North Carolina IP Section Annual Meeting

I am pleased to be speaking at the 2012 North Carolina Bar Association Intellectual Property Law Section Annual Meeting on March 23, 2012.  My session is titled "Who Owns the Intellectual Property?"  I'll be covering developing law surrounding the ownership of patent, copyright and trademark rights (what else?).


Details here.  Hope to see you there.



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No Do-Overs

Scanner Technologies Corp., the defendant in the declaratory judgment action, was the owner of 13 patents in the same family. There were multiple suits between it and declaratory judgment plaintiff ICOS Vision Systems, Inc. over “ball grid inspection devices,” which inspect the electrical connections between a microchip and circuit board.

In 2008, ICOS filed a declaratory judgment action against Scanner Technologies for noninfringement and invalidity of eight patents in the family. To try to escape the suit, Scanner Technologies gave a covenant not to sue on the patents. It didn't work though; the court didn't dismiss the declaratory judgment action because the CNS didn't cover future product; therefore ICOS was still in apprehension of suit on improvements to its existing products. That suit is still pending and now consolidated with the present dispute about the last patent in the family, the '237 Patent.

The '237 Patent issued after Scanner Technologies gave the CNS, so ICOS filed another declaratory judgment suit. The '237 Patent is broader than the eight patents in the CNS, thus practicing the eight other patents would still infringe the '237 Patent unless the infringement was excused by a license. ICOS tried to get Scanner Technologies to agree to give it a CNS for the '237 Patent, but, not only was it unsuccessful, Scanner Technologies revoked the earlier CNS, stating in an email:

Nevertheless if we are unable to achieve a satisfactory resolution, Scanner is reserving all its rights permitted by law on the entire portfolio. To that effect, Scanner has revoked the CNS agreements previously executed as per the attached revocations. Since Transcore, the authority upon which you are relying makes it clear that a CNS is a license, in the absence of a related settlement agreement as per Trancore with terms to the contrary, the CNS is a revocable license. Since Scanner was unable to defeat ICOS and NVIDIA's claim of jurisidiction [sic], there is no benefit to Scanner to continue the license and thus has revoked them as per the attached revocations.

 ICOS thereafter filed a motion for summary judgment claiming a licensee estoppel defense.

The court described four ways that an implied license can arise: by acquiescence, by conduct, by equitable estoppel, or by legal estoppel. It was the last, legal estoppel, that the court considered.

The court agreed with Scanner Technologies that a legal estoppel defense arises only where there has been consideration for the license granted. The court also agreed that there was no consideration given for the covenant not to sue. But promissory estoppel can serve as a substitute for consideration, which is what happened here:

In reliance on the CNS, ICOS has expand its sales worldwide and has indemnified its customers against future suit. NVIDIA, in turn, has relied on the CNS for assurance that as ICOS's customer, it is entitled to continue using ICOS's ball grid array inspection devices that existed as of March 10, 2009 without risk that Scanner will bring suit against NVIDIA for infringement of the CNS Patents. Scanner presents no facts that show a genuine issue of material fact as to whether ICOS and its customers relied on the CNS. Accordingly, ICOS has demonstrated promissory estoppel and satisfies the element of consideration for the CNS. ICOS has therefore established that the CNS constitutes a valid license.

So the CNS was valid but there was one more hurdle: the '237 Patent wasn't part of the CNS. However, Scanner Technologies had threatened ICOS with the '237 Patent and enforcing the '237 Patent would derogate ICOS's right to practice the claims of the patents included in the CNS because the '237 Patent was broader. ICOS therefore must have the benefit of its bargain and be allowed to fully practice the eight patents in the CNS. To the extent it required a license to the '237 Patent to do so, ICOS has an implied license.

Further, because the '237 Patent was a continuation patent and, by definition, a continuation patent cannot claim a new invention not already supported in the earlier patents, the license to the eight patents in the CNS was also an implied license to the '237 Patent.  The case was dismissed.

ICOS Vision Sys. Corp. v. Scanner Tech. Corp., No. 10 Civ. 0604 (PAC) (S.D.N.Y. Feb. 15, 2012).

ICOS Vision Sys. Corp. v. Scanner Tech. Corp., No. 08 Civ. 8102 (DC) (S.D.N.Y. March 29, 2010).

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When the Law Fails

Sometimes I find great dissonance between the application of trademark law and the marketplace realities. The parties line all their legal ducks up in a nice straight row, but there's just such an inconsistency between what the legal outcome is and what consumers' understanding of the situation might be.

