventions and, also, of the burden which would be imposed on the country by excluding others from the use of these inventions and by enabling the patentees to charge higher prices. Some of the exclusive privileges were on new inventions; others on skilled crafts imported from abroad. Some for limited periods; others forever. (For example, the canton Bern in Switzerland granted in 1577 to inventor Zobell a permanent exclusive privilege.) Some privileges granted protection against imitation and thus created monopoly rights.
*

An Economic Review of the Patent System*

Study No. 15, Subcomm. Patents, Trademarks and Copyrights of the U.S. Senate Judiciary Comm., 12, 2021 (1958). This study is heavily annotated and offers access to many important historical documents. ** Department of Political Economy, Johns Hopkins University.

1.2

Historical, Social & Business Perspectives

Others, however, granted protection from the restrictive regulations of guilds, and thus were designed to increase competition. In view of the latter type of privilege, patents have occasionally been credited with liberating industry from restrictive regulations by guilds and local authorities and with aiding the industrial revolution in England. In France, the persecution of innovators by guilds of craftsmen continued far into the 18th century. (For example, in 1726, the weavers guild threatened design printers with severe punishment, including death.) Royal patent privileges were sometimes conferred, not to grant exclusive rights, but to grant permission to do what was prohibited under existing rules. Many of the privileges, however, [merely granted] rights to favorites of the court or to supporters of the royal coffers. Patents of this sort became very numerous in England after 1560, and the abuses led to increasing public discontent. .

Victor Abramson** In England, patents grew to importance during the reign of Elizabeth beginning in the middle of the 16th century. At that time, advances in the arts were infrequent and interchange of new ideas was slow. England was in many respects industrially less advanced than France and the Lowlands, and it appeared that the best opportunity to develop new industries and trades was to encourage craftsmen to migrate to England. Patents were used to provide such encouragement, and they were thus granted for first importation and for technology new only in England, as well as for new inventions in the narrower sense. . Patents were used to protect new workmen and traders coming in from abroad, and often merely granted to them permission to practice their arts or trades in the fields or territories then monopolistically controlled by local groups. As national power grew, however, and industry and commerce expanded, patents emerged as an instrument of industrial regulation. They came also to be used increasingly for revenue purposes, and as a means of bestowing personal favors, and they were extended to cover industries and trades already well established. Their use to encourage invention, even in the sense of first importation, diminished in importance, and their grant in monopolistic forms increased. Opposition to patents arose from many sources in the latter part of the 16th century. The accumulation of capital and the influx of Protestant refugees representing a new source of labor brought pressure for greater freedom of enterprise. And there were outcries against the arbitrary and high-handed tactics of patentees and the high prices which many of them were charging for necessities. . As patents grew in number and came to be used for many purposes, the courts applied to them an important distinction under the common law. Those which were granted for new manufactures or for introducing new trades were held to be lawful, but those in industries or trades already established were declared contrary to the common right of every citizen to enter those fields. The courts had no means, however, of preventing the issuance of unlawful patents and they remained common, and in many instances were successfully enforced, up to the enactment of the Statute of Monopolies (1624) in the reign of James I.

The Role of Patents in a Competitive System*

The Patent System: Its Economic and Social Basis, Study No. 26, Subcomm. Patents, Trademarks and Copyrights of the U.S. Senate Judiciary Comm., 14 (1960). This and the paper above were in a set of 28 studies commissioned and published between 1956 and 1960. The set contains much of continuing value. ** Economic advisor, U.S. Treasury Department, formerly at the Brookings Institute.

Patent Background

1.3

This statute exempted from its operation, however: letters-patent and grants of privilege of the sole working or making of any manner of new manufactures to the true and first inventor and inventors of such manufactures, which others, at the time of making such letters-patent and grant, shall not use, so as also they be not contrary to the law, nor mischievous to the state, by raising prices of commodities. Patents for inventions thus for the first time received express legislative sanction in an act which sought to outlaw monopolies generally, and they have since that time enjoyed a favored position among monopolies. . In our own country the history of patents followed closely that in England. During the colonial period capital was scarce and enterprise extremely hazardous, and patents were granted, though infrequently, for new industries based on known technology as well as for new inventions. The attitude toward patents was colored, however, by their abuse in the hands of the Crown. There was little discussion of the patent question in the Constitutional Convention. But a proposal for the adoption of a patent system received unanimous support, and it was provided in article I, section 8 [cl. 8] of the Constitution* that Congress should have power to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. In the early years the need for skilled artisans was great. We were in the same position in which England had been two centuries earlier. There was a particular desire to secure knowledge of the new technological developments then taking place in England. This was difficult because export of the new machines was closely controlled as was information concerning the inventions themselves. Those who succeeded in leaving with essential drawings, or who could duplicate these machines from their own knowledge, found a profitable market for their information in this country. There were suggestions that the Government should provide bounties to encourage the immigration of these men, and tariffs to protect the industries which they built up. And Washington in his first inaugural address urged the expediency of giving effectual encouragement, as well to the introduction of new and useful inventions from abroad as to the exertion of skill and genius at home. But our patent system, following the pattern of the Statute of Monopolies, limited these grants strictly. Notes 1. In the quoted constitutional clause, note that science, authors and writings parallel useful arts, inventors and discoveries. Does this help explain current statutory references, e.g., to prior art and persons having ordinary skill in an art? 35 U.S.C. 103(a). If art means technology, what does science mean? In that regard, see Edward C. Walterscheid, To Promote Anatomy of a Constitutional Clause, 43 Idea 1, 1218 (2002). 2. The first patent was signed by President Washington on July 31, 1790. Until recently, it was believed that it was granted to a resident of Vermont, despite its not joining the Union until Mar. 4, 1791. Now, however, Pennsylvania claims the honor. See, e.g., Carnegie Library of Pittsburgh, Samuel Hopkins: The Holder of the First U.S. Patent, online at <http://www.carnegielibrary.org/locations/reference/ptdl/pgh/samhopkins.html> (visited June 10, 2007).
*

This provision will be repeatedly considered and warrants close attention.

1.4

Historical, Social & Business Perspectives

On the Patent Laws

This discussion of U.S. law is ascribed to Justice Story and was appended to 3 Wheaton, an 1818 U.S. Supreme Court reporter.* [The paper begins with English law, which the U.S. law closely tracked.] 2. A patent can be granted only for a thing new; but it may be granted to the first inventor, if the invention be new in England, though the thing was practised beyond sea before. 3. The language of the statute is new manufacture; but the terms are used in an enlarged sense. A patent may be good for a method, as well as for an engine or machine. . 6. [A then-recent English case held that]: [T]he invention must be new to the world. The public sale of that which it afterwards made the subject of a patent, though sold by the inventer only, makes the patent void. . 7. The invention must not only be new, but useful; for if it be contrary to law, or mischievous, or hurtful to trade, or generally inconvenient, it is, by the terms of the statute, void. 8. A patent can legally be granted only to the first and true inventor. But if the original inventor has confined the invention to his closet, and the public be not acquainted with it, a second inventor, who makes it public, is entitled to a patent. 9. . A person may obtain a patent for a machine, consisting of an entirely new combination of parts, although all the parts may have been separately used in former machines; and the patent may correctly set out the whole as the invention of the patentee. But if a combination of a certain number of those parts have previously existed, the patent should comprehend such improvements only. 10. If a person has invented an improvement upon an existing patented machine, he is entitled to a patent for his improvement; but he cannot use the original machine, until the patent for it has expired. . 12. [T]he court will construe the terms of the patent and of the specification in a liberal manner. [In one case] the judges agreed that a mere mistake in terms would not vitiate a patent, if the court could give a reasonable construction to the whole specification. . 14. [S]everal rules have been laid down. [First], a man, to entitle himself to the benefit of a patent of monopoly, must disclose his secret, and specify his invention in such a way, that others of the same trade, who are artists, may be taught to do the thing for which the patent is granted, by following the directions of the specification. [Second], he must so describe it that the public may, after the expiration of the term, have the use of the invention in as cheap and beneficial a way as the patentee himself uses it; and, therefore, if the specification describe many parts of an instrument, or machine, and the patentee uses only a few of them, or does not state how they are to be put together or used, the patent is void. . So, if he makes the article with cheaper materials than those which he has enumerated, although the latter will answer the purpose, the patent is void. [Third], if the specification be, in any part of it, materially false, or defective, or obscure and ambiguous, or give directions which tend to mislead the public, the patent is void. . [Fourth], if the invention be of an improvement only, the specification should be drawn up in terms which do not include anything but the improvement. . And it may be added also, that the public have a right to purchase the improvement by itself, and not to be encumbered with other things, where the improvement is of an old machine. .
*

See Brenner v. Manson (Chapter 3), note 20. See also, Evans v. Eaton in Chapter 2.

Patent Background

1.5

15. If a patent is void, the patentee cannot enforce performance of a covenant entered into in contemplation of the patent being good. 16. The right of a patentee is assignable. 17. [I]n an action by the assignee against the patentee, for an infringement of the patent, the latter will not be permitted to aver against his deed that the invention is not new. 18. Where the patent is void, from any of the causes before stated, the party sued for an infringement may [so defend]. 19. [T]he patent itself may be repealed [for] fraud, or false suggestion. . [Turning to U.S. law, Justice Story wrote:] [I]t is matter of regret that so few [opinions] have been published; but the following are the leading provisions of the Act, and the principles which have been recognised as applicable to it. . 1. [A]ny citizen who has invented any new and useful art or any new and useful improvements may obtain a patent. . By useful invention, in the Patent Act, is meant an invention which may be applied to a beneficial use in society, in contradistinction to an invention injurious to the morals, health, or good order of society, or frivolous and insignificant. It is not necessary to establish that it is in all cases superior to the modes now in use for the same purpose. 2. [A]ny person who shall have invented an improvement, shall not be at liberty to use the original discovery, nor shall the original inventor be at liberty to use the improvement. And simply changing the form or the proportions of any machine, or composition of matter, in any degree, shall not be deemed a discovery. If the inventor of an improvement obtain a patent for the whole machine, the patent, being more extensive than the invention, is void. 3. [E]very inventor, before he can obtain a patent, is required to swear that he is the true inventor or discoverer and to deliver a written description of his invention, and of the manner of using, or process of compounding it, in such full, clear, and exact terms, as to distinguish the same from all other things before known, and to enable any person skilled in the art or science to make, compound, and use the same. . The patentee must describe, in his specification, with reasonable certainty, in what his invention consists; otherwise it will be void for ambiguity. If it be for an improvement in an existing machine, he must, in his specification, distinguish the new from the old, and confine his patent to such parts only as are new; for if both are mixed up together, and a patent is taken for the whole, it is void. Lowell v. Lewis, 1 Mason 182. [I]f, by mistake, the oath is not taken before the issuing of the patent, the patent is not thereby rendered void. 4. [P]atentees may assign. 5. [A]ny person who without the written consent of the patentee, &c. shall make, devise, use, or sell, the thing patented, shall forfeit three times the actual damages sustained by the patentee. [I]t has been held that the making of a patented machine fit for use, and with a design to use it for profit, in violation of the patent right, is, of itself, a breach; but where the making only, without a user, is proved, nominal damages only are to be given for the plaintiff. . Note Their scope is sometimes unclear, but every proposition about U.S. law advanced by Justice Story remains true. Also, echoing previous references to the constitutional clause, he begins by referring to useful art, not science.

1.6

Historical, Social & Business Perspectives

How Patents Spur Innovation*

People tend to be aware that owners of patents and other forms of IP have the legal capacity to limit market entry without fully appreciating the extent to which products or processes that can be easily copied might otherwise be unavailable. Thirty years ago, George Frost argued that:51 [T]he patent system encourages competitive effort of a kind that would not otherwise take place. The television industry, for example, was for all practical purposes nonexistent a decade ago now it dwarfs the radio industry.... Yet the industry is characterized by huge research expenditures over $65 million in color television already and the return is yet to come. These expenditures have been made in anticipation of monetary return through patent license royalties. The antibiotics industry, limited to penicillin a decade ago, is now the scene of the most intense competition.... Many purposes have been suggested for IP. However, the emerging consensus, at least in the U.S., is that it primarily enables the recoupment of risk capital invested in the creation of works that can otherwise be copied by persons who do not have to either contribute to or duplicate research and development. If governmental or charitable risk funds are available to meet the entire need, private risk capital and, thus, IP are unnecessary. Rarely is that the case. If the source of innovation is a private, for-profit firm, the need for IP protection is critical. David Schwartzman has said:60 The conclusion that strong patent protection did not encourage discovery was based on the fact that a large number of drugs were discovered in Western Europe, especially Switzerland, where inventions were less generously protected by patents than in the United States. But U.S. patents protect these products of foreign-based companies sold in the U.S. as much as they do the products of domestic companies, and the U.S. is by far the largest single national market for drugs. Thus, a firm which contemplates investing a large fraction of its resources in research and development leading to a particular product will be concerned with the economic viability of the venture. Firm managers who lack that concern or appear to be ignorant of the fact that consumers ultimately bear the costs of developing and manufacturing successful products will, sooner or later, be forced out of business because of an inability to borrow or to attract investors. Managers of large, established firms are not apt to be so naive. In deciding whether to pursue one of several avenues of research or even to invest its money in other kinds of ventures, the firm is going to look first at the maximum potential income from a successful effort. Against that, its management will attempt to weigh the minimum necessary research and development costs. If the maximum potential income is less than the minimum cost of innovation, including a reasonable return on capital, the project will unlikely be started. If at any point during the innovation process a similar prognosis begins to emerge, for example, because the product does not perform well, the project is likely to be scrapped.
*

Adapted from Thomas G. Field, Jr., Pharmaceuticals and Intellectual Property, 31 Idea 3, 4, 1319 (1990) (original note numbers are retained to facilitate reference to the original). 51 The Patent System and the Modern Economy, Study No. 2, Subcomm. Patents, Trademarks and Copyrights of the U.S. Senate Judiciary Comm., 76 (1957). 60 The Expected Return from Pharmaceutical Research, 11(1975). See also, Calonius, European Drug Companies, Their Own Markets Stagnating, Are Pressing for Growth in the U.S., Wall St. J., Apr. 12 1985, at 32. Apparently even though U.S. drug firms annual profit growth had fallen, the U.S. market was attractive because of the lack of price controls.

Patent Background

1.7

Basic advances in scientific understanding are usually funded with public risk capital because the cost of making those advances ordinarily cannot be recouped by the sale of products. Attempts could be made to restrict access to such information, but it tends to be freely disseminated. Attempts to predict a firms ability to recoup the costs of any given venture are often complex. First, for any of a myriad of possible reasons, a given research venture may prove unsuccessful. Second, even if the research is successful, the product may present risks which did not become apparent until late in development or, worse, after the product had been marketed and used by considerably larger populations. In the last situation, the innovator may lose not only research and development costs but also suffer major litigation expense and liability. Further, the product may not prove as attractive as substitutes. Thus, even very large firms may be reluctant to market products that have been substantially developed with public funds.76 Notes 1. 35 U.S.C. 154 addresses the contents (a grant of the right to, e.g., exclude others from making, using or selling in the United States) and terms (for most, twenty years from the date an application is filed) of patents. 2. Until 1994, the equivalent term was seventeen years from issue. In 1992, about 41 chief corporate patent counsel* were queried concerning the effect on their firms R&D if terms were to be reduced by roughly 25 or 50%. It seems remarkable that most respondents predicted little if any effect from reducing patent terms by more than half.
Term = 9 yrs
20

Term = 13 yrs

# Respondents so reporting

10

0 0 10 20 30 40 50 0 4 8 10 12 16 20

Percentage reduction in R&D

Percentage reduction in R&D

76
*

See generally, e.g., Kitch, The Vaccine Dilemma, 2 Issues Sci. & Tech. 108 (1986). Thomas G. Field, Jr., Perceptions of Chief Patent Counsel, 32 Idea 277, 279 (1992).

1.8

Historical, Social & Business Perspectives

3. The same attorneys were also asked about the expected effect if patent terms were increased by roughly 25 or 50%. If patents spur innovation, is it remarkable that most of those attorneys predicted little if any effect?
Term = 21 yrs
20

Term = 25 yrs

# Respondents so reporting

10

0 0 4 8 10 12 16 20 0 4 8 10 12 16 20

Percentage increase in R&D

Percentage increase in R&D

4. As suggested in the prior two notes, many knowledgeable attorneys expected little or no variation in R&D investment as a result of major changes in patent terms. Some, however, expected large changes; which are likely to work with products having a shelf life of, say, five years? Which are most apt to work in the pharmaceutical industry? Why? What else might influence their views? 5. In eBay v. MercExchange, considered below, Martin Cooper, et al. filed an amicus brief, 2006 W.L. 639161, that identifies, at 1820, three strategies for use of patents: First, for many companies, patents are a vital tool in protecting and driving innovation in the companys products. These firms range across industries and file patents to ensure that they have the exclusive right to the idea they created. Second, for some firms, patents are valuable primarily as defensive tools. . The goal of defensive patenting is to reserve patent assertions for counterclaims against infringement claims by others. . Third, many companies simply do not value patents or find an important role for them in their business model. Their market value may derive instead from economies of scale, network effects, customer service, trademark or brand value, copyrights, the value of the goods they sell, first-to-market advantages, or other factors unrelated to patents. 6. Despite differences in perceived patent strategies and the often related needs of various industries, patent provisions rarely vary according to subject matter. Congress could theoretically tailor the law to accommodate differences, but that often proves impractical.

Patent Background

1.9

B. Patents as Property

Continental Paper Bag Co. v. Eastern Paper Bag Co.

U.S. Supreme Court 210 U.S. 405 (1908)

[Petitioners sought an accounting and an injunction to restrain infringement of a patent on machines used to make self-opening bags with square bottoms.] Justice McKenna: [The Court first affirmed the lower courts findings of validity and infringement.] The next contention of the petitioner [poses issues] not of the construction of the law simply, but of the conduct of the patentee as contravening the supposed public policy of the law. [I]t is urged that the non-use of an invention for seventeen years is not to promote the progress of the useful arts, and that equity should not give its aid to defeat the policy of the statute, but remit the derelict patentee to his legal remedy. . The petitioner, further to sustain its side of the question, refers to the provision The several courts vested with jurisdiction of cases arising under the patent law shall have power to grant injunctions according to the course and principles of courts of equity, to prevent the violation of any right secured by patent. It may be well, however, before considering what remedies a patentee is entitled to, to consider what rights are conferred upon him. . The patent law is the execution of a policy having its first expression in the Constitution, and it may be supposed that all that was deemed necessary to accomplish and safeguard it must have been studied and provided for. It is worthy of note that all that has been deemed necessary for that purpose, through the experience of years, has been to provide for an exclusive right to inventors to make, use, and vend their inventions. In other words, the language of complete monopoly has been employed; and though at first only a remedy at law was given for a violation of the right, a remedy in equity was given as early as 1819. There has been no qualification, however, of the right, except as hereinafter stated. An exception which, we may now say, shows the extent of the right a right so explicitly given and so complete that it would seem to need no further explanation than the word of the statute. It has, however, received explanation in a number of cases which bring out clearly the services rendered by an inventor to the arts and sciences and to the public. Those cases declare that he receives nothing from the law that he did not have before, and that the only effect of the patent is to restrain others from manufacturing and using that which he has invented. U.S. v. Bell Telephone Co. 167 U.S. 249. And it was further said in that case that the inventor could have kept his discovery to himself; but, to induce a disclosure of it, Congress has, by its legislation, made in pursuance of the Constitution, guaranteed to him an exclusive right to it for a limited time, and the purpose of the patent is to protect him in this monopoly not to give him a use which he did not have before, but only to separate to him an exclusive use. And it was pointed out that the monopoly which he receives is only for a few years. The court further said: Counsel seem to argue that one who has made an invention and thereupon applies for a patent therefor occupies, as it were, the position of a quasi trustee for the public; that he is under a sort of moral obligation to see that the public acquires the right to the free use of that invention as soon as is conveniently possible. We dissent entirely from the thought thus urged. The inventor is one who has discovered something of value. It is his absolute

1.10

Patents as Property

property. He may withhold the knowledge of it from the public, and he may insist upon all the advantages and benefits which the statute promises to him who discloses to the public his invention. And the same relative rights of the patentee and the public were expressed in prior cases. [W]henever this court has had occasion to speak, it has decided that an inventor receives from a patent the right to exclude others from its use for the time prescribed in the statute. . It may be said that these cases deal only with the right of a patentee, and not with the remedy. And there is no case in this court that explicitly does so. However, [it has been] decided that patents are property, and entitled to the same rights and sanctions. In Bement v. National Harrow Co. 186 U.S. 70, 90 it was said: If he [a patentee] see fit, he may reserve to himself the exclusive use of his invention or discovery. If he will neither use his device nor permit others to use it, he has but suppressed his own use his title is exclusive, and so clearly within the constitutional provisions in respect of private property that he is neither bound to use his discovery himself nor permit others to use it. . Counsel for petitioner cites counter cases. He also reviews the cases cited by respondent, and contends that they are not relevant to simple non-use of a patent, but a long and unreasonable non-use of it. Judge Aldrich, in his dissenting opinion in the court of appeals, excluded the cases as authoritative for a different reason. The learned judge said: Simple non-use is one thing. Standing alone, non-use is no efficient reason for withholding injunction. There are many reasons for non-use which, upon explanation, are cogent; but when acquiring, holding, and non-use are only explainable upon the hypothesis of a purpose to abnormally force trade into unnatural channels a hypothesis involving an attitude which offends public policy, the conscience of equity, and the very spirit and intention of the law upon which the legal right is founded it is quite another thing. This is an aspect which has not been considered in a case like the one here. . Quoting Judge Aldrich, petitioner asks What was that wrongful purpose? It was the purpose to make more money with the existing old reciprocating Lorenz & Honiss machines and the existing old complicated Stilwell machines than could be made with new Liddell machines, when the cost of building the latter was taken into account. And this purpose was effective to cause the long and invariable non-use of the Liddell invention, notwithstanding that new Liddell machines might have produced better paper bags than the old Lorenz & Honiss machines or the old Stilwell machines were producing. But, granting all this, it is certainly disputable that the non-use was unreasonable, or that the rights of the public were involved. There was no question of a diminished supply or of increase of prices, and can it be said, as a matter of law, that a non-use was unreasonable which had for its motive the saving of the expense that would have been involved by changing the equipment of a factory from one set of machines to another? And even if the old machines could have been altered, the expense would have been considerable. As to the suggestion that competitors were excluded, we answer that such exclusion may be said to have been of the very essence of the right conferred by the patent, as it is the privilege of any owner of property to use or not use it, without question of motive. The right which a patentee receives does not need much further explanation. We have seen that it has been the judgment of Congress from the beginning that the sciences and the useful arts could be best advanced by giving an exclusive right to an inventor. The only

Patent Background

1.11

qualification ever made was against aliens, in the act of 1832. That act extended the privilege of the patent law to aliens, but required them to introduce into public use in the U.S. the invention or improvement within one year from the issuing thereof, and indulged no intermission of the public use for any period longer than six months. A violation of the law rendered the patent void. The act was repealed in 1836. It is manifest, as is said in Walker on Patents, 106, that Congress has not overlooked the subject of non-user of patented inventions. And another fact may be mentioned. In some foreign countries the right granted to an inventor is affected by non-use. This policy, we must assume, Congress has not been ignorant of nor of its effects. It has, nevertheless, selected another policy; it has continued that policy through many years. We may assume that experience has demonstrated its wisdom and beneficial effect upon the arts and sciences. From the character of the right of the patentee we may judge of his remedies. It hardly needs to be pointed out that the right can only retain its attribute of exclusiveness by a prevention of its violation. Anything but prevention takes away the privilege which the law confers upon the patentee. If the conception of the law that a judgment in an action at law is reparation for the trespass, it is only for the particular trespass that is the ground of the action. There may be other trespasses and continuing wrongs and the vexation of many actions. These are well-recognized grounds of equity jurisdiction, especially in patent cases, and a citation of cases is unnecessary. Whether, however, a case cannot arise where, regarding the situation of the parties in view of the public interest, a court of equity might be justified in withholding relief by injunction, we do not decide. Decree affirmed. Justice Harlan dissents from the opinion and judgment. Notes 1. Regarding patents as property, see 35 U.S.C. 261 (shall have the attributes of personal property and transfers of rights are void as against later transferees for valuable consideration who lack actual or constructive notice). See also 262 (absent contrary agreement, each joint owner may exploit a patent without accounting to the others). 2. Paper Bag concludes with recognition that a court of equity might be justified in withholding relief by injunction but does not elaborate. Since then, courts have refused to enforce otherwise valid rights for misuse (see Morton Salt in Chapter 4), and owners have also been required to license as necessary to rectify antitrust violations. Patents are also subject to federal inverse condemnation under 28 U.S.C. 1498 (limiting patent and copyright relief against the U.S. government to damages only) but that is resisted for fear that it will encourage other countries use of compulsory licenses. See, e.g., Erika Mullenbach, The Influence of Disease on the Evolution of U.S. Patent Law and Policy Towards Foreign Patent Law, 7 Tul. J. Tech. & Intell. Prop. 227, 23941 (2005). eBay and Qualified Rights to Injunctions MercExchange, L.L.C. v. eBay Inc., 275 F. Supp.2d 695 (E.D. Va. 2003), upholds an award of $35 million for willful infringement but refused to grant an injunction, noting at 711, that the decision to grant or deny injunctive relief remains within the discretion of the trial judge. Two of four factors that influence the exercise of such discretion whether plaintiff faces irreparable injury absent an injunction, and whether damages are adequate were

1.12

Patents as Property

found, at 712, not to favor a plaintiff [who] does not practice its inventions and exists merely to license its patented technology to others. Continuing, the court viewed the third factor balance of hardships similarly because: Any harm suffered by the defendants infringement of the patents, can be recovered by way of damages. Id. As to the final factor the public interest the judge said: In sum, the court believes the public interest factor equally supports granting an injunction to protect the plaintiffs patent rights, and denying an injunction to protect the publics interest in using a patented business-method that the patent holder declines to practice. 275 F. Supp.2d at 714. The Court of Appeals for the Federal Circuit, however, reversed, saying: [T]he district court did not provide any persuasive reason to justify denial of a permanent injunction. MercExchange, L.L.C. v. eBay Inc., 401 F.3d 1323, 1339 (2005). It therefore saw no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances. Id. The Supreme Court, in turn, reversed and remanded, saying in a brief unanimous opinion: To be sure, the Patent Act declares that patents shall have the attributes of personal property 261, including the right to exclude others from making, using, offering for sale, or selling the invention, 154(a)(1). According to the court of appeals, this statutory right to exclude alone justifies its general rule in favor of permanent injunctive relief. 401 F.3d, at 1338. But the creation of a right is distinct from the provision of remedies for violations of that right. Indeed, the Patent Act itself indicates that patents shall have the attributes of personal property [s]ubject to the provisions of this title, 35 U.S.C. 261, including, presumably, the provision that injunctive relief may issue only in accordance with the principles of equity, 283. This approach is consistent with our treatment of injunctions under the Copyright Act. . Like the Patent Act, the Copyright Act provides that courts may grant injunctive relief on such terms as it may deem reasonable to prevent or restrain infringement of a copyright. 17 U.S.C. 502(a). And as in our decision today, this Court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed. See, e.g., New York Times Co. v. Tasini, 533 U.S. 483, 505 (2001) (citing Campbell v. AcuffRose Music, Inc., 510 U.S. 569, 578, n. 10 (1994)); Dun v. Lumbermen's Credit Assn., 209 U.S. 20, 2324 (1908). eBay v. MercExchange, L.L.C., 547 U.S. 388, 392-93 (2006). It went on to describe Paper Bag as rejecting the contention that a court of equity has no jurisdiction to grant injunctive relief to a patent holder who has unreasonably declined to use the patent, 547 U.S. 388. at 393 (emphasis added). Yet, with nothing to support an allegation in Paper Bag that patentees refusal to use was unreasonable and nothing to amplify a suggestion that MercExchanges behavior was unreasonable, what unreasonable might mean was left unframed. It nevertheless vacated [b]ecause we conclude that neither court below correctly applied the traditional four-factor framework for awarding injunctive relief, 547 U.S. at 394. Three Justices joined a two-paragraph concurrence that primarily chides the court of appeals for suggesting that patentees are entitled as a general rule to injunctions; 547 U.S. at 395 (emphasis in opinion). Four Justices joined a slightly longer concurrence echoing a

Patent Background

1.13

recent Federal Trade Commission report: An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees. 547 U.S. at 396. Despite anxiety about exorbitant fees in the second concurrence and chiding in the first, no opinion suggests a presumption against injunctions even as to entities that only license patents. Moreover, as noted by the majority: [S]ome patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so. 547 U.S. at 393. How independent, academic or government inventors might overcome an unstated presumption against nonpracticing entities is unclear. It may nevertheless be useful to consider differences between the circumstances in Paper Bag and ones alluded to in eBay. Should it make a difference that an owner has no interest in licensing at any price or that any prospective licensee would be interested only if truly exclusive rights are available? If an injunction is refused for infringement, a reasonable royalty would be awarded. Multiple bases for determination are set out in Georgia-Pacific Corp. v. U.S. PlywoodChampion Papers Inc., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), modified and affd, 446 F.2d 295 (2d Cir. 1971). Yet Fromson v. Western Litho Plate and Supply Co., 853 F.2d 1568, 1574 (Fed. Cir. 1988), notes, Determining a fair and reasonable [patent] royalty [seems] often to involve more the talents of a conjurer than those of a judge. How might that be relevant? Problem Apex just received a patent for a new kind of glass. Under 154(a)(1) and 271(a) what are the consequences for Glazer, who has been making windows with infringing glass obtained elsewhere? Constructit, who previously bought several hundred windows from Glazer? Bulge, who owns a building where most were already installed? Assuming no post-patent sales, is anyone apt to be liable for damages? What can Apex prevent those parties from doing in the future?

Scott Paper Co. v. Marcalus Mfg. Co., Inc.

U.S. Supreme Court 326 U.S. 249 (1945)

[Marcalus patented a machine and method for making dispensers for, e.g., rolled wax paper and assigned the patent to Scott. Marcalus later established a company that practiced the invention. When Scott sued, Marcalus firm claimed that its technology was fully disclosed in an earlier patent. The Court framed the issue as whether the assignor of a patent is estopped by virtue of his assignment to defend a suit for infringement of the assigned patent on the ground that the alleged infringing device is that of a prior art, expired patent.]

1.14

Patents as Property

Chief Justice Stone: [P]etitioner relies on the doctrine of estoppel as applied to the assignor of a patent for value. Its basic principle is said to be one of good faith, that one who has sold his invention may not, to the detriment of the purchaser, deny the existence of that which he has sold. The rule, as stated by this Court in the Westinghouse Co. v. Formica Co., 266 U.S. 342, 349 is that an assignor of a patent right is estopped to attack the utility, novelty or validity of a patented invention which he has assigned or granted as against any one claiming the right under his assignment or grant. As to the rest of the world, the patent may have no efficacy and create no right of monopoly; but the assignor can not be heard to question the right of his assignee to exclude him from its use. [A]lthough stating that the assignor cannot deny the novelty and validity of the assigned patented invention, [Formica] nevertheless held that the claims of a patent may be narrowed by reference to the prior art. Petitioner, pointing to the logical embarrassment in applying a doctrine which forbids the assignor to deny validity of the patented invention for want of novelty, but nevertheless allows him to narrow its scope, insists that the court below has resorted to the prior art, not for the purpose of narrowing the claims and distinguishing from the prior art something which the assignor invented, but for the purpose of destroying the claims because anticipated. This is said to be precisely the same in purpose and effect as to deny invention for want of novelty. It is urged that the permission thus given to respondent assignor to show want of novelty is to disregard the estoppel by which, by hypothesis, he is bound. . But in the circumstances of this case we find it unnecessary to pursue these logical refinements, or to determine whether the doctrine of estoppel by patent assignment as stated by the Formica case should be rejected. To whatever extent that doctrine may be deemed to have survived the Formica decision, we think that case is not controlling here. For other considerations are dispositive of this case, in which, unlike Formica, the accused machine is precisely that of an expired patent. Neither in that case nor in any other, so far as we are advised, was the doctrine of estoppel applied so as to penalize the use of the invention of an expired patent. That we think is foreclosed by the patent laws themselves. . The aim of the patent laws is not only that members of the public shall be free to manufacture the product or employ the process disclosed by the expired patent, but also that the consuming public at large shall receive the benefits of the unrestricted exploitation, by others, of its disclosures. Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 11720. If a manufacturer or user could restrict himself, by express contract, or by any action which would give rise to an estoppel, from using the invention of an expired patent, he would deprive himself and the consuming public of the advantage to be derived from his free use of the disclosures. The public has invested in such free use by the grant of a monopoly to the patentee for a limited time. Hence any attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws. And for the same reason a stranger, such as respondent Marcalus, cannot, by securing and assigning a patent on the invention of the expired Inman patent, confer on petitioner any right to deprive the public of the benefits of the free use of the invention for which the public has paid by the grant of a limited monopoly. . It is thus apparent that the patent laws preclude the patentee of an expired patent and all others including petitioner from recapturing any part of the former patent monopoly; for those laws dedicate to all the public the ideas and inventions embodied in an expired patent.

Patent Background

1.15

They do not contemplate that anyone by contract or any form of private arrangement may withhold from the public the use of an invention for which the public has paid by its grant of a monopoly and which has been appropriated to the use of all. The rights in the invention are then no longer subject to private barter, sale, or waiver. It follows that the patent laws preclude the petitioner assignee from invoking the doctrine of estoppel, as a means of continuing as against respondent, his assignor, the benefit of an expired monopoly, and they preclude the assignor from estopping himself from enjoying rights which it is the policy of the patent laws to free from all restrictions. For no more than private contract can estoppel be the means of successfully avoiding the requirements of legislation enacted for the protection of a public interest. The interest in private good faith is not a universal touchstone which can be made the means of sacrificing a public interest secured by an appropriate exercise of the legislative power. The patent laws preclude us from saying that the patent assignment, which they authorize, operates to estop the assignor from asserting that which the patent laws prescribe, namely, that the invention of an expired patent is dedicated to the public, of which the assignor is a member. The judgment is affirmed for the reason that we find that the application of the doctrine of estoppel so as to foreclose the assignor of a patent from asserting the right to make use of the prior art invention of an expired patent, which anticipates that of the assigned patent, is inconsistent with the patent laws which dedicate to public use the invention of an expired patent. The assignor has a complete defense to an action for infringement where the alleged infringing device is that of an expired patent. . Justice Reed. The fact that the prior art is evidenced by an expired patent does not seem significant to him. Consequently he would reverse. Notes 1. What is the difference between Marcaluss using the earlier Inman patent to deny the validity of his patent (transferred to Scott Paper) and using it to narrow its scope effectively to zero? How did the Court avoid the logical embarrassment of confronting that issue? What is the significance of its alternative basis for decision? 2. How could the Marcalus patent have issued despite the requirement (now in 102) that patents may be granted only for novel inventions? 3. Harking back to concerns that gave rise to the Statute of Monopolies, quoted by Abramson earlier in this chapter, judges often, implicitly or explicitly, embrace a syllogism along these lines: (1) The public interest does not favor monopolies; (2) patents are monopolies; (3) ergo, patentees rights should be strictly limited. Indeed, Justice Jackson, dissenting in Jungersen v. Ostby & Barton Co., 335 U.S. 560, 572 (1949), noted that the only valid patents were ones not yet considered by the Supreme Court. 4. Nomenclature often reveals attitudes that underlie application of legal rules. For example, how might application of a rule be affected by whether a judge thinks of a patent as property or as a monopoly? Attitudes, in turn, are apt to be formed by experience. A judge whose predominant, if not sole, exposure to patents has been in the context of antitrust suits is unlikely to be favorably disposed.

1.16

Exhaustion of Rights

C. Exhaustion of Rights

Wilson v. Simpson
U.S. Supreme Court 50 U.S. 109 (1850)

Justice Wayne: . [W]hen the material of [a patented] combination ceases to exist, in whatever way that may occur, the right to renew it depends upon the right to make the invention. . But it does not follow, when one of the elements of the combination has become so much worn as to be inoperative, or has been broken, that the machine no longer exists, for restoration to its original use, by the owner who has bought its use. When the wearing or injury is partial, then repair is restoration, and not reconstruction. Illustrations of this will occur to any one, from the frequent repairs of many machines for agricultural purposes. Also from the repair and replacement of broken or worn-out parts of larger and more complex combinations for manufactures. In either case, repairing partial injuries, whether they occur from accident or from wear and tear, is only refitting a machine for use. And it is no more than that, though it shall be a replacement of an essential part of a combination. It is the use of the whole of that which a purchaser buys, when the patentee sells to him a machine; and when he repairs the damages which may be done to it, it is no more than the exercise of that right of care which every one may use to give duration to that which he owns, or has a right to use as a whole. . The proof in the case is, that one of Woodworths machines, properly made, will last in use for several years, but that its cutting-knives will wear out and must be replaced at least every sixty or ninety days. The right to replace them was a part of the invention transferred to the assignee for the time that he bought it, without which his purchase would have been useless to him, except for sixty or ninety days after a machine had been put in use. It has not been contended, nor can it be, that such can be a limitation of the assignees right in the use of the invention. If, then, the use of the machine depends upon the replacement of the knives, and the assignee could replace them from time to time, as they were needed, during the first term of the patent, though they are an essential and distinct constituent of the principle or combination of the invention, frequently replacing them, according to the intention of the inventor, is not a reconstruction of the invention, but the use only of so much of it as is absolutely necessary to identify the machine with what it was in the beginning of its use, or before that part of it had been worn out. The right of the assignee to replace the cutter-knives is not because they are of perishable materials, but because the inventor of the machine has so arranged them as a part of its combination, that the machine could not be continued in use without a succession of knives at short intervals. Unless they were replaced, the invention would have been but of little use to the inventor or to others. The other constituent parts of this invention, though liable to be worn out, are not made with reference to any use of them which will require them to be replaced. These, without having a definite duration, are contemplated by the inventor to last so long as the materials of which they are formed can hold together in use in such a combination. No replacement of them at intermediate intervals is meant or is necessary. They may be repaired as the use may require. With such intentions, they are put into the structure. So it is understood by a purchaser, and beyond the duration of them a purchaser of the

Patent Background

1.17

machine has not a longer use. But if another constituent part of the combination is meant to be only temporary in the use of the whole, and to be frequently replaced, because it will not last as long as the other parts of the combination, its inventor cannot complain, if he sells the use of his machine, that the purchaser uses it in the way the inventor meant it to be used, and in the only way in which the machine can be used. Such a replacement of temporary parts does not alter the identity of the machine, but preserves it, though there may not be in it every part of its original material. Such being the case, we do not think that the defendants in this case, from having replaced cutter-knives in their machines, have been using them in fraud of the law, or in violation of the rights of the complainant. .

Keeler v. Standard Folding-Bed Co.*

U.S. Supreme Court 157 U.S. 659 (1895)

Justice Shiras: It is provided in 4884 of the Revised Statutes that every patent shall contain a grant to the patentee for the term of seventeen years, of the exclusive right to make, use, and vend throughout the United States and Territories thereof; and in 4898 that any patent or any interest therein shall be assignable in law by an instrument in writing, and the patentee may in like manner grant and convey an exclusive right under his patent to the whole or any specified part of the United States. Where the patentee has not parted, by assignment, with any of his original rights, but chooses himself to make and vend a patented article of manufacture, it is obvious that a purchaser can use the article in any part of the U.S., and, unless restrained by contract with the patentee, can sell or dispose of the same. It has passed outside of the monopoly, and is no longer under the peculiar protection granted to patented rights. As was said by Justice Clifford in Goodyear v. Rubber Co., 1 Cliff. 348: Having manufactured the material and sold it for a satisfactory compensation, whether as material or in the form of a manufactured article, the patentee, so far as that product of his invention is concerned, has enjoyed all the rights secured, and the manufactured article and the material of which it is composed go to the purchaser for a valuable consideration, discharged of all the rights previously impressed upon it by the act of Congress under which the patent was granted. Suppose, however, the patentee has exercised his statutory right of assigning by conveying to another an exclusive right under the patent to a specified part of the U.S. What are the rights of a purchaser of patented articles from the patentee himself within the territory reserved to him? Does he thereby obtain an absolute property in the article, so that he can use and vend it in all parts of the U.S., or, if he take the article into the assigned territory, must he again pay for the privilege of using and selling it? If, as is often the case, the patentee has divided the territory of the U.S. must a person who has bought in one part, from the vender having an exclusive right to make and vend therein, on removing to another, pay to the local assignee, or else be subjected to an action for damages as a wrongdoer? And is there any solid distinction to be made, in such a case, between the right to use and the right to sell? Can the owner of the patented article hold and deal with it the same as in [the] case of any other description of property belonging to him, and, on his death, does it pass, with the
* The facts are discussed only in the dissent.

1.18

Exhaustion of Rights

rest of his personal estate, to his legal representatives, and thus, as a part of the assets to be administered, become liable to be sold? These are questions which, although already in effect answered by this Court in more cases than one, are now to be considered. In Wilson v. Rousseau, 4 How. 688, and in Bloomer v. McQuewan, 14 How. 556, it was held that the purchasers of patented machines had the right to continue the use of such machines, without again paying royalty, although the patent was twice extended.. These cases were followed, and a step further taken, in the case of Adams v. Burke, 17 Wall. 453. There, Lockhart and Seelye owned, by assignment, all the right, title, and interest which the patentees had in a certain patented coffin lid, in a circular district of a diameter of 10 miles, whereof the city of Boston was the center. Adams, also by assignment, was the owner of all other rights under the patent. Burke carried on his business within the territory covered by the patent as owned by Adams. To a bill for an infringement, filed by Adams, Burke pleaded that the patent coffins used by him in his business were purchased by him from Lockhart and Seelye, and were sold to him without condition or restriction. . Justice Miller, in giving the opinion of the Court, said: . A careful examination of the plea satisfies us that the defendant, who, as an undertaker, purchased each of these coffins, and used it in burying the body which he was employed to bury, acquired the right to this use of it, freed from any claim of the patentee, though purchased within the ten-mile circle and used without it. It is obvious that necessarily the use made by Burke of these coffins involved a sale in every case. He did not put them to his personal use. He bought the coffins for the purpose of selling them to others, and the legal significance of the decision upholding his defense is that a person who buys patented articles from a person who has a right to sell, though within a restricted territory, has a right to use and sell such articles in all and any part of the U.S.; that, when the royalty had once been paid, the patented article then becomes the absolute, unrestricted property of the purchaser. Boesch v. Graff, 133 U.S. 698, is cited by the defendant in error. . The exact question presented was whether a dealer residing in the U.S. could purchase in another country articles patented there from a person authorized there to sell them, and import them to and sell them in the U.S. without the license or consent of the owners of the U.S. patent, and the Court held that the sale of articles in the U.S. under a U.S. patent cannot be controlled by foreign laws. In this case neither the patentee nor any assignee had ever received any royalty or given any license to use the patented article in any part of the U.S. Hobbie v. Jennison, 149 U.S. 355, is interesting. The facts were these: An assignee for Michigan, of a patent for an improvement in pipes, made, sold, and delivered in Michigan pipes made according to the patent, knowing that they were to be laid in the streets of a city in Connecticut, and they were laid in that city. An action at law was brought in the Eastern district of Michigan by Hobbie, who was the owner, by assignment, of the patent for the state of Connecticut. A jury was waived, and the cause was tried before Judge Brown, the district judge, now a member of this Court. The decision and judgment were in favor of the defendant, and that judgment was affirmed here. What was principally discussed was Adams v. Burke, and an attempt was made to distinguish the case in hand by the fact that the sale was made with the knowledge and intention on the part of the defendant that the use would be at Hartford. But this Court was of opinion that the sale was a complete one in Michigan; and that neither the actual use of the pipes in Connecticut, nor a knowledge on the part of the defendant that they were intended to be used there, would make him liable.

Patent Background

1.19

This brief history of the cases shows that the purchase of the article from one authorized by the patentee to sell it, emancipates such article throughout the entire life of the patent, even if the latter should be by law subsequently extended, and that, in respect of the time of enjoyment, by those decisions the right of the purchaser, his assigns or legal representatives, is clearly established to be entirely free from any further claim; that in Adams v. Burke it was held that as between the purchaser of patented articles in one specified part of the territory and the assignee of the patent of another part, the right once legitimately acquired to hold, use, and sell will protect such purchaser from any further subjection to the monopoly; that in Hobbie v. Jennison it was held that, as between assignees of different parts of the territory, it is competent for one to sell the patented articles to persons who intend, with the knowledge of the vender, to take them for use into the territory of the other. Upon the doctrine of these cases, we think it follows that one who buys patented articles of manufacture from one authorized to sell them becomes possessed of an absolute property in such articles, unrestricted in time or place. Whether a patentee may protect himself and his assignees by special contracts brought home to the purchasers is not a question before us, and upon which we express no opinion. It is, however, obvious that such a question would arise as a question of contract, and not as one under the inherent meaning and effect of the patent laws. The conclusion reached does not deprive a patentee of his just rights, because no article can be unfettered from the claim of his monopoly without paying its tribute. The inconvenience and annoyance to the public that an opposite conclusion would occasion are too obvious to require illustration. . Justice Brown, dissenting. The exact question presented by the record in this case is whether a dealer in patented articles, doing business in Massachusetts, and knowing that the right to manufacture, use, and sell such articles within that state belongs to another, may purchase such articles of the patentee in Michigan, in the ordinary course of trade, for the purpose of resale in Massachusetts, and may sell them there in defiance of the rights of the licensee. . There are but three cases that have any direct bearing upon the one under consideration. In Adams v. Burke [i]t was held that the defendant, having purchased the coffins of one who had a lawful right to sell them, had a right to use them anywhere; that, the patentee having received his consideration, the patented articles were no longer within the monopoly of the patent. The case was treated both in the opinion of the Court and in the dissent, in which three justices concurred, as a case of use, and not of sale; and Justice Miller, in delivering the opinion, observed: Whatever, therefore, may be the rule when patentees subdivide territorially their patents, as to the exclusive right to make or to sell, we hold that, when they are once lawfully made and sold, there is no restriction on their use to be implied for the benefit of the patentee . The dissenting justices were of opinion that the assignment did not confer upon the assignee the right to sell the patented article to be used outside of his territory. There was no suggestion in either opinion that a purchaser from the assignee had or could have the right to deal in the patented article outside of the territory in which the purchase was made. In Hobbie v. Jennison. [t]he action was brought, not against the user, but against the manufacturer and vender of the patented article; and it was held that, as the sale was completed in Michigan, neither the actual use of the pipes in Connecticut nor the knowledge on the part of the defendants that they were intended to be used there could make them liable.

1.20

Exhaustion of Rights

This case also involved the right to use, and not to sell, and was held to be indistinguishable from Adams v. Burke. It differed from that only in the fact that the action was brought against the vender. The machines or implements thus referred to in these cases are such articles as are exhausted or consumed in their use; that is, where articles are of no value after a single use, there is no restriction on their further use. When a patented article is of that kind, the whole value of which consists in its use for a particular purpose, and which value ceases when its capability of use for that purpose is gone, the monopoly of the patentee or his assignee over it must necessarily cease upon its sale to the purchaser. Upon the other hand, in Boesch v. Graff, it was held that one who purchased articles covered by a patent in a foreign country, and imported them into the U.S., could not sell them here without the license or consent of the owner of the American patent, although they were purchased in a foreign country from a person authorized to sell them. This is the only case decided by this Court in which the right of a purchaser to sell patented articles outside of the territory of his vender has been drawn in question; and I see no reason why the arguments, which moved the Court in that case do not apply with equal cogency to a case where the patented articles are bought within the U.S. In both cases a tribute has once been paid to the patentee, and the fact that that tribute was paid in a foreign country works no apparent difference in the principle. . In view of the cases of Adams v. Burke and Hobbie v. Jennison, this Court must be considered as committed to the doctrine that a vendee, purchasing a patented article of the patentee or his licensee, has a right to make use of the same wherever he may take it, notwithstanding the fact that the purchase be made with the knowledge of the vender that the article is to be used in the territory of another, and with the knowledge of the vendee that the territory in which he proposes to use it is owned by another. We are now asked to take another step in advance, and hold that a rival dealer, with notice of the territorial rights of a licensee or assignee, may purchase any quantity of patented articles of the patentee, and sell them in his own territory, in defiance of the right of the assignee in such territory. To this proposition I am unable to give my assent. . That one who makes use of or sells a patented article in ignorance of the fact that it is patented is liable as an infringer is entirely well settled. Yet we are asked to hold in this case that one who is fully informed of the rights of territorial assignee may deal in the patented articles in defiance of such assignee, upon the ground that he has once submitted to the exactions of the patentee by purchasing the article of one who had a right to sell it. There is reason for saying that a person who has once paid tribute to the patentee shall not be called upon to pay tribute a second time, but to say that he may purchase such articles for the deliberate purpose of entering into competition with a local licensee is utterly destructive of the right of the latter to deal in the patented article. . I am authorized to state that the Chief Justice and Justice Field concur in this dissent. Notes 1. Patents are infringed by those who without authority make, use or sell a patented invention. See, e.g., 35 U.S.C. 271(a). In the two previous cases, which of those rights were allegedly infringed? If defendants questioned activites could be proven, and patentees did not authorize them, what supported claims of noninfringement? 2. What do differences between the facts in Boesch and Adams, both discusssed in Keeler, teach about the reach of patents across national boundaries?

Patent Background

1.21

3.

Section 37 of the 1870 patent statute, 16 Stat. 203, provided: That every person who may have purchased of the inventor, or with his knowledge and consent may have constructed [the patented invention], prior to the application for a patent, or sold or used one so constructed, shall have the right to use and vend to others to be used, the specific thing so made or purchased, without liability therefor. It carried through until 1952, when it was omitted from the statute as redundant and unnecessary; see 1952 USCCAN 2394, at 2428. Was that true? If so, why?

General Talking Pictures Corp. v. Western Electric Co., Inc.

U.S. Supreme Court 305 U.S. 124 (1938)

Justice Brandeis: [The Court affirmed the circuit courts finding that petitioner had infringed certain patents relating to vacuum tube amplifiers but granted a rehearing upon two questions:] 1. Can the owner of a patent, by means thereof, restrict the use made of a device manufactured under the patent, after the device has passed into the hands of a purchaser in the ordinary channels of trade? 2. Can a patent owner, merely by a license notice, place an enforceable restriction on the purchaser thereof as to the use to which the purchaser may put the device? Upon further hearing we are of opinion that neither question should be answered. [The devices] were not manufactured or sold under the patent(s) and did not pass into the hands of a purchaser in the ordinary channels of trade. These are the relevant facts. Amplifiers embodying the invention here involved are useful in several distinct fields. Among these is (a) the commercial field of sound recording and reproducing, which embraces talking picture equipment for theatres, and (b) the private or home field, which embraces radio broadcast reception, radio amateur reception and radio experimental reception. For the commercial field exclusive licenses had been granted by the patent pool to Western Electric Company and Electrical Research Products, Inc. For the private or home field the patent pool granted non-exclusive licenses to about fifty manufacturers. Among these was American Transformer Company. It was licensed to manufacture, and to sell only for radio amateur reception, radio experimental reception and radio broadcast reception licensed apparatus so manufactured by the Licensee. The license provided further: [That licensee had no rights beyond the express provision of this Agreement.] Transformer Company, knowing that it had not been licensed to manufacture or to sell amplifiers for use in theatres as part of talking picture equipment, made the amplifiers in controversy and sold them to Pictures Corporation for that commercial use. Pictures Corporation ordered the amplifiers and purchased them knowing that Transformer Company had not been licensed to make or sell them for such use in theatres. Any use beyond the valid terms of a license is, of course, an infringement of a patent. If where a patented invention is applicable to different uses, the owner of the patent may legally restrict a licensee to a particular field, Transformer Company was guilty of an infringement when it made the amplifiers for, and sold them to, Pictures Corporation. And as Pictures Corporation ordered, purchased and leased them knowing the facts, it also was an infringer.

1.22

Exhaustion of Rights

. As was said in United States v. General Electric Co., 272 U.S. 476, the patentee may grant a license upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure. The restriction here imposed is of that character. The practice of granting licenses for a restricted use is an old one. So far as appears, its legality has never been questioned. The parties stipulated that it is common practice where a patented invention is applicable to different uses, to grant written licenses restricted to one or more of the several fields of use permitting the exclusive or non-exclusive use of the invention in one field and excluding it in another field. As the restriction was legal and the amplifiers were made and sold outside the scope of the license, the effect is precisely the same as if no license whatsoever had been granted to Transformer Company. And as Pictures Corporation knew the facts, it is in no better position than if it had manufactured the amplifiers itself without a license. It is liable because it has used the invention without license to do so. We have consequently no occasion to consider what the rights of the parties would have been if the amplifier had been manufactured under the patent and had passed into the hands of a purchaser in the ordinary channels of trade. Nor have we occasion to consider the effect of a licensees notice which purports to restrict the use of articles lawfully sold. Affirmed. Justice Roberts took no part in the case. Justice Black, dissenting: Almost a century ago, this Court asserted, and time after time thereafter it has reasserted, that when an article described in a patent is sold and passes to the hands of a purchaser, it is no longer within the limits of the monopoly. It passes outside of it, and is no longer under the protection of the act of Congress. Contracts in relation to it are regulated by the laws of the State, and are subject to State jurisdiction.1 A single departure from this judicial interpretation of the patent statute2 was expressly overruled within five years, and this Court again reasserted that commodities once sold were not thereafter subject to conditions as to use imposed by patent owners.3 . . The prior opinion in this case, both courts below and the opinion on this rehearing, all refer to a sale. Even the very contract provided That for the purpose of this agreement all Licensed Apparatus shall be considered as sold when the Licensed Apparatus has been billed out, or if not billed out, when it has been delivered, shipped, or mailed.
Bloomer v. McQuewan, 14 How. 539, 549, 550. The rule asserted in these cases is in accord with the views of Thomas Jefferson. Mr. Jefferson, referring to the general rules adopted by the first Patent Board, said: One of those [rules] was that a machine of which we were possessed might be applied by every man to any use of which it is susceptible and that this right ought not to be taken from him and given to a monopolist, because the first perhaps had occasion so to apply it. Thus a screw for crushing plaster might be employed for crushing corn-cobs. And a chain pump for raising water might be used for raising wheat: this being merely a change of application. After the Patent Boards duties devolved upon the courts, Mr. Jefferson suggested that the rule be adopted by the judges that the purchaser of the right to use the invention should be free to apply it to every purpose of which it is susceptible. United States v. General Electric Co., 272 U.S. 476, relied on by the majority here, was not a suit for infringement of a patent, but was an action by the United States under the anti-trust laws. . 2 Henry v. A. B. Dick Co., 224 U.S. 1 (1912.) 3 Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 516. Similarly, the exercise of the right to vend exhausts the right under a patent to control the price at which an article claimed in the patent may subsequently be sold.
1

Patent Background

1.23

Notice to the purchaser in any form could not under the patent law limit or restrict the use of the amplifiers after they were sold6 and knowledge by both vendor and purchaser that the articles were purchased for use outside the field for which the vendor had been given the right to sell, made the transaction between them no less a sale.7 Had petitioner after making the purchase decided not to use these amplifiers in the forbidden fields, or had they been destroyed prior to such use, certainly the mere state of mind of the parties at the time of sale would not have made them both infringers. .[E]ven if the state of mind of vendor and purchaser were material, Transformer Company could be considered an infringer only because it sold a commodity which might be used in infringing combination with another lawfully purchased commodity. The patent law was not intended to accomplish such result. Petitioner has persistently contended throughout this litigation that no existing trade practice permits a patentee to extend his monopoly to commodities after sale, and has not stipulated otherwise. Neither stipulation nor practice could justify extension of patent monopoly beyond the limits of legality fixed by Congress and recognized by this Court for over three-quarters of a century. The statutory authority to grant the exclusive right to use a patented machine is precisely the same, as the authority to grant the exclusive right to vend. 10 A widespread practice of restricting the resale price of articles described in patents11 did not prevent this Court from holding that once the statutory right to vend has been exercised the added restriction is beyond the protection and purpose of the act. Similarly, a common practice to grant written licenses restricted to one or more fields of use cannot prevent the application of that line of cases in which this Court has held that a patentee who has parted with a patented machine by passing title to a purchaser has placed the article beyond the limits of the monopoly secured by the patent act. Justice Reed joins in this dissent. Notes 1. Justice Black refers to Jeffersons writings in note 1. Yet one scholar has noted that Jeffersons writings were not cited in more than one hundred prior Supreme Court patent opinions; Edward C. Walterscheid, The Use and Abuse of History: The Supreme Courts Interpretation of Thomas Jeffersons Influence on the Patent Law, 39 Idea 195, 199 (1999). See also, Adam Mossoff, Who Cares What Thomas Jefferson Thought About Patents? Reevaluating the Patent Privilege In Historical Context, 92 Cornell L. Rev. 953 (2007). 2. As between the two, would Justice Story or Jefferson seem to have been more alert to problems involving patent enforcement? 3. 35 U.S.C. 261 provides that an exclusive right [in a patent or application may be assigned] to the whole of any specified part of the United States. It, however, is silent on field-of-use restrictions. Does that bear on congressional views? 4. The statute makes no reference to rights outside the United States because patents are territorial. How does that bear on the relevance of Boesch, stressed by the dissent in Keeler? Patents on the same invention may have different owners in different countries. Can one owners rights be exhausted by anothers sales? Should common ownership alter the outcome?
6

The statutes relating to patents do not provide for any such notice and it can derive no aid from them. Motion Picture Co., supra, 243 U.S. 509. 7 Hobbie v. Jennison, 149 U.S. 355. 10 Motion Picture Co., supra, 243 U.S. 516. 11 See Walter H. Chamberlin, Emancipation of Patented Articles, 6 Ill. L.Rev. 357.

1.24

Exhaustion of Rights

5.

See Quanta Computer, Inc. v. LG Electronics, Inc., 128 S.Ct. 2109, 2113 (2008): In this case, we decide whether patent exhaustion applies to the sale of components of a patented system that must be combined with additional components in order to practice the patented methods. The Court of Appeals for the Federal Circuit held that the doctrine does not apply to method patents at all and, in the alternative, that it does not apply here because the sales were not authorized by the license agreement. We disagree on both scores. Because the exhaustion doctrine applies to method patents, and because the license authorizes the sale of components that substantially embody the patents in suit, the sale exhausted the patents. Despite reference to several other cases, Keeler and General Talking Pictures figured most prominently in its ultimate (unanimous) conclusion, 128 S.Ct. at 2119: The authorized sale of an article that substantially embodies a patent exhausts the patent holders rights and prevents the patent holder from invoking patent law to control postsale use of the article. Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intels microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. Nothing in the License Agreement limited Intels ability to sell its products practicing the LGE Patents. Intels authorized sale to Quanta thus took its products outside the scope of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta. Accordingly, the judgment of the Court of Appeals is reversed. The Courts note 7, 128 S.Ct. at 2122, seems highly relevant: [T]he authorized nature of the sale to Quanta does not necessarily limit LGEs other contract rights. LGEs complaint does not include a breach-ofcontract claim, and we express no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages. See Keeler v. Standard Folding Bed Co., 157 U.S. 659, 666 (1895) (Whether a patentee may protect himself and his assignees by special contracts brought home to the purchasers is not a question before us, and upon which we express no opinion. It is, however, obvious that such a question would arise as a question of contract, and not as one under the inherent meaning and effect of the patent laws.).

Problem After Optix received a patent on an optical transistor, it granted granted exclusive rights to make and sell the transistors for use in portable computers to Alpha and exclusive rights to make and sell them for use in easily distinguished communications equipment to Beta. Disto, a communications company, purchased Optix transistors from Beta. After a downturn in demand, Disto, finding itself with more than needed, sold the surplus to Zeron, a large computer manufacturer. Is Disto or Zeron liable for patent infringement? What would it take to make either liable for breach of contract?

Chapter 2 Patent Basics

A. Disclosure and Claims U.S. Supreme Court 20 U.S. 356 (1822) Justice Story: [T]he whole controversy at the trial turned upon the use of the plaintiffs Hopperboy; and no other of the inventions, included in his patent, was asserted or supposed to be pirated by the defendant. . The defendant admitted that he used the improved Hopperboy, and put his defence upon two grounds: 1. That if the patent was for the whole machine, i.e. the improved Hopperboy, the plaintiff was not the inventor of the improved Hopperboy so patented; 2. That if the patent was for an improvement only upon the Hopperboy, the specification did not describe the nature and extent of the improvement: and if it did, still the patent comprehended the whole machine, and was broader than the invention. . . The plaintiff, in his specification, after describing, his Hopperboy, its structure, and use, sums up his invention as follows: I claim as my invention, the peculiar properties or principles which this machine possesses, in the spreading, turning, and gathering the meal at one operation, and the rising and lowering of its arms by its motion, to accommodate itself to any quantity of meal it has to operate upon. . The plaintiff does not state it to be a specific improvement upon an existing machine, confining his claim to that improvement, but as an invention substantially original. In short, he claims the machine as substantially new in its properties and principles, that is to say, in the modus operandi. . [I]t is clear that the party cannot entitle himself to a patent for more than his own invention; and if his patent includes things before known, or before in use, as his invention, he is not entitled to recover, for his patent is broader than his invention. If, therefore, the patent be for the whole of a machine, the party can maintain a title to it only by establishing that it is substantially new in its structure and mode of operation. If the same combinations existed before in machines of the same nature, up to a certain point, the patent should be limited to such improvement, for if it includes the whole machinery, it includes more than his invention, and therefore cannot be supported. This is the view of the law on this point, which was taken by the Circuit Court. . We perceive no reason to be dissatisfied with this part of the charge; it left the fact open for the jury, and instructed them correctly as to the law. And the verdict of the jury negatived the right of the plaintiff, as the inventor of the whole machine. . We are then led to the examination of the other point of view in which the plaintiffs counsel have attempted to maintain this patent. . It may be justly doubted, whether this point at all arises in the cause; for the very terms of the patent, as they have been already considered, seem almost conclusively to establish, that the patent is for the whole machine. But, waiving this point, can the doctrine asserted at the bar be maintained, that no specification of an improvement is necessary in the patent; and that it is sufficient if it be

Evans v. Eaton

2.2

Disclosure and Claims

made out and shown at the trial, or may be established by comparing the machine specified in the patent with former machines in use? . Let this be decided by reference to the Patent Act. The third section requires that the party shall deliver a written description of his invention, in such full, clear, and exact terms, as to distinguish the same from all other things before known, and to enable any person skilled in the art or science, &c. &c. to make, compound, and use the same. The specification, then, has two objects: One is to make known the manner of constructing the machine to give the public the full benefit of the discovery after the expiration of the patent. It is not pretended that the plaintiffs patent is not in this respect sufficiently exact and minute in the description. But whether it be so or not, is not material to the present inquiry. The other object of the specification is, to put the public in possession of what the party claims and to guard against prejudice or injury from the use of an invention which the party may otherwise innocently suppose not to be patented. It is, therefore, for the purpose of warning an innocent purchaser or other person using a machine, of his infringement of the patent; and at the same time of taking from the inventor the means of practising upon the credulity or the fears of other persons, by pretending that his invention is more than what it really is, or different from its ostensible objects, that the patentee is required to distinguish his invention in his specification. Nothing can be more direct than the very words of the act. . How can that be a sufficient specification of an improvement in a machine, which does not distinguish what the improvement is, nor state in what it consists, nor how far the invention extends? . It seems to us perfectly clear that such a specification is indispensable. We do not say that the party is bound to describe the old machine; but we are of opinion that he ought to describe what his own improvement is, and to limit his patent to such improvement. For another purpose, indeed, with the view of enabling artizans to construct the machine, it may become necessary for him to state so much of the old machine as will make his specification of the structure intelligible. But the law is sufficiently complied with in relation to the other point, by distinguishing, in full, clear, and exact terms, the nature and extent of his improvement only. We do not consider that the opinion of the Circuit Court differs, in any material respect, from this exposition of the patent act on this point; and if the plaintiffs patent is to be considered as a patent for an improvement upon an existing Hopperboy, it is defective in not specifying that improvement, and therefore the plaintiff ought not to recover. [A]ffirmed with costs. Justice Livingston dissenting: . I am aware that it has been said in England, that the patent must not be more extensive than the invention; therefore, if the invention consists in an improvement only, and the patent is for the whole machine, it is void. But I am not aware that it has ever been decided there that when a patent is for an improved machine, and is taken out only for the machine thus improved, and not for the machine as before used, that such patent is void. . To declare a patent for a highly useful improvement absolutely void, merely for a defective specification, if this be one, is a very high penalty, and should not be lightly inflicted, unless rendered absolutely necessary by law; , and if the patentee should be so foolish, or illadvised, as to attempt to bring within its reach the machine in its unimproved state, he would do it, not only with no prospect of success, but with the certainty of a defeat, attended with a very heavy expense. . . But I cannot think it our duty, or that we have any right to pronounce a patent void on this account; but that this important office is exclusively confided to a jury. . If such

Patent Basics

2.3

summary authority were intended to have been conferred on the Federal Courts, the patent law ought to have been, and would have been, explicit. This is so far from being the case, that in the patent law, a provision, but of a different kind, is inserted on this very subject, which is not the case in the statute of James. It was foreseen, that it must sometimes happen, either from the imperfection of language, or the ignorance of a patentee, that defective specifications would be made; it was also foreseen, that an imperfect specification might be made from design, and with a view of deceiving the public. We accordingly find it provided by law [ 6], that among other matters which the defendant may rely on, is that the specification does not contain the whole truth relative to his discovery, or that it contains more than is necessary to produce the described effect, which concealment, or addition, must fully appear to have been made for the purpose of deceiving the public. If judgment is rendered for the defendant on this ground, the patent is to be declared void. . If, therefore, the defect which is alleged, really exist in the specification of the patented improvement, the Court is not authorized, on its mere inspection, to declare it imperfect, and the patent, on that account, void. Both questions are clearly questions of fact, and are so treated by the legislature. The party has a right to insist with the jury, not only that his specification is perfect, but that if it be otherwise, no deception was intended on the public; and on either ground, they may find a verdict in his favour. . My opinion, therefore, on this part of the charge is, that the Court erred in taking upon itself to pronounce the patent void, even if the specification had been defective, or imperfect; this being a power expressly delegated to a jury, who, under all the circumstances of the case, are to decide both questions of fact; that is, whether the specification be deficient, or superfluous, and the intention with which it was made so. I repeat once more, that whatever may have been the decisions in England, they are not of authority, and are upon an act so very different in its structure from our own, as to afford little or no useful information on the subject. One great and important difference in the two laws is that the statute of James I* has not prescribed a mode in which a patent for a vicious specification is to be set aside. . Justices Johnson and Duvall also dissented. Notes 1. The decision in Evans was close. The Court had six Justices before 1807 and only seven for the next 30 years. (Since then, it has had nine except from 186468 when it had ten.) 2. When Evans was first before the Court in 1818 (16 U.S. 454), Justice Marshall, for a unanimous bench, remanded it for a new trial. Appended was the summary of patent law attributed to Justice Story and excerpted in Chapter 1. To what extent did that summary foretell the ultimate fate of the disputed patent? 3. 35 U.S.C. 112 2 now provides that: The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention. Such provisions were not introduced into the statute until 1836, but the problem remains. Claims that fail to distinguish the prior art are invalid.

The reference is to the Statute of Monopolies, quoted by Abramson in Chapter 1.

2.4

Disclosure and Claims

OReilly v. Morse
U.S. Supreme Court 56 U.S. 62 (1853)

Chief Justice Taney: [W]e shall, in the first instance, confine our attention to the patent which Professor Morse obtained in 1840. The main dispute between the parties is upon the validity of this patent; and the decision upon it will dispose of the chief points in controversy in the other. . It is obvious that, for some years before Professor Morse made his invention, scientific men in different parts of Europe were earnestly engaged in the same pursuit. Electromagnetism itself was a recent discovery, and opened to them a new and unexplored field for their labors, and minds of a high order were engaged in developing its power and the purposes to which it might be applied. . The great difficulty in their way was the fact that the galvanic current, however strong in the beginning, became gradually weaker as it advanced. But, encouraged by the discoveries which were made from time to time, many eminent and scientific men in Europe, as well as in this country, became deeply engaged in endeavoring to surmount what appeared to be the chief obstacle to its success. And in this state of things it ought not to be a matter of surprise that four different magnetic telegraphs, purporting to have overcome the difficulty, should be invented and made public so nearly at the same time that each has claimed a priority. . We perceive no well-founded objection to the description which is given of the whole invention and its separate parts, nor to his right to the first seven claims. The difficulty arises on the eighth. It is in the following words: Eighth. I do not propose to limit myself to the specific machinery or parts of machinery described in the foregoing specification and claims; the essence of my invention being the use of the motive power of the electric or galvanic current, which I call electro-magnetism, however developed for marking or printing intelligible characters, signs, or letters, at any distances, being a new application of that power of which I claim to be the first inventor or discoverer. It is impossible to misunderstand the extent of this claim. He claims the exclusive right to every improvement where the motive power is the electric or galvanic current, and the result is the marking or printing intelligible characters, signs, or letters at a distance. If this claim can be maintained, it matters not by what process or machinery the result is accomplished. For aught that we now know some future inventor, in the onward march of science, may discover a mode of writing or printing at a distance by means of the electric or galvanic current, without using any part of the process or combination set forth in the plaintiffs specification. His invention may be less complicated less liable to get out of order less expensive in construction, and in its operation. But yet if it is covered by this patent the inventor could not use it, nor the public have the benefit of it without the permission of this patentee. Nor is this all, while he shuts the door against inventions of other persons, the patentee would be able to avail himself of new discoveries in the properties and powers of electromagnetism which scientific men might bring to light. For he says he does not confine his claim to the machinery or parts of machinery, which he specifies; but claims for himself a monopoly in its use, however developed, for the purpose of printing at a distance. New

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discoveries in physical science may enable him to combine it with new agents and new elements, and by that means attain the object in a manner superior to the present process and altogether different from it. And if he can secure the exclusive use by his present patent he may vary it with every new discovery and development of the science, and need place no description of the new manner, process, or machinery, upon the records of the patent office. And when his patent expires, the public must apply to him to learn what it is. In fine he claims an exclusive right to use a manner and process which he has not described and indeed had not invented, and therefore could not describe when he obtained his patent. The court is of opinion that the claim is too broad, and not warranted by law. . [M]ost relied on, and pressed upon the court, in behalf of the patentee, are the cases which arose in England upon Neilsons patent for the introduction of heated air between the blowing apparatus and the furnace in the manufacture of iron. The leading case upon this patent, is Neilson [v. Harford] in the English Court of Exchequer. It was elaborately argued and appears to have been carefully considered by the court. The case was this: Neilson, in his specification, described his invention as one for the improved application of air to produce heat in fires, forges, and furnaces, where a blowing apparatus is required. And it was to be applied as follows: The blast or current of air produced by the blowing apparatus was to be passed from it into an air-vessel or receptacle made sufficiently strong to endure the blast; and through or from that vessel or receptacle by means of a tube, pipe, or aperture into the fire, the receptacle be kept artificially heated to a considerable temperature by heat externally applied. He then described in rather general terms the manner in which the receptacle might be constructed and heated, and the air conducted through it to the fire: stating that the form of the receptacle was not material, nor the manner of applying heat to it. In the action above-mentioned for the infringement of this patent, the defendant among other defences insisted that the machinery for heating the air and throwing it hot into the furnace was not sufficiently described and also, that a patent for throwing hot air into the furnace, instead of cold, and thereby increasing the intensity of the heat, was a patent for a principle, and that a principle was not patentable. Upon the first of these defences, the jury found that a man of ordinary skill and knowledge of the subject, looking at the specification alone, could construct such an apparatus as would be productive of a beneficial result. And upon the second ground of defence, Baron Parke said: It is very difficult to distinguish it from the specification of a patent for a principle, and this at first created in the minds of the court much difficulty; but after full consideration we think that the plaintiff does not merely claim a principle, but a machine, embodying a principle, and a very valuable one. We think the case must be considered as if the principle being well known, the plaintiff had first invented a mode of applying it by a mechanical apparatus to furnaces, and his invention then consists in this: by interposing a receptacle for heated air between the blowing apparatus and the furnace. In this receptacle he directs the air to be heated by the application of heat externally to the receptacle, and thus he accomplishes the object of applying the blast, which was before cold air, in a heated state to the furnace. We see nothing in this opinion differing in any degree from the familiar principles of law applicable to patent cases. Neilson claimed no particular mode of constructing the receptacle, or of heating it. He pointed out the manner in which it might be done; but admitted that it might also be done in a variety of ways; and at a higher or lower temperature; and that all of them would produce the effect in a greater or less degree, provided the air was heated by passing through a heated receptacle. And hence it seems that the court at first doubted,

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Disclosure and Claims

whether it was a patent for any thing more than the discovery that hot air would promote the ignition of fuel better than cold. And if this had been the construction, the court, it appears, would have held his patent to be void; because the discovery of a principle in natural philosophy or physical science, is not patentable. But after much consideration, it was finally decided that this principle must be regarded as well known, and that the plaintiff had invented a mechanical mode of applying it to furnaces; and that his invention consisted in interposing a heated receptacle, between the blower and the furnace, and by this means heating the air after it left the blower, and before it was thrown into the fire. Whoever, therefore, used this method of throwing hot air into the furnace thereby infringed his patent, although the form of the receptacle or the mechanical arrangements for heating it, might be different from those described by the patentee. . But Professor Morse has not discovered, that the electric or galvanic current will always print at a distance, no matter what may be the form of the machinery or mechanical contrivances through which it passes. You may use electro-magnetism as a motive power, and yet not produce the described effect, that is, print at a distance intelligible marks or signs. To produce that effect, it must be combined with, and passed through, and operate upon, certain complicated and delicate machinery. And it is the high praise of Professor Morse, that he has been able, by a new combination of known powers, of which electro-magnetism is one, to discover a method by which intelligible marks or signs may be printed at a distance. And for the method or process thus discovered, he is entitled to a patent. But he has not discovered that the electro-magnetic current, used as motive power, in any other method, and with any other combination, will do as well. . Many cases have also been referred to, which were decided in the circuit courts. It will be found, we think, upon careful examination, that all of them, previous to the decision on Nielsons patent, maintain the principles on which this decision is made. Since that case was reported, it is admitted, that decisions have been made, which would seem to extend patentable rights beyond the limits here marked out. As we have already said we see nothing in that opinion, which would sanction the introduction of any new principle in the law of patents. But if it were otherwise, it would not justify this court in departing from what we consider as established principles in the American courts. . Indeed, independently of judicial authority, we do not think that the language used in the act of Congress, can justly be expounded otherwise. . The provisions of the acts of Congress in relation to patents may be summed up in a few words.* Whoever discovers that a certain useful result will be produced, in any art, machine, manufacture, or composition of matter, by the use of certain means, is entitled to a patent for it; provided he specifies the means he uses in a manner so full and exact, that any one skilled in the science to which it appertains, can, by using the means he specifies, without any addition to, or subtraction from them, produce precisely the result he describes. And if this cannot be done by the means he describes, the patent is void. And if it can be done, then the patent confers on him the exclusive right to use the means he specifies to produce the result or effect he describes, and nothing more. And it makes no difference, in this respect, whether the effect is produced by chemical agency or combination; or by the application of discoveries or principles in natural philosophy known or unknown before his invention; or by machinery acting altogether upon mechanical principles. In either case he must describe the manner and process as above mentioned, and the end it accomplishes. And any one may lawfully accomplish the same end without infringing the patent, if he uses means substantially different from those described.
*

Despite possible expectations, no authority is cited.

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Indeed, if the eighth claim of the patentee can be maintained, there was no necessity for any specification, further than to say that he had discovered that, by using the motive power of electro-magnetism, he could print intelligible characters at any distance. We presume it will be admitted on all hands, that no patent could have issued on such a specification. Yet this claim can derive no aid from the specification filed. It is outside of it, and the patentee claims beyond it. And if it stands, it must stand simply on the ground that the broad terms abovementioned were a sufficient description, and entitled him to a patent in terms equally broad. In our judgment the act of Congress cannot be so construed. . The two reissued patents of 1848, being both valid, with the exception of the eighth claim in the first, the only remaining question is, whether they or either of them have been infringed by the defendants. . . The object and purpose of the Telegraph is the same with that of Professor Morse. Does he use the same means? Substantially, we think he does, both upon the main line and in the local circuits. He uses upon the main line the combination of two or more galvanic or electric circuits, with independent batteries for the purpose of obviating the diminished force of the galvanic current, and in a manner varying very little in form from the invention of Professor Morse. . Justices Wayne, Nelson and Grier dissented on a procedural point. Justice Grier disagreed with the result but not the majoritys reasoning. Notes 1. 35 U.S.C. 282 now provides that A patent shall be presumed valid. Each claim shall be presumed valid independently of the validity of other claims. At what point does a patent become invalid? 2. Justice Storys summary of patent law quoted in Chapter 1 included: [A]ny person who shall have invented an improvement, shall not be at liberty to use the original discovery, nor shall the original inventor be at liberty to use the improvement. Did Justice Taney fully credit that proposition in OReilly? 3. As currently set out in 35 U.S.C. 154(a)(1), patent owners may exclude others from, e.g., making and using during their term. If Morse solved the problem of fading signals nearly at the same time as several other inventors, should the existence of other (perhaps very different) solutions affect the permissible scope of his claims? Did the Court offer any basis for similar concerns with regard to Nielsons patent? 4. In his brief summary of the patent statutes, Justice Taney mentioned one skilled in the science as well as the application of discoveries or principles in natural philosophy. Which more accurately reflects constitutional language bearing on patents?

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Disclosure and Claims

Tilghman v. Proctor
U.S. Supreme Court 102 U.S. 707 (1880)

Justice Bradley: [Although the Court previously affirmed a finding of a patents invalidity, it nonetheless revisited the issue.] The patent in question relates to the treatment of fats and oils, and is for a process of separating their component parts so as to render them better adapted to the uses of the arts. . The complainants patent relates back to an English patent granted to the patentee for the same invention. It has but a single claim: Having now described the nature of my said invention, [I claim] the manufacturing of fat acids and glycerine from fatty bodies by the action of water at a high temperature and pressure. . It is conceded by the complainant that two different processes for effecting a decomposition of fats into their component elements had been in practical operation prior to his invention. These processes were called respectively the alkaline saponification process, and the sulphuric-acid distillation process. The first consisted of the manufacture of the fat into soap by the use of lime or other alkali; and then, of the decomposition of the soap, so produced, into the fat acids by the aid of hydrochloric or dilute sulphuric acid. The decomposition of the soap was, by a subsequent improvement, effected by distillation in an atmosphere of steam. The other process consisted of the direct saponification of fat by means of concentrated sulphuric acid, and the subsequent distillation over of the resulting fatty acids. By this process, however, the glycerine was destroyed. . Mr. G. F. Wilson, apparently a man of accurate knowledge on this subject, read various papers illustrative of the history of the manufacture before learned societies in England, extracts from which are contained in the record, and throw considerable light on the matter. It appears from his statements that the distillation of the saponified fat, whether saponified by an alkali or by sulphuric acid, was often accompanied by prejudicial effects from the access of atmospheric air to the contents of the still. To remedy this, he and his associates adopted and patented the introduction of superheated steam into the still or vat containing the fat acids, which excluded atmospheric air, and carried over the fatty vapors into the receiver in a more perfect condition. We are satisfied that Tilghman was the original discoverer of [the process he claimed]. His priority was acknowledged at the time by those most interested to question it. Mr. Wilson who is perhaps more justly entitled than any one else to claim an anticipation of Tilghmans discovery, makes no such pretension; and, indeed, Prices Patent Candle Company, of which Mr. Wilson was a member and director, took a license. . Indeed, nearly all those competent to speak on the subject state, or admit, that the process of decomposing fats into glycerine and fat acids by mixing them with water, and subjecting the mixture to a high degree of heat under a pressure sufficient to prevent the conversion of the water into steam, was not known in the arts prior to Tilghmans discovery. . The question then arises, Has Tilghman secured the exclusive right to the process of which he was thus the inventor? . The specification describes the invention as follows:

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My invention consists of a process for producing free fat acids and solution of glycerine from those fatty and oily bodies of animal and vegetable origin which contain glycerine as their base. For this purpose, I subject these fatty or oily bodies to the action of water at a high temperature and pressure, so as to cause the elements of those bodies to combine with water, and thereby obtain at the same time free fat acids and solution of glycerine. I mix the fatty body to be operated upon with from a third to a half of its bulk of water, and the mixture may be placed in any convenient vessel in which it can be heated to the meltingpoint of lead, until the operation is complete. The vessel must be closed and of great strength, so that the requisite amount of pressure may be applied to prevent the conversion of the water into steam. The process may be performed more rapidly and also continuously by causing the mixture of fatty matter and water to pass through a tube or continuous channel, heated to the temperature already mentioned; the requisite pressure for preventing the conversion of water into steam being applied during the process; and this I believe is the best mode of carrying my invention into effect. [The drawings show an apparatus, but] I do not intend to claim [it] as any part of my invention. The specification then goes on to describe the particular device mentioned. But it is expressly announced, that the process claimed does not have reference to this particular device, for the apparatus described was well known, being similar to that used for producing the hot-blast and for heating water for the purpose of warming houses. . It is evident that the passing of the mixture of fat and water through a heated coil is only one of several ways in which the process may be applied. The patentee suggests it as what he conceived to be the best way, apparently because the result is produced with great rapidity and completeness. But other forms of apparatus, known and in public use at the time, can as well be employed without changing the process. . Whilst Tilghman in his patent recommends the high degree of heat named, he does not confine himself to that. It had been fully developed in his experiments, and was well known to him, that a lower degree of heat could be employed by taking longer time to perform the operation; and this would be necessary when boilers, or digesters, of considerable size were used instead of the coil of pipe, on account of the decreasing power of large vessels to resist the internal pressure. The specification, after describing the use of a metallic coil of pipe, proceeds to add: The melting-point of lead has been mentioned as the proper heat, because it has been found to give good results. . By starting the apparatus at a low heat, and gradually increasing it, the temperature giving products most suitable to the intended application of the fatty body employed can easily be determined. [Tilghman] discovered that fat can be dissolved into its constituent elements by the use of water alone under a high degree of heat and pressure. Had the process been known and used before, he could not then have claimed anything more than the particular apparatus described in his patent; but being the inventor of the process, as we are satisfied was the fact, he was entitled to claim it in the manner he did. That a patent can be granted for a process, there can be no doubt. The patent law is not confined to new machines and new compositions, but extends to any new and useful art or manufacture. A manufacturing process is clearly an art. Goodyears patent was for a process, namely, the process of vulcanizing india-rubber. The apparatus for performing the process was not material. . Neilsons patent was for the process of applying the hot-

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Disclosure and Claims

blast to furnaces the form of the heated vessel being stated by the patent to be immaterial. These patents were sustained after the strictest scrutiny and against the strongest opposition. The strong objection urged is that the particular apparatus described in the specification cannot be used with much profit or success in large manufacturing operations; whereas the slower method of dissolving fats in a common boiler, or digester, at a lower temperature even than that of melting bismuth, which is not described in the specification, is the one which is generally adopted. Precisely this circumstance existed in reference to the patent of Neilson. . This was held to be no ground for invalidating the patent, or for preventing it from covering intermediate tubes, as well as an intermediate box or chamber, the jury being of opinion that a man of ordinary skill and knowledge in the construction of blowing and air-heating apparatus would be able, from the information contained in the specification, to erect a machine which would answer some beneficial purpose, and would not be misled by the declaration that the form or shape of the vessel or receptacle was immaterial to the effect. In this view of the subject the patent was sustained after very great consideration. [I]t has been supposed that OReilly v. Morse was adverse to patents for mere processes. The mistake has undoubtedly arisen from confounding a patent for a process with a patent for a mere principle. We think that a careful examination of the judgment in that case will show that nothing adverse to patents for processes is contained in it. . [There], the Chief Justice makes a summary: Whoever discovers that a certain useful result will be produced, in any, art, machine, manufacture, or composition of matter, by the use of certain means, is entitled to a patent for it; provided he specifies the means he uses in a manner so full and exact that any one skilled in the science [sic] to which it appertains can, by using the means he specifies, without any addition to or subtraction from them, produce precisely the result he describes. And if this cannot be done by the means he describes, the patent is void. . And any one may lawfully accomplish the same end without infringing the patent, if he uses means substantially different from those described. It seems to us that this clear and exact summary of the law affords the key to almost every case that can arise. . But everything turns on the force and meaning of the word means. . The inventor is not bound to describe them all. But he must describe some particular mode, or some apparatus, by which the process can be applied with at least some beneficial result. It is objected that the particular apparatus described cannot be operated to produce any useful result. We have examined the evidence on this point and are satisfied that it shows the objection to be unfounded. . It only remains that we should express our views on the question of infringement. The defendants advance several reasons for the purpose of showing that their process does not conflict with that of Tilghman. . The keeping up of the mixture is the important thing. . They only employ such means as would naturally suggest themselves to a mechanic skilled in the art. Or, if the mode of effecting the continued mixture adopted by the defendants should be deemed a new and useful improvement, they might perhaps have a patent for that peculiar device without being entitled to use Tilghmans process, on which it is but an improvement. Another ground on which the defendants argue that they do not infringe the patent is, that they do not, in their process, use water alone but use also some portion of lime. It is unnecessary to determine what precise part the lime plays in their process; whether, as the complainant contends, it saponifies the fat to a certain extent, leaving the remainder to be

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acted upon by the water alone purely after the process of Tilghman; or whether, as the defendants contend, the lime produces a more perfect and active commixture of the fat and water, or predisposes the fat to unite with the requisite elements of water necessary for producing glycerine and the fat acids in either case the process of Tilghman, modified or unmodified by the supposed improvement, underlies the operation performed in the defendants boilers. . Notes 1. Reconsider whether outcome differences between OReilly and cases involving Neilson, Goodyear and Tilghman might have been influenced by, e.g., Morses apparently being only shortly ahead of three other inventors. To frame the issue starkly, assume that use of none of the later inventions would infringe any but Morses claim 8. 2. Since Tilghman, aside from possible reconsideration of ongoing disputes, a patent once invalidated is not likely to be relitigated. See Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971). According to that case, patentees who once lose on the issue of validity are collaterally estopped from relitigating facts, but, as the Court cautioned at 332: [W]e should keep firmly in mind that we are considering the situation where the patentee was plaintiff in the prior suit and chose to litigate at that time and place. Presumably he was prepared to litigate and to litigate to the finish against the defendant there involved. Patent litigation characteristically proceeds with some deliberation and, with the avenues for discovery available under the present rules of procedure, there is no reason to suppose that plaintiff patentees would face either surprise or unusual difficulties in getting all relevant and probative evidence before the court in the first litigation. Blonder-Tongue was recently considered in Abbott Laboratories v. Andrx Pharmaceuticals, Inc., 473 F.3d 1196, 120107 (Fed. Cir. 2007) (discussing both Federal Circuit and Seventh Circuit cases). 3. Section 8 of the 1836 Patent Act set a filing fee at $30 for U.S. citizens and $300 for most aliens. Subjects of the King of Great Britain, however, were charged $500. How would that affect Tilghman? 4. Such discrimination is forbidden by Article 2 of the Paris Convention for the Protection of Industrial Property (1883), which provides: Nationals of any country of the Union shall, as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals; all without prejudice to the rights specially provided for by this Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights, provided that the conditions and formalities imposed upon nationals are complied with. Great Britain and the US joined the convention in 1884 and 1887, respectively. More information is available online at the World Intellectual Property Organization (WIPO) website, <http://www.wipo.org/treaties/ip/paris/index.html> (visited May 22, 2007).

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Disclosure and Claims

Flick-Reedy Corp. v. Hydro-Line Mfg. Co.

U.S. Court of Appeals, Seventh Circuit 351 F.2d 546 (1965) Before Castle and Kiley, and Mercer, District Judge. Kiley, Circuit Judge: . Hydro-Line and Flick-Reedy are competitors. The patents in suit, owned by FlickReedy, [claimed] a sealing arrangement to improve the pressure capacity of hydraulic cylinders by virtue of preventing the escape of fluid from the cylinders and a device for mounting cylinders rigidly to a base in order to maintain accurate thrust of the piston in the cylinder. . . [A special tool was required to practice the inventions, but it was not described. When asked about the tool, Flick, the president of plaintiff and inventor, had testified:] Your Honor, there are times when you could apply for a patent, I believe, but the enforcement thereof, where it is a tool used for an exclusive purpose in a plant, the enforcement thereof would be most difficult, and you may elect to try to keep the information of a secret nature. . This is what we elected to do. Flick also testified that he did not believe that mechanical tracer tools, which his company used, were well known for this purpose, and there was expert testimony that a person skilled in the art would not know from reading the patent specifications what was meant by the special tool. The district court concluded that the patent is invalid because plaintiff withheld specific information concerning the special tool used in finishing the metal surfaces, in violation of 35 U.S.C. 112. That Section, in pertinent part, provides: The specification shall contain a written description and shall set forth the best mode contemplated by the inventor of carrying out his invention. (emphasis supplied.) . The quid pro quo for the monopoly is disclosure which will enable those skilled in the art to practice the invention at the termination of the monopoly, and to warn the industry concerned of the precise scope of the monopoly asserted. Id. To accept the monopoly and withhold the full disclosure of the best mode contemplated by the inventor, which will result in a contribution to the common good upon expiration of the monopoly is the selfish desire against which 112 is directed. The record before us shows that the patent specifications disclosed neither what the special tool is nor where a description of it may be found in any prior art. [The patents were therefore found invalid, but a copyright in a trade booklet was found both valid and infringed.] Note Defendants claimed that Tilghman had failed to disclose a process that could be used profitably in large manufacturing operations. This was apparently not contested, but Tilghman nevertheless prevailed. Why?

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B. Scope of Claims U.S. Supreme Court 119 U.S. 47 (1886) Appellees, in 1876, patented a method of preserving shell-fish by placing them in a fabric bag before inserting and sealing them in a can. They claimed: the herein-described method of preserving shrimps, etc., preventing their discoloration, which consists in placing textile fabric between the can and its contents, and then sealing the can. A 1880 patent claimed a way to obtain that result by lining cans with, e.g., asphaltum cement and waxed paper. In 1882, appellants began to use that process. Meanwhile, in 1881, appellees surrendered their 76 patent for a reissue claiming: interposing between the metal can and the shrimps an enveloping material for the shrimps, which is not itself capable of discoloring the shrimps, and then sealing the can. Justice Bradley: The process thus used by the appellants is claimed by the appellees to be an infringement of their reissued patent. They also contend that the claim of the reissued patent is no broader than that of the original, properly construed. In the latter proposition we cannot concur. The claim in the original patent was for placing textile fabric between the can and its contents, while in the reissue it is for interposing between the metal can and the shrimps an enveloping material for the shrimps. This is certainly, on its face, a very important enlargement of the claim; and we see nothing in the context of the specification in the original patent which could possibly give the claim so broad a construction. The description of the invention throughout specifies a textile fabric as the material to be interposed between the shrimp and the metallic can. It is true that the object of the invention is stated to be to prevent the article to be preserved from coming in direct contact with the surface of the can. But the object of an invention is a very different thing from the invention itself. The object may be accomplished in many ways; the invention shows one way. . We see nothing to raise the slightest implication that the patentees were the inventors of the process of interposing any and every kind of lining between the cans and their contents, and, when their claim is confined to a lining of textile fabric, it is tantamount to a declaration that they claimed nothing else. Some persons seem to suppose that a claim in a patent is like a nose of wax, which may be turned and twisted in any direction, by merely referring to the specification, so as to make it include something more than, or something different from, what its words express. The context may, undoubtedly, be resorted to, and often is resorted to, for the purpose of better understanding the meaning of the claim; but not for the purpose of changing it, and making it different from what it is. . . As such expansion appears to be the only object of the reissue, and as the application for the reissue was not made until nearly five years after the original was granted, the case comes within the ruling of Miller v. Brass Co., 104 U. S. 350. In our judgment the reissued patent in this case was unlawfully granted, and the bill should have been dismissed. The decree of the circuit court is therefore reversed, and the case remanded, with directions to dismiss the bill.

White v. Dunbar

2.14

Scope of Claims

Notes 1. OReilly and Tilghman focus on validity, but infringement is also mentioned. To what extent do brief discussions of infringement emphasize the essence of the invention? To what extent do courts stress precise claim language? 2. In Evans, Justice Story stressed the need for notice, but finding a balance between serving that end and allowing infringers to evade liability by making trivial changes has proven difficult. 3. As Justice Bradley discussed in Miller v. Brass Co., 104 U. S. 350 (1881), the statute concerning reissued patents referred only to narrowed claims. Yet courts permitted broadened claims if a reissue was promptly pursued. In that regard, he wrote at 355: Reissues for the enlargement of claims should be the exception and not the rule. . Every independent inventor, every mechanic, every citizen, is affected by the issue of a new patent with a broader and more comprehensive claim. The granting of a reissue for such a purpose, after an unreasonable delay may justly be declared illegal and void. 4. The 1952 Patent Act, 35 U.S.C. 251, provides that No reissued patent shall be granted enlarging the scope of the claims unless applied for within two years. Also, 252 protects investments made or business commenced before the grant of the reissue under such terms as the court deems equitable. Despite such provisions, claims may nevertheless encompass more than what might be indicated by literal boundaries; Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605 (1950). Despite passage of the 1952 Act, Graver was reaffirmed in Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17 (1997), and again in the following opinion.

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd.

U.S. Supreme Court 535 U.S. 722 (2002) Justice Kennedy: This case requires us to address once again the relation between two patent law concepts, the doctrine of equivalents and the rule of prosecution history estoppel. The Court considered the same concepts in Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17 (1997), and reaffirmed that a patent protects its holder against efforts of copyists to evade liability for infringement by making only insubstantial changes to a patented invention. At the same time, we appreciated that by extending protection beyond the literal terms in a patent the doctrine of equivalents can create substantial uncertainty about where the patent monopoly ends. . II . The [patent] monopoly is a property right; and like any property right, its boundaries should be clear. This clarity is essential to promote progress, because it enables efficient investment in innovation. A patent holder should know what he owns, and the public should know what he does not. For this reason, the patent laws require inventors to describe their work in full, clear, concise, and exact terms, 112, as part of the delicate balance the law attempts to maintain between inventors, who rely on the promise of the law to bring the invention forth, and the public, which should be encouraged to pursue innovations, creations, and new ideas beyond the inventors exclusive rights. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150 (1989).

Patent Basics

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Unfortunately, the nature of language makes it impossible to capture the essence of a thing in a patent application. The inventor who chooses to patent an invention and disclose it to the public, rather than exploit it in secret, bears the risk that others will devote their efforts toward exploiting the limits of the patents language: An invention exists most importantly as a tangible structure or a series of drawings. A verbal portrayal is usually an afterthought written to satisfy the requirements of patent law. This conversion of machine to words allows for unintended idea gaps which cannot be satisfactorily filled. Often the invention is novel and words do not exist to describe it. The dictionary does not always keep abreast of the inventor. It cannot. Things are not made for the sake of words, but words for things. Autogiro Co. of America v. United States, 384 F.2d 391, 397 (Ct. Cl. 1967). The language in the patent claims may not capture every nuance of the invention or describe with complete precision the range of its novelty. If patents were always interpreted by their literal terms, their value would be greatly diminished. Unimportant and insubstantial substitutes for certain elements could defeat the patent, and its value to inventors could be destroyed by simple acts of copying. For this reason, the clearest rule of patent interpretation, literalism, may conserve judicial resources but is not necessarily the most efficient rule. The scope of a patent is not limited to its literal terms but instead embraces all equivalents to the claims described. See Winans v. Denmead, 56 U.S. (15 How.) 330, 347 (1854). It is true that the doctrine of equivalents renders the scope of patents less certain. It may be difficult to determine what is, or is not, an equivalent to a particular element of an invention. If competitors cannot be certain about a patents extent, they may be deterred from engaging in legitimate manufactures outside its limits, or they may invest by mistake in competing products that the patent secures. In addition the uncertainty may lead to wasteful litigation between competitors, suits that a rule of literalism might avoid. These concerns with the doctrine of equivalents, however, are not new. Each time the Court has considered the doctrine, it has acknowledged this uncertainty as the price of ensuring the appropriate incentives for innovation, and it has affirmed the doctrine over dissents that urged a more certain rule. When the Court in Winans, supra, first adopted what has become the doctrine of equivalents, it stated that [t]he exclusive right to the thing patented is not secured, if the public are at liberty to make substantial copies of it, varying its form or proportions. Id., at 343. The dissent argued that the Court had sacrificed the objective of [f]ul[l]ness, clearness, exactness, preciseness, and particularity, in the description of the invention. Id., at 347. The debate continued in Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605 (1950), where the Court reaffirmed the doctrine. Graver Tank held that patent claims must protect the inventor not only from those who produce devices falling within the literal claims of the patent but also from copyists who make unimportant and insubstantial changes and substitutions in the patent which, though adding nothing, would be enough to take the copied matter outside the claim, and hence outside the reach of law. Id., at 607. Justice Black, in dissent, objected that under the doctrine of equivalents a competitor cannot rely on what the language of a patent claims. He must be able, at the peril of heavy infringement damages, to forecast how far a court relatively unversed in a particular technological field will expand the claims language. Id., at 617. Most recently, in Warner-Jenkinson, the Court reaffirmed that equivalents remain a firmly entrenched part of the settled rights protected by the patent. A unanimous opinion concluded [520 U.S., at 28] :

2.16

Scope of Claims

[T]he lengthy history of the doctrine of equivalents strongly supports adherence to our refusal in Graver Tank to find that the Patent Act conflicts with that doctrine. Congress can legislate the doctrine of equivalents out of existence any time it chooses. The various policy arguments now made by both sides are thus best addressed to Congress, not this Court. III Prosecution history estoppel requires that the claims of a patent be interpreted in light of the proceedings in the PTO during the application process. Estoppel is a rule of patent construction that ensures that claims are interpreted by reference to those that have been cancelled or rejected. Schriber-Schroth Co. v. Cleveland Trust Co., 311 U.S. 211, 220221 (1940). The doctrine of equivalents allows the patentee to claim those insubstantial alterations that were not captured in drafting the original patent claim but which could be created through trivial changes. When, however, the patentee originally claimed the subject matter alleged to infringe but then narrowed the claim in response to a rejection, he may not argue that the surrendered territory comprised unforeseen subject matter that should be deemed equivalent to the literal claims of the issued patent. On the contrary, [b]y the amendment [the patentee] recognized and emphasized the difference between the two phrases[,] .. and [t]he difference which [the patentee] thus disclaimed must be regarded as material. Exhibit Supply Co. v. Ace Patents Corp., 315 U.S. 126, 136137 (1942). A rejection indicates that the patent examiner does not believe the original claim could be patented. While the patentee has the right to appeal, his decision to forgo an appeal and submit an amended claim is taken as a concession that the invention as patented does not reach as far as the original claim. Were it otherwise, the inventor might avoid the PTOs gatekeeping role and seek to recapture in an infringement action the very subject matter surrendered as a condition of receiving the patent. Prosecution history estoppel ensures that the doctrine of equivalents remains tied to its underlying purpose. Where the original application once embraced the purported equivalent but the patentee narrowed his claims to obtain the patent or to protect its validity, the patentee cannot assert that he lacked the words to describe the subject matter in question. The doctrine of equivalents is premised on languages inability to capture the essence of innovation, but a prior application describing the precise element at issue undercuts that premise. In that instance the prosecution history has established that the inventor turned his attention to the subject matter in question, knew the words for both the broader and narrower claim, and affirmatively chose the latter. A . Petitioner argues that estoppel should arise when amendments are intended to narrow the subject matter of the patented invention, for instance, amendments to avoid prior art, but not when the amendments are made to comply with requirements concerning the form of the patent application. In Warner-Jenkinson we recognized that prosecution history estoppel does not arise in every instance when a patent application is amended. . While we made clear that estoppel applies to amendments made for a substantial reason related to patentability, 520 U.S., at 33, we did not purport to define that term or to catalog every reason that might raise an estoppel. Indeed, we stated that even if the amendments purpose were unrelated to patentability, the court might consider whether it was the kind of reason that nonetheless might require resort to the estoppel doctrine. Petitioner is correct that estoppel has been discussed most often in the context of amendments made to avoid the prior art. . It does not follow, however, that amendments for other purposes will not give rise to estoppel. Prosecution history may rebut the inference that a thing not described was indescribable. That rationale does not cease simply because the

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narrowing amendment, submitted to secure a patent, was for some purpose other than avoiding prior art. We agree with the court of appeals that a narrowing amendment made to satisfy any requirement of the Patent Act may give rise to an estoppel. As that court explained, a number of statutory requirements must be satisfied before a patent can issue. The claimed subject matter must be useful, novel, and not obvious. In addition, the patent application must describe, enable, and set forth the best mode of carrying out the invention. 112. These latter requirements must be satisfied before issuance of the patent, for exclusive patent rights are given in exchange for disclosing the invention to the public. See Bonito Boats, 489 U.S., at 150151. What is claimed by the patent application must be the same as what is disclosed in the specification; otherwise the patent should not issue. The patent also should not issue if the other requirements of 112 are not satisfied, and an applicants failure to meet these requirements could lead to the issued patent being held invalid in later litigation. Petitioner contends that amendments made to comply with 112 concern the form of the application and not the subject matter of the invention. The PTO might require the applicant to clarify an ambiguous term, to improve the translation of a foreign word, or to rewrite a dependent claim as an independent one. In these cases, petitioner argues, the applicant has no intention of surrendering subject matter and should not be estopped from challenging equivalent devices. While this may be true in some cases, petitioners argument conflates the patentees reason for making the amendment with the impact the amendment has on the subject matter. Estoppel arises when an amendment is made to secure the patent and the amendment narrows the patents scope. If a 112 amendment is truly cosmetic, then it would not narrow the patents scope or raise an estoppel. On the other hand, if a 112 amendment is necessary and narrows the patents scope even if only for the purpose of better description estoppel may apply. A patentee who narrows a claim as a condition for obtaining a patent disavows his claim to the broader subject matter, whether the amendment was made to avoid the prior art or to comply with 112. We must regard the patentee as having conceded an inability to claim the broader subject matter or at least as having abandoned his right to appeal a rejection. In either case estoppel may apply. B . Our conclusion that prosecution history estoppel arises when a claim is narrowed to comply with 112 gives rise to the second question presented: Does the estoppel bar the inventor from asserting infringement against any equivalent to the narrowed element or might some equivalents still infringe? The court of appeals held that prosecution history estoppel is a complete bar, and so the narrowed element must be limited to its strict literal terms. Based upon its experience the court of appeals decided that the flexible-bar rule is unworkable because it leads to excessive uncertainty and burdens legitimate innovation. For the reasons that follow, we disagree with the decision to adopt the complete bar. [T]here is no more reason for holding the patentee to the literal terms of an amended claim than there is for abolishing the doctrine of equivalents altogether and holding every patentee to the literal terms of the patent. This view of prosecution history estoppel is consistent with our precedents and respectful of the real practice before the PTO. While this Court has not weighed the merits of the complete bar against the flexible bar in its prior cases, we have consistently applied the doctrine in a flexible way, not a rigid one. We have considered what equivalents were surrendered during the prosecution of the patent, rather than imposing a complete bar that resorts to the very literalism the equivalents rule is designed to overcome.

2.18

Scope of Claims

. Fundamental alterations in these rules risk destroying the legitimate expectations of inventors in their property. The petitioner in Warner-Jenkinson requested another brightline rule that would have provided more certainty in determining when estoppel applies but at the cost of disrupting the expectations of countless existing patent holders. We rejected that approach: To change so substantially the rules of the game now could very well subvert the various balances the PTO sought to strike when issuing the numerous patents which have not yet expired and which would be affected by our decision. 520 U.S., at 32, n. 6; see also id., at 41 (Ginsburg, J., concurring) (The new presumption, if applied woodenly, might in some instances unfairly discount the expectations of a patentee who had no notice at the time of patent prosecution that such a presumption would apply). As Warner-Jenkinson recognized, patent prosecution occurs in the light of our case law. Inventors who amended their claims under the previous regime had no reason to believe they were conceding all equivalents. If they had known, they might have appealed the rejection instead. There is no justification for applying a new and more robust estoppel to those who relied on prior doctrine. In Warner-Jenkinson we struck the appropriate balance by placing the burden on the patentee to show that an amendment was not for purposes of patentability. When the patentee is unable to explain the reason for amendment, estoppel not only applies but also bar[s] the application of the doctrine of equivalents as to that element. [520 U.S., at 33]. These words do not mandate a complete bar; they are limited to the circumstance where no explanation is established. They do provide, however, that when the court is unable to determine the purpose underlying a narrowing amendment and hence a rationale for limiting the estoppel the court should presume that the patentee surrendered all subject matter between the broader and the narrower language. [T]he patentee should bear the burden of showing that the amendment does not surrender the particular equivalent in question. This is the approach advocated by the United States, and we regard it to be sound. The patentee, as the author of the claim language, may be expected to draft claims encompassing readily known equivalents. A patentees decision to narrow his claims through amendment may be presumed to be a general disclaimer of the territory between the original claim and the amended claim. There are some cases, however, where the amendment cannot reasonably be viewed as surrendering a particular equivalent. The equivalent may have been unforeseeable at the time of the application; the rationale underlying the amendment may bear no more than a tangential relation to the equivalent in question; or there may be some other reason suggesting that the patentee could not reasonably be expected to have described the insubstantial substitute in question. In those cases the patentee can overcome the presumption that prosecution history estoppel bars a finding of equivalence. This presumption is not, then, just the complete bar by another name. Rather, it reflects the fact that the interpretation of the patent must begin with its literal claims, and the prosecution history is relevant to construing those claims. . The patentee must show that at the time of the amendment one skilled in the art could not reasonably be expected to have drafted a claim that would have literally encompassed the alleged equivalent. IV . As the amendments were made for a reason relating to patentability, the question is not whether estoppel applies but what territory the amendments surrendered. . These matters, however, should be determined in the first instance by further proceedings in the court of appeals or the district court. .

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Notes 1. Besides discussing why the doctrine of equivalents survives the 1952 Act on the , Festo provides a glimpse into patent prosecution (the process leading to grants) and into potentially serious, and possibly unanticipated, effects of choices made during prosecution. 2. Consider Maxwell v. J. Baker, Inc., 86 F.3d 1098 (Fed. Cir. 1996), cert. den., 520 U.S. 1115. Maxwell broadly disclosed a way to prevent pairs of shoes without eyelets from becoming separated. However, she claimed it narrowly, leading the court to say, at 110708: A patentee may not narrowly claim his invention and then, in the course of an infringement suit, argue that the doctrine of equivalents should permit a finding of infringement because the specification discloses the equivalents. Such a result would merely encourage a patent applicant to present a broad disclosure in the specification of the application and file narrow claims, avoiding examination of broader claims. This is clearly contrary to 112, which requires that a patent applicant particularly point[] out and distinctly claim[] the subject matter which the applicant regards as his invention. . [T]he Court in Graver Tank was not confronted with the same factual situation as we are here. [That] patent included broad composition claims drawn to a welding material comprising metallic silicate and calcium fluoride. . However, these broad claims [were earlier found] invalid on the ground that many metal silicates embraced by the claims, but not disclosed in the specification, were inoperative. Thus, by filing claims in the patent application that encompassed a welding composition containing metal silicates, including manganese silicates as disclosed in the specification [and as used by the defendant], the patentee could not be said to have dedicated such an embodiment of the invention to the public, even if the broad claims encompassing the embodiment were later held invalid. If, as the majority of the Federal Circuit apparently believes, a flexible version of the doctrine is unworkable, to what extent does Maxwell offer a way to address their concerns after Festo? 3. For an instance where expansion was possible despite failure to include claims of adequate scope, see Corning Glass Works v. Sumitomo Elec. U.S.A., Inc., 868 F.2d 1251, 1259 (Fed. Cir. 1989). 4. In Warner-Jenkinson, defendant was apparently unaware of the patent allegedly infringed. But the Court said, The better view is that intent plays no role in the application of the doctrine of equivalents. 520 U.S. at 36. Contrast Ryco, Inc. v. Ag-Bag Corp., 857 F.2d 1418 (1988), where, having found defendants conduct reprehensible, Judge Rich seemed eager to find nonliteral (as well as literal) infringement. If ignorance plays no role, does it necessarily follow that willfully disregarding a patentees rights should play none in evaluating nonliteral infringement? 5. The Federal Circuit is sometimes regarded as pro-patent. What does that mean in light of its attempt to abolish the flexible-bar rule as discussed in Part III.B. of Festo?

2.20

Subject Matter

C. Subject Matter

Funk Bros. Seed Co. v. Kalo Inoculant Co.

U.S. Supreme Court 333 U.S. 127 (1948)

Justice Douglas: This is a patent infringement suit brought by respondent. The charge of infringement is limited to certain product claims1 of Patent No. 2,200,532 issued to Bond. . The district court held the product claims invalid for want of invention. . The circuit court of appeals reversed, holding that the product claims were valid and infringed. The question of validity is the only question presented by this petition for certiorari. Through some mysterious process leguminous plants are able to take nitrogen from the air and fix it in the plant for conversion to organic nitrogenous compounds. The ability of these plants to fix nitrogen from the air depends on the presence of bacteria of the genus Rhizobium which infect the roots of the plant and form nodules on them. These root-nodule bacteria of the genus Rhizobium fall into at least six species. No one species will infect the roots of all species of leguminous plants. But each will infect well-defined groups of those plants.3 Each species of root-nodule bacteria is made up of distinct strains which vary in efficiency. Methods of selecting the strong strains and of producing a bacterial culture from them have long been known. . It was the general practice, prior to the Bond patent, to manufacture and sell inoculants containing only one species of root-nodule bacteria. . There had been a few mixed cultures for field legumes. But they had proved generally unsatisfactory because the different species of the Rhizobia bacteria produced an inhibitory effect on each other when mixed. Hence it had been assumed that the different species were mutually inhibitive. Bond discovered that there are strains of each species of root-nodule bacteria which do not exert a mutually inhibitive effect. He also ascertained that those mutually non-inhibitive strains can, by certain methods of selection and testing, be isolated and used in mixed cultures. Thus he provided a mixed culture of Rhizobia capable of inoculating the seeds of plants belonging to several cross-inoculation groups. . We do not have presented the question whether the methods of selecting and testing the non-inhibitive strains are patentable. We have here only product claims. Bond does not create a state of inhibition or of non-inhibition in the bacteria. Their qualities are the work of nature. Those qualities are of course not patentable. For patents cannot issue for the discovery of the phenomena of nature. The qualities of these bacteria, like the heat of the sun, electricity, or the qualities of metals, are part of the storehouse of knowledge of all men. They are
1

. Claim 4 is illustrative. It reads as follows: An inoculant for leguminous plants comprising a plurality of selected mutually non-inhibitive strains of different species of bacteria of the genus Rhizobium, said strains being unaffected by each other in respect to their ability to fix nitrogen in the leguminous plant for which they are specific. 3 The six well-recognized species of bacteria and the corresponding groups (cross-inoculation groups) of leguminous plants are: Rhizobium trifolii: Red clover, crimson clover, mammoth clover, alsike clover Rhizobium meliloti: Alfalfa, white or yellow sweet clovers Rhizobium phaseoli: Garden beans Rhizobium leguminosarum: Garden peas and vetch Rhizobium lupini: Lupines Rhizobium japonicum: Soy beans

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manifestations of laws of nature, free to all men and reserved exclusively to none. He who discovers a hitherto unknown phenomenon of nature has no claim to a monopoly of it which the law recognizes. If there is to be invention from such a discovery, it must come from the application of the law of nature to a new and useful end. The circuit court of appeals thought that Bond did much more, since he made an new and different composition of noninhibitive strains which contributed utility and economy to the manufacture and distribution of commercial inoculants. But we think that that aggregation of species fell short of invention within the meaning of the patent statutes. Discovery of the fact that certain strains of each species of these bacteria can be mixed without harmful effect to the properties of either is a discovery of their qualities of noninhibition. It is no more than the discovery of some of the handiwork of nature and hence is not patentable. The aggregation of select strains of the several species into one product is an application of that newly-discovered natural principle. But however ingenious the discovery of that natural principle may have been, the application of it is hardly more than an advance in the packaging of the inoculants. Each of the species of root-nodule bacteria contained in the package infects the same group of leguminous plants which it always infected. No species acquires a different use. The combination of species produces no new bacteria, no change in the six species of bacteria, and no enlargement of the range of their utility. Each species has the same effect it always had. The bacteria perform in their natural way. Their use in combination does not improve in any way their natural functioning. They serve the ends nature originally provided and act quite independently of any effort of the patentee. There is, of course, an advantage. The farmer can buy one package and use it for any or all of his crops of leguminous plants. And, as respondent says, the packages of mixed inoculants also hold advantages for the dealers and manufacturers by reducing inventory problems and the like. But a product must be more than new and useful to be patented; it must also satisfy the requirements of invention or discovery. The application of this newlydiscovered natural principle to the problem of packaging of inoculants may well have been an important commercial advance. But once natures secret of the non-inhibitive quality of certain strains of the species of Rhizobium was discovered, the state of the art made the production of a mixed inoculant a simple step. Even though it may have been the product of skill, it certainly was not the product of invention. There is no way in which we could call it such unless we borrowed invention from the discovery of the natural principle itself. That is to say, there is no invention here unless the discovery that certain strains of the several species of these bacteria are non-inhibitive and may thus be safely mixed is invention. But we cannot so hold without allowing a patent to issue on one of the ancient secrets of nature now disclosed. All that remains, therefore, are advantages of the mixed inoculants themselves. They are not enough. . Justice Frankfurter, concurring. My understanding of Bonds contribution is that prior to his attempts, packages of mixed cultures of inoculants presumably applicable to two or more different kinds of legumes had from time to time been prepared, but had met with indifferent success. The reasons for failure were not understood, but the authorities had concluded that in general pure culture inoculants were alone reliable because mixtures were ineffective due to the mutual inhibition of the combined strains of bacteria. Bond concluded that there might be special strains which lacked this mutual inhibition, or were at all events mutually compatible. Using techniques that had previously been developed to test efficiency in promoting nitrogen fixation of various bacterial strains, Bond tested such efficiency of various mixtures of strains. He confirmed his notion.

2.22

Subject Matter

If this is a correct analysis of Bonds endeavors two different claims of originality are involved: (1) the idea that there are compatible strains, and (2) the experimental demonstration that there were in fact some compatible strains. Insofar as the court below concluded that the packaging of a particular mixture of compatible strains is an invention and as such patentable, I agree, provided not only that a new and useful property results from their combination, but also that the particular strains are identifiable and adequately identified. I do not find that Bonds combination of strains satisfies these requirements. The strains by which Bond secured compatibility are not identified and are identifiable only by their compatibility. Unless I misconceive the record, Bond makes no claim that Funk Brothers used the same combination. He appears to claim that since he was the originator of the idea that there might be mutually compatible strains and had practically demonstrated that some such strains exist, everyone else is forbidden to use a combination of strains whether they are or are not identical. It was this claim that, as I understand it, the district court found not to be patentable, but which, if valid, had been infringed. . It only confuses the issue, however, to introduce such terms as the work of nature and the laws of nature. . Everything that happens may be deemed the work of nature . Arguments drawn from such terms for ascertaining patentability could fairly be employed to challenge almost every patent. On the other hand, the suggestion that if there is to be invention from such a discovery, it must come from the application of the law of nature to a new and useful end may readily validate Bonds claim. Nor can it be contended that there was no invention because the composite has no new properties other than its ingredients in isolation. Bonds mixture does in fact have the new property of multi-service applicability. Multi-purpose tools, multivalent vaccines, vitamin complex composites, are examples of complexes whose sole new property is the conjunction of the properties of their components. Surely the Court does not mean unwittingly to pass on the patentability of such products by formulating criteria by which future issues of patentability may be prejudged. In finding Bonds patent invalid I have tried to avoid a formulation which would lay the basis for denying patentability to a large area within existing patent legislation. Justice Burton, with whom Justice Jackson concurs, dissenting. [T]he judgment should be affirmed. [W]e agree with Justice Frankfurter that [Bonds combinations] satisfied the statutory requirements of invention or discovery. These products were a prompt and substantial commercial success, filling a long-sought and important agricultural need. . The completeness and character of the description must vary with the subject to be described. Machines lend themselves readily to descriptions in terms of mechanical principles and physical characteristics. On the other hand, it may be that a combination of strains of bacterial species recognized in practice solely by their observed effects, can be definable reasonably only in terms of those effects. . The statute itself shows that Congress has recognized the inherent difficulty presented. While this patent may not be technically a plant patent , the references to the differences in descriptions expected in mechanical patents and plant patents obviously support the position here taken. .

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Notes 1. In Halliburton Oil Well Cementing Co. v. Walker, 329 U.S. 1, 12 (1946), Justice Black said, [U]nless frightened from the course of experimentation by broad functional claims like these, inventive genius may evolve many more devices to accomplish the same purpose. In what way can that be seen to echo OReilly? If persons skilled in the art could find mutually non-inhibitive strains only by trial and error, could claim 4 satisfy current 35 U.S.C. 112 1? 2. Should another inventor discover that some, if not all, compatible strains can be identified by use of a dye, would that satisfy concerns expressed by Justice Frankfurter in his third paragraph? Would he see infringement as affected by whether combined strains were known, much less disclosed, at the time a patent issued? 3. The majoritys view in Funk seems driven more by regarding Bonds contribution as trivial (i.e., lacking in invention) than by seeing it to encompass improper subject matter. As we will learn subsequently, only with regard to the former, would Justice Burton have said, These products were a prompt and substantial commercial success, filling a longsought and important agricultural need. In that regard, is it fair to regard a functioning aggregation as trivial or obvious when experts expect it not to function? Put another way, is it trivial to demonstrate that 1+1 = 2 in circumstances leading people to expect that 1+1 = 0? What if one demonstrates that 1+1 = 3 when people expect 2?

Judicial Review of PTO Refusals to Grant Patents Previous cases have addressed validity only in the context of suits that challenge patents already granted. Validity is, however, more often addressed when courts review PTO refusals. Such cases rarely reach the Supreme Court, but the next two cases are among the few that have. They also highlight the role of the Court of Customs and Patent Appeals (CCPA), long the principal forum for challenges to most PTO decisions (see figure, infra, at 2.41).

Diamond v. Chakrabarty
U.S. Supreme Court 447 U.S. 303 (1980)

Chief Justice Burger: .

I In 1972, respondent Chakrabarty filed a patent application, assigned to the General Electric Co. The application asserted 36 claims related to Chakrabartys invention of a bacterium from the genus Pseudomonas containing therein at least two stable energygenerating plasmids, each of said plasmids providing a separate hydrocarbon degradative pathway.1 This human-made, genetically engineered bacterium is capable of breaking down
1

Plasmids are hereditary units physically separate from the chromosomes of the cell. In prior research, Chakrabarty and an associate discovered that plasmids control the oil degradation abilities of certain bacteria. In particular, the two researchers discovered plasmids capable of degrading camphor and octane, two components of crude oil. In the work represented by the patent application at issue here, Chakrabarty discovered a process by which four different plasmids, capable of degrading four different oil components, could be transferred to and

2.24

Subject Matter

multiple components of crude oil. Because of this property, which is possessed by no naturally occurring bacteria, Chakrabartys invention is believed to have significant value for the treatment of oil spills.2 Chakrabartys patent claims were of three types: first, process claims for the method of producing the bacteria; second, claims for an inoculum comprised of a carrier material floating on water, such as straw, and the new bacteria; and third, claims to the bacteria themselves. The patent examiner allowed the claims falling into the first two categories, but rejected claims for the bacteria. His decision rested on two grounds: (1) that micro-organisms are products of nature, and (2) that as living things they are not patentable subject matter under 35 U.S.C. 101. Chakrabarty appealed the rejection of these claims to the Patent Office Board of Appeals, and the Board affirmed the Examiner on the second ground.3 Relying on the legislative history of the 1930 Plant Patent Act, in which Congress extended patent protection to certain asexually reproduced plants, the Board concluded that 101 was not intended to cover living things such as these laboratory created micro-organisms. The CCPA, by a divided vote, reversed on the authority of its prior decision in In re Bergy, 563 F.2d 1031, 1038 (1977), which held that the fact that microorganisms are alive [is] without legal significance for purposes of the patent law.4 Subsequently, we granted the Acting Commissioner of Patents and Trademarks petition for certiorari in Bergy, vacated the judgment, and remanded the case for further consideration in light of Parker v. Flook, 437 U.S. 584 (1978). The CCPA then vacated its judgment in Chakrabarty and consolidated the case with Bergy for reconsideration. After re-examining both cases in the light of our holding in Flook, that court, with one dissent, reaffirmed. The Commissioner of Patents and Trademarks again sought certiorari, and we granted the writ as to both Bergy and Chakrabarty. Since then, Bergy has been dismissed. II The Constitution grants Congress broad power to legislate to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. Art. I, 8, cl. 8. The patent laws promote this progress by offering inventors exclusive rights for a limited period as an incentive for their inventiveness and research efforts. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 480481 (1974). The authority of Congress is exercised in the hope that [t]he productive effort thereby fostered will have a positive effect on society through the introduction of new products and processes of manufacture into the economy, and the emanations by way of increased employment and better lives for our citizens. Kewanee, supra, 416 U.S., at 480. The question before us in this case is a narrow one of statutory interpretation requiring us to construe 101, which provides: Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement
maintained stably in a single Pseudomonas bacterium, which itself has no capacity for degrading oil. 2 At present, biological control of oil spills requires the use of a mixture of naturally occurring bacteria, each capable of degrading one component of the oil complex. In this way, oil is decomposed into simpler substances which can serve as food for aquatic life. However, for various reasons, only a portion of any such mixed culture survives to attack the oil spill. By breaking down multiple components of oil, Chakrabartys micro-organism promises more efficient and rapid oil-spill control. 3 The Board concluded that the new bacteria were not products of nature, because Pseudomonas bacteria containing two or more different energy-generating plasmids are not naturally occurring. 4 Bergy involved a patent application for a pure culture of the micro-organism Streptomyces vellosus found to be useful in the production of lincomycin, an antibiotic.

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thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. Specifically, we must determine whether respondents micro-organism constitutes a manufacture or composition of matter within the meaning of the statute.5 III In cases of statutory construction we begin, of course, with the language of the statute. And unless otherwise defined, words will be interpreted as taking their ordinary, contemporary common meaning. We have also cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed. Guided by these canons of construction, this Court has read the term manufacture in 101 in accordance with its dictionary definition to mean the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery. American Fruit Growers, Inc. v. Brogdex Co., 283 U.S. 1 (1931). Similarly, composition of matter has been construed consistent with its common usage to include all compositions of two or more substances and all composite articles, whether they be the results of chemical union, or of mechanical mixture, or whether they be gases, fluids, powders or solids. Shell Development Co. v. Watson, 149 F. Supp. 279, 280 (D.C. 1957). In choosing such expansive terms as manufacture and composition of matter, modified by the comprehensive any, Congress plainly contemplated that the patent laws would be given wide scope. The relevant legislative history also supports a broad construction. The Patent Act of 1793, authored by Thomas Jefferson, defined statutory subject matter as any new and useful art, machine, manufacture, or composition of matter, or any new or useful improvement [thereof]. The Act embodied Jeffersons philosophy that ingenuity should receive a liberal encouragement. 5 Writings of Thomas Jefferson 7576 (Washington ed. 1871). See Graham v. John Deere Co., 383 U.S. 1, 710 (1966). Subsequent patent statutes in 1836, 1870, and 1874 employed this same broad language. In 1952, when the patent laws were recodified, Congress replaced the word art with process, but otherwise left Jeffersons language intact. The Committee Reports accompanying the 1952 Act inform us that Congress intended statutory subject matter to include anything under the sun that is made by man.6 This is not to suggest that 101 has no limits or that it embraces every discovery. The laws of nature, physical phenomena, and abstract ideas have been held not patentable. Thus, a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. Likewise, Einstein could not patent his celebrated law that E=mc2; nor could Newton have patented the law of gravity. Such discoveries are manifestations of nature, free to all men and reserved exclusively to none. [Cited Funk.] Judged in this light, respondents micro-organism plainly qualifies as patentable subject matter. His claim is not to a hitherto unknown natural phenomenon, but to a non-naturally occurring manufacture or composition of matter a product of human ingenuity having a distinctive name, character [and] use. The point is underscored dramatically by comparison of the invention here with that in Funk. There, the patentee had discovered that there existed in nature certain species of root-nodule bacteria which did not exert a mutually inhibitive
5

This case does not involve the other conditions and requirements of the patent laws, such as novelty and nonobviousness. 35 U.S.C. 102, 103. 6 This same language was employed by P. J. Federico, a principal draftsman of the 1952 recodification, in his testimony regarding that legislation: [U]nder section 101 a person may have invented a machine or a manufacture, which may include anything under the sun that is made by man. Hearings on H.R. 3760 before Subcommittee No. 3 of the House Committee on the Judiciary, 82d Cong., 1st Sess., 37 (1951).

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Subject Matter

effect on each other. He used that discovery to produce a mixed culture capable of inoculating the seeds of leguminous plants. Concluding that the patentee had discovered only some of the handiwork of nature, the Court ruled the product nonpatentable: Each of the species of root-nodule bacteria contained in the package infects the same group of leguminous plants which it always infected. No species acquires a different use. The combination of species produces no new bacteria, no change in the six species of bacteria, and no enlargement of the range of their utility. Each species has the same effect it always had. . They serve the ends nature originally provided and act quite independently of any effort of the patentee. 333 U.S., at 131. Here, by contrast, the patentee has produced a new bacterium with markedly different characteristics from any found in nature and one having the potential for significant utility. His discovery is not natures handiwork, but his own; accordingly it is patentable subject matter under 101. IV Two contrary arguments are advanced, neither persuasive. A The petitioners first argument rests on the enactment of the 1930 Plant Patent Act, which afforded patent protection to certain asexually reproduced plants, and the 1970 Plant Variety Protection Act, which authorized protection for certain sexually reproduced plants but excluded bacteria from its protection.7 In the petitioners view, the passage of these Acts evidences congressional understanding that the terms manufacture or composition of matter do not include living things; if they did, the petitioner argues, neither Act would have been necessary. We reject this argument. Prior to 1930, two factors were thought to remove plants from patent protection. The first was the belief that plants, even those artificially bred, were products of nature for purposes of the patent law. This position appears to have derived from the decision of the patent office in Ex parte Latimer, 1889 Dec.Com.Pat. 123, in which a patent claim for fiber found in the needle of the Pinus australis was rejected. The Commissioner reasoned that a contrary result would permit patents [to] be obtained upon the trees of the forest and the plants of the earth, which of course would be unreasonable and impossible. Id., at 126. The Latimer case, it seems, came to se[t] forth the general stand taken in these matters that plants were natural products not subject to patent protection. The second obstacle to patent protection for plants was the fact that plants were thought not amenable to the written description requirement of the patent law. See 112. Because new plants may differ from old only in color or perfume, differentiation by written description was often impossible. In enacting the Plant Patent Act, Congress addressed both of these concerns. It explained at length its belief that the work of the plant breeder in aid of nature was patentable invention. And it relaxed the written description requirement in favor of a description as complete as is reasonably possible. 162. No Committee or Member of Congress, however, expressed the broader view, now urged by the petitioner, that the terms
7

The Plant Patent Act of 1930, 35 U.S.C. 161, provides in relevant part: Whoever invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state, may obtain a patent therefor. The Plant Variety Protection Act of 1970 provides in relevant part: The breeder of any novel variety of sexually reproduced plant (other than fungi, bacteria, or first generation hybrids) who has so reproduced the variety, or his successor in interest, shall be entitled to plant variety protection therefor. 7 U.S.C. 2402(a).

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manufacture or composition of matter exclude living things. The sole support for that position in the legislative history of the 1930 Act is found in the conclusory statement of Secretary of Agriculture Hyde, that the patent laws at the present time are understood to cover only inventions or discoveries in the field of inanimate nature. Secretary Hydes opinion, however, is not entitled to controlling weight. His views were solicited on the administration of the new law and not on the scope of patentable subject matter an area beyond his competence. Moreover, there is language in the House and Senate Committee Reports suggesting that to the extent Congress considered the matter it found the Secretarys dichotomy unpersuasive. The Reports observe: There is a clear and logical distinction between the discovery of a new variety of plant and of certain inanimate things, such, for example, as a new and useful natural mineral. The mineral is created wholly by nature unassisted by man. . On the other hand, a plant discovery resulting from cultivation is unique, isolated, and is not repeated by nature, nor can it be reproduced by nature unaided by man. (emphasis added). Congress thus recognized that the relevant distinction was not between living and inanimate things, but between products of nature, whether living or not, and human-made inventions. Here, respondents micro-organism is the result of human ingenuity and research. Hence, the passage of the Plant Patent Act affords the Government no support. Nor does the passage of the 1970 Plant Variety Protection Act support the Governments position. As the Government acknowledges, sexually reproduced plants were not included under the 1930 Act because new varieties could not be reproduced true-to-type through seedlings. . There is nothing in its language or history to suggest that it was enacted because 101 did not include living things. In particular, we find nothing in the exclusion of bacteria from plant variety protection to support the petitioners position. The legislative history gives no reason for this exclusion. As the CCPA suggested, it may simply reflect congressional agreement with the result reached by that court in deciding In re Arzberger 112 F.2d 834 (1940), which held that bacteria were not plants for the purposes of the 1930 Act. Or it may reflect the fact that prior to 1970 the Patent Office had issued patents for bacteria under 101.9 In any event, absent some clear indication that Congress focused on [the] issues directly related to the one presently before the Court, SEC v. Sloan, 436 U.S. 103, 120121 (1978), there is no basis for reading into its actions an intent to modify the plain meaning of the words found in 101. B The petitioners second argument is that micro-organisms cannot qualify as patentable subject matter until Congress expressly authorizes such protection. His position rests on the fact that genetic technology was unforeseen when Congress enacted 101. From this it is argued that resolution of the patentability of inventions such as respondents should be left to Congress. The legislative process, the petitioner argues, is best equipped to weigh the competing economic, social, and scientific considerations involved, and to determine whether living organisms produced by genetic engineering should receive patent protection. In support of this position, the petitioner relies on our recent holding in Parker v. Flook, 437 U.S. 584 (1978), and the statement that the judiciary must proceed cautiously when asked to extend patent rights into areas wholly unforeseen by Congress. Id., at 596.
9

In 1873, the Patent Office granted Louis Pasteur a patent on yeast, free from organic germs of disease, as an article of manufacture. And in 1967 and 1968, immediately prior to the passage of the Plant Variety Protection Act, that Office granted two patents which, as the petitioner concedes, state claims for living microorganisms.

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Subject Matter

It is, of course, correct that Congress, not the courts, must define the limits of patentability; but it is equally true that once Congress has spoken it is the province and duty of the judicial department to say what the law is. Marbury v. Madison, 5 U.S. 137, 177 (1803). Congress has performed its constitutional role in defining patentable subject matter in 101; we perform ours in construing the language Congress has employed. . The subject-matter provisions of the patent law have been cast in broad terms to fulfill the constitutional and statutory goal of promoting the Progress of Science and the useful Arts with all that means for the social and economic benefits envisioned by Jefferson. Broad general language is not necessarily ambiguous when congressional objectives require broad terms. Nothing in Flook is to the contrary. . The Court carefully scrutinized the claim at issue to determine whether it was precluded from patent protection under the principles underlying the prohibition against patents for ideas or phenomena of nature. We have done that here. . . This Court frequently has observed that a statute is not to be confined to the particular application[s] contemplated by the legislators. This is especially true in the field of patent law. A rule that unanticipated inventions are without protection would conflict with the core concept of the patent law that anticipation undermines patentability. Justice Douglas reminded that the inventions most benefiting mankind are those that push back the frontiers of chemistry, physics, and the like. Great A. & P. Tea Co. v. Supermarket Corp., 340 U.S. 147, 154 (1950) (concurring opinion). Congress employed broad general language in drafting 101 precisely because such inventions are often unforeseeable. . The briefs present a gruesome parade of horribles. Scientists, among them Nobel laureates, are quoted suggesting that genetic research may pose a serious threat to the human race, or, at the very least, that the dangers are far too substantial to permit such research to proceed apace at this time. We are told that genetic research and related technological developments may spread pollution and disease, that it may result in a loss of genetic diversity, and that its practice may tend to depreciate the value of human life. These arguments are forcefully, even passionately, presented; they remind us that with Hamlet, it is sometimes better to bear those ills we have than fly to others that we know not of. It is argued that this Court should weigh these potential hazards. We disagree. . The large amount of research that has already occurred when no researcher had sure knowledge that patent protection would be available suggests that legislative or judicial fiat as to patentability will not deter the scientific mind from probing into the unknown any more than Canute could command the tides. Whether respondents claims are patentable may determine whether research efforts are accelerated by the hope of reward or slowed by want of incentives, but that is all. What is more important is that we are without competence to entertain these arguments either to brush them aside as fantasies generated by fear of the unknown, or to act on them. The choice we are urged to make is a matter of high policy for resolution after the kind of investigation, examination, and study that legislative bodies can provide and courts cannot. That process involves the balancing of competing values and interests, which in our democratic system is the business of elected representatives. Whatever their validity, the contentions now pressed on us should be addressed to the political branches of the Government, the Congress and the Executive, and not to the courts.11
11

We are not to be understood as suggesting that the political branches have been laggard in the consideration of the problems related to genetic research and technology. They have already taken action. In 1976, for example, the National Institutes of Health released guidelines for NIH-sponsored genetic research which established conditions under which such research could be performed. In 1978 those guidelines were

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. Congress is free to amend 101 so as to exclude from patent protection organisms produced by genetic engineering. . Or it may chose to craft a statute specifically designed for such living things. But, until Congress takes such action, this Court must construe the language of 101 as it is. The language of that section fairly embraces respondents invention. Accordingly, the judgment of the CCPA is Affirmed. Justice Brennan, with whom Justices White, Marshall and Powell join, dissenting. I agree with the Court that the question before us is a narrow one. . The only question we need decide is whether Congress, exercising its authority under Art. I, 8, of the Constitution, intended that [Chakrabarty] be able to secure a monopoly on the living organism itself, no matter how produced or how used. Because I believe the Court has misread the applicable legislation, I dissent. The patent laws attempt to reconcile this Nations deep seated antipathy to monopolies with the need to encourage progress. Given the complexity and legislative nature of this delicate task, we must be careful to extend patent protection no further than Congress has provided. In particular, were there an absence of legislative direction, the courts should leave to Congress the decisions whether and how far to extend the patent privilege into areas where the common understanding has been that patents are not available. In this case, however, we do not confront a complete legislative vacuum. The sweeping language of the Patent Act of 1793, as re-enacted in 1952, is not the last pronouncement Congress has made in this area. In 1930 Congress enacted the Plant Patent Act affording patent protection to developers of certain asexually reproduced plants. In 1970 Congress enacted the Plant Variety Protection Act.2 The Court protests that its holding today is dictated by the broad language of 101. But as I have shown, the Courts decision does not follow the unavoidable implications of the statute. Rather, it extends the patent system to cover living material even though Congress plainly has legislated in the belief that 101 does not encompass living organisms. It is the role of Congress, not this Court, to broaden or narrow the reach of the patent laws. This is especially true where, as here, the composition sought to be patented uniquely implicates matters of public concern. Notes 1. Does the use of monopoly in the Chakrabarty dissent signal an inclination to regard patent subject matter narrowly? How can that view be reconciled with the majoritys observation that the newest things are most appropriate for patents? 2. How did the use for Chakrabartys microorganism tend to counter the gruesome parade of horribles argument offered in opposition to its patentability? Is it relevant that patentees may exclude strangers from practicing protected inventions but not necessarily be free to practice those inventions themselves? 3. Regarding Jeffersons views, see Adam Mossoff, Who Cares What Thomas Jefferson Thought About Patents? , 92 Cornell L. Rev. 953 (2007).
revised and relaxed. And Committees of the Congress have held extensive hearings on these matters. 2 At the very least, these Acts are signs of legislative attention to the problems of patenting living organisms, but they give no affirmative indication of congressional intent that bacteria be patentable. The caveat of Parker v. Flook, 437 U.S. 584, 596 (1978), an admonition to proceed cautiously when we are asked to extend patent rights into areas wholly unforeseen by Congress, therefore becomes pertinent. I should think the necessity for caution is that much greater when we are asked to extend patent rights into areas Congress has foreseen and considered but has not resolved.

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4. In light of note 9, why might the PTO have sought certiorari? 5. Most plants grow from seed. A few, e.g., potatoes, grow from tubers. Others, e.g., apples, do not breed true and are propagated by grafting onto different root stock. Which satisfy 35 U.S.C. 161? How does that relate to 163? 6. With Justice Scalia concurring, and Justices Breyer with Stevens dissenting, the Court more recently held that utility patents are also available for plants when limitations discussed in Chakrabarty can be overcome, J.E.M. Ag Supply Inc. v. Pioneer Hi-Bred International Inc., 534 U.S. 124 (2001).

Diamond v. Diehr
U.S. Supreme Court 450 U.S. 175 (1981)

Justice Rehnquist: We granted certiorari to determine whether a process for curing synthetic rubber which includes in several of its steps the use of a mathematical formula and a programmed digital computer is patentable. Respondents claim that their process ensures the production of molded articles which are properly cured. Achieving the perfect cure depends upon several factors including the thickness of the article to be molded, the temperature of the molding process, and the amount of time that the article is allowed to remain in the press. It is possible using well-known time, temperature, and cure relationships to calculate by means of the Arrhenius equation2 when to open the press and remove the cured product. Nonetheless, according to the respondents, the industry has not been able to obtain uniformly accurate cures because the temperature of the molding press could not be precisely measured, thus making it difficult to do the necessary computations to determine cure time.3 Because the temperature inside the press has heretofore been viewed as an uncontrollable variable, the conventional industry practice has been to calculate the cure time as the shortest time in which all parts of the product will definitely be cured, assuming a reasonable amount of mold-opening time during loading and unloading. But the shortcoming of this practice is that operating with an uncontrollable variable inevitably led in some instances to overestimating the mold-opening time and overcuring the rubber, and in other instances to undercuring the product.4 . According to the respondents, the continuous measuring of the temperature inside the mold cavity, the feeding of this information to a digital computer which constantly recalculates the cure time, and the signaling by the computer to open the press, are all new in the art.
The equation has long been used to calculate the cure time in rubber-molding presses. The equation can be expressed as follows: lnv = CZ + x, wherein lnv is the natural logarithm of v, the total required cure time; C is the activation constant, a unique figure for each batch of each compound being molded, determined in accordance with rheometer measurements of each batch; Z is the temperature in the mold; and x is a constant dependent on the geometry of the particular mold in the press. A rheometer is an instrument to measure flow of viscous substances. 3 During the time a press is open for loading, it will cool. The longer it is open, the cooler it becomes and the longer it takes to reheat. Thus, the time necessary to raise the mold temperature to curing temperature is an unpredictable variable. The respondents claim to have overcome this problem by continuously measuring the actual temperature in the closed press through the use of a thermocouple. 4 We note that the petitioner does not seriously contest the respondents assertions regarding the inability of the industry to obtain accurate cures on a uniform basis.
2

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The patent examiner rejected the respondents claims on the sole ground that they were drawn to nonstatutory subject matter under 101. He determined that those steps in respondents claims that are carried out by a computer under control of a stored program constituted nonstatutory subject matter under this Courts decision in Gottschalk v. Benson, 409 U.S. 63 (1972). The remaining steps installing rubber in the press and the subsequent closing of the press were conventional and necessary to the process and cannot be the basis of patentability. The examiner concluded that respondents claims defined and sought protection of a computer program for operating a rubber-molding press. [After the examiner was affirmed by the PTO Appeals Board, the CCPA reversed. The PTO Commissioner then sought certiorari, and it was granted.] II . As in Chakrabarty, we must here construe 101 which provides:6 Whoever, invents or discovers any new and useful process, machine manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. . Although the term process was not added to 101 until 1952 a process has historically enjoyed patent protection because it was considered a form of art as that term was used in the 1793 Act.7 In defining the nature of a patentable process, the Court stated: That a process may be patentable, irrespective of the particular form of the instrumentalities used, cannot be disputed.. A process is a mode of treatment of certain materials to produce a given result. . The process requires that certain things should be done with certain substances, and in a certain order; but the tools to be used in doing this may be of secondary consequence. Cochrane v. Deener, 94 U.S. 780, 787788 (1877). Analysis of the eligibility of a claim of patent protection for a process did not change with the addition of that term to 101. Recently, in Gottschalk, we repeated the above definition adding: Transformation and reduction of an article to a different state or thing is the clue to the patentability of a process claim that does not include particular machines. 409 U.S., at 70. Analyzing respondents claims according to the above statements from our cases, we think that a physical and chemical process for molding precision synthetic rubber products falls within the 101 categories of possibly patentable subject matter. That respondents claims involve the transformation of an article, in this case raw, uncured synthetic rubber, into a different state or thing cannot be disputed. . III Our conclusion regarding respondents claims is not altered by the fact that a mathematical equation and a programmed digital computer are used. . . In Benson, we held unpatentable claims for an algorithm used to convert binary code decimal numbers to equivalent pure binary numbers. The sole practical application of the algorithm was in connection with the programming of a general purpose digital computer. We defined algorithm as a procedure for solving a given type of mathematical problem, and we concluded that such an algorithm, or mathematical formula, is like a law of nature, which cannot be the subject of a patent.9
6

[I]n 100(b): The term process means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material. 7 In Corning v. Burden, 15 How. 252, 267268 (1854), this Court explained: A process, eo nomine, is now made the subject of a patent in our act of congress. It is included under the general term useful art. . 9 The term algorithm is subject to a variety of definitions. The petitioner defines the term to mean:

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Parker v. Flook presented a similar situation. The claims were drawn to a method for computing an alarm limit. An alarm limit is simply a number and the Court concluded that the application sought to protect a formula for computing this number. . . [I]f the computer use incorporated in the process patent significantly lessens the possibility of overcuring or undercuring, the process as a whole does not thereby become unpatentable subject matter. Our earlier opinions lend support to our present conclusion that a claim drawn to subject matter otherwise statutory does not become nonstatutory simply because it uses a mathematical formula, computer program, or digital computer. . As Justice Stone explained four decades ago: While a scientific truth, or the mathematical expression of it, is not a patentable invention, a novel and useful structure created with the aid of knowledge of scientific truth may be. Mackay Radio & Telegraph Co. v. Radio of America, 306 U.S. 86, 94 (1939). [T]his statement in Mackay takes us a long way toward the correct answer. Arrhenius equation is not patentable in isolation, but when a process incorporates in it a more efficient solution of the equation, that process is at the very least not barred at the threshold by 101. In determining the eligibility of respondents claimed process for patent protection under 101, their claims must be considered as a whole. It is inappropriate to dissect the claims into old and new elements and then to ignore the presence of the old elements in the analysis. This is particularly true in a process claim because a new combination of steps in a process may be patentable even though all the constituents of the combination were well known and in common use before the combination was made. The novelty of any element or steps in a process, or even of the process itself, is of no relevance in determining whether the subject matter of a claim falls within possibly patentable subject matter.12 It has been urged that novelty is an appropriate consideration under 101. Presumably, this argument results from the language in 101 referring to any new and useful process, machine, etc. Section 101, however, is a general statement of the type of subject matter that is eligible for patent protection subject to the conditions and requirements of this title. Specific conditions for patentability follow and 102 covers in detail the conditions relating to novelty. The question therefore of whether a particular invention is novel is wholly apart
1. A fixed step-by-step procedure for accomplishing a given result; usually a simplified procedure for solving a complex problem, also a full statement of a finite number of steps. 2. A defined process or set of rules that leads [sic] and assures development of a desired output from a given input. A sequence of formulas and/or algebraic/logical steps to calculate or determine a given task; processing rules. C. Sippl & R. Sippl, Computer Dictionary and Handbook 23 (2d ed 1972). This definition is significantly broader than the definition employed in Benson and Flook. Our previous decisions regarding the patentability of algorithms are necessarily limited to the more narrow definition employed by the Court, and we do not pass judgment on whether processes falling outside the definition previously used by this Court, but within the definition offered by the petitioner, would be patentable subject matter. 12 It is argued that the procedure of dissecting a claim into old and new elements is mandated by our decision in Flook which noted that a mathematical algorithm must be assumed to be within the prior art. It is from this language that the petitioner premises his argument that if everything other than the algorithm is determined to be old in the art, then the claim cannot recite statutory subject matter. The fallacy in this argument is that we did not hold in Flook that the mathematical algorithm could not be considered at all when making the 101 determination. To accept the analysis proffered by the petitioner would, if carried to its extreme, make all inventions unpatentable because all inventions can be reduced to underlying principles of nature which, once known, make their implementation obvious. The analysis suggested by the petitioner would also undermine our earlier decisions regarding the criteria to consider in determining the eligibility of a process for patent protection.

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from whether the invention falls into a category of statutory subject matter. In re Bergy, 596 F.2d 952, 961 (CCPA 1979). The legislative history of the 1952 Patent Act is in accord with this reasoning. . In this case, it may later be determined that the respondents process is not deserving of patent protection because it fails to satisfy the statutory conditions of novelty under 102 or nonobviousness under 103. A rejection on either of these grounds does not affect the determination that respondents claims recited subject matter which was eligible for patent protection under 101. IV . Because we do not view respondents claims as an attempt to patent a mathematical formula, but rather to be drawn to an industrial process for the molding of rubber products, we affirm.15 Justice Stevens, with whom Justices Brennan, Marshall, and Blackmun join, dissenting.* . I Before discussing the major flaws in the Courts opinion, a word of history may be helpful. . Although computer technology seems commonplace today, the first digital computer capable of utilizing stored programs was developed less than 30 years ago.1 . It was 1968 before the federal courts squarely addressed the subject, and 1972 before this Court announced its first decision in the area. Prior to 1968, well-established principles of patent law probably would have prevented the issuance of a valid patent on almost any conceivable computer program. Under the mental steps doctrine, processes involving mental operations were considered unpatentable. The mental-steps doctrine was based upon the familiar principle that a scientific concept or mere idea cannot be the subject of a valid patent. The doctrine was regularly invoked to deny patents to inventions consisting primarily of mathematical formulae or methods of computation. It was also applied against patent claims in which a mental operation or mathematical computation was the sole novel element or inventive contribution. Under the function of a machine doctrine, a process which amounted to nothing more than a description of the function of a machine was unpatentable. . Concern with the patent systems ability to deal with rapidly changing technology in the computer and other fields led to the formation in 1965 of the Presidents Commission on the Patent System. After studying the question of computer program patentability, the
. The dissent states that respondents claim only to have developed a new method of programming a digital computer in order to calculate promptly and repeatedly the correct curing time in a familiar process. . Rather, respondents claims describe a process of curing rubber beginning with the loading of the mold and ending with the opening of the press and the production of a synthetic rubber product that has been perfectly cured a result heretofore unknown in the art. The fact that one or more of the steps in respondents process may not, in isolation, be novel is irrelevant to the question of whether the claims as a whole recite subject matter eligible for patent protection under 101. As we explained when discussing machine patents in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972): The patents were warranted not by the novelty of their elements but by the novelty of the combination they represented. Invention was recognized because Laitrams assignors combined ordinary elements in an extraordinary way a novel union of old means was designed to achieve new ends. Thus, for both inventions the whole in some way exceed[ed] the sum of its parts. Id., at 52122. In order for the dissent to reach its conclusion it is necessary for it to read out of respondents patent application all the steps in the claimed process which it determined were not novel or inventive. That is not the purpose of the 101 inquiry and conflicts with the proposition recited above that a claimed invention may be entitled to patent protection even though some or all of its elements are not novel. * The bench in Chakrabarty was identical. Only Justices Marshall and Brennan dissented in both cases. 1 . See Gemignani, Legal Protection for Computer Software: The View From 79, 7 Rutgers J. Computers, Tech. & L. 269, 270 (1980).
15

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Commission recommended that computer programs be expressly excluded from the coverage of the patent laws; this recommendation was based primarily upon the Patent Offices inability to deal with the administrative burden of examining program applications.10 . . Beginning with two decisions in 1968, a dramatic change in the law as understood by the CCPA took place. [T]hat court reinterpreted 101 to enlarge drastically the categories of patentable subject matter. . In In re Tarczy-Hornoch, 397 F.2d 856 (1968), a divided CCPA overruled the line of cases developing and applying the function of a machine doctrine. The majority acknowledged that the doctrine had originated with decisions of this Court and that the lower federal courts, including the CCPA, had consistently adhered to it during the preceding 70 years. Nonetheless, the court concluded that the doctrine rested on a misinterpretation of the precedents and that it was contrary to the basic purposes of the patent system and productive of a range of undesirable results from the harshly inequitable to the silly. Id., at 867.12 Shortly thereafter, a similar fate befell the mental steps doctrine. . The CCPA soon replaced the overruled doctrines with more expansive principles formulated with computer technology in mind. In In re Bernhart, 417 F.2d 1395 (1969), the court announced that a computer programmed with a new and unobvious program was physically different from the same computer without that program; the programmed computer was a new machine or at least a new improvement over the unprogrammed computer. Therefore, patent protection could be obtained for new computer programs if the patent claims were drafted in apparatus form. The CCPA turned its attention to process claims encompassing computer programs in In re Musgrave, 431 F.2d 882 (1970). : Any sequence of operational steps was a patentable process as long as it was within the technological arts. Id., at 893. This standard effectively disposed of any vestiges of the mental-steps doctrine.16 The technological arts standard was refined in In re Benson, 441 F.2d 682 (1971), in which the court held that computers, regardless of the uses to which they are put, are within the technological arts for purposes of 101. In re Benson, of course, was reversed by this Court. Justice Douglas opinion for a unanimous Court made no reference to the lower courts rejection of the mental-steps doctrine or to the new technological-arts standard.18 Rather, the Court clearly held that new mathematical procedures that can be conducted in old computers, like mental processes and abstract intellectual concepts, are not patentable processes within the meaning of 101.
The Commissions report contained the following evaluation: Uncertainty now exists as to whether the statute permits a valid patent to be granted on programs. Direct attempts to patent programs have been rejected on the ground of nonstatutory subject matter. Indirect attempts to obtain patents and avoid the rejection, by drafting claims as a process, or a machine or components thereof programmed in a given manner, rather than as a program itself, have confused the issue further and should not be permitted. Report of the Presidents Commission on the Patent System, To Promote the Progress of... Useful Arts in an Age of Exploding Technology 14 (1966). 12 Judge Kirkpatrick, joined by Chief Judge Worley, wrote a vigorous dissent. Unlike the majority, the dissenting judges did not consider the doctrine inequitable or silly, and they observed that it had functioned in a satisfactory manner in the past. In addition, they considered the doctrine to be so well established that it had been adopted by implication in the Patent Act of 1952. 16 The author of the second Prater opinion, Judge Baldwin, disagreed with the Musgrave technological arts standard for process claims. He described that standard as a major and radical shift in this area of the law. 431 F.2d, at 89394. ). 18 Although the Court did not discuss the mental-steps doctrine in Benson, some commentators have suggested that the Court implicitly relied upon the doctrine in that case. Other commentators have observed that the Courts analysis in Benson was entirely consistent with the mental-steps doctrine.
10

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[In several decisions the CCPA] consistently interpreted Benson to preclude the patenting of a program-related process invention only when the claims, if allowed, would wholly preempt the algorithm itself. One of the cases adopting this view was In re Flook, 559 F.2d 21 (1977), which was reversed in Parker v. Flook, 437 U.S. 584, (1978). . In Flook, this Court clarified Benson in three significant respects. First, Flook held that the Benson rule of unpatentable subject matter was not limited, as the lower court believed, to claims which wholly pre-empted an algorithm or amounted to a patent on the algorithm itself. Second, the Court made it clear that an improved method of calculation, even when employed as part of a physical process, is not patentable subject matter under 101. Finally, the Court explained the correct procedure for analyzing a patent claim employing a mathematical algorithm. Under this procedure, the algorithm is treated for 101 purposes as though it were a familiar part of the prior art; the claim is then examined to determine whether it discloses some other inventive concept.22 . The essence of the claimed discovery in both cases was an algorithm that could be programmed on a digital computer. In Flook, the algorithm made use of multiple process variables; in this case, it makes use of only one. In Flook, the algorithm was expressed in a newly developed mathematical formula; in this case, the algorithm makes use of a well-known mathematical formula. Manifestly, neither of these differences can explain todays holding. What I believe does explain todays holding is a misunderstanding of the applicants claimed invention and a failure to recognize the critical difference between the discovery requirement in 101 and the novelty requirement in 102. . Even the Court does not suggest that the computer program developed by Diehr and Lutton is a patentable discovery. Accordingly, if we treat the program as though it were a familiar part of the prior art as well-established precedent requires41 it is absolutely clear that their application contains no claim of patentable invention. . IV The broad question whether computer programs should be given patent protection involves policy considerations that this Court is not authorized to address. As the numerous briefs amicus curiae filed in Gottschalk v. Benson, Dann v. Johnston, Parker v. Flook and this case demonstrate, that question is not only difficult and important, but apparently also one that may be affected by institutional bias. . Notwithstanding fervent argument that patent protection is essential for the growth of the software industry, commentators have noted that this industry is growing by leaps and bounds without it.43 In addition, even some commentators who believe that legal protection for computer programs is desirable have expressed doubts that the present patent system can provide the needed protection. Within the Federal Government, patterns of decision have also emerged. Gottschalk, Dann, Parker, and Diamond were not ordinary litigants. No doubt each may have been
This form of claim analysis did not originate with Flook . Rather, the Court derived it from the landmark decision of OReilly v. Morse, In addition, this analysis is functionally the same as the point-ofnovelty analysis used in conjunction with the mental-steps doctrine. In fact, the Patent Office in the past occasionally phrased its mental-steps rejections in essentially the terms later employed in Flook. 41 This well-established precedent was reviewed in Parker v. Flook [437 U.S., at 59192]: Mackay Radio and Funk Bros. point to the proper analysis for this case: The process itself, not merely the mathematical algorithm, must be new and useful. Indeed, the novelty of the mathematical algorithm is not a determining factor at all. Whether the algorithm was in fact known or unknown at the time of the claimed invention, as one of the basic tools of scientific and technological work, it is treated as though it were a familiar part of the prior art. 43 Gemignani, supra n. 1, at 309. In a footnote, Professor Gemignani added that the rate of growth of the software industry has been even faster lately than that of the hardware industry which does enjoy patent protections. Id., n. 259. Other commentators are in accord.
22

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Subject Matter

motivated by a concern about the ability of the Patent Office to process effectively the flood of applications that would inevitably flow from a decision that computer programs are patentable. 45 The consistent concern evidenced by the Commissioner of Patents and Trademarks and by [its] Board of Appeals has not been shared by the CCPA, which reversed the Board in Benson, Johnston, and Flook, and was in turn reversed by this Court in each of those cases.46 Scholars have been critical of the work of both tribunals. Some of that criticism may stem from a conviction about the merits of the broad underlying policy question; such criticism may be put to one side. Other criticism, however, identifies two concerns to which federal judges have a duty to respond. First, the cases considering the patentability of program-related inventions do not establish rules that enable a conscientious patent lawyer to determine with a fair degree of accuracy which, if any, program-related inventions will be patentable. Second, the inclusion of the ambiguous concept of an algorithm within the law of nature category of unpatentable subject matter has given rise to the concern that almost any process might be so described and therefore held unpatentable. In my judgment, todays decision will aggravate the first concern and will not adequately allay the second. I believe both concerns would be better addressed by (1) an unequivocal holding that no program-related invention is a patentable process under 101 unless it makes a contribution to the art that is not dependent entirely on the utilization of a computer, and (2) an unequivocal explanation that the term algorithm as used in this case, as in Benson and Flook, is synonymous with the term computer program. Because the invention makes no contribution to the art that is not entirely dependent upon the utilization of a computer in a familiar process, I would reverse. Notes 1. The Diehr dissent describes long-standing tension between the Court and the CCPA. Is that related to the tension between the majoritys note 12 and the dissents note 41? 2. What can be concluded from congressional inaction sixteen years after the Presidents Commission recommended that computer programs be expressly excluded from the coverage of the patent law? Is it relevant that software is now clearly copyrightable? 3. PTO Commissioners opposing the patentability of software and biotechnology were motivated in part by the difficulty (if not impossibility) of examiners ascertaining the state of the prior art. Other than that, and congressional failure to foresee software and biotechnology as early as 1952, the fields have little in common. Consider, for example, that software is often created by self-educated programmers on inexpensive computers, whereas biotechnology calls for formally educated personnel and large capital investments. How is that likely to reflect disparities in the ability to obtain and enforce the two types of patents. When, if at all, should that matter?
45

. In its report, the Presidents Commission stated [supra majority n. 10, at 13]: The Patent Office now cannot examine applications for programs because of the lack of a classification technique and the requisite search files. Even if these were available, reliable searches would not be feasible or economic because of the tremendous volume of prior art being generated. Without this search, the patenting of programs would be tantamount to mere registration and the presumption of validity would be all but nonexistent. 46 It is noteworthy that the position of the Court of Customs and Patent Appeals in the process patent area had been consistent with that of the Commissioner of Patents and Trademarks for decades prior to 1968. As discussed in Part I, supra, in that year the court rejected two longstanding doctrines that would have foreclosed patentability for most computer programs under 101.

