Judicial Profile: Magistrate Judge Renee Harris Toliver

A profile on Magistrate Judge Renee Harris Toliver, the first African-American to sit on the federal magistrate bench in the Northern District of Texas, as published in the May 2013 issue of the Dallas Bar Association’s Headnotes.
 
The article can be read on the Dallas Bar Association’s website: http://www.dallasbar.org/content/judicial-profile-magistrate-judge-renee-harris-toliver

 

Trademark Infringement: Can I Bid on My Competitors’ Trademarks as Adwords?

By Vincent Allen and PJ Putnam

With the use of search engines by consumers to find products and websites becoming more prominent, search engine optimization has become an important part of the marketing plan for large and small businesses alike. For those companies that do not want to take the time or put in the effort to improve their SEO for certain keywords organically, purchasing keywords, also known as Adwords, from Google or other search engines can put a website on the first page of search results for a particular keyword overnight. By “purchasing,” we mean the submission of the high bid for the use of a keyword or campaign for a specific time period and geographic location.

In most cases, an Adwords customer “purchases” a word or a series of words that are used to describe the services or goods to be advertised and/or sold on the customer’s website. Recently, Google created a “campaign” of words that can be purchased in any given industry. A purchaser can specify which areas of the country and at what times those Adwords would be purchased. The scope of the geographic area and the times chosen determine the purchase price.

For example, a campaign that begins at midnight for three hours only on a Monday and a Wednesday will cost less than a campaign that runs seven days a week, twenty-four hours a day. If the customer decides to purchase a Google Campaign for a specific industry, the purchaser does not get to choose the words in the campaign, but is allowed to see the words. Adwords campaigns may contain the names of competitors or competitive products to increase the number of hits resulting from the campaign. As a result, a trademark owner’s competitors may be listed in ads located above the normal search results for the trademark.

Prior to 2004, Google’s trademark usage policy prevented the use of trademarks in the text of a sponsored advertisement and also prevented the use of trademarks as keywords if so requested by the trademark owner. But in 2004, Google loosened its policy to allow use of trademarks as keywords even if objected to by the trademark owner. The underlying reason for making the change was financial as Google’s research showed that about 7% of its total revenue was driven by trademarked keywords.

Google understood that the risk of litigation for both itself and its partners would increase as a result of the change in policy, but decided the risk was worth the additional revenue that was sure to come. Google even introduced a trademark-specific keyword tool that suggests relevant trademarks to clients to bid on as keywords. However, Google continued to block use of trademarks in the text of the advertisement because of internal studies suggesting that the unrestricted use of trademarks in the text of an advertisement might confuse users.

In 2009, Google further relaxed its policy to permit limited use of trademarks in advertising text. In particular, Google began permitting the use of trademarks in advertising text if 1) the sponsor is a reseller of a genuine trademarked product, 2) the sponsor makes or sells component parts for a trademarked product, 3) the sponsor offers compatible parts or goods for use with the trademarked product; or 4) the sponsor provides information about or reviews of a trademarked product.

As a result of this change in policy, use of trademarks by competitors in Adwords campaigns became even more controversial. Some companies, including American Airlines, Rosetta Stone, and Geico, filed trademark infringement suits against Google in an attempt to prevent Google from selling their trademarks as Adwords. These cases have been settled, but Google continues to allow the practice in the United States. And recently, Google reversed the practice of allowing trademark owners to object to others bidding on their trademarks as Adwords in Australia, Brazil, China, Hong Kong, Macau, New Zealand, South Korea, and Taiwan.

The Rosetta Stone case deserves some attention as a result of the evidence that was presented by Rosetta Stone to support its claim of trademark infringement. Although the district court granted summary judgment in favor of Google, the Fourth Circuit ruled last year that summary judgment was improperly granted given the evidence presented, noting that while summary judgment on a likelihood of confusion in a trademark infringement case is permissible in appropriate cases, this issue is “an inherently factual issue that depends on the facts and circumstances of each case.”

The evidence presented by Rosetta Stone in opposition to summary judgment included:

  • Testimony by five consumers who purchased bogus software mistakenly thinking it to be the authentic product;
  • Evidence that Rosetta Stone’s customer care center received 262 complaints over a one-year period from individuals who had mistakenly purchased counterfeit software;
  • Internal study by Google recommending that the only effective policy is to allow trademark usage for keywords but not allow trademark usage in ad text (either title or body);
  • Survey evidence by an expert opining that 17% of respondents were confused by Google’s sponsored links after conducting a search for Rosetta Stone; and
  • Internal study by Google reflecting that even well-educated, seasoned Internet consumers are confused by the nature of Google’s sponsored links and are sometimes unaware that sponsored links are, in actuality, advertisements.