E & J Gallo v. Proximo Spirits, Inc. is that kind of case. Plaintiff Gallo contracted with Tequila Supremo, a tequila supplier in Mexico, to produce a tequila that would be sold under the brand name "Familia Camarena." Tequila Supremo filed three trademark applications that contained the word "Camarena" in them, CAMARENA, FAMILIA CAMARENA and FAMILIA CAMARENA 1761. Gallo, however, filed trademark applications for the shape of the bottle that would be used for the tequila:

USPTO record

USPTO record

The ownership rights were defined in an agreement between Gallo and Tequila Supremo; Tequila Supremo was to own the CAMARENA name (it was the name of the owners of the company) and Gallo was to own the bottle design and packaging. Gallo is licensed to use the CAMARENA trademark and Tequila Supremo is licensed to use the Gallo bottle. (It's not clear where Tequila Supremo would use it. Gallo is the exclusive distributor of FAMILIA CAMARENA tequila in the United States, so presumably no one else could be using the bottle design in the United States, at least for FAMILIA CAMARENA tequila. Query whether Tequila Supremo may use the bottle for other types of alcohol in the United States, a highly relevant question to distinctiveness.)

Both Gallo and Proximo Spirits moved for summary judgment on a counterclaim that the Gallo and Tequila Supremo trademark applications and registrations were void for fraud. The theory is this: because Gallo is merely a distributor of the tequila and Tequila Supremo insures the quality of the tequila, Gallo cannot be the owner the bottle marks. The theory against Tequila Supremo is - well, since defendant Proximo Spirits repeatedly said that Tequila Supremo controlled the quality of the tequila there wasn't a theory, so the court denied the counterclaim as to Tequila Supremo.

Proximo Spirits argued that the fraud was based on a false statement in the declaration, which was that Gallo was the sole source of the tequila, manufactures the tequila, or controls the quality. But there are no statements like that in the application, rather one only avers that it is the owner of the applied-for mark. As a consequence,

Accordingly, Counterclaimants fail to carry their heavy burden to establish that Gallo expressly misrepresented in its applications that it was the sole source of Camarena Tequila. .... Counterclaimants' "sole source" theory appears to be based on outdated trademark law. Although a trademark originally indicated the source of the related product, trademark law has shifted to recognize various valid premises upon which a person or entity may own a trademark, including the control of a product's quality: The historical conception of trade-mark as a strict emblem or source of the product to which it attaches has largely been abandoned. The burgeoning business of franchising has made trade-mark licensing a widespread commercial practice and has resulted in the development of a new rationale for trade-marks as representations for product quality. Siegel v. Chicken Delight, Inc., 448 F.2d 43, 48–49 (9th Cir.1971). Because of this changing rationale and growth in the practice of trademark licensing and franchising, a trademark is not necessarily an indicator of source. Indeed, a trademark may denote source, control of quality, and good will, among other things. Moreover, it is not uncommon to see marks of more than one company appearing on or denominating a single product or service. The marks of different companies may appear on a single product where they serve separate functions such as "manufacturer/distributor" or "licensor/licensee." Accordingly, and contrary to Counterclaimants' arguments, a trademark does not necessarily designate the source of the goods or services with which it is associated. Viewed under this legal perspective, Counterclaimants' "sole source" misrepresentation theory fails legally and factually.

The court also assessed defendant's theory that Gallo was not the owner of the mark because it was only a distributor and therefore didn't control the quality of the tequila goods. Gallo successfully deflected the theory on the basis that distributors may, indeed, own trademarks, that the agreement with Tequila Supremo allowed it to own the trademark in the bottle shape, and that it also participated in quality control by inspecting the tequila.

This is all an utterly correct statement of law, but completely misses the point. There are lots of ways that two trademarks can be used on the same goods. There can be a house brand used with a product brand, like a well-recognized Apple logo with the "iPod" word mark:

The court characterized the relationship between Gallo and Tequila Supremo as "co-branding," but that's wrong. In a co-branding relationship, the different owners' use of their respective marks represents different types of relationship with the goods or services. When we see Edy's Nestlé Butterfinger ice cream we know that Edy's makes the ice cream and the Butterfinger is a component of the ice cream. When we see "Mercedes Benz Fashion Week," we don't think that Mercedes Benz has gone into the fashion or the trade show business, but rather that it paid to a lot of money to have high exposure for its brand so it could ultimately sell more cars.

Where this case went off the rails is that the court didn't examine whether the use of the marks was consistent with what a consumer might think about the message conveyed by that use. As consumers, we think that the label on the bottle and the bottle itself are from the same source, that is, that both trademarks, the label and the bottle, are conveying the same relationship-type information. So something is fundamentally wrong if you can say that two trademarks providing the same information - in this case "I am the source" - can be owned by two different entities.

As proof, imagine the label and bottle shape are disconnected. In that case, because a product packaging or configuration mark is very weak, we will soon assume that the bottle shape is not an indicator of source. Imagine if the Coke bottle was licensed for use for a coffee drink by a different company - how long would it take before we don't think of it as standing for "Coke" anymore? If Gallo had established the bottle as its trademark by its exclusive use across a number of its products, so we had learned that the bottle shape means "Gallo" regardless of the liquid inside - the house mark/product mark relationship - the outcome might be different. But that's wasn't this case.