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U.K. Court of Appeal (Civil Division) [1989] RPC 561 Before Fox, Stocker and Taylor. Fox, Judge: This is an appeal by the applicant from a decision of Falconer J, upholding the determination of the examiner and the principal examiner that the subject matter of the application was unpatentable. Claim 1 is in the following terms: In combination in a data processing system for making a trading market in at least one security in which the system proprietor is acting, as principal; said system including means for receiving trade orders for said at least one security from system customers, said trade orders including fields identifying the stock to be traded and characterisation of the trade as a customer purchase or sale, and the number of shares for the transaction; means for retrieving and for storing operative bid and asked prices for said at least one security. The system can be implemented by any data-processing equipment of the kind familiar to those skilled in the art. [Section 1(1) and (2) of the Patents Act 1977 provide:]* (1) A patent may be granted for an invention in respect of which the following conditions are satisfied. (2) It is hereby declared that the following (among other things) are not inventions for the purposes of this Act, that is to say, anything which consists of (a) a discovery, scientific theory or mathematical method; (b) a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever; (c) a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer; (d) the presentation of information; but the foregoing provision shall prevent anything from being treated as an invention only to the extent that a patent or application for a patent relates to that thing as such. . The issue is whether the present case falls within the prohibition in 1(2)(c) of the Patents Act 1977. The view of the principal examiner was that the effect of 1 of the Patents Act 1977 was that anything which was an excluded category was not to be treated as an invention and consequently its inclusion could not be considered to contribute to the required novelty and inventive step. That did not mean that matter which fell within an excluded category should be wholly disregarded, but that the mere presence of such matter could not contribute to the requirements of novelty and inventiveness. Thus, taking the example of a machine tool controlled by a program, the principal examiner said that if the physical components were wholly conventional and the system as a whole worked conventionally, any distinction from the prior art would have to be found in the program itself and this excluded the whole from patentability. His conclusion, in the present case, was as follows:
*

Merrill Lynchs Application

The court also noted the exceptionally similar provisions of the European Patent Convention.

2.38

Subject Matter

I consider that the means specified in claim 1 relate to features which either would be present in a conventional computer system or define essential functions required for the performance of the business method. Consequently this claim contains nothing which could be considered to constitute a new technical structure or to produce a technical effect in the sense in which this term is used in the Guidelines. The Guidelines there referred to are [for] the European Patent Office. These Guidelines (which have no binding effect in law) provide: 2.2 In considering whether the subject-matter of an application is an invention, there are two general points the examiner must bear in mind. Firstly, any exclusion from patentability under Article 52, paragraph 2, applies only to the extent to which the application relates to the excluded subject-matter as such. Secondly, the examiner should disregard the form or kind of claim and concentrate on its content in order to identify the real contribution which the subject-matter claimed, considered as a whole, adds to the known art. If this contribution is not of a technical character, there is no invention within the meaning of Article 52, paragraph 1. Thus, for example, if the claim is for a known manufactured article having a painted design or certain written information on its surface, the contribution to the art is as a general rule merely an aesthetic creation or presentation of information. . In these instances the claim relates to excluded subject-matter as such and is therefore not allowable. If, on the other hand, a computer program in combination with a computer causes the computer to operate in a different way from a technical point of view, the combination might be patentable. . The contention of the applicant (appellant) in the present appeal is that the question to be addressed is: Is the subject matter of the claim a computer program? If it is, then it is not patentable. If it is not, then the invention is not excluded from patentability by 1(2) provided, of course, that the requirements of 1(1) are satisfied. Thus it is said that a piece of machinery (a computer) which follows the instructions of a novel computer program is patentable although the program itself would be excluded from patentability by 1(2). Section 1(2), it is said, only excludes the specified matters as such. A computer program is a text which, when loaded into a computer, directs the matter [sic] in which the computer is to operate. A computer when programmed with a novel program is itself a novel piece of apparatus which, directed by the program, operates in a new way. The view of Falconer, J. was that if the novelty of the claim was in matter excluded by 1(2), then you ignore that and look only at what is left, i.e., a conventional computer which is not patentable. That approach was held to be wrong in Genentech and the present claim (it is said) can properly be regarded as a claim to a novel piece of apparatus or machinery which is patentable. I should now refer to the decision of the Technical Board of Appeal of the [EPO] in the case of Vicom Systems Inc.s Application (Decision T208/84), [1987] Official J. EPO 14. The decision of the Board is a matter of which we are required, by 91(1) of the Patents Act 1977, to take judicial notice. In Vicom it appears that the Examining Division regarded the claim as being concerned with mathematical operations which would be carried out on a conventional general-purpose computer, and, since there was no detailed discussion of the circuitry of special-purpose hardware, there was no basis for claiming the apparatus as being anything other than a suitably programmed conventional computer. The appellants asserted, however, that the claim related to special-purpose hardware which was to be put into

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practice by the skilled man designing circuitry which would perform specific operations detailed in the specification. As already indicated, Article 53, like 1(2), excludes from patentability mathematical methods as such. The Board held that even if the idea underlying an invention is considered to reside in a mathematical method, a claim directed to a technical process in which the method is used does not seek protection for the mathematical method as such. The Board went on to consider the Examining Divisions argument that the implementation of the claimed methods for image processing by a program run on a computer could not be regarded as an invention under Article 52(2)(c) and (3). In paragraph 12 the Board stated: The Board is of the opinion that a claim directed to a technical process which process is carried out under the control of a program (be this implemented in hardware or in software) cannot be regarded as relating to a computer program as such within the meaning of Article 52(3) EPC, as it is the application of the program for determining the sequence of steps in the process for which in effect protection is sought. Consequently, such a claim is allowable under Article 52(2)(c) and (3). . Finally, the Board expressed the view, in paragraph 16, that: Generally speaking, an invention which would be patentable in accordance with conventional patentability criteria should not be excluded from protection by the mere fact that, for its implementation, modern technical means in the form of a computer program are used. Decisive is what technical contribution the invention as defined in the claim when considered as a whole makes to the known art. The position seems to me to be this. Genentech decides that the reasoning of Falconer, J. is wrong. On the other hand, it seems to me to be clear, for the reasons indicated by Dillon, L.J., that it cannot be permissible to patent an item excluded by 1(2) under the guise of an article which contains that item that is to say, in the case of a computer program, the patenting of a conventional computer containing that program. Something further is necessary. The nature of that addition is, I think, to be found in the Vicom case where it is stated: Decisive is what technical contribution the invention makes to the known art. There must, I think, be some technical advance on the prior art in the form of a new result (e.g., a substantial increase in processing speed as in Vicom). Now let it be supposed that claim 1 can be regarded as producing a new result in the form of a technical contribution to the prior art. That result, whatever the technical advance may be, is simply the production of a trading system. It is a data-processing system for doing a specific business, that is to say, making a trading market in securities. The end result, therefore, is simply a method of doing business, and is excluded by 1(2)(c). The fact that the method of doing business may be an improvement on previous methods of doing business does not seem to me to be material. The prohibition in 1(2)(c) is generic; qualitative considerations do not enter into the matter. The section draws no distinction between the method by which the mode of doing business is achieved. If what is produced in the end is itself an item excluded from patentability by 1(2), the matter can go no further. Claim 1, after all, is directed to a data processing system for making a trading market. That is simply a method of doing business. A data processing system operating to produce a novel technical result would normally be patentable. But it cannot, it seems to me, be patentable if the result itself is a prohibited item under 1(2). In the present case it is such a prohibited item. .

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Subject Matter

Notes 1. Given the ultimate conclusion in Merrill Lynch, what may account for extensive discussion of the patentability of computer programs? 2. See 35 U.S.C. 101. What is the major difference between U.S. and European approaches to patentable subject matter? 3. Assume that only by processing large amounts of data can tomorrows weather be predicted with reasonable confidence. Assume further that calculations once required roughly twenty-six hours. Now, consider software based on a new mathematical algorithm that requires, say, two hours. See, e.g., Gina Kolata, Solving Linear Systems Faster, 228 Science 1297 (1985). What does Vicom, discussed by Judge Fox, suggest about the EPO Boards view of the patentability of such software? If the aforesaid algorithm is within the public domain, can a patent be obtained on a program to execute it? Contrast the outcome according to note 12 in Diehr and text relating to note 41 in the dissent. Federal Jurisdiction in Patent Cases
PTO [Patentability] Examiner Yes No CCPA* Board Yes N o [Only patentability] D.C. District Court CADC* Supreme Court

Regional All U.S. District Courts Courts of Appeal* [Patentability, Infringement, Remedies....]

The diagram above shows court jurisdiction over most patent disputes between creation of the CCPA in 1929 and the Federal Circuit (CAFC) in 1982. All disputes that once went to courts marked by asterisks now go to the CAFC.1 To understand the continuing vitality of patent precedents, one must understand which courts prior opinions bind the CAFC. In its first opinion, the CAFC held that only opinions of the CCPA and another court of limited jurisdiction would be precedential.2 South Corp. v. United States, 690 F.2d 1368 (Fed. Cir. 1982). Also, of course, it must so regard opinions of the Supreme Court.

1 2

See 28 U.S.C. 1295. See, e.g., Giles S. Rich, Thirty Years of This Judging Business, 14 AIPLA Q.J. 139, 151 (1986).

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U.S. Court of Appeals, Federal Circuit 149 F.3d 1368 (1998) Before Rich, Plager and Bryson. Rich, Circuit Judge: .

State Street Bank & Trust Co. v. Signature Financial Group, Inc.*

Background Signature is the assignee of the 056 patent. The 056 patent is generally directed to a data processing system (the system). In essence, the system, identified by the proprietary name Hub and Spoke , facilitates a structure whereby mutual funds (Spokes) pool their assets in an investment portfolio (Hub) organized as a partnership. This investment configuration provides the administrator of a mutual fund with the advantageous combination of economies of scale in administering investments coupled with the tax advantages of a partnership. [When negotiations for a license to use the patent broke down, State Street brought a declaratory judgment action and sought partial summary judgment of invalidity for failure to claim patentable subject matter.] Discussion On appeal, we are not bound to give deference to the district courts grant of summary judgment, but must make an independent determination. Summary judgment is properly granted where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. . The following facts pertinent to the statutory subject matter issue are either undisputed or represent the version alleged by the nonmovant. The patented invention relates generally to a system that allows an administrator to monitor and record the financial information flow and make all calculations necessary for maintaining a partner fund financial services configuration. As previously mentioned, a partner fund financial services configuration essentially allows several mutual funds, or Spokes, to pool their investment funds into a single portfolio, or Hub, allowing for consolidation of, inter alia, the costs of administering the fund combined with the tax advantages of a partnership. In particular, this system provides means for a daily allocation of assets for two or more Spokes that are invested in the same Hub. The system determines the percentage share that each Spoke maintains in the Hub, while taking into consideration daily changes both in the value of the Hubs investment securities and in the concomitant amount of each Spokes assets. . It is essential that these calculations are quickly and accurately performed. In large part this is required because each Spoke sells shares to the public. In some instances, a mutual fund administrator is required to calculate the value of the shares to the nearest penny within as little as an hour and a half after the market closes. Given the complexity of the calculations, a computer or equivalent device is a virtual necessity to perform the task. The 056 patent application initially contained six machine claims, which incorporated means-plus-function clauses, and six method claims. According to Signature, during prosecution the examiner contemplated a 101 rejection for failure to claim statutory subject matter. However, upon cancellation of the six method claims, the examiner issued a notice of allowance for the remaining present six claims on appeal. .
*

Certiorari denied without dissent, 525 U.S. 1093 (1999).

2.42

Subject Matter

When independent claim 1 is properly construed in accordance with 112 6, it is directed to a machine, as demonstrated below. 1. A data processing system for managing a financial services configuration of a portfolio established as a partnership, each partner being one of a plurality of funds, comprising: a. computer processor means [a personal computer including a CPU] for processing data; b. storage means [a data disk] for storing data on a storage medium; ; and g. fifth means [an arithmetic logic circuit configured to retrieve information from specific files, calculate that information on an aggregate basis and store the output in a separate file]. Each claim component, recited as a means plus its function, is to be read, of course, pursuant to 112 6, as inclusive of the equivalents of the structures disclosed in the written description portion of the specification. Thus, claim 1, properly construed, claims a machine, namely, a data processing system for managing a financial services configuration of a portfolio established as a partnership. A machine is proper statutory subject matter under 101. We note that it is of little relevance whether claim 1 is directed to a machine or a process, as long as it falls within at least one of the four enumerated categories. [Yet, the district] court concluded that the claimed subject matter fell into one of two alternative judicially-created exceptions to statutory subject matter.1 The court refers to the first exception as the mathematical algorithm exception and the second exception as the business method exception. . The plain and unambiguous meaning of 101 is that any invention falling within one of the four stated categories of statutory subject matter may be patented, provided it meets the other requirements for patentability set forth in Title 35.2 [In Chakrabarty, 447 U.S. 303, at 309, the Court held that 101 covers anything under the sun that is made by man. It is improper to limit patentable subject matter] where the legislative history indicates that Congress clearly did not intend such limitations. The Mathematical Algorithm Exception The Supreme Court has identified [in Diehr] three categories of subject matter that are unpatentable, namely laws of nature, natural phenomena, and abstract ideas. Of particular relevance to this case, the Court has held that mathematical algorithms are not patentable subject matter to the extent that they are merely abstract ideas. In Diehr, the Court explained that certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application, i.e., a useful, concrete and tangible result. .
1

Indeed, although we do not make this determination here, the judicially created exceptions, i.e., abstract ideas, laws of nature, etc., should be applicable to all categories of statutory subject matter, as our own precedent suggests. 2 As explained in In re Bergy, 569 F.2d 952, 960 (CCPA 1979): The first door which must be opened on the difficult path to patentability is 101. The person approaching that door is an inventor, whether his invention is patentable or not. . What kind of an invention or discovery is it? In dealing with the question of kind, as distinguished from the qualitative conditions which make the invention patentable, 101 is broad and general; its language is: any process, machine, manufacture, or composition of matter, or any improvement thereof. Section 100(b) further expands process to include art or method, and a new use of a known process, machine, manufacture, composition of matter, or material. If the invention, as the inventor defines it in his claims, falls into any one of the named categories, he is allowed to pass through to the second door, which is 102; novelty and loss of right to patent is the sign on it. Notwithstanding the words new and useful in 101, the invention is not examined under that statute for novelty because that is not the statutory scheme of things or the long-established administrative practice.

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Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces a useful, concrete and tangible result a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades. . After all, as we have repeatedly stated, every step-by-step process, be it electronic or chemical or mechanical, involves an algorithm in the broad sense of the term. Since 101 expressly includes processes as a category of inventions which may be patented and 100(b) further defines the word process as meaning process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material, it follows that it is no ground for holding a claim is directed to nonstatutory subject matter to say it includes or is directed to an algorithm. This is why the proscription against patenting has been limited to mathematical algorithms. In re Iwahashi, 888 F.2d 1370, 1374 (Fed. Cir. 1989). [W]hether a claim encompasses statutory subject matter should focus on its practical utility. Section 101 specifies that statutory subject matter must also satisfy the other conditions and requirements of Title 35, including novelty, nonobviousness, and adequacy of disclosure and notice. For purpose of our analysis, as noted above, claim 1 is directed to a machine programmed with the Hub and Spoke software and admittedly produces a useful, concrete, and tangible result. This renders it statutory subject matter, even if the useful result is expressed in numbers, such as price, profit, percentage, cost, or loss. The Business Method Exception As an alternative, the court relied on the judicially-created, so-called business method exception. We take this opportunity to lay this ill-conceived exception to rest. . Since the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method.10 The business method exception has never been invoked by this court, or the CCPA, to deem an invention unpatentable.11 . Even the case frequently cited as establishing the business method exception to statutory subject matter, Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2d Cir. 1908), did not rely on [it].15
As Judge Newman has previously stated, [The business method exception] is an unwarranted encumbrance to the definition of statutory subject matter in section 101. All of the doing business cases could have been decided using the clearer concepts of Title 35. Patentability does not turn on whether the claimed method does business instead of something else, but on whether the method, viewed as a whole, meets the requirements of patentability as set forth in Sections 102, 103, and 112 of the Patent Act. In re Schrader, 22 F.3d 290, 298 (Fed. Cir. 1994) (Newman, dissenting). 11 See Rinaldo Del Gallo, III, Are Methods of Doing Business Finally out of Business as a Statutory Rejection? 38 Idea 403, 435 (1998). 15 See also Loews Drive-In Theatres v. Park-In Theatres, 174 F.2d 547, 552 (1st Cir. 1949) (holding that the means for carrying out the system of transacting business lacked an exercise of the faculty of invention). Although a clearer statement was made in In re Patton, 127 F.2d 324, 327 (CCPA 1942) that a system for transacting business, separate from the means for carrying out the system, is not patentable subject matter, the jurisprudence does not require the creation of a distinct business class of unpatentable subject matter.
10

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Subject Matter

In that case, the patent was found invalid for lack of novelty and invention, not because it was improper subject matter for a patent. The court stated the fundamental principle of the system is as old as the art of bookkeeping, i.e., charging the goods of the employer to the agent who takes them. Id. at 469. If at the time of [the patent] application, there had been no system of bookkeeping of any kind in restaurants, we would be confronted with the question whether a new and useful system of cash registering and account checking is such an art as is patentable under the statute. Id. at 472. This case is no exception. The district court announced the precepts of the business method exception but noted as its primary reason for finding the patent invalid under the business method exception as follows: If Signatures invention were patentable, any financial institution desirous of implementing a multi-tiered funding complex modelled [sic] on a Hub and Spoke configuration would be required to seek Signatures permission before embarking on such a project. This is so because the 056 Patent is claimed sufficiently broadly to foreclose virtually any computer-implemented accounting method necessary to manage this type of financial structure. (emphasis added). Whether the patents claims are too broad to be patentable is not to be judged under 101, but rather under 102, 103 and 112. Assuming the above statement to be correct, it has nothing to do with whether what is claimed is statutory subject matter. In view of this background, it comes as no surprise that in the most recent edition of the Manual of Patent Examining Procedures (MPEP) (1996), a paragraph of 706.03(a) was deleted. In past editions it read: Though seemingly within the category of process or method, a method of doing business can be rejected as not being within the statutory classes. See Hotel Security Checking Co. . MPEP 706.03(a) (1994). This acknowledgment is buttressed by the U.S. Patent and Trademark 1996 Examination Guidelines for Computer Related Inventions which now read: Office personnel have had difficulty in properly treating claims directed to methods of doing business. Claims should not be categorized as methods of doing business. Instead such claims should be treated like any other process claims. Examination Guidelines, 61 Fed. Reg. 7478, 7479 (1996). We agree that this is precisely the manner in which this type of claim should be treated. Whether the claims are directed to subject matter within 101 should not turn on whether the claimed subject matter does business instead of something else. . Notes 1. Does State Street support the view that the Federal Circuit is pro-patent. If so, what are the implications for parties who both prosecute and defend infringement actions? 2.. How would the CAFC be apt to view the patentability of the hypothetical software described in note 3 following Merrill Lynch? 3 In Funk, Bond did not claim a process to distinguish compatible and incompatible strains of Rhizobia, perhaps, as urged by Justice Frankfurter, because he had none other than trial and error. Had he disclosed such a process, would the majority have accepted its patentability? Which would be more useful, a rough rule of thumb or an algorithm as defined in Diehr, note 9? Should precise rules for controlling processes favor or disfavor patentability? Why?

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4. As discussed in Diehr, mental steps were traditionally unpatentable. This may have rested on inability to determine the thinking of alleged infringers. It may have also rested on the notion that ones thoughts, even if discernible, should be free of patent infringement risk. Should either concern bear on the patentability of software? 5. The Federal Circuit subsequently used a machine-or-transformation test to find a hedging process unpatentable and adopted that test as the sole basis for determining subject matter eligibility, but it also said, future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade. Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied. At present, however, and certainly for the present case, we see no need for such a departure. In re Bilski, 545 F.3d 943, 956 (Fed. Cir. 2008) (en banc). A divided Supreme Court agreed unanimously with the result in Bilski v. Kappos, 130 S.Ct. 3218 (2010); see id. at 3258 (Breyer concurring). The relatively brief majority opinion, however, finds the Federal Circuits test unnecessary. Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Acts text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable process, beyond pointing to the definition of that term provided in 100(b) and looking to the guideposts in Benson, Flook, and Diehr. And nothing in todays opinion should be read as endorsing interpretations of 101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F.3d, at 1373; AT & T Corp., 172 F.3d, at 1357. It may be that the Court of Appeals thought it needed to make the machine-ortransformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuits development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text. Id. at 3231. Justice Stevens joined by three others would have found Bilskis invention unpatentable as a method of doing business. Although an amendment had explicitly referenced business method patents, he found the amendment to represent congressional damage control rather than endorsement. Section 273 may have been a technically unnecessary response to confusion about patentable subject matter, but it appeared necessary in 1999 in light of what was being discussed in legal circles at the time. Id. at 3251-52 (note omitted). Attempting to summarize, but joined only by Justice Scalia who also supported the bulk of the majority opinion, Justice Breyer laid out four points said to be consistent with both of the other opinions and concluded, In sum, it is my view that, in re-emphasizing that the machine-or-transformation test is not necessarily the sole test of patentability, the Court intends neither to de-emphasize the tests usefulness nor to suggest that many patentable processes lie beyond its reach. Id. at 3259.

2.46

Subject Matter

Problems 1. Scattered web accounts report that Robert Koch, Louis Pasteur, , Ignaz Semmelweiss and Joseph Lister each contributed to large reductions in maternal mortality resulting from child birth. Although they promoted now-common expedients such as handwashing and sterilization, they faced great resistance in the 1800s. For example, Semmelweiss instituted handwashing precautions before patient contact, and this intervention resulted in a reduction in the overall mortality rate from 18% to less than 3% in his maternity ward. However, his results were not well received by the medical community, as reflected in this statement from an American obstetrician: Doctors are gentlemen, and gentlemens hands are clean. Semmelweiss was fired from his position. Rebecca M. Baron, Miriam J. Baron and Mark A. Perrella, Pathobiology of Sepsis, 34 Am. J. Resp. Cell and Mol. Biol. 129 (2006), http://ajrcmb.atsjournals.org/cgi/content/full/34/2/129 (visited Sept. 17, 2010). Were patents available for discoveries of that kind, how might they have been enforced? 2. When strokes (caused by blood clots) are recognized as such and treated within three hours, paralysis and other serious adverse effects such as can be minimized or avoided. Aids to lay diagnosis may be found on the web and include asking possible victims to smile or to raise both arms. If someone newly and surprisingly discovers that evidence obtained by asking possible stroke victims to stick out their tongues serves a similar end, should its diagnostic use be patentable? That aside, what benefit would a patent confer beyond possible ego gratification??

Chapter 3 Other Patent Requirements

Brenner v. Manson
U.S. Supreme Court 383 U.S. 519 (1966) A. Utility

Justice Fortas: [In 1957, Ringold and Rosenkranz applied for a patent on a process for making certain known steroids. 1 Their patent issued in 1959. When, in 1960 Manson filed a patent application for the same process, he requested that an interference be declared to determine who should get the patent.] A Patent Office examiner denied Mansons application, and the denial was affirmed by the Board. The ground for rejection was the failure to disclose any utility for the chemical compound produced by the process. This omission was not cured, in the opinion of the Patent Office, by Mansons reference to an article which revealed that steroids of a class which included the compound in question were undergoing screening for possible tumor-inhibiting effects in mice, and that a homologue had proven effective in that role. . The [CCPA] reversed. The court held where a claimed process produces a known product it is not necessary to show utility for the product, so long as the product is not alleged to be detrimental to the public interest. Certiorari was granted to resolve this running dispute over what constitutes utility in chemical process claims.4 [The Court found that it could review CCPA decisions at the behest of the Office.] II Our starting point is the proposition, neither disputed nor disputable, that one may patent only that which is useful. In Graham v. John Deere Co., 383 U.S. 1, at 510, we have reviewed the history of the requisites of patentability. Suffice it to say that the concept of utility has maintained a central place in all of our patent legislation, beginning with the first patent law in 1790 and culminating in the present laws provision that14 Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. As is so often the case, however, a simple, everyday word can be pregnant with ambiguity when applied to the facts of life. . It was not long ago that agency and court seemed of one mind on the question. In Application of Bremner, 182 F.2d 216, the court affirmed rejection by the Patent Office of both process and product claims. It noted that no use for the products claimed to be developed by the processes had been shown in the specification. .
1

The applicants described the products of their process as [having] a useful high anabolic-androgenic ratio and are especially valuable for treatment of those ailments where an anabolic or antiestrogenic effect together with a lesser androgenic effect is desired. 4 In addition to the clear conflict between the Patent Office and the CCPA, there arguably exists one between the CCPA and the Court of Appeals for the District of Columbia. 14 35 U.S.C. 101.

3.2

Utility

The Patent Office has remained steadfast in this view. The CCPA, however, has moved sharply away from Bremner. The trend began in Application of Nelson, 280 F.2d 172. . The trend has accelerated, culminating in the present case where the court held it sufficient that a process produces the result intended and is not detrimental to the public interest. 333 F.2d at 238. It is not remarkable that differences arise as to how the test of usefulness is to be applied to chemical processes. Even if we knew precisely what Congress meant in 1790 when it devised the new and useful phraseology and in subsequent re-enactments, we should have difficulty in applying it in the context of contemporary chemistry where research is as comprehensive as mans grasp and where little or nothing is wholly beyond the pale of utility if that word is given its broadest reach. Respondent does not at least in the first instance rest upon the extreme proposition, advanced by the court below, that a novel chemical process is patentable so long as it yields the intended product and so long as the product is not itself detrimental. Nor does he commit the outcome of his claim to the slightly more conventional proposition that any process is useful if it produces a compound whose potential usefulness is under investigation by serious scientific researchers. Rather, he begins with the much more orthodox argument that his process has a specific utility. The claim is that the supporting affidavits filed, reveal that an adjacent homologue of the steroid yielded by his process has been demonstrated to have tumor-inhibiting effects in mice, and that this discloses the requisite utility. We do not accept any of these theories as an adequate basis for overriding the determination of the Patent Office. . Indeed, respondent himself recognized that the presumption that adjacent homologues have the same utility has been challenged in the steroid field because of a greater known unpredictability of compounds in that field. In these circumstances and in this technical area, we would not overturn the finding of the Primary Examiner, affirmed by the Board of Appeals and not challenged by the CCPA. The second and third points of respondents argument present issues of much importance. Is a chemical process useful either (1) because it produces the intended product? or (2) because the compound yielded belongs to a class of compounds now the subject of serious scientific investigation? These contentions present the basic problem. In support of his plea, respondent relies upon Justice Storys well-known statement that a useful invention is one which may be applied to a beneficial use in society, in contradistinction to an invention injurious to the morals, health, or good order of society, or frivolous and insignificant20 and upon the assertion that to do so would encourage inventors of new processes to publicize the event, thus widening the search for uses and increasing the fund of scientific knowledge. Justice Storys language sheds little light. Narrowly read, it does no more than compel us to decide whether the invention in question is frivolous and insignificant a query no easier of application than the one built into the statute. Read more broadly, so as to allow the patenting of any invention not positively harmful to society, it places such a special meaning on the word useful that we cannot accept it in the absence of evidence that Congress so intended. There are, after all, many things in this world which may not be considered useful but which, nevertheless are totally without a capacity for harm. It is true, of course, that one of the purposes of the patent system is to encourage dissemination of information concerning discoveries and inventions. And it may be that inability to patent a process to some extent discourages disclosure and leads to greater
20

Note on the Patent Laws, 3 Wheat. App. 13, 24. . [Quoted in Chapter 1.]

Other Patent Requirements

3.3

secrecy than would otherwise be the case. The inventor of the process, or the corporate organization by which he is employed, has some incentive to keep the invention secret while uses for the product are searched out. However, in light of the highly developed art of drafting patent claims so that they disclose as little useful information as possible while broadening the scope of the claim as widely as possible the argument based upon the virtue of disclosure must be warily evaluated. Moreover, the pressure for secrecy is easily exaggerated, for if the inventor of a process cannot himself ascertain a use for that which his process yields, he has every incentive to make his invention known to those able to do so. Finally, how likely is disclosure of a patented process to spur research by others into the uses to which the product may be put? To the extent that the patentee has power to enforce his patent, there is little incentive for others to undertake a search for uses. Whatever weight is attached to the value of encouraging disclosure and of inhibiting secrecy, we believe a more compelling consideration is that a process patent in the chemical field creates a monopoly of knowledge which should be granted only if clearly commanded by the statute. Until the process claim has been reduced to production of a product shown to be useful, the metes and bounds of that monopoly are not capable of precise delineation. . Unless and until a process is refined and developed to this point there is insufficient justification for permitting an applicant to engross what may prove to be a broad field. These arguments for and against the patentability of a process would apply equally to the patenting of the product produced by the process. Respondent appears to concede that with respect to a product, as opposed to a process, Congress has struck the balance on the side of nonpatentability unless utility is shown. Indeed, the decisions of the CCPA are in accord with the view that a product may not be patented absent a showing of utility greater than any adduced in the present case. We find absolutely no warrant for the proposition that although Congress intended that no patent be granted on a chemical compound whose sole utility consists of its potential role as an object of use-testing, a different set of rules was meant to apply to the process which yielded the unpatentable product.24 That proposition seems to us little more than an attempt to evade the impact of the rules which concededly govern patentability of the product itself. This is not to say that we mean to disparage the importance of contributions to the fund of scientific information short of the invention of something useful, or that we are blind to the prospect that what now seems without use may tomorrow command the grateful attention of the public. But a patent is not a hunting license. It is not a reward for the search, but compensation for its successful conclusion. . Reversed. Justice Douglas, while acquiescing in Part I, dissents on the merits of the controversy for substantially the reasons stated by Justice Harlan. Justice Harlan, concurring in part and dissenting in part. [He agreed that the Court had jurisdiction to review CCPA decisions at the behest of the Office.] Respondent has contended that a workable chemical process, which is both new and sufficiently nonobvious to satisfy the patent statute, is by its existence alone a contribution to chemistry and useful as the statute employs that term. Certainly this reading of useful in the statute is within the scope of the constitutional grant, which states only that [t]o promote the Progress of Science and useful Arts, the exclusive right to Writings and Discoveries may be secured for limited times to those who produce them. Art. I, 8. Yet the patent statute is somewhat differently worded and is on its face open both to respondents
24

The committee reports which preceded enactment of the 1952 revision of the patent laws disclose no intention to create such a dichotomy, and in fact provide some evidence that the contrary was assumed.

3.4

Utility

construction and to the contrary reading given it by the Court. In the absence of legislative history on this issue, we are thrown back on policy and practice. Because I believe that the Courts policy arguments are not convincing and that past practice favors the respondent, I would reject the narrow definition of useful and uphold the judgment of the CCPA. The Courts opinion sets out about half a dozen reasons in support of its interpretation. Several have almost no force. For instance, it is suggested that [u]ntil the process claim has been reduced to production of a product shown to be useful, the metes and bounds of that monopoly are not capable of precise delineation and [i]t may engross a vast, unknown, and perhaps unknowable area. I fail to see the relevance of these assertions; process claims are not disallowed because the products they produce may be of vast importance nor, in any event, does advance knowledge of a specific product use provide much safeguard on this score or fix metes and bounds precisely since a hundred more uses may be found after a patent is granted and greatly enhance its value. The further argument that an established product use is part of [t]he basic quid pro quo for the patent or is the requisite successful conclusion of the inventors search appears to beg the very question whether the process is useful simply because it facilitates further research into possible product uses. The same infirmity seems to inhere in the Courts argument that chemical products lacking immediate utility cannot be distinguished for present purposes from the processes which create them. Assuming that the two classes cannot be distinguished and assuming further that the CCPA has firmly held such products nonpatentable, this permits us to conclude only that the CCPA is wrong either as to the products or as to the processes and affords no basis for deciding whether both or neither should be patentable absent a specific product use. More to the point, I think, are the Courts remaining, prudential arguments against patentability. How far opaque drafting may lessen the public benefits resulting from the issuance of a patent is not shown, but, more important, the argument operates against all patents and gives no reason for singling out the class involved here. . As to discouraging the search by others for product uses, there is no doubt this risk exists but the price paid for any patent is that research on other uses or improvements may be hampered because the original patentee will reap much of the reward. From the standpoint of the public interest the Constitution seems to have resolved that choice in favor of patentability. . In my view, our awareness in this age of the importance of achieving and publicizing basic research should lead this Court to resolve uncertainties in its favor and uphold the respondents position in this case. This position is strengthened, I think, by what appears to have been the practice of the Patent Office during most of this century. . If usefulness was typically regarded as inherent during a long and prolific period of chemical research and development in this country, surely this is added reason why the Courts result should not be adopted until Congress expressly mandates it, presumably on the basis of empirical data which this Court does not possess. Fully recognizing that there is ample room for disagreement on this problem when, as here, it is reviewed in the abstract, I believe the decision below should be affirmed. Notes 1. Although Mansons application was not filed until after another patent had already been granted, meeting the utility requirement might have enabled him to take title to some or all of the technology claimed in that patent. See 35 U.S.C. 102(g) and 135. 2. As in OReilly, is the majority primarily concerned about the correspondence between the scope of Mansons contributions and his reward? What of the dissent?

Other Patent Requirements

3.5

3. What is the difference between patents on algorithms themselves, say E=mc2 , and patents on products or processes that exploit them? Is that issue better characterized, as suggested in State Street, as one involving utility rather than subject matter? 4. Readers may notice in this and many other cases that courts refer to the Patent Office, not the PTO. Despite long-standing trademark jurisdiction, the name of the Office did not reflect that jurisdiction until 1975. Pub. L. No. 93-596, 3, Jan. 2, 1975, 88 Stat. 1949.

U.S. Court of Appeals, Federal Circuit 776 F.2d 1034 (1985) Before Nies, Newman and Bissell. Nies, Circuit Judge: This appeal is from the judgment of the U.S. district court for the District of Columbia,* dismissing a civil action taken under 35 U.S.C. 145 challenging the determination of the [PTO] Board of Appeals (board) that claims are unpatentable. Our jurisdiction over the appeal is found in 28 U.S.C. 1295(a)(4)(C). We affirm. Background The invention relates to a method for enhancing the flavor of a beverage by passing it through a magnetic field. The application includes ten claims covering not only changes in flavor, but also changes in the aroma, specific gravity (density), and amount of volatile chemicals in the beverage resulting from the application of a magnetic field. . The examiner rejected the claims for lack of utility due to inoperativeness under 101 and appellant admits that the invention is one about which those of ordinary skill in the flavor chemistry art would be skeptical when first hearing of it. . Appellant challenged the examiners rejection on inoperativeness by submitting declarations from Robert C. Lindsay, Ph.D., Professor of Food Science at the University of Wisconsin-Madison. Dr. Lindsay averred that the test results demonstrated the operability of the invention. The examiner, however, remained unconvinced, stating in his final office action that, although Dr. Lindsays credentials were not questioned, his declaration alone was insufficient to establish evidence of the type convincing to the scientific community and that the differences detected by his tests were insignificant. The board agreed with the examiner. At the trial before the district court under 35 U.S.C. 145, appellant submitted an additional report prepared for the litigation by Dr. Lindsay which set forth additional data and a theory on how magnetism could act to enhance the flavor of beverages. Dr. Lindsay also testified at the trial, as did the inventor, Fregeau. In its opinion, the district court held that, despite the additional evidence submitted by appellant, it lacked a thorough conviction that the board had erred, relying on the case law developed in the D.C. Circuit. . Lack of Utility Lack of utility because of inoperativeness is a question of fact. Under our standard of review, the district courts finding of lack of utility here can only be set aside if it is clearly erroneous. The PTO, of course, bore the initial burden of showing prima facie that the claims were unpatentable. . However, in this case, appellant acknowledg[ed] that he bore the burden of coming forward with rebuttal evidence sufficient to counter that ground of
*

Fregeau v. Mossinghoff

Reconsider the diagram appearing immediately before State Street.

3.6

Utility

rejection. Based upon the evidence before the PTO and the additional evidence presented at trial, the district court found that appellant failed to demonstrate that his device was operative or useful. Our review of the evidence reveals no basis for reversing the district court findings as clearly erroneous. Although Dr. Lindsay concluded that the taste sensitivity tests demonstrate that exposure to the magnetic device according to the above-identified application alters the flavor of human-consumable liquids, the evidence relied upon is not so clear. For example, the two-sample taste test results for brandy, coffee, and sweetened orange juice show that in each case 21 out of 30 correct responses were obtained. Dr. Lindsay testified on cross-examination that correct responses included both the correct identification of two samples that were the same (both treated or both untreated) as well as samples that were different. However, the number of correct responses counted for samples which were the same is undisclosed. Obviously, if all or most of the samples tested were, in fact, the same, the results are meaningless. . As to the objective tests, both the district court and the board found the observed physical property changes in liquids subjected to a magnetic field to be de minimus [sic (minimis)]. For example, while the data shows that fixed volumes of gin gained a mass of .0057 grams when subjected to a magnetic field, the same volume is shown as undergoing a change of .0380 grams due to a 1 C temperature change. Other data shows that passing coffee through a placebo device had a greater effect on the pH than the effect purportedly caused by passing coffee through the magnetic device. Appellant urges us to accept the testimony of Dr. Lindsay, a disinterested expert in the field, concluding that both the subjective and objective tests verify the inventions operability. In view of the nature of the claimed invention, however, we find no error in the evaluation of the opinion of a single declarant as insufficient to overcome the PTOs prima facie case. Dr. Lindsays opinion alone simply does not constitute evidence of the type convincing to the scientific community. In sum, the evidence in the record does not convince us that the district court clearly erred. Thus, the rejection under 101 is affirmed. .* Notes 1. Are patents for useless inventions likely to be infringed? In what ways might such patents nevertheless be at odds with the public interest? 2. In what way did evidence presented to the district court differ from that presented to the PTO? 3. The figure following Merrill Lynch in Chapter 2 shows district court review of PTO patent decisions under 145 as well as direct review by the CAFC under 141-44. District court review is less frequent perhaps because the last sentence of 145 reads, All the expenses of the proceedings shall be paid by the applicant a condition that is rare, if not unique, among provisions governing judicial review of federal agencies. 4. The jurisdictional diagram in Chapter 2 helps explain the district courts reliance on opinions from the D.C. Circuit. Why are those opinions no longer precedential?

Judge Pauline Newman dissented concerning a point not considered here.

Other Patent Requirements

3.7

U.S. Court of Appeals, Federal Circuit 165 F.3d 1353 (1999) Before Mayer, Newman and Rader. Mayer, Circuit Judge: . Cortrights patent application [discloses] a method of treating baldness by applying Bag Balm, a commercially available product used to soften cow udders, to human scalp. Claims 1 and 15 are the only claims on appeal. Claim 1 recites a method of treating scalp baldness with an antimicrobial to restore hair growth, which comprises rubbing into the scalp the ointment wherein the active ingredient 8-hydroxy-quinoline sulfate 0.3% is carried in a petrolatum and lanolin base. Claim 15 recites a method of offsetting the effects of lower levels of a male hormone being supplied by arteries to the papilla of scalp hair follicles with the active agent 8-hydroxy-quinoline sulfate to cause hair to grow again. . According to the examiner, Cortrights statements of utility, namely, her claims of treating baldness, are suspect because baldness is generally accepted in the art as being incurable. . Furthermore, with respect to claim 15s recitation of offsetting the effects of lower levels of a male hormone, Cortright offered no proof that such an off-set occurs and has disclosed that this is only speculation. The examiner also rejected the claims because the written description discloses that Bag Balm has been applied to human skin and the scalp is the skin of the head. Cortright appealed these rejections to the board. In its decision, the board reversed because the examiner did not set out sufficient reasons for finding Cortrights statements of utility incredible. . The board also reversed because although the prior art discloses the application of Bag Balm to human skin, it does not disclose applying it to bald, human scalp. Despite these reversals, Cortright did not prevail because the board found the claims [to be] based on a non-enabling disclosure. . The board explained that claim 1 is not enabled because it claims restor[ing] hair growth, which the board interpreted as requiring the users hair to return to its original state, that is, a full head of hair. Thus, the boards rejection was not based on complete nonenablement, but on the claim [sic] not being commensurate with the scope of the disclosure. With respect to claim 15, the board maintained its general non-enablement rejection, adding that there is no evidence of record that the resultant hair growth is due to (i) the stimulation of the papilla, and (ii) the offsetting [of] the effects of lower male hormone which is supplied by arteries to the papilla, and not due to some other mechanism(s). Cortright appeals. Discussion Whether making and using an invention would have required undue experimentation, and thus whether a disclosure is enabling under 35 U.S.C. 112 1 (1994), is a legal conclusion based upon underlying factual inquiries. Johns Hopkins Univ. v. Cellpro, Inc., 152 F.3d 1342, 1354 (Fed. Cir. 1998). Utility is a factual issue, which we review for clear error. Section 112 1 provides: The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to make and use the same, and shall set forth the best mode contemplated by the inventor. A lack of enablement rejection under 1 is appropriate where the written description fails to

In re Cortright

3.8

Utility

teach those in the art to make and use the invention as broadly as it is claimed without undue experimentation. This rejection takes several forms. The PTO will make a scope of enablement rejection where the written description enables something within the scope of the claims, but the claims are not limited to that scope. This type of rejection is marked by language stating that the specification does not enable one of ordinary skill to use the invention commensurate with the scope of the claims. On the other hand, if the written description does not enable any subject matter within the scope of the claims, the PTO will make a general enablement rejection, stating that the specification does not teach how to make or use the invention. If the written description fails to illuminate a credible utility, the PTO will make both a 112 1 rejection for failure to teach and a 101 rejection for lack of utility. This dual rejection occurs because [t]he how to use prong of 112 incorporates as a matter of law the requirement 101 that the specification disclose as a matter of fact a practical utility for the invention. In re Ziegler, 992 F.2d 1197, 1200 (Fed. Cir. 1993). Thus, an applicants failure to disclose how to use an invention may support a rejection under either 112 1 for lack of enablement or 101 for lack of utility when there is a complete absence of data supporting the statements which set forth the desired results of the claimed invention. Environtech Corp. v. Al George, Inc., 730 F.2d 753, 762 (Fed. Cir. 1984). The PTO cannot make this type of rejection, however, unless it has reason to doubt the objective truth of the statements contained in the written description. The PTO may establish a reason to doubt an inventions asserted utility when the written description suggest[s] an inherently unbelievable undertaking or involve[s] implausible scientific principles. In re Brana, 51 F.3d 1560, 1566 (Fed. Cir. 1995). Treating baldness was once considered an inherently unbelievable undertaking. Since then, however, treatments for baldness have gained acceptance. Rogaine (minoxidil) and Propecia are recognized as effective. In addition, the PTO has granted approximately one hundred patents on methods of treating baldness. . With respect to claim 1, the examiner made a lack of utility rejection under 101 arguing that the asserted statements of utility were incredible in light of Cortrights failure to prove utility with clinical evidence. The board first appeared to make a generic enablement rejection under 112 1, focusing on the lack of any teachings or guidance as to how to perform the claimed methods and the unpredictable nature of the art of restoring hair growth. Upon reconsideration, however, the board clarified that its rejection pertained to scope. It took the position that the broadest interpretation of restore hair growth requires the application of Bag Balm to return the users hair to its original state, that is, a full head of hair. Because Cortrights written description discloses results of only three times as much hair growth as two months earlier, filling-in some, and fuzz, the board reasoned, it does not support the breadth of the claims. Although the PTO must give claims their broadest reasonable interpretation, this interpretation must be consistent with the one that those skilled in the art would reach. See In re Bond, 910 F.2d 831, 833 (Fed. Cir. 1990) (It is axiomatic that, in proceedings before the PTO, claims in an application are to be given their broadest reasonable interpretation consistent with the specification, and that claim language should be read in light of the specification as it would be interpreted by one of ordinary skill in the art.) (emphasis added). Prior art references may be indicative of what all those skilled in the art generally believe a certain term means [and] can often help to demonstrate how a disputed term is used by those skilled in the art. Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1584 (Fed. Cir. 1996). Accordingly, the PTOs interpretation should not be so broad that it conflicts with the meaning given to identical terms in other patents from analogous art.

Other Patent Requirements

3.9

The PTOs construction of restore hair growth in the present case is inconsistent with its previous definitions. [Three patents] each recite a method of restoring hair growth. [One] recites: A process for restoring hair growth which comprises the steps of: (a) applying a cleansing mixture of sage, aloe and nettles and then removing same; (b) applying a treatment mixture of castor oil, shea butter, wheat germ oil and white iodine; and (c) heating the treatment mixture on the hair and scalp and then removing the treatment mixture. (Claim 1) (emphasis added). The accompanying disclosure reveals five examples in which women and men practiced the claimed method. . [Another] recites: The method for the restoration of hair growth which comprises the steps of: applying a finite layer of Dead Sea mud. (Claim 1) (emphasis added). The accompanying disclosure reveals an example in which a man noticed [m]any sprouts of new hair after practicing the method for six weeks and ultimately approximately 25% regrowth over the entire previously bald scalp. . The 599 patent recites: A method for increasing or restoring hair growth over the sole administration of a topical minoxidil treatment. (emphasis added). The examples show increased growth of hair compared to those using minoxidil alone. Nevertheless, the patent does not show that this method completely cured baldness. In light of these disclosures, one of ordinary skill would not construe restoring hair growth to mean returning the users hair to its original state, as the board required. . Properly construed, claim 1 is amply supported by the written description because Example 1 discloses the amount of Bag Balm to apply (about one teaspoon daily) and the amount of time (about one month). These dosing instructions enable one of ordinary skill to practice the claimed invention without the need for any experimentation. Therefore, we reverse the boards rejection of claim 1. . Nevertheless, we must affirm the rejection of claim 15. [A]lthough the written description states that people observed hair growth after applying Bag Balm to the scalp, it does not disclose that anyone observed the active ingredient reach the papilla and offset the effects of lower levels of male hormones. . Notes 1. Utility in Cortright was less important than claim interpretation. Language permitted in claims for, e.g., Dead Sea mud was relevant because a single examiners views count for less if they are inconsistent with those of other examiners all presumably skilled in the art. 2. Bag Balm has apparently not been approved by the Food and Drug Administration (FDA) for use on human tissue, but it is commonly used for chapped hands. If shown also to have been long used for chapped (presumably bald) heads, claim 1 would be invalid on that basis alone. See, e.g., Verdegaal Bros. v. Union Oil Co., 814 F.2d 628 (Fed. Cir. 1987). 3. The PTO generally accepts utility claims without proof, but the FDA does not. Research to support Cortrights therapeutic claims would make an FDA-approved version of Bag Balm more expensive than one theoretically limited to veterinary use. If consumers refused to pay a premium for one approved for Cortrights patented use, could enforcement of her patent prevent consumers use of the unapproved version?

3.10

Utility

Juicy Whip Inc. v. Orange Bang Inc.

U.S. Court of Appeals, Federal Circuit 185 F.3d 1364 (1999)

Before Rich,* Schall, and Bryson. Bryson, Circuit Judge: The district court in this case held a patent invalid for lack of utility on the ground that the patented invention was designed to deceive customers. We reverse and remand. A post-mix beverage dispenser stores beverage syrup concentrate and water in separate locations until the beverage is ready to be dispensed. The syrup and water are mixed usually after the consumer requests the beverage. In contrast, in a pre-mix beverage dispenser, the syrup concentrate and water are pre-mixed and the beverage is stored in a display reservoir bowl. The display bowl is said to stimulate impulse buying by providing the consumer with a visual beverage display. A pre-mix display bowl, however, has a limited capacity and is subject to contamination by bacteria. It therefore must be refilled and cleaned frequently. The invention claimed in the 405 patent [assigned to Juicy-Whip] is a post-mix beverage dispenser that is designed to look like a pre-mix beverage dispenser. . . Orange Bang moved for summary judgment of invalidity, and the district court granted Orange Bangs motion on the ground that the invention lacked utility and thus was unpatentable under 35 U.S.C. 101. Although the court acknowledged Juicy Whips argument that the invention provides an accurate representation of the dispensed beverage for the consumers benefit while eliminating the need for retailers to clean their display bowls, the court concluded that those claimed reasons for the patents utility are not independent of its deceptive purpose, and are thus insufficient to raise a disputed factual issue to present to a jury. The court further held that the invention lacked utility because it improves the prior art only to the extent that it increases the salability of beverages dispensed from post-mix dispensers; an invention lacks utility, the court stated, if it confers no benefit to the public other than the opportunity for making a product more salable. Finally, the court ruled that the invention lacked utility because it is merely an imitation of the pre-mix dispenser, and thus does not constitute a new and useful machine. II [S]ince Justice Storys opinion in Lowell v. Lewis, 15 F. Cas. 1018 (C.C. D. Mass. 1817), it has been stated that inventions that are injurious to the well-being, good policy, or sound morals of society are unpatentable. As examples [he] listed a new invention to poison people, or to promote debauchery, or to facilitate private assassination. Courts have continued to recite Justice Storys formulation, but the principle has not been applied broadly in recent years. For example, years ago courts invalidated patents on gambling devices on the ground that they were immoral, but that is no longer the law. In holding the patent in this case invalid for lack of utility, the district court relied on two Second Circuit cases dating from the early years of this century, Rickard v. Du Bon, 103 F. 868 (2d Cir. 1900), and Scott & Williams, Inc. v. Aristo Hosiery Co., 7 F.2d 1003 (2d Cir. 1925). In Rickard, the court held invalid a patent on a process for treating tobacco plants to make their leaves appear spotted. At the time of the invention, according to the court, cigar smokers considered cigars with spotted wrappers to be of superior quality. The court
*

Judge Rich heard oral argument in this case but died on June 9, 1999. This case was decided by the remaining judges in accordance with Federal Circuit Rule 47.11.

Other Patent Requirements

3.11

noted that the invention did not promote the burning quality of the leaf or improve its quality in any way; the only effect, if not the only object, of such treatment, is to spot the tobacco, and counterfeit the leaf spotted by natural causes. Aristo Hosiery concerned a patent claiming a seamless stocking with a structure on the back of the stocking that imitated a seamed stocking. The imitation was commercially useful because at the time of the invention many consumers regarded seams in stockings as an indication of higher quality. . At best, the court stated, the seamless stocking has imitation marks for the purposes of deception, and the idea prevails that with such imitation the article is more salable. 7 F.2d at 1004. That was not enough, the court concluded, to render the invention patentable. We decline to follow Rickard and Aristo Hosiery, as we do not regard them as representing the correct view of the doctrine of utility under the Patent Act of 1952. The fact that one product can be altered to make it look like another is in itself a specific benefit sufficient to satisfy the statutory requirement of utility. [C]ubic zirconium is designed to simulate a diamond, imitation gold leaf is designed to imitate real gold leaf, synthetic fabrics are designed to simulate expensive natural fabrics, and imitation leather is designed to look like real leather. In each case, the invention of the product or process that makes such imitation possible has utility within the meaning of the patent statute, and indeed there are numerous patents directed toward making one product imitate another. Much of the value of such products resides in the fact that they appear to be something they are not. . The fact that customers may believe they are receiving fluid directly from the display tank does not deprive the invention of utility. . [E]ven if the use of a reservoir containing fluid that is not dispensed is considered deceptive, that is not by itself sufficient to render the invention unpatentable. The requirement of utility in patent law is not a directive to the PTO or the courts to serve as arbiters of deceptive trade practices. Other agencies, such as the Federal Trade Commission and the FDA, are assigned the task of protecting consumers from fraud and deception in the sale of food products. As the Supreme Court put the point more generally, Congress never intended that the patent laws should displace the police powers of the States, meaning by that term those powers by which the health, good order, peace and general welfare of the community are promoted. Webber v. Virginia, 103 U.S. 344, 34748 (1880). Of course, Congress is free to declare particular types of inventions unpatentable for a variety of reasons, including deceptiveness. Cf. 42 U.S.C. 2181(a) (exempting from patent protection inventions useful solely in connection with special nuclear material or atomic weapons). Until such time as Congress does so, however, we find no basis in section 101 to hold that inventions can be ruled unpatentable for lack of utility simply because they have the capacity to fool some members of the public. . Notes 1. Consider 35 U.S.C. 154(a)(1). Insofar as it contains rights to exclude, not use, should an inventions potential for illegal use ever render it unpatentable? Should the possibility of labeling to reduce or prevent deception be relevant? 2. If an invention has only illegal uses, what is the likelihood of that being asserted as a defense to a suit for infringement? 3. Contrast Decker v. FTC, 176 F.2d 461 (D.C. Cir. 1949). The majority affirmed the FTCs ability to prohibit deceptive marketing of an automobile exhaust attachment said to, e.g., save gas, oil and tires; increase power and reduce motor vibration.

3.12

Novelty

Rejecting the notion that a patent represents an authoritative acceptance of all representations made in the specification, at 463, the majority opinion states: Before the patent grant, the inventor had the right to sell the product of his invention, and to advertise the same, but not the right to misrepresent it. Now, after the patent grant, petitioners [still] have the right to sell the article and to advertise it, but not the right to misrepresent it. The Court might also have found that patent examiners are neither trained nor equipped to do more than challenge representations, as in Fregeau. Holding otherwise would add substantially to PTO obligations. 4. The reference to 42 U.S.C. 2181(a) at the end of Juicy Whip may have been inspired by similar language at the end of the majority opinion in Chakrabarty (omitted from the excerpt above). At least with regard to the relative jurisdiction of the PTO and other government agencies or the courts, the core issue is similar. 5. With regard to 42 U.S.C. 2181(a), see also 35 U.S.C. 18188. (But the Atomic Energy Commission referenced in 188 was abolished in 1975 its authority being apportioned between the Nuclear Regulatory Commission and the Department of Energy.) B. Novelty

Pennock v. Dialogue
U.S. Supreme Court 27 U.S. 1 (1829)

Justice Story: . The original action was brought for an asserted violation of a patent for a new and useful improvement in the art of making leather tubes or hose, for conveying air, water, and other fluids. [A jury] verdict was found for the defendant, upon which judgment passed in his favour; and the correctness of that judgments is now in controversy before this Court. . The record contains, embodied in the bill of exceptions, the whole of the testimony and evidence offered at the trial, by each party, in support of the issue. It is very voluminous and forms an expensive and unnecessary burthen upon the record.* . In the case at bar, it is unnecessary to consider whether the facts stated in the charge of the court would, upon general principles, warrant [affirmation] because, we are of opinion, that the proper answer depends upon the true exposition of the act of congress, under which the present patent was obtained. . The [1793] patent act prescribes the terms and conditions and manner of obtaining patents for inventions; and proof of a strict compliance with them lies at the foundation of the title acquired by the patentee. The first section provides
*

At 9, Mr. Sergeant, for the defendant, stated that: [N]early two miles and a half in length of hose, had been made at different times in the course of seven years before the patent; and had been sold to different hose companies; not to experiment with, in order to bring the invention to perfection; but for public use, as a thing already completed, and adapted to the purpose of arresting the ravages of fire. It was so used; and from the year 1811 to the year 1818, it was never materially altered or improved. The thing patented in 1818 was precisely the thing invented, completed and used in 1811. These facts do not appear to be disputed.

Other Patent Requirements

3.13

that when any person or persons, being a citizen or citizens of the United States, shall allege that he or they have invented any new or useful art, machine, manufacture, or composition of matter, or any new or useful improvement, not known or used before the application; and shall present a petition to the secretary of state; it shall and may be lawful for the said secretary of state, to cause letters patent to be made out, granting to the said petitioner, &c. for a term not exceeding fourteen years, the full and exclusive right and liberty of making, constructing, using, and vending to others to be used, the said invention or discovery, &c. The third section provides that every inventor, before he can receive a patent, shall swear, or affirm, that he does verily believe that he is the true inventor or discoverer of the art, machine, or improvement for which he solicits a patent. The sixth section provides that the defendant shall be permitted to give in defence that the thing thus secured by patent was not originally discovered by the patentee, but had been in use, or had been described in some public work, anterior to the supposed discovery of the patentee. These are the only material clauses bearing upon the question now before the court; and upon the construction of them, there has been no inconsiderable diversity of opinion. It is obvious to the careful inquirer, that many of the provisions of our patent act are derived from the principles and practice which have prevailed in the construction of that of England. It is doubtless true, as has been suggested at the bar, that where English statutes, such for instance, as the statute of frauds, and the statute of limitations; have been adopted into our own legislation; the known and settled construction of those statutes by courts of law, has been considered as silently incorporated into the acts, or has been received with all the weight of authority. Strictly speaking, that is not the case in respect to the English statute of monopolies; which contains an exception on which the grants of patents for inventions have issued in that country. The language of that clause of the statute is not, as we shall presently see, identical with ours; but the construction of it adopted by the English courts, and the principles and practice which have long regulated the grants of their patents, as they must have been known and are tacitly referred to in some of the provisions of our own statute, afford materials to illustrate it. . What then is the true meaning of the words not known or used before the application? . [They] must mean, not known or used by others, before the application. But how known or used? If it were necessary, as it well might be, to employ others to assist in the original structure or use by the inventor himself; or if before his application for a patent his invention should be pirated by another, or used without his consent; it can scarcely be supposed, that the legislature had within its contemplation such knowledge or use. We think, then, the true meaning must be, not known or used by the public, before the application. And, thus construed, there is much reason for the limitation thus imposed by the act. While one great object was, by holding out a reasonable reward to inventors, and giving them an exclusive right to their inventions for a limited period, to stimulate the efforts of genius; the main object was to promote the progress of science and useful arts; and this could be done best, by giving the public at large a right to make, construct, use, and vend the thing invented, at as early a period as possible; having a due regard to the rights of the inventor. If an inventor should be permitted to hold back from the knowledge of the public the secrets of his invention; if he should for a long period of years retain the monopoly, and make, and sell his invention publicly, and thus gather the whole profits of it, relying upon his superior skill and knowledge of the structure; and then, and then only, when the danger of

3.14

Novelty

competition should force him to secure the exclusive right, he should be allowed to take out a patent, and thus exclude the public from any farther use than what should be derived under it during his fourteen years; it would materially retard the progress of science and the useful arts, and give a premium to those who should be least prompt to communicate their discoveries. A provision, therefore, that should withhold from an inventor the privilege of an exclusive right, unless he should, as early as he should allow the public use, put the public in possession of his secret, and commence the running of the period, that should limit that right; would not be deemed unreasonable. It might be expected to find a place in a wise prospective legislation on such a subject. If it was already found in the jurisprudence of the mother country, and had not been considered inconvenient there; it would not be unnatural that it should find a place in our own. [T]he statute of monopolies, does contain exactly such a provision. That act, after prohibiting monopolies generally, contains, in the sixth section, an exception in favour of letters patent and grants of privileges for fourteen years or under, for the sole working or making of any manner of new manufactures within this realm, to the true and first inventor and inventors of such manufactures, which others, at the time of making such letters patent and grants, shall not use. . In the case of Wood vs. Zimmer the inventor had suffered the thing invented to be sold, and go into public use for four months before the grant of his patent; and it was held by the court, that on this account the patent was utterly void. Lord chief justice Gibbs said, To entitle a man to a patent, the invention must be new to the world. The public sale of that which is afterwards made the subject of a patent, though sold by the inventor only, makes the patent void. . The words of our statute are not identical with those of the statute of [monopolies], but it can scarcely admit of doubt, that they must have been within the contemplation of those by whom it was framed. We are not at liberty to reject words which are sensible in the place where they occur, merely because they may be thought, in some cases, to import a hardship, or tie up beneficial rights within very close limits. . It is not wholly insignificant that the first patent act which the present act repeals, uses the words not known or used before, without adding the words the application; and in connexion with the structure of the sentence in which they stand, might have been referred either to the time of the invention, or of the application. The addition of the latter words in the patent act of 1793, must, therefore, have been introduced, ex industria, and with the cautious intention to clear away a doubt, and fix the original and deliberate meaning of the legislature. The act [of 1800], which extends the privileges of the act of 1793 to inventors who are aliens; contains a proviso declaring, that every patent which shall be obtained pursuant to the act for any invention, art or discovery, which it shall afterwards appear had been known or used previous to such application for a patent, shall be void. This proviso certainly certifies the construction of the act of 1793, already asserted; for there is not any reason to suppose, that the legislature intended to confer on aliens, privileges, essentially different from those belonging to citizens. On the contrary, the enacting clause of the act of 1800 purports to put both on the same footing; and the proviso seems added as a gloss or explanation of the original act. The only real doubt which has arisen upon this exposition of the statute, has been created by the words of the sixth section already quoted. . If a mere use of the thing invented before the application were sufficient to bar the right, then, although the party may have been the first and true inventor, if another person, either innocently as a second

Other Patent Requirements

3.15

inventor, or piratically, were to use it without the knowledge of the first inventor; his right would be gone. In respect to a use by piracy, it is not clear that any such fraudulent use is within the intent of the statute; and upon general principles it might well be held excluded. In respect to the case of a second invention, it is questionable at least, whether, if by such second invention a public use was already acquired, it could be deemed a case within the protection of the act. If the public were already in possession and common use of an invention fairly and without fraud, there might be sound reason for presuming, that the legislature did not intend to grant an exclusive right to any one to monopolize that which was already common. There would be no quid pro quo no price for the exclusive right or monopoly conferred upon the inventor for fourteen years. Be this as it may, it is certain that the sixth section is not necessarily repugnant to the construction which the words of the first section require and justify. The sixth section certainly does not enumerate all the defences which a party may make in a suit brought against him for violating a patent. One obvious omission is, where he uses it under a license or grant from the inventor. The sixth section in the clause under consideration, may well be deemed merely affirmative of what would be the result from the general principles of law applicable to other parts of the statute. It gives the right to the first and true inventor and to him only; if known or used before his supposed discovery he is not the first, although he may be a true inventor; and that is the case to which the clause looks. But it is not inconsistent with this doctrine, that although he is the first, as well as the true inventor, yet if he shall put it into public use, or sell it for public use before he applies for a patent, that this should furnish another bar to his claim. In this view an interpretation is given to every clause of the statute without introducing any inconsistency, or interfering with the ordinary meaning of its language. No public policy is overlooked; and no injury can ordinarily occur to the first inventor, which is not in some sort the result of his own laches or voluntary inaction. It is admitted that the subject is not wholly free from difficulties; but we are all of opinion that the first inventor cannot acquire a good title to a patent; if he suffers the thing invented to go into public use, or to be publicly sold for use, before he makes application for a patent. His voluntary act or acquiescence in the public sale and use is an abandonment of his right; or rather creates a disability to comply with the terms and conditions on which alone the secretary of state is authorized to grant him a patent. .

Pfaff v. Wells Electronics Inc.

U.S. Supreme Court 525 U.S. 55 (1998) Justice Stevens: . On Apr. 19, 1982, petitioner, Wayne Pfaff, filed an application for a patent on a computer chip socket. [I]f the 1-year period [in 102(b)] began to run before that date, Pfaff lost his right to patent his invention. Pfaff commenced work on the socket in November 1980, when representatives of Texas Instruments [TI] asked him to develop a new device for mounting and removing semiconductor chip carriers. In response to this request, he prepared detailed engineering drawings that described the design, the dimensions, and the materials to be used. Pfaff sent those drawings to a manufacturer in February or March 1981.

3.16

Novelty

Prior to Mar. 17, 1981, Pfaff showed a sketch of his concept to representatives of TI. On Apr. 8, 1981, they provided Pfaff with a written confirmation of a previously placed oral purchase order. In accord with his normal practice, Pfaff did not make and test a prototype of the new device before offering to sell it in commercial quantities.3 The manufacturer took several months to develop the customized tooling, and Pfaff did not fill the order until July 1981. The evidence therefore indicates that Pfaff first reduced his invention to practice in the summer of 1981. The socket achieved substantial commercial success before [the 377 patent] issued to Pfaff on Jan. 1, 1985.4 After the patent issued, petitioner brought an infringement action against respondent. Wells prevailed on the basis of a finding of no infringement. When respondent began to market a modified device, petitioner brought this suit, alleging that the modifications infringed six of the claims in the 377 patent. . [The district court found that Pfaff had filed the application for the 377 patent within the year permitted by 102(b).] The court of appeals reversed, finding all six claims invalid. Four of the claims described the socket that Pfaff had sold to TI prior to Apr. 8, 1981. Because that device had been offered for sale on a commercial basis more than one year before the patent application was filed on Apr. 19, 1982, the court concluded that those claims were invalid under 102(b). That conclusion rested on the courts view that as long as the invention was substantially complete at the time of sale, the 1-year period began to run, even though the invention had not yet been reduced to practice. The other two claims described a feature that had not been included in Pfaffs initial design, but the court of appeals concluded as a matter of law that the additional feature was not itself patentable because it was an obvious addition to the prior art.7 Given the courts 102(b) holding, the prior art included Pfaffs first four claims. Because other courts have held or assumed that an invention cannot be on sale within the meaning of 102(b) unless and until it has been reduced to practice [2d and 7th Circuit decisions were cited], and because the text of 102(b) makes no reference to substantial completion of an invention, we granted certiorari. II The primary meaning of the word invention in the Patent Act unquestionably refers to the inventors conception rather than to a physical embodiment of that idea. The statute does not contain any express requirement that an invention must be reduced to practice before it can be patented. Neither the statutory definition of the term in Section 1008 nor the basic conditions for obtaining a patent set forth in 1019 make any mention of reduction to practice. The statutes only specific reference to that term is found in 102(g). In determining priority of invention there shall be considered not only the respective dates of conception and reduction to practice of the invention, but also the reasonable diligence of one who was first to conceive and last to reduce to practice, from a time prior to conception by the other.
3

4 7 8 9

At [Pfaffs deposition, he answered respondents counsel in part]: Q. You are satisfied, obviously, when you come up with some drawings that it is going to go it works? A. I know what Im doing, yes, most of the time. [Between 1981 and 1984, sales rose from $350,000 to $3,430,000.] [35 U.S.C. 103.] [35 U.S.C. 100 (a) provides: The term invention means invention or discovery.] [35 U.S.C. 101 provides]: Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

Other Patent Requirements

3.17

Thus, assuming diligence on the part of the applicant, it is normally the first inventor to conceive, rather than the first to reduce to practice, who establishes the right to the patent. It is well settled that an invention may be patented before it is reduced to practice. In 1888, this Court upheld a patent issued to Alexander Graham Bell even though he had filed his application before constructing a working telephone. Chief Justice Waites reasoning in that case merits quoting at length: . The law does not require that a discoverer or inventor must have succeeded in bringing his art to the highest degree of perfection. It is enough if he describes his method with sufficient clearness and precision to enable those skilled in the matter to understand what the process is, and if he points out some practicable way of putting it into operation. The Telephone Cases, 126 U.S. 1, 53536 (1888). When we apply the reasoning of The Telephone Cases to the facts of the case before us today, it is evident that Pfaff could have obtained a patent on his novel socket when he accepted the purchase order from TI. At that time he provided the manufacturer with a description and drawings that had sufficient clearness and precision to enable those skilled in the matter to produce the device. . We can find no basis in the text of 102(b) or in the facts for concluding that Pfaffs invention was not on sale until after it had been reduced to practice. III Pfaff nevertheless argues that longstanding precedent, buttressed by the strong interest in providing inventors with a clear standard identifying the onset of the 1-year period, justifies a special interpretation of the word invention as used in 102(b). We are persuaded that this nontextual argument should be rejected. . The balance between the interest in motivating innovation and the interest in avoiding monopolies that unnecessarily stifle competition on the other, has been a feature of the federal patent laws since their inception. As this Court explained in 1871: Letters patent are not to be regarded as monopolies but as public franchises granted to the inventors of new and useful improvements for the purpose of securing to them, as such inventors, for the limited term therein mentioned, the exclusive right and liberty to make and use and vend to others to be used their own inventions, as tending to promote the progress of science and the useful arts, and as matter of compensation to the inventors for their labor, toil, and expense in making the inventions, and reducing the same to practice for the public benefit, as contemplated by the Constitution and sanctioned by the laws of Congress. Seymour v. Osborne, 11 Wall. 516, 53334. . We originally held that an inventor loses his right to a patent if he puts his invention into public use before filing a patent application. His voluntary act or acquiescence in the public sale and use is an abandonment of his right Pennock v. Dialogue, 2 Pet. 1, 24 (1829) (Story, J.). A similar reluctance to allow an inventor to remove existing knowledge from public use undergirds the on-sale bar. Nevertheless, an inventor who seeks to perfect his discovery may conduct extensive testing without losing his right. The law has long recognized the distinction between inventions put to experimental use and products sold commercially. . It is sometimes said that an inventor acquires an undue advantage over the public by delaying to take out a patent; but this cannot be said with justice when the delay is occasioned by a bona fide effort to bring his invention to perfection, or to ascertain whether it will answer the purpose intended. His

3.18

Novelty

monopoly only continues for the allotted period, in any event; and it is the interest of the public, as well as himself, that the invention should be perfect and properly tested, before a patent is granted for it. Any attempt to use it for a profit, and not by way of experiment, for a longer period than two years before the application, would deprive the inventor of his right to a patent. Elizabeth v. Pavement Co., 97 U.S. 126, 137 (emphasis added). The patent laws therefore seek both to protect the publics right to retain knowledge already in the public domain and the inventors right to control whether and when he may patent his invention. The Patent Act of 1836, was the first statute that expressly included an on-sale bar. Like the earlier holding in Pennock, that provision precluded patentability if the invention had been placed on sale at any time before the patent application was filed. In 1839, Congress ameliorated that requirement by enacting a 2-year grace period in which the inventor could file an application. In Andrews v. Hovey, 123 U.S. 267, 274 (1887), we noted that the purpose of that amendment was to fix a period of limitation which should be certain; it required the inventor to make sure that a patent application was filed within two years from the completion of his invention, ibid. In 1939, Congress reduced the grace period from two years to one year. [P]etitioners argument does not persuade us that it is necessary to engraft a reduction to practice element into the meaning of the term invention as used in 102(b). . [B]oth the facts of the Telephone Cases and the facts of this case demonstrate that one can prove that an invention is complete and ready for patenting before it has actually been reduced to practice. We conclude, therefore, that the on-sale bar applies when two conditions are satisfied before the critical date. First, the product must be the subject of a commercial offer for sale. An inventor can both understand and control the timing of the first commercial marketing of his invention. The experimental use doctrine, for example, has not generated concerns about indefiniteness, and we perceive no reason why unmanageable uncertainty should attend a rule that measures the application of the on-sale bar of 102(b) against the date when an invention that is ready for patenting is first marketed commercially. In this case the acceptance of the purchase order prior to Apr. 8, 1981, makes it clear that such an offer had been made, and there is no question that the sale was commercial rather than experimental in character. Second, the invention must be ready for patenting. That condition may be satisfied in at least two ways: by proof of reduction to practice or by proof that the inventor had prepared drawings or other descriptions sufficiently specific to enable a person skilled in the art to practice the invention.14 In this case the second condition is satisfied because the drawings Pfaff sent to the manufacturer before the critical date fully disclosed the invention. The evidence in this case thus fulfills the two essential conditions of the on-sale bar. As succinctly stated by Learned Hand: [I]t is a condition upon an inventors right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly.
14 The Solicitor General has argued that the rule governing on-sale bar should be phrased somewhat differently. In his opinion, if the sale or offer in question embodies the invention for which a patent is later sought, a sale or offer to sell that is primarily for commercial purposes and that occurs more than one year before the application renders the invention unpatentable. It is true that evidence satisfying this test might be sufficient to prove that the invention was ready for patenting at the time of the sale if it is clear that no aspect of the invention was developed after the critical date. However, the possibility of additional development after the offer for sale in these circumstances counsels against adoption of the rule proposed by the Solicitor General.

Other Patent Requirements

3.19

Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 520 (CA2 1946). . When Pfaff accepted the purchase order, his invention was ready for patenting. The fact that the manufacturer was able to produce the socket using his detailed drawings and specifications demonstrates this fact. Furthermore, those sockets contained all the elements of the invention claimed in the 377 patent. Therefore, Pfaffs 377 patent is invalid because the invention had been on sale for more than one year in this country before he filed his patent application. Accordingly, the judgment of the court of appeals is affirmed. Notes 1. It seems that the main difficulty in Pennock arose because the patent covered the art (process) of making hose, not the hose itself. That the process itself was neither sold nor generally known played no role there or in Metallizing, quoted at the end of Pfaff.. 2. Insofar as the Federal Circuit now has exclusive jurisdiction over patent cases and the panel decision in Pfaff was unanimous, how does the Supreme Courts granting certiorari imply continuing relevance of pre-82 regional circuit opinions? 3. What is the practical difference between the rule urged by the Solicitor General ( see note 14) and the rule adopted by the court? 4. What are the possible advantages and disadvantages of a rule providing that one who offers a product for sale is estopped from arguing that it did not function as represented or was otherwise unfit for marketing? 5. Withholding information that might constitute a potential bar under 102(b) or otherwise cast doubt on the patentability of an invention can have very serious consequences. Even if withheld information invalidates no claim, a patent may be unenforceable under 35 U.S.C. 282(1). See, e.g., GFI Inc. v. Franklin Corp., 265 F.3d 1268, 1275 (Fed. Cir. 2001): No single factor or combination of factors can be said always to require an inference of intent to mislead [the PTO]. Yet a patentee facing a high level of materiality and clear proof that it knew or should have known of that materiality, can expect to find it difficult to establish subjective good faith sufficient to prevent the drawing of an inference of intent to mislead. . Because the failure to disclose alone supports unenforceability of the patent, we need not address the remaining references. 6. Consider, too, Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1235 (Fed. Cir. 2007), affirming a finding of unenforceability against a pro se applicant. [T]he patent process requires both technical and legal credentials. The same credentials are generally required to prosecute patents on ones own inventions. Mr. Nilssen thought he didn't need professional patent help. The result of this case, regrettably, proves that he was wrong. Problem When Bayer, the first (and only) purchaser of Apecks widget found it unsatisfactory, a refund was made. Over a year later, after the bugs were worked out, Apeck sold an improved widget to Bayer and promptly filed a patent application. Does this satisfy the Elizabeth v. Pavement exception? Under the rule announced in Pfaff, is Apeck barred by 102(b)? What is gained from disclosing the initial Bayer transaction to the PTO? What can be lost by withholding that information?

3.20

Novelty

Group One, Ltd. v. Hallmark Cards, Inc.

U.S. Court of Appeals, Federal Circuit 254 F.3d 1041 (2001)*

Before Lourie, Gajarsa and Plager. Plager, Senior Circuit Judge: [Infringement of a patent on a machine to produce curled, shredded ribbon was alleged, but the district court found the patent invalid under 102(b). Group One appealed on that as well as another basis to be addressed in a later chapter.] . Before filing, Goldstein attempted to generate interest in his device, commencing a series of communications with Hallmark (and others). On June 24, 1991, he wrote to Hallmark: We have developed a machine which can curl and shred ribbon so that Hallmark can produce the product you see enclosed a bag of already curled and shredded ribbon. We could provide the machine and/or the technology and work on a license/royalty basis. Hallmark expressed some interest, and the parties continued their correspondence. [After Goldstein made disclosures, Hallmark terminated negotiations. In 1995, after a patent had issued, Hallmark began using an allegedly infringing machine. Suit was filed in August 1997.] [T]he district court relied heavily on language in RCA Corp. v. Data General Corp., 887 F.2d 1056 (Fed.Cir. 1989). In RCA, this court stated: RCA is correct that, where there is no sale, a definite offer to sell is an essential requirement of the on-sale bar; however RCA misinterprets that requirement. The requirement of a definite offer excludes merely indefinite or nebulous discussions about a possible sale. While this requirement may be met by a patentees commercial activity which does not rise to the level of a formal offer under contract law principles, a definite offer in the contract sense clearly meets this requirement. Id. at 1062 (citations omitted). In RCA, the court found that the offer at issue could have been accepted and therefore was in fact an offer in the contract sense, thus meeting the criterion stated in the first sentence quoted above (as well as in the last clause of the third sentence). The further assertion, in the first part of the third sentence, to the effect that an offer for sale need not rise to the level of a formal offer under contract law principles, was unnecessary to the decision in the case, and thus is non-binding dictum. Moreover, the parties have cited no other Federal Circuit cases since RCA that have actually found an offer to be an offer for sale for 102(b) purposes unless the offer was a formal offer in the contract sense. In short, there is no binding precedent in this circuit that requires us to accept something less than an offer to contract as constituting an offer for sale as that term is construed for purposes of the onsale bar. Furthermore, to the extent it was believed that something less than an offer to sell as understood in general commercial transactions was sufficient to trigger the on-sale bar, it is likely that such belief can no longer be the law. The Supreme Court in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), swept away this courts totality of the circumstances analysis of the on-sale bar and replaced it with a two-part test: First, the product must be the subject of a commercial offer for sale. Second, the invention must be ready for patenting. Id. at 67. Though the Court did not elaborate on what was meant by a commercial offer for
*

Rehearing and rehearing en banc denied Aug. 8, 2001.

Other Patent Requirements

3.21

sale the issue not being directly presented the language used strongly suggests that the offer must meet the level of an offer for sale in the contract sense, one that would be understood as such in the commercial community. Such a reading leaves no room for activity which does not rise to the level of a formal offer under contract law principles. Applying established concepts of contract law, rather than some more amorphous test, implements the broad goal of Pfaff, which, in replacing this courts totality of the circumstances test with more precise requirements, was to bring greater certainty to the analysis of the on-sale bar. See 525 U.S. at 6566 & n. 11. Courts are quite accustomed to and comfortable with determining whether a particular communication or series of communications amounts to an offer in the contract sense, and that type of determination is well established in law. In contrast, the dictum test suggested in RCA, under which something less than a formal commercial offer could still be an offer for purposes of the onsale bar, opens up a vast sea of uncertainty, and requires a whole new mode of analysis, one whose parameters remain ill-defined. In the case before us, the district court first considered whether the correspondence between the parties, prior to the critical date, amounted to an offer in the formal, commercial contract sense. It analyzed the issue under Missouri law and concluded that the correspondence between Group One and Hallmark did not amount to an offer in the commercial contract sense. The district court based its conclusion on the indefinite nature of the communications between the parties and the lack of specific terms such as price and quantity, finding that these factors suggested preliminary proposals or invitations to negotiate, rather than a formal offer. However, the district court then went on to find that, under the RCA formulation, the correspondence nonetheless constituted a sufficient offer for sale for purposes of 102(b), and therefore invalidated the patent. In the first place, the court erred in applying the law of Missouri to the question. Because of the importance of having a uniform national rule regarding the on-sale bar, we hold that the question of whether an invention is the subject of a commercial offer for sale is a matter of Federal Circuit law, to be analyzed under the law of contracts as generally understood. To hold otherwise would potentially mean that a patent could be invalid in one state, when the patentees actions amounted to an offer under the laws of that state, and valid in a second state, when the same actions did not amount to an offer under the laws of that second state. Such a result is clearly incompatible with a uniform national patent system. As a general proposition, we will look to the Uniform Commercial Code (UCC) to define whether, as in this case, a communication or series of communications rises to the level of a commercial offer for sale. As this court has previously pointed out, [t]he UCC has been recognized as the general law governing the sale of goods and is another useful, though not authoritative, source in determining the ordinary commercial meaning of terms used by the parties. The Supreme Courts formulation of a commercial offer for sale in Pfaff also supports consulting the UCC. The Supreme Court has also cited the Restatement of Contracts with approval in the commercial contract law context. After reviewing the district courts contract analysis under Missouri law and the proper analysis under these generally understood rules governing contracts, we conclude that the district courts error in this case is harmless. We perceive no meaningful difference in the courts analysis under Missouri law and the analysis that would pertain under these general sources. Here, the district court used the UCC as one of its guides in reaching its conclusions on this point. Our analysis of the facts leads us to the same conclusion reached by the district court the correspondence and other interactions between Group One and Hallmark prior to the critical date did not add up to a commercial offer to sell the invention, an offer, for example, which Hallmark could have accepted.

3.22

Novelty

As noted, the district court then went on and found that, under the RCA formulation, the correspondence nonetheless constituted a sufficient offer for sale for purposes of 102(b). For the reasons explained, this conclusion was incorrect as a matter of law. Only an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration), constitutes an offer for sale under 102(b). We do not mean to suggest that it will always be easy to ascertain whether a set of interactions between parties constitutes a commercial offer to sell. Nor do we propose to offer rules or even binding guidance for making such determinations, which offer would be little more than obiter dicta. We do note in passing that contract law traditionally recognizes that mere advertising and promoting of a product may be nothing more than an invitation for offers, while responding to such an invitation may itself be an offer. Restatement (Second) of Contracts 26 (1981). In any given circumstance, who is the offeror, and what constitutes a definite offer, requires looking closely at the language of the proposal itself. Language suggesting a legal offer, such as I offer or I promise can be contrasted with language suggesting more preliminary negotiations, such as I quote or are you interested. Differing phrases are evidence of differing intent, but no one phrase is necessarily controlling. Fortunately, as earlier noted, there is a substantial body of general contract law, widely shared by both state and federal courts, to which courts can resort in making these determinations. On appeal here, the parties do not dispute the conclusion by the district court, with which we agree, that no such commercial offer to sell was made. Rather, they focus on whether the correspondence meets the lesser RCA standard. As we have said, that no such commercial offer was made disposes of the matter. Thus, because there was no commercial offer for sale, the patent cannot be invalid under the on-sale bar of 102(b). . Group One [alternatively] contends that it was offering only to license the patent. . Hallmark counters that the correspondence demonstrates that Group One was actually offering to license (i.e., sell rights to use) the machine itself, and not just rights in the patent on the machine. The various documents leave the answer to this conundrum unclear. . Be that as it may, our disposition of the on-sale bar issue as explained above relieves us of having to further address this question.2 Similarly, we need not address Group Ones contention that the offer failed the second prong of Pfaff, namely that the invention was not ready for patenting at the time the supposed offer was made. Pfaff, 525 U.S. at 67. . Lourie, Circuit Judge, additional remarks. I write separately to address what the majority refers to as an alternative theory. What was offered was a license under whatever patents were obtained on the invention. . The on-sale bar is intended to limit the time for an inventor to commercialize an invention before filing a patent application. The statute refers to a patented invention itself being on sale, not to an agreement with another party concerning the commercialization of the invention at some future time, following which the invention would then be placed on sale. .
2

In his Additional Remarks, Judge Lourie discusses the relationship between a license, which he attributes uniquely to rights in a patent, and a sale, which he views as any transaction related to the invention itself, which in this case is a machine. Of course, a sale of an interest that entitles the purchaser to possession and use of the machine, unrelated to any patent present or future, could be couched as a license; such labeling would not prevent the transaction from triggering the on-sale bar, all other requirements being met. His conclusion is consistent with our giving Group One the benefit of the doubt on summary judgment, though it is not an issue we need or can decide on appeal.

Other Patent Requirements

3.23

Notes 1. What source(s) of law does the CAFC intend to consider in discerning established concepts of contract law? Why is that important? 2. See Linear Technology Corp. v. Micrel, Inc., 275 F.3d 1040 (Fed. Cir. 2002). Because of extensive advance publicity, LTC received offers to buy from four European distributors before a product release date (the same date on which it filed a patent application). Instead of entering those offers into the computer as orders, they were entered as will advise. Citing Group One, the court held that advance promotion did not put the product on sale. Based on common law contract principles, it also held that LTC made no sales prior to the critical date because no offers were accepted. 3. Of all the subsections of 102, the time bar deserves closest attention. It is the most likely trap for those who otherwise need to know little of patent law. Specialists can make arguments, as in Linear Technology or Elizabeth v. Pavement mentioned in Pfaff (experimental use), but chances of a favorable outcome improve when pre-filing activities are considered before being undertaken. Similar but less likely traps are presented by subsections (c) and (d), the former precluding a patent on an abandoned application and the latter on an application prematurely filed in a foreign country. 4. All of the subsections of 102 are usefully summarized in Oddzon Products, Inc. v. Just Toys, Inc., 122 F.3d 1396, 1402 (Fed. Cir. 1997): Subsections (a), (b), (e), and (g) are clearly prior art provisions. They relate to knowledge manifested by acts that are essentially public. Subsections (a) and (b) relate to public knowledge or use, or prior patents and printed publications; subsection (e) relates to prior filed applications for patents of others which have become public by grant; and subsection (g) relates to prior inventions of others that are either public or will likely become public in the sense that they have not been abandoned, suppressed, or concealed. Subsections (c) and (d) are loss-ofright provisions. Section 102(c) precludes the obtaining of a patent by inventors who have abandoned their invention. Section 102(d) causes an inventor to lose the right to a patent by delaying the filing of a patent application too long after having filed a corresponding patent application in a foreign country. Subsections (c) and (d) are therefore not prior art provisions. The focus of the case, however, was subsection (f), providing: that a person shall be entitled to a patent unless he did not himself invent the subject matter sought to be patented. This is a derivation provision, which provides that one may not obtain a patent on that which is obtained from someone else whose possession of the subject matter is inherently prior. It does not pertain only to public knowledge, but also applies to private communications between the inventor and another which may never become public. Id. at 1401. 5. Oddzon is also of interest as a design patent case. It reinforces 35 U.S.C. 171 and demonstrates how, subject matter aside, the same substantive rules apply.

3.24

Nonobviousness

C. Nonobviousness U.S. Supreme Court 261 U.S. 45 (1923) [This case considers William Eibels 1907 patent (copy online) for an improvement to the most widely used machines for making newsprint paper. Because the machines were expensive, the Court said: They are run night and day, in order that the capital invested in them may yield a proper return. Speed, which increases production, is therefore of the highest importance. Eibels patent had for its avowed purpose [an] increase [in] this speed. Eibel had won one case in the Second Circuit. He also won this case in the district court of Maine, but the First Circuit reversed declaring his patent invalid. The Supreme Court chose to resolve the conflict between the two circuits.] Chief Justice Taft: The evidence in the case establishes that, before Eibel entered the field, continued high speeds in the wire of the Fourdrinier machine much beyond 500 feet a minute resulted in defective paper. Eibel concluded that this was due to the disturbance and ripples in the stock as it was forming at a point between the breast roll and the first suction box, caused by the fact that at that point the wire was traveling much faster than the stock, and that if at that point the speed of the flowing stock could be increased approximately to the speed of the wire, the disturbance and rippling in the stock would cease, and the defects would disappear from the paper product. Accordingly he proposed to add to the former speed of the stock by substantially tilting up the wire and giving the stock the added force of the down hill flow. He thought that as long as he could thus maintain equality of speed between stock and wire at the crucial point, and prevent the disturbance and rippling there, a further increase in the speed of the wire would not result in a defective product. He confirmed this by actual trial. The first and most important question is whether this was a real discovery of merit. The circuit court of appeals thought not. The prior art and the obvious application of the principle that water will run down hill in their opinion robbed it of novelty or discovery. The issue is one largely of evidence. The plaintiff below introduced the patent and some evidence of infringement, and a single expert to explain the discovery and invention, and rested. Then the defendant brought in a mass of evidence to show prior discovery and use, to impeach the utility of plaintiffs alleged invention, and to demonstrate the indefiniteness of specification and claims. The fact that the adjudication of the validity of the patent would impose a royalty on many of the paper manufacturers of the country who were not already licensees of the plaintiff led to the defendants sending a circular letter to awaken the interest and secure the help of all so situated. This, as the record shows, had the effect to invoke offers of testimony on the critical points in the case from the unlicensed part of the trade. The plaintiff introduced a few witnesses in rebuttal as to particular details and the same expert as in chief. The plaintiffs case as presented on the record is largely the presumption of validity and novelty attaching to the patent and such evidence as comes from defendants witnesses. A case that can be made out in all its elements by cross-examination of opposing witnesses is a strong case. Implication of facts and conditions falling from the mouths of witnesses when only collateral to the exact point of inquiry for which they are called is generally the most trustworthy evidence because the result of the natural, so to say, subconscious adherence to truth uninfluenced by a knowledge or perception of the bearing of the implication on the ultimate issue in the case.

Eibel Process Co. v. Minnesota & Ontario Paper Co.

Other Patent Requirements

3.25

A thorough examination of the whole voluminous record produces a satisfying conviction first that for years news print paper makers and manufacturers of paper-making machinery were engaged in seeking a method of increasing the speed of the news print machines, and that they had succeeded by improving the stock and by strengthening the parts in bringing the speed of the wire and the delivered paper up to between 500 and 600 feet a minute, but that when these high speeds were attained and maintained for any length of time, though they served to enable manufacturers to advertise such maximums, their continued and regular operation showed defects in the paper, which were only overcome by a reduction of speed to something less than 500 feet. . Our conclusion is confirmed, and indeed the importance of the issue of fact as to maximum speed before Eibel is minimized by the circumstance, uncontroverted, that the owners of these fastest machines, at once upon Eibels publication of his discovery, adopted his pitch and increased their product. What Eibel tried to do was to enable the paper maker to go to 600 or 700 feet and above in speed and retain a good product. Did he do it? Eibel was the superintendent of a paper mill at Rhinelander, Wis. Before August, 1906, he raised the pitch of the wire from 2 or 3 inches to 12 inches, and greatly increased the speed, with a satisfactory product, and in that month he applied for a patent. The defendants witnesses without exception refer to that disclosure as something that surprised and startled the paper-making trade. It spread, to use the expression of one witness, like wildfire. There were those who hesitated to take the venturesome step to give such an unheard-of pitch to the wire, and waited until others assumed the risk, but the evidence is overwhelming that within a short interval of a year or two all of the fast machines were run with wires at a pitch of 12 inches and that this pitch has been increased to 15 and 18, and even 24, inches; that the speed of the machines with satisfactory product has increased to 600, 650, and even 700 feet, with plans now even for 1,000 feet and that the makers of two-thirds of the print paper of the country are licensees of Eibel. Defendant attempts to break the effect of this evidence by showing that five of the largest paper manufacturers who are licensees of Eibel are also shareholders in the plaintiff, and that they make 2,200 tons of the 5,000 tons of paper made daily in the United States. . There are, however, 10 other paper-making companies, not shareholders, who are licensees and use the Eibel pitch, and whose aggregate production is 1,200 tons a day; and what is equally significant, 13 other companies have contributed to a fund to help in resisting the establishment of the right of Eibel to claim a royalty for the use of this high or substantial pitch of the wire in the making of paper. Presumably they, too, find it wise to use the Eibel pitch. The paper makers in this country, who do not use the Eibel pitch, therefore, are few. It can hardly be that dividends on the shares of stock in the Eibel Company held by the five large companies would furnish motive enough for them to continue to be licensees, and to use something that was not of great advantage to them in their chief business of making of paper, and certainly no such motive would explain the action of the licensees, who are not stockholders, or that of the infringers, in continuing to use the Eibel pitch. It should be said that one of the large manufacturers of paper-making machinery called by the defendant said that since 1907 he had not installed a single machine without the Eibel pitch. The fact that the Eibel pitch has thus been generally adopted in the paper-making business, and that the daily product in paper making has thus been increased at least 20%, is very weighty evidence to sustain the presumption from his patent that what he discovered and invented was new and useful. [A]lthough very persuasive, it is not conclusive. This brings us to the consideration of the evidence of the prior art, and the conclusion of the court below, that the step taken by Eibel was a mere obvious application of fully developed devices in the prior art.

3.26

Nonobviousness

. It is very clear, from an examination of the design and contract for [one of three machines chiefly claimed to show prior use], that the pitch of the wire in it could not have exceeded 3 inches, and that it was used for drainage. . There was a constant straining by the witnesses for the defense to increase the elevation before Eibel. On the direct examination they began with a positive assertion that a pitch of 4, 5, and even 6 inches, had been used in certain machines before Eibels time; but written records, contracts, and specifications brought out on cross-examination show nothing more than 3 inches provided for purpose of drainage, and not more than that was used. . There was, too, always indefiniteness as to when such increase in elevation of the wire had taken place, whether before or after August, 1906, Eibels date, and there was no evidence of weight, we think, after a full examination of the record, sufficient to justify a finding that such elevations had ever exceeded 3 inches before his application. . Indeed, when we consider the indisputable fact that Eibels successful experiment surprised the whole paper trade, and that for a short time many held back from risking so radical a change and then all adopted it, oral evidence that some persons had discovered the source of trouble and the means of remedying it some years before Eibel is incredible. We are confirmed in this conclusion by the finding of Judge Hale in the district court, which is not offset by the reversal of his decree in the circuit court of appeals, because that court seems to have reached its conclusion chiefly on other grounds yet to be considered. . The next objection to the patent, which prevailed in the circuit court of appeals, is that its terms are too vague, because the extent of the factor of pitch is not defined, except by the terms substantial and high. The figure accompanying the specification and illustrating the improvement indicates an angle of 4%, or an elevation of 12 inches, and the reference to the small elevations for drainage shown in earlier devices indicated that the patentee had in mind elevations substantial as compared with them, in order to achieve his purpose of substantially increasing the speed of the stock. It was difficult for him to be more definite, due to the varying conditions of speed and stock existing in the operations of Fourdrinier machines and the necessary variation in the pitch to be used to accomplish the purpose of his invention. Indefiniteness is objectionable, because the patent does not disclose to the public how the discovery, if there is one, can be made useful, and how its infringement may be avoided. We do not think any such consequences are involved here. This patent and its specifications were manifested to readers who were skilled in the art of paper making and versed in the use of the Fourdrinier machine. The evidence discloses that one, so skilled, had no difficulty, when his attention was called to their importance, in fixing the place of the disturbance and ripples to be removed, or in determining what was the substantial pitch needed to equalize the speeds of the stock and wire at that place. The immediate and successful use of the pitch for this purpose by the owners of the then fastest machines and by the whole trade is convincing proof that one versed in paper making could find in Eibels specifications all he needed to know. . The invention was not the mere use of a high or substantial pitch to remedy a known source of trouble. It was the discovery of the source not before known, and the application of the remedy, for which Eibel was entitled to be rewarded in his patent. Had the trouble which Eibel sought to remedy been the well-known difficulty of too great wetness or dryness of the web at the dandy roll, and had he found that a higher rather than a lower pitch would do that work better, a patent for this improvement might well have been attacked on the ground that he was seeking monopoly for a mere matter of degree. But that is not this case. . The circuit court of appeals dwells on the fact that the use of the pitch of wire was not really the introduction of a new factor in the solution of the problem, because the same result

Other Patent Requirements

3.27

would have followed if the head of the flow box had been made greater, in order to increase by gravity the speed of the stock. . The defendant invites attention to the fact that one or two paper makers are increasing this head and giving up the pitch, for the purpose of increasing the speed of the stock. We do not see that these circumstances in any way affect the validity of the Eibel patent. If defendant or others can do what Eibel accomplished in another way, and by means he did not include in his specifications and claims, i. e., by additional head and the abandonment of a substantial pitch, they are at liberty to do so and avoid infringement. We come finally to the question of infringement. If the Eibel patent is to be construed as we have construed it, there can be no doubt that the defendant uses the Eibel invention. The device which the defendant uses for tilting the wire i. e., by shimming blocks and that for regulating and increasing the speed of the wire are plainly equivalents of the same elements in the new combination, which Eibel shows in his drawings and specifications. The defendant uses a Fourdrinier machine having the breast roll end of the paper-making wire maintained at an elevation of 15 inches above the level whereby the stock is caused to travel by gravity rapidly in the direction of the movement of the wire, and at a speed approximately equal to the speed of the wire substantially as described. This brings the defendants machines within the first claim of the patent, if 15 inches is a substantial elevation of the making wire, as all the witnesses concede that it is. [That was also true of the second and other claims.] . Notes 1. Eibels specification disclosed only a vertical screw for tilting the paper-making wire. His first claim was not restricted to that or to any specific means. Why was it not too broad? Does use of blocks or shims infringe literally or under the doctrine of equivalents? 2. If others increased the head of the flow box after Eibels patent issued, why would they not infringe? What if they did so before he filed? 3. How did Eibel survive challenges to novelty and adequacy of disclosure?

Graham v. John Deere Co.

U.S. Supreme Court 383 U.S. 1 (1966) Justice Clark: After a lapse of 15 years, the Court again focuses its attention on the patentability of inventions. Since our last expression on patent validity, A. & P. Tea Co. v. Supermarket Corp., 340 U.S. 147 (1950), the Congress has for the first time expressly added a third statutory dimension to the two requirements of novelty and utility that had been the sole statutory test since the Patent Act of 1793. . The questions, involved in each of the companion cases before us, are what effect the 1952 Act had upon traditional statutory and judicial tests of patentability and what definitive tests are now required. . (a). No. 11, Graham v. John Deere Co., an infringement suit by petitioners, presents a conflict between two Circuits over the validity of a single patent. The invention involves a device designed to absorb shock from plow shanks as they plow through rocky soil and thus to prevent damage to the plow. In 1955, the Fifth Circuit had held the patent valid under its rule that when a combination produces an old result in a cheaper and otherwise more

3.28

Nonobviousness

advantageous way, it is patentable. Jeoffroy Mfg., Inc. v. Graham, 219 F.2d 511, cert. denied, 350 U.S. 826. In 1964, the Eighth Circuit held, in the case at bar, that there was no new result in the patented combination and that the patent was, therefore, not valid. Although we have determined that neither Circuit applied the correct test, we conclude that the patent is invalid under 103 and, therefore, we affirm the judgment of the Eighth Circuit. (b). No. 37, Calmar, Inc. v. Cook Chemical Co., and No. 43, Colgate-Palmolive Co. v. Cook Chemical Co., both from the Eighth Circuit, were separate declaratory judgment actions, but were filed contemporaneously. Petitioner in Calmar is the manufacturer of a finger-operated sprayer with a hold-down cap of the type commonly inserted in bottles of insecticides and other liquids prior to shipment. Petitioner in Colgate-Palmolive is a purchaser of the sprayers and uses them in the distribution of its products. Each action sought a declaration of invalidity and noninfringement of a patent on similar sprayers issued to Cook Chemical as assignee of Baxter I. Scoggin, Jr., the inventor. By cross-action, Cook Chemical claimed infringement. The actions were consolidated for trial and the patent was sustained by the district court. The court of appeals affirmed. We reverse.* . II At the outset it must be remembered that the federal patent power stems from a specific constitutional provision The clause is both a grant of power and a limitation. This qualified authority, unlike the power often exercised in the sixteenth and seventeenth centuries by the English Crown, is limited to the promotion of advances in the useful arts. It was written against the backdrop of the practices eventually curtailed by the Statute of Monopolies of the Crown in granting monopolies to court favorites in goods or businesses which had long before been enjoyed by the public. The Congress in the exercise of the patent power may not overreach the restraints imposed by the stated constitutional purpose. Nor may it enlarge the patent monopoly without regard to the innovation, advancement or social benefit gained thereby. Moreover, Congress may not authorize the issuance of patents whose effects are to remove existent knowledge from the public domain, or to restrict free access to materials already available. Innovation, advancement, and things which add to the sum of useful knowledge are inherent requisites in a patent system which by constitutional command must promote the Progress of useful Arts. This is the standard expressed in the Constitution and it may not be ignored. And it is in this light that patent validity requires reference to a standard written into the Constitution. . Within the limits of the constitutional grant, the Congress may, of course, implement the stated purpose of the Framers by selecting the policy which in its judgment best effectuates the constitutional aim. . Congress quickly responded to the bidding of the Constitution by enacting the Patent Act of 1790 during the second session of the First Congress. It created an agency in the Department of State headed by the Secretary of State, the Secretary of the Department of War and the Attorney General, any two of whom could issue a patent for a period not exceeding 14 years. Thomas Jefferson, who as Secretary of State was a member of the group, was its moving spirit and might well be called the first administrator of our patent system. . In addition, Jefferson was himself an inventor of great note. His unpatented improvements on plows, to mention but one line of his inventions, won acclaim and recognition. Jeffersons philosophy on the nature and purpose of the patent monopoly is expressed in a letter, a portion of which we set out in the margin.2 . The patent monopoly was not
*

Justice Fortas took no part in the consideration or decision of these cases or Justice Stewart in Nos. 37 and 43. 2 Stable ownership is the gift of social law, and is given late in the progress of society. It would be

Other Patent Requirements

3.29

designed to secure to the inventor his natural right in his discoveries. Rather, it was a reward, an inducement, to bring forth new knowledge. . Jefferson did not believe in granting patents for small details, obvious improvements, or frivolous devices. . As a member of the patent board for several years, Jefferson saw clearly the difficulty in drawing a line between the things which are worth to the public the embarrassment of an exclusive patent, and those which are not. The board on which he served sought to draw such a line and formulated several rules which are preserved in Jeffersons correspondence. Despite the boards efforts, Jefferson saw with what slow progress a system of general rules could be matured. . Although the Patent Act was amended some 50 times between 1790 and 1950, Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jeffersons draft of the 1793 Patent Act. III . The inherent problem was to develop some means of weeding out those inventions which would not be disclosed or devised but for the inducement of a patent. This Court formulated a general condition of patentability in 1851 in Hotchkiss v. Greenwood, 11 How. 248. The patent involved a mere substitution of materials porcelain or clay for wood or metal in doorknobs and the Court condemned it, holding, at 267: (U)nless more ingenuity and skill were required than were possessed by an ordinary mechanic acquainted with the business, there was an absence of that degree of skill and ingenuity which constitute essential elements of every invention. In other words, the improvement is the work of the skillful mechanic, not that of the inventor. Hotchkiss, by positing the condition that a patentable invention evidence more ingenuity and skill than that possessed by an ordinary mechanic acquainted with the business, merely distinguished between new and useful innovations that were capable of sustaining a patent and those that were not. The Hotchkiss test laid the cornerstone of the judicial evolution suggested by Jefferson and left to the courts by Congress. The language in the case, and in those which followed, gave birth to invention as a word of legal art signifying patentable inventions. . The Hotchkiss formulation, however, lies not in any label, but in its functional approach to questions of patentability. In practice, Hotchkiss has required a comparison between the subject matter of the patent, or patent application, and the background skill of the calling. It has been from this comparison that patentability was in each case determined. IV. The 1952 Patent Act The Act sets out the conditions of patentability in three sections. [P]atentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in 101 and 102, and nonobviousness, the new statutory formulation, as set out in 103. The first two sections, which trace closely the 1874 codification, express the new and useful tests which have always existed in the statutory scheme and, for our purposes here, need no clarification. [T]he present controversy centers [on] 103. It provides:
curious then, if an idea, the fugitive fermentation of an individual brain, could, of natural right, be claimed in exclusive and stable property. . He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody. VI Writings of Thomas Jefferson, at 18081 (Washington ed.).

3.30

Nonobviousness

A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if 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 to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made. The section is cast in relatively unambiguous terms. . It is undisputed that this section was, for the first time, a statutory expression of an additional requirement for patentability, originally expressed in Hotchkiss. It also seems apparent that Congress intended by the last sentence of 103 to abolish the test it believed this Court announced in the controversial phrase flash of creative genius, used in Cuno Engineering Corp. v. Automatic Devices Corp., 314 U.S. 84 (1941). It is contended, however, by some of the parties and by several of the amici that the first sentence of 103 was intended to sweep away judicial precedents and to lower the level of patentability. Others contend that the Congress intended to codify the essential purpose reflected in existing judicial precedents the rejection of insignificant variations and innovations of a commonplace sort and also to focus inquiries under 103 upon nonobviousness, rather than upon invention, as a means of achieving more stability and predictability. The Revisers Note to this section, with apparent reference to Hotchkiss, recognizes that judicial requirements as to lack of patentable novelty (have) been followed since at least as early as 1850. The note indicates that the section was inserted because it may have some stabilizing effect, and also to serve as a basis for the addition at a later time of some criteria which may be worked out. To this same effect are the reports of both Houses. We believe that this legislative history, as well as other sources,9 shows that the revision was not intended by Congress to change the general level of patentable invention. We conclude that the section was intended merely as a codification of judicial precedents embracing the Hotchkiss condition. V Approached in this light, the 103 additional condition, when followed realistically, will permit a more practical test of patentability. The emphasis on non-obviousness is one of inquiry, not quality, and, as such, comports with the constitutional strictures. While the ultimate question of patent validity is one of law, the 103 condition, which is but one of three conditions, each of which must be satisfied, lends itself to several basic factual inquiries. Under 103, the scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background, the obviousness or nonobviousness of the subject matter is determined. Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented. As indicia of obviousness or nonobviousness, these inquiries may have relevancy. See Note, Subtests of Nonobviousness: A Nontechnical Approach to Patent Validity, 112 U. Pa. L.Rev. 1169 (1964). This is not to say, however, that there will not be difficulties in applying the nonobviousness test. What is obvious is not a question upon which there is likely to be uniformity of thought in every given factual context. The difficulties, however, are
9

See Efforts to Establish a Statutory Standard of Invention, Study No. 7, Senate Subcommittee on Patents, Trademarks, and Copyrights, 85th Cong., 1st Sess.

Other Patent Requirements

3.31

comparable to those encountered daily by the courts in such frames of reference as negligence and scienter, and should be amenable to a case-by-case development. We believe that strict observance of the requirements laid down here will result in that uniformity and definiteness which Congress called for in the 1952 Act. While we have focused attention on the appropriate standard to be applied by the courts, it must be remembered that the primary responsibility for sifting out unpatentable material lies in the Patent Office. To await litigation is for all practical purposes to debilitate the patent system. We have observed a notorious difference between the standards applied by the Patent Office and by the courts. While many reasons can be adduced to explain the discrepancy, one may well be the free rein often exercised by Examiners in their use of the concept of invention. In this connection we note that the Patent Office is confronted with a most difficult task. Almost 100,000 applications for patents are filed each year. Of these, about 50,000 are granted and the backlog now runs well over 200,000. This is itself a compelling reason for the Commissioner to strictly adhere to the 1952 Act as interpreted here. This would, we believe, not only expedite disposition but bring about a closer concurrence between administrative and judicial precedent.10 Although we conclude here that the inquiry which the Patent Office and the courts must make as to patentability must be beamed with greater intensity on the requirements of 103, it bears repeating that we find no change in the general strictness with which the overall test is to be applied. We have been urged to find in 103 a relaxed standard, supposedly a congressional reaction to the increased standard applied by this Court in its decisions over the last 20 or 30 years. The standard has remained invariable in this Court. Technology, however, has advanced and with remarkable rapidity in the last 50 years. Moreover, the ambit of applicable art in given fields of science has widened by disciplines unheard of a half century ago. It is but an evenhanded application to require that those persons granted the benefit of a patent monopoly be charged with an awareness of these changed conditions. The same is true of the less technical, but still useful arts. He who seeks to build a better mousetrap today has a long path to tread before reaching the Patent Office. VI We now turn to the cases involved here: A. The Patent in Issue in No. 11, Graham v. John Deere Co. This patent, No. 2,627,798 (hereinafter called the 798 patent) relates to a spring clamp which permits plow shanks to be pushed upward when they hit obstructions in the soil, and then springs the shanks back into normal position when the obstruction is passed over. . Grahams 798 patent application contained 12 claims. All were rejected as not distinguished from the Graham 811 patent. The inverted position of the shank was specifically rejected as was the bolting of the shank to the hinge plate. The Patent Office examiner found these to be matters of design well within the expected skill of the art and devoid of invention. Graham withdrew the original claims and substituted the two new ones which are substantially those in issue here. His contention was that wear was reduced in patent 798 between the shank and the heel or rear of the upper plate. He also emphasized several new features, the relevant one here being that the bolt used to connect the hinge plate and shank maintained the upper face of the shank in continuing and constant contact with the underface of the hinge plate. Graham did not urge before the Patent Office the greater flexing qualities of the 798 patent arrangement which he so heavily relied on in the courts. The sole element in patent
10

The President has appointed a Commission on the Patent System. It is hoped that its studies may develop more efficient administrative procedures and techniques that will further expedite dispositions and at the same time insure the strict application of appropriate tests of patentability.

3.32

Nonobviousness

798 which petitioners argue before us is the interchanging of the shank and hinge plate and the consequences flowing from this arrangement. The contention is that this arrangement which petitioners claim is not disclosed in the prior art permits the shank to flex under stress for its entire length. . Petitioners say that this difference in flex, though small, effectively absorbs the tremendous forces of the shock of obstructions whereas prior art arrangements failed. The Obviousness of the Differences We cannot agree with petitioners. We assume that the prior art does not disclose such an arrangement as petitioners claim in patent 798. Still we do not believe that the argument on which petitioners contention is bottomed supports the validity of the patent. The tendency of the shank to flex is the same in all cases. If free-flexing, as petitioners now argue, is the crucial difference above the prior art, then it appears evident that the desired result would be obtainable by not boxing the shank within the confines of the hinge. The only other effective place available in the arrangement was to attach it below the hinge plate and run it through a stirrup or bracket that would not disturb its flexing qualities. Certainly a person having ordinary skill in the prior art, given the fact that the flex in the shank could be utilized more effectively if allowed to run the entire length of the shank, would immediately see that the thing to do was what Graham did, i.e., invert the shank and the hinge plate. Petitioners argument basing validity on the free-flex theory raised for the first time on appeal is reminiscent of Lincoln Engineering Co. v. Stewart-Warner Corp., 303 U.S. 545, 550 (1938), where the Court called such an effort an afterthought. . No flexing argument was raised in the Patent Office. Indeed, the trial judge specifically found that flexing is not a claim of the patent in suit and would not permit interrogation as to flexing in the accused devices. Moreover, the clear testimony of petitioners experts shows that the flexing advantages are not, in fact, a significant feature in the patent. We find no nonobvious facets in the 798 arrangement. The wear and repair claims were sufficient to overcome the patent examiners original conclusions as to the validity of the patent. However, some of the prior art, notably Glencoe, was not before him. There the hinge plate is below the shank but, as the courts below found, all of the elements in the 798 patent are present in the Glencoe structure. Furthermore, even though the position of the shank and hinge plate appears reversed in Glencoe, the mechanical operation is identical. The shank there pivots about the underside of the stirrup, which in Glencoe is above the shank. In other words, the stirrup in Glencoe serves exactly the same function as the heel of the hinge plate in 798. The mere shifting of the wear point to the heel of the 798 hinge plate from the stirrup of Glencoe itself a part of the hinge plate presents no operative mechanical distinctions, much less nonobvious differences. . [Discussion of the Cook Chemical patent is omitted.] Note The opinion discusses a Glencoe structure but doesnt explain where and how it was disclosed. Would it make any difference if it had been manufactured in the United States but never described in print? See 102(a). What if it was described in a foreign publication but never produced in the United States? See 102(b). Why would infringers be motivated more than patentees to seek such prior art unavailable to both examiners and most inventors? How would Grahams case have been affected if the device made by Glencoe had been considered by the examiner, and the same claims had nevertheless been allowed?

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United States v. Adams

U.S. Supreme Court 383 U.S. 39 (1966)

Justice Clark: This is a companion case to Graham v. John Deere Co.. The United States seeks review of a judgment of the Court of Claims, holding valid and infringed a patent on a wet battery issued to Adams. This suit under 28 U.S.C. 1498 was brought charging both infringement and breach of an implied contract. The Government challenged the validity of the patent, denied that it had been infringed or that any contract for its use had ever existed. The Trial Commissioner held that the patent was valid and infringed. The Court of Claims adopted these findings. The United States sought certiorari on the patent validity issue only. . We affirm. [In Part I, the court disposed of challenges to its jurisdiction.] II. The Patent in Issue and Its Background The patent under consideration was issued in 1943. It relates to a nonrechargeable, as opposed to a storage, electrical battery. Stated simply, the battery comprises two electrodes one made of magnesium, the other of cuprous chloride which are placed in a container. The electrolyte, or battery fluid, used may be either plain or salt water. The specifications state that the object of the invention is to provide constant voltage and current without the use of acids, conventionally employed, and without the generation of dangerous fumes. Another object is to provide a battery which is relatively light in weight with respect to capacity and which may be manufactured and distributed to the trade in a dry condition and rendered serviceable by merely filling the container with water. Following the specifications, which also set out a specific embodiment of the invention, there appear 11 claims. Of these, principal reliance has been placed upon Claims 1 and 10, which read: 1. A battery comprising a liquid container, a magnesium electropositive electrode inside the container and having an exterior terminal, a fused cuprous chloride electronegative electrode, and a terminal connected with said electronegative electrode. 10. In a battery, the combination of a magnesium electropositive electrode, and an electronegative electrode comprising cuprous chloride fused with a carbon catalytic agent. For several years prior to filing his application for the patent, Adams had worked in his home experimenting on the development of a wet battery. He found that when cuprous chloride and magnesium were used as electrodes in an electrolyte of either plain water or salt water an improved battery resulted. The Adams invention was the first practical, water-activated, constant potential battery which could be fabricated and stored indefinitely without any fluid in its cells. It was activated within 30 minutes merely by adding water. Once activated, the battery continued to deliver electricity at a voltage which remained essentially constant regardless of the rate at which current was withdrawn. Furthermore, its capacity for generating current was exceptionally large in comparison to its size and weight. . One disadvantage, however, was that once activated the battery could not be shut off; the chemical reactions in the battery continued even though current was not withdrawn. Nevertheless, these chemical reactions were highly exothermic. As a result, the battery performed with little effect on its voltage or current in very low temperatures. Relatively high temperatures would not damage the battery. Consequently, the battery was operable from 65 below zero to 200 F.

3.34

Nonobviousness

Less than a month after filing Adams brought his discovery to the attention of the Army and Navy. . The Signal Corps scientists did not believe the battery was workable. Almost a year later, in December 1942, Dr. George Vinal, an eminent government expert with the National Bureau of Standards, still expressed doubts. He felt that Adams was making unusually large claims for high watt hour output per unit weight, and he found far from convincing the graphical data showing the batterys constant voltage and capacity characteristics. He recommended, Until the inventor can present more convincing data about the performance of his [battery] cell, I see no reason to consider it further. However, at the height of World War II, the Signal Corps concluded that the battery was feasible. The Government thereafter entered into contracts with various battery companies for its procurement. The battery was found adaptable to many uses. Indeed, by 1956 it was noted that [t]here can be no doubt that the addition of water activated batteries to the family of power sources has brought about developments which would otherwise have been technically or economically impractical. Surprisingly, the Government did not notify Adams of its changed views nor of the use to which it was putting his device, despite his repeated requests. In 1955, upon examination of a battery produced for the Government, he first learned of the Governments action. His request for compensation was denied in 1960, resulting in this suit. III. The Prior Art The basic idea of chemical generation of electricity is, of course, quite old. Batteries trace back to the epic discovery by the Italian scientist Volta in 1795, who found that when two dissimilar metals are placed in an electrically conductive fluid an electromotive force is set up and electricity generated. Essentially, the basic elements of a chemical battery are a pair of electrodes of different electrochemical properties and an electrolyte which is either a liquid [in wet batteries] or a moist paste of various substances [in the so called drycell batteries]. Various materials which may be employed as electrodes, various electrolyte possibilities and many combinations of these elements have been the object of considerable experiment for almost 175 years. At trial, the Government introduced in evidence 24 patents and treatises as representing the art as it stood in 1938, the time of the Adams invention. [The Government relied primarily upon only six, the last seeming to be most relevant here.] . Finally, the Skrivanoff patent depended upon by the Government relates to a battery designed to give intermittent, as opposed to continuous, service. While the patent claims magnesium as an electrode, it specifies that the electrolyte to be used in conjunction with it must be a solution of alcoline, chloro-chromate, or a permanganate strengthened with sulphuric acid. The cathode was a copper or carbon electrode faced with a paste of phosphoric acid, amorphous phosphorous, metallic copper in spangles, and cuprous chloride. This paste is to be mixed with hot sulfuric acid before applying to the electrode. The Governments expert testified in trial that he had no information as to whether the cathode, as placed in the battery, would, after having been mixed with the other chemicals prescribed, actually contain cuprous chloride. Furthermore, respondents expert testified, without contradiction, that he had attempted to assemble a battery made in accordance with Skrivanoffs teachings, but was met first with a fire when he sought to make the cathode, and then with an explosion when he attempted to assemble the complete battery. IV. The Validity of the Patent The Government challenges the validity of the Adams patent on grounds of lack of novelty as well as obviousness. As we have seen in Graham v. John Deere Co. [these and utility] are separate tests of patentability and all must be satisfied in a valid patent.

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The Government concludes that wet batteries comprising a zinc anode and silver chloride cathode are old in the art; and that the prior art shows that magnesium may be substituted for zinc and cuprous chloride for silver chloride. Hence, it argues that the combination of magnesium and cuprous chloride in the Adams battery was not patentable because it represented either no change or an insignificant change as compared the prior battery designs. And, despite the fact that, wholly unexpectedly, the battery showed certain valuable operating advantages, [these] would certainly not justify a patent on the essentially old formula. There are several basic errors in the Governments position. First, the fact that the Adams battery is water-activated sets his device apart. It is true that Claims 1 and 10 do not mention a water electrolyte, but, as we have noted, a stated object of the invention was to provide a battery rendered serviceable by the mere addition of water. While the claims of a patent limit the invention, and specifications cannot be utilized to expand the patent monopoly, it is fundamental that claims are to be construed in the light of the specifications and both are to be read with a view to ascertaining the invention. Taken together with the stated object of disclosing a water-activated cell, the lack of reference to any electrolyte in Claims 1 and 10 indicates that water alone could be used. Furthermore, of the 11 claims in issue, three of the narrower ones include references to specific electrolyte solutions comprising water and certain salts. The obvious implication from the absence of any mention of an electrolyte in the other eight claims reinforces this conclusion. It is evident that respondents present reliance upon this feature was not the afterthought of an astute patent trial lawyer. In his first contact with the Government less than a month after the patent application was filed, Adams pointed out that no acids, alkalines or any other liquid other than plain water is used in this cell. Water does not have to be distilled. The findings, approved and adopted by the Court of Claims, also fully support this conclusion. [T]he Adams battery is shown to embrace elements having an interdependent functional relationship. It begs the question, and overlooks the holding of the Commissioner and the Court of Claims, to state merely that magnesium and cuprous chloride were individually known battery components. If such a combination is novel, the issue is whether bringing them together as taught by Adams was obvious in the light of the prior art. We believe that the Court of Claims was correct in concluding that the Adams battery is novel. . In view of the unchallenged testimony that the Skrivanoff formulation was both dangerous and inoperable, it seems anomalous to suggest that it is an anticipation. We conclude the Adams battery was also nonobvious. As we have seen, the operating characteristics of the Adams battery have been shown to have been unexpected and to have far surpassed then-existing wet batteries. Despite the fact that each of the elements of the Adams battery was well known in the prior art, to combine them as did Adams required that a person reasonably skilled in the prior art must ignore that (1) batteries which continued to operate on an open circuit and which heated in normal use were not practical; and (2) wateractivated batteries were successful only when combined with electrolytes detrimental to the use of magnesium. These long-accepted factors, when taken together, would deter any investigation. This is not to say that one who merely finds new uses for old inventions by shutting his eyes to their prior disadvantages thereby discovers a patentable innovation. We do say, however, that known disadvantages in old devices which would naturally discourage the search for new inventions may be taken into account in determining obviousness. Nor are these the only factors bearing on the question of obviousness. We have seen that at the time Adams perfected his invention noted experts expressed disbelief. Several of the same experts subsequently recognized the significance of the Adams invention, some even patenting improvements. Fischbach et al., Patent No. 2,636,060. Furthermore, in a

3.36

Nonobviousness

crowded art replete with a century and a half of advancement, the Patent Office found not one reference to cite against the Adams application. Against the subsequently issued improvement patents to Fischbach, supra, and to Chubb, Reissue Patent No. 23,883 (1954), it found but three references prior to Adams none relied upon by the Government. We conclude that the Adams patent is valid. The judgment of the Court of Claims is affirmed. Justice White dissents. Justice Fortas took no part in the case. Notes 1. As mentioned after General Talking Pictures, Jeffersons views were cited for the first time in Justice Blacks 1938 dissent. Is that relevant to assessing their current significance? 2. Adams warrants attention in two respects. First, the basis for recovery against the federal government (despite sovereign immunity) should be noted. Also, more significantly, that patent was upheld, whereas patents in the companion cases were not. What primarily accounts for that? In that vein, consider the argument Graham was precluded from making. 3. If obviousness turns on what is known by those skilled in the art, in what sense is it a question of law? See Sakraida v. Ag Pro, Inc., 425 U.S. 273, 280 (1976) (emphasis added): Our independent examination of [the] evidence persuades us of its sufficiency to support the district courts finding as a fact that each and all of the component parts of this patent were old and well-known throughout the dairy industry long prior to the date of the filing of the application for the Gribble patent. What Mr. Gribble referred to as the essence of the patent, to-wit, the manure flush system, was old, various means for flushing manure from dairy barns having been used long before the filing of the application. Indeed, despite thirteen claim limitations, the court found the invention obvious in light of Heracles cleaning the stables of Augeas by damming and diverting a stream; id. at 275, n.1. It has been argued that the phrase, question of law, as used in Graham signals no more than that appellate courts need show minimal deference to findings of trial courts; Thomas G. Field, Jr. Law and Fact in Patent Litigation: Form Versus Function (1999), online at <www.fplc.edu/tfield/l&fact.htm>. 4. Secondary considerations mentioned in Graham warrant caution. Is market success relevant if based on a catchy slogan or a good sales force? Regarding long-felt needs, reconsider Eibel and the Funk dissent. Regarding others licensing, EWP Corp. v. Reliance Universal Inc., 755 F.2d 898, 908 (Fed. Cir. 1985), mentions that businesses may find it cheaper to take licenses than to defend infringement suits.

KSR Intl Co. v. Teleflex Inc. U.S. Supreme Court

550 U.S. 398 (2007) Justice Kennedy: . Claim 4 of the [Engelgau patent in issue] describes a mechanism for combining an electronic sensor with an adjustable automobile pedal so the pedals position can be transmitted to a computer that controls the throttle in the vehicles engine. When Teleflex accused KSR of infringing, KSR countered that claim 4 was invalid.

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Seeking to resolve the question of obviousness with more uniformity and consistency, the Court of Appeals for the Federal Circuit has employed an approach referred to by the parties as the teaching, suggestion, or motivation test (TSM test), under which a patent claim is only proved obvious if some motivation or suggestion to combine the prior art teachings can be found in the prior art, the nature of the problem, or the knowledge of a person having ordinary skill in the art. KSR challenges that test, or at least its application in this case. Because the court of appeals addressed the question of obviousness in a manner contrary to 103 and our precedents, we granted certiorari. We now reverse. I [The Court first gave a brief account of the technology and of prior events.] Before issuing the Engelgau patent the PTO rejected a claim [that] did not include the requirement that the sensor be placed on a fixed pivot point. The PTO concluded the claim was an obvious combination of the prior art [because, for example] Redding provided an example of an adjustable pedal and Smith explained how to mount a sensor on a pedals support structure, and the rejected patent claim merely put these two teachings together. Although the broader claim was rejected, claim 4 was later allowed because it included the limitation of a fixed pivot point, which distinguished the design from Reddings. Engelgau had not included Asano among the prior art references, and Asano was not mentioned in the patents prosecution. Thus, the PTO did not have before it an adjustable pedal with a fixed pivot point. The patent issued on May 29, 2001 and was assigned to Teleflex. . The district court granted summary judgment in KSRs favor. After reviewing the pertinent history of pedal design, the scope of the Engelgau patent, and the relevant prior art, the court considered the validity of the contested claim. . The district court applied Grahams framework to determine whether under summary-judgment standards KSR had demonstrated that claim 4 was obvious in light of the prior art in existence when the claimed subject matter was invented. . Following Grahams direction, the court compared the teachings of the prior art to the claims of Engelgau. It found little difference. Asano taught everything contained in claim 4 except the use of a sensor to detect the pedals position and transmit it to the computer controlling the throttle. That additional aspect was revealed [elsewhere]. Under the controlling cases from the court of appeals the court was required also to apply the TSM test. The district court held KSR had satisfied the test. It reasoned (1) the state of the industry would lead inevitably to combinations of electronic sensors and adjustable pedals, (2) Rixon provided the basis for these developments, and (3) Smith taught a solution to the wire chafing problems in Rixon, namely locating the sensor on the fixed structure of the pedal. This could lead to the combination of Asano, or a pedal like it, with a pedal position sensor. The conclusion that the Engelgau design was obvious was supported, in the district courts view, by the PTOs rejection of the broader version of claim 4. Had Engelgau included Asano in his patent application, it reasoned, the PTO would have found claim 4 to be an obvious combination of Asano and Smith, as it had found the broader version an obvious combination of Redding and Smith. As a final matter, the district court held that the secondary factor of Teleflexs commercial success with pedals based on Engelgaus design did not alter its conclusion. With principal reliance on the TSM test, the court of appeals reversed. . The court of appeals also faulted the district courts consideration of the PTOs rejection of the broader version of claim 4. The district courts role, the court of appeals explained, was not to speculate regarding what the PTO might have done had the Engelgau patent mentioned Asano. Rather, the court held, the district court was obliged first to

3.38

Nonobviousness

presume that the issued patent was valid and then to render its own independent judgment of obviousness based on a review of the prior art. . The court of appeals further held that genuine issues of material fact precluded summary judgment. . II A We begin by rejecting the rigid approach of the court of appeals. Throughout this Courts engagement with the question of obviousness, our cases have set forth an expansive and flexible approach inconsistent with the way the court of appeals applied its TSM test here. To be sure, Graham recognized the need for uniformity and definiteness. 383 U.S., at 18. Yet the principles laid down in Graham reaffirmed the functional approach of Hotchkiss , 11 How. 248. See 383 U.S., at 12. To this end, Graham set forth a broad inquiry and invited courts, where appropriate, to look at any secondary considerations that would prove instructive. Id., at 17. Neither the enactment of 103 nor the analysis in Graham disturbed this Courts earlier instructions concerning the need for caution in granting a patent based on the combination of elements found in the prior art. For over a half century, the Court has held that a patent for a combination which only unites old elements with no change in their respective functions obviously withdraws what is already known into the field of its monopoly and diminishes the resources available to skillful men. Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corp., 340 U.S. 147, 152 (1950). This is a principal reason for declining to allow patents for what is obvious. . Three cases decided after Graham illustrate the application of this doctrine. In Adams, the Court considered the obviousness of a wet battery that varied from prior designs in two ways: It contained water, rather than the acids conventionally employed in storage batteries; and its electrodes were magnesium and cuprous chloride, rather than zinc and silver chloride. The Court recognized that when a patent claims a structure already known in the prior art that is altered by the mere substitution of one element for another, the combination must do more than yield a predictable result. It nevertheless rejected the Governments claim that Adamss battery was obvious. The Court relied upon the corollary principle that when the prior art teaches away from combining certain known elements, discovery of a successful means of combining them is more likely to be nonobvious. . The fact that the elements worked together in an unexpected and fruitful manner supported the conclusion that Adamss design was not obvious to those skilled in the art. In Andersons-Black Rock, Inc. v. Pavement Salvage Co., 396 U.S. 57 (1969), the Court elaborated on this approach. The subject matter of the patent before the Court was a device combining two pre-existing elements: a radiant-heat burner and a paving machine. The device, the Court concluded, did not create some new synergy: The radiant-heat burner functioned just as a burner was expected to function; and the paving machine did the same. The two in combination did no more than they would in separate, sequential operation. In those circumstances, while the combination of old elements performed a useful function, it added nothing to the nature and quality of the radiant-heat burner already patented, and the patent failed under 103. Id., at 62. Finally, in Sakraida v. Ag Pro, Inc., 425 U.S. 273 (1976), the Court derived from the precedents the conclusion that when a patent simply arranges old elements with each performing the same function it had been known to perform and yields no more than one would expect from such an arrangement, the combination is obvious. Id., at 282. The principles underlying these cases are instructive when the question is whether a patent claiming the combination of elements of prior art is obvious. When a work is available

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in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one. If a person of ordinary skill can implement a predictable variation, 103 likely bars its patentability. For the same reason, if a technique has been used to improve one device, and a person of ordinary skill in the art would recognize that it would improve similar devices in the same way, using the technique is obvious unless its actual application is beyond his or her skill. Sakraida and Andersons-Black Rock are illustrative a court must ask whether the improvement is more than the predictable use of prior art elements according to their established functions. Following these principles may be more difficult in other cases than it is here because the claimed subject matter may involve more than the simple substitution of one known element for another or the mere application of a known technique to a piece of prior art ready for the improvement. Often, it will be necessary for a court to look to interrelated teachings of multiple patents; the effects of demands known to the design community or present in the marketplace; and the background knowledge possessed by a person having ordinary skill in the art, all in order to determine whether there was an apparent reason to combine. To facilitate review, this analysis should be made explicit. See In re Kahn, 441 F.3d 977, 988 (Fed. Cir. 2006) ([R]ejections on obviousness grounds cannot be sustained by mere conclusory statements; instead, there must be some articulated reasoning with some rational underpinning to support the legal conclusion of obviousness). As our precedents make clear, however, the analysis need not seek out precise teachings directed to the specific subject matter of the challenged claim, for a court can take account of the inferences and creative steps that a person of ordinary skill in the art would employ. B When it first established the requirement of demonstrating a teaching, suggestion, or motivation to combine known elements in order to show that the combination is obvious, the CCPA captured a helpful insight. See In re Bergel, 292 F.2d 955, 95657 (CCPA 1961). As is clear from cases such as Adams, a patent composed of several elements is not proved obvious merely by demonstrating that each of its elements was, independently, known. Although common sense directs one to look with care at a patent application that claims as innovation the combination of two known devices according to their established functions, it can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine. This is so because inventions in most, if not all, instances rely upon building blocks long since uncovered, and claimed discoveries almost of necessity will be combinations of what, in some sense, is already known. Helpful insights, however, need not become rigid and mandatory formulas; and when it is so applied, the TSM test is incompatible with our precedents. . Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility. In the years since the Court of Customs and Patent Appeals set forth the essence of the TSM test, the court of appeals no doubt has applied the test in accord with these principles in many cases. There is no necessary inconsistency between the idea underlying the TSM test and the Graham analysis. But when a court transforms the general principle into a rigid rule that limits the obviousness inquiry, as the court of appeals did here, it errs. C . What matters is the objective reach of the claim. If the claim extends to what is obvious, it is invalid under 103. One of the ways in which a patents subject matter can be proved obvious is by noting that there existed at the time of invention a known problem for which there was an obvious solution encompassed by the patents claims.

3.40

Nonobviousness

The first error of the court of appeals in this case was to foreclose this reasoning by holding that courts and patent examiners should look only to the problem the patentee was trying to solve. The court of appeals failed to recognize that the problem motivating the patentee may be only one of many addressed by the patents subject matter. The question is not whether the combination was obvious to the patentee but whether the combination was obvious. Under the correct analysis, any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining the elements in the manner claimed. The second error of the court of appeals lay in its assumption that a person of ordinary skill attempting to solve a problem will be led only to those elements of prior art designed to solve the same problem. The primary purpose of Asano was solving the constant ratio problem; so, the court concluded, an inventor considering how to put a sensor on an adjustable pedal would have no reason to consider putting it on the Asano pedal. Common sense teaches, however, that familiar items may have obvious uses beyond their primary purposes, and in many cases a person of ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle. Regardless of Asanos primary purpose, the design provided an obvious example of an adjustable pedal with a fixed pivot point; and the prior art was replete with patents indicating that a fixed pivot point was an ideal mount for a sensor. The idea that a designer hoping to make an adjustable electronic pedal would ignore Asano because Asano was designed to solve the constant ratio problem makes little sense. A person of ordinary skill is also a person of ordinary creativity, not an automaton. The same constricted analysis led the court of appeals to conclude, in error, that a patent claim cannot be proved obvious merely by showing that the combination of elements was obvious to try. When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. If this leads to the anticipated success, it is likely the product not of innovation but of ordinary skill and common sense. In that instance the fact that a combination was obvious to try might show that it was obvious under 103. The court of appeals, finally, drew the wrong conclusion from the risk of courts and patent examiners falling prey to hindsight bias. A factfinder should be aware, of course, of the distortion caused by hindsight bias and must be cautious of arguments reliant upon ex post reasoning. See Graham, 383 U.S., at 36 (warning against a temptation to read into the prior art the teachings of the invention in issue and instructing courts to guard against slipping into the use of hindsight.) Rigid preventative rules that deny factfinders recourse to common sense, however, are neither necessary under our case law nor consistent with it. We note the court of appeals has since elaborated a broader conception of the TSM test than was applied in the instant matter. . Those decisions, of course, are not now before us and do not correct the errors of law made by the court of appeals in this case. The extent to which they may describe an analysis more consistent with our earlier precedents and our decision here is a matter for the court of appeals to consider in its future cases. . III When we apply the standards we have explained to the instant facts, claim 4 must be found obvious. We agree with and adopt the district courts recitation of the relevant prior art and its determination of the level of ordinary skill in the field. As did the district court, we see little difference between the teachings of Asano and Smith and the adjustable electronic pedal disclosed in claim 4 of the Engelgau patent. A person having ordinary skill in the art could have combined Asano with a pedal position sensor in a fashion encompassed by claim 4, and would have seen the benefits of doing so.

Other Patent Requirements

3.41

A Teleflex argues in passing that the Asano pedal cannot be combined with a sensor in the manner described by claim 4 because of the design of Asanos pivot mechanisms. . This argument was not, however, raised before the district court. . Teleflexs own expert declarations, moreover, do not support the point Teleflex now raises. The only statement that might bear on the argument is found in the Radcliffe declaration: Asano and Rixon are complex mechanical linkage-based devices that are expensive to produce and assemble and difficult to package. It is exactly these difficulties with prior art designs that [Engelgau] resolves. The use of an adjustable pedal with a single pivot reflecting pedal position combined with an electronic control mounted between the support and the adjustment assembly at that pivot was a simple, elegant, and novel combination. The district court found that combining Asano with a pivot-mounted pedal position sensor fell within the scope of claim 4. Given the significance of that finding to the district courts judgment, it is apparent that Teleflex would have made clearer challenges to it if it intended to preserve this claim. In light of Teleflexs failure to raise the argument in a clear fashion, and the silence of the court of appeals on the issue, we take the district courts conclusion on the point to be correct. B The district court was correct to conclude that, as of the time Engelgau designed the subject matter in claim 4, it was obvious to a person of ordinary skill to combine Asano with a pivot-mounted pedal position sensor. There then existed a marketplace that created a strong incentive to convert mechanical pedals to electronic pedals, and the prior art taught a number of methods for achieving this advance. The court of appeals considered the issue too narrowly by, in effect, asking whether a pedal designer writing on a blank slate would have chosen both Asano and a modular sensor similar to the ones used in the Chevrolet truckline and disclosed in the '068 patent. The district court employed this narrow inquiry as well, though it reached the correct result nevertheless. The proper question to have asked was whether a pedal designer of ordinary skill, facing the wide range of needs created by developments in the field of endeavor, would have seen a benefit to upgrading Asano with a sensor. . Teleflex indirectly argues that the prior art taught away from attaching a sensor to Asano because Asano in its view is bulky, complex, and expensive. The only evidence Teleflex marshals in support of this argument, however, is the Radcliffe declaration, which merely indicates that Asano would not have solved Engelgaus goal of making a small, simple, and inexpensive pedal. What the declaration does not indicate is that Asano was somehow so flawed that there was no reason to upgrade it, or pedals like it, to be compatible with modern engines. . Accordingly, Teleflex has not shown anything in the prior art that taught away from the use of Asano. Like the district court, finally, we conclude Teleflex has shown no secondary factors to dislodge the determination that claim 4 is obvious. Proper application of Graham and our other precedents to these facts therefore leads to the conclusion that claim 4 encompassed obvious subject matter. As a result, the claim fails to meet the requirement of 103. . IV A separate ground the court of appeals gave for reversing was the existence of a dispute over an issue of material fact. . To the extent the court understood the Graham approach to exclude the possibility of summary judgment when an expert provides a conclusory affidavit addressing the question of obviousness, it misunderstood the role expert testimony plays in the analysis. In considering summary judgment on that question the

3.42

Nonobviousness

district court can and should take into account expert testimony, which may resolve or keep open certain questions of fact. That is not the end of the issue, however. The ultimate judgment of obviousness is a legal determination. Where, as here, the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate. Nothing in the declarations proffered by Teleflex prevented the district court from reaching the careful conclusions underlying its order for summary judgment in this case.. Notes 1. Before prior art can be used under 103, it must qualify as prior art under 102. To that end, reconsider the summary in Oddzon at the end of Chapter 3.B. 2. The Asano patent, central to KSR, qualifies as prior art, but unlike foreign patents used in, e.g., EWP Corp. v. Reliance Universal Inc., 755 F.2d 898 (Fed. Cir. 1985), that U.S. patent was clearly available to the examiner. What if the examiner, unlike the trial judge or Supreme Court Justices, did not see it as within the relevant prior art? Why is it unreasonable to ask patentees to distinguish art clearly available to examiners but not cited? 3. Three critical studies may have contributed to grants of certiorari in eBay, KSR and other patent cases: FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (2003); Board on Science, Technology and Economic Policy of the National Research Council, A Patent System for the 21st Century (2004); and Adam B. Jaffe and Josh Lerner, Innovation and its Discontents: How Our Broken Patent System is Endangering Innovation and Progress and What to Do About It (2004). 4. Jaffe and Lerner fault the Federal Circuit but seem not to appreciate it rarely plays any role until owners attempt to enforce their patents. They are particularly critical of trivial patents and offer several as evidence that the system is broken. One, surely invalid for lack of novelty as well as logistically unenforceable, claims the process of sideways motion on a playground swing. Another (suffering the same defects) claims the use of laser pointers to exercise cats. Such patents make the PTO look bad, but skeptical examiners may issue them if, for example, claims are exceedingly narrow and prior art is not readily available. 5. Access to prior art has long been a problem. 35 U.S.C. 122 once forbade disclosure of pending applications, but it now requires (unless applicants exercise limited options to prevent it) publication of applications after eighteen months. That affords an opportunity, but not necessarily any motivation, for outsiders to supply art prior to issuance. Further approaches along those lines are discussed in Gerald I. Mossinghoff and Vivian S. Kuo, Post-Grant Review of Patents, 43 Idea 83 (2002). Such measures, used elsewhere and in trademark cases, are well-known. They have nevertheless been long eschewed; see Pasquale J. Federico, Opposition and Revocation Proceedings in Patent Cases, Study No. 4, Subcomm. Patents, Trademarks and Copyrights of the U.S. Senate Judiciary Comm. (1957) (discussing proposals going back to 1935).

Chapter 4 Limitations on Rights

A. During Patent Terms

Morton Salt Co. v. G. S. Suppiger Co.

U.S. Supreme Court 314 U.S. 488 (1942)

Chief Justice Stone: Respondent brought this suit in the district court for an injunction and an accounting for infringement of its Patent on a device said to be useful in the canning industry for adding predetermined amounts of salt in tablet form to the contents of the cans. . The Clayton Act authorizes those injured by violations tending to monopoly to maintain suit for treble damages and for an injunction in appropriate cases. But the present suit is for infringement of a patent. The question we must decide is not necessarily whether respondent has violated the Clayton Act, but whether a court of equity will lend its aid to protect the patent monopoly when respondent is using it as the effective means of restraining competition with its sale of an unpatented article. Both respondents wholly owned subsidiary and the petitioner manufacture and sell salt tablets used and useful in the canning trade. The tablets have a particular configuration rendering them capable of convenient use in respondents patented machines. Petitioner makes and leases to canners unpatented salt deposition machines, charged to infringe respondents patent. . The principal business of respondents subsidiary, from which its profits are derived, is the sale of salt tablets. In connection with this business, and as an adjunct to it, respondent leases its patented machines to commercial canners, some two hundred in all, under licenses to use the machines upon condition and with the agreement of the licensees that only the subsidiarys salt tablets be used with the leased machines. It thus appears that respondent is making use of its patent monopoly to restrain competition in the marketing of unpatented articles, salt tablets, for use with the patented machines, and is aiding in the creation of a limited monopoly in the tablets not within that granted by the patent. A patent operates to create and grant to the patentee an exclusive right to make, use and vend the particular device described and claimed in the patent. But a patent affords no immunity for a monopoly not within the grant. It is the established rule that a patentee who has granted a license on condition that the patented invention be used by the licensee only with unpatented materials furnished by the licensor, may not restrain as a contributory infringer one who sells to the licensee like materials for like use. The grant to the inventor of the special privilege of a patent monopoly carries out a public policy adopted by the Constitution and laws of the United States. But the public policy which includes inventions within the granted monopoly excludes from it all that is not embraced in the invention. . It is a principle of general application that courts, and especially courts of equity, may appropriately withhold their aid where the plaintiff is using the right asserted contrary to the public interest. Respondent argues that this doctrine is limited in its application to those cases where the patentee seeks to restrain contributory infringement by the sale to licensees of competing unpatented article, while here respondent seeks to restrain petitioner from a

4.2

During Patent Terms

direct infringement. It is said that the equitable maxim that a party seeking the aid of a court of equity must come into court with clean hands applies only to the plaintiffs wrongful conduct in the particular act or transaction which raises the equity, enforcement of which is sought; that his conduct in using the patent to restrict competition in the sale of salt tablets does not foreclose him from seeking relief limited to an injunction against the manufacture and sale of the infringing machine alone. Undoubtedly equity does not demand that its suitors shall have led blameless lives; but [the public interest must be considered]. . Equity may rightly withhold its assistance from such a use of the patent by declining to entertain a suit for infringement, and should do so at least until it is made to appear that the improper practice has been abandoned and that the consequences of the misuse of the patent have been dissipated. . The reasons for barring the prosecution of such a suit against one who is not a competitor are fundamentally the same as those which preclude an infringement suit against a licensee who has violated a condition of the license by using a competing unpatented article. It is the adverse effect upon the public interest of a successful infringement suit in conjunction with the patentees course of conduct which disqualifies him to maintain the suit, regardless of whether the particular defendant has suffered. Similarly equity will deny relief for infringement of a trademark where the plaintiff is misrepresenting to the public the nature of his product either by the trademark itself or by his label. Manhattan Medicine Co. v. Wood, 108 U.S. 218; see also, for application of the like doctrine in the case of copyright, Stone & McCarrick v. Dugan Piano Co., 5 Cir., 220 F. 837, 841, 843. The patentee, like these other holders of an exclusive privilege granted in the furtherance of a public policy, may not claim protection of his grant by the courts where it is being used to subvert that policy. It is unnecessary to decide whether respondent has violated the Clayton Act, for we conclude that in any event the maintenance of the present suit to restrain petitioners manufacture or sale of the alleged infringing machines is contrary to public policy. Reversed. Justice Roberts took no part in the decision of this case. Notes 1. Unenforceability appears among several defenses listed in 35 U.S.C. 282. 2. Currently, under 271(d)(5), misuse may be found only if a patents market power limits licensees options. See also, Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) (extending the effective reach of that section to antitrust cases). 3. Could patentee require licensees to purchase its salt tablets because others salt tablets have been shown to cause its machine to malfunction? Could it do so because the amount of sales is a proxy for the amount of machine use? See, e.g., Intl Salt Co. v. U.S., 332 U.S. 392, 394 (1947) (tie-ins were unjustified because less anticompetitive means could serve any such legitimate end). 4. When, if ever, can patent owners found to impose overreaching license restrictions secure enforcement of their rights? 5. Should courts refuse to enforce patents such as Juicy Whips when inventions are, in fact, being used to deceive? Should defendants conduct ever be relevant?

Limitations on Rights

4.3

Mallinckrodt Inc. v. Medipart Inc.

U.S. Court of Appeal, Federal Circuit 976 F.2d 700 (1992)

Before Newman, Lourie and Clevenger. Newman, Circuit Judge: [This case concerned single use only notices on a patented medical device.] Background The patented device is an apparatus for delivery of radioactive or therapeutic material in aerosol mist form to the lungs of a patient, for diagnosis and treatment of pulmonary disease. . The device is marked with the appropriate patent numbers,* and bears the trademarks Mallinckrodt and UltraVent and the inscription Single Use Only. The package insert provided with each unit states For Single Patient Use Only and instructs that the entire contaminated apparatus be disposed of in accordance with [biohazardous waste procedures]. The hospital is instructed to seal the used apparatus in the radiation-shielded container prior to proper disposal. The hospitals whose activities led to this action do not dispose of the UltraVent apparatus, or limit it to a single use. Instead, the hospitals ship the used assemblies to Medipart, Inc. Medipart in turn packages the assemblies and sends them to Radiation Sterilizers Inc., who exposes the packages to at least 2.5 megarads of gamma radiation, and returns them to Medipart. Medipart personnel then check each assembly for damage and leaks, and place the assembly in a plastic bag together with a new filter, tubing, mouthpiece, and nose clip. The reconditioned units are shipped back to the hospitals from whence they came. Neither Radiation Sterilizers nor Medipart tests the reconditioned units for any residual biological activity or for radioactivity. The assemblies still bear the inscription Single Use Only and the trademarks Mallinckrodt and UltraVent. Mallinckrodt filed suit against Medipart, asserting patent infringement and inducement to infringe. Mallinckrodt also asserted other counts including trademark infringement. The district court granted Mediparts motion on the patent infringement counts, holding that the Single Use Only restriction could not be enforced by suit for patent infringement. The court also held that Mediparts activities were permissible repair, not impermissible reconstruction, of the patented apparatus. The court reserved for trial Mallinckrodts counts of trademark infringement and unfair competition, and entered final judgment on the patent aspects. The district court also enjoined Mallinckrodt pendente lite from distributing a new notice to its hospital customers. The proposed new notice emphasized the Single Use Only restriction and stated that the purpose of this restriction is to protect the hospital and its patients from potential adverse consequences of reconditioning, such as infectious disease transmission, material instability, and/or decreased diagnostic performance; that the UltraVent device is covered by certain patents; that the hospital is licensed under these patents to use the device only once; and the reuse of the device would be deemed infringement of the patents. I. The Restriction of Reuse . The district court described the cases sustaining field of use and other restrictions as in tension with the cases prohibiting restrictions such as price-fixing and tying, and with the
*

See 35 U.S.C. 287(a) & 292.

4.4

During Patent Terms

cases holding that the patent right is exhausted with the first sale. The court stated that policy considerations require that no conditions be imposed on patented goods after their sale and that Mallinckrodts restriction could not convert[ ] what was in substance a sale into a license. As we shall discuss, on the premises of this summary judgment motion the court erred, for not all restrictions on the use of patented goods are unenforceable. The enforceability of restrictions on the use of patented goods derives from the patent grant. This right to exclude* may be waived in whole or in part. The conditions of such waiver are subject to patent, contract, antitrust, and any other applicable law, as well as equitable considerations such as are reflected in the law of patent misuse. As in other areas of commerce, private parties may contract as they choose, provided that no law is violated . The district courts ruling that Mallinckrodts restriction on reuse was unenforceable was an application of the doctrine of patent misuse. The concept of patent misuse arose to restrain practices that did not in themselves violate any law, but that draw anticompetitive strength from the patent right, and thus were deemed to be contrary to public policy. . . The district court relied on a group of cases wherein resale price-fixing of patented goods was held illegal, and that barred patent-enforced tie-ins, viz. Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917). . In Motion Picture Patents a license notice was attached to patented movie projectors, stating that the purchaser had the right to use the machine only with motion picture films that were leased from the patentee. The defendant used a patented projector with films leased from other sources. The Court condemned the patentees tie-in as illegal, since it extended the scope of its monopoly to materials which were not part of the patented invention. . [General Talking Pictures was found to be irrelevant.] The UltraVent device was manufactured by the patentee; but the sale to the hospitals was the first sale and was with notice of the restriction. Medipart offers neither law, public policy, nor logic, for the proposition that the enforceability of a restriction to a particular use is determined by whether the purchaser acquired the device from a manufacturing licensee or from a manufacturing patentee. We decline to make a distinction for which there appears to be no foundation. Indeed, Mallinckrodt has pointed out how easily such a criterion could be circumvented. . In support of its ruling, the district court also cited a group of cases in which the Court considered and affirmed the basic principles that unconditional sale of a patented device exhausts the patentees right to control the purchasers use of the device; and that the sale of patented goods, like other goods, can be conditioned. The principle of exhaustion of the patent right did not turn a conditional sale into an unconditional one. . In Keeler v. Standard Folding Bed Co., 157 U.S. 659 (1895), the Court restated that the purchaser of a patented machine, without any conditions, may use or resell the device anywhere in the U.S., explaining: [When a patentee] has himself constructed a machine and sold it without any conditions, or authorized another to construct, sell, and deliver it, or to construct, use, and operate it, without any conditions, the rule is well established that the patentee must be understood to have parted to that extent with all his exclusive right, and that he ceases to have any interest whatever in the patented machine so sold and delivered or authorized to be constructed and operated. 157 U.S. at 663 (emphases added).6 .
* 6

See 35 U.S.C. 154. In Keeler the Court stated that [w]hether a patentee may protect himself and his assignees by special contracts brought home to the purchasers would arise as a question of contract, and not as one under the

Limitations on Rights

4.5

Viewing the entire group of these early cases, it appears that the Court simply applied, to a variety of factual situations, the rule of contract law that sale may be conditioned.7 Adams v. Burke and its kindred cases do not stand for the proposition that no restriction or condition may be placed upon the sale of a patented article. It was error for the district court to derive that proposition from the precedent. Unless the condition violates some other law or policy (in the patent field, notably the misuse or antitrust law), private parties retain the freedom to contract concerning conditions of sale. As we have discussed, the district court cited the price-fixing and tying cases as reflecting what the Court deemed to be the correct policy. However, this is not a price-fixing or tying case.8 The appropriate criterion is whether Mallinckrodts restriction is reasonably within the patent grant, or whether the patentee has ventured beyond the patent grant and into behavior having an [unjustifiable] anticompetitive effect. Should the restriction be found to be reasonably within the patent grant, i.e., that it relates to subject matter within the scope of the patent claims, that ends the inquiry. However, should such inquiry lead to the conclusion that there are anticompetitive effects extending beyond the patentees statutory right to exclude, these effects do not automatically impeach the restriction. Anticompetitive effects that are not per se violations of law are reviewed in accordance with the rule of reason. Patent owners should not be in a worse position, by virtue of the patent right to exclude, than owners of other property used in trade. . We conclude that the district court erred in holding that the restriction on reuse was, as a matter of law, unenforceable under the patent law. If the sale of the UltraVent was validly conditioned under [e.g.] the law governing sales and licenses, and if the restriction on reuse was within the scope of the patent grant or otherwise justified, then violation of the restriction may be remedied by action for patent infringement. The grant of summary judgment is reversed, and the cause is remanded. II. Repair and Reconstruction Even an unconditioned sale of a patented device is subject to the prohibition against reconstruction of the thing patented. A purchasers right to use a patented device does not extend to reconstructing it, for reconstruction is deemed analogous to construction of a new device. However, repair is permissible. Although the rule is straight-forward its implementation is less so, for it is not always clear where the boundary lies: How much repair is fair before the device is deemed reconstructed? Mallinckrodt charged, as an alternative ground of relief, that this prohibition was violated by Mediparts reconditioning of the used UltraVent devices. Medipart argued that it was merely cleaning the spent assemblies and replacing minor components. The district court found that Mediparts activities were in the nature of repair not reconstruction. However, should Mallinckrodts restriction on reuse be sustained on remand, then Mallinckrodt must prevail on this issue as a matter of law. If the UltraVent device is validly
inherent meaning and effect of the patent laws. 157 U.S. at 666. The question of whether a license restriction is binding on the purchaser is indeed one of contract law. However, the remedy for breach of a binding license provision is not exclusively in contract, for a license is simply a promise not to sue for what would otherwise be patent infringement. . 7 In accordance with the Uniform Commercial Code a license notice may become a term of sale, even if not part of the original transaction, if not objected to within a reasonable time. U.C.C. 2-207(2)(c). 8 The district court, and Medipart, quote language from these opinions of exceedingly broad reach to support the view that the Bauer and Motion Picture cases are not so limited. We do not favor this practice. It is a maxim not to be disregarded, that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit when the very point is presented for decision.

4.6

During Patent Terms

licensed for only a single use, any reuse is unlicensed and an infringement, and there is no need to choose between repair and reconstruction: The reconstruction-repair distinction is decisive, however, only when the replacement is made in a structure whose original manufacture and sale have been licensed by the patentee; when the structure is unlicensed the traditional rule is that even repair constitutes infringement. Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 480, (1964). This rule is dispositive if it is determined that the sale of the UltraVent device was accompanied by a valid restriction to single patient use, for the traditional rule is that even repair of an unlicensed device constitutes infringement. It follows that the district courts holding that the reconditioning was permissible repair is mooted, and is vacated. III. The Injunction The district court enjoined Mallinckrodt from issuing a new notice that stated, inter alia, that violation of the single patient use restriction would be deemed patent infringement. A patentee that has a good faith belief that its patents are being infringed violates no protected right when it so notifies infringers. Nor should an accused infringer be insulated from knowledge and fair warning of potential liability, or deprived of the opportunity to respond to threatened litigation. Although Medipart argues that Mallinckrodt is motivated by its commercial interest in selling new UltraVent units, and we have no doubt that all these parties motivations are commercial, Mallinckrodts position that infringement exists was not asserted to be in bad faith. Infringement notices have been enjoined when the patentee acted in bad faith, for example by making threats without intending to file suit; or when the patentee sent notices indiscriminately to all members of the trade; or when the patentee had no good faith belief in the validity of its patent. None of these circumstances is here asserted. . Notes 1. If a patient were injured by a flaw in a reconditioned product, what is the likelihood that Mallinckrodt would be drawn into the suit? With what risk of liability? 2. See note 7 in Mallinckrodt. Can that be reconciled with note 7 in Quanta, quoted at the end of Chapter 1? Does it make any difference if initial purchasers of the UltraVent have no right to resell? If the sales contract forbids repair? 3. Could Mallinckrodt achieve the same result by retaining title to the goods and licensing their use? 4. The next to last paragraph of Mallinckrodt, part I, cautions, Patent owners should not be in a worse position than owners of other property used in trade. At least as to tie-ins, that often aptly described patentees positions prior to passage of 271(d), mentioned after Morton Salt. 5. Regarding Mallinckrodts trademark rights, see Champion Spark Plug in Chapter 11. 6. Regarding the legal implications of Mallinckrodts communications with hospitals, see Mikohn Gaming Corp. in Chapter 12.

Limitations on Rights

4.7

Lifescan Inc. v. Can-Am Care Corp.

U.S. District Court, N.D. California 859 F. Supp. 392 (1994)

I. Background [Lifescan makes and sells One Touch blood glucose meters and test strips for home use. Diabetics put a drop of blood on the strips. The meter then determines their blood glucose level. Lifescan received patents 4,935,3461 and 5,049,487,2 in 1990 and 1991.] . The packaging on Lifescans meters between 1987 and 1992 did not contain any reference to either of Lifescans patents. In October 1992, Lifescan began marking the applicable patent numbers on both its boxes of meters and strips. In April 1993, Lifescan also began placing a sticker on the outside of its meter boxes which stated: . CAUTION: Use of the monitoring device contained herein is protected under U.S. Pat. Nos. 4,935,346 and 5,049,487. Purchase of the device does not give a license to practice these patents. Such a license is automatically granted when the device is used with the enclosed, or separately purchased One Touch test strips. No other test strip supplier is authorized to grant such a license. . In June 1993, Can-Am began selling its Quick Check One test strips, designed for use in Lifescans meters. Lifescan immediately filed a complaint. Lifescans complaint alleges that Can-Am infringes Lifescans patents, both directly and by inducing infringement, and engages in false advertising and unfair competition. . [Can-Am filed three motions, addressed seriatim below.] III. Discussion A. Met-Coil Motion Can-Am has filed a motion for partial summary judgment in which it seeks a ruling that, as a matter of law, all end users who purchased meters without a license restriction sticker obtained an unrestricted license under the method patents to use the meters for their intended purpose. In Met-Coil Systems Corp. v. Komers Unlimited, Inc., 803 F.2d 684 (1986), the Federal Circuit held that a patent owners unrestricted sale of an item useful only in practicing the claimed invention presumptively carries with it an implied license under the patent. The Federal Circuit stated two requirements for the grant of an implied license. First, the equipment involved must have no non-infringing uses. Second, the circumstances at the time of sale must plainly indicate that the grant of a license should be inferred. MetCoil, at 686. With respect to the second requirement, the court held: A patent owners unrestricted sales of a machine useful only in performing the claimed process and producing the claimed product plainly indicates that the grant of a license should be inferred. Id. at 687. . No evidence has been presented which would indicate that the Lifescan meters have non-infringing uses. Nor has any evidence been presented which indicates that Lifescans
The 346 Patent relates to the use of no-wipe blood glucose test strips wherein a small amount of blood is applied to one side of a strip containing chemical indicators and the amount of glucose in that blood is determined by making a reflectance measurement on the other side of that strip. 2 The 487 Patent relates to the use of a blood glucose strip in which a measurement is made after a predetermined interval after detecting the presence of blood, without having determined the time at
1

Ware, District Judge: .

which the blood sample was initially applied to the strip and eliminating the need to wipe blood from the test strip.

4.8

During Patent Terms

sales of its meters were somehow restricted prior to its packaging warnings beginning in mid1993. Accordingly, the court hereby grants Can-Ams motion for partial summary judgment and rules that, as a matter of law, all end users who purchased One Touch meters without the license restriction sticker obtained an unrestricted license under the method patents to use the meters for their intended purpose. . B. Ineffective License Restriction [Regarding the license restriction sticker placed by Lifescan on its meters beginning in mid-1993] Can-Am maintains that such stickers are legally ineffective attempts to create an adhesion contract and fail to reasonably inform the end users as to the terms of an effective license agreement. Can-Am also asserts that the Warranty of Title and Against Infringement, arising under U.C.C. 2-312, protects third party purchasers from infringement claims. . . [T]he Court hereby rules that it cannot determine that, as a matter of law, the license restriction sticker is ineffective to restrict the rights of end users who purchased meters with the license restriction sticker to use the meters for their intended purpose. C. Induced Infringement Finally, Can-Am moves for partial summary judgment as to Lifescans allegation that Can-Am induces infringement through the sale of its test strips. . Can-Am has begun applying the following warning to its test strips packages: CAUTION: The packaging of some Lifescan One Touch meters sold after or about July 1993 contains a NOTICE that the use of any test strip other than One Touch test strips on that meter is in violation of U.S. Patent Nos. 4,935,346 and 5,049,487. Due to the patent infringement issues alleged by Lifescan, the test strips in this box should not be used in those meters which contain that notice until this legal matter is settled in the courts. . Based upon its warning sticker, Can-Am contends that it cannot be found to have intended to cause infringement. . Lifescan contends that Can-Am is not entitled to summary judgment on this issue because its warning label is insufficient as a matter of law to insulate it from liability for inducing infringement and that there is a genuine issue of material fact as to whether CanAms warning is effective in preventing owners of stickered One Touch meters from using Can-Ams test strips in an infringing manner. . The fact that Can-Am provides the warning to consumers does not equate with the fact that the consumers, in fact, understand and heed the warning. Therefore, the court cannot conclude that, as a matter of law, Can-Am could not be found to have contributorily induced infringement.. Notes 1. What do Lifescans patent claims cover? Following sale of unrestricted devices, what choices other than relabeling does Lifescan have for avoiding consumers use of competitors strips? 2. As explored more fully in Chapter 7, 271(b) and (c) forbid induced and contributory infringement. If Lifescans strips have no use other than to infringe Can-Ams patents, they could fall within those provisions. Implicit in the above discussion, such liability cannot be found absent direct infringement by ultimate users. 3. Patent law aside, what justifies Lifescans tying use of its unpatented machines to purchase of its unpatented strips?

Limitations on Rights

4.9

Jazz Photo Corp. v. U.S. International Trade Commission

U.S. Court of Appeals, Federal Circuit 264 F.3d 1094 (2001)

Before Newman, Michel, and Gajarsa. Newman, Circuit Judge: Fuji Photo Film Co. charged twenty-seven respondents with infringement of fifteen patents owned by Fuji. The charge was based on the respondents importation of used single-use cameras called lens-fitted film packages (LFFPs), which had been refurbished1 for reuse in various overseas facilities. Section 337 [of the Tariff Act] makes unlawful [t]he importation of articles that infringe a valid and enforceable United States patent [or that] are made, produced, processed, under, or by means of, a process covered by the claims of a valid and enforceable United States patent. 19 U.S.C. 1337(a)(1)(B). Eight respondents did not respond to the Commissions complaint, ten more failed to appear, and one was dismissed. Eight respondents participated in the hearing, and three have taken this appeal. The Commission determined that twenty-six respondents, including the appellants, had infringed all or most of the claims in suit of fourteen Fuji United States patents, and issued a General Exclusion Order. This court stayed the Commissions orders during this appeal. . Commission factual findings are reviewed in accordance with the standards of the Administrative Procedure Act, and are sustained when they are supported by substantial evidence. The Commissions legal determinations receive plenary review. The application of the law of repair and reconstruction to fact is treated in precedent as a legal determination, and is reviewed without deference. The Patented Inventions The LFFP is a relatively simple camera, whose major elements are an outer plastic casing that holds a shutter, a shutter release button, a lens, a viewfinder, a film advance mechanism, a film counting display, and for some models a flash assembly and battery. The casing also contains a holder for a roll of film, and a container into which the exposed film is wound. At the factory a roll of film is loaded into the camera. The casing is then sealed by ultrasonic welding or light-tight latching, and a cardboard cover is applied to encase the camera. LFFPs are intended by the patentee to be used only once. After the film is exposed the photo-processor removes the film container by breaking open a pre-weakened portion of the plastic casing which is accessed by removal of the cardboard cover. Discarded LFFPs, subsequently purchased and refurbished by the respondents, are the subject of this action. . . [M]any or most of the claims in suit read literally on [respondents] refurbished cameras. Thus Fuji met its initial burden of showing infringement. The burden of establishing an affirmative defense is on the party raising the defense. The Commission correctly held that the respondents had the burden of establishing by a preponderance of the evidence that the activities performed in processing the used cameras constituted permissible repair.
1 We use refurbish as a convenient neutral term without legal significance, intended to connote neither repair nor reconstruction of the used cameras.

4.10

During Patent Terms

The Law of Permissible Repair and Prohibited Reconstruction . The principle of the distinction between permissible and prohibited activities was explained in Wilson v. Simpson, 50 U.S. 109 (1850),* where the Court distinguished the right of a purchaser of a patented planing machine to replace the machines cutting-knives when they became dull or broken, from the patentees sole right to make or renew the entire machine. The Court observed that the knives had to be replaced every 6090 days whereas the machines would last for several years, explaining, what harm is done to the patentee in the use of his right of invention, when the repair and replacement of a partial injury are confined to the machine which the purchaser has bought? Id. at 123. This principle underlies the application of the law. It was elaborated by the Court in Aro Mfg Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961), where the patented combination was a fabric convertible top and the associated metal support structure. . Reconstruction, precedent shows, requires a more extensive rebuilding of the patented entity than is exemplified in Aro Manufacturing. . Underlying the repair/reconstruction dichotomy is the principle of exhaustion of the patent right. The unrestricted sale of a patented article, by or with the authority of the patentee, exhausts the patentees right to control further sale and use of that article by enforcing the patent under which it was first sold. In United States v. Masonite Corp., 316 U.S. 265, 278 (1942), the Court explained that exhaustion of the patent right depends on whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward for the use of the article. Thus when a patented device has been lawfully sold in the United States, subsequent purchasers inherit the same immunity under the doctrine of patent exhaustion. However, the prohibition that the product may not be the vehicle for a second creation of the patented entity continues to apply, for such recreation exceeds the rights that accompanied the initial sale. Fuji states that some of the imported LFFP cameras originated and were sold only overseas, but are included in the refurbished importations by some of the respondents. The record supports this statement, which does not appear to be disputed. United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent. See Boesch v. Graff, 133 U.S. 697, 70103 (1890). Our decision applies only to LFFPs for which the United States patent right has been exhausted by first sale in the United States. Imported LFFPs of solely foreign provenance are not immunized from infringement of United States patents by the nature of their refurbishment. . Fuji alternatively contends that the right to repair the patented cameras is impliedly limited by the circumstances of sale, pointing to the instructions and warnings printed on the covers of the LFFPs, and arguing that these constituted a license limited to a single use. See Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 709 (Fed. Cir. 1992). The administrative law judge found that: A Fuji flash QuickSnap single use camera is in a box and each of the box and the outer cardboard cover of the camera has statements instructing the purchaser to not remove the film and return the camera to the photoprocessor and further cautioning the purchaser about the risk of electrical shock if opened by the purchaser. [The packaging also] instructs the purchaser that the single use camera will not be returned to the purchaser after processing. Similar notations are on [other cameras].
*

Reproduced above in Chapter 1.C.

Limitations on Rights

4.11

A license is governed by the laws of contract. It was undisputed that no express conditions of sale, license terms or restrictions attended the sale of these cameras. There was no express contractual undertaking by the purchaser. The administrative judge observed that any issue of implied contract or license was mooted by the finding of infringement based on reconstruction, see Initial Determination at 165, and made no findings on the issues of contract or license. Determinations of express or implied license or contract are matters of law. Met-Coil Sys. Corp. v. Korners Unlimited, Inc., 803 F.2d 684, 687 (Fed. Cir. 1986). . We do not discern an enforceable restriction on the reuse of these cameras based on the package statements. These statements are instructions and warnings of risk, not mutual promises or a condition placed upon the sale. These package instructions are not in the form of a contractual agreement by the purchaser to limit reuse of the cameras. There was no showing of a meeting of the minds whereby the purchaser, and those obtaining the purchasers discarded camera, may be deemed to have breached a contract or violated a license limited to a single use of the camera. We conclude that no license limitation may be implied from the circumstances of sale. The Process Patent . The defense of repair is applicable to process claims, as well as to apparatus claims, when the patented process was used in the United States and the patent right has been exhausted for the articles produced thereby. . Thus when the same process was used, the patent right for that process was exhausted upon the LFFPs first sale in the United States. . Validity and Enforceability of the 649 Patent [Only the 649 process patent was challenged.] The administrative law judge found that the respondents had provided no testimony that Fuji or its attorneys prosecuting the 649 application had any intent to deceive and the record is devoid of any such evidence. The appellants have not directed us to error in this finding. The simple absence of a reference from the prosecution record does not prove deceptive intent; there must be evidence sufficient to show, clearly and convincingly, the intent to withhold material information in order to deceive or mislead the examiner. See Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 872 (Fed. Cir. 1988) (en banc) (Inequitable conduct resides in failure to disclose material information with an intent to deceive.). . The Commissions ruling that inequitable conduct was not established is affirmed. Design Patents [T]he principle of exhaustion applies to the design patents as well as to the utility patents. The design patent right, like all patent rights, is exhausted by unrestricted first sale in the United States, and is not infringed by the importation and resale of the repaired articles in their original design. The judgment of infringement of the design patents is reversed, for those cameras for which the United States patent right was exhausted as discussed herein. Conclusion The judgment of patent infringement is reversed with respect to LFFPs for which the patent right was exhausted by first sale in the United States, and that were permissibly repaired. Permissible repair is limited, as discussed herein, to the steps of removing the cardboard cover, cutting open the casing, inserting new film and film container, resetting the film counter, resealing the casing, and placing the device in a new cardboard cover. Included in permissible repair is replacement of the battery in flash cameras and the winding wheel in the cameras that so require. For these products the Commissions orders are vacated.

4.12

During Patent Terms

LFFPs whose prior sale was not in the United States, or LFFPs remanufactured by procedures more extensive than those we hold to constitute repair, or whose remanufacturing procedures were withheld or insufficiently disclosed to the Commission, remain subject to the Commissions orders. For these products the Commissions orders are affirmed. Any further proceedings in implementation of our decision shall be taken to the Commission. By motions recently filed, Fuji has asserted circumventions of the Commissions orders; this matter is appropriately considered by the Commission on remand. In addition, Dynatec states that it has sold its business, although no formal notice of substitution was provided. Our ruling applies only to the entities who have placed themselves before us. This courts stay of the Commissions orders is lifted. . Notes 1. The initial forum in Jazz Photo offers important strategic advantagesi. If the ITC excludes goods, patent owners need not pursue sellers throughout the United States. 2. In Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 249 F. Supp. 2d 434 (D.N.J. 2003), a related action, Jazz was found to have engaged in permissible repair of LFFPs purchased in the United States. 3. How did the place where new Fuji LFFPs were initially purchased bear on the place where they could be legally repaired? Where repaired LFFPs could be legally sold? 4. Might it sometimes make a difference if the line between repair and reconstruction is framed in terms of purchasers reasonable expectations rather than in terms of what constitutes making under 271(a)? 5. Fuji did not include an explicit restriction such as Mallinckrodts. Had it done so, its acceptability might well be affected by Fujis share of the U.S. market for LFFPs. It does not apply literally, but see 271(d)(5). What if Fuji, instead, retained title and collected all used cameras for disposition? 6. Could a patentee, as in Wilson, Chapter 1.C, ever require purchasers (perhaps denominated as licensees) to buy replacement blades from it? 7. Even when patents are not available, manufacturers are very interested in controlling use of their names on recycled goods. See Champion Spark Plug, in Chapter 11. What of the risk of consumer deception? Is that as compelling as patient risks inherent in Mallinckrodt or Lifescan? 8. Fuji Photo Film Co., Ltd. v. ITC, 474 F.3d 1281, 1298 (Fed. Cir. 2007), the courts fifth occasion to deal with the dispute, finds that the ITC erred in deciding that replacement of back covers was reconstruction rather than repair. In some debates leading up to Quanta, discusssed at the end of Chapter 1, it was suggested that the Federal Circuit is hostile to exhaustion doctrine. To what extent do the LFFP cases support that idea? 9. Quality King Distributors, Inc. v. Lanza Research Intl., Inc., 523 U.S. 135 (1998), deals with the same issue in the context of copyright. Goods first produced here could be reimported. Quality King did not address the consequences for goods first made abroad by the rights holder, but Omega, S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), finds importation of such goods impermissible. Certiorari, however, has been granted, sub nom. Costco Wholesale Corp. v. Omega, S.A., 130 S.Ct. 2089 (2010).

Limitations on Rights

4.13

B. Limitations Related to Source Confusion Cases in this section explore the extent to which patents (and to a lesser extent, copyrights) limit trademark and related protection. They also introduce circumstances in which federal law trumps state options for protecting intellectual property. These key topics are nearly impossible to address when students lack common understanding of fundamentals. Thus, more than most, cases in the section reinforce a point stressed in the preface.

Singer Manufacturing Co. v. June Manufacturing Co.

U.S. Supreme Court 163 U.S. 169 (1896)

[Singer claimed, e.g., that defendant made and sold machines of the exact size and general external appearance as those of complainant and that the defendant was imitating its longused trade-mark. An accounting for the profits received and an injunction were sought.] Justice White: [Regarding two pivotal and controverted questions of fact the Court concluded:] 1st. That the Singer sewing machines were covered by patents which gave to the manufacturers a substantial monopoly; that in consequence of the enjoyment of this monopoly by the makers the name Singer came to indicate, in its primary sense, to the public, the class and type of machines made by the Singer Company or corporations, and thus this name constituted their generic description; that also, as this name applied to and described machines made alone by the Singer firm or corporations, the use also came in a secondary sense to convey to the public mind the machines made by the firm or corporations. 2d. That the word Singer was also voluntarily applied by the Singer firm or companies as a designation of the general type of machines made by them, with the intention that such machines should be accepted by the public under that name. Thus the course of the business and the purpose for which the name Singer was used brought about results identical with those which sprang from the existence of the monopoly; hence that name became not only the description of the machines, but also, in a subordinate sense, the indication of the source of manufacture. The case, as stated by the appellant in the pleadings and in the argument, fails to discriminate between distinct and different causes of action. The right to relief arising from the wrongful use by the defendant of a specific trade-mark, and also acts asserted to have been done by him which would justify the relief commonly accorded where unfair competition in business has been carried on, are commingled, and treated as one. . It is self-evident that on the expiration of a patent the monopoly created by it ceases to exist, and the right to make the thing formerly covered by the patent becomes public property. It is upon this condition that the patent is granted. It follows, as a matter of course, that on the termination of the patent there passes to the public the right to make the machine in the form in which it was constructed during the patent. We may therefore dismiss without further comment the complaint as to the form in which the defendant made his machines. It equally follows from the cessation of the monopoly and the falling of the patented device into the domain of things public that along with the public ownership of the device there must also necessarily pass to the public the generic designation of the thing which has arisen during the monopoly in consequence of the designation having been acquiesced in by the owner, either tacitly, by accepting the benefits of the monopoly, or expressly by his having so

4.14

Related to Source Confusion

connected the name with the machine as to lend countenance to the resulting dedication. To say otherwise would be to hold that, although the public had acquired the device covered by the patent, yet the owner of the patent or the manufacturer of the patented thing had retained the designated name which was essentially necessary to vest the public with the full enjoyment of that which had become theirs by the disappearance of the monopoly. In other words, that the patentee or manufacturer could take the benefit and advantage of the patent upon the condition that at its termination the monopoly should cease, and yet, when the end was reached, disregard the public dedication and practically perpetuate indefinitely an exclusive right. [The Court reviewed various authorities leading to the conclusion below.] The result, then, of the American, the English, and the French doctrine universally upheld is this: That where, during the life of a monopoly created by a patent, a name, whether it be arbitrary or be that or the inventor, has become, by his consent, either express or tacit, the identifying and generic name of the thing patented, this name passes to the public with the cessation of the monopoly which the patent created. Where another avails himself of this public dedication to make the machine and use the generic designation, he can do so in all forms, with the fullest liberty, by affixing such name to the machines, by referring to it in advertisements, and by other means, subject, however, to the condition that the name must be so used as not to deprive others of their rights, or to deceive the public; and, therefore, that the name must be accompanied with such indications that the thing manufactured is the work of the one making it, as will unmistakably inform the public of that fact. It remains only to apply these legal conclusions to the facts already recapitulated. Of course, from such application all claim of right, on the part of plaintiff in error, to prevent the use of the name Singer is dispelled. This leaves only two questions: First, whether that name, as used in the circulars and advertisements of the defendant, is accompanied with such plain information as to the source of manufacture of the machines by them made as to make these circulars and advertisements lawful; and, second, whether this also is the case with the use of the word Singer on the machines which the defendant makes and sells. As to the first of these inquires, the proof shows that the circulars were so drawn as to adequately indicate to any one in whose hands they may have come that the machines therein referred to were made by the June Manufacturing Company, and not by the Singer Company. We therefore dismiss the circulars from view. As to the advertisements, without going into details, some of those offered in evidence were well calculated to produce the impression on the public that the Singer machines referred to therein were for sale by the June Manufacturing Company, as the agent or representative of the Singer Company. On the second question the proof also is clear that there was an entire failure on the part of the defendant to accompany the use of the word Singer, on the machines made and sold by him, with sufficient notice, as to prevent them from being bought as machines made by the Singer Manufacturing Company, and thus operate an injury to private rights and a deceit upon the public. Indeed, not only the acts of omission in this regard, but the things actually done, give rise to the overwhelming implication that the failure was intentional, and that the system of marking pursued by the defendant had the purpose of enabling the machines to be sold to the general public as machines made by the Singer Company. The marks on the machines are found on the oval plate and on the device cast in the leg of the stand. On the first of these (the oval plate) the words Improved Singer are found in prominent letters, unaccompanied by anything to indicate that the machines were manufactured by the June Company, except the words J. M. Co. and the monogram J. Mfg. Co. The shape of the plate, its material, the position in which it was placed upon the machines, its size, its color, the prominence given to the words Improved Singer, all could

Limitations on Rights

4.15

have conveyed but one impression to one not entirely familiar with the exact details of the device upon the Singer Companys plates, and that is that the machine was one coming from the factory of the Singer Company. So, in the second (the device cast in the legs of the stand), the word Singer, alone without any qualification, is there found in bold relief, and above this the word I. S. and in small letters J. Mfg. Co. The similarity between the letter J. and the letter S., the failure to state in full the name of the manufacturer, the general resemblance to the device of the Singer Company, the place where it was put, which had no necessary connection with the structure or working capacity of the machines, and the prominence of the casting of the word Singer in comparison with the other mark, brings out in the plainest way the purpose of suggesting that it was made by the Singer Company. It is significant of the fraudulent purpose of the defendant that the device which the Singer Company cast in the legs of its machines was only by them adopted after the expiration of the patents and the resulting cessation of the monopoly, and for the avowed purpose of distinguishing their machines from others which had come upon the market; and therefore the colorable imitation which the defendant immediately proceeded to make had no necessary connection with the right to make machines according to the Singer system, and to call and sell them as Singer machines in consequence of their dedication to the public. But there are other circumstances in the record which throw light upon the facts which we have just stated, and lend to them an increased significance. On the plate of the Singer machines there was plainly marked a number, which the proof shows had run with relatively accurate consecutiveness from the beginning. These numbers, as a result of the vast development of the business, ran into the millions. The defendant at once began also to number his machines in the millions, thereby conveying the obvious impression that they were the result of a manufacture long established. There is an attempt in the evidence to explain this fact by the statement that it was the habit of sewing-machine makers to add three figures to the actual number of machines by them made, but the proof does not sustain the explanation, and if it did, it amounts to but the contention that the commission of a fraud should be condoned because others were guilty of similar attempts to deceive. There is another significant fact. On the machines made by the Singer Company there was a tension screw. This screw on the Singer machines served a useful mechanical purpose, and did not pass into the public domain with the expiration of the fundamental patents, because specially covered by a subsisting patent. The defendant, in making his machines, placed thereon a dummy screw, serving no mechanical purpose whatever, and which could have had no object but that of producing the impression that his machine was made by the Singer Company. . The right to use the word Singer, which caused the imitative infringement in the device, being lawful, it is plain that the infringement only resulted from the failure to plainly state, along with the use of that word, the source of manufacture, and therefore this branch of the question is covered by the same legal principle by which we have determined the other. It follows, therefore, that the judgment below, which recognized the right of the defendant to make or vend sewing machines in the form in which they were made was erroneous. Therefore the decree below must be Reversed, and the cause be remanded, with directions to enter a decree perpetually enjoining the defendant, its agents, servants, and representatives, First, from using the word Singer, or any equivalent thereto, in advertisements in relation to sewing machines, without clearly and unmistakably stating in all said advertisements that the machines are made by the defendant, as distinguished from the sewing machines made by the Singer Manufacturing Company; second, also perpetually

4.16

Related to Source Confusion

enjoining the defendant from marking upon sewing machines or upon any plate or device connected therewith or attached thereto the word Singer, or words or letters equivalent thereto, without clearly and unmistakably specifying in connection therewith that such machines are the product of the defendant or other manufacturer, and therefore not the product of the Singer Manufacturing Company. And the decree so to be entered must also contain a direction for an accounting by the defendant as to any profits which may have been realized by it because of the wrongful acts by it committed. Notes 1. Why might the Court have surveyed French and English, as well as U.S., authorities? 2. A companion case, Singer Manufacturing Co. v. Bent, 163 U.S. 205 (1896), dealt with machines made by June for Bent. Singer was located in New York, but Bent was not. Bents machines were labeled New York S. M. Mfg. Co. but S. M. Mfg. Co. did not exist. Does the previous decision suggest that Singer would have been entitled to any relief ? 3. The Court faults plaintiff for not distinguishing actions for unfair competition and trademark infringement. Why was only the former helpful? 4. The behavior faulted in Morton Salt is literally unfair competition. Only recently, however, is it sometimes viewed more broadly. P&G, in Chapter 12, for example, makes it clear that some states apply the term only to practices designed to cause source confusion. 5. Possibly anticipating loss of rights to its name, what did Singer do apparently to make its goods identifiable after the patent expired. 6. Enterprise Mfg. Co. v. Landers, Frary & Clark, 131 Fed. 240, 241 (2d Cir. 1904), held: [A] court of equity will not allow a man to palm off his goods as those of another, whether his misrepresentations are made by mouth, or, more subtly, by simulating the collocation of details of appearance by which the consuming public has come to recognize the product of his competitor. Learned Hand, in Crescent Tool Co. v. Kilborn & Bishop Co., 247 F. 299, 300 (2d Cir. 1917), identified Enterprise as the first case to address misleadings product configurations as such.

Kellogg Co. v. National Biscuit Co.

U.S. Supreme Court 305 U.S. 111 (1938)

Justice Brandeis: This suit was brought1 to enjoin alleged unfair competition. The competition was alleged to be unfair mainly because Kellogg Company uses, like the plaintiff, the name shredded wheat and, like the plaintiff, produces its biscuit in pillow-shaped form. Shredded wheat is a product composed of whole wheat which has been boiled, partially dried, then drawn or pressed out into thin shreds and baked. The shredded wheat biscuit generally known is pillow-shaped in form. It was introduced in 1893 by Henry D. Perky. Kellogg Company has been in the business of manufacturing breakfast food cereals since its organization in 1905. For a period commencing in 1912 and ending in 1919 it made a product whose form was somewhat like the product in question, but whose manufacture was
1

The federal jurisdiction rests on diversity. Most of the issues in the case involve questions of common law and hence are within the scope of Erie R. Co. v. Tompkins, 1938, 304 U.S. 64. But no claim has been made that the local law is any different, and both parties have relied almost entirely on federal precedents.

Limitations on Rights

4.17

different, the wheat being reduced to a dough before being pressed into shreds. For a short period in 1922 it manufactured the article in question. In 1927, it resumed. In 1928, the plaintiff sued for alleged unfair competition two dealers in Kellogg shredded wheat biscuits. That suit was discontinued by stipulation in 1930. On June 11, 1932, the present suit was brought. Much evidence was introduced; but the determinative facts are relatively few; and as to most of these there is no conflict. . On May 5, 1938, the Circuit Court of Appeals directed the district court to enter a decree enjoining Kellogg Company: (1) from the use of the name Shredded Wheat as its trade name, (2) from advertising or offering for sale its product in the form and shape of plaintiffs biscuit, and (3) from doing either. . [Below, the Court addressed these matters seriatim.] First. The plaintiff has no exclusive right to the use of the term Shredded Wheat as a trade name. For that is the generic term of the article, which describes it with a fair degree of accuracy; and is the term by which the biscuit in pillow-shaped form is generally known by the public. Since the term is generic, the original maker of the product acquired no exclusive right to use it. As Kellogg Company had the right to make the article, it had, also, the right to use the term by which the public knows it. Ever since 1894 the article has been known to the public as shredded wheat. For many years, there was no attempt to use the term Shredded Wheat as a trade-mark. When in 1905 plaintiffs predecessor, Natural Food Company, applied for registration of the words Shredded Whole Wheat as a trade-mark, William E. Williams gave notice of opposition. Upon the hearing it appeared that Williams had, as early as 1894, built a machine for making shredded wheat, and that he made and sold its product as Shredded Whole Wheat. The Commissioner of Patents refused registration. The Court of Appeals of the District of Columbia affirmed his decision, holding that these words accurately and aptly describe an article of food which has been produced for more than ten years. Natural Food Co. v. Williams, 30 App.D.C. 348. Moreover, the name Shredded Wheat, as well as the product, the process and the machinery employed in making it, has been dedicated to the public. The basic patent for the product and for the process of making it, and many other patents for special machinery issued to Perky. In those patents the term shredded is repeatedly used as descriptive of the product. The basic patent expired Oct. 15, 1912; the others soon after. Since during the life of the patents Shredded Wheat was the general designation of the patented product, there passed to the public upon the expiration of the patent, not only the right to make the article as it was made during the patent period, but also the right to apply thereto the name by which it had become known. As was said in Singer Mfg. Co. v. June Mfg. Co., 163 U.S. 169, 185: It equally follows from the cessation of the monopoly and the falling of the patented device into the domain of things public that along with the public ownership of the device there must also necessarily pass to the public the generic designation of the thing. . It is contended that the plaintiff has the exclusive right to the name Shredded Wheat, because those words acquired the secondary meaning of shredded wheat made at Niagara Falls by the plaintiffs predecessor. There is no basis here for applying the doctrine of secondary meaning. The evidence shows only that due to the long period in which the plaintiff or its predecessor was the only manufacturer of the product, many people have come to associate the product, and as a consequence the name by which the product is generally known, with the plaintiffs factory at Niagara Falls. But to establish a trade name in

4.18

Related to Source Confusion

the term Shredded Wheat the plaintiff must show more than a subordinate meaning which applies to it. It must show that the primary significance of the term in the minds of the consuming public is not the product but the producer. This it has not done. The showing which it has made does not entitle it to the exclusive use of the term shredded wheat but merely entitles it to require that the defendant use reasonable care to inform the public of the source of its product. The plaintiff seems to contend that even if Kellogg Company acquired upon the expiration of the patents the right to use the name shredded wheat, the right was lost by delay. The argument is that Kellogg Company, although the largest producer of breakfast cereals in the country, did not seriously attempt to make shredded wheat, or to challenge plaintiffs right to that name until 1927, and that meanwhile plaintiffs predecessor had expended more than $17,000,000 in making the name a household word and identifying the product with its manufacture. Those facts are without legal significance. Kellogg Companys right was not one dependent upon diligent exercise. Like every other member of the public, it was, and remained, free to make shredded wheat when it chose to do so; and to call the product by its generic name. The only obligation resting upon Kellogg Company was to identify its own product lest it be mistaken for that of the plaintiff. Second. The plaintiff has not the exclusive right to sell shredded wheat in the form of a pillow-shaped biscuit the form in which the article became known to the public. That is the form in which shredded wheat was made under the basic patent. The patented machines used were designed to produce only the pillow-shaped biscuits. And a design patent was taken out to cover the pillow-shaped form.4 Hence, upon expiration of the patents the form, as well as the name, was dedicated to the public. As was said in Singer, 163 U.S. 185: It is self-evident that on the expiration of a patent the monopoly granted by it ceases to exist, and the right to make the thing formerly covered by the patent becomes public property. It is upon this condition that the patent is granted. . Where an article may be manufactured by all, a particular manufacturer can no more assert exclusive rights in a form in which the public has become accustomed to see the article and which, in the minds of the public, is primarily associated with the article rather than a particular producer, than it can in the case of a name with similar connections in the public mind. Kellogg Company was free to use the pillow-shaped form, subject only to the obligation to identify its product. Third. The question remains whether Kellogg Company in exercising its right to use the name Shredded Wheat and the pillow-shaped biscuit, is doing so fairly. Fairness requires that it be done in a manner which reasonably distinguishes its product. Each company sells its biscuits only in cartons. The standard Kellogg carton contains fifteen biscuits; the plaintiffs twelve. The Kellogg cartons are distinctive. . And the difference in the labels is striking. The Kellogg cartons bear in bold script the names Kelloggs Whole Wheat Biscuit or Kelloggs Shredded Whole Wheat Biscuit so sized and spaced as to strike the eye as being a Kellogg product. It is true that on some of its cartons it had a picture of two shredded wheat biscuits in a bowl of milk which was quite similar to one of the plaintiffs registered trade-marks. But the name Kellogg was so prominent on all of the defendants cartons as to minimize the possibility of confusion. Some hotels, restaurants, and lunchrooms serve biscuits not in cartons, and guests so served may conceivably suppose that a Kellogg biscuit served is one of the plaintiffs make. But no person familiar with plaintiffs product would be misled. The Kellogg biscuit is about
4

The design patent would have expired by limitations in 1909. In 1908 it was declared invalid by a district judge on the ground that the design had been in public use for more than two years prior to the application for the patent and theretofore had already been dedicated to the public. Natural Foods Co. v. Bulkley, No. 28,530, U.S. Dist. Ct., N.D.Ill., E.Div. (1908).

Limitations on Rights

4.19

two-thirds the size of plaintiffs; and differs from it in appearance. Moreover, the field in which deception could be practiced is negligibly small. Only 2.5% of the Kellogg biscuits are sold to hotels, restaurants and lunchrooms. Of those so sold 98% are sold in individual cartons containing two biscuits. These cartons are distinctive and bear prominently the Kellogg name. To put upon the individual biscuit some mark which would identify it as the Kellogg product is not commercially possible. Relatively few biscuits will be removed from the individual cartons before they reach the consumer. The obligation resting upon Kellogg Company is not to insure that every purchaser will know it to be the maker but to use every reasonable means to prevent confusion. It is urged that all possibility of deception or confusion would be removed if Kellogg Company should refrain from using the name Shredded Wheat and adopt some form other than the pillow-shape. But the name and form are integral parts of the goodwill of the article. To share fully in the goodwill, it must use the name and the pillow-shape. And in the goodwill Kellogg Company is as free to share as the plaintiff. Moreover, the pillow-shape must be used for another reason. The evidence is persuasive that this form is functional that the cost of the biscuit would be increased and its high quality lessened if some other form were substituted for the pillow-shape. Kellogg Company is undoubtedly sharing in the goodwill of the article known as Shredded Wheat; and thus is sharing in a market which was created by the skill and judgment of plaintiffs predecessor and has been widely extended by vast expenditures in advertising persistently made. But that is not unfair. Sharing in the goodwill of an article unprotected by patent or trade-mark is the exercise of a right possessed by all and in the free exercise of which the consuming public is deeply interested. There is no evidence of passing off or deception on the part of the Kellogg Company; and it has taken every reasonable precaution to prevent confusion or the practice of deception in the sale of its product. . Justice McReynolds and Justice Butler are of opinion that the decree of the Circuit Court of Appeals is correct and should be affirmed. To them it seems sufficiently clear that the Kellogg Company is fraudulently seeking to appropriate to itself the benefits of a goodwill built up at great cost by the respondent and its predecessors. Notes 1. What role did Kellogg play in Scott Paper, Chapter 1? 2. How would one describe the difference between the goodwill of an article and of its seller? To which do competitors have no access? To which do they have full access? 3. What role did plaintiffs invalid design patent (see the Courts note 4) play? Although that issue is best reserved for later consideration, one might also consider the effect of plaintiffs unsuccessful attempt to register its mark. 4. If plaintiff had chosen a more costly shape for its biscuits would Kellogg have been as free to copy? How is Kelloggs choice of a smaller biscuit apt to have helped its defense? 5. Consider DuPont Cellophane Co. v. Waxed Products Co., 85 F.2d 75, cert. denied, 299 U.S. 601 (2d Cir. 1936). At 77, the issue is framed as: did [cellophane] simply mean a transparent glycerinated cellulose hydrate regenerated from viscose? If that awkward phrase is the only alternative name for the product, is anyone (including the typical chemist) likely to use it? If not, what is the likelihood that cellophane could avoid being generic?

4.20

Related to Source Confusion

Sears, Roebuck & Co. v. Stiffel Co.

U.S. Supreme Court 376 U.S. 225 (1964)

Justice Black: The question is whether a States unfair competition law can, consistently with the federal patent laws, impose liability for or prohibit the copying of an article which is protected by neither a federal patent nor a copyright. The respondent, Stiffel Company, secured design and mechanical patents on a pole lamp a vertical tube having lamp fixtures along the outside, the tube being made so that it will stand upright between the floor and ceiling of a room. Pole lamps proved a decided commercial success, and soon after Stiffel brought them on the market Sears, Roebuck & Company put on the market a substantially identical lamp, which it sold more cheaply, Sears retail price being about the same as Stiffels wholesale price. Stiffel then brought this action, claiming in its first count that by copying its design Sears had infringed Stiffels patents and in its second count that by selling copies of Stiffels lamp Sears had caused confusion in the trade as to the source of the lamps and had thereby engaged in unfair competition under Illinois law. There was evidence that identifying tags were not attached although labels appeared on the cartons in which they were delivered to customers, that customers had asked Stiffel whether its lamps differed from Sears, and that in two cases customers who had bought Stiffel lamps had complained to Stiffel on learning that Sears was selling substantially identical lamps at a much lower price. The district court, after holding the patents invalid, went on to find as a fact that Sears lamp was a substantially exact copy of Stiffels and that the two lamps were so much alike that confusion between them is likely, and some confusion has already occurred. On these findings the court held Sears guilty of unfair competition, enjoined Sears from unfairly competing with [Stiffel] by selling or attempting to sell pole lamps identical to or confusingly similar to Stiffels lamp, and ordered an accounting to fix profits and damages resulting from Sears unfair competition. The Court of Appeals affirmed.1 . Before the Constitution was adopted, some States had granted patents either by special act or by general statute, but when the Constitution was adopted provision for a federal patent law was made one of the enumerated powers of Congress because, as Madison put it in The Federalist No. 43, the States cannot separately make effectual provision for either patents or copyrights. . Pursuant to this constitutional authority, Congress in 1790 enacted the first federal patent and copyright law, and ever since that time has fixed the condition upon which patents and copyrights shall be granted. These laws, like other laws of the United States enacted pursuant to constitutional authority, are the supreme law of the land. See Sperry v. Florida, 373 U.S. 379 (1963). When state law touches upon the area of these federal statutes, it is familiar doctrine that the federal policy may not be set at naught, or its benefits denied by the state law. This is true, of course, even if the state law is enacted in the exercise of otherwise undoubted state power. The grant of a patent is the grant of a statutory monopoly; indeed, the grant of patents in England was an explicit exception to the Statute of James I prohibiting monopolies.6 Patents are not given as favors, but are meant to encourage invention by rewarding the
1 6

No review is sought here of the ruling affirming the District Courts holding that the patent is invalid. The Statute of Monopolies, 21 Jac. I, c. 3 (1623), declared all monopolies contrary to the Laws of this Realm and utterly void and of none Effect. Section VI, however, excepted patents of 14 years to the true and first Inventor and Inventors of new Manufacturers . Much American patent law derives from English patent law.

Limitations on Rights

4.21

inventor with the right, limited to a term of years fixed by the patent, to exclude others from the use of his invention. During that period of time no one may make use, or sell the patented product without the patentees authority. But in rewarding useful invention, the rights and welfare of the community must be fairly dealt with and effectually guarded. To that end the prerequisites to obtaining a patent are strictly observed, and when the patent has issued the limitations on its exercise are equally strictly enforced. To begin with, a genuine invention or discovery must be demonstrated lest in the constant demand for new appliances the heavy hand of tribute be laid on each slight technological advance in an art. Once the patent issues, it is strictly construed, it cannot be used to secure any monopoly beyond that contained in the patent, [Morton Salt, 314 U.S. 488, 492], the patentees control over the product when it leaves his hands is sharply limited. Finally, and especially relevant here, when the patent expires the monopoly created by it expires, too, and the right to make the article including the right to make it in precisely the shape it carried when patented passes to the public. [Kellogg, 305 U.S. 111, 12022 (1938) and Singer, 163 U.S. 169, 185 (1896) were cited.] Thus the patent system is one in which uniform federal standards are carefully used to promote invention while at the same time preserving free competition.7 Obviously a State could not, consistently with the Supremacy Clause of the Constitution, extend the life of a patent beyond its expiration date or give a patent on an article which lacked the level of invention required for federal patents. To do either would run counter to the policy of Congress. Just as a State cannot encroach upon the federal patent laws directly, it cannot, under some other law, such as that forbidding unfair competition, give protection of a kind that clashes with the objectives of the federal patent laws. . An unpatentable article, like an article on which the patent has expired, is in the public domain and may be made and sold by whoever chooses to do so. What Sears did was to copy Stiffels design and to sell lamps almost identical to those sold by Stiffel. This it had every right to do. That Stiffel originated the pole lamp and made it popular is immaterial. Sharing in the goodwill of an article unprotected by patent or trade-mark is the exercise of a right possessed by all and in the free exercise of which the consuming public is deeply interested. Kellogg Co., 305 U.S. at 122. To allow a State by use of its law of unfair competition to prevent the copying of an article which represents too slight an advance to be patented would be to permit the State to block off from the public something which federal law has said belongs to the public. The result would be that while federal law grants only 14 or 17 years protection to genuine inventions, States could allow perpetual protection to articles too lacking in novelty to merit any patent at all. This would be too great an encroachment on the federal patent system to be tolerated. Sears has been held liable here for unfair competition because of a finding of likelihood of confusion. Of course there could be confusion as to who had manufactured these nearly identical articles. But mere inability of the public to tell two identical articles apart is not enough. Doubtless a State may, in appropriate circumstances, require that goods, whether patented or unpatented, be labeled or that other precautionary steps be taken to prevent customers from being misled as to the source, just as it may protect businesses in the use of their trademarks, labels, or distinctive dress in the packaging of goods so as to prevent others, by imitating such markings, from misleading purchasers as to the source of the goods. But because of the federal patent laws a State may not, when the article is unpatented and
7

The purpose of Congress to have national uniformity in patent and copyright laws can be inferred from such statutes as that which vests exclusive jurisdiction to hear patent and copyright cases in federal courts and that section of the Copyright Act which expressly saves state protection of unpublished writings but does not include published writings, 17 U.S.C. 2.

4.22

Related to Source Confusion

uncopyrighted, prohibit the copying of the article itself or award damages for such copying. Cf. G. Ricordi & Co. v. Haendler, 194 F.2d 914, 916 (2d Cir. 1952). The judgment below did both. That was error, and Sears is entitled to a judgment in its favor. Reversed. Notes 1. How does the principal legal authority applied in Sears differ from that used in Singer or Kellogg? Why does it matter? 2. Sears was accompanied by Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964). Compco does not need separate attention aside from emphasized language in the next-to-last paragraph, at 238: It is true that the trial court found that the configuration of Day-Brites fixture identified Day-Brite to the trade because the arrangement of the ribbing had, like a trademark, acquired a secondary meaning by which that particular design was associated with Day-Brite. But if the design is not entitled to a design patent or other federal statutory protection, then it can be copied at will. 3. Justice Harlan, concurred with both opinions, 376 U.S. at 239, but says: In one respect I would give the States more leeway in unfair competition copying cases than the Courts opinions would allow. If copying is found to have been undertaken with the dominant purpose and effect of palming off ones goods as those of another, I see no reason why the State may not impose reasonable restrictions on the future copying itself. Vindication of the paramount federal interest at stake does not require a State to tolerate such specifically oriented predatory business practices. Apart from this, I am in accord. In that regard, reconsider the facts in Singer. Could state law halt such copying? 4. Considerations flagged in Sears and Compco may help explain the tendency of wellknown designers to display names and logos on their goods. For example, if Stiffels name were permanently and prominently affixed, would lamps lacking that name sell for as much?

Vornado Air Circulation Systems, Inc. v. Duracraft Corp.

U.S. Court of Appeals, Tenth Circuit 58 F.3d 1498 (1995)

Before Anderson, McWilliams and Alarcon*. Stephen H. Anderson, Circuit Judge: This case presents an issue of first impression in our circuit. We must decide whether a product configuration is entitled to trade dress protection when it is or has been a significant inventive component of an invention covered by a utility patent. [Vornado obtained a utility patent in 1990 and a reissue patent in 1994. The patent was still in effect, but it was agreed that Duracraft did not infringe. Yet Vornado claimed that curved vanes in its grill were legally nonfunctional and could be protected as trade dress.] [The district court agreed with Vornado because improved air flow] compared with other grill designs was not great enough for a customer to perceive, so it made no competitive difference. The court also noted that other feasible grill structures could easily do as well on
*

Arthur L. Alarcon, Senior Ninth Circuit Judge, sitting by designation.

Limitations on Rights

4.23

other relevant performance tests, and the spiral grill was not shown to be cheaper to manufacture. The district court did not find enough evidence to support a finding of aesthetic functionality, a type of functionality based on decorativeness or attractiveness, which we have previously recognized. [Brunswick Corp. v. Spinit Reel Co., 832 F.2d 513, 519 (10th Cir. 1987).] Nor did the district court find that Duracraft would suffer a marketing disadvantage if it could not use the spiral grill. The court found that the grills value lay not in its operational attributes but primarily in its appearance. The court held that trade dress protection of nonfunctional product configurations under the Lanham Act was not incompatible with patent law [and] granted Vornado an injunction but no damages. Section 43(a) of the Lanham Act, 15 U.S.C. 1125(a), provides a federal cause of action for unprivileged imitation, including trade dress infringement. Hartford House, Ltd. v. Hallmark Cards, Inc., 846 F.2d 1268, 1271 (10th Cir.), cert. denied, 488 U.S. 908 (1988). Trade dress features are those comprising a products look or image In Hartford and Brunswick, we held that although in the past, trade dress infringement had consisted of copying a products packaging, trade dress modernly could also refer to the appearance of the product itself. As those two cases demonstrate, trade dress analysis may be applied to a single feature or a combination of features. A plaintiff in a trade dress infringement case must show either (a) that its products trade dress features (or feature) are inherently distinctive because their intrinsic nature is such as to almost automatically tell a customer that they refer to a brand, or (b) that the trade dress has become distinctive through acquisition of secondary meaning, so that its primary significance in the minds of potential consumers is no longer as an indicator of something about the product itself but as an indicator of its source or brand. . . It may come as no surprise that we are able to identify distinctions between [Sears, Compco and Bonito Boats (covered in Chapter 9) and the case] before us, the most salient, of course, being that in none of the prior cases did the Court apply federal unfair competition law under 43(a) of the Lanham Act. . Despite what appears to be a widespread perception that product configurations covered by utility patents are automatically functional for Lanham Act purposes, the district court in our case ably demonstrated that this is not so. Configurations can simultaneously be patentably useful, novel, and nonobvious and also nonfunctional, in trade dress parlance. This is the case because to meet patent laws usefulness requirement, a product need not be better than other alternatives or essential to competition. . [Concluding] that core patent principles will be significantly undermined if we do not allow the copying in question, and peripheral Lanham Act protections will be denied if we do, our answer seems clear. [W]here Lanham Act goals are not the only ones at stake, we must also examine the degree to which a first competitor needs to use a useful product feature instead of something else a name, a label, a package to establish its brand identity. It would defy logic to assume that there are not almost always many more ways to identify a product than there are ways to make it. And if one of the ways to configure the product itself has been deemed important enough to the advance of technology for the government to grant a utility patent, we must find its value as a product feature to exceed its value as a brand identifier in all but the most unusual cases. We hold that where a disputed product configuration is a described, significant inventive aspect of the invention, so that without it the invention could not fairly be said to be the same invention, patent law prevents its protection as trade dress, even if the configuration is nonfunctional.

4.24

Related to Source Confusion

In future cases, the contribution of a particular configuration to the inventiveness of a patented product may not always be clear, and we do not wish to rule out the possibility that a court may appropriately conduct a factual inquiry to supplement its reading of the patents claims and descriptions. But in this case, we do not find it necessary to remand for such an inquiry. Vornado included the arcuate grill vane structure as an element of its patent claims and described the configuration as providing an optimum air flow. Then, after the first patent issued and Vornado subsequently found evidence that other grill structures worked as well as or better than the spiral grill, Vornado did not repudiate or disclaim in any way the grill element of its patent. Instead, Vornado sought and received a reissue patent that expanded its claims with respect to the grill. Even if we discount entirely Vornados extensive advertising campaign emphasizing the importance of the AirTensity Grill, this patent history on its face obviates any need for a remand on the question of inventive significance. We simply take Vornado at its word. Because the Patented AirTensity Grill is a significant inventive element of Vornados patented fans, it cannot be protected as trade dress. . Notes 1. Vornado says, if one of the ways to configure the product itself has been deemed important enough for the government to grant a utility patent, we must find its value as a product feature to exceed its value as a brand identifier in all but the most unusual cases. Would that be any less true if the government had instead granted a design patent? 2. Should a firm be permitted to claim that ornamental features warrant a design patent but, once it expires, to maintain that the same features function only to indicate source? Should, as apparently held in Kellogg, such claims not be barred as a matter of law? 3. Vornado laments the dearth of Supreme Court precedent under the 1946 Lanham Act. Are the following cases likely to have altered the outcome?

Wal-Mart Stores, Inc. v. Samara Brothers, Inc.

U.S. Supreme Court 529 U.S. 205 (2000)

Justice Scalia: . Respondent Samara Brothers, Inc., designs and manufactures childrens clothing. Its primary product is a line of spring/summer one-piece seersucker outfits decorated with appliques of hearts, flowers, fruits, and the like. [C]hain stores, including JCPenney, sell this line of clothing under contract with Samara. . [In 1995,] Wal-Mart sent Judy-Philippine photographs of a number of garments from Samaras line; Judy-Philippine duly copied, with only minor modifications, 16 of Samaras garments, many of which contained copyrighted elements. In 1996, Wal-Mart briskly sold the so-called knockoffs, generating more than $1.15 million in gross profits. In June 1996, a buyer for JCPenney called a representative at Samara to complain that Wal-Mart [was charging less] than JCPenney was allowed to charge. The Samara representative told the buyer that Samara did not supply its clothing to Wal-Mart. Their suspicions aroused, however, Samara officials launched an investigation, which disclosed that

Limitations on Rights

4.25

Wal-Mart and several other major retailers were selling the knockoffs. [Samara sued] for copyright infringement, and most relevant for our purposes infringement of unregistered trade dress under 43(a) of the Lanham Act. . [Samara prevailed, and certiorari was granted.] . The text of 43(a) provides little guidance as to the circumstances under which unregistered trade dress may be protected. . Nothing in 43(a) explicitly requires a producer to show that its trade dress is distinctive, but courts have universally imposed that requirement, since without distinctiveness the trade dress would not cause confusion as to the origin, sponsorship, or approval of [the] goods, as the section requires. . [C]ourts have held that a mark can be distinctive in one of two ways. First, a mark is inherently distinctive if [its] intrinsic nature serves to identify a particular source. In the context of word marks, courts have applied the now-classic test originally formulated by Judge Friendly, in which word marks that are arbitrary (Camel cigarettes), fanciful (Kodak film), or suggestive (Tide laundry detergent) are held to be inherently distinctive. See Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 10-11 (C.A.2 1976). Second, a mark has acquired distinctiveness, even if it is not inherently distinctive, if it has developed secondary meaning, which occurs when, in the minds of the public, the primary significance of a [mark] is to identify the source of the product rather than the product itself. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 851, n. 11 (1982).* . The attribution of inherent distinctiveness to certain categories of word marks and product packaging derives from the fact that the very purpose of attaching a particular word to a product, or encasing it in a distinctive packaging, is most often to identify the source of the product. Although the words and packaging can serve subsidiary functions a suggestive word mark (such as Tide for laundry detergent), for instance, may invoke positive connotations in the consumers mind, and a garish form of packaging (such as Tides squat, brightly decorated plastic bottles for its liquid laundry detergent) may attract an otherwise indifferent consumers attention on a crowded store shelf their predominant function remains source identification. . And where it is not reasonable to assume consumer predisposition to take an affixed word or packaging as indication of source where, for example, the affixed word is descriptive of the product (Tasty bread) or of a geographic origin (Georgia peaches) inherent distinctiveness will not be found. . In the case of product design, as in the case of color, we think consumer predisposition to equate the feature with the source does not exist. . [T]hat product design almost invariably serves purposes other than source identification not only renders inherent distinctiveness problematic; it also renders application of an inherent-distinctiveness principle more harmful to other consumer interests. Consumers should not be deprived of the benefits of competition with regard to the utilitarian and esthetic purposes that product design ordinarily serves by a rule of law that facilitates plausible threats of suit against new entrants based upon alleged inherent distinctiveness. How easy it is to mount a plausible suit depends, of course, upon the clarity of the test for inherent distinctiveness, and where product design is concerned we have little confidence that a reasonably clear test can be devised. Respondent and the United States as amicus curiae urge us to adopt the test formulated in Seabrook Foods, Inc. v. Bar-Well Foods, Ltd.,
*

The phrase secondary meaning originally arose in the context of word marks, where it served to distinguish the source-identifying meaning from the ordinary, or primary, meaning of the word. Secondary meaning has since come to refer to the acquired, source-identifying meaning of a nonword mark as well. It is often a misnomer in that context, since nonword marks ordinarily have no primary meaning. Clarity might well be served by using the term acquired meaning in both contexts but in this opinion we follow conventional terminology.

4.26

Related to Source Confusion

568 F.2d 1342 (CCPA 1977). That opinion, in determining the inherent distinctiveness of a products packaging, considered, among other things, whether it was a common basic shape or design, whether it was unique or unusual in a particular field, [and] whether it was a mere refinement of a commonly-adopted and well-known form of ornamentation for a particular class of goods viewed by the public as a dress or ornamentation for the goods. Id., at 1344. Such a test would rarely provide the basis for summary disposition of an anticompetitive strike suit. Indeed, at oral argument, counsel for the United States quite understandably would not give a definitive answer as to whether the test was met in this very case. It is true, of course, that the person seeking to exclude new entrants would have to establish the nonfunctionality of the design feature, see 43(a)(3) a showing that may involve consideration of its esthetic appeal. Competition is deterred, however, not merely by successful suit but by the plausible threat of successful suit, and given the unlikelihood of inherently source-identifying design, the game of allowing suit based upon alleged inherent distinctiveness seems to us not worth the candle. That is especially so since the producer can ordinarily obtain protection for a design that is inherently source identifying (if any such exists), but that does not yet have secondary meaning, by securing a design patent or a copyright for the design as, indeed, respondent did for certain elements of the designs in this case. The availability of these other protections greatly reduces any harm to the producer that might ensue from our conclusion that a product design cannot be protected under 43(a) without a showing of secondary meaning. . Two Pesos [in Chapter 10] unquestionably establishes the legal principle that trade dress can be inherently distinctive, but it does not establish that product-design trade dress can be. . Respondent replies that this manner of distinguishing Two Pesos will force courts to draw difficult lines between product-design and product-packaging trade dress. There will indeed be some hard cases at the margin. We believe, however, that the frequency and the difficulty of having to distinguish between product design and product packaging will be much less than the frequency and the difficulty of having to decide when a product design is inherently distinctive. To the extent there are close cases, we believe that courts should err on the side of caution requiring secondary meaning. The very closeness will suggest the existence of relatively small utility in adopting an inherent-distinctiveness principle, and relatively great consumer benefit in requiring a demonstration of secondary meaning. . Notes 1. Wal-Mart faults use of the term secondary meaning, but semantics aside, one should not lose sight of two basic issues: (a) Do the words of other symbols for which exclusivity is sought have inherent or acquired source significance? (b) Does one firms exclusivity interfere with others ability to compete on the merits? Absent a serious claim regarding the second, Two Pesos holds that creators of inherently distinctive packaging need not prove that relevant members of the public have come to see its packaging as indicative of source. After Wal-Mart, should firms be confident that competitors can be precluded from use of eyecatching packaging merely because it is similar? 2. Reconsider Singer. If Singers plates and the device cast in the legs of the stand have no discernible function other than to indicate source, why should secondary meaning be needed to prevent their duplication? What of the dummy screw?

Limitations on Rights

4.27

TrafFix Devices, Inc. v. Marketing Displays, Inc.

U.S. Supreme Court 532 U. S. 23 (2001)

Justice Kennedy: Temporary road signs must withstand strong gusts of wind. An inventor named Robert Sarkisian obtained two utility patents for a mechanism built upon two springs (the dual-spring design) to keep these and other outdoor signs upright despite adverse wind conditions. The holder of the now-expired Sarkisian patents, respondent Marketing Displays, Inc. (MDI), established a successful business in the manufacture and sale of sign stands incorporating the patented feature. MDIs stands for road signs were recognizable to buyers and users (it says) because the dual-spring design was visible near the base of the sign. This litigation followed after the patents expired [and TrafFix copied] . MDI used the name WindMaster, while TrafFix, its new competitor, used WindBuster. MDI brought suit [and] prevailed on its trademark claim for the confusing similarity of names. I . [Regarding the trade dress claim, the district court found the dual-spring design functional.] On this rationale secondary meaning is irrelevant because there can be no trade dress protection in any event. [T]he district court noted that Sixth Circuit precedent indicated that the burden was on MDI to prove that its trade dress was nonfunctional, and not on TrafFix to show that it was functional (a rule since adopted by Congress, see 15 U.S.C. 1125(a)(3) (1994 ed., Supp. V)). Finding none of MDIs contentions persuasive, the district court concluded MDI had not proffered sufficient evidence which would enable a reasonable trier of fact to find that MDIs vertical dual-spring design is non-functional. Summary judgment was entered against MDI on its trade dress claims. . The [Sixth Circuit] held the district court had erred in ruling MDI failed to show a genuine issue of material fact regarding whether it had secondary meaning in its alleged trade dress and had erred further in determining that MDI could not prevail in any event because the alleged trade dress was in fact a functional product configuration. . Basic to its reasoning was the observation that it took little imagination to conceive of a hidden dualspring mechanism or a tri- or quad-spring mechanism that might avoid infringing [MDIs] trade dress. The Court of Appeals explained that [i]f TrafFix or another competitor chooses to use [MDIs] dual-spring design, then it will have to find some other way to set its sign apart to avoid infringing [MDIs] trade dress. It was not sufficient that allowing exclusive use of a particular feature such as the dual-spring design in the guise of trade dress would hinde[r] competition somewhat. Rather, [e]xclusive use of a feature must put competitors at a significant non-reputation-related disadvantage before trade dress protection is denied on functionality grounds. [Qualitex, Chapter 10]. [T]he Court of Appeals took note of a split among Circuits on whether the existence of an expired utility patent forecloses the patentees claiming trade dress protection in the products design. . II It is well established that trade dress can be protected under federal law. The design or packaging of a product may acquire a distinctiveness which serves to identify the product with its manufacturer or source; and a design or package which acquires this secondary meaning, assuming other requisites are met, may not be used in a manner likely to cause confusion as to the origin, sponsorship, or approval of the goods. In these respects protection for trade dress exists to promote competition. As we explained just last Term [in

4.28

Related to Source Confusion

Wal-Mart ], various Courts of Appeals have allowed claims of trade dress infringement relying on the general provision of 1125(a)(1)(A). [Now] 1125(a)(3) provides: In a civil action for trade dress infringement under this chapter for trade dress not registered on the principal register, the person who asserts trade dress protection has the burden of proving that the matter sought to be protected is not functional. This burden of proof gives force to the well-established rule that trade dress protection may not be claimed for product features that are functional. And in Wal-Mart we were careful to caution against misuse or overextension of trade dress. We noted that product design almost invariably serves purposes other than source identification. Trade dress protection must subsist with the recognition that in general, unless an intellectual property right such as a patent or copyright protects an item, it will be subject to copying. As the Court has explained, copying is not always discouraged or disfavored by the laws which preserve our competitive economy. Allowing competitors to copy will have salutary effects in many instances. Reverse engineering of chemical and mechanical articles in the public domain often leads to significant advances in technology. [Bonito Boats (covered in Chapter 9)] . A prior patent, we conclude, has vital significance in resolving the trade dress claim. A utility patent is strong evidence that the features therein claimed are functional. . Where the expired patent claimed the features in question, one who seeks to establish trade dress protection must carry the heavy burden of showing that the feature is merely an ornamental, incidental, or arbitrary aspect of the device. In the case before us, the central advance claimed in the expired utility patents (the Sarkisian patents) is the dual-spring design; and the dual-spring design is the essential feature of the trade dress MDI now seeks to establish and to protect. The rule we have explained bars the trade dress claim, for MDI did not, and cannot, carry the burden of overcoming the strong evidentiary inference of functionality based on the disclosure of the dual-spring design in the claims of the expired patents. The dual springs shown in the Sarkisian patents were well apart (at either end of a frame for holding a rectangular sign when one full side is the base) while the dual springs at issue here are close together (in a frame designed to hold a sign by one of its corners). . The fact that the springs in this very different-looking device fall within the claims of the patents is illustrated by MDIs own position in earlier litigation. In the late 1970s, MDI engaged in a long-running intellectual property battle with a company known as Winn-Proof. Although the precise claims of the Sarkisian patents cover sign stands with springs spaced apart, the Winn-Proof sign stands (with springs much like the sign stands at issue here) were found to infringe under the doctrine of equivalents. In light of this past ruling a ruling procured at MDIs own insistence it must be concluded the products here at issue would have been covered by the claims of the expired patents. The rationale for the rule that the disclosure of a feature in the claims of a utility patent constitutes strong evidence of functionality is well illustrated in this case. The dual-spring design serves the important purpose of keeping the sign upright even in heavy wind conditions; and, as confirmed by the statements in the expired patents, it does so in a unique and useful manner. As the specification of one of the patents recites, prior art devices, in practice, will topple under the force of a strong wind. . Using a dual-spring design rather than a single spring achieves important operational advantages. For example, the specifications of the patents note that the use of a pair of springs as opposed to the use of a single spring to support the frame structure prevents canting or twisting of the sign around a vertical axis, and that, if not prevented, twisting may cause damage to the spring structure and may result in tipping of the device. In the course of patent prosecution, it was

Limitations on Rights

4.29

said that [t]he use of a pair of spring connections as opposed to a single spring connection forms an important part of this combination because it forc[es] the sign frame to tip along the longitudinal axis of the elongated ground-engaging members. The dual-spring design affects the cost of the device as well; it was acknowledged that the device could use three springs but this would unnecessarily increase the cost of the device. These statements made in the patent applications and in the course of procuring the patents demonstrate the functionality of the design. MDI does not assert that any of these representations are mistaken or inaccurate, and this is further strong evidence of the functionality of the dualspring design. III . As we have noted, even if there has been no previous utility patent, the party asserting trade dress has the burden to establish the nonfunctionality of alleged trade dress features. MDI could not meet this burden. Discussing trademarks, we have said [i]n general terms, a product feature is functional, and cannot serve as a trademark, if it is essential to the use or purpose of the article or if it affects the cost or quality of the article. Qualitex, 514 U. S. at 165 [quoting Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U. S. 844, 850, n. 10 (1982)]. Expanding upon the meaning of this phrase, we have observed that a functional feature is one the exclusive use of [which] would put competitors at a significant nonreputation-related disadvantage. 514 U. S. at 165. The Court of Appeals in the instant case seemed to interpret this language to mean that a necessary test for functionality is whether the particular product configuration is a competitive necessity. 200 F. 3d, at 940. . As explained in Qualitex, supra, and Inwood, supra, a feature is also functional when it is essential to the use or purpose of the device or when it affects the cost or quality of the device. The Qualitex decision did not purport to displace this traditional rule. Instead, it quoted the rule as Inwood had set it forth. It is proper to inquire into a significant nonreputation-related disadvantage in cases of aesthetic functionality, the question involved in Qualitex. Where the design is functional under the Inwood formulation there is no need to proceed further to consider if there is a competitive necessity for the feature. In Qualitex, by contrast, aesthetic functionality was the central question, there having been no indication that the green-gold color of the laundry press pad had any bearing on the use or purpose of the product or its cost or quality. The Court has allowed trade dress protection to certain product features that are inherently distinctive. Two Pesos, 505 U. S. at 774. In Two Pesos, however, the Court at the outset made the explicit analytic assumption that the trade dress features in question were not functional. . In the instant case, beyond serving the purpose of informing consumers that the sign stands are made by MDI (assuming it does so), the dual-spring design provides a unique and useful mechanism to resist the force of the wind. Functionality having been established, whether MDIs dual-spring design has acquired secondary meaning need not be considered. There is no need, furthermore, to engage in speculation about other design possibilities. Here, the functionality of the spring design means that competitors need not explore whether other spring juxtapositions might be used. The dual-spring design is not an arbitrary flourish; it is the reason the device works. Other designs need not be attempted. Because the dual-spring design is functional, it is unnecessary for competitors to explore designs to hide the springs. The dual-spring design assures the user the device will work. If buyers are assured the product serves its purpose by seeing the operative mechanism that in itself serves an important market need. It would be at cross-purposes to those objectives, and something of a paradox, were we to require the manufacturer to conceal the very item the user seeks.

4.30

Related to Source Confusion

In a case where a manufacturer seeks to protect arbitrary, incidental, or ornamental aspects of features of a product found in the patent claims, such as arbitrary curves in the legs or an ornamental pattern painted on the springs, a different result might obtain. . MDI in essence seeks protection for the dual-spring design alone. The asserted trade dress consists simply of the dual-spring design, four legs, a base, an upright, and a sign. MDI has pointed to nothing arbitrary about the components of its device or the way they are assembled. The Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity. The Lanham Act, furthermore, does not protect trade dress in a functional design simply because an investment has been made to encourage the public to associate a particular functional feature with a single manufacturer or seller. The Court of Appeals erred in viewing MDI as possessing the right to exclude competitors from using a design identical to MDIs and to require those competitors to adopt a different design simply to avoid copying it. MDI cannot gain the exclusive right to produce sign stands using the dual-spring design by asserting that consumers associate it with the look of the invention itself. Whether a utility patent has expired or there has been no utility patent at all, a product design which has a particular appearance may be functional because it is essential to the use or purpose of the article or affects the cost or quality of the article. Inwood, 456 U. S. at 850, n. 10. TrafFix and some of its amici argue that the Patent Clause of the Constitution of its own force,* prohibits the holder of an expired utility patent from claiming trade dress protection. We need not resolve this question. If a case arises in which trade dress becomes the practical equivalent of an expired utility patent, that will be time enough to consider the matter. . Notes 1. Did estoppel figure as strongly in TrafFix as in Vornado? What do such problems teach about trademark attorneys need to know something about patents or patent attorneys need to know something about trademarks? 2. See In re DC Comics, Inc., 689 F.2d 1042, 1052 (CCPA 1982) (Judge Nies concurring): A basic misconception is that recognition as a trademark would secure perpetual rights in the doll design. Trademark rights can only be found to exist or not to exist at a particular point in time, and [do not] guarantees protection at any time in the future. The responsibility of the PTO is to determine whether registration of a particular design would interfere with the legitimate rights of any other source or potential source of competing, or related, goods at the time the application is processed. None have been identified here. . If others become entitled to use the designs upon the expiration of copyright protection, the continued registration of the designs as trademarks may be addressed in the context of a conflicting claim of a right to use, but the question of possible loss of rights is not before us.6 Courts or the PTO can defer consideration of third party rights in the context of ex parte prosecution, but should those choosing source identifiers do so? What are the risks?
* 6

Here the Court references the first paragraph of Part II in Graham v. John Deere Co. [A] product design raises a somewhat different issue. [O]n expiration of patent protection in a container design, that design could be used legitimately by others to some extent despite the continued trademark rights.

Chapter 5 Copyright Basics

A. Historical Perspectives on Formalities and Terms

Wheaton v. Peters
U.S. Supreme Court 33 U.S. 591 (1834)

Justice McLean: The complainants in their bill state that Henry Wheaton is the author of Wheatons Reports; which contain a connected and complete series of the decisions of [this] court, from the year 1816 until the year 1827. . The complainants charge, that the defendants have lately published the whole series of the decisions of the court from its organization to the commencement of Peters Reports at January term 1827. . The defendants in their answer deny that their publication was an infringement of the complainants copyright, if any they had; and further deny that they had any such right, they not having complied with all the requisites to the vesting of such right under the Acts of Congress. . That an author, at common law, has a property in his manuscript, and may obtain redress against any one who deprives him of it, or by improperly obtaining a copy endeavours to realise a profit by its publication, cannot be doubted; but this is a very different right from that which asserts a perpetual and exclusive property in the future publication of the work, after the author shall have published it to the world. The argument that a literary man is as much entitled to the product of his labour as any other member of society, cannot be controverted. And the answer is, that he realises this product by the transfer of his manuscripts, or in the sale of his works, when first published. A book is valuable on account of the matter it contains, the ideas it communicates, the instruction or entertainment it affords. Does the author hold a perpetual property in these? Is there an implied contract by every purchaser of his book, that he may realise whatever instruction or entertainment which the reading of it shall give, but shall not write out or print its contents. In what respect does the right of an author differ from that of an individual who has invented a most useful and valuable machine? In the production of this, his mind has been as intensely engaged, as long; and, perhaps, as usefully to the public, as any distinguished author in the composition of his book. The result of their labours may be equally beneficial to society, and in their respective spheres they may be alike distinguished for mental vigour. Does the common law give a perpetual right to the author, and withhold it from the inventor? And yet it has never been pretended that the latter could hold, by the common law, any property in his invention, after he shall have sold it publicly. It would seem, therefore, that the existence of a principle may well be doubted, which operates so unequally. . But, if the common law right of authors were shown to exist in England, does the same right exist, and to the same extent, in this country. It is clear, there can be no common law of the United States. The federal government is composed of twenty-four sovereign and independent states; each of which may have its local usages, customs and common law. There

5.2

Historical Perspectives

is no principle which pervades the union and has the authority of law, that is not embodied in the Constitution or laws of the union. The common law could be made a part of our federal system, only by legislative adoption. When, therefore, a common law right is asserted, we must look to the state in which the controversy originated. And we may inquire whether the common law, as to copyrights, if any existed, was adopted in Pennsylvania. It is insisted, that our ancestors, when they migrated to this country, brought with them the English common law, as a part of their heritage. That this was the case, to a limited extent, is admitted. No one will contend, that the common law, as it existed in England, has ever been in force in all its provisions, in any state in this union. It was adopted, so far only as its principles were suited to the condition of the colonies; and from this circumstance we see, what is common law in one state, is not so considered in another. The judicial decisions, the usages and customs of the respective states, must determine how far the common law has been introduced and sanctioned in each. In the argument, it was insisted, that no presumption could be drawn against the existence of the common law, as to copyrights, in Pennsylvania, from the fact of its never having been asserted, until the commencement of this suit. . If no right, such as is set up by the complainants, has heretofore been asserted, no custom or usage established, no judicial decision been given, can the conclusion be justified, that, by the common law of Pennsylvania, an author has a perpetual property in the copyright of his works? These considerations might well lead the court to doubt the existence of this law in Pennsylvania; but there are others of a more conclusive character. . No such right at the common law had been recognized in England, when the colony of Penn was organized. Long afterwards, literary property became a subject of controversy, and a little more than a century ago, it was decided by the highest judicial court in England, that the right of authors could not be asserted at common law, but under the statute. The statute of 8 Anne was passed in 1710. Can it be contended, that this common law right was brought into the wilds of Pennsylvania by its first adventurers. Was it suited to their condition? But there is another view still more conclusive. In the eighth section of the first article of the Constitution of the United States it is declared, that Congress shall have power to promote the progress of science and useful arts, by securing for limited times, to authors and inventors, the exclusive right to their respective writings and discoveries. And in pursuance of the power thus delegated, Congress passed [in 1790] an act for the encouragement of learning, by securing the copies of maps, charts and books, to the authors and proprietors of such copies, during the times therein mentioned. . There is no mode by which the meaning affixed to any word or sentence, by a deliberative body, can be so well ascertained, as by comparing it with the words and sentences with which it stands connected. [T]he word secure, as used in the Constitution, refers to inventors, as well as authors, and it has never been pretended, by any one, either in this country or in England, that an inventor has a perpetual right, at common law, to sell the thing invented. And if the word secure is used in the Constitution, in reference to a future right, was it not so used in the Act? [The Court then held that all of complainants rights must arise under the two federal statutes discussed below.] It will be observed, that a right accrues under the Act of 1790, from the time a copy of the title of the book is deposited in the clerks office. But the Act of 1802 adds another requisite, that the record made by the clerk, shall be published in the page next to the title page of the book.

Copyright Basics

5.3

And it is argued with great earnestness and ability, that these are the only requisites to the perfection of the complainants title. That the requisition of the third section to give public notice in the newspapers, and that contained in the fourth to deposit a copy in the Department of State; are acts subsequent to the accruing of the right, and whether they are performed or not, cannot materially affect the title. The case is compared to a grant with conditions subsequent, which can never operate as a forfeiture of the title. It is said also that the object of the publication in the newspapers, and the deposit in the Department of State was merely to give notice to the public; and that such acts, not being essential to the title, after so great a lapse of time, may well be presumed. That if neither act had been done, the right of the party having accrued, before either was required to be done, it must remain unshaken. This right, as has been shown, does not exist at common law it originated, if at all, under the Acts of Congress. No one can deny that when the legislature are about to vest an exclusive right in an author or an inventor, they have the power to prescribe the conditions on which such right shall be enjoyed; and that no one can avail himself of such right who does not substantially comply. This principle is familiar, as it regards patent rights; and it is the same in relation to the copyright of a book. If any difference shall be made, as it respects a strict conformity to the law, it would seem to be more reasonable to make the requirement of the author, rather than the inventor. The papers of the latter are examined in the Department of State, and require the sanction of the Attorney-General; but the author takes every step on his own responsibility, unchecked by the scrutiny or sanction of any public functionary. The acts required to be done by an author, to secure his right, are, in the order in which they must naturally transpire: First, the title of the book is to be deposited with the clerk, and the record he makes must be inserted in the first or second page; then the public notice in the newspapers is to be given; and within six months after the publication of the book, a copy must be deposited in the Department of State. A right undoubtedly accrues on the record being made with the clerk, and the printing of it as required; but what is the nature of that right. Is it perfect? If so, the other two requisites are wholly useless. How can the author be compelled either to give notice in the newspaper, or deposit a copy in the State Department. The statute affixes no penalty for a failure to perform either of these acts; and it provides no means, by which it may be enforced. . [T]his is not a technical grant of precedent and subsequent conditions. . The notice could not be published until after the entry with the clerk, nor could the book be deposited with the Secretary of State until it was published. But these are acts not less important than those which are required to be done previously. They form a part of the title, and until they are performed, the title is not perfect. . The Act of Congress under which Mr. Wheaton was required to deliver eighty copies to the Department of State does not exonerate him from the deposit of a copy under the Act of 1790. The eighty volumes cannot excuse the deposit of the one volume as specially required.* [Having construed the law, the Court, despite doubts,** remanded the case.] .
*

Early reporters also contain much argument. For example, at 654, Mr. Webster is reported to have asked on complainants behalf: Is it an unfair construction to suppose that the one copy required by the laws to be delivered, is included in the eighty copies delivered as reporter? ** The court below considered whether complainants long-undisturbed possession should give rise to a

5.4

Historical Perspectives

It may be proper to remark that the Court are unanimously of opinion, that no reporter has or can have any copyright in the written opinions delivered by this Court; and that the judges thereof cannot confer on any reporter any such right. Justice Thompson, dissenting: . Common law, says Lord Coke, is sometimes called right, common right, common justice And Lord Mansfield says, the common law is drawn from the principles of right and wrong, the fitness of things, convenience and policy. And it is upon these principles that the copyright of authors is protected. . . But the true mode of ascertaining a moral right, is to inquire whether it is such as the reason, the cultivated reason of mankind must necessarily assent to. No proposition seems more conformable to that criterion, than that every one should enjoy the reward of his labour, the harvest where he has sown, or the fruit of the tree which he has planted. . Thus considered, an authors copyright ought to be esteemed an invaluable right, established in sound reason and abstract morality. . . Where a statute gives a remedy, where there was one by the common law, and does not imply a negative of the common law remedy, there will be two concurrent remedies. In such case, the statute remedy is accumulative. . [Justice Baldwin also dissented. Reported dissents are detailed, but Justice McLean referred to a third dissenter whose identity is not apparent.] Notes 1. 17 U.S.C. 105 confirms and expands the point on which all Justices agreed. 2. Veeck v. Southern Building Code Congress Intl, 293 F.3d 791 (5th Cir. 2002) (en banc), is a modern sequel. It concerns copyright in a privately authored building code, adopted by municipalities at the behest of its authors. At 806, Judge Jones concluded (for eight of fourteen judges), [W]e are unpersuaded that the removal of copyright protection from model codes only when and to the extent they are enacted into law disserves the Progress of Science and useful Arts. (emphasis added). 3. In that vein, consider this argument on behalf of Peters, reported at 33 U.S. 624: A book composed in part of those opinions, and in part of other matters, does not change the nature of the opinions themselves. An individual who thus mingles what cannot be exclusively enjoyed, with what can, does, upon familiar principles, rather forfeit the power over his own peculiar work, than throw the chain around that which is of itself as free as air. The intermixture, if it affect either description of materials, must render the whole unsusceptible of exclusive ownership. . Whether a stranger could extract the original parts in the face of a copyright, and publish them alone, it is not necessary to discuss. To what extent is that argument supported by Evans, in Chapter 2? 4. After 1909, copyright was no longer forfeited for failure to deposit, Washingtonian Pub. Co. v. Pearson, 306 U.S. 30, 34 (1939). It was, however, forfeited for failure to provide notice upon publication.
presumption that every thing was done which was necessary to be done and that the evidence may have been lost, but it said, at 493: If the deficiency existed only in the earlier volumes, the argument might receive some favour; but we find the same defect in relation to the last as the first, which gives rise to another presumption, that the same course was pursued as to all of them, and a copy of none delivered. [The lower courts opinion is in an appendix, beginning at 491.]

Copyright Basics

5.5

Moreover, the notice requirement was strictly construed. See, e.g., Douglas A. Hedenkamp, Free Mickey Mouse: Copyright Notice, Derivative Works, and the Copyright Act of 1909, 2 Va. Sports & Ent. L.J. 254, 255 (2003): Walt Disney failed to place his name in the copyright notices of the first few Mickey Mouse films. This forfeited the copyrights in those films, as well as the copyright in the original incarnation of Mickey Mouse. A modern court might be inclined to apply the notice requirement with greater leniency, but such an inclination would be incorrect. The forfeiture occurred at the moment of publication, and the law of that time was clear: publication without proper notice irrevocably forfeited copyright protection. The need for strict compliance with notice requirements. continued as a trap for the unwary until 1988, when the U.S. joined the Berne Convention for the Protection of Literary and Artistic Works. Article 5(2) of that treaty states, The enjoyment and exercise of these rights shall not be subject to any formality. As seen, later, however, formalities continue to affect U.S. copyrights.

Statement of Mr. Samuel L. Clemens*

I have read this bill. At least I have read such portions as I could understand. . Necessarily I am interested particularly and especially in the part of the bill which concerns my trade. I like that bill and I like that extension from the present limit of copyright life of forty-two years to the authors life and fifty years after. I think that will satisfy any reasonable author, because it would take care of his children. . That would take care of my daughters, and after that I am not particular. . The decalogue says you shall not take away from any man his property. I dont like to be obliged to use the harsh term, Thou shalt not steal. But the laws of England and America do. Always talk handsomely about the literature of the land. Always say what a fine, a great, monumental thing a great literature is. In the midst of their enthusiasm, they turn around and do what they can to crush it, discourage it, and put it out of existence. I know we must have a limit, but forty-two years is too much of a limit. I do not know why there should be a limit at all. I am quite unable to guess why there should be a limit to the possession of the product of a mans labor. . The excuse is that the author who produced that book has had the benefit of it long enough, and therefore the Government takes the property and generously gives it to eighty-eight millions. That is the idea. . But it doesnt do anything of the kind. It merely takes the authors property, merely takes from his children the bread and profit from the book, and gives the publisher double profit. The publisher and some of his confederates who are in the conspiracy rear families in affluence, and they continue the enjoyment of these illgotten gains generation after generation. They live forever, the publishers do. . But I like that fifty years extension, because that benefits my two daughters, who are not as competent to earn a living as I am, because I have carefully raised them as young ladies, who dont know anything and cant do anything. So I hope Congress will extend to them that charity which they have failed to get from me. Why, if a man who is mad not even mad, but merely strenuous about race-suicide should come to me and try to get me to use my large political and ecclesiastical influence to get a bill passed by this Congress limiting families to twenty-two children by one mother, I
Hearings on S. 6330 & H.R. 19853 before the Senate and House Comms. on Patents, 55th Cong., 1st Sess. (1906).
*

5.6

Historical Perspectives

should try to calm him down. I should reason with him. I should say to him, That is the very parallel to the copyright limitation by statute. Leave it alone. Leave it alone and it will take care of itself. There is only one couple in the United States that can reach that limit. . The very same with copyright. One author per year produces a book which can outlive the forty-two-year limit, and that is all. This nation can not produce two authors a year that can create a book that will outlast forty-two years. . I made an estimate once. [that] we had published in this country since the Declaration of Independence 220,000 books. . They had all perished before they were 10 years old. There is only about one book in a thousand that can outlive forty-two years of copyright. Therefore why put a limit at all? You might as well limit a family to twenty-two children. . [I] question if you can name twenty persons in the United States in a whole century who have produced books that could outlive or did outlive the forty-two year limit. You can seat them on one bench there. Allow three children to each. That is the limit of the insignificant number whose bread and butter is to be taken away. . . The law should recognize the right of perpetuity in this and every other kind of property. But for this property I do not ask that at all [but only for fifty years past the authors lifetime]. . Notes 1. Few works remain popular as long as those written by Clemens as Mark Twain. Despite his advocacy, 24 of the 1909 Act provided a term of 28 years from the date of first publication subject to possible renewal for another 28 years, if registered within one year prior to the expiration of the original term. 2. The constitution dictates that copyrights governed by federal law must be limited, but that does does not apply to state law. Goldstein v. California, 412 U.S. 546, 560 (1973). Kewanee, in Chapter 8, makes the same point with regard to trade secrets. Moreover, under 2 and 12 of the 1909 Act, most unpublished works did not qualify for federal protection. 4. Since Jan. 1, 1978, however, (the effective date of the 1976 Act), all works fixed in a tangible medium, published or not, are governed by federal law. 17 U.S.C. 301(a). 4. The 1976 Act also extends the term for works published by identifiable, natural persons as Clemens urged. Duration of copyrights was further extended in 1998. See 17 U.S.C. 302305 and 104A. Those provisions are long and complex, but summaries may be found online. The 1998 extensions were challenged as effectively unlimited in time, but Eldred v. Ashcroft, 537 U.S. 186 (2003), upholds their constitutionality. Justices Stevens and Breyer filed separate dissents. Echoing Clemens, the latter, says, No potential author can reasonably believe that he has more than a tiny chance of writing a classic that will survive commercially long enough for the copyright extension to matter. [I]f, after 55 to 75 years, only 2% of all copyrights retain commercial value, the percentage surviving after 75 years or more (a typical preextension copyright term) must be far smaller. Id. at 254. Pointing out the quickly vanishing net present value of remote income, Justice Breyer then asks, What potential Shakespeare, Wharton, or Hemingway would be moved by such a sum? Id. 7. Despite advantages urged by Clemens, longer terms often make it difficult to identify owners of older works, both published and unpublished. Yet, as subsequently considered in this book, failing to clear title to such orphans has potentially serious consequences.

Copyright Basics

5.7

B. Subject Matter U.S. Supreme Court 101 U.S. 99 (1879) Justice Bradley: Charles Selden took the requisite steps for obtaining the copyright of a book to exhibit and explain a peculiar system of book-keeping. In 1860 and 1861, he took the copyright of several other books, containing additions to and improvements upon the said system. The bill of complaint was filed against the defendant, Baker, for an alleged infringement. The book or series consists of an introductory essay explaining the system of bookkeeping referred to, to which are annexed certain forms or banks, consisting of ruled lines, and headings, illustrating the system. The defendant uses a similar plan so far as results are concerned; but makes a different arrangement of the columns, and uses different headings. If the complainants testator had the exclusive right to the use of the system explained in his book, it would be difficult to contend that the defendant does not infringe it, notwithstanding the difference. [A] work on book-keeping, though only explanatory of well-known systems, may be the subject of a copyright. . But there is a clear distinction between the book, as such, and the art which it is intended to illustrate. The mere statement of the proposition is so evident, that it requires hardly any argument to support it. The same distinction may be predicated of every other art as well. A treatise on the composition and use of medicines, be they old or new on the construction and use of ploughs, or watches, or churns; or on the mixture and application of colors for painting or dyeing; or on the mode of drawing lines to produce the effect of perspective would be the subject of copyright; but no one would contend that the copyright of the treatise would give the exclusive right to the art or manufacture described therein. The copyright of the book, if not pirated from other works, would be valid without regard to the novelty, or want of novelty, of its subject-matter. The novelty of the art or thing described or explained has nothing to do with the validity of the copyright. To give to the author of the book an exclusive property in the art described therein, when no examination of its novelty has ever been officially made, would be a surprise and a fraud upon the public. That is the province of letters-patent, not of copyright. The claim to an invention or discovery of an art or manufacture must be subjected to the examination of the Patent Office before an exclusive right therein can be obtained; and it can only be secured by a patent from the government. The difference between the two things, letters-patent and copyright, may be illustrated by reference to the subjects just enumerated. Take the case of medicines. Certain mixtures are found to be of great value in the healing art. If the discoverer writes and publishes a book on the subject (as regular physicians generally do), he gains no exclusive right to the manufacture and sale of the medicine; he gives that to the public. If he desires such exclusive right, he must obtain a patent for the mixture as a new art, manufacture, or composition of matter. He may copyright his book, if he pleases; but that only secures to him the exclusive right of printing and publishing his book. So of all other inventions or discoveries. . Of course, these observations are not intended to apply to ornamental designs, or pictorial illustrations addressed to the taste. Of these it may be said, that their form is their essence, and their object, the production of pleasure in their contemplation. This is their final

Baker v. Selden

5.8

Subject Matter

end. They are as much the product of genius and the result of composition, as are the lines of the poet or the historians period. On the other hand, the teachings of science and the rules and methods of useful art have their final end in application and use; and this application and use are what the public derive from the publication of a book which teaches them. But as embodied and taught in a literary composition or book, their essence consists only in their statement. This alone is what is secured by the copyright. . Recurring to the case before us, we observe that Charles Selden, by his books, explained and described a peculiar system of book-keeping, and illustrated his method by means of ruled lines and blank columns, with proper headings on a page, or on successive pages. Now, whilst no one has a right to print or publish his book, or any material part thereof, as a book intended to convey instruction in the art, any person may practise and use the art itself which he has described and illustrated therein. . . In describing the art, the illustrations and diagrams employed happen to correspond more closely than usual with the actual work performed by the operator. Those illustrations and diagrams consist of ruled lines and headings of accounts; and it is similar ruled lines and headings of accounts which, in the application of the art, the book-keeper makes with his pen, or the stationer with his press; whilst in most other cases the diagrams and illustrations can only be represented in concrete forms of wood, metal, stone, or some other physical embodiment. But the principle is the same in all. The description of the art in a book, though entitled to the benefit of copyright, lays no foundation for an exclusive claim to the art itself. The object of the one is explanation; the object of the other is use. The former may be secured by copyright. The latter can only be secured, if it can be secured at all, by letters-patent. . Notes 1. Was Seldens copyright invalid or only narrower in scope than he had envisioned? 2. 17 U.S.C. 102(b) reflects the holding in Baker. 3. Reconsider State Street in Chapter 2. If neither patents nor copyrights were previously up to the challenge, what, if anything, encouraged innovation in bookkeeping and other business methods? 4. The Copyright Office registers blank forms that contain text, but courts may not agree. See Advanz Behavioral Management Resources, Inc. v. Miraflor, 21 F. Supp.2d 1179 (C.D. Ca. 1998) (applies but criticizes the Ninth Circuits rejection of copyright).

Morrissey v. Procter & Gamble Co.

U.S. Court of Appeals, First Circuit 379 F.2d 675 (1967)

Before Aldrich, McEntee and Coffin. Aldrich, Circuit Judge. . The plaintiff, Morrissey, is the copyright owner of a set of rules for a sales promotional contest of the sweepstakes type involving the social security numbers of the participants. Plaintiff alleges that the defendant, Procter & Gamble Company, infringed, by copying, almost precisely, Rule 1. In its motion for summary judgment, defendant denies that plaintiffs Rule 1 is copyrightable material, and denies access. The district court held for the defendant on both grounds.

Copyright Basics

5.9

[With regard to the second,], the court ruled that the defendant had proved nonaccess, and stated that it was satisfied that no material issue as to access lurks [in the record.] The court did not explain whether it considered defendants showing to have constituted proof overcoming the presumption of receipt arising from plaintiffs testimony of mailing, or whether it felt there was an unsatisfied burden on the plaintiff to show that the particularly responsible employees of the defendant had received his communication. Either view would have been error. A notice to the defendant at its principal office, as this one assertedly was, is proper notice. There is at least an inference that the letter reached its proper destination. Even if we assume that if, at the trial of the case, it should be found that the particular employees of the defendant responsible for the contest were in fact without knowledge, on a motion for summary judgment a plaintiff should not have to go to the point of showing that every employee of a corporate defendant received his notification. . The presumption arising from mailing remained in the case.1 [E]ven though there is some slight evidence favoring a plaintiff, the evidence contrary may be so overpowering that judgment must be ordered for the defendant. We have never suggested that such a principle is applicable to a motion for summary judgment, and we do not now. The second aspect of the case raises a more difficult question. Before discussing it, [the court set out the parties rules. Plaintiffs key provision read:] Entrants should print name, address and social security number on a boxtop, or a plain paper. Entries must be accompanied by boxtop or by plain paper on which the name is copied from any source. Official rules are explained on packages or leaflets obtained from dealer. . [As previously noted, defendants language was essentially identical.] . Copyright attaches to form of expression, and defendants own proof itself established that there was more than one way of expressing even this simple substance. Nor, in view of the almost precise similarity of the two rules, could defendant successfully invoke the stringent standard for showing infringement which some courts apply when the subject matter involved admits of little variation. Nonetheless, we must hold for the defendant. When the uncopyrightable subject matter is very narrow, so that the topic necessarily requires, if not only one form of expression, at best only a limited number, to permit copyrighting would mean that a party or parties, by copyrighting a mere handful of forms, could exhaust all possibilities. . We cannot recognize copyright as a game of chess in which the public can be checkmated. [W]e find this limiting principle to be applicable. Furthermore, its operation need not await an attempt to copyright all possible forms. It cannot be only the last form of expression which is to be condemned, as completing defendants exclusion from the substance. Rather, in these circumstances, we hold that copyright does not extend to the subject matter at all, and plaintiff cannot complain even if his particular expression was deliberately adopted. Notes 1. What if both parties rules were essentially the same as many others? 2. The Supreme Court in Qualitex, Chapter 10, eschews rel[ying] on an occasional problem to justify a blanket prohibition. Is that a fair assessment of Morrissey?
1

The court did not discuss, nor need we, the additional fact that the almost exact following of plaintiffs wording and format in an area in which there is at least some room for maneuverability, might be found of itself to contradict defendants denial of access.

5.10

Subject Matter

3. Morrissey notes that courts may find copyright thin, without denying it altogether? The case has not been reversed, but see Yankee Candle Co., Inc. v. Bridgewater Candle Co., LLC, 259 F.3d 25, 35-36 (1st Cir. 2001) where merger is discussed but only in terms of plaintiffs being obligated only to show near identity of the two works. 4. As discussed further in Chapter 9, Smith v. Snap-On Tools, 833 F.2d 578 (5th Cir. 1987) is one of many cases holding that gratuitous, unsolicited disclosures cannot obligate users to compensate submitters. When might copyright alter the outcome?

Lotus Development Corp. v. Borland International, Inc.*

U.S. Court of Appeals, First Circuit 49 F.3d 807 (1995)

Before Torruella, Boudin and Stahl. Stahl, Circuit Judge: [The court addressed whether copyright in Lotus 1-2-3, a computer spreadsheet, was infringed when Borland copied the command hierarchy (469 commands arranged into more than 50 menus and submenus into) its Quattro and Quattro Pro programs.] Lotus 1-2-3, like many computer programs, allows users to write what are called macros. By writing a macro, a user can designate a series of command choices with a single macro keystroke. Then, to execute that series of commands in multiple parts of the spreadsheet, rather than typing the whole series each time, the user only needs to type the single pre-programmed macro keystroke, causing the program to recall and perform the designated series of commands automatically. Thus, Lotus 1-2-3 macros shorten the time needed to set up and operate the program. Borland released its first Quattro program to the public in 1987, after Borlands engineers had labored over its development for nearly three years. Borlands objective was to develop a spreadsheet program far superior to existing programs, including Lotus 1-2-3. In Borlands words, [f]rom the time of its initial release Quattro included enormous innovations over competing spreadsheet products. The district court found, and Borland does not now contest, that Borland included in its Quattro and Quattro Pro version 1.0 programs a virtually identical copy of the entire 1-2-3 menu tree. In so doing, Borland did not copy any of Lotuss underlying computer code. Borland included the Lotus menu command hierarchy in its programs so that spreadsheet users who were already familiar with Lotus 1-2-3 would be able to switch to the Borland programs without having to learn new commands or rewrite their Lotus macros. . II A. Copyright Infringement Generally . In this appeal, we are faced only with whether the Lotus menu command hierarchy is copyrightable subject matter in the first instance, for Borland concedes that Lotus has a valid copyright5 and admits to factually copying the Lotus menu command hierarchy. As a
*

Affirmed, per curiam, by an equally divided Court, 516 U.S. 233 (1996). Justice Stevens did not participate. 5 Computer programs receive copyright protection as literary works. See 17 U.S.C. 102(a)(1) (granting protection to literary works) and 17 U.S.C. 101 (defining literary works as works ... expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, phonorecords, film, tapes, disks, or cards, in which they are embodied (emphasis added)); see also H.R. Rep. No. 1476, 94th Cong., 2d Sess. 54 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5667 (The term literary works... includes computer data bases, and computer programs

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result, this appeal is in a very different posture from most copyright-infringement cases, for copyright infringement generally turns on whether the defendant has copied protected expression as a factual matter. . B. Matter of First Impression Whether a computer menu command hierarchy constitutes copyrightable subject matter is a matter of first impression in this court. While some other courts appear to have touched on it briefly in dicta, see, e.g., Autoskill, Inc. v. National Educ. Support Sys., Inc., 994 F.2d 1476, 1495 n. 23 (10th Cir.), cert. denied, 114 S.Ct. 307 (1993), we know of no cases that deal with the copyrightability of a menu command hierarchy standing on its own. Thus we are navigating in uncharted waters. Borland vigorously argues, however, that the Supreme Court charted our course more than 100 years ago when it decided Baker v. Selden, 101 U.S. 99 (1879). In Baker, the Court held that Seldens copyright over the textbook in which he explained his new way to do accounting did not grant him a monopoly on the use of his accounting system.6 . We do not think that Baker is nearly as analogous to this appeal as Borland claims. Of course, Lotus 1-2-3 is a computer spreadsheet, and as such its grid of horizontal rows and vertical columns certainly resembles an accounting ledger or any other paper spreadsheet. Those grids, however, are not at issue in this appeal for, unlike Selden, Lotus does not claim to have a monopoly over its accounting system. Rather, this appeal involves Lotuss monopoly over the commands it uses to operate the computer. . D. The Lotus Menu Command Hierarchy: A Method of Operation . We hold that the Lotus menu command hierarchy is an uncopyrightable method of operation. The Lotus menu command hierarchy provides the means by which users control and operate Lotus 1-2-3. . Users must use the command terms to tell the computer what to do. Without the menu command hierarchy, users would not be able to access and control, or indeed make use of, Lotus 1-2-3s functional capabilities. The Lotus menu command hierarchy does not merely explain and present Lotus 1-2-3s functional capabilities to the user; it also serves as the method by which the program is operated and controlled. The Lotus menu command hierarchy is different from the Lotus long prompts, for the long prompts are not necessary to the operation of the program; users could operate Lotus 1-2-3 even if there were no long prompts. The Lotus menu command hierarchy is also different from the Lotus screen displays, for users need not use any expressive aspects of the screen displays in order to operate Lotus 1-2-3; because the way the screens look has little bearing on how users control the program, the screen displays are not part of Lotus 1-2-3s method of operation. The Lotus menu command hierarchy is also different from the underlying computer code, because while code is necessary for the program to work, its precise formulation is not. In other words, to offer the same capabilities as Lotus 1-2-3, Borland did not have to copy Lotuss underlying code (and indeed it did not); to allow users to operate its programs in substantially the same way, however, Borland had to copy the Lotus menu command hierarchy. . The district court held that the Lotus menu command hierarchy, with its specific choice and arrangement of command terms, constituted an expression of the idea of operating a computer program with commands arranged hierarchically into menus and submenus. Under the district courts reasoning, Lotuss decision to employ hierarchically arranged command terms to operate its program could not foreclose its competitors from also employing hierarchically arranged command terms to operate their programs, but it did foreclose them
to the extent that they incorporate authorship in the programmers expression of original ideas, as distinguished from the ideas themselves.). 6 Seldens system of double-entry bookkeeping is the now almost-universal T-accounts system.

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Subject Matter

from employing the specific command terms and arrangement that Lotus had used. In effect, the district court limited Lotus 1-2-3s method of operation to an abstraction. Accepting the district courts finding that the Lotus developers made some expressive choices in choosing and arranging the Lotus command terms, we nonetheless hold that that expression is not copyrightable because it is part of Lotus 1-2-3s method of operation. We do not think that methods of operation are limited to abstractions; rather, they are the means by which a user operates something. If specific words are essential to operating something, then they are part of a method of operation and, as such, are unprotectable. This is so whether they must be highlighted, typed in, or even spoken, as computer programs no doubt will soon be controlled by spoken words. The fact that Lotus developers could have designed the Lotus menu command hierarchy differently is immaterial to the question of whether it is a method of operation. In other words, our initial inquiry is not whether the Lotus menu command hierarchy incorporates any expression. Rather, our initial inquiry is whether the Lotus menu command hierarchy is a method of operation. Concluding, as we do, that users operate Lotus 1-2-3 by using the Lotus menu command hierarchy, and that the entire Lotus menu command hierarchy is essential to operating Lotus 1-2-3, we do not inquire further whether that method of operation could have been designed differently. The expressive choices of what to name the command terms and how to arrange them do not magically change the uncopyrightable menu command hierarchy into copyrightable subject matter. Our holding that methods of operation are not limited to mere abstractions is bolstered by Baker v. Selden. In Baker, the Supreme Court explained that the teachings of science and the rules and methods of useful art have their final end in application and use; and this application and use are what the public derive from the publication of a book which teaches them. The description of the art in a book, though entitled to the benefit of copyright, lays no foundation for an exclusive claim to the art itself. The object of the one is explanation; the object of the other is use. The former may be secured by copyright. The latter can only be secured, if it can be secured at all, by letters-patent. Baker v. Selden, 101 U.S. at 10405. Lotus wrote its menu command hierarchy so that people could learn it and use it. Accordingly, it falls squarely within the prohibition on copyright protection established in Baker v. Selden and codified by Congress in 102(b). In many ways, the Lotus menu command hierarchy is like the buttons used to control, say, a video cassette recorder (VCR). . Users operate VCRs by pressing a series of buttons that are typically labelled Record, Play, Reverse, Fast Forward, Pause, Stop/Eject. That the buttons are arranged and labeled does not make them a literary work, nor does it make them an expression of the abstract method of operating a VCR via a set of labeled buttons. Instead, the buttons are themselves the method of operating the VCR. When a Lotus 1-2-3 user chooses a command, either by highlighting it on the screen or by typing its first letter, he or she effectively pushes a button. Highlighting the Print command on the screen, or typing the letter P, is analogous to pressing a VCR button labeled Play. Just as one could not operate a buttonless VCR, it would be impossible to operate Lotus 1-2-3 without employing its menu command hierarchy. Thus the Lotus command terms are not equivalent to the labels on the VCRs buttons, but are instead equivalent to the buttons themselves. Unlike the labels on a VCRs buttons, which merely make operating a VCR easier by indicating the buttons functions, the Lotus menu commands are essential to operating Lotus 1-2-3. Without the menu commands, there would be no way to push the Lotus buttons, as one could push unlabeled VCR buttons. While Lotus could probably have

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designed a user interface for which the command terms were mere labels, it did not do so here. Lotus 1-2-3 depends for its operation on use of the precise command terms that make up the Lotus menu command hierarchy. . Computer programs, unlike VCRs, are copyrightable as literary works. Accordingly, one might argue, the buttons used to operate a computer program are not like the buttons used to operate a VCR, for they are not subject to a useful-article exception. The response, of course, is that the arrangement of buttons on a VCR would not be copyrightable even without a useful-article exception, because the buttons are an uncopyrightable method of operation. Similarly, the buttons of a computer program are also an uncopyrightable method of operation. That the Lotus menu command hierarchy is a method of operation becomes clearer when one considers program compatibility. Under Lotuss theory, if a user uses several different programs, he or she must learn how to perform the same operation in a different way for each program used. For example, if the user wanted the computer to print material, then the user would have to learn not just one method of operating the computer such that it prints, but many different methods. We find this absurd. The fact that there may be many different ways to operate a computer program, or even many different ways to operate a computer program using a set of hierarchically arranged command terms, does not make the actual method of operation chosen copyrightable; it still functions as a method for operating the computer and as such is uncopyrightable. Consider also that users employ the Lotus menu command hierarchy in writing macros. Under the district courts holding, if the user wrote a macro to shorten the time needed to perform a certain operation in Lotus 1-2-3, the user would be unable to use that macro to shorten the time needed to perform that same operation in another program. Rather, the user would have to rewrite his or her macro using that other programs menu command hierarchy. This is despite the fact that the macro is clearly the users own work product. We think that forcing the user to cause the computer to perform the same operation in a different way ignores Congresss direction in 102(b) that methods of operation are not copyrightable. That programs can offer users the ability to write macros in many different ways does not change the fact that, once written, the macro allows the user to perform an operation automatically. As the Lotus menu command hierarchy serves as the basis for Lotus 1-2-3 macros, the Lotus menu command hierarchy is a method of operation. . [W]hile original expression is necessary for copyright protection, we do not think that it is alone sufficient. Courts must still inquire whether original expression falls within one of the categories foreclosed by 102(b), such as being a method of operation. We also note that in most contexts, there is no need to build upon other peoples expression, for the ideas conveyed can be conveyed by someone else without copying the first authors expression.13 In the context of methods of operation, however, building requires the use of the precise method of operation already employed; otherwise, building would require dismantling, too. Original developers are not the only people entitled to build on the methods of operation they create; anyone can. Thus, Borland may build on the method of operation that Lotus designed and may use the Lotus menu command hierarchy in doing so. Our holding that methods of operation are not limited to abstractions goes against Autoskill, 994 F.2d at 1495 n. 23, in which the Tenth Circuit rejected the defendants argument that the keying procedure used in a computer program was an uncopyrightable
13

See Morrissey v. Procter & Gamble Co., 379 F.2d 675, 67879 (1st Cir. 1967) (when the possible ways to express an idea are limited, the expression merges with the idea and is therefore uncopyrightable; when merger occurs, identical copying is permitted).

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Subject Matter

procedure or method of operation under 102(b). The program at issue, which was designed to test and train students with reading deficiencies required students to select responses to the programs queries by pressing the 1, 2, or 3 keys. Id. at 1495 n. 23. The Tenth Circuit held that, for purposes of the preliminary injunction, the record showed that [this] keying procedure reflected at least a minimal degree of creativity . As an initial matter, we question whether a programmers decision to have users select a response by pressing the 1, 2, or 3 keys is original. More importantly, however, we fail to see how a student select[ing] a response by pressing the 1, 2, or 3 keys, id., can be anything but an unprotectable method of operation.14 . Boudin, Circuit Judge, concurring. The importance of this case, and a slightly different emphasis in my view of the underlying problem, prompt me to add a few words. I Most of the law of copyright and the tools of analysis have developed in the context of literary works. [In that context] a mistake in providing too much protection involves a small cost: Subsequent authors treating the same themes must take a few more steps away from the original expression. . Requests for the protection of computer menus present the concern with fencing off access to the commons in an acute form. A new menu may be a creative work, but over time its importance may come to reside more in the investment that has been made by users in learning the menu. Better typewriter keyboard layouts may exist, but the familiar QWERTY keyboard dominates the market because that is what everyone has learned to use. . Thus, to assume that computer programs are just one more new means of expression, like a filmed play, may be quite wrong. The form the written source code or the menu structure depicted on the screen look hauntingly like the familiar stuff of copyright; but the substance probably has more to do with problems presented in patent law or, as already noted, in those rare cases where copyright law has confronted industrially useful expressions. Applying copyright law to computer programs is like assembling a jigsaw puzzle whose pieces do not quite fit. All of this would make no difference if Congress had squarely confronted the issue. The Copyright Act of 1976 took a different course. While Congress said that computer programs might be subject to copyright protection, it said this in very general terms; and, especially in 102(b), Congress adopted a string of exclusions that if taken literally might easily seem to exclude most computer programs from protection. The only detailed prescriptions for computers involve narrow issues (like back-up copies) of no relevance here. . Nothing in the language or legislative history of the 1976 Act, or at least nothing brought to our attention, suggests that Congress meant the courts to abandon this case-bycase approach. Indeed, by setting up 102(b) as a counterpoint theme, Congress has arguably recognized the tension and left it for the courts to resolve through the development of case law. And case law development is adaptive: it allows new problems to be solved with help of earlier doctrine, but it does not preclude new doctrines to meet new situations.

The Ninth Circuit has also indicated in dicta that menus, and keystrokes may be copyrightable. Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1477, cert. denied, BB Asset Mgmt., Inc. v. Symantec Corp., 113 S.Ct. 198 (1992). In that case, however, the plaintiff did not show that the defendant had copied the plaintiffs menus or keystrokes, so the court was not directly faced with whether the menus or keystrokes constituted an unprotectable method of operation. Id.

14

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II In this case, the raw facts are mostly, if not entirely, undisputed. Although the inferences to be drawn may be more debatable, it is very hard to see that Borland has shown any interest in the Lotus menu except as a fall-back option for those users already committed to it by prior experience. The present case is an unattractive one for copyright protection of the menu. The menu commands (e.g., print, quit) are largely for standard procedures that Lotus did not invent and are common words that Lotus cannot monopolize. . . Apparently, for a period Lotus 1-2-3 has had such sway in the market that it has represented the de facto standard for electronic spreadsheet commands. So long as Lotus is the superior spreadsheet there may be nothing wrong with this advantage. But if a better spreadsheet comes along, it is hard to see why customers who have learned the Lotus menu and devised macros for it should remain captives of Lotus because of an investment in learning made by the users and not by Lotus. . Thus, for me the question is not whether Borland should prevail but on what basis. Various avenues might be traveled, but the main choices are between holding that the menu is not protectable by copyright and devising a new doctrine that Borlands use is privileged. No solution is perfect and no intermediate appellate court can make the final choice. . In sum, the majoritys result persuades me and its formulation is as good, if not better, than any other that occurs to me now as within the reach of courts. Some solutions (e.g., a very short copyright period for menus) are not options at all for courts but might be for Congress. In all events, the choices are important ones of policy, not linguistics, and they should be made with the underlying considerations in view. Notes 1. Besides the evidence for copyrightability of software offered in the courts note 5, see 17 U.S.C. 109(b) and 117. 2. Would the vast array of potential typepad layouts make copyright in any one of them more tolerable? 3. What if one layout offers important typing speed advantages over others? See, e.g., Marcus Brooks, Introducing the Dvorak Keyboard, <www.mwbrooks. com/dvorak/> (visited June 9, 2007), claiming the superiority of that keyboard over the standard QWERTY setup. Such a claim would be difficult, however, to verify. 4. See Trina C. Kershaw, The effect of expertise on negative transfer in the learning of typing tasks, a dissertation abstract online at http://gradworks.umi.com/32/48/3248858.html, The experiment examined negative transfer via typing tasks. An alternate keyboard layout was created that contained a pair of switched high frequency letters and a pair of switched low frequency letters. Participants (N = 102) practiced these switched letters across three days. .... Despite several hours of practice, participants never regained their baseline performance. Do these results better support the views of the majority or the concurrence? 5. Is it relevant that utility patents have, in fact, been issued for various typepad configurations?

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Subject Matter

Bleistein v. Donaldson Lithographing Co.

U.S. Supreme Court 188 U.S. 239 (1903)

Justice Holmes: This case is an action to recover the penalties prescribed for infringements of copyrights. The alleged infringements consisted in the copying in reduced form of three chromolithographs prepared by employees of the plaintiffs for advertisements of a circus owned by one Wallace. Each of the three contained a portrait of Wallace in the corner, and lettering bearing some slight relation to the scheme of decoration, indicating the subject of the design and the fact that the reality was to be seen at the circus. One of the designs was of an ordinary ballet, one of a number of men and women, described as the Stirk family, performing on bicycles, and one of groups of men and women whitened to represent statues. The circuit court directed a verdict for the defendant on the ground that the chromolithographs were not within the protection of the copyright law, and this ruling was sustained by the circuit court of appeals. There was evidence warranting the inference that the designs belonged to the plaintiffs, they having been produced by persons employed and paid by the plaintiffs in their establishment to make those very things. It fairly might be found, also, that the copyrights were taken out in the proper names. . We shall do no more than mention the suggestion that painting and engraving, unless for a mechanical end, are not among the useful arts, the progress of which Congress is empowered by the Constitution to promote. The Constitution does not limit the useful to that which satisfies immediate bodily needs. It is obvious also that the plaintiffs case is not affected by the fact, if it be one, that the pictures represent actual groups visible things. They seem from the testimony to have been composed from hints or description, not from sight of a performance. But even if they had been drawn from the life, that fact would not deprive them of protection. The opposite proposition would mean that a portrait by Velasquez or Whistler was common property because others might try their hand on the same face. Others are free to copy the original. They are not free to copy the copy. The copy is the personal reaction of an individual upon nature. Personality always contains something unique. It expresses its singularity even in handwriting, and a very modest grade of art has in it something irreducible, which is one mans alone. That something he may copyright unless there is a restriction in the words of the act. If there is a restriction it is not to be found in the limited pretensions of these particular works. The least pretentious picture has more originality in it than directories and the like, which may be copyrighted. The amount of training required for humbler efforts than those before us is well indicated by Ruskin. If any young person, after being taught what is, in polite circles, called drawing, will try to copy the commonest piece of real work suppose a lithograph on the title page of a new opera air, or a woodcut in the cheapest illustrated newspaper of the day they will find themselves entirely beaten. Elements of Drawing, first ed. 3. There is no reason to doubt that these prints in their ensemble and in all their details, in their design and particular combinations of figures, lines, and colors, are the original work of the plaintiffs designer. If it be necessary, there is express testimony to that effect. It would be pressing the defendants right to the verge, if not beyond, to leave the question of originality to the jury upon the evidence in this case. We assume that the construction of Rev. Stat. 4952, allowing a copyright to the author, designer, or proprietor of any engraving, cut, print [or] chromo is affected by

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the act of 1874. That section provides that, in the construction of this act, the words engraving, cut, and print shall be applied only to pictorial illustrations or works connected with the fine arts. We see no reason for taking the words connected with the fine arts as qualifying anything except the word works, but it would not change our decision if we should assume further that they also qualified pictorial illustrations, as the defendant contends. These chromolithographs are pictorial illustrations. The word illustrations does not mean that they must illustrate the text of a book, and that the etchings of Rembrandt or Mullers engraving of the Madonna di San Sisto could not be protected today if any man were able to produce them. Again, the act, however construed, does not mean that ordinary posters are not good enough to be considered within its scope. The antithesis to illustrations or works connected with the fine arts is not works of little merit or of humble degree, or illustrations addressed to the less educated classes; it is prints or labels designed to be used for any other articles of manufacture. Certainly works are not the less connected with the fine arts because their pictorial quality attracts the crowd, and therefore gives them a real use if use means to increase trade and to help to make money. A picture is none the less a picture, and none the less a subject of copyright, that it is used for an advertisement. And if pictures may be used to advertise soap, or the theatre, or monthly magazines, as they are, they may be used to advertise a circus. Of course, the ballet is as legitimate a subject for illustration as any other. A rule cannot be laid down that would excommunicate the paintings of Degas. Finally, the special adaptation of these pictures to the advertisement of the Wallace shows does not prevent a copyright. That may be a circumstance for the jury to consider in determining the extent of Mr. Wallaces rights, but it is not a bar. Moreover, on the evidence, such prints are used by less pretentious exhibitions when those for whom they were prepared have given them up. It would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of pictorial illustrations, outside of the narrowest and most obvious limits. At the one extreme, some works of genius would be sure to miss appreciation. Their very novelty would make them repulsive until the public had learned the new language in which their author spoke. It may be more than doubted, for instance, whether the etchings of Goya or the paintings of Manet would have been sure of protection when seen for the first time. At the other end, copyright would be denied to pictures which appealed to a public less educated than the judge. Yet if they command the interest of any public, they have a commercial value it would be bold to say that they have not an aesthetic and educational value and the taste of any public is not to be treated with contempt. It is an ultimate fact for the moment, whatever may be our hopes for a change. That these pictures had their worth and their success is sufficiently shown by the desire to reproduce them without regard to the plaintiffs rights. . Justice Harlan, dissenting: Judges Lurton, Day and Severens concurred in affirming the judgment of the district court. . [I]f a chromo, lithograph, or other print, engraving, or picture has no other use than that of a mere advertisement, and no value aside from this function, it would not be promotive of the useful arts to protect the author in the exclusive use thereof, and the copyright statute should not be construed as including such a publication, if any other construction is admissible. If a mere label simply designating or describing an article to which it is attached, and which has no value separated from the article, does not come within the

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Subject Matter

constitutional clause upon the subject of copyright, it must follow that a pictorial illustration designed and useful only as an advertisement, and having no intrinsic value other than its function as an advertisement, must be equally without the obvious meaning of the Constitution. It must have some connection with the fine arts to give it intrinsic value, and that it shall have is the meaning which we attach to the act of June 18, 1874, amending the provisions of the copyright law. . No evidence, aside from the deductions which are to be drawn from the prints themselves, was offered to show that these designs had any original artistic qualities. The jury could not reasonably have found merit or value aside from the purely business object of advertising a show, and the instruction to find for the defendant was not error. . Courier Lithographing Co. v. Donaldson Lithographing Co., 104 Fed. 993, 996. I entirely concur in these views, and therefore dissent. Justice McKenna authorizes me to say that he also dissents. Notes 1. Which concerns in Bleistein overlap those addressed in the two prior cases? 2. Had the dissenting view prevailed, would Degas later permitting one of his paintings to be incorporated into an advertisement forfeit copyright? Would it allow people to copy the ad but not the painting? What other outcomes are possible? 3. Burrow-Giles Lithographic Co, cited in note 5 of the following opinion, upheld the copyrightability of photographs in 1884. Did that not dispense with questions about whether pictures of actual things be copyrightable? If so, why did Justice Holmes give it considerable attention nearly ten years later?

U.S. Supreme Court 347 U.S. 201 (1954) Justice Reed: This case involves the validity of copyrights obtained by respondents for statuettes of male and female dancing figures made of semivitreous china. The controversy centers around the fact that although copyrighted as works of art, the statuettes were intended for use and used as bases for table lamps, with electric wiring, sockets and lamp shades attached. Respondents are partners in the manufacture and sale of electric lamps. One of the respondents created original works of sculpture in the form of human figures by traditional clay-model technique. From this model, a production mold for casting copies was made. The resulting statuettes, without any lamp components added, were submitted by the respondents to the Copyright Office for registration as works of art or reproductions thereof and certificates of registration issued. Sales (publication in accordance with the statute) as fully equipped lamps preceded the applications for copyright registration of the statuettes. Thereafter, the statuettes were sold in quantity throughout the country both as lamp bases and as statuettes. The sales in lamp form accounted for all but an insignificant portion of respondents sales. . Petitioners copied the statuettes, embodied them in lamps and sold them. The instant case is one in a series of reported suits brought by respondents against various alleged

Mazer v. Stein

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infringers of the copyrights, all presenting the same or a similar question. Because of conflicting decisions, we granted certiorari.4 . Petitioners present a single question: Can statuettes be protected in the United States by copyright when the copyright applicant intended primarily to use the statuettes in the form of lamp bases to be made and sold in quantity and carried the intentions into effect? Stripped down to its essentials, the question presented is: Can a lamp manufacturer copyright his lamp bases? The first paragraph accurately summarizes the issue. The last gives it a quirk that unjustifiably, we think, broadens the controversy. The case requires an answer, not as to a manufacturers right to register a lamp base but as to an artists right to copyright a work of art intended to be reproduced for lamp bases. As petitioners say in their brief, their contention questions the validity of the copyright based upon the actions of respondents. Petitioners question the validity of a copyright of a work of art for mass production. Reproduction of a work of art does not mean to them unlimited reproduction. Their position is that a copyright does not cover industrial reproduction of the protected article. : When an artist becomes a manufacturer or a designer for a manufacturer he is subject to the limitations of design patents and deserves no more consideration than any other manufacturer or designer. . [Petitionerss] brief accepts the copyrightability of the great carved golden saltcellar of Cellini* but adds: If, however, Cellini designed and manufactured this item in quantity so that the general public could have salt cellars, then an entirely different conclusion would be reached. In such case, the salt cellar becomes an article of manufacture having utility in addition to its ornamental value and would therefore have to be protected by design patent. It is publication as a lamp and registration as a statue to gain a monopoly in manufacture that they assert is such a misuse of copyright as to make the registration invalid. . The constitutional power of Congress to confer copyright protection on works of art or their reproductions is not questioned.5 Petitioners assume, as do we, that the constitutional clause includes within the term Authors the creator of a picture or a statue. The Courts consideration will be limited to the question presented. In recent years the question as to utilitarian use of copyrighted articles has been much discussed. In answering that issue, a review of the development of copyright coverage will make clear the purpose of the Congress in its copyright legislation. In 1790 the First Congress conferred a copyright on authors of any map, chart, book or books already printed. Later, designing, engraving and etching were included; in 1831 musical composition; dramatic compositions in 1856; and photographs and negatives thereof in 1865.
4

In this case the Register of Copyrights participated as amicus curiae and supported respondents. Through the Solicitor General he has also filed a brief in this Court, and participated in the oral argument. 346 U.S. 882. * It can be found online. 5 We do not reach for constitutional questions not raised by the parties. The fact that the issue was mentioned in argument does not bring the question properly before us. . Compare on the constitutional question the following: Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, upheld the copyright of a photograph unanimously. It was said: By writings in that clause is meant the literary productions of those authors, and congress very properly has declared these to include all forms of writing, printing, engravings, etchings, etc., by which the ideas in the mind of the author are given visible expression. 111 U.S. at page 58.

5.20

Subject Matter

The Act of 1870 defined copyrightable subject matter as:13 any book, map, chart, engraving, cut, print, or photograph or negative thereof, or of a painting, drawing, chromo, statute, statuary, and of models or designs intended to be perfected as works of the fine arts.(Emphasis supplied.) The italicized part added three-dimensional work of art to what had been protected previously. In 1909 Congress again enlarged the scope of the copyright statute. The new Act provided in 4: That the works for which copyright may be secured under this Act shall include all the writings of an author. Some writers interpret this section as being coextensive with the constitutional grant, but the House Report, while inconclusive, indicates that it was declaratory of existing law only. Section 5 relating to classes of writings in 1909 read as shown in the margin with subsequent additions not material to this decision.19 Significant for our purposes was the deletion of the fine-arts clause of the 1870 Act. .21 The practice of the Copyright Office, under the 1870 and 1874 Acts and before the 1909 Act, was to allow registration as works of the fine arts of articles of the same character as those of respondents now under challenge.. . [In 1906], Herbert Putnam, Esq., then Librarian of Congress and active in the movement to amend the copyright laws, told the joint meeting of the House and Senate Committees: The term works of art is deliberately intended as a broader specification than works of the fine arts in the present statute with the idea that there is subject-matter (for instance, of applied design, not yet within the province of design patents), which may properly be entitled to protection under the copyright law. . As a standard we can hardly do better than the words of the present Regulation, 202.8, naming the things that appertain to the arts. They must be original, that is, the authors tangible expression of his ideas. Such expression, whether meticulously delineating the model or mental image or conveying the meaning by modernistic form or color, is copyrightable. What cases there are confirm this coverage of the statute. The conclusion that the statues here in issue may be copyrighted goes far to solve the question whether their intended reproduction as lamp stands bars or invalidates their registration. This depends solely on statutory interpretation. Congress may after publication protect by copyright any writing of an author. Its statute creates the copyright. It did not exist at common law even though he had a property right in his unpublished work.
13

86. This Act also vested control of records relating to copyrights in the Librarian of Congress and provided he should administer the law. 85. 19 The application for registration shall specify to which of the following classes the work belongs: (a) Books; (f) Maps; (g) Works of art; models or designs for works of art; (h) Reproductions of a work of art; (i) Drawings or plastic works of a scientific or technical character; (j) Photographs; (k) Prints and pictorial illustrations: Provided, nevertheless, That the above specifications shall not be held to limit the subjectmatter of copyright as defined in section four of this Act, nor shall any error in classification invalidate or impair the copyright protection secured under this Act. Subsection (k) was amended by the addition of the words including prints or labels used for articles of merchandise in 1939. Two more classes (l) Motion-picture photoplays and (m) Motion pictures other than photoplays were added in 1912. 21 [A 1947 codification of the law did not change pertinent provisions.]

Copyright Basics

5.21

But petitioners assert that congressional enactment of the design patent laws should be interpreted as denying protection to artistic articles embodied or reproduced in manufactured articles. They say: Fundamentally and historically, the Copyright Office is the repository of what each claimant considers to be a cultural treasure, whereas the Patent Office is the repository of what each applicant considers to be evidence of the advance in industrial and technological fields. Their argument is that design patents require the critical examination given patents to protect the public against monopoly. Attention is called to Gorham Mfg. Co. v. White, 14 Wall. 511, interpreting the design patent law of 1842, granting a patent to anyone who by their own industry, genius, efforts, and expense, may have invented or produced any new and original design for a manufacture. The intermediate and present law differs little. Whoever invents any new, original and ornamental design for an article of manufacture may obtain a patent therefor. subject generally to the provisions concerning patents for invention. 35 U.S.C.A. 171. As petitioner sees the effect of the design patent law: If an industrial designer can not satisfy the novelty requirements of the design patent laws, then his design as used on articles of manufacture can be copied by anyone. Petitioner has furnished the Court a booklet of numerous design patents for statuettes, bases for table lamps and similar articles for manufacture, quite indistinguishable in type from the copyrighted statuettes here in issue. Petitioner urges that overlapping of patent and copyright legislation so as to give an author or inventor a choice between patents and copyrights should not be permitted. We assume petitioner takes the position that protection for a statuette for industrial use can only be obtained by patent, if any protection can be given. As we have held the statuettes here involved copyrightable, we need not decide the question of their patentability. Though other courts have passed upon the issue as to whether allowance by the election of the author or patentee of one bars a grant of the other, we do not. We do hold that the patentability of the statuettes, fitted as lamps or unfitted, does not bar copyright as works of art. Neither the Copyright Statute nor any other says that because a thing is patentable it may not be copyrighted. We should not so hold. Unlike a patent, a copyright gives no exclusive right to the art disclosed; protection is given only to the expression of the idea not the idea itself. Thus, in Baker v. Selden, 101 U.S. 99 the Court held that a copyrighted book on a peculiar system of bookkeeping was not infringed by a similar book using a similar plan. The distinction is illustrated in Fred Fisher, Inc. v. Dillingham, D.C., 298 F. 145, 151, when the court speaks of two men, each a perfectionist, independently making maps of the same territory. Though the maps are identical each may obtain the exclusive right to make copies of his own particular map, and yet neither will infringe the others copyright. Likewise a copyrighted directory is not infringed by a similar directory which is the product of independent work. The copyright protects originality rather than novelty or invention conferring only the sole right of multiplying copies. Absent copying there can be no infringement of copyright. Thus, respondents may not exclude others from using statuettes of human figures in table lamps; they may only prevent use of copies of their statuettes as such or as incorporated in some other article. Regulation 202.8 makes clear that artistic articles are protected in form but not their mechanical or utilitarian aspects. The dichotomy of protection for the aesthetic is not beauty and utility but art for the copyright and the invention of original and ornamental design for design patents. We find nothing in the copyright statute to support the argument that the intended use or use in industry of an article eligible for copyright bars or invalidates its registration. We do not read such a limitation into the copyright law.

5.22

Subject Matter

Nor do we think the subsequent registration of a work of art published as an element in a manufactured article, is a misuse of the copyright. This is not different from the registration of a statuette and its later embodiment in an industrial article. The copyright law, like the patent statutes, makes reward to the owner a secondary consideration. United States v. Paramount Pictures, 334 U.S. 131, 158. However, it is intended definitely to grant valuable, enforceable rights without burdensome requirements; to afford greater encouragement to the production of literary (or artistic) works of lasting benefit to the world. Washingtonian Pub. Co. v. Pearson, 306 U.S. 30, 36. The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in Science and useful Arts. Sacrificial days devoted to such creative activities deserve rewards commensurate with the services rendered. Affirmed. Opinion of Justice Douglas, in which Justice Black concurs. . Is a sculptor an author and is his statute a writing within the meaning of the Constitution? We have never decided the question. . The interests involved in the category of works of art, as used in the copyright law, are considerable. The Copyright Office has supplied us with a long list of such articles which have been copyrighted statuettes, book ends, clocks, lamps, door knockers, candlesticks, inkstands, chandeliers, piggy banks, sundials, salt and pepper shakers, fish bowls, casseroles, and ash trays. Perhaps these are all writings in the constitutional sense. But to me, at least, they are not obviously so. It is time that we came to the problem full face. I would accordingly put the case down for reargument. Notes 1. How was defendants statutory interpretation argument similar to one made by the defendant in Chakrabarty (Chapter 2)? 2. The Copyright Office regulation cited with approval in Mazer referred to the sole intrinsic function of an article but 101 refers to an intrinsic function. See, e.g., Fabrica, Inc. v. El Dorado Corp., 697 F.2d 890, 893 (9th Cir. 1983): The significant change is that the courts need no longer determine whether an articles function is solely utilitarian. Now, if an article has any intrinsic utilitarian function, it can be denied copyright protection [unless] its artistic features can be identified separately and are capable of existing independently as a work of art. Construed literally, that language makes things akin to Cellinis famous salt container no longer copyrightable. 3. Mazer did not address whether one might have design patent as well as copyright protection for a given product, but it is unlikely that firms would seek the former when copyright is available for much less cost and offers both longer terms and better remedies. 4. In re Hruby, 373 F.2d 997, 998 (CCPA 1967), addresses, whether that portion of a water fountain which is composed entirely of water in motion is within the statutory term article of manufacture. This appears to be a question of first impression without any closely analogous case.The court ultimately concluded, We do not see that the dependence of the existence of a design on something outside itself is a reason for holding it is not a design for an article of

Copyright Basics

5.23

manufacture. Many such designs depend upon outside factors. The designs of inflated articles such as toy balloons are not apparent in the absence of the compressed air which, as the water pressure here gives shape to the fountain. Even the design of wall paper is not always fully apparent and requires a wall and the services of a paperhanger to put it into condition for enjoyment by the beholder, which is the ultimate purpose of all ornamental design. Id. at 1002. Would an ornamental water fountain spray also qualify for copyright? What of a balloon? Such questions are best considered after reading the following case.

Masquerade Novelty, Inc. v. Unique Industries, Inc.

U.S. Court of Appeals, Third Circuit 912 F.2d 663 (1990)

Before Stapleton, Greenberg and Weis. Stapleton, Circuit Judge: . Masquerade alleges that nose masks sold by Unique infringe upon copyrights Masquerade possesses on pig, elephant, and parrot nose masks. In each of the applications leading to the issuance of a certificate of copyright registration for these products to Masquerade, Masquerade supplied no incorrect information to the Copyright Office, and informed it that the work being registered was a nose mask.3 The photographic exhibits to the applications displayed the masks on a flat surface rather than on a human face. . . As the Copyright Office had the information necessary to determine whether to register the nose masks, Masquerade was entitled to pursue its infringement action and to enjoy the benefits of 410(c). [III] B The presumption flowing from 410(c) merely shifts to the defendant the burden to prove the invalidity of the plaintiffs copyrights. The burden on the defendant to rebut the presumption varies depending on the issue bearing on the validity of the copyright. .7 In this case, Unique attempted to meet this burden by arguing that Masquerades nose masks are non-copyrightable because they have a utility that is not separable from their sculptural design, i.e. they have utility in that they can be used to allow a person to humorously appear to have an animal feature. The utility of the nose masks is crucial to determining whether they are copyrightable, because the copyright laws are a reflection of Congress desire to protect and encourage artistic creativity, while at the same time ensuring the wide availability of useful designs. The tension between these two goals is de minimis when the item sought to be copyrighted is a pure work of art like a painting or sculpture. Thus, if Masquerades animal noses were meant to be displayed as sculptures of animal noses it is clear that they would be
3

The certificates of registration were issued to Cesar S.A. of Samur, France, who assigned them to Masquerade, who had commissioned Cesar to create them as works for hire. 7 In cases like this where the only issue is the copyrightability of a particular article that it is incontestably original, the 410(c) presumption is of little real force. This is so in this case. Absent an indication from the Copyright Office as to why it registered the nose masks, or the existence of a controlling administrative regulation or interpretation of 101, the only deference we can give to the Copyright Offices expertise in questions of copyright law is to place the burden on Unique to show that the articles are not copyrightable.

5.24

Subject Matter

copyrightable as pictorial, graphic and sculptural works. . Of course, just because a sculpture is incorporated into an article that functions as other than a pure sculpture does not mean that the sculptural part of the article is not copyrightable. . But more difficult questions of copyrightability arise in those cases where the artistic element of a product cannot be separated from its non-appearance related utility. It may be easy to grant copyright protection to a statuette used as a lamp base without impairing the wide availability of lamps. However, if an artist claimed copyright protection for his design of the shape of an automobile, for example, and the shape of the car made it more aerodynamic, then allowing protection for the artists design might limit the availability of cars with this improvement in aerodynamics. This is so because it may be difficult to separate the designs appearance, from its ability to improve automobile performance. Protecting the shape via the copyright laws might thus afford the artist a de facto patent on an industrial innovation that would otherwise not satisfy the more rigorous requirements necessary to obtain a patent, as opposed to a copyright. To address this problem, Congress attempted to draw as clear a line as possible between copyrightable works of applied art and uncopyrighted works of industrial design, by restricting the definition of sculptural works eligible for copyright protection under 102(a)(5):* Such works shall include works of artistic craftmanship insofar as their form but not their mechanical or utilitarian aspects are concerned; the design of a useful article, as a pictorial, graphic or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article. But this limitation on sculptural works is itself limited [by 101]: A useful article is an article having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information. . Courts have twisted themselves into knots trying to create a test to effectively ascertain whether the artistic aspects of a useful article can be identified separately from and exist independently of the articles utilitarian function.8 However, this analysis is only required where an article is first determined to be a useful one under 101. . If a sculptural work is not a useful article because its sole utilitarian function is to portray the appearance of the article, then it remains copyrightable under 102(a)(5) and a court need not analyze whether its utilitarian function is separable. We believe the district court erred in considering nose masks as useful articles. This error, and the error of Uniques position, flows from regarding as a utilitarian function the effect, humor, produced by the only utility the nose masks have, which is in their portrayal of animal noses. Unlike a design incorporated in a belt which holds up the wearers pants, or even a costume, which may serve, aside from its appearance, to clothe the wearer, nose masks have no utility that does not derive from their appearance. That nose masks are meant to be worn by humans to evoke laughter does not distinguish them from clearly copyrightable works of art like paintings. When worn by a human being, a nose mask may evoke chuckles and guffaws from onlookers. When hung on a wall, a painting may evoke a myriad of human emotions, but we would not say that the
* 8

See 101 (Pictorial, graphic and sculptural works). See, e.g., the views expressed in the majority and dissenting opinions in Brandir Internatl, Inc. v. Cascade Pacific Lumber Co., 834 F.2d 1142 (2d Cir. 1987) and Carol Barnhart, Inc. v. Economy Cover Corp., 773 F.2d 411 (2d Cir. 1985).

Copyright Basics

5.25

painting is not copyrightable because its artistic elements could not be separated from the emotional effect its creator hoped it would have on persons viewing it. The utilitarian nature of an animal nose mask or a painting of the crucifixion of Jesus Christ inheres solely in its appearance, regardless of the fact that the nose masks appearance is intended to evoke mirth and the paintings appearance a feeling of religious reverence. Thus, Masquerades nose masks are not useful articles for purposes of 101, and are copyrightable as sculptural works. Our conclusion in this regard is supported by the case of Gay Toys, Inc. v. Buddy L Corp., 703 F.2d 970 (6th Cir. 1983), in which the copyrightability of a toy airplane was disputed. The district court had concluded that the airplane was not copyrightable because toys are useful articles since they permit a child to dream and to let his or her imagination soar. The court of appeals reversed the district court, stating: [A] toy airplane is merely a model which portrays a real airplane. To be sure, a toy airplane is to be played with and enjoyed, but a painting of an airplane is to be played with and enjoyed. Other than the portrayal of a real airplane, a toy airplane, like a painting, has no intrinsic utilitarian function. Indeed, under the district courts reasoning, virtually any pictorial, graphic, and sculptural work would not be copyrightable as a useful article. Id. at 973 As the parties motions for summary judgment submitted only the issue of copyrightability to the district court, and discovery on the issue of actual infringement has not even begun, we may not, as Unique urges, affirm on the basis that there has been no actual infringement. We acknowledge that Masquerade may have difficulty in demonstrating infringement on remand, given that their nose masks and the nose masks of Unique are relatively straightforward representations of animal noses. We are confident, however, that the district court will, in examining this issue, be cognizant of the Supreme Courts teaching that copyrights protect only expressions of ideas and not ideas themselves. Mazer v. Stein, 347 U.S. at 217. By holding that Masquerades nose masks are copyrightable, we do not intimate that it has the exclusive right to make nose masks representing pig, elephant and parrot noses. On remand, it will be Masquerades burden to show that Uniques nose masks incorporate copies, in the copyright law sense, of Masquerades sculptures, rather than sculptures that derive their similarity to Masquerades sculptures merely from the commonality of the animal subjects both represent. . We will reverse the grant of summary judgment for Unique. [W]e will remand to the district court for further proceedings on the issue of infringement. Uniques motion to dismiss this appeal will be denied. Notes 1. Consider Pivot Point Intl, Inc. v. Charlene Products, Inc., 170 F. Supp.2d 828, 831 (N.D. Ill. 2001), an eleven-year-old suit involving Mara, a mannequin: Students in beauty schools practice styling hair on Maras head and may practice other skills by applying makeup to Maras eyes, lips, and cheeks. . Pivot Point contends only that Maras primary use is hair styling; [but] the evidence would not permit a reasonable jury to conclude that Mara has no utilitarian value for makeup practice. (Pivot Point says that it generally sells Mara with painted-on makeup, which reveals by negative implication that it also sells Mara without, so that beauty-school students can add their own.) The sole-function limitation of the useful article definition is implicit in the two uses

5.26

Subject Matter

stressed by the court. Instead of fully exploring that, however, the opinion turns to the definition of pictorial, graphic and sculptural works, limiting protection to features that can be identified separately from [their] utilitarian aspects. It then concludes, at 835, Mara is valued not for its own appearance but for what it enables students to do and learn. Mara is a useful article . The court may have regarded the hair used to practice styling as physically severable. Still, how does use of the mannequin for make-up practice differ? On appeal, the Seventh Circuit reversed and remanded, 372 F.3d 913, 920 (2004), in an opinion expressing doubts along those lines. It nevertheless devotes a dozen pages to an analysis of separability before ultimately concluding, at 932: [Maras] sculptural features can be identified separately from, and are capable of existing independently of, its utilitarian aspects. It therefore is subject to copyright protection. It is unfortunate that neither court gave closer attention to functions inherently tied to appearance. 2. Vases, picture frames and many other things could also be subjected to mind-numbing conceptual or physical separability analyses. Would courts not save themselves a great deal of grief if they began by considering whether products have any value apart from their appearance? Do the ones just mentioned?

Oddzon Products, Inc. v. Oman

U.S. Court of Appeals, D.C. Circuit 924 F.2d 346 (1991)

Before Ruth Bader Ginsburg, Silberman and Thomas. Ginsburg, Circuit Judge: The Copyright Office, in September 1988, refused to register a claim to copyright in a work of soft sculpture titled Koosh ball. On judicial review under the Administrative Procedure Act, the district court determined, by summary judgment, that the refusal to register was not an abuse of discretion. We agree. . I The Koosh ball is a patented, trademarked product formed of hundreds of floppy, wiggly, elastomeric filaments radiating from a core. Originally developed to teach youngsters with poor eye-to-hand coordination how to play catch, the Koosh ball has a soft, snugly feel, and is easily grasped if it contacts any portion of a persons hand. Copyright claimant OddzOn Products, Inc., plaintiff-appellant in this proceeding, is in the business of making and selling toys. OddzOn describes the Koosh as a loveable, laughable ball, fun for ages three and up. OddzOn sought copyright registration for the Koosh ball to block importation of less expensive knockoffs. See 17 U.S.C. 602, 603 (copyright owners may request the Customs Service to seize infringing copies); cf. 19 U.S.C. 1337(a)(1)(B) (prescribing more cumbersome procedure before U.S. International Trade Commission to stop importation of articles that infringe a valid and enforceable U.S. patent).* The Copyright Office addressed both the visual character and the tactility or feel of the Koosh ball. As to the former, the examiners regarded the Koosh ball as a familiar symbol or design; the balls filaments, the Chief of the Examining Division said, basically define a sphere, and there is no copyrightable authorship in producing such a familiar shape. The feel of the object was comprehended by the examiners as a functional part of the work, and
*

See also 15 U.S.C. 1124 and 1125(b).

Copyright Basics

5.27

therefore not a basis for registration. As stated by the Chief of the Examining Division: [W]e cannot register a claim in the way a work functions, because Congress did not authorize protection for the functional aspects of articles. Id. The district court, on review, similarly turned first to the visual aspect of the Koosh ball. The district judge indicated that it would have been arbitrary for the Copyright Office to deny registration simply because [the Koosh balls] shape approximates a sphere.1 The judge then sensibly read the registration refusal letters from the Copyright Office to say: [I]t is not merely that the Koosh ball approximates a sphere, it is also that there is not enough additional creative work beyond the objects basic shape to warrant a copyright. Id. at 6. The district court went on to consider whether the Koosh balls feel demonstrated the requisite creative authorship 2 so clearly as to mark the refusal to register an abuse of discretion. The district judge looked to the definition of pictorial, graphic, and sculptural works. Citing Brandir Intl, Inc. v. Cascade Pacific Lumber Co., 834 F.2d 1142, 1144 (2d Cir. 1987), the district court held that it was not an abuse of discretion for the Copyright Office to rank the tactile qualities of the Koosh ball as dependent upon, and inseparable from, the utilitarian features of the object, and hence not protectable by copyright. As we stated in Atari Games Corp. v. Oman, 888 F.2d 878, 881 (D.C. Cir. 1989), our stance in reviewing a refusal to register is the same as that of the district court. We review the Copyright Office decision under a deferential, abuse of discretion standard. . II [In Atari, the refusal to register was found to be inadequately explained.] In this case, however, the position of the Copyright Office is not similarly opaque. The visual aspect of the Koosh ball, according to the examiners, did not reflect the minimal degree of creativity required for a copyright. The tactility of the Koosh ball could not be taken into account in the creativity assessment, the examiners indicated, because the Koosh ball is a useful article and its feel is inseparable from its utilitarian function.3 If the Koosh ball is properly classified as a useful article, its registration presented the Copyright Office with [o]ne of the most difficult issues arising under the Copyright Act. Congress excluded the design of useful articles from the realm of copyright except when, and only to the extent that, such design incorporates [artistic] features that can be identified separately from, and are capable of existing independently of the utilitarian aspects of the article. 101. In its report on the bill that became the Copyright Act of 1976, the House Judiciary Committee amplified: [T]he shape of an industrial product may be aesthetically satisfying and valuable, [but] the Committees intention is not to [protect it]. Unless the shape of an automobile, airplane, ladies dress, food processor, television set, or any other industrial product contains some element that, physically or conceptually, can be identified as separable from the utilitarian aspects of the article, the design would not be copyrighted under the bill.
1

At oral argument on the motion for summary judgment, the district judge questioned the Registers fascination with th[e] familiar shape. The judge asked counsel for the Copyright Office: If Picasso had painted a round object on a canvas, would you say because it depicts a familiar subject namely, something thats round it cant be copyrighted? 2 See 37 C.F.R. 202.10(a): [T]o be accepted as a pictorial, graphic, or sculptural work, the work must embody some creative authorship in its delineation or form. 3 At oral argument on appeal, counsel for the Register clarified that he did not mean to contend that feel or tactile qualities had been ruled out, definitively, as a basis for registration. Rather, his point was that the tactile qualities of the KOOSH ball are inextricably interwoven with the utilitarian aspect of the article. We therefore disregard as excessive counsels statements on brief that the tactile aspect of a work cannot, in any case, contribute to the works copyrightability.

5.28

Subject Matter

H.R. Rep. No. 1476, 94th Cong., 2d Sess. 55 (emphasis added). OddzOn does not argue that the feel of the Koosh ball is physically separable from the balls function. Is the balls tactility conceptually separable from the utilitarian aspects of th[e] article? That is a question we do not answer given the limited nature of our review of registration decisions. It suffices to point out that there is a notable lack of agreement among courts and commentators on the very meaning of conceptual separability. At oral argument, we asked OddzOns counsel how the Koosh ball would fare if we applied to it the conceptual separability test employed by the panel majority in Brandir. In that case, a divided Second Circuit panel held uncopyrightable a work originally created as a wire sculpture, and later modified for mass production as a bicycle rack. We set out the exchange with counsel for OddzOn: Court: How do you distinguish this case from the bicycle rack case, the Brandir case, that is cited in [the district courts] opinion? Counsel: Well, I say [Brandir] was wrong. Court: But if we were to follow that case, then you lose? Counsel: I think thats correct. We reserve appraisal of Brandir and competing tests of conceptual separability for a case that obliges us to enter the conceptual separability fray. We are satisfied, however, that the Copyright Office was not arbitrary in adhering to a line similar to the one taken by our sister circuit. Was the Koosh ball correctly classified as a useful article and therefore properly held subject to the separability test? The Copyright Office so treated the ball, and OddzOn did not challenge the utilitarian object categorization during the application process or in the district court. In its brief on appeal, however, OddzOn added a footnote raising a point admittedly not raised heretofore. OddzOn called our attention to Gay Toys, Inc. v. Buddy L. Corp., 703 F.2d 970 (6th Cir. 1983), a decision holding that a toy airplane is not a useful article and therefore is protectable, if minimally creative, without first passing a separability test. Because the classification question was not raised in the application proceedings, that question is not appropriately before us for review. In conclusion, we again emphasize that we decide simply and only that the refusal of the Copyright Office to register the Koosh ball, in the circumstances here presented, does not constitute an abuse of discretion. We do not decide on the copyrightability of the item. Notes 1. OddzOn already had patent and trademark protection. Why did they seek copyright? Should other protection affect its availability? How similar that problem to the one addressed by excluding functional trade dress, as introduced in Chapter 4? 2. How did the procedural difference between Masquerade and Oddzon affect the respective plaintiffs burdens? 3. Why did Gay Toys receive more consideration in Masquerade than in Oddzn? Does Gay Toys upholding copyright in a toy airplane mean that all toys are copyrightable? What of tennis rackets, baseball mitts, or any ball? What of the fountain spray pattern claimed in Hruby (as discussed in a note following Mazer). 4. Even if the feel of Koosh balls is regarded as informational (as in Braille works), how should the question of whether a ball is inherently a useful article be addressed. 5. Do dolls intended as toys become useful articles if makeup can be applied? If their mouths are configured to accept bottles? If not, should copyright be denied to a mannequin? Whats the difference between a mannequin and a coat hanger?

Copyright Basics

5.29

Problems 1. Paths through a tall box are traversed by small balls. As they drop from the top, the balls make various sounds before exiting. Is the box copyrightable under 102(5); 102(7)? 2. A small block is shaped so as to soothe those who stroke it, e.g., with their thumb. Is it a graphic work in Braille, copyrightable under 102(5)?

British Leyland Motor Corp. Ltd. v. Armstrong Patents Co. Ltd.

UK House of Lords [1986] 2 WLR 400

Before Scarman, Edmund-Davies, Bridge of Harwich, Templeman and Griffiths. Lord Templeman: My Lords, this appeal is the culmination of dispute between the appellants Armstrong and the respondents BL over the right to produce component parts required for the repair of a motor vehicle. A car has an expectation of life of some 15 years subject to determination by careless driving. A car is a collection of hundreds of components all of which must fit together. From the time that a car is driven out of the factory gates until the day that it is consigned to the scrap heap, there is a risk that the car will be immobilised by the failure of a vital component part as a result of accident or wear and tear. BL manufacture the Marina car. The component parts of the Marina include two lengths of exhaust pipe, one length connecting the engine to the silencer and the other length running from the silencer to the rear of the car. The exhaust pipes need replacement at intervals which vary from six months to two years. Armstrong manufacture replacement exhaust pipes for the Marina and in order to do so copy the shape and dimensions of the original. BL claim that the tentacles of copyright have now reached out to prevent Armstrong from manufacturing exhaust pipes for the Marina unless Armstrong pay such royalty as BL think fit to require. Armstrong decline to pay a royalty. BL have obtained an injunction which effectively prevents Armstrong from manufacturing replacement exhaust pipes for the Marina. If this injunction was rightly granted it follows that any motorist who drives a BL car must buy his spare parts from BL at the prices fixed by BL or bear the burden of a royalty payable to BL for the privilege of buying his spare part from somebody else. . In the course of designing the Marina and for the purpose of transmitting instructions for the production of the Marina, BL employed draughtsmen who made engineering drawings from instructions given to them by the design engineers and showing the shape and configuration of each part of the Marina. . Armstrong have never seen BLs engineering drawings and do not copy them directly. In order to provide a replacement exhaust pipe Armstrong have taken a BL exhaust pipe and copied it so that the replacement will also fit the shape of the underside of the car. Armstrongs exhaust pipe is a direct copy of BLs exhaust pipe and an indirect copy of BLs engineering drawing. BLs claim to an injunction stems from the Copyright Act 1956. Section 3(1) provides: In this Act artistic work means a work of any of the following descriptions, that is to say, (a) the following, irrespective of artistic quality, namely paintings, sculptures, drawings, engravings and photographs; By sections 3(2) and 3(3): Copyright shall subsist in every original artistic work subject to certain conditions admittedly fulfilled with regard to BLs engineering drawings.

5.30

Subject Matter

BLs engineering drawings are original in so far as the draughtsmen use their own skill and labour in carrying out the instructions of the design engineers and depict the exhaust pipes incorporated in the design of the Marina. By section 3(4): copyright subsisting in a work by virtue of this section shall continue to subsist until the end of the period of 50 years from the end of the calendar year in which the author died, and shall then expire. . By sections 1(2) and 3(5)(a) copyright in an original artistic work includes the exclusive right of: reproducing the work in any material form; and is infringed by any person who, not being the owner of the copyright, and without the licence of the owner reproduces the work in any material form. By section 48(1) reproduction in the case of an artistic work includes a version produced by converting the work into a three-dimensional form . Armstrongs defence to the charge that they breach BLs copyright in the engineering drawing when Armstrong make a replacement exhaust pipe is two-fold. Armstrong say that copyright does not extend to the direct reproduction of a functional article such as an exhaust pipe which is not protected by patent law and is not a registered design. Secondly, and alternatively, Armstrong say that BL cannot rely on their copyright to prevent the repair of a car supplied by BL and requiring the inevitable replacement of a component part. . For my part, I agree that Parliament did not intend the protection afforded by copyright should be capable of [preventing] reproduction of a functional object depicted in a drawing. But there is a good deal of legislative and judicial history to be considered. . The decision of this House in LB (Plastics) Ltd. v. Swish Products Ltd. [1979] RPC 551 shows clearly that as the law now stands that copyright does not apply to prevent the indirect copying of drawings of functional articles cannot be sustained. . I turn, therefore, to the alternative submission on behalf of Armstrong. . I see no reason why the principle that a grantor will not be allowed to derogate from his grant by using property retained by him in such a way as to render property granted by him unfit or materially unfit for the purpose for which the grant was made should not apply to the sale of a car. In relation to land, the principle has been said to apply beyond cases in which the purpose of the grant is frustrated to cases in which that purpose can still be achieved albeit at a greater expense or with less convenience per Branson J. in OCedar Ltd. v. Slough Trading Co. Ltd. [1927] 2 KB 123, 127. The principle applied to a motor car manufactured in accordance with engineering drawings and sold with components which are bound to fail during the life of the car prohibits the copyright owner of the drawings from exercising his copyright powers in such a way as to prevent the car from functioning unless the owner of the car buys replacement parts from the copyright owner or his licensee. BL own the car and the copyright in a drawing of an exhaust pipe fitted to the car. BL sell the car and retain the copyright. The exercise by BL of their copyright in the drawing will render the car unfit for the purpose for which the car is held. BL cannot exercise their copyright so as to prevent the car being repaired by replacement of the exhaust pipe. A purchaser of a patented article may carry out repairs to it without being held liable for infringement. . I base the right to repair on the principle of non-derogation from grant rather than implied licence and I see no difficulty in concluding that suppliers such as Armstrong may take [make?] exhaust pipes to be supplied to those cars of BL which require to be repaired. Every owner of a car has the right to repair it. That right would be useless if suppliers of spare parts were not entitled to anticipate the need for repair. The right cannot, in my view, be withheld by the manufacturer of the car by contract with the first purchaser and cannot be withheld from any subsequent owner. .