I think the defendant had the correct view of what consumers would think, i.e., no consumer would think that the shape of the bottle and the name of the brand on the label are indicators of different source. But the defendant could find no hook in the law that supported that theory. I'm hoping for an appeal.

E & J Gallo v. Proximo Spirits, Inc., No. CV-F-10-411 LJO JLT (E.D. Cal. Jan. 30, 2012).


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Inventing a Chemical Compound

Plaintiff Olusegun Falana was hired to work on synthesizing chemical compounds for use in liquid crystal display screens. The compounds had to perform over a range of temperatures. Falana developed a protocol for synthesizing compounds and, using the protocol, synthesized "Compound 7." Compound 7 had a much improved temperature range, but it still wasn't adequate. Falana then left the project and his boss synthesized "Compound 9" using Falana's protocol, which had all the characteristics they were looking for. A patent was filed that described the synthesizing protocol in the specification, however the patent didn't claim the protocol, it only claimed compounds. Falana was not named as an inventor, so he filed suit for correction of inventorship.

The Federal Circuit relied on the principle that conception of an invention for a chemical compound requires knowledge of both the specific chemical structure of the compound and an operative method of making it, and concluded:

Accordingly, this court holds that a putative inventor who envisioned the structure of a novel genus of chemical compounds and contributes the method of making that genus contributes to the conception of that genus. This holding does not mean that such an inventor necessarily has a right to claim inventorship of all species within that genus which are discovered in the future. Once the method of making the novel genus of compounds becomes public knowledge, it is then assimilated into the storehouse of knowledge that comprises ordinary skill in the art. Additionally, joint inventorship arises only “when collaboration or concerted effort occurs—that is, when the inventors have some open line of communication during or in temporal proximity to their inventive efforts.” Eli Lilly & Co. v. Aradigm Corp., 376 F.3d 1352, 1359 (Fed. Cir. 2004).

The Patent and Trademark Office must issue a certificate of correction correcting inventorship.

Falana v. Kent State Univ., No. 2011-1198 (Fed. Cir. Jan. 23, 2012) (nonprecedential).

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Sketchy Standing Decision

The only good thing about the latest Federal Circuit standing decision is that it's nonprecedential.  This is the sequence of events, taken from both the majority's and dissent's statement of them: 

In 2002, The Dow Chemical Company ("Dow") assigned patents to a holding company, Dow Global Technologies, Inc. ("DGTI"). The dissent described the assignment as of "essentially [Dow's] entire patent portfolio" as part of a tax strategy.  This was the grant:

2.01 Transfer of Patent Rights and Technology. Effective on the Transfer date, [Dow] hereby conveys, transfers, assigns and delivers to DGTI, and DGTI hereby accepts from [Dow] as an additional contribution to DGTI's capital, all of [Dow's] right and title to and interest in the Patent Rights, Technology and Work Processes, which rights are owned or controlled by [Dow] on the Transfer Date or thereafter.

The language defining "Patent Rights" is the crux of the problem:

1.07 “Patent Rights” means any and all patents and applications for patents of any kind, filed with and/or granted by a governmental body of the United States or any other country ... which are owned solely or controlled by [Dow] on the Transfer Date or thereafter, that [Dow] is able to assign to DGTI without the consent of or accounting to a Third Patty or Affiliated Company, without diminishing the royalties paid or payable by or otherwise materially affecting the obligations of such Third Party or Affiliated Company with respect to such Patent Rights, and without resulting in a loss of rights. The parties shall provide a schedule of Patent Rights as Schedule A to this Agreement, within ninety (90) days of the Effective Date, and shall provide subsequent supplements thereto from time to time during the Term.

The agreement also said this about the schedules to the agreement:

9.07 Schedules.  Each of the schedules referenced within this Agreement, prospectively including any updates or amendments thereto, is deemed incorporated herein by reference. While care shall be taken in the provision of the schedules, it is recognized that inadvertent errors may occur. Accordingly, inclusion of an item on one or more schedules shall not give rise to rights or an implication that DGTI has rights greater than those expressly provided for in this Agreement. Likewise, omission of an item from one or more schedules shall not give rise to an implication that DGTI has rights less than those otherwise provided for in this Agreement. Upon their mutual recognition of an error in one or more schedules, the parties will amend the erroneous item(s) on the affected schedule(s).

In 2005, Dow sued defendant Nova Chemicals Corp. for patent infringement.