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5.31

For these reasons I would allow the appeal, discharge the injunctions granted by the court of appeal and dismiss BLs action with costs. [Opinions of three other Lords concurred.] Lord Griffiths: [I]ndirect copying to protect purely functional objects is of very recent origin and can be traced through a trilogy of cases from the court of first instance to the House of Lords. . I, of course, accept that these cases are authority for the proposition that indirect copying of a purely functional object is an infringement of the copyright in the mechanical drawings. However, nowhere in these cases can I find any consideration given to the reasons why indirect copying was originally introduced by the judges to extend the natural meaning of reproduce or copy. It appears that the courts have assumed that indirect copying must apply wherever there is a causal link between a drawing and the object it depicts. . [What purpose is served by forbidding indirect copying?] . [T]o construe reproducing as including indirect copying is to transfer the protection of artistic copyright from the draughtsman to the manufacturer which is not the purpose of artistic copyright. The courts have, however, so construed the Act in recent years. . But would your Lordships be justified in departing from the construction of the Act by this House in the Swish case? . At the end of the day I am convinced that the courts have taken a wrong turning and misconstrued Parliaments intentions. The error is of recent origin and I believe that now, after the benefit of far wider ranging argument, it would be right to correct it. I consider this to be one of those rare cases in which your Lordships are justified in departing from a previous decision of this House pursuant to the Practice Statement (Judicial Precedence) [1966] 1 WLR 1234. . I must also admit that I am emboldened to depart from the recent cases because of my misgivings about the creation of a spare parts exception to the law of copyright. If I had been persuaded that on its true construction the Copyright Act 1956 extended the protection of indirect copying to all mechanical drawings and blueprints I should find the greatest difficulty in refusing to enforce that protection. Notes 1. Before 102(a)(8) was added in 1990, architectural works posed similar issues in the United States. Architectural drawings were copyrightable, but houses were not. See, e.g., Robert R. Jones Assoc., Inc. v. Nino Homes, 858 F.2d 274, 28081 (6th Cir. 1988) (one may construct a house which is identical to a house depicted in a copyrighted floor plan, as long as the plans are not directly copied) and Demetriades v. Kaufmann, 680 F. Supp. 658, 666 (S.D. N.Y. 1988) (use of improperly copied plans was enjoined but not construction of the corresponding house, if otherwise possible). 2. If a doll or toy airplane were copied without access to a drawing of the doll or airplane, why would the doctrine of indirect copying be unnecessary to establish liability? 3. How does Lord Templemans frame the issue in a way similar to those in Wilson, Chapter 1, or Lifescan, Chapter 4? If DVD players were sold bundled with a few commercial DVDs, when would it be permissible to replace one of those DVDs with otherwise unauthorized media?

5.32

Originality

C. Originality

Feist Publications, Inc. v. Rural Telephone Service Co., Inc.

U.S. Supreme Court 499 U.S. 340 (1991)

Justice OConnor: This case requires us to clarify the extent of copyright protection available to telephone directory white pages. I Rural Telephone Service Company, Inc., is a certified public utility that provides telephone service to several communities in northwest Kansas. It is subject to a state regulation that requires all telephone companies operating in Kansas to issue annually an updated telephone directory. Accordingly, as a condition of its monopoly franchise, Rural publishes a typical telephone directory, consisting of white pages and yellow pages. . Feist specializes in area-wide telephone directories. Unlike a typical directory, which covers only a particular calling area, Feists area-wide directories cover a much larger geographical range. The Feist directory that is the subject of this litigation covers 11 different telephone service areas in 15 counties and contains 46, 878 white pages listings compared to Rurals approximately 7, 700 listings. Like Rurals directory, Feists is distributed free of charge and includes both white pages and yellow pages. Feist and Rural compete vigorously for yellow pages advertising. As the sole provider of telephone service in its service area, Rural obtains subscriber information quite easily. . Feist is not a telephone company, let alone one with monopoly status, and therefore lacks independent access to any subscriber information. To obtain white pages listings for its area-wide directory, Feist approached each of the 11 telephone companies operating in northwest Kansas and offered to pay for the right to use its white pages listings. Of the 11 telephone companies, only Rural refused to license its listings to Feist. Rurals refusal created a problem for Feist, as omitting these listings would have left a gaping hole in its area-wide directory, rendering it less attractive to potential yellow pages advertisers. In a decision subsequent to that which we review here, the district court determined that this was precisely the reason Rural refused to license its listings. The refusal was motivated by an unlawful purpose to extend its monopoly in telephone service to a monopoly in yellow pages advertising. 737 F. Supp. 610, 622 (D.Kan. 1990). Unable to license Rurals white pages listings, Feist used them without Rurals consent. Feist began by removing several thousand listings that fell outside the geographic range of its area-wide directory, then hired personnel to investigate the 4,935 that remained. These employees verified the data reported by Rural and sought to obtain additional information. As a result, a typical Feist listing includes the individuals street address; most of Rurals listings do not. Notwithstanding these additions, however, 1,309 of the 46,878 listings in Feists 1983 directory were identical to listings in Rurals 198283 white pages. Four of these were fictitious listings that Rural had inserted into its directory to detect copying. . The district court granted summary judgment to Rural, explaining that [c]ourts have consistently held that telephone directories are copyrightable. 663 F. Supp. 214, 218 (1987). In an unpublished opinion, the Court of Appeals for the Tenth Circuit affirmed for substantially the reasons given by the district court. .

Copyright Basics

5.33

II. A This case concerns the interaction of two well-established propositions. The first is that facts are not copyrightable; the other, that compilations of facts generally are. Each of these propositions possesses an impeccable pedigree. That there can be no valid copyright in facts is universally understood. The most fundamental axiom of copyright law is that [n]o author may copyright his ideas or the facts he narrates. Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 556 (1985). . There is an undeniable tension between these two propositions. Many compilations consist of nothing but raw data i.e., wholly factual information. On what basis may one claim a copyright in such a work? Common sense tells us that 100 uncopyrightable facts do not magically change their status when gathered together in one place. Yet copyright law seems to contemplate that compilations that consist exclusively of facts are potentially within its scope. The key to resolving the tension lies in understanding why facts are not copyrightable. The sine qua non of copyright is originality. To qualify for copyright protection, a work must be original to the author. Original, as the term is used in copyright, means only that the work was independently created by the author (as opposed to copied from other works), and that it possesses at least some minimal degree of creativity. To be sure, the requisite level of creativity is extremely low; even a slight amount will suffice. The vast majority of works make the grade quite easily, as they possess some creative spark, no matter how crude, humble or obvious it might be. Originality does not signify novelty; a work may be original even though it closely resembles other works so long as the similarity is fortuitous, not the result of copying. To illustrate, assume that two poets, each ignorant of the other, compose identical poems. Neither work is novel, yet both are original and, hence, copyrightable. Originality is a constitutional requirement. . In two decisions from the late 19th century The Trade-Mark Cases, 100 U.S. 82, (1879); and Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53 (1884) this Court defined the crucial terms authors and writings. In so doing, the Court made it unmistakably clear that these terms presuppose a degree of originality. . Factual compilations may possess the requisite originality. The compilation author typically chooses which facts to include, in what order to place them, and how to arrange the collected data so that they may be used effectively by readers. These choices as to selection and arrangement, so long as they are made independently by the compiler and entail a minimal degree of creativity, are sufficiently original that Congress may protect such compilations through the copyright laws. Thus, even a directory that contains absolutely no protectible written expression, only facts, meets the constitutional minimum for copyright protection if it features an original selection or arrangement. . This protection is subject to an important limitation. The mere fact that a work is copyrighted does not mean that every element of the work may be protected. Originality remains the sine qua non of copyright; accordingly, copyright protection may extend only to those components of a work that are original to the author. . This inevitably means that the copyright in a factual compilation is thin. Notwithstanding a valid copyright, a subsequent compiler remains free to use the facts contained in another's publication to aid in preparing a competing work, so long as the competing work does not feature the same selection and arrangement. . This Court has long recognized that the fact/expression dichotomy limits severely the scope of protection in fact-based works. More than a century ago, the Court observed: The very object of publishing a book on science or the useful arts is to communicate to the world

5.34

Originality

the useful knowledge which it contains. But this object would be frustrated if the knowledge could not be used without incurring the guilt of piracy of the book. Baker v. Selden, 101 U.S. 99, 103 (1880). . B . Decisions of this Court applying the 1909 Act make clear that the statute did not permit the sweat of the brow approach. The best example is International News Service v. Associated Press, 248 U.S. 215 (1918) [further considered in Chapter 9]. In that decision, the Court stated unambiguously that the 1909 Act conferred copyright protection only on those elements of a work that were original to the author. International News Service had conceded taking news reported by Associated Press and publishing it in its own newspapers. Recognizing that 5 of the Act specifically mentioned periodicals, including newspapers, 5(b), the Court acknowledged that news articles were copyrightable. Id., at 234. It flatly rejected, however, the notion that the copyright in an article extended to the factual information it contained: [T]he news element the information respecting current events contained in the literary production is not the creation of the writer, but is a report of matters that ordinarily are publici juris; it is the history of the day. Id.* Without a doubt, the sweat of the brow doctrine flouted basic copyright principles. Throughout history, copyright law has recognize[d] a greater need to disseminate factual works than works of fiction or fantasy. Harper & Row, 471 U.S., at 563. . C Sweat of the brow decisions did not escape the attention of the Copyright Office. When Congress decided to overhaul the copyright statute and asked the Copyright Office to study existing problems. Congress took the Registers advice. In enacting the Copyright Act of 1976, Congress dropped the reference to all the writings of an author and replaced it with the phrase original works of authorship. 17 U.S.C. 102(a). In making explicit the originality requirement, Congress announced that it was merely clarifying existing law. . To ensure that the mistakes of the sweat of the brow courts would not be repeated, Congress took additional measures. For example, 3 of the 1909 Act had stated that copyright protected only the copyrightable component parts of a work, but had not identified originality as the basis for distinguishing those component parts that were copyrightable from those that were not. The 1976 Act deleted this section and replaced it with 102(b), which identifies specifically those elements of a work for which copyright is not available. Congress took another step to minimize confusion by deleting the specific mention of directories and other compilations in 5 of the 1909 Act. As mentioned, this section had led some courts to conclude that directories were copyrightable per se and that every element of a directory was protected. In its place, Congress enacted two new provisions. First, to make clear that compilations were not copyrightable per se, Congress provided a definition of the term compilation. Second, to make clear that the copyright in a compilation did not extend to the facts themselves, Congress enacted 103. The definition of compilation is found in 101. . The purpose of the statutory definition is to emphasize that collections of facts are not copyrightable per se. It conveys this message through its tripartite structure. The statute identifies three distinct elements and requires each to be met for a work to qualify as a copyrightable compilation: (1) the collection and assembly of pre-existing material, facts, or
*

The Court ultimately rendered judgment for Associated Press on noncopyright grounds that are not relevant here.

Copyright Basics

5.35

data; (2) the selection, coordination, or arrangement of those materials; and (3) the creation, by virtue of the particular selection, coordination, or arrangement, of an original work of authorship. . . It is not enough for copyright purposes that an author collects and assembles facts. To satisfy the statutory definition, the work must get over two additional hurdles. In this way, the plain language indicates that not every collection of facts receives copyright protection. Otherwise, there would be a period after data. The third requirement is also illuminating. It emphasizes that a compilation, like any other work, is copyrightable only if it satisfies the originality requirement. The key to the statutory definition is the second requirement. It instructs courts that, in determining whether a fact-based work is an original work of authorship, they should focus on the manner in which the collected facts have been selected, coordinated, and arranged. This is a straightforward application of the originality requirement. Facts are never original, so the compilation author can claim originality, if at all, only in the way the facts are presented. To that end, the statute dictates that the principal focus should be on whether the selection, coordination, and arrangement are sufficiently original to merit protection. Not every selection, coordination, or arrangement will pass muster. This is plain from the statute. It states that, to merit protection, the facts must be selected, coordinated, or arranged in such a way as to render the work as a whole original. This implies that some ways will trigger copyright, but that others will not. . Rurals selection of listings could not be more obvious: It publishes the most basic information name, town, and telephone number about each person who applies to it for telephone service. . We note in passing that the selection featured in Rurals white pages may also fail the originality requirement for another reason. Feist points out that Rural did not truly select to publish the names and telephone numbers of its subscribers; rather, it was required to do so by the Kansas Corporation Commission as part of its monopoly franchise. Accordingly, one could plausibly conclude that this selection was dictated by state law, not by Rural. Nor can Rural claim originality in its coordination and arrangement of facts. . Given that some works must fail, we cannot imagine a more likely candidate. Indeed, were we to hold that Rural's white pages pass muster, it is hard to believe that any collection of facts could fail. . Justice Blackmun concurs in the judgment. Notes 1. See United States. v. Rumely, 345 U.S. 41, 45 (1953) (statutes are to be construed so as to avoid serious constitutional questions). If Congress already requires originality in 102(a), what might motivate the Court to identify it as a constitutional requirement? 2. If Rural was obligated to publish a list of subscribers in alphabetical order, as a condition of having exclusive rights in a geographic market, in what sense could it be regarded as an author? Does authorship have more direct constitutional underpinnings than originality? 3. How does the district courts later approach reflect sentiments in Morton Salt? In that regard, SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharm., Inc., 211 F.3d 21, 23 (2d Cir. 2000), cert. denied, 531 U.S. 872 (2000), is similar. Once SmithKlines patent on a drug expired, before Watson could market a generic version, the FDA required labeling almost identical to appellants copyrighted guide and tape. Id. at 22. The court therefore found SmithKlines copyright claim meritless. Id. at 25,

5.36

Originality

4. Regarding Rurals fictitious listings, see Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 979 (2d Cir. 1980) (Each appellee had the right to avail himself of the facts contained in Hoehlings book and to use such information, whether correct or incorrect, in his own literary work.). Also, precluding authors from relying upon prior published research was seen as wasteful. 5. In Intervest Construction, Inc. v. Canterbury Estate Homes, Inc., 554 F.3d 914 (11th Cir. 2008), where elements of a floor plan were not original to its creator, Feists discussion of thin copyright for compilations is applied to find no infringement. Of three posited types of work, creative, derivative and compilation, the last is said to offer the least protection. Id. at 921, n.3 (quoting an earlier case).

Meshwerks, Inc. v. Toyota Motor Sales U.S.A., Inc.

U.S. Court of Appeals, Tenth Circuit 528 F.3d 1258 (2008)

Before Briscoe, Gorsuch, and Holmess. Gorsuch, Circuit Judge. . In 2003, and in conjunction with Saatchi & Saatchi, its advertising agency, Toyota began work on its model-year 2004 advertising campaign. Saatchi and Toyota agreed that the campaign would involve, among other things, digital models. With a few clicks of a computer mouse, the advertiser can change the color of the car, its surroundings, and even edit its physical dimensions to portray changes in vehicle styling; before this innovation, advertisers had to conduct new photo shoots of whole fleets of vehicles each time the manufacturer made even a small design change to a car or truck. To supply these digital models, Saatchi and Toyota hired Grace & Wild, Inc. In turn, G & W subcontracted with Meshwerks to assist with two initial aspects of the project digitization and modeling. Meshwerks took copious measurements[;] modeling software then generated a digital image resembling a wire-frame model. . [Next] Meshwerks personnel fine-tuned or, as the company prefers it, sculpted, the lines on screen to resemble each vehicle as closely as possible. Approximately 90 % of the data points contained in each final model, Meshwerks represents, were the result not of the first-step measurement process, but of the skill and effort its digital sculptors manually expended at the second step. . G & W then manipulated the computerized models by, first, adding detail as though significantly more wires had been added to the frames, or as though they were made of a finer mesh. Next, G & W digitally applied color, texture, lighting, and animation for use in Toyotas advertisements. This dispute arose because, according to Meshwerks, it contracted with G & W for only a single use of its models as part of one Toyota television neither Toyota nor any other defendant was allowed to use the digital models created from Meshwerks wire-frames in other advertisements. Thus, Meshwerks contends defendants improperly in violation of copyright laws as well as the parties agreement reused and redistributed the models created by Meshwerks in a host of other media. . The district court found that the wire-frame models were merely copies of Toyotas products, not sufficiently original to warrant copyright protection, and, having granted summary judgment on the federal copyright claim, the district court declined to exercise

Copyright Basics

5.37

supplemental jurisdiction over Meshwerks state-law contract claim. . II .What exactly does it mean for a work to qualify as original? In Feist, the Supreme Court clarified that the work must be independently created by the author (as opposed to copied from other works). Id. at 345. All thats needed is some creative spark, no matter how crude, humble, or obvious, id. The parties focus most of their energy in this case on the question whether Meshwerks models qualify as independent creations. While there is little authority explaining how our received principles of copyright law apply to the relatively new digital medium before us, some lessons may be discerned from how the law coped in an earlier time with a previous revolution in technology: photography. [L]argely aesthetic debates migrated into legal territory when Oscar Wilde toured the United States in the 1880s and sought out Napoleon Sarony for a series of publicity photographs to promote the event. Burrow-Giles, a lithography firm, sold 85,000 prints [and] defended its conduct on the ground that the photograph was a mere mechanical reproduction of the physical features of Wilde and thus not copyrightable. Recognizing that Oscar Wildes inimitable visage does not belong, or owe its origins to any photographer, the Supreme Court noted that photographs may well sometimes lack originality and are thus not per se copyrightable. At the same time, the Court held, a copyright may be had to the extent a photograph involves posing the said Oscar Wilde in front of the camera, selecting and arranging the costume, draperies, and other various accessories in said photograph, arranging the subject so as to present graceful outlines, arranging and disposing the light and shade, suggesting and evoking the desired expression.... Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 60 (1884). Accordingly, the Court indicated, photographs are copyrightable, if only to the extent of their original depiction of the subject. Wildes image is not copyrightable; but to the extent a photograph reflects the photographers decisions regarding pose, positioning, background, lighting, shading, and the like, those elements can be said to owe their origins to the photographer, making the photograph copyrightable, at least to that extent. . Key to our evaluation of this case is the fact that Meshwerks digital wire-frame computer models depict Toyotas vehicles without any individualizing features: they are untouched by a digital paintbrush; they are not depicted in front of a palm tree, whizzing down the open road, or climbing up a mountainside. Put another way, Meshwerks models depict nothing more than unadorned Toyota vehicles the car as car. [T]he facts in this case unambiguously show that Meshwerks did not make any decisions regarding lighting, shading, the background in front of which a vehicle would be posed, the angle at which to pose it, or the like-in short, its models reflect none of the decisions that can make depictions of things or facts in the world, whether Oscar Wilde or a Toyota Camry, new expressions subject to copyright protection. The primary case on which Meshwerks asks us to rely actually reinforces this conclusion. In Ets-Hokin v. Skyy Spirits, Inc., 225 F.3d 1068 (9th Cir. 2000) (Skyy I), the Ninth Circuit was faced with a suit brought by a plaintiff photographer who alleged that the defendant had infringed on his commercial photographs of a Skyy-brand vodka bottle. The court held that the vodka bottle, as a utilitarian object, a fact in the world, was not itself (at least usually) copyrightable. At the same time, the court recognized that plaintiffs photos reflected decisions regarding lighting, shading, angle, background, and so forth, id. at 1078, and to the extent plaintiffs photographs reflected such original contributions the court held they could be copyrighted. In so holding, the Ninth Circuit reversed a district courts

5.38

Originality

dismissal of the case and remanded the matter for further proceedings, and Meshwerks argues this analysis controls the outcome of its case. But Skyy I tells only half the story. The case soon returned to the court of appeals, and the court held that the defendants photos, which differed in terms of angle, lighting, shadow, reflection, and background, did not infringe on the plaintiffs copyrights. Ets-Hokin v. Skyy Spirits, Inc., 323 F.3d 763, 765 (9th Cir. 2003) (Skyy II). Why? The only constant between the plaintiffs photographs and the defendants photographs was the bottle itself, id. at 766, and an accurate portrayal of the unadorned bottle could not be copyrighted. . The teaching of Skyy I and II, then, is that the vodka bottle, because it did not owe its origins to the photographers, had to be filtered out to determine what copyrightable expression remained. And, by analogy though not perhaps the one Meshwerks had in mind we hold that the unadorned images of Toyotas vehicles cannot be copyrighted by Meshwerks and likewise must be filtered out. To the extent that Meshwerks digital wireframe models depict only those unadorned vehicles, having stripped away all lighting, angle, perspective, and other ingredients associated with an original expression, we conclude that they have left no copyrightable matter. Confirming this conclusion as well is the peculiar place where Meshwerks stood in the model-creation pecking order. On the one hand, Meshwerks had nothing to do with designing the appearance of Toyotas vehicles, distinguishing them from any other cars, trucks, or vans in the world. That expressive creation took place before Meshwerks happened along, and was the result of work done by Toyota and its designers; indeed, at least six of the eight vehicles at issue are still covered by design patents belonging to Toyota and protecting the appearances of the objects for which they are issued. On the other hand, how the models Meshwerks created were to be deployed in advertising including the backgrounds, lighting, angles, and colors were all matters left to those who came after Meshwerks left the scene. Meshwerks thus played a narrow, if pivotal, role in the process by simply, if effectively, copying Toyotas vehicles into a digital medium so they could be expressively manipulated by others. . In reaching this conclusion, we do not for a moment seek to downplay the considerable amount of time, effort, and skill that went into making Meshwerks digital wire-frame models. But, in assessing the originality of a work for which copyright protection is sought, we look only at the final product, not the process. [T]here is no doubt that transposing the physical appearances of Toyotas vehicles from three dimensions to two, such that computer-screen images accurately reflect Toyotas products, was labor intensive and required a great amount of skill. But because the end-results were unadorned images of Toyotas vehicles, the appearances of which do not owe their origins to Meshwerks, we are unable to reward that skill, effort, and labor with copyright protection. Meshwerks intent in making its wire-frame models provides additional support for our conclusion. . If an artist affirmatively sets out to be unoriginal to make a copy of someone elses creation, rather than to create an original work it is far more likely that the resultant product will, in fact, be unoriginal. . [U]ndisputed evidence before us leaves no question that Meshwerks set out to copy Toyotas vehicles, rather than to create, or even to add, any original expression. The purchase order signed by G & W asked Meshwerks to digitize and model Toyotas vehicles, and Meshwerks invoice submitted to G & W for payment reflects that this is exactly the service Meshwerks performed. Meshwerks itself has consistently described digitization and modeling as an attempt accurately to depict real-world, three-dimensional objects as digital images viewable on a computer screen. The parties thus intended to have Meshwerks create base-layer digital models to which the original and creative elements viewers would see in

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5.39

actual advertisements could be added by others in subsequent processes. Other courts before us have examined and relied on a putative copyright holders intent in holding that the resultant work was not original and thus subject to copyright protection. The Sixth Circuit, for example, held that a series of catalog illustrations depicting auto transmission parts were not independently copyrightable. ATC Distr. Group, Inc. v. Whatever It Takes Transmissions & Parts, Inc., 402 F.3d 700, 712 (6th Cir. 2005).The drawings had been copied by hand from photographs in a competitors catalog. Id. In denying copyright protection, the court emphasized that [t]he illustrations were intended to be as accurate as possible in reproducing the parts shown in the photographs on which they were based, a form of slavish copying that is the antithesis of originality. Id. (emphasis added). In Bridgeman Art Library, Ltd. v. Corel Corp., 36 F. Supp.2d 191 (S.D. N.Y. 1999) the court examined whether color transparencies of public domain works of art were sufficiently original for copyright protection, ultimately holding that, as exact photographic copies of public domain works of art, they were not. 36 F. Supp.2d at 195. In support of its holding, the court looked to the plaintiffs intent in creating the transparencies: where the point of the exercise was to reproduce the underlying works with absolute fidelity, the spark of originality necessary for copyright protection was absent. Id. at 197 (emphasis added).* Precisely the same holds true here, where, by design, all that was left in Meshwerks digital wire-frame models were the designs of Toyotas vehicles. . A Luddite might make the mistake of suggesting that digital modeling, as was once said of photography, allows for nothing more than mechanical reproduction of the physical features or outlines of some object and involves no originality of thought or any novelty in the intellectual operation connected with its visible reproduction in [the] shape of a picture. Burrow-Giles, 111 U.S. at 59. Clearly, this is not so. Digital modeling can be, surely is being, and no doubt increasingly will be used to create copyrightable expressions. Yet, just as photographs can be, but are not per se, copyrightable, the same holds true for digital models. Theres little question that digital models can be devised of Toyota cars with copyrightable features, whether by virtue of unique shading, lighting, angle, background scene, or other choices. The problem for Meshwerks in this particular case is simply that the uncontested facts reveal that it wasnt involved in any such process. For this reason, we do not envision any chilling effect on creative expression based on our holding today, and instead see it as applying to digital modeling the same legal principles that have come, in the fullness of time and with an enlightened eye, to apply to photographs and other media. ..The judgment of the district court is affirmed. Note Compare the Skyy cases discussed in Meshwerks with Morrissey, considered earlier in this chapter. Given the limited options for depicting a blue bottle, why not deny copyright altogether?

Section 411(a) did not obligate Bridgeman, a U.K. firm, to register. It may have done so to strengthen its case under 410(c), but the court said, No one disputes that most photographs are copyrightable. In consequence, the issuance of a certificate of registration proves nothing. 36 F.Supp.2d at 200.

5.40

Originality

Paul Morelli Design, Inc. v. Tiffany and Co.

U.S. District Court, E.D. Pennsylvania 200 F. Supp.2d 482 (2002)

Bartle, District Judge: [Morelli was refused copyright registration for its jewelry. It nevertheless sued for infringement under 17 U.S.C. 411(a), and, having received the required notice, the Register intervened. After the jury found that a preponderance of evidence failed to establish copyrightability, Morelli moved for a new trial. Part I of the decision responds to an argument that it was improper for the jury to have given any weight to the Offices decision.] Although courts have articulated various standards, we have taken the path followed by our colleague Judge Norma Shapiro. Sitting without a jury in a [similar case, she gave] some deference to the action of the Copyright Office. The court of appeals affirmed without opinion. Safeguard Business Systems, Inc. v. The Reynolds and Reynolds Co., 919 F.2d 136 (3d Cir. 1990). .3 We believe this standard strikes the proper balance between a de novo review which plaintiff seeks and the heightened abuse of discretion found in some cases. The statute, after all, gives the Register of Copyrights the right to intervene in this action. There would be little point if the decision of her office were deemed to be meaningless, as the plaintiff contends. On the other hand, since the statute permits a party whose application was denied to sue for copyright infringement, Congress did not intend, in our view, narrowly to constrain a jury or a court from finding a rejected work to be copyrightable and infringed. . The charge gave the jury the appropriate latitude to differ from the Copyright Office without totally ignoring its decision refusing registration. De novo review would not be consistent with the statutory scheme. II The plaintiff next argues that the court committed error when it precluded certain expert testimony. [Ralph Oman, a former Register prepared a report for the plaintiff. If he had testified, the defense contemplated calling Marybeth Peters, the current Register.] The court advised the parties before trial that it was cumulative and a poor use of time. They agreed. . The court received input and after review by counsel and without objection read a statement to the jury before receiving testimony. To the extent Mr. Oman would have opined on the law, that was a matter for the court. . The court has discretion to determine whether an expert may testify. . What the plaintiff was really seeking of all of its experts including Mr. Oman was analogous to having expert witnesses testify in a personal injury action that a partys conduct was negligent. . In this case, the court carefully set forth the legal definitions of originality and creativity as well as the Copyright Office procedures with respect to applications for registration. The jury not only saw and inspected the Morelli and the Tiffany jewelry during the trial but had all of it in the jury room during deliberations. It heard extensive testimony from witnesses about the origin, design, elements, and manufacture of both the allegedly infringed Sprinkled Diamond Collection of Morelli and the allegedly infringing Etoile Collection of Tiffany. The jury also had before it evidence of other jewelry which bore on originality and creativity as well as relevant documentary exhibits. As is our practice, we provided each juror with a copy of the charge after it was read.
3 . Plaintiffs reliance on OddzOn Prods., Inc. v. Oman, 924 F.2d 346, 347 (D.C.Cir. 1991) and Atari Games Corp. v. Oman, 888 F.2d 878, 881 (D.C.Cir. 1989) is misplaced. These cases involved appeals of the Register of Copyrights refusal of registration pursuant to the Administrative Procedures Act.

Copyright Basics

5.41

The jury had everything it needed to render a proper verdict and was fully capable of doing so. Under the circumstances, it would not have been helpful to the jury to have listened to conflicting opinions of either Morellis or Tiffanys experts5 on the ultimate issues of originality and creativity. The danger of unfair prejudice, confusion of the issues and waste of time by admitting the excluded expert testimony in what was already a lengthy trial substantially outweighed the probative value of such evidence. III Plaintiff also argues that the court erroneously refused to instruct the jury that the commercial success of the Morelli jewelry should be considered. We disagree. The court properly charged, attractiveness, commercial success and substantial efforts are not factors to be considered in deciding whether a work is original. . Even Morellis expert Ralph Oman agrees with the court. At page 15 of his expert report, he quotes Compendium II that, copyrightability does not depend on aesthetic appeal, commercial success, or symbolic value of the work. (emphasis added). We do not leave our common sense at the courthouse door. Works may experience commercial success even without originality and works with originality may enjoy none whatsoever. Nothing has been presented to us showing any correlation between the two. Moreover, under Morellis theory a work may not be copyrightable at one point when it enjoys no sales but may later become copyrightable if it experiences an upswing in economic fortune. This cannot be. A work is either original when created or it is not. . . [Other arguments in favor of a new trial were rejected without elaboration.] Notes The Morelli opinion does not include the jury charge. In relevant part, it said: Common shapes, such as a circle, square, or other familiar symbols or designs or simple combinations thereof are considered to be part of the public domain and are not themselves subject to copyright protection. A work that is entirely a collection of unoriginal material, nevertheless may be copyrighted if the material is selected, coordinated or arranged in an original fashion. An original work subject to copyright protection may include or incorporate elements taken from prior works. Where the plaintiff's work includes or incorporates elements from prior works, there is no precise rule as to how much must have originated from the plaintiff himself in order for him to claim copyright protection. The originality must not be merely of a technical or mechanical nature. . Attractiveness, commercial success and substantial efforts are not factors to be considered. [I]f the plaintiff has not proven by a preponderance of the evidence that any of [its] jewelry is copyrightable, then you must find in favor of the defendant on the copyright infringement claim. . The Copyright Office ruled that the jewelry designs did not contain a sufficient amount of original amount of artistic or sculptural authorship to support copyright registration. Consistent with Copyright Office practice, the examiner never physically examined the jewelry in issue, although the examiner had pictures of it.

1.

Had Morellis experts been permitted to testify that the Morelli jewelry was creative and original, Tiffany was prepared to have its expert Cosmo Altobelli testify that the jewelry was not creative or original.

5.42

Originality

Even when an application has been refused, an applicant may still bring a lawsuit in court for infringement. In this lawsuit as explained above, the plaintiff bears the burden of proving by a preponderance of the evidence that his work contains copyrightable subject matter. While the decision of the Copyright Office is entitled to some deference, you are not bound by its decision and must decide for yourself the issue of copyrightability of the jewelry designs involved in this case. February 13, 2002, 11013 (transcript kindly provided by John Fargo, a U.S. government attorney involved in the case). 2. Reconsider 411(a) and 410(c) in light of the Morelli jury charge. Bridgeman, cited in Meshwerks, demonstrates that plaintiffs do not necessarily prevail merely because the Office registers rather than refuses registration. What does Masquerades note 7 add in that regard? 3. What of apocryphal works such as Black Bear at Night or Polar Bear in Snowstorm (a black dot on white, representing its nose). Is copyright possible if a works originality resides only in its title? In that vein, consider John Cages 4'33'' (four minutes and thirty-three seconds of silence, in three movements). On Sept. 23, 2002, CNN.Com, reported in Composer pays for piece of silence, <http://archives.cnn.com/2002/showbiz/Music/09/23/uk.silence/> (visited May 28, 2007), that an accused U.K. infringer settled the matter out of court by paying an undisclosed six-figure sum. 4. Coach v. Peters, 386 F. Supp.2d 495 (S.D. N.Y. 2005), affirms refusal to register graphic patterns based on lack of originality. Works in question (one colored, the other not) were two linked Cs facing each other, alternating with two unlinked Cs facing in the same direction. That seems original, but the Office may have balked because the basic pattern seemed to be intended as a logo. That was confirmed when the pattern was later registered as a trademark. See U.S. Trademark Registration Serial No. 78972141, word mark CC registered Mar. 11, 2008. 5. In some ways, Darden v. Peters, 488 F.3d 277 (4th Cir. 2007), is similar to Coach. When Darden complained of confusion caused by others copying his website, the Copyright Board of Appeals noted that any marketplace confusion created by the use of Dardens maps by third parties was irrelevant to the question of whether the maps were copyrightable, as were requests to Darden by website browsers for license to use the maps. Id. at 282. Although the Board acknowledged that there could well be copyrightable elements included on the website, Dardens claim as stated in his registration application for text, maps, and formatting of an Internet web page was simply too broad to warrant protection. Id. Might a design patent be more appropriate? 6. Refusals in Coach and Darden were, respectively, based in part on 37 C.F.R. 202.1(a) and (d) (Material not Subject to Copyright). Coach clearly did not challenge the rule. See 386 F. Supp.2d at 499 n.4. And there is no indication that Darden did. 7. The second sentence of 411(a), critical to Morellis suit, effectively implements the suggestion offered by Judge Clark, who dissented in Vacheron & Constantin-Le Coultre Watches, Inc. v. Benrus Watch Co., Inc., 260 F.2d 637 (2d Cir. 1958). Because registration of a watch had been refused, he argued in favor of joining a suit against the Office for refusing to register with another against an infringer beyond reach because of that refusal. In that case, however, refusal was predicated on the watchs being useful, rather than its lacking originality

Chapter 6 Copyright Ownership and Enforcement

A. Ownership and Transfer of Rights U.S. Court of Appeals, Ninth Circuit 743 F.2d 630 (1984) Before Goodwin, Sneed and Alarcon. Goodwin, Circuit Judge: In the guise of a copyright infringement suit, this case presents an accounting problem between two partners. Ries and his codefendants1 appeal from a judgment awarding Oddo $10,000 statutory damages for infringement, $20,000 attorneys fees, general damages of $1,000, and costs of suit. Oddo and Ries entered into a partnership in March 1978 to create and publish a book describing how to restore Ford F-100 pickup trucks. According to the partnership agreement, Ries was to provide capital and supervise the business end of the venture; Oddo was to write and edit the book. By January 1980, Oddo had delivered to Ries a manuscript that contained much but not all of the material the partners planned to include in the book. This manuscript consisted partly of a reworking of previously published magazine articles that Oddo had written and partly of new material, also written by Oddo, that had never before been published. At about the same time, Ries became dissatisfied with the progress Oddo had made on the manuscript. Ries hired another writer to complete Oddos manuscript, and then published the finished product. The book that Ries eventually published contained substantial quantities of Oddos manuscript but also contained material added by the new writer. I. Infringement Three copyrighted works are at issue in this case. The first, actually a set of copyrighted works, consists of the magazine articles that Oddo reworked into the manuscript that he delivered to Ries. The second work is Oddos manuscript, and the third is the book that Ries published. We will refer to these works as the articles, the manuscript, and the book. The district court did not specify which copyright Ries had infringed; it simply held [t]hat the copyright of Plaintiff Oddo was infringed by Defendant Ries when he caused the Guide [i.e., the Book] to be published. A. Book and Manuscript The district court erred if it meant that Ries infringed the copyright in the manuscript or the book. The district court concluded that the Oddo/Ries partnership owns the copyrights in the book and the manuscript. As a partner, Ries is a co-owner of the partnerships assets, including the copyrights. A co-owner of a copyright cannot be liable to another co-owner for infringement of the copyright. Rather, each co-owner has an independent right to use or license the use of the copyright. A co-owner of a copyright must account to other co-owners
1

Oddo v. Ries

MME Publications is the Oddo/Ries partnership, but Oddos complaint indicates that Oddo sued MME Publications on the theory that the partnership had been dissolved and that Ries was operating MME Publications as a sole proprietorship.

6.2

Ownership and Transfer of Rights

for any profits he earns from licensing or use, Shapiro, Bernstein & Co. v. Jerry Vogel Music Co., 221 F.2d 569 (2d Cir.), modified, 223 F.2d 252 (1955), but the duty to account does not derive from the copyright laws proscription of infringement. Rather, it comes from equitable doctrines relating to unjust enrichment and general principles of law governing the rights of co-owners. Harrington v. Mure, 186 F. Supp. 655, 65758 (S.D.N.Y. 1960).2 . Many of the copyright co-ownership cases might be distinguished from ours on the grounds that co-ownership in those cases arose from joint authorship of the work subject to copyright, and Oddo and Ries are not joint authors. However, nothing in those cases suggests that the rules they set out are restricted to cases of joint authorship. . Accordingly, Ries could not infringe the partnerships copyrights in the manuscript or the book, but he can be required to account to Oddo for any profits he has made. Ries may also be liable to Oddo under California partnership law for misuse of the partnership copyrights. A violation of state partnership law, however, would not transform Ries use of the copyrights into infringement under federal law. B. Articles . We conclude that Oddo, by preparing a manuscript based on his preexisting articles as part of his partnership duties, impliedly gave the partnership a license to use the articles insofar as they were incorporated in the manuscript. However, the implied license to use the articles in the manuscript does not give Ries or the partnership the right to use the articles in any work other than the manuscript itself. Because the book is a work distinct from the manuscript, Ries exceeded the scope of the partnerships license when he used the articles in the book. Ries has not shown that he was otherwise licensed to use the articles in the book, so his publication of the book infringed Oddos copyright in the articles. II. Statutory Damages and Attorneys Fees The parties have spent considerable energy arguing whether statutory damages and attorneys fees, 504(c) and 505, may be awarded in this case. Because Ries cannot be held liable for infringement of the copyrights in the manuscript and book that he co-owns with Oddo, his use of those copyrights cannot form the basis for any sort of award. Nor can Oddo recover statutory damages and attorneys fees for infringement of the copyrights in the articles. Section 412 bars an award of statutory damages or attorneys fees for any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work. Oddo has not shown that the copyrights in the articles have ever been registered, much less within three months. . Oddo may, however, recover the actual damages he suffered from infringement of the copyrights in the articles. 504(b). [Copyright preemption under 301(a) is discussed subsequently, so the courts discussion of that topic is omitted as premature. It nevertheless warrants mention that, because preemption is a defense, it cannot be a basis for federal jurisdiction.] Notes 1. The Act says nothing of copyright co-owners duties toward one another, but see H.R.Rep. No. 941476, 94th Cong., 2d Sess. 121, reprinted in 1976 U.S. Code Cong. & Ad. News at 5736: There is no need for a specific statutory provision concerning the rights and duties of the coowners. Under the bill, as under the present law, coowners of a copyright would be treated generally as tenants in common, with each coowner having an
Consequently a suit to bring the co-owner of a copyright to account does not fall within the district courts jurisdiction. Cf. Dolch v. United California Bank, 702 F.2d 178, 180 (9th Cir. 1983) (validity of transfer of copyright ownership not within 1338(a) jurisdiction).
2

Copyright Ownership and Enforcement

6.3

independent right to use or license the use of a work, subject to a duty of accounting to the other coowners for any profits. [Emphasis added.] 2. That co-owners must account to one another is unclear. Moreover patent co-owners have no such obligation. 35 U.S.C. 262. 3. Also, regarding ownership disputes, see Merchant v. Levy, 92 F.3d 51 (9th Cir. 1996) (contested claims are subject to the three-year statute of limitation in 507(b)). 4. See 411; absent evidence that Oddos articles had been registered, much less within three months, what was the basis, if any, for the courts providing any remedy? Courts may enjoin infringement of future as well as presently registered works. See, e.g., Olan Mills, Inc. v. Linn Photo Co., 23 F.3d 1345 (8th Cir. 1994), but most have found at least one registration necessary for jurisdiction. Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237 (2010), however, points out, 411(a) expressly allows courts to adjudicate infringement claims involving unregistered works in three circumstances: where the work is not a U.S. work, where the infringement claim concerns rights of attribution and integrity under 106A, or where the holder attempted to register the work and registration was refused. Separately, 411(c) permits courts to adjudicate infringement actions over certain kinds of unregistered works where the author declare[s] an intention to secure copyright in the work. Id. at 1246.

U.S. Court of Appeals, Ninth Circuit 16 F.3d 355 (1994) Before Brunetti, Kozinski and Boggs.* Kozinski, Circuit Judge: . In 1987, after a lunch meeting with movie producers Frank Konigsberg and Larry Sanitsky, author Anne Rice allegedly entered into an oral agreement to sketch out a romantic melodrama involving a love triangle between a resurrected mummy, an English heiress and Queen Cleopatra. Based on this simple premise, Rice would create a bible a detailed story which could form the basis for derivative works in various entertainment media. Rice would then write the novel, and Konigsbergs and Sanitskys companies (K & S) would have [a conditioned opportunity to exploit rights], with an option to extend. K & S drafted a contract along these lines, but the parties didnt settle on final terms or sign any agreement. Rice simply delivered the bible, and the producers forked over $50,000. In the next two years, Rice went on to write and copyright a novel called The Mummy. K & S failed to exploit their rights but, allegedly, tried to exercise their option to extend. They say Rice refused; she says there was never an agreement, and, even if there was, K & S failed to extend it within the option period. Disappointed to lose rights in what turned out to be a best-seller, K & S filed a declaratory judgment action asserting co-ownership of the bible, an exclusive license1 to the motion picture and related rights. The district court dismissed K & Ss complaint because 17 U.S.C. 204(a), requires a signed, written transfer of copyright to establish co-ownership or an exclusive license. Effects Assocs., Inc. v. Cohen (Effects II), 908 F.2d 555, 557 (9th Cir. 1990). K & S could produce no such writing.
* 1

Konigsberg Intl, Inc. v. Rice

U.S. Court of Appeals for the Sixth Circuit. K & S also raise a claim for a nonexclusive license. Because this wasnt raised below, we wont consider it on appeal.

6.4

Ownership and Transfer of Rights

That might well have been the end of the story, but for the fact that Rice thereafter tried to vindicate her position by writing a somewhat indignant letter to K & Ss lawyer: [A]s far as I am concerned, she proclaimed, these contracts, though never signed, were honored to the letter. They got exactly what they paid for. A bible script and the television rights to the novel, The Mummy for over two years. K & S only failed, Rice claimed, to pick up their option, or extend it. Not only did this letter fail to shame K & S into contrition, it gave them what they thought was the missing link to their argument a writing signed by the author. Armed with this, K & S [sought] to amend their complaint, claiming that they now had a writing sufficient to satisfy 204. . Though hardly Rices intention, her advocative effort gives us an opportunity to address an interesting and difficult issue concerning the nature of the Copyright Acts written instrument requirement. II Under 204(a), [a] transfer of copyright ownership is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owners duly authorized agent. In Effects II, we stated that the writing must ensure that the author will not give away his copyright inadvertently and forces a party who wants to use the copyrighted work to negotiate with the creator to determine precisely what rights are being transferred and at what price. 908 F.2d at 557. The writing should also serve as a guidepost for the parties to resolve their disputes: Rather than look to the courts every time they disagree as to whether a particular use of the work violates their mutual understanding, parties need only look to the writing that sets out their respective rights. Id. To serve these functions, the writing in question must, at the very least, be executed more or less contemporaneously with the agreement and must be a product of the parties negotiations. Although 204 is often referred to as the copyright statute of frauds, it actually differs materially from state statutes of frauds. . State statutes of frauds serve a purely evidentiary function. Thus, agreements subject to statutes of frauds may be perfectly valid, yet unenforceable without evidence of a writing. By contrast, a transfer of copyright is simply not valid without a writing. Section 204s writing requirement not only protects authors from fraudulent claims, but also enhances predictability and certainty of ownership Congresss paramount goal when it revised the Act in 1976. Effects II, 908 F.2d at 557.3 Rices letter was written three and a half years after the alleged oral agreement. Thus, it was not substantially contemporaneous with the oral agreement. Nor was it a product of the parties negotiations; it came far too late to provide any reference point for the parties license disputes. In short, Rices letter though ill-advised was not the type of writing contemplated by 204 as sufficient to effect a transfer of the copyright to The Mummy. We turn therefore to K & Ss alternative argument, that no transfer (and hence, no writing) was required because they had a joint venture with Rice to create the bible, which upon its creation, became the property of the joint venture. . Appellants point to Oddo for the proposition that joint venturers who neither are co-authors nor have executed a written transfer can still be co-owners. Oddo provides no support for this proposition. The parties there had formed a partnership for the very purpose of creating the book in question. In signing the written partnership agreement, the author transferred his copyright in
The Second Circuit has held that the note or memorandum can retroactively validate an earlier oral transfer. Eden Toys, Inc. v. Florelee Undergarment Co., 697 F.2d 27, 36 (2d Cir. 1982) (memorandum of transfer made within year of oral agreement and during term of exclusive license validated agreement ab initio). . In any case, we read the Second Circuits rule as applying only to writings executed during the life of the purported license not, as here, many years later.
3

Copyright Ownership and Enforcement

6.5

the manuscript to the partnership because each partner under state law was co-owner of the partnerships assets. Id. at 632. . It is a far different matter to say one can dispense with the written instrument requirement altogether by claiming an oral partnership or joint venture. Given the ease with which joint ventures may be alleged and proved under the law of many states, acceptance of this argument would fatally undermine the Copyright Acts written instrument requirement. In sum, Konigsberg, Sanitsky and Rice did lunch, not contracts. That didnt satisfy 204 in Effects II, 908 F.2d at 55657, and it fares no better here. Note and Problem 1. Konigsberg involved a dispute between persons claiming ownership, but the rules change when an infringer tries to dismiss a suit because the wrong person is named as owner. See Jules Jordan Video, Inc. v. 144942 Canada Inc., 2010 WL 3211818, *8 (9th Cir. 2010) (When there is no dispute between the copyright owner and transferee, it would be unusual and unwarranted to permit a third-party infringer to invoke 204(a) to avoid suit for copyright infringement.) (citations to 7th and 11th Circuit opinions and internal quotation marks omitted). 2. Torch sent The Tattler a letter to the editor. The next day, when he called and asked that it not be published, the letter was already in press. a. If Torch registers and sues The Tattler for infringing copyright in his letter, how would 101 (transfer of ownership) be helpful to the newspaper? b. Torchs letter was highly critical of Mayor Gonzo, who posted and rebutted it on the web. If The Tattler has registered, can it sue Gonzo for infringement? See 501(b).

Community for Creative Non-Violence v. Reid

U.S. Supreme Court 490 U.S. 730 (1989)

Justice Marshall: In this case, an artist and the organization that hired him to produce a sculpture contest the ownership of the copyright in that work. . I Petitioners are the Community for Creative Non-Violence (CCNV), a nonprofit unincorporated association dedicated to eliminating homelessness in America, and Mitch Snyder. In the fall of 1985, CCNV decided to participate in the annual Christmastime Pageant of Peace in Washington, D.C., by sponsoring a display to dramatize the plight of the homeless. As the district court recounted: Snyder and fellow CCNV members conceived the idea for the nature of the display: a sculpture of a modern Nativity scene in which the two adult figures and the infant would appear as contemporary homeless people huddled on a streetside steam grate. The family was to be black; the figures were to be lifesized, and the steam grate would be positioned atop a platform pedestal, or base, within which special-effects equipment would be enclosed to emit simulated steam through the grid to swirl about the figures. . Snyder made inquiries. He was referred to respondent James Earl Reid, a Baltimore, Maryland, sculptor. In the course of two telephone calls, Reid agreed to sculpt the three

6.6

Ownership and Transfer of Rights

human figures. CCNV agreed to make the steam grate and pedestal for the statue. Reid proposed that the work be cast in bronze, at a total cost of approximately $100,000 and taking six to eight months to complete. Snyder rejected that proposal because CCNV did not have sufficient funds, and because the statue had to be completed by Dec. 12 to be included in the pageant. Reid then suggested, and Snyder agreed, that the sculpture would be made of a synthetic substance that could meet CCNVs monetary and time constraints, could be tinted to resemble bronze, and could withstand the elements. The parties agreed that the project would cost no more than $15,000, not including Reids services, which he offered to donate. The parties did not sign a written agreement. Neither party mentioned copyright. After Reid received an advance of $3,000, he made several sketches of figures in various poses. . Upon Snyders suggestion, Reid visited a family living at CCNVs Washington shelter but decided that only their newly born child was a suitable model. While Reid was in Washington, Snyder took him to see homeless people living on the streets. Snyder pointed out that they tended to recline on steam grates, rather than sit or stand. From that time on, Reids sketches contained only reclining figures. Throughout November and the first two weeks of December 1985, Reid worked exclusively on the statue, assisted at various times by a dozen different people who were paid by CCNV. On a number of occasions, CCNV members visited Reid to check on his progress and to coordinate CCNVs construction of the base. CCNV rejected Reids proposal to use suitcases or shopping bags to hold the familys personal belongings, insisting instead on a shopping cart. Reid and CCNV members did not discuss copyright ownership on any of these visits. On Dec. 24, 1985, 12 days after the agreed-upon date, Reid delivered the completed statue to Washington. There it was joined to the steam grate and pedestal prepared by CCNV. The statue remained on display for a month. In late January 1986, CCNV members returned it to Reids studio in Baltimore for minor repairs. Several weeks later, Snyder began making plans to take the statue on a tour of several cities to raise money for the homeless. Reid objected, contending that the Design Cast 62 material was not strong enough to withstand the ambitious itinerary. He urged CCNV to cast the statue in bronze at a cost of $35,000, or to create a master mold at a cost of $5,000. Snyder declined. In March 1986, Snyder asked Reid to return the sculpture. Reid refused. He then filed a certificate of copyright registration for Third World America in his name and announced plans to take the sculpture on a more modest tour. Snyder, acting in his capacity as CCNVs trustee, immediately filed a competing certificate of copyright registration. Snyder and CCNV then commenced this action. . After a 2-day bench trial, the district court declared that Third World America was a work made for hire and that Snyder, as trustee for CCNV, was the exclusive owner of the copyright in the sculpture. . II. A The Copyright Act provides that copyright ownership vests initially in the author or authors of the work. 17 U.S.C. 201(a). As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression. The Act carves out an important exception, however, for works made for hire. If the work is for hire, the employer or other person for whom the work was prepared is considered the author and owns the copyright, unless there is a written agreement to the contrary. 201(b). Classifying a work as made for hire determines not only the initial ownership of its copyright, but also the copyrights duration, 302(c), and the owners renewal rights, 304(a), termination rights, 203(a), and right to import certain goods bearing the copyright, 601(b)(1). The contours of the work for hire doctrine therefore carry

Copyright Ownership and Enforcement

6.7

profound significance for freelance creators including artists, writers, photographers, designers, composers, and computer programmers and for the publishing, advertising, music, and other industries which commission their works.4 Section 101 provides that a work is for hire under two sets of circumstances: (1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. Petitioners do not claim that the statue satisfies the terms of 101(2).* Quite clearly, it does not. . The dispositive inquiry in this case therefore is whether Third World America is a work prepared by an employee within the scope of his or her employment under 101(1). The Act does not define these terms. In the absence of such guidance, four interpretations have emerged. The first holds that a work is prepared by an employee whenever the hiring party retains the right to control the product. Petitioners take this view. A second, and closely related, view is that a work is prepared by an employee under 101(1) when the hiring party has actually wielded control with respect to the creation of a particular work. . A third view is that the term employee within 101(1) carries its common-law agency law meaning. This view was endorsed by the court of appeals below. Finally, respondent and numerous amici curiae contend that the term employee only refers to formal, salaried employees The starting point for our interpretation of a statute is always its language. The Act nowhere defines the terms employee or scope of employment. . In the past, when Congress has used the term employee without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by commonlaw agency doctrine. Nothing in the text of the work for hire provisions indicates that Congress used the words employee and employment to describe anything other than the conventional relation of employer and employe. Kelley v. Southern Pacific Co., 419 U.S. 318, 323. On the contrary, Congress intent to incorporate the agency law definition is suggested by 101(1)s use of the term, scope of employment, a widely used term of art in agency law. See Restatement (Second) of Agency 228 (1958). . . Transforming a commissioned work into a work by an employee on the basis of the hiring partys right to control, or actual control of, the work is inconsistent with the language, structure, and legislative history of the work for hire provisions. To determine whether a work is for hire under the Act, a court first should ascertain, using principles of general common law of agency, whether the work was prepared by an employee or an independent contractor. After making this determination, the court can apply the appropriate subsection of 101. B We turn, finally, to an application of 101 to Reids production of Third World America. In determining whether a hired party is an employee under the general common law of agency, we consider the hiring partys right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill
As of 1955, approximately 40% of all copyright registrations were for works for hire, according to a Copyright Office study. . The Copyright Office does not keep more recent statistics. * [Terms defined in 101 are alphabetically listed but are not numbered or lettered. See work made for hire. Ed.]
4

6.8

Ownership and Transfer of Rights

required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired partys discretion over when and how long to work; the method of payment; the hired partys role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. See Restatement 220(2) (setting forth a nonexhaustive list of factors relevant to determining whether a hired party is an employee). No one is determinative. Reid was an independent contractor. True, CCNV members directed enough of Reids work to ensure that he produced a sculpture that met their specifications. . [A]ll the other circumstances weigh heavily against finding an employment relationship. Reid is a sculptor, a skilled occupation. Reid supplied his own tools. He worked in his own studio in Baltimore, making daily supervision of his activities from Washington practicably impossible. Reid was retained for less than two months. During and after this time, CCNV had no right to assign additional projects to Reid. Apart from the deadline for completing the sculpture, Reid had absolute freedom to decide when and how long to work. CCNV paid Reid $15,000, a sum dependent on completion of a specific job, a method by which independent contractors are often compensated. . Finally, CCNV did not pay payroll or Social Security taxes, provide any employee benefits, or contribute to unemployment insurance or workers compensation funds. . Thus, CCNV is not the author of Third World America by virtue of the work for hire provisions of the Act. However, as the court of appeals made clear, CCNV nevertheless may be a joint author of the sculpture if, on remand, the district court determines that CCNV and Reid prepared the work with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole. 101. . For the aforestated reasons, we affirm. Notes 1. Ownership of copyrights and underlying works are distinct, however. See 202. The dispute in CCNV was as much about the sculpture as the copyright. How might disposition of the two issues differ? 2. Food Lion, Inc. v. Capital Cities/ABC, Inc., 946 F. Supp. 420 (M.D. N.C. 1996), affd 116 F.3d 472 (4th Cir. 1997) (unpublished), deals with when a person can be seen as an employee. Reporters gave false information to get jobs, and using video cameras secreted in wigs, obtained footage for a highly critical broadcast. Despite being employees in one sense, their work was found not to be for hire. In a related suit, the First Amendment was found not to be useful for avoiding liability for various torts committed by the reporters. Damages for their broadcast were nevertheless refused. Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505 (4th Cir. 1999). Had Food Lions copyright suit succeeded, would it have been better off? 3. Agreements that works are for hire are unenforceable absent a credible basis. See Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) (interpreting 304(c)(5)). 4. Under 201(b), employers hold copyrights unless the parties expressly agreed otherwise in a written instrument signed by them. It seems strange that two signatures are required when 204(a) calls for only one, but Forast v. Brown University, 248 F. Supp.2d 71, 81 (D.R.I. 2003), enforces that requirement. Some cases where ownership by a college is not central, e.g., Bosch v. Ball-Kell, 80 U.S.P.Q.2d 1713 (C.D. Ill. 2006), have found

Copyright Ownership and Enforcement

6.9

customary practices to trump 201(b). Vanderhurst v. Colo. Mountain Coll. Dist., 16 F. Supp.2d 1297 (D.Colo. 1998), where college ownership was in issue, found the school to own copyright of a course outline prepared outside normal hours of employment. 5. Whether works are for hire has important implications with regard to duration of rights. Section 302(c) provides for set terms (120 years from creation or 95 years from publication), rather than terms based on lives of authors. Also, 203(a) and 304(c and d) allow authors or owners of works not for hire to terminate grants after 35 or 56 years, respectively, but transferees retain rights in derivatives prepared prior to that event. Although governing provisions are complex, various websites offer assistance to those attempting to apply them. See, e.g., http://labs.creativecommons.org/demos/termination/.

Tasini v. The New York Times Company, Inc.

U.S. Court of Appeals, Second Circuit 206 F.3d 161 (2000)

Before: Winter, Miner, and Pooler. Winter, Chief Circuit Judge: Six freelance writers appeal from a grant of summary judgment. The complaint alleged that appellees had infringed appellants various copyrights by putting individual articles previously published in periodicals on electronic databases available to the public. . The gist of the Authors claim is that the copyright each owns in his or her individual articles was infringed when the Publishers provided them to the electronic databases. Appellees do not dispute that the Authors own the copyright in their individual works. Rather, they argue that the Publishers own the copyright in the collective works that they produce and are afforded the privilege, under 201(c) of the Act, of reproducing and distributing the individual works in any revision of that collective work. The crux of the dispute is, therefore, whether one or more of the pertinent electronic databases may be considered a revision of the individual periodical issues from which the articles were taken. The district court [found that they were]. . Discussion We review de novo the grant or denial of summary judgment and view the evidence in the light most favorable to the non-moving party. . The unauthorized reproduction and distribution of a copyrighted work generally infringes the copyright unless such use is specifically protected by the Act. To reiterate, each Author owns the copyright in an individual work and, save for Whitford, see infra, has neither licensed nor otherwise transferred any rights under it to a Publisher or electronic database. These works were published with the Authors consent, however, in particular editions of the periodicals owned by the Publishers. The Publishers then licensed much of the content of these periodicals, including the Authors works, to one or more of the electronic database providers. As a result, the Authors works are now available to the public on one or more electronic databases and may be retrieved individually or in combination with other pieces originally published in different editions of the periodical or in different periodicals. In support of their claim, the Authors advance two principal arguments: first, 201(c) protects only the Publishers initial inclusion of individually copyrighted works in their collective works and does not permit the inclusion of individually copyrighted works in one or more of the electronic databases; and, second, any privilege the Publishers have under 201(c) is not a transferrable right within the meaning of 201(d) and hence may not be

6.10

Ownership and Transfer of Rights

invoked by the electronic database providers. The district court rejected both. . We need not reach the question whether this privilege is transferrable under 201(d). a) The 201(c) Presumption Section 201(c) of the Act provides [c]opyright in each separate contribution is distinct from copyright in the collective work as a whole, and vests initially in the author of the contribution. Correspondingly, Section 103, which governs copyright in compilations and derivative works, provides: The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material. Section 101 states that [t]he term compilation includes collective works. It further defines collective work as a work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole. Publishers of collective works are not permitted to include individually copyrighted articles without receiving a license or other express transfer of rights from the author. However, 201(c) creates a presumptive privilege to authors of collective works. Section 201(c) creates a presumption that when the author of an article gives the publisher the authors permission to include the article in a collective work, as here, the author also gives a non-assignable, non-exclusive privilege to use the article as identified in the statute. It provides in pertinent part that: In the absence of an express transfer of the copyright or of any rights under it, the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the contribution as part of that particular collective work, any revision of that collective work, and any later collective work in the same series. Under this statutory framework, the author of an individual contribution to a collective work owns the copyright to that contribution, absent an express agreement setting other terms. The rights of the author of a collective work are limited to the material contributed by the [collective-work] author and do not include any exclusive right in the preexisting material. 103(b). Moreover, the presumptive privilege granted to a collective-work author to use individually copyrighted contributions is limited to the reproduction and distribution of the individual contribution as part of: (i) that particular [i.e., the original] collective work; (ii) any revision of that collective work; or (iii) any later collective work in the same series. 201(c). Because it is undisputed that the electronic databases are neither the original collective work the particular edition of the periodical in which the Authors articles were published nor a later collective work in the same series, appellees rely entirely on the argument that each database constitutes a revision of the particular collective work in which each Authors individual contribution first appeared. We reject that argument. We begin, as we must, with the language of the statute. The parameters of 201(c) are set forth in the three clauses just noted. . The most natural reading of the revision of that collective work clause is that 201(c) protects only later editions of a particular issue of a periodical, such as the final edition of a newspaper. Because later editions are not identical to earlier editions, use of the individual contributions in the later editions might not be protected under the preceding clause. Given the context provided by the surrounding clauses, this interpretation makes perfect sense. It protects the use of an individual contribution in a collective work that is somewhat altered from the original in which the copyrighted article was first published, but

Copyright Ownership and Enforcement

6.11

that is not in any ordinary sense of language a later work in the same series. In this regard, we note that the statutory definition of collective work lists as examples a periodical issue, anthology, or encyclopedia. The use of these particular kinds of collective works as examples supports our reading of the revision clause. Issues of periodicals, as noted, are often updated by revised editions, while anthologies and encyclopedias are altered every so often through the release of a new version, a later collective work in the same series. Perhaps because the same series clause might be construed broadly, the House Report on the Act noted that the revision clause in 201(c) was not intended to permit the inclusion of previously published freelance contributions in a new anthology or an entirely different magazine or other collective work, i.e., in later collective works not in the same series. H.R.Rep. No. 94-1476, at 12223 (1976). Moreover, Publishers contention cannot be squared with basic canons of statutory construction. First, if the contents of an electronic database are merely a revision of a particular collective work , then the third clause of 201(c) permitting the reproduction and distribution of an individually copyrighted work as part of a later collective work in the same series would be superfluous. . Second, the permitted uses set forth in 201(c) are an exception to the general rule that copyright vests initially in the author of the individual contribution. Reading revision of that collective work as broadly as appellees suggest would cause the exception to swallow the rule. Under Publishers theory, [infringement] would essentially turn upon whether the rest of the articles from the particular edition in which the individual article was published could also be retrieved individually. However, 201(c) would not permit a Publisher to sell a hard copy of an Authors article directly to the public even if the Publisher also offered for individual sale all of the other articles from the particular edition. We see nothing in the revision provision that would allow the Publishers to achieve the same goal indirectly through NEXIS. Appellees reading is also in considerable tension with the overall statutory framework. . Because the Copyright Act of 1909 contemplated a single copyright, authors risked losing their rights by allowing an article to be used in a collective work. To address this concern, the 1976 Act expressly permitted the transfer of less than the entire copyright in effect replacing the notion of a single copyright with that of exclusive rights under a copyright. Section 201(d), which governs the transfer of copyright ownership, provides: (1) The ownership of a copyright may be transferred in whole or in part. (2) Any of the exclusive rights comprised in a copyright, including any subdivision of any of the rights specified by 106, may be transferred as provided by clause (1) and owned separately. The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title. (emphasis added); see also 204 (executions of transfers of copyright ownership). Similarly, 501, which sets forth the remedies for infringement of copyright, provides in pertinent part that [a]nyone who violates any of the exclusive rights of the copyright owner is an infringer. (emphasis added). Were the permissible uses under 201(c) as broad and as transferrable as appellees contend, it is not clear that the rights retained by the Authors could be considered exclusive in any meaningful sense. [N]o feature peculiar to the databases at issue would cause us to view them as revisions. NEXIS is a database comprising thousands or millions of individually retrievable articles taken from hundreds or thousands of periodicals. It can hardly be deemed a revision of each edition of every periodical that it contains.

6.12

Ownership and Transfer of Rights

Moreover, NEXIS does almost nothing to preserve the copyrightable aspects of the Publishers collective works, as distinguished from the preexisting material employed in the work. 103(b). The aspects of a collective work that make it an original work of authorship are the selection, coordination, and arrangement of the preexisting materials. 101. However, in NEXIS, some of the papers content, and perhaps most of its arrangement are lost. . The New York Times actually forbids NEXIS from producing facsimile reproductions of particular editions. What the end user can easily access, of course, are the preexisting materials that belong to the individual author under 201(c) and 103(b). The UMI databases involved in this appeal present a slightly more difficult issue than does NEXIS. . Nevertheless, we also conclude that the Publishers licensing of Authors works to UMI for inclusion in these databases is not within the 201(c) revision provision. . We emphasize that the only issue we address is whether, in the absence of a transfer of copyright or any rights thereunder, collective-work authors may re-license individual works in which they own no rights. Because there has by definition been no express transfer of rights in such cases, our decision turns entirely on the default allocation and presumption of rights provided by the Act. Publishers and authors are free to contract around the statutory framework. Indeed, both the Publishers and Mead were aware of the fact that 201(c) might not protect their licensing agreements, and at least one of the Publishers has already instituted a policy of expressly contracting for electronic re-licensing rights. b) Whitford [Whitfords agreement with the Times granted, e.g., a nonexclusive right to license republication and to republish in related publications; the Times subsequently licensed an article to Mead without notifying or compensating, him.] [T]hat a party has licensed certain rights does not prohibit the licensor from bringing an infringement action where it believes the license is exceeded, [but] the license may be raised as a defense. Where the dispute turns on whether there is a license at all, the burden is on the alleged infringer. Where the dispute is only over the scope of the license, by contrast, the copyright owner bears the burden of proving that the defendants copying was unauthorized. Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir. 1995). In either case, however, an infringement claim may be brought. Whitford did not, therefore, have the burden of pleading a contract claim against Time. [I]n the absence of an express transfer of the copyright or of any rights under it, the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the contribution [in limited circumstances]. Whitford contends that this provision, by its plain terms, does not apply where there is an express transfer and that his license agreement with Time constitutes just such an express transfer. . Under the district courts reasoning [g]iven the district courts previously expressed broad view of the 201(c) privilege, Time prevailed, not because the agreement authorized the licensing of Whitfords article to Mead but because the agreement did not forbid it. The district court is mistaken. [Section] 201(c) creates only a presumption. There being no other basis for Time to license Whitfords article to Mead, summary judgment should have been granted in favor of Whitford on his claim. .

Copyright Ownership and Enforcement

6.13

U.S. Supreme Court 533 U.S. 483 (2001) Justice Ginsburg: . In agreement with the Second Circuit [in Tasini ], we hold that 201(c) does not authorize the copying at issue here. The publishers are not sheltered by 201(c), we conclude, because the databases reproduce and distribute articles standing alone and not in context, not as part of that particular collective work to which the author contributed, as part of any revision thereof, or as part of any later collective work in the same series. . IV The Publishers warn that a ruling for the Authors will have devastating consequences. The Databases, the Publishers note, provide easy access to complete newspaper texts going back decades. A ruling for the Authors, the Publishers suggest, will punch gaping holes in the electronic record of history. The Publishers concerns are echoed by several historians but discounted by several other historians. Notwithstanding the dire predictions from some quarters, it hardly follows from todays decision that an injunction against the inclusion of these articles in the databases (much less all freelance articles in any databases) must issue. See 17 U.S.C. 502(a) (court may enjoin infringement); Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578, n. 10 (1994) (goals of copyright law are not always best served by automatically granting injunctive relief). The parties (Authors and Publishers) may enter into an agreement allowing continued electronic reproduction of the Authors works; they, and if necessary the courts and Congress, may draw on numerous models for distributing copyrighted works and remunerating authors for their distribution. See, e.g., 17 U.S.C. 118(b); Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 46, 1012 (1979) (recounting history of blanket music licensing regimes and consent decrees governing their operation). In any event, speculation about future harms is no basis for this Court to shrink authorial rights Congress established in 201(c). Agreeing with the court of appeals that the Publishers are liable for infringement, we leave remedial issues open for initial airing and decision in the district court. . Justice Stevens, with whom Justice Breyer joins, dissenting. . Macaulay wrote that copyright is a tax on readers for the purpose of giving a bounty to writers. T. Macaulay, Speeches on Copyright 11 (A. Thorndike ed. 1915). That tax restricts the dissemination of writings, but only insofar as necessary to encourage their production, the bountys basic objective. In other words, [t]he primary purpose of copyright is not to reward the author, but is rather to secure the general benefits derived by the public from the labors of authors. 1 M. Nimmer & D. Nimmer, Nimmer on Copyright 1.03[A] (2001); see also Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 Harv. L.Rev. 281, 282 (1970) (discussing the twin goals of copyright law protecting the readers desire for access to ideas and providing incentives for authors to produce them). The majoritys decision today unnecessarily subverts this fundamental goal of copyright law in favor of a narrow focus on authorial rights. Although the desire to protect such rights is certainly a laudable sentiment, copyright law demands that private motivation must ultimately serve the cause of

6.14

Ownership and Transfer of Rights

promoting broad public availability of literature, music, and the other arts. Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) (emphasis added). The majority discounts the effect its decision will have on the availability of comprehensive digital databases, but I am not as confident. As petitioners amici have persuasively argued, the difficulties of locating individual freelance authors and the potential of exposure to statutory damages may well have the effect of forcing electronic archives to purge freelance pieces from their databases. The omission of these materials from electronic collections, for any reason on a large scale or even an occasional basis, undermines the principal benefits that electronic archives offer historians efficiency, accuracy and comprehensiveness. Brief for Ken Burns et al. as Amici Curiae 13. Moreover, it is far from clear that my position even deprives authors of much of anything (with the exception of perhaps the retrospective statutory damages that may well result from their victory today). Imagine, for example, that one of the contributions at issue in this case were a copyrighted version of John Keats Ode on a Grecian Urn. Even under my reading of 201(c), Keats retains valuable copyright protection. No matter how well received his ode might be, it is unlikely although admittedly possible that it could be marketed as a stand-alone work of art. The ode, however, would be an obvious candidate for inclusion in an anthology of works by romantic poets, in a collection of poems by the same author, or even in a 400-page novel quoting a [poem] in passing. The authors copyright would protect his right to compensation for any such use. . The ready availability of that edition, both at the time of its first publication and subsequently in libraries and electronic databases, would be a benefit, not an injury, to most authors. Keats would benefit from the poems continued availability to database users, by his identification as the author of the piece, and by the databases indication of the fact that the poem first appeared in a prestigious periodical on a certain date. He would not care one whit whether the database indicated the formatting context of the page on which the poem appeared. What is overwhelmingly clear is that maximizing the readership of the ode would enhance the value of his remaining copyright uses. Nor is it clear that Keats will gain any prospective benefits from a victory in this case. As counsel for petitioners represented at oral argument, since 1995, the New York Times has required freelance authors to grant the Times electronic rights to articles. And the inclusion of such a term has had no effect on the compensation authors receive. . Notes 1. Reconsider eBay, Chapter 1.B. Tasini, citing Campbell, in Chapter 7, strongly signals skepticism about injunctions against infringement being issued as a matter of course. 2. Also reconsider the problem posed after Konigsberg. Would The Tattler infringe if it posted Torchs letter on its website? If it permitted it to appear in others electronic databases? 3. In Christopher Phelps & Assoc., LLC v. Galloway, 492 F.3d 532, 543 (4th Cir. 2007), despite a finding of willful infringement of plans for a house, eBay was cited to support denying an injunction. Thus, real estate title was clear, subject only to payment of the architects usual fee. How does that differ from a compulsory license? 4. Section 801(b)(1)-(2), references several provisions that explicitly grant compulsory licenses. When should their availability bear on the propriety of refusing injunctions in other circumstances? Reconsider the Paper Bag case in Chapter 1.

Copyright Ownership and Enforcement

6.15

B. Proof of Infringement U.S. Court of Appeals, Second Circuit 722 F.2d 988 (1983) Before Pierce, Winter and Pratt. Pierce, Circuit Judge: . On Feb. 10, 1971, Bright Tunes Music Corporation (Bright Tunes) brought this copyright infringement action against George Harrison, and also against related entities, alleging that the Harrison composition, My Sweet Lord, (MSL) infringed the Ronald Mack composition, Hes So Fine, (HSF). . III. Cross-Appeal: Copyright Infringement [I]t is well settled that copying may be inferred where a plaintiff establishes that the defendant had access to the copyrighted work and that the two works are substantially similar. Warner Brothers v. American Broadcasting Companies, 654 F.2d 204, 207 (2d Cir. 1981). In this case, Judge Owen determined that My Sweet Lord is the very same song as Hes So Fine with different words, and Harrison had access to Hes So Fine. Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. at 18081. He concluded that the substantial similarity coupled with access constituted copyright infringement, even though subconsciously accomplished. Id. (citing Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 54 (2d Cir. 1936)). Appellees argue that the instant case differs significantly, and from the only other case in this circuit which held that subconscious copying can constitute infringement, i.e., Fred Fisher, Inc. v. Dillingham, 298 F. 145 (S.D. N.Y. 1924). In addition, they urge upon this court the position that it is unsound policy to permit a finding of copyright infringement on the basis of subconscious copying. We reject both arguments and affirm the decision of the district judge. First, we do not find dispositive appellees distinction between the instant case and Sheldon and Fisher cases. Appellees point out that in those two cases, the infringing work was created very shortly after the infringer had had access to the infringed work. Here, in contrast, appellees note, Harrisons access to HSF occurred in 1963, some six years before he composed MSL. We disagree with appellees position that such temporal remoteness precludes a finding of access. First, Harrison himself admitted at trial that he remembered hearing HSF in the early sixties when it was popular. Moreover, even if there had not been such direct evidence of access, access still may have been found because of the wide dissemination of HSF at that time. See Arnstein v. Porter, 154 F.2d 464, 469 (2d Cir. 1946). Indeed, in 1963, the year of Harrisons admitted access to HSF, the song was Number One on the Billboard charts in the U.S. for five weeks, and it was one of the Top Thirty Hits in England for seven weeks that same year. . As to the requisite finding of substantial similarity, we affirm the determinations of the district judge, since we do not find them to be clearly erroneous. Even Harrison conceded at trial that the two songs were strikingly similar as played by a pianist during the liability trial. This case is unlike Darrell v. Joe Morris Music Co., 113 F.2d 80 (2d Cir. 1940). In Darrell, the court of appeals affirmed the district courts finding of no plagiarism, when there had been substantial identity between the songs at issue. The Darrell court found of

ABKCO Music, Inc. v. Harrisongs Music, Ltd.

6.16

Proof of Infringement

particular significance that the songs themes were trite and access had occurred some seven and a half years before the defendants song was composed. . We find this case distinguishable. Indeed, the district judge did not find repetition of trite themes, but rather, a highly unique pattern. Moreover, in Darrell, the court found that the allegedly infringed song had had very scant publicity and credited the defendants denial of ever having heard it. . We accept the Darrell courts observation that recurrence is not an inevitable badge of plagiarism. However, on the facts presented herein, where the similarity was so striking and where access was found, the remoteness of that access provides no basis for reversal. Appellees argue next that it is unsound policy to permit a finding of infringement for subconscious copying. They assert that allowing for subconscious infringement brings the law of copyright improperly close to patent law, which imposes a requirement of novelty. We do not accept this argument. It is not new law in this circuit that when a defendants work is copied from the plaintiffs, but the defendant in good faith has forgotten that the plaintiffs work was the source of his own, such innocent copying can nevertheless constitute an infringement. We do not find this stance in conflict with the rule permitting independent creation of copyrighted material. . Moreover, as a practical matter, the problems of proof inherent in a rule that would permit innocent intent as a defense to copyright infringement could substantially undermine the protections Congress intended to afford to copyright holders. We therefore see no reason to retreat from this circuits prior position that copyright infringement can be subconscious.12 Because there was sufficient evidence of record to support the district judges findings of substantial similarity and access, we affirm the finding of copyright infringement. . Note Regarding the courts note 12, see, e.g., 504(c)(2), 505 and 506 provisions considered in the final part of this chapter.

U.S. Court of Appeals, Eleventh Circuit 795 F.2d 973 (1986) Before Fay, Johnson and Clark, Circuit Judges. Per Curiam . Appellant, an amateur songwriter, alleged that appellees commercial advertising had infringed his copyright of the song Dont Cha Know. Appellant began composing the song in 1929, finished it in 1960 and obtained a copyright that year. For the next five to six years, appellant attempted to sell the song by sending it to several well-known entertainers and record companies. In 1971, appellant heard Coca-Cola commercials using the song Id Like to Buy the World a Coke. Appellant believed that the commercial employed the music of his copyrighted work but substituted different words. In November 1983, [he] brought suit. . To establish copying, appellant must show that appellee had access to appellants song, and that appellees song is so substantially similar to appellants that an average lay
12

Benson v. Coca-Cola Co.

We note that although a finding of innocent infringement does not affect liability, such a finding might constitute a factor to be considered in the fashioning of remedies in a given case.

Copyright Ownership and Enforcement

6.17

observer would recognize the alleged copy as having been appropriated from the original work. Original Appalachian Artworks, Inc. v. Toy Loft, 684 F.2d 821, 829 (11th Cir. 1982). Proof of access and similarity is not enough, however, to affirmatively establish infringement. These elements only raise a presumption of infringement which may be rebutted by proof of appellees independent creation of the allegedly infringing song. The district court employed these legal standards and concluded that even if appellant possessed the copyright for Dont Cha Know, he had failed to prove copying. Specifically, appellant had failed to prove appellees access to his song. . . [Appellant] contends that appellees principal songwriters had access because both traveled extensively in the United States at the same time appellant publicized his song through performances in various nightclubs, hotels and restaurants. One of appellees writers also had been a record company executive during the time appellant had sent copies of his song to various music publishers and record companies. Appellant also contends that he negated the possibility of independent creation because appellees songwriters could not agree on exactly, when, where and how they had written appellees song. After carefully reviewing the trial transcript, we find no substantial evidence producing a jury question on either issue. Appellants evidence of publication concerned performance of his song primarily in Hollywood, Fort Lauderdale and Miami, Florida. Isolated performances also occurred [elsewhere]. Appellants wife testified that most of these performances occurred in the early 1960s. Appellant produced no evidence that appellees songwriters visited any of the places of performance during the relevant time period. Although one of the writers, Billy Davis, was in charge of developing repertoire materials for the Chess Record Company between 1961 and 1969, appellant never sent a copy of his song to Davis employer. There is no evidence that any other record company receiving a copy of appellants song forwarded it to Chess Records. Thus, appellant has not established a reasonable possibility that appellees writers had access. See Selle v. Gibb, 741 F.2d 896 (7th Cir. 1984).2 Furthermore, the testimony of appellees songwriters is consistent on the issue of independent creation. In describing their efforts 14 years after the fact, the writers agreed that they spent several days in a London studio in 1971, informally trading ideas for melody and lyrics, ultimately producing appellees song. The fact that one of the writers, Roger Cook, claimed authorship of the basic melody line does not contradict [that]. . [Cook] stated only that in 1969 he wrote six or eight bars that were used as the starting point for the 1971 session. He agreed with Davis that each had contributed something to both the melody and lyrics, and that the song was created in London in 1971. This testimony constitutes uncontradicted evidence of independent creation, fully negating any claim of infringement. Notes 1. See note 2 in Benson. What else supports ABKCOs opposite outcome with regard to infringement?
2

Appellant cannot escape the access requirement by arguing striking similarity of the songs in issue. Such similarity obviates a showing of access only where the similarity is so great it precludes the possibility of coincidence, independent creation or common source. See Selle. Appellants music expert testified only that the works were so similar the average listener would believe them the same. This opinion does not address the crucial element of striking similarity: that the only possible explanation is copying. An opinion establishing striking similarity should address the uniqueness or complexity of the protected work as it bears on the likelihood of copying. This is particularly important with respect to popular music, in which all songs are relatively short and tend to build on or repeat a basic theme. 741 F.2d 905.

6.18

Proof of Infringement

2. What does plagiarism mean as used in ABKCO? Reconsider 102(b). Why is the offense framed differently in academic settings? 3. How can jurors determine whether two songs of an unfamiliar type are substantially similar? What if some jurors are familiar with the specific kind of work in issue and others are not? Those questions are briefly addressed in the following case.

Kisch v. Ammirati & Puris Inc.

U.S. District Court, S.D. New York 657 F. Supp. 380 (1987)

Leisure, District Judge: [Kisch and Ogden (for the Ammirati advertising agency) both took photographs in the same corner of a Manhattan nightclub. Defendants sought summary judgement on a claim for copyright infringement, arguing lack of substantial similarity as a matter of law.] I. Copyright Infringement The legal principles governing defendants motion are well-settled although their application to a situation involving two photographs with some of the same visual elements is atypical. [A] court may determine non-infringement as a matter of law on a motion for summary judgment, either because the similarity between two works concerns only noncopyrightable elements of the plaintiffs work, or because no reasonable jury, properly instructed, could find that the two works are substantially similar. Warner Bros. Inc. v. American Broadcasting Cos., Inc., 720 F.2d 231, 240 (2d Cir. 1983). A. Copyrightable Elements When copyright infringement is alleged, the analysis must first be to determine exactly what the copyright covers, and then to see if there has been an infringement thereof. Axelbank v. Rony, 277 F.2d 314, 317 (9th Cir. 1960). [T]hat the same subject matter may be present in two paintings does not prove copying or infringement. Franklin Mint Corp. v. National Wildlife Art Exchange, Inc., 575 F.2d 62, 65 (3d Cir.). As Justice Holmes stated: Others are free to copy the original [subject matter]. They are not free to copy the copy. Id. Therefore, in cases involving photographs, a [p]laintiffs copyrights cannot monopolize the various poses used, and can protect only [p]laintiffs particular photographic expression of these poses and not the underlying ideas therefor. International Biotical Corp. v. Associated Mills, Inc., 239 F. Supp. 511, 514 (N.D.Ill. 1964). The copyrightable elements of a photograph have been described as the photographers original conception of his subject, not the subject itself. Pagano v. Charles Beseler Co., 234 F. 963, 964 (S.D.N.Y. 1916). See also Gross v. Seligman, 212 F. 930, 931 (2d Cir. 1914). In particular, the copyrightable elements include such features as the photographers selection of lighting, shading, positioning and timing. Pagano, 234 F. at 964. B. Substantial Similarity To prove infringement, a plaintiff holding a valid copyright must show that his [work] was copied, by proving access and substantial similarity between the works, and also show that his expression was improperly appropriated, by proving that the similarities relate to copyrightable material. [Walker v. Time Life Films, Inc., 784 F.2d 44, 48 (2d Cir. 1986)]. The Court of Appeals for the Second Circuit thus follows a two-part test for similarity under the rule of Arnstein v. Porter, 154 F.2d 464, 468 (2d Cir. 1946). The Arnstein test draws a distinction between noninfringing copying,on the one hand, which may be inferred from

Copyright Ownership and Enforcement

6.19

substantial similarities between the two works, and infringing illicit copying, on the other, which demands that such similarities relate to protectible material. Walker, 784 F.2d at 48. Under Arnstein, the trier of the facts must determine whether the similarities are sufficient to prove copying. On this issue, analysis (dissection) is relevant, and the testimony of experts may be received.. If copying is established, then only does there arise the second issue, that of illicit copying (unlawful appropriation). On that issue.. the test is the response of the ordinary lay [observer]; accordingly, on that issue, dissection and expert testimony are irrelevant. Id. The ordinary observer or lay audience test inquires whether an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work. American Greetings Corp. v. Easter Unlimited, Inc., 579 F. Supp. 607, 614 (S.D.N.Y. 1983). In a case involving copyrighted designs, Judge Learned Hand framed the question as whether the ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them, and regard their aesthetic appeal as the same. Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960). Courts have noted the difficulties involved in application of the foregoing principles. Troublesome, too, is the fact that the same general principles are applied in claims involving plays, novels, sculpture, maps, directories of information, musical compositions, as well as artistic paintings. Isolating the idea from the expression and determining the extent [of] copying required for unlawful appropriation necessarily depend to some degree on whether the subject matter is words or symbols written on paper, or paint brushed onto canvas. A recurring paradox involves the attention that courts give both to similarities and differences in the disputed works. . C. Defendants Motion Although the issue of substantial similarity is clearly a factual one, after comparing the works at issue, a court may properly grant summary judgment for defendants on the ground that as a matter of law a trier of fact would not be permitted to find substantial similarity. Durham Industries, Inc. v. Tomy Corp., 630 F.2d 905, 918 (2d Cir. 1980). In other words, the lack of substantial similarity between the protectible aspects of the works [must be] so clear as to fall outside the range of disputed fact questions requiring resolution at trial. Walker, 784 F.2d at 48 (emphasis added). In a courts comparison, the works themselves supersede and control any contrary allegations of the parties. Decorative Aides Corp. v. Staple Sewing Aides Corp., 497 F. Supp. 154, 157 (S.D. N.Y. 1980). Professor Nimmer was of the opinion that . Such motions should be granted only if the court finds that assuming copying, any similarity between the works is insubstantial. 3 Nimmer 12.10 at 12-71 to 72. The court has found no precedent substantively and procedurally on all fours. It has been recognized, however, that where a photographer in choosing subject matter, camera angle, lighting, etc., copies and attempts to duplicate all of such elements as contained in a prior photograph, then even though the second photographer is photographing a live subject rather than the first photograph [s]uch an act would constitute an infringement of the first photograph. 1 Nimmer 2.08[E][1] at 2-112. An old case in the Second Circuit applied this rule where the court discerned many close identities of pose, light, and shade, etc. even though it acknowledged that the eye of an artist or a connoisseur will, no doubt, find differences between the two photographs. Seligman, 212 F. at 931. On the other hand, if the elements of an earlier photograph are by chance duplicated subsequently by another photographer, the new photograph will not be held to infringe the earlier one. Id.

6.20

Proof of Infringement

Turning to a comparison of the two photographs involved in this case, there are differences between the works, to be sure. For example, plaintiffs photograph is in black and white while defendants is in color. Plaintiffs photograph is of an unidentified woman while defendants is of musician John Lurie. The woman in plaintiffs photograph is holding a concertina while John Lurie is holding a saxophone. A bottle of lime juice and a portion of a table appear only in defendants photograph. There are also many similarities. Most noticeably, the two photographs were taken in the same small corner of the Village Vanguard nightclub. The same striking mural appears as the background for each photograph. Both John Lurie and the woman in plaintiffs photograph are seated and holding a musical instrument. In addition, the lighting, camera angle, and camera position appear to be similar in each photograph. The court concludes that a rational trier of fact could find sufficient similarities to prove copying. A closer question is posed with respect to the issue of illicit copying (unlawful appropriation) under the ordinary observer test. See id. Still, the court is unable to conclude that a rational trier of fact would not be permitted to find substantial similarity relating to protectible material. See Walker, 784 F.2d st 48. Significantly, a rational trier of fact would be permitted to find that the underlying tone or mood of defendants photograph was similar to the original conception expressed in plaintiffs work. Accordingly, defendants motion to dismiss plaintiffs claim for copyright infringement is denied. II. Plaintiffs Other Claims Defendants have also moved to dismiss plaintiffs claim under 43(a) of the Lanham Trade-Mark Act. . In view of the courts conclusions with respect to plaintiffs copyright claim, defendants motion to dismiss plaintiffs action under 43(a) of the Lanham Act is denied. Finally, defendants have argued that plaintiffs claims of unfair competition and misappropriation are preempted by 17 U.S.C. 301. [Plaintiffs claim] is preempted by the federal copyright laws to the extent it seeks protection against copying of plaintiffs work. However, to the extent that plaintiff relies on state unfair competition law to allege a tort of passing off, plaintiff is not asserting rights equivalent to those protected by copyright and therefore does not encounter preemption. Defendants have not argued that plaintiffs state law claims fail on the merits, and the court does not address this issue. Notes 1. The court in Kisch did not find the two photographs substantially similar. What did it find, and what are the procedural implications? 2. How does Kisch reconcile the tension between its holding and Justice Holmes quoted observation in Bleistein? 3. Absent permission, do both parties infringe copyright in the striking mural? If so, is that relevant? When, if ever, should third-party ownership of a work affect a dispute between strangers over copyright in derivatives? See Belcher v. Tarbox in Chapter 7, and Mulcahey v. Cheetah Learning LLC, 386 F.3d 849, 852-53 (8th Cir. 2004) (suggesting that plaintiff might have no rights in an unauthorized derivative of a third-partys work). How does 103 bear on the question? 4. In a related vein, consider the consequences if the photographs in question had been taken by the same freelance photographer. Might such a dispute be more productively viewed in terms of contract than copyright law?

Copyright Ownership and Enforcement

6.21

C. Further Consideration of Sanctions U.S. Court of Appeals, Second Circuit 71 F.3d 464 (1995) Before Miner, Mahoney and Jose A. Cabranes. Cabranes, Circuit Judge: [Animal Wisdom Enterprises, Inc. (AWE) and its president and principal stockholder, Michael Wein,1 appeal from a grant of Liptons motion for summary judgment on copyright and Lanham Act claims, as well as a finding that they were willful infringers. Lipton was awarded enhanced statutory damages of $100,000, costs and attorneys fees. Also, AWE and Wein were permanently enjoined from further infringement.] I. Background At issue in this case is a compilation of terms of venery2 collective terms for identifying certain animal groups gathered and published by Lipton in An Exaltation of Larks. The first edition of the book was published in 1968; Lipton holds a valid copyright to three versions of the book. Liptons complaint alleged that the defendants created various posters and other products that infringed the copyright [in] his book and unfairly competed with Lipton, in violation of 43(a) of the Lanham Trademark Act. Lipton compiled his terms of venery through research of various fifteenth-century texts and manuscripts. According to Lipton, he translated the terms from Middle English to modern English and arranged them based on their lyrical and poetic potential. The first and second editions of the book, which include scattered illustrations and explanatory text, were a considerable success and have sold over 150,000 copies to date. In 1990, in an attempt to further capitalize on the success of his book, Lipton sought to license his compilation for use on various products. In the course of doing so, he discovered that Nature had already licensed the rights to a virtually identical compilation from the defendant, Wein. In 1988, Wein, doing business as Animal Wisdom, filed for copyright registration of a compilation of animal terms, representing that the work was original to him. Wein manufactured and sold posters (the Wein posters) of the compilation to various zoos, libraries, and other entities. In 1988, he approached Nature, a retailer. Between 1989 and 1990, Nature and Wein entered into a series of licensing agreements by which Nature acquired the right to use Weins compilation of animal terms on a series of posters, T-shirts, and other products as the Multitudes products. Nature sold these products both in its stores and through its catalogs. The catalog copy accompanying the Multitudes poster stated, Michael Wein has surveyed the English language back to its earliest roots to compile a list of the most remarkable names of animal multitudes ever assembled. The Multitudes poster, as well as a note cube marketed by Nature, included copyright notices in the names of Wein and Nature. . Upon learning of Natures and Weins actions, Lipton sent a letter demanding that they stop and requesting compensation. When they refused, Lipton brought the present suit. Wein claims that the terms used were copied from a scarf that he received in the late 1960s. According to Wein, this scarf, which listed 73 animal terms was an unsolicited promotional item. This scarf was marked as an exhibit during Weins deposition and was available to the district court. .
1 2

Lipton v. The Nature Company

Lipton has since settled his claims against Nature, which is not a party to this appeal. The phrase terms of venery is Liptons. . Examples of such terms include a pride of lions, a rafter of turkeys, a gaggle of geese, a shrewdness of apes, a murder of crows .

6.22

Further Consideration of Sanctions

Weins testimony about the scarf is contradicted by the fact that, prior to the filing of Liptons complaint, he represented that he had compiled the list himself. However, since the filing of this action, Wein has consistently stated that the scarf was the source of the compilation. Wein contends that after approaching Nature in the summer of 1988, he consulted another source, but only used the Train book to check the accuracy of the terms in the compilation that he had given to Nature. Wein claims that it was not until several years later that he conducted further research and incorporated additional terms. We review a district courts grant of summary judgment de novo to determine whether there is a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. . B. The Copyright Claim A successful claim of copyright infringement requires proof that (1) the plaintiff had a valid copyright in the work allegedly infringed and (2) the defendant infringed the plaintiffs copyright by copying protected elements of the plaintiffs work. . Wein and AWE challenge the district courts holding that they engaged in copyright infringement and that their asserted infringement was willful. 1. Protectibility It is undisputed that Lipton has a valid copyright in the first and second editions of his book. The defendants argue that while Liptons book itself is protected, the mere compilation of the collective nouns without the accompanying artwork and explanatory text is not protectible because the terms are facts, and not the original work of Lipton. Although facts are considered to be in the public domain, a compilation of facts may be protectible in certain instances.4 . The court held that the compilation of terms in Liptons book was protectible: [Lipton] used his knowledge and familiarity with the culture of Middle English, as well as his own creativity, in selecting the terms. Liptons arrangement was original; he did not follow any sort of alphabetical, chronological, or other system. The defendants dispute this finding, arguing that Liptons selection and arrangement do not demonstrate the requisite originality. The amount of creativity required for copyright protection of a compilation is decidedly small. . Although the defendants correctly assert that the terms themselves are not original, the uncontradicted evidence is that Liptons selection and arrangement of the terms were original. . They were selected from numerous variations of hundreds of available terms. Furthermore, the defendants offer nothing to contradict Liptons assertion that he selected the terms based on [his] subjective, informed and creative judgment. . The district court correctly found Liptons compilation to be protectible. 2. Infringement The second prong of a successful copyright action requires proof that the defendant copied protected elements of the plaintiffs work. Since direct evidence of copying is seldom available, [c]opying may be inferred where a plaintiff establishes that the defendant had access to the copyrighted work and that substantial similarities exist as to protectible material in the two works. Walker v. Time Life Films, Inc., 784 F.2d 44, 48. In the alternative, [i]f the two works are so strikingly similar as to preclude the possibility of independent creation, copying may be proved without a showing of access. Ferguson v. NBC, Inc., 584 F.2d 111, 113 (5th Cir. 1978); Gaste v. Kaiserman, 863 F.2d 1061, 106768 (2d Cir. 1988).
4

A compilation is defined by 17 U.S.C. 101 as a work formed by the collection and assembling of pre-existing materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.

Copyright Ownership and Enforcement

6.23

The court found Wein and AWE liable for copyright infringement as a matter of law based on the overwhelming similarity of Weins product to Liptons work. In so doing, the court rejected Weins explanation as contradictory and inherently incredible. While it is true that Wein initially gave Nature and Liptons attorney a different explanation for the origin of his list of terms, since the inception of the suit, Wein has consistently maintained that he copied the terms directly from the scarf. This is corroborated by the deposition testimony of his art director, Michael English, and the fact that Wein produced the scarf during discovery. For the purposes of a summary judgment motion, courts are required to view the facts in the light most favorable to the parties opposing. Thus, Weins prelitigation statements about the origin of his list did not permit the court to disregard his explanation. Weins copying of the scarf is in any event no defense. As a matter of law, innocent infringement, or copying from a third source wrongfully copied from the plaintiff, without knowledge that the third source was infringing, does not absolve a defendant of liability. If Wein and AWE did copy the list of terms from the scarf, that defense is unavailing if the scarf itself was an unauthorized copy of Liptons protected compilation. The inquiry then becomes whether the scarf itself was infringing. A comparison between the selection and arrangement of terms in Liptons book and the selection and arrangement of those on the scarf leads us to conclude that the two are strikingly similar. Accordingly, we find that scarf infringed. First, the scarf includes essentially the same selection of animal-related terms as Liptons book. . Out of the 77 different animal terms of venery that appear in the first edition of An Exaltation of Larks, 72 of them are listed on the scarf. Indeed, the scarf includes only one animal term covey of quail that does not appear in the Lipton compilation. Furthermore, the scarf contains at least six translation errors that existed in Liptons first two editions. Although some of those errors do exist in other sources, they further support our conclusion that the scarf could not have selected the same terms independent of Liptons book. See Eckes v. Card Prices Update, 736 F.2d 859, 863 (2d Cir. 1984) ([C]ourts have regarded the existence of common errors in two similar works as the strongest evidence of piracy.). Second, the arrangement of terms is also so strikingly similar to the arrangement in Liptons book as to preclude an inference of independent creation. Of the first twenty-five terms on the scarf, twenty-four are listed in Liptons book, and all but four in the same order. In fact, the thirteenth through the twenty-fifth terms on the scarf are listed in precisely the same order. In at least four other places on the scarf a string of four or more terms appears in the same order as in Liptons book. In light of the millions upon millions of possible arrangements,6 the scarfs close mimicking leads inevitably to a finding of improper copying. Wein fully acknowledged that he copied the scarf. We therefore affirm the district courts order of summary judgment to Lipton on its copyright claim. 3. Willfulness . When an owner establishes that the defendants infringement was willful, the statute permits the court, at its discretion, to increase its award of damages to a maximum of $100,000. We have previously held that a defendants copyright infringement will be found willful pursuant to 504(c)(2) where the defendant had knowledge that its conduct constituted infringement or showed reckless disregard for the copyright holders rights. On Liptons motion for summary judgment, the court found Wein and AWE to be willful infringers, basing its determination on the fact that Wein continually changed his
6

Taking the 72 terms that appear both on the scarf and in Liptons book, the number of possible orderings would be 72 factorial (72*71*70 *3*2*1), or 6.12*10103.

6.24

Further Consideration of Sanctions

story as to the origin of his terms such that any good faith protestations on his part are inherently incredible. . Wein disputes the assertion that he willfully copied from An Exaltation of Larks, arguing that he innocently copied from the scarf what he believed to be an unprotectable compilation. Determinations of credibility are within the province of the jury and may not be resolved on summary judgment. . We remand for trial on the question of Weins willfulness or reckless disregard of Liptons copyright. C. Unfair Competition Claims under the Lanham Act .To establish a false advertising claim pursuant to 43(a) the plaintiff must demonstrate that the message in the challenged advertisement is false. . Lipton has offered nothing to contradict Weins assertion that he conducted independent research at the New York Public Library. Weins general assertion that the research he conducted was thorough[ ] is mere puffing and therefore, not actionable. Subjective claims about products, which cannot be proven either true or false, are not actionable under the Lanham Act. Thus, we reverse the district courts summary judgment on Liptons Lanham Act claims. D. The Injunction [W]e find the district courts injunction to be excessively broad. In the instant case, it is the compilation i.e., the selection and arrangement of the terms that is protectible. Thus, the district court erred in enjoining Wein from producing and marketing a line of six different T-shirts and mugs, each displaying a different animal term of venery. By so holding, however, we do not foreclose the possibility that an injunction might be appropriate to prohibit Wein from producing or marketing a more extensive line of products. Accordingly, we remand with instructions to amend the injunction. . Notes 1. Lanham Act 43(a) will be further considered in later chapters. It warrants attention for its capacity to halt competitors otherwise unreachable false advertising. 2. What risk does Lipton imply for anyone who copies materials distributed without apparent restriction or even with encouragement by those who claim to be authors? 3. Regarding the courts quotation from Eckes, recall the fictitious listings in Feist and the reason that evidence of copying was basically irrelevant. To put it differently, must Wein do independent research to verify the facts compiled by Lipton? 4. Would it be appropriate to enjoin the sale of items featuring individual terms of venery using Liptons translations? That aside, how are Weins options limited for publishing a catalog? 5. Under 504(c)(2), the burden of proof shifts if copying is alleged to be willful, on one hand, or innocent, on the other. Will Lipton or Wein bear the burden on remand? 6. Feltner v. Columbia Pictures Television, 523 U.S. 340 (1998), upset a judges 504(c) award of $8.8 million because (despite Congressional intent) Feltner was entitled to a jury determination. Unfortunately, on remand a jury awarded plaintiff over three and a half times as much. See Columbia Pictures Television, Inc. v. Krypton Broadcasting of Birmingham, Inc., 259 F.3d 1186 (9th Cir. 2001). 7. Yet Sony BMG Music Entertainment v. Tenenbaum, 2010 WL 2705499 at *25 (D.Mass. 2010), upsets a large jury award as bear[ing] no rational relationship to the government's interests in compensating copyright owners and deterring infringement.

Copyright Ownership and Enforcement

6.25

U.S. District Court, D. Massachusetts 871 F. Supp. 535 (1994) Stearns, District Judge: . The facts, as seen in the light most favorable to the government, are these. The defendant, David LaMacchia, is a twenty-one year old student at the Massachusetts Institute of Technology. . Using pseudonyms and an encrypted address, LaMacchia set up an electronic bulletin board. He encouraged his correspondents to upload popular software applications and computer games. These he transferred to a second encrypted address where they could be downloaded by other users with access to the password. Although LaMacchia was at pains to impress the need for circumspection the offer of free software attracted the notice of university and federal authorities. On Apr. 7, 1994, a federal grand jury returned a one count indictment charging LaMacchia with conspiring with persons unknown to violate the wire fraud statute. . The indictment alleges that LaMacchias scheme caused losses of more than one million dollars to software copyright holders. The indictment does not allege that LaMacchia sought or derived any personal benefit from the scheme to defraud. On Sept. 30, the defendant brought a motion to dismiss, arguing that the government had improperly resorted to the wire fraud statute as a copyright enforcement tool in defiance of the Supreme Courts decision in Dowling v. United States, 473 U.S. 207 (1985). The government argues that Dowling is a narrower case than LaMacchia would have it. The Dowling Decision Paul Edmond Dowling was convicted of conspiracy, interstate transportation of stolen property [ITSP], copyright violations and mail fraud. Dowling and his co-conspirators sold bootleg Elvis Presley recordings by soliciting catalogue orders from post office boxes in Glendale, California. The infringing recordings were shipped in interstate commerce. The eight ITSP counts on which Dowling was convicted involved thousands of phonograph albums. [E]ach album contained performances of copyrighted musical compositions for the use of which no licenses had been obtained nor royalties paid. Dowling, supra at 212. Dowling appealed his convictions (except those involving copyright infringement). The Ninth Circuit Court of Appeals affirmed. . The Supreme Court granted certiorari only as to Dowlings convictions for interstate transportation of stolen property. The Court held that a copyrighted musical composition impressed on a bootleg phonograph record is not property that is stolen, converted, or taken by fraud within the meaning of the Stolen Property Act. Justice Blackmun emphasized that cases prosecuted under 18 U.S.C. 2314 had traditionally involved physical goods, wares [or] merchandise.. In Dowlings case there was no evidence that Dowling wrongfully came by the phonorecords actually shipped or the physical materials from which they were made. Dowling, supra at 214. . A copyright, as Justice Blackmun explained, is unlike an ordinary chattel because the holder does not acquire exclusive dominion over the thing owned. . Justice Blackmun offered the fair use doctrine and the statutory scheme of compulsory licensing of musical compositions (17 U.S.C. 115) as examples of ways in which the property rights of a copyright holder are circumscribed by the Copyright Act.3 . A review of the evolution of criminal penalties in the Copyright Act led Justice Blackmun to observe that:
3

United States v. LaMacchia

Another example is the finite duration of a copyright. See 17 U.S.C. 302.

6.26

Further Consideration of Sanctions

[T]he history of the criminal infringement provisions of the Copyright Act reveals a good deal of care. In stark contrast, the Governments theory of this case presupposes a congressional decision to bring the felony provisions of 2314, which make available the comparatively light fine of not more than $10,000 but the relatively harsh term of imprisonment of up to 10 years, to bear on the distribution of a sufficient quantity of any infringing goods simply because of the presence here of a factor interstate transportation not otherwise thought relevant to copyright law. The Government thereby presumes congressional adoption of an indirect but blunderbuss solution to a problem treated with precision when considered directly. Id. at 22526. Finally, noting that the governments expansive reading of the Stolen Property Act would have the unsettling effect of criminalizing a broad range of conduct involving copyright and other intellectual property that had been historically regulated by the civil laws, Justice Blackmun concluded that the language of 2314 does not plainly and unmistakably cover petitioner Dowlings conduct. Id. at 228. . The Copyright Law . Since 1897, when criminal copyright infringement was first introduced into U.S. copyright law, the concept differentiating criminal from civil copyright violations has been that the infringement must be pursued for purposes of commercial exploitation. Until 1909, [t]he crime of copyright infringement was limited to unlawful performances and representation of copyrighted dramatic and musical compositions. Saunders, Criminal Copyright Infringement and the Copyright Felony Act, 71 Denv. U.L. Rev. 671, 673 (1994). The 1897 Act defined the mens rea of criminal copyright infringement as conduct that is willful and undertaken for profit, a definition that remained unaltered until the general revision of the Copyright Act in 1976. [W]hen the growth of the recording industry brought the problem of unauthorized reproduction and sale of musical works to Congress attention[, it] passed the Sound Recording Act of 1971. In 1976, Congress revamped the Copyright Act by eliminating the crime of aiding and abetting copyright infringement. It also eased the mens rea requirement for criminal copyright infringement by eliminating the burden of proving that an infringer acted for profit, requiring instead only that the infringement be conducted willfully and for purposes of commercial advantage or private financial gain. 506(a). Criminal infringement under the 1976 Act was a misdemeanor except in the case of repeat offenders. Congress increased the penalties for criminal infringement in 1982. .5 The mens rea element, however, remained unchanged. Most criminal infringements remained misdemeanor offenses. . In 1992, the Software Publishers Association reported that software manufacturers were losing $2.4 billion in revenues annually as a result of software piracy. Rather than adopting a piecemeal approach to copyright legislation and simply adding computer programs to the list of works whose infringement can give rise to felony penalties, Congress passed the Copyright Felony Act. Saunders, supra, at 680. The Act amended 2319 by extending its felony provisions to the criminal infringement of all copyrighted works including computer software.7 The mens rea for criminal infringement remained unchanged.8
5

While the offense of criminal copyright infringement remained defined by 506(a), the penalties were moved to a new freestanding statute, 18 U.S.C. 2319. 7 The Report that accompanied the Senate version of the bill declared that [t]he only defense against [software] piracy is the copyright law. S. Rep. No. 268, 102d Cong., 2d Sess. (1992) (emphasis added).

Copyright Ownership and Enforcement

6.27

Discussion The wire fraud statute, 18 U.S.C. 1343 was enacted in 1952. In its entirety, [it reads]: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. . As the legislative history makes clear, the wire fraud statute was intended to complement the mail fraud statute by giving federal prosecutors jurisdiction over frauds involving the use of interstate (or foreign) wire transmission.9 Thus what can be prosecuted as a scheme to defraud under the mail fraud statute is equally susceptible to punishment under 1343 so long as the jurisdictional element is met. The concomitancy of the two statutes underlies the governments argument that significance should be read into the fact that the limited grant of certiorari in Dowling left Dowlings convictions for mail fraud undisturbed. . Dowling brought himself within the orbit of the mail fraud statute by mailing catalogues. So, too, the government argues, LaMacchia subjected himself to the wire fraud statute by advertising infringing software via computer transmissions. The government in Dowling (as here) did not argue any more than jurisdictional significance for Dowlings mailings. They did, however, serve as an obvious means of furthering Dowlings scheme to defraud. The Ninth Circuit nonetheless focused on the fact that Dowling had concealed his activities from the copyright holders with the intent to deprive them of their royalties. . In Dowlings case, the duty located by the Ninth Circuit was the duty implicit in the compulsory licensing scheme, 17 U.S.C. 115, which requires vendors to notify copyright owners of the intention to manufacture and distribute infringing records. [W]e stress that the narrowness of our holding permits nondisclosures to form the basis of a scheme to defraud only when an independent duty has been breached. To hold otherwise that illegal conduct alone may constitute the basis of the fraud element of a mail fraud conviction would have the potential of bringing almost any illegal act within the province of the mail fraud statute. 739 F.2d at 1450. The difficulties in applying the Ninth Circuits Dowling analysis to support a wire fraud prosecution in LaMacchias case are three. First, no fiduciary relationship existed between LaMacchia and the manufacturers whose software copyrights he allegedly infringed. Second, there is no independent statutory duty of disclosure like the one that snared Dowling
8

As Senator Hatch, the Senate sponsor of the Act noted, the copying must be undertaken to make money, and even incidental financial benefits that might accrue as a result of the copying should not contravene the law where the achievement of those benefits [was] not the motivation behind the copying. 138 Cong. Rec. S. 1795817959 (Oct. 8, 1992). 9 The interstate limitation was inserted into the statute both out of jurisdictional concerns and to avoid intrusion on the police power of the States. H.R. Rep. No. 388, supra, at 3. The police power of the States, of course, does not extend to the regulation of copyright, leading one to doubt, as defendant points out, that the statute was enacted to supplement state efforts to police copyright infringement.

6.28

Further Consideration of Sanctions

because there is no software equivalent to the compulsory licensing scheme. Third, even were I to accept the argument made by the government in Dowling, that illegal conduct alone may suffice to satisfy the fraud element of [ 1343], the holding would not cover LaMacchias case for the simple reason that what LaMacchia is alleged to have done is not criminal conduct under 506(a) of the Copyright Act. The governments second and more plausible argument relies on the unobjectionable proposition that [the] enactment of particularized federal interest statutes does not oust a more general interstate commerce statute from application. .13 The government also points to 18 U.S.C. 2319(a), which provides that [w]hoever violates section 506(a) shall be punished and such penalties shall be in addition to any other provisions of title 17 or any other law. The government emphasizes the last four words of the statute without apparently noticing the first four. LaMacchia is not alleged to have violated 506(a). . The issue thus is whether the bundle of rights conferred by copyright is unique and distinguishable from the indisputably broad range of property interests protected by the mail and wire fraud statutes. I find it difficult, if not impossible, to read Dowling as saying anything but that it is.14 A copyright, like other intellectual property, comprises a series of carefully defined and carefully delimited interests to which the law affords correspondingly exact protections. If, as the government contends, Dowling stands for nothing more than the proposition that one cannot equate copyright infringement with a physical taking for purposes of the Stolen Property Act, it is difficult to explain why Justice Blackmun devoted the bulk of his opinion to the issue of whether the history and purpose of 2314 evince a plain congressional intention to reach interstate shipments of goods infringing copyrights. . Finally, why would not the governments position here produce the same pernicious result that Justice Blackmun warned of in Dowling, of permitting the government to subvert the carefully calculated penalties of the Copyright Act by selectively bringing some prosecutions under the more generous penalties of the mail and wire fraud statutes?17 What the government is seeking to do is to punish conduct that reasonable people might agree deserves the sanctions of the criminal law. But as Justice Blackmun observed in Dowling, copyright is an area in which Congress has chosen to tread cautiously, relying chiefly on an array of civil remedies to provide copyright holders protection against infringement, while mandating studiously graded penalties in those instances where Congress has concluded that the deterrent effect of criminal sanctions are required. Dowling, supra at 221, 225. . While the governments objective is a laudable one, particularly when the facts alleged in this case are considered, its interpretation of the wire fraud statute would serve to criminalize the conduct of not only persons like LaMacchia, but also the myriad of home computer users who succumb to the temptation to copy even a single software program for private use. It is not clear that making criminals of a large number of consumers of computer software is a result that even the software industry would consider desirable.18
13

The suggestion that the felony provisions of the wire fraud statute were enacted with the punishment of copyright infringement in mind is somewhat difficult to accept when one remembers that in 1952 the Copyright Act authorized only misdemeanor prosecutions, a circumstance that continued until 1982. Equally difficult to accept is the idea that Congress has in some fashion acquiesced by silence to the utilization of mail and wire fraud as copyright enforcement tools. . 14 The government strenuously disagrees with me on this point. However, even the dissenters in Dowling (Justice Powell and White) saw the issue framed by the majority no differently than I do. . 17 For example, a first offender who reproduces fewer than ten copies of a computer software program in a one hundred and eighty day period is subject to a maximum punishment of one year imprisonment. 18 U.S.C. 2314(b)(3). The same prosecution under the wire fraud statute would entail a maximum prison sentence of five years. As defendant also notes, use of the wire fraud statute to punish criminal copyright infringement would override the shorter three year statute of limitations of the Copyright Act.

Copyright Ownership and Enforcement

6.29

In sum, I agree with Professor Nimmer that: The Dowling decision establishes that Congress has finely calibrated the reach of criminal liability, and therefore absent clear indication of Congressional intent, the criminal laws of the United States do not reach copyright-related conduct. Thus copyright prosecutions should be limited to 506 of the Act, and other incidental statutes that explicitly refer to copyright and copyrighted works. 3 Nimmer on Copyright, 15.05 at 1520 (1993). . Accordingly, I rule that [Dowling ] precludes LaMacchias prosecution for criminal copyright infringement under the wire fraud statute.19 This is not, of course, to suggest that there is anything edifying about what LaMacchia is alleged to have done. If the indictment is to be believed, one might at best describe his actions as heedlessly irresponsible, and at worst as nihilistic, self-indulgent, and lacking in any fundamental sense of values. Criminal as well as civil penalties should probably attach to willful, multiple infringements of copyrighted software even absent a commercial motive on the part of the infringer. One can envision ways that the copyright law could be modified to permit such prosecution. But, [i]t is the legislature, not the Court which is to define a crime, and ordain its punishment. Dowling, supra at 214. . Notes 1. Why and how did Justice Blackmun distinguish copyright as intangible property from tangible personal property? Would LaMacchia have faced greater risk of criminal liability had he distributed CDs containing the purloined software? 2. After LaMacchia, the No Electronic Theft Act, Pub. L. No. 105147 (1997), amended 506(a). The implications should be reconsidered in subsequent cases where infringement is at least arguably willful. 3. Why does registration under 411(a) have no bearing on federal authorities ability to pursue criminal sanctions? 4. Criminal sanctions for trade secret misappropriation and trademark counterfeiting are considered later. Patent rights are not enforced with criminal provisions. What might account for the differences? 5. With regard to losses caused by unauthorized copying, see U.S. v. Dove, 585 F. Supp.2d 865, 872 (W.D. Va. 2008), [A]lthough it is true that someone who copies a digital version of a sound recording has little incentive to purchase the recording through legitimate means, it does not necessarily follow that the downloader would have made a legitimate purchase if the recording had not been available for free.
18

In 1992, in hearings before the House, the Vice-President and General Counsel of the Computer & Communications Industry Association testified as follows: There are millions of people with personal computers to make copies. That is exactly one of the reasons I think you want to be very careful. You do not want to be accidentally taking a large percentage of the American people, either small business or citizens into the gray area of criminal law. Hearing on S. 893 (Aug. 12, 1992) at 65. 19 The issue presented in this case is one of infringement only. Infringement is a technical concept describing interference with the statutorily defined rights of a copyright holder. A scheme or artifice to defraud, the object of which was to fraudulently obtain possession of the copyright itself would, I believe, be clearly punishable under the mail and wire fraud statutes. See Dowling, supra at 217 [The infringer] does not assume physical control over the copyright; nor does he wholly deprive the owner of its use.

6.30

Further Consideration of Sanctions

National Football League v. White

U.S. District Court, W.D. New York 45 U.S.P.Q.2d 1063 (1997)

Elfvin, Chief Judge: The plaintiffs [alleged] that defendant White had violated their rights under the Copyright Act and the Federal Communications Act of 1934 (the FCA). [T]his Court (1) granted the plaintiffs motion for a default judgment awarding them injunction and declaratory relief, (2) found that White had violated the plaintiffs rights by helping two commercial establishments receive and display for their customers a blacked-out football game, (3) enjoined White from engaging in such conduct in the future and (4) directed the plaintiffs to serve and file an application for statutory damages and attorneys fees. Presently before this Court is that application, which was timely served and filed. The Copyright Act gives the plaintiffs the option of seeking either (1) the actual damages plus the profits that White received or (2) statutory damages. The plaintiffs have elected to seek statutory damages. Under 17 U.S.C. 504(c)(1), this Court is authorized to award the plaintiffs statutory damages of not less than $500 or more than $20,000 per infringement, as this Court deems just. If the plaintiffs established that White willfully violated the Copyright Act, this Court may, in its discretion, award up to $100,000 per infringement. This Court has broad discretion in determining the amount of statutory damages that the plaintiffs should be awarded. In making that determination, this Court must be mindful of the dual purposes of the Copyright Act viz., compensating copyright owners and deterring would-be infringers. The FCA contains similar provisions granting this Court broad discretion to award the plaintiffs statutory damages of up to $100,000 per violation of the FCA. See 47 U.S.C. 605(e)(3)(C). Considering all of the circumstances presented by this case, this Court finds that a total award of $20,000 in statutory damages is appropriate. The plaintiffs also seek attorneys fees. Section 605(e)(3)(B)(iii) of Title 47 provides that [t]he court shall direct the recovery of full costs, including [an award of] reasonable attorneys fees to an aggrieved party who prevails.1 The plaintiffs have supported their request for fees with contemporaneous time records and an affidavit. This Court finds such amount eminently reasonable. Accordingly, it is hereby ordered that White shall pay the plaintiffs $20,000 in statutory damages plus $3,285 as reimbursement for attorneys fees. Notes 1. Regarding attorney fees under 17 U.S.C. 505, see also Gonzales v. Transfer Technologies, Inc., 301 F.3d 608, 610 (7th Cir. 2002) (The smaller the damages, provided there is a real, and especially a willful, infringement, the stronger the case for an award of attorneys fees.). 2. Section 505 permits recovery by prevailing parties; see Compaq Computer Corp. v. Ergonome, Inc., 196 F. Supp.2d 471 (S.D. Tx. 2002) (over $2.7 million awarded to defendant). How do 35 U.S.C. 285 and 15 U.S.C. 35(a) compare in that regard?
1

. Inasmuch as an award of attorneys fees is mandatory under the FCA, this Court need not consider whether a discretionary award of attorneys fees under [17 U.S.C. 505] would be appropriate.

Copyright Ownership and Enforcement

6.31

Derek Andrew, Inc. v. Poof Apparel Corp.

U.S. Court of Appeals, Ninth Circuit 528 F.3d 696 (2008)

Before: Graber and Rawlinson, Circuit Judges, and Wright.* Wright, District Judge: Poof appeals the district courts award to Andrew of $15,000 in statutory damages under the Copyright Act, along with $296,090.50 in attorneys fees. . . Of primary importance to this appeal is Andrews Twisted Heart clothing line a line of casual sportswear for women aged 14-70. Consumers can find this line at high-end department stores such as Nordstrom, Saks Fifth Avenue, and Neiman Marcus. The average price of Twisted Heart clothing is approximately $100. Andrews Twisted Heart line is identified by its label and, in particular, its hang-tag featuring its Heart Design and Twisted Heart trademarks.2 Developed and first used in 2003. [t]he tag, including its configuration and the artwork in the label, was registered with the U.S. Copyright Office on June 15, 2005. Poof sells womens clothing to retail stores and other customers throughout the United States. Most of its clothes are manufactured abroad and are shipped throughout the United States to lower-end retail stores such as T.J. Maxx, The Wet Seal, and Marshalls. Affixed to certain clothing sold by Poof are hang-tags nearly identical to Andrews, the only difference being the word Poof! in place of the words Twisted Heart. [T]he parties engaged in a letter-writing campaign, whereby Poof twice indicated its intent to comply with Andrews demands. Poof, however, failed to remove the garments. Andrew filed a complaint for copyright and trademark infringement, in addition to state law claims. [After Poof failed to respond, default judgment was entered and a later motion to set that judgment aside was refused.] . On the Lanham Act and Washington state law claims, Judge Donohue found that disgorgement of profits was the appropriate measure of damages and awarded Andrew $685,307.70. The court found that Poof distributed 189,108 garments containing the infringing hang-tag, representing a total gross revenue of $1,028,848.10. From this, the court deducted $343,540.40 in costs and disgorged Poof of its profits in the sum of $685,307.70. As to its copyright claim, Andrew was awarded $15,000 in statutory damages. Poof was also permanently enjoined from further infringing upon Andrews trademarks and because the trial court was of the opinion that this was an exceptional case Andrew was awarded attorneys fees in the amount of $296,090.50, and $6,678.60 in costs. Poof timely appealed. Discussion Under 17 U.S.C. 504(a) and (c), a copyright owner may elect to recover statutory damages instead of actual damages and any additional profits. Ordinarily, we review an award of statutory damages for abuse of discretion. In this case, it is undisputed that Andrews copyright in its Twisted Heart hang-tag was registered more than three months after its first publication, and Poofs infringement first occurred before the effective date of registration. . Until now, we have not expressly addressed the issue presented; namely, whether 412 bars an award of statutory damages for post-registration infringements when the initial act of
* 2

Otis D. Wright II, District Judge, Central District of California, sitting by designation. [Both Andrews Heart Design mark and its Twisted Heart are federally registered trademarks.]

6.32

Further Consideration of Sanctions

infringement occurred prior to the effective copyright registration date. Resolution of this issue necessarily depends upon our interpretation of the term commenced as it is used in 412. In that regard, we examine the text of 412 and consider the purposes behind its enactment. With respect to the text, we are guided by the courts that have interpreted 412 in similar factual contexts. . We also recognize that 412 is designed to implement two fundamental purposes. First, by denying an award of statutory damages and attorneys fees where infringement takes place before registration, Congress sought to provide copyright owners with an incentive to register their copyrights promptly. Second, 412 encourages potential infringers to check the Copyright Offices database. To allow statutory damages and attorneys fees where an infringing act occurs before registration and then reoccurs thereafter clearly would defeat the dual incentives of 412. . Andrew, having waited nearly two years from the date of first publication to register its copyright, should not receive the reward of statutory damages. . The mere fact that the hang-tag was attached to new garments made and distributed after June 15 does not transform those distributions into many separate and distinct infringements. Poof simply engaged in an ongoing series of infringements that commenced with the first distribution in May 2005. Therefore, Andrew is not entitled to statutory damages under the Copyright Act. [For the same reason,] Andrew is not entitled to its attorneys fees to the extent that they are based upon a violation of the Copyright Act. . Nevertheless, remand is proper because it is unclear whether the district courts award of fees may have included fees related to Andrews Copyright Act claim. . Note 1. The court offers two reasons for a particularly strict reading of 412, but it omits a third, building collections of the Library of Congress, of which the Copyright Office is a part. Section 408(b) requires that registration shall include, for example, deposit of one or more copies of the best edition of works. 2. Recovery of profits under 504(b) does not depend on prompt copyright registration, and indirect profits are recoverable under both the Lanham and Copyright Acts. The leading case regarding the latter is Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505 (9th Cir. 1985). But see Mackie v. Rieser, 296 F.3d 909, 914, 916 (9th Cir. 2002) (recovery requires proof of a causal link). Whether a causal link to copyright infringement could have been found in Derek Andrew is unclear. Andreas v. Volkswagen, Am., Inc., 336 F.3d 789, 797-98 (8th Cir. 2003), however, affirms sizeable jury awards for unauthorized use of a few words of plaintiffs text in a TV commercial. 3. Remedies for impermissible copying of structures protected under 102(a)(8) present especially difficult questions. For example, should unauthorized structures be destroyed as permitted by 503(b)? That was not sought in Christopher Phelps & Assoc., LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007), but plaintiff asked that Galloway be enjoined from selling or renting the infringing house. Aside from implying that the district court should order divestiture of any unauthorized drawings, the court upheld a refusal of other injunctive relief.

Chapter 7 Owners Rights and Copyright Defenses

A. Exclusive Rights U.S. Court of Appeals, Ninth Circuit 856 F.2d 1341 (1988) Before Brunetti, Kozinski and Thompson. Brunetti, Circuit Judge: [A.R.T. purchased copies of a book entitled, Nagel: The Art of Patrick Nagel. It then mounted individual pages on ceramic tiles and sold them. Suit was filed by the artists widow, Mirage Editions, which held some of the copyrights, and the publisher of the book. After being found to infringe, A.R.T. appealed.] Appellant contends that there has been no copyright infringement because (1) its tiles are not derivative works [as defined in 101], and (2) the first sale doctrine [as set forth in 109(a)] precludes a finding of infringement. . What appellant has clearly done here is to make another version of Nagels art works, and that amounts to preparation of a derivative work. By borrowing and mounting the preexisting, copyrighted individual art images without the consent of the copyright proprietors appellant has prepared a derivative work and infringed the subject copyrights. Appellants contention that it has not engaged in art reproduction is not fully dispositive of this issue. Appellant has ignored the disjunctive phrase or any other form in which a work may be recast, transformed or adapted. The legislative history of the Copyright Act indicates that Congress intended that for a violation of the right to prepare derivative works to occur the infringing work must incorporate a portion of the copyrighted work in some form. 1976 U.S. Code Cong. & Admin. News 5659, 5675. (emphasis added). The language recast, transformed or adapted seems to encompass other alternatives besides simple art reproduction. By removing the individual images from the book and placing them on the tiles, perhaps the appellant has not accomplished reproduction. We conclude, though, that appellant has certainly recast or transformed. In United States v. Wise, 550 F.2d 1180, 1187 (9th Cir. 1977), which concerned a criminal prosecution under the pre-1976 Copyright Act, this court held that: [T]he first sale doctrine provides that where a copyright owner parts with title to a particular copy of his copyrighted work, he divests himself of his exclusive right to vend that particular copy. While the proprietors other copyright rights (reprinting, copying, etc.) remain unimpaired, the exclusive right to vend the transferred copy rests with the vendee, who is not restricted by statute from further transfers of that copy. We recognize that, under the first sale doctrine as enunciated at 109(a) and as discussed in Wise, appellant can purchase a copy of the Nagel book and subsequently alienate its ownership in that book. However, the right to transfer applies only to the particular copy of the book which appellant has purchased and nothing else. The mere sale of the book to the appellant without a specific transfer by the copyright holder of its exclusive right to prepare derivative works, does not transfer that right to appellant. The derivative

Mirage Editions, Inc. v. Albuquerque A.R.T. Co.

7.2

Exclusive Rights

works right, remains unimpaired and with the copyright proprietors. As we have previously concluded that appellants tile-preparing process results in derivative works and as the exclusive right to prepare derivative works belongs to the copyright holder, the first sale doctrine does not bar the appellees copyright infringement claims. .

U.S. Court of Appeals, Seventh Circuit 125 F.3d 580 (1997) Before Bauer, Easterbrook and Diane P. Wood. Easterbrook, Circuit Judge: Annie Lee creates works of art, which she sells through her firm Annie Lee & Friends. Deck the Walls, a chain of outlets for modestly priced art, is among the buyers of her works, which have been registered with the Register of Copyrights. One Deck the Walls store sold some of Lees notecards and small lithographs to A.R.T. Company, which mounted the works on ceramic tiles (covering the art with transparent epoxy resin in the process) and resold the tiles. Lee contends that these tiles are derivative works, which under 17 U.S.C. 106(2) may not be prepared without the permission of the copyright proprietor. She seeks both monetary and injunctive relief. Her position has the support of two cases holding that A.R.T.s business violates the copyright laws. Muoz v. Albuquerque A.R.T. Co., 38 F.3d 1218 (9th Cir. 1994); Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341 (9th Cir. 1988). Mirage Editions, the only full appellate discussion, dealt with pages cut from books and mounted on tiles; the court of appeals brief order in Muoz concludes that the reasoning of Mirage Editions is equally applicable to works of art that were sold loose. Our district court disagreed with these decisions and entered summary judgment for the defendant. Now one might suppose that this is an open and shut case under the doctrine of first sale, codified at 17 U.S.C. 109(a). A.R.T. bought the work legitimately, mounted it on a tile, and resold what it had purchased. Because the artist could capture the value of her arts contribution to the finished product as part of the price for the original transaction, the economic rationale for protecting an adaptation as derivative is absent. An alteration that includes (or consumes) a complete copy of the original lacks economic significance. One work changes hands multiple times, exactly what 109(a) permits, so it may lack legal significance too. But 106(2) creates a separate exclusive right, to prepare derivative works, and Lee believes that affixing the art to the tile is preparation, so that A.R.T. would have violated 106(2) even if it had dumped the finished tiles into the Marianas Trench. For the sake of argument we assume that this is so and ask whether card-on-a-tile is a derivative work in the first place. Derivative work is a defined term. The district court concluded that A.R.T.s mounting of Lees works on tile is not an original work of authorship because it is no different in form or function from displaying a painting in a frame or placing a medallion in a velvet case. No one believes that a museum violates 106(2) every time it changes the frame of a painting that is still under copyright, although the choice of frame or glazing affects the impression the art conveys, and many artists specify frames (or pedestals for sculptures) in detail. Muoz and Mirage Editions acknowledge that framing and other traditional means of mounting and displaying art do not infringe. Nonetheless, the ninth circuit held, what A.R.T. does creates a derivative work because the epoxy resin bonds the art to the tile. Our district judge thought this a distinction without a difference, and we agree. If changing the way in which a work of art will be displayed creates a derivative work, and if Lee is right

Lee v. A.R.T. Co.

Owners Rights and Copyright Defenses

7.3

about what prepared means, then the derivative work is prepared when the art is mounted; what happens later is not relevant, because the violation of the 106(2) right has already occurred. If the framing process does not create a derivative work, then mounting art on a tile, which serves as a flush frame, does not create a derivative work. What is more, the ninth circuit erred in assuming that normal means of mounting and displaying art are easily reversible. A painting is placed in a wooden stretcher as part of the framing process; this leads to some punctures (commonly tacks or staples), may entail trimming the edges of the canvas, and may affect the surface of the painting as well. Works by Jackson Pollock are notoriously hard to mount without damage, given the thickness of their paint. As a prelude to framing, photographs, prints, and posters may be mounted on stiff boards using wax sheets, but sometimes glue or another more durable substance is employed to create the bond. Lee wages a vigorous attack on the district courts conclusion that A.R.T.s mounting process cannot create a derivative work because the change to the work as a whole is not sufficiently original to support a copyright. . After the ninth circuit held that its mounting process created derivative works, A.R.T. tried to obtain a copyright in one of its products; the Register of Copyrights sensibly informed A.R.T. that the card-on- a-tile could not be copyrighted independently of the note card itself. But Lee says that this is irrelevant that a change in a works appearance may infringe the exclusive right under 106(2) even if the alteration is too trivial to support an independent copyright. Pointing to the word original in the second sentence of the statutory definition, the district judge held that originality is essential to a derivative work. This understanding has the support of both cases and respected commentators. Pointing to the fact that the first sentence in the statutory definition omits any reference to originality, Lee insists that a work may be derivative despite the mechanical nature of the transformation. This view, too, has the support of both cases and respected commentators. Fortunately, it is not necessary for us to choose sides. Assume for the moment that the first sentence recognizes a set of non-original derivative works. To prevail, then, Lee must show that A.R.T. altered her works in one of the ways mentioned in the first sentence. The tile is not an art reproduction; A.R.T. purchased and mounted Lees original works. That leaves the residual clause: any other form in which a work may be recast, transformed, or adapted. None of these words fits what A.R.T. did. Lees works were not recast or adapted. Transformed comes closer and gives the ninth circuit some purchase for its view that the permanence of the bond between art and base matters. Yet the copyrighted note cards and lithographs were not transformed in the slightest. The art was bonded to a slab of ceramic, but it was not changed in the process. It still depicts exactly what it depicted when it left Lees studio. If mounting works a transformation, then changing a paintings frame or a photographs mat equally produces a derivative work. Indeed, if Lee is right about the meaning of the definitions first sentence, then any alteration of a work, however slight, requires the authors permission. We asked at oral argument what would happen if a purchaser jotted a note on one of the note cards, or used it as a coaster for a drink, or cut it in half, or if a collector applied his seal (as is common in Japan); Lees counsel replied that such changes prepare derivative works, but that as a practical matter artists would not file suit. A definition of derivative work that makes criminals out of art collectors and tourists is jarring despite Lees gracious offer. If Lee (and the ninth circuit) are right about what counts as a derivative work, then the U.S. has established through the back door an extraordinarily broad version of authors moral rights, under which artists may block any modification of their works of which they disapprove. No European version of droit moral goes this far. Until recently it was accepted wisdom that the U.S. did not enforce any claim of moral rights. The Visual Artists Rights

7.4

Exclusive Rights

Act of 1990 moves federal law in the direction of moral rights, but the cornerstone of the new statute, 106A, does not assist Lee. . Section 106A applies only to a work of visual art, a new term defined in 101 to mean either a unique work or part of a limited edition (200 copies or fewer) that has been signed and consecutively numbered by the author. Lees note cards and lithographs are not works of visual art under this definition, so she could not invoke 106A even if A.R.T.s use of her works to produce kitsch had damaged her reputation. . We therefore decline to follow Muoz and Mirage Editions.2 Notes 1. Exploration of possible tension among other 106 rights exceeds the scope of this book, but Lee and Mirage Editions demonstrate the need for separate consideration. 2. If the right to exclude under 106(2) cannot be violated without some form of reproduction, how do 106(1) and 106(2) differ? Does the answer depend on what is meant by reproduce? Were 120 unavailable, would a photograph of a copyrighted building interfere with rights under 106(1) or under 106(2)? Absent 121, which right would a Braille reproduction of a book infringe? 3. In what respect did Lee more resemble Muoz than Mirage Editions? 4. How did courts analysis based on the Marianas Trench in Lee resemble that urged in Justice Blacks dissent in General Talking Pictures, Chapter 1? 5. Do the foregoing pair of cases and the problem below suggest a benefit to having copyright appeals go to a single court? The Federal Circuit is sometimes nominated, but it would seem to be the worst possible choice. That court only follows the law of circuits where cases originate (see, e.g., Bowers, Chapter 9). Were only Supreme Court opinions precedential, as was nearly true when the federal circuit assumed responsibility over patent infringement, existing circuit law would need to be created anew. The first sale doctrine As we saw in patent cases, some exclusive rights may be exhausted after a first authorized sale. Section 109, considered above, figures prominently, as does 117 with regard to software. The key word is owner. Because publishers characterize many software transactions as licenses, not sales, the applicability of 109 and 117 have been much contested. See, e.g., Vernor v. Autodesk, Inc., 555 F. Supp.2d 1164 (W.D. Wash. 2008), revd Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010). Bobbs-Merrill Co. v. Isidor Straus, 210 U.S. 339 (1908), is the first important opinion to address such issues. It interprets only the copyright statute, distancing itself from patent analogies, but its general tone is strikingly consistent with Quanta, discussed in Chapter 1. Distinguishing and limiting Vernor, UMG Recordings, Inc. v. Augusto, 628 F.3d 1175 (9th Cir. 2011) finds CDs distributed for marketing purposes to be free of any ownership claims. Together, those cases do not bode well for firms insisting that transfers strongly resembling sales are, in fact and law, merely licenses.

Because this opinion creates a conflict among the circuits, it has been circulated to all judges in active service. No judge requested a hearing en banc.

Owners Rights and Copyright Defenses

7.5

B. Defenses U.S. Court of Appeals, Ninth Circuit 486 F.2d 1087 (1973) Before Duniway, Wallace and Schnacke.* Schnacke, Circuit Judge: [The parties publish horse-race handicapping systems. When defendant copied six of plaintiffs works, plaintiff brought action for copyright, trademark and trade name infringement.] The court below, as to five of the six, found the copyrights valid and infringed and awarded plaintiff injunctive relief and damages. We affirm this portion of the judgment. . Defendants primary contention is that the works were not entitled to copyright protection since they, and the advertising material associated with them, fraudulently represented to the public that users of the system described could beat the horses, and payments or awards had been made for them in excess of those shown by the facts. The evidence, on the contrary, indicated that handicapping systems, including plaintiffs, are constructed after the fact and upon the unstated assumption that fortuitous patterns exhibited by selected data will be repeated. At best, the evidence indicated, such systems reduce bettors losses, presumably by restricting the number of bets they place. In addition, plaintiff had not profited by the use of the systems, except as he had sold them to the public, and the evidence failed to substantiate the other representations made. . Is false and fraudulent material entitled to copyright protection or does the clean hands doctrine preclude it? There is scant authority. In Stone & McCarrick, Inc. v. Dugan Piano Co., 220 F. 837 (5th Cir. 1915), the court, applying an analogy from trademark cases, invoked the doctrine of clean hands to affirm the dismissal on other grounds of a copyright action. We think that decision unsound. There is nothing in the Copyright Act to suggest that the courts are to pass upon the truth or falsity, the soundness or unsoundness, of the views embodied in a copyrighted work. The gravity and immensity of the problems, theological, philosophical, economic and scientific, that would confront a court if this view were adopted are staggering to contemplate. It is surely not a task lightly to be assumed, and we decline the invitation to assume it.3 Defendant also urges that copyright protection should be denied plaintiff because his works contain extracts from past performance records originally published [elsewhere]. Section 7 of the Copyright Act deals with the copyright of so-called composite works containing within them material copyrighted by another or in the public domain. In stated circumstances (including consent of the copyright holder), the new matter is subject to copyright. However, there is no provision denying copyright protection to new matter in composite works made up in part of matter copyrighted by another, without the holders consent, or permitting a third person such as defendant to copy with impunity the entire composite work, thereby infringing both copyrights. . Other arguments advanced by defendant are without merit.
* 3

Belcher v. Tarbox

U.S. District Judge, Northern District of California, sitting by designation. Copyright protection restricts permissible publication. We fail to see what public policy would be served by eliminating this restriction in the case of fraudulent matter and permitting it to be reprinted and circulated freely.

7.6

Defenses

Plaintiff has cross-appealed from the portion of the judgment below denying enforcement of his rights in the sixth publication entitled Two Professional Methods From Computimeter Co. The trial court found that the plaintiff was owner of the copyright on the composition and the lawful owner of Computimeter as a registered trademark, but refused enforcement of either, because of findings that the composition and its attendant advertising were designed to deceive the public by misrepresenting the origin of the composition, viz., that it was the product of computer research and analysis, when in fact no computer was used. The court concluded that it would not protect either the copyright or the trademark. For the reasons we have given in affirming the balance of the judgment, it is our view that as to the copyright, the holding was erroneous. We therefore remand solely for the purpose of ascertaining the damage, if any, sustained by plaintiff as a result of the copyright infringement. . Affirmed in part and reversed and remanded in part for further proceedings. Wallace, Circuit Judge (concurring and dissenting): I dissent only from that portion of the majority opinion which holds that fraudulent material is entitled to copyright protection and chooses not to follow Stone & McCarrick, Inc. [Cited with approval in Morton Salt.] Notes 1. Citing Belcher, the Fifth Circuit later rejected content-based limits to copyrightability. Mitchell Bros. Film Group v. Cinema Adult Theater, 604 F.2d 852, 854-59 (5th Cir. 1979), cert. denied sub nom. Bora v. Mitchell Brothers Film Group, 445 U.S. 917 (1980). 2. Reconsider Juicy Whip, Chapter 3. Were patentee using that invention to mislead, what of withholding an injunction without considering its validity? 3. Protection for work derived from that of others is now addressed in 103. In Mulcahey v. Cheetah Learning LLC, 386 F.3d 849, 852-53 (8th Cir. 2004), however, the court suggested that plaintiff might have no rights in an unauthorized derivative of a strangers work. In that vein, reconsider the mural featured in Kisch, Chapter 5. But see Schrock v. Learning Curve International, Inc, 2009 WL 3644331 (7th Cir. 2009) where plaintiff, who photographed defendants works on its behalf, was entitled to register and maintain an action for the latters use if unauthorized by their agreements.

Olan Mills, Inc. v. Eckerd Drug of Texas, Inc.

U.S. District Court, N.D. Texas 1989 WL 90605 (1989)

Fitzwater, District Judge: [Olan Mills and Professional Photographers of America, Inc. base suit on three instances when a private investigator tendered a copyrighted photograph to Eckerd.] In each case, Eckerd provided the duplications or enlargements requested.1 . Eckerd contends its actions were authorized, that subjects of portrait photographs are joint authors and thus co-owners of the copyright, and Eckerd acted in good faith and without intent to infringe plaintiffs rights.
1

Although the complaint is based on only three instances of infringement, a private investigator tendered a copyrighted portrait on at least eight different occasions, and in each case received the reprints requested.

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II. A . According to the Copyright Act, copyright protection subsists in original works of authorship fixed in any tangible medium. 102(a). Professional photographs are considered such works of authorship. 102(a)(5). Moreover, the purchase of a photograph from a photographer, without more, does not convey any right to the underlying copyright. 202. Indeed, the owner of a copyright has exclusive rights to reproduce the copyrighted work [and] distribute copies to the public by sale or transfer. 106. Under the Copyright Act, [a]nyone who violates the exclusive rights of the owner is an infringer of the copyright. 511(a). Eckerd argues that plaintiffs [are copyright co-owners with the portrait subjects.] [I]n many instances multiple talents combine to form one product. Such is not the case, however, when an individual sits for a portrait photograph. The simple fact that an individual brings his own image to the studio is not enough to give that person a protectable property right in the portrait. The court finds no basis in law, or in facts of the summary judgment record, to conclude that the subject of a portrait is a co-creator of the photograph. B . Although the court finds it difficult to believe on the basis of the present record that Eckerds conduct was not willful, it cannot reach that conclusion at the summary judgment stage in light of Eckerds denials. As early as 1984, counsel for plaintiffs sent Eckerd notice of an apparent copyright infringement. Following further inquiry, the lab manager of an Eckerd photo lab provided plaintiffs with a copy of a notice to customers which purportedly reflected Eckerds policy: Dear Customer: We regret that we are unable to process your order. This is due to the fact that the print(s) you submitted to us has a copyright notice on it. Prints with this notice cannot be copied since it would be in violation of the U.S. Copyright Laws and would subject us to very substantial fines. We apologize for this inconvenience On Aug. 29, 1986, counsel for Olan Mills wrote to Eckerds in-house counsel requesting assurances that Eckerd was uniformly enforcing its policy. [He responded]: We have advised you on a number of occasions in the past that Jack Eckerd has instructed its photofinishing units not to reproduce any prints having a copyright notice on them. Jack Eckerd policy requires our personnel to return such orders. Despite these assurances, in September 1988 alone, Eckerd [duplicated 249 prints] bearing a copyright notice. Even Eckerd employees were aware of the unlawful duplication. When presented in the store with an Olan Mills print, one employee stated, . Theyre not supposed to be doing these. Another employee presented the customer with a release, explaining that [i]ts an Olan Mills print and its copyrighted and thats how they make their money.3 Eckerd now contends that it never believed and does not now believe that plaintiffs are the sole owners of the copyright or that Eckerds actions constitute infringement. Eckerd argues that outside counsel orally advised them that plaintiffs contentions regarding the ownership of the copyrights were nonmeritorious. At the summary judgment stage, this court may neither reject Eckerds assertions nor accord them little weight. They are sufficient to preclude summary judgment. .
3

The release, however, did not require Olan Mills authorization. [Apparently it did indicate customer approval. Ed.]

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Defenses

Notes 1. The private investigator was presumably plaintiffs agent. If so, can any reproduction requested by that person qualify as unauthorized? 2. If Ekerd can prove that his attorney opined that plaintiffs claims were meritless, how does that bear on willfulness? Would it be relevant if the attorney were consulted only after Ekerd had initially complied with plaintiffs requests? 3. Who should bear the burden under 504(c)(2)?

Keep Thomson Governor Comm. v. Citizens for Gallen Comm.

U.S. District Court, D. New Hampshire 457 F. Supp. 957 (1978)

Devine, District Judge: . Plaintiff, Keep Thomson Governor Committee, is a political committee that seeks the reelection of the incumbent Republican Governor. Defendant, Citizens for Gallen Committee, is also a political committee that seeks to advance the election of defendant Hugh Gallen, the duly nominated Democratic candidate for Governor. . The complaint was filed on the morning of Sept. 29, 1978, and on the afternoon thereof, at the request of the defendants, the court held a hearing on whether plaintiff is entitled to injunctive relief. Both parties appeared by counsel, evidence was produced by the plaintiff, exhibits were introduced, and the court heard oral arguments of counsel. On or about Aug. 8, 1978, Great American Music Machine, Inc., of Denver, Colorado (Great American) produced a musical composition entitled Live Free or Die. Great American also manufactured a number of recordings of this song. Plaintiff purchased all right, title, and interest from Great American for the sum of $12,000. The purchase price included some 2,500 copies, of which 2,000 have been sold. Initially, the record sold rapidly, but sales have now tapered off to 50 to 100 per week. On Sept. 27, 1978, Great American caused to be filed its applications for copyrights on the song and recording in the U.S. Copyright Office. On the same date, Great American assigned to plaintiff all of its right, title, and interest in and to any copyrights on said song and recordings thereof. Plaintiff alleges that defendants have infringed its copyright by means of a political advertisement broadcast over various New Hampshire radio stations in support of the candidacy of defendant Gallen. Defendants deny any infringement and will stipulate only that a portion of their commercial is on our commercial. Plaintiff states that the defendants political advertisement deprives [it] of the full use of a vital campaign tool; that such advertisement holds [its] candidate up to ridicule; and that it is possible that if the use of thereof is not enjoined, [its] candidate might be defeated in the election. Plaintiff has requested defendants to cease use of the political advertisement, and defendants have refused to do so. The recordings at issue were played before the court. It is clear to the court that the defendants political advertisement is not a copy of the recorded song. As argued by defendants counsel, it does include a portion of a political advertisement apparently made by or in behalf of plaintiff. The plaintiffs recorded song runs about three minutes. The first 60 seconds thereof comprises the singing of the song by a musical group. This is interrupted by approximately

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60 seconds of narration relative to the tradition and spirit of New Hampshire, and the record then concludes with another 60 seconds of the musical performance. The defendants recorded political advertisement runs about 60 seconds. At its commencement, the musical group can be heard singing the song. The apparently copied portion of the plaintiffs political advertisement runs about 15 seconds, and is followed by about 45 seconds of narration outlining defendant Gallens criticism of the program of plaintiffs candidate. [A defense based on lack of copyright registration was found to lack merit.] There is usually a presumption of irreparable damage once a prima facie case of infringement appears; here, however, the granting of injunctive relief would inflict far greater harm on the defendant than any harm suffered by the plaintiff. In the context of this case, the court must be aware that it operates in an area of the most fundamental First Amendment activities. Discussion of public issues and debate on the qualifications of candidates are integral to the operation of the system of government established by our Constitution. The First Amendment affords the broadest protection to such political expression to assure the unfettered interchange of ideas for the bringing about of political and social changes desired by the people. Although First Amendment protection is not confined to the exposition of ideas, there is practically universal agreement that the major purpose of that Amendment was to protect the free discussion of governmental affairs, including discussions of candidates. . In a republic where the people are sovereign, the ability of the citizenry to make informed choices among candidates for office is essential. It does not appear that plaintiff has suffered or will suffer any monetary damage, and the mere possibility of loss of the election is outweighed by public interest in a full and free discussion of the issues relative to the election campaign. The probability of success on the merits raises the issues of whether defendant has infringed plaintiffs copyright. A Defendants contend that they have not infringed any copyright because the extent of their copying is sheltered by the fair use doctrine. 17 U.S.C. 106 grants to the owner of a copyright the exclusive right of reproduction and of the preparation of derivative works based on the copyrighted works, including sound recordings. However, 107 permits the fair use of a copyrighted work, including such use by reproduction, copies, or recordings for purposes such as criticism, comment, news reporting, teaching, scholarship, or research. Any such fair use is not an infringement. In determining whether there is a fair use the factors for consideration include: (1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) The nature of the copyrighted work; (3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) The effect of the use upon the potential market for or value of copyrighted work. . It is clearly established that advertisements are copyrightable, Jacobs v. Robitaille, 406 F. Supp. 1145, 1149 (D. N.H. 1976), and it is likewise clear that plaintiff had a perfect right to duplicate or prepare such a derivative work for use in its advertisement. 106. The defendants have copied some 15 seconds of the plaintiffs advertisement wherein the music of the recorded song can clearly be heard in the background; on its face, this constitutes an infringement. However, the exclusive right of a copyright holder must be weighed against the publics interest in dissemination of information affecting areas of

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universal concern. Conflicts between interests protected by the First Amendment and the copyright laws can be resolved by application of the fair use doctrine. The line which must be drawn between fair use and copyright infringement depends on an examination of the facts in each case. The first factor to be considered by the court is the purpose and character of the use, including whether it is of a commercial nature or is for nonprofit educational purposes. The use by the defendant of a portion of the plaintiffs political advertisement is clearly part of a political campaign message, noncommercial in nature, and First Amendment issues of freedom of expression in a political campaign are clearly implicated. The nature of the copyrighted work here demonstrates that the recording which defendant has partially copied is itself in part a political campaign message. The alleged infringement takes approximately 15 seconds from a total recording of three minutes in length, and it is clear to the court that the effect of the use upon the potential market or value of the copyrighted work is nil. The recordings have sold and are continuing to sell without substantial commercial loss to the plaintiff. Evaluating in concert the requisite factors set forth in 107, the court concludes that there is sufficient evidence upon which to base a determination that defendants use of the plaintiffs political advertisement, derived from the copyrighted recording, constitutes fair use, and thus did not infringe on the plaintiffs copyright. . It is therefore highly unlikely that plaintiff will prevail on the merits [and a preliminary injunction is] denied. Notes 1. An application to register the song was filed only two days prior to filing the complaint. Expedited registration is available, but nothing suggests that it pad been pursued. Absent registration, could the court award relief under 411(a)? 2. If Great American had licensed plaintiff rather than assigned rights to the song, would support for jurisdiction be further weakened? Except as a parody of plaintiffs ad, would defendants use of the song be fair? If Great American had kept title and sued, would the outcome have changed? 3. Section 107 is only the first in a series of often complex sections setting forth affirmative defenses and compulsory licenses. Some focus on the nature of the work, some on the use and some on the user. How would you characterize in such terms 109, considered in Mirage Editions and Lee? What of 120(a), mentioned in a note following those cases? It reads, Pictorial Representations Permitted. The copyright in an architectural work that has been constructed does not include the right to prevent the making, distributing, or public display of pictures, paintings, photographs, or other pictorial representations of the work, if the building in which the work is embodied is located in or ordinarily visible from a public place. How does 121(a) differ from both 109 and 120(a)? It reads, Notwithstanding the provisions of section 106, it is not an infringement of copyright for an authorized entity to reproduce or to distribute copies or phonorecords of a previously published, nondramatic literary work if such copies or phonorecords are reproduced or distributed in specialized formats exclusively for use by blind or other persons with disabilities.

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4. Paulsen v. Federal Communications Commission, 491 F.2d 887 (9th Cir. 1974), reflects another loss (albeit not of IP) suffered in the name of balanced political debate. Paulsen, a comedian, was employed by Walt Disney Productions, Inc. to perform in a TV series. After he registered for the New Hampshire presidential primary, however, the FCC ruled that such appearances would impose equal opportunities obligations upon broadcast licensees. When he sought to overcome the FCCs ruling, the court said, at 890: Paulsens basic argument is that the imposition of equal time obligations on stations which broadcast his shows fails to serve, and indeed hinders, the [statutory] purpose. Acknowledging that a literal reading supports the FCCs position, he claims that the vice of the FCCs ruling is that its rigid and indiscriminate application to non-political use of broadcast stations does not further the objectives of the section. The FCC responds that [a strict rule avoids] the unauthorized enlargement of its involvement in broadcasting operations. Paulsens proposed distinction between political and non-political use would, the FCC contends, require it to make highly subjective judgments concerning the content, context, and potential political impact of a candidates appearance. We agree. Was the loss to the Keep Thomson committee any greater than Paulsens?

Campbell v. Acuff-Rose Music, Inc.

U.S. Supreme Court 510 U.S. 569 (1994)

Justice Souter: . In 1964, Roy Orbison and William Dees wrote a rock ballad called Oh, Pretty Woman and assigned their rights in it to respondent Acuff-Rose Music, Inc. Acuff-Rose registered the song for copyright protection. Petitioners Luther R. Campbell, Christopher Wongwon, Mark Ross, and David Hobbs, are collectively known as 2 Live Crew, a popular rap music group. In 1989, Campbell wrote a song entitled Pretty Woman, which he later described in an affidavit as intended, through comical lyrics, to satirize the original work. On July 5, 1989, 2 Live Crews manager informed Acuff-Rose that 2 Live Crew had written a parody of Oh, Pretty Woman, that they would afford all credit for ownership and authorship of the original, and that they were willing to pay a fee for the use they wished to make of it. Enclosed with the letter were a copy of the lyrics and a recording of 2 Live Crews song. Acuff-Roses agent refused permission, stating that I am aware of the success enjoyed by The 2 Live Crews, but I must inform you that we cannot permit the use of a parody of Oh, Pretty Woman. Nonetheless, 2 Live Crew released records, cassette tapes, and compact discs of Pretty Woman in a collection of songs entitled As Clean As They Wanna Be. The albums and compact discs identify the authors [and publisher]. Almost a year later, after nearly a quarter of a million copies of the recording had been sold, Acuff-Rose sued for copyright infringement. The district court granted summary judgment for 2 Live Crew, reasoning that the commercial purpose of 2 Live Crews song was no bar to fair use; that 2 Live Crews version was a parody, which quickly degenerates into a play on words, substituting predictable lyrics with shocking ones to show how bland and banal the Orbison song is; that 2 Live Crew had taken no more than was necessary to

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conjure up the original in order to parody it; and that it was extremely unlikely that 2 Live Crews song could adversely affect the market for the original. [It] held that 2 Live Crews song made fair use of Orbisons original. The Court of Appeals for the Sixth Circuit reversed and remanded. Although it assumed for the purpose of its opinion that 2 Live Crews song was a parody of the Orbison original, the court of appeals thought the district court had put too little emphasis on the fact that every commercial use is presumptively unfair, [Sony, below], and it held that the admittedly commercial nature of the parody requires the conclusion that the first of four factors relevant under the statute weighs against a finding of fair use. Next, the court of appeals determined that, by taking the heart of the original and making it the heart of a new work, 2 Live Crew had, qualitatively, taken too much. Finally, after noting that the effect on the potential market for the original (and the market for derivative works) is undoubtedly the single most important element of fair use, Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 566 (1985), the court faulted the district court for refus[ing] to indulge the presumption that harm for purposes of the fair use analysis has been established by the presumption attaching to commercial uses. In sum, the court concluded that its blatantly commercial purpose prevents this parody from being a fair use. . II It is uncontested here that 2 Live Crews song would be an infringement of AcuffRoses rights in Oh, Pretty Woman, but for a finding of fair use through parody. From the infancy of copyright protection, some opportunity for fair use of copyrighted materials has been thought necessary to fulfill copyrights very purpose For as Justice Story explained, [i]n truth, in literature, in science and in art, there are, and can be, few, if any, things, which in an abstract sense, are strictly new and original throughout. Every book in literature, science and art, borrows, and must necessarily borrow, and use much which was well known and used before. Emerson v. Davies, 8 F.Cas. 615, 619 (CCD Mass. 1845). . In Folsom v. Marsh, Justice Story distilled the essence of law and methodology from the earlier cases: look to the nature and objects of the selections made, the quantity and value of the materials used, and the degree in which the use may prejudice the sale, or diminish the profits, or supersede the objects, of the original work. 9 F.Cas. 342, 348 (No. 4,901) (CCD Mass. 1841). Thus expressed, fair use remained exclusively judge-made doctrine until the passage of the 1976 Copyright Act, in which Storys summary is discernible. Congress meant 107 to restate the present judicial doctrine of fair use, not to change, narrow, or enlarge it in any way and intended that courts continue the common law tradition of fair use adjudication. The fair use doctrine thus permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster. Stewart v. Abend, 495 U.S. 207, 236 (1990). The task is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis. . Nor may the four statutory factors be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright.10 A The first factor in a fair use enquiry is the purpose and character of the use. This factor draws on Justice Storys formulation, the nature and objects of the selections made. Folsom v. Marsh, 9 F.Cas., at 348. The enquiry here may be guided by the examples given in
10

Because the fair use enquiry often requires close questions of judgment as to the extent of permissible borrowing in cases involving parodies (or other critical works), courts may also wish to bear in mind that the goals of the copyright law are not always best served by automatically granting injunctive relief when parodists are found to have gone beyond the bounds of fair use. .

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the preamble to 107, looking to whether the use is for criticism, or comment, or news reporting, and the like. The central purpose of this investigation is to see, in Justice Storys words, whether the new work merely supersede[s] the objects of the original creation, Folsom v. Marsh, supra, at 348; accord, Harper & Row, 471 U.S., at 562 (supplanting the original), or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is transformative. Although such transformative use is not absolutely necessary for a finding of fair use, the goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works. Such works thus lie at the heart of the fair use doctrines guarantee of breathing space, and the more transformative the new work, the less will be the significance of other factors, like commercialism. . [P]arody has an obvious claim to transformative value, as Acuff-Rose itself does not deny. Like less ostensibly humorous forms of criticism, it can provide social benefit, by shedding light on an earlier work. We thus line up with the courts that have held that parody, like other comment or criticism, may claim fair use under 107. . For the purposes of copyright law, [parody requires] the use of some elements of a prior authors composition to create a new one that, at least in part, comments on that authors works. If, on the contrary, the commentary has no critical bearing on the substance or style of the original composition, which the alleged infringer merely uses to get attention or to avoid the drudgery in working up something fresh, the claim to fairness in borrowing from anothers work diminishes accordingly (if it does not vanish), and other factors, like the extent of its commerciality, loom larger. Parody needs to mimic an original to make its point, and so has some claim to use the creation of its victims (or collective victims) imagination, whereas satire can stand on its own two feet and so requires justification for the very act of borrowing. The fact that parody can claim legitimacy for some appropriation does not, of course, tell either parodist or judge much about where to draw the line. . Accordingly, parody, like any other use, has to be judged case by case, in light of the ends of the copyright law. Here, the district court held, and the court of appeals assumed, that 2 Live Crews Pretty Woman contains parody, commenting on and criticizing the original work. As the district court remarked, the words of 2 Live Crews song copy the originals first line, but then quickly degenerat[e] into a play on words, substituting predictable lyrics with shocking ones [that] derisively demonstrat[e] how bland and banal the Orbison song seems to them. Judge Nelson, dissenting below, came to the same conclusion, that the 2 Live Crew song reminds us that sexual congress with nameless streetwalkers is not necessarily the stuff of romance and is not necessarily without its consequences. The singers (there are several) have the same thing on their minds as did the lonely man with the nasal voice, but here there is no hint of wine and roses. Although the majority below had difficulty discerning any criticism of the original in 2 Live Crews song, it assumed for purposes of its opinion that there was some. We have less difficulty in finding that critical element in 2 Live Crews song than the court of appeals did, although having found it we will not take the further step of evaluating its quality. The threshold question when fair use is raised in defense of parody is whether a parodic character may reasonably be perceived. Whether, going beyond that, parody is in good taste or bad does not and should not matter to fair use. As Justice Holmes explained, [i]t would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of [a work], outside of the narrowest and most obvious limits. .

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Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, 251 (1903). While we might not assign a high rank to the parodic element here, we think it fair to say that 2 Live Crews song reasonably could be perceived as commenting on the original or criticizing it, to some degree. 2 Live Crew juxtaposes the romantic musings of a man whose fantasy comes true, with degrading taunts, a bawdy demand for sex, and a sigh of relief from paternal responsibility. The later words can be taken as a comment on the naivete of the original of an earlier day. It is this joinder of reference and ridicule that marks off the authors choice of parody from the other types of comment and criticism that traditionally have had a claim to fair use protection as transformative works. The court of appeals, however, [confined itself to] the commercial nature of the use. The court then inflated the significance of this fact by applying a presumption ostensibly culled from Sony, that every commercial use of copyrighted material is presumptively unfair. In giving virtually dispositive weight to the commercial nature of the parody, the court of appeals erred. . Sony itself called for no hard evidentiary presumption. [A]s we explained in Harper & Row, Sony stands for the proposition that the fact that a publication was commercial as opposed to nonprofit is a separate factor that tends to weigh against a finding of fair use. 471 U.S., at 562. But that is all, and the fact that even the force of that tendency will vary with the context is a further reason against elevating commerciality to hard presumptive significance. The use, for example, of a copyrighted work to advertise a product, even in a parody, will be entitled to less indulgence than the sale of a parody for its own sake, let alone one performed a single time by students in school. B The second statutory factor draws on Justice Storys expression, the value of the materials used. Folsom v. Marsh, 9 F.Cas., at 348. This factor calls for recognition that some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied. . We agree with both the district court and the court of appeals that the Orbison originals creative expression for public dissemination falls within the core of the copyrights protective purposes. This fact, however, is not much help in this case, or ever likely to help much in separating the fair use sheep from the infringing goats in a parody case, since parodies almost invariably copy publicly known, expressive works. C The third factor asks whether the amount and substantiality of the portion used in relation to the copyrighted work as a whole, 107(3) (or, in Justice Storys words, the quantity and value of the materials used, Folsom v. Marsh, supra, at 348) are reasonable in relation to the purpose of the copying. Here, attention turns to the persuasiveness of a parodists justification for the particular copying done, and the enquiry will harken back to the first of the statutory factors, for, as in prior cases, we recognize that the extent of permissible copying varies with the purpose and character of the use. The facts bearing on this factor will also tend to address the fourth, by revealing the degree to which the parody may serve as a market substitute for the original or potentially licensed derivatives. The district court considered the songs parodic purpose in finding that 2 Live Crew had not helped themselves overmuch. The court of appeals disagreed, stating that [w]hile it may not be inappropriate to find that no more was taken than necessary, the copying was qualitatively substantial. We conclude that taking the heart of the original and making it the heart of a new work was to purloin a substantial portion of the essence of the original. The court of appeals is of course correct that this factor calls for thought not only about the quantity of the materials used, but about their quality and importance, too. In Harper &

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Row, for example, the Nation had taken only some 300 words out of President Fords memoirs, but we signalled the significance of the quotations in finding them to amount to the heart of the book, the part most likely to be newsworthy and important in licensing serialization. We also agree with the court of appeals that whether a substantial portion of the infringing work was copied verbatim from the copyrighted work is a relevant question, see id., at 565 for it may reveal a dearth of transformative character or purpose under the first factor, or a greater likelihood of market harm under the fourth; a work composed primarily of an original, particularly its heart, with little added or changed, is more likely to be a merely superseding use, fulfilling demand for the original. Where we part company with the court below is in applying these guides. Parody presents a difficult case. Parodys humor, or in any event its comment, necessarily springs from recognizable allusion to its object through distorted imitation. . We think the court of appeals was insufficiently appreciative of parodys need for the recognizable sight or sound when it ruled 2 Live Crews use unreasonable as a matter of law. It is true, of course, that 2 Live Crew copied the characteristic opening bass riff (or musical phrase) of the original, and true that the words of the first line copy the Orbison lyrics. But if quotation of the opening riff and the first line may be said to go to the heart of the original, the heart is also what most readily conjures up the song for parody, and it is the heart at which parody takes aim. Copying does not become excessive in relation to parodic purpose merely because the portion taken was the originals heart. If 2 Live Crew had copied a significantly less memorable part of the original, it is difficult to see how its parodic character would have come through. This is not, of course, to say that anyone who calls himself a parodist can skim the cream and get away scot free. . It is significant that 2 Live Crew not only copied the first line of the original, but thereafter departed markedly from the Orbison lyrics for its own ends. 2 Live Crew not only copied the bass riff and repeated it, but also produced otherwise distinctive sounds, interposing scraper noise, overlaying the music with solos in different keys, and altering the drum beat. This is not a case, then, where a substantial portion of the parody itself is composed of a verbatim copying of the original. . Suffice it to say here that, as to the lyrics, we think the court of appeals correctly suggested that no more was taken than necessary, but just for that reason, we fail to see how the copying can be excessive in relation to its parodic purpose, even if the portion taken is the originals heart. As to the music, we express no opinion whether repetition of the bass riff is excessive copying, and we remand to permit evaluation of the amount taken. D The fourth fair use factor is the effect of the use upon the potential market for or value of the copyrighted work. It requires courts to consider not only the extent of market harm caused by the particular actions of the alleged infringer, but also whether unrestricted and widespread conduct of the sort engaged in by the defendant would result in a substantially adverse impact on the potential market for the original. The enquiry must take account not only of harm to the original but also of harm to the market for derivative works. Harper & Row, supra, 471 U.S. at 568. Since fair use is an affirmative defense, its proponent would have difficulty carrying the burden of demonstrating fair use without favorable evidence about relevant markets. In moving for summary judgment, 2 Live Crew left themselves at just such a disadvantage when they failed to address rap derivatives. We do not, of course, suggest that a parody may not harm the market at all, but when a lethal parody, like a scathing theater review, kills demand for the original, it does not produce a harm cognizable under the Copyright Act. .

7.16

Defenses

This distinction between potentially remediable displacement and unremediable disparagement is reflected in the rule that there is no protectable derivative market for criticism. . Thus, to the extent that the opinion below may be read to have considered harm to the market for parodies of Oh, Pretty Woman, the court erred. . Although 2 Live Crew submitted uncontroverted affidavits on the question of market harm to the original, neither they, nor Acuff-Rose, introduced evidence or affidavits addressing the likely effect of 2 Live Crews parodic rap song on the market for a nonparody, rap version of Oh, Pretty Woman. . The district court essentially passed on this issue, observing that Acuff-Rose is free to record whatever version of the original it desires; the court of appeals went the other way by erroneous presumption. Contrary to each treatment, it is impossible to deal with the fourth factor except by recognizing that a silent record on an important factor bearing on fair use disentitled the proponent of the defense, 2 Live Crew, to summary judgment. The evidentiary hole will doubtless be plugged on remand. . [Justice Kennedy concurred, stating, in part]: While I am not so assured that 2 Live Crews song is a legitimate parody, the Courts treatment of the remaining factors leaves room for the district court to determine on remand that the song is not a fair use. As future courts apply our fair use analysis, they must take care to ensure that not just any commercial take-off is rationalized post hoc as a parody. Notes 1. What is the significance of Justice Souters repeated reliance on the 1841 Folsom case? 2. What would the Campbell court be apt to hold concerning the legal relevance of the harm in fact to plaintiffs candidate (and presumably to plaintiff itself) in Keep Thomson? 3. Some might regard all transformative uses as fair, but Campbell says nothing of the kind. Such a notion is rejected in Gaylord v. U.S., 595 F.3d 1364 (Fed. Cir. 2010) (basing a postage stamp on an unauthorized photo of a sculpture was inadequately transformative). See also, Socy Holy Transfiguration Monastery, Inc. v. Archbishop Gregory, 2010 WL 548114, *6 (D.Mass. 2010) (A simple repackaging of a work in a new format, whether on the Internet or on a CD-ROM or on a flash drive, is not transformative.).

Sony Corp., America v. Universal City Studios, Inc.

U.S. Supreme Court 464 U.S. 417 (1984)

Justice Stevens: . Universal Studios, Inc. and Walt Disney Productions, produce and hold the copyrights on a substantial number of motion pictures and other audiovisual works. . Some works are suitable for exploitation through [many] avenues, while the market for other works is more limited. Petitioner Sony manufactures millions of Betamax video tape recorders [VTRs] and markets these devices through numerous retail establishments, some of which are also petitioners in this action. Several capabilities of the machine are noteworthy. The separate tuner in the Betamax enables the viewer, for example, to watch two simultaneous news broadcasts by watching one live and recording the other for later viewing. Tapes may be reused. A timer in the

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Betamax can be used to activate and deactivate the equipment at predetermined times. Thus a person may watch a program at home in the evening even though it was broadcast while the viewer was at work during the afternoon. The Betamax is also equipped with a pause button and a fast-forward control . The respondents and Sony both conducted surveys. [T]hey both showed that the primary use of the machine for most owners was time-shifting the practice of recording a program to view it once at a later time, and thereafter erasing it. Time-shifting enables viewers to see programs they otherwise would miss because they are not at home, are occupied with other tasks, or are viewing a program on another station at the time of a broadcast that they desire to watch. Both surveys also showed, however, that a substantial number of interviewees had accumulated libraries of tapes.3 Sonys survey indicated that over 80% of the interviewees watched at least as much regular television as they had before owning a Betamax. Respondents offered no evidence of decreased television viewing by Betamax owners. Sony introduced considerable evidence describing television programs that could be copied without objection from any copyright holder, with special emphasis on sports, religious, and educational programming. For example, their survey indicated that 7.3% of all Betamax use is to record sports events, and representatives of professional baseball, football, basketball, and hockey testified that they had no objection to the recording of their televised events for home use. . The district court [next] concluded that noncommercial home use recording of material broadcast over the public airwaves was a fair use. As an independent ground of decision, the district court also concluded that Sony could not be held liable as a contributory infringer even if the home use of a VTR was considered an infringing use. The district court noted that Sony had no direct involvement with any Betamax purchasers who recorded copyrighted works off the air. Sonys advertising was silent on the subject of possible copyright infringement, but its instruction booklet contained the following statement: Television programs, films, videotapes and other materials may be copyrighted. Unauthorized recording of such material may be contrary to the provisions of the United States copyright laws. The district court assumed that Sony had constructive knowledge of the probability that the Betamax machine would be used to record copyrighted programs, but found that Sony merely sold a product capable of a variety of uses, some of them allegedly infringing.
3

As evidence of how a VTR may be used, respondents offered the testimony of William Griffiths. Griffiths, although named as an individual defendant, was a client of plaintiffs law firm. The District Court summarized his testimony as follows: He owns approximately 100 tapes. When Griffiths bought his Betamax, he intended not only to time-shift (record, play-back and then erase) but also to build a library of cassettes. Maintaining a library, however, proved too expensive, and he is now erasing some earlier tapes and reusing them. Griffiths copied about 20 minutes of a Universal motion picture called Never Give An Inch, and two episodes from Universal television series entitled Baa Baa Black Sheep and Holmes and Yo Yo. He would have erased each of these but for the request of plaintiffs counsel that it be kept. Griffiths also testified that he had copied but already erased Universal films called Alpha Caper (erased before anyone saw it) and Amelia Earhart. At the time of his deposition Griffiths did not intend to keep any Universal film in his library. Griffiths has also recorded documentaries, news broadcasts, sporting events and political programs such as a rerun of the Nixon/Kennedy debate. 480 F.Supp., at 43637. Four other witnesses testified to having engaged in similar activity.

7.18

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. It concluded that an injunction was wholly inappropriate because any possible harm to respondents was outweighed by the fact that the Betamax could still legally be used to record noncopyrighted material or material whose owners consented to the copying. An injunction would deprive the public of the ability to use the Betamax for this noninfringing off-the-air recording. The Court of Appeals Decision . [The Ninth Circuit] concluded as a matter of law that the home use of a VTR was not a fair use because it was not a productive use. . On the matter of relief, the court of appeals, referring to the analogous photocopying area, suggested that a continuing royalty pursuant to a judicially created compulsory license may very well be an acceptable resolution of the relief issue. II . From its beginning, the law of copyright has developed in response to significant changes in technology.11 Indeed, it was the invention of a new form of copying equipment the printing press that gave rise to the original need for copyright protection. . . In a case like this, in which Congress has not plainly marked our course, we must be circumspect in construing the scope of rights created by a legislative enactment which never contemplated such a calculus of interests. . The two respondents in this case do not seek relief against the Betamax users who have allegedly infringed their copyrights. . To prevail, they have the burden of proving that users of the Betamax have infringed their copyrights and that Sony should be held responsible for that infringement. III The Copyright Act does not expressly render anyone liable for infringement committed by another. In contrast, the Patent Act expressly brands anyone who actively induces infringement of a patent as an infringer, 35 U.S.C. 271(b), and further imposes liability on certain individuals labeled contributory infringers, 271(c). The absence of such express language in the copyright statute does not preclude the imposition of liability for copyright infringements on certain parties who have not themselves engaged in the infringing activity.17 For vicarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another. . The only contact between Sony and [users] disclosed by this record occurred at the moment of sale. The district court expressly found that no employee of Sony, Sonam or DDBI had either direct involvement with the allegedly infringing activity or direct contact with purchasers of Betamax who recorded copyrighted works off-the-air. And it further found that there was no evidence that any of the copies made by Griffiths or the other individual witnesses in this suit were influenced or encouraged by [Sonys ads]. If vicarious liability is to be imposed on petitioners in this case, it must rest on the fact that they have sold equipment with constructive knowledge of the fact that their customers may use that equipment to make unauthorized copies of copyrighted material. There is no
11

Thus, for example, the development and marketing of player pianos and perforated roles [sic] of music preceded the enactment of the Copyright Act of 1909; innovations in copying techniques gave rise to the statutory exemption for library copying embodied in 108 of the 1976 revision of the Copyright law; the development of the technology that made it possible to retransmit television programs by cable or by microwave systems prompted the enactment of the complex provisions set forth in 17 U.S.C. 111(d)(2)(B) and 111(d)(5). .. 17 As the District Court correctly observed, however, the lines between direct infringement, contributory infringement, and vicarious liability are not clearly drawn.... 480 F.Supp. 45758. .

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7.19

precedent in the law of copyright for the imposition of vicarious liability on such a theory. The closest analogy is provided by the patent law cases to which it is appropriate to refer because of the historic kinship between patent law and copyright law.19 In the Patent Code both the concept of infringement and the concept of contributory infringement are expressly defined by statute. The prohibition against contributory infringement is confined to the knowing sale of a component especially made for use in connection with a particular patent. There is no suggestion in the statute that one patentee may object to the sale of a product that might be used in connection with other patents. Moreover, the Act expressly provides that the sale of a staple article or commodity of commerce suitable for substantial noninfringing use is not contributory infringement. When a charge of contributory infringement is predicated entirely on the sale of an article of commerce that is used by the purchaser to infringe a patent, the public interest in access to that article of commerce is necessarily implicated. A finding of contributory infringement does not, of course, remove the article from the market altogether; it does, however, give the patentee effective control over the sale of that item. Indeed, a finding of contributory infringement is normally the functional equivalent of holding that the disputed article is within the monopoly granted to the patentee.21 For that reason, in contributory infringement cases arising under the patent laws the Court has always recognized the critical importance of not allowing the patentee to extend his monopoly beyond the limits of his specific grant. These cases deny the patentee any right to control the distribution of unpatented articles unless they are unsuited for any commercial noninfringing use. Dawson Chemical Co. v. Rohm & Hass Co., 448 U.S. 176, 198 (1980). Unless a commodity has no use except through practice of the patented method, id. at 199, the patentee has no right to claim contributory infringement. . We recognize there are substantial differences between the patent and copyright laws. But in both areas the contributory infringement doctrine is grounded on the recognition that adequate protection of a monopoly may require the courts to look beyond actual duplication of a device or publication to the products or activities that make such duplication possible. The staple article of commerce doctrine must strike a balance between a copyright holders legitimate demand for effective not merely symbolic protection, and the rights of others. Accordingly, the sale of copying equipment does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.
The two areas of the law, naturally, are not identical twins, and we exercise the caution which we have expressed in the past in applying doctrine formulated in one area to the other. See generally, Mazer v. Stein, 347 U.S. 201, 21718 (1954). We have consistently rejected the proposition that a similar kinship exists between copyright law and trademark law, and in the process of doing so have recognized the basic similarities between copyrights and patents.. Given the fundamental differences between copyright law and trademark law, in this copyright case we do not look to the standard for contributory infringement set forth in Inwood Laboratories v. Ives Laboratories, 456 U.S. 844, 85455 (1982), which was crafted for application in trademark cases. There we observed that a manufacturer or distributor could be held liable to the owner of a trademark if it intentionally induced a merchant down the chain of distribution to pass off its product as that of the trademark owners or if it continued to supply a product which could readily be passed off to a particular merchant whom it knew was mislabeling the product with the trademark owners mark. If Inwoods narrow standard for contributory trademark infringement governed here, respondents claim of contributory infringement would merit little discussion. . 21 It seems extraordinary to suggest that the Copyright Act confers upon all copyright owners collectively, much less the two respondents in this case, the exclusive right to distribute VTRs simply because they may be used to infringe copyrights. That, however, is the logical implication of their claim. .
19

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IV The question is thus whether the Betamax is capable of commercially significant noninfringing uses. [W]e need not explore all the different potential uses. Rather, we need only consider whether a significant number of them would be non-infringing. Moreover, we need not give precise content to the question of how much use is commercially significant. For one potential use of the Betamax plainly satisfies this standard, however it is understood: private, noncommercial time-shifting in the home. It does so both (A) because respondents have no right to prevent other copyright holders from authorizing it for their programs, and (B) because the district courts factual findings reveal that even the unauthorized home timeshifting of respondents programs is legitimate fair use. .27 [A]lthough every commercial use of copyrighted material is presumptively an unfair exploitation of copyright, noncommercial uses are a different matter. A challenge to a noncommercial use of a copyrighted work requires proof either that the particular use is harmful, or that if it should become widespread, it would adversely affect the potential market for the copyrighted work. Actual present harm need not be shown; such a requirement would leave the copyright holder with no defense against predictable damage. Nor is it necessary to show with certainty that future harm will result. What is necessary is a showing by a preponderance of the evidence that some meaningful likelihood of future harm exists. If the intended use is for commercial gain, that likelihood may be presumed. But if it is for a noncommercial purpose, the likelihood must be demonstrated. [R]espondents failed to carry their burden with regard to home time-shifting. . In summary, the record and findings of the district court lead us to two conclusions. First, Sony demonstrated a significant likelihood that substantial numbers of copyright holders who license their works for broadcast on free television would not object to having their broadcasts time-shifted by private viewers. And second, respondents failed to demonstrate that time-shifting would cause any likelihood of nonminimal harm. The Betamax is, therefore, capable of substantial noninfringing uses. Sonys sale of such equipment to the general public does not constitute contributory infringement of respondents copyrights. V . One may search the Copyright Act in vain for any sign that the elected representatives of the millions of people who watch television every day have made it unlawful to copy a program for later viewing at home, or have enacted a flat prohibition against the sale of machines that make such copying possible. It may well be that Congress will take a fresh look at this new technology, just as it so often has examined other innovations in the past. But it is not our job to apply laws that have not yet been written. Applying the copyright statute, as it now reads, to the facts as they have been developed in this case, the judgment of the court of appeals must be reversed.

27

[Mr. Rogers testified, for example that] Some public stations, as well as commercial stations, program the Neighborhood at hours when some children cannot use it. I think that its a real service to families to be able to record such programs and show them at appropriate times. I have always felt that with the advent of all of this new technology that allows people to tape the Neighborhood off-the-air, and Im speaking for the Neighborhood because thats what I produce, that they then become much more active in the programming of their familys television life. Very frankly, I am opposed to people being programmed by others. My whole approach in broadcasting has always been You are an important person just the way you are. You can make healthy decisions. Maybe Im going on too long, but I just feel that anything that allows a person to be more active in the control of his or her life, in a healthy way, is important. T.R. 2920-2921.

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Justice Blackmun, with whom Justices Marshall, Powell, and Rehnquist join, dissenting. . In this case, the Studios and their amici demonstrate that the advent of the VTR technology created a potential market for their copyrighted programs. That market consists of those persons who find it impossible or inconvenient to watch the programs at the time they are broadcast, and who wish to watch them at other times. These persons are willing to pay for the privilege of watching copyrighted work at their convenience, as is evidenced by the fact that they are willing to pay for VTRs and tapes. The Studios correctly argue that they have been deprived of the ability to exploit this sizable market. It is thus apparent from the record that time-shifting does have a substantial adverse effect upon the potential market for the Studios copyrighted works. Accordingly, even under the formulation of the fair use doctrine advanced by Sony, time-shifting cannot be deemed a fair use. V. Contributory Infringement . The district court found that Sony has advertised the Betamax as suitable for offthe-air recording with no visible warning that such recording could constitute copyright infringement. It is only with the aid of the Betamax or some other VTR, that it is possible today for home television viewers to infringe copyright by recording off-the-air. Off-the-air recording is not only a foreseeable use for the Betamax, but indeed is its intended use. I agree with the court of appeals that if off-the-air recording is an infringement of copyright, Sony has induced and materially contributed to the infringing conduct of Betamax owners. B Sony argues that the manufacturer or seller of a product used to infringe is absolved from liability whenever the product can be put to any substantial noninfringing use. The district court so held, borrowing the staple article of commerce doctrine governing liability for contributory infringement of patents. This Court today is much less positive. I do not agree that this technical judge-made doctrine of patent law, based in part on considerations irrelevant to the field of copyright, should be imported wholesale into copyright law. Despite their common constitutional source, patent and copyright protections have not developed in a parallel fashion, and this Court in copyright cases in the past has borrowed patent concepts only sparingly. I recognize, however, that many of the concerns underlying the staple article of commerce doctrine are present in copyright law as well. As the district court noted, if liability for contributory infringement were imposed on the manufacturer or seller of every product used to infringe a typewriter, a camera, a photocopying machine the wheels of commerce would be blocked. I therefore conclude that if a significant portion of the products use is noninfringing, the manufacturers and sellers cannot be held contributorily liable for the products infringing uses. If virtually all of the products use, however, is to infringe, contributory liability may be imposed; if no one would buy the product for noninfringing purposes alone, it is clear that the manufacturer is purposely profiting from the infringement, and that liability is appropriately imposed. In such a case, the copyright owners monopoly would not be extended beyond its proper bounds; the manufacturer of such a product contributes to the infringing activities of others and profits directly thereby, while providing no benefit to the public sufficient to justify the infringement. The court of appeals concluded that Sony should be held liable for contributory infringement, reasoning that [v]ideotape recorders are manufactured, advertised, and sold for the primary purpose of reproducing television programming, and [v]irtually all television

7.22

Defenses

programming is copyrighted material. While I agree with the first of these propositions, the second, for me, is problematic. The key question is not the amount of television programming that is copyrighted, but rather the amount of VTR usage that is infringing. Moreover, the parties and their amici have argued vigorously about both the amount of television programming that is covered by copyright and the amount for which permission to copy has been given. The proportion of VTR recording that is infringing is ultimately a question of fact, and the district court specifically declined to make findings on the percentage of legal versus illegal home-use recording. In light of my view of the law, resolution of this factual question is essential. I therefore would remand [to the district court]. . Notes In Sony, the majoritys note 40 reads: The court of appeals chose not to engage in any equitable rule of reason analysis in this case. Instead, it assumed that the category of fair use is rigidly circumscribed by a requirement that every such use must be productive. It therefore concluded that copying a television program merely to enable the viewer to receive information or entertainment that he would otherwise miss because of a personal scheduling conflict could never be fair use. That understanding of fair use was erroneous. Merits aside, is it appropriate to so conclude without participation of even one directly affected person? See Thomas G. Field, Jr., Reflections on the Betamax Decisions, 22 Idea 265 (1982). 2. In that regard, James Lardner, Fast Forward: Hollywood, the Japanese, and the Onslaught of the VCR, 3132 (1987) is illuminating: Wexler [counsel for Universal] asked Griffiths [also a client] how he would feel about being sued. His firm, Wexler explained, was on the lookout for a Betamax owner to act as a nominal defendant . In other words, Griffiths would be called to testify about his activities as a taper, and the court, if Universal had its way, would find him guilty of copyright infringement; but Universal would promise, up front, not to seek any damages from him. Fine, no problem, said Griffiths, although he added that it was strange to be sued by his own law firm. That got a laugh all around. Griffiths was the solution to a delicate problem. . Sheinbert liked to use the analogy of someone who sells a gun to another person, saying, Feel free to use this gun to kill people although, he recalled, that troubled some of my associates because they said Id get the National Rifle Association against me. But I was trying to come up with an example. I didnt think you had to actually be the person to pull the trigger or push the button to be held accountable. It was not clear that Universal had to sue a Betamax owner as well, but Kroft was afraid that a judge might read the law that way. As a willing defendant Griffiths could be counted on not to raise a stink with the press, and his testimony might even help implicate the higher-ups. Sony could be expected to claim that it wasnt responsible for what consumers did with its product. To counter that defense, Universal had to establish a chain of responsibility from consumer to retailer and on to advertiser, distributor, and, ultimately, manufacturer. Does the majoritys note 3 identify Griffiths as a party? Why did plaintiffs not join a less compliant user? 1.

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3. Also, the majority, near note 27, says respondents have no right to prevent other copyright holders from authorizing [time shifting] for their programs. What of the rights of users? 4. In Dawson, the question was whether defendants sale of propanil infringed a patent on its use as an herbicide. For defendant to be liable, farmers had to directly infringe. Similar issues were addressed in Mallinckrodt, Lifescan and Jazz Photo all in Chapter 4. In any of those cases, were apparent or even arguable rights of nonparticipating ultimate users adversely affected? How would that change if patents were also subject to fair use? 5. The Sony dissent speculates that TV owners would be willing to pay for the privilege of viewing programs at their convenience. Assuming that this was then both true and logistically feasible, would it have warranted requiring users to pay particularly without the presence of even one party having a direct stake? To what extent do the next two cases raise a similar issue? Problems Consider Recording Indus. Assn, Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1079 (9th Cir. 1999): Rio [a portable MP3 player] merely makes copies in order to render portable, or space-shift, those files that already reside on a users hard drive. Such copying is a paradigmatic noncommercial personal use. Is there any problem if some persons can listen to originals while others listen to copies on a Rio? If someone charges others to do the same thing for them, would charging defeat any fair use claim in the Sixth Circuit? Why would it not violate 106(2) in the Ninth Circuit? In much the same vein, see Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121, 123 (2d Cir. 2008), Because we conclude that Cablevision would not directly infringe plaintiffs' rights under the Copyright Act by offering its RS-DVR system to consumers, we reverse the district courts award of summary judgment to plaintiffs.

Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.

U.S. Supreme Court 545 US 913 (2005)

Justice Souter: The question is under what circumstances the distributor of a product capable of both lawful and unlawful use is liable for acts of copyright infringement by third parties using the product. . Respondents, Grokster, Ltd., and StreamCast Networks, Inc., defendants in the trial court, distribute free software products that allow computer users to share electronic files through peer-to-peer networks, so called because users computers communicate directly with each other, not through central servers. . A group of copyright holders (MGM for short) sued Grokster and StreamCast for their users copyright infringements, alleging that they knowingly and intentionally enable users to reproduce and distribute the copyrighted works in violation of the Copyright Act. MGM sought damages and an injunction. . The district court held that those who used the Grokster and Morpheus software to download copyrighted media files directly infringed MGMs copyrights, a conclusion not contested on appeal, but the court nonetheless granted summary judgment in favor of

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Grokster and StreamCast as to any liability. Distributing that software gave rise to no liability in the courts view, because its use did not provide the distributors with actual knowledge of specific acts of infringement. . In the [Ninth Circuits] analysis, a defendant was liable as a contributory infringer when it had knowledge of direct infringement and materially contributed to the infringement. But the court read Sony as holding that distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. The fact that the software was capable of substantial noninfringing uses in the Ninth Circuits view meant that [defendants] were not liable, because they had no such actual knowledge, owing to the decentralized architecture of their software. The court also held that [defendants] did not materially contribute to their users infringement because [those users] searched for, retrieved, and stored with no involvement by the defendants beyond providing the software in the first place. The Ninth Circuit also considered whether Grokster and StreamCast could be liable under a theory of vicarious infringement. The court held against liability because the defendants did not monitor or control the use of the software, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement. MGM and many of the amici fault the court of appealss holding for upsetting a sound balance between the respective values of supporting creative pursuits through copyright protection and promoting innovation in new communication technologies by limiting the incidence of liability for copyright infringement. The more artistic protection is favored, the more technological innovation may be discouraged; the administration of copyright law is an exercise in managing the trade-off. See Sony. . The argument for imposing indirect liability in this case is, however, a powerful one, given the number of infringing downloads that occur every day using StreamCasts and Groksters software. When a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or vicarious infringement. [W]here an article is good for nothing else but infringement, there is no legitimate public interest in its unlicensed availability, and there is no injustice in presuming or imputing an intent to infringe. Conversely, the doctrine absolves the equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and limits liability to instances of more acute fault than the mere understanding that some of ones products will be misused. It leaves breathing room for innovation and a vigorous commerce. . Sonys rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law. . For the same reasons that Sony took the staple-article doctrine of patent law as a model, the inducement rule, too, is a sensible one for copyright. We adopt it here, holding that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties. We are, of course, mindful of the need to keep from trenching on regular commerce or discouraging the development of technologies with lawful and unlawful potential. Accordingly, just as Sony did not find intentional inducement despite the knowledge of the VCR manufacturer that its device could be used to infringe, mere knowledge of infringing potential or of actual infringing uses would not be

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enough here to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The inducement rule, instead, premises liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful promise. The judgment of the court of appeals is vacated, and the case is remanded for further proceedings consistent with this opinion. . Justice Ginsburg, with whom the Chief Justice and Justice Kennedy join, concurring: I concur in the Courts decision and write separately to clarify why I conclude that the court of appeals misperceived, and hence misapplied, our holding in Sony. There is here at least a genuine issue as to [a] material fact, not only for actively inducing copyright infringement, but also or alternatively, based on the distribution of their software products, for contributory copyright infringement. On neither score was summary judgment for Grokster and StreamCast warranted. . Justice Breyer, with whom Justice Stevens and Justice OConnor join, concurring: I agree with the Court that the distributor of a dual-use technology may be liable for the infringing activities of third parties where he or she actively seeks to advance the infringement. I further agree that, in light of our holding today, we need not now revisit Sony. Other Members of the Court, however, take up the Sony question: whether Groksters product is capable of substantial or commercially significant noninfringing uses. And they answer that question by stating that the court of appeals was wrong when it granted summary judgment on the issue in Groksters favor. I write to explain why I disagree. [S]trong demonstrated need for modifying Sony (or for interpreting Sonys standard more strictly) has not yet been shown. That fact, along with the added risks that modification (or strict interpretation) would impose upon technological innovation, leads me to the conclusion that we should maintain Sony, reading its standard as I have read it. As so read, it requires affirmance of the Ninth Circuits determination.

Princeton University Press v. Michigan Document Services, Inc.

U.S. Court of Appeals, Sixth Circuit 99 F.3d 1381 (1996)*

Before Martin, Merritt, Kennedy, David A. Nelson, Ryan, Boggs, Norris, Suhrheinrich, Siler, Batchelder, Daughtrey, Moore and Cole. Nelson, Circuit Judge: . [A] commercial copyshop reproduced substantial segments of copyrighted works of scholarship, bound the copies into coursepacks, and sold the coursepacks to students for use in fulfilling reading assignments given by professors at the University of Michigan. The copyshop acted without permission from the copyright holders, and the main question presented is whether the fair use doctrine obviated the need to obtain such permission. Answering this question no, and finding the infringement willful, the district court entered a summary judgment order [providing] equitable relief and damages that may have been enhanced for willfulness. A three-judge panel of this court reversed, but a majority of the active judges of the court subsequently voted to rehear the case en banc. .
*

Cert. denied, 500 U.S. 1156 (1997).

7.26

Defenses

We agree with the district court. We believe that the district court erred in its finding of willfulness, however, and we shall vacate the damages award because of its possible linkage to that finding. . Ann Arbor, the home of the University of Michigan, is also home to several copyshops. Among them is defendant Michigan Document Services (MDS), a corporation owned by defendant James Smith. . Mr. Smith has been something of a crusader against the system under which his competitors have been paying agreed royalties, or permission fees as they are known in the trade. The story begins in March of 1991, when Judge Constance Baker Motley, of the Southern District of New York, decided the first reported case involving the copyright implications of educational coursepacks. See Basic Books, Inc. v. Kinkos Graphics Corp., 758 F. Supp. 1522, holding that a Kinkos copyshop had violated the copyright statute by creating and selling coursepacks without permission. After Kinkos, we are told, many copyshops that had not previously requested [it] began to obtain such permission. Mr. Smith chose not to do so. He consulted an attorney. Mr. Smith also undertook his own study of the fair use doctrine, reading what he could find on this subject in a law library. He ultimately concluded that the Kinkos case had been wrongly decided, and he publicized this conclusion through speeches, writings, and advertisements. His advertisements stressed that professors whose students purchased his coursepacks would not have to worry about delays attendant upon obtaining permission from publishers. . The plaintiffs allege infringement of the copyrights on six different works that were excerpted without permission. The works in question, and the statistics on the magnitude of the excerpts, are as follows: Nancy J. Weiss, Farewell to the Party of Lincoln (95 pages copied, representing 30% of the book); Walter Lippmann, Public Opinion (45 pages, 18%); Robert E. Layne, Political Ideology (78 pages, 16%); Roger Brown, Social Psychology (52 pages, 8%); Milton Rokeach, The Nature of Human Values (77 pages, 18%); James S. Olson & Randy Roberts, Where the Domino Fell (17 pages, 5%). The extent of the copying is undisputed, and the questions presented by the case appear to be purely legal in nature. II The fair use doctrine permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569. . This language does not provide blanket immunity for multiple copies for classroom use. . The four statutory factors may not have been created equal. In determining whether a use is fair, the Supreme Court has said that the most important factor is the fourth. (But see American Geophysical Union v. Texaco Inc., 60 F.3d 913, 926 (2d Cir. 1994), cert. dismissed, 116 S.Ct. 592 (1995), suggesting that the Supreme Court may now have abandoned the idea that the fourth factor is of paramount importance.) We take it that this factor is at least primus inter pares, figuratively speaking, and we shall turn to it first. The burden of proof as to market effect rests with the copyright holder if the challenged use is of a noncommercial nature. The alleged infringer has the burden if the challenged use is commercial . In the case at bar the defendants argue that the burden of proof rests with the publishers because the use being challenged is noncommercial. We disagree. [Regardless of that,2 the court concluded that the publishers proved a diminution in potential market value.] .
2

Two of the dissents suggest that a copyshop merely stands in the shoes of its customers. As discussed in Part III A, infra, the dissenters suggestion which proposes no limiting principle runs counter to the legislative history of the Copyright Act and has properly been rejected by the courts.

Owners Rights and Copyright Defenses

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One test for determining market harm a test endorsed in Sony, Harper & Row, and Campbell is evocative of Kants categorical imperative. [T]o negate fair use, the Supreme Court has said, one need only show that if the challenged use should become widespread, it would adversely affect the potential market for the copyrighted work. Harper & Row, 471 U.S. at 568 (emphasis supplied in part). Under this test, we believe, it is reasonably clear that the plaintiff publishers have succeeded in negating fair use. As noted above, most of the copyshops that compete with MDS in the sale of coursepacks pay permission fees for the privilege of duplicating and selling excerpts from copyrighted works. The three plaintiffs together have been collecting permission fees at a rate approaching $500,000 a year. If copyshops across the nation were to start doing what the defendants have been doing here, this revenue stream would shrivel. The defendants contend that it is circular to assume that a copyright holder is entitled to permission fees and then to measure market loss by reference to the lost fees. They argue that market harm can only be measured by lost sales of books, not permission fees. But the circularity argument proves too much. Imagine that the defendants set up a printing press and made exact reproductions of a book. Under the defendants logic it would be circular for the copyright holder to argue market harm because of lost copyright revenues, since this would assume that the copyright holder had a right to such revenues. . The potential uses of the copyrighted works at issue in the case before us clearly include the selling of permission to reproduce portions of the works for inclusion in coursepacks and the likelihood that publishers actually will license such reproduction is a demonstrated fact. . Thus there is no circularity in saying that the potential for destruction of this market by widespread circumvention of the plaintiffs permission fee system is enough, under the Harper & Row test, to negate fair use. Our final point with regard to the fourth statutory factor concerns the affidavits of the three professors who assigned one or more of the copyrighted works. The defendants make much of the proposition that these professors only assigned excerpts when they would not have required their students to purchase the entire work. But what seems significant to us is that none of these affidavits shows that the professor executing the affidavit would have refrained from assigning the copyrighted work if the position taken by the copyright holder had been sustained beforehand. . III In the context of nontransformative uses, at least, and except insofar as they touch on the fourth factor, the other statutory factors seem considerably less important. We shall deal with them relatively briefly. A As to the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes, we have already explained our reasons for concluding that the challenged use is of a commercial nature. The defendants argue that the copying at issue here would be considered nonprofit educational if done by the students or professors themselves. The defendants also note that they can profitably produce multiple copies for less than it would cost the professors or the students. Most of the copyshops with which the defendants compete have been paying permission fees, however, and we assume that these shops too can perform the copying on a more cost-effective basis than the professors or students can. This strikes us as a more significant datum than the ability of a black market copyshop to beat the do-it-yourself cost. As to the proposition that it would be fair use for the students or professors to make their own copies, the issue is by no means free from doubt. We need not decide this question, however, for the fact is that the copying complained of here was performed on a profit-

7.28

Defenses

making basis by a commercial enterprise. And [t]he courts have properly rejected attempts by for-profit users to stand in the shoes of their customers making nonprofit or noncommercial uses. Patry, Fair Use in Copyright Law, at 420 n. 34. As the House Judiciary Committee stated in its report on the 1976 legislation, [I]t would not be possible for a non-profit institution, by means of contractual arrangements with a commercial copying enterprise, to authorize the enterprise to carry out copying and distribution functions that would be exempt if conducted by the non-profit institution itself. H.R.Rep. No. 1476, 94th Cong., 2d Sess. at 74 (1976), U.S.Code Cong. & Admin.News 5659, 5687-88. . B The second statutory factor, the nature of the copyrighted work, is not in dispute here. The defendants acknowledge that the excerpts copied for the coursepacks contained creative material, or expression; it was certainly not telephone book listings that the defendants were reproducing. This factor too cuts against a finding of fair use. C The third statutory factor requires us to assess the amount and substantiality of the portion used in relation to the copyrighted work as a whole. . . The defendants were using as much as 30% of one copyrighted work, and in no case did they use less than 5%. These percentages are not insubstantial. And to the extent that the third factor requires some type of assessment of the value of the excerpted material in relation to the entire work, the fact that the professors thought the excerpts sufficiently important to make them required reading strikes us as fairly convincing evidence of the qualitative value of the copied material. Harper & Row, 471 U.S. at 565. . V We take as our text for the concluding part of this discussion Justice Stewarts wellknown exposition of the correct approach to ambiguities in the copyright law: The immediate effect of our copyright law is to secure a fair return for an authors creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good. The sole interest of the United States and the primary object in conferring the monopoly, this Court has said, lie in the general benefits derived by the public from the labors of authors.. When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of this basic purpose. Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975). The defendants attach considerable weight to the assertions of numerous academic authors that they do not write primarily for money and that they want their published writings to be freely copyable. The defendants suggest that unlicensed copying will stimulate artistic creativity for the general public good. The writings of most academic authors, it seems fair to say, lack the general appeal of works by a Walter Lippmann, for example. . If publishers cannot look forward to receiving permission fees, why should they continue publishing marginally profitable books at all? And how will artistic creativity be stimulated if fewer academic works will be published? The fact that a liberal photocopying policy may be favored by many academics who are not themselves in the publishing business has little relevance in this connection. As Judge Leval observed in American Geophysical, It is not surprising that authors favor liberal photocopying; generally such authors have a far greater interest in the wide dissemination of their work than in

Owners Rights and Copyright Defenses

7.29

royalties all the more so when they have assigned their royalties to the publisher. But the authors have not risked their capital to achieve dissemination. The publishers have. Once an author has assigned her copyright, her approval or disapproval is of no further relevance. 802 F. Supp. at 27. . VI The district courts conclusion that the infringement was willful is somewhat more problematic. The [Act allows statutory damages] between $500 and $20,000 for each work infringed. Where the copyright holder establishes that the infringement is willful, the court may increase the award to not more than $100,000. If the court finds that the infringement was innocent, on the other hand, the court may reduce the damages to not less than $200. Here the district court awarded $5,000 per work infringed, characterizing the amount of the award as a strong admonition from this court. 855 F. Supp. at 913. Willfulness, under this statutory scheme, has a rather specialized meaning. As Professor Nimmer explains, . It seems clear that as here used, willfully means with knowledge that the defendants conduct constitutes copyright infringement. Otherwise, there would be no point in providing specially for the reduction of minimum awards in the case of innocent infringement. This seems to mean, then, that one who has been notified that his conduct constitutes copyright infringement, but who reasonably and in good faith believes the contrary, is not willful for these purposes. Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright 14.04 B][3] (1996). The plaintiffs do not contest the good faith of Mr. Smiths belief that his conduct constituted fair use; only the reasonableness of that belief is challenged. Reasonableness, in the present context, is essentially a question of law. The facts of the instant case are not in dispute, and the issue is whether the copyright law supported the plaintiffs position so clearly that the defendants must be deemed as a matter of law to have exhibited a reckless disregard of the plaintiffs property rights. We review this issue de novo. Fair use is one of the most unsettled areas of the law. . The potential for reasonable disagreement here is illustrated by the forcefully argued dissents and the now-vacated panel opinion. . Accordingly, we shall remand the case for reconsideration of the statutory damages to be awarded. . Boyce F. Martin, Jr., Chief Judge, dissenting. . That the majority lends significance to the identity of the person operating the photocopier is a profound indication that its approach is misguided. Given the focus of the Copyright Act, the only practical difference between this case and that of a student making his or her own copies is that commercial photocopying is faster and more cost-effective. Censuring incidental private sector profit reflects little of the essence of copyright law. Would the majority require permission fees of the Professors teaching assistant who at times must copy, at the Professors behest, copyrighted materials for dissemination to a class, merely because such assistant is paid an hourly wage by the Professor for this work? . Merritt, Circuit Judge (joined by Judges Daughtry and Moore), dissenting. The copying done in this case is permissible under the plain language of the copyright statute that allows multiple copies for classroom use: [T]he fair use of a copyrighted work for purposes such as teaching (including multiple copies for classroom use), is not an infringement of copyright. (emphasis added). Also, the injunction the court has upheld exceeds the protections provided by the Copyright Act of 1976 and is so grossly overbroad that it violates the First Amendment. .

7.30

Defenses

I disagree with the courts method of analyzing and explaining the statutory language of 107.1 Except for teaching, the statute is cast in general, abstract language that allows fair use for criticism, comment, news reporting and research. The scope or extent of copying allowed for these uses is left undefined. Not so for teaching. This purpose, and this purpose alone, is immediately followed by a definition. The definition allows multiple copies for classroom use. The four factors to be considered are of limited assistance when the teaching use at issue fits squarely within the specific language of the statute. In the present case that is all we have multiple copies for classroom use. There is nothing in the statute that distinguishes between copies made for students by a third person who charges a fee for their labor and copies made by students themselves. Our political economy generally encourages the division and specialization of labor. There is no reason why in this instance the law should discourage high schools, colleges, students and professors from hiring the labor of others to make their copies any more than there is a reason to discourage lawyers from hiring paralegals to make copies for clients and courts. The courts distinction in this case based on the division of labor is short sighted and unsound economically. Our court cites no authority for the proposition that the intervention of the copyshop changes the outcome of the case. . Neither the district court nor our court provides a rationale as to why the copyshops cannot stand in the shoes of their customers where the copying would be fair use if undertaken by the professor or the student personally. . The essence of copyright is the promotion of learning not the enrichment of publishers. . Ryan, Circuit Judge (joined by Judge Daughtry), dissenting: It is clear from the application of the four fair use factors that MDSs copying in this case is fair use and, thus, no infringement of the publishers rights. Indeed, it is a use which is merely an aspect of the professors and students classroom use, and, only in the narrowest and most technical sense, a use of a separate genre under 107. . Notes 1. Which, if any, of the copies challenged in Michigan Document might have passed muster had professors or students, themselves, copied? What if MDS only makes photocopiers available for student use? Compare the situation governed by 108(f). 2. How did Smith benefit from having what proved to be a mistaken view of 107? 3. Does the Sixth Circuit, despite Campbell, still overstress the commercial purpose of the use? 4. If the House Report, quoted in III.A, is credited, what would warrant any discussion of fair use? On what basis can dissenting judges ignore it? 5. If a professor assembles a casebook by copying a few chapters from each of, say, five other casebooks, does the plain meaning of words in the 107 preamble adequately address the fairness of such use? See also, e,g., Marcus v. Rowley, 695 F.2d 1171, 1175-76 (9th Cir. 1983) (teacher was liable, partly for failure to credit another teachers work).
1

Both the majority opinion and Judge Ryans dissent approach the determination solely by use of the four statutory factors set out in 107. Neither the plain language of the statute nor the case law requires that determination to be made solely on the narrow grounds of those four factors. Because the plain language of the statute is clear concerning multiple copies for classroom use and because determinations of infringement are to be made on a case-by-case basis taking into consideration the reasonableness of the copying from an equitable perspective, I do not believe that the four factors are controlling. .

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7.31

6. The majority opinion in Michigan Document expresses concern about the consequences of widespread adoption of a practice on the potential market for the copyrighted work, but it neglects to consider licensees motivation for paying. In that regard, consider EWP Corp. v. Reliance Univ. Inc., 755 F.2d 898, 907-08 (Fed. Cir. 1985): When the PTO issues [an invalid patent], it is not unusual to see astute businessmen capitalize on it by erecting a temporarily successful licensing program thereon.... They sometimes succeed because they are mutually beneficial to the licensed group or because of business judgments that it is cheaper to take licenses than to defend infringement suits, or for other reasons. Such a secondary consideration must be carefully appraised as to its evidentiary value and we have tried to do that here. See also Jennifer E. Rothman, The Questionable Use of Custom in Intellectual Property, 93 Va. L. Rev. 1899, 1970 (2007), [W]hen customs develop to avoid litigation or to preserve relationships, they do not provide meaningful information relevant to establishing an optimal allocation of rights. Are such considerations adequately credited by dissenters in Sony (citing consumers willingness to pay) or by the majority in Michigan Document?

Ty, Inc. v. Publications Intl, Ltd.

U.S. Court of Appeals, Seventh Circuit 292 F.3d 512 (2002)

Before Flaum, Chief Judge, and Posner and Rovner. Posner, Circuit Judge: [Ty manufactures copyrighted Beanie Babies. Defendants (PIL), books, e.g., For the Love of Beanie Babies and Beanie Babies Collectors Guide, contain unauthorized photographs. The district court rejected PILs fair use defense and granted Tys motion for summary judgment; it issued an injunction and awarded attorney fees, $1.36 million profits and over $200,000 in prejudgment interest.] . The defense of fair use, originally judge-made, now codified, plays an essential role in copyright law. Without it, any copying of copyrighted material would be a copyright infringement. A book reviewer could not quote from the book he was reviewing without a license from the publisher. Quite apart from the impairment of freedom of expression that would result from giving a copyright holder control over public criticism of his work, to deem such quotation an infringement would greatly reduce the credibility of book reviews, to the detriment of copyright owners as a group, though not to the owners of copyright on the worst books. Book reviews would no longer serve the reading public as a useful guide to which books to buy. Book reviews that quote from (copy) the books being reviewed increase the demand for copyrighted works; to deem such copying infringement would therefore be perverse, and so the fair-use doctrine permits such copying. On the other hand, were a book reviewer to quote the entire book in his review, or so much of the book as to make the review a substitute for the book itself, he would be cutting into the publishers market, and the defense of fair use would fail. Generalizing from this example in economic terminology that has become orthodox in fair-use case law, we may say that copying that is complementary to the copyrighted work (in the sense that nails are complements of hammers) is fair use, but copying that is a substitute (in the sense that nails are substitutes for pegs or screws), or for derivative

7.32

Defenses

works from the copyrighted work is not fair use. If the price of nails fell, the demand for hammers would rise but the demand for pegs would fall. The hammer manufacturer wants there to be an abundant supply of cheap nails, and likewise publishers want their books reviewed and wouldnt want reviews inhibited and degraded by a rule requiring the reviewer to obtain a copyright license from the publisher if he wanted to quote from the book. So, in the absence of a fair-use doctrine, most publishers would disclaim control over the contents of reviews. The doctrine makes such disclaimers unnecessary. It thus economizes on transaction costs. . The proper characterization of PILs Beanie Baby books is the kind of fact-laden issue appropriate for summary judgment only in extreme cases, which this case is not. At one end of the spectrum is For the Love of Beanie Babies. This large-print book with hard shiny covers seems directed at a child audience. All the different Beanie Babies, more than 150 of them, are pictured. Each picture is accompanied by a brief commentary. Some of the commentary seems aimed exclusively at a child (or infantile adult) audience, such as the commentary on Snip the Siamese Cat: That darn cat has nerve! Just like the real thing, Tys Siamese has plenty of attitude. The champagne-colored cat with blue-ringed black eyes and chocolatecovered points is a beautiful specimen of the Far Eastern breed. And she knows it! Stretched out on all fours, this finicky feline is the only purebred in Tys cathouse. This pretty kitty is definitely the cats meow. The commentary seems distinctly secondary to the photograph. . At the opposite extreme is PILs Beanie Babies Collectors Guide. This is a small paperback book with small print, clearly oriented toward adult purchasers. Each page contains, besides a photograph of a Beanie Baby, the release date, the retired date, the estimated value of the Beanie Baby, and other information relevant to a collector, such as that Spooky is the only Beanie ever to have carried his designers name, or that Prance should be a member of the Beanie line for some time, so dont panic and pay high secondary-market prices for her just because shes fairly new. Some of the text is quite critical, for example accusing Ty of frequent trademark infringements. Ty doesnt like criticism, and so the copyright licenses that it grants to those publishers whom it is willing to allow to publish Beanie Baby collectors guides reserve to it the right to veto any text in the publishers guides. It also forbids its licensees to reveal that they are licensees of Ty. Its standard licensing agreement requires the licensee to print on the title page and back cover of its publication the following misleading statement: This publication is not sponsored or endorsed by, or otherwise affiliated with Ty Inc. All Copyrights and Trademarks of Ty Inc. are used by permission. All rights reserved. Notice the analogy to a publishers attempting to use licensing to prevent critical reviews of its books an attempt that the doctrine of fair use blocks. We need not consider whether such a misleading statement might constitute copyright misuse, endangering Tys copyrights. But we do need to explain the oddity of there being collectors guides for a line of childrens toys. As a marketing gimmick, Ty deliberately creates a shortage in each Beanie Baby by selling it at a very low price and not producing enough copies to clear the market at that price. As a result, a secondary market is created, just like the secondary market in works of art. The secondary market gives widespread publicity to Beanie Babies, and the shortage that creates the secondary market stampedes children into nagging their parents to buy them the latest Beanie Babies, lest they be humiliated by not possessing the Beanie Babies that their peers possess. The appeal is to the competitive conformity of children but also to the mentality of collectors.

Owners Rights and Copyright Defenses

7.33

When Beanie Babies Collectors Guide was published in 1998, some Beanie Babies were selling in the secondary market for thousands of dollars, while others were selling for little more than their original purchase price. The range was vast, creating a demand for collectors guides. . Ty goes so far as to argue that PIL not only cannot publish photos of all the Beanie Babies but cannot publish color photos of any of them. Such a guide would sink like a stone since photos of all the Beanie Babies [are] in the licensees collectors guides. It would be like trying to compete with a CD of Beethovens Fifth Symphony by selling the score. We have thus far discussed the application of the fair-use doctrine in terms of the purpose of the doctrine rather than its statutory definition, which though extensive is not illuminating. (More can be less, even in law.) . The important point is simply that, as the Supreme Court made clear not only in Campbell but also in Sony, the four factors are a checklist of things to be considered rather than a formula for decision; and likewise the list of statutory purposes. . The question is whether it would be unreasonable to conclude, with reference to one or more of the enjoined publications, such as the Beanie Babies Collectors Guide, that the use of the photos is a fair use because it is the only way to prepare a collectors guide. Ty relies primarily on two cases. Twin Peaks Productions, Inc. v. Pubns. Intl, Ltd., 996 F.2d 1366 (2d Cir. 1993), involved a book published by PIL concerning a television series. . The court held that the book was basically an abridgment of the script and that abridgments are generally not fair use. . The other case on which Ty principally relies [is] Castle Rock Entertainment, Inc. v. Carol Pub. Group, Inc., 150 F.3d 132 (2d Cir. 1998) . There each fact tested by [the Seinfeld Aptitude Test] is in reality fictitious expression. The SAT does not quiz such true facts as the identity of the actors in Seinfeld, the number of days it takes to shoot an episode. Rather, The SAT tests whether the reader knows that Kramer enjoys going to the airport because hes hypnotized by the baggage carousels, and that Jerry, opining on how to identify a virgin, said Its not like spotting a toupee. Castle Rock, 150 F.3d at 139. A similar judgment might be possible here. This raises the question whether, while summary judgment might be warranted with regard to some [books]. However, three reasons counsel against this course. The first is that the record actually contains not one but three versions of For the Love of Beanie Babies, and our earlier description was of the one furthest removed from a collectors guide; the others are closer. Second, Ty is not asking us to consider the appropriateness of partial summary judgment. Third, and related to the second point, the briefs do not analyze the various books separately. We do not preclude consideration on remand of the possibility of partial summary judgment. . Notes 1. If Ty has no right to control the market for collectors guides as well as toys, does its attempt pose issues akin to those addressed in Morton Salt, Chapter 4? 2. Should Tys requiring licensed publishers to deny its oversight, alone, be reason to deny relief based on unclean hands, as discussed in Morton Salt or Belcher? 3. Again consider the issue raised in the last note before Ty and elsewhere. Should some publishers willingness to sign license agreements obligate others not so inclined?

7.34

Defenses

Sandoval v. New Line Cinema Corp.

U.S. Court of Appeals, Second Circuit 147 F.3d 215 (1998)

Before: Meskill, Kearse, and Telesca, Judge, Western District of New York. Telesca, District Judge: . Jorge Antonio Sandoval is an artist and photographer. Between 1991 and 1994, he created a series of 52 untitled, and highly unusual black and white self-portrait studies. The series contains, inter alia, photographs of Sandoval with his face tightly wrapped with wire; with his face covered by soap bubbles; and lying on what appears to be a bed of thorns. It is undisputed that Sandoval owns the copyrights to these photographs, which were never published nor publicly shown. In 1995, New Line Cinema Corp. produced and commenced distribution of the motion picture Seven. The movie is based upon a fictitious story of a depraved photographer who commits seven torturous murders, each of which is designed to evoke or represent one of the traditional seven deadly sins recognized in the doctrines of the Roman Catholic Church. In one scene, approximately one hour and sixteen minutes into the movie, two investigators search the photographers apartment for evidence linking him to the murders. On the back wall of the apartment is a large light-box with a number of photographic transparencies attached to it. The parties agree, for purposes of summary judgment, that ten of the transparencies affixed to the light box are reproductions of Sandovals self-portraits. [A minute later], the light box is turned on. During the next minute and a half, the light box and Sandovals pictures, or portions of each, are briefly visible in eleven different camera shots. The longest uninterrupted view of the light box lasts six seconds, but the box is otherwise visible, in whole or in part, for a total of approximately 35.6 seconds. The photographs never appear in focus, and except for two of the shots, are seen in the distant background, often obstructed from view by one of the actors. In these two shots, figures in the photographs are barely discernible, with one shot lasting for four seconds and the other for two seconds. Moreover, in one of the shots, after one and a half seconds, the photograph is completely obstructed by a prop in the scene. Discussion I. The Proceedings Below [The district court, relying on an opinion reversed in Ringgold v. Black Entertainment Television, 126 F.3d 70 (2nd Cir. 1997), found use of the photographs to be fair.] In Ringgold, this Court held that a district courts failure to properly weigh two of the four factors set forth in 107 warranted remand. We also stated, however, that where the unauthorized use of a copyrighted work is de minimis, no cause of action will lie for copyright infringement, and determination of a fair use claim is unnecessary. In the instant case, the district court decided the fair use issue without first ascertaining whether or not the use of the copyrighted material was de minimis. . [Despite that error], because the claimed copying is de minimis as a matter of law, we affirm. II. The Infringement of Plaintiffs Copyrighted Photographs is De Minimis. To establish that the infringement of a copyright is de minimis, the alleged infringer must demonstrate that the copying of the protected material is so trivial as to fall below the quantitative threshold of substantial similarity, which is always a required element of actionable copying. Ringgold, 126 F.3d at 74. In determining whether or not the allegedly infringing work falls below the quantitative threshold of substantial similarity to the

Owners Rights and Copyright Defenses

7.35

copyrighted work, courts often look to the amount of the copyrighted work that was copied, as well as, (in cases involving visual works) the observability of the copyrighted work in the allegedly infringing work. Observability is determined by the length of time the copyrighted work appears in the allegedly infringing work, and its prominence in that work as revealed by the lighting and positioning of the copyrighted work. Ringgold, 126 F.3d at 75. Like the analysis of a fair use claim, an inquiry into the substantial similarity between a copyrighted work and the allegedly infringing work must be made on a case-by-case basis, as there are no bright-line rules for what constitutes substantial similarity. See Campbell v. Acuff-Rose Music. We have reviewed relevant portions of the alleged infringing work and find that the defendants copying of Sandovals photographs falls below the quantitative threshold of substantial similarity. Unlike Ringgold, where the artwork was clearly visible and with sufficient observable detail for the average lay observer to discern AfricanAmericans in Ringgolds colorful, virtually two-dimensional [sic?] style, Ringgold, 126 F.3d at 77, [neither the subject matter, nor the style of Sandovals photographs are discernible.] The photographs are displayed in poor lighting and at great distance. Moreover, they are out of focus and displayed only briefly in eleven different shots. Unlike Ringgold, in which brief but repeated shots of the poster at issue reinforced its prominence, the eleven shots here have no cumulative effect. In short, this is the type of case the Ringgold court anticipated when it observed that [i]n some circumstances, a visual work, though selected by production staff for thematic relevance, or at least for its decorative value, might ultimately be filmed at such distance and so out of focus that a typical program viewer would not discern any decorative effect that the work of art contributes to the set. Id. Because Sandovals photographs appear fleetingly and are obscured, severely out of focus, and virtually unidentifiable, we find the use of those photographs to be de minimis. . Notes 1. Ringgolds work referenced in Sandoval was used nine times, for a total of 26.75 seconds, but that use was not de minimis. Use of Sandovals work, however, was de minimis when shown eleven times, for approximately 35.6 seconds. But that concerns the quantitative, not qualitative, threshold, and views of Ringgolds work were not, e.g., distant and unfocused. 2. Why might district courts, despite finding uses de minimis, continue with 107 analyses? If so, does a de minimis defense meaningfully advance judicial economy? If not, what end does it serve? 3. In Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th Cir. 2005) (amended after rehearing), the court rejects a de minimis defense to use of small samples copied from others sound recordings. 4. Recall that another atypical defense is addressed in SmithKline Beecham Consumer Healthcare, noted in Chapter 5. There, Watsons use of almost identical labeling was found not to infringe because it was required by the FDA. To what extent does that problem and the one addressed in Morrissey, Chapter 5 resemble Ty and Sandoval? Although defenses based on subject matter, scope of rights, and fair use often blur, such matters should be, as much as possible, evaluated independently. 5. What of drawings in patents? See Korzybski v. Underwood & Underwood, 36 F.2d 727, 729 (2d. Cir. 1929), Everything disclosed in the patent became a part of the public domain, [aside from patentees rights for its duration].

7.36

Defenses

6. Quality King Distributors, Inc. v. Lanza Research Intl., Inc., 523 U.S. 135 (1998), warrants further mention with regard to its parallel to Jazz Photo, Chapter 4.A. As related at 138-39, .Lanza is a California corporation engaged in the business of manufacturing and selling shampoos, conditioners, and other hair care products. Lanza has copyrighted the labels that are affixed to those products. In the United States, Lanza sells exclusively to domestic distributors who have agreed to resell within limited geographic areas and then only to authorized retailers such as barber shops, beauty salons, and professional hair care colleges. Lanza has found that the American public is generally unwilling to pay the price charged for high quality products when they are sold along with products that are generally carried by supermarkets and drug stores. Lanza promotes the domestic sales of its products with extensive advertising in various trade magazines and at point of sale, and by providing special training to authorized retailers. Lanza also sells its products in foreign markets. In those markets, however, it does not engage in comparable advertising or promotion; its prices to foreign distributors are 35% to 40% lower than the prices charged to domestic distributors. In 1992 and 1993, Lanzas distributor in the United Kingdom arranged the sale of three shipments to a distributor in Malta; each shipment contained several tons of Lanza products with copyrighted labels affixed. The record does not [identify] the initial purchaser, but it is undisputed that the goods were manufactured by Lanza and first sold by Lanza to a foreign purchaser. It is also undisputed that the goods found their way back to the United States without the permission of Lanza and were sold in California by unauthorized retailers who had purchased them at discounted prices from Quality King Distributors, Inc. Despite intervention of the U.S. Solicitor General on behalf of Lanza, the Court unanimously found such importation to be permissible under 109(a). Justice Ginsburg, however, saw fit to concur briefly, stressing that the majority does not resolve cases in which the allegedly infringing imports were manufactured abroad, and citing authority for the proposition that copyrights (with patents) are territorial. The law as she describes it was applied in Omega, S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), cert. granted, sub nom. Costco Wholesale Corp. v. Omega, S.A., 130 S.Ct. 2089 (2010). Omega is similar to Quality King in that watches, like cosmetic products, are not themselves copyrightable. Because watches in issue bore a design registered in the Copyright Office, however, the court of appeals found importation of articles produced abroad (rather than domestically) to be impermissible. 541 F.3d at 983.

Chapter 8 Trade Secrets

A. Early Cases Supreme Judicial Court of Massachusetts 98 Mass. 452 (1868)

Peabody v. Norfolk

. The bill [in equity] set forth that, for many years prior to the filing of the same, Peabody was secretly engaged in originating and perfecting a process, to manufacture gunny cloth from jute butts, and at last succeeded; that thereupon he built a large factory on Bridge Street in Salem to carry on such manufacture with such machinery and process, and filled it with such machinery, and invested a large sum; that, both in all his experiments, and in the construction of the machines for the factory and the setting up and running of the same, he employed Norfolk, who was a machinist, to give his whole time and skill for a salary; that, in the course of this employment, Norfolk became confidentially possessed of knowledge of the machinery and process, well understanding that such knowledge was to be kept wholly secret; and that, at the solicitation of Norfolk while so employed, Peabody made a written agreement annexed in full to the bill: Said Norfolk agrees to serve the said Peabody as the engineer of his jute factory, and agrees that he will not give any parties information, directly or indirectly, in regard to the machinery, or any portions of it, [but] will consider all of said machinery as sacred, and that by all the means in his power he will prevent other persons from obtaining any information as would enable them to use it. Said Peabody on his part agrees to pay one thousand dollars annually in monthly instalments, to be received in full compensation for above described services. The bill further alleged that Norfolk left and had made arrangements with persons unknown to Peabody to build another factory for the manufacture of gunny cloth from jute butts, and that he had taken the original drawings, or copies thereof, of said machinery, and intended to use them in carrying out his said arrangements. The prayer of the bill was for an injunction to restrain Norfolk from carrying out any such arrangements and to oblige him to return to Peabody said drawings or copies. Upon this bill an injunction was issued in conformity. On June 8, 1867, Peabody filed a supplemental bill, reciting said prayer and the issue of the injunction, and alleging that he had learned for the first time that James P. Cook was one of the persons with whom Norfolk had made his said arrangements; and further, that Cook and his associates, knowing the relations between Peabody and Norfolk, and knowing the fact of the injunction, were nevertheless proceeding to [use Peabodys secrets]; and that, although Norfolk was falsely pretending to obey the injunction, yet in fact he was one of Cooks present associates in the building of such machinery. The prayer was for an injunction on Cook similar to that issued against Norfolk. To this supplemental bill Cook filed a general demurrer.

8.2

Early Cases

Gray, Judge: It is the policy of the law, for the advantage of the public, to encourage and protect invention and commercial enterprise. If a man establishes a business and makes it valuable by his skill and attention, the good will of that business is recognized by the law as property. If he adopts and publicly uses a trade mark, he has a remedy, either at law or in equity, against those who undertake to use it without his permission. If he makes a new and useful invention of any machine or composition of matter, he may obtain letters patent. If he invents or discovers, and keeps secret, a process of manufacture, whether a proper subject for a patent or not, he has a property in it, which a court of chancery will protect against one who in violation of contract and breach of confidence undertakes to apply it to his own use, or to disclose it to third persons. The jurisdiction in equity to interfere by injunction to prevent such a breach of trust, when the injury would be irreparable and the remedy at law inadequate, is well established by authority. In the earliest reported case of this class, Lord Eldon indeed refused to grant an injunction against imparting, in violation of an agreement, the secret, not only of a patent which had been obtained and had expired, and which the whole public was therefore entitled to use; but also that of making a certain kind of pills, for which no patent had been procured; and stated that the court could not, without having it disclosed, ascertain whether it had been infringed. But the same learned chancellor afterwards considered the general question as still an open one. And in a later case he unhesitatingly granted an injunction against one who by the terms of his agreement with the plaintiff was not to be instructed in the secret, and who had obtained a knowledge of it by a breach of trust. Sir John Leach decreed, in one case, specific performance of an agreement by a trader to sell the good will of a business and the exclusive use of a secret in dyeing; and, in another, an account of the profits of a secret for making a medicine against a son of the inventor, holding it in trust for his brothers and sisters. In a more recent case, Morison, the inventor and sole proprietor of a medicine, for which no patent had been obtained, entered into partnership with Moat, to whom he communicated the secret of making the medicine, but did not make the secret a part of the assets of the partnership, and reserved it to himself as against all other persons, and Moat covenanted not to reveal it to any person whomsoever; by subsequent agreement Morisons sons and a son of Moat were admitted as partners in the business; and the secret was surreptitiously obtained from Moat by his son. After the death of both the original parties, on a bill brought by Morisons sons, who were also legatees of the secret, against Moats son, Vice-Chancellor Turner, in an elaborate judgment reviewing all the English authorities, granted an injunction restraining the defendant from using the secret in any manner in compounding the medicine. Morison v. Moat, 9 Hare 241. The order was affirmed; and Lord Cranworth, delivering the opinion of the court of appeal, said: The principles that were argued in this case are principles really not to be called in controversy. There is no doubt whatever, that when a party who has a secret in trade employs persons under a contract express or implied, or under duty express or implied, those persons cannot gain the knowledge of the secret and then set it up against their employer. 21 L. J. (N. S.) Ch. 248. Mr. Justice Story states the doctrine in the broadest terms, that courts of equity will restrain a party from making a disclosure of secrets communicated to him in the course of a confidential employment; and it matters not, in such cases, whether the secrets be secrets of trade or secrets of title, or any other secrets of the party important to his interests.

Trade Secrets

8.3

2 Story Eq. 952. In this court, it is settled that a secret art is a legal subject of property; and that a bond for a conveyance of the exclusive right to it is not open to the objection of being in restraint of trade, but may be enforced by action at law, and requires the obligor not to divulge the secret to any other person. In Jarvis v. Peck, 10 Paige 118, such a bond was held valid in equity. [T]his court has full equity jurisdiction, according to the usage and practice of courts of equity where there is not a plain, adequate and complete remedy at law. The contract between Peabody and Norfolk was, on the part of Norfolk, to serve Peabody as engineer, and not to give any third person information directly or indirectly, but to consider all of said machinery as sacred and, on the part of Peabody, to pay Norfolk an annual salary for the above described services. The above described services clearly include, not only the affirmative promise to serve as an engineer, but the negative promise not to disclose the secret; and the salary is a legal and sufficient consideration for all the agreements of Norfolk. The plaintiffs do not ask for specific performance of Norfolks promise to serve as engineer. It is therefore unnecessary to consider whether that promise is capable of being specifically enforced. Whatever may be the limit or effect of his obligation to serve, he is bound by his contract never to disclose the secret confidentially imparted to him during the term of his actual service. And this part of his agreement may be specifically enforced in equity, even if the other part could not. Lumley v. Wagner, 1 De Gex, Macn. & Gord. 604. The bill alleges that the invention and the process of manufacture have been kept secret, and that the secret is the property of the original plaintiff and of great value to him, and was confidentially imparted to Norfolk; and on demurrer these allegations must be taken to be true. Although the process is carried on in a large factory, the workmen may not understand or be intrusted with the secret, or may have acquired a knowledge of it upon the like confidence. A secret of trade or manufacture does not lose its character by being confidentially disclosed to agents or servants, without whose assistance it could not be made of any value. Even if, as is argued in support of the demurrer, the process is liable to be inspected by the assessor of internal revenue or other public officer, the owner is not the less entitled to protection against those who in, or with knowledge of, violation of contract and breach of confidence, undertake to disclose it or to reap the benefit of it. The danger of divulging the secret in the course of a judicial investigation affords in our opinion no satisfactory reason why a court of equity should refuse all remedy against the wrongdoers. . Notes 1. Does the court adequately address differences between Norfolk and Cook? 2. Lumley v. Wagner, decided in 1852, is perhaps the earliest case to refuse to order specific performance of all obligations assumed by someone like Norfolk. What stands in the way of ordering performance of the obligation to serve as well as to maintain confidences? 3. Regarding the risk of exposing secrets to federal officials, see 18 U.S.C. 1905 (criminal liability for their subsequent unauthorized disclosure). As for state officials, see Philip Morris, Inc. v. Reilly, 312 F.3d 24 (1st. Cir. 2002) (Absent precautions against public disclosure, a requirement that tobacco companies reveal ingredients in cigarettes constituted an unconstitutional taking). 4. Risks of losing secrets in the context of litigation, also mentioned at the end of the case, are considered below.

8.4

Early Cases

Court of Appeals of New York, Second Division 118 N.Y. 30, 23 N.E. 12 (1889) Vann, Judge: . . The Trial Court found that the plaintiff, having invented a pump known as Tabors Rotary Pump, made a complete set of patterns to manufacture the same; that he necessarily spent much time, labor, and money in making and perfecting such patterns, which were always in his exclusive possession; that from time to time he made improvements, and incorporated the same in the patterns, which were never thrown on the market nor given to the public; that one Francis Walz surreptitiously made for the defendant a duplicate set of said patterns from measurements taken from the patterns of the plaintiff, without his knowledge or consent, while they were in possession of said Walz to be repaired; that before the commencement of this action the defendant, with knowledge of all these facts and without the consent of the plaintiff, had commenced to make, and since then has made, pumps from said patterns, thus obtained; that the plaintiff has established a large and profitable trade in said pumps, which will be injured, and plaintiff damaged, if the defendant is permitted to continue to manufacture from said patterns. The Trial Court further found, upon the request of the defendant, that a competent pattern-maker can make a set of patterns from measurements taken from the pump itself, without the aid of plaintiffs patterns, but refused to find, upon the like request, that this could be done with little more expense and trouble than from measurements taken from plaintiffs said patterns. It appeared from the evidence that the finished pump does not comply with the patterns, because it is made of brass and iron, which expand unequally in the finished casting, and also contract unequally when cooling during the process of casting; that some of the patterns are subdivided into sections, which greatly facilitates measurements and drawings, as each section can be laid flat upon the wood or paper; and that it would take longer to make a set of patterns from the pump than it would to copy the perfected patterns themselves. The special term, by its final decree, restrained the defendant from manufacturing any more pumps from the set of patterns made by Francis Walz from measurements taken from the plaintiffs patterns and from selling, disposing of, or using in any manner said patterns. It is conceded by the appellant that, independent of copyright or letters patent, an inventor or author has, by the common law, an exclusive property in his invention or composition, until by publication it becomes the property of the general public. This concession seems to be well founded, and to be sustained by authority. Peabody v. Norfolk, 98 Mass. 452. As the plaintiff had placed the perfected pump upon the market, without obtaining the protection of the patent laws, he thereby published that invention to the world, and no longer had any exclusive property therein. But the completed pump was not his only invention, for he had also discovered means, or machines in the form of patterns, which greatly aided, if they were not indispensable, in the manufacture of the pumps. This discovery he had not intentionally published, but had kept it secret, unless, by disclosing the invention of the pump, he had also disclosed the invention of the patterns by which the pump was made. The precise question, therefore, presented by this appeal, as it appears to us, is whether there is a secret in the patterns that yet remains a secret, although the pump has been given to the world. The pump consists of many different pieces, the most of which are made by running melted brass or iron in a mould. The mould is formed by the use of patterns, which exceed in number the separate parts of the pump, as some of them are

Tabor v. Hoffman

Trade Secrets

8.5

divided into several sections. The different pieces out of which the pump is made are not of the same size as the corresponding patterns, owing to the shrinkage of the metal in cooling. In constructing patterns it is necessary to make allowances, not only for the shrinkage, which is greater in brass than in iron, but also for the expansion of the completed casting under different conditions of heat and cold, so that the different parts of the pump will properly fit together and adapt themselves, by nicely balanced expansion and contraction, to pumping either hot or cold liquids. If the patterns were of the same size as the corresponding portions of the pump, the castings made therefrom would neither fit together, nor, if fitted, work properly when pumping fluids varying in temperature. The size of the patterns cannot be discovered by merely using the different sections of the pump, but various changes must be made, and those changes can only be ascertained by a series of experiments, involving the expenditure of both time and money. Are not the size and shape of the patterns, therefore, a secret which the plaintiff has not published, and in which he still has an exclusive property? Can it be truthfully said that this secret can be learned from the pump, when experiments must be added to what can be learned from the pump before a pattern of the proper size can be made? As more could be learned by measuring the patterns than could be learned by measuring the component parts of the pump, was there not a secret that belonged to the discoverer, until he abandoned it by publication, or it was fairly discovered by another? If a valuable medicine, not protected by patent, is put upon the market, any one may, if he can by chemical analysis and a series of experiments, or by any other use of the medicine itself, aided by his own resources only, discover the ingredients and their proportions. If he thus finds out the secret of the proprietor, he may use it to any extent that he desires without danger of interference by the courts. But, because this discovery may be possible by fair means, it would not justify a discovery by unfair means, such as the bribery of a clerk who, in the course of his employment, had aided in compounding the medicine, and had thus become familiar with the formula. The courts have frequently restrained persons who have learned a secret formula for compounding medicines, beverages, and the like, while in the employment of the proprietor, from using it themselves, or imparting it to others to his injury; thus, in effect, holding, as was said by the learned general term, that the sale of the compounded article to the world was not a publication of the formula or device used in its manufacture. Hammer v. Barnes, supra, ,Peabody v. Norfolk, supra. The fact that one secret can be discovered more easily than another does not affect the principle. Even if resort to the patterns of the plaintiff was more of a convenience than a necessity, still, if there was a secret, it belonged to him, and the defendant had no right to obtain it by unfair means, or to use it after it was thus obtained. We think that the patterns were a secret device that was not disclosed by the publication of the pump, and that the plaintiff was entitled to the preventive remedies of the court. While the defendant could lawfully copy the pump, because it had been published to the world, he could not lawfully copy the patterns, because they had not been published, but were still, in every sense, the property of the plaintiff, who owned not only the material substance, but also the discovery which they embodied. The judgment should be affirmed, with costs. All concur, except Follett, dissenting, and Bradley and Haight, not sitting. Follett, Chief Judge (dissenting): An inventor of a new and useful improvement has a right to its exclusive enjoyment, which right he may protect by a patent or by concealment. The plaintiffs patent had expired, and all of the parts of the pump represented by the patterns had been for a long time on sale in the form of a completed pump. The patent on the original invention having expired, and the plaintiff having voluntarily made the subsequent improvements public by selling the improved article, he lost his right to their exclusive use. The plaintiffs counsel concedes this,

8.6

Current Sources of Law

but says that while patterns could be made from the several parts of the pump, from which pumps like those made and sold by the plaintiff could be produced, it was more difficult to make patterns from sections of the pump than from the patterns. This was so found by the court, and cannot be gainsaid. The invention was not the patterns, but the idea represented by them, to which the plaintiff had lost his exclusive right. Neither the defendant nor the man who made the patterns sustained any relation by contract with the plaintiff. They were neither the servants nor partners of the plaintiff, and they owed him no duty not owed by the whole world. . Judges Bradley and Haight did not sit. Notes 1. Reconsider Flick-Reedy, Chapter 2. Would the existence of trade secrets have made Tabors patent invalid during its term? 2. Did the majority see Tabors patent as relevant? How did the dissent regard possible improvements? 3. What sources of law gave rise to Norfolks and Walzs duties? What of Cooks and Hoffmans duties? What facts established their respective duties? 4. Compare the durational effects of injunctions in those cases. Would damages have been satisfactory? On what basis would they be assessed? B. Current Sources of Law

E.I. duPont de Nemours & Co., Inc. v. Christopher*

U.S. Court of Appeals, Fifth Circuit 431 F.2d 1012 (1970)

Before Wisdom, Goldberg and Ingraham. Goldberg, Circuit Judge: [Christophers took aerial photographs of a DuPont plant under construction in Beaumont, Texas. The photos were then delivered to a client they refused to identify.] [DuPont claimed to have a competitively advantageous, unpatented, process for producing methanol, developed at considerable expense. It also alleged that special precautions had been to preserve secrecy and claimed that much could be deduced from the photographs taken during construction. It therefore sought damages and injunction.] [When Christophers refused to name of the person to whom they had delivered the photographs, DuPont filed a motion to compel an answer to this question and related questions.] . The Christophers argued that they committed no actionable wrong because they conducted all of their activities in public airspace, violated no government aviation standard, did not breach any confidential relation, and did not engage in any fraudulent or illegal conduct. In short, the Christophers argue that for an appropriation of trade secrets to be wrongful there must be a trespass, other illegal conduct, or breach of a confidential relationship. We disagree. It is true, as the Christophers assert, that the previous trade secret cases have contained one or more of these elements. However, we do not think that the Texas courts would limit
*

Cert. denied, 400 U.S. 1024 (1971).

Trade Secrets

8.7

the trade secret protection exclusively to these elements. On the contrary, in Hyde Corporation v. Huffines, 1958, 314 S.W.2d 763, the Texas Supreme Court specifically adopted the rule found in the Restatement of Torts 757 (1939): One who discloses or uses anothers trade secret, without a privilege to do so, is liable to the other if (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him. Thus, although the previous cases have dealt with a breach of a confidential relationship, a trespass, or other illegal conduct, the rule is much broader. Not limiting itself to specific wrongs, Texas adopted subsection (a) of the Restatement which recognizes a cause of action for the discovery of a trade secret by any improper means. The defendants, however, read Furrs Inc. v. United Specialty Advertising Co., 338 S.W.2d 762, 766 as limiting the Texas rule[:] The use of someone elses idea is not automatically a violation of the law. It must be something that meets the requirements of a trade secret and has been obtained through a breach of confidence in order to entitle the injured party to damages and/or injunction. (Emphasis added.) . We do not read Furrs as limiting the trade secret protection to a breach of confidential relationship when the facts of the case do raise the issue of some other wrongful conduct. If breach of confidence were meant to encompass the entire panoply of commercial improprieties, subsection (a) of the Restatement would be either surplusage or persiflage, an interpretation abhorrent to the traditional precision of the Restatement. We therefore find meaning in subsection (a) and think that the Texas Supreme Court clearly indicated by its adoption that there is a cause of action for the discovery of a trade secret by any improper means. The question remaining, therefore, is whether aerial photography of plant construction is an improper means of obtaining anothers trade secret. We conclude that it is and that the Texas courts would so hold. The Supreme Court of that state has declared that the undoubted tendency of the law has been to recognize and enforce higher standards of commercial morality in the business world. Hyde Corporation, supra, 314 S.W.2d at 773. That court has quoted with approval articles indicating that the proper means of gaining possession of a competitors secret process is through inspection and analysis of the product. K & G Tool & Service Co. v. G & G Fishing Tool Service, 1958 314 S.W.2d 782, 783, 788. Later another Texas court explained: The means by which the discovery is made may be obvious, and the experimentation leading from known factors to presently unknown results may be simple and lying in the public domain. But these facts do not destroy the value of the discovery and will not advantage a competitor who by unfair means obtains the knowledge without paying the price expended by the discoverer. Brown v. Fowler, Tex. Civ. App. 1958, 316 S.W.2d 111, 114 (emphasis added). We think, therefore, that the Texas rule is clear. One may use his competitors secret process if he discovers the process by reverse engineering applied to the finished product; one may use a competitors process if he discovers it by his own independent research; but one may not avoid these labors by taking the process from the discoverer without his permission at a time when he is taking reasonable precautions to maintain its secrecy. To obtain knowledge of a process without spending the time and money to discover it independently is improper unless the holder voluntarily discloses it or fails to take reasonable precautions to ensure its secrecy.

8.8

Current Sources of Law

[T]he Christophers deliberately flew over the DuPont plant to get pictures of a process which DuPont had attempted to keep secret. The Christophers delivered their pictures to a third party who was certainly aware of the means by which they had been acquired. . In such a situation DuPont has a valid cause of action to prohibit the Christophers from improperly discovering its trade secret and to prohibit the undisclosed third party from using the improperly obtained information. We note that this view is in perfect accord with the position taken by the authors of the Restatement. In commenting on improper means of discovery the savants of the Restatement said: f. Improper means of discovery. The discovery of anothers trade secret by improper means subjects the actor to liability independently of the harm to the interest in the secret. Thus, if one uses physical force to take a secret formula from anothers pocket, or breaks into anothers office to steal the formula, his conduct is wrongful and subjects him to liability apart from the rule stated in this Section. Such conduct is also an improper means of procuring the secret under this rule. But means may be improper under this rule even though they do not cause any other harm than that to the interest in the trade secret. Examples of such means are fraudulent misrepresentations to induce disclosure, tapping of telephone wires, eavesdropping or other espionage. A complete catalogue is not possible. In general they are means which fall below the generally accepted standards of commercial morality and reasonable conduct. [W]e realize that industrial espionage of the sort here perpetrated has become a popular sport in some segments of our industrial community. However, our devotion to free wheeling industrial competition must not force us into accepting the law of the jungle. Our tolerance must cease when the protections required to prevent anothers spying cost so much that the spirit of inventiveness is dampened. Commercial privacy must be protected from espionage which could not have been reasonably anticipated or prevented. We do not mean to imply, however, that everything not in plain view is within the protected vale, nor that all information obtained through every extra optical extension is forbidden. Indeed, for our industrial competition to remain healthy there must be breathing room for observing a competing industrialist. A competitor can and must shop his competition for pricing and examine his products for quality, components, and methods of manufacture. Perhaps ordinary fences and roofs must be built to shut out incursive eyes, but we need not require the discoverer of a trade secret to guard against the unanticipated, the undetectable, or the unpreventable methods of espionage now available. . Although after construction the finished plant would have protected much of the process from view, during the period of construction the trade secret was exposed. To require DuPont to put a roof over the unfinished plant to guard its secret would impose an enormous expense to prevent nothing more than a school boys trick. We introduce here no new or radical ethic since our ethos has never given moral sanction to piracy. The market place must not deviate far from our mores. We should not require a person or corporation to take unreasonable precautions to prevent another from doing that which he ought not do in the first place. Reasonable precautions against predatory eyes we may require, but an impenetrable fortress is an unreasonable requirement,. Improper will always be a word of many nuances, determined by time, place, and circumstances. We therefore need not proclaim a catalogue of commercial improprieties. Clearly, however, one of its commandments does say thou shall not appropriate a trade secret through deviousness under circumstances in which countervailing defenses are not reasonably available.

Trade Secrets

8.9

Having concluded that aerial photography, from whatever altitude, is an improper method of discovering the trade secrets exposed during construction, we need not worry about whether the Christophers violated any federal aviation regulations. Regardless of whether the flight was legal or illegal in that sense, the espionage was an improper means of discovering DuPonts trade secret. . Problem After developing a more efficient process for making grain alcohol, Foobert Chemicals began constructing a plant conveniently near Ohio corn and soybean fields. Homer Svenson, Dr. Ethyl Smith and curious farmers often watched from atop Svensons nearby silo. Svenson took photos and his best were published in a local news weekly. When Fooberts lawyer complained, however, no more were published. Smith is the president of Alko, another grain alcohol producer. Alkos plant was later improved based on information she obtained from watching atop Svensons silo. If Foobert eventually learns of Smiths surveillance, could Alko be liable based on Restatement 757? What if Restatement (Third) of Unfair Competition, e.g., 40(b)(2) and (4) and 43 (1995), were applicable instead?

Metallurgical Industries Inc. v. Fourtek, Inc.

U.S. Court of Appeals, Fifth Circuit 790 F.2d 1195 (1986)

Before Gee, Randall and Garwood. Gee, Circuit Judge: [This is another Texas trade secret misappropriation case.] I. Facts of the Case We commence with a brief description of the scientific process concerned. Tungsten carbide is a metallic compound of great value in certain industrial processes. Combined with the metal cobalt, it forms an extremely hard alloy known as cemented tungsten carbide used in oil drills, tools for manufacturing metals, and wear-resistent coatings. Because of its great value, reclamation of carbide from scrap metals is feasible. For a long time, however, the alloys extreme resistance to machining made reclamation difficult. In the late 1960s and early 1970s, a new solution known as the zinc recovery process was devised. In the crucibles of a furnace, molten zinc will react with the cobalt in the carbide to cause swelling and cracking of the scrap metal. After this has occurred, the zinc is distilled from the crucible, leaving the scrap in a more brittle state. The carbide is then ground into a powder, usable in new products as an alternative to virgin carbide. This process is the generally recognized modern method of carbide reclamation. . In the mid-1970s, Metallurgical began to consider using the zinc recovery process. In that connection, it came to know appellee Irvin Bielefeldt, a representative of Therm-OVac Engineering & Manufacturing Co. (Therm-O-Vac). Negotiations led to a contract authorizing Therm-O-Vac to design and construct two zinc recovery furnaces. The furnace arrived in April 1977. Dissatisfied with its performance, Metallurgical modified it extensively. . In the market for a second furnace in mid-1978, Metallurgical provided to Consarc, another furnace manufacturer, all its hard-won information about zinc-recovery furnace

8.10

Current Sources of Law

design. Apparently allowed to watch the first furnace operate, Consarc employees learned of its modifications. Because Consarc proved unwilling or unable to build what Metallurgical wanted, however, the agreement fell through, and Metallurgical returned to Therm-O-Vac. . Further modifications again had to be made, but commercial production was allegedly achieved in January 1980. In 1980, after Therm-O-Vac went bankrupt, Bielefeldt and three other former ThermO-Vac employees formed Fourtek, Inc. Soon thereafter, Fourtek agreed to build a zinc recovery furnace for appellee Smith International, Inc. (Smith). The furnace Fourtek provided incorporated the modifications Metallurgical had made in its furnaces; chilling systems, pump filters, multiple crucibles, and unitary heating elements. Smith has been unable to use this furnace commercially. Metallurgical nevertheless brought a diversity action [T]estimony indicated Metallurgicals frequent notices to Bielefeldt that the process was a secret and that the disclosures to him were made in confidence. Another witness recounted meetings in which the modifications were agreed to; Bielefeldt was allegedly unconvinced about the efficacy of these changes and contributed little to the discussion. Metallurgical also presented evidence that it had expended considerable time, effort, and money to modify the furnaces. Such evidence apparently did not impress the Trial Court; at the close of Metallurgicals case, it granted the defendants motions for directed verdicts. Ruling from the bench, the court provided an array of reasons for its order. The principal reason advanced was the courts conclusion that no trade secret is involved. At trial, Metallurgical acknowledged that the individual changes, by themselves, are not secrets; chill plates and pump filters, for example, are well-known. Metallurgicals position instead was that the process, taken as a whole, is a trade secret in the carbide business. The court, however, refused to recognize any protection Texas law provides to a modification process. It also concluded that the information Bielefeldt obtained is too general to be legally protected. Finally, it ruled that negative know-how the knowledge of what not to do is unprotected.* All these findings seem to have coalesced into a general conclusion by the court that this case involves no trade secret. The Trial Court went on to provide further rationales for its decision; it ruled that there was evidence of neither Bielefeldts improper use nor disclosure of any secret, nor of Metallurgicals having been damaged by any improper misappropriation. Metallurgical appeals all these conclusions against Bielefeldt and Smith only. . II. Rules of Review [If in light of all the evidence and inferences, viewed most favorably to Metallurgical, reasonable persons could find for Metallurgical, a directed verdict for Bielefeld was improper.] Because the district court provided so many reasons for its order, we feel compelled to discuss the law of trade secrets in detail. . [Texas law controls.] Individual attention to the various elements of this tort is necessary to provide an easily-understood analysis, but we can here briefly summarize the discussion. A plaintiff must certainly show that a trade secret is involved; the definition of this term is therefore crucial and must be based on several factors. If the trial court concludes that a trade secret exists, it then must determine whether the defendant committed any wrongdoing. One who breaches the confidence reposed in him by the holder of a trade secret and one who obtains the secret can be held accountable. No defendant may be liable, however, unless he has disclosed or used the secret improperly; again, defining these terms is required. .
*

This issue was, however, skirted by the court.

Trade Secrets

8.11

III. Defining a Trade Secret . One of its main witnesses was Arnold Blum, a consultant very influential in the decisions to modify the furnaces. Blum testified as to his belief that Metallurgicals changes were unknown in the carbide reclamation industry. The evidence also shows Metallurgicals efforts to keep secret its modifications. . [That] helps us conclude that a reasonable jury could have found the existence of the requisite secrecy. Smith argues, however, that Metallurgicals disclosure to other parties vitiated the secrecy required to obtain legal protection. As mentioned before, Metallurgical revealed its information to Consarc Corporation in 1978; it also disclosed information in 1980 to La Floridienne, its European licensee of carbide reclamation technology. Because both these disclosures occurred before Bielefeldt allegedly misappropriated the knowledge of modifications, others knew of the information when the Smith furnace was built. This being so, Smith argues, no trade secret in fact existed. Although the law requires secrecy, it need not be absolute. [T]he holder of a secret need not remain totally silent: He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Nevertheless, a substantial element of secrecy must exist, so that except by the use of improper means, there would be difficulty in acquiring the information. Restatement of Torts, 757 Comment b (1939). [A] holder may divulge his information to a limited extent without destroying its status as a trade secret. To hold otherwise would greatly limit the holders ability to profit. If disclosure to others is made to further the holders economic interests, it should, in appropriate circumstances, not destroy the requisite secrecy. . [The court finds no guidance in prior case law and looks] instead to the policy considerations involved, we glean two reasons why Metallurgicals disclosures [did not extinguish secrecy]. First, Metallurgical divulged its information to only two businesses with whom it was dealing. . Second, the disclosures were made to further Metallurgicals economic interests. Disclosure to Consarc was made with the hope that Consarc could build the second furnace. A longstanding agreement gave La Floridienne the right, as a licensee, to the information in exchange for royalty payments. Metallurgical therefore revealed its discoveries as part of business transactions by which it expected to profit. Metallurgicals case would have been stronger had it also presented evidence of confidential relationships with these two companies, but we are unwilling to regard this failure as conclusively disproving the limited nature of the disclosures. Smith correctly points out that Metallurgical bears the burden of showing the existence of confidential relationships. [H]owever, confidentiality is not a requisite. Whether a disclosure is limited depends on weighing many facts. The inferences from those facts, construed favorably to Metallurgical, is that it wished not to reveal its secrets to the public. . . Secrecy is always required, of course, but beyond that there are no universal requirements. In a future case, for example, should the defendants breach of confidence be particularly egregious, the injured party might still seek redress in court despite the possibility that the subject matter was discovered at little or no cost or that the object of secrecy is not of great value to him. The definition of trade secret will therefore be determined by weighing all equitable considerations. It is easy to recognize the possibility of a trade secret here, however. . Our review of the evidence on the existence of a confidential relationship is hampered to some degree by the district courts exclusion of several items of evidence. [B]ut

8.12

Current Sources of Law

regardless of the evidence excluded, the record contains testimony of Metallurgicals president, Ira Friedman, that he informed Bielefeldt of the confidentiality Metallurgical expected. Although these references are few, they would have sufficed to allow a reasonable jury to have believed that a confidential relationship existed between Metallurgical and Bielefeldt. V. Obtaining Secrets from Another Smith had no significant dealings with Metallurgical and apparently was not heavily involved in the design of the furnace it purchased. The question therefore becomes whether Smith as purchaser, and thus as beneficiary of Bielefeldts alleged misappropriation, can also be held liable for it. The law imposes liability not only on those who wrongfully misappropriate but also, in certain situations, on others who might benefit from the breach: One who discloses or uses anothers trade secret, without a privilege to do so, is liable to the other if (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third persons disclosure of it was otherwise a breach of his duty to the other. . One has notice of facts under the rule stated in this Section when he knows of them or when he should know of them. He should know of them if, from the information which he has, a reasonable man would infer the facts in question, or if, under the circumstances, a reasonable man would be put on inquiry and an inquiry pursued with reasonable intelligence and diligence would disclose the facts. Restatement, 757 & comment l. Under this standard, we believe a reasonable jury could find that Smith should have inquired. VIII. Remedies and Other Matters We now come to the issue of remedies available to Metallurgical. The district court apparently found crucial Smiths inability to operate its furnace profitably. . Smith is out of the picture, but Bielefeldt remains. Should he be found liable on retrial, the appropriate damages should be based on the tenets of University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 537 (5th Cir. 1974). We there adopted the concept of the reasonable royalty. This does not mean a simple percentage of actual profits; instead, the trier of fact must determine the actual value of what has been appropriated. . If too few facts exist to permit the trier of fact to calculate proper damages, then a reasonable remedy in law is unavailable. In that instance, a permanent injunction is a proper remedy. We emphasize the limited consequences of todays decision. . It may be that on retrial Bielefeldt can successfully show that his knowledge came from somewhere else or that the process of modification was no secret. . Notes 1. How might Bielefeldts inability to produce a working furnace be relevant? 2. If Friedman informed Bielefeldt of the confidentiality Metallurgical expected, is it reasonable to assume that he so informed others with whom he dealt? See also, Restatement (Third) of Unfair Competition 41, cmt. b (confidentiality may be implied), and reconsider Tabor. 3. Does Restatement 757, cmt. l (quoted above) enable someone to convey better title than they hold? Among possible rationales, consider the doctrine of accession mentioned in, e.g., U.C.C. 9-314 (2001).

Trade Secrets

8.13

4. See also, e.g., Mattel, Inc. v. MGA Entertainment, Inc., --- F.3d ----, 2010 WL 2853761, *4 (9th Cir. 2010), Even assuming that MGA took some ideas wrongfully [t]he value added by MGAs hard work and creativity dwarfs the value of the original idea. In such cases, would an injunction be appropriate? A lump-sum award? If an on-going injunction were granted, how or when would it end? 5. Patents are not involved in such cases, but it seems useful to consider such as Paper Bag and eBay in Chapter 1.

Hoechst Diafoil Co. v. Nan Ya Plastics Corp.

U.S. Court of Appeals, Fourth Circuit 174 F.3d 411 (1999)

Before Wilkins, Motz and King. King, Circuit Judge: . Hoechst manufactures polyester film. Part of its manufacturing process requires it to apply certain coatings to these films. Over the years, Hoechst has developed a technique known as in-line coating, which it regards as a valuable innovation in this process. Hoechst has required its employees to execute confidentiality agreements prohibiting disclosure of the technology. One such employee was John Rogers, who conceded that he gained his expertise in the polyester film business from his years at Hoechst. After Rogers left Hoechst in 1988, he established his own consulting firm to advise other polyester film manufacturers. In 1992, he entered into consulting relationships with two such manufacturers: Cheil, a Korean company, and Nan Ya, a Taiwanese corporation. He advised both companies regarding business and technical matters. At the time, though, only Cheil was producing in-line coated films; Nan Ya was not. In 1994, Rogers allegedly entered into an agreement with Nan Ya under which he agreed to provide consulting with respect to in-line coating. For its part, Nan Ya purportedly agreed to pay Rogers $250,000 for his services. In 1992, Hoechst sued Rogers in South Carolina state court for breaching his confidentiality agreement by selling the In-Line Technology to Cheil. Hoechst eventually won its suit against Rogers, securing an injunction. In 1994, Hoechst sued Cheil in the District of South Carolina, at Greenville, alleging that Cheil itself had misappropriated Hoechsts trade secrets by acquiring them from Rogers. That suit settled in 1996, with Cheil agreeing to change its film-coating process. To prevent disclosure of the In-Line Technology during the course of the Cheil litigation, Hoechst secured a protective order that required all documents relating to the InLine Technology to be filed under seal. At the end of that case, the district court ordered the attorneys for Cheil and Hoechst to remove from its files all documents that had been filed under seal. . [T]he court then opened the remaining files to the public. However, one document containing a twenty-eight page description of the In-Line Technology (the Cheil Document), had been inadvertently filed, unsealed, as an attachment to one of Cheils motions. Each page bore the following heading: Confidential Information, Hoechst Diafoil v. Samsung & Cheil. But because this document had not been filed under seal, it was not identified and removed by either party. . Based on information that had surfaced in the Rogers and Cheil suits, Hoechst sued Nan Ya [in] 1996. The complaint alleged that, by hiring Rogers as a consultant, Nan Ya had

8.14

Current Sources of Law

misappropriated the In-Line Technology. In October 1996, one of Nan Yas attorneys went to the district court in Greenville to review the courts file from the Cheil case. The attorney found the Cheil Document and sent a copy of it to Nan Ya. Another attorney returned in April 1997 and again retrieved a copy of the Cheil Document. [Nan Ya then moved for summary judgment. The district court refused and, instead, issued an order requiring Nan Ya to name all who had received the document and to return all copies of it.] III Nan Ya argues that the district court erred because Hoechst has no chance of succeeding on its underlying misappropriation claim. More specifically, Nan Ya contends that Hoechsts misappropriation claim must fail because: (1) the In-Line Technology is no longer a trade secret and (2) the claim is barred by the statute of limitations. . . [W]here it is legally impossible for a plaintiff to succeed on the merits of its underlying claim, the district court may not grant the requested injunction, no matter how severe or irreparable an injury the plaintiff may otherwise suffer. This concept is the cornerstone of Nan Yas first argument. Nan Ya maintains that Hoechsts misappropriation claim is doomed because Hoechsts In-Line Technology lost its trade-secret status when the Cheil Document was inadvertently filed unsealed and remained in the district courts public files for several months. . [W]e reject Nan Yas conclusion that the injunction was, for this reason, improper. South Carolina permits the owner of a trade secret to seek an injunction and other remedies against any person who misappropriates that secret. Trade secrets include: information. that (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. S.C. Code Ann 39-8-1 (Law Coop. 1996) (repealed 1997).1 . No South Carolina court has addressed the question of whether the unsealed filing of a document automatically destroys the trade-secret status of any information it contains. Accordingly, in predicting how the South Carolina Supreme Court would decide this matter, we may seek guidance from all available sources, including decisions from other jurisdictions. While a number of cases have dealt with the disclosure of trade secrets in public court files, none holds that such disclosure, when unaccompanied by evidence of further publication, automatically destroys the secrecy of that secret. . [S]ome courts have embraced the rule that disclosure of information solely in a courts records will not, absent evidence of further publication, destroy the trade-secret status of that information. Religious Technology Ctr. v. Netcom On-Line Comm. Servs., Inc., 923 F. Supp. 1231, 1255 (N.D.Cal. 1995). As one Court explained, this is a common-sense rule grounded in the practicalities of trade secret litigation: The contrary result would mean that if documents were ever filed without a sealing order, even for a short time, the court would not be able to decide that they should be sealed because the documents would have lost their potential trade secret status by virtue of the temporary unsealing. The only fair result would be to allow trade secret status for works that are otherwise protectable as trade secrets unless they were somehow made generally available to the public during the period they were unsealed, such as by publication. Netcom, 923 F. Supp. at 1254. The district court for the Eastern District of Virginia reached a decision consistent with this rule in Religious Technology Center v. Lerma, 908 F. Supp. 1362 (1995). In Lerma, a company affiliated with the Church of Scientology sued the Washington Post for
1

. Because Hoechst alleges that its claim arises from acts that occurred in 1994, the now-repealed version of the Act is applicable.

Trade Secrets

8.15

misappropriating and publishing portions of that churchs Advanced Technology Works, which the church claims contained its trade secrets. In response, the Post argued that the Advanced Technology Works were not trade secrets when it obtained copies of them, because (1) they had been in a public court file for twenty-eight months and (2) they had been published on the Internet. In holding that the Advanced Technology works were not trade secrets when the Post acquired them, the court specifically relied on both of these factors. . In this case, there is no suggestion that the Cheil Document was published, only that it was present in the district courts public files. We hold that, under the Act, this presence in the district courts public files, in and of itself, did not make the information contained in the document generally known . Neither did the filing of this document render the In-Line Technology readily ascertainable by proper means, as that phrase is used in the Act. The comment to 39-8-1 of the Act suggests the types of disclosures that render information readily ascertainable: Information is readily ascertainable if it is available in trade journals, reference books, or published materials. Such widely-disseminated sources are, we believe, qualitatively different from the files of a single district court. Further, commentators suggest that a lone competitors discovery of a trade secret through proper means does not automatically render that secret unprotectable. 1 Milgrim on Trade Secrets, at 1.07[1] (That information may be identified in public domain or reverse-engineered does not revoke its status as a trade secret). Accordingly, the public filing of the Cheil Document does not necessarily destroy the secrecy of the In-Line Technology, even though Nan Ya properly discovered that document in preparation of this lawsuit. We emphasize, that, in so ruling, we do not conclusively determine the ultimate issue. This is a fact-intensive question to be resolved upon trial. We simply hold that Hoechst is not legally precluded. [The courts rejection of Nan Yas argument that Hoechsts claim was time-barred is omitted as is criticism of the procedural and decisional bases for the appealed order. Yet, it left the injunction intact, saying, We do not intend this measure as a suggestion as to how the district court should rule on remand; we simply conclude that it is prudent to maintain the status quo pending the district courts reconsideration of its injunction ruling.] Notes 1. Was Nan Ya likely to distribute the Cheil document, say, by publishing it on the web? How might that be relevant? 2. See Herrick v. Garvey, 298 F.3d 1184 (10th Cir. 2002), where a party was allowed to recant governmental authorization to release documents supplied many years earlier. Despite apparent relevance, whether they had in fact been previously released is not discussed. 3. Despite adoption of the UTSA, Restatements retain authority. As Netcom, cited in the previous case, explains, Although California has adopted the UTSA, courts also look to the Restatement [Third] to help interpret the UTSA. 923 F. Supp. at 1250 n.21. Also recall the key role played by another Restatement in CCNV, Chapter 6. 4. The UTSA does something the Restatements cant. Section 1(3) effectively waives state soverign immunity. But use of the term uniform can mislead. See Legal Information Institute, Uniform Laws, most have [not been adopted] by all or even a majority of the states. Furthermore, the versions passed by the states are rarely uniform. www.law.cornell.edu/uniform/uniform.html (visited Sept 25, 2010).

8.16

Patents and Trade Secrets

C. Patents and Trade Secrets

Kewanee Oil Co. v. Bicron Corp.

U.S. Supreme Court 416 U.S. 470 (1974)

Chief Justice Burger: [In this case, the Sixth Circuit held that state trade secret protection is preempted by federal patent law. The Second, Fourth, Fifth and Ninth Circuits had held otherwise.] I Harshaw Chemical Co., an unincorporated division of petitioner, is a leading manufacturer of a type of synthetic crystal which is useful in the detection of ionizing radiation. In 1949 Harshaw commenced research into the growth of this type crystal and was able to produce one less than two inches in diameter. By 1966, as the result of expenditures in excess of $1 million, Harshaw was able to grow a 17-inch crystal, something no one else had done previously. Harshaw had developed many processes, procedures, and manufacturing techniques in the purification of raw materials and the growth and encapsulation of the crystals which enabled it to accomplish this feat. Some of these processes Harshaw considers to be trade secrets. The individual respondents are former employees who formed or later joined respondent Bicron. While at Harshaw the individual respondents executed at least one agreement each, requiring them not to disclose confidential information or trade secrets. Bicron was formed in August 1969 to compete with Harshaw in the production of the crystals, and by April 1970, had grown a 17-inch crystal. Petitioner brought this diversity action seeking injunctive relief and damages for the misappropriation of trade secrets. . The court of appeals held that it was evident from the record that the individual respondents appropriated to the benefit of Bicron secret information on processes obtained while they were employees at Harshaw. . Nevertheless, [t]he court reasoned that Ohio could not grant monopoly protection to processes and manufacturing techniques that were appropriate subjects for a federal patent but which had been in commercial use for over one year and so were no longer eligible for patent protection under 35 U.S.C. 102(b). . II Ohio has adopted the widely relied-upon definition of a trade secret found at Restatement of Torts 757. The subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade or business. This necessary element of secrecy is not lost, however, if the holder of the trade secret reveals the trade secret to another in confidence, and under an implied obligation not to use or disclose it. These others may include those of the holders employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended. Often the recipient of confidential knowledge of the subject of a trade secret is a licensee of its holder. See Lear, Inc. v. Adkins, 395 U.S. 653 (1969). The protection accorded the trade secret holder is against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under the express or implied restriction of nondisclosure or nonuse. The law also protects the holder of a trade secret against disclosure or use when the knowledge is gained, not by the owners volition, but by some improper means, Restatement of Torts 757(a), which may include theft, wiretapping, or even aerial reconnaissance.5 A trade secret law, however, does not offer

Trade Secrets

8.17

protection against discovery by fair and honest means, such as by independent invention, accidental disclosure, or by so-called reverse engineering, that is by working backward to divine the process which aided in its development or manufacture. Novelty, in the patent law sense, is not required. Quite clearly discovery is something less than invention. However, that which does not possess novelty is usually known; secrecy, in the context of trade secrets, thus implies at least minimal novelty. The subject matter of a patent is limited to a process, machine, manufacture, or composition of matter, or improvement thereof which fulfills the three conditions of novelty and utility and nonobviousness. If an invention meets the rigorous statutory tests for the issuance of a patent, the patent is granted, for a period of 17 years, giving what has been described as the right of exclusion.9 This protection goes not only to copying the subject matter, which is forbidden under the Copyright Act, but also to independent creation. III [In] Goldstein v. California, 412 U.S. 546 (1973), we held that the grant of power to Congress was not exclusive and that, at least in the case of writings, the States were not prohibited from encouraging and protecting the efforts of those within their borders by appropriate legislation. The States could, therefore, protect against the unauthorized rerecording for sale of performances fixed on records or tapes, even though Congress was empowered to legislate regarding such performances and could preempt the area if it chose to do so.* . IV . We stated in Sears that when state law touches upon the area of federal statutes enacted pursuant to constitutional authority, it is familiar doctrine that the federal policy may not be set at naught, or its benefits denied by the state law. This is true, of course, even if the state law is enacted in the exercise of otherwise undoubted state power. The laws which the court of appeals held to be in conflict were the patent laws passed by the Congress in the unchallenged exercise of its clear power. The patent law does not explicitly endorse or forbid the operation of trade secret law. However, as we have noted, if the scheme of protection developed by Ohio respecting trade secrets clashes with the objectives of the federal patent laws, Sears, 376 U.S., at 231, then the state law must fall. To determine whether the Ohio law clashes with the federal law it is helpful to examine the objectives of both. The stated objective of the Constitution is to promote the Progress of Science and useful Arts. The patent laws promote this progress by offering a right of exclusion for a limited period as an incentive to inventors to risk the often enormous costs in terms of time, research, and development. The productive effort thereby fostered will have a positive effect on society through the introduction of new products and processes of manufacture into the economy, and the emanations by way of increased employment and better lives for our citizens. In return for the right of exclusion the patent laws impose upon the inventor a requirement of disclosure. To insure adequate and full disclosure so that upon the expiration of the 17-year period the knowledge of the invention enures to the people, who are thus enabled without restriction to practice it and profit by its use, United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933), the patent laws require that the patent application shall include a full and clear description of the invention and of the manner and
5 9

E. I. duPont deNemours & Co. v. Christopher, 431 F.2d 1012, cert. den., 400 U.S. 1024 (1971). 35 U.S.C. 154 provides: Every patent shall grant to the patenteethe right to exclude others from making, using, or selling the invention throughout the United States. That it did in 301 of the 1976 Act.

8.18

Patents and Trade Secrets

process of making and using it so that any person skilled in the art may make and use the invention. 35 U.S.C. 112. When a patent is granted and the information contained in it is circulated to the general public and those especially skilled in the trade, such additions to the general store of knowledge are of such importance to the public weal that the Federal Government is willing to pay the high price of 17 years of exclusive use for its disclosure, which disclosure, it is assumed, will stimulate ideas and the eventual development of further significant advances in the art. The Court has also articulated another policy of the patent law: that which is in the public domain cannot be removed therefrom by action of the States. [F]ederal laws requires that all ideas in general circulation be dedicated to the common good unless they are protected by a valid patent. Lear, Inc. v. Adkins, 395 U.S., at 668. The maintenance of standards of commercial ethics and the encouragement of invention are the broadly stated policies behind trade secret law. . . In Wexler v. Greenberg, 160 A.2d 430, 43435 (1960), the Pennsylvania Supreme Court noted the importance of trade secret protection to the subsidization of research and development and to increased economic efficiency within large companies through the dispersion of responsibilities for creative developments. Having now in mind the objectives of both the patent and trade secret law, we turn to an examination of the interaction of these systems to determine whether and under what circumstances the latter might constitute too great an encroachment on the federal patent system to be tolerated. Sears, 376 U.S., at 232. As we noted earlier, trade secret law protects items which would not be proper subjects for patent protection. As in the case of the recordings in Goldstein, Congress, with respect to nonpatentable subject matter, has drawn no balance; rather, it has left the area unattended, and no reason exists why the State should not be free to act. 412 U.S., at 570. Since no patent is available for a discovery unless it falls within one of the express categories of patentable subject matter, the holder of such a discovery would have no reason to apply. Abolition of trade secret protection would, therefore, not result in increased disclosure to the public of discoveries in the area of nonpatentable subject matter. Also, it is hard to see how the public would be benefited by disclosure of customer lists or advertising campaigns; in fact, keeping such items secret encourages businesses to initiate new and individualized plans of operation, and constructive competition results. This, in turn, leads to a greater variety of business methods than would otherwise be the case if privately developed marketing and other data were passed illicitly among firms involved in the same enterprise. Congress has spoken in the area of those discoveries which fall within one of the categories of patentable subject matter and which are, therefore, of a nature that would be subject to consideration for a patent. [Those] which meet the tests of utility, novelty, and nonobviousness are entitled to be patented, but those which do not, are not. The question remains whether those items which are proper subjects for consideration for a patent may also have available trade secret law. Certainly the patent policy of encouraging invention is not disturbed by the existence of another form of incentive to invention. In this respect the two systems are not and never would be in conflict. Similarly, the policy that matter once in the public domain must remain in the public domain is not incompatible with the existence of trade secret protection. By definition a trade secret has not been placed in the public domain.13 The more difficult objective of the patent law to reconcile with trade secret law is that of disclosure, the quid pro quo of the right to exclude. We are helped in this stage of the analysis by Judge Henry Friendlys opinion in Painton & Co. v. Bourns, Inc., 442 F.2d 216
13

An invention may be placed in public use or on sale within the meaning of 102(b) without losing its secret character. Painton & Co. v. Bourns, Inc., 442 F.2d, at 224 n. 6; Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 520 (CA2), cert. denied, 328 U.S. 840 (1946).

Trade Secrets

8.19

(CA2 1971). There the court thought it useful, in determining whether inventors will refrain because of the existence of trade secret law from applying for patents, thereby depriving the public from learning of the invention, to distinguish between three categories of trade secrets. Trade secret protection in each of these categories would run against breaches of confidence and theft and other forms of industrial espionage. As to the trade secret known not to meet the standards of patentability, very little in the way of disclosure would be accomplished by abolishing trade secret protection. With trade secrets of nonpatentable subject matter, the patent alternative would not reasonably be available to the inventor. There can be no public interest in stimulating developers of such (unpatentable) knowhow to flood an overburdened Patent Office with applications (for) what they do not consider patentable. Id. at 224. The mere filing of applications doomed to be turned down by the Patent Office will bring forth no new public knowledge or enlightenment, since under federal statute and regulation patent applications and abandoned patent applications are held by the Patent Office in confidence and are not open to public inspection. 35 U.S.C. 122. Even as the extension of trade secret protection to patentable subject matter that the owner knows will not meet the standards of patentability will not conflict with the patent policy of disclosure, it will have a decidedly beneficial effect on society. Trade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with the discovery and exploitation of his invention. Competition is fostered and the public is not deprived of the use of valuable, if not quite patentable, invention. Even if trade secret protection against the faithless employee were abolished, inventive and exploitive effort in the area of patentable subject matter that did not meet the standards of patentability would continue, although at a reduced level. . Knowledge would be widely dispersed among the employees of those still active in research. Security precautions necessarily would be increased, and salaries and fringe benefits of those few officers or employees who had to know the whole of the secret invention would be fixed in an amount thought sufficient to assure their loyalty. Smaller companies would be placed at a distinct economic disadvantage, since the costs of this kind of self-help could be great, and the cost to the public of the use of this invention would be increased. The innovative entrepreneur with limited resources would tend to confine his research efforts to himself and those few he felt he could trust without the ultimate assurance of legal protection against breaches of confidence. As a result, organized scientific and technological research could become fragmented, and society, as a whole, would suffer. Another problem that would arise if state trade secret protection were precluded is in the area of licensing others to exploit secret processes. The holder of a trade secret would not likely share his secret with a manufacturer who cannot be placed under binding legal obligation to pay a license fee or to protect the secret. The result would be to hoard rather than disseminate knowledge. Painton & Co. v. Bourns, Inc., 442 F.2d, at 223. Instead, then, of licensing others to use his invention and making the most efficient use of existing manufacturing and marketing structures within the industry, the trade secret holder would tend either to limit his utilization of the invention, thereby depriving the public of the maximum benefit of its use, or engage in the time-consuming and economically wasteful enterprise of constructing duplicative manufacturing and marketing mechanisms for the exploitation of the invention. The detrimental misallocation of resources and economic waste that would thus take place if trade secret protection were abolished cannot be justified by reference to any policy that the federal patent law seeks to advance.

8.20

Patents and Trade Secrets

Nothing in the patent law requires that States refrain from action to prevent industrial espionage. In addition to the increased costs for protection from burglary, wire-tapping, bribery, and the other means used to misappropriate trade secrets, there is the inevitable cost to the basic decency of society. A most fundamental human right, that of privacy, is threatened when industrial espionage is condoned or is made profitable; the state interest in denying profit to such illegal ventures is unchallengeable. The next category is the invention whose holder has a legitimate doubt as to its patentability. The risk of eventual patent invalidity by the courts and the costs associated with that risk may well impel some not to take the trouble to seek to obtain and defend patent protection, regardless of the existence of trade secret protection. . In most cases of genuine doubt as to patent validity the potential rewards of patent protection are so far superior to those accruing to holders of trade secrets, that the holders of such inventions will seek patent protection, ignoring the trade secret route. For those inventors on the line as to whether to seek patent protection, the abolition of trade secret protection might encourage some to apply for a patent who otherwise would not have done so. For some of those so encouraged, no patent will be granted and the result will have been an unnecessary postponement in the divulging of the trade secret to persons willing to pay for it. If (the patent does issue), it may well be invalid, yet many will prefer to pay a modest royalty than to contest it, even though Lear allows them to accept a license and pursue the contest without paying royalties while the fight goes on. The result in such a case would be unjustified royalty payments from many who would prefer not to pay them rather than agreed fees from one or a few who are entirely willing to do so. Painton & Co. v. Bourns, Inc., 442 F.2d, at 225. The point is that those who might be encouraged to file for patents by the absence of trade secret law will include inventors possessing the chaff as well as the wheat. Some of the chaff the nonpatentable discoveries will be thrown out by the Patent Office, but in the meantime society will have been deprived of use of those discoveries through trade secret-protected licensing. Some of the chaff may not be thrown out. This Court has noted the difference between the standards used by the Patent Office and the courts to determine patentability. Graham v. John Deere Co., 383 U.S. 1, 18 (1966). In Lear, Inc. v. Adkins, 395 U.S. 653, the Court thought that an invalid patent was so serious a threat to the free use of ideas already in the public domain that the Court permitted licensees of the patent holder to challenge the validity of the patent. Better had the invalid patent never issued. More of those patents would likely issue if trade secret law were abolished. Eliminating trade secret law for the doubtfully patentable invention is thus likely to have deleterious effects on society and patent policy which we cannot say are balanced out by the speculative gain which might result from the encouragement of some inventors with doubtfully patentable inventions which deserve patent protection to come forward and apply for patents. There is no conflict, then, between trade secret law and the patent law policy of disclosure, at least insofar as the first two categories of patentable subject matter are concerned. The final category of patentable subject matter to deal with is the clearly patentable invention, i.e., that invention which the owner believes to meet the standards of patentability. It is here that the federal interest in disclosure is at its peak; these inventions, novel, useful and nonobvious, are the things which are worth to the public the embarrassment of an exclusive patent. Graham v. John Deere Co., supra, at 9. The interest of the public is that the bargain of 17 years of exclusive use in return for disclosure be accepted. If a State, through a system of protection, were to cause a substantial risk that holders of patentable inventions would not seek patents, but rather would rely on the state

Trade Secrets

8.21

protection, we would be compelled to hold that such a system could not constitutionally continue to exist. In the case of trade secret law no reasonable risk of deterrence from patent application by those who can reasonably expect to be granted patents exists. Trade secret law provides far weaker protection in many respects than the patent law. While trade secret law does not forbid the discovery of the trade secret by fair and honest means, e.g., independent creation or reverse engineering, patent law operates against the world, forbidding any use of the invention for whatever purpose for a significant length of time. The holder of a trade secret also takes a substantial risk that the secret will be passed on to his competitors, by theft or by breach of a confidential relationship, in a manner not easily susceptible of discovery or proof. Where patent law acts as a barrier, trade secret law functions relatively as a sieve. The possibility that an inventor who believes his invention meets the standards of patentability will sit back, rely on trade secret law, and after one year of use forfeit any right to patent protection, is remote indeed. Nor does society face much risk that scientific or technological progress will be impeded by the rare inventor with a patentable invention who chooses trade secret protection over patent protection. The ripeness-of-time concept of invention, developed from the study of the many independent multiple discoveries in history, predicts that if a particular individual had not made a particular discovery others would have, and in probably a relatively short period of time. If something is to be discovered at all very likely it will be discovered by more than one person. Singletons and Multiples in Science (1961), in R. Merton, The Sociology of Science 343 (1973).19 Even were an inventor to keep his discovery completely to himself, something that neither the patent nor trade secret laws forbid, there is a high probability that it will be soon independently developed. If the invention, though still a trade secret, is put into public use, the competition is alerted to the existence of the inventors solution to the problem and may be encouraged to make an extra effort to independently find the solution thus known to be possible. The inventor faces pressures not only from private industry, but from universities and our other great publicly supported centers of learning and research. We conclude that the extension of trade secret protection to clearly patentable inventions does not conflict with the patent policy of disclosure. Perhaps because trade secret law does not produce any positive effects in the area of clearly patentable inventions, as opposed to the beneficial effects resulting from trade secret protection in the areas of the doubtfully patentable and the clearly unpatentable inventions, it has been suggested that partial pre-emption may be appropriate, and that courts should refuse to apply trade secret protection to inventions which the holder should have patented, and which would have been, thereby, disclosed. However, since there is no real possibility that trade secret law will conflict with the federal policy favoring disclosure of clearly patentable inventions partial pre-emption is inappropriate. Partial pre-emption, furthermore, could well create serious problems for state courts in the administration of trade secret law. As a preliminary matter in trade secret actions, state courts would be obliged to distinguish between what a reasonable inventor would and would not correctly consider to be clearly patentable, with the holder of the trade secret arguing that the invention was not patentable and the misappropriator of the trade secret arguing its undoubted novelty, utility, and nonobviousness. Federal courts have a difficult enough time trying to determine whether an invention, narrowed by the patent application procedure and fixed in the specifications which describe the invention for which the patent has been granted, is patentable. Although state courts in some circumstances must join federal courts in judging whether an issued patent is valid, Lear, Inc. v. Adkins, supra, it
19

See J. Watson, The Double Helix (1968). If Watson and Crick had not discovered the structure of DNA it is likely that Linus Pauling would have made the discovery soon. Other examples of multiple discovery are listed at length in the Ogburn and Thomas article.

8.22

Patents and Trade Secrets

would be undesirable to impose the almost impossible burden on state courts to determine the patentability in fact and in the mind of a reasonable inventor of a discovery which has not been patented and remains entirely uncircumscribed by expert analysis in the administrative process. Neither complete nor partial pre-emption of state trade secret law is justified. Our conclusion that patent law does not preempt trade secret law is in accord with prior cases of this Court.23 Trade secret law and patent law have co-existed in this country for over one hundred years. Each has its particular role to play, and the operation of one does not take away from the need for the other. Trade secret law encourages the development and exploitation of those items of lesser or different invention than might be accorded protection under the patent laws, but which items still have an important part to play in the technological and scientific advancement of the Nation. Trade secret law promotes the sharing of knowledge, and the efficient operation of industry; it permits the individual inventor to reap the rewards of his labor by contracting with a company large enough to develop and exploit it. Congress, by its silence over these many years, has seen the wisdom of allowing the States to enforce trade secret protection. Until Congress takes affirmative action to the contrary, States should be free to grant protection to trade secrets. . Justice Powell took no part in the decision of this case. Justice Marshall, concurring in the result. . I have no doubt that the existence of trade secret protection provides in some instances a substantial disincentive. This case may well be such an instance. But my view of sound policy in this area does not dispose of this case. . State trade secret laws and the federal patent laws have co-existed for many, many years. During this time, Congress has repeatedly demonstrated its full awareness of the existence of the trade secret system, without any indication of disapproval. Indeed, Congress has in a number of instances given explicit federal protection to trade secret information provided to federal agencies. See, e.g., 5 U.S.C. 552(b)(4); 18 U.S.C. 1905. Because of this, I conclude that there is neither such actual conflict that both cannot stand in the same area, nor evidence of a congressional design to preempt the field. Florida Lime & Avocado Growers v. Paul, 373 U.S. 132, 141 (1963). I therefore concur in the result. Justice Douglas, with whom Justice Brennan concurs, dissenting. . [In Sears and Compco, w]e held that when an article is unprotected by a patent, state law may not forbid others to copy it, because every article not covered by a valid patent is in the public domain. Congress in the patent laws decided that where no patent existed, free competition should prevail; that where a patent is rightfully issued, the right to exclude others should obtain for no longer than 17 years, and that the States may not under some other law, such as that forbidding unfair competition, give protection of a kind that clashes with the objectives of the federal patent laws.1 . By a patent which would require full disclosure Harshaw could have obtained a 17year monopoly against the world. By the injunction, which the Court approves and reinstates, Harshaw gets a permanent injunction running into perpetuity against respondents.
23

The Court of Appeals below relied, in part, on Kendall v. Winsor, 21 How. 322 (1859), a case decided nine years before trade secret law was imported into this country from England by means of the landmark case of Peabody v. Norfolk, 98 Mass. 452 (1868). 1 Here as in Lear, Inc. v. Adkins, 395 U.S. 653, 674, which held that a licensee of a patent is not precluded by a contract from challenging the patent, for if he were, that would defeat the policy of the patent laws: enforcing this contractual provision would undermine the strong federal policy favoring the full and free use of ideas in the public domain.

Trade Secrets

8.23

The conflict with the patent laws is obvious. The decision of Congress to adopt a patent system was based on the idea that there will be much more innovation if discoveries are disclosed and patented than there will be when everyone works in secret. Society thus fosters a free exchange of technological information at the cost of a limited 17-year monopoly. A trade secret, unlike a patent, has no property dimension. That was the view of the court of appeals; and its decision is supported by what Justice Holmes said in DuPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102: The word property as applied to trade-marks and trade secrets is an unanalyzed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith. Whether the plaintiffs have any valuable secret or not the defendant knows the facts, whatever they are, through a special confidence that he accepted. The property may be denied but the confidence cannot be. . If there is any disadvantage in the fact that he knew the plaintiffs secrets he must take the burden with the good.4 . A trade secret can be protected only by being kept secret. Damages for breach of a contract are one thing; an injunction barring disclosure does service for the protection accorded valid patents and is therefore pre-empted. From the findings of fact of the lower courts, the process involved in this litigation was unique, such a great discovery as to make its patentability a virtual certainty. Yet the Courts opinion reflects a vigorous activist antipatent philosophy. My objection is not because it is activist. This is a problem that involves no neutral principle. The Constitution in Art. I, 8, cl. 8, expresses the activist policy which Congress has enforced by statutes. It is that constitutional policy which we should enforce, not our individual notions of the public good. I would affirm the judgment below. Notes 1. Justice Douglas opposes trade secret injunctions running into perpetuity, but even those may not long deter competitors. In Tabor, for example, was Hoffman barred from making and selling copies of the pumps? 2. In other trade secret cases, too, lack of durational limits may be factually unimportant; see Mary L. Lyndon, Secrecy and Innovation in Tort Law and Regulation, 23 N.Mex. L.Rev. 1, 19 (1993) (estimating the useful life of patents when designed around at about four years and trade secrets as much shorter). It is unclear whether she considers inventions that cannot be reverse engineered, but the ripeness-of-time concept applies in any case. 3. The significance of Kewanees endorsement of DuPont in note 5 and the Courts related reference to privacy as a most fundamental human right is unclear. Dow Chemical Co. v. United States, 476 U.S. 227, 239 (1986), also per Chief Justice Burger, concludes, We hold that the taking of aerial photographs of an industrial plant complex from navigable airspace is not a search prohibited by the Fourth Amendment. Kewanee was not cited, much less distinguished in Dow, but it warrants mention that legal entities do not necessarily have the same rights as natural persons; see, e.g., Bellis v. U.S., 417 U.S. 85, 90 (1974) (citing lack of ability to claim a Fifth Amendment privilege against self-incrimination as unchallenged).
4

As to Goldstein v. California, 412 U.S. 546, the ruling [in Baker v. Selden, 101 U.S. 99, 102103] concerning the distinction between patents and copyright is relevant.

8.24

Patents and Trade Secrets

4. Kewanees finding espionage or breach of confidentiality to be permissibly halted by states is notable. Permission is, however, not extended to the use of secrets discovered accidentally. Restatement (Third) of Unfair Competition 40(b)(4) is, to that extent, problematic. 5. Justice Marshall, and apparently Justices Douglas and Brennan, saw secrecy as a viable alternative to patents. If secrecy is commonly substituted, would it negate the principal holding in Kewanee?

U.S. Court of Appeals, Federal Circuit 254 F.3d 1041 (2001) [Besides matters addressed in Chapter 3, the trial court ruled that any trade secrets and damages related to their use ceased when Goldsteins patent application was published. Because Hallmark was, however, unaware of that publication, Group One argues that it is irrelevant.] III. A Group Ones trade secret claims are governed by state law. [T]he parties agree that the relevant law is that of Missouri, and the district court applied Missouri law. Missouri adopted the Uniform Trade Secrets Act in 1995, but the Act specifically states: With respect to a continuing misappropriation that began prior to August 28, 1995, [the Act] shall not apply to the continuing misappropriation that occurs after such date. Mo. Rev. Stat. 417.467. Since all relevant acts in the present case began before that date, Missouri common law applies. B The key dispute between the parties is what view Missouri takes of trade secret law. Group One urges what it calls an equitable theory, and which the district court called the relationship theory. Under this theory, the harm being remedied is the misappropriation itself in this case, Hallmarks use of Group Ones confidential disclosures to construct its Curl Cascade machine which is a violation of the confidential relationship. The subsequent publication of the formerly secret material is deemed irrelevant unless the misappropriating party becomes aware of the publication and relies on that publication, rather than on the confidential disclosure. In the present case, Hallmark does not contest that it did not learn of the published PCT application until this litigation, well after it designed its machine. Under these facts, according to Group One, Hallmark should be liable for its misappropriation. Group One relies primarily on Goldberg v. Medtronic, Inc., 686 F.2d 1219 (7th Cir. 1982). In Goldberg, the Seventh Circuit, interpreting Minnesota law, put the focus on the breach of confidence, rather than encroachment on a property right. The court followed previous decisions in Minnesota and other jurisdictions that it read as holding: [T]he existence of public disclosures is relevant only so far as the defendant actually relied upon them. [O]ne who breaches an obligation of confidence and uses confidential information to the owners detriment is liable despite the fact that the information could have been lawfully obtained. Id. at 1227. Also to the same effect is Smith v. Dravo Corp., 203 F.2d 369, 375 (7th Cir. 1953) ([T]he mere fact that such lawful acquisition was available does not mean that [a defendant] may, through breach of confidence, gain the information in usable form and escape the efforts of inspection and analysis. (applying Pennsylvania law)).

Group One, Ltd. v. Hallmark Cards, Inc.

Trade Secrets

8.25

. According to Hallmark, once formerly secret material is published, it ceases to be a secret, and therefore it cannot be misappropriated regardless of whether the party accused of misappropriation was aware of the publication. . Hallmark points out that the Supreme Court of Minnesota specifically criticized Goldbergs interpretation of Minnesota law, stating we disagree with the holding in Goldberg Electro Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897 n.5 (1983). Furthermore, the Supreme Court of Pennsylvania rejected Smith v. Dravos interpretation of Pennsylvania law, stating: We feel that the authorities holding that public disclosures destroy plaintiffs right to maintain a cause of action to preserve his trade secret as against a competing former employee who has violated a duty of confidence are more sound in theory and practice than those continuing to look to the relationship of the parties as a basis for the action. The starting place in every case of this sort is not whether there was a confidential relationship, but whether, in fact, there was a trade secret to be misappropriated. Van Prods. Co. v. Gen. Welding & Fabricating Co., 213 A.2d 769, 780 (1965). Hallmark also suggests that Missouri law follows these decisions rejecting the Goldberg formulation. The district court was unable to find any Missouri law that was directly on point. It concluded that, if presented with the question, the Missouri Supreme Court would adopt the property theory. Under the property theory, the district court found that the publication of the PCT application on May 27, 1993 destroyed the trade secret status of the confidential disclosures, and therefore Hallmark could not be liable for any activity after that date. The court did hold that Hallmark would be liable for damages for any head-start it obtained by having access to the confidential information in the time period between the date of the confidential disclosure and the date of the PCT publication, and reserved that issue for trial. Group One subsequently stipulated that it would be unable to prove any such damages, and the counts were then dismissed. Missouris view on the law of trade secrets is a matter of law, which we review without deference to the district court. . What we can glean from the law that does exist from the state of Missouri is consistent with the district courts interpretation. We find particularly relevant Reddi-Wip, Inc. v. Lemay Valve Co., 354 S.W.2d 913 (1962), in which the Missouri court of appeals specifically rejected the doctrine of Smith v. Dravo, at least on the facts of that case and arguably as a general principle, stating: In general, the doctrine upon which [Dravo] line of cases rests was declared by Judge Learned Hand as one for which we can find no support in principle. Conmar Products Corp. v. Universal Slide Fastener Co., 172 F.2d 150, 156 (1949). We are of the opinion that the rule applied in Dravo is not applicable to a case where, as here, defendants knowledge of plaintiffs trade secrets was acquired during a normal, albeit confidential, relationship, which has long since ceased, and the use of the alleged trade secrets occurred a substantial length of time after their voluntary disclosure by the issuance of patents to plaintiffs. 354 S.W.2d at 918. Group One correctly points out that these Missouri cases all addressed trade secrets in the context of a former employee. In such a context, the right of the ex-employee to use the general knowledge he or she obtained while employed was a substantial countervailing factor. According to Group One, no such countervailing considerations are implicated in the present case, and therefore the proper approach is to follow Goldberg and Smith v. Dravo, both of which did not involve an employee/employer relationship. While this

8.26

Patents and Trade Secrets

argument is not without force, we find no such distinction made in existing Missouri law. In the absence of any suggestion in that law to make such a distinction, we are of the view that the district court correctly determined the likely thrust of the states law. . [The court affirmed on trade secret misappropriation and unjust enrichment.] Note But for the central notion embraced in Group One, Harper & Row, an earlier discussed copyright case, might have included a trade secret claim. The editor of The Nation, aware that possession of Fords manuscript was unauthorized, worked frenetically throughout a night and part of a weekend to read the memoirs before returning the copy to its source. 723 F.2d 195, 198. But [a]n ironic detail of the case is that much of the information turned out to have been already revealed, id. Although the editor was unaware of that, claims under state law were nevertheless held to be preempted, id. at 200.

Florida District Court of Appeal, 2d District* 659 So.2d 1112 (1995) Campbell, Judge: [Petr Taborsky] was originally convicted and sentenced following a jury verdict finding him guilty of grand theft and theft of trade secrets. [W]e affirm. This court affirmed the original convictions and sentence in Taborsky v. State, 579 So.2d 146 (1991). We considered the same facts in Board of Regents v. Taborsky, 648 So.2d 748 (1994), a civil matter. While those two previous decisions provide additional detail of the circumstances of the present appeal, we provide the following summary chronology. After appellant was convicted of grand theft of research materials and trade secrets, the court sentenced him to one year in county jail, suspended, and fifteen years probation. The court also ordered appellant to return the originals and all copies of the research materials and not to use them in any way. The court also ordered appellant to pay restitution. Appellant appealed, and this court affirmed. He was subsequently charged with violating the terms of his probation. The court found that he had violated that condition and revoked his probation. Appellant challenges this first revocation of his probation. Having revoked appellants probation, the court then proceeded to resentence appellant. In addition to imposing a suspended three-and-one-half-year sentence and an additional fifteen years of probation, the court imposed three special conditions of probation: (1) That appellant assign the patent to the victims; (2) that appellant not use the materials in any way; and (3) that appellant cease from using the information to apply for a patent. Appellant was again charged with violating his probation, this time for failure to assign the patent. Appellants probation was once again revoked. . While we affirm both revocations and sentences, we address the following issues: (1) The propriety of the revocation; and (2) the Trial Courts jurisdiction to require an assignment of a patent acquired in violation of the conditions of probation as either restitution or as a further condition of continued probation after a violation of probation. . [Taborsky] argues that the condition of probation was neither contained in the written order of probation nor clearly stated verbally. He is wrong. [T]he trial judge, on
*

Taborsky v. State

At 666 So.2d 145 (1995), the Florida Supreme Court denied further review of this matter and, at 654 So.2d 920, denied review of a civil case holding that he was collaterally estopped by the criminal action.

Trade Secrets

8.27

Feb. 9, 1990, clearly stated at the hearing: If he has not already done so, he shall return the originals and all copies of these notebooks, in no matter what form the copies may be. He shall not utilize, in any manner whatsoever, for any purpose whatsoever, any of this research material, whether they be in writing or in any form. In addition, the written order of probation referred to special conditions on an attached page. That attached page referred to restitution, which was then imposed in a subsequent order. That order, dated Feb. 13, 1990, not only reserved jurisdiction to determine an amount of restitution depending on appellants ability to pay, it also provided: 3. The Defendant, if he has not already done so, shall return the originals of the research material at issue and any copies thereof by Feb. 12, 1990. 4. The Defendant shall not utilize in any manner whatsoever for any purpose whatsoever any of this research material. We conclude then that the conditions of probation at issue were not only verbally clearly imposed, but were in writing as well. Appellant was subsequently charged with violating those terms. . Although, prior to the violation of probation, the trial judge had, at the request of the victims and because of appellants financial inability, deleted the requirement that the defendant make restitution, that deletion did not pertain to the remaining restriction prohibiting use of the materials. Moreover, at the hearing on the violation of probation, it became clear that appellant knew of and understood the probationary condition. . The court: Do you remember this statement from me to you, He shall not utilize in any manner whatsoever for any purpose whatsoever any of this research material whether they be in writing or in any form? The defendant: Yes, I remember that very clearly. Having found that the condition of probation was clearly imposed and that appellant plainly acknowledged that he was advised of it, we conclude that there was no error in its imposition. Accordingly, we affirm the courts [first] revocation of appellants probation. . Having found appellant guilty of violating his probation by using the material, the trial judge not only revoked appellants probation and sentenced him anew, he also imposed special written conditions of probation as follows: 24. Therefore, as a special condition of his new probation, Mr. Taborsky shall, within 14 days of todays date, execute an assignment of his rights, title and interest in patent number 5,082,813 issued on Jan. 21, 1992. 25. Another special condition of his probation, Mr. Taborsky is again enjoined, ordered and directed not to utilize in any manner whatsoever, directly or indirectly, any of the sponsored research material, information, or data in whatever form he derived, acquired or learned while employed with the University of South Florida as a graduate research assistant relating to the sponsored research project conducted pursuant to the contract entered into between the University of South Florida and Progress Technologies Corporation in August of 1987 and the confidentiality agreement into between Progress Waters Technologies Corporation and the defendant on Oct. 28, 1988. 26. Special condition directing and ordering Mr. Taborsky to immediately cease and desist so long as he is on probation from utilizing this information in any patent application, including any patent application now pending. . On Apr. 26, 1993, appellant was again charged with violating his probation, this time for failure to assign the patent to the victims, as required by his new sentence and conditions of probation. On July 12, 1993, the trial judge, having once again found appellant

8.28

Patents and Trade Secrets

guilty of violating his probation, revoked that probation and sentenced appellant yet again, this time to three-and-one-half years in prison, followed by eleven-and-one-half years probation. While appellant argues that the trial judge had no authority to order him to assign the patent, we disagree. In Carmo v. State, 378 So.2d 850 (Fla. 4th DCA 1979), this Court held: The trial court is vested with broad discretion in determining the conditions of probation. If a probationer is determined to have violated any of the terms or conditions of his probation, and the court desires to restore him to probation after finding such a violation, the court may, at that time, impose additional conditions. This would be considered a new probationary period. Appellant had been found financially unable to make monetary restitution. He had been convicted of the theft of intellectual properties which he had been found to have used in violation of the courts probationary terms. The only way to effectuate restitution was to require appellant to assign the patent. In Richardson v. Suzuki Motor Co., Ltd., 868 F.2d 1226 (Fed. Cir.), cert. denied, 493 U.S. 853 (1989), the Federal Circuit Court of Appeals recognized the ability of a court to require assignment of a patent to correct a wrong otherwise beyond remedy when it held: . [T]he presence of a further modification in one or two claims of the patent does not negate the imposition of an equitable remedy. To hold otherwise would ratify and indeed reward the wrongdoing. Based on the jury verdict, Richardson is entitled to ownership of the patents as against Suzuki. Such remedy is appropriate under the circumstances. Suzuki argues that Richardson has no remedy other than by seeking an interference in the United States Patent and Trademark Office with his own invention, and presumably by taking similar actions, if such are available, in other countries. We do not agree. The courts are not powerless to redress wrongful appropriation of intellectual property by those subject to the courts jurisdiction. Richardson, 868 F.2d at 124950. We conclude that the court did have the authority to order the assignment of the patent. Accordingly, when appellant failed to comply with the probation condition by refusing to assign the patent to the victims, the court properly revoked his probation. We find no error here. . Judges Ryder and Whatley concur. Notes 1. If Taborskys patent application had been published before trial and disclosed all secrets of any value, should the case have been dismissed? Should the theoretical approaches contrasted in Group One have no bearing in such a situation? 2. Taborsky was convicted of grand theft in the second degree. As defined in Fl. Stat. Ann. 812.014(b), it requires that stolen property be worth between $20,000 and 100,000. What would determine that value? 3. Other states also make trade secret misappropriation criminal some explicitly. See, e.g., William E. Hilton, What Sort of Improper Conduct Constitutes Misappropriation of a Trade Secret, 30 Idea 287, 298308 (1990). 4. The federal Economic Espionage Act of 1996 (EEA), 18 U.S.C. 183139, also provides criminal sanctions, fines up to $15 million and jail terms up to fifteen years, for acquisition or disclosure of trade secrets.

Trade Secrets

8.29

5. See, e.g., Harry R. Weber, Ex-Coke Secretary Gets 8 Years in Prison, AP, Atlanta, May 23, 2007, online at <http://www.baynews9.com> (viewed June 3, 2007). A federal judge ignored a former Coca-Cola secretarys plea for mercy Wednesday and sentenced her to eight years in prison for conspiring to steal trade secrets from the worlds largest beverage maker. U.S. District Judge J. Owen Forrester told Joya Williams, 42, that he was giving her a longer sentence than recommended by federal prosecutors and sentencing guidelines because, This is the kind of offense that cannot be tolerated in our society. Williams had faced up to 10 years in prison on the single conspiracy charge in a failed scheme to sell Cokes trade secrets to rival PepsiCo Inc. for at least $1.5 million. . For a comparison of that situation with one involving online disclosure of Apples secrets, see, Thomas G. Field, Jr., The Risks of Buying Secrets, http://www.ipfrontline.com (2006), updated in Pierce Law Magazine, Winter 2007, at 10. 6. EEA passage strengthens a point in Justice Marshalls Kewanee concurrence. How would the dissent view state (or federal) criminal penalties for trade secret misappropriation?

U.S. Court of Appeals, Federal Circuit 254 F.3d 1347 (2001) Before Mayer, Chief Judge, Lourie and Bryson. Lourie, Circuit Judge: . Dr. Chou was a graduate student and subsequently a post-doctoral research assistant for Dr. Roizman at the University of Chicagos Department of Molecular Genetics and Cell Biology from 1983 to 1996. [Roizman is listed as an inventor on three U.S. and three foreign patents relating to herpes simplex virus and its use in a vaccine.] . Under University policy, inventors receive 25% of the gross royalties and up-front payments from licensing of the patents, as well as 25% of the stock of new companies that are based on their inventions. Chou allegedly told Roizman in February of 1991 that her discoveries should be patented, and he allegedly disagreed. At that time, however, Roizman had already filed [a] patent application allegedly directed to the same disputed invention, and had named himself as the sole inventor of that subject matter. During prosecution of that application, the U.S. Patent and Trademark Office cited two joint Chou-Roizman publications as prior art. In response, Roizman submitted a declaration stating that those publications were not available as prior art because he was the sole inventor of the work described therein and that she merely worked under his direction and supervision. [Aviron now owns the the patents. Roizman and ARCH, a wholly owned University affiliate, hold stock in it and receive royalties.] [When Chou sued Roizman, the University and Aviron, the district court held that she lacked standing to correct inventorship, because her rights belonged to the University by employment agreement. It also dismissed all of her state law claims but one.] . [The court agreed that Chou was obligated to assign her inventions to the University, despite never signing a contract to that effect. Still, it found that Chou had standing to sue for correction of inventorship under 35 U.S.C 256.]

Chou v. University of Chicago

8.30

Patents and Trade Secrets

C. State Law Claims 1. Fraudulent Concealment We agree with Chou that the district court erred in dismissing her complaint for failure to state a claim for fraudulent concealment. . Chou alleged that Roizman had a responsibility under University policies and by virtue of their advisor-advisee relationship to not misappropriate her inventions. Chou has also alleged that Roizman specifically told her that he would take care to properly protect her research, inventions and co-inventions. The Universitys patent policy requires the University to endeavor to provide a return to the inventor or creator. Similarly, under the policy, [t]he inventor or creator and his or her Dean or other administrative head shall be consulted and kept informed of the [patenting] arrangements. The Universitys patent policy also requires that the disposition of patent rights be consistent with the requirements of law and professional ethics. As a member of the Universitys faculty, Roizman had a duty to abide by those policies, and Chou alleged that she trusted that he would do so. Thus, we conclude that Chou alleged with particularity that Roizman had a duty to disclose material facts relating to the patenting of her discoveries. With respect to his failure to disclose such facts, Chou alleged that she told Roizman in February 1991 that her discoveries should be patented, and that he disagreed with her but did not tell her that he had already filed an application on those discoveries. Thus, Chou alleges all of the elements of a claim of fraudulent concealment by Roizman, viz., that Roizman concealed the material fact of a patent application of which she may have been a true inventor when he was under a duty to disclose that fact because he held a position of superiority with respect to her and was obligated by University patent policies to give her proper inventorship credit. [Because a claim for fraudulent concealment depends on her status as a true inventor, the district court erred in dismissing Chous claim. The University could also be liable because Roizman was its agent. Aviron, created later, was not liable, however.] 2. Breach of Fiduciary Duty We also agree with Chou that the district court erred in dismissing her claim against Roizman for breach of fiduciary duty. A fiduciary duty in Illinois may arise in one of two ways. A fiduciary relationship automatically arises from particular relationships, such as attorney-client and principal-agent, as a matter of law. A fiduciary relationship may also arise from the special circumstances of the parties relationship, such as when one party justifiably places trust in another so that the latter gains superiority and influence over the former. The relevant factors in determining whether the latter fiduciary relationship exists include the disparity in age, education, and business experience between the parties, and the extent to which the servient party entrusted the handling of its affairs to the dominant party and placed its trust and confidence in that party. The existence of a fiduciary relationship prohibits the dominant party with the duty from seeking or obtaining any selfish benefit for himself at the expense of the servient party while the fiduciary duty exists. . Resolving all inferences in favor of Chou, as we must at this stage of the proceedings, we conclude that she has sufficiently stated a claim of breach of fiduciary duty. We also agree with Chou that she has stated a claim against the University for breach of fiduciary duty under the theory of respondeat superior for the same reasons as for her fraudulent concealment claim. . 3. Unjust Enrichment We also agree with Chou that the district court erred in dismissing her claim for unjust enrichment. To state a cause of action based on a theory of unjust enrichment under Illinois

Trade Secrets

8.31

law, a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiffs detriment, and that the defendants retention of that benefit violates fundamental principles of justice, equity, and good conscience. [Chou was found to have a good claim against Roizman to the extent that he received royalties and stock that might properly have been hers. Because she was obligated to assign to the University, however, it was proper to dismiss her claim against it.] . Conclusion Because the district court erred in holding that Chou did not have standing to sue for correction of inventorship under 256, we reverse and remand for adjudication of that claim against all of the defendants. We also reverse the courts determination that Chou failed to state claims for fraudulent concealment, breach of fiduciary duty, unjust enrichment, and breach of implied contract against Roizman, and we direct the court to reinstate Chous claims for fraudulent concealment, breach of fiduciary duty, and breach of an express contract against the University/ARCH. We affirm, however, its decision dismissing all other claims against Aviron. Notes 1. In what respect(s) might Taborsky have fared better had he pursued his apparent claims to ownership as Chou did? 2. Taborskys story attracted considerable negative attention, see, e.g., Jeanne DeQuine, Volatile Mix of Corporate Cash and Academic Ideals, Christian Science Monitor, July 11, 1996, online at <http://www.cptech.org/ip/csm.html> (visited June 3, 2007). What did pursuit of criminal charges accomplish as compared to civil litigation? 3. Another case that attracted considerable attention is Moore v. Regents, University of California, 793 P.2d 479 (Cal. 1990). As many know, after Moores cells were turned into valuable intellectual property without his consent, he received no relief. It is slightly off topic but worth mention that the remedy sought by Chou might have served better; see Michelle J. Burke & Victoria M. Schmidt, Old Remedies in the Biotechnology Age, 3 Risk 219 (1992). The article is online at <http://www.piercelaw.edu/risk/vol3/summer/moore.htm> (visited June 23, 2007). 4. A variation on Chou appears in University of Colorado Foundation, Inc. v. American Cyanamid Co., 342 F.3d 1298 (Fed. Cir. 2003). As recited at 1300, Drs. Robert H. Allen and Paul A. Seligman developed an idea to reformulate a prenatal multivitamin/mineral supplement. The doctors described their idea in a confidential manuscript to Cyanamids Chief of Nutritional Science, Dr. Leon Ellenbogen, who copied parts of that manuscript to obtain the 634 patent. The district court found Cyanamid liable for fraudulent nondisclosure and unjust enrichment and awarded exemplary damages of $500,000 to each doctor. The Federal Circuit finds the unjust enrichment claim neither preempted by federal patent law, 342 F.3d at 1305, nor foreclosed because the benefits that the doctors admittedly derived through their collaboration with Cyanamid, together with the fact that they never sought to patent or practice the invention at issue, establish that the 634 patent was not obtained at the plaintiffs expense, 342 F.3d at 1309. At 1312, the court notes that, under Colorado law, a factfinder may award exemplary damages not to exceed the amount of actual damages when defendants tortious conduct is attended by circumstances of fraud, malice or willful and wanton conduct. The district court, having detailed Cyanamids misconduct in numerous factual findings, was also affirmed in that respect.

8.32

Patents and Trade Secrets

5. A similar result on facts similar to those in American Cyanamid is approved in Russo v. Ballard Medical Products, 550 F.3d 1004 (10th Cir. 2008). (The appeal did not need to go to the Federal Circuit because the inventor did not seek to be added or substituted with regard to the patent.) 6. It is implicit in American Cyanamid that the need for lack of deceptive intent in 256 does not bar the addition of inventors who have been omitted as a result of others deception. But Stark v. Advanced Magnetics, Inc., 119 F.3d 1551 (Fed. Cir. 1997), so holds, reversing a district court ruling to the contrary. 7. In light of Stark, Roizmans failing to include Chou would pobably not interfere with correction of inventorship, but theres a more serious problem. Roizmans misrepresentation seems to be the sort of thing that can result in an unenforceable, if not invalid, patent. See, e.g., GFI, quoted in a note after Pfaff in Chapter 3.B. 8. Compare Chou with the scenario addressed in Larson v. Correct Craft, Inc., 569 F.3d 1319 (Fed. Cir. 2009). After Larson brought a state action claiming that he had been fraudulently induced to assign rights, the case was removed to federal court. The Federal Circuit, however, concluded, at 1328, that Larson lacked standing to correct inventorship without having first established a reputational or economic stake matters properly resolved under state law. It therefore remanded with instructions that the district court return the case to the Florida court from which it had been removed.

Chapter 9 Preemption and Privity

Before considering cases in this chapter, compare Sears and Compco, Chapter 4, with Kewanee and other cases in Chapter 8. As the Court states in Kewanee, While trade secret law does not forbid the discovery of the trade secret by fair and honest means, patent law operates against the world, forbidding any use of the invention for whatever purpose for a significant length of time. In contrast, Sears and Compco hold that, on facts considered there, application of state unfair competition law had the same effect as patents. State law was therefore preempted. Preemption wasnt a factor in Tabor, but consider the dissenters parting observation: Neither the defendant nor the man who made the patterns sustained any relation by contract with the plaintiff. They were neither the servants nor partners of the plaintiff, and they owed him no duty not owed by the whole world. The majority, apparently based on direct dealings between Tabor and Walz, as well as knowledge on the part of Hoffman, disagreed. Nor was preemption a factor in DuPont, but the same tension was present. The Christophers claimed that nothing they had done created any duty to DuPont. Therefore, they could not be differentiated from others (the world). But the Fifth Circuit disagreed, and its view is endorsed in Kewanee.