Five months after discovery closed Dow first produced a Schedule A that said "this Schedule includes all Patent Rights of [Dow] ... excluding Excluded Patent Rights set forth in Schedule 'D'" and a Schedule D that indeed listed the patents-in-suit, although the patents had been added to Schedule D years after suit was filed and right before it was produced.  Dow also produced a "Quitclaim Deed," dated four days before it was produced, assigning "all of DGTI's right, title, and interest to the Patents[-in-suit], if any."

Defendant Nova pressed for further disclosure. Dow then produced a 2002 version of Exhibit D that did not list the patents-in-suit and a Schedule A dated September 15, 2005 that, unlike the broad language in the earlier-produced Schedule A, listed a number of patents by number but not the patents-in-suit. 

To recap, the definition of assigned patents had three exclusions: (1) the transfer would require "the consent of or accounting to a Third Party or Affiliated Company"; (2) the transfer would "diminish[ ] the royalties paid or payable by or otherwise materially affecting the obligations of such Third Party or Affiliated Company with respect to such Patent Rights"; or (3) the transfer would result in "a loss of rights."

Everyone agreed that the first two exclusions didn't apply, leaving the question whether transferring the patents-in-suit would have resulted in a "loss of rights." Nova argued that the language was intended only for those patents in litigation pending at the time of transfer, designed so that there would be no loss of standing in those cases. At the time the assignment was being drafted, Dow's Managing Patent Counsel sent a question by email:

"Did transfer of all patents into this new company have any provisions on how to handle pending litigations under Dow patents.... It is a question of who had standing and who is the real party in interest in these litigations." 

The response was:

"Thank you for the feedback. I've addressed this issue in the contribution agreement by excluding patents that can't be transferred to DGTI without a loss of rights (previously, it excluded patents that can't be transferred to DGTI without a loss of patent protection). As an overall safety net, there is a schedule of excluded intangible assets, just in case there may be other instances in which we determine that there would be some disadvantage in transferring the assets to DGTI."

Dow's argument was that, in addition to patents in pending litigation, the language was meant to preserve the ability to recoup lost profits in future litigation.

(I don't follow Dow's theory. Does it mean that Dow somehow was prescient in knowing that these patents would be litigated in the future and therefore didn't assign them? Or that the patents flow back and forth without any further action by Dow or DGTI as litigation comes and goes?  Was it the Schrödinger's cat of assignments, any given patent was both assigned and not assigned depending on whether it was a tax situation or a patent infringement situation?)

But the majority punted on the language. It held that, while it didn't know what the "loss of rights" language was supposed to mean, it didn't matter because Schedule A was the definitive list of what was assigned, the patents-in-suit weren't on it, ergo, they weren't assigned and Dow had standing to bring suit.

The dissent disagreed with the majority's conclusion about Schedule A's role:

Section 1.07 defines the transferred Patent Rights as "any and all patents" owned by Dow that Dow can assign without implicating one of three exceptions, none of which reference Schedule A. Nowhere in the Contribution Agreement is the transfer predicated or dependent upon whether patents are listed on Schedule A. Indeed, Section 9.07 makes clear that the contents of the schedules are not controlling. Moreover, Section 2.01 provides that Dow "hereby" transfers the patents, which strongly indicates an immediately effective transfer, while Schedule A was not even required to be completed until after the Contribution Agreement was executed. To find that no patents were transferred unless and until listed on the Schedule A ignores Section 9.07, nullifies the transfer set forth in Section 2.01, renders superfluous the detailed and specific definition of Patent Rights in Section 1.07, and rearranges the fundamental purpose of the tax and business scheme intended under the agreement as a whole. Such a reading would cause most of the Contribution Agreement to be "meaningless or illusory." The reference to Schedule A in the Contribution Agreement shows that the parties desired to make and maintain a listing of the patents that were transferred to DGTI as a matter of convenience, not as a prerequisite to a valid transfer.

The dissent also didn't buy Dow's argument that somehow these patents fit into the "loss of rights" exclusion, reciting all the extrinsic evidence (which, under Delaware law, should have been considered because the language was ambiguous) that the intention was only to exclude those patents in litigation at the time of the assignment. As well as the language of the agreement and the emails described above, the dissent also described all the ways that the company treated the patents as assigned for tax purposes.

I agree with the dissent; I don't see how you would draft an agreement intending to assign only scheduled properties but also have an extensive, but apparently non-binding, description of what should be on the list - you don't need both.  But I will be taking a closer look at the language of grant clauses and schedules in the future after having read this case.

Perhaps the whole thing was just a matter of bad timing. The district court sat on the motion on standing for nine months and heard it the day after the jury returned a verdict for Dow on the infringement trial. Maybe the majority just didn't have the stomach for a do-over with the right party-in-interest.

Dow Chem. Co. v. Nova Chems. Corp. (Canada), No. 2010–1526 (Fed. Cir. Jan. 24, 2012) (nonprecedential).


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