A. Parties in Privity Supreme Court, Appellate Div., 2d Dept. 323 N.Y.S.2d 578 (1971) Before Rabin, Hopkins, Munder, Martuscello and Shapiro. Shapiro, Justice: The plaintiff claims that the defendant appropriated related advertising ideas and concepts for a new gelatin product to be directed at a childrens market. The defendant contends that its distribution of such a product under the trade name Mr. Wiggle was the independent creation of its advertising agency, Young & Rubicam (Y & R). On Feb. 15, 1965 the plaintiff wrote the defendant that he had an idea which would increase its sale of Jello to children. In response, the defendant sent a booklet entitled About Your Idea and a paper entitled Idea Submittal Form (ISF). The booklet stated: Ideas are evaluated by the appropriate person in the organization who will make every effort to give yours a thorough, thoughtful, and conscientious review. It also stated that the submission of an idea does not establish a confidential relationship and that the compensation for any suggestion is something which must be left to our discretion. The ISF contained a printed introductory statement, followed by a place for signature, after which room was left for the idea to be set forth. The introductory statement also provided that no confidential relationship had been established and that the use to be made of

Downey v. General Foods Corp.

9.2

Parties in Privity

the idea and the compensation therefor were matters resting solely in the defendants discretion. The plaintiff wrote the following in the area above his signature: In regard to above, I wish to say that it is my understanding that the name Wiggle-E does not now belong to G.F. but to myself as protected by registered mail, just as if I had patented or copyrighted the name. The text of the plaintiffs submission contained the idea that a product similar to Jello be packaged under some variant of the name Wiggle so that it would have an appeal to children. Various marketing concepts were included in the text, all directed toward the creation of a larger child-oriented market for the defendants gelatin products. . [Plaintiff claimed to have written another letter advising that the best name would be Mr. Wiggiley or Mr. Wiggley, but he could not find a copy, and defendant did not have it. In March, defendant rejected his submission.] The defendant, in its answer, admitted that it has since on or about July 27, 1965 offered for sale to the public a child-oriented, artificially sweetened, dietary gelatin dessert under the name of Mr. Wiggle and that it has used standard advertising media, including print and television, to advertise said product. Depositions of various employees of the defendant and of Y & R indicated that only one of the defendants employees read the plaintiffs submission; that it was not made available to anyone concerned with the development of the product which came to be known as Mr. Wiggle; that the product name and its marketing concepts were developed by Y & R on an emergency basis to meet the challenge of the Pillsbury Company, which was considering entering the gelatin field with a product oriented to a childrens market, in order to protect the defendants preeminence in the gelatin field; and that, despite an intensive advertising campaign, Mr. Wiggle failed to meet the defendants expectations and was ultimately withdrawn from the market at a net loss of $3,362,000. The complaint asserts 14 causes of action, seven of which, in effect, charge a misappropriation of the plaintiffs idea and concept. . [Triable fact issues, however, preclude motions for summary judgment.] Within two months after the defendants formal rejection, the defendant placed a product which might well have been based upon that idea and concept into distribution on a nationwide scale, investing literally millions of dollars in its promotion. The facts surrounding the development of the name Mr. Wiggle and the concept of a gelatin product directed at a childrens market were all within the knowledge of the defendant and its advertising agency, hence it would have been improper to grant the defendants motion for summary judgment as to those causes of action which charge misappropriation of the idea and concept. The plaintiffs contention that he is entitled to judgment simply because he submitted his idea to the defendant prior to the alleged independent creation of the idea by Y & R is without merit. If Mr. Wiggle was an independent creation, the defendant will be entitled to dismissal of the plaintiffs causes of action for misappropriation of his idea and concept. [Yet] that is not an issue which may summarily be decided. . The many legal issues raised by the remaining causes of action and the affirmative defenses set forth in the answer require discussion. Three causes of action assert the breach of an express contract. The defendant takes the position that there can be no valid cause of action based upon the contract. It argues that either it lived up to the contract by deciding, in its sole discretion, not to pay compensation or that the cause as to compensation is so indefinite as to preclude the conclusion that the parties entered into a contract. . Whether, under all of the facts and circumstances, this is a proper case in which to imply a covenant to prevent the defendant from impairing the plaintiffs right to receive the fruits of his contract should be decided at trial and not summarily on papers. This is

Preemption Reconsidered

9.3

particularly so in view of the rule that any ambiguity in the contract should be resolved against the defendant, the party who drew it. The Special Term therefore properly decided that summary judgment should not be granted against the plaintiff on his cause of action for breach of an express contract. . The complaint here is sufficiently broad to permit a recovery on the theory of a contract implied in fact or in law. The plaintiffs signature on the ISF does not necessarily bar these causes of action. Although the defendants form stated that compensation, if any, was to be paid in its sole discretion, the plaintiff included in his handwritten matter in the form: I would ask that if at any time you should decide to use this name and if it proved successful, that my wife & I be compensated only to the actual worth or value of the name & idea (emphasis in original). On trial it may therefore be determined that neither party assented to the others expression of intent as to compensation, thereby leaving open the possibility of recovery on a theory of implied contract. In any event, it has been held that proof of the existence of an express contract under which an idea is submitted to another does not bar the assertion of an implied contract theory for the resultant appropriation of the idea. As to the causes of action for breach of contract and in quasi contract, the defendant contends that since it unquestionably lost money in its promotion of Mr. Wiggle, the plaintiff, in accordance with his express statement in the submission, is not entitled to compensation. This contention has surface plausibility. The defendant had learned that the Pillsbury Company was about to enter the childrens gelatin market with a product called Jiggly. The reason for the defendants rush distribution of its product under the name Mr. Wiggle was to meet the challenge. It seems to have been successful in this regard. It is admitted that Pillsbury never entered the national market to joust with it. It therefore cannot now be said as a matter of law that the idea of distributing a gelatin product under the name Mr. Wiggle aimed at the childrens market was unsuccessful, so as to preclude recovery. The defendant also asserts with regard to the causes of action in contract and quasi contract that an idea cannot be protected unless it is disclosed pursuant to a contract or a confidential relationship. This rule, however, has applicability to cases of gratuitous, unsolicited disclosures of ideas, unprotected by contract. Here, the idea was solicited by the defendant in response to the plaintiffs original letter and was submitted on the defendants form under circumstances which indicated that both parties regarded possible compensation as a factor. This is therefore not a case of a gratuitous, unsolicited submission of an idea. . The defendants first affirmative defense is that the plaintiffs product concept and name constitute unprotected matter within the scope of the patent and copyright laws. This defense is directed at the plaintiffs cause of action for breach of common-law copyright, his only cause of action not yet discussed. The defendants assertion that the plaintiff, as a matter of law, cannot have a valid common-law copyright on a title is misleading. While there is some authority for this proposition, the plaintiff claims a copyright on more than just the name. His claimed copyright also includes marketing concepts and advertising suggestions. . Although the decisions in Sears and Compco referred to copyright, the holdings were dicta in that regard. Both cases involved the copying of unpatented industrial designs. . The Federal Copyright statutes, on the other hand, specifically preserve the right to recover damages for violation of common-law copyrights (17 U.S.C. 2). It is therefore at least arguable that failure to procure a copyright pursuant to Federal statute does not bar a State from protecting a common-law copyright. The defendants second affirmative defense is sustainable against the plaintiffs motion for summary judgment. . The defendants depositions revealed that its advertising agency, Y & R, created the name after the plaintiffs submission. However, since the basis of the

9.4

Parties in Privity

defense is that the name and concept was the defendants own independent creation it is not vulnerable to attack by a summary judgment motion. . In addition, the defendant submitted proof to the effect that it had used the word Wiggle, or variations thereof, in prior advertising campaigns for its other gelatin products. Such proof could lead a jury to the conclusion that the plaintiffs idea was not novel. The defendants third affirmative defense that there was a lack of consideration sufficient to support recovery on a theory of breach of either an express or quasi contract, is based on our decision in Soule v. Bon Ami Co., 195 N.Y.S.2d 574, affd, 235 N.Y. 609. We there held that the idea thus submitted was neither new nor original and hence could not be deemed valuable. Here, however, we are dealing with what a jury may determine to be an original product name together with a concept for its marketing. It cannot be held as a matter of law that the plaintiffs idea was unoriginal and valueless. [On further appeal Downey II] Court of Appeals of New York 31 N.Y.2d 56 (1972) Fuld, Chief Judge: . The critical issue in this case turns on whether the idea suggested by [Downey] was original or novel. An idea may be a property right. But, when one submits an idea to another, no promise to pay for its use may be implied, and no asserted agreement enforced, if the elements of novelty and originality are absent, since the property right in an idea is based upon these two elements. See Bram v. Dannon Milk Prods., 307 N.Y.S.2d 571. The Bram case is illustrative; in granting summary judgment dismissing the complaint, the Appellate Division made it clear that, despite the asserted existence of an agreement, the plaintiff could not recover [if his idea] was not original and had been used before: The idea submitted by the plaintiff to the defendants, the concept of depicting an infant in a highchair eating and enjoying yogurt, was lacking in novelty and had been utilized by the defendants prior to its submission. Lack of novelty in an idea is fatal to any cause of action for its unlawful use. In the circumstances a question of fact as to whether there existed an oral agreement between the parties would not preclude summary judgment. In the case before us, the record indisputably establishes, first, that the idea submitted use of a word (wiggley or wiggle) descriptive of the most obvious characteristic of Jell-O, with the prefix Mr. added was lacking in novelty and originality and, second, that the defendant had envisaged the idea, indeed had utilized it, years before the plaintiff submitted it. As already noted, it had made use of the word wiggles in a 1959 television commercial and the word wigglewam in a 1960 newspaper advertisement. It was but natural, then, for the defendant to employ some variation of it to combat Pillsburys entry into the childrens market with its Jiggly. Having relied on its own previous experience, the defendant was free to make use of Mr. Wiggle without being obligated to compensate the plaintiff. It is only necessary to add that, in light of the complete pretrial disclosure that the facts surrounding the defendants development of the name were within the knowledge of the defendant and its advertising agency does not preclude a grant of summary judgment. In the present case, it was shown beyond peradventure that there was no connection between Miss Dunhams department and the defendants other employees or the employees of the

Preemption Reconsidered

9.5

advertising outfit who took part in the creation of Mr. Wiggle. In exhaustive discovery proceedings which included examinations of all parties concerned either with that name or the defendants idea files the plaintiff was furnished with every conceivable item of information in the defendants possession bearing on the privacy and confidentiality of such files and on the absence of access to them by those outside of Miss Dunhams department. The hope, expressed by the plaintiff that he may be able to prove that the witnesses who gave testimony in examinations before trial lied, is clearly insufficient to create an issue of fact requiring a trial. Notes 1. Downey I notes that gratuitous, unsolicited disclosures cannot ordinarily create contractual obligations. See also, Smith v. Snap-On Tools, 833 F.2d 578 (5th Cir. 1987) and other cases cited in support of Restatement (Third) of Unfair Competition 40, cmt. b. 2. Consider the result if someone were to submit an envelope with a cover letter briefly describing an idea more fully described in a second envelope. The cover might say, e.g., By opening the enclosed envelope, you agree to preserve the secrecy of its contents. Would Snap-On Tools apply? 3. Downey relied in part on state copyright available for unpublished works under 2 of the 1909 Act. But such a disclosure might now lack federal protection as a mere idea.

Apfel v. Prudential-Bache Securities Inc.

Court of Appeals of New York 81 N.Y.2d 470 (1993)

Simons, Judge: .

I In 1982, plaintiffs, an investment banker and a lawyer, approached defendants predecessor with a proposal for issuing municipal securities. Initially, the parties signed a confidentiality agreement that allowed defendant to review the techniques as detailed in a 99page summary. Nearly a month of negotiations followed before the parties entered into a sale agreement under which plaintiffs conveyed their rights to the techniques and certain trade names and defendant agreed to pay a stipulated rate based on its use from October 1982 to January 1988. Under the provisions of the contract, defendants obligation to pay was to remain even if the techniques became public knowledge or standard practice in the industry and applications for patents and trademarks were denied. Plaintiffs asserted that they had not previously disclosed the techniques to anyone and they agreed to maintain them in confidence until they became public. From 1982 until 1985, defendant implemented the contract, although the parties dispute whether amounts due were fully paid. Defendant actively encouraged bond issuers to use the computerized book entry system and, for at least the first year, was the sole underwriter in the industry employing such a system. However, in 1985, following a change in personnel, defendant refused to make any further payments. It maintained that the ideas conveyed by plaintiffs had been in the public domain at the time of the sale agreement and that what plaintiffs sold had never been theirs to sell. Defendants attempts to patent the techniques proved unsuccessful. By 1985, investment banks were increasingly using computerized

9.6

Parties in Privity

systems, and by 1990 such systems were handling 60% of the dollar volume of all new issues of municipal securities. . Supreme Court concluded that triable issues existed on the questions of whether defendant breached the contract by refusing to make payments and whether plaintiffs committed a breach by allegedly disclosing the techniques to another company. The court also found defendant had raised a triable issue on whether plaintiffs had partially waived their right to payment by forgoing certain claims to compensation. The remainder of the pleadings were found to be legally insufficient. Accordingly, the court dismissed all the causes of action except breach of contract, and struck all defendants defenses and counterclaims except those relating to breach of contract and the partial defense of waiver. The Appellate Division modified the order by reinstating defendants claim that the sale agreement lacked consideration, 583 N.Y.S.2d 386. It held that novelty was required before an idea could be valid consideration but concluded that the question was one of fact to be decided at trial. . On this appeal, defendants principal contention is that no contract existed between the parties because the sale agreement lacked consideration. Underlying that argument is its assertion that an idea cannot be legally sufficient consideration unless it is novel. Defendant supports that proposition by its reading of such cases as Downey., Soule v. Bon Ami Co., , and Murray v. National Broadcasting Co., 844 F.2d 988, cert. denied 488 U.S. 955. Plaintiffs insist that their system was indeed novel, but contend that, in any event, novelty is not required to validate the contract at issue here. II . Under the traditional principles of contract law, the parties to a contract are free to make their bargain, even if the consideration exchanged is grossly unequal or of dubious value. Absent fraud or unconscionability, the adequacy of consideration is not a proper subject for judicial scrutiny. It is enough that something of real value in the eye of the law was exchanged. The fact that the sellers may not have had a property right in what they sold does not, by itself, render the contract void for lack of consideration. Manifestly, defendant received something of value. After signing the confidentiality agreement, defendant thoroughly reviewed plaintiffs' system before buying it. . For at least a year, it was the only underwriter to use plaintiffs' book entry system for municipal bonds, and it handled millions of such bond transactions during that time. Having obtained full disclosure of the system, used it in advance of competitors, and received the associated benefits of precluding its disclosure to others, defendant can hardly claim now the idea had no value. Indeed, defendant acknowledges it made payments to plaintiffs under the sale agreement for more than two years. Thus, defendant has failed to demonstrate on this record that the contract was void or to raise a triable issue of fact on lack of consideration. III Defendants position rests on Downey and Soule v. Bon Ami Co., supra and similar decisions. It contends those cases establish an exception to traditional principles of contract law and require that the idea must be novel. While our cases have discussed novelty as an element of an idea sellers claim, it is not a discrete supplemental requirement, but simply part of plaintiffs proof of either a proprietary interest in a claim based on a property theory or the validity of the consideration in a claim based on a contract theory. In Downey, [w]e ordered the dismissal of the complaint on two separate grounds: first, the lack of novelty and, second, defendants prior possession of the idea. To the extent plaintiffs causes of action were grounded on assertions of a property right, we found that

Preemption Reconsidered

9.7

they were untenable if the elements of novelty and originality [were] absent, since the property right in an idea is based upon these two elements. Second, we concluded that the defendant possessed plaintiffs ideas prior to plaintiffs disclosure. Thus, the ideas could have no value to defendant and could not supply consideration for any agreement between the parties (see Ferber v. Sterndent Corp., 51 N.Y.2d 782). In Soule v. Bon Ami Co., plaintiff made an express contract with Bon Ami to disclose a way to increase profits. The idea consisted largely of a proposal to raise prices. The Appellate Division, in a frequently cited opinion, denied plaintiff any recovery, finding that the bargain lacked consideration because the idea was not novel. This Court affirmed but it did so on a different basis: it held that plaintiff had failed to show that profits resulted from the disclosure. These decisions do not support defendants contention. Downey, Soule and cases in that line of decisions involve a distinct factual pattern: the buyer and seller contract for disclosure of the idea with payment based on use, but no separate postdisclosure contract for use of the idea has been made. . Such transactions pose two problems for the courts. On the one hand, how can sellers prove that the buyer obtained the idea from them, and nowhere else, and that the buyers use of it thus constitutes misappropriation of property? Unlike tangible property, an idea lacks title and boundaries and cannot be rendered exclusive by the acts of the one who first thinks it. On the other hand, there is no equity in enforcing a seemingly valid contract when, in fact, it turns out upon disclosure that the buyer already possessed the idea. In such instances, the disclosure, though freely bargained for, is manifestly without value. A showing of novelty, at least novelty as to the buyer, addresses these two concerns. Novelty can then serve to establish both the attributes of ownership necessary for a property-based claim and the value of the consideration-the disclosure-necessary for contract-based claims. There are no such concerns in a transaction such as the one before us. . The law of contracts would have to be substantially rewritten were we to allow buyers of fully disclosed ideas to disregard their obligation to pay simply because an idea could have been obtained from some other source or in some other way. . Kaye, C.J., and Titone, Hancock and Bellacosa, JJ., concur. Smith, J., taking no part. Notes 1. The issue is addressed in neither of the prior cases nor in Snap-On. But consider a distinction stressed in Vent v. Mars Snackfood US, LLC, 350 F. Appx. 533, 535 (2d Cir. 2009), While some industries have developed working assumptions of confidentiality when ideas are exchanged, see, e.g., Nadel v. Play-By-Play Toys & Novelties, Inc., 208 F.3d 368, 371-72 (2d Cir. 2000), it seems unreasonable to expect a company outside of such an industry to both recognize and agree to the standards within that other industry. 2. The leading Californial case on the law involving the transfer of ideas is Desny v. Wilder, 46 Cal.2d 715, 299 P.2d 257 (1956) (in bank). The opinion is sufficiently comprehensiv that Justice Carter said, I concur only in the result. I dissent from, and heartily deplore, the lengthy discussion of numerous principles of law wholly inapplicable and unnecessary to a determination of this matter. No good purpose is served by such a discussion other than to confuse the reader and the future state of the law. 3. It may sometimes also be useful to consider that there is no longer a formal distinction between trade secrets and the ideas that form the subject matter of the idea submission cases. Restatement (Third) of Unfair Competition 39, cmt. h.

9.8

Parties in Privity

Aronson v. Quick Point Pencil Co.

U.S. Supreme Court 440 U.S. 257 (1979)

Chief Justice Burger: .

1 In October 1955 the petitioner, Mrs. Jane Aronson, filed an application for a patent on a new form of keyholder. Although ingenious, the design was so simple that it readily could be copied In June 1956, while the patent application was pending, Mrs. Aronson negotiated a contract with the respondent, Quick Point Pencil Co., for the manufacture and sale of the keyholder. The contract was embodied in two documents. In the first, a letter, Quick Point agreed to pay Mrs. Aronson a royalty of 5% of the selling price in return for the exclusive right to make and sell keyholders of the type shown in your application, Serial No. 542677. The letter further provided that the parties would consult one another concerning the steps to be taken [i]n the event of any infringement. The contract did not require Quick Point to manufacture the keyholder. Mrs. Aronson received a $750 advance on royalties and was entitled to rescind the exclusive license if Quick Point did not sell a million keyholders by the end of 1957. Quick Point retained the right to cancel the agreement whenever the volume of sales does not meet our expectations. The duration of the agreement was not otherwise prescribed. A contemporaneous document provided that if Mrs. Aronsons patent application was not allowed within five (5) years, Quick Point Pencil Co. [would] pay two and one half percent (2.5%) of sales so long as you [Quick Point] continue to sell same. In June 1961, when Mrs. Aronson had failed to obtain a patent on the keyholder within the five years, Quick Point asserted its contractual right to reduce royalty payments to 2.5% of sales. In September of that year the Board of Patent Appeals issued a final rejection, and Mrs. Aronson did not appeal. Quick Point continued to pay reduced royalties to her for 14 years thereafter. The market was more receptive to the keyholders novelty and utility than the Patent Office. By September 1975 Quick Point had made sales in excess of $7 million and paid Mrs. Aronson royalties totaling $203,963.84; sales were continuing to rise. However, while Quick Point was able to pre-empt the market in the earlier years and was long the only manufacturer of the Aronson keyholder, copies began to appear in the late 1960s. Quick Points competitors, of course, were not required to pay royalties for their use of the design. Quick Points share of the Aronson keyholder market has declined during the past decade. 2 In November 1975 Quick Point commenced an action in the United States district court for a declaratory judgment, pursuant to 28 U.S.C. 2201, that the royalty agreement was unenforceable. Quick Point asserted that state law which might otherwise make the contract enforceable was preempted by federal patent law. This is the only issue presented to us for decision. Both parties moved for summary judgment. The district court held that the agreement was valid, and that Quick Point was obliged to pay the agreed royalties for so long as it manufactured the keyholder. The court of appeals reversed, one judge dissenting. It held that since the parties contracted with reference to a pending patent application, Mrs. Aronson was estopped from

Preemption Reconsidered

9.9

denying that patent law principles governed her contract with Quick Point. . The court held that a continuing obligation to pay royalties would be contrary to the strong federal policy favoring the full and free use of ideas in the public domain, Lear, Inc. v. Adkins, 395 U.S. 653, 674 (1969). The court also observed that if Mrs. Aronson actually had obtained a patent, Quick Point would have escaped its royalty obligations either if the patent were held to be invalid or upon its expiration after 17 years. Accordingly, it concluded that a licensee should be relieved of royalty obligations when the licensors efforts to obtain a contemplated patent prove unsuccessful. 3 On this record it is clear that the parties contracted with full awareness of both the pendency of a patent application and the possibility that a patent might not issue. The clause de-escalating the royalty by half in the event no patent issued within five years makes that crystal clear. Quick Point apparently placed a significant value on exploiting the basic novelty of the device, even if no patent issued; its success demonstrates that this judgment was well founded. Assuming, arguendo, that the initial letter and the commitment to pay a 5% royalty was subject to federal patent law, the provision relating to the 2.5% royalty was explicitly independent of federal law. The cases and principles relied on by the court of appeals and Quick Point do not bear on a contract that does not rely on a patent, particularly where, as here, the contracting parties agreed expressly as to alternative obligations if no patent should issue. Commercial agreements traditionally are the domain of state law. State law is not displaced merely because the contract relates to intellectual property which may or may not be patentable; the states are free to regulate the use of such intellectual property in any manner not inconsistent with federal law. Kewanee, 416 U.S. 479 (1974). [T]he question of whether federal law pre-empts state law involves a consideration of whether that law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Id. If it does not, state law governs. . Enforcement of Quick Points agreement with Mrs. Aronson is not inconsistent with any of these aims. Permitting inventors to make enforceable agreements licensing the use of their inventions in return for royalties provides an additional incentive to invention. Similarly, encouraging Mrs. Aronson to make arrangements for the manufacture of her keyholder furthers the federal policy of disclosure; these simple devices display the novel idea which they embody wherever they are seen. Quick Point argues that enforcement of such contracts conflicts with the federal policy by allowing states to extend perpetual protection to articles too lacking in novelty to merit any patent at all under federal constitutional standards, Sears, 376 U.S. at 232. We find no merit in this contention. Enforcement of the agreement does not withdraw any idea from the public domain. The design for the keyholder was not in the public domain before Quick Point obtained its license to manufacture it. In negotiating the agreement, Mrs. Aronson disclosed the design in confidence. Had Quick Point tried to exploit the design in breach of that confidence, it would have risked legal liability. It is equally clear that the design entered the public domain as a result of the manufacture and sale of the keyholders under the contract. Requiring Quick Point to bear the burden of royalties for the use of the design is no more inconsistent with federal patent law than any of the other costs involved in being the first to introduce a new product to the market. For reasons which Quick Points experience with the Aronson keyholder demonstrate, innovative entrepreneurs have usually found such costs to be well worth paying.

9.10

Parties in Privity

Finally, enforcement of this agreement does not discourage anyone from seeking a patent. Mrs. Aronson attempted to obtain a patent for over five years. It is quite true that had she succeeded, she would have received a 5% royalty only on keyholders sold during the 17-year life of the patent. Offsetting the limited terms of royalty payments, she would have received twice as much per dollar of Quick Points sales, and both she and Quick Point could have licensed any others who produced the same keyholder. Which course would have produced the greater yield to the contracting parties is a matter of speculation; the parties resolved the uncertainties by their bargain. 4 No decision of this Court relating to patents justifies relieving Quick Point of its contract obligations. . In Lear, 395 U.S. 653, we held that a person licensed to use a patent may challenge the validity of the patent, and that a licensee who establishes that the patent is invalid need not pay the royalties accrued under the licensing agreement subsequent to the issuance of the patent. Both holdings relied on the desirability of encouraging licensees to challenge the validity of patents, to further the strong federal policy that only inventions which meet the rigorous requirements of patentability shall be withdrawn from the public domain. Accordingly, neither the holding nor the rationale of Lear controls when no patent has issued, and no ideas have been withdrawn from public use. Enforcement of the royalty agreement here is also consistent with the principles treated in Brulotte v. Thys Co., 379 U.S. 29 (1964). There, we held that the obligation to pay royalties in return for the use of a patented device may not extend beyond the life of the patent. The principle underlying that holding was simply that the monopoly granted under a patent cannot lawfully be used to negotiate with the leverage of that monopoly. The Court emphasized that to use that leverage to project those royalty payments beyond the life of the patent is analogous to an effort to enlarge the monopoly of the patent. Id., at 33. Here the reduced royalty which is challenged, far from being negotiated with the leverage of a patent, rested on the contingency that no patent would issue within five years. No doubt a pending patent application gives the applicant some additional bargaining power. The pending application allows the inventor to hold out the hope of an exclusive right to exploit the idea, as well as the threat that the other party will be prevented from using the idea for 17 years. However, the amount of leverage arising from a patent application depends on how likely the parties consider it to be that a valid patent will issue. [Yet, the parties] specifically provided for a reduced royalty in the event no patent issued within five years. . It is clear that whatever role the pending application played, it played no part in the contract to pay the 2.5% royalty indefinitely. Our holding in Kewanee puts to rest the contention that federal law pre-empts and renders unenforceable the contract made by these parties. There we held that state law forbidding the misappropriation of trade secrets was not pre-empted by federal patent law. We observed: Certainly the patent policy of encouraging invention is not disturbed by the existence of another form of incentive to invention. In this respect the two systems [patent and trade secret law] are not and never would be in conflict. . The device ceased to have any secrecy as soon as it was first marketed, yet when the contract was negotiated the inventiveness and novelty were sufficiently apparent to induce an experienced novelty manufacturer to agree to pay for the opportunity to be first in the market. Federal patent law is not a barrier to such a contract.

Preemption Reconsidered

9.11

Justice Blackmun, concurring in the result. . In my view, the holding in Brulotte reflects hostility toward extension of a patent monopoly whose term is fixed by statute. Such hostility has no place here. . The United States, as amicus curiae, maintains that patent-application licensing of this sort is desirable because it encourages patent applications, promotes early disclosure, and allows parties to structure their bargains efficiently. On this basis, I concur. Notes 1. Perhaps the biggest problem in Brulottee was failure to distinguish terms related to the patent from ones that had no bearing on it. For example, could a purchaser agree to payments made to purchase a very expensive device over a time span exceeding the life of the patent? 2. Tabor, Chapter 8, should make it clear that patents need not (and often could not) contain all information helpful to practicing them. As seen there, noncritical information may be otherwise protected and its disclosure may be governed by contract..Does anything in Kewanee or Quick Point imply that such contracts could not run beyond the life of underlying patents or be enforceable despite their invalidity? 3. First-entrant advantages can support contractual obligations of indefinite duration where no patent issues, but, where patents are involved, it seems important for terms, as in Quick Point, to clearly distinguish patent-related and non-patent-related consideration. 4. Nadel notes advantages that an idea recipient may derive from information novel only to itself, 208 F.3d at 377. One interesting aspect of that case involves a prototype supplied by Nadel and kept by the defendant for several months prior to introducing its own toy. Id. at 373. The court concludes that this might lead a jury to conclude that the prototype was used to develop the latter toy. 208 F.3d at 381. What if defendant did not need the prototype for development but kept it only to prevent Nadel from showing it to anyone else? B. Parties Not in Privity

Bonito Boats, Inc. v. Thunder Craft Boats, Inc.

U.S. Supreme Court 489 U.S. 141 (1989)

Justice OConnor: . In Interpart Corp. v. Italia, the Federal Circuit concluded that a California law prohibiting the use of the direct molding process to duplicate unpatented articles posed no threat to the policies behind the federal patent laws. In this case, the Florida Supreme Court came to a contrary conclusion. . We granted certiorari to resolve the conflict. [P]etitioner Bonito Boats, Inc. (Bonito), a Florida corporation, developed a hull design for a fiberglass recreational boat which it marketed under the trade name Bonito Boat Model 5VBR. Designing the boat hull required substantial effort. A set of engineering drawings was prepared, from which a hardwood model was created. The hardwood model was then sprayed with fiberglass to create a mold, which then served to produce the finished fiberglass boats for sale. The 5VBR was placed on the market sometime in September 1976. There is no indication in the record that a patent application was ever filed. The 5VBR was favorably received by the boating public, and a broad interstate market developed for its sale.

9.12

Parties Not in Privity

[A]fter the 5VBR had been available to the public for over six years, the Florida Legislature enacted Fla. Stat. 559.94 (1987). The statute makes [i]t unlawful for any person to use the direct molding process to duplicate for the purpose of sale any manufactured vessel hull or component part of a vessel made by another without the written permission of that other person. The statute also makes it unlawful for a person to knowingly sell a vessel hull or component part of a vessel duplicated in violation of subsection (2). Damages, injunctive relief, and attorneys fees are made available. . [After Bonito filed an action claiming infringement of its rights under the Florida statute, respondent filed a motion to dismiss, arguing that under Sears and Compco, the statute was invalid. The Trial Court granted the motion and was affirmed by a divided Court of Appeals.] [A] sharply divided Florida Supreme Court agreed. The majority read our decisions in Sears and Compco for the proposition that when an article is introduced into the public domain, only a patent can eliminate the inherent risk of competition and then but for a limited time. 515 So.2d, at 222. Relying on the Federal Circuits decision in the Interpart case, the three dissenting judges argued that the Florida anti-direct-molding provision does not prohibit the copying of an unpatented item. It prohibits one method of copying; the item remains in the public domain. 515 So.2d, at 223 (Shaw, J., dissenting). II . Todays patent statute is remarkably similar to the law as known to Jefferson in 1793. Protection is offered to [w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof. 35 U.S.C. 101. Since 1842, Congress has also made protection available for any new, original and ornamental design for an article of manufacture. 35 U.S.C. 171. To qualify for protection, a design must present an aesthetically pleasing appearance that is not dictated by function alone, and must satisfy the other criteria of patentability. . From the Patent Act of 1790 to the present day, the public sale of an unpatented article has acted as a complete bar to federal protection of the idea embodied in the article thus placed in public commerce. . . Once an inventor has decided to lift the veil of secrecy, he must choose the protection of a federal patent or the dedication of his idea to the public at large. As Judge Learned Hand once put it: [I]t is a condition upon the inventors right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy or legal monopoly. Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 520 (CA2), cert. denied, 328 U.S. 840 (1946). . The federal patent system thus embodies a carefully crafted bargain for encouraging the creation and disclosure of new, useful, and nonobvious advances in technology and design in return for the exclusive right to practice the invention for a period of years. . The attractiveness of such a bargain, and its effectiveness in inducing creative effort and disclosure of the results of that effort, depend almost entirely on a backdrop of free competition in the exploitation of unpatented designs and innovations. The novelty and nonobviousness requirements of patentability embody a congressional understanding, implicit in the Patent Clause itself, that free exploitation of ideas will be the rule, to which the protection of a federal patent is the exception. . Thus our past decisions have made clear that state regulation of intellectual property must yield to the extent that it clashes with the balance struck by Congress in our patent laws. The tension between the desire to freely exploit the full potential of our inventive resources and the need to create an incentive to deploy those resources is constant. Where it is clear how the patent laws strike that balance in a particular circumstance, that is not a judgment the States may second-guess. We have long held that after the expiration of a federal

Preemption Reconsidered

9.13

patent, the subject matter of the patent passes to the free use of the public as a matter of federal law. . [Sears speaks in absolutist terms but recognizes that all state regulation of potentially patentable but unpatented subject matter is not ipso facto preempted.] What was implicit in our decision in Sears, we have made explicit in our subsequent decisions. Thus, in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), we held that state protection of trade secrets did not operate to frustrate the achievement of the congressional objectives served by the patent laws. . Several factors were critical to this conclusion. First, the Court noted that the policy that matter once in the public domain must remain in the public domain is not incompatible with trade secret protection. Second, [t]rade secret law provides far weaker protection in many respects than the patent law. This point was central. The public at large remained free to discover and exploit the trade secret through reverse engineering or by independent creation. Thus, the possibility that trade secret protection would divert inventors from the creative effort necessary to satisfy the rigorous demands of patent protection was remote indeed. Finally, certain aspects of trade secret law operated to protect non-economic interests outside the sphere of congressional concern in the patent laws. As the Court noted, [A] most fundamental human right, that of privacy, is threatened when industrial espionage is condoned or is made profitable. There was no indication that Congress had considered this interest in the balance struck by the patent laws, or that state protection for it would interfere with the policies behind the patent system. We have since reaffirmed the pragmatic approach which Kewanee takes. At the same time, we have consistently reiterated that ideas once placed before the public without the protection of a valid patent are subject to appropriation without significant restraint. . III We believe that the Florida statute at issue in this case so substantially impedes the public use of the otherwise unprotected design and utilitarian ideas embodied in unpatented boat hulls as to run afoul of the teaching of our decisions in Sears and Compco. It is readily apparent that the Florida statute does not operate to prohibit unfair competition in the usual sense that the term is understood. The law of unfair competition has its roots in the common-law tort of deceit: its general concern is with protecting consumers from confusion as to source. While that concern may result in the creation of quasi-property rights in communicative symbols, the focus is on the protection of consumers, not the protection of producers as an incentive to product innovation. Judge Hand captured the distinction well in Crescent Tool Co. v. Kilborn & Bishop Co., 247 F. 299, 301 (CA2 1917), where he wrote: [T]he plaintiff has the right not to lose his customers through false representations that those are his wares which in fact are not, but he may not monopolize any design or pattern, however trifling. The defendant, on the other hand, may copy plaintiffs goods slavishly down to the minutest detail: but he may not represent himself as the plaintiff in their sale. With some notable exceptions, the common-law tort of unfair competition has been limited to protection against copying of nonfunctional aspects of consumer products which operate as a designation of source. The protection granted a particular design under the law of unfair competition is thus limited. In contrast to the operation of unfair competition law, the Florida statute is aimed directly at preventing the exploitation of the design and utilitarian conceptions embodied in the product itself. The sparse legislative history surrounding its enactment indicates that it was intended to create an inducement for the improvement of boat hull designs. .

9.14

Parties Not in Privity

In this case, the 5VBR fiberglass hull has been freely exposed to the public for a period in excess of six years. For purposes of federal law, it stands in the same stead as an item for which a patent has expired or been denied: it is unpatented and unpatentable. . That the Florida statute does not remove all means of reproduction and sale does not eliminate the conflict with the federal scheme. In essence, the Florida law prohibits the entire public from engaging in a form of reverse engineering of a product in the public domain. This is clearly one of the rights vested in the federal patent holder, but has never been a part of state protection under the law of unfair competition or trade secrets. See Kewanee, 416 U.S., at 476 (A trade secret law, however, does not offer protection against discovery by socalled reverse engineering, that is by starting with the known product and working backward to divine the process which aided in its development or manufacture). The duplication of boat hulls and their component parts may be an essential part of innovation in the field of hydrodynamic design. . If Florida may prohibit this particular method of study and recomposition of an unpatented article, we fail to see the principle that would prohibit a State from banning the use of chromatography in the reconstitution of unpatented chemical compounds, or the use of robotics in the duplication of machinery in the public domain. Moreover, as we noted in Kewanee, the competitive reality of reverse engineering may act as a spur to the inventor, creating an incentive to develop inventions that meet the rigorous requirements of patentability. . Given the substantial protection offered by the Florida scheme, we cannot dismiss as hypothetical the possibility that it will become a significant competitor to the federal patent laws, offering investors similar protection without the quid pro quo of substantial creative effort required by the federal statute. The prospect of all 50 States establishing similar protections for preferred industries without the rigorous requirements of patentability prescribed by Congress could pose a substantial threat to the patent systems ability to accomplish its mission. Finally, allowing the States to create patent-like rights in various products in public circulation would lead to administrative problems of no small dimension. The federal patent scheme provides a basis for the public to ascertain the status of the intellectual property embodied in any article in general circulation. . Petitioner and its supporting amici place great weight on the contrary decision of the Federal Circuit in Interpart Corp. . We find [that Courts] reasoning defective in several respects. . It is difficult to conceive of a more effective method of creating substantial property rights in an intellectual creation than to eliminate the most efficient method for its exploitation. Sears and Compco protect more than the right of the public to contemplate the abstract beauty of an otherwise unprotected intellectual creation they assure its efficient reduction to practice and sale in the marketplace. Appending the conclusionary label unscrupulous to such competitive behavior merely endorses a policy judgment which the patent laws do not leave the States free to make. . . For almost 100 years in the case of an expired patent, the federal patent laws do create a federal right to copy and to use. Sears and Compco extended that rule to potentially patentable ideas which are fully exposed to the public. . Our decisions since Sears and Compco have made it clear that the Patent and Copyright Clauses do not, by their own force or by negative implication, deprive the States of the power to adopt rules for the promotion of intellectual creation within their own jurisdictions. .

Preemption Reconsidered

9.15

Indeed, there are affirmative indications from Congress that both the law of unfair competition and trade secret protection are consistent with the balance struck by the patent laws. . [After referencing 43(a) of the Lanham Act, the Court quoted Justice Marshalls concurring opinion in Kewanee.] The case for federal pre-emption is particularly weak where Congress has indicated its awareness of the operation of state law in a field of federal interest, and has nonetheless decided to stand by both concepts and to tolerate whatever tension there [is] between them. Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 256 (1984). The same cannot be said of the Florida statute at issue here. The Florida statute is aimed directly at the promotion of intellectual creation by substantially restricting the publics ability to exploit ideas that the patent system mandates shall be free for all to use. . It thus enters a field of regulation which the patent laws have reserved to Congress. The patent statutes careful balance between public right and private monopoly to promote certain creative activity is a scheme of federal regulation so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). Congress has considered extending various forms of limited protection to industrial design either through the copyright laws or by relaxing the restrictions on the availability of design patents. Congress explicitly refused to take this step in the copyright laws, and despite sustained criticism for a number of years, it has declined to alter the patent protections presently available for industrial design. It is for Congress to determine if the present system of design and utility patents is ineffectual in promoting the useful arts in the context of industrial design. By offering patent-like protection for ideas deemed unprotected under the present federal scheme, the Florida statute conflicts with the strong federal policy favoring free competition in ideas which do not merit patent protection. Lear, 395 U.S., at 656. We therefore agree with the majority of the Florida Supreme Court that the Florida statute is preempted by the Supremacy Clause, and the judgment of that court is hereby affirmed. Notes 1. After state protection for boat hulls was struck down, Congress enacted federal protection, 17 U.S.C. 130132. Coverage may seem broader,but note the definition of useful article in 1301(b)(2). 2. Bonito Boats says the federal patent laws do create a federal right to copy and to use. That was disputed in Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 131 F.3d 1011, 1015 (Fed. Cir. 1997) (The right to copy what is in the public domain is a common law, not federal right.). See also, Restatement (Third) of Unfair Competition 1, cmt. a (1995) (The freedom to compete is a fundamental premise of the free enterprise system.) 3. Regarding Part III of Bonito Boats, reconsider TrafFix, Chapter 4. 4. Does Sperry v. Florida, 373 U.S. 379 (1963), mentioned in Sears, seem 44 likely to have influenced the Florida courts decision in Bonito Boats?

9.16

Parties Not in Privity

National Basketball Assn v. Motorola, Inc.

U.S. Court of Appeals, Second Circuit 105 F.3d 841 (1997)

Before Van Graafeiland, Winter and Altimari. Winter, Circuit Judge: . The crux of the dispute concerns the extent to which a state law hot-news misappropriation claim based on International News Service v. Associated Press, 248 U.S. 215 (1918) (INS ), survives preemption by the federal Copyright Act and whether the NBAs claim fits within the surviving INS-type claims. . The facts are largely undisputed. Motorola manufactures and markets the SportsTrax paging device while STATS supplies the game information that is transmitted to the pagers. . SportsTraxs pager has an inch-and-a-half by inch-and-a-half screen and operates in four basic modes [but only one] gives rise to the present dispute.1 In that mode, SportsTrax displays [for] games in progress: (i) the teams playing; (ii) score changes; (iii) the team in possession of the ball; (iv) whether the team is in the free-throw bonus; (v) the quarter of the game; and (vi) time remaining in the quarter. The information is updated every two to three minutes, with more frequent updates near the end of the first half and the end of the game. There is a lag of approximately two or three minutes. SportsTraxs operation relies on a data feed supplied by STATS reporters who watch the games on television or listen to them on the radio. The reporters key into a personal computer changes in the score and other information such as successful and missed shots, fouls, and clock updates. The information is relayed by modem to STATSs host computer, which compiles, analyzes, and formats the data for retransmission. The information is then sent to a common carrier, which then sends it via satellite to various local FM radio networks that in turn emit the signal received by the individual SportsTrax pagers. . The NBA asserted copyright infringement claims with regard both to the underlying games and to their broadcasts. The district court dismissed these claims, and the NBA does not appeal from their dismissal. Nevertheless, discussion of the infringement claims is necessary to provide the framework for analyzing the viability of the NBAs state law misappropriation claim in light of the Copyright Acts preemptive effect. 1. Infringement of a Copyright in the Underlying Games In our view, the underlying basketball games do not fall within the subject matter of federal copyright protection. Sports events are not authored in any common sense of the word. There is, of course, at least at the professional level, considerable preparation for a game. However, the preparation is as much an expression of hope or faith as a determination of what will actually happen. Unlike movies, plays, television programs, or operas, athletic events are competitive and have no underlying script. Preparation may even cause mistakes to succeed, like the broken play in football that gains yardage because the opposition could not expect it. Athletic events may also result in wholly unanticipated occurrences, the most notable recent event being in a championship baseball game in which interference with a fly ball caused an umpire to signal erroneously a home run.
1

The other three SportsTrax modes involve information that is far less contemporaneous than that provided in the current mode.

Preemption Reconsidered

9.17

What authorship there is in a sports event, moreover, must be open to copying by competitors if fans are to be attracted. If the inventor of the T-formation in football had been able to copyright it, the sport might have come to an end instead of prospering. Even where athletic preparation most resembles authorship figure skating, gymnastics, and, some would uncharitably say, professional wrestling a performer who conceives and executes a particularly graceful and difficult or, in the case of wrestling, seemingly painful acrobatic feat cannot copyright it without impairing the underlying competition in the future. A claim of being the only athlete to perform a feat doesnt mean much if no one else is allowed to try. [The court noted a scarcity of case law and speculated that this is attributable to a general understanding that athletic events were, and are, uncopyrightable.] 2. Infringement of a Copyright in the Broadcasts of NBA Games . Although the broadcasts are protected under copyright law, the district court correctly held that Motorola and STATS did not infringe NBAs copyright because they reproduced only facts from the broadcasts, not the expression or description of the game that constitutes the broadcast. The fact/expression dichotomy is a bedrock principle of copyright law that limits severely the scope of protection in fact-based works. Feist Publications, Inc. v. Rural Tel. Service Co., 499 U.S. 340, 350 (1991). . . Because the SportsTrax device and AOL site reproduce only factual information and none of the copyrightable expression of the games, appellants did not infringe the copyright of the broadcasts. C. The State-Law Misappropriation Claim [The district court concluded that defendants unlawfully misappropriated the NBAs property rights] by holding: (i) that the NBAs misappropriation claim relating to the underlying games was not preempted by 301; and (ii) that, under New York common law, defendants had engaged in unlawful misappropriation. We disagree. 1. Preemption Under the Copyright Act . The subject matter requirement is met when the work of authorship being copied or misappropriated fall[s] within the ambit of copyright protection. Harper & Row, Publishers, Inc. v. Nation Enter., 723 F.2d 195, 200 (1983), revd on other grounds, 471 U.S. 539 (1985). . Copyrightable material often contains uncopyrightable elements within it, but 301 preemption* bars state law misappropriation claims with respect to uncopyrightable as well as copyrightable elements. In Harper & Row, for example, we held that state law claims based on the copying of excerpts from President Fords memoirs were preempted even with respect to information that was purely factual and not copyrightable. We stated: [T]he [Copyright] Act clearly embraces works of authorship, including literary works, as within its subject matter. The fact that portions of the Ford memoirs may consist of uncopyrightable material does not take the work as a whole outside the subject matter protected by the Act. Were this not so, states would be free to expand the perimeters of copyright protection. 723 F.2d at 200. . Adoption of a partial preemption doctrine preemption of claims based on misappropriation of broadcasts but no preemption of claims based on misappropriation of
*

Section 301(a) states in part, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright in works of authorship that are fixed in a tangible medium of expression, whether created before or after [Jan. 1, 1978] and whether published or unpublished, are governed exclusively by this title.

9.18

Parties Not in Privity

underlying facts would expand significantly the reach of state law claims and render the preemption intended by Congress unworkable. . Congress, in extending copyright protection only to the broadcasts and not to the underlying events, intended that the latter be in the public domain. Partial preemption turns that intent on its head by allowing state law to vest exclusive rights in material that Congress intended to be in the public domain and to make unlawful conduct that Congress intended to allow. This concern was recently expressed in ProCD . In discussing preemption under 301(a), Judge Easterbrook held that the subject matter requirement was met and noted: ProCDs software and data are fixed in a tangible medium of expression, and the district judge held that they are within the subject matter of copyright. The latter conclusion is plainly right. 86 F.3d at 1453. We agree with Judge Easterbrook and reject the separate analysis of the underlying games and broadcasts of those games for purposes of preemption. . We turn, therefore, to the question of the extent to which a hot-news misappropriation claim based on [International News Service v. Associated Press, 248 U.S. 215 (1918)] involves extra elements and is not the equivalent of exclusive rights under a copyright. Courts are generally agreed that some form of such a claim survives preemption. This conclusion is based in part on the legislative history of the 1976 amendments. The House Report stated: Misappropriation is not necessarily synonymous with copyright infringement, and thus a cause of action labeled as misappropriation is not preempted if it is in fact based neither on a right within the general scope of copyright as specified by 106 nor on a right equivalent thereto. For example, state law should have the flexibility to afford a remedy against a consistent pattern of unauthorized appropriation by a competitor of the facts constituting hot news, whether in the traditional mold of [INS ], or in the newer form of data updates from scientific, business, or financial data bases. H.R. Rep. No. 94-1476 at 132. The crucial question, therefore, is the breadth of the hotnews claim that survives preemption. In INS, the [parties] were wire services that sold news items to client newspapers. AP brought suit to prevent INS from selling facts and information lifted from AP sources to INS-affiliated newspapers. One method by which INS was able to use APs news was to lift facts from AP news bulletins. Another method was to sell facts taken from just-published east coast AP newspapers to west coast INS newspapers whose editions had yet to appear. The Supreme Court held (prior to Erie R. Co. v. Tompkins, 304 U.S. 64 (1938)), that INSs use of APs information was unlawful under federal common law. It characterized INSs conduct as amount[ing] to an unauthorized interference with the normal operation of complainants legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not; with special advantage to defendant in the competition because of the fact that it is not burdened with any part of the expense of gathering the news. INS, 248 U.S. at 240. The theory of the New York misappropriation cases relied upon by the district court is considerably broader than that of INS. For example, the district court quoted at length from Metropolitan Opera Assn v. Wagner-Nichols Recorder Corp., 101 N.Y.S.2d 483 (1950). However, we believe that Metropolitan Operas broad misappropriation doctrine based on amorphous concepts such as commercial immorality or societys ethics is

Preemption Reconsidered

9.19

preempted. Such concepts are virtually synonymous for wrongful copying and are in no meaningful fashion distinguishable from infringement of a copyright. . [Only narrow hot-news misappropriation claims survive for actions concerning material within the realm of copyright.]7 In our view, the elements central to an INS claim are: (i) the plaintiff generates or collects information at some cost or expense; (ii) the value of the information is highly timesensitive; (iii) the defendants use of the information constitutes free-riding on the plaintiffs costly efforts to generate or collect it; (iv) the defendants use of the information is in direct competition with a product or service offered by the plaintiff; (v) the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.8 INS is not about ethics; it is about the protection of property rights in time-sensitive information so that the information will be made available to the public by profit seeking entrepreneurs. If services like AP were not assured of property rights in the news they pay to collect, they would cease to collect it. The ability of their competitors to appropriate their product at only nominal cost and thereby to disseminate a competing product at a lower price would destroy the incentive to collect news in the first place. The newspaper-reading public would suffer because no one would have an incentive to collect hot news. We therefore find the extra elements those in addition to the elements of copyright infringement that allow a hotnews claim to survive preemption are: (i) the time-sensitive value of factual information, (ii) the free-riding by a defendant, and (iii) the threat to the very existence of the product or service provided by the plaintiff.
7 Quite apart from preemption, INS has long been regarded with skepticism by many courts and scholars and often confined strictly to its facts. In particular, Judge Learned Hand was notably hostile to a broad reading of the case. He wrote: [W]e think that no more was covered than situations substantially similar to those then at bar. The difficulties of understanding it otherwise are insuperable. We are to suppose that the court meant to create a sort of common-law patent or copyright for reasons of justice. Either would flagrantly conflict with the scheme which Congress has for more than a century devised to cover the subject-matter. Cheney Bros. v. Doris Silk Corp., 35 F.2d 279, 280 (2d Cir. 1929), cert. denied, 281 U.S. 728 (1930). See also Restatement (Third) of Unfair Competition 38 cmt. c (1995): The facts of the INS decision are unusual and may serve, in part, to limit its rationale. The limited extent to which the INS rationale has been incorporated into the common law of the states indicate that the decision is properly viewed as a response to unusual circumstances. Many subsequent decisions have expressly limited the INS case to its facts. 8 Some authorities have labeled this element as requiring direct competition [I]n most of the small number of cases in which the misappropriation doctrine has been determinative, the defendants appropriation, like that in INS, resulted in direct competition in the plaintiffs primary market Appeals to the misappropriation doctrine are almost always rejected when the appropriation does not intrude upon the plaintiffs primary market. Restatement (Third) of Unfair Competition, 38 cmt. c, at 41213; see also National Football League v. Governor of State of Delaware, 435 F.Supp. 1372 (D.Del. 1977). In that case, the NFL sued Delaware over [a] lottery game based on NFL games. In dismissing the wrongful misappropriation claims, the court stated: While courts have recognized that one has a right to ones own harvest, this proposition has not been construed to preclude others from profiting from demands for collateral services generated by the success of ones business venture. Id. at 1378. The court also noted It is true that Delaware is thus making profits it would not make but for the existence of the NFL, but I find this difficult to distinguish from the multitude of charter bus companies who generate profit from servicing those of plaintiffs fans who want to go to the stadium or, indeed, the sidewalk popcorn salesman who services the crowd as it surges towards the gate.

9.20

Parties Not in Privity

2. The Legality of SportsTrax . With regard to the NBAs primary products there is no evidence that anyone regards SportsTrax or the AOL site as a substitute for attending NBA games or watching them on television. In fact, Motorola markets SportsTrax as being designed for those times when you cannot be at the arena, watch the game on TV, or listen to the radio. The NBA argues that the pager market is also relevant to a hot-news INS-type claim and that SportsTraxs future competition with Gamestats satisfies any missing element. We agree that there is a separate market for the real-time transmission. However, we disagree that SportsTrax is in any sense free-riding off Gamestats. An indispensable element of an INS hot-news claim is free riding by a defendant on a plaintiffs product, enabling the defendant to produce a directly competitive product for less money because it has lower costs. SportsTrax is not such a product. The use of pagers to transmit real-time information about NBA games requires: (i) the collecting of facts about the games; (ii) the transmission of these facts on a network; (iii) the assembling of them by the particular service; and (iv) the transmission of them to pagers or an on-line computer site. Appellants are in no way free-riding on Gamestats. Motorola and STATS expend their own resources to collect purely factual information generated in NBA games to transmit to SportsTrax pagers. They have their own network and assemble and transmit data themselves. . NBAs misappropriation claim based on New York law is preempted. III. The NBAs Cross-Appeal The NBA cross-appeals from the district courts dismissal of its false advertising claim under 43(a) of the Lanham Act. This claim was based on a January 1996 Motorola press release stating that SportsTrax provides updated game information direct from each arena which originate[s] from the press table in each arena and on a statement appearing on the spine of the retail box and on the retail display stand that SportsTrax provides game updates from the arena. NBA argues that because STATS reporters collect their information from television and radio broadcasts, the information is not direct from each arena or even from the arena. Motorola responds that the statement about information coming from the press table was an isolated remark occurring only in that press release. It also claims that the assertion that the game updates come from the arena is not literally false, presumably because the factual information does originate in the arena. To establish a false advertising claim under Section 43(a), the plaintiff must demonstrate that the statement in the challenged advertisement is false. Falsity may be established by proving that (1) the advertising is literally false as a factual matter, or (2) although the advertisement is literally true, it is likely to deceive or confuse customers. Lipton v. Nature Co., 71 F.3d 464, 474 (2d Cir. 1995). However, in addition to proving falsity, the plaintiff must also show that the defendants misrepresented an inherent quality or characteristic of the product. National Assoc. of Pharmaceutical Mfrs. v. Ayerst Lab., 850 F.2d 904, 917 (2d Cir. 1988). This requirement is essentially one of materiality, a term explicitly used in other circuits. The district court found, [a]fter viewing the complained-of statements in this action in their context, that [t]he statements as to the particular origin of game updates constitute nothing more than minutiae about SportsTrax. We agree with the district court that the statements in question are not material in the present factual context. The inaccuracy in the statements would not influence consumers at the present time, whose interest in obtaining updated game scores on pagers is served only by SportsTrax. Whether the data is taken from broadcasts instead of being observed first-hand is, therefore, simply irrelevant. However, we note that if the NBA were in the future to market a rival pager with a direct datafeed from the

Preemption Reconsidered

9.21

arenas perhaps with quicker updates than SportsTrax and official statistics then Motorolas statements regarding source might well be materially misleading. On the present facts, however, the complained-of statements are not material and do not misrepresent an inherent quality or characteristic of the product. . Notes 1. NBAs sole reference to Feist makes no mention of that opinions citation to INS. The reason for the latter reference to INS is unclear, but it seems not to signal disapproval of state protection for hot news. 2. Notes 7 and 8 in NBA warrant close attention. Besides Cheney Bros., see also Learned Hands opinion in G. Ricordi & Co. v. Haendler, 194 F.2d 914, 916 (2d Cir. 1952) (cited in Sears, Chapter 4), and his dissent in Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955). Capitol Records was influential in Columbia Broadcasting System, Inc. v. Compco, 377 F.2d 315 (1st Cir. 1967), decided the same year and by the same panel as Morrissey, Chapter 5. It was the first in a series of three circuit rejections of DeCostas attempt to recover when his nonprofit Paladin persona became the central character in a long-running TV series. INS was seen to offer the only plausible basis for recovery, but that was rejected in light of Sears and Compco. At 317, the court said: Our Paladin is not the first creator to see the fruits of his creation harvested by another, without effective remedy; and although his case is undeniably hard, to affirm the judgments below would, we think, allow a hard case to make some intolerably bad law. 3. What differentiates an INS claim from one said to survive 301(a)? How should the observation quoted from the House Report bear on the issue? 4. In that regard, Justice Brandeis dissent in INS, 248 U.S. at 250, seems noteworthy: An essential element of individual property is the legal right to exclude. If the property is affected with a public interest, the right of exclusion is qualified. But the fact that a product of the mind has cost its producer money and labor, and has a value for which others are willing to pay, is not sufficient. The general rule of law is, that the noblest of human productions knowledge, truths ascertained, conceptions, and ideas became, after voluntary communication to others, free as the air to common use. Upon these incorporeal productions the attribute of property is continued after such communication only in certain classes of cases where public policy has seemed to demand it. . But by no means all such are endowed with this attribute of property. The creations which are recognized as property by the common law are literary, dramatic, musical, and other artistic creations; and these have also protection under the copyright statutes. The inventions and discoveries upon which this attribute of property is conferred only by statute, are the few comprised within the patent law. Following several pages of supporting text, he continued, at 26465: A Legislature, urged to enact a law by which one news agency or newspaper may prevent appropriation of the fruits of its labors by another might conclude that it was impossible to put an end to the obvious injustice, without opening the door to other evils, greater than that sought to be remedied. Such appears to have been the opinion of our Senate which reported

9.22

Parties Not in Privity

unfavorably a bill to give news a few hours protection; and [two international conventions] expressly exclude news from copyright protection. [Notes omitted.] 5. Under current law, liability could not be predicated on failure to credit sources. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 37 (2003): Reading the phrase origin of goods in the Lanham Act in accordance with the Acts common-law foundations (which were not designed to protect originality or creativity), and in light of the copyright and patent laws (which were), we conclude that the phrase refers to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods. In a case addressing a scenario very similar to INS, the court cites both Dastar and Lipton, Chapter 6.C, to reject liability based on source misidentification. See Associated Press v. All Headline News Corp., 608 F. Supp.2d 454, 463 (S.D. N.Y. 2009). 6. But see Barclays Capital Inc. v. theflyonthewall.com, 700 F.Supp.2d 310, 347 (S.D. N.Y. 2010). Also seeing a scenario similar to INS, the court issued a permanent injunction forbidding dissemination of plaintiffs stock purchasing recommendations until one halfhour after opening of New York Stock Exchange or 10:00 a.m., whichever is later.

United States ex rel. Berge v. University of Alabama

U.S. Court of Appeals, Fourth Circuit 104 F.3d 1453 (1997)*

Before Ervin and Wilkins, and Michael, Senior Judge, Western District of Virginia. Ervin, Circuit Judge: Defendants-Appellants appeal from a denial of their motion for judgment as a matter of law following a jury verdict awarding the United States, after trebling and the imposition of a civil penalty, $1.66 million, 30% of which ($498,000) is to be awarded to Relator-Appellee Pamela A. Berge (Berge), on a False Claims Act claim, and awarding Berge $265,000 in compensatory and punitive damages on a pendent state law claim for conversion of intellectual property. We reverse. I At the time the events at issue occurred, Pamela Berge was a doctoral candidate in nutritional sciences at Cornell University. The individual Defendants-Appellants Sergio Stagno, Charles Alford, and Robert Pass were medical researchers and professors at Defendant-Appellant The University of Alabama at Birmingham (UAB). DefendantAppellant Karen Fowler was a doctoral candidate at UAB supervised by Pass. Scientists at UAB have been studying cytomegalovirus (CMV) and over the years have accumulated the leading database on maternal and congenital CMV in the world. A significant part of the funding for this research has been provided by grants from the National Institutes of Health (NIH), in particular grant HD-10699. Alford was the principal investigator, although Stagno and Pass were closely associated. All three are internationally recognized as leading authorities. Berge decided to do her dissertation on CMV as a possible cause of low birth weight. She arranged access to and extensive assistance with UABs database through Stagno, and she worked closely with Stagno and his colleagues while she was in residence as a visiting
*

Cert. den., 522 U.S. 916 (1997).

Preemption Reconsidered

9.23

graduate student. After Berge returned to Cornell, she resisted others attempts to use the collected data and began to complain about Cornell faculty members, including her thesis chairman. She made three further trips to Birmingham during which she made presentations of her work. She completed her thesis in May 1989 and received her Ph.D. Berge thereafter attempted to publish papers based on her thesis, but she was rejected repeatedly. In the meantime, Defendant-Appellant Fowler decided in June 1988 to do her dissertation on the relationship between CMV and sexually-transmitted diseases and began working with Pass. After Fowler had begun her data analysis, based in part on UABs existing database and in part on original medical records, she consulted completed theses, including Berges, to choose a format. She defended her dissertation in May 1990. The following month, Fowler presented her research at a meeting of the Society of Epidemiological Research. Berge was in the audience and became shocked at what she considered to be plagiarism. Berge brought her allegations to Stagnos attention but did so in such a way that ultimately Stagno and his colleagues determined they could no longer collaborate with her. Two investigations of the allegations were conducted at UAB, but the allegations were found to be baseless. Unsatisfied with these results, Berge next obtained copies of UABs grant applications through a Freedom of Information Act (FOIA) request and then brought this litigation. . After this action was filed, the government naturally investigated. The Office of the Inspector General (OIG) of the Department of Health and Human Services recommended that no action be taken. Its report stated: This investigation has found no evidence that the subjects committed a criminal violation in connection with grant applications or progress reports submitted to the Government. Information has been obtained however, which shows many of the assumptions behind the relators allegations to be in error or exaggerations of the truth. . After a ten-day jury trial, the jury [found] False Claims Act liability against all defendants except Fowler but assess[ed] damages only against UAB in the amount of $550,000. Pursuant to 31 U.S.C. 3729(a), this amount was trebled to $1.65 million, and the district court imposed a civil fine of $10,000 against all the defendants, jointly and severally, except Fowler. [T]he district court awarded Berge as relator 30% of the United States total recovery, or $498,000. The jury also found the four individual defendants liable for conversion of intellectual property in differing amounts, imposing a total of $50,000 in compensatory damages and $215,000 in punitive damages. The district court, without opinion, denied defendants motions for judgment as a matter of law and a new trial. . IV [After reversing the False Claims Act judgment in its entirety, the opinion addresses the conversion claim.] The Alabama conversion statute provides: The owner of personalty is entitled to possession thereof. Any unlawful deprivation of or interference with such possession is a tort for which an action lies. Ala. Code Section 6-5-260. Whether federal copyright law preempts a state law claim is a question of law that we review de novo. . There can be no doubt that Berges work her dissertation; her abstracts; her drafts, etc. falls within the scope of the subject-matter of copyright. . Berges argument that her conversion claim is not preempted because it is her ideas and methods, which are specifically excluded from copyright protection, see 102(b), that have been converted rests on a fallacious interpretation of the Copyright Act. In other words, Berge wants to argue that ideas embodied in a work covered by the Copyright Act do not fall within the scope of the

9.24

Parties Not in Privity

Act because the Act specifically excludes them from protection. But scope and protection are not synonyms. Moreover, the shadow actually cast by the Acts preemption is notably broader than the wing of its protection. . Berge complains that if the Copyright Acts idea-expression dichotomy, see 17 U.S.C. 102(b), and 301s preemption provision be read this way, then there is no legal remedy for the theft of [my] intellectual property. Intellectual property which can be stolen without fear of legal punishment ceases to be property. But what Berge fails to realize is that, as a general proposition, ideas are simply part of the public domain. See, e.g., Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 97980 (2d Cir.) (holding that, in non-fiction works, since facts, themes, and research have been deliberately exempted from the scope of copyright protection to vindicate the overriding goal of encouraging contributions to recorded knowledge, the states are pre-empted from removing such material from the public domain), cert. den., 449 U.S. 841 (1980). It is not that this form of intellectual property ceases to be property, rather it is just not intangible personalty. Berge wants to fence off the commons, but the only part she may rightly claim is the original expression of her ideas fixed in a tangible medium. The law recognizes her stake there and accords it copyright protection. Berges conversion claim is preempted by federal copyright law. . Notes 1. Berge is primarily of interest for its resolution of the pendent state claim in Part IV. The rest, however, is useful to explain the style of the case, frame the full scope of the dispute and lay out significant facts. 2. Berge complained of plagiarism, a term significant in academic settings. As used there, its legal significance is questionable. If plagiarism means impermissible copying of expression, it is synonymous with copyright infringement. If it means failure to attribute, the result would seem to be the same after Dastar, quoted before Berge. 3. That state law is preempted means little if courts and lawyers are unaware. Consider, for example, State v. Nelson, 150 N.H. 569 (2004). Nelson was convicted of holding stolen property, but the only property at issue would appear to have been unauthorized digital reproductions of seven photographs residing on Nelsons hard drive. From Dowling (discussed in LaMacchia, Chapter 6.C) it seems clear that federal conviction would only be possible under 17 U.S.C. 506(a). What would be needed to obtain that? 4. In Chase v. Public Utility Commn, PA, 2008 WL 906491 (M.D.Pa.), plaintiffs challenged the PUCs agreement not to reproduce transcripts. Citing ProCD at *6, however, the opinion finds, because nothing in the PUC policy affects a strangers ability to reproduce or transmit copies of the transcripts, it was not preempted by 17 U.S.C. 301(a).

Preemption Reconsidered

9.25

C. When Does Privity Matter? U.S. Court of Appeals, Seventh Circuit 86 F.3d 1447 (1996) Before Coffey, Flaum and Easterbrook. Easterbrook, Circuit Judge: . ProCD, the plaintiff, has compiled information from more than 3,000 telephone directories into a computer database. We may assume that this database cannot be copyrighted, although it is more complex, contains more information (nine-digit zip codes and census industrial codes [cics]), is organized differently, and therefore is more original than the single alphabetical directory at issue in Feist. ProCD sells a version of the database, called SelectPhone, on CD-ROM discs. (CD-ROM means compact disc read only memory. The shrinkwrap license gets its name from the fact that retail software packages are covered in plastic or cellophane shrinkwrap, and some vendors, though not ProCD, have written licenses that become effective as soon as the customer tears the wrapping.) A proprietary method of compressing the data serves as effective encryption too. Customers decrypt and use the data with the aid of an application program that ProCD has written. This program, which is copyrighted, searches the database in response to users criteria. The resulting lists can be read and manipulated by other software. The database in SelectPhone cost more than $10 million to compile and is expensive to keep current. It is much more valuable to some users than to others. The combination of names, addresses, and sic codes [cics?] enables manufacturers to compile lists of potential customers. Manufacturers and retailers pay high prices for such mailing lists; ProCD offers a potentially cheaper alternative. People with nothing to sell could use the database as a way to look up old friends who have moved to unknown towns. ProCD [sells] its database to the general public for personal use at a low price while selling information to the trade for a higher price. It has adopted some intermediate strategies too. If ProCD had to recover all of its costs and make a profit by charging a single price that is, if it could not charge more to commercial users than to the general public it would have to raise the price substantially over $150. The ensuing reduction in sales would harm consumers who value the information at, say, $200. They get consumer surplus of $50 under the current arrangement but would cease to buy if the price rose substantially. If because of high elasticity of demand in the consumer segment of the market the only way to make a profit turned out to be a price attractive to commercial users alone, then all consumers would lose out and so would the commercial clients, who would have to pay more because ProCD could not obtain any contribution toward costs from the consumer market. . Instead of tinkering with the product and letting users sort themselves for example, furnishing two-year-old data at a low[er] price ProCD turned to the institution of contract. Every box containing its consumer product declares that the software comes with restrictions stated in an enclosed license. This license, which is encoded on the CD-ROM disks as well as printed in the manual, and which appears on a users screen every time the software runs, limits use of the application program and listings to non-commercial purposes. [Zeidenberg ignored that limitation.] Following the district court, we treat the licenses as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the

ProCD, Inc. v. Zeidenberg

9.26

When Does Privity Matter?

Uniform Commercial Code. . Zeidenberg does not argue that Silken Mountain Web Services is free of any restrictions that apply to Zeidenberg himself, because any effort to treat the two parties as distinct would put Silken Mountain behind the eight ball on ProCDs argument that copying the application program onto its hard disk violates the copyright laws. Zeidenberg does argue, and the district court held, that placing the package of software on the shelf is an offer, which the customer accepts by paying the asking price and leaving the store with the goods. In Wisconsin, as elsewhere, a contract includes only the terms on which the parties have agreed. . Doubtless a state could forbid the use of standard contracts in the software business, but we do not think that Wisconsin has done so. . [Consider, for example,] someone who wants to buy a radio set visits a store, pays, and walks out with a box. Inside the box is a leaflet containing some terms, the most important of which usually is the warranty. By Zeidenbergs lights, the warranty in the box is irrelevant; every consumer gets the standard warranty implied by the UCC in the event the contract is silent; yet so far as we are aware no state disregards warranties furnished with consumer products. . Next consider the software industry itself. Only a minority of sales take place over the counter, where there are boxes to peruse. . On Zeidenbergs arguments, these unboxed sales are unfettered by terms. What then does the current version of the UCC have to say? We think that the place to start is 2-204(1): A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. And that is what happened. ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the license at leisure. This Zeidenberg did. He had no choice, because the software splashed the license on the screen and would not let him proceed without indicating acceptance. . The district court held that, even if Wisconsin treats shrinkwrap licenses as contracts, 301(a) of the Copyright Act, prevents their enforcement. . ProCDs software and data are fixed in a tangible medium of expression, and the district judge held that they are within the subject matter of copyright. The latter conclusion is plainly right for the copyrighted application program, and the judge thought that the data likewise are within the subject matter of copyright even if, after Feist, they are not sufficiently original to be copyrighted. . One function of 301(a) is to prevent states from giving special protection to works of authorship that Congress has decided should be in the public domain even if federal law does not afford protection to them. But are rights created by contract equivalent to any of the exclusive rights within the general scope of copyright? Three courts of appeals have answered no.* The district court disagreed with these decisions, but we think them sound. . A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create exclusive rights. . Think for a moment about trade secrets. One common trade secret is a customer list. After Feist, a simple alphabetical list could not be protected by copyright. Yet Kewanee holds that contracts about trade secrets may be enforced precisely because they do not affect strangers ability to discover and use the information independently. If the amendment of 301(a) in 1976 overruled Kewanee and abolished consensual protection of those trade secrets that cannot be copyrighted, no one has noticed.
*

8th, 5th and 4th Circuits. Ed.

Preemption Reconsidered

9.27

A law student uses the LEXIS database, containing public-domain documents, under a contract limiting the results to educational endeavors; may the student resell his access to this database to a law firm from which LEXIS seeks to collect a much higher hourly rate? Suppose ProCD hires a firm to scour the nation for telephone directories, promising to pay $100 for each that ProCD does not already have. The firm locates 100 new directories, which it sends to ProCD with an invoice for $10,000. ProCD incorporates the directories into its database; does it have to pay the bill? Surely yes; Aronson holds that promises to pay for intellectual property may be enforced even though federal law offers no protection against third-party uses of that property. But these illustrations are what our case is about. ProCD offers software and data for two prices: one for personal use, a higher price for commercial use. Zeidenberg wants to use the data without paying the sellers price; if the law student and Quick Point Pencil Co. could not do that, neither can Zeidenberg. Although Congress possesses power to preempt even the enforcement of contracts about intellectual property courts usually read preemption clauses to leave private contracts unaffected. . Just as 301(a) does not itself interfere with private transactions in intellectual property, so it does not prevent states from respecting those transactions. [W]e think it prudent to refrain from adopting a rule that anything with the label contract is necessarily outside the preemption clause: the variations and possibilities are too numerous to foresee. . But general enforcement of shrinkwrap licenses of the kind before us does not create such interference. . Notes 1. Is the contract in ProCD a simple two-party contract? 2. The outcome of ProCD seems clearly correct in light of, e.g., the Lexis example, but justification seems to call for more than the court offers. Problem Myrtle Smith designs dolls of the Raggedy-Ann type. She recently published Myrtles Prize-Winning Rag Dolls, a book that contains patterns on large, folding pages. Both the dolls and the patterns are covered by copyright, but forbidding the only apparent use of the book would reduce, if not eliminate, sales. Indeed, permission to copy seems implicit and denial of that right would approach fraud. Myrtle, therefore, to make purchasers rights explicit, prints this or its equivalent prominently on the book and each doll component: Book purchasers may not, annually, make more than three dolls from any pattern in this book and no more than ten dolls from any combination of patterns. Purchasers who find this limitation unacceptable may return my book for a full refund. Thank you for understanding. 1. How do considerations bearing on enforceability of that limitation differ from those bearing on enforceability of those considered in, say, Mallinckrodt or Lifescan, both in Chapter 4? 2. How do considerations bearing on enforceability of that limitation differ from those bearing on enforceability of prohibitions arguably at odds with 17 U.S.C. 109(a), 117(a) or 117 (b)?

9.28

When Does Privity Matter?

Bowers v. Baystate Technologies, Inc.

U.S. Court of Appeals, Federal Circuit 320 F.3d 1317 (2003)

[In June 1990, Harold L. Bowers received a patent for a template to improve a computer-assisted design program. His template was bundled with yet another related program (designed and registered by a Mr. Ford) and sold with a shrink-wrap license that forbade reverse engineering. Bowers made an offer to Baystate. After turning it turned down, Baystate soon introduced competing software. Worse from Bowers standpoint, by acquiring rights to the base program, Baystate cut him out of much, if not all, of the market. After Bowers threatened suit, Baystate sought declaratory judgment of invalidity, noninfringement and unenforceability of his patent. He counterclaimed for copyright and patent infringement, as well as for breach of contract. After a jury found for Bowers on all counterclaims, the Massachusetts district court set aside the copyright damages as duplicative of contract damages and entered judgment for over $5 million. Baystate appealed. Following a unanimous decision, en banc rehearing was denied, but the original panel granted rehearing. The majority opinion is little changed, but Judge Dyk dissents.] Before Clevenger, Rader and Dyk. Rader, Circuit Judge: [The jurys finding of patent infringement is reversed.] . Baystate contends that the Copyright Act preempts the prohibition of reverse engineering embodied in Mr. Bowers shrink-wrap license agreements. . This court holds that, under First Circuit law, the Copyright Act does not preempt or narrow the scope of Mr. Bowers contract claim. Courts respect freedom of contract and do not lightly set aside freely-entered agreements. . [Yet t]he Copyright Act provides that all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright are governed exclusively by this title. 17 U.S.C. 301(a) (2000). The First Circuit does not interpret this language to require preemption as long as a state cause of action requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display. Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164 (1st Cir. 1994). . In Data General, Data General alleged that Grumman misappropriated its trade secret software. Grumman obtained that software from Data Generals customers and former employees who were bound by confidentiality agreements to refrain from disclosing the software. In defense, Grumman argued that the Copyright Act preempted Data Generals trade secret claim. The First Circuit held that the Copyright Act did not preempt the state law trade secret claim. Beyond mere copying, that state law claim required proof of a trade secret and breach of a duty of confidentiality. These additional elements of proof, according to the First Circuit, made the trade secret claim qualitatively different from a copyright claim. In contrast, the First Circuit noted that claims might be preempted whose extra elements are illusory, being mere labels attached to the same odious business conduct. 36 F.3d at 1165. For example, the First Circuit observed that a state law misappropriation claim will not escape preemption simply because a plaintiff must prove that copying was not only unauthorized but also commercially immoral. Id. The First Circuit has not addressed expressly whether the Copyright Act preempts a state law contract claim that restrains copying. This court perceives, however, that Data Generals rationale would lead to a judgment that the Copyright Act does not preempt the

Preemption Reconsidered

9.29

state contract action in this case. Indeed, most courts to examine this issue have found that the Copyright Act does not preempt contractual constraints on copyrighted articles. See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); but see Lipscher v. LRP Publs., Inc., 266 F.3d 1305, 1312 (11th Cir. 2001). In ProCD, for example, the court found that the mutual assent and consideration required by a contract claim render that claim qualitatively different from copyright infringement. Consistent with Data Generals reliance on a contract element, the court in ProCD reasoned: A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create exclusive rights. 86 F.3d at 1454. . This court believes that the First Circuit would follow the reasoning of ProCD and the majority of other courts to consider this issue. . In making this determination, this court has left untouched the conclusions reached in Atari Games v. Nintendo regarding reverse engineering as a statutory fair use exception to copyright infringement. Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832 (Fed. Cir. 1992). In Atari, this court stated that [t]he legislative history of 107 suggests that courts should adapt the fair use exception to accommodate new technological innovations [; ] noted [a] prohibition on all copying whatsoever would stifle the free flow of ideas without serving any legitimate interest of the copyright holder [; and] held reverse engineering object code to discern the unprotectable ideas in a computer program is a fair use. 975 F.2d at 843. Application of the First Circuits view does not alter the findings of Atari. Likewise, this does not conflict with [expressly permitted] reverse engineering under [17 U.S.C. 1201(f) and 906]. Moreover, while the Fifth Circuit has held a state law prohibiting all copying of a computer program is preempted by the federal Copyright Act, Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255 (5th Cir. 1988), no evidence suggests the First Circuit would extend this concept to include private contractual agreements supported by mutual assent and consideration. . Thus, case law indicates the First Circuit would find that private parties are free to contractually forego the limited ability to reverse engineer a software product under the exemptions of the Copyright Act. Of course, a party bound by such a contract may elect to efficiently breach the agreement in order to ascertain ideas in a computer program unprotected by copyright law. Under such circumstances, the breaching party must weigh the benefits of breach against the arguably de minimus damages arising from merely discerning non-protected code. [The court then concluded that the district court correctly applied Massachusetts law and that the record supported the jurys finding of a breach of the agreement. For example, both Mr. Ford and the head of mechanical engineering and integration at the Space and Naval Warfare Systems Center explained in detail similarities between plaintiffs and defendants programs and demonstrated them for the jury.] Baystate does not contest the contract damages amount on appeal. . Mr. Bowers, however, argues that the district court abused its discretion by dropping copyright damages from the combined damage award. To the contrary, this court perceives no abuse of discretion. The shrink-wrap license agreement prohibited, inter alia, all reverse engineering of Mr. Bowers software, protection encompassing but more extensive than copyright protection, which prohibits only certain copying. Mr. Bowers copyright and contract claims both rest on Baystates copying of Mr. Bowers software. Following the district courts instructions, the jury considered and awarded damages on each separately. This was entirely appropriate. The law is clear that the jury may award separate damages for each claim, leaving it to the

9.30

When Does Privity Matter?

judge to make appropriate adjustments to avoid double recovery. Britton v. Maloney, 196 F.3d 24, 32 (1st Cir. 1999). In this case, the breach of contract damages arose from the same copying and included the same lost sales that form the basis for the copyright damages. The district court, therefore, did not abuse its discretion by omitting from the final damage award the duplicative copyright damages. Because this court affirms the district courts omission of the copyright damages, this court need not reach the merits of Mr. Bowers copyright infringement claim. . Dyk, Circuit Judge, concurring in part and dissenting in part: I join the majority opinion except insofar as it holds that the contract claim is not preempted.1 . By holding that shrinkwrap licenses that override the fair use defense are not preempted by the Copyright Act, the majority has rendered a decision in conflict with [Vault] the only other federal court of appeals decision that has addressed the issue. The test for preemption by copyright law, like the test for patent law preemption, should be whether the state law substantially impedes the public use of the otherwise unprotected material. Bonito Boats, 489 U.S. at 157, 167; Sears, 376 U.S. at 23132. . In the copyright area, the First Circuit has adopted an equivalent in substance test. Data Gen. Corp., 36 F.3d at 1164-65. . [A]n action is equivalent in substance to a copyright infringement claim where the additional elements merely concern the extent to which authors and their licensees can prohibit unauthorized copying by third parties. Id. at 1165. . We correctly held in Atari that reverse engineering constitutes a fair use under the Copyright Act.2 The Ninth and Eleventh Circuits have also ruled that reverse engineering constitutes fair use. No other federal court of appeals has disagreed. We emphasized in Atari that an author cannot achieve protection for an idea simply by embodying it in a computer program. An author cannot acquire patent-like protection by putting an idea, process, or method of operation in an unintelligible format and asserting copyright infringement against those who try to understand that idea, process, or method of operation. 975 F.2d at 842. Thus, the fair use defense for reverse engineering is necessary so that copyright protection does not extend to any idea, procedure, process, system, method of operation, regardless of the form in which it is described, explained, illustrated, or embodied in such work, as proscribed by the Copyright Act. 102(b). . If state law provided that a copyright holder could bar fair use of the copyrighted material by placing a black dot on each copy of the work offered for sale, there would be no question but that the state law would be preempted. A state law that allowed a copyright holder to simply label its products so as to eliminate a fair use defense would substantially impede the publics right to fair use and allow the copyright holder, through state law, to protect material that the Congress has determined must be free to all under the Act. I nonetheless agree with the majority opinion that a state can permit parties to contract away a fair use defense or to agree not to engage in uses of copyrighted material that are permitted by the copyright law, if the contract is freely negotiated. A freely negotiated agreement represents the extra element that prevents preemption of a state law claim that would otherwise be identical to the infringement claim barred by the fair use defense of reverse engineering. However, state law giving effect to shrinkwrap licenses is no different in substance from a hypothetical black dot law. Like any other contract of adhesion, the only choice offered to the purchaser is to avoid making the purchase in the first place. State law thus gives the
Like the majority, I do not reach the copyright claim. In the patent context, reverse engineering is viewed as an important right of the public. Bonito Boats, 489 U.S. at 160.
1 2

Preemption Reconsidered

9.31

copyright holder the ability to eliminate the fair use defense in each and every instance at its option. In doing so, as the majority concedes, it authorizes shrinkwrap agreements [that] are far broader than the protection afforded by copyright law. There is, moreover, no logical stopping point to the majoritys reasoning. The amici rightly question whether under our original opinion the first sale doctrine and a host of other limitations on copyright protection might be eliminated by shrinkwrap licenses in just this fashion. If by printing a few words on the outside of its product a party can eliminate the fair use defense, then it can also, by the same means, restrict a purchaser from asserting the first sale defense or any other of the protections Congress has afforded the public. . The majority states that Vault held that a state law prohibiting all copying of a computer program is preempted by the federal Copyright Act and then states that no evidence suggests the First Circuit would extend this concept to include private contractual agreements supported by mutual assent and consideration. But, in fact, the Fifth Circuit held that the specific provision of state law that authorized contracts prohibiting reverse engineering, decompilation, or disassembly of computer programs was preempted by federal law because it conflicted with a portion of the Copyright Act and because it touched upon an area of federal copyright law. 847 F.2d at 26970. . The case before us is different from ProCD. The Copyright Act does not confer a right to pay the same amount for commercial and personal use. It does, however, confer a right to fair use which we have held encompasses reverse engineering. ProCD and the other contract cases are also careful not to create a blanket rule that all contracts will escape preemption. The court in that case emphasized that we think it prudent to refrain from adopting a rule that anything with the label contract is necessarily outside the preemption clause. 86 F.3d at 1455. . I conclude that Vault states the correct rule; that state law authorizing shrinkwrap licenses that prohibit reverse engineering is preempted; and that the First Circuit would so hold. I respectfully dissent.

Notes 1. Bowers finds it necessary to apply three sources of law: (1) Massachusetts state law governs the contract issues. (2) Federal Circuit law governs the patent issues. (3) First Circuit law governs copyright-related issues. 2. Absent patent infringement, damages were the same whether based on contract or copyright. Given that, it is unfortunate that the latter was stricken as duplicative. Had the former been stricken instead, copyright preemption would have been irrelevant and much effort could have been avoided. 3. In that regard, reconsider First Circuit views reflected in Lotus, Chapter 5. A strong preference for competitive use of published ideas unprotected by patent furnishes scant reason to believe that the court would have permitted Lotus to protect its commands by use of a ProCD-type license. In light of that, the First Circuit would seem unlikely to agree with the outcome of Bowers. 4. Software may be protected by copyright, but protection is limited by 102(b). Patents offer additional protection, but Bowers patent was not infringed. Before publication, trade secrecy offered a third option, but making that protection available after publication seems problematic. What furnishes consideration for an agreement not to use published information? 5. Consider an inventor who conditions sales of his new widget on promises not to reverse engineer it and devises a way to compel acceptance every time it is used. Would

9.32

When Does Privity Matter?

enforcement of such an agreement be possible in light of either Kewanee or Bonito Boats? Despite the distinction urged in ProCD, can it be said that such a contract does not, in the sense of Kewanee and Bonito Boats, in fact run against the world? 6. Kewanee holds that some contracts survive preemption, but Katz Dochrermann & Epstein, Inc. v. Home Box Office, 1999 WL 179603 (S.D.N.Y. 1999) and Fischer v. Viacom International, Inc., 115 F. Supp.2d 535 (D.Md. 2000) seem to offer better illustrations than Bowers. The first cites Berge in finding HBO not liable under state law absent a basis for finding that it had explicitly or implicitly promised to pay KDE for advertising its services. The second, 115 F. Supp.2d at 543-44 refines that proposition by finding Viacom not liable under state law for use of ideas where: Fischer has failed to allege a relationship giving rise to a duty of confidentiality. To the contrary, the facts alleged by Fischer describe the commonplace giveand-take between those who pitch ideas and those who listen and consider. Fischer does not allege that he had any prior dealings with MTVN, and the parties appear to have been complete strangers. Although Fischer allegedly submitted materials to both Nickelodeon and Viacom, he never met with them to discuss his ideas. (Note omitted.) Fisher thereby affirms the rule that unsolicited submissions do not ordinarily give rise to obligations to pay as discussed briefly in notes following Downey.

Chapter 10 Trademark Rights

A. Related to Use

The Trade-Mark Cases

U.S. Supreme Court 100 U.S. 82 (1879)

Justice Miller: [Three criminal cases were said to pose substantially the same question: Was federal trademark legislation, passed in 1870, founded on any rightful authority in the Constitution of the United States? It provided for trademark (then trade-mark) registration in the Patent Office and for civil remedies for breach of the rights conferred. In 1876, criminal sanctions were added to deter the fraudulent use, sale, and counterfeiting of trade-marks so registered. Because trademarks were creatures of state law, the Court turned to the Constitution for a source of Congressional powers to support the acts in issue.] As the first and only attempt by Congress to regulate the right of trade-marks is to be found in the Act of July 8, 1870, entitled An Act to revise, consolidate, and amend the statutes relating to patents and copyrights, it is a reasonable inference that this part of the statute also was, in the opinion of Congress, an exercise of the power found in [Art. I. 8 cl. 8]. It may also be safely assumed that until a critical examination of the subject in the courts became necessary, it was mainly if not wholly to this clause that the advocates of the law looked for its support. Any attempt, however, to identify the essential characteristics of a trade-mark with inventions and discoveries in the arts and sciences, or with the writings of authors, will show that the effort is surrounded with insurmountable difficulties. The ordinary trade-mark has no necessary relation to invention or discovery. The trademark recognized by the common law is generally the growth of a considerable period of use, rather than a sudden invention. It is often the result of accident rather than design. . By the Act of Congress this exclusive right attaches upon registration. But in neither case does it depend upon novelty, invention, discovery, or any work of the brain. It requires no fancy or imagination, no genius, no laborious thought. It is simply founded on priority of appropriation. We look in vain in the statute for any other qualification or condition. If the symbol, however plain, simple, old, or well-known, has been first appropriated by the claimant as his distinctive trade-mark, he may by registration secure the right to its exclusive use. While such legislation may be a judicious aid to the common law on the subject of trademarks, and may be within the competency of legislatures whose general powers embrace that class of subjects, we are unable to see any such power in the constitutional provision concerning authors and inventors, and their writings and discoveries. The other clause [Art. I. 8 cl. 3] supposed to confer the requisite authority, is as follows: The Congress shall have power to regulate commerce with foreign nations, and among the several States, and with the Indian tribes. The argument is that the use of a trade-mark [and] the sale of the article so distinguished is commerce; that the trade-mark is, therefore, a useful and valuable aid or

10.2

Related to Use

instrument of commerce, and its regulation by virtue of the clause belongs to Congress, and that the act in question is a lawful exercise of this power. Every species of property which is the subject of commerce, or which is used or even essential in commerce, is not brought by this clause within the control of Congress. The barrels and casks, the bottles and boxes in which alone certain articles of commerce are kept for safety and by which their contents are transferred from the seller to the buyer, do not thereby become subjects of congressional legislation more than other property. In Paul v. Virginia (8 Wall. 168), this court held that a policy of insurance made by a corporation of one State on property situated in another, was not an article of commerce, and did not come within the purview of the clause we are considering. . The question, therefore, whether the trade-mark bears such a relation to commerce as to bring it within congressional control, when used or applied to the classes of commerce which fall within that control, is one which, in the present case, we propose to leave undecided. We adopt this course because a due respect for a co-ordinate branch of the government requires that we shall decide that it has transcended its powers only when that is so plain that we cannot avoid the duty. . That such has been the uniform course of this court in regard to statutes passed by Congress will readily appear to any one who will consider the vast amount of argument presented to us assailing them as unconstitutional, and he will count, as he may do on his fingers, the instances in which this court has declared an act of Congress void for want of constitutional power. [The Court concluded nevertheless that when Congress regulates commerce, the law must facially or essentially address commerce with foreign nations, among the several States, or with the Indian tribes.] . If its main purpose be to establish a regulation applicable to all trade, to commerce at all points, especially if it be apparent that it is designed to govern the commerce wholly between citizens of the same State, it is obviously the exercise of a power not confided to Congress. We find no recognition of this principle in the chapter on trade-marks in the Revised Statutes. . It is therefore manifest that no such distinction is found in the act, but that its broad purpose was to establish a universal system of trade-mark registration, for the benefit of all who had already used a trade-mark, or who wished to adopt one in the future, without regard to the character of the trade to which it was to be applied or the residence of the owner, with the solitary exception that those who resided in foreign countries which extended no such privileges to us were excluded from them here. It has been suggested that if Congress has power to regulate trade-marks used in commerce with foreign nations and among the several States, these statutes shall be held valid in that class of cases, if no further. To this there are two objections: First, the indictments in these cases do not show that the trade-marks which are wrongfully used were trade-marks used in that kind of commerce. Secondly, while it may be true that when one part of a statute is valid and constitutional, and another part is unconstitutional and void, the court may enforce the valid part where they are distinctly separable, it is not within the judicial province to give to the words used by Congress a narrower meaning than they are manifestly intended to bear in order that crimes may be punished which are not described in language that brings them within the constitutional power of that body. This precise point was decided in United States v. Reese, 92 U.S. 214. .

Trademark Rights

10.3

[There, the Court said]: We are not able to reject a part which is unconstitutional and retain the remainder, because it is not possible to separate that which is constitutional, if there be any such, from that which is not. The proposed effect is not to be attained by striking out or disregarding words that are in the section, but by inserting those that are not there now. Each of the sections must stand as a whole, or fall altogether. The language is plain. There is no room for construction, unless it be as to the effect of the Constitution. The question, then, to be determined is, whether we can introduce words of limitation into a penal statute so as to make it specific, when, as expressed, it is general only. To limit this statute in the manner now asked for would be to make a new law, not to enforce an old one. This is no part of our duty. If we should, in the case before us, undertake to make by judicial construction a law which Congress did not make, it is quite probable we should do what, if the matter were now before that body, it would be unwilling to do; namely, make a trade-mark law which is only partial in its operation, and which would complicate the rights which parties would hold, in some instances under the act of Congress, and in others under State law. In what we have here said we wish to be understood as leaving untouched the whole question of the treaty-making power over trade-marks, and of the duty of Congress to pass any laws necessary to carry treaties into effect. [T]he criminal offences described in the Act of 1876 are, by their express terms, solely referable to use of trade-marks which were registered under the provisions of the former Act. If that Act is unconstitutional, so that the registration under it confers no lawful right, then the criminal enactment intended to protect that right falls with it. . Notes 1. The Courts suggestion that Congress regarded Art. 1 8 cl. 8 as its source of power for the first trademark law is supported by the structure of the 1870 law. It was comprehensive, and trademark provisions, 7784, 16 Stat. 201-10, were sandwiched between provisions governing patents and copyrights. 2. The opinion concludes that Art. I 8 cl. 8 does not empower Congress to confer rights based on use rather than originality. Potentially unlimited duration seems more apt, but registration was for only thirty years. The Court may have been reluctant to disapprove despite potentially unlimited renewals. 3. Much has since changed. First, as addressed below, congressional power under Art. I 8, cl. 3 is now viewed more broadly. Second, courts may take more liberties to preserve the constitutionality of federal statutes than in 1875.Compare the quotation from Reese at the top of this page with Marx v. U.S., 96 F.2d 204 (2d Cir. 1938) (implying a time limitation on works registered without publication to uphold a provision in the 1909 Copyright Act). 4. As evidenced by Feist, Chapter 5, however, the opinion in The Trade-Mark Cases retains vitality. Moreover, U.S. v. Martignon, 492 F.3d 140 (2d. Cir. 2007), found it useful in upholding the constitutionality of a federal antibootlegging statute that lacks durational limits.

10.4

Related to Use

Hanover Star Milling Co. v. Metcalf

U.S. Supreme Court 240 U.S. 403 (1916)

Justice Pitney: [Two cases were argued together; Hanover Star was a common party. The appeal of interest (30) involves only the Allen & Wheeler Company. The other (23) involved Metcalf, with whom Allen & Wheeler apparently had no connection.] In No. 30, the Allen & Wheeler Company filed a bill against the Hanover Star Milling Company, averring that [in 1872 it adopted Tea Rose as a trademark and, since then, it and a successor] had continued to use the trademark upon flour of its manufacture, and had distributed and sold such flour in the markets of the United States, whereby the words Tea Rose had become [its] common-law trademark; that recently it had learned that the Hanover Star Milling Company had adopted the words Tea Rose as designating [its] brand of flour, and, notwithstanding notice of complainants rights, was persisting in the sale of its flour under that name and threatening to continue so to do causing damage and loss to complainant in excess of $3,000. . Upon this bill, a demurrer filed by the Hanover Company, and affidavits presented by both parties, the district court granted a temporary injunction restraining the use of the words Tea Rose as a trademark for flour, without territorial restriction. The circuit court of appeals for the seventh circuit reversed. [I]t was shown without dispute that the firm of Allen & Wheeler adopted and used the words Tea Rose as a trademark. But there is nothing to show the extent of such use or the markets reached by it, except that in the year 1872 Allen & Wheeler sold three lots of 25 barrels each to a firm in Cincinnati and one lot of 100 barrels in Pittsburgh; and that in the later 70s a firm in Boston was a customer. As to the Allen & Wheeler Company there is a remarkable absence of particular statements as to time, place, or circumstances; in short, no showing whatever as to the extent of the use or the markets reached. There is nothing to show that the Allen & Wheeler Tea Rose flour has been even advertised in Alabama or the adjoining states, and there is clear and undisputed proof that it has not been sold or offered for sale or known or heard of by the trade in Alabama, Mississippi, or Georgia. In No. 30, there is uncontradicted proof that the Allen & Wheeler Company is selling flour in Alabama and Georgia, but under the brands Eldean Patent and Trojan Special. [T]he Hanover Company introduced affidavits fairly showing that shortly after its incorporation in the year 1885 it adopted for one of its brands of flour the name Tea Rose, and adopted for the package or container, whether sack or barrel, a label bearing the name Tea Rose and the design already referred to [a picture of three roses]; and that this trademark was adopted and used in good faith without knowledge or notice that the name Tea Rose had been adopted or used by the Allen & Wheeler firm, or by anybody else. In 1904 the Hanover Company began and has since prosecuted a vigorous and expensive campaign of advertising its Tea Rose flour, covering the whole of the state of Alabama, and parts of Mississippi, Georgia, and Florida, employing many ingenious and interesting devices that are detailed in the proofs, with the result that at the commencement of the litigation its sales of Tea Rose flour in these markets amounted to more than $150,000 a year, the Hanover Star Milling Company has come to be known as the Tea Rose mill, the reputation of the mill is bound up with the reputation of Tea Rose flour, and Tea Rose in the flour trade in the territory referred to means flour of the Hanover Companys manufacture. There is nothing to show any present or former competition in Tea Rose flour between the latter company and

Trademark Rights

10.5

the Allen & Wheeler firm or corporation, or that either party has even advertised that brand of flour in territory covered by the activities of the other. . It will be convenient to dispose first of No. 30. Here the bill is rested upon alleged trademark infringement, pure and simple, and no question of unfair competition is involved. The decision of the Court of Appeals for the Seventh Circuit in favor of the Hanover Company and against the Allen & Wheeler Company was rested upon the ground that although the adoption of the Tea Rose mark by the latter antedated that of the Hanover Company, its only trade, so far as shown, was in territory north of the Ohio river, while the Hanover Company had adopted Tea Rose as its mark in perfect good faith, with no knowledge that anybody else was using or had used those words in such a connection, and during many years it had built up and extended its trade in the southeastern territory, comprising Georgia, Florida, Alabama and Mississippi, so that in the flour trade in that territory the mark Tea Rose had come to mean the Hanover Companys flour, and nothing else. The court held in effect that the right to protection in the exclusive use of a trademark extends only to those markets where the traders goods have become known and identified by his use of the mark; and because of the nonoccupancy by the Allen & Wheeler Company of the southeastern markets it had no ground for relief in equity. Let us test this by reference to general principles. The redress that is accorded in trademark cases is based upon the partys right to be protected in the good will of a trade or business. The primary and proper function of a trademark is to identify the origin or ownership of the article to which it is affixed. Where a party has been in the habit of labeling his goods with a distinctive mark, so that purchasers recognize goods thus marked as being of his production, others are debarred from applying the same mark to goods of the same description, because to do so would in effect represent their goods to be of his production and would tend to deprive him of the profit he might make through the sale of the goods which the purchaser intended to buy. Courts afford redress or relief upon the ground that a party has a valuable interest in the good will of his trade or business, and in the trademarks adopted to maintain and extend it. The essence of the wrong consists in the sale of the goods of one manufacturer or vendor for those of another. This essential element is the same in trademark cases as in cases of unfair competition unaccompanied with trademark infringement. In fact, the common law of trademarks is but a part of the broader law of unfair competition. Common-law trademarks, and the right to their exclusive use, are, of course, to be classed among property rights; but only in the sense that a mans right to the continued enjoyment of his trade reputation and the good will that flows from it, free from unwarranted interference by others, is a property right, for the protection of which a trademark is an instrumentality. As was said in [The Trade-Mark Cases], the right grows out of use, not mere adoption. In the English courts it often has been said that there is no property whatever in a trademark, as such. But since in the same cases the courts recognize the right of the party to the exclusive use of marks adopted to indicate goods of his manufacture, upon the ground that a man is not to sell his own goods under the pretense that they are the goods of another man; he cannot be permitted to practise such a deception, nor to use the means which contribute to that end. He cannot therefore be allowed to use names, marks, letters, or other indicia, by which he may induce purchasers to believe that the goods which he is selling are the manufacture of another person (6 Beav. 73); it is plain that in denying the right of property in a trademark it was intended only to deny such property right except as appurtenant to an established business or trade in connection with which the mark is used. This is evident from the expressions used in these and other English cases. Thus, in Ainsworth v. Walmsley, L. R. 1 Eq. 518, 524, Vice Chancellor Sir Wm. Page Wood said:

10.6

Related to Use

This court has taken upon itself to protect a man in the use of a certain trademark as applied to a particular description of article. He has no property in that mark per se, any more than in any other fanciful denomination he may assume for his own private use, otherwise than with reference to his trade. If he does not carry on a trade in iron, but carries on a trade in linen, and stamps a lion on his linen, another person may stamp a lion on iron; but when he has appropriated a mark to a particular species of goods, and caused his goods to circulate with this mark upon them, the court has said that no one shall be at liberty to defraud that man by using that mark, and passing off goods of his manufacture as being the goods of the owner of that mark. In short, the trademark is treated as merely a protection for the good will, and not the subject of property except in connection with an existing business. The same rule prevails generally in this country, and is recognized in the decisions of this court already cited. Expressions are found in many of the cases to the effect that the exclusive right to the use of a trademark is founded on priority of appropriation. . But these expressions are to be understood in their application to the facts of the cases decided. In the ordinary case of parties competing under the same mark in the same market, it is correct to say that prior appropriation settles the question. But where two parties independently are employing the same mark upon goods of the same class, but in separate markets wholly remote the one from the other, the question of prior appropriation is legally insignificant; unless, at least, it appear that the second adopter has selected the mark with some design inimical to the interests of the first user, such as to take the benefit of the reputation of his goods, to forestall the extension of his trade, or the like. . That property in a trademark is not limited in its enjoyment by territorial bounds, but may be asserted and protected wherever the law affords a remedy for wrongs, is true in a limited sense. Into whatever markets the use of a trademark has extended, or its meaning has become known, there will the manufacturer or trader whose trade is pirated by an infringing use be entitled to protection and redress. But this is not to say that the proprietor of a trademark, good in the markets where it has been employed, can monopolize markets that his trade has never reached, and where the mark signifies not his goods, but those of another. We agree with the court below that since it is the trade, and not the mark, that is to be protected, a trademark acknowledges no territorial boundaries of municipalities or states or nations, but extends to every market where the traders goods have become known and identified by his use of the mark. But the mark, of itself, cannot travel to markets where there is no article to wear the badge and no trader to offer the article. . It results from the general principles thus far discussed that trademark rights, like others that rest in user, may be lost by abandonment, nonuser, laches, or acquiescence. Abandonment, in the strict sense, rests upon an intent to abandon. As to laches and acquiescence, it has been repeatedly held, in cases where defendants acted fraudulently or with knowledge of plaintiffs rights, that relief by injunction would be accorded although an accounting of profits should be denied. So much must be regarded as settled. But cases differ according to their circumstances, and neither of those cited is in point with the present. Allowing to the Allen & Wheeler firm and corporation the utmost that the proofs disclose in their favor, they have confined their use of the Tea Rose trademark to a limited territory, leaving the southeastern states untouched. Even if they did not know and it does not appear that they did know that the Hanover Company was doing so, they must be held to have taken the risk that some innocent party might, during their forty years of inactivity, hit upon the same mark and expend money and effort in building up a trade in flour under it. If, during the long period that has elapsed since the last specified sale of Allen & Wheeler Tea

Trademark Rights

10.7

Rose this was in the later 70s that flour has been sold in other parts of the U.S., excluding the southeastern states, no clearer evidence of abandonment by nonuser of trademark rights in the latter field could reasonably be asked for. And when it appears, as it does, that the Hanover Company in good faith and without notice of the Allen & Wheeler mark has expended much money and effort in building up its trade in the southeastern market, so that Tea Rose there means Hanover Companys flour and nothing else, the Allen & Wheeler Company is estopped to assert trademark infringement as to that territory. The extent and character of that territory, and its remoteness from that in which the Allen & Wheeler mark is known, are circumstances to be considered. Alabama alone to say nothing of the other states in question has an area of over 50,000 square miles, and by the census of 1910 contained a population of more than 2,000,000. Its most northerly point is more than 250 miles south of Cincinnati, which is the nearest point at which sales of Allen & Wheeler Tea Rose are shown to have been made, and these at a time antedating by approximately forty years the commencement of the present controversy. We are not dealing with a case where the junior appropriation of a trademark in occupying territory that would probably be reached by the prior user in the natural expansion of his trade, and need pass no judgment upon such a case. Under the circumstances that are here presented, to permit the Allen & Wheeler Company to use the mark in Alabama, to the exclusion of the Hanover Company, would take the trade and good will of the latter company built up at much expense and without notice of the formers rights and confer it upon the former, to the complete perversion of the proper theory of trademark rights. . Justice Holmes, concurring: I am disposed to agree. But I think it necessary to go farther even on the assumption that we are dealing with the question of trademarks in the several states. This seems to be too obvious to need the citation of authority, but it is a necessary corollary of the TradeMark Cases, 100 U.S. 82 (1879). . . But it never should be forgotten, and in this case it is important to remember, that when a trademark started in one state is recognized in another it is by the authority of a new sovereignty that gives its sanction to the right. . I think state lines, speaking always of matters outside the authority of Congress, are important in another way. I do not believe that a trademark established in Chicago could be used by a competitor in some other part of Illinois on the ground that it was not known there. I think that if it is good in one part of the state, it is good in all. . Notes 1. What would justify the Courts barring a junior appropriator from territory that would probably be reached by the prior user in the natural expansion of his trade? Why was it unnecessary to address that problem in Hanover Star? 2. Is it surprising that when most goods were produced and consumed locally, roads were poor and media reach was short, the majority did not accept Justice Holmes suggestion? Over time, have changes in distribution and media made state boundaries more or less useful for establishing the common-law reach of marks? 3. Reconsider the first footnote in Kellogg, Chapter 4. Is it not implicit that federal common law was applied in Hanover Star? If so, how can that be reconciled with the holding in the Trade-Mark Cases?

10.8

Related to Use

Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd.

U.S. Court of Appeals, Second Circuit 627 F.2d 628 (1980)

Before Lumbard, Mansfield and Mehrtens, District Judge. Lumbard, Circuit Judge: Sweater Bee by Banff, Ltd. and Robert Belsky (collectively Sweater Bee) appeal from a judgment permanently enjoining it from further use of the trademark Kimberly. We conclude that the district courts findings of fact are supported, but we remand for the fashioning of an order allowing both appellants and appellees to use the Kimberly mark with such distinctions as the district court finds appropriate. The Kimberly mark was owned as a registered trademark and used to identify high quality womens clothing by General Mills, Inc., until May 7, 1979. On that day, General Mills formally abandoned the mark.1 In response to rumors circulating within the trade that General Mills intended to discontinue using the mark, executives at Don Sophisticates and at Sweater Bee sought to acquire this valuable mark directly from General Mills, but neither succeeded because General Mills, for reasons unimportant here, decided to abandon rather than sell the mark.2 Upon the marks abandonment, a free-for-all ensued. The district court found that Don Sophisticates began shipping merchandise with labels bearing a Kimberly mark on May 9.3 Even before May 9, Don Sophisticates had displayed to customers Kimberly clothing which it had purchased from a supplier in anticipation of General Mills discontinuance of the mark. From May 7 until October, when the complaint was filed, Don Sophisticates shipped over $10,000 worth of merchandise bearing the Kimberly mark. Sweater Bee began shipping merchandise with labels bearing a Kimberly mark on May 10, the day the marks abandonment was reported in the trade newspaper, Womens Wear Daily. Sweater Bees four shipments on that day went to four states and since then Sweater Bee has shipped over $130,000 worth of merchandise with labels bearing a Kimberly mark. Bayard Shirt entered the race on May 11. By an assignment executed on June 29, Bayard Shirt and its parent company, Manhattan Industries, received all of Don Sophisticates rights to the mark. By mid-September, Bayard Shirt had shipped over $45,000 worth of merchandise with labels bearing a Kimberly mark, and had spent over $9,000 in advertising and promoting its Kimberly line. Don Sophisticates, Sweater Bee and Bayard Shirt all applied to the U.S. Patent and Trademark Office for the registration of the mark. Appellees brought this action under the Lanham Act, 15 U.S.C. 1125(a), claiming the trademark right to the mark by virtue of prior and continuous use and seeking, in addition to an injunction, an accounting of profits derived from the alleged infringement, damages, and costs. Sweater Bee counterclaimed on similar grounds and sought similar relief. Both parties claimed an exclusive, nationwide right to use the mark. The district court, after receiving the parties affidavits and documents and hearing arguments, concluded that Don Sophisticates, and by assignment Bayard Shirt and Manhattan Industries, had acquired the sole right to the
1

General Mills signed Surrenders of Cancellation of its Kimberly marks on May 3. The letter transmitting the surrenders to the U.S. Patent and Trademark Office was dated May 7. 2 Although the record does not show General Mills reason for abandoning the mark, counsel suggested at oral argument, in answer to the courts question, that the abandonment might have been for tax purposes. 3 The evidence shows that Don Sophisticates had begun shipping merchandise with labels bearing a Kimberly mark on May 7, making one shipment on that day, five on May 8, and one more on both May 10 and 14. These shipments went to five states. We consider it immaterial in this case whether Don Sophisticates began its shipments on May 7 or 9.

Trademark Rights

10.9

mark by virtue of its prior use. However, in light of the evenly balanced equities, the district court denied appellees request for an accounting, damages, and costs. Pending this expedited appeal, we stayed the district courts order that Sweater Bee destroy its Kimberly labels. . When General Mills abandoned its mark, Don Sophisticates and Sweater Bee were equally free to attempt to capture the mark to their own use. Don Sophisticates won the race, for it was the first to ship merchandise with labels bearing a Kimberly mark after the abandonment, and it did so with the intent of acquiring the mark. Accordingly, Don Sophisticates would ordinarily have the right to use the mark unadorned, id., and Bayard Shirt and Manhattan Industries, as its assignees, would receive that right, id. However, in light of the significant shipments and investment by Sweater Bee, we do not believe that Don Sophisticates slight priority in time justifies awarding to the appellees the exclusive, nationwide right to the Kimberly mark. We have previously stated that the concept of priority in the law of trademarks is applied not in its calendar sense but on the basis of the equities involved. Given the evenly balanced equities in this case, it would be inequitable to allow only the appellees to use the mark. Sweater Bee has proved that it entered the market sufficiently early to be equally entitled. In such case, to protect the public, each company will have to differentiate its product from that of the other company and perhaps also from the original mark. One of the purposes of the Lanham Act is to prevent confusion among the public as to the source of goods. We have recognized, however, that the likelihood of confusion may decrease as the sophistication of the relevant purchasers increases. The greater the value of an article the more careful the typical consumer can be expected to be; the average purchaser of an automobile will no doubt devote more attention to examining the different products and determining their manufacturer or source than will the average purchaser of a ball of twine. No doubt the parties can create and present to the district court sufficiently distinct labels so that the purchasers of high quality womens clothing can distinguish appellees Kimberly goods from appellants. We therefore remand to the district court for the fashioning of an appropriate order not inconsistent with this opinion. Notes 1. Enacted in 1946, the Lanham Act has since been amended several times. The current equivalent of the provision at issue in Manhattan Industries, 43(a)(1)(A), is codified at 15 U.S.C. 1125(a)(1)(A). 2. Unlike provisions that govern copyrights and patents, section numbers differ depending on whether the Act or the Code is cited. In the unlikely event of inconsistency, the Act controls. See, e.g., my brief comment, Is the Lanham Act Positive Law? Does it Matter?, http://www.ipfrontline.com (2007). 3. Are consumers likely to read Womens Wear Daily? If not, whose reputation will suffer if they have bad experiences with Kimberly products? Despite abandonment of its registration, did General Mills retain any interest in the mark? If so, for how long? What is the significance of the statement, to protect the public, each company will have to differentiate its product from that of the other company and perhaps also from the original mark. 4. Manhattan Industries demonstrates that federal trademark registration is unnecessary for federal jurisdiction, but it may nevertheless be helpful. Requirements for registration in 2 parallel those for protection under 43 or at common law. The following decision introduces the registration process.

10.10

Related to Use

Trademark Trial and Appeal Board 133 U.S.P.Q. 490 (1962) Before Waldstreicher, Lefkowitz and Shryock. Waldstreicher, Member: An application has been filed by Warren M. Bud Taylor to register Chuck-A-Burger for various restaurant and take-out food items including hamburgers, sandwiches, salads, desserts, milk shakes, and non-alcoholic drinks. Use since Oct. 1, 1955 is alleged. Registration has been refused on four grounds, namely: (1) The subject matter of the application is used on the specimens merely as the common descriptive name of a particular food product rather than as a trademark. (2) The specimens on file do not show lawful use of the matter sought to be registered in interstate commerce because they do not indicate the ingredients, weight, and name of the producer as required by the Federal Food, Drug, and Cosmetic Act. (3) The subject matter of the application is not used on or in connection with the goods in interstate commerce. (4) Applicant has refused to amplify the identification of foods by naming the salads, desserts, and non-alcoholic drinks. Applicant has appealed. Considering the fourth, it would appear that no objection to describing some of applicants goods as sandwiches was made and if such term is sufficiently definite then the terms salads and desserts would likewise be sufficiently definite. In any event, the terms salads and desserts when described as restaurant and take-out food items as applicant has done, is sufficient to advise all persons what applicants goods are. The case, however, is different as to the term non-alcoholic drinks. As applicant points out, such term is intended to encompass soft drinks, tea, milk and coffee but, as indicated by the examiner, soft drinks are goods proper for Class 45, Soft drinks and carbonated waters, rather than Class 46, Foods and ingredients of goods. Trademark Rule 2.87 states that when a single application is filed to register a mark for goods in different classes, registration will be refused, and the applicant will be required to restrict the application to goods comprised in a single class. Under the circumstances, a registration of a mark for goods described as non-alcoholic drinks would be improper. As to the third ground of refusal, suffice it to say that a single instance of interstate use, when the accompanying circumstances indicate an intent to continue the use, is sufficient to justify registration of a trademark. Maternally Yours, Inc. v. Your Maternity Shop, Inc., 110 USPQ 462 (CA 2, 1956). Since applicant made an actual sale in interstate commerce prior to the filing of this application and since the circumstances indicate that applicant is in a position to continue such use, there is no basis for refusing registration if the interstate use made by applicant can be construed to be lawful. This leads us into the second ground of rejection. Under the terms of the Federal Food, Drug, and Cosmetic Act, the introduction or delivery for introduction into interstate commerce of any food that is misbranded is prohibited and a food is deemed to be misbranded if in package form unless it bears a label containing the name and place of business of the manufacturer, packer or distributor and an accurate statement of the quantity of the contents in terms of weight, measure or numerical count ( 403(e)). The specimens filed with the application do not indicate the information required by the statute. Further, it is provided that a food shall be deemed to be misbranded if

In re Taylor

Trademark Rights

10.11

the food purports to be or is represented as a food for which a definition and standard of identity has been prescribed by regulations as provided by Section 401 of that Act and the label does not bear the name of the food specified in the definition and standard. ( 403 (g)). If a food is not subject to the provisions of 403(g), then the common or usual name of the food, if any there be, and in case it is fabricated from two or more ingredients, the common or usual name of each such ingredient, excepting spices, flavoring, and colorings may be designated as such ( 403(i)). The specimens submitted carry a number of names or what purports to be names such as chuck-a-burgers, grilled cheese, B B Q beef and ham B B Q burgers, cheese burgers, and super dogs and there is no listing of ingredients for any thereof. The specimens filed at the time of application are not in compliance with the Federal Food, Drug, and Cosmetic Act, and their use in interstate commerce cannot be construed to be a lawful use. Therefore, such use cannot afford a basis for federal registration. There remains to consider whether Chuck-A-Burger comprises a trademark used to identify applicants goods and distinguish them from those manufactured or sold by others. The specimens show Chuck-A-Burger quite boldly and in the manner of a mark but at the same time it is also listed as the name of a burger-type product sold by applicant. There is no common name other than Chuck-A-Burger by which applicants burger-type sandwich can be ordered. Under the circumstances, Chuck-A-Burger functions as the name for applicants burger-type product rather than as a trademark. . Notes 1. In re Taylor illustrates how, in an agency process similar to that for patents, initial refusals to register marks under 2 may be appealed to the TTAB. See 20. 2. Which of Taylors problems related to the main issue in The Trade-Mark Cases? 3. Regarding the second reason for rejecting his application, see General Mills Inc. v. Health Valley Foods, 24 U.S.P.Q.2d 1270 (TTAB 1992) (a limited, technical and inadvertent violation of the Food, Drug and Cosmetic Act did not void opposers registration). In CreAgri, Inc. v. USANA Health Sciences, Inc., 474 F.3d 626 (9th Cir. 2007), however, a more serious infraction by a user forfeited priority over an otherwise junior party. 4. Apart from showing that the Federal Circuit can review TTAB decisions under 21, the next case illustrates what must happen ( 12) after an examiner accepts an application to register; as well as what may happen ( 13) if another party objects. The reason for Harmons opposition does not appear in the case, but this was found at http://www.skooldays.com/categories/saturday/sa1374.htm (visited Nov. 29, 2009): In 1946, creator Alan W. Livingston and Capitol Records introduced Bozo the Clown to the world in a childrens record entitled Bozo at the Circus. . In 1956, Larry Harmon bought the franchise rights to Bozo, which by this time had generated record sales in excess of $20 million. Harmon adopted the idea of a daily half-hour show with a live Bozo, a studio audience of children, and five-minute cartoons, packaged and franchised to different markets across the country. In 1959 the idea took hold, and Harmon soon had 100 Bozos in the U.S. with additional clowns in Germany, France and Japan. . By the mid 1960s, Bozo was grossing over $150 million in merchandise worldwide. .

10.12

Related to Use

Larry Harmon Pictures Corp. v. Williams Restaurant Corp.

U.S. Court of Appeals, Federal Circuit 929 F.2d 662 (1991)

Before Markey, Newman and Archer. Archer, Circuit Judge: . Williams has operated Bozos pit barbecue restaurant in Mason, Tennessee since 1932. . [A]ccording to the [TTAB]s opinion, [t]here is no dispute that Bozos restaurant services are rendered to interstate travelers and Harmon acknowledges that applicants restaurant serves some interstate travelers. The Board concluded on the basis of these undisputed facts that Williams had made use of its service mark Bozos in a manner sufficient to satisfy the use in commerce requirement of 3 of the Lanham Act. The Board, therefore, granted Williams motion for summary judgment and dismissed Harmons opposition. .1 . Harmon argues that the use in commerce requirement of 3 cannot be satisfied by a single-location restaurant, such as Bozos, that serves only a minimal number of interstate travelers. . We decline to circumscribe the statute in the manner suggested. Section 1 of the Lanham Act provides that the owner of a trade-mark used in commerce may apply to register his trade-mark under this chapter. (emphasis added). Section 3 states that service marks shall be registrable, in the same manner and with the same effect as are trade-marks. In general, therefore, service marks must be used in commerce before they may be registered. Section 45 provides the following definitions for the word commerce and the phrase use in commerce: The word commerce means all commerce which may lawfully be regulated by Congress. [A] mark shall be deemed to be in use in commerce on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce. (emphasis added). Congress has broad powers under the commerce clause of the Constitution, Art. 1, 8, to regulate interstate commerce. In In re Silenus Wines, Inc., 557 F.2d 806 (CCPA 1977), this courts predecessor observed that the Lanham Act represented a change in the scope of federal trademark jurisdiction and that in making the change Rep. Lanham and his subcommittee, and presumably the Congress, were mindful of the broad scope of Congressional regulatory powers which the Supreme Court has sanctioned. Id. at 810. . In In re Gastown, Inc., 326 F.2d 780 (1964), the CCPA again discussed the use in commerce requirement. . Although the services rendered by the appellant were confined to the State of Ohio, some of appellants customers had their legal situs in other states, were engaged in interstate commerce when served by appellant in Ohio, and were extended credit and billed in their respective domiciliary states. The court held that those circumstances were sufficient to show [use] in commerce within the meaning of 3 and 45. .
1

In the proceedings below, Miss Williams affidavit estimated that 15% of Bozos business each year is with customers from other states. This has been true for many years. Supporting the fact that restaurant services were rendered to interstate travellers, the board also had before it the stipulated pages from the visitors register maintained by Bozos restaurant for a period subsequent to the application filing date and a number of affidavits and letters from persons out of state who had patronized Bozos at various times prior to the application filing date. The only contrary evidence before the board was that Harmons representative visited the restaurant from 11:00 a.m. to 1:00 p.m. on June 29, 1987, and did not see a single customer who seemed to be from out-of-state or a single out-of-state car in the restaurants parking lot. The boards holding implicitly recognized that this evidence was not adequate to raise a genuine issue of material fact. .

Trademark Rights

10.13

While the facts supporting Williams [use] in commerce are not as extensive, or as persuasive, as those in Gastown they are sufficient. In Gastown, the court approved the Fifth Circuits observation that in enacting the Lanham Act Congress intended to regulate interstate and foreign commerce to the full extent of its constitutional powers, (quoting Bulova Watch Co. v. Steele, 194 F.2d 567, 571 (5th Cir.), affd, 344 U.S. 280 (1952)). Again, in Silenus Wines, the CCPA pointed to the broadened commerce provisions of the Lanham Act and stated that the changed language regarding use in commerce in the Lanham Act clearly involves a broadening of jurisdiction. 557 F.2d at 810. The court also quoted from the Supreme Courts decision in Wickard v. Filburn, 317 U.S. 111, 125 (1942), as indicating the scope of Congressional regulatory powers that the Supreme Court had sanctioned prior to the passage of the Lanham Act. Moreover, the Silenus Wines court found support in other federal courts decisions: Our Gastown decision and this opinion are further fortified by the manner in which other federal courts have treated these terms, use in commerce and commerce, when used in the infringement portion of the Lanham Act. Courts have uniformly held, in the infringement context, that commerce includes intrastate transactions that affect interstate or foreign commerce. We see no basis for the meaning of commerce in the registration context to be different, particularly since both derive from the same definition in 15 U.S.C. 1127 (1976). 557 F.2d at 811-12 (emphasis in original). In Silenus Wines, the CCPA expressly rejected the position of the [PTO] that the statute is ambiguous and that the various statements in legislative history contradict and overshadow [the] statutory definition of commerce. Id. 557 F.2d at 810-11. The CCPA found instead that the Lanham Act contains a clear and unambiguous definition of federal trademark jurisdiction and that with unambiguous language in a statute, it is improper to consider extrinsic sources like legislative history to raise ambiguities. It also noted that [w]hile some of the other hearing participants appear to have taken a position contrary to the language of the statute, their opinions will not be used to reverse clear, contrary language in the statute. Id. at 811. Thus, our predecessor court whose decisions are binding on us has unequivocally held that the definition of commerce in the Lanham Act means exactly what the statute says, i.e., all commerce which may lawfully be regulated by Congress. . The record here established that the Bozos mark has been used in connection with services rendered to customers traveling across state boundaries. It is not required that such services be rendered in more than one state to satisfy the use in commerce requirement. Harmon does not dispute that there has been some use in commerce of Williams mark. It contends only that the volume of such activity was less than Williams affidavit would indicate. Harmon, however, has produced no evidence to counter the proof of interstate activity by Williams, and its reliance on attorney arguments is similar to the situation in Bookbinders where such arguments were given no weight. . This court does not have the power to narrow or restrict the unambiguous language of the statute. Accordingly, we affirm the decision of the Board. Pauline Newman, Circuit Judge, dissenting. . The distinction between the power to legislate, and the intended scope of a specific act of Congress, pervades judicial decisions. [N]ot all legislation based on the Commerce Clause invokes the full power of Congress: The phrase in commerce does not, of course, necessarily have a uniform meaning whenever used by Congress. .

10.14

Related to Use

Thus the determination of how much interstate contact is required must be decided in view of the statute governing federal service mark registration.. Congress was not silent as to its intent that intrastate commerce shall be excluded. . Senator Pepper: It is your understanding that it is the intent of the bill, and if enacted will be the intent of Congress, to apply only to commerce among the States? Miss [Daphne] Robert [testifying for the ABA]: That is my understanding and foreign commerce. Senator Pepper: Very well. Is that the general opinion of the people who are here today as proponents of it? . Senator Pepper: I should like the record to show that, by their silence, those who are here today as proponents of the bill have agreed to the statement of [Congressman] Lanham, the author of the bill, and of Miss Robert, who has been regarded as one of the able spokesmen for it, that it is the intention of the bill to apply only to commerce among the States and to foreign commerce. Mr. Kelley [for the FTC]: And not to local matters that affect or hamper interstate commerce. That is the point, I think. Senator Pepper: That is correct. Hearings on H.R. 82 before a Subcommittee of the Senate Committee on Patents, 78th Cong., 2d Sess. at 133 (1944). . Notes 1. Because Williams use had continued since well before creation of Bozo the clown, Harmon had no right to assert under 2(d). Contesting registerability was probably the only basis for opposition. 2. A party need not have U.S. rights to oppose under 2(d). In Aktieselskabet AF 21. November 2001 v. Fame Jeans Inc., 525 F.3d 8 (D.C. Cir 2008), a complaint by an owner of a famous mark not yet used in the United States was able to survive a motion to dismiss. 3. The connection to Bulova Watch seems remote. Steele had registered in Mexico. His watches were made and sold in Mexico, but he was served in San Antonio where he resided. When he challenged the reach of the Lanham Act, the Court, 344 U.S. at 282-83, said, Congress in prescribing standards of conduct for American citizens may project the impact of its laws beyond [U.S.] territorial boundaries. 4. Judge Newman stresses the difference between the scope of congressional powers and the power it chooses to exercise. With regard to the first, Wickard dramatically expanded the scope of congressional commerce power. The significance of quoted testimony, however, seems to turn on the speakers awareness of the potential impact of that then-recent case. Did speakers intend to limit the effect of the Act to transactions clearly within interstate commerce, or did they intend to avoid problems encountered in The Trade-Mark Cases? 5. Rarely is the distinction between trademarks and other types of marks mentioned in 4 and 5 important. But Williams sought a service mark, whereas Taylor did not. How many of Taylors problems were related to seeking a trademark (for his goods) rather than a service mark (for his restaurant)? 6. Also, appeals concerning effects on commerce are more common in service mark than in trademark applications. Expected differences between the cost of shipping goods across state lines, on one hand, and the cost of appeals to the TTAB and the courts, on the other, however, would seem to account for any difference in frequency.

Trademark Rights

10.15

B. Subject Matter Limitations Revisited

Jacob Siegel Co. v. FTC

U.S. Supreme Court 327 U.S. 608 (1946) Justice Douglas: The alpaca and the vicuna are animals whose fleece is used in the manufacture of fabrics. The fleece of the vicuna is, indeed, one of the finest and is extremely rare; and fabrics made of it command a high price. Petitioner manufactures [coats] and markets them under the name Alpacuna. They contain alpaca, mohair, wool, and cotton but no vicuna. The Federal Trade Commission [FTC] found that petitioner had made certain misrepresentations in the marketing of its coats. . It also found that the name Alpacuna is deceptive and misleading to a substantial portion of the purchasing public, because it induces the erroneous belief that the coats contain vicuna. But there was no finding that petitioner had made representations that Alpacuna in fact contained vicuna. It accordingly issued a cease and desist order which, among other things, banned the use of the word Alpacuna to describe petitioners coats. The Circuit Court of Appeals affirmed. . It was of the view, however, that the prohibition of the use of the name was far too harsh. . But we do not reach the question whether the FTC would be warranted in holding that no qualifying language would eliminate the deception. . We find no indication that the FTC considered the possibility. It indicated that prohibition of the use of the name was in the public interest. But we are left in the dark whether some change of name short of excision would in the judgment of the FTC be adequate. . The FTC is entitled not only to appraise the facts of the particular case and the dangers of the marketing methods employed but to draw from its generalized experience. Its expert opinion is entitled to great weight in the reviewing courts. But the courts are not ready to pass on the question whether the limits of discretion have been exceeded in the choice of the remedy until the administrative determination is first made. . [Justice Jackson did not participate in this case.] Notes 1. Federal Trade Commission Act 5(a)(1), 15 U.S.C. 45(a)(1), provides, Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful. Under 5(b), the FTC, after trials within the agency, may issue cease and desist orders. Under Lanham Act 14, the FTC may also move to cancel federal registrations. Why would the FTC nevertheless be inclined to pursue deceptively misdescriptive marks under its own Act? 2 Had Siegel been able to sue infringers under later enacted 43(a), would a clean hands defense have been useful? Reconsider Belcher, Chapter 7, and Juicy Whip (as well as the following note concerning Decker), in Chapter 3. 3. What might influence a courts (or agencys) tolerance for disclaimers? How might Siegels read? Would an ingredient label be an effective substitute? 4. How might Lanham Act 2(e)(1) interfere with registration of a mark like Siegels? Why not for Apple computers?

10.16

Source Significance

Eastern Air Lines, Inc. v. New York Air Lines, Inc.

U.S. District Court, S.D. New York 559 F. Supp. 1270 (1983)

Milton Pollack, District Judge: . In 1961 EAL had instituted a shuttle service between New York City and Washington and between New York and Boston. The distinctive characteristics of that service were: (a) prior to [a 1981 strike], seats were guaranteed through the provision of back-up extra section aircraft; since the strike EAL has provided back-up extra section aircraft subject to the availability of landing slots; (b) passengers do not make reservations; (c) flights depart every hour on the hour from 7:00 a.m. to 9:00 p.m. on weekdays; (d) tickets may be purchased on-board; and (e) service is provided from a [separate terminal]. . Throughout the twenty-two year period of operation, EAL has aggressively promoted the Air-Shuttle service. In their effort to associate convenience and reliability with the EAL Air-Shuttle in the minds of potential passengers, EAL has spent over $5 million in advertising. . By 1980 many passengers in EALs geographic market, especially those who fly frequently for business purposes, were aware of the EAL Air-Shuttle and its claimed attributes and often made use of the service. Against this background, in December 1980 NYAL initiated operations as an airline and in particular began competing on the routes serviced by the EAL Air-Shuttle. . . In 1982 alone, over $5.8 million of advertising was placed by NYAL. Much of this advertising either referred to the EAL Air-Shuttle by way of comparison or described the NYAL service as a shuttle service. [T]o attract EALs customers and others, NYAL stressed its on-board amenities. Particular advertisements, read ordinarily and not analytically, readily implied that amenities associated with the Air-Shuttle were exceeded by the features to be found on NYALs planes. By employing the EAL Air-Shuttle as a basis for comparison, NYAL attempted to benefit from the good will that EAL had generated in the minds of the consuming public with respect to the Air-Shuttle over the previous two decades. . Analysis of many of Easterns claims* depends upon the characterization to be given to the term shuttle. Trademarks are classified along the spectrum of increasing strength from generic, to descriptive, to suggestive to arbitrary or fanciful. [Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4 (2d Cir. 1976).] . Shuttle is a Generic Word The testimony of Professor Read, EALs own expert witness on lexicography, sets forth both the history and present meaning of the words shuttle and air-shuttle and demonstrates that these terms indisputably describe the nature and class of transportation service that EAL provides and the terms are therefore generic. . The fact that the word has certain connotations does not make it any the less generic. As NYALs word expert testified, the development of a specialized meaning does not necessarily encroach upon the general meaning or change it. Even if the word shuttle were found to be descriptive, the mark would not be entitled to trademark protection. Only 10% of the individuals surveyed identified the word Air-Shuttle with EAL. Not only is this percentage too insignificant to establish that the primary significance of the term is the producer and not the product, but the mere fact that a respondent mentioned Eastern when he heard the word shuttle does not suggest that shuttles are identified with Eastern. .
*

EAL registered two Air-Shuttle service marks in the PTO in 1966.

Trademark Rights

10.17

The above analysis also supports this Courts conclusion that the term air-shuttle is generic. . [A]ir-shuttle is generic just as air travel is generic. This conclusion is particularly certain in the use of the word shuttle in combination with air as shuttle has historically been used in compound form. Placing a common generic adjective in front of a generic word does not make the word any the less generic, especially when the combination of the terms has both the purpose and effect of describing the genus of which the particular product is a species. In addition, Easterns survey evidence indicated that the public principally associated the term air-shuttle with attributes of the service and not with Eastern. In addition to supporting the finding that the term air-shuttle is generic, the survey evidence compels a conclusion that the term has not acquired any secondary meaning. The words that NYAL has been using in its advertising and Easterns service mark are generic. Legal Consequences of Classification as Generic EAL claims that NYAL has taken the good will embodied in the aura of reliability, ease, and convenience with which EAL has imbued the terms Air-Shuttle and shuttle through over twenty-two years of organization and expenditure of labor, skill and money. Given this Courts finding that the term shuttle was and remains generic, it is necessary to examine precisely the ways, if any, in which NYALs actions unlawfully used EALs good will and the uses of the word that EAL cannot prevent. . When an advertiser has chosen to invest in a generic term, it does not acquire that term for its own exclusive use. Judge Friendly has put it clearly: [N]o matter how much money and effort the user of a generic term has poured into promoting the sale of its merchandise and what success it has achieved in securing public identification, it cannot deprive competing manufacturers of the product of the right to call an article by its name. [Abercrombie & Fitch, 537 F.2d 4, 9.] . Thus, the law is clear that EAL cannot claim exclusive use to the word shuttle, even in the sense that it claims that the word has come to be understood. EAL itself appeared to recognize this principle when it filed for the trademark on the word Air-Shuttle. In that application, it stated that: Others continue to have the right to use the words to identify or describe their own goods or services, but owing to the fact that the words of the mark, to a part of the public, mean something else (i.e., Air Shuttle Eastern Air Lines service), the registrants competitors are required to accompany their use of the bare words with sufficient explanation or distinguishing marks of their own. In our present case another operator might refer to his transportation service as a shuttle-type operation or as air-taxi or air commuter, but he should be restrained from appropriating the applicants goodwill by advertising his service as Air Shuttle. NYAL has not exceeded the limits as defined by EAL itself. . Also, NYAL has thus far only described its service as a shuttle and not as an Air-Shuttle, as EAL itself stated would be permissible. Yet, [this] does not mean that NYAL can indiscriminately use the word in its advertising. Even though the word shuttle is generic, it has come to have certain connotations embedded in the mind of the public through twenty-two years of advertising by EAL, as established by surveys, regarding guaranteed seating, back-up plane service, lack of a reservation requirement, frequent hourly service, on-board ticketing, and a separate shuttle terminal. [NYAL may not use the word] in any way to mislead the public into believing that NYAL also provides these features if it does not. Misleading effects from its advertising could result from either the format of the advertisements or from the absence of disclaimers.

10.18

Source Significance

This type of misleading use of a generic term was considered in Potato Chip Institute v. General Mills, Inc., 333 F. Supp. 173 (D.Neb. 1971), affd 461 F.2d 1088 (8th Cir. 1972). In Potato Chip, plaintiff, a manufacturer of potato chips from raw potatoes, attempted to enjoin defendant from advertising its potato chips, which were made from dehydrated potatoes, as potato chips. The court concluded that the word potato chip included both chips made of raw potatoes and of dehydrated potatoes. However, past experience of the consumer so shades the term with a raw potato overlay that the phrase tends to mislead the public and thus falsely to describe the product. Id. at 181. Consequently, the court held that the defendants advertising had to include a prominent declaration in effect a disclaimer that the defendants chips were made from dehydrated potatoes. . Misleading Advertising Claims EALs claims of misleading advertising fall into two categories: (1) claims relating to NYALs use of price comparisons that did not indicate with adequate disclaimers that NYAL did not have a $45 fare at all times; and (2) claims relating to NYALs use of the word Shuttle in light of the fact that NYAL service between New York and Washington, D.C. does not have attributes distinct in the usage of the term that the public associates with the word shuttle. Section 43 prevents false descriptions or representations in advertising. This section encompasses more than literal falsehoods and covers the sophisticated deception that may be created by clever use of innuendo, indirect intimations, and ambiguous suggestions. American Home Products Corp. v. Johnson & Johnson, 577 F.2d 160, 165 (2d Cir. 1978). When challenged advertisements are implicitly rather than explicitly false, the tendency of the ad to violate the Lanham Act by misleading, confusing or deceiving should be tested by public reaction. Coca-Cola Company v. Tropicana Products, 690 F.2d 312, 317 (2d Cir. 1982). In particular, the reaction of the person to whom the advertisement is addressed and what this person finds to be the message of the ad are the proper questions in evaluating whether an advertisement is misleading. Thus, survey evidence of members of the targeted consumers is useful to determine the message conveyed by the advertisements. A plaintiff may obtain injunctive relief under 43 even if it cannot prove that actual sales were diverted from its product. However, the plaintiff must offer something more than a mere subjective belief that he is likely to be injured as a result of the false advertising. Coca-Cola, at 316. Market studies that demonstrate that consumers are misled by ads, when products are involved in head-to-head competition, could supply the causative link between the advertising and the plaintiffs potential lost sales. Evaluation of NYALs Advertisements EAL introduced survey evidence of the reactions to one set of NYALs advertisements. Five hundred one individuals who had flown between LaGuardia and Washington and/or LaGuardia and Boston at least once during the past three years were interrogated in the survey. . The surveys have established that this type of advertisement misleads the public by suggesting that NYAL furnishes the features of EALs service as well as additions thereto clearly an overrepresentation of NYALs service. . In addition, the analysis of the survey answers of frequent travelers (defined as those travelers who had flown between LaGuardia and Washington and/or LaGuardia and Boston four or more times during the past twelve months) indicated that 41% of these individuals were sure or thought that NYAL provided a guaranteed seat, while 66% of the more frequent travelers were sure or thought that EAL provided such service.

Trademark Rights

10.19

Contrary to the belief of 47% of the surveyed individuals, induced by NYALs reference to shuttle service, NYAL does not provide a guaranteed seat with a back-up airplane in reserve. . Another example of the survey evidence of the advertisements misleading nature is seen in Table 6 of the survey. After viewing the advertisement, individuals were asked whether the statement New York Air offers all that Eastern offers, plus more was conveyed by the ad. Ninety-one per cent of all respondents and 94% of the more frequent fliers replied in the affirmative. This impression is clearly deceptive as NYAL does not provide all that Eastern offers; it does not provide the guarantee of a trip at departure time or within a short interval of a travelers arrival at the airport. This feature of shuttle service as conveyed to the riding public over the years is clearly a significant aspect of air travel and the fact that the advertisement suggests that NYAL provides all the affirmative associations that the term shuttle has come to connote on EALs Air-Shuttle shows that the advertisement is clearly misleading. . NYALs Counterclaim for Cancellation of EALs Service Mark The counterclaims [based on Lanham Act 37] of NYAL for the cancellation of EALs service marks are dismissed. . As NYAL is allowed to use the word shuttle to the full extent that it would be allowed to use the word if the mark Air-Shuttle were to be canceled, the counterclaim is accordingly dismissed. . Notes 1. Why might the court have been unwilling to cancel EALs mark under 37? Would that be needed in light of 33(b)(4)? Would the courts refusal bar NYAL from trying to cancel it under 14(3)? 2. Uneasy compromises are common in trademark disputes. See, e.g., Dupont Cellophane Co., Inc. v. Waxed Products Co., Inc., 85 F.2d 75, 82 (2d Cir. 1936), cert. den. 299 U.S. 601 (1936) (defendant could use cellophane unconditionally in dealing with those to whom it means no more than the product, but it was otherwise obligated to indicate that it was selling Sylvania cellophane). 3. EAL could not stop NYALs use of generic words, but it got most of what it needed. As in that case, surveys are usually critical unless claims are literally false. Time Warner Cable, Inc. v. DirecTV, Inc., 497 F.3d 144, 148 (2d Cir. 2007), however, holds that, under 43(a)(1)(B), an advertisement can be literally false even though it does not explicitly make a false assertion, if the words or images, considered in context, necessarily and unambiguously imply a false message. 4. Not all firms offended by competitors deceptive claims, however, succeed in halting them. In B. Sanfield Inc. v. Finlay Fine Jewelry Corp., 258 F.3d 578 (7th Cir. 2001), for example, deception seems clear, but the court was unconvinced of plaintiffs harm. Yet, if more than two firms serve a market, one should wonder why a firm would pursue such a suit absent strong conviction of harm. Wont uninvolved competitors get a free ride? 5. Suits may also fail for excessive delay, but that is troubling if defendants cannot demonstrate detrimental reliance. In Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829 (9th Cir. 2002), for example, delay from 1993 to 2000 barred suit. But what of defendants extra seven years to substantiate its claims or to profit despite inability?. 6. Finally, Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300, 1305 (Fed. Cir. 2009), finds no cause of action because a competitors false claims of being an innovator implicated neither the origin nor the nature of its goods.

10.20

Source Significance

Two Pesos, Inc. v. Taco Cabana, Inc.*

U.S. Supreme Court 505 U.S. 763 (1992)

Justice White: The Lanham Act was intended to make actionable the deceptive and misleading use of marks and to protect persons engaged in. commerce against unfair competition. 45. Section 43(a) prohibits a broader range of practices than does 32, which applies to registered marks, Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982), but it is common ground that 43(a) protects qualifying unregistered trademarks and that the general principles qualifying a mark for registration under 2 are for the most part applicable in determining protection under 43(a). . Marks are often classified in categories of generally increasing distinctiveness; following the classic formulation set out by Judge Friendly, they may be (1) generic; (2) descriptive; (3) suggestive; (4) arbitrary; or (5) fanciful. See Abercrombie & Fitch. The court of appeals followed this classification and petitioner accepts it. The latter three categories of marks, because their intrinsic nature serves to identify a particular source of a product, are deemed inherently distinctive and are entitled to protection. In contrast, generic marks are not registrable as trademarks. . [D]escriptive marks may acquire the distinctiveness which will allow them to be protected under the Act. Section 2 (f) provides that a descriptive mark that otherwise could not be registered under the Act may be registered if it has become distinctive of the applicants goods in commerce. This acquired distinctiveness is generally called secondary meaning. The concept of secondary meaning has been applied to actions under 43(a). The general rule regarding distinctiveness is clear: An identifying mark is distinctive and capable of being protected if it either (1) is inherently distinctive or (2) has acquired distinctiveness through secondary meaning. Restatement (Third) of Unfair Competition 13. It is also clear that eligibility for protection under 43(a) depends on nonfunctionality. [O]f course liability under 43(a) requires proof of the likelihood of confusion. The court of appeals determined that the instructions were consistent with the foregoing principles and that the evidence supported the jurys verdict. Both courts thus ruled that Taco Cabanas trade dress was inherently distinctive, and not functional. None of these rulings is before us in this case, and we assume that each of them is correct. . Petitioner argues that the jurys finding that the trade dress has not acquired a secondary meaning shows conclusively that the trade dress is not inherently distinctive. The court of appeals disposition of this issue was sound: Two Pesos argument that the jury finding of inherent distinctiveness contradicts its finding of no secondary meaning in the Texas market ignores the law in this circuit. While the necessarily imperfect (and often prohibitively
*

Taco Cabanas fast-food restaurants had served, since 1978, Mexican food in restaurants where its interior dining and patio areas [were] decorated with artifacts, bright colors, paintings and murals. Exteriors had a festive and vivid color scheme using top border paint and neon stripes. Bright awnings and umbrellas continue the theme. When Taco Cabana sued Two Pesos in 1987 for brazen infringement under 43(a), a jury found that Taco Cabanas trade dress, taken as a whole, was nonfunctional and inherently distinctive but lacked secondary meaning in the Texas market. Judgment for Taco Cabana was affirmed by the Fifth Circuit on the basis of the inherent distinctiveness of plaintiffs trade dress. Certiorari was granted to resolve a conflict with a Second Circuit decision that had required secondary meaning to support trade dress protection under 43(a).

Trademark Rights

10.21

difficult) methods for assessing secondary meaning address the empirical question of current consumer association, the legal recognition of an inherently distinctive trademark or trade dress acknowledges the owners legitimate proprietary interest in its unique and valuable informational device, regardless of whether substantial consumer association yet bestows the additional empirical protection of secondary meaning. Although petitioner makes the above argument, it appears to concede elsewhere in its brief that it is possible for a trade dress, even a restaurant trade dress, to be inherently distinctive. Recognizing that a general requirement of secondary meaning imposes an unfair prospect of theft [or] financial loss on the developer of fanciful or arbitrary trade dress at the outset of its use, petitioner suggests that such trade dress should receive limited protection without proof of secondary meaning. Petitioner argues that such protection should be only temporary and subject to defeasance when over time the dress has failed to acquire a secondary meaning. This approach is also vulnerable for the reasons given by the court of appeals. If temporary protection is available from the earliest use of the trade dress, it must be because it is neither functional nor descriptive, but an inherently distinctive dress that is capable of identifying a particular source of the product. Such a trade dress, or mark, is not subject to copying by concerns that have an equal opportunity to choose their own inherently distinctive trade dress. To terminate protection for failure to gain secondary meaning over some unspecified time could not be based on the failure of the dress to retain its fanciful, arbitrary, or suggestive nature, but on the failure of the user of the dress to be successful enough in the marketplace. This is not a valid basis to find a dress or mark ineligible for protection. The user of such a trade dress should be able to maintain what competitive position it has and continue to seek wider identification among potential customers. . Suggestions that under the Fifth Circuits law, the initial user of any shape or design would cut off competition from products of like design and shape are not persuasive. Only nonfunctional, distinctive trade dress is protected under 43(a). . This serves to assure that competition will not be stifled by the exhaustion of a limited number of trade dresses. On the other hand, adding a secondary meaning requirement could have anticompetitive effects, creating particular burdens on the startup of small companies. It would present special difficulties for a business, such as respondent, that seeks to start a new product in a limited area and then expand into new markets. . [Justice Scalia, agreeing with Justice Thomas, concurred.] Justice Stevens, concurring in the judgment: . In light of the consensus among the courts of appeals that have actually addressed the question, and the steps on the part of Congress to codify that consensus, [I] join the Courts conclusion that secondary meaning is not required to establish a trade dress violation under 43(a) once inherent distinctiveness has been established. Accordingly, I concur, but not in the opinion, of the Court. Justice Thomas, concurring in the judgment. . I see no need either to move back and forth among the different sections of the Lanham Act or to adopt what may or may not be a misconstruction of the statute. I would rely, instead, on the language of 43(a). . At common law, words or symbols that were arbitrary, fanciful, or suggestive (called inherently distinctive words or symbols, or trademarks) were presumed to represent the source of a product, and the first user of a trademark could sue to protect it without having to show that the word or symbol represented the products source in fact. .

10.22

Source Significance

That presumption did not attach to personal or geographic names or to words or symbols that only described a product, and the user of a personal or geographic name or of a descriptive word or symbol could obtain relief only if he first showed that his trade name did in fact represent not just the product, but a producer. Trade dress, which consists not of words or symbols, but of a products packaging (or image, more broadly), seems at common law to have been thought incapable ever of being inherently distinctive, perhaps on the theory that the number of ways to package a product is finite. Thus, a user of trade dress would always have had to show secondary meaning in order to obtain protection. Over time, judges have come to conclude that packages or images may be as arbitrary, fanciful, or suggestive as words or symbols, their numbers limited only by the human imagination. A particular trade dress, then, is now considered as fully capable as a particular trademark of serving as a representation or designation of source under 43(a). As a result, the first user of an arbitrary package, like the first user of an arbitrary word, should be entitled to the presumption that his package represents him without having to show that it does so in fact. This rule follows, in my view, from the language of 43(a), and this rule applies without regard to the rules that apply [to] registration. Because the Court reaches the same conclusion for different reasons, I join its judgment. Notes 1. Reconsider the last two paragraphs of Wal-Mart, Chapter 4.B. Does that language effectively circumscribe the holding of Two Pesos? 2. What does Two Pesos suggest about the need for interstate commerce under the Lanham Act? 3. See, e.g., American Chicle Co. v. Topps Chewing Gum, Inc., 208 F.2d 560, 563 (2d Cir. 1953), where Learned Hand wrote: [I]t is generally true that, as soon as we see that a second comer in market has, for no reason that he can assign, plagiarized the make-up of an earlier comer, we need no more; for he at any rate thinks that any differentia he adds will not, or at least may not, prevent the diversion and we are content to accept his forecast that he is likely to succeed. Then we feel bound to compel him to exercise his ingenuity in quarters further afield. His views are noteworthy, given repeated refusals to restrict copying other than to enforce patents or copyrights. See, e.g., G. Ricordi & Co. v. Haendler, 194 F.2d 914 (2d. Cir. 1952), cited with approval in Sears, Chapter 4. 4. Should evident copying satisfy plaintiffs need to show source significance, likelihood of confusion, or both? 5. In that vein, consider, e.g., Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033 (2d Cir. 1992), decided shortly after Two Pesos. Despite evidence that Excedrin PMs trade dress was copied for a Tylenol equivalent, the court said, at 1047: Absence of good faith is not by itself dispositive in any given case. . The prominent placement of the Tylenol name goes far toward countering any suggestion that McNeil intended to confuse its customers as to the source of its product. What are the implications of that case with regard to free riding?

Trademark Rights

10.23

Qualitex Co. v. Jacobson Products Co., Inc.

U.S. Supreme Court 514 U.S. 159 (1995)

Justice Breyer: . The case before us grows out of petitioner Qualitex Companys use (since the 1950s) of a special shade of green-gold color on the pads that it makes and sells to dry cleaning firms for use on dry cleaning presses. In 1989, respondent Jacobson Products began to sell its own press pads to dry cleaning firms; and it colored those pads a similar green gold. In 1991, Qualitex registered the special green-gold color on press pads with the PTO as a trademark. Qualitex subsequently added a trademark infringement count to an unfair competition claim in a lawsuit it had already filed challenging Jacobsons use of the green-gold color. Qualitex won the lawsuit in the district court. But, the Court of Appeals for the Ninth Circuit set aside the judgment on the trademark infringement claim. The courts of appeals have differed as to whether or not the law recognizes the use of color alone as a trademark. Compare NutraSweet Co. v. Stadt Corp., 917 F.2d 1024, 1028 (CA7 1990) (absolute prohibition), with In re Owens-Corning Fiberglas Corp., 774 F.2d 1116, 1128 (CA Fed. 1985) (allowing registration), and Master Distributors, Inc. v. Pako Corp., 986 F.2d 219, 224 (CA8 1993) (declining to establish per se prohibition). Therefore, this Court granted certiorari. We now hold that there is no rule absolutely barring the use of color alone, and we reverse the Ninth Circuit. II The Lanham Act gives a seller or producer the exclusive right to register a trademark and to prevent his or her competitors from using that trademark. Both the language of the Act and the basic underlying principles of trademark law would seem to include color within the universe of things that can qualify as a trademark. . It says that trademarks includ[e] any word, name, symbol, or device, or any combination thereof. 15 U.S.C. 1127. Since human beings might use as a symbol or device almost anything at all that is capable of carrying meaning, this language is not restrictive. The courts and the PTO have authorized for use as a mark a particular shape (of a Coca-Cola bottle), a particular sound (of NBCs three chimes), and even a particular scent (of plumeria blossoms on sewing thread). If a shape, a sound, and a fragrance can act as symbols why, one might ask, can a color not do the same? A color is also capable of satisfying the more important part of the statutory definition of a trademark, which requires that a person us[e] or inten[d] to use the mark to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown. 15 U.S.C. 1127. True, a products color is unlike fanciful, arbitrary, or suggestive words or designs, which almost automatically tell a customer that they refer to a brand. . But, over time, customers may come to treat a particular color on a product or its packaging (say, a color that in context seems unusual, such as pink on a firms insulating material or red on the head of a large industrial bolt) 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 (say, Trim on nail clippers or Car-Freshner on deodorizer) can come to indicate a products origin. In this circumstance, trademark law says that the word (e.g., Trim), although not inherently distinctive, has developed secondary

10.24

Source Significance

meaning. Again, one might ask, if trademark law permits a descriptive word with secondary meaning to act as a mark, why would it not permit a color, under similar circumstances, to do the same? We cannot find in the basic objectives of trademark law any obvious theoretical objection to the use of color alone as a trademark, where that color has attained secondary meaning and therefore identifies and distinguishes a particular brand (and thus indicates its source). In principle, trademark law, by preventing others from copying a sourceidentifying mark quickly and easily assures a potential customer that this item the item with this mark is made by the same producer as other similarly marked items that he or she liked (or disliked) in the past. At the same time, the law helps assure a producer that it (and not an imitating competitor) will reap the financial, reputation-related rewards associated with a desirable product. . It is the source-distinguishing ability of a mark not its ontological status as color, shape, fragrance, word, or sign that permits it to serve these basic purposes. And, for that reason, it is difficult to find, in basic trademark objectives, a reason to disqualify absolutely the use of a color as a mark. Neither can we find a principled objection to the use of color as a mark in the important functionality doctrine of trademark law. . Although sometimes color plays an important role (unrelated to source identification) in making a product more desirable, sometimes it does not. And, this latter fact the fact that sometimes color is not essential to a products use or purpose and does not affect cost or quality indicates that the doctrine of functionality does not create an absolute bar to the use of color alone as a mark. It would seem, then, that color alone, at least sometimes, can meet the basic legal requirements for use as a trademark. It can act as a symbol that distinguishes a firms goods and identifies their source, without serving any other significant function. Indeed, the district court, in this case, entered findings (accepted by the Ninth Circuit) that show Qualitexs green-gold press pad color has met these requirements. . Accordingly, unless there is some special reason that convincingly militates against the use of color alone as a trademark, trademark law would protect Qualitexs use of the green-gold color on its press pads. III Respondent Jacobson Products says that there are four special reasons why the law should forbid the use of color alone as a trademark. We shall explain, in turn, why we, ultimately, find them unpersuasive. First, Jacobson says that use of color as a trademark will produce uncertainty and unresolvable court disputes about what shades of a color a competitor may lawfully use. [For example] lighting (morning sun, twilight mist) will affect perceptions. . We do not believe, however, that color, in this respect, is special. Courts traditionally decide quite difficult questions about whether two words or phrases or symbols are sufficiently similar, in context, to confuse buyers. They have had to compare, for example, such words as Bonamine and Dramamine (motion-sickness remedies); Huggies and Dougies (diapers); Cheracol and Syrocol (cough syrup); Cyclone and Tornado (wire fences); and Mattres and 1-800-Mattres (mattress franchisor telephone numbers). We do not see why courts could not apply those standards to a color, replicating, if necessary, lighting conditions under which a colored product is normally sold. Indeed, courts already have done so in cases where a trademark consists of a color plus a design. Second, Jacobson argues limited supply. . By the time one discards colors that, say, for reasons of customer appeal, are not usable, and adds the shades that competitors cannot use lest they risk infringing a similar, registered shade, then one is left with only a handful of possible colors. And, under these circumstances, to permit one, or a few, producers to use colors as trademarks will deplete the supply of usable colors to the point

Trademark Rights

10.25

where a competitors inability to find a suitable color will put that competitor at a significant disadvantage. This argument is unpersuasive, however, largely because it relies on an occasional problem to justify a blanket prohibition. . The upshot is that, where a color serves a significant nontrademark function courts will examine whether its use as a mark would permit one competitor (or a group) to interfere with legitimate (nontrademark-related) competition through actual or potential exclusive use of an important product ingredient. That examination should not discourage firms from creating esthetically pleasing mark designs, for it is open to their competitors to do the same. But, ordinarily, it should prevent the anticompetitive consequences of Jacobsons hypothetical color depletion argument, when, and if, the circumstances of a particular case threaten color depletion. Third, Jacobson points to many older cases including Supreme Court cases in support of its position. . Even though [statements in those cases] amounted to dicta, lower courts interpreted them as forbidding protection for color alone. These Supreme Court cases, however, interpreted trademark law as it existed before 1946, when Congress enacted the Lanham Act. The Lanham Act significantly changed and liberalized the common law to dispense with mere technical prohibitions, S.Rep. No. 1333, 79th Cong., 2d Sess., 3 (1946), most notably, by permitting trademark registration of descriptive words (say, U-Build-It model airplanes) where they had acquired secondary meaning. The Lanham Act extended protection to descriptive marks by making clear that (with certain explicit exceptions not relevant here) nothing shall prevent the registration of a mark used by the applicant which has become distinctive of the applicants goods in commerce. 15 U.S.C. 1052(f). . At a minimum, the Lanham Acts changes left the courts free to reevaluate the preexisting legal precedent which had absolutely forbidden the use of color alone as a trademark. Finally, when Congress reenacted the terms word, name, symbol, or device in 1988, it did so against a legal background in which those terms had come to include color, and its statutory revision embraced that understanding. Fourth, Jacobson argues that there is no need to permit color alone to function as a trademark because a firm already may use color as part of a trademark. The first part of this argument begs the question. One can understand why a firm might find it difficult to place a usable symbol or word on a product (say, a large industrial bolt that customers normally see from a distance); and, in such instances, a firm might want to use color, pure and simple, instead of color as part of a design. Neither is the second portion of the argument convincing. Trademark law helps the holder of a mark in many ways that trade dress protection does not. See 15 U.S.C. 1124 (ability to prevent importation of confusingly similar goods); 1072 (constructive notice of ownership); 1065 (incontestable status); 1057(b) (prima facie evidence of validity and ownership). Thus, one can easily find reasons why the law might provide trademark protection in addition to trade dress protection. . Notes 1. Section 43(a) actions do not require registration. At the end, Qualitex lists advantages better characterized as those of registration because 43(a) is part of trademark law. Which of those benefits would be useful to Williams or Taylors restaurants? 2. The Federal Circuit strongly influences PTO registration. If it is denied on grounds that court finds unacceptable, the PTO faces reversal. Barring successful challenge in the Supreme Court, the PTO has little choice except to thereafter apply that courts criteria.

10.26

Source Significance

Registration, however, accomplishes nothing in circuits that view the law differently unless the Supreme Court verifies Federal Circuit criteria as in Qualitex. 3. The situation with copyrights is similar. See Advanz Behavioral Mgmt Resources, Inc. v. Miraflor, 21 F. Supp.2d 1179 (C.D. Cal. 1998) (invalidating registered copyrights in light of Ninth Circuit precedent despite a belief that they would be valid elsewhere). Intellectual property claims,. once invalidated, however, are presumptively invalid as to third parties only if validity turns on fully litigated facts. See, e.g., Abbott Labs v. Andrx Pharms, Inc., 473 F.3d 1196, 120406 (Fed. Cir. 2007) (summarizing several Third and Seventh Circuit cases involving an allegedly generic mark). 4. In re Hayes, 62 U.S.P.Q.2d 1443 (TTAB 2002), illustrates how colors can be functional as well as ornamental. Registration was refused for the colors red, green, and amber used as a color scheme on [financial] reporting charts to correspond with performance ratings. If no claim was made to any particular pattern of colors, what is the effect of protecting such a scheme as a source indicator? 5. Wal-Mart, Chapter 4, pointed out that, under the now-classic test originally formulated by Judge Friendly, word marks that are arbitrary (Camel cigarettes), fanciful (Kodak film), or suggestive (Tide laundry detergent) are held to be inherently distinctive. Which term along that spectrum applies to a coined (made-up) term? 6. If it takes time for unqualified marks to acquire source significance, would it not also take time to lose it? Reconsider Manhattan Industries in that regard. 7. See Brandir Intl, Inc. v. Cascade Pacific Lumber Co., 834 F.2d 1142, 1148 (2d Cir. 1987) where, despite finding an ornamental bicycle rack too functional for copyright, the court remanded for consideration of whether it might qualify for trade dress protection. In that regard, reconsider the last paragraph of TrafFix, Chapter 4. Is it significant that neither Wal-Mart nor TrafFix addressed, much less resolved, whether design patent subject matter might acquire legally cognizable source significance? How, if at all, do 2(e) or 43(a)(3) address it? 8. Qualitex mentions a strategic advantage to having a single-color mark, but other kinds of trade dress can serve the same purpose. See, e.g., In re Leblanc, 429 F.2d 989 (CCPA 1970) (discussing a medallion on a trumpet visible to audience members). 9. Qualitex refuses to an occasional problem to justify a blanket prohibition. Is that what the First Circuit did in Morrissey, excerpted in Chapter 5? Problems 1. Plaintiff commissioned a design to be imprinted on a variety of goods, such as mugs, and applied for copyright registration. If, before registration occurs, defendant puts the same design on similar goods, is relief available under 43(a)(1)(A)? Why or why not? See City Merchandise, Inc. v. Kings Overseas Corp., 64 U.S.P.Q.2d 1061 (S.D. N.Y. 2001). 2. Plaintiff sells vehicles; it does not sell toys and is not seriously considering the prospect. Defendant sells toy vehicles, including one that is similar to plaintiffs. It copies a distinctive grille but does not use plaintiffs name. Is relief available under 43(a)(1)(A)? Would it make any difference if plaintiffs grille were registered? See my brief comment, GM v. Lanard Toys: What is "Functionality"?, at http://www.ipfrontline.com (2007).

Trademark Rights

10.27

C. Effects of Registration

Burger King of Florida, Inc. v. Hoots

U.S. Court of Appeals, Seventh Circuit 403 F.2d 904 (1968)

Before Kiley, Cummings and Kerner. Kiley, Circuit Judge: . [Plaintiffs (BKF) opened their first Burger King in Jacksonville, Fla., in 1953, and, by 1957, had at least thirty-eight restaurants in six southern states. In 1957, Hoots opened a Burger King in Mattoon, Ill., and, in 1959, without notice of BKFs prior use elsewhere, registered in Illinois. BKF knew of that registration when, in July 1961, it opened its first restaurant in Skokie; in October its federal registration issued. In 1962, Hoots, with constructive knowledge of BKFs registration, opened a second restaurant in Charleston. By the time of trial in November 1967, BKF had over fifty restaurants in Illinois.] Both parties have used the trade mark prominently, and in 1962 they exchanged charges of infringement in Illinois. After plaintiffs opened a restaurant in Champaign, Illinois, defendants sued in the state court to restrain plaintiffs use of the mark in Illinois. Plaintiffs then brought the federal suit, now before us, and the defendants counter-claimed for an injunction, charging plaintiffs with infringement of their Illinois trade mark. The district court concluded, from the unchallenged findings, that plaintiffs federal registration is prima facie evidence of the validity of the registration and ownership of the mark; that plaintiffs have both a common-law and a federal right in the mark superior to defendants in the area of natural expansion of plaintiffs enterprise which logically included all of Illinois, except where defendants had actually adopted and used the mark, innocently, i.e., without notice and in good faith; and that the defendants had adopted and continuously used the mark in the Mattoon area innocently and were entitled to protection in that market. We hold that the district court properly decided that plaintiffs federal registration of the trade mark Burger King gave them the exclusive right to use the mark in Illinois except in the Mattoon market area in Illinois where the defendants, without knowledge of plaintiffs prior use, actually used the mark before plaintiffs federal registration. The defendants did not acquire the exclusive right they would have acquired by their Illinois registration had they actually used the mark throughout Illinois prior to the plaintiffs federal registration. We think our holding is clear from the terms of the Federal Act. Under 15 U.S.C. 1065, plaintiffs have the incontestable right to use the mark in commerce, except to the extent that such use infringes what valid right the defendants have acquired by their continuous use of the same mark prior to plaintiffs federal registration. Under 1115(b), the federal certificate of registration is conclusive evidence of plaintiffs exclusive right to use the mark. This Section, however, also provides a defense to an exclusive right to use a trade mark: If a trade mark was adopted without knowledge of the federal registrants prior use, and has been continuously used, then such use shall constitute a defense to infringement, provided that this defense applies only for the area in which such continuous prior use is proved. Since the defendants have established that they had adopted the mark Burger King without knowledge of plaintiffs prior use and that they had continuously used the mark from a date prior to plaintiffs federal registration of the mark, they are entitled to protection in the area which that use appropriated to them.

10.28

Effects of Registration

Plaintiffs agree that the defendants as prior good faith users are to be protected in the area that they had appropriated. [But, what area in Illinois?] At common law, defendants were entitled to protection in the Mattoon market area because of the innocent use of the mark prior to plaintiffs federal registration. They argue that the Illinois Act was designed to give more protection than they already had at common law. However, the Act itself does not express any such intention. And no case has been cited to us, nor has our research disclosed any case in the Illinois courts deciding whether a registrant is entitled to statewide protection even if he has used the mark only in a small geographical area. . Under 1115(b), the federal certificate can be conclusive evidence of registrants exclusive right. And 1127 provides that The intent of this chapter is to protect registered marks used in such commerce from interference by State legislation. The Illinois Act, however, provides only that a certificate of registration shall be admissible evidence as competent and sufficient proof of the registration. Ill. Rev.Stat. Ch. 140, 11 (1967). Moreover, we think that whether or not Illinois intended to enlarge the common law with respect to a right of exclusivity in that state, the Illinois Act does not enlarge its right in the area where the federal mark has priority. See Hot Shoppes, Inc. v. Hot Shoppe, Inc., 203 F. Supp. 777, 78182, 786 (M.D. N.C. 1962). Congress intended the Lanham Act to afford nation-wide protection to federally-registered marks, and that once the certificate has issued, no person can acquire any additional rights superior to those obtained by the federal registrant. Cases cited by the defendants do not help them. . We conclude that if we were to accept the defendants argument we would be fostering, in clear opposition to the express terms of the Lanham Act, an interference with plaintiffs exclusive right in interstate commerce to use its federal mark. The undisputed continuous market for the defendants Burger King products was confined to a twenty mile radius of Mattoon. There is no evidence before us of any intention or hope for their use of their Illinois mark beyond that market. Yet they seek to exclude plaintiffs from expanding the scope of their national exclusive right, and from operating fifty enterprises already begun in Illinois. This result would clearly burden interstate commerce. The defendants argue also that unless they are given the right to exclusive use throughout Illinois, many persons from all parts of Illinois in our current mobile society will come in contact with the defendants business and will become confused. We are not persuaded by this argument. Defendants have not shown that the Illinois public is likely to confuse the products furnished by plaintiffs and by defendants. We are asked to infer that confusion will exist from the mere fact that both trade marks co-exist in the state of Illinois. . The [district court] restricted the use of the mark by plaintiffs and defendants to sufficiently distinct and geographically separate markets so that public confusion would be reduced to a minimum. The mere fact that some people will travel from one market area to the other does not, of itself, establish that confusion will result. . Notes 1. Could plaintiffs have registered sooner? How would that have been advantageous? 2. What would change if BKF could prove that Hoots had visited Florida in 1956? 3. Reconsider Larry Harmon. If Bozos restaurant neither sold nor intended to sell merchandise and had no interest in expanding, what did it gain from federal registration? 4. Regarding federalism, see 39(b). It preempts requirements that registered marks be altered to conform to zoning codes. But see Blockbuster Videos Inc. v. Tempe, 141 F.3d

Trademark Rights

10.29

1295 (9th Cir. 1998) (firms need not be allowed to display their marks at all). Hence, 39(b)s advantage to registrants is far from clear.

Morehouse Mfg. Corp. v. J. Strickland & Co.

U.S. Court of Customs and Patent Appeals 407 F.2d 881 (1969)

Before Worley, Rich, Almond, Baldwin and Kirkpatrick.* Rich, Judge: This appeal is from the decision of the TTAB in two proceedings. . [Morehouse both opposed Stricklands application to register Blue Magic for pressing oil and sought to cancel its registration for hair dressing.] . The record shows that Stricklands hair dressing and pressing oil, both sold under the Blue Magic trademark, are one and the same product. It is a semi-solid, petroleum-base material resembling petroleum jelly (petrolatum or Vaseline) in consistency, light blue in color, and perfumed. Hair dressing is used as the name implies, to hold the hair in place and to give it gloss. Pressing oil is used in conjunction with a hot comb for straightening undesirably curly hair. . The product was labeled as hair dressing from February 1953 to March 1956. From then to July 1957 it was not named on the label but was described thereon as for pressing and dressing the hair. Thereafter it was designated on the label as pressing oil. It was, however, still hair dressing. [T]he present application, which designates the same goods as pressing oil, was filed as a precautionary measure. The date of first use stated in the application at bar is the date of the change in the designation of the goods on the label, notwithstanding the goods themselves remained the same.2 . In its opinion, the Board, after disposing of preliminary questions, dealt first with the cancellation. It decided five different issues raised by Morehouse as grounds of cancellation, all adversely to Morehouse, and therefore denied the petition to cancel, which left standing Stricklands registration of Blue Magic for hair dressing. Having reached that conclusion, the Board then dismissed the opposition because it did not see how Morehouse could be damaged by the issuance of another registration of Blue Magic for the identical goods, albeit the label featured the goods as pressing oil rather than hair dressing, where the goods are sold as useful for both purposes. . As to the existing registration being for the same mark, while there are trifling differences it takes careful inspection to detect them. . Appellant has treated them as identical. We think the Board took the proper approach in first determining the cancellation and then dismissing the opposition. Appellant Morehouse bases its petition to cancel and opposition on its ownership of Reg. No. 510,244 for a depilatory. With this background, we will now consider the points argued by appellant in attempting to show that the Board erred. Like the Board, we will consider first the points bearing on the petition to cancel.
* 2

Senior District Judge, Eastern District, Pennsylvania, sitting by designation. Testimony shows that the change in designation was made because it was thought it would improve sales. [I]t was felt that selling it as a pressing oil would persuade purchasers that they could get extra use from it, making it more competitive with other hair dressings.

10.30

Effects of Registration

[A]ppellees Blue Magic registration had been issued for five years on April 27, 1959, and hence, being a Principal Register registration, had become incontestable before these proceedings commenced provided that the registrant complied with the requirement of the statute for filing an affidavit. The registrant, appellee here, filed such an affidavit, which was accepted, and the mark became incontestable. To cancel it, appellant must therefore comply with 14(c). . Appellant says appellees registration was obtained fraudulently because of the following facts. The first office action rejected the application on the sole ground that the descriptive word blue is not disclaimed apart from the mark. Applicant (appellee) filed a response, which resulted in the application being passed to publication, in which it was stated: The word blue is not descriptive in any sense of applicants goods and, therefore, it is not understood why the registration has been refused upon such ground. Inasmuch as the word blue is not descriptive, it would appear to be unnecessary to disclaim such word. The facts of record are that if one opens the opaque box of Blue Magic and looks at its contents being a body of substance 3" in diameter and 2" deep it appears to be pale blue, as the ocean sometimes appears to be blue. However, a small dab placed in the palm of ones hand and rubbed out thin, as it would be before being applied, imparts no color to the hands and is, in that sense, colorless, unlike the effect which would be produced by similar manipulation of blue ink or paint or chalk. [B]oth appellee and the Board fail to meet the issue of descriptiveness head on. We deem it reprehensible that such a flat-footed denial as the above was made when the product, at least in bulk, does look blue. . But the question is whether that is sufficient to support the allegation that the registration was obtained fraudulently. The Board thought not. What we make of all this is that the Board did not consider the misrepresentation of the color of the product (seen only when it is viewed in a certain way) to be a material misrepresentation or one vital to overcoming the ground of rejection and hence insufficient to constitute a fraud on the Patent Office. [I]t is our judgment that the above-quoted statement which resulted in the withdrawal of the rejection, though in part untrue, was not in this case on a material matter and hence not a basis for a holding of fraud. The registration was not void ab initio, as contended by appellant, and we approve the Boards refusal to cancel on this ground. Appellants next contention is that registration No. 589,044 was improperly continued on the register by reason of a fault in the affidavit required to be filed. On July 16, 1959, appellee made the usual combined affidavit under 8 and 15. No question is raised except with respect to the specimen label attached. Mr. Long, instead of attaching the label actually being used in 1959, on which the goods were named as pressing oil, attached an earlier Blue Magic label which names the goods as hair dressing, as does the registration. The record shows that this label had been discontinued about a year and a half after the first use of the mark. The mark, however, was still in use. In fact, sales of Blue Magic were steadily increasing at the time. And the goods were identical as to composition and use, though the name on the label had been changed from hair dressing to pressing oil. . The affidavit here submitted, in the words a specimen of the mark as now actually being used, cannot clearly be said to be false because the mark on that label is substantially the mark as then being used, even if the label was not. If not clearly false, it cannot be said to result in fraud. It should be remembered that the purpose of 8 affidavits is to remove from the register automatically marks which are no longer in use. Failure of registrants to file affidavits results

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in removal of such deadwood. The significant facts, therefore, are that an affidavit is filed and that a mark is actually still in use. Given the fact of continuing use, from which practically all of the users substantive trademark rights derive, nothing is to be gained from and no public purpose is served by cancelling the registration of a technically good trademark because of a minor technical defect in an affidavit. There does not exist in trademark cases the fundamental reason for being on the alert to find fraud on the Patent Office which exists in patent cases. Every right a patentee has is given to him by the Patent Office. On the other hand, the acquisition of the right to exclude others from the use of a trademark results from the fact of use and the common law, independently of registration in the Patent Office. The happenstance that trademarks are registered in the Patent Office should not result in confusing the principles involved in dissimilar proceedings with respect to wholly dissimilar rights. It is in the public interest to maintain registrations of technically good trademarks on the register so long as they are still in use. The register then reflects commercial reality. Assertions of fraud should be dealt with realistically, comprehending, as the Board did, that trademark rights, unlike patent rights, continue notwithstanding cancellation of those additional rights which the Patent Office is empowered by statute to grant. Taking into account the foregoing facts and principles, we are of the view that appellant has failed to support his assertions of such fraud, or failure to make a showing of continuing use, as must result in cancellation of appellees registration of Blue Magic. . Appellant argues that registration on the application at bar should not issue because it is forbidden by 2(d). . On the issue of likelihood of confusion we have differences in goods and differences in the marks. [W]e also have a showing that Magic is a word which has been so often adopted as a part of composite word-marks in the cosmetic field as not, in itself, to be particularly indicative of origin when used in such marks. Magic, moreover, is a common English word with no inherent distinctiveness. . We have not overlooked the special circumstances that Magic shaving powder of medium strength is sold in a can having a blue label, which no doubt causes it sometimes to be referred to in the trade and by purchasers as blue Magic, in order to distinguish it from red Magic which is the full strength product. It seems to us, when a dealer or a purchaser orders or asks for blue Magic shaving powder, or picks it off the shelf by reason of its color and what he reads on the label, that the use of the word blue or reliance on the color of the label is involved only with a determination of the strength of the material and is not a matter of origin-indication or trademark significance. For the foregoing reasons, the decision of the Board denying the petition to cancel and dismissing the opposition is affirmed. . [Chief Judge Worley concurred in the result, and Judge Kirkpatrick did not participate.] Notes 1. Even after a registration becomes incontestable under 15, infringement can nevertheless be contested on several grounds including functionality. See, e.g., Jay Franco & Sons, Inc. v. Franek, --- F.3d ----, 2010 WL 3156539, *2 (7th Cir. 2010) ([A] design that produces a benefit other than source identification is functional.) In a companion case, the court found it more useful to characterize a mark as functional than merely to cancel its registration and leave it potentially enforceable. See Specialized Seating, Inc. v. Greenwich Industries, LP, --- F.3d ----, 2010 WL 3155922, *5 (7th Cir. 2010) (A finding of fraud therefore would not end the case; a finding of functionality does.)

10.32

Effects of Registration

2. For rejection of an arguably expanded notion of fraud in the context of trademark registrations, see In re Bose Corp., 580 F.3d 1240 (Fed. Cir. 2009). 3. CreAgri, Inc. v. USANA Health Sciences, Inc., 474 F.3d 626, 630 (9th Cir. 2007), raises issues discussed in Morehouse as well as in Taylor. Based on CreAgris misrepresentions (later halted) concerning the benefits of a nutritional product, its mark was cancelled, and it was unable to cancel USANAs registration. If CreAgri can nevertheless continue to use essentially the same mark on essentially the same goods, what does USANA (or the public) gain from the latters registration? 4. Some Native Americans have long objected to use of Redskins as a team name. See, e.g., Pro Football v. Harjo, 565 F.3d 880 (D.C. Cir. 2009) (the latest in a series of opinions that review an attempt to cancel registration for that and a related mark). Should the registrations eventuallly be cancelled, how would Pro Football be harmed?

Natural Footwear Ltd. v. Hart, Schaffner & Marx

U.S. Court of Appeals, Third Circuit 760 F.2d 1383 (1985)

Before Sloviter, Becker, and Fullam, Judge, Eastern District of Pennsylvania. Becker, Circuit Judge: . Roots, Inc. (Roots) is a northern New Jersey retail clothing operation which sells high quality clothing in several stores, and which has a scattering of mail order customers throughout the nation. Natural Footwear Limited (Natural) came into prominence in the 1970s by reason of its Earth Shoe, a negative heel shoe which was the subject of a health fad. Natural registered the mark and opened numerous retail stores, developed a high sales volume, and placed a large volume of advertising nationwide. Roots, however, claims that it has [superior] common law trademark rights. After trial, the district court awarded Roots a permanent nationwide injunction against Naturals use of the trademark Roots, ordered cancellation of Naturals federal registrations, and awarded Roots an accounting of Naturals profits. . I. Facts A. Roots: Its Mark and Merchandise Roots, a retail clothing chain catering to what its president refers to as an upscale clientele, began doing business in Jersey City in 1917. A second store was soon opened in Bayonne. These stores were relocated to Summit, New Jersey, in 1931. Roots sells mens and womens clothing and shoes manufactured to its specifications. In 1950, Roots began applying permanent woven labels bearing the Roots name to this merchandise. Fifty percent of the merchandise sold by Roots over the past 20 years carried the Roots label alone; an additional 30% bore the Roots label along with a less prominent manufacturers label. Since 1965, Roots has been a wholly owned subsidiary of Hart, Schaffner and Marx, Inc. (HSM), under the name Roots, Inc. In 1969, with the opening of a shoe store in Summit, and a store in Red Bank, Roots began to expand in northern New Jersey. The stores in Summit, including the shoe store, and in Red Bank were the only Roots stores open in 1973 when Natural registered the mark Roots and entered the footwear market in the U.S. In 1977, Roots opened stores at the Riverside Mall in Hackensack, and in Morristown (both in New Jersey). In an attempt to improve its ability to compete with stores such as Brooks Brothers, and to pave the way for further expansion in New Jersey, Roots opened a store in Short Hills in 1981. With the exception of one or two occasions when merchandise from

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10.33

Roots was sold in Filenes basement in Boston, and an unsuccessful attempt to sell ties bearing the Roots label through other stores owned by HSM, only Roots stores have sold merchandise bearing the Roots label. As of 1983, there were five Roots stores in operation, all in northern New Jersey.3 1. Geographical Extent and Volume of Roots Out-of-State Sales Roots total sales increased steadily though usually modestly, each year from 1965 to 1982 when they amounted to $11,328,924. [But documented out-of-state sales did not] amount to more than 3% of its total annual sales. Roots out-of-state sales are attributable mainly to credit card purchases and mail orders for merchandise advertised in the Roots catalogue. Roots began to publish the catalogue, which remains its major national advertising effort, in 1956. At the same time it established a list of persons to whom the catalogue is regularly mailed. The mailing list includes names of Roots credit card holders, persons who make purchases with cash or major credit cards, and persons who simply request that their names be added to the list.4 . [Although Roots had advertised consistently and extensively in local New Jersey newspapers since the 1950s, when Natural registered its mark, it had not advertised nationally, except for monthly ads in the Christian Science Monitor, for a period of seven years.] B. Natural: Its Mark and Merchandise Natural Footwear Ltd., founded in Toronto, Canada, by two Americans Michael Budman and Don Green, began manufacturing a negative heel or earth shoe designed to appeal to the health oriented market early in 1973. Natural chose Roots as the trademark for its wares that same year. Natural filed applications to register the trademark Roots in Canada in May 1973, and in the U.S. in August 1973.16 U.S. Trademark Registrations for the trade mark Roots and for the trademark Roots Natural Footwear & Beaver Design were issued on Oct. 15, 1974, and April 8, 1975. The trademark Roots appears on Naturals entire product line which, by 1983, included not only shoes, but also leather goods and wearing apparel. Naturals shoes bear the Roots mark on the outer sole, and the beaver design with the Roots mark on the inside of the shoe. Natural opened its first shoe store in Toronto in August 1973, and its second store in Montreal in December of that year. Natural began shipping shoes to the U.S. in December 1973, and opened its first U.S. store in Berkeley, California, the following January. . By the end of 1974, there were Roots or Roots Natural Footwear stores in Arizona, California, Colorado, Florida, Illinois, Michigan, New Mexico, New York, Oregon, and Washington. All stores which opened in 1974, with the exception of one in New York City run by Budman and Green, were franchise stores. In 1975, Natural opened an additional 29 shoe stores located throughout the U.S. By the end of 1975, the peak year for Naturals shoe stores, 46 stores were doing business in 22 states. . In 1976 Naturals shoe stores began to close. By 1979, only 10 Roots Natural Footwear stores remained open in the U.S. An additional six stores had changed their names, and began to distribute products made by other manufacturers in addition to Naturals
3

The separate shoe store closed in 1983, and its merchandise was moved to the Summit store, so that now there are four. 4 Ads in the New Jersey Monthly and the New Yorker, see infra, invited requests for the Roots catalogue. 16 Prior to applying for registration, Natural hired an attorney to determine whether the mark was already in use. In its list of facts not in dispute, the district court stated that Natural learned of the use of the mark by Roots, at least as early as 1977, when Roots filed a cancellation petition.

10.34

Effects of Registration

shoes. When its shoe stores began to close in 1976, Natural expanded its product line to include leather handbags and conventionally styled shoes and began distribution through retail department stores. Saks began selling handbags manufactured by Natural in 15 of its stores, including its branch in Springfield, New Jersey. In the Fall of 1977 Saks began selling conventionally styled shoes manufactured by Natural; Saks was joined by Nordstroms and Bloomingdales in 1978. In 1979, at Saks suggestion, Natural created a line of clothing, including jackets, jeans, and shirts. Naturals clothing sales in the U.S. were limited by a preliminary injunction in December 1979, forbidding [use of] the trademark Roots. By 1983, Natural was devoting 40% of its manufacturing capacity to the production of wearing apparel, sold in Europe under the Roots label, and 60% to the production of shoes. Naturals shoes and shoe care products were being sold at retail department stores, including Saks, Macys, and Bergdorf Goodman, and by 50 independent shoe stores. 1. Geographic Extent and Volume of Naturals Sales . From 1976, when its stores began to close, until 1982, sales generally declined, with some fluctuation. By 1978 Naturals sales had dropped to approximately $1.5 million. . Sales for 1982 were $1.9 million. Naturals total wholesale sales for the period 197382 were approximately $18 million. 2. Naturals Advertising Natural has advertised extensively and consistently in both local and national media since it began doing business in the U.S. . For the period July 1975 to January 1976, Natural spent approximately $360,000 on television ads and on ads in five major newspapers and twelve periodicals with national circulation. The advertising placed by Natural and Century was supplemented by franchise stores which spent 5% of gross annual sales, averaging $200,000 for each store, on advertising. From 1975 to 1983, Natural continued to advertise in major newspapers, national magazines, and trade journals. In 1977 Natural began to engage in co-operative advertising in regional and national newspapers and periodicals, with the department stores such as Saks and Macys which sell its products. II. Procedural History In October 1979, after it had received indications from Roots that Roots intended to sue, Natural filed a complaint in New Jersey requesting a declaratory judgment regarding the validity of its federal trademark registrations as authorized by 15 U.S.C. 1119 (1982). The complaint alleged unfair competition, infringement of a registered mark, and false designation of origin in violation of the Lanham Act, 1125(a). Natural sought a permanent injunction against further use of the mark Roots by Roots outside of New Jersey.25 . In 1983, after three years of discovery, the matter became ripe for disposition. . The court granted a permanent nationwide injunction forbidding use by Natural of the mark Roots in connection with the manufacture or sale of wearing apparel and footwear; ordered an accounting of Naturals profits from the second half of 1977 until such time as the mark Roots is eliminated from all goods Natural produces; and directed cancellation of Naturals federal trademark registrations. . III. Relative Rights in the Roots Mark A. General Principles There is a single overarching issue in this case: What is the territorial extent of the right of each party to use the Roots mark. Natural contends that the district court erred when it enjoined Naturals use throughout the nation. Roots argues that the injunctive relief ordered
25

This litigation was foreshadowed by Roots filing of a petition for cancellation of Naturals trademark registrations in the PTO on June 2, 1977. Upon consent of the parties, the cancellation proceeding was ordered suspended by the PTO pending the outcome of the present civil action.

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by the district court was appropriate because Roots was the senior user of the mark and had achieved nationwide market penetration among the target group of purchasers. In the venerable case of Hanover Star, the Supreme Court laid down the basic principles governing the territorial rights of trademark holders under the common law. The court held that the trademark of a prior user should be protected from infringement by a subsequent user of the same mark only in areas where the prior user has established a market for its goods: Since it is the trade, and not the mark, that is to be protected, a trademark acknowledges no territorial boundaries of municipalities or states or nations, but extends to every market where the traders goods have become known and identified by his use of the mark. But the mark, of itself, cannot travel to markets where there is no article to wear the badge and no trader to offer the article. Thus, the senior user of a common law mark may not be able to obtain relief against the junior user in an area where it has no established trade, and hence no reputation and no good will. We have more recently taken this approach in a case involving a nationally registered trademark. In Holiday Inns of America, Inc. v. B & B Corp., 409 F.2d 614, 617 (3d Cir. 1969), we concluded that use and registration of a mark do not guarantee that injunctive relief will be available to protect the senior user in all areas of the country, as the marks must be at large in the same market place and compete for the same customers. [W]e now consider the rights of Natural and Roots [to] broad injunctive relief. B. The Rights Resulting from Federal Registration . In Burger King of Florida, Inc. v. Hoots, 403 F.2d 904 (7th Cir. 1968), the court outlined [Naturals substantial] rights, stating that a federal registrant has the right to use the trademark in commerce except to the extent that such use infringes what valid right the defendants have acquired by their continuous use of the same mark prior to plaintiffs federal registration. Id. at 907. . Naturals rights under the Lanham Act depend, first, on the terms of its registration which establish as an initial matter the scope of protection of the mark. Second, Natural as a federal registrant is still subject to the defense of a prior user. 1. The Scope of the Federal Registration The Lanham Act provides that the protection afforded by registration extends to the goods or services specified in the registration subject to any conditions or limitations stated therein. 1115(a) (emphasis added). The Second Circuit has concluded that, given this language, even if a mark is registered, the presumptive right to use it extends only so far as the goods or services noted in the registration certificate. Mushroom Makers, Inc. v. R.G. Barry Corp., 580 F.2d 44, 48 (2d Cir. 1978); see also Avon Shoe Co. v. David Crystal, Inc., 279 F.2d 607, 613 n. 7 (2d Cir.), cert. den., 364 U.S. 909 (1960).27 The Avon Shoe court also stated in this regard that incontestability under [ 1065] would carry a conclusive presumption of the plaintiffs exclusive right to use its mark only on shoes, when the registration indicated only that the trademark would identify shoes. Id. (dictum). Unlike the Second Circuit, the [CCPA] has apparently decided that federal registration of a trademark may protect products that are not specifically identified in the registration. In Key Chemicals, Inc. v. Kelite Chemicals Corp., 464 F.2d 1040, 1043 (1972), the court concluded that:
27

The discussion of the scope of rights flowing from federal registration must not be read to apply as well to common law rights in a trademark. These latter rights are based on the actual use of a product in an area and, as we discuss infra, are not necessarily limited to the product originally identified by the trademark. Rather, protection from the date of the first use of the mark may extend to related products that are later sold under the common law mark.

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Effects of Registration

a trademark owner cannot by normal expansion of its business extend the use of its trademark to goods not covered by its previous registration, where the result would be a likelihood of confusion caused by similarity of that mark to a mark already registered by a prior user for the same or similar goods. Id. (emphasis added). The court, however, did not consider the language of the Lanham Act or its underlying policies. We conclude that the Second Circuits approach is correct based on both the statutory language construed by that court as well as the purpose of the statute. We have already explained how the Lanham Act is intended to order the use of trademarks in the market place. We believe that this purpose is best served by limiting the impact of a registered mark to only the specific terms of the registration so as to allow parties interested in marketing products with a new mark to rely as fully as possible on the registry. This rule, unlike the rule adopted in Key Chemicals, will appropriately encourage registrants who wish to receive the full scope of the Acts protection in regard to the new use of the mark to file a new application covering the new products and making reference to the earlier registration once they begin to sell a new line of products under their registered mark. Additionally, we believe that the grant of a form of monopoly should not be liberally construed. . The district court was correct in evaluating the extent of Roots market penetration as of late 1973, the period in which Natural initially registered its mark. We conclude, however, that the district courts decision about the extent of Roots reputation cannot be sustained for three reasons. First, the court failed to consider Roots market penetration in regard to specific market areas. This failure to scrutinize the extent of Roots sales, advertising, and reputation on either a state-by-state or region-by-region basis is, we believe, inconsistent with the language of the Lanham Act. In the well-known case of SweeTARTS v. Sunline, Inc., 380 F.2d 923 (8th Cir. 1967), the court identified four factors as being most relevant to whether a mark has achieved the necessary quantum of market penetration in a given area. Id. at 929. The Court of Customs and Patent Appeals in the equally well-known Weiner King, Inc. v. Wiener King, Corp., 615 F.2d 512, 522 (1980) fixed upon five factors as relevant. We agree with the approach of the courts in SweeTARTS and Weiner King and believe that the following four factors should be considered to determine whether the market penetration of a trademark in an area is sufficient to warrant protection: (1) the volume of sales of the trademarked product; (2) the growth trends (both positive and negative) in the area; (3) the number of persons actually purchasing the product in relation to the potential number of customers; and (4) the amount of product advertising in the area. . Having considered the four factors, we believe that only one conclusion is possible: Roots has not demonstrated sufficient market penetration in either New York or Pennsylvania to justify a conclusion that it has common law trademark rights in those two areas. We are persuaded in particular by the available evidence of Roots sales, which indicates that, although Roots business in the two states was not necessarily de minimis at the time Natural registered its mark, it was also not substantial by any measure. In light of such a low volume of sales, Roots had to come forward with particularly persuasive evidence as to each of the final three factors. However, as we have discussed, Roots failed even to come close. Therefore, on this record, the nationwide injunction in favor of Roots use of the Roots trademark cannot stand and the permanent injunction must be vacated. Our conclusion concerning Roots failure to prove sufficient market penetration outside of New Jersey is consistent with the expert testimony at trial. Natural offered testimony from Drs. Henry Assael, an expert on consumer behavior in marketing, and Steven Osterweis,

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a retail merchandising expert with years of practical experience. Both experts carefully reviewed the evidence and independently concluded that Roots is a local retail clothing operation which has made no serious effort to extend its business beyond its New Jersey trade area and did not have a national reputation. Roots did not offer evidence to counter the opinions of these experts. 3. Relief for Natural Based on Federal Registration By reason of its registration of the Roots mark, Natural gained the substantial protection afforded by the Lanham Act. For reasons explained above, this protection extends only to the products described in the registration and to areas where there is no senior user with sufficient market penetration. We conclude as a matter of law that Naturals sale of footwear is protected by the Lanham Act in all states except New Jersey. We, therefore, will reverse that portion of the district courts order directing the PTO to cancel the registrations of the Roots mark and will order that the registrations be reinstated. We also will vacate as to all states outside of New Jersey the portion of the district courts order permanently enjoining Natural from using the Roots mark. It also follows from our extensive discussion of the facts that Natural may be entitled to substantial injunctive relief. Natural has sought injunctive relief pursuant only to its rights under the Lanham Act. As an initial matter, we have held that the Lanham Act protects Naturals use of the trademark only on footwear products. . [In Part III.C, the court said that Natural may, after 1973, have obtained common law rights for clothing. It remanded for a determination of their scope. In Parts IV and V, the court vacated an award of profits and affirmed a refusal to award attorneys fees.] Notes 1. Most countries, including the United States (since 1973), use a classification scheme, online at <http://www.wipo.int/classifications/nice/en/> (visited June 6, 2007) (the Nice Agreement). Unlike the situation elsewhere, however, U.S. classification is generally seen as irrelevant except as a basis for charging additional registration fees as in In re Taylor. Natural signals a larger role for registration and classification, but Synergistic Intl, LLC v. Korman, 470 F.3d 162, 173 (4th Cir. 2006), expresses a contrary view. 2. In Part III.B.3 of Natural Footware, the court referred to Naturals rights under the Lanham Act. Does this seem to include 43(a) or to be limited to 32? 3. See 2(d) and 37. What changes might have Roots-HSM sought in Naturals federal registration? If the market occupied by a firm is limited to one state (or only part of it), what are the consequences of finding the effect on interstate commerce insufficient to warrant federal registration under 2(d)? 4. Contrast Weiner King and SweeTARTS with Burger King. Why does the last pose a much easier problem to solve? Reconsider Larry Harmon; would Williams registration give it the right to expand throughout the United States even where confusion with Harmon would be likely? 5. The district courts award of profits in Natural Footware was vacated and its refusal to award attorney fees was affirmed, but each can be substantial. See, e.g., Derek Andrew, at the end of Chapter 6.

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Effects of Registration

Lucent Information Mgmt., Inc. v. Lucent Technologies, Inc.

U.S. District Court, D. Delaware 986 F. Supp. 253 (1997)

McKelvie, District Judge: This is a trademark case. Plaintiff Lucent Information Management, Inc. (LIM) is a Pennsylvania corporation specializing in computer document management systems. Defendant Lucent Technologies, Inc. (LTI) is a Delaware corporation that provides goods and services in telecommunication and information systems. . A. LIMs Adoption and Use of Mark LIM was formed in 1995 by Norman Feinstein, Samuel Weinberg, Edward Eisen and Cliff Armstrong to offer services for document imaging and management. On Aug. 22, 1995, the company filed Articles of Incorporation under the name Lucent Systems Corporation. On Sept. 22, 1995, the company changed its name to Lucent Information Management. LIMs office was set up using space within the building owned by Mr. Feinsteins other business, Corporate Consultants, Inc. LIM is still located there today. Two Corporate Consultants employees do all of LIMs clerical work and bookkeeping. [They] do not receive payment from LIM. On Sept. 5, Mr. Feinstein sent out a letter on Corporate Consultants letterhead to approximately 50 people, announcing the formation of LIM and the goals of the company. Around this same time, LIM hired a graphics designer to develop a design for such things as a logo, letterhead, message pads, labels, and brochures. On Oct. 5, Mr. Armstrong installed a modem at the Israel Bonds office in Philadelphia. The request for the modem was made by Harriet Potashnick, who Mr. Armstrong knew personally. Mr. Armstrong indicated in his deposition that he did not provide any written materials on LIM to Ms. Potashnick at the time of the sale. . Ms. Potashnick has since produced an invoice. The invoice has the name and address of LIM at the top and requests that the check be made payable to Cliff Armstrong. Ms. Potashnick has also produced a copy of a check payable to Cliff Armstrong for $323.50. On Oct. 16, LIM met with Corporate Consultants to discuss products and services that could be used by Corporate Consultants. Corporate Consultants records indicate they were using File Magic Plus, a system that LIM sells and offers services for, as early as Nov. 12, 1995. In November 1995, LIM made sales presentations to ARAMARK in Philadelphia, to NBC in New York City, and to Nixon Uniform in Delaware. Between Dec. 1, 1995, and Feb. 5, 1996, LIM made approximately 12 additional sales presentations, to a total of about 50 people. On Feb. 16, 1996, LIM entered into a support agreement for document management software with a local bank. LIM has continued to try and build its business. Through 1996 LIM had made sales with total gross revenues of approximately $138,000.00. B. LTIs Adoption and Use of Mark In 1995, AT&T began the process of creating a spinoff company, which would focus on telecommunication systems and technology. That fall, AT&T hired an outside firm to generate possible names for the new company. One of the suggested names was Lucent. AT&Ts trademark counsel, Frank L. Politano, coordinated efforts to find a name for the spinoff company.

Trademark Rights

10.39

In November 1995, AT&T obtained two full trademark reports and a trade name search for Lucent. One, prepared by Thompson & Thompson, lists LIM. The report is 82 pages long. The searches looked for such things as the word Lucent, or the combination of letters LUC in a company name. Searches were performed in a database of PTO references, in a state trademark database, and in common law libraries and databases. In one on-line search, LIM is listed as a Pennsylvania corporation, along with 65 other companies. On Nov. 30, 1995, AT&T filed an intent-to-use (ITU) application with the PTO for the mark Lucent for classes 9, 37 and 42. These [include] telecommunications products, designs for telecommunications systems, and telecommunications computer programs and networks. The application was allowed by the PTO on June 10, 1997. LTI has since filed statements of use. The registration has not yet been issued. On Jan. 30, 1996, LTI purchased the rights to the mark Lucent Systems and the Internet domain name Lucent.Com from a California corporation. Lucent Systems (LSI) was a computer consulting company that had used the Lucent name and mark from 1987 through 1996. After the sale of the name, Lucent Systems changed its name to Denken Systems, Inc. and continued to do computer consulting work. On Feb. 5, 1996, AT&T announced that its spinoff company would be named Lucent Technologies, Inc. Major newspapers all across the country reported this announcement. LTI mailed out announcements to over 1.2 million people. . On July 3, 1997, LTI filed a motion for summary judgment. This is the courts decision on these motions. II. Discussion A. Summary Judgment Standard Summary judgment is appropriate when there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. . B. Can LIM Establish Prior Use? 1. LTIs Priority Date Section 7(c) of the Lanham Act states that the filing of an application to register [a trademark] shall confer[] a right of priority, nationwide in effect, against any other person except for a person who, prior to such filing, has used the mark. This provision applies to ITU applications such as the one filed by LTI in this case, since an ITU application is considered an application to register a mark under 15 U.S.C. 1051(b). See Zirco Corp., 21 U.S.P.Q.2d 1542, 154344 (TTAB 1992) Thus, LTIs ITU application, filed on Nov. 30, 1995, confers priority to LTI over anyone who uses the mark after that date. LIM has suggested that it is inappropriate to use the Nov. 30, 1995 application date because LTI has not yet been granted the actual application. However, LTI may rely on this date in defending an action. To find otherwise would eviscerate the ITU provisions and defeat their very purpose. Warnervision Entertainment Inc. v. Empire of Carolina, Inc., 101 F.3d 259, 26162 (2d Cir. 1996) (finding that ITU filing date can be used in defense of trademark infringement suit, and distinguishing the case from one where the date is used to seek affirmative or offensive relief). . 2. LIMs Rights Prior to Nov. 30, 1995 [T]he court concludes that even if LIM could show that the sale of one modem to Israel Bonds Office can be credited to LIM, no reasonable trier of fact could conclude that this sale constituted prior use. C. Did LTI Adopt the Lucent Mark in Bad Faith? LIM claims that LTI intentionally adopted the Lucent mark and engaged in an extensive advertising campaign, despite being aware of LIMs prior adoption of the mark. .

10.40

Effects of Registration

In the present case, LTI specifically hired a firm to do a trademark search. The Thompson & Thompson report did list LIM. However, this was a two-line reference in a report several hundreds of pages long. LTI used experienced trademark counsel in determining that it could register the mark. Furthermore, LTI went to the trouble of settling with LSI Systems in California, in order to avoid infringing LSIs trademark rights, and in order to obtain the internet site Lucent.Com. These are not the actions of a party proceeding in bad faith. More importantly, the court has already concluded that LIM had not established trademark rights in the mark prior to LTIs registration. Therefore, LTI was entitled to register or use the mark at the time that it did, and thus did not proceed in bad faith. . Notes 1. The Third Circuit agreed that LIMs use was insufficient to establish rights and that LTIs adoption was in good faith as a matter of law, 186 F.3d 311, 31213 (1999), cert. denied, 528 U.S. 1106 (2000). 2. What could LIM have done to preserve rights in its new name in August 1995? 3. It may seem unfair to cut common law users off before applications are published for opposition, but it should now be possible to find intent-to-use applications nearly as soon as they are filed. 4. Why did LTI not get the benefit of prior use by the California firm with whom it reached agreement? The court does not address the issue, but see 10. 5. Do intent-to-use applications warrant a less charitable view of prosecution misconduct than might have been warranted in Morehouse? The TTAB may have since become less tolerant, but see, e.g., In re Bose Corp., 580 F.3d 1240 (Fed. Cir. 2009). 6. A Lucent sequel, 5 F. Supp.2d 238 (1998), addressed copyright in Feinsteins Sept. 5, 1995 letter, reproduced on behalf of LTI as part of a survey for use in the first stage of litigation. LIM subsequently registered and added copyright infringement counts. The court held that, despite LTIs copying the entire letter, remaining 107 factors (particularly the last) made such use fair. Counterfeiting Sanctions The benefits of obtaining and maintaining registrations have been considered several times. Another concerns sanctions for use of counterfeit marks, defined in 45 as indistinguishable from registered marks. Superior remedies include presumptive treble damages and attorney fees under 35(b) and statutory damages up to $2 million under 35(c). Moreover, under 18 U.S.C. 2320, counterfeiters may receive up to twenty years in prison and be fined up to $15 million. After United States v. Giles, 213 F.3d 1247 (10th Cir. 2000), strictly construed that provision and found it inapplicable to stand-alone labels, the statute was amended. Since 2006, prohibitions include trafficking or attempting to traffic in labels, patches, stickers, wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases, hangtags, documentation, or packaging of any type or nature, knowing that a counterfeit mark has been applied thereto.

Chapter 11 Scope of Trademark Rights

A. Fair Use

Champion Spark Plug Co. v. Sanders

U.S. Supreme Court 331 U.S. 125 (1947)

Justice Douglas: Petitioner is a manufacturer of spark plugs which it sells under the trade mark Champion. Respondents collect the used plugs, repair and recondition them, and resell them. Respondents retain the word Champion on the repaired or reconditioned plugs. The outside box or carton in which the plugs are packed has stamped on it the word Champion, together with the letter and figure denoting the particular style or type. They also have printed on them Perfect Process Spark Plugs Guaranteed Dependable and Perfect Process Renewed Spark Plugs. Each carton contains smaller boxes in which the plugs are individually packed. These inside boxes also carry legends indicating that the plug has been renewed. But respondent companys business name or address is not printed on the cartons. It supplies customers with petitioners charts containing recommendations for the use of Champion plugs. On each individual plug is stamped in small letters, blue on black, the word Renewed, which at times is almost illegible. Petitioner brought this suit, charging infringement of its trade mark and unfair competition. The district court found that respondents had infringed the trade mark. It enjoined them from offering or selling any of petitioners plugs which had been repaired or reconditioned unless (a) the trade mark and type and style marks were removed, (b) the plugs were repainted with a durable grey, brown, orange, or green paint, (c) the word Repaired was stamped into the plug in letters of such size and depth as to retain enough white paint to display distinctly each letter of the word, (d) the cartons in which the plugs were packed carried a legend indicating that they contained used spark plugs originally made by petitioner and repaired and made fit for use up to 10,000 miles by respondent company.2 The district court denied an accounting. The circuit court of appeals held that respondents not only had infringed petitioners trade mark but also were guilty of unfair competition. It likewise denied an accounting but modified the decree: (a) it eliminated the provision requiring the trade mark and type and style marks to be removed; (b) it substituted for the requirement that the word Repaired be stamped into the plug, etc., a provision that the word Repaired or Used be stamped and baked on the plug in a contrasting color so as to be clearly and distinctly visible, the plug having been completely covered by permanent aluminum paint or other paint or lacquer;
2

The prescribed legend read: Used spark plug(s) originally made by Champion Spark Plug Company repaired and made fit for use up to 10,000 miles by Perfect Recondition Spark Plug Co., 1133 Bedford Avenue, Brooklyn, N.Y. The decree also provided: the name and address of the defendants to be larger and more prominent than the legend itself, and the name of plaintiff may be in slightly larger type than the rest of the body of the legend.

11.2

Fair Use

and (c) it eliminated the provision specifying the precise legend to be printed on the cartons and substituted therefor a more general one.3 The case is here because of the apparent conflict between the decision below and Champion Spark Plug Co. v. Reich, 121 F.2d 769 [Eighth Circuit]. There is no challenge here to the findings as to the misleading character of the merchandising methods employed by respondents, nor to the conclusion that they have not only infringed petitioners trade mark but have also engaged in unfair competition. The controversy here relates to the adequacy of the relief granted, particularly the refusal of the circuit court of appeals to require respondents to remove the word Champion from the repaired or reconditioned plugs which they resell. . We are dealing here with second-hand goods. The spark plugs, though used, are nevertheless Champion plugs and not those of another make. There is evidence to support what one would suspect, that a used spark plug which has been repaired or reconditioned does not measure up to the specifications of a new one. But the same would be true of a second-hand Ford or Chevrolet car. And we would not suppose that one could be enjoined from selling a car whose valves had been reground and whose piston rings had been replaced unless he removed the name Ford or Chevrolet. Prestonettes, Inc., v. Coty, 264 U.S. 359, was a case where toilet powders had as one of their ingredients a powder covered by a trade mark and where perfumes which were trade marked were rebottled and sold in smaller bottles. The Court sustained a decree denying an injunction where the prescribed labels told the truth. Justice Holmes stated, A trade-mark only gives the right to prohibit the use of it so far as to protect the owners good will against the sale of anothers product as his. . When the mark is used in a way that does not deceive the public we see no such sanctity in the word as to prevent its being used to tell the truth. It is not taboo. 264 U.S. at 368. Cases may be imagined where the reconditioning or repair would be so extensive or so basic that it would be a misnomer to call the article by its original name, even though the words used or repaired were added. But no such practice is involved here. The repair or reconditioning of the plugs does not give them a new design. It is no more than a restoration, so far as possible, of their original condition. The type marks attached by the manufacturer are determined by the use to which the plug is to be put. But the thread size and size of the cylinder hole into which the plug is fitted are not affected by the reconditioning. The heat range also has relevance to the type marks. And there is evidence that the reconditioned plugs are inferior so far as heat range and other qualities are concerned. But inferiority is expected in most second-hand articles. Indeed, they generally cost the customer less. That is the case here. Inferiority is immaterial so long as the article is clearly and distinctively sold as repaired or reconditioned rather than as new. The result is, of course, that the second-hand dealer gets some advantage from the trade mark. But under the rule of Prestonettes, Inc., v. Coty, supra, that is wholly permissible so long as the manufacturer is not identified with the inferior qualities of the product resulting from wear and tear or the reconditioning by the dealer. Full disclosure gives the manufacturer all the protection to which he is entitled. The decree as shaped by the circuit court of appeals is fashioned to serve the requirements of full disclosure. We cannot say that of the alternatives available the ones it chose are inadequate for that purpose. We are mindful of the fact that this case, unlike
3

The decree shall permit the defendants to state on cartons and containers, selling and advertising material and other papers the original make and type numbers provided it is made clear that any plug referred to therein is used and reconditioned by the defendants, and that such material contains the name and address of defendants.

Scope of Rights

11.3

Prestonettes, Inc., v. Coty, supra, involves unfair competition as well as trade mark infringement; and that where unfair competition is established, any doubts as to the adequacy of the relief are generally resolved against the transgressor. But there was here no showing of fraud or palming off. Their absence, of course, does not undermine the finding of unfair competition. FTC v. Winsted Hosiery Co., 258 U.S. 483, 493, 494. But the character of the conduct giving rise to the unfair competition is relevant to the remedy which should be afforded. See Jacob Siegel Co. v. FTC, 327 U.S. 608. We cannot say that the conduct of respondents in this case, or the nature of the article involved and the characteristics of the merchandising methods used to sell it, called for more stringent controls than the circuit court of appeals provided. Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 316 U.S. 203, states the rule governing an accounting of profits where a trade mark has been infringed and where there is a basis for finding damage to the plaintiff and profit to the infringer. But it does not stand for the proposition that an accounting will be ordered merely because there has been an infringement. . The same is true in case of unfair competition. Straus v. Notaseme Co., 240 U.S. 179, 18183. Here, as we have noted, there has been no showing of fraud or palming off. For several years respondents apparently endeavored to comply with a cease and desist order of the Federal Trade Commission requiring them to place on the plugs and on the cartons a label revealing that the plugs were used or second-hand. Moreover, as stated by the circuit court of appeals, the likelihood of damage to petitioner or profit to respondents due to any misrepresentation seems slight. In view of these various circumstances it seems to us that the injunction will satisfy the equities of the case. Affirmed. Notes 1. If new spark plugs were unavailable during WW II, how might that have influenced the outcome of Champion? 2. See Natl Tire Dealers and Retreaders Assn, Inc. v. Brinegar, 491 F.2d 31, 39 (D.C. Cir. 1974) (Retreaded tires are usually an economic necessity, not a luxury item.). That may be equally true for any number of reconditioned products. What are the implications if removing original trademarks is the economic equivalent of making new products from scratch? 3. Why might the need for FTC action against Siegel, Chapter 10 (also written by Justice Douglas), have been more compelling than the need for its taking action against Sanders? 4. Is the possibility of third-party infringement more likely than direct infringement to have sparked this case? How would the failure of Champion to appear on anything other than, say, defendants boxes facilitate that? 5. Reconsider Jazz Photo and Mallinckrodt in Chapter 4. If reconditioning is permitted, should those who do so be allowed to indicate original manufacturers? How does the value of such information to consumers compare to potential harm to the respective manufacturers? 6. Also reconsider British Leyland in Chapter 5; if a firm may sell replacement parts for the Marina, may it use that name? If not, was Armstrongs victory pyrrhic? 7. See Villanova University v. Villanova Alumni Educational Foundation, 123 F. Supp.2d 293 (E.D. Pa. 2000). The foundation was enjoined from using Villanova, Wildcats and variants. Assuming that the foundation supported only Villanova, how might Holmes observation in Prestonettes or the last clause of 33(b)(4) be accommodated?

11.4

Fair Use

U.S. Court of Appeals, Ninth Circuit 402 F.2d 562 (1968) Before Hamlin, Browning and Duniway. Browning, Circuit Judge: Appellant R. G. Smith advertised a fragrance called Second Chance as a duplicate of appellees Chanel No. 5, at a fraction of the latters price. . The action rests upon a single advertisement published in a trade journal directed to wholesale purchasers. [It] offered The TaRon Line of Perfumes for sale. . It stated that the TaRon perfumes duplicate 100% perfect the exact scent of the worlds finest and most expensive perfumes and colognes at prices that will zoom sales to volumes you have never before experienced. It repeated the claim of exact duplication in a variety of forms. The advertisement suggested that a Blindfold Test be used on skeptical prospects, challenging them to detect any difference. One suggested challenge was, We dare you to try to detect any difference between Chanel #5 ($25.00) and TaRons 2nd Chance $7.00. In an order blank printed as part of the advertisement each TaRon fragrance was listed with the name of the well known fragrance which it purportedly duplicated immediately beneath. Below Second Chance appeared *(Chanel #5). The asterisk referred to a statement at the bottom of the form reading Registered Trade Name of Original Fragrance House. Appellees conceded that appellants have the right to copy, if they can, the unpatented formula of appellees product. 3 Moreover, for the purposes of these proceedings, appellees assume that the products manufactured and advertised by [appellants] are in fact equivalents of those products manufactured by appellees. Finally, appellees disclaim any contention that the packaging or labeling is misleading or confusing.4 I The principal question presented on this record is whether one who has copied an unpatented product sold under a trademark may use the trademark in his advertising to identify the product he has copied. We hold that he may, and that such advertising may not be enjoined under either the Lanham Act, [43(a)], or the common law of unfair competition, so long as it does not contain misrepresentations or create a reasonable likelihood that purchasers will be confused as to the source, identity, or sponsorship of the advertisers product. This conclusion is supported by direct holdings in Saxlehner v. Wagner, 216 U.S. 375 (1910); Viavi Co. v. Vimedia Co., 245 F. 289 (8th Cir. 1917), and Societe Comptoir de LIndustrie Cotonniere Etablissements Boussac v. Alexanders Dept. Stores, Inc., 299 F.2d 33 (2d Cir. 1962). In Saxlehner the copied product was a bitter water drawn from certain privately owned natural springs. The plaintiff sold the natural water under the name Hunyadi Janos, a valid trademark. The defendant was enjoined from using plaintiffs trademark to designate defendants artificial water, but was permitted to use it to identify plaintiffs natural water as the product which defendant was copying.
3

Smith v. Chanel, Inc.

Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 23133 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 23738 (1964). 4 Appellants product was packaged differently from appellees, and the only words appearing on the outside of appellants packages were Second Chance Perfume by TaRon. The same words appeared on the front of appellants bottles; the words TaRon trademark by International Fragrances, Inc., of Dallas and New York on the back.

Scope of Rights

11.5

Justice Holmes wrote: [Plaintiff seems to intend to extend her trademark or tradename monopoly] to a monopoly of her type of bitter water, by preventing manufacturers from telling the public what they are trying to sell. But the plaintiff has no patent for the water, and the defendants have a right to reproduce it as nearly as they can. They have a right to tell the public what they are doing, and to get whatever share they can in the popularity of the water by advertising that they are trying to make the same article, and think that they succeed. . By doing so, they are not trying to get the good will of the name, but the good will of the goods. 216 U.S. at 38081.6 In Viavi, plaintiff sold unpatented proprietary medicinal preparations under the registered trademark Viavi, and local sellers of defendants medicinal preparations represented to prospective purchasers that Vimedia products were the same or as good as Viavi preparations. The court held, [i]n the absence of such a monopoly as a patent confers, any persons may reproduce the articles, if they can, and may sell them under the representation that they are the same article, if they exclude the notion that they are the plaintiffs goods. 245 F. at 292.7 In Societe Comptoir de LIndustrie Cotonniere Etablissements Boussac, the defendant used plaintiffs registered trademarks Dior and Christian Dior in identifying plaintiffs dresses as the original creations from which defendants dresses were copied.8 The district court refused to grant a preliminary injunction. . The [appellate] court weighed the underlying interests in this language: Involved in the instant case is a conflict of values which necessarily arises in an economy characterized by competition and private property. The courts have come to recognize the true nature of the considerations often involved in efforts to extend protection of common law trade names so as to create a shield against competition. . The interest of the consumer here in competitive prices of garments using Dior designs without deception as to origin, is at least as great as the interest of plaintiffs in monopolizing the same. 299 F.2d at 37. . Preservation of the trademark as a means of identifying the trademark owners products serves an important public purpose.13 It makes effective competition possible in a complex, impersonal marketplace by providing a means through which the consumer can identify products which please him and reward the producer with continued patronage. Without some such method of product identification, informed consumer choice, and hence meaningful competition in quality, could not exist. On the other hand, it has been suggested that protection of trademark values other than source identification would create serious anti-competitive consequences.
Other Supreme Court decisions applying similar principles in distinguishable factual circumstances include Sears and Compco; Champion Spark Plug Co. v. Sanders, 331 U.S. 125 (1947); Kellogg Co. v. National Biscuit Co., 305 U.S. 111 (1938); Prestonettes, Inc. v. Coty, 264 U.S. 359, 36869 (1924). 7 Appellees state that the advertisements placed by Vimedia did not use Viavis trademark. Whether the descriptive use was employed in advertisements or in salesmens spiels is irrelevant. 8 Defendant described its dresses in newspaper advertisements as copies of Diors original creations. Tags were hung on each garment reading Original by Christian Dior Alexanders Exclusive Paris Adaptation. Dior or Christian Dior appeared more than a dozen times in a singing commercial on defendants television fashion show. 13 It also serves two substantial private interests of the owner: It protects him from diversion of sales through a competitors use of his trademark or one confusingly similar to it; and it protects his reputation from the injury that could occur if the competitors goods were inferior.
6

11.6

Fair Use

The object of much modern advertising is to impregnate the atmosphere of the market with the drawing power of a congenial symbol. Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 316 U.S. 203, 205 (1942), rather than to communicate information as to quality or price. . To the extent that advertising of this type succeeds, it is suggested, the trademark is endowed with sales appeal independent of the quality or price; economically irrational elements are introduced into consumer choices; and the trademark owner is insulated from the normal pressures of price and quality competition. In consequence the competitive system fails to perform its function of allocating available resources efficiently. Moreover, the economically irrelevant appeal of highly publicized trademarks is thought to constitute a barrier to the entry of new competition into the market. . A related consideration is also pertinent to the present case. Since appellees perfume was unpatented, appellants had a right to copy it, as appellees concede. There was a strong public interest in their doing so, [f]or imitation is the life blood of competition. It is the unimpeded availability of substantially equivalent units that permits the normal operation of supply and demand to yield the fair price society must pay for a given commodity. American Safety Table Co. v. Schreiber, 269 F.2d 255, 272 (2d Cir. 1959). But this public benefit might be lost if appellants could not tell potential purchasers that appellants product was the equivalent of appellees product. . The most effective way (and, where complex chemical compositions sold under trade names are involved, often the only practical way) in which this can be done is to identify the copied article by its trademark or trade name. To prohibit use of a competitors trademark for the sole purpose of identifying the competitors product would bar effective communication of claims of equivalence. Assuming the equivalence of Second Chance and Chanel No. 5, the public interest would not be served by a rule of law which would preclude sellers of Second Chance from advising consumers of the equivalence and thus effectively deprive consumers of knowledge that an identical product was being offered at one third the price. As Justice Holmes wrote in Saxlehner, the practical effect of such a rule would be to extend the monopoly of the trademark to a monopoly of the product. The monopoly would not be preceded by examination and approval by a governmental body. Moreover, it would not be limited in time, but would be perpetual. Against these considerations, two principal arguments are made for protection of trademark values other than source identification. The first of these, as stated in the findings of the district court, is that the creation of the other values inherent in the trademark require the expenditure of great effort, skill and ability, and that the competitor should not be permitted to take a free ride on the trademark owners widespread goodwill and reputation. A large expenditure of money does not in itself create legally protectable rights. Appellees are not entitled to monopolize the publics desire for the unpatented product, even though they themselves created that desire at great effort and expense. As we have noted, the most effective way (and in some cases the only practical way) in which others may compete in satisfying the demand for the product is to produce it and tell the public they have done so, and if they could be barred from this effort appellees would have found a way to acquire a practical monopoly in the unpatented product to which they are not legally entitled. Disapproval of the copyists opportunism may be an understandable first reaction, but this initial response to the problem has been curbed in deference to the greater public good. American Safety Table Co. v. Schreiber, 269 F.2d at 272. By taking his free ride, the copyist serves an important public interest by offering comparable goods at lower prices. On the other hand, the trademark owner, perhaps equally without design, sacrifices public to personal interests by seeking immunity from the rigors of competition.

Scope of Rights

11.7

Moreover, appellees reputation is not directly at stake. Appellants advertisement makes it clear that the product they offer is their own. If it proves to be inferior, they, not appellees, will bear the burden of consumer disapproval.25 The second major argument for extended trademark protection is that even in the absence of confusion as to source, use of the trademark of another creates a serious threat to the uniqueness and distinctiveness of the trademark, and if continued would create a risk of making a generic or descriptive term of the words of which the trademark is composed.26 The contention has little weight in the context of this case. Appellants do not use appellees trademark as a generic term. They employ it only to describe appellees product, not to identify their own. They do not label their product TaRons Chanel No. 5, as they might if appellees trademark had come to be the common name for the product to which it is applied. Appellants use does not challenge the distinctiveness of appellees trademark, or appellees exclusive right to employ that trademark. The slight tendency to carry the mark into the common language which even this use may have is outweighed by the substantial value of such use in the maintenance of effective competition. We are satisfied, therefore, that both authority and reason require a holding that in the absence of misrepresentation or confusion as to source or sponsorship a seller in promoting his own goods may use the trademark of another to identify the latters goods. The district courts contrary conclusion cannot support the injunction. II The district court also rested the injunction upon [this finding]: Defendants method of competition colorably, but fictitiously, invites comparison. In fact, it negates the opportunity for comparison by soliciting volume mail order purchases, at discount rates, without the dealer actually having the benefit of personal comparison. This method of marketing a competing product may place TaRons duplicates in the hands of unscrupulous dealers and occasion further unfair practices and deception which creates a likelihood of confusion on the part of prospective customers as to whether such products are in fact identical or duplicates and are derived from the same source and produced by the same methods. The opening sentence misreads the advertisement. The persons to whom the advertisement is directed were purchasers for resale. . The wholesale purchasers themselves are protected from deception by a promise of Satisfaction Guaranteed, entitling them to return the merchandise if the goods prove disappointing. The second sentence of the finding apparently invokes the principle that one fraudulently markets his goods as those of another if, though making no misrepresentation himself, he intentionally induces his purchasers so to market them. Restatement of Torts 713 (1938) As we have noted, appellees concede that neither the packaging nor labeling of appellants product is misleading or confusing. Conceivably, dealers may nonetheless tell their customers that the labels are false and that the contents are in fact appellees product. But where, as here, the appellants have done all that could reasonably be expected to avoid
25

In addition, if appellants specific claims of equivalence are false, appellees may have a remedy under 43(a) of the Lanham Act, which provides a civil remedy to a person injured by any false description or representation, including words or other symbols of goods in interstate commerce. . 26 The court below stated that: The offending advertisement, by the nature in which it uses plaintiffs trademark, creates a serious threat to the uniqueness and distinctiveness of plaintiffs marks. Defendants unauthorized use of such trademarks if continued would create a risk of making a generic or descriptive term of the words Chanel and Chanel No. 5. 151 U.S.P.Q. at 687.

11.8

Fair Use

confusion, the speculative possibility of deliberate fraud by third persons is not a sufficient basis for injunctive relief. There is a suggestion in this portion of the finding that appellants really claim only to have duplicated the scent of appellees product as distinguished from its other characteristics, and that appellants proposed method of distribution invites false representations that both the product and methods of production have been precisely duplicated. The relevance of the reference to methods of production in the courts finding is not clear. If all of the original products characteristics are found in the copy, the method by which that result was achieved is of no significance to the purchaser. We would agree that if appellants really claim less than exact duplication of the qualities inherent in the product itself, it would have been appropriate to require some clarification of the language of their advertisement. But this narrow issue was not presented below, and the order entered could not be sustained if it had, for the injunction broadly prohibits any reference at all to appellees trademark in the promotion or sale of appellants product. Reversed and remanded for further proceedings. Notes 1. See How to Buy a Fragrance, Consumer Reports, Dec. 1993, at 76573, discussing fragrances and knock-offs. In the case of Opium, for example, a copy (Ninja) was more highly regarded than the original. 2. If perfumes were copyrightable, how would that be helpful to Chanel? In Copyright Protection for Perfumes, 45 Idea 19 (2004), I criticize a Dutch opinion that found infringement based on ingredient similarity. The Dutch Supreme Court later affirmed the result on less bothersome grounds scent, not composition. 3. In New Kids On The Block v. New America Publishing, Inc., 971 F.2d 302, 308 (9th Cir. 1992), the Ninth Circuit adopted a test for nominative, as compared to fair use: First, the product or service in question must be one not readily identifiable without use of the trademark; second, only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third, the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder. If fair use is defined by 33(b)(4) and 43(c)(3), were uses in Champion and Chanel fair or nominative? 4. In KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111 (2004), the Court held that those using descriptive terms need not take measures to negate confusion. But that, of course, does not bear on measures designed to cause confusion. 5. When one firm (or person) may legally use anothers name for any purpose, what does available relief center on? 6. What role did Sears and Compco, Chapter 4, play in Chanel? How does the case more resemble Singer and Kellogg? 7. If basketball, checkers and chess are generic, what of the names of other games such as Monopoly or Scrabble? 8. Reconsider General Motors Corp. v. Lanard Toys, Inc., 468 F.3d 405 (6th Cir. 2006), cited in a Chapter 10 problem. Can a vehicle be copied as a toy? If so, can its name be used? 9. The next case refers to trademarks as monopolies, suggesting that they are anticompetitive. How is Champion or Chanel useful in rebutting that proposition?

Scope of Rights

11.9

B. Proximity of Goods and Services

California Fruit Growers Exchange v. Sunkist Baking Co.

U.S. Court of Appeals, Seventh Circuit 166 F.2d 971 (1947)

Before Major, Kerner and Minton. Minton, Circuit Judge: [Plaintiffs were California Fruit Growers Exchange (Exchange), and California Packing Corporation (Corporation). Exchange, a nonprofit cooperative, sold citrus fruits. Corporation sold canned and dried fruits and vegetables, including raisins. An earlier agreement acknowledged the firms rights to use Sunkist and Sun-Kist on their respective goods. Defendant sells a variety of bread and buns, including raisin bread. Each loaf bears the name Sunkist Baking Co. and Sunkist Bread. [The district court found that plaintiffs trademarks were infringed and enjoined defendants use of Sunkist or any colorable imitation. (This opinion also mentions that the district court found defendants state registrations improper but does not discuss that aspect of the case.)] The first question that we have to consider is whether the trade-marks Sunkist and Sun-Kist, owned and used by the plaintiffs in the marketing and sale of fruits, vegetables, and their other products, are infringed by the defendants use of their trade-name Sunkist Baking Co., and by the use of the word Sunkist on their bakery products. The parties concede that the Lanham Act1 applies. The validity of the trade-marks is not questioned. To constitute infringement under the Lanham Act, a registered trade-mark must be used in such a manner as is likely to cause confusion or mistake or to deceive purchasers as to the source of origin of such goods. Section 32(1)(a).2 . Finding 12 of the district court is an integrated finding that the use of the word Sunkist by the defendants is likely to cause confusion or mistake in the minds of the public because bread belongs to the same general class of merchandise as fruits, canned fruits, and vegetables, and because the defendants bread bearing the word Sunkist would naturally and reasonably be supposed to come from the plaintiffs. Fruits and vegetables are not in the same general class of merchandise as bread, nor are they goods of the same descriptive properties as bread. About the only things they have in common are that they are edible and are usually sold in the same class of stores to the same class of customers. Fruits and vegetables are the product of natures growth. Bread is a product of manufacture from many ingredients; it includes the skill of the baker and is usually produced locally. On the question of the same descriptive properties, in cases like the present, the appellate court is as capable of reaching a conclusion on this kind of evidence as the district court. Unless Sunkist covers everything edible under the sun, we cannot believe that anyone whose I. Q. is high enough to be regarded by the law would ever be confused or would be likely to be confused in the purchase of a loaf of bread branded as Sunkist because someone else sold fruits and vegetables under that name. The purchaser is buying bread, not a name. If the plaintiffs sold bread under the name Sunkist, that would present a different question; but the plaintiffs do not, and there is no finding that the plaintiffs ever applied the word Sunkist to bakery products.
1 2

15 U.S.C. 1051-1127. 15 U.S.C. 1114 (1)(a).

11.10

Proximity of Goods and Services

The unconscionable efforts of the plaintiffs to monopolize the food market by the monopoly of the word Sunkist on all manner of goods sold in the usual food stores should not be sanctioned by the courts. The trade-marks should be confined substantially to the articles for which they were authorized, otherwise, why limit the marks at all? Before a trademark can be granted under the applicable Lanham Act, the application therefor must name the products to which it is to apply. 15 U.S.C. 1051. We are unable to see how one seeking to purchase bread could be likely to be confused as to the source of origin of the bread, although sold under a trade-mark valid for fruits and vegetables. Certainly this must be true where bread has never been sold by the owner of said trade-mark, valid as to fruits and vegetables. The court found that the plaintiffs trade-marks Sunkist and Sun-Kist have acquired a secondary meaning of being related to and associated with the plaintiffs products only. What are the plaintiffs products? Fruits and vegetables, not bread, for there is, we repeat, no finding that the plaintiffs ever produced or marketed a loaf of bread. We do not think there is a finding that there is likelihood of confusion as to the source of origin of the products. . The only evidence to support this finding is the testimony of two so-called experts who testified on behalf of the plaintiffs, and the fact that bread is sold in the same class of stores and to the same class of customers as the plaintiffs fruits and vegetables. . . Mr. Lester, vice president of Corporation, testified: A. My opinion, sir, is that any person buying Sunkist Bread of the defendant would confuse those goods with the products of the plaintiffs. A. I base my opinion upon the knowledge of the grocery business and upon a very wide experience. The word Sunkist is our fair name, its our reputation of quality, it has been before the Americans public for thirty-eight years. It represents to the consumer that the goods are of the highest quality. The other witness, Mr. Eller, the advertising manager of Exchange, [opined]: A. I believe it would be confusing for the reason that Sunkist is a household word, universally accepted and recognized as identifying products emanating from the California Fruit Growers Exchange or the California Packing Company. I think it is only reasonable that consumers, being so familiar with the trademark on those products, when they saw it appear on another product would assume it came from those organizations or was sponsored in some way by them. Q. You say when the trade saw the name appear on another product. Are you referring now to a food product? A. Particularly to a food product. Thus we have the speculative opinion of the vice president of one plaintiff and the advertising manager of the other as to what the purchaser would likely think. No prospective purchaser gave any such opinion. Indeed, the many housewives called were not in the least confused. [The testimony of the two so-called experts is so unsubstantial as to afford no support for the finding of a likelihood of confusion required under the Lanham Act.] There is another strange aspect about this confusion which the plaintiffs contend is likely to occur. It will be observed that the plaintiffs have launched into the market two classes of goods under the marks Sunkist and Sun-Kist, which goods are much more nearly of the same class and descriptive properties than the defendants bread is of any of the products of the two plaintiffs; and this is all done without confusion because the parties have agreed, forsooth, there shall be no confusion. Granted the plaintiffs had a right to contract away the publics likelihood of confusion from their closely related products sold all over the U.S. and in foreign countries, their cry that there is a likelihood of confusion of the

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11.11

source of a loaf of bread put out by a local bakery at Rock Island, Illinois, with their products because they market fruits and vegetables under the same name, is hardly audible to us. When a customer bought a jar of jelly under the name Sunkist, he could not be confused as to whether it came from California Fruit Growers Exchange or California Packing Corporation. The plaintiffs had taken care of that by contract. We are supposed to believe that when a customer bought fruits or vegetables under the name Sunkist, he was not confused as to whether the fruit came from the California Fruit Growers Exchange or the vegetables from the California Packing Corporation; but if he bought a loaf of bread under the name Sunkist, he was likely to think that he bought it from one or the other of the plaintiffs because they sold fruits and vegetables, but never bread. With the plaintiffs practicing such hocus-pocus with the trade-name Sunkist, we shall ask to be excused when we are admonished by these dividers of confusion by contract to hear their vice president and advertising manager shout confusion on behalf of the purchasing public. . [The district court relied on California Fruit Growers Exchange et al. v. Windsor Beverages, Ltd., 118 F.2d 149 (7th Cir. 1941), but that] case, decided under the 1905 Act, did not limit likelihood of confusion as to the source of origin as does the Lanham Act, which rules our case. The Windsor case could be cited for the broad proposition that the use of the marks which were likely to cause confusion constituted an infringement if the goods were of the same class. That is what the findings square with in the instant case, and not the provisions of the Lanham Act. The Lanham Act limits the opinion in the Windsor case, and that case does not rule the instant case. . Notes 1. Under the Nice scheme mentioned earlier, Class 29 contains Meat, fish, poultry and game; meat extracts; preserved, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs, milk and milk products; edible oils and fats. Class 30 contains Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces (condiments); spices; ice. Class 31 contains Agricultural, horticultural and forestry products and grains not included in other classes; live animals; fresh fruits and vegetables; seeds, natural plants and flowers; foodstuffs for animals, malt. Had that scheme been in effect at the time of Sunkist, would it have made any difference that the three parties goods apparently fell into different classes? 2. If, as was surely true, plaintiffs agreement merely settled a prior dispute, how was that wrongful? Regardless, how did it prove to be less than wise? 3. Consider Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070 (5th Cir. 1997) (discussing phase-out agreements used by Exxon to be rid of conflicting users). Why might such agreements prove more useful than simple settlements? 4. The court states that appellate judges are as capable as trial judges of resolving factual issues unrelated to witness credibility. In 1985, however, Fed. R. Civ. P. 52(a) was amended to state: Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous. [Emphasis added.]

11.12

Proximity of Goods and Services

U.S. Court of Customs and Patent Appeals 476 F.2d 1357 (1973) Before Markey, Rich, Baldwin, Lane and Watson, Customs Court Judge. Markey, Judge: This appeal is from the decision of the Trademark Trial and Appeal Board affirming a refusal to register DuPonts mark Rally for a combination polishing, glazing and cleaning agent for use on automobiles on the basis of likelihood of confusion under 2(d) of the Lanham Act with Horizons registered mark Rally for an all-purpose detergent. . The application now before us was originally filed by Horizon. DuPont had earlier filed for registration of Rally for a combination wax and cleaning agent for automobiles. That application was refused in view of Horizons registration. DuPont appealed and the board affirmed. While its appeal was pending, DuPont purchased Horizons mark for the automobile product, the present application and the good will of that business. Because Horizon retained Rally for all-purpose detergent, an agreement designed to avoid conflict was entered into on the same day. Boundaries of use of the marks were established, permitting the sale of products incidentally usable in the other partys market but prohibiting any promotion as especially suited for use in such market. DuPonts realm was the automotive aftermarket. Horizons encompassed the commercial building or household market. The examiner, aware of the assignment and agreement, nonetheless refused registration, citing Horizons registration and describing the issue as ruled upon in the boards earlier decision. The board affirmed, holding: It is our opinion that despite any agreement between the parties the public interest cannot be ignored, and when the goods of the parties are as closely related as those here involved, their sale under the identical mark Rally would be likely to result in confusion, mistake, or deception. . Opinion Our decision turns on the application of 2(d) to the facts before us. DuPont, having an unquestioned right to use, argues that the right to register follows the right to use, particularly where the right on its goods is exclusive, Horizon having given up use of the mark in DuPonts market. The Patent Office solicitor denies such a broad relationship in the rights to use and register and emphasizes the duty of the Patent Office to guard the public interest against confusion. . We are thus presented with a welcomed opportunity to set forth a reliable guide for decision-making in cases involving 2(d). . [T]he following, when of record, must be considered: (1) The similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation and commercial impression. (2) The similarity or dissimilarity and nature of the goods or services as described in an application or registration or in connection with which a prior mark is in use. (3) The similarity or dissimilarity of established, likely-to-continue trade channels. (4) The conditions under which and buyers to whom sales are made, i. e. impulse vs. careful, sophisticated purchasing. (5) The fame of the prior mark (sales, advertising, length of use). (6) The number and nature of similar marks in use on similar goods. (7) The nature and extent of any actual confusion.

In re E.I. duPont de Nemours & Co.

Scope of Rights

11.13

(8) The length of time during and conditions under which there has been concurrent use without evidence of actual confusion. (9) The variety of goods on which a mark is or is not used (house mark, family mark, product mark). (10) The market interface between applicant and the owner of a prior mark: (a) a mere consent to register or use. (b) agreement provisions designed to preclude confusion, i. e. limitations on continued use of the marks by each party. (c) assignment of mark, application, registration and good will of the related business. (d) laches and estoppel attributable to owner of prior mark and indicative of lack of confusion. (11) The extent to which applicant has a right to exclude others from use of its mark on its goods. (12) The extent of potential confusion, i. e., whether de minimis. (13) Any other established fact probative of the effect of use. Where the Patent Office follows such process, it is not abandoning its duty under 2(d) or allowing individuals to take the law into their own hands. Consideration of evidence emanating from the only place where confusion can occur, i. e. the marketplace, is not related to who decides but to the process of deciding. . We find no warrant, in the statute or elsewhere, for discarding any evidence bearing on the question of likelihood of confusion. Reasonable men may differ as to the weight to give specific evidentiary elements in a particular case. In one case it will indicate that confusion is unlikely; in the next it will not. In neither case is it helpful or necessary to inject broad maxims or references to the public interest which do not aid in deciding. Only the facts can do that. In every case turning on likelihood of confusion, it is the duty of the examiner, the board and this court to find, upon consideration of all the evidence, whether or not confusion appears likely. That determination ends the decisional process. Decision Applying the above criteria, and after a thorough review of the entire record, we are convinced that confusion is not likely. . . It can be safely taken that reputable businessmen-users of valuable trademarks have no interest in causing public confusion. The genius of the free competitive system is the paralleling of the interest of the entrepreneur and the consuming public so far as possible. Altruism aside, it is in his pecuniary interest, indeed a matter of economic survival, that the businessman obtain and retain customers, the very purpose and function of a trademark, and that he avoid and preclude confusion. Millions of advertising dollars are spent daily for that precise purpose. The history of trademark litigation and the substantial body of law to which it relates demonstrate the businessmans alertness in seeking to enjoin confusion. In so doing he guards both his pocketbook and the public interest. Thus when those most familiar with use in the marketplace and most interested in precluding confusion enter agreements designed to avoid it, the scales of evidence are clearly tilted. It is at least difficult to maintain a subjective view that confusion will occur when those directly concerned say it wont. A mere assumption that confusion is likely will rarely prevail against uncontroverted evidence from those on the firing line that it is not. The parties here agreed to restrict themselves. Horizon is subject to suit for breach of contract and infringement if it promotes its Rally products for cleaning automobiles. DuPont can be sued if it promotes its Rally products in general cleaning. The fact that the goods of one party could be used in the field of the other is too conjectural and too widely

11.14

Proximity of Goods and Services

applicable to form the sole basis of decision, particularly where, as here, the parties have agreed to avoid the promotion of such cross-use. . Right to Use Right to Register . Although a naked right to use cannot always result in registration, the Act does intend, as we said above, that registration and use be coincident so far as possible. . Baldwin, Judge, dissents. Notes 1. Reconsider Sunkist: Why might Horizon and DuPont later face similar problems? 2. Reconsider Lucent, Chapter 10. Had a naked right to use supported registration, AT&T probably could have filed a use-based registration after it resolved the likely conflict with LSI (the California company).

McGregor-Doniger Inc. v. Drizzle Inc.

U.S. Court of Appeals, Second Circuit 599 F.2d 1126 (1979)

Before Friendly, Mansfield and Meskill. Meskill, Circuit Judge: . Since 1947 McGregor has sold golf jackets under the trademark Drizzler, and in 1965 the company registered this mark for use in connection with golf jackets. Although McGregor had in the past used the word Drizzler in connection with other types of apparel, by 1965 the company had ceased using the mark in connection with any goods other than golf jackets. . Drizzler jackets sell for about $25 to $50. . Drizzles coats have been sold under the unregistered trademark Drizzle since the founding of the company [in 1969]. . Drizzle coats [cost] from about $100 to $900. In 1974 McGregors management first became aware of the Drizzle company and of its use of the Drizzle mark in connection with the sale of womens coats. In January of 1975 McGregor notified Drizzle that if use of the Drizzle trademark continued, legal proceedings would be instituted. The warning went unheeded and in March of 1975 McGregor brought suit [under 15 U.S.C. 1114 and 1125(a) and] common law unfair competition. . After a two-day bench trial, Judge Lasker dismissed McGregors complaint. . Although the trial courts statement of the applicable principles needs modification, we conclude that reversal is not warranted. Discussion We are once again called upon to decide when a trademark owner will be protected against the use of its mark, or one very similar, on products other than those to which the owner has applied it. As we have observed before, the question does not become easier of solution with the years. Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2d Cir.), cert. den., 368 U.S. 820 (1961). The crucial issue in these cases is whether there is any likelihood that an appreciable number of ordinarily prudent purchasers are likely to be misled, or indeed simply confused, as to the source of the goods in question. In assessing the likelihood of such confusion we consider the factors laid out in the now classic Polaroid formula:

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11.15

Where the products are different, the prior owners chance of success is a function of many variables: the strength of his mark, the degree of similarity between the two marks, the proximity of the products, the likelihood that the prior owner will bridge the gap, actual confusion, and the reciprocal of defendants good faith in adopting its own mark, the quality of defendants product, and the sophistication of the buyers. Even this extensive catalogue does not exhaust the possibilities. The court may have to take still other variables into account. Polaroid, 287 F.2d at 495. The parties agree that Judge Lasker was correct in giving consideration to each of the factors mentioned in Polaroid before reaching a decision on the ultimate question of likelihood of confusion. (1) Strength of the Mark The most complex issue raised by McGregor concerns the trial courts attempt to gauge the strength of the Drizzler mark. Our prior opinions and those of the district courts of this Circuit have left litigants and judges uncertain as to the appropriate way to demonstrate and determine the strength of a mark. In the hope of providing some guidance to bench and bar, we set out in some detail our view of this issue. The term strength as applied to trademarks refers to the distinctiveness of the mark, or more precisely, its tendency to identify the goods sold under the mark as emanating from a particular, although possibly anonymous, source. The strength or distinctiveness of a mark determines both the ease with which it may be established as a valid trademark and the degree of protection it will be accorded. In an effort to liberate this aspect of trademark law from the welter of adjectives which had tended to obscure its contours, we recently reviewed the four categories into which terms are classified for trademark purposes. . Suggestive marks, falling between the merely descriptive and the arbitrary or fanciful, are entitled to registration without proof of secondary meaning, as are fully arbitrary or fanciful terms. The boundaries between these categories are not fixed. (A) term that is in one category for a particular product may be in quite a different one for another, because a term may shift from one category to another in light of differences in usage through time, because a term may have one meaning to one group of users and a different one to others, and because the same term may be put to different uses with respect to a single product. Abercrombie & Fitch, 537 F.2d at 9. Thus, while these categories can be useful for analytical purposes, the strength of a mark depends ultimately on its distinctiveness, or its origin-indicating quality, in the eyes of the purchasing public. . A coined term, initially suggestive or even fanciful, can lose its full trademark status if it comes to signify to the public the generic name of an article. See, e. g., King-Seeley Thermos Co. v. Aladdin Industries, Inc., 321 F.2d 577 (2d Cir. 1963) (thermos); Haughton Elevator Co. v. Seeberger, 85 U.S.P.Q. 80 (Commr Pat. 1950) (escalator). In contrast, a descriptive mark that is not distinctive on its face may acquire secondary meaning so as to identify the source of the goods and thus claim status as a valid mark deserving of registration and protection against infringement. . The many cases announcing that a mark found to be suggestive, arbitrary or fanciful (more than merely descriptive) is entitled to protection without proof of secondary meaning are correct as far as they go, for any term that is more than descriptive can be established as a valid mark which others may not infringe. Where the products involved are competitive and the marks quite similar, for example, the senior user of a more-than-descriptive mark need not prove secondary meaning. And where the marks involved are virtually identical, even if the

11.16

Proximity of Goods and Services

products are non-competitive, a senior user of a more-than-descriptive mark can carry its burden on the strength of the mark component of the Polaroid formula without proving secondary meaning. But these cases do not require us to hold that Judge Lasker erred in considering evidence of secondary meaning in determining whether McGregor is entitled to protection against the use, on non-competitive goods, of a mark similar to its own. [I]t is appropriate to consider all factors bearing on the likelihood of confusion. We view evidence concerning the origin-indicating significance of a mark in the marketplace as relevant to and probative of the strength of a mark and hence useful in assessing the likelihood of confusion. Consideration of evidence of secondary meaning will almost always work in favor of the senior user. Its mark, if registered, is presumptively distinctive. Proof of secondary meaning, acquired perhaps through successful advertising, can only enhance the strength of its mark and thus enlarge the scope of the protection to which it is entitled. On the other hand, the owner of a distinctive mark need not introduce evidence of secondary meaning in order to gain protection for its mark against the confusing similarity of others. Thus, for example, the relatively small size of a senior users advertising budget or sales volume will not diminish the strength of its valid mark, and the scope of protection accorded to that mark will not be narrowed because of such evidence. Only if the junior user carries the burden of affirmatively demonstrating that a term is generic is the senior user stripped of protection. McGregor claims that the district court erred in requiring proof of secondary meaning. We agree that the decision of the PTO to register a mark without requiring proof of secondary meaning affords a rebuttable presumption that the mark is more than merely descriptive. The trial court did in fact find the term Drizzler more than merely descriptive, although apparently only barely over the suggestive line. As a suggestive term, the Drizzler mark would be entitled to protection, regardless of proof of secondary meaning, if McGregor could prove that confusion of origin was likely to result from the use of a similar mark on non-competing goods. To the extent the district court held proof of secondary meaning necessary, it was in error. However, it was not error for the court to consider evidence bearing on the strength of the mark in determining the likelihood of consumer confusion and thus the scope of protection to which the Drizzler mark was entitled. Trademark strength is an amorphous concept with little shape or substance when divorced from the marks commercial context, We see no advantage to be derived from barring judicial consideration of the realities that give content to the concept of trademark strength. (2) Similarity of the Marks To the degree that the determination of likelihood of confusion rests upon a comparison of the marks themselves, the appellate court is in as good a position as the trial judge to decide the issue. . The district court quite correctly took into consideration all the factors that could reasonably be expected to be perceived by and remembered by potential purchasers. . Thus while observing that the typewritten and aural similarity of the two marks approaches identity, the district judge noted that the context in which the respective marks are generally presented reduces the impact of this similarity. The court observed that the label in each Drizzler jacket prominently features the McGregor name, which is printed in striking plaid letters. In addition, although there was testimony that retail stores on occasion in independent advertisements omit the McGregor logo, the evidence showed that McGregor always emphasizes the company name in its own advertising of Drizzler jackets. The fact that a trademark is always used in conjunction with a company name may [bear on likely] confusion.

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. If Drizzle had chosen consistently to present its mark in red plaid lettering or to advertise its coats as the McGregor Drizzle line, we would be compelled to conclude that the similarity between the Drizzler mark and the Drizzle mark, as generally presented to the public, had been heightened. Conversely, the fact that only one mark generally appears in close conjunction with the red plaid McGregor name increases the likelihood that the public, even when viewing the marks individually, will not confuse the two. The likelihood of confusion is further reduced by Drizzles use of its mark to identify itself as the producer rather than as the name of a particular [product], in contrast to McGregors practice. The district courts reasoning is sound. The differing methods of presentation of the two marks were properly examined. We agree that they reduce to some degree the potential for confusion inherent in the close similarity between the two marks. (3) and (4) Product Proximity and Quality of Defendants Product The district court concluded on the basis of differences in appearance, style, function, fashion appeal, advertising orientation, and price that the competitive distance between Drizzler jackets and Drizzle coats is significant. This conclusion is too amply supported. McGregor does not claim that Drizzler jackets and Drizzle coats are directly competitive. . Thus the degree of proximity between the two products is relevant here primarily insofar as it bears on the likelihood that customers may be confused as to the source of the products, rather than as to the products themselves, and the concern is not direct diversion of purchasers but indirect harm through loss of goodwill or tarnishment of reputation. It is evident that customers would be more likely to assume that Drizzler golf jackets and Drizzle golf jackets come from the same source than they would be likely to assume that Drizzler golf jackets and Drizzle steam shovels come from the same source. . In locating the appropriate place for Drizzle coats on this continuum, the district court considered many of the factors that are generally viewed as relevant. The impression that noncompeting goods are from the same origin may be conveyed [e.g.] the physical attributes or essential characteristics of the goods, with specific reference to their form, composition, texture or quality, the service or function for which they are intended, the manner in which they are advertised, displayed or sold, the place where they are sold, or the class of customers for whom they are designed and to whom they are sold. Looking at these very factors, the District Judge found: . [A]lthough the Drizzler can be worn by either men or women, sales are pitched primarily to the former. Furthermore, a Drizzler is ordinarily sold in the mens department of stores which carry both mens and womens garments. [Drizzles coats] are distinctly and exclusively tailored for women. . Drizzle manufactures [what might be called a jacket, too, but it is] entirely different in appearance. Drizzles garments are within the medium to high fashion range. The price range of Drizzles line, running from approximately $100 to $900 reflects the coats position in the fashion hierarchy. In Blue Bell, Inc. v. Jaymar-Ruby, Inc., 497 F.2d 433 (2d Cir. 1974), we recognized that due to diversification in the garment business, mens apparel and womens apparel had in certain cases been regarded as sufficiently related to justify the denial of registration to similar marks. However, in Blue Bell we characterized the proximity between mens sportswear and womens sportswear as only moderate and held that the likelihood of confusion was reduced by the rather detailed purchasing process appropriate to the goods in question. 497 F.2d at 43536. We know of no case holding that, as a matter of law, the competitive distance between mens apparel and womens apparel cannot be demonstrated to be significant on the

11.18

Proximity of Goods and Services

basis of the many factors relevant to such a determination. The district courts finding on this issue, based on the proper indicia and supported by the evidence, should not be disturbed. The high quality of Drizzles coats is not contested by McGregor. (5) Bridging the Gap In assessing the likelihood of confusion, the district court was required to consider the likelihood that McGregor would enter the womens coat market under the Drizzler banner. McGregor presented no evidence that such a step was being considered. Clearly the absence of any present intention or plan indicates that such expansion is less, rather than more, probable. Also of probative value is the fact that McGregor has for many years marketed its womens apparel under names bearing no similarity to Drizzler such as Brolly Dolly. On the other hand, the absence of a present intent to bridge the gap is not determinative. In a given case, sufficient likelihood of confusion may be established although likelihood of bridging the gap is not demonstrated. Because consumer confusion is the key, the assumptions of the typical consumer, whether or not they match reality, must be taken into account. The district courts finding that it is unlikely that Drizzler will bridge the gap is not clearly erroneous. Nor does the evidence presented below regarding McGregors own history of trademark use, as well as industry custom, compel the conclusion that, despite the improbability that McGregor will move into the womens coat market under the Drizzler trademark, consumers will assume otherwise. (6) Actual Confusion McGregors claim that the district court erred in considering the absence of proof of actual consumer confusion in assessing the likelihood of confusion is without merit. . [T]he district judge quite properly noted that not a single instance of consumer confusion had actually been demonstrated. While a plaintiff need not prove actual confusion, [one may] infer from the absence of actual confusion that there was also no likelihood of confusion. Affiliated Hosp. Prod., Inc. v. Merdel Game Mfg. Co., 513 F.2d 1183, 1188 (2d Cir. 1975). Finally, the district court was not required, as McGregor urges, to find actual consumer confusion on the basis of the testimony of one McGregor employee that she had been momentarily confused by a Drizzle advertisement. The weighing of evidence, particularly where credibility judgments must be made, is for the trial judge. His determination regarding actual confusion is not clearly erroneous.6 (7) Good Faith McGregor contends that the district court improperly placed the burden of proof on the good faith issue on McGregor. However, assuming without deciding that McGregor is correct in its view of the proper placement of the burden of proof, there is simply no indication in Judge Laskers opinion that this burden was in fact placed on McGregor. [T]he district court was entitled to consider and to credit the uncontradicted testimony of Drizzles witnesses that the Drizzle mark was selected without knowledge of McGregors prior use of the Drizzler mark. (8) Sophistication of Buyers McGregor asserts that the trial court erroneously considered only the typical sophisticated purchaser of Drizzles coats, to the exclusion of the casual or unsophisticated purchaser. We do not read the decision below in this manner. .
6

McGregors conceded ignorance of Drizzles existence during the years 196974 would seem to us to further buttress both the trial courts finding that no actual confusion had been proven and its ultimate conclusion that confusion is not likely. Dawn Donut Co. v. Harts Food Stores, Inc., 267 F.2d 358, 364 (2d Cir. 1959). Had customers, suppliers, or middlemen ever misdirected inquiries, complaints, raw materials, or finished goods, presumably the Drizzle company and its mark could not have escaped McGregors attention for five years.

Scope of Rights

11.19

McGregor offered no evidence establishing that any significant number of Drizzle purchasers are casual or unsophisticated. The district court was entitled to rely on the evidence indicating that the relevant purchasing group in fact tends to be sophisticated and knowledgeable about womens apparel. We cannot classify his findings in this regard as clearly erroneous. Conclusion In trademark infringement cases involving non-competing goods, it is rare that we are overwhelmed by the sudden blinding light of the justness of one partys cause. Most often our affirmances in such cases rest on the more modest conclusion that the trial judge was not wrong. . [T]he courts conclusion that likelihood of confusion had not been proved by McGregor is amply supported by its findings, none of which is clearly erroneous. And we do not believe that the error in analysis discussed in our opinion today compels reversal of the result reached by the district court. Because McGregor has failed to establish a likelihood of confusion, the balance of interests of necessity tips in Drizzles favor. Because the goods are concededly not competitive, McGregors sales of Drizzler jackets cannot be expected to suffer. Where noncompetitive goods are involved the trademark laws protect the senior users interest in an untarnished reputation and his interest in being able to enter a related field at some future time. Because consumer confusion as to source is unlikely, McGregors reputation cannot be expected to be harmed. Because of the improbability that McGregor will enter the womens coat field under the Drizzler name, its right to expand into other fields has not been unduly restricted. Thus we see no injury to McGregor resulting from denial of the relief requested. On the other hand, if forced to give up its mark Drizzle could be expected to be harmed by loss of the goodwill that has been associated with the Drizzle name since 1969. As we noted in Chandon Champagne Corp. v. San Marino Wine Corp., 335 F.2d 531, 536 (2d Cir. 1964): Although this court was the leader in granting relief to a trade-mark owner when there had been and was no likelihood of actual diversion (in cases involving noncompetitive products), we have likewise emphasized that against these legitimate interests of the senior user are to be weighed the legitimate interests of the innocent second user and that we must balance the conflicting interests both parties have in the unimpaired continuation of their trade mark use. . [T]he decision below warrants affirmance. Notes 1. What is the difference in function of the DuPont and Polaroid factors? Where does the Abercrombie & Fitch taxonomy play into the DuPont factors? 2. As in Sunkist, McGregor states that appellate judges are as capable as trial judges of resolving factual issues unrelated to witness credibility, but, as pointed out earlier, that capacity was reduced by a 1985 amendment to the federal rules of civil procedure. 3. Despite lack of agreement, how difficult will it henceforth be for either party in McGregor to stop others from using variations on drizzle on clothing? On other goods? 4. In how many ways is the duration of defendants use relevant to the outcome? 5. How would you expect a court to react if, in such a case, plaintiff were to attempt to bridge the gap a few days later? A few years later? 6. Does McGregor require those who adopt new trademarks to search for prior users? That aside, what most strongly implies defendants ignorance of plaintiff?

11.20

Proximity of Goods and Services

International Star Class Yacht Racing Assn v. Tommy Hilfiger, U.S.A., Inc.
U.S. Court of Appeals, Second Circuit 80 F.3d 749 (1996)

Before Newman, Oakes, Senior Circuit Judge, and Cabranes. Oakes, Circuit Judge: . ISCYRA is a non-profit corporation founded in 1922 for the purpose of governing and promoting the sport of Star Class yacht racing. . ISCYRA owns the rights to the design of Star Class boats and closely monitors the construction, certification, and registration of each boat in the class. One requirement of a genuine Star Class boat is that its main sail bear the solid red five-pointed star which serves as ISCYRAs insignia or a star of green, blue, silver or gold awarded at ISCYRA championship races. The red star is also used, along with the words Star Class, on the yachting hats, clothing, flags, decals and pins sold by ISCYRA. ISCYRA permits yacht clubs hosting regattas to use the insignia and Star Class on promotional items, and has collected royalties for their use in jewelry and posters. Hilfiger is a successful designer and marketer of mens clothing with sales of over $227 million in 1993. Its 1994 Spring Collection included garments bearing the words Star Class with a solid red five-pointed star. These garments were marketed as classic nautical sportswear with authentic details taken from the sport of competitive sailing and elements and patterns taken directly from actual racing sails. Hilfigers name and flag trademarks also appeared prominently on all the garments, which were marketed in the U.S. and abroad. Hilfiger requested a trademark screening search for the words Star Class from its attorneys. Hilfiger did not specify that it planned to use the words on nautical clothing with details from competitive sailing, and the search was limited to federal trademarks in a clothing classification. The screening search did not reveal any identical registered or applied-for federal trademarks, but Hilfigers attorneys advised it to conduct a full trademark search before using the words Star Class. Hilfiger did not conduct such a search until after it was sued. In April 1994, ISCYRA initiated this action [under 43(a) and related] New York state law. Despite notice of ISCYRAs suit and the results of the full trademark search, Hilfiger did not recall its allegedly infringing merchandise from retailers and had sold over $3 million worth of garments bearing the Star Class mark by the time the case came to trial. No one from Hilfiger took the witness stand. I. The Standards for Monetary Relief and Attorney Fees Section 35(a) of the Lanham Act governs claims for monetary relief and attorney fees made by plaintiffs who have successfully established a trademark violation. . The unavailability of actual damages does not preclude ISCYRA from recovering an accounting of Hilfigers profits or attorney fees. In order to recover an accounting of an infringers profits, a plaintiff must prove that the infringer acted in bad faith. . II. The District Courts Bad Faith Finding The district courts conclusion that Hilfiger did not act in bad faith or willfully infringe was based on several factual findings which we review for clear error. For the following reasons, we hold these findings to be clearly erroneous and incomplete, necessitating a remand to the district court for further consideration of the issue. .

Scope of Rights

11.21

The district court relied on Hilfigers limited first search as proof that Hilfiger did not engage in a deceptive commercial practice or otherwise act in bad faith in using ISCYRAs mark. We are not convinced, however, that such a limited search should exonerate Hilfiger, particularly when Hilfiger ignored the specific advice of its attorneys to search more thoroughly. The district court also found that although Hilfiger intentionally copied ISCYRAs Star Class mark, it did not intend to copy a trademark owned by another. The court recognized that Hilfigers failure to offer a credible innocent explanation could support an inference of bad faith. The court nevertheless concluded that Hilfiger had not willfully infringed on ISCYRAs mark, citing as evidence the limited trademark search discussed above. In light of Hilfigers minimal efforts, we agree with ISCYRA that the district court clearly erred in finding Hilfiger guilty only of simple copying and not of intent to copy a mark. Given Hilfigers awareness that it was copying authentic details from the sport of competitive sailing, it should have shown greater concern for the possibility that it was infringing on anothers mark. Hilfigers choice not to perform a full search under these circumstances reminds us of two of the famous trio of monkeys who, by covering their eyes and ears, neither saw nor heard any evil. Such willful ignorance should not provide a means by which Hilfiger can evade its obligations under trademark law. In addition to the district courts two clearly erroneous findings, we believe that its analysis of Hilfigers bad faith was incomplete. First, the district court did not address the fact that Hilfiger failed to conduct a full trademark search. Other courts have found that an infringer who acts in reasonable reliance on the advice of counsel generally cannot be said to have acted in bad faith. See, e.g., Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 962 (7th Cir. 1992), cert. den., 507 U.S. 1042 (1993). Conversely, the failure to follow the advice of counsel given before the infringement must factor into an assessment of an infringers bad faith. Second, the district court gave no consideration to Hilfigers conduct after ISCYRA brought suit. The suit gave Hilfiger notice, and the full trademark search that it conducted soon thereafter confirmed the existence of ISCYRAs mark. Hilfiger nonetheless continued to sell its merchandise with the infringing mark, racking up over $3 million in sales, without regard for the rights of ISCYRA. . We conclude that the district court, in determining whether Hilfiger acted in bad faith, relied on two clearly erroneous factual findings and did not consider all the evidence pertaining to the willfulness of Hilfigers infringement. We therefore remand the issue of Hilfigers bad faith for reconsideration in light of our analysis above. As a result, we cannot review the district courts denial of an accounting of profits and attorney fees, but instead must vacate the denial and remand. III. Protectability of ISCYRAs Five-Pointed Star Mark . We agree with the district court that Hilfiger cannot be enjoined from the use of a fivepointed star symbol on its garments. We do not read the courts opinion to reach beyond Hilfigers use of the insignia on clothing in the manner presented by the facts of this case. The issue of the insignias protectability in a case involving yachting or professional sailing, therefore, was not decided.

11.22

Proximity of Goods and Services

Notes Consider the following excerpt from a third, unpublished appeal: . The district court found that unrebutted evidence showed that the sales of [Hilfigers] garments were driven by the prominent use of defendants name, initials and crests, and not the words Star Class. From this fact the court inferred that there would be little, if any, motivation to confuse or deceive consumers or to profit from the Associations reputation. Moreover, [because its search did not find Star Class, the court found] no showing that Hilfiger had knowledge of the existence of [ISCYRA] or of the marks association with any entity at all, let alone any commercial use. The district court also found that, based on the holdings of contemporary trademark cases, Hilfiger did not have an obligation to conduct a more extensive trademark search in 1994. The court found that Hilfigers use of the Star Class mark as a decoration rather than as a trademark was consistent with the advice of Hilfigers attorney that use and registration would require a full trademark search. Moreover, the court found that the advice of Hilfigers attorney that Star Class would be a weak trademark because of the common use of the terms Star and Class encouraged Hilfiger to believe that the use of the term was permissible. Finally, the court found that Hilfigers continued sale of infringing garments after it denied Hilfigers motion for summary judgment did not indicate bad faith. Although there is some evidence that points toward the existence of bad faith, we cannot say, after review of the record, that we are left with the definite and firm conviction that a mistake has been committed. . 205 F.3d 1323, cert. denied, 531 U.S. 873 (2000) (some internal punctuation omitted). Also, with regard to use of star as a mark, see note 10 in the case below. 2. Why did Hilfigers fame influence the district court? In that regard, the case resembles Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1047 (2d Cir. 1992) (The prominent placement of the Tylenol name goes far toward countering any suggestion that McNeil intended to confuse its customers as to the source of its product.). 3. How might Lanham Act 5 have been helpful to ISCYRA? 4. Did the court of appeals regard Hilfigers simple failure to search as presumptively indicating bad faith? What if another firm is found? Reconsider Lucent, Chapter 10. 5. What is the difference between using Star Class decoratively rather than as a mark? May Kodak or Coca-Cola be used decoratively, say, on T-shirts? Such issues are further considered in Chapter 12. 1.

Moseley v. V Secret Catalogue, Inc.

U.S. Supreme Court 537 U.S. 418 (2003)

Justice Stevens: [The Federal Trademark Dilution Act (FTDA) added 43(c) to the Lanham Act in 1995. . The question we granted certiorari to decide is whether objective proof of actual injury to the economic value of a famous mark (as opposed to a presumption of harm arising from a subjective likelihood of dilution standard) is a requisite for relief under the FTDA.] [In 1998, Victor and Cathy Moseley (petitioners) opened a small store, named

Scope of Rights

11.23

Victors Secret. When owners of Victorias Secret (respondents) protested, the Mosleys changed the name to Victors Little Secret. Despite that, respondents filed claims based on 32, 43(a) and (c), and Kentucky common law.] [The district court found no likelihood of confusion and entered summary judgment for the Mosleys on the infringement and unfair competition claims. It found against them, however, on the 43(c) claim because an admittedly famous mark was diluted.] . [Affirming, the Sixth Circuit] held: While no consumer is likely to go to the Moseleys store expecting to find Victorias Secrets famed Miracle Bra, consumers who hear the name Victors Little Secret are likely automatically to think of the more famous store and link it to the Moseleys adult-toy, gag gift, and lingerie shop. This, then, is a classic instance of dilution by tarnishing (associating the Victorias Secret name with sex toys and lewd coffee mugs) and by blurring (linking the chain with a single, unauthorized establishment). . [The Sixth Circuit expressly rejected the holding] in Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div. of Travel Development, 170 F.3d 449 (4th Cir. 1999). In that case, which involved a claim that Utahs use on its license plates of the phrase greatest snow on earth was causing dilution of the greatest show on earth . [W]e granted certiorari to resolve the conflict. . [W]e decide the case on the assumption that the Moseleys use of the name Victors Little Secret neither confused any consumers or potential consumers, nor was likely to do so. Moreover, it [is] appropriate to decide the case on the assumption that there was no significant competition between the adversaries in this case. Neither the absence of any likelihood of confusion nor the absence of competition, however, provides a defense to the statutory dilution claim. Unlike traditional infringement law, the prohibitions against trademark dilution are not the product of common-law development, and are not motivated by an interest in protecting consumers. The seminal discussion of dilution is found in Frank Schechters 1927 article concluding that the preservation of the uniqueness of a trademark should constitute the only rational basis for its protection. Rational Basis of Trademark Protection, 40 Harv. L.Rev. 813, 831. Schechter supported his conclusion by referring to a German case protecting the owner of the well-known trademark Odol for mouthwash from use on various noncompeting steel products.9 That case, and indeed the principal focus of the Schechter article, involved an established arbitrary mark that had been added to rather than withdrawn from the human vocabulary and an infringement that made use of the identical mark.10
9 The German court held that the use of the mark, Odol, even on non-competing goods was gegen die guten Sitten, pointing out that, when the public hears or reads the word Odol, it thinks of the complainants mouth wash, and that an article designated with the name Odol leads the public to assume that it is of good quality. Consequently, concludes the court, complainant has the utmost interest in seeing that its mark is not diluted [verwssert]: it would lose in selling power if everyone used it as the designation of his goods. 40 Harv. L.Rev., at 83132. 10 Schecter discussed this distinction at length: The rule that arbitrary, coined or fanciful marks or names should be given a much broader degree of protection than symbols, words or phrases in common use would appear to be entirely sound. Such trademarks or tradenames as Blue Ribbon, used, with or without registration, for all kinds of commodities or services, more than sixty times; simplex more than sixty times; star, as far back as 1898, nearly four hundred times; Anchor, already registered over one hundred fifty times in 1898; Bull Dog, over one hundred times by 1923; Gold Medal, sixty-five times; 3-in-1 and 2- in-1, seventy-nine times; Nox-all, fifty times; Universal, over thirty times; Lily White over twenty times all these marks and names have, at this late date, very little distinctiveness in the public mind, and in most cases suggest merit, prominence or other qualities of goods or services in general, rather than the fact that the product or service, in connection with which the mark or name is used, emanates from a particular source. On the other

11.24

Proximity of Goods and Services

Some 20 years later Massachusetts enacted the first state statute protecting trademarks from dilution. . Notably, that statute expressly applied to both tarnishment and blurring. At least 25 States passed similar laws in the decades before the FTDA was enacted in 1995. See Restatement (Third) of Unfair Competition 25, Statutory Note (1995). III In 1988, when Congress adopted amendments to the Lanham Act, it gave consideration to an antidilution provision. During the hearings on the 1988 amendments, objections to that provision based on a concern that it might have applied to expression protected by the First Amendment were voiced and the provision was deleted from the amendments. The bill that was introduced in the House in 1995, and ultimately enacted as the FTDA, included two exceptions designed to avoid those concerns. See 15 U.S.C. 1125(c)(4). On July 19, 1995, the Subcommittee on Courts and Intellectual Property of the House Judiciary Committee held a 1-day hearing on H.R. 1295. No opposition to the bill was voiced at the hearing and, with one minor amendment that extended protection to unregistered as well as registered marks, the subcommittee endorsed the bill and it passed the House unanimously. The committees report stated that the purpose of H.R. 1295 is to protect famous trademarks from subsequent uses that blur the distinctiveness of the mark or tarnish or disparage it, even in the absence of a likelihood of confusion. As examples of dilution, it stated that the use of Dupont shoes, Buick aspirin, and Kodak pianos would be actionable under this legislation. Id., at 1030. In the Senate an identical bill passed on the same day by voice vote without any hearings. . IV The Victorias Secret mark is unquestionably valuable and petitioners have not challenged the conclusion that it qualifies as a famous mark within the meaning of the statute. Moreover, as we understand their submission, petitioners do not contend that the statutory protection is confined to identical uses of famous marks. Even if the legislative history might lend some support, it surely is not compelled by the statutory text. The district courts decision in this case rested on the conclusion that the name of petitioners store tarnished the reputation of respondents mark, and the court of appeals relied on both tarnishment and blurring to support its affirmance. Petitioners have not disputed the relevance of tarnishment, presumably because that concept was prominent in litigation brought under state antidilution statutes and because it was mentioned in the legislative history. Whether it is actually embraced by the statutory text, however, is another matter. Indeed, the contrast between the state statutes, which expressly refer to both injury to business reputation and to dilution of the distinctive quality of a trade name or trademark, and the federal statute which refers only to the latter, arguably supports a narrower reading of the FTDA. The contrast between the state statutes and the federal statute, however, sheds light on the precise question that we must decide. For those state statutes, like several provisions in the Lanham Act, repeatedly refer to a likelihood of harm, rather than to a completed harm. The relevant text of the FTDA provides that the owner of a famous mark is entitled to injunctive relief against another persons commercial use of a mark or trade name if that use causes dilution of the distinctive quality of the famous mark. (emphasis added). This text unambiguously requires a showing of actual dilution, rather than a likelihood of dilution. .
hand, Rolls-Royce, Aunt Jemimas, Kodak, Mazda, Corona, Nujol, and Blue Goose have been added to rather than withdrawn from the human vocabulary and have, from the very beginning, created in the public consciousness an impression or symbol of the excellence of the particular product in question. Id., at 82829.

Scope of Rights

11.25

. There is a complete absence of evidence of any lessening of the capacity of the Victorias Secret mark to identify and distinguish goods or services sold in Victorias Secret stores or advertised in its catalogs. . Moreover, the expert retained by respondents had nothing to say about the impact of petitioners name on the strength of respondents mark. . Justice Scalia joined all but Part III of the opinion. Justice Kennedy, concurring: As of this date, few courts have reviewed the statute we are considering, and I agree with the Court that the evidentiary showing required by the statute can be clarified on remand. The conclusion that the Victorias Secret mark is a famous mark has not been challenged throughout the litigation and seems not to be in question. The remaining issue is what factors are to be considered to establish dilution. . In this case, the district court found that petitioners trademark had tarnished the Victorias Secret mark. The court of appeals affirmed this conclusion and also found dilution by blurring. The Courts opinion does not foreclose injunctive relief if respondents on remand present sufficient evidence of either blurring or tarnishment. With these observations, I join the opinion of the Court. Notes 1. Justice Scalias failure to join part III is, no doubt, related to his aversion to the use of legislative history when statutory language is unambiguous. 2. Following Moseley, 43(c) was amended so that use of a mark could be enjoined if it were only likely to cause dilution. How would that have changed the result? Regardless of that, the opinions discussion of the historical underpinnings and objectives of state and federal dilution statutes warrants attention. 3. The historical account is supplemented by L.L. Bean, in Chapter 12. As recounted there, a British court once prevented use of Kodak on bicycles. Assuming some objective other than to free ride, should Kodiak on fishing equipment, boats or bobsleds be enjoined? In that vein, consider <http://www.kodiak.org> (visited Apr. 15, 2008). What of Kodiak for a camera store? 4. Traditional trademark infringement suits can serve the same ends as dilution if courts are inclined to bridge often substantial gaps. See the last paragraph of McGregor. See also, e.g., Mutual of Omaha Ins. Co. v. Novak, 836 F.2d 397 (8th Cir. 1987), cert. den., 488 U.S. 933 (1988). As the opinion recounts, 836 F.2d at 398, Mutual held registrations for an Indian head logo and Mutual of Omaha. It had also registered Mutual of Omahas Wild Kingdom (the name of a well-known TV series). This was the basis for objecting to the use of Mutant of Omaha, a similar (but emaciated) logo and Nuclear Holocaust Insurance on about 4000 T-shirts and other merchandise. Distinguishing several instances where plaintiffs lacked such evidence, the Eighth Circuit relied on credible surveys to find infringement under its version of the Polaroid factors and to enjoin sales of Novaks shirts. As discussed in Campbell in Chapter 7, would Novaks use be more properly characterized as parody or as satire. Why might that affect the outcome? 5. What bearing might the frequency with which stars have been used as marks have in the Hilfiger case? See the Courts note 10 in Moseley.

11.26

Geographic Considerations

C. Geographic Considerations

Dawn Donut Co., Inc. v. Harts Food Stores, Inc.

U.S. Court of Appeals, Second Circuit 267 F.2d 358 (1959)

Before Clark, Hincks and Lumbard. Lumbard, Circuit Judge: . Plaintiff, Dawn Donut Co., Inc., of Jackson, Michigan since June 1, 1922 has continuously used the trademark Dawn upon 25 to 100 pound bags of doughnut mix which it sells to bakers in various states, including New York. Plaintiff furnishes certain buyers of its mixes, principally those who agree to become exclusive Dawn Donut Shops, with advertising and packaging material bearing the trademark Dawn and permits these bakers to sell goods made from the mixes to the consuming public under that trademark. . The district court found that with the exception of one Dawn Donut Shop operated in the city of Rochester, New York during 192627, plaintiffs licensing of its mark in connection with the retail sale of doughnuts in the state of New York has been confined to areas not less than 60 miles from defendants trading area. The court also found that for the past eighteen years plaintiffs present New York state representative has, without interruption, made regular calls upon bakers in the city of Rochester, N.Y., and in neighboring towns and cities, soliciting orders for plaintiffs mixes and that throughout this period orders have been filled and shipments made of plaintiffs mixes from Jackson, Michigan into the city of Rochester. But it does not appear that any of these purchasers of plaintiffs mixes employed the plaintiffs mark in connection with retail sales. The defendant, Hart Food Stores, Inc., owns and operates a retail grocery chain. The products of defendants bakery, Starhart Bakeries, are distributed through these stores within a 45 mile radius of Rochester. Its advertising of doughnuts and other baked products over television and radio and in newspapers is also limited to this area. Defendants bakery corporation first used the imprint Dawn in packaging its products on Aug. 30, 1951. The district court found that the defendant adopted the mark Dawn without any actual knowledge of plaintiffs use, selecting it largely because of a slogan Baked at midnight, delivered at Dawn which was originated by defendants president and used by defendant in its bakery operations from 1929 to 1935. Defendants president testified, however, that no investigation was made prior to the adoption of the mark. Plaintiffs marks were registered federally in 1927, and their registration was renewed in 1947. Therefore by virtue of the Lanham Act, 15 U.S.C. 1072, the defendant had constructive notice of plaintiffs marks as of July 5, 1947, the effective date of the Act. Defendants principal contention is that because plaintiff has failed to exploit the mark Dawn for some thirty years at the retail level in the Rochester trading area, plaintiff should not be accorded the exclusive right to use the mark in this area. We reject this contention as inconsistent with the scope of protection afforded a federal registrant by the Lanham Act. Prior to the passage of the Lanham Act courts generally held that the owner of a registered trademark could not sustain an action for infringement against another who, without knowledge of the registration, used the mark in a different trading area from that exploited by the registrant so that public confusion was unlikely. Hanover Star Milling Co. v. Metcalf, 1916, 240 U.S. 403. By being the first to adopt a mark in an area without knowledge

Scope of Rights

11.27

of its prior registration, a junior user of a mark could gain the right to exploit the mark exclusively in that market. But the Lanham Act, 15 U.S.C. 1072, provides that registration is constructive notice of the registrants claim of ownership. Thus, by eliminating the defense of good faith and lack of knowledge, 1072 affords nationwide protection to registered marks, regardless of the areas in which the registrant actually uses the mark. That such is the purpose of Congress is further evidenced by 1115(a) and (b) which make the certificate of registration evidence of the registrants exclusive right to use the mark in commerce. Commerce is defined in 1127 to include all the commerce which may lawfully be regulated by Congress. These two provisions of the Lanham Act make it plain that the fact that the defendant employed the mark Dawn, without actual knowledge of plaintiffs registration, at the retail level in a limited geographical area of New York state before the plaintiff used the mark in that market, does not entitle it either to exclude the plaintiff from using the mark in that area or to use the mark concurrently once the plaintiff licenses the mark or otherwise exploits it in connection with retail sales in the area. Plaintiffs failure to license its trademarks in defendants trading area during the thirty odd years since it licensed them to a Rochester baker does not work an abandonment of the rights in that area. We hold that 1127, which provides for abandonment in certain cases of non-use, applies only when the registrant fails to use his mark, within the meaning of 1127, anywhere in the nation. Since the Lanham Act affords a registrant nationwide protection, a contrary holding would create an insoluble problem of measuring the geographical extent of the abandonment. Even prior to the passage of the Lanham Act, when trademark protection flowed from state law and therefore depended on use within the state, no case, as far as we have been able to ascertain, held that a trademark owner abandoned his rights within only part of a state because of his failure to use the mark in that part of the state. Accordingly, since plaintiff has used its trademark continuously at the retail level, it has not abandoned its federal registration rights even in defendants trading area. . Section 1114, sets out the standard for awarding a registrant relief against the unauthorized use of his mark by another. It provides that the registrant may enjoin only that concurrent use which creates a likelihood of public confusion as to the origin of the products in connection with which the marks are used. Therefore if the use of the marks by the registrant and the unauthorized user are confined to two sufficiently distinct and geographically separate markets, with no likelihood that the registrant will expand his use into defendants market,4 so that no public confusion is possible, then the registrant is not entitled to enjoin the junior users use of the mark. As long as plaintiff and defendant confine their use of the mark Dawn in connection with the retail sale of baked goods to their present separate trading areas it is clear that no public confusion is likely. The district court took note of what it deemed common knowledge, that retail purchasers of baked goods, because of the perishable nature of such goods, usually make such purchases reasonably close to their homes, say within about 25 miles, and retail purchases of such goods beyond that distance are for all practical considerations negligible. .
4

To sustain a claim for injunctive relief, the plaintiff need not show that the marks are actually being used concurrently in the same trading area. Since the statutory standard for the invocation of injunctive relief is the likelihood of confusion, it is enough that expansion by the registrant into the defendants market is likely in the normal course of its business. Even prior to the passage of the Lanham Act the courts held that the second user of a mark was not entitled to exclude the registered owner of the mark from using it in a territory which the latter would probably reach in the normal expansion of his business. Certainly, under the Lanham Act, evincing a congressional purpose to afford a registrant nationwide protection, the subsequent user is not entitled to any greater immunity.

11.28

Geographic Considerations

Moreover, we note that it took plaintiff three years to learn of defendants use of the mark and bring this suit, even though the plaintiff was doing some wholesale business in the Rochester area. This is a strong indication that no confusion arose or is likely to arise either from concurrent use of the marks at the retail level in geographically separate trading areas or from its concurrent use at different market levels. The decisive question then is whether plaintiffs use of the mark Dawn at the retail level is likely to be confined to its current area of use or whether in the normal course of its business, it is likely to expand the retail use of the mark into defendants trading area. If such expansion were probable, then the concurrent use of the marks would give rise to the conclusion that there was a likelihood of confusion. The district court found that in view of the plaintiffs inactivity for about thirty years in exploiting its trademarks in defendants trading area at the retail level either by advertising directed at retail purchasers or by retail sales through authorized licensed users, there was no reasonable expectation that plaintiff would extend its retail operations into defendants trading area. There is ample evidence in the record to support this conclusion and we cannot say that it is clearly erroneous. We note not only that plaintiff has failed to license its mark at the retail level in defendants trading area for a substantial period of time, but also that the trend of plaintiffs business manifests a striking decrease in the number of licensees employing its mark at the retail level. In the 192230 period plaintiff had 75 to 80 licensees across the country with 11 located in New York. At the time of the trial plaintiff listed only 16 active licensees not one of which was located in New York.5 The normal likelihood that plaintiffs wholesale operations in the Rochester area would expand to the retail level is fully rebutted and overcome by the decisive fact that plaintiff has in fact not licensed or otherwise exploited its mark at retail in the area for some thirty years. Accordingly, because plaintiff and defendant use the mark in connection with retail sales in distinct and separate markets and because there is no present prospect that plaintiff will expand its use of the mark at the retail level into defendants trading area, we conclude that there is no likelihood of public confusion arising from the concurrent use of the marks and therefore the issuance of an injunction is not warranted. . The final issue presented is raised by [the] counterclaim for cancellation of plaintiffs registration on the ground that the plaintiff failed to exercise the control required by the Lanham Act over the nature and quality of the goods sold by its licensees. We are all agreed that the Lanham Act places an affirmative duty upon a licensor of a registered trademark to take reasonable measures to detect and prevent misleading uses of his mark by his licensees or suffer cancellation of his federal registration. Section 1064, provides that a trademark registration may be cancelled because the trademark has been abandoned. And abandoned is defined in 1127 to include any act or omission by the registrant which causes the trademark to lose its significance as an indication of origin. Prior to the passage of the Lanham Act many courts took the position that the licensing of a trademark separately from the business in connection with which it had been used worked an abandonment. . Other courts were somewhat more liberal and held that a trademark could be licensed separately provided that the licensor retained control over the quality of the goods produced by the licensee. The Lanham Act clearly carries forward the view of these latter cases. Section 1055 provides:
5

One bakery shop, located in Potsdam, N.Y., which is approximately 200 miles from Rochester, applied for a license franchise after the commencement of this litigation.

Scope of Rights

11.29

Where a registered mark or a mark sought to be registered is or may be used legitimately by related companies, such use shall not affect the validity of such mark or of its registration, provided such mark is not used in such manner as to deceive the public. And 1127 defines related company to mean any person who legitimately controls or is controlled by the registrant or applicant. Without the requirement of control, the right of a trademark owner to license his mark separately from the business in connection with which it has been used would create the danger that products bearing the same trademark might be of diverse qualities. . Thus, unless the licensor exercises supervision and control over the operations of its licensees the risk that the public will be unwittingly deceived will be increased. Clearly the only effective way to protect the public where a trademark is used by licensees is to place on the licensor the affirmative duty of policing in a reasonable manner the activities of his licensees. The critical question on these facts therefore is whether the plaintiff sufficiently policed and inspected its licensees operations to guarantee the quality of the products they sold under its trademarks to the public. . It is the position of the majority of this court that the lower courts finding not clearly erroneous. I dissent [in that regard].6 [I]t is appropriate to remand the counterclaim for more extensive findings on the relevant issues rather than hazard a determination on this incomplete and uncertain record. I would direct the district court to order the cancellation of plaintiffs registrations if it should find that the plaintiff did not adequately police the operations of its licensees. But unless the district court finds some evidence of misuse of the mark by plaintiff in its sales of mixes to bakers at the wholesale level, the cancellation of plaintiffs registration should be limited to the use of the mark in connection with sale of the finished food products. Such a limited cancellation is within the power of the court. Section 1119 specifically provides that In any action involving a registered mark the court may order the cancellation of registrations, in whole or in part. Moreover, partial cancellation is consistent with 1051(a)(1), governing the initial registration of trademarks which requires the applicant to specify the goods in connection with which the mark is used and the mode or manner in which the mark is used in connection with such goods . Notes 1. Why would the duration of a defendants use in a case like Dawn have less effect than in a case like McGregor? 2. Despite Dawns superior rights, should it be allowed to franchise another store near one of defendants within a few days?
6

On cross-examination plaintiffs president conceded that during 1949 and 1950 the company in some instances, the number of which is not made clear, distributed its advertising and packaging material to bakers with whom it had not reached any agreement relating to the quality of the goods sold in packages bearing the name Dawn. It also appears from plaintiffs list of the sixteen bakers who were operating as exclusive Dawn shops at the time of the trial that plaintiffs contract with three of these shops had expired and had not been renewed and that in the case of 2 other such shops the contract had been renewed only after a substantial period of time had elapsed. The record indicates that these latter two bakers continued to operate under the name Dawn . Particularly damaging to plaintiff is the fact that one of the two bakers whose franchise contracts plaintiff allowed to lapse for a substantial period of time has also been permitted by plaintiff to sell doughnuts made from a mix other than plaintiffs in packaging labeled with plaintiffs trademark.

11.30

Geographic Considerations

3. Definitions in 45, 15 U.S.C. 1127, have been cited several times. It is important to appreciate that, unlike those in the Copyright Act, they are neither in alphabetical nor in any other obviously relevant order. Moreover, person is defined three times hardly the apogee of legislative drafting. 4. Who wrote the dissent in Dawn? 5. Why the majority was disinclined to cancel despite careless licensing practices described in note 6 is unclear. Those practices might not bear on the value of the mark at the wholesale level, but, as urged at the end of the opinion, they would destroy its value as a source indicator for finished goods. As set out in 14(3), even incontestable marks may be cancelled for uses that misrepresent the source of the goods or services on or in connection with which the mark is used. How does that bear on the issue raised in the dissent?

Copy Cop Inc. v. Task Printing Inc.

U.S. District Court, D. Massachusetts 908 F. Supp. 37 (1995)

Saris, District Judge:

Introduction Plaintiff Copy Cop, Inc. (Copy Cop) and defendant Sampa Corporation (Sampa) both use a British bobby cop logo in their photocopying and printing businesses. . Copy Cop now moves for partial summary judgment on its claims [under 32, 43(a) and common law trademark infringement]. . Undisputed Facts Construing the facts in the light most favorable to Sampa, the court treats the following facts as undisputed. Copy Cop [has] fourteen locations in the Boston metropolitan area.1 Since 1967, Plaintiff has used the corporate name Copy Cop along with a depiction of a British bobby cop. The name Copy Cop was registered with the U.S. Patent Office in 1968, and a cartoon cop was registered in 1972. Since 1969 Copy Cop has also used a more stylized depiction of cops in triplicate, which was registered in 1972 as the triple cop design. In 1978 Copy Cop registered the triple cop logo with the slogan Call the Cops, and in 1983 the free-standing slogan Call the Cops. . Copy Cop uses its triple cop logo and a blue and white color scheme. Over the years it has spent millions of dollars promoting its marks through advertising on radio, on television, and in print, including advertisements in the yellow pages, in public transit cars, and on flyers and calendars. Every Copy Cop storefront, product, and advertisement features prominently the cop logo, so that its copying business is strongly associated with the cop image and concept. By all accounts, Copy Cops logo and slogan are highly visible in the Boston area. Inside the Boston metropolitan area, the public associates a cop design with Copy Cop.2 Although advertising containing Copy Cops mark has appeared outside of the Boston area, and Copy Cop has some business customers outside Route 495, there have never been any Copy Cop stores outside of the metropolitan area.3
1

For the purposes of this opinion and order, and by agreement of the parties, the Boston metropolitan area or greater Boston area will be defined as the area within the circle created by Interstate Route 495. 2 Sampa appears to concede this point. Memorandum in Opposition at 6, Para. 8 (claiming only a dispute over [w]hether in any location other than the Boston metropolitan area the public associates a cop design with the Plaintiff).

Scope of Rights

11.31

Defendant Task has since 1993 provided photocopying, reproduction, and offset printing services similar to those of Copy Cop at a single location in Newton, a town within the greater Boston area. Sampa president Stephen Morris describes Signal Graphics services as similar to those of Copy Cop. Task is a franchisee of Sampa incorporated in 1984 to sell Signal Graphics Printing franchises. Sampa and its predecessors in interest have used a bobby cop leaning out from behind a traffic signal as a logo since at least October 1977. In 1988 Sampa registered the traffic signal with bobby cop logo. Sampas logo was used only in Colorado until 1989. Sampa franchises entered New England with the opening of a Rhode Island franchise in March 1992. The first, and only, franchise to open within the greater Boston area was defendant Tasks franchise in 1993. Copy Cop has locations in [nearby Waltham and Newton]. Tasks franchise agreement was executed in February 1993. The record does not indicate when Tasks store in Newton actually opened. Sampa franchises advertise through flyers, mass mailings, radio, television, yellow pages, signs on public transit, and newspapers. Task itself has spent thousands of dollars over the past two years. Sampa generally uses a red, yellow, and green color scheme in its traffic signal logo and on the storefronts of its franchises. A black-and-white version of its logo, however, currently appears in yellow pages advertising. . Sampa sometimes used the bobby cop logo alone in advertising. The logo as a whole is referred to inside the company as the bobby logo. Task used a free-standing bobby cop in a 1993 advertisement but has since stopped using it. Parties Knowledge Of Each Others Marks In 1989 Copy Cop became aware that Sampa was using a similar logo in Colorado when it saw an ad for franchises. Copy Cops president Gerstein first became aware of the Boston-area Signal Graphics franchise in the summer of 1993. In late 1993, after the opening of the Boston-area franchise, Copy Cop sent a cease and desist letter to Task and raised a challenge to Sampas registration in the U.S. Patent and Trademark Office. That proceeding has been stayed pending resolution of this litigation. . Sampas president became aware of Copy Cops logo in August 1992 while in Boston on vacation. Task put Sampa on notice again when it raised the issue of possible trademark infringement during its franchise negotiations in December 1992. Sampa agreed [to indemnify] Task against trademark infringement litigation. Consumer Confusion Before ruling on the motion for summary judgment, the court must address two threshold questions dealing with the admissibility of evidence concerning consumer confusion. Copy Cop through its president presents hearsay evidence of two consumer queries to store employees indicating confusion between Signal Graphics and Copy Cop. Without direct testimony from the employees who heard these queries, this evidence would not be admissible at trial and thus cannot be considered. Copy Cop also presents the results and analysis of a consumer survey performed by Sorensen Marketing in April 1995 at the Watertown Shopping Mall, within a few miles of Tasks and Copy Cops locations. . One of the Sorensen surveys findings was that, out of 200 consumers who were shown only a Signal Graphics calendar, in color, with the trade name Signal Graphics printed alongside the logo, 16.5% responded to an open-ended question by identifying the sponsor as Copy Cop. Sampa vigorously contests the validity of the survey.
3

There is a factual dispute as to the amount of business that Copy Cop derives from customers outside the Boston area.

11.32

Geographic Considerations

The only evidence Sampa presents is a written critique by one Edward Epstein. The record contains no description of Epsteins education or expertise in the field of survey research or generally. . In any event, even assuming that some or even most of the interviewers may have been unreliable or even suggested answers, as Epstein argues, there remains the undisputed fact that before there was any showing of the Copy Cop calendar that could lead to a side-byside comparison, and before there was any reference to the cop portion of the logo, some respondents thought that the Signal Graphics calendar was sponsored by Copy Cop. Discussion . Copy Cops federal registration of its marks is prima facie evidence of its exclusive right to use the registered mark. .5 Sampa has presented no evidence to rebut the presumption that Copy Cop has an exclusive right to the use of its mark. . Thus Copy Cop owns valid trademarks that are entitled to protection. Count II of Copy Cops complaint alleges violation of the federal unfair competition statute, 15 U.S.C. 1125. This section creates a statutory tort broader than common law unfair competition and the law of infringement, Aktiebolaget Electrolux v. Armatron International, Inc., 829 F. Supp. 458, 46061 (D. Mass. 1992), affd 999 F.2d 1 (1st Cir. 1993). Claims under either section may be established by proving a likelihood of confusion. Id. at 461. . 3. Likelihood of Confusion The likelihood of consumer confusion is generally the key element of claims for federal trademark infringement and unfair competition. Likelihood of confusion is conventionally measured according to eight factors: (1) the similarity of the marks; (2) the similarity of the goods; (3) the relationship between the parties channels of trade; (4) the relationship between the parties advertising; (5) the classes of prospective purchasers; (6) evidence of actual confusion; (7) the defendants intent in adopting the mark; and (8) the strength of the mark. See, e.g., [Volkswagenwerk Aktiengesellschaft v. Wheeler, 814 F.2d 812, 817 (1st Cir. 1987)]. [T]his court finds a substantial likelihood of consumer confusion. . Based on these factors, the court concludes that the Copy Cops bobby is a strong mark. The overwhelming strength of Copy Cops marks in the Boston area is an essential factor in this courts determination that there is a substantial likelihood of consumer confusion in this case. Sampa points to numerous users of the bobby cop mark across the country, apparently as evidence of the weakness of Copy Cops marks. It is true that a search of registered trademarks turned up many logos that feature either bobby cops or American cops. However, aside from Copy Cop and Sampa, there are no currently valid federal registrations of cops in the context of printing or copying services. The only other cop logo that turned up in the search no longer has a valid registration. It was an American-style cop that was used by a California company named One Stop Copy. Copy Cop challenged One Stop Copys attempt to register its mark and succeeded. One Stop Copys American-style cop was also very different. In fact, few if any of the nationally registered cop marks are as similar in design as those of Sampa and Copy Cop.
5

Copy Cops marks appear to have been registered and in use for the statutory five-year period that would make them incontestable. The owner of an incontestable mark enjoys a conclusive presumption of exclusive right to its use. See 15 U.S.C. 1065, 1115(b). However, Copy Cop has not claimed the conclusive presumption, and there is no evidence in the record that Copy Cop filed the affidavit necessary to establish incontestability.

Scope of Rights

11.33

Finally, third party registrations of similar trademarks are material in determining the strength of a mark only to the extent that the similar marks are promoted by their owners or recognized by the consuming public. McGraw-Edison Co. v. Walt Disney Productions, 787 F.2d 1163, 1171 (7th Cir. 1986). Sampa does not allege that any other cop logo is promoted in the Boston area, or that Boston area consumers are familiar with any other cop logo. 4. Laches Sampa raises the affirmative defense of laches to Copy Cops claim of trademark infringement. . Sampa argues that [i]n 1988 the Plaintiff knew that Sampa used a bobby in its logo but waited until April of 1994 to commence this proceeding. This argument fails under the cases, which hold that a partys failure to object to limited geographic use of a mark does not bar it from objecting later to widespread use of the mark. Tandy Corp. v. Malone & Hyde, Inc., 769 F.2d 362, 367 (6th Cir. 1985), cert. den., 476 U.S. 1158 (1986). That Copy Cop waited until some viable impact on its business is excusable delay. It is unclear whether Copy Cop even had a viable claim until the franchise opened in Newton, given that the local franchise is the source of the overlap in trade channels, advertising, and marketing, and the source of the most likely consumer confusion. It is axiomatic that a senior user cannot be guilty of laches until his right ripens into one entitled to protection. Coco Rico, Inc. v. Fuertes Pasarell, 738 F. Supp. 613, 619 (D. P.R. 1990). Sampa also argues that Copy Cop knew of Sampas intention to sell franchises nationally and thus should have objected to Sampas use of the mark before a franchise was actually sold in Massachusetts. The only evidence on this point is the testimony of Copy Cop president Michael Gerstein that his knowledge of Sampas national franchise program necessarily translated into an understanding that Sampa might sell a franchise in Boston. However, there is no allegation that Copy Cop was aware of the franchise negotiations or the franchise agreement until Gerstein noticed the franchise in operation in Newton in the summer, 1993. Waiting until a franchise actually appears makes good business sense, and is not inexcusable delay. . Even if this delay were inexcusable, Sampa has failed to allege undue prejudice. Because the courts holding that there is a likelihood of confusion is dependent upon the strength of Copy Cops mark in the Boston area, the declaratory judgment is limited to [that area]. Also, there is a genuine issue of material fact concerning the laches. [A declaration of trademark infringement outside of Boston was held to be unwarranted.] Notes 1. Defendants registration covered printing and graphics art services (U.S. Class 42). Plaintiffs covered xerographic, printing, and other reproduction services (U.S. Class 35). The Ninth Edition of the Nice Agreement, however, has photocopying in Class 42, but Class 35 now covers only graphic arts designing. Why is that potentially significant in such a case? 2. This dispute arose only shortly before Sampas mark could have become incontestable. Perhaps by agreement, its mark was later cancelled. ( S e e the PTOs website <http://tess2.uspto.gov/bin/gate.exe?f=tess&state=2ngbvn.1.1> (visited June 7, 2007).) Prior to that, could Copy Cop have operated near any of its franchisees? 3. See the courts note 5. Would the outcome have changed if Copy Cops marks had become incontestable? If both parties logos had become incontestable?

11.34

On the Internet

D. On the Internet

Juno Online Services, L.P. v. Juno Lighting, Inc.

U.S. District Court, N.D. Illinois 979 F. Supp. 684 (1997)

Leinenweber, District Judge: . . Juno Online is an online provider with approximately 1.5 million subscribers. . Juno Lighting has used the Juno name in its logo since 1976 and holds two federal trademarks for the name Juno. The current dispute revolves around use of the domain name juno.com. . Each computer that is linked to the Internet contains a numeric IP address. . An example of such an address would be 123.112.101.1. However, since it is easier to use, each computer is given an alphanumeric address, called a domain name, that corresponds to the IP address. When an Internet user types in the domain name, the users computer reads the name as the numeric IP address and contacts the appropriate computer. An example of such a domain name is juno.com. To send electronic mail (e-mail), the user addresses the message to the domain name of the recipients e-mail provider. America Online, for instance, is an e-mail provider, whose domain name is aol.com. Each user of the America Online service is given a user name to use with the domain name (e.g., harrysmith). The domain name also functions as a World Wide Web address, if preceded by the letters www (i.e., www.aol.com). . In December of 1994, Juno Online registered the domain name juno.com with Network Solutions, Inc. (NSI) and, subsequently, began providing free e-mail service to customers on April 22, 1996. Those who use Juno Onlines e-mail service are given their own user name to use together with Juno Onlines domain name (e.g., harrysmith@juno.com). According to Juno Online, its service has been quite popular, with 250,000 new accounts having been opened in January of 1997 alone. Juno Online currently services more than one out of every twenty U.S. e-mail addresses. Since 1995, Juno Online has also been using the World Wide Web address www.juno.com and, currently, its web page is visited thousands of times a day. By virtue of a government contract with the National Science Foundation, NSI is the exclusive registrar of Internet domain names. Therefore, once Juno Online registered the domain name juno.com with NSI, no other business or person could obtain that address. NSIs general policy is to register a specific domain name to the first person or entity to apply for registration. However, in 1995, NSI instituted a Domain Name Dispute Policy that allows a third party to challenge a registrants domain name, despite the first come, first serve general rule. According to the policy, to challenge a domain name, the third party must notify the registrant that the use of the domain name violates the third partys intellectual property rights. The third party must also file with NSI a certified copy of a trademark registration indicating that the third party owns a trademark that is the same as the contested domain name. If the domain name registrant cannot produce a similar trademark registration, NSIs policy requires it to suspend the use of the domain name until the issue is resolved. However, if either the registrant or third party files suit against the other before the suspension takes effect, NSI allows the registrant to continue using and leaves it for the court to decide.

Scope of Rights

11.35

In July 1995, an affiliate of Juno Online, began applying for federal service mark and trademark protection for the word Juno, as well as for various designs, slogans, and phone numbers related to Juno. Juno Lighting sent a letter to Juno Online stating their opposition to the Juno Online trademark applications. Juno Lighting also sent a letter to NSI requesting that NSI cancel Juno Onlines domain name juno.com. After NSI received Juno Lightings letter, pursuant to its dispute policy, NSI sent Juno Online a letter stating that, unless Juno Online transferred the domain name juno.com to Juno Lighting or filed a declaratory judgment action NSI would suspend the operation of the domain name juno.com. In response, Juno Online filed this action, naming Juno Lighting and NSI as defendants. However, after NSI agreed not to suspend the use of juno.com until the case has been resolved, Juno Online agreed voluntarily to dismiss NSI. Subsequently, Juno Lighting obtained, by registering with NSI, the domain name junoonline.com. According to Juno Lighting, this was done in order to prevent others from obtaining the name, thus allowing Juno Lighting to transfer the domain name to Juno Online to help resolve this dispute. In Count I, plaintiff seeks a declaration that its use of the domain name juno.com does not infringe or dilute Juno Lightings trademark. In Count II, Juno Online seeks a declaration that defendant misused the Juno Lighting trademarks, as well as injunctive relief, monetary damages, and a cancellation of Juno Lightings trademark registration. Count III alleges a Lanham Act violation arising from Juno Lightings registration of the domain name juno-online.com. Count IV speaks in state unfair competition and deceptive trade practices law. Defendant has counterclaimed for trademark infringement and dilution. Juno Lighting now moves to dismiss Counts II, III, and IV of plaintiffs amended complaint and to strike all claims for monetary relief. For the following reasons, the court grants defendants motion. [On motions to dismiss, courts must accept well-pleaded allegations as true and draw reasonable inferences in favor of the plaintiff.] III. Trademark Misuse In Count II, plaintiff has asserted a claim for trademark misuse, arguing that Juno Lighting misused its trademark by attempting to put Juno Online out of business. According to plaintiff, Juno Lighting not only tried to have NSI cancel Juno Onlines domain name, but it also tried to confuse the public and extract concessions from plaintiff by obtaining the domain name juno-online.com. Defendant, however, has pointed out that trademark misuse is not a recognized affirmative claim. In the past, it has been confined to being asserted as a defense to a suit for trademark infringement or as an element of a separate tort action. In light of the novel issues presented by this claim, the court heard oral arguments from both parties on Aug. 12, 1997. The court limited the arguments to the issue of whether this court should recognize an affirmative claim for trademark misuse. After hearing the arguments and considering the briefs and evidence filed, the court finds that, if, as plaintiff claims, in light of new technology and novel issues surrounding the Internet, an affirmative claim for trademark misuse should be recognized, this is not the proper case in which to do so. A. Background History of the Misuse Defense In 1942, the Supreme Court recognized the defense of patent misuse in Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942). . Although courts have continued to apply the patent misuse defense, in 1988, Congress limited the reach of this defense. See The Patent Misuse Reform Act of 1988, Pub.L. No. 100-703, 102 (conditioning, in part, the misuse defense on a showing of market power in the relevant market). The misuse defense has also been extended to other forms of intellectual property. For instance, while courts are split on whether a copyright misuse defense exists, in 1990, the Fourth Circuit recognized the defense in Lasercomb America, Inc. v. Reynolds, 911 F.2d 970

11.36

On the Internet

(4th Cir. 1990). The court reasoned that, since patent and copyright have similar origins and purposes, and since the Supreme Court had recognized a patent misuse defense in Morton Salt, a misuse defense should also be recognized in copyright law. Summing up the defense, the Court stated that [t]he question is not whether the copyright is being used in a manner violative of antitrust law but whether the copyright is being used in a manner violative of the public policy embodied in the grant of a copyright. Id. at 978. The misuse defense has also enjoyed a substantial history in the field of trademarks. . Some courts have applied trademark misuse in situations where the mark is being used to violate the antitrust laws. . Other courts have relied on the clean hands doctrine and found misuse even where there was no antitrust violation. Plaintiff, for instance, points to Clinton E. Worden & Co. v. California Fig Syrup Co., 187 U.S. 516, 53940 (1903), in which the Supreme Court held that the maker of a certain laxative could not enforce its trademark in Syrup of Figs, since the laxative did not actually contain fig juice. According to the Court, such deception deprived the trademark holder of the right to enforce the trademark in a court of equity. [Courts have also differed in other ways of no apparent applicability here]. . B. Misuse as an Affirmative Claim . Since the affirmative claim for patent misuse has a suspect history to begin with, and since plaintiff has failed to point the court to a single case in which an American court has used trademark misuse affirmatively, the court is quite skeptical to allow an affirmative claim for trademark misuse. The fear expressed in cases such as Morton Salt is that the holder of a government monopoly will use the monopoly to the detriment of the public by destroying competition. By contrast, in trademark law, the mark holder usually does not have the ability to destroy competition. The holder can only keep competitors from using the mark. . Perhaps a court may choose to recognize a new cause of action in a situation in which the mark holder does attempt to destroy its competitors through the use of its mark. However, this is not such a case. While, Juno Online does claim that Juno Lighting tried to use its government granted marks to put Juno Online out of business, there is no factual allegation backing up this conclusory statement. . IV. Section 43(a) of the Lanham Act In Count III of its amended complaint, plaintiff claims that, through defendants use or warehousing of the juno-online domain name, defendant has violated 43(a) of the Lanham Act, which states that [a]ny person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device that is likely to cause confusion or to deceive as to affiliation, connection, or association shall be liable in a civil action. Defendant claims, however, that, because it has merely acquired the domain name and has not used it, plaintiff has failed to allege two essential requirements: (1) that defendant caused goods and services to enter into commerce; and (2) that defendant used the domain name in commerce. The court finds defendants first argument to be frivolous. Defendant [urges] that 43(a) requires that defendant cause goods or services to enter into commerce. While this statement was true in 1989, the statute has subsequently been amended. . [G]oods or services [no longer need to] be placed into the stream of commerce. . The court, however, finds defendants second argument to be persuasive. To claim successfully a violation of 43(a), plaintiff must allege that defendant used the trademark in commerce. Use in commerce is defined as the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark. [ 45] (emphasis added). Defendant argues that the mere reservation of a right in the domain name juno-online.com is not enough to constitute use as defendant has merely reserved the right to use the mark.

Scope of Rights

11.37

In its complaint, plaintiff does state that Juno Lightings use or warehousing of the domain name is false and misleading. However, the conclusory statement that defendant used the domain name is insufficient. . Instead, plaintiff must offer some factual support in the complaint for a finding of use. However, in the amended complaint, plaintiff does not allege that defendant ever created a web page for the domain name juno-online.com. . The only factual allegation in the complaint relating to use is that defendant might be warehousing the domain name in hopes of reselling it or trading it to Juno Online. Plaintiff does argue that the warehousing of the name would be enough under 43(a). However, the use in commerce requirement would only be fulfilled if defendant were to use the Internet. The mere warehousing of the domain name is not enough. Since the complaint contains no factual allegation supporting an inference that defendant used the Internet, the court must dismiss Count III. V. State Law Claims . [T]he court can only conceive of two acts that could possibly support plaintiffs claim: (1) defendant having obtained the domain name juno-online.com; and (2) defendant having sent NSI a letter requesting that it cancel Juno Onlines domain name juno.com. Defendant argues that neither of these acts would support plaintiffs claims. Under the Illinois Consumer Fraud and Deceptive Business Practice Act, a person or corporation can be held liable for unfair or deceptive acts or practices used in the conduct of any trade or commerce. . Merely obtaining a domain name, without setting up a web site or e-mail service, is not enough to constitute trade or commerce. Furthermore, sending a letter to NSI asserting rights to the trademark juno is also not trade or commerce. [A claim under the Illinois Deceptive Trade Practices Act was also rejected because registering the domain name did not create likely confusion nor amount to deception.] The court notes that plaintiff has argued that defendant obtained the domain name juno-online.com in order to extort concessions from Juno during settlement. The court is mindful of the fact that this is a possible and reasonable inference from the pleadings. However, it does not alter the fact that plaintiff has failed to state a claim in Counts III and IV. While plaintiff may or may not be able to state a claim under a different theory of unfair competition, [i]t is not the role of this court to research and construct the legal arguments open to parties, especially when they are represented by counsel. Sanchez v. Miller, 792 F.2d 694, 703 (7th Cir. 1986), cert. den., 479 U.S. 1056 (1987). . VII. Conclusion Defendants motion to dismiss Counts II, III, and IV of plaintiffs amended complaint is granted. Judgment is entered in favor of defendant on Count II and the court dismisses Counts III and IV. Defendants motion to strike plaintiffs prayer for monetary relief is also granted. . Notes 1. Why is it significant that PTO records show Juno as registered over 60 times? 2. In Making the Most of Commercial Global Domains, 41 Idea 101 (2001), I discuss post- Juno changes in internet governance as well as 43(d) (prohibits cybersquatting), added in 1999. Under 43(d) bad faith registration may be actionable even when marks are merely warehoused and 35(d) allows statutory damages up to $100,000 per domain name. See also, Sallen v. Corinthians Licenciamentos LTDA, 273 F.3d 14 (1st Cir. 2001) (post-NSI mechanisms for resolving disputes do not trump the Lanham Act).

11.38

On the Internet

3. Section 43(d)(1)(B) lists nine nonexhaustive criteria for determining bad faith. Also see, e.g., Broadbridge Media, L.L.C. v. Hypercd.Com, 106 F. Supp.2d 505 (S.D. N.Y. 2000) (good faith registration, followed by an attempt to sell at a large profit, found actionable). 4. Did Juno Lighting cybersquat? If so, exactly how was Juno Online harmed?

Planned Parenthood Federation of America Inc. v. Bucci

U.S. District Court, S.D. New York 42 U.S.P.Q.2d 1430 (1997)*

Wood, District Judge: . Plaintiff Planned Parenthood has used its present name since 1942. Plaintiff registered the stylized service mark Planned Parenthood on the Principal Register of the U.S. PTO [in] 1955, and registered the block service mark Planned Parenthood [in] 1975. Plaintiffs 146 separately incorporated affiliates are licensed to use the mark. Plaintiff expends a considerable sum in promoting and advertising its services. The mark Planned Parenthood is strong and incontestable. Plaintiff operates a web site using the domain name ppfa.org. Plaintiffs home page offers Internet users resources regarding sexual and reproductive health.2 Defendant Bucci is the host of Catholic Radio, a daily radio program. Bucci is an active participant in the anti-abortion movement. . On Aug. 28, 1996, Bucci registered the domain name plannedparenthood.com with Network Solutions, Inc. (NSI). . . Once a user accesses Buccis home page, she sees on the computer screen the words Welcome to the PLANNED PARENTHOOD HOME PAGE! . Once the whole home page has loaded, the user sees a scanned image of the cover of a book under which appear several links. After clicking on a link, the user accesses text related to that link. By clicking on Foreword or Afterword, the Internet user simply accesses the foreword or afterword of [an anti-abortion] book. . . Defendant demonstrated full knowledge of plaintiffs name and activities, and admitted to an understanding that using plaintiffs mark as his domain name would attract pro-abortion Internet users to his web site because of their misapprehension as to the sites origin. 6 I therefore now make the factual finding that defendants motive in choosing plaintiffs mark as his domain name was, at least in part, to attract to his home page Internet users who sought plaintiffs home page. . [III. Analysis] B. Whether the Lanham Act is Applicable . Planned Parenthood has brought suit under 15 U.S.C. 1114, 1125(a), and 1125(c). . Section 1125(c)(4)(B) specifically exempts from the scope of all provisions of 1125 the noncommercial use of a mark. (Emphasis added). As a preliminary matter, I note that although the parties agreed at a hearing that defendants use of plaintiffs mark is in commerce , defendant now argues that his activities are not subject to the Act because they are not in commerce. I find this argument
* 2

Affd, 152 F.3d 920 (2nd Cir. 1998) (Table); cert den., 525 U.S. 834 (1998). Plaintiffs Houston affiliate owns the domain name plannedparenthood.org, and is in the process of transferring that domain name to plaintiff. 6 In addition, after plaintiff contacted defendant about the use of its mark as a domain name, defendant made the following statement on his radio show, Of course, we knew this would happen. We knew we would draw the fire of Planned Parenthood. So were [sic]got ourselves into a real fight. Hey listen, were asking for it.

Scope of Rights

11.39

meritless. The use in commerce requirement is a jurisdictional predicate to any law passed by Congress. It is well settled that the scope of in commerce as a jurisdictional predicate has a sweeping reach. The activity involved in this action meets the in commerce standard for two reasons. First, defendants actions affect plaintiffs ability to offer plaintiffs services, which are surely in commerce. Thus, even assuming, arguendo, that defendants activities are not in interstate commerce, the effect on plaintiffs interstate commerce activities would place defendant within the reach of the Lanham Act. Second, Internet users constitute a national, even international, audience. The nature of the Internet indicates that establishing a typical home page would satisfy the Lanham Acts in commerce requirement. Therefore, I conclude that defendants actions are in commerce within the meaning of that term for jurisdictional purposes.7 I now turn to the specific language of each provision under which plaintiff has brought suit. 1. Section 1114 . Defendants use of plaintiffs mark satisfies the requirement of 1114 in a variety of ways. . Although defendant receives no money from any sales of the book that result from its exposure on his home page, there is no personal profit requirement in 1114. . Second, defendants home page is merely one portion of his broader effort to educate Catholics about the anti-abortion movement. With respect to that effort, defendant solicits funds and encourages supporters to join him in his protest activities. Much like plaintiff, defendant has a practical as well as a political motive. While plaintiff seeks to make available what it terms reproductive services, including, inter alia, birth control and abortion services, defendant offers informational services for use in convincing people that certain activities, including the use of plaintiffs services, are morally wrong. In this way, defendant offers his own set of services, and his use of plaintiffs mark is in connection with the distribution of those services over the Internet. . In addition, defendants use of plaintiffs mark is in connection with the distribution of services because it is likely to prevent some Internet users from reaching plaintiffs own Internet web site. Prospective users of plaintiffs services who mistakenly access defendants web site may fail to continue to search for plaintiffs own home page. One witness explained, We didnt resume the search [for plaintiffs web site] after [finding defendants web site] because we were pretty much thrown off track. . 2. Section 1125(c) [Despite defendants arguments, the court found his use to be commercial under 1125(c) [(4)(B)] for three reasons: (1) he promotes a book, (2) he solicits funds for his activities, and (3) his actions are designed to, and do, harm plaintiff commercially.] .
Defendant argues that the Court should define use in commerce as it is defined in 15 U.S.C. 1127. There, Congress defines the use [of a mark] in commerce as, inter alia, its use on services when it is used or displayed in the sale or advertising or services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce in connection with the services. Plaintiff notes that the narrower definition of use in commerce as set out in 1127 has been used by the PTO in initially determining whether a mark qualifies for federal registration. See, e.g., 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, 25:57 (3d ed. 1996) (It is difficult to conceive of an act of infringement which is not in commerce in the sense of the modern decisions. However, the PTO still appears to adopt a higher standard of use in commerce for purposes of qualifying for federal registration in the first instance.) In any event, I note that defendant satisfies the requirements of 1127. . Testimony has shown that Internet users in Texas, Massachusetts and Delaware have accessed defendants home page. Second, defendant is engaged in commerce in connection with his web site due to his use of the Internet and his effect on plaintiffs activities, because those activities constitute commerce within the meaning of 1127, which defines commerce as all commerce which may lawfully be regulated by Congress.
7

11.40

On the Internet

In [MGM-Pathe Communications v. Pink Panther Patrol, 774 F. Supp. 869 (S.D.N.Y. 1991) (holding that a group formed to offer the free service of protecting gay individuals from assault was subject to Section 1114)], Judge Leval considered whether a non-profit group that uses anothers trademark in support of its own non-profit aims is subject to the Lanham Act. Specifically, he examined whether a group whose aim was to provide protection to the gay community and to educate the general public about violence against that community could appropriate a part of the name of a movie produced by plaintiff (Pink Panther). After finding that there was a likelihood of confusion, Judge Leval concluded that defendants goal of political activism did not confer immunity from the Lanham Act. Defendant attempts to distinguish MGM-Pathe from the case now before the court on the ground that defendant in this action has used plaintiffs mark in an effort to criticize plaintiff, while the MGM-Pathe defendants had no intent to criticize the Pink Panther movies. The court finds this distinction unhelpful. The mere fact that defendant seeks to criticize plaintiff cannot automatically immunize a use that is otherwise prohibited by the Lanham Act. Additionally, defendant has testified that he solicits contributions on his Catholic Radio radio show and has solicited contributions on the air in connection with the instant lawsuit. . Courts have found that fund-raising activities may bring a defendants actions within the scope of the Lanham Act. . [D]efendant relies on Panavision, Intl, L.P. v. Toeppen, 945 F. Supp. 1296 (C.D. Cal. 1996) for the proposition that registering a domain name is not a commercial use within the meaning of the anti-dilution provision of the Lanham Act. Defendant simply ignores [that] he has created a home page that uses plaintiffs mark as its address, conveying the impression to Internet users that plaintiff is the sponsor of defendants web site. The Panavision court noted that the exception for noncommercial use of a famous mark is intended to prevent courts from enjoining constitutionally-protected speech. Id. at 1303. However, whether defendants use of the mark is commercial within the meaning of the Lanham Act is a distinct question from whether defendants use of the mark is protected by the First Amendment; I reach the latter question below. The holding of Panavision does not suggest that defendants use of plaintiffs mark is not commercial. [For essentially the same reasons, the court found Bucci subject to 1125(a)(1)(A). The court also found it unnecessary to decide whether he was subject to 1125(a)(1)(B).] C. The Likelihood of Confusion 1. The Polaroid Factors The Second Circuit set out the factors a court must consider in determining the likelihood of consumer confusion in Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir. 1961). Those factors include: the strength of plaintiffs mark, the degree of similarity between the two marks, the competitive proximity of the products or services, the likelihood that the plaintiff will bridge the gap between the two markets, the existence of actual confusion, the defendants good faith in adopting the mark, the quality of the defendants product, and the sophistication of the purchasers. . b. The Degree of Similarity Between the Marks The two marks, Planned Parenthood and plannedparenthood.com are nearly identical. The degree of similarity between defendants domain name and [that] owned by plaintiffs affiliate, Planned Parenthood of Houston, plannedparenthood.org, is even stronger. Plaintiff was originally under the impression that according to Internet usage, it could operate using only a .org designation. Currently, however, NSI allows non-profit corporations, as well as for-profit businesses and individuals, to use the .com designation. The .com designation is commonly used by businesses. The degree of similarity between the marks thus increases the likelihood of confusion among Internet users. .

Scope of Rights

11.41

e. The Existence of Actual Confusion . Even when the picture of The Cost of Abortion finally does appear on the screen, the user is unlikely to know that she is not at plaintiffs home page. The books ambiguous title The Cost of Abortion, alone, cannot disabuse every Internet user of the notion that she has found plaintiffs home page. The Internet user must actually click on a link to read excerpts from the book, biographical information about the author, or book endorsements. Only in the course of reading those items can the user determine that she has not reached plaintiffs home page. Depending on which link the user has chosen to access, there may be an additional delay before the user can grasp that plaintiff is not the true provider of the home page.11 This lengthy delay between attempting to access plaintiffs home page and learning that one has failed to do so increases the likelihood of consumer confusion. . D. Defendants Additional Defenses 1. The Parody Exception . I am not persuaded by defendants argument that the message of the home page provides an ironic and contrasting allusion to plaintiff, nor do I find convincing his argument that the banner heading of the home page is sarcastic. Similarly, I do not conclude that defendants use of the term planned parenthood in the context described above is intended not to confuse the user into an association with plaintiff, but rather to reference Plaintiff as the enemy. Because defendants use of planned parenthood does not convey the simultaneous message that the home page and web site are those of plaintiff and those of defendant, defendants argument that his use of the mark is a parody fails. Thus, the Polaroid factors must govern. 2. The First Amendment Exception . Defendants use of another entitys mark is entitled to First Amendment protection when his use of that mark is part of a communicative message, not when it is used to identify the source of a product. . I therefore determine that his infringement on plaintiffs mark is not protected. E. Whether a Disclaimer Will Cure the Confusion Defendant argues that a disclaimer, rather than an injunction, is the appropriate remedy here. I disagree. Due to the nature of Internet use, defendants appropriation cannot adequately be remedied by a disclaimer. Defendants domain name and home page address are external labels that, on their face, cause confusion among Internet users and may cause Internet users who seek plaintiffs web site to expend time and energy accessing defendants web site. Therefore, I determine that a disclaimer on defendants home page would not be sufficient to dispel the confusion induced by his home page address and domain name. . Notes 1. Was any subpart of 43 more useful to Planned Parenthood than 32, standing alone? 2. Regarding actions under 43, it warrants mention that amendments to 43(c) did more than make the likelihood of dilution actionable. For example, the content of 43(c)(4)(B) referenced in Part III.B of the opinion now appears in 43(c)(3)(C) with one notable change. Where exclusions may have once applied to all of 43 action, that is no longer true. The exclusions are now said to apply under this subsection, i.e., only 43(c).
Defendant himself agreed that after clicking on the first link listed on the home page, the Foreword, a user would not ascertain the anti-abortion message until the middle of the second paragraph. Similarly, the Book Review link contains endorsements that are ambiguous. The concerns which [the author] raises affect every American who cares about this countrys future prosperity, reads one quote; another notes, This well reasoned exposition should be read by thoughtful people on both sides of the issue.
11

11.42

On the Internet

3. If commercial and in commerce were synonymous, would it have affected the outcome of Planned Parenthood? If so, how? 4. See People for the Ethical Treatment of Animals v. Doughney, 263 F.3d 359 (4th Cir. 2001). Defendant argued that his site (peta.org) featured People Eating Tasty Animals as a parody, but he posted this on his website: PeTa has no legal grounds whatsoever to make even the slightest demands of me regarding this domain name registration. If they disagree, they can sue me. And if they dont, well, perhaps they can behave like the polite ladies and gentlemen that they evidently arent and negotiate a settlement with me. Otherwise, PeTa can wait until the significance and value of a domain name drops [sic] to nearly nothing, which is inevitable as each new web search engine comes on-line, because thats how long its going to take for this dispute to play out. 263 F.3d at 363. The opinion lists several reasons to support transfer of the domain name to PETA, but 43(d) seems especially apt. 5 In Smith v. Chanel, as well as Jacob Siegel and EAL, in Chapter 10, disclaimers were found to be, or were suggested as, appropriate. Why not in Planned Parenthood? What of cases where the possibility was not even mentioned? What of the next case?

U.S. Court of Appeals, Seventh Circuit 306 F.3d 509 (2002) Before Posner, Easterbrook and Evans. Posner, Circuit Judge: . Perryman sells second-hand beanbag stuffed animals, primarily but not exclusively Tys Beanie Babies, over the Internet. . She has <www.bargainbeanies.com> where she advertises her wares. Tys suit is based on the federal antidilution statute, 15 U.S.C. 1125(c). The district court granted summary judgment in favor of Ty. Perrymans appeal argues primarily that beanies has become a generic term. The fundamental purpose of a trademark is to reduce consumer search costs by providing a concise and unequivocal identifier of the particular source of particular goods. The consumer who knows at a glance whose brand he is being asked to buy knows whom to hold responsible if the brand disappoints and whose product to buy in the future if the brand pleases. This in turn gives producers an incentive to maintain high and uniform quality. A successful brand, however, creates an incentive in unsuccessful competitors to pass off their inferior brand. The traditional and still central concern of trademark law is to provide remedies against this practice. Confusion is not a factor here, however, with a minor exception. Perryman is not a competing producer, and her web site clearly disclaims any affiliation with Ty. But that does not get her off the hook. The reason is that state and now federal law also provides a remedy against the dilution of a trademark, though the federal statute is limited to the subset of famous trademarks and to dilutions of them caused by commercial uses that take place in interstate or foreign commerce. Beanie Babies, and Beanies as the shortened form, are famous trademarks in the ordinary sense of the term. Tys trademarks are household words. And Perrymans use of these words was commercial in nature and took place in interstate commerce, and doubtless in foreign commerce as well.

Ty, Inc. v. Perryman

Scope of Rights

11.43

But what is dilution? There are (at least) three possibilities relevant to this case, each defined by a different underlying concern. First, there is concern that consumer search costs will rise if a trademark becomes associated with a variety of unrelated products. Suppose an upscale restaurant calls itself Tiffany. There is little danger that the consuming public will think its dealing with a branch of the Tiffany jewelry store if it patronizes this restaurant. But when consumers next see the name Tiffany they may think about both the restaurant and the jewelry store, and if so the efficacy of the name as an identifier of the store will be diminished. Consumers will have to think harder incur as it were a higher imagination cost to recognize the name as the name of the store. Exxon Corp. v. Exxene Corp., 696 F.2d 544, 54950 (7th Cir. 1982). So blurring is one form of dilution. Now suppose that the restaurant that adopts the name Tiffany is actually a striptease joint. [C]onsumers will not think the striptease joint under common ownership with the jewelry store. But because of the inveterate tendency of the human mind to proceed by association, every time they think of the word Tiffany their image of the fancy jewelry store will be tarnished by the association of the word with the strip joint. Hormel Foods Corp. v. Jim Henson Productions, Inc., 73 F.3d 497, 507 (2d Cir. 1996). So tarnishment is a second form of dilution. Analytically it is a subset of blurring, since it reduces the distinctness of the trademark as a signifier of the trademarked product or service. Third, [with far-reaching implications, are] situations in which someone is still taking a free ride. Suppose the Tiffany restaurant in our first hypothetical example is located in Kuala Lumpur and though the people who patronize it (it is upscale) have heard of the Tiffany jewelry store, none of them is ever going to buy anything there, so that the efficacy of the trademark as an identifier will not be impaired. If appropriation of Tiffanys aura is nevertheless forbidden by an expansive concept of dilution, the benefits of the jewelry stores investment in creating a famous name will be, as economists say, internalized that is, Tiffany will realize the full benefits of the investment rather than sharing. This rationale for antidilution law has not yet been articulated in or even implied by the case law, although a few cases suggest that the concept of dilution is not exhausted by blurring and tarnishment. The validity of [a misappropriation] rationale may be doubted, however. The number of prestigious names is so vast that it is unlikely that the owner of a prestigious trademark could obtain substantial license fees if commercial use of the mark without his consent were forbidden. Competition would drive the fee to zero since, if the name is being used in an unrelated market, virtually every prestigious name will be a substitute for every other in that market. None of the rationales we have canvassed supports Tys position. You cant sell a branded product without using its brand name, that is, its trademark. Supposing that Perryman sold only Beanie Babies (a potentially relevant qualification, as well see), we would find it impossible to understand how she could be thought to be blurring, tarnishing, or otherwise free riding to any significant extent. To say she was would amount to saying that if a muffler manufacturer truthfully advertised that it specialized in making mufflers for installation in Toyotas, Toyota would have a claim of trademark infringement. Of course there can be no aftermarket without an original market, and in that sense sellers in a trademarked goods aftermarket are free riding on the trademark. But in that attenuated sense of free riding, almost everyone in business is free riding. Tys argument is especially strained because of its marketing strategy. . The main goal is to stampede children into nagging their parents to buy the new Baby lest they be the only kid on the block who doesnt have it. A byproduct (or perhaps additional goal) is the creation of a secondary market, like the secondary market in works of art, in which prices on scarce Beanie Babies are bid up to a market-clearing level. Perryman is a middleman in this

11.44

On the Internet

secondary market that came into existence as the result, either intended or foreseen, of a deliberate marketing strategy. That market is unlikely to operate efficiently if sellers who specialize in serving it cannot use Beanies to identify their business. Perrymans principal merchandise is Beanie Babies, so that to forbid it to use Beanies is like forbidding a used car dealer who specializes in selling Chevrolets to mention the name in his advertising. . We surmise that what Ty is seeking in this case is an extension of antidilution law to forbid commercial uses that accelerate the transition from trademarks (brand names) to generic names (product names). Words such as thermos, yo-yo, escalator, cellophane, and brassiere started life as trademarks, but eventually lost their significance as source identifiers, and when that happened continued enforcement of the trademark would simply have undermined competition with the brand by making it difficult for competitors to indicate that they were selling the same product by rendering them in effect speechless. Ty is doubtless cognizant of a similar and quite real danger to Beanie Babies and Beanies. Notice that the illustrations we gave of trademarks that became generic names are all descriptive or at least suggestive of the product, which makes them better candidates for genericness than a fanciful trademark such as Kodak or Exxon. Tys trademarks likewise are descriptive of the product they denote; its argument that Beanies is inherently distinctive (like Kodak and Exxon) is nonsense. A trademark that describes a basic element of the product, as Beanies does, is not protected unless the owner can establish that the consuming public accepts the word as the designation of a brand of the product (that it has acquired, as the cases say, secondary meaning). As the public does with regard to Beanies for now. But because the word is catchier than beanbag stuffed animals, beanbag toys, or plush toys, it may someday catch on to the point where the mark becomes generic, and then Ty will have to cast about for a different trademark. . Tys counsel at argument refused to disclaim a right to sue the publishers of dictionaries should they include an entry for beanie, lower-cased and defined as a beanbag stuffed animal. He should have. See Illinois High School Assn v. GTE Vantage Inc., 99 F.3d 244, 246 (7th Cir. 1996). We reject the extension of antidilution law that Ty beckons us to adopt, but having done so we must come back to the skipped issue of confusion. For although 80% of Perrymans sales are of Tys products, this means that 20% are not, and on her Web page after listing the various Ty products under such names as Beanie Babies and Teenie Beanies she has the caption Other Beanies and under that is a list of products not manufactured by Ty. This is plain misdescription, in fact false advertising, and supports the prohibition in the injunction against using Beanie or Beanies in connection with any non-Ty products. That much of the injunction should stand. . We can imagine an argument that merely deleting Other Beanies is not enough. But we do not understand Ty to be seeking a broadening of the injunction to require a disclaimer as to the source of the non-Ty products sold by Perryman. This however is a matter that can be pursued further on remand. So the judgment must be vacated and the case remanded for the formulation of a proper injunction. . But this case is unusual because, given Perrymans status as a seller in the secondary market created as a result of Tys marketing strategy, we cannot imagine a state of facts consistent with the extensive record compiled in the summary judgment proceeding that could possibly justify an injunction against Perrymans representing in her business name and Internet and Web addresses that she is doing what she has a perfect right to do, namely sell Beanie Babies. We therefore direct that the proceedings on remand be limited to the reformulation of the injunction in conformity with this opinion.

Scope of Rights

11.45

Notes 1. What role did Judge Posner see Tys marketing strategy as playing in this case? Compare his apparently slightly earlier appraisal of that strategy in Chapter 7.B. 2. Despite the reference to Beanies as a famous trademarks in the ordinary sense of the term, a 2003 trademark search at the PTO website did not show it as registered. What does that suggest? If, in fact, beanie is descriptive (not to mention already generic), how can bargain beanie be said to dilute it? 3. Why would suing Perryman under 43(d) be less fruitful than under 43(c)? What of 43(a)(1)(B)? 4. With regard to Illinois High School Assn, cited in Ty, see Restatement (Second) Torts 623A (Liability for Publication of Injurious Falsehood) (2002). In that regard, it warrants mention that many relevant torts are treated there rather than in Restatement (Third) Unfair Competition. 5. With regard to misappropriation, see Natl Basketball Assn, Chapter 9, nn. 7 and 8. See also Justice Brandeis dissent in INS, quoted in a note following that case. But see Learned Hands opinion in American Chicle, quoted in a note following Two Pesos, Chapter 10, and consider Polaroid factor 7 (good faith). In the final analysis, should dilution be used to halt bad faith associations with unique and well-known marks or to halt virtually all uses of such marks? 6. This much seems clear: It is easier to keep others at bay, whatever the theory, if unique marks are chosen initially and monitored closely. Conversely, it may be nearly impossible to prevent others from using common words and geographic nicknames such as Empire, Granite or Keystone State or to stop good-faith, long-term users. See Trademarks and Business Goodwill at http://www.piercelaw.edu/thomasfield/ipbasics/trademarks-and-businessgoodwill.php (visited Nov. 29, 2009). 7. Also consider In re Reed Elsevier Properties Inc., 482 F.3d 1376 (Fed. Cir. 2007), where the court affirms the PTOs refusal to register lawyers.com. One question should spring to mind: What would trademark registration accomplish that domain name registration would not? Could a trademark registrant prevent others from obtaining and using domain names such as e-lawyer.com or cyberlawyer.com many apt already to be in use? What is intellectual property? That issue arose in a peculiar way in Doe v. Friendfinder Network, Inc., 540 F. Supp.2d 288 (D.N.H. 2008). As the court relates at 291: The plaintiff, proceeding pseudonymously, has sued defendants on a number of claims arising out of the placement of allegedly false and unauthorized personal advertisements about her on their websites and others. The defendants move to dismiss the plaintiff's claims on the grounds that they are barred by the Communications Decency Act of 1996 [CDA], 47 U.S.C. 230, and otherwise fail to state a claim for relief. The court notes, No cause of action may be brought and no liability may be imposed [on a provider of interactive computer services] under any State or local law that is inconsistent with this section. 230(e)(3) . But the CDA also provides that it shall [not] be construed to limit or expand any law pertaining to intellectual property. 230(e)(2). Id. at 293-94 (italics added.) Several of plaintiffs counts were therefore dismissed as

11.46

On the Internet

involving state law that cannot be regarded as intellectual property. Two survived, however, at least in part. One, based on invasions of privacy, was seen to have four components: (1) violation of the right to publicity, (2) intrusion upon seclusion, (3) publication of private facts, and (4) casting in false light. Of those, the first survived dismissal because, [u]nlike a violation of the right to publicity, [the other components] protect a personal right, peculiar to the individual whose privacy is invaded which cannot be transferred like other property interests. . The plaintiffs claims under these branches of the privacy doctrine, then, do not sound in law pertaining to intellectual property, and she offers no authority or argument to the contrary. Id. at 302-03 (italics added.) A count based on 43(a) of the Lanham Act also survived because, McCarthy, for one, believes that under the proper circumstances, any person, celebrity or noncelebrity, has standing to sue under 43(a) for false or misleading endorsements. 1 McCarthy, Rights of Publicity, 5:22. And there does not appear to be any authority from the First Circuit on this point one way or the other. For purposes of this motion, then, the court rules that the plaintiff's claim does not fail simply because she is not a celebrity. Id. at 306. In Stayart v. Yahoo!, 2009 WL 2840478 (E.D.Wis. 2009), however, a very similar complaint was dismissed after the court found standing under 43(a) to require at least an allegation of potential commercial use of plaintiffs name or identity; see, e.g., at *12. The court nevertheless stressed, id. n. 11, that re-filing in state court to pursue a state right of publicity claim was not precluded. Moreover, as it had previously observed, at *11. In the event that Stayart re-files her claims in state court, defendants would be free to assert CDA immunity as an affirmative defense. The state courts are well-equipped to resolve [various issues posed by] the CDA.

Chapter 12 Speech-Related Concerns Revisited

This chapter focuses on topics mentioned in, e.g., Keep Thomson in Chapter 7, and in Chanel and Planned Parenthood in Chapter 11. It begins with issues at least akin to those presented by the Lanham Act before treating those related more to copyright. This chapter also introduces rights of publicity, a topic that may, depending on context, overlap trademark or copyright law and arise in cases involving either or both. A. Reputational Interests U.S. Court of Appeals, Ninth Circuit 67 F.3d 816 (1995) Before Wood,* Hug and Pregerson.** Per Curiam Grady and Lillie Auvil suing on behalf of themselves and other apple growers, appeal from the district courts summary judgment in favor of CBS 60 Minutes (CBS). . Background On Feb. 26, 1989, CBSs weekly news show 60 Minutes aired a segment on daminozide, a chemical growth regulator sprayed on apples. The broadcast, entitled A is for Apple, also addressed the slow pace of government efforts to recall the chemical. The broadcast was based largely on a Natural Resources Defense Council (NRDC) report, entitled Intolerable Risk: Pesticides in Our Childrens Food (Intolerable Risk), which outlined health risks associated with the use of a number of pesticides on fruit, especially the risks to children. A is for Apple focused on the NRDC reports findings concerning daminozide, as well as the EPAs knowledge of daminozides carcinogenity. Scientific research had indicated that daminozide, more commonly known by its trade name, Alar, breaks down into unsymmetrical dimethylhydrazine (UDMH), a carcinogen.2 . During the broadcast, Bradley garnered a number of viewpoints on the Alar issue. . After Bradleys opening synopsis, the broadcast segment began with the EPA administrators admission that the EPA had known of cancer risks associated with daminozide for sixteen years, but that EPA regulations had hampered the removal of the chemical from the market. The U.S. Congressman rejected the EPA administrators explanation that the laws were to blame for the EPAs hesitation. He thought that it was well within the EPAs power to remove daminozide from the market, and that the EPAs
* **

Auvil v. CBS 60 Minutes

Honorable Harlington Wood, Jr., Senior Judge for the Seventh Circuit, sitting by designation. Judge Tang heard argument in this case. Judge Tang died prior to circulation of this opinion, and pursuant to General Order 3.2(g), Judge Pregerson was drawn as a replacement. Judge Pregerson was furnished with a tape of the oral argument as well as the briefs and other materials received by the other members of the panel. 2 Alar cannot be removed either by washing the fruit or peeling it. In addition, the substance remains in the flesh of the apple and, as a result, can be found in processed apple products, including apple juice and applesauce.

12.2

Reputational Interests

reluctance stemmed from its fear that Uniroyal, the company that manufactured daminozide, would sue the EPA. The broadcast segment continued with testimonials from the NRDC attorney, who discussed the findings published in Intolerable Risk, focusing on the cancer risks to children from ingestion of apples treated with daminozide. The NRDCs findings were corroborated both by the EPA administrator and the Harvard pediatrician. The broadcast ended with the statements of a Consumers Union scientist, who revealed that most manufacturers of apple products said they no longer use apples treated with daminozide but that the manufacturers were unsuccessful in keeping daminozide completely out of their products. Following the 60 Minutes broadcast, consumer demand for apples and apple products decreased dramatically. The apple growers and others dependent upon apple production lost millions of dollars. Many of the growers lost their homes and livelihoods. In 1990, eleven apple growers, representing some 4,700 growers in the Washington area, filed a complaint. The growers asserted, among others, a claim for product disparagement. . After discovery, which was limited to the question of the falsity of the CBS broadcast, [both CBS and the growers moved for summary judgment on that question]. The district court granted summary judgment to CBS because the growers did not produce evidence sufficient to create a triable issue of fact as to the falsity of the broadcast. . Discussion . Although there are no Washington state cases dealing directly with a product disparagement cause of action, a Washington state appellate court, citing the Restatement of Torts, recognized that those whose products are disparaged face a higher burden of proof than do defamation plaintiffs. We assume, therefore, that Washington recognizes product disparagement causes of action. We also look to the Restatement, as did the Washington court, for guidance regarding applicable standards. To establish a claim of product disparagement, also known as trade libel, a plaintiff must allege that the defendant published a knowingly false statement harmful to the interests of another and intended such publication to harm the plaintiffs pecuniary interests. Restatement (Second) of Torts 623A. Accordingly, for a product disparagement claim to be actionable, the plaintiff must prove, inter alia, the falsity of the disparaging statements. See Restatement (Second) of Torts 623A, 651(1)(c). Existing case law on product disparagement provides little guidance on the falsity prong. Nonetheless, as a tort whose actionability depends on the existence of disparaging speech, the tort is substantively similar to defamation. Therefore, we reference defamation cases to arrive at a decision in the instant matter. A is for Apple was based on Intolerable Risk, a scientific report disseminated by the NRDC. The report discussed the findings of cancer research studies on various chemicals used on fruit and questioned the EPAs hesitance in removing Alar from the market.6 The broadcast contained a number of factual assertions, several of which are pointed out by the growers to support their claim that the broadcast falsely disparaged their product. On the subject of daminozides cancer-causing potential, the growers point to the following statements: The most potent cancer-causing agent in our food supply is a substance sprayed on apples to keep them on the trees longer and make them look better. We know that [daminozide and other chemicals] do cause cancer. Just from these eight pesticides, what were finding is that the risk of developing cancer is approximately 250 times what EPA says is an acceptable level of cancer in our
6

Neither party disputes that the broadcast disparaged apples. .

Speech-Related Concerns

12.3

population. [The EPA administrator] took another look at the evidence and decided to start the process of banning daminozide after all. But the process could take five years. So we returned to Washington to ask him why he doesnt just declare daminozide an imminent hazard, and suspend it right away. The growers offered evidence showing that no studies have been conducted to test the relationship between ingestion of daminozide and incidence of cancer in humans. Such evidence, however, is insufficient to show a genuine issue for trial regarding the broadcasts assertions that daminozide is a potent carcinogen. Animal laboratory tests are a legitimate means for assessing cancer risks to humans. The growers provide no other challenge to the EPAs findings, nor do they directly attack the validity of the scientific studies. All of the statements referenced above are factual assertions made by the interviewees, based on the scientific findings of the NRDC. These findings were corroborated by the EPA administrator and a Harvard pediatrician. The EPA, which often relies on the results of animal studies, acknowledged that it knew of the cancer risks associated with ingestion of daminozide and, in August 1985, classified daminozide as a probable human carcinogen. Indeed, the EPA estimated that the dietary risk to the general population from UDMH, a metabolite of daminozide, was fifty times an acceptable risk and ultimately concluded that daminozide posed an unreasonable risk to the general population. 8 . The growers offered evidence showing that no scientific study has been conducted on cancer risks to children from the use of pesticides. . The fact that there have been no studies conducted specifically on the cancer risks to children from daminozide does nothing to disprove the conclusion that, if children consume more of a carcinogenic substance than do adults, they are at higher risk for contracting cancer. The growers evidence, therefore, does not create a genuine issue as to the falsity of the broadcasts assertion that daminozide is more harmful to children. Despite their inability to prove that statements made during the broadcast were false, the growers assert that summary judgment for CBS was improper because a jury could find that the broadcast contained a provably false message, viewing the broadcast segment in its entirety. They further argue that, if they can prove the falsity of this implied message, they have satisfied their burden of proving falsity. The growers contentions are unavailing. Their attempt to derive a specific, implied message from the broadcast as a whole and to prove the falsity of that overall message is unprecedented and inconsistent with Washington law. No Washington court has held that the analysis of falsity proceeds from an implied, disparaging message. . The Washington courts view finds support in the Restatement, which instructs that a product disparagement plaintiff has the burden of proving the falsity of the statement. Restatement (Second) of Torts 651(1)(c) (emphasis added). This standard refers to individual statements and not to any overall message. Therefore, we must reject the growers invitation to infer an overall message from the broadcast and determine whether that message is false. .

We find it worth noting that on Feb. 1, 1989, the EPA announced that it had started proceedings to remove Alar from the market because of preliminary findings, based on laboratory tests on animals, that the chemical posed a risk of cancer to humans. A few months later, Uniroyal, the manufacturer of daminozide, voluntarily requested a withdrawal of daminozides food use registrations. The EPA later cancelled all food use registrations for daminozide in November 1989. See 54 Fed. Reg. 47492 (1992).

12.4

Reputational Interests

Notes 1. The rule in Auvil differs from that in 43(a)(1)(B) cases. Why should arguably implied misrepresentations be actionable only when they occur in commercial speech? How would defendants (or the EPA) satisfy the evidentiary obligation that plaintiffs attempted to impose? 2. If defendants intended to and did harm sales of apples containing Alar, why were they not liable? In that vein, also consider Dairy Stores, Inc. v. Sentinel Publishing Co., Inc., 104 N.J. 125, 157; 516 A.2d 220, 236 (1986). After plaintiff was erroneously reported to have sold tap water as spring water, the court said, nothing creates a genuine issue of material fact that any defendant [a newspaper, its reporter, or an independent laboratory] knew the statements to be false or entertained serious doubts about their truth. As a consequence, damages were not available. What justifies such results? 3. Injunctions may be even more difficult to get. Consider CBS, Inc. v. Davis, 510 U.S. 1315, 131718 (1994): For many years it has been clearly established that any prior restraint on expression comes to this Court with a heavy presumption against its constitutional validity. . If CBS has breached its state law obligations, the First Amendment requires that [plaintiff, a meat packing company] remedy its harms through a damages proceeding rather than through suppression of protected speech. But Kramer v. Thompson, 947 F.2d 666 (3d Cir. 1991), offers a remote possibility that injunctions may be available to halt noncommercial speech after libel has been found by a jury.

Mikohn Gaming Corp. v. Acres Gaming, Inc.

U.S. Court of Appeals, Federal Circuit 165 F.3d 891 (1998)

Before Pauline Newman, Rader and Bryson. Newman, Circuit Judge: . Acres owns Patent 5,655,961 entitled Method for Operating Networked Gaming Devices, and several related patent applications. Acres sells a gaming system called the Hurricane Zone, which incorporates the inventions of the 961 patent and pending applications. Mikohn sells a competing gaming system called the MoneyTime system. The following excerpt from a letter to the Horseshoe Casino in Robinsonville, Mississippi, is representative of notices that Acres sent to several of Mikohns customers and potential customers upon issuance of the 961 patent. Acres stated: It appears that the MoneyTime system manufactured and sold by Mikohn Corp. infringes at least some of the claims of the enclosed patent, although this cannot be determined conclusively without a better understanding of the structure and operation of the MoneyTime system. [Several pending applications also have the same disclosure as that patent.] You should be aware that when these patents issue, Acres Gaming intends to use its patents to stop use of such systems. Acres also issued a press release stating, Mikohn is clearly suffering. Customers naturally hesitate to do business with a company whose products appear to infringe a patent. The record does not show the extent of any publication of the release. [Mikohn requested a declaration that its system did not infringe and charged Acres with intentional interference with existing and potential business relationships under Nevada

Speech-Related Concerns

12.5

common law. The district court enjoined Acres], pendente lite, from further statements to Mikohns customers or potential customers either orally or in writing, directly or indirectly, that Mikohns MoneyTime System infringes on Acres 961 patent or other pending patent application submitted by Acres to the United States Patent Office. This appeal followed. Discussion Federal jurisdiction was based on the declaratory action filed by Mikohn on the issue of patent infringement. . The propriety of the preliminary injunction depends in part on the propriety of the action enjoined, which in turn depends on whether federal patent law or state tort law applies. The district court held that Mikohns charge of intentional interference with present and prospective business relationships warranted preliminary injunctive relief. The court explained that while the following statement in the letter it appears that the MoneyTime slot machine infringes Acres patent, may not be a statement of fact, all of the statements taken as a whole, including the statements made in the newspaper, the court concludes could be construed as stating that Mikohns product does indeed infringe Acres patents, and the jury, the trier of fact, could find that the statement was made and that it was untrue. Mikohn argued, and the district court apparently agreed, that Acres statements concerning its patent rights and intentions to enforce them were intended to achieve competitive advantage in an improper way, and grounded the grant of preliminary relief on the count of intentional interference with Mikohns business relationships. . The courts explanation that a jury could find that Acres patent rights were not infringed was not an evaluation of the merits of possible infringement, or of the likelihood of such a finding by the jury; it was simply a statement of the vagaries of litigation. As set forth in Leavitt v. Leisure Sports Incorporation, 734 P.2d 1221 (1987), the tort of intentional interference with prospective business relations contains five elements. In order to prevail, Mikohn as plaintiff would have to establish 1) a prospective commercial relationship between the plaintiff and a third party, 2) the defendants knowledge of this relationship, 3) the defendants intent to harm the plaintiff by preventing the relationship, 4) the absence of privilege or justification for the defendant, and 5) actual harm to the plaintiff as a result of the defendants conduct. Id. at 88. [T]he tort of intentional interference with existing (as contrasted with prospective) business relations [is very similar]. The torts require that the purportedly interfering communications or other conduct not be legally justified. However, whether Acres communications were legally justified raises considerations of federal law governing the giving of notice of patent rights. To the extent that conflict arises in the interaction between state commercial law and federal patent law, federal law must be applied. The only basis for this action of tortious interference with business relationships was Acres giving of notice of its patent rights and the intent to enforce them. The propriety of that notice depends on patent law and the patent issues to which the notice pertains. National uniformity, in confluence with the national scope of the patent grant and the general federal exclusivity in patent causes, require that determination of the propriety of Acres actions in giving notice of its patent rights is governed by federal statute and precedent and is not a matter of state tort law. Thus in Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1336 (Fed.Cir. 1998) the court observed that federal patent law bars the imposition of liability for publicizing a patent in the marketplace unless the plaintiff can show that the patent holder acted in bad faith. In Abbott Laboratories v. Brennan, 952 F.2d 1346, 135557 (Fed. Cir. 1991) the court held that the allegation of inequitable conduct in

12.6

Reputational Interests

obtaining a patent is not remediable by state action for abuse of process. This court affirmed the inappropriateness of providing another forum for collateral attack, under the common law, on proceedings for which federal process has been provided. Acres states that its letters and press release concerning its patent rights were accurate and can not be enjoined under state law. Acres states that bad faith was not shown and cannot be inferred on these facts. Mikohn disputes Acres motive, stating that at best the giving of notice was premature, pointing to Acres statement in the letters and press release that infringement had not been determined conclusively and the fact that Acres had not charged Mikohn with infringement when it sent these letters to potential customers. . Mikohn states that Acres had no intention of bringing suit, and argues that such behavior justifies injunctive relief. Acres responds that it had not yet verified infringement because that would require discovery of the inner workings of the MoneyTime system. In general, Mikohns position takes its support from state tort law, and Acres from federal patent law. Federal precedent is that communication to possible infringers concerning patent rights is not improper if the patent holder has a good faith belief in the accuracy of the communication. Although bad faith may encompass subjective as well as objective considerations, and the patent holders notice is not irrelevant, bad faith is not supported when the information is objectively accurate. In general, a threshold showing of incorrectness or falsity, or disregard for either, is required in order to find bad faith in the communication of information about the existence or pendency of patent rights. . It has long been recognized that Patents would be of little value if infringers of them could not be notified of the consequences of infringement or proceeded against in the courts. Such action considered by itself cannot be said to be illegal. Virtue v. Creamery Package Mfg. Co., 227 U.S. 8, 3738 (1913). Thus federal authority makes clear that it is not improper for a patent owner to advise possible infringers of its belief that a particular product may infringe the patent. A patentee has the right to inform a potential infringer of the existence of the patent, whereby the recipient of the information may adjust its activities, perhaps seek a license, or otherwise act to protect itself. Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 869 (Fed. Cir. 1997). The statute contemplates such notice. See 35 U.S.C. 287. Federal law has uniformly upheld a patentees right to publicize the issuance of patents and to so inform potential infringers. . Although Mikohn states that Acres purpose was not the giving of notice as a matter of objective information, but as a carefully crafted competitive tactic, this allegation, even if true, does not substitute for the obligation to satisfy the factors predicate to the grant of a preliminary injunction. On the factors before the district court, applying federal law, it exceeded the courts discretionary authority to enjoin Acres dissemination of information concerning its patent rights. The preliminary injunction is vacated. Notes 1. Hunter Douglas warrants more attention than given above. Finding preemption in such cases to be only partial, it states, 153 F.3d at 1338: Requiring state law torts that plead as a necessary element a substantial question of federal patent law to proceed in federal court is a less severe intrusion on states' authority than barring them altogether. Our holdings here chart the most deferential course in regard to the states authority while still fulfilling our congressionally mandated responsibilities.

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Even if there is no preemption of a particular state law tort as-applied, that does not mean that Congress does not want there to be exclusive federal jurisdiction over that claim. 2. Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1353 (Fed. Cir. 1999), applies a similar standard under Lanham Act 43(a)(1)(B) and calls for evidence that allegations of infringement, even if a court ultimately finds otherwise, were made in bad faith. 3. Kemart Corp. v. Printing Arts Research Lab., Inc., 269 F.2d 375, 391 (9th Cir. 1959), states, It is the general rule in the United States that a qualified privilege is recognized in cases where the publisher and the recipient of the publication have a common interest which might be reasonably believed to be protected or furthered by the publication and the publication is made reasonably and in good faith. Claims of infringement, later proven wrong, did therefore not warrant assessment of damages absent proof of malice. 4. GP Industries, Inc. v. Eran Industries, Inc., 500 F.3d 1369, 1374 (Fed. Cir. 2007), notes that an injunction against communication is strong medicine that must be used with care and only in exceptional circumstances. Echoing Mikohn, id. at 1375, it set one aside because patentees claims were not objectively baseless. 5. In Dominant Semiconductors SDN.BHD. v. Osram GMBH, 524 F.3d 1254, 1262 (Fed. Cir. 2008), plaintiff urged that the standard for objective bad faith should be the same as applicable to allegedly frivolous litigation under Fed. R. Civ. Pro. 11. But the court was skeptical, particularly where, having already lost on the merits, plaintiff failed to cite any case imposing Rule 11 sanctions on an ultimately prevailing party. 6. 35 U.S.C. 287 conditions relief on notice, but Dominant Semiconductors and prior cases, as in Mikohn, concern notice to parties who have little or no incentive to seek or to credit rebutting legal opinions. Should that make a difference? Is it relevant that the party with the most at stake cannot be made whole if it is later found not to infringe? 7. See also 35 U.S.C. 292(a) (anyone can seek a fine for providing intentionally false notice of patents on goods). Litigation surged after Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) substantially increased the size of potential penalties.

Coca-Cola Co. v. Gemini Rising, Inc.

U.S. District Court, E.D. New York 346 F. Supp. 1183 (1972)

Neaher, District Judge: The Coca-Cola Company brings this action to enjoin defendant from printing, distributing and selling commercially a poster which consists of an exact blown-up reproduction of plaintiffs familiar Coca-Cola trademark and distinctive format except for the substitution of the script letters ine for -Cola, so that the poster reads Enjoy Cocaine. Jurisdiction is based on 28 U.S.C. 1338 and 1332. . Plaintiff is a Delaware corporation. Since prior to 1893 it has manufactured and sold a soft drink beverage under the trademark Coca-Cola and has continuously and extensively employed the trademark in connection with its business. Three federal trademark registrations pertaining to Coca-Cola have been obtained by plaintiff. Each registration statement specifies either beverages or beverages and syrups as the class of merchandise to which the trademark is appropriated. . . Defendant is a New York corporation. It is engaged in the business of creating, printing, distributing and selling commercially posters. .

12.8

Reputational Interests

Defendant admits it has sold over 100,000 copies of the Enjoy Cocaine poster. A purchase of the poster was recently made in this district at a retail price of $2.00. It is a fair inference, therefore, that defendant is deriving substantial revenue from their sale. Defendant filed the poster and a notice in the U.S. Copyright Office on May 4, 1971, and, following a copyright application, obtained a Registration of Copyright. On Feb. 8, 1972, upon learning of plaintiffs intention to bring this suit, defendant filed a changed copy of the poster with the Copyright Office. Defendant concedes that the new poster is in all respects the same as the former poster with one exception, i. e., Trade-Mark has been changed to Raid-Mark. Defendant does not and could not seriously deny that it is deliberately imitating plaintiffs trademark. Although it contends that the word Coca-Cola as such does not appear anywhere on the poster one would have to be a visitor from another planet not to recognize immediately the familiar Coca in its stylized script. Indeed, defendants assertion that the poster was intended to be a spoof would be meaningless except in the context of an immediately recognizable association with the Coca-Cola trademark. This is buttressed by the only change made in the new poster a clear indication of defendants predatory intent, however humorous defendant considers it. But whether such an unauthorized use of plaintiffs trademark warrants injunctive relief in these novel circumstances is another matter, to which we now turn. . The record before the court establishes beyond dispute plaintiffs ownership and registration of its widely known trademark, which is also the dominant element of its corporate trade name. There can be no question that the mark is valid and worthy of protection. . Defendant does not really challenge this. Although defendant also urges 17 affirmative defenses as barring relief to plaintiff, which are dealt with below, the main thrust of its argument is that defendant is entirely free to deliberately imitate and exploit plaintiffs trademark and format for its own business purposes so long as it is not done in connection with any goods or services which might be confused with those of plaintiff. Admittedly the parties are not in competition in the ordinary sense. . Here there is no question that both are seeking to attract public attention and patronage for their respective products by the graphic display of a distinctive and widely known trademark. . In this case defendants product a simulated bill poster is itself one of the common forms of advertising utilized by plaintiff. Hence it is not surprising that plaintiff has received numerous communications from all over the country concerning defendants poster. Moreover, defendants argument that no trespass infringing plaintiffs rights has been committed, because the protected words Coca-Cola do not appear in its poster, is disingenuous to say the least. . Defendant nonetheless scoffs at the suggestion that the poster would confuse any person of average intelligence, or even below average intelligence. That is simply defendants self-serving ipse dixit. The appearance of defendants name does not meet plaintiffs factual proof that some persons of apparently average intelligence did attribute sponsorship to plaintiff and discontinued their use of Coca-Cola. Not only does visual comparison of defendants poster with specimen advertising of plaintiff indicate the likelihood of such a mistaken attribution but recent so-called pop art novelty advertising utilized by plaintiff may have served to further the impression that defendants poster was just another effort of that kind by plaintiff to publicize its product.10 .
10

Plaintiff has authorized the use of its logo trademark as a decorative fabric pattern for such clothing items as beach pants and shorts, dungarees and aprons and on a variety of other articles in common use including jewelry, portfolios, pocket radios, cigarette lighters, pens and pencils, playing cards, lamps and glasses.

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A further question relates to the applicability of 368-d of the N.Y. General Business Law. Defendant contends that in, Girl Scouts of United States of America v. Personality Posters Mfg. Co., 304 F. Supp. 1228 (S.D. N.Y. 1969), the statute was held to afford no relief against a poster regarded as defamatory of the plaintiff. That case, however, is quite different from this. The Girl Scouts are not engaged in trade and their uniform, insignia and slogan are in no sense trademarks. Judge Lasker, moreover, found no evidence of any confusion. Finally, there are numerous New York cases granting injunctive relief in the absence of a threat of confusion as to the source or sponsorship of the goods or services. Sullivan v. Ed Sullivan Radio & T.V., 152 N.Y.S.2d 227 (1st Dept. 1956). There remains the question of whether any of defendants 17 affirmative defenses bar relief at this stage. Most of them relate to the courts jurisdiction and are now moot. The defense asserting a violation of the antitrust laws because plaintiff brought this action to enjoin defendants poster is patently frivolous. So too is the claim that defendants copyright on the poster defeats plaintiffs right to protect its trademark. . Finally, defendant contends that its poster is but an instance of free expression secured by the First Amendment, which constitutes fair comment and cannot be defamatory without a claim of malice. . While plaintiff does assert a claim that the association of cocaine with its trademark is defamatory, the thrust of its claim is against defendants imitative use of that trademark in a manner injurious to the mark and to plaintiffs business reputation and good will. The special circumstances mentioned in Girl Scouts, supra, are here present, for if they were not then any unauthorized reproduction of a trade name or mark would be without remedy. The Lanham Act itself, 15 U.S.C. 1114(2)(a) and (b), recognizes that even newspapers, magazines and periodicals, as well as printers, may be enjoined from innocent infringement of anothers mark as to future publication. . In the courts opinion plaintiff has sufficiently demonstrated its right to injunctive relief. . To the plaintiff its name is at stake, and continued injury to its reputation and good will would be a far more serious blow to it than the curtailment of the sale by the defendants would be to them. .. Notes 1. The Coca-Cola Company had three federal registrations, two incontestable, for beverages or beverages and syrups. How many more were potentially available under 5? Is that of consequence under 43(a)? 2. Why would patently frivolous defenses cause courts to doubt defenses that might have more merit? 3. The court cites Girl Scouts, but plaintiff lost there for failing to show harm, not for lack of protected insignia. Girl Scouts did not need to address the issue, but it also cites Paulsen v. Personality Posters, Inc., 299 N.Y.S.2d 501, 508 (Supr. Ct. N.Y. 1968) (posters are a form of expression that may be constitutionally protected). What bearing might that have in a situation such as depicted in Gemini Rising? 4. Were the case brought today would Coca-Cola be tarnished under 43(c)? What would be the most important consideration under 43(c)(3)? 5. Does the approach in Mutual of Omaha, discussed in a note following Moseley, Chapter 11, have potential applicability?

12.10

Reputational Interests

L.L. Bean, Inc. v. Drake Publishers, Inc.*

U.S. Court of Appeals, First Circuit 811 F.2d 26 (1987)

Before Campbell, Coffin and Bownes. Bownes, Circuit Judge: Imitation may be the highest form of flattery, but plaintiff-appellee L.L. Bean was neither flattered nor amused when High Society magazine published a prurient parody of Beans famous catalog. . Its October 1984 issue contained a two-page article entitled L.L. Beam s Back-To-School-Sex-Catalog. (Emphasis added.) The article was labelled on the magazines contents page as humor and parody. The article displayed a facsimile of Beans trademark and featured pictures of nude models in sexually explicit positions using products that were described in a crudely humorous fashion. . The district court granted summary judgment in favor of Drake on the claims for trade libel and interference with prospective business advantage. It denied summary judgment to both parties on Beans claims for trademark infringement, unfair competition and deceptive trade practices, leaving the factual question of likelihood of confusion for resolution at trial. The district court did, however, grant Bean summary judgment with respect to the trademark dilution claim raised under Maine law.1 It ruled that the article had tarnished Beans trademark. Relying on two affidavits presented by appellee, the district court found that Bean had suffered harm from the publication of the article. . The court also held that enjoining the publication of a parody to prevent trademark dilution did not offend the First Amendment. An injunction issued prohibiting further publication or distribution of the L.L. Beam Sex Catalog. . [Finding it inappropriate to construe the Maine statute in the first instance, the court focused on the First Amendment.] . Where, as here, both parties have moved for summary judgment, a court separately evaluates the two motions, in each instance drawing factual inferences most favorable to the opposing party. Since the district court rejected defendants position that a trademark parody constituted a defense to a claim based on the anti-dilution statute, we assume, as we must for purposes of this appeal, that the article is a trademark parody. I Parody is a humorous form of social commentary and literary criticism that dates back as far as Greek antiquity. The rhapsodists who strolled from town to town to chant the poems of Homer, wrote Issac DIsraeli, were immediately followed by another set of strollers buffoons who made the audiences merry by the burlesque turn which they gave to the solemn strains. I. DIsraeli, Curiosities of Literature. The Oxford English Dictionary defines parody as [a] composition in which the characteristic turns of thought and phrase of an author are mimicked to appear ridiculous, especially by applying them to ludicrously inappropriate subjects. . Since parody seeks to ridicule sacred verities and prevailing mores, it inevitably offends others, as evinced by the shock which Chaucers Canterbury Tales and Voltaires Candide provoked among their contemporaries. . One need only open a magazine or turn on television to witness the pervasive influence of trademarks in advertising and commerce. Designer labels appear on goods ranging
* 1

Cert. denied, 483 U.S. 1013 (1987). Maines anti-dilution statute provides: Likelihood of injury to business reputation or of dilution of a mark registered under this chapter shall be a ground for injunctive relief notwithstanding the absence of competition between the parties or the absence of confusion as to the source of the goods or services.

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from handbags to chocolates to every possible form of clothing. Commercial advertising slogans, which can be registered as trademarks, have become part of national political campaigns. . The ridicule conveyed by parody inevitably conflicts with one of the underlying purposes of the Maine anti-dilution statute, which is to protect against the tarnishment of the goodwill and reputation associated with a particular trademark. The court below invoked this purpose as the basis for its decision to issue an injunction. The issue before us is whether enjoining the publication of appellants parody violates the First Amendment. II The district court disposed of the First Amendment concerns raised in this matter by relying on the approach taken in Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200 (2d Cir. 1979). In rejecting Drakes claim that the First Amendment protects the unauthorized use of anothers trademark in the process of conveying a message, the district court cited the following: Plaintiffs trademark is in the nature of a property right and as such it need not yield to the exercise of First Amendment rights under circumstances where adequate alternative avenues of communication exist. We do not believe that the First Amendment concerns raised here can be resolved as easily as was done in Dallas Cowboys Cheerleaders. Aside from our doubts about whether there are alternative means of parodying plaintiffs catalog, we do not think the court fully assessed the nature of a trademark owners property rights. A trademark is a form of intellectual property; Lloyd Corp. v. Tanner, 407 U.S. 551, (1972), relied upon by the Dallas Cowboys Cheerleaders court involved a shopping center. The First Amendment issues involved in this case cannot be disposed of by equating the rights of a trademark owner with the rights of an owner of real property: [T]rademark is not property in the ordinary sense but only a word or symbol indicating the origin of a commercial product. The owner of the mark acquires the right to prevent the goods to which the mark is applied from being confused with those of others and to prevent his own trade from being diverted to competitors through their use of misleading marks. Power Test Petroleum Distributors v. Calcu Gas, 754 F.2d 91, 97 (2d Cir. 1985) (emphasis added). . Trademark rights do not entitle the owner to quash an unauthorized use of the mark by another who is communicating ideas or expressing points of view. As Justice Holmes observed while sitting on the Supreme Judicial Court of Massachusetts, When the common law developed the doctrine of trademarks and trade-names, it was not creating a property in advertisements more absolute than it would have allowed the author of Paradise Lost. Chadwick v. Covell, 23 N.E. 1068, 1069 (1890). The limits imposed on a trademark owners property rights demonstrate that the constitutional issue raised here cannot be dispensed with by simply asserting that Beans property right need not yield to the exercise of First Amendment rights. . III The concept of trademark dilution originated in England when a British court protected the trademark Kodak from being used on bicycles. Anti-dilution statutes have developed to fill a void left by the failure of trademark infringement law to curb the unauthorized use of marks where there is no likelihood of confusion between the original use and the infringing use. The law of trademark dilution aims to protect the distinctive quality of a trademark from deterioration caused by its use on dissimilar products. The dilution injury is the gradual

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whittling away or dispersion of the identity and hold upon the public mind of the mark or name by its use on non-competing goods. Schechter, The Rational Basis of Trademark Protection, 40 Harv. L.Rev. 813, 825 (1927). The overriding purpose of anti-dilution statutes is to prohibit a merchant of noncompetitive goods from selling its products by trading on the goodwill and reputation of anothers mark. A trademark owner may obtain relief under an anti-dilution statute if his mark is distinctive and there is a likelihood of dilution due to (1) injury to the value of the mark caused by actual or potential confusion, (2) diminution in the uniqueness and individuality of the mark, or (3) injury resulting from use of the mark in a manner that tarnishes or appropriates the goodwill and reputation associated with plaintiffs mark. There is no dispute that Beans mark is distinctive. The basis for the district courts injunction was that Beans trademark had been tarnished by the parody in defendants magazine. We think this was a constitutionally impermissible application of the anti-dilution statute. The district court believed that if a noncommercial parody would result in images of impurity in the minds of [consumers] [s]uch connotations would obviously tarnish the affirmative associations the mark had come to convey. It thus read the anti-dilution statute as granting a trademark owner the unfettered right to suppress the use of its name in any context, commercial or noncommercial, found to be offensive, negative or unwholesome. As one commentator has pointed out, there are serious First Amendment implications involved in applying anti-dilution statutes to cover noncommercial uses of a trademark: Famous trademarks offer a particularly powerful means of conjuring up the image of their owners, and thus become an important, perhaps at times indispensable, part of the public vocabulary. Rules restricting the use of wellknown trademarks may therefore restrict the communication of ideas. If the defendants speech is particularly unflattering, it is also possible to argue that the trademark has been tarnished by the defendants use. The constitutional implications of extending the misappropriation or tarnishment rationales to such cases, however, may often be intolerable. Since a trademark may frequently be the most effective means of focusing attention on the trademark owner or its product, the recognition of exclusive rights encompassing such use would permit the stifling of unwelcome discussion. Denicola, Trademarks As Speech, 1982 Wis. L.Rev. at 19596. . Neither the strictures of the First Amendment nor the history and theory of antidilution law permit a finding of tarnishment based solely on the presence of an unwholesome or negative context in which a trademark is used without authorization. Such a reading of the anti-dilution statute unhinges it from its origins in the marketplace. A trademark is tarnished when consumer capacity to associate it with the appropriate products or services has been diminished. The threat of tarnishment arises when the goodwill and reputation of a plaintiffs trademark is linked to products which are of shoddy quality or which conjure associations that clash with the associations generated by the owners lawful use of the mark: [T]he risk may be that of detracting from the plaintiffs good will by the possibility that a defendants use of plaintiffs unique mark will tarnish plaintiffs trade name by reason of public dissatisfaction with defendants product and a resultant holding of this dissatisfaction against plaintiff. An alternative to this risk is the danger of public identification of plaintiffs trade name or mark with a product or service of a type incompatible with the quality and prestige previously attached by the public to the plaintiffs product. Tiffany & Co. v. Boston Club, Inc., 231 F. Supp. 836, 844 (D.Mass. 1964) (emphasis

Speech-Related Concerns

12.13

added). As indicated by Judge Caffrey in Tiffany, the dilution injury stems from an unauthorized effort to market incompatible products or services by trading on anothers trademark. The Constitution is not offended when the anti-dilution statute is applied to prevent a defendant from using a trademark without permission in order to merchandise dissimilar products or services. Any residual effect on First Amendment freedoms should be balanced against the need to fulfill the legitimate purpose of the anti-dilution statute. The law of trademark dilution has developed to combat an unauthorized and harmful appropriation of a trademark by another for the purpose of identifying, manufacturing, merchandising or promoting dissimilar products or services. The harm occurs when a trademarks identity and integrity its capacity to command respect in the market is undermined due to its inappropriate and unauthorized use by other market actors. When presented with such circumstances, courts have found that trademark owners have suffered harm despite the fact that redressing such harm entailed some residual impact on the rights of expression of commercial actors. See, e.g., Chemical Corp. of America v. Anheuser-Busch, Inc., 306 F.2d 433 (5th Cir. 1962), cert. den., 372 U.S. 965 (1963) (floor wax and insecticide makers slogan, Where theres life, theres bugs, harmed strength of defendants slogan, Where theres life, theres Bud.); General Electric Co. v. Alumpa Coal Co., 205 U.S.P.Q. 1036 (D.Mass. 1979) (Genital Electric monogram on underpants and T-shirts harmful to plaintiffs trademark). While the cases cited above might appear at first glance to be factually analogous to the instant one, they are distinguishable for two reasons. First, they all involved unauthorized commercial uses of anothers trademark. Second, none of those cases involved a defendant using a plaintiffs trademark as a vehicle for an editorial or artistic parody. In contrast to the cases cited, the instant defendant used plaintiffs mark solely for noncommercial purposes. Appellants parody constitutes an editorial or artistic, rather than a commercial, use of plaintiffs mark. The article was labelled as humor and parody; it took up two pages in a one-hundred-page issue; neither the article nor appellants trademark was featured on the front or back cover of the magazine. Drake did not use Beans mark to identify or promote goods or services to consumers; it never intended to market the products displayed in the parody. . Our reluctance to apply the anti-dilution statute to the instant case also stems from a recognition of the vital importance of parody. Although, as we have noted, parody is often offensive, it is nevertheless deserving of substantial freedom both as entertainment and as a form of social and literary criticism. Berlin v. E.C. Publications, Inc., 329 F.2d 541 (2d Cir.), cert. den., 379 U.S. 822 (1964). It would be anomalous to diminish the protection afforded parody solely because a parodist chooses a famous trade name, rather than a famous personality, author or creative work. The district courts injunction falls not only because it trammels upon a protected form of expression, but also because it depends upon an untoward judicial evaluation of the offensiveness or unwholesomeness of the appellants materials. The Supreme Court has recognized the threat to free speech inherent in sanctioning such evaluations. While appellants article is coarse and vulgar, sexually explicit but nonobscene materials, however distasteful, are entitled to no less protection than other forms of expression. Fantasy Book Shop, Inc. v. City of Boston, 652 F.2d 1115, 1126 (1st Cir. 1981) Finally, we reject Beans argument that enjoining the publication of appellants parody does not violate the First Amendment because there are innumerable alternative ways that Drake could have made a satiric statement concerning sex in the outdoors or sex and camping gear without using plaintiffs name and mark. This argument fails to recognize that

12.14

Reputational Interests

appellant is parodying L.L. Beans catalog, not sex in the outdoors. The central role which trademarks occupy in public discourse (a role eagerly encouraged by trademark owners), makes them a natural target of parodists. . Denying parodists the opportunity to poke fun at symbols and names which have become woven into the fabric of our daily life, would constitute a serious curtailment of a protected form of expression. . Levin H. Campbell, Chief Judge (dissenting). I think it is premature to pass on the constitutionality of the Maine trademark dilution statute without a determination whether, under Maine law, a pornographic parody of this kind would violate that statute. . Notes 1. Whats the relevance of Drakes poking fun at L.L. Bean (or its catalog), not sex in the outdoors? 2. Regardless of theory, should arguably tarnishing or libelous parodies of marks (or their owners) be treated differently if the mark or owner is not the focus of criticism? Reconsider Mutual of Omaha (following Moseley, Chapter 11). Why might Native Americans be more privileged to protest by using a take-off on that (or any) indian head logo? 3. Only a state dilution claim was before the court, but would any asserted claim have survived the analysis in L.L. Bean? Assuming jurisdiction, would the majority in that case have affirmed Gemini Rising? 4. The Taubman Company v. Webfeats, 319 F.3d 770, 778 (6th Cir. 2003), holds: [A]lthough economic damage might be an intended effect [of using <taubmansucks.com>], the First Amendment protects [non-commercial] critical commentary when there is no confusion as to source, even when it involves the criticism of a business. Such use is not subject to scrutiny under the Lanham Act. In fact, Taubman concedes that Mishkoff is free to shout Taubman Sucks! from the rooftops. Essentially, this is what he has done in his domain name. The rooftops of our past have evolved into the internet domain names of our present. Henry Mishkoff (d/b/a Webfeats), initially representing himself, engaged in such activities only after Taubman made demands regarding another web site; id. at 772. 5. In Bosley Medical Institute, Inc. v. Kremer, 403 F.3d 672 (9th Cir. 2005), the court considers the uncomplimentary website, www.BosleyMedical.com, created because Kremer was dissatisfied with plaintiffs hair restoration services. It affirms summary judgment for Kremer on all of Bosleys Lanham Act claims but one. With regard to cybersquatting, the opinion regards, at 68081, a broad noncommercial speech exception as inconsistent with the plain language of 43(d)(1)(B)(i)(IV). It therefore remands, directing the trial court to determine whether Kremer registered his domain name in bad faith. 6. Consider the facts in Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252, 256 (4th Cir. 2007): Haute Diggity Dog manufactures, among other things, plush toys [for dogs that] parody famous trademarks on luxury products. The particular toys in question here are small imitations of handbags that are labeled Chewy Vuiton and that mimic Louis Vuitton Malletiers Louis Vuitton handbags. At 263, the opinion states, Recognizing that Chewy Vuiton is an obvious parody, we conclude that LVM has failed to demonstrate any likelihood of confusion. Moreover, mainly because the toys only suggested LVMs mark and did not copy it, dilution by blurring was found, at 268, to be unsupported, and other theories, including copyright, were summarily rejected.

Speech-Related Concerns

12.15

Proctor & Gamble Co. v. Haugen*

U.S. Court of Appeals, Tenth Circuit 222 F.3d 1262 (2000)

Before Lucero, McKay and Murphy. Lucero, Circuit Judge: . [Amways AmVox system allows Amway and subscribing distributors to send messages to one another.] [In 1995, Haugen, a distributor] posted the following message on AmVox after receiving the message from other Amway distributors: I wanna run something by you real quick. It says the president of Procter & Gamble appeared on the Phil Donahue Show on March 1, 95. He announced that he was coming out of the closet about his association with the church of satan. He stated that a large portion of the profits from [P&G] products go to support his satanic church. . [I]f you are not sure about a product, look for the symbol of the rams horn that will appear on each product beginning in April. The rams horn will form the 666 which is known as satans number. Ill tell you it really makes you count your blessings to have available to all of us a business that allows us to buy all the products that we want from our own shelf and I guess my real question is, if people arent being loyal to themselves and buying from their own business, then whose business are they supporting. [After Amway contacted Haugen, he posted a retraction.] . The subject message was not the first such missive regarding the Lucifer-P&G connection circulated by Amway distributors. Rumors of such a fiendish relation some spread by Amway distributors have been prevalent for nearly twenty years, dogging P&G despite its attempts to eliminate them through both public relations and litigation. [After P&G filed suit, the district court found Amway not liable for Haugens statement. It granted summary judgment to Haugen on 43(a)(1)(B) and Utah slander per se claims and dismissed state claims for unfair competition and tortious interference.] [The court first asked whether Haugens statement concerned commercial activities.] . Properly construed, the term commercial activities in 43(a) encompasses P&Gs use of the profits from the sale of its goods. The district courts grant of summary judgment to defendants-appellees on the ground that the subject message did not directly implicate goods or services was improvident. We find Gordon & Breach Science Publishers, S.A. v. Am. Inst. Physics, 859 F. Supp. 1521 (S.D. N.Y. 1994), helpful in framing the question of whether [Haugens] representations constitute commercial advertising or promotion under 43(a)(1)(B). In Gordon & Breach, the court set out the following four-part test, which we adopt: [F]or representations to constitute commercial advertising or promotion under Section 43(a)(1)(B), they must be: (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendants goods or services. While the representations need not be made in a classic advertising campaign, but may consist instead of more informal types of promotion, the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within that industry.
*

Proctor should read Procter, but the first spelling appears in the West reporter.

12.16

Reputational Interests

859 F. Supp. at 153536. In the present case, appellees effectively raise only P&Gs failure to fulfill the first element . [W]e hold as the parties implicitly assumed in their briefs on appeal that the meaning of commercial speech in the context of 43(a)(1)(B) of the Lanham Act tracks the First Amendment commercial speech doctrine. While commercial speech jurisprudence is not remarkable for its clarity, the Supreme Court has enunciated certain principles with some consistency. . In a case involving a companys informational pamphlets on its contraceptive products, the Supreme Court made clear that advertising which links a product to a current public debate is not thereby entitled to the constitutional protection afforded noncommercial speech, despite the fact that [the pamphlets] contain discussions of important public issues. [Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 6768 (1983).] Although the pamphlets could not be characterized merely as proposals to engage in commercial transactions and contained noncommercial speech, thus taking them out of the realm of the core notion of commercial speech, on balance they nonetheless constituted commercial speech. In so holding, the Court emphasized that [a] company has the full panoply of protections available to its direct comments on public issues, so there is no reason for providing similar constitutional protection when such statements are made in the context of commercial transactions. Id. at 68. . [Appellees did not argue that the message had a significant noncommercial purpose.] Furthermore, we reject appellees assertion that the subject message does not promote commercial transactions. On the contrary, the message unambiguously urges recipients to eschew purchasing P&G products in favor of Amway products. . In the absence of a genuine issue as to the subject messages theological content, and in light of the messages exhortation to eschew purchasing P&Gs products in favor of Amway products, the conclusion that the subject message constitutes commercial speech for purposes of liability under the Lanham Act is unavoidable. . We conclude that the district court improvidently granted summary judgment to defendants-appellees on P&Gs Lanham Act claim. With regard to summary judgment on P&Gs state law claims, under Utah law the subject message would be actionable as slander per se if the defamatory words fall into one of four categories: (1) charge of criminal conduct, (2) charge of a loathsome disease, (3) charge of conduct that is incompatible with the exercise of a lawful business, trade, profession or office; and (4) charge of the unchastity of a woman. Allred v. Cook, 590 P.2d 318, 320 (Utah 1979). Slander per se, unlike slander per quod, permits a finding of liability without the need to prove special harm. On appeal, P&G challenges the district courts conclusion that the satanic rumor was not incompatible with conducting a lawful business. It argues the representations that it financially supports the Church of Satan and places the Devils mark on its products are incompatible with P&Gs lawful business of selling popular products for personal care and hygiene and for the home. The false statements contained in the subject message are not the kind of allegations that constitute slander per se. . Although offensive to many, an allegation of Devil worship, like drunkenness, is [d]isparagement of a general character, equally discreditable to all persons and does not pertain to a quality that is peculiarly valuable in plaintiffs professional activities of manufacturing and selling household consumer goods. We therefore hold that the district court properly granted summary judgment as to this claim. [The court affirmed that Amway was not vicariously liable for Haugans speech.] We turn now to P&Gs remaining Utah state law claims. We consider first the Utah tortious interference with business relationships claim, and afterwards the Utah unfair competition claim.

Speech-Related Concerns

12.17

Under the Utah Supreme Courts decision in Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293, 304 (Utah 1982), a defendant is liable for tortious interference with business relationships if the plaintiff proves (1) that the defendant intentionally interfered with the plaintiffs existing or potential economic relations, (2) for an improper purpose or by improper means, (3) causing injury to the plaintiff. The district court dismissed the tortious interference claim based on its conclusion that P&G had failed to meet its burden on the pleadings with regard to the first and third elements. [The court found an inference that Haugen and the distributor appellees were attempting to interfere with P&Gs existing or potential economic relations with antisatanic consumers and distributors. It also found that P&G adequately alleged that the message caused people to stop purchasing its products. Thus, P&G adequately pled both contested elements.] [Finally, the court agreed that the district court properly dismissed the unfair competition claim because Utah had limited such claims to cases involving source misrepresentations.] Notes 1. The First Amendment says simply, Congress shall make no law abridging the freedom of speech, or of the press. Its brevity may account for Haugens noting that speech jurisprudence is not remarkable for its clarity a proposition echoed in Dairy Stores, 516 A.2d at 227: Although constitutional considerations have dominated defamation law in recent years, the common law provides an alternative, and potentially more stable, framework for analyzing statements about matters of public interest. Does that suggest possible utility for ambiguity in constitutional jurisprudence? 2. Utahs narrow view of unfair competition, as mentioned in Haugen, was once universally encountered. Especially when trying to apply older cases, it is important to understand that the term may have a meaning far narrower that the words literally suggest. Restatement (Third) of Unfair Competition, 2, cmt. b, explains that unfair competition (source misrepresentations) aside, false advertising (misrepresentations of defendants own goods or services) claims were generally unavailable to competitors at common law. As we have seen, that changed with passage of the Lanham Act. Conversely, as explained in the following comment ( 2, cmt. c), defamatory and disparaging commercial statements about plaintiffs goods (such as made by Haugen) were once actionable at common law but beyond the reach of the Lanham Act. Since 1988, however, 43(a)(1)(B) has addressed both. 3. That substantively duplicative state claims have value despite the availability of federal causes of action is illustrated by Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 285 F.3d 1146 (9th Cir. 2002). Ultimately, plaintiff recovered $50,000 in compensatory damages and $500,000 in punitive damages tenfold damages rather than the treble damages available under the Lanham Act. Leatherman Tool is also interesting because it shows that defendants may be liable for representing anothers goods as its own, as well as representing its own goods as those of another. Since LAiglon Apparel v. Lana Lobel, Inc., 214 F.2d 649 (3d Cir. 1954), such reverse palming off has also been actionable under 43(a).

12.18

Free Riding

B. Free Riding

Zacchini v. Scripps-Howard Broadcasting Co.

U.S. Supreme Court 433 U.S. 562 (1977)

Justice White: Petitioner, Hugo Zacchini, is an entertainer. He performs a human cannonball act in which he is shot from a cannon into a net some 200 feet away. . [In 1972, he was engaged to perform at the Geauga County Fair in Burton, Ohio.] Members of the public attending the fair were not charged a separate admission fee to observe his act. On August 30, a freelance reporter for Scripps-Howard Broadcasting Co., the operator of a television broadcasting station and respondent in this case, attended the fair. He carried a small movie camera. Petitioner noticed the reporter and asked him not to film the performance. The reporter did not do so on that day; but on the instructions of the producer of respondents daily newscast, he returned the following day and videotaped the entire act. This film clip approximately 15 seconds in length, was shown on the 11 oclock news program that night, together with favorable commentary.1 Petitioner then brought this action for damages, alleging that such conduct was an unlawful appropriation of plaintiffs professional property. Respondent answered and moved for summary judgment, which was granted by the trial court. . Like [a] concurring judge in the court of appeals, the Supreme Court of Ohio rested petitioners cause of action under state law on his right to the publicity value of his performance. The opinion syllabus, to which we are to look for the rule of law used to decide the case, declared first that one may not use for his own benefit the name or likeness of another, whether or not the use or benefit is a commercial one, and second that respondent would be liable for the appropriation over petitioners objection and in the absence of license or privilege, of petitioners right to the publicity value of his performance. The court nevertheless gave judgment for respondent because: A TV station has a privilege to report in its newscasts matters of legitimate public interest which would otherwise be protected by an individuals right of publicity, unless the actual intent of the TV station was to appropriate the benefit of the publicity for some non-privileged private use, or unless the actual intent was to injure the individual. . If the judgment below rested on an independent and adequate state ground, the writ of certiorari should be dismissed as improvidently granted. We are confident, however, that the judgment below did not rest on an adequate and independent state ground and that we have jurisdiction to decide the federal issue presented in this case. There is no doubt that petitioners complaint was grounded in Ohio law. . It is clear [too that] the court placed principal reliance on Time, Inc. v. Hill, 385 U.S. 374 (1967), a case involving First Amendment limitations on state tort actions. It construed the principle of that case, along with that of New York Times Co. v. Sullivan, 376 U.S. 254 (1964), to be that the press has a privilege to report matters of legitimate public interest even though such
1

The script of the commentary accompanying the film clip read as follows: This now is the story of a true spectator sport the sport of human cannonballing in fact, the great Zacchini is about the only human cannonball around, these days just happens that, where he is, is the Great Geauga County Fair, in Burton and believe me, although its not a long act, its a thriller and you really need to see it in person to appreciate it.(Emphasis in original.)

Speech-Related Concerns

12.19

reports might intrude on matters otherwise private, and concluded, therefore, that the press is also privileged when an individual seeks to publicly exploit his talents while keeping the benefits private. The privilege thus exists in cases where appropriation of a right of publicity is claimed. The courts opinion also referred to Draft 21 of the relevant portion of Restatement (Second) of Torts (1975), which was understood to make room for reasonable press appropriations by limiting the reach of the right of privacy rather than by creating a privileged invasion. The court preferred the notion of privilege over the Restatements formulation, however, reasoning that since the gravamen of the issue in this case is not whether the degree of intrusion is reasonable, but whether First Amendment principles require that the right of privacy give way to the public right to be informed of matters of public interest and concern, the concept of privilege seems the more useful and appropriate one. (Emphasis added.) . II The Ohio Supreme Court held that respondent is constitutionally privileged to include in its newscasts matters of public interest that would otherwise be protected by the right of publicity, absent an intent to injure or to appropriate for some nonprivileged purpose. If under this standard respondent had merely reported that petitioner was performing at the fair and described or commented on his act, with or without showing his picture on television, we would have a very different case. But petitioner is not contending that his appearance at the fair and his performance could not be reported by the press as newsworthy items. His complaint is that respondent filmed his entire act and displayed that film on television for the public to see and enjoy. This, he claimed, was an appropriation of his professional property. The Ohio Supreme Court agreed that petitioner had a right of publicity that gave him personal control over commercial display and exploitation of his personality and the exercise of his talents. This right of exclusive control over the publicity given to his performances was said to be such a valuable part of the benefit which may be attained by his talents and efforts that it was entitled to legal protection. It was also observed, or at least expressly assumed, that petitioner had not abandoned his rights by performing under the circumstances present at the Geauga County Fair Grounds. The Ohio Supreme Court nevertheless held that the challenged invasion was privileged. Under this view, respondent was thus constitutionally free to film and display petitioners entire act. The Ohio Supreme Court relied heavily on Time, Inc. v. Hill, but that case does not mandate a media privilege to televise a performers entire act without his consent. Involved in Time, Inc. v. Hill was a claim under the New York Right of Privacy statute that Life Magazine, in the course of reviewing a new play, had connected the play with a long-past incident involving petitioner and his family and had falsely described their experience and conduct at that time. The complaint sought damages for humiliation and suffering flowing from these nondefamatory falsehoods that allegedly invaded Hills privacy. The Court held, however, that the opening of a new play linked to an actual incident was a matter of public interest and that Hill could not recover without showing that the Life report was knowingly false or was published with reckless disregard for the truth the same rigorous standard that had been applied in New York Times Co. v. Sullivan. [Time v. Hill involved rights of privacy, not publicity.]. Moreover, Time, Inc. v. Hill, New York Times, [and other cases] all involved the reporting of events; in none of them was there an attempt to broadcast or publish an entire act for which the performer ordinarily gets paid. It is evident, and there is no claim here to the

12.20

Free Riding

contrary, that petitioners state-law right of publicity would not serve to prevent respondent from reporting the newsworthy facts about petitioners act. Wherever the line in particular situations is to be drawn between media reports that are protected and those that are not, we are quite sure that the First and Fourteenth Amendments do not immunize the media when they broadcast a performers entire act without his consent. The Constitution no more prevents a State from requiring respondent to compensate petitioner for broadcasting his act on television than it would privilege respondent to film and broadcast a copyrighted dramatic work without liability to the copyright owner, or to film and broadcast a prize fight, or a baseball game where the promoters or the participants had other plans for publicizing the event. There are ample reasons for reaching this conclusion. The broadcast of a film of petitioners entire act poses a substantial threat to the economic value of that performance. As the Ohio court recognized, this act is the product of petitioners own talents and energy, the end result of much time, effort, and expense. Much of its economic value lies in the right of exclusive control over the publicity given to his performance; if the public can see the act free on television, it will be less willing to pay to see it at the fair. The effect of a public broadcast of the performance is similar to preventing petitioner from charging an admission fee. . Moreover, the broadcast of petitioners entire performance, unlike the unauthorized use of anothers name for purposes of trade or the incidental use of a name or picture by the press, goes to the heart of petitioners ability to earn a living as an entertainer. Thus, in this case, Ohio has recognized what may be the strongest case for a right of publicity involving, not the appropriation of an entertainers reputation to enhance the attractiveness of a commercial product, but the appropriation of the very activity by which the entertainer acquired his reputation in the first place. Of course, Ohios decision to protect petitioners right of publicity here rests on more than a desire to compensate the performer for the time and effort invested in his act; the protection provides an economic incentive for him to make the investment required to produce a performance of interest to the public. This same consideration underlies the patent and copyright laws long enforced by this Court. . We conclude that although the State of Ohio may as a matter of its own law privilege the press in the circumstances of this case, the First and Fourteenth Amendments do not require it to do so.. Justice Powell, with whom Justices Brennan and Marshall join, dissenting: . I am not persuaded that the Courts opinion is appropriately sensitive to the First Amendment values at stake, and I therefore dissent. . Justice Stevens, dissenting: [T]he basis of the state courts action is sufficiently doubtful that I would remand the case to that court for clarification of its holding before deciding the federal constitutional issue. Notes 1. See 101 (fixed). Infringement of rights in performances not previously fixed by or under the authors authority, may be pursued by federal action after registering an unauthorized recording. See, e.g., Pacific and Southern Co. v. Duncan, 744 F.2d 1490 (11th Cir. 1984). What advantage, if any, would that offer over pursuing a state action? 2. Do Zacchinis performance potentially qualify under current 17 U.S.C. 102(a)(3) or 102(a)(4)? If so, what is needed today to make the TV station liable under federal law? 3. Regarding state protection for unfixed performances, see also 17 U.S.C. 1101(d).

Speech-Related Concerns

12.21

4. Why would the Constitution not privilege respondent to film and broadcast a copyrighted dramatic work without liability? In that vein, see also Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539 (1985). After an unidentified person gave The Nation a copy of an unpublished manuscript with the understanding that it would be returned quickly to avoid discovery, a short excerpt was published. Id. at 543. Beyond addressing copyright fair use, the Court held, [I]t should not be forgotten that the Framers intended copyright itself to be the engine of free expression. By establishing a marketable right to the use of ones expression, copyright supplies the economic incentive to create and disseminate ideas. Id. at 558. Thus, neither fair use nor the First Amendment favored The Nation. How would the result differ were trade secret misappropriation applicable?

White v. Samsung Electronics America, Inc.

U.S. Court of Appeals, Ninth Circuit 971 F.2d 1395 (1992)

Before Goodwin, Senior Circuit Judge, Pregerson and Alarcon. Goodwin, Circuit Judge: This case involves a promotional fame and fortune dispute. In running a particular advertisement without Vanna Whites permission, defendants Samsung Electronics America, Inc. (Samsung) and David Deutsch Associates, Inc. (Deutsch) attempted to capitalize on Whites fame to enhance their fortune. White sued, but the district court granted summary judgment in favor of the defendants. . Plaintiff Vanna White is the hostess of Wheel of Fortune, one of the most popular game shows in television history. An estimated forty million people watch the program daily. Capitalizing on the fame which her participation in the show has bestowed on her, White markets her identity to various advertisers. The dispute in this case arose out of a series of advertisements prepared for Samsung by Deutsch. The series ran in at least half a dozen publications with widespread, and in some cases national, circulation. Each of the advertisements in the series followed the same theme. Each depicted a current item from popular culture and a Samsung electronic product. Each was set in the twenty-first century and conveyed the message that the Samsung product would still be in use by that time. By hypothesizing outrageous future outcomes for the cultural items, the ads created humorous effects. For example, one lampooned current popular notions of an unhealthy diet by depicting a raw steak with the caption: Revealed to be health food. 2010 A.D. Another depicted irreverent news-show host Morton Downey Jr. in front of an American flag with the caption: Presidential candidate. 2008 A.D. The advertisement which prompted the current dispute was for Samsung video-cassette recorders (VCRs). The ad depicted a robot, dressed in a wig, gown, and jewelry which Deutsch consciously selected to resemble Whites hair and dress. The robot was posed next to a game board which is instantly recognizable as the Wheel of Fortune game show set, in a stance for which White is famous. The caption of the ad read: Longest-running game show. 2012 A.D. Defendants referred to the ad as the Vanna White ad. Unlike the other celebrities used in the campaign, White neither consented to the ads nor was she paid. Following the circulation of the robot ad, White sued Samsung and Deutsch in federal district court under: (1) California Civil Code 3344; (2) the California common law right of publicity; and (3) Section 43(a) of the Lanham Act. The district court granted summary judgment against White on each of her claims. White now appeals.

12.22

Free Riding

I. Section 3344 White first argues that the district court erred in rejecting her claim under 3344. Section 3344(a) provides, in pertinent part, that [a]ny person who knowingly uses anothers name, voice, signature, photograph, or likeness, in any manner. for purposes of advertising or selling without such persons prior consent shall be liable for any damages sustained by the person or persons injured as a result thereof. . . Without deciding for all purposes when a caricature or impressionistic resemblance might become a likeness, we agree with the district court that the robot at issue here was not Whites likeness within the meaning of 3344. . II. Right of Publicity White next argues that the district court erred in granting summary judgment to defendants on Whites common law right of publicity claim. In Eastwood v. Superior Court, 198 Cal.Rptr. 342 (1983), the California court of appeal stated that the common law right of publicity cause of action may be pleaded by alleging (1) the defendants use of the plaintiffs identity; (2) the appropriation of plaintiffs name or likeness to defendants advantage, commercially or otherwise; (3) lack of consent; and (4) resulting injury. Id. at 417. The district court dismissed Whites claim for failure to satisfy Eastwoods second prong. We agree that the robot ad did not make use of Whites name or likeness. However, the common law right of publicity is not so confined. . The name or likeness formulation referred to in Eastwood originated not as an element of the right of publicity cause of action, but as a description of the types of cases in which the cause of action had been recognized. The source of this formulation is Prosser, Privacy, 48 Cal. L.Rev. 383, 40107 (1960), one of the earliest and most enduring articulations of the common law right of publicity cause of action. In looking at the case law to that point, Prosser recognized that right of publicity cases involved one of two basic factual scenarios: name appropriation, and picture or other likeness appropriation. Id. at 40102. . Since Prossers early formulation, the case law has borne out his insight that the right of publicity is not limited to the appropriation of name or likeness. In Motschenbacher v. R. J. Reynolds Tobacco Co., 498 F.2d 821 (9th Cir. 1974), the defendant had used a photograph of the plaintiffs race car in a television commercial. Although the plaintiff appeared driving the car in the photograph, his features were not visible. Even though the defendant had not appropriated the plaintiffs name or likeness, this court held that plaintiffs California right of publicity claim should reach the jury. In [Midler v. Ford Motor Co., 849 F.2d 460 (1988)], this court held that, even though the defendants had not used Midlers name or likeness, Midler had stated a claim for violation of her California common law right of publicity because the defendants for their own profit in selling their product did appropriate part of her identity by using a Midler soundalike. Id. at 46364. In Carson v. Heres Johnny Portable Toilets, Inc., 698 F.2d 831 (6th Cir. 1983), the defendant had marketed portable toilets under the brand name Heres Johnny. The district court had dismissed Carsons Michigan common law right of publicity claim because the defendants had not used Carsons name or likeness. Id. at 835. In reversing the district court, the sixth circuit found the district courts conception of the right of publicity too narrow and held that the right was implicated because the defendant had appropriated Carsons identity by using, inter alia, the phrase Heres Johnny. Id. at 83537. These cases teach not only that the common law right of publicity reaches means of appropriation other than name or likeness, but that the specific means of appropriation are

Speech-Related Concerns

12.23

relevant only for determining whether the defendant has in fact appropriated the plaintiffs identity. The right of publicity does not require that appropriations of identity be accomplished through particular means. It is noteworthy that the Midler and Carson defendants not only avoided using the plaintiffs name or likeness, but they also avoided appropriating the celebritys voice, signature and photograph. The photograph in Motschenbacher did include the plaintiff, but, because he was not visible, the driver could have been an actor or dummy and the analysis in the case would have been the same. Although the defendants in these cases avoided the most obvious means of appropriating the plaintiffs identities, each of their actions directly implicated the commercial interests which the right of publicity is designed to protect. As the Carson court explained: The right of publicity has developed to protect the commercial interest of celebrities in their identities. The theory of the right is that a celebritys identity can be valuable in the promotion of products, and the celebrity has an interest that may be protected from the unauthorized commercial exploitation of that identity. If the celebritys identity is commercially exploited, there has been an invasion of his right whether or not his name or likeness is used. Carson, 698 F.2d at 835. It is not important how the defendant has appropriated the plaintiffs identity, but whether the defendant has done so. Motschenbacher, Midler, and Carson teach the impossibility of treating the right of publicity as guarding only against a laundry list of specific means of appropriating identity. A rule which says that the right of publicity can be infringed only through the use of nine different methods of appropriating identity merely challenges the clever advertising strategist to come up with the tenth. Indeed, if we treated the means of appropriation as dispositive, we would not only weaken the right but effectively eviscerate it. The right would fail to protect those plaintiffs most in need. Advertisers use celebrities to promote their products. The more popular the celebrity, the greater the number of people who recognize her, and the greater the visibility for the product. The identities of the most popular celebrities are not only the most attractive for advertisers, but also the easiest to evoke without resorting to obvious means such as name, likeness, or voice. Consider a hypothetical advertisement which depicts a mechanical robot with male features, an African-American complexion, and a bald head. The robot is wearing black hightop Air Jordan basketball sneakers, and a red basketball uniform with black trim, baggy shorts, and the number 23 (though not revealing Bulls or Jordan lettering). The ad depicts the robot dunking a basketball one-handed, stiff-armed, legs extended like open scissors, and tongue hanging out. Now envision that this ad is run on television during professional basketball games. Considered individually, the robots physical attributes, its dress, and its stance tell us little. Taken together, they lead to the only conclusion that any sports viewer would reach: the ad is about Michael Jordan. Viewed separately, the individual aspects of the advertisement in the present case say little. Viewed together, they leave little doubt about the celebrity the ad is meant to depict. The female-shaped robot is wearing a long gown, blond wig, and large jewelry. . The robot is in the process of turning a block letter on a game-board. Vanna White dresses like this while turning letters on a game-board but perhaps similarly attired Scrabble-playing women do this as well. The robot is standing on what looks to be the Wheel of Fortune game show set. Vanna White dresses like this, turns letters, and does this on the Wheel of Fortune. She is the only one. . . Considerable energy and ingenuity are expended by those who have achieved celebrity value to exploit it for profit. The law protects the celebritys sole right to exploit

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this value whether the celebrity has achieved her fame out of rare ability, dumb luck, or a combination thereof. We decline Samsung and Deutchs invitation to permit the evisceration of the common law right of publicity through means as facile as those in this case. . III. The Lanham Act Whites final argument is that the district court erred in denying her claim under 43(a) of the Lanham Act. The version of 43(a) applicable to this case2 provides, in pertinent part: Any person who shall use, in connection with any goods or services any false description or representation shall be liable to a civil action by any person who believes that he is or is likely to be damaged by the use of any such false description or designation. To prevail on her claim, White is required to show that in running the robot ad, Samsung and Deutsch created a likelihood of confusion over whether White was endorsing Samsungs VCRs. . [T]he district court erred in rejecting Whites Lanham Act claim at the summary judgment stage. In so concluding, we emphasize two facts, however. First, construing the motion papers in Whites favor, as we must, we hold only that White has raised a genuine issue of material fact. Whether Whites Lanham Act claim should succeed is a matter for the jury. Second, we stress that we reach this conclusion in light of the peculiar facts of this case. In particular, we note that the robot ad identifies White and was part of a series of ads in which other celebrities participated and were paid. IV. The Parody Defense In defense, defendants cite a number of cases for the proposition that their robot ad constituted protected speech. The only cases they cite which are even remotely relevant to this case are Hustler Magazine v. Falwell, 485 U.S. 46 (1988) and L.L. Bean, Inc. v. Drake Publishers, Inc., 811 F.2d 26 (1st Cir. 1987). Those cases involved parodies of advertisements run for the purpose of poking fun at Jerry Falwell and L.L. Bean, respectively. This case involves a true advertisement run for the purpose of selling Samsung VCRs. The ads spoof of Vanna White and Wheel of Fortune is subservient and only tangentially related to the ads primary message: buy Samsung VCRs. Defendants parody arguments are better addressed to non-commercial parodies.3 The difference between a parody and a knock-off is the difference between fun and profit. V. Conclusion [W]e hold only that White has pleaded claims which can go to the jury. Alarcon, Circuit Judge, concurring in part, dissenting in part: . In reaching its surprising conclusion, the majority has ignored the fact that the California Court of Appeal in Eastwood specifically addressed the differences between the common law right to publicity and the statutory cause of action codified in California Civil Code 3344. The court explained that [t]he differences between the common law and the
The statute was amended after White filed her complaint. The amendments would not have altered the analysis in this case however. 3 In warning of a First Amendment chill to expressive conduct, the dissent reads this decision too broadly. . First, for celebrity exploitation advertising to be effective, the advertisement must evoke the celebritys identity. . If, as Samsung claims, its ad was based on a generic game-show hostess and not on Vanna White, the ad would not have violated anyones right of publicity, but it would also not have been as humorous or as effective. Second, even if some forms of expressive activity, such as parody, do rely on identity evocation, the First Amendment hurdle will bar most right of publicity actions against those activities. . Samsungs argument is unavailing. Unless the First Amendment bars all right of publicity actions and it does not, see Zacchini v. Scripps-Howard Broadcasting Co., 433 U.S. 562 (1977) then it does not bar this case.
2

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statutory actions are: (1) Section 3344, subdivision (a) requires knowing use whereas under case law, mistake and inadvertence are not a defense against commercial appropriation and (2) 3344, subdivision (g) expressly provides that its remedies are cumulative and in addition to any provided by law. Eastwood, 149 Cal.App.3d at n.6. The court did not include appropriations of identity by means other than name or likeness among its list of differences between the statute and the common law. . The interest of the California Legislature as expressed in California Civil Code 3344 appears to preclude the result reached by the majority. The original 3344 protected only name or likeness. In 1984, ten years after our decision in Motschenbacher and 24 years after Prosser speculated about the future development of the law of the right of publicity, the California legislature amended the statute. California law now makes the use of someones voice or signature, as well as name or likeness, actionable. Thus, California, after our decision in Motschenbacher specifically contemplated protection for interests other than name or likeness, but did not include a cause of action for appropriation of another persons identity. The ancient maxim, inclusio unius est exclusio alterius, would appear to bar the majoritys innovative extension of the right of publicity. The clear implication from the fact that the California Legislature chose to add only voice and signature to the previously protected interests is that it wished to limit the cause of action to enumerated attributes. . The common theme [in cases relied on by the majority] is that identifying characteristics unique to the plaintiffs were used in a context in which they were the only information as to the identity of the individual. The commercial advertisements made it appear that the plaintiff was the person identified in the commercial. No effort was made to dispel the impression that the plaintiffs were the source of the personal attributes at issue. The commercials affirmatively represented that the plaintiffs were involved. The proper interpretation of Motschenbacher, Midler, and Carson is that where identifying characteristics unique to a plaintiff are the only information as to the identity of the person appearing in an ad, a triable issue of fact has been raised as to whether his or her identity as been appropriated. The case before this court is distinguishable. It is patently clear to anyone viewing the commercial advertisement that Vanna White was not being depicted. . The majority contends that the individual aspects of the advertisement [v]iewed together leave little doubt about the celebrity the ad is meant to depict. . In reaching this conclusion, the majority confuses Vanna White, the person, with the role she has assumed as the current hostess on the Wheel of Fortune television game show. A recognition of the distinction is essential for a proper analysis of the facts of this case. As is discussed below, those things which Vanna White claims identify her are not unique to her. They are, instead, attributes of the role she plays. The representation of those attributes, therefore, does not constitute a representation of Vanna White. Vanna White is a one-role celebrity. She is famous solely for appearing as the hostess on the Wheel of Fortune television show. There is nothing unique about Vanna White or the attributes which she claims identify her. Although she appears to be an attractive woman, her face and figure are no more distinctive than that of other equally comely women. She performs her role as hostess in a simple and straight-forward manner. Her work does not require her to display whatever artistic talent she may possess. The majority appears to argue that because Samsung created a robot with the physical proportions of an attractive woman, posed it gracefully, dressed it in a blond wig, an evening gown, and jewelry, and placed it on a set that resembles the Wheel of Fortune layout, it thereby appropriated Vanna Whites identity. But an attractive appearance, a graceful pose, blond hair, an evening gown, and jewelry are attributes shared by many women. These

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common attributes are particularly evident among game-show hostesses and other women in the entertainment field. They are not unique attributes of Vanna Whites identity. Accordingly, I cannot join in the majoritys conclusion that, even if viewed together, these attributes raise a triable issue as to the appropriation of her identity. The only characteristic in the commercial advertisement that is not common is the imitation of the Wheel of Fortune set. This set is the only thing which might possibly lead a viewer to think of Vanna White. . To say that Vanna White may bring an action when another blond female performer or robot appears on such a set as a hostess will, I am sure, be a surprise to the owners of the show. . No doubt the advertisement would have been more effective if Vanna White had appeared in it. But the fact that Samsung recognized Vanna Whites value as a celebrity does not necessarily mean that it appropriated her identity. . I cannot agree with the majority that the California courts, which have consistently taken a narrow view of the right to publicity, would extend law to these unique facts. . IV. Samsungs First Amendment Defense . The majoritys attempt to distinguish this case from Hustler Magazine v. Falwell, 485 U.S. 46 (1988), and L.L. Bean, is unpersuasive. . But the majority fails to consider that the defendants in those cases were making fun of the Reverend Jerry Falwell and L.L. Bean for the purely commercial purpose of selling soft-core pornographic magazines. . I would affirm the district courts judgment in all respects. Note 1. Could Johnny Carson have also asserted 43(a) and 43(c) in the case cited above? 2. The courts examples, including that involving Michael Jordan, clearly flag a particular individual. If White had no right to be the hostess until 2012, whose identity did Samsung take? What if the ad said 2020 A.D.? Yet consider the significance of Samsungs paying other celebrities, but not White. Could a series create an impression of celebrity endorsement for all? Would casual viewers realize that she would not be the hostess forever? 3. If White leaves and exploits her prior involvement with the show, will its owners have any basis for suit? In that vein, consider Lone Ranger v. Cox, 124 F.2d 650, 654 (4th Cir. 1942): [W]e are not impressed by the argument that defendants are protected because of Powells connection with the motion pictures licensed by plaintiff. The contention that the advertisement is true is not correct. Powell is not the Lone Ranger at all. He is merely a moving picture actor who took the part in a motion picture play of that name. The only reason that defendants desire to call him the talking picture Lone Ranger or the Lone Ranger of talking picture fame, with Lone Ranger emphasized and the qualifying words in smaller lettering, is to attract the patronage of those who will confuse him in some way with the Lone Ranger of the radio programs. If it is desired to advertise Powell as the man who played the part in the motion picture of that name, this should be allowed; but any advertisement that he is the Lone Ranger must be avoided, as must any other language tending to imply connection with the Lone Ranger of plaintiffs radio programs or any form of advertising which will lead the public to believe that there is such connection. More recently, in Playboy Enterprises, Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002), the court finds in all respects but one that Welles use (as 1981 Playmate of the Year) of terms

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associated with Playboy (even in metatags) were nominative and noninfringing. The exception was use of the abbreviation PMOY 81 as a recurring watermark on her pages. About that, the court holds, at 806: [W]e reverse as to this issue and remand for further proceedings. We note that if the district court determines that PMOY is not entitled to trademark protection, PEIs claim for dilution must fail. The trademarked term, Playmate of the Year is not identical or nearly identical to the term PMOY. Therefore, use of the term PMOY cannot, as a matter of law, dilute the trademark Playmate of the Year.

Wendt v. Host International, Inc.

U.S. Court of Appeals, Ninth Circuit 197 F.3d 1284 (1999)

[The majority of circuit judges rejected a petition for rehearing en banc a case reported at 125 F.3d 806.] Kozinski, Circuit Judge, dissenting (joined by Kleinfeld and Tashima): Robots again. In White v. Samsung, we held that the right of publicity extends to anything at all that evokes [a famous] persons identity. . Dissenting from our failure to take the case en banc, I argued that our broad application of the right of publicity put state law on a collision course with the federal rights of the copyright holder. See 989 F.2d 1512, 151718 (9th Cir. 1993). . I Though a bit dated now, Cheers remains near and dear to the hearts of many TV viewers. [T]he show revolved around a familiar scene. . And there were Norm and Cliff, the two characters at issue here. Norm, a fat, endearing, oft-unemployed accountant, parked himself at the corner of the bar, where he was joined by Cliff, a dweebish mailman and something of a know-it-all windbag. After eleven years on the air, the gang at Cheers became like family to many fans, ensuring many more years in syndication. Defendant Host International decided to tap into this keg of goodwill. After securing a license from Paramount, the copyright holder, Host opened a line of Cheers airport bars. To help get patrons into a Cheers mood, Host populated the bars with animatronic figures4 resembling Norm and Cliff: One is fat; the other is dressed as a mailman.5 Plaintiffs, the only actors who ever portrayed Norm and Cliff, sued Host for unfair competition and violation of their right of publicity. Paramount intervened, claiming that its copyright preempted any claim Wendt and Ratzenberger might have under state law. The district court granted summary judgment for the defendants: [T]here is [no] similarity at all except that one of the robots, like one of the plaintiffs, is heavier than the other. The facial features are totally different. 125 F.3d at 809. Relying on White, the panel here reverses but offers little explanation beyond the curt assertion that material facts exist that might cause a reasonable jury to find [otherwise]. Id. at 810. II This case, unlike White, pits actor against copyright holder. The parties are fighting over the same bundle of intellectual property rights the right to make dramatic
4

quips.
5

As best the record discloses, these are life-size stuffed dolls that move somewhat and play pre-recorded In a half-hearted attempt to avoid litigation, Host changed the robots names to Hank and Bob.

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representations of the characters Norm and Cliff. Host and Paramount assert their right under the Copyright Act to present the Cheers characters in airport bars; Wendt and Ratzenberger assert their right under California law to control the exploitation of their likenesses. But to millions of viewers, Wendt and Ratzenberger are Norm and Cliff; its impossible to exploit the latter without also evoking thoughts about the former. So who wins? The Copyright Act makes it simple, at least insofar as the plaintiffs interfere with Paramounts right to exploit the Cheers characters. Section 301 of the Copyright Act preempts any state law legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright[.] 17 U.S.C. 301(a). The copyright to Cheers carries with it the right to make derivative works based on its characters. See generally Warner Bros., Inc. v. American Broadcasting Cos., 720 F.2d 231, 235 (2d Cir. 1983) (Superman copyright belongs to Warner Brothers). The presentation of the robots in the Cheers bars is a derivative work, just like a TV clip, promotion, photograph, poster, sequel or dramatic rendering of an episode. Thus, under federal law, Host has the unconditional right to present robots that resemble Norm and Cliff. Instead, the panel allows the plaintiffs to pick up where Vanna left off: Copyright or no copyright, anyone who wants to use a figure, statue, robot, drawing or poster that reminds the public of Wendt and Ratzenberger must first obtain (and pay for) their consent. This cannot be squared with the right of the copyright holder to recreate Norm and Cliff however it sees fit. At the very least, Paramount must be able to reproduce the characteristics that bring Norm and Cliff to mind. The problem lies with the sweeping standard we adopted in White. The right of publicity, as defined by the state courts, is limited to using a celebritys name, voice, face or signature. A copyright holder can generally avoid using any of these tangible elements in exploiting its copyright. White exploded the right of publicity to include anything that brings the celebrity to mind. Its inevitable that so broad and ill-defined a property right will trench on the rights of the copyright holder. According to the panel, Paramount and Host may not use Norm and Cliff in a way that reminds people of the actors who played them and whose identity is therefore fused in the public mind. This is a daunting burden. . When portraying a character who was portrayed by an actor, it is impossible to recreate the character without evoking the image of the actor in the minds of viewers. . Under the unbounded right of publicity announced in White, copyright holders will seldom be able to avoid trial when sued for infringement of the right to publicity. Remember Vanna: Even though the robot looked nothing like her, a jury awarded her $400,000. See Vanna White Wins Suit, Wall St. J., Jan. 24, 1994, at B2.6 III The panels refusal to recognize copyright preemption puts us in conflict with the Seventh Circuit in Baltimore Orioles, Inc. v. Major League Baseball Players Assn, 805 F.2d 663 (7th Cir. 1986). Baltimore Orioles held that the baseball clubs not the players own the rights to baseball telecasts under copyright law, and the players cant use their state law right of publicity to veto the telecast of their performance. This was so even though the telecast (obviously) used the players identities and likenesses. The Seventh Circuit acknowledged that the state law right of publicity gave the players a property interest in their actual performances, see Zacchini, 433 U.S. 562 (1977), but held
6

To avoid going to trial in such a situation, producers will have to cast new actors who look and sound very different from the old ones. A Seinfeld spin-off thus ends up in a Bizarro world where a skinny Newman sits down to coffee with a svelte George, a stocky Kramer, a fat Jerry and a lanky blonde Elaine. Not only is goodwill associated with the old show lost, the artistic freedom of the screenwriters and producers is severely cramped.

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that this right could not trump the Clubs right under the Copyright Act to control the telecast. The Seventh Circuit recognized, as the panel here does not, that the players and the clubs were fighting over the same bundle of intellectual property rights: In this litigation, the Players have attempted to obtain ex post what they did not negotiate ex ante. That is to say, they seek a judicial declaration that they possess a right the right to control the telecasts of major league baseball games that they could not procure in bargaining with the Clubs. 805 F.2d at 679. The clubs owned both the right to sell tickets to see the games and the copyright to the telecast. The copyright preempted whatever state law rights the players claimed, at least insofar as state law would prevent ordinary use of the copyrighted work. The same reasoning applies here: The plaintiffs right to control the use of their likeness is preempted by Paramounts right to exploit the Norm and Cliff characters however it sees fit. If Wendt and Ratzenberger wanted to control how the Cheers characters were portrayed after they left the show, they should have negotiated for it beforehand.7 IV Coming home to roost is yet another problem I warned about in White that a broad reading of the state right of publicity runs afoul of the dormant Copyright Clause, which preempts state intellectual property laws to the extent they prejudice the interests of other States. Goldstein v. California, 412 U.S. 546, 558 (1973). Just as a state law regulating the length of trucks is invalid under the dormant Commerce Clause if it poses an undue burden on interstate commerce, see Kassel v. Consolidated Freightways Corp., 450 U.S. 662, 674 (1981), so Californias right of publicity law is invalid if it substantially interferes with federal copyright law, even absent preemptive legislation. A copyright licensee must be able to exercise rights which are inherently federal in nature without worrying that 50 separate states will burden those rights. This is most obviously true when state law restricts the display of derivative works outside the borders of its state. Compare Goldstein, 412 U.S. at 558. Yet that is exactly what the panel approves here: Plaintiffs are using California law to stop Host from displaying a copyrighted work in Kansas City and Cleveland. Why California should set the national standard for what is a permissible use of a licensed derivative work is beyond me. Rather than construe the right of publicity narrowly to avoid this constitutional conundrum, the panel compounds Whites errors by enforcing Californias right of publicity way beyond Californias borders. V The First Amendment concerns raised by White are even more pressing here. White was an advertisement and therefore subject to the less demanding commercial speech standard of Central Hudson Gas & Elec. Corp. v. Public Serv. Comm., 447 U.S. 557, 56163 (1980). Here, the portrayal of the Cheers characters is core protected speech: Using Norm and Cliff dummies in a Cheers-themed bar is a dramatic presentation.8 Its like a play. Cheers may not have the social impact of Hair, see Southeastern Promotions, Ltd. v. Conrad, 420 U.S. 546 (1975), but its a literary work nonetheless, worthy of the highest First Amendment protection from intrusive state laws like Californias right-of-publicity statute. [Cited
The Seventh Circuit is not alone in recognizing the need to limit the right of publicity. See, e.g., Allison v. Vintage Sports Plaques, 136 F.3d 1443, 144749 (11th Cir. 1998) (recognizing first sale doctrine as limiting right of publicity). Scholars, too, have soundly rejected White. See Arlen W. Langvardt, The Troubling Implications of a Right of Publicity Wheel Spun Out of Control, 45 U. Kan. L.Rev. 329 (1997). Even our treatment of Wendt and Ratzenbergers claim has already been criticized. See Felix H. Kent, Right of Privacy and of Publicity, N.Y.L.J., Dec. 19, 1997, at 3; . 8 No doubt the decision to put animatronic Norm and Cliff figures in the bars was profit-driven. But that doesnt mean Central Hudson applies: The Supreme Court limits the outhouse of commercial speech to pure advertising-speech that does no more than propose a commercial transaction.
7

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Cardtoons, below.] Host did not plaster Wendts face on a billboard with a Budweiser logo. It cashed in on the Cheers goodwill by creatively putting its familiar mise-en-scene to work. The robots are a new derivation of a copyrighted work, not unlike a TV series based on a movie or a Broadway play based on a novel. The novelty of using animatronic figures based on TV characters ought to prick up our ears to First Amendment concerns. Instead we again let the right of publicity snuff out creativity. VI As I noted in White, No California statute, no California court has actually tried to reach this far. It is ironic that it is we who plant this kudzu in the fertile soil of our federal system. 989 F.2d at 1519. We pass up yet another opportunity to root out this weed. Instead, we feed it Miracle-Gro. I dissent. Notes 1. One key difference between Lanham Act and right of publicity claims in the speed with which suits must be filed. In Christoff v. Nestl USA, Inc., 47 Cal.4th 468 (2009), a professional model may have forfeited over $30M in compensatory and punitive damages for uncompensated use of his image. The state supreme court remands for further consideration of the states two-year statute of limitations. Why suit was not filed under the Lanham Act is unclear; see, e.g., Stayart v. Yahoo!, discussed at the end of Chapter 11. Except for the fiveyear limitation on cancellation of registrations, that Act has no such limit. Courts instead apply laches, a considerably more flexible proposition; see e.g., Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 822 (7th Cir. 1999) (courts may refer to state statutes of limitation, but whether a Lanham Act claim has been brought within the analogous state statute of limitations is not the sole indicator of whether laches may be applied in a particular case.) 2. Facts in White and Wendt differ in at least two potentially important respects: In Wendt, unlike White, permission was secured from the shows owners, and the speech at issue was difficult to characterize as commercial. Why would neither be seen as important to most judges who considered the case? 3. In Laws v. Sony Music Entertainment, Inc., 448 F.3d 1134, 114445 (9th Cir. 2006), however, claims based on rights of privacy and publicity are found to be preempted: The essence of Laws claim is, simply, that she objects to having a sample of Very Special used in the Jennifer Lopez-L.L. Cool J recording [All I Have.] But Laws gave up the right to reproduce her voice at least insofar as it is incorporated in a recording of Very Special when she contracted with Elektra in 1981 and acknowledged that Elektra held the sole and exclusive right to copyright such master recordings, including the right to lease, license, convey or otherwise use or dispose of such master recordings. At that point, Laws could have either retained the copyright, or reserved contractual rights. Indeed, Laws claims that the latter is precisely what she did. But if Elektra licensed Very Special to Sony in violation of its contract with Laws, her remedy sounds in contract against Elektra, not in tort against Sony. 4. Points made in Parts II and IV of Judge Kozinskis Wendt dissent should not be seen as rejected because they are novel. Indeed, they are remarkably similar to ones made earlier by Learned Hand, for example, when dissenting in Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657, 664 (2d Cir. 1955), where, under New York law, duplication of sound recordings was enjoined long before they received protection under federal law.

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Hoffman v. Capital Cities/ABC Inc.

U.S. Court of Appeals, Ninth Circuit 255 F.3d 1180 (2001)

Before Boochever, Tashima and Tallman. Boochever, Circuit Judge: In 1982, actor Dustin Hoffman starred in the movie Tootsie, playing a male actor who dresses as a woman to get a part on a television soap opera. One memorable still photograph from the movie showed Hoffman in character in a red long-sleeved sequined evening dress and high heels, posing in front of an American flag. . In March 1997, Los Angeles Magazine (LAM) published the Fabulous Hollywood Issue! An article from this issue entitled Grand Illusions used computer technology to alter famous film stills to make it appear that the actors were wearing Spring 1997 fashions. The sixteen familiar scenes included movies and actors such as North by Northwest (Cary Grant), Saturday Night Fever (John Travolta), and even The Creature from the Black Lagoon (with the Creature in Nike shoes). The final shot was the Tootsie still. The American flag and Hoffmans head remained as they appeared in the original, but Hoffmans body and his long-sleeved red sequined dress were replaced by the body of a male model in the same pose, wearing a spaghetti-strapped, cream-colored, silk evening dress and highheeled sandals. . The text on the page identified the still as from the movie Tootsie, and read, Dustin Hoffman isnt a drag in a butter-colored silk gown by Richard Tyler and Ralph Lauren heels. LAM did not ask Hoffman for permission. Nor did LAM secure permission from Columbia Pictures, the copyright holder. In April 1997, Hoffman filed a complaint in California state court against LAMs parent company, now ABC. The complaint alleged violation of (1) the California common law right of publicity; (2) the California statutory right of publicity; (3) the California unfair competition statute; and (4) 15 U.S.C. 1125(a). ABC removed the case to federal court. Hoffman added LAM as a defendant. After a bench trial, the district court found for Hoffman and against LAM on all of Hoffmans claims. The court awarded Hoffman $1,500,000 in compensatory damages. After a hearing, the court awarded Hoffman $1,500,000 in punitive damages. It also held that ABC was not liable for any of LAMs actions. . Analysis . Hoffman claims that LAM violated his state right of publicity by appropriating his name and likeness. He also claims that LAM violated his rights under the federal Lanham Act. LAM replies that its challenged use of the Tootsie photo is protected under the First Amendment. We evaluate this defense aware of the careful balance that courts have gradually constructed between the right of publicity and the First Amendment and federal intellectual property laws. Landham v. Lewis Galoob Toys, Inc., 227 F.3d 619, 626 (6th Cir. 2000). LAM argues that the Grand Illusions article and the altered Tootsie photograph contained therein are an expression of editorial opinion, entitled to protection under the First Amendment. Hoffman, a public figure,1 must therefore show that LAM, a media defendant, acted with actual malice, that is, with knowledge that the photograph was false, or with reckless disregard for its falsity. See New York Times Co. v. Sullivan, 376 U.S. 254, 27980
1

Hoffman does not contest that he is a public figure. In fact, Hoffman alleges that he is a readilyidentifiable individual whose persona has commercial value under his right of publicity claim.

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(1964). Because Hoffman did not produce clear and convincing evidence that LAM acted with actual malice, LAM contends that all Hoffmans claims are barred by the First Amendment. The district court rejected this argument. First, it concluded that the magazine article was commercial speech not entitled to constitutional protection: [t]he First Amendment does not protect the exploitative commercial use of Mr. Hoffmans name and likeness. Second, the court found that LAM acted with actual malice, and the First Amendment does not protect knowingly false speech.2 Commercial speech The district court concluded that LAMs alteration of the Tootsie photograph was an exploitative commercial use not entitled to First Amendment protection. We disagree. Commercial speech has special meaning in the First Amendment context. Although the boundary between commercial and noncommercial speech has yet to be clearly delineated, the core notion of commercial speech is that it does no more than propose a commercial transaction. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66 (1983). Such speech is entitled to a measure of First Amendment protection. Commercial messages, however, do not receive the same level of constitutional protection as other types of protected expression. False or misleading commercial speech is not protected. See Florida Bar v. Went For It, Inc., 515 U.S. 618, 62324 (1995) (commercial speech may freely be regulated if it is misleading). When speech is properly classified as commercial, a public figure plaintiff does not have to show that the speaker acted with actual malice. See Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 556 (5th Cir. 2001). In many right of publicity cases, the question of actual malice does not arise, because the challenged use of the celebritys identity occurs in an advertisement that does no more that propose a commercial transaction and is clearly commercial speech. See, e.g., Newcombe v. Adolph Coors Co., 157 F.3d 686, 691 (9th Cir. 1998) (use of pitchers image in printed beer advertisement). In all these cases, the defendant used an aspect of the celebritys identity entirely and directly for the purpose of selling a product. Such uses do not implicate the First Amendments protection of expressions of editorial opinion. Cf. White, (advertisement in which spoof is entirely subservient to primary message to buy identified product not protected by First Amendment). Hoffman points out that the body double in the Tootsie photograph was identified as wearing Ralph Lauren shoes and that there was a Ralph Lauren advertisement (which does not feature shoes) elsewhere in the magazine. (Insofar as the record shows, Richard Tyler, the designer of the gown, had never advertised in LAM.) Hoffman also points to the Shoppers Guide in the back of the magazine, which provided stores and prices for the shoes and gown. These facts are not enough. Any commercial aspects are inextricably entwined with expressive elements. [T]here are commonsense differences between speech that does no more than propose a commercial transaction and other varieties, Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 771 n.24 (1976), and common sense tells us this is not a simple advertisement.
In Comedy III Prods., Inc. v. Gary Saderup, Inc., 21 P.3d 797 (Cal. 2001), the California Supreme Court held that there was no First Amendment defense to a California right of publicity claim when artistic expression takes the form of a literal depiction or imitation of a celebrity for commercial gain. Id. at 808. An artist who added significant transformative elements could still invoke First Amendment protection. Id. Even if we were to consider LAM an artist and the altered Tootsie photograph artistic expression subject to the Comedy III decision, there is no question that LAMs publication of the Tootsie photograph contained significant transformative elements. . In fact, the entire theory of Hoffmans case rests on his allegation that the photograph is not a true or literal depiction of him. Regardless of the scope of Comedy III, it is clear to us that it does not strip LAM of First Amendment protection.
2

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The district court also concluded that the article was not protected speech because it was created to attract attention. A printed article meant to draw attention to the for-profit magazine in which it appears, however, does not fall outside of the protection of the First Amendment because it may help to sell copies. . We conclude that LAMs publication was not commercial speech. Actual malice The district court went on to state that even if LAM could raise a First Amendment defense, LAM acted with actual malice, and the First Amendment does not protect knowingly false speech. The court found that the magazine altered Hoffmans image, and then published that image knowing it was false and intending that the readers believe the falsehood: [LAM] knew that Mr. Hoffman had never worn the designer clothes he was depicted as wearing, and that what they were showing was not even his body. Moreover, [LAM] admitted that it intended to create the false impression in the minds of the public that they were seeing Mr. Hoffmans body. . We review the district courts finding of actual malice de novo; see Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 508 n.27 (1984). . We must first identify the purported false statement of fact in issue. Hoffman alleged, and the district court found, that the altered Tootsie photograph and the accompanying text were false because they created the impression that Hoffman himself posed for the altered photograph (that is, that Hoffman was wearing the Richard Tyler dress and the Ralph Lauren shoes which replaced the red sequined dress and the shoes Hoffman wore in the original photograph). To show actual malice, Hoffman must demonstrate by clear and convincing evidence that LAM intended to create the false impression in the minds of its readers that when they saw the altered Tootsie photograph they were seeing Hoffmans body. . Mere negligence is not enough to demonstrate actual malice. . We must go beyond the altered photograph itself and examine the totality of [LAMs] presentation . The article is featured on the magazine cover as The Ultimate Fashion Show Starring Grace Kelly, Marilyn Monroe and Darth Vader. The table of contents describes the Grand Illusions article: By using state-of-the-art digital magic, we clothed some of cinemas most enduring icons in fashions by the hottest designers. The accompanying full-page photo is of Humphrey Bogart and Ingrid Bergman as they appeared in Casablanca, wearing current designer clothing, with a caption stating, Digital composite by ZZYZX. A few pages later, the editors note describes the article: The movie stills in our refashioned fashion spectacular, Grand Illusions have appeared before in fact, theyre some of the most famous images in Hollywood history. But youve never seen them quite like this. Cary Grant, for example, is still ducking that pesky plane in North by Northwest, but now he is doing it as a runway model, wearing a suit from Moschinos spring collection. We know purists will be upset, but who could resist the opportunity to produce a 1997 fashion show with mannequins who have such classic looks? . We do not believe that the totality of LAMs presentation of the article and the Tootsie photograph provides clear and convincing evidence that the editors intended to suggest falsely to the ordinary reader that he or she was seeing Hoffmans body. All but one of the references to the article in the magazine make it clear that digital techniques were used to substitute current fashions for the clothes worn in the original stills. Although nowhere does the magazine state that models bodies were digitally substituted, this would be abundantly clear given that the vast majority of the featured actors were deceased. .

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The district court stated that LAM admitted that it intended to create the false impression in the minds of the public that they were seeing Mr. Hoffmans body. This is a quotation from a portion of the style editors testimony, in which she explained that she wanted the male model whose body would appear in the altered Tootsie photograph to have Hoffmans body type. She later explained, however, that she did not intend to convey to readers that Hoffman had participated in some way in the articles preparation, and never thought that readers would believe Hoffman posed for the photograph in the new dress. . This single statement, whose meaning is ambiguous in the context of other testimony, the text of the article, and the entire magazine, is not sufficient to strip the magazine of its First Amendment protection. We conclude that LAM is entitled to the full First Amendment protection awarded noncommercial speech. We also conclude that Hoffman did not show by clear and convincing evidence, which is far in excess of the preponderance sufficient for most civil litigation, that LAM acted with actual malice in publishing the altered Tootsie photograph. Because there is no clear and convincing evidence of actual malice, we must reverse the district courts judgment in Hoffmans favor and the courts award of attorney fees to Hoffman, and direct that judgment be entered for LAM. . Notes 1. How were the series of related photos significant in assessing Hoffmans rights? Is the effect parallel to that of the series of ads on Whites rights? 2. As the court notes, malice usually doesnt arise in such cases in contrast with cases such as Dairy Stores. Absent evidence that LAM intended to harm Hoffman or his reputation, what was meant by use of the term, malice? Reconsider Haugen; why is malice unnecessary in cases like that? 3. Frivolous claims can be costly. In Cairns v. Franklin Mint Co., 292 F.3d 1139 (9th Cir. 2002), the court rejects ones based on unlicensed use of Princess Dianas name and likeness because British law governed and provides no postmortem rights. Thus, plaintiffs lost not only about $2.6 million spent on their suit, but also were liable for over $2.3 million spent by defendant.

Cardtoons, L.C. v. Major League Baseball Players Assn

U.S. Court of Appeals, Tenth Circuit 95 F.3d 959 (1996)

Before Tacha, Logan and Reavley, Senior Circuit Judge. Tacha, Circuit Judge: Cardtoons brought this action to obtain a declaratory judgment that its parody trading cards featuring active major league baseball players do not infringe on the publicity rights of members of the Major League Baseball Players Assn (MLBPA). The district court held that the trading cards constitute expression protected by the First Amendment and therefore read a parody exception into Oklahomas statutory right of publicity. . I. Background Cardtoons formed in late 1992 to produce parody trading cards featuring caricatures of major league baseball players. Cardtoons contracted with a political cartoonist, a sports artist, and a sports author and journalist, who designed a set of 130 cards. The majority of the cards,

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71, have caricatures of active major league baseball players on the front and humorous commentary about their careers on the back. . Except for the Spectra cards, the back of each card bears the Cardtoons logo and the following statement: Cardtoons baseball is a parody and is NOT licensed by Major League Baseball Properties or Major League Baseball Players Association. A person reasonably familiar with baseball can readily identify the players lampooned on the parody trading cards. The cards use similar names, recognizable caricatures, distinctive team colors, and commentary about individual players. For example, the card parodying San Francisco Giants outfielder Barry Bonds calls him Treasury Bonds, and features a recognizable caricature of Bonds, complete with earring, tipping a bat boy for a 24 carat gold Fort Knoxville Slugger. . No one the least bit familiar with the game of baseball would mistake Cardtoons Treasury Bonds for anyone other than the Giants Barry Bonds. Other caricatures are equally identifiable. The trading cards ridicule the players using a variety of themes. A number of the cards, including the Treasury Bonds card and all of the Big Bang Bucks cards, humorously criticize players for their substantial salaries. (The irony of MLBPAs counterclaim for profits from the cards is not lost on this panel.) Other trading cards mock the players narcissism, as exemplified by the card featuring Egotisticky Henderson of the Pathetics, parodying Ricky Henderson, then of the Oakland Athletics. The card features a caricature of Henderson raising his finger in a number one sign while patting himself on the back. The remainder of the cards poke fun at things such as the players names (Chili Dog Davis who plays the game with relish, a parody of designated hitter Chili Davis), physical characteristics (Cloud Johnson, a parody of six-foot-ten-inch pitcher Randy Johnson), and onfield behavior (a backflipping Ozzie Myth, a parody of shortstop Ozzie Smith). . After designing its trading cards, Cardtoons contracted with a printer (Champs Marketing, Inc.) and distributor (TCM Associates) and implemented a marketing plan. As part of that plan, Cardtoons placed an advertisement in the May 14, 1993, issue of Sports Collectors Digest. That advertisement tipped off MLBPA, the defendant in this action, and prompted its attorney to write cease and desist letters to both Cardtoons and Champs. MLBPA is the exclusive collective bargaining agent for all active major league baseball players, and operates a group licensing program in which it acts as the assignee of the individual publicity rights of all active players. Since 1966, MLBPA has entered into group licensing arrangements for a variety of products, such as candy bars, cookies, cereals, and, most importantly, baseball trading cards, which generate over 70% of its licensing revenue. MLBPA receives royalties from these sales and distributes the money to individual players. After receiving the cease and desist letter, Champs advised Cardtoons that it would not print the parody cards until a court of competent jurisdiction had determined that the cards did not violate MLBPA rights. Cardtoons then filed this suit. Cardtoons also sought damages for tortious interference with its contractual relationship with Champs, as well as an injunction to prevent MLBPA from threatening legal action against Champs or other third parties with whom Cardtoons had contracted. MLBPA moved to dismiss and counterclaimedfor violation of its members rights of publicity under Oklahoma law. . III. The Merits Cardtoons asks for a declaration that it can distribute its parody trading cards without the consent of MLBPA. There are three steps to our analysis of this issue. First, we determine whether the cards infringe upon MLBPAs property rights as established by either the Lanham Act or Oklahomas right of publicity statute. If so, we then ascertain whether the cards are protected by the First Amendment. Finally, if both parties have cognizable rights at stake, we proceed to a final determination of [their] relative importance.

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A. MLBPAs Property Rights 1. The Lanham Act . Likelihood of confusion is a question of fact that we review for clear error. The district court found that Cardtoons parody cards created no likelihood of confusion. We agree. Most of the cards have a Cardtoons logo and a statement that they are not licensed by MLBPA. In addition, as with all successful parodies, the effect of the cards is to amuse rather than confuse. A parody relies upon a difference from the original mark, presumably a humorous difference, in order to produce its desired effect. [Jordache Enterprises, Inc. v. Hogg Wyld, Ltd., 828 F.2d 1482, 1486 (10th Cir. 1987)] (emphasis added). Cardtoons success depends upon the humorous association of its parody cards with traditional, licensed baseball cards, not upon public confusion as to the source of the cards. . 2. The Right of Publicity The right of publicity is the right of a person to control the commercial use of his or her identity. While the right was originally intertwined with the right of privacy, courts soon came to recognize a distinction between the personal right to be left alone and the business right to control use of ones identity in commerce. The latter was first acknowledged as a distinct privilege and termed the right of publicity in Haelan Laboratories, Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir.), cert. den., 346 U.S. 816 (1953). Haelan Laboratories, appropriately enough, involved two rival chewing gum manufacturers who were arguing over exclusive rights to use the image of a professional baseball player to promote their product. In resolving the dispute, the court concluded that a man has a right in the publicity value of his photograph. Id. at 868. The court explained: This right might be called a right of publicity. For it is common knowledge that many prominent persons (especially actors and ballplayers), far from having their feelings bruised through public exposure of their likenesses, would feel sorely deprived if they no longer received money for authorizing advertisements, popularizing their countenances, displayed in newspapers, magazines, busses, trains and subways. This right of publicity would usually yield them no money unless it could be made the subject of an exclusive grant which barred any other advertiser from using their pictures. Id. The development of this new intellectual property right was further cultivated by Melville Nimmer in The Right of Publicity, 19 Law & Contemp. Probs. 203 (1954). Nimmer, who was counsel for Paramount Pictures at the time, referred to the needs of Broadway and Hollywood in describing the foundations and parameters of the right, id. The right of publicity is now recognized by common law or statute in twenty-five states. Like trademark and copyright, the right of publicity involves a cognizable property interest. Most formulations of the right protect against the unauthorized use of certain features of a persons identity such as name, likeness, or voice for commercial purposes. Although publicity rights are related to laws preventing false endorsement, they offer substantially broader protection. Suppose, for example, that a company, Mitchell Fruit, wanted to use pop singer Madonna in an advertising campaign to sell bananas, but Madonna never ate its fruit and would not agree to endorse its products. If Mitchell Fruit posted a billboard featuring a picture of Madonna and the phrase, Madonna may have ten platinum albums, but shes never had a Mitchell banana, Madonna would not have a claim for false endorsement. She would, however, have a publicity rights claim, because Mitchell Fruit misappropriated her name and likeness for commercial purposes. Publicity rights, then, are a form of property protection that allows people to profit from the full commercial value of their identities.

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[Oklahomas right of publicity statute] is virtually identical to Californias. The heart of the Oklahoma statute provides that: Any person who knowingly uses anothers name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods, or services, without such persons prior consent, . shall be liable for any damages sustained by the person or persons injured as a result thereof, and any profits from the unauthorized use that are attributable to the use shall be taken into account in computing the actual damages. Okla.Stat. tit. 12, 1449(A). . . The Oklahoma publicity statute contains two exceptions designed to accommodate the First Amendment. . The news and incidental use exceptions, however, provide no haven for Cardtoons. Cardtoons commercial venture is not in connection with any news account. Moreover, the companys use of player likenesses is directly connected with a proposed commercial endeavor; indeed, the players were specifically selected for their wide market appeal. Thus, notwithstanding any First Amendment defense, Cardtoons use of player likenesses on its cards violates the Oklahoma statute and infringes upon the property rights of MLBPA. B. Cardtoons First Amendment Right Because the parody trading cards infringe upon MLBPAs property rights, we must consider whether Cardtoons has a countervailing First Amendment right to publish the cards. The First Amendment only protects speech from regulation by the government. Although this is a civil action between private parties, it involves application of a state statute that Cardtoons claims imposes restrictions on its right of free expression. Application of that statute thus satisfies the state action requirement of Cardtoons First Amendment claim. Cardtoons parody trading cards receive full protection under the First Amendment. The cards provide social commentary on public figures, major league baseball players, who are involved in a significant commercial enterprise, major league baseball. While not core political speech, this type of commentary on an important social institution constitutes protected expression. The cards are no less protected because they provide humorous rather than serious commentary. Speech that entertains, like speech that informs, is protected by the First Amendment because [t]he line between the informing and the entertaining is too elusive for the protection of that basic right. Winters v. New York, 333 U.S. 507, 510 (1948); see Zacchini, 433 U.S. 562, 578. Moreover, Cardtoons makes use of artistic and literary devices with distinguished traditions. Parody, for example, is a humorous form of social commentary that dates to Greek antiquity, and has since made regular appearances in English literature. See L.L. Bean, Inc. v. Drake Publishers, Inc., 811 F.2d 26, 28. In addition, cartoons and caricatures, such as those in the trading cards, have played a prominent role in public and political debate throughout our nations history. See Hustler Magazine v. Falwell, 485 U.S. 46, 5355 (1988). Thus, the trading cards commentary on these public figures and the major commercial enterprise in which they work receives no less protection because the cards are amusing. MLBPA contends that Cardtoons speech receives less protection because it fails to use a traditional medium of expression. The protections afforded by the First Amendment, however, have never been limited to newspapers and books. . Moreover, many untraditional forms of expression are also protected by the First Amendment. See, e.g., Texas v. Johnson, 491 U.S. 397 (1989) (flag burning); Schad v. Mount Ephraim, 452 U.S. 61 (1981) (nude dancing); Cohen v. California, 403 U.S. 15 (1971) (wearing a jacket bearing the

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words Fuck the Draft). Thus, even if the trading cards are not a traditional medium of expression, they nonetheless contain protected speech. Moreover, even if less common mediums of expression were to receive less First Amendment protection (perhaps out of concern for whether they contain any expression at all), trading cards do not fall into that category. Baseball cards have been an important means of informing the public about baseball players for over a century. . MLBPA also maintains that the parody trading cards are commercial merchandise rather than protected speech. However, we see no principled distinction between speech and merchandise. The fact that expressive materials are sold neither renders the speech unprotected nor alters the level of protection under the First Amendment. Cardtoons need not give away its trading cards in order to bring them within the ambit of the First Amendment. MLBPA further argues that the parody cards are commercial speech and should therefore receive less protection under the First Amendment. The Supreme Court has defined commercial speech as expression related solely to the economic interests of the speaker and its audience. Central Hudson Gas & Elec. Corp. v. Public Serv. Commn, 447 U.S. 557, 561 (1980). Speech that does no more than propose a commercial transaction, for example, is commercial speech. Thus, commercial speech is best understood as speech that merely advertises a product or service for business purposes. As such, commercial speech may receive something less than the strict review afforded other types of speech. Cardtoons trading cards, however, are not commercial speech they do not merely advertise another unrelated product. Although the cards are sold in the marketplace, they are not transformed into commercial speech merely because they are sold for profit. Contrary to MLBPAs argument, therefore, the cards are unlike the parody in the only other circuit court decision addressing the constitutional tensions inherent in a celebrity parody, White v. Samsung Electronics America, Inc., 971 F.2d 1395 (9th Cir.). . We disagree with the result in that case for reasons discussed in the two dissents that it engendered. Moreover, our case is distinguished by the fact that the speech involved is subject to full First Amendment protection. White, therefore, is inapposite. C. Balancing Free Speech Rights with Property Rights In resolving the tension between the First Amendment and publicity rights in this case, we find little guidance in cases involving parodies of other forms of intellectual property. Trademark and copyright, for example, have built-in mechanisms that serve to avoid First Amendment concerns of this kind. . Oklahomas right of publicity statute, however, does not provide a similar accommodation for parody, and we must therefore confront the First Amendment issue directly. MLBPA urges us to adopt the framework established in Lloyd Corp. v. Tanner, 407 U.S. 551 (1972). The issue in Lloyd was whether a private shopping center could prevent the distribution of handbills on its premises. The Court focused on the availability of adequate alternative avenues of communication: It would be an unwarranted infringement of property rights to require [the shopping center] to yield to the exercise of First Amendment rights under circumstances where adequate alternative avenues of communication exist. Such an accommodation would diminish property rights without significantly enhancing the asserted right of free speech. Id. at 567. The Court held that the First Amendment did not require the shopping center to allow distribution of the handbills because the public sidewalks and streets surrounding the center provided an adequate alternative avenue of communication. This type of analysis, usually applied to time, place, and manner restrictions, has also been applied in several cases

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where intellectual property rights have conflicted with the right to free expression. E.g., Mutual of Omaha Ins. Co. v. Novak, 836 F.2d 397, 40203 (8th Cir. 1987) (holding that Mutant of Omaha, a parody of Mutual of Omahas logo, constitutes trademark infringement), cert. den., 488 U.S. 933 (1988). . In this case, Cardtoons expression requires use of player identities because, in addition to parodying the institution of baseball, the cards also lampoon individual players. Further, Cardtoons use of the trading card format is an essential component of the parody because baseball cards have traditionally been used to celebrate baseball players and their accomplishments. Cardtoons expresses ideas through the use of major league baseball player identities, and MLBPAs attempts to enjoin the parody thus goes to the content of the speech, not merely to its time, place, or manner. For that reason, the Lloyd test is inapplicable. This case instead requires us to directly balance the magnitude of the speech restriction against the asserted governmental interest in protecting the intellectual property right. We thus begin our analysis by examining the importance of Cardtoons right to free expression and the consequences of limiting that right. We then weigh those consequences against the effect of infringing on MLBPAs right of publicity. 1. The Effect of Infringing Upon Cardtoons Right to Free Speech Cardtoons interest in publishing its parody trading cards implicates some of the core concerns of the First Amendment. . A parodist can, with deft and wit, readily expose the foolish and absurd in society. Parody is also a valuable form of self-expression that allows artists to shed light on earlier works and, at the same time, create new ones. Thus, parody, both as social criticism and a means of self-expression, is a vital commodity in the marketplace of ideas. Parodies of celebrities are an especially valuable means of expression because of the role celebrities play in modern society. . Commentator Michael Madow gives the following example: [A] story circulated in Washington that [first] President Bush had boasted to a congressional delegation that Saddam Hussein was going to get his ass kicked. When reporters pressed Bush to confirm the statement, he did not answer directly. Instead, he hitched up his pants in the manner of John Wayne. Everyone got the point. [Private Ownership of Public Image, 81 Cal. L.Rev. at 128.] Celebrities, then, are an important element of the shared communicative resources of our cultural domain. Because celebrities are an important part of our public vocabulary, a parody of a celebrity does not merely lampoon the celebrity, but exposes the weakness of the idea or value that the celebrity symbolizes in society. Cardtoons trading cards, for example, comment on the state of major league baseball by turning images of our sports heroes into modern-day personifications of avarice. In order to effectively criticize society, parodists need access to images that mean something to people, and thus celebrity parodies are a valuable communicative resource. Restricting the use of celebrity identities restricts the communication of ideas. Without First Amendment protection, Cardtoons trading cards and their irreverent commentary on the national pastime cannot be freely distributed to the public. Instead, as required by Oklahoma law, the production and distribution of the cards would be subject to MLBPAs consent. . Such a result is clearly undesirable, for [t]he last thing we need, the last thing the First Amendment will tolerate, is a law that lets public figures keep people from mocking them. White, 989 F.2d at 1519 (Kozinski, dissenting).

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2. The Effect of Infringing Upon MLBPAs Right of Publicity . The principal economic argument made in support of the right of publicity is that it provides an incentive for creativity and achievement. [Zacchini.] . . The incentive effect of publicity rights, however, has been overstated. Most sports and entertainment celebrities with commercially valuable identities engage in activities that themselves generate a significant amount of income; the commercial value of their identities is merely a by-product of their performance values. Although no one pays to watch Cormac McCarthy write a novel, many people pay a lot of money to watch Demi Moore act and Michael Jordan play basketball. Thus, the analogy to the incentive effect of other intellectual property protections is strained because [a]bolition of the right of publicity would leave entirely unimpaired a celebritys ability to earn a living from the activities that have generated his commercially marketable fame. Madow, supra, at 209. This distinction between the value of a persons identity and the value of his performance explains why Zacchini, the Supreme Courts sole case involving a right of publicity claim, is a red herring. . The Supreme Court held that the First Amendment did not give the station the right to broadcast Zacchinis entire act in contravention of his state protected right of publicity. Zacchini, however, complained of the appropriation of the economic value of his performance, not the economic value of his identity. The Courts incentive rationale is obviously more compelling in a right of performance case. . The argument that publicity rights provide valuable incentives is even less compelling in the context of celebrity parodies. Since celebrities will seldom give permission for their identities to be parodied, granting them control over the parodic use of their identities would not directly provide them with any additional income. . The second economic justification is that it promotes the efficient allocation of resources, a version of the familiar tragedy of the commons argument. Without the artificial scarcity created by publicity rights, identities would be commercially exploited until the marginal value of each use is zero. . This efficiency argument is most persuasive in the context of advertising. The argument is not as persuasive, however, when applied to non-advertising uses. . The final economic argument offered for rights of publicity is that they protect against consumer deception. The Lanham Act, however, already provides [this]. There are also several noneconomic reasons advanced for the right of publicity. First, some believe that publicity rights stem from some notion of natural rights. . [H]owever blind appeals to first principles carry no weight in our balancing analysis. The second noneconomic justification is that publicity rights allow celebrities to enjoy the fruits of their labors. . Celebrities, however, are often not fully responsible for their fame. . Professional athletes may be more responsible for their celebrity status, however, because athletic success is fairly straightforwardly the result of an athletes natural talent and dedication. Thus, baseball players may deserve to profit from the commercial value of their identities more than movie stars. Once again, however, the force of this justification is diminished in the case of parody, because there is little right to enjoy the fruits of socially undesirable behavior. The third, related justification for publicity rights is the prevention of unjust enrichment. . Cardtoons, however, is not merely hitching its wagon to a star. As in all celebrity parodies, Cardtoons added a significant creative component of its own to the celebrity identity and created an entirely new product. Indeed, allowing MLBPA to control or profit from the parody trading cards would actually sanction the theft of Cardtoons creative enterprise.

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A final justification is that it prevents emotional injuries. . Even celebrities who crave public attention might find particular uses of their identities to be distressing. See, e.g., OBrien v. Pabst Sales Co., 124 F.2d 167, 170 (5th Cir. 1942) (professional football player, active in an organization devoted to discouraging alcohol use among young people, sued to stop the use of his image in a Pabst Blue Ribbon beer advertising calendar). . Publicity rights, however, are meant to protect against the loss of financial gain, not mental anguish. Laws preventing unfair competition, such as the Lanham Act, and laws prohibiting the intentional infliction of emotional distress adequately cover that ground. Moreover, fame is a double-edged sword the law cannot allow those who enjoy the public limelight to so easily avoid the ridicule and criticism that sometimes accompany public prominence. . Notes 1. In a sequel reminiscent of Mikohn, the court held, seven to three, that MBPLAs threats of suit were constitutionally protected under neither an antitrust exception nor the First Amendment right to petition the government. Cardtoons, L.C. v. Major League Baseball Players Ass'n, 208 F.3d 885, 886 (10th Cir. 2000) (en banc). The dissent argued, however, that there is no sound basis for the conclusion that a complaint will be afforded immunity while a cease-and-desist letter will not, when both documents contain identical allegations. Id. at 894. It seems surprising that neither opinion mentions free speech. 2. C.B.C. Distribution and Marketing, Inc. v. Major League Baseball Advanced Media, L.P. 443 F. Supp.2d 1077 (E.D. Mo. 2006), affd 505 F.3d 818 (8th Cir. 2007), cert. denied,128 S.Ct. 2872 (2008), addresses similar issues. With regard to one, it concludes, at 1091: [T]he undisputed facts establish that CBC does not use in its fantasy baseball games Major League baseball players names separately or in conjunction with their playing records as a symbol of their identity; that CBC does not use players names separately or in conjunction with their playing records with the intent to obtain a commercial advantage; that CBCs use of players names separately or in conjunction with their playing records [and] does not contravene the policy behind the right of publicity. But assuming, arguendo, that CBC is violating the players right of publicity, the court finds, in the circumstances of this case, that the players right of publicity must give way to CBC's First Amendment right to freedom of expression. Id. at 1100. The opinion further states, at 1103, players names and playing records as used by CBC are not copyrightable. 3. What is the significance of the Mitchell Fruit illustration in Cardtoons? 4. Reconsider Gemini Rising and L.L. Bean. To what extent should cases turn on whether shirts, baseball cards or posters are protected media? To what extent, on whether the plaintiff is fair game for and the target of parody or criticism? 5. How and why was Champs response similar to that of NSI in Juno, Chapter 11? What was the strategic advantage to Juno Lighting or MLBPA? 6. Cardtoons also sought an injunction and damages for tortious interference. Having prevailed, the injunction was presumably unnecessary, but, as discussed in notes following Mikohn, damages are another matter. None would be available if, as seems true, MLBPAs communications were privileged and belief of infringement was well-founded.

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Rock and Roll Hall of Fame and Museum, Inc. v. Gentile Productions
U.S. Court of Appeals, Sixth Circuit 134 F.3d 749 (1998)

Before Martin, Ryan and Batchelder. Ryan, Circuit Judge: The Rock and Roll Hall of Fame and Museum, Inc., and The Rock and Roll Hall of Fame Foundation, Inc. [the Museum], filed suit against Charles Gentile and Gentile Productions, alleging various trademark and unfair-competition claims under state and federal law. [Plaintiffs were granted a preliminary injunction, but the court agreed with defendants that plaintiffs showed small likelihood of succeeding on the merits.] I In 1988, The Rock and Roll Hall of Fame Foundation registered the words, The Rock and Roll Hall of Fame, as its service mark, on the principal register at the United States Patent and Trademark Office [PTO]. In 1991, the Foundation commissioned I.M. Pei, a world famous architect, to design a facility in Cleveland, Ohio. Peis design was brought to life on the edge of Lake Erie, in the form of The Rock and Roll Hall of Fame and Museum which opened in September 1995. . The Museum states that its building design is a unique and inherently distinctive symbol of the freedom, youthful energy, rebellion and movement of rock and roll music. Whatever its symbolism, there can be no doubt that the Museums design is unique and distinctive. The front of the Museum is dominated by a large, reclining, triangular facade of steel and glass, while the rear of the building, which extends out over Lake Erie, is a striking combination of interconnected and unusually shaped, white buildings. On May 3, 1996, the State of Ohio approved the registration of the Museums building design for trademark and service-mark purposes. The Museum has similar applications pending with the PTO. Charles Gentile is a professional photographer whose work is marketed and distributed through Gentile Productions. In the spring of 1996, Gentile began to sell, for $40 to $50, a poster featuring a photograph of the Museum against a colorful sunset.* The photograph is framed by a black border. In gold lettering in the border underneath the photograph, the words, Rock N Roll Hall of Fame, appear above the smaller, but elongated word, Cleveland. Gentiles signature appears in small blue print beneath the picture of the building. Along the right-hand side of the photograph, in very fine print, is the following explanation: 1996 Gentile Productions Photographed by: Charles M. Gentile[;] Design: Division Street Design[;] Paper: Mead Signature Gloss Cover 80#[;] Printing: Custom Graphics Inc.[;] Finishing: Northern Ohio Finishing, Inc. In reaction to Gentiles poster, the Museum filed a five-count complaint. The Museums complaint contends that the Museum has used both its registered service mark and its building design as trademarks, and that Gentiles poster infringes upon, dilutes, and unfairly competes with these marks. The Museums somewhat unusual claims regarding its building design, then, are quite unlike a claim to a service-mark right in a building design that might be asserted to prevent the construction of a confusingly similar building. . The Museum sought a preliminary injunction and the district court held a hearing on the motion. It is clear from a review of the Museums motion and the hearing transcript that, whatever the scope of the Museums complaint, the Museums request for a preliminary
*

Although it is not referenced in the opinion, see 17 U.S.C. 120(a).

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injunction was based on the theory: (1) that the Museum has used both its building design and its service mark as trademarks; and (2) that both the photograph of the Museum and the words identifying the Museum in Gentiles poster are uses of the Museums trademarks that should be enjoined because they are likely to lead consumers to believe that Gentiles poster is produced or sponsored by the Museum. Thus, in its motion, the Museum argued that, because Gentile is using the Museums trademarks on posters in a manner which reflects a deliberate attempt to confuse, mislead and deceive the public [t]he Museum has an extremely strong probability of success on the merits. Similarly, at the hearing, the Museum stated only that its motion was about trademark infringement, [section] 43(a), violations of the Lanham Act in passing off, although its complaint was broader. Accordingly, the district court explained to Gentile that he needed to respond only to the Museums arguments in support of its motion, not its entire complaint. The Museum submitted several exhibits in support of its motion. Of particular concern in the present dispute is a poster the Museum sells for $20. Although the Museums poster, like Gentiles, features a photograph of the Museum at sunset, the photographs of the building in the two posters are very different. Gentiles photograph is a ground-level, closeup view of the Museum taken at a time when the building appears to be closed. It is an artistically appealing photograph of the Museum and virtually nothing else. In contrast, the Museums poster features a photograph of the Museum, taken from an elevated and considerably more distant vantage point, on the Museums opening night, when red carpet stretched from the Museums front doors, and interior lights highlighted its dramatic glass facade. There is a great deal of detail in the foreground of the Museums photograph including the full esplanade in front of the building, and even a portion of the highway adjacent to the property. It, too, is an artistically pleasing photograph of the Museum and its surrounding environment, but it is a very different picture than Gentiles. The Museums poster is framed by a white border, in which the words, The Rock and Roll Hall of Fame and Museum Cleveland, appear beneath the photograph. To the left of these words is a small circular designation, which appears to be a trademark (the composite mark). In the center of this composite mark is a triangle formed by six lines fanning out from a single point. The triangle is intersected by three horizontal lines, contains two dots running vertically, and may be intended to be evocative of the Museums building design. In a circle around this triangular design are the words, Rock and Roll Hall of Fame & Museum. In addition to the parties posters, the record on appeal contains color copies of photographs of several items produced by the Museum; specifically, an advertisement for [its] opening, a paper weight, several postcards, and two T-shirts. One postcard features the same photograph which appears in the Museums poster, one features a photograph of the rear of the Museum, and the third features six different close-up photographs. One of the T-shirts bears a detailed drawing of the front of the Museum, a small drawing of the back of the Museum, the composite mark, and the words, The house that rock built. . The Museum also submitted affidavits in support of its motion. In particular, Robert Bosak, the controller of the Museum, averred that the Museum has used versions of the building shape trademark on T-shirts and a wide variety of products, including posters, since as early as June, 1993. According to his review of sales reports from the Museums store, merchandise featur[ing] the building shape have been among [the] top selling items. Rachel Schmelzer, an employee in the Museums licensing and sponsorship department, averred that she informed Gentile, on more than one occasion before Gentile began selling his poster, that the Museum considered Gentiles poster to be an infringing trademark use of the Museums building design.

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. The district court found that the Museums building design was a fanciful mark, and that Gentiles use of the Museums building design and the words, Rock N Roll Hall of Fame, was likely to cause confusion. It then determined that the balance of equities favored granting the injunction, and it ordered Gentile to refrain from further infringements and to deliver for destruction all copies of defendants poster in their possession. II . A trademark is a designation, any word, name, symbol, or device, or any combination thereof, which serves to identify and distinguish [the] goods [of the marks owner] from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown. 15 U.S.C. 1127. Although some marks are classified as inherently distinctive and therefore capable of protection, see generally, Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 76869 (1992), it is not the case that all inherently distinctive symbols or words on a product function as trademarks. Rather, to be protected as a valid trademark, a designation must create a separate and distinct commercial impression, which performs the trademark function of identifying the source of the merchandise to the customers. In re Chemical Dynamics, Inc., 839 F.2d 1569, 1571 (Fed. Cir. 1988). It is well established that [t]here is no such thing as property in a trademark except as a right appurtenant to an established business or trade in connection with which the mark is employed. United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97 (1918). Thus, whether alleging infringement of a registered or unregistered trademark, it is clear that a plaintiff must show that it has actually used the designation at issue as a trademark, and that the defendant has also used the same or a similar designation as a trademark. In other words, the plaintiff must establish a likelihood that consumers are mistakenly led to believe that the defendants goods are produced or sponsored by the plaintiff. Although the parties have not discussed the Museums state-law claims, we note that trademark claims under Ohio law follow the same analysis. . According to the Museum, Gentiles production of his poster was like going into a store, getting a bottle of [C]oke, taking a picture, [of it and] putting [C]oke underneath. Although we are mindful that we are called upon to settle only the present dispute, we have found the foregoing exchange helpful. On the one hand, although Gentiles exhibits, which depict the Museum as one landmark among others or as one of several buildings in the Cleveland lakefront skyline, present easier cases, their significance is consonant with our initial impression of Gentiles poster. That is to say that, when we view the photograph in Gentiles poster, we do not readily recognize the design of the Museums building as an indicator of source or sponsorship. What we see, rather, is a photograph of an accessible, well-known, public landmark. Stated somewhat differently, in Gentiles poster, the Museums building strikes us not as a separate and distinct mark on the good, but, rather, as the good itself. On the other hand, the import of the Museums Coke bottle example is not lost upon us. Indeed, the Museums example is not entirely concocted, see Coca-Cola Co. v. Gemini Rising, Inc., 346 F. Supp. 1183 (E.D. N.Y. 1972), and we accept that a photograph which prominently depicts another persons trademark might very well, wittingly or unwittingly, use its object as a trademark. However, after reviewing the record before us with this possibility in mind, we are not persuaded that the Museum uses its building design as a trademark. Thus, we are not dissuaded from our initial impression that the photograph in Gentiles poster does not function as a trademark. The district court found that the Museums building design is fanciful, that the Museum has used its building design as a trademark, and that the public has come to recognize [the

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Museums building design] trademark[] as being connected with or sold by the Museum. There are several problems with these critical findings. First, we find absolutely no evidence in the record which documents or demonstrates public recognition of the Museums building design as a trademark. Such evidence might be pivotal in this case, but it is lacking. Indeed, we are at a loss to understand the basis for this significant finding of fact. Second, although no one could doubt that the Museums building design is fanciful, it is less clear that a picture or a drawing of the Museum is fanciful in a trademark sense. Fanciful marks are usually understood as totally new and unique combination[s] of letters or symbols that are invented or selected for the sole purpose of functioning as a trademark. 1 J. McCarthy 11:5. Although the plaintiffs invented the Museum, the Museums existence as a landmark in downtown Cleveland undermines its fancifulness as a trademark. A picture or a drawing of the Museum is not fanciful in the same way that a word like Exxon is when it is coined as a service mark. Such a word is distinctive as a mark because it readily appears to a consumer to have no other purpose. In contrast, a picture of the Museum on a product might be more readily perceived as ornamentation than as an identifier of source. We recognize, of course, that a designation may serve both ornamental and sourceidentifying purposes, and this brings us to our principal difficulty with the Museums argument and the district courts judgment. As we described supra, although the Museum has used drawings or pictures of its building design on various goods, it has not done so with any consistency. As Bosak stated in his affidavit, the Museum has used versions of the building shape trademark on a wide variety of products. (Emphasis added.) Several items marketed by the Museum display only the rear of the Museums building, which looks dramatically different from the front. Drawings of the front of the Museum on the two Tshirts in the record are similar, but they are quite different from the photograph featured in the Museums poster. And, although the photograph from the poster is also used on a postcard, another postcard displays various close-up photographs of the Museum which, individually and perhaps even collectively, are not even immediately recognizable as photographs of the Museum. . [W]e cannot conclude on this record that it is likely that the Museum has established a valid trademark in every photograph which, like Gentiles, prominently displays the front of the Museums building, no matter how dissimilar. Even if we accept that consumers recognize the various drawings and pictures of the Museums building design as being drawings and pictures of the Museum, the Museums argument would still fall short. Such recognition is not the equivalent of the recognition that these various drawings or photographs indicate a single source of the goods on which they appear. Consistent and repetitive use of a designation as an indicator of source is the hallmark of a trademark. Although the record before us supports the conclusion that the Museum has used its composite mark in this manner, it will not support the conclusion that the Museum has made such use of its building design. In the end, then, we believe that the district court abused its discretion by failing to consider whether and to what extent the Museums use of its building design served the source-identifying function that is the essence of a trademark. As we have noted, we find no support for the factual finding that the public recognizes the Museums building design, in any form, let alone in all forms, as a trademark. In light of the Museums irregular use of its building design, then, we believe that it is quite unlikely, on the record before us, that the Museum will prevail on its claims that Gentiles photograph of the Museum is an infringing trademark use of the Museums building design.

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Our discussion of the district courts treatment of the Museums building design would, of course, be much ado about nothing were we persuaded that Gentiles use of the words, Rock N Roll Hall of Fame Cleveland, was sufficient to sustain the injunction. [W]e cannot be certain how the district court would have viewed the use of the words in the event that the photograph was found to be non-infringing. [W]e are not free to sustain the preliminary injunction on the theory that it would have been no abuse of discretion had the district court concluded that Gentiles use of the words, Rock N Roll Hall of Fame, was alone likely to constitute a trademark violation. The district court made no such finding. Moreover, we think Gentiles use of these words may very well constitute a fair use of the Museums registered service mark, pursuant to 1115(b)(4). . Although there can be no doubt that Gentiles use of the Museums service mark presents an unusual case, his use of the words, Rock N Roll Hall of Fame, would be nothing more than a description of his own good, in the event that the Museum fails to prove that Gentiles photograph makes an infringing use of the Museums building design. The critical question, then, will be whether Gentiles use of the Museums service mark was made fairly and in good faith, and whether his use was otherwise than as a [trade]mark. With regard to this latter inquiry, the answer will essentially turn on whether consumers view the words as a label for Gentiles photograph, or as an indicator that Gentiles photograph originated with or was sponsored by the Museum. As always, the touchstone will be the likelihood of consumer confusion. . [Judge Boyce F. Martin, Jr., dissented, arguing, There is no meaningful legal distinction between a three-dimensional and a two-dimensional trademark.]. Notes 1. See Comedy III Prods., cited in Hoffman, note 2. What right would be infringed by a correctly labeled photograph of a Coke or Pepsi container, or a Big Mac? Do the makers of products or owners of buildings have Lanham Act rights to identity or likeness akin to rights of publicity? Should they? 2. What if VW alleges that publication of two childrens books infringes and dilutes registered trademarks and trade dress for its New Beetle? An early episode in that encounter, Volkswagon AG v. Dorling Kindersley Publishing, Inc., 2007 WL 188087, *8 (E.D.Mich.), suggests that others took licenses. Is that relevant? Would it make any difference if the books featured a particular Beetle (Herbie) that had starred in a movie? 3. See, e.g., Fotomat Corp. v. Cochran, 437 F. Supp. 1231, 1241 (D. Kan. 1977) (a uniquely designed blue building with a yellow, three-tiered roof could be a valid service mark). 4. Vornado, Chapter 4, found patent law to trump the Lanham Act; could copyright law do the same? Could trademarks rights in buildings overcome fair use under 17 U.S.C. 120? Section 120 was not addressed in Rock and Roll, but Gentile seems to have represented himself. Why else would the court have explained to Gentile that he needed to respond only to the Museums arguments in support of a motion, not its entire complaint. Were they aware of it, would for Museums counsel have had any obligation to bring up 120? 5. See ETW Corp. v. Jireh Pub., Inc., 332 F.3d 915 (6th Cir. 2003), reviewing many of the cases in the latter part of this chapter and rejecting ETWs claims against the publisher of a print which commemorates Tiger Woods 1997 victory at the Augusta Masters Tournament. A dissenter, however, would have awarded summary judgment to ETW on a right of publicity claim and permitted other claims to go to trial. Id. at 938-38.