The Fourth Circuit held that this evidence created a genuine issue of material fact that must be decided by a jury. Indeed, this is a common theme in trademark cases with respect to the likelihood of confusion issue, and in most cases summary judgment can be avoided because of the inherently factual nature of the inquiry.

Although the Rosetta Stone case was remanded for trial, the parties settled the case late last year. The settlement terms are confidential, but a joint statement by the parties provides that they will “meaningfully collaborate to combat online ads for counterfeit goods and prevent the misuse and abuse of trademarks on the Internet.”

Google has been aggressive and successful in defending its revenue stream from Adwords, and it appears that Google’s relaxed policy is here to stay. You may be thinking, “If Google allows the practice of purchasing trademarks as Adwords, then we can do it without worrying about a trademark infringement claim.” But that is not the case.

Although the purchase of Adwords, in and of itself, is generally not enough to subject the purchaser to a trademark infringement claim, the text of the ad could give rise to such a claim. Adwords are a bit unique in the trademark context, but the Fourth Circuit’s decision in the Rosetta Stone case demonstrates that the question of whether there is trademark infringement is still determined based on the “digits of confusion” like any other trademark infringement case.

In the Fifth Circuit, the digits of confusion that are considered include: 1) the type of trademark, 2) mark similarity, 3) product similarity, 4) outlet and purchaser identity, 5) advertising media identity, 6) defendant’s intent, 7) actual confusion, and 8) care exercised by potential purchasers. In College Network v. Moore Educational Publishers, decided in 2010, the Fifth Circuit upheld a jury finding that there was no likelihood of confusion caused by the purchase of the trademark “The College Network” as a keyword from Google and Yahoo to summon sponsored links for advertising competitive study guides for nursing students. In that case, experts were presented by both sides on the likelihood of confusion issue, and the jury was permitted to view the keyword-search process and visually compare the companies’ websites. The Fifth Circuit held that the evidence was not so strongly and overwhelmingly in favor of the plaintiff that a reasonable jury could not arrive at a verdict in favor of the defendant. But the opinion is short on analysis of the issues presented by sponsored advertising cases.

Under the initial interest confusion doctrine, if a consumer is confused as to the source of the goods or services by the text of the advertisement in a sponsored link, this could be enough to constitute trademark infringement even if the confusion is dispelled after clicking on the link and going to the website of the sponsor. The 2011 Network Automation v. Advanced System Concepts case is a sponsored advertising case in which the Ninth Circuit provides a thorough analysis of the likelihood of confusion issue in the context of sponsored advertising. In vacating a preliminary injunction by the district court, the Ninth Circuit found the following factors to be most important in a sponsored advertising case: 1) the strength of the mark; 2) the evidence of actual confusion; 3) the type of goods and degree of care likely to be exercised by the purchaser; and 4) the labeling and appearance of the advertisements and the surrounding context on the page displaying the results.

Of course, if there is a trademark infringement action, the court will look at all relevant factors. But the factor that advertisers should use to minimize their risk of litigation when purchasing trademarks as keywords is the labeling and appearance of the advertisements and the surrounding context on the screen displaying the search results. This factor was addressed at several points in the Network Automation decision, with the court stating that in the keyword advertising context, “likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context.”

Therefore, if the advertisement is confusingly labeled or not labeled at all, there is a greater chance of initial interest confusion. However, clearly labeling the advertisement so that the consumer knows the source of the goods or knows that a competitive product is being offered before clicking the link could eliminate the likelihood of initial interest confusion.

Part of any likelihood of confusion analysis involves the consideration of the degree of care and sophistication of the consumer, which will vary depending on the product or service offered. It is assumed that the more expensive the products or services, the greater the degree of care that will be exercised by the consumer. Although the Ninth Circuit had once held that internet users as a whole exercise a low degree of care, the court suspects that there are many cases where that is no longer the case. “[T]he default degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace.”

Recently, the Wisconsin Court of Appeals heard an Adwords case where trademark infringement was not claimed, but the case centered on a law firm’s “right to privacy.” The plaintiff, Cannon & Dunphy, purchased Adwords containing the name of a competitor’s law firm, Habush & Rottier. The lawsuit centered on whether the Adwords purchase was barred under Wisconsin’s privacy law. In its ruling, the court held that “locating an advertisement or business near an established competitor to take advantage of the flow of potential customers or clients to the established business is not a practice the [Wisconsin] legislature intended to prohibit. Further, we fail to discern a meaningful distinction between competitors simply selecting locations in proximity to each other and using a third party [such as Google or Yahoo, as in this case] to obtain the same result.”

After the court’s ruling, the defendant did not remove its Adwords campaign. However, the plaintiff was able to win after all by simply outbidding the defendant for the Adwords, and therefore, gained control of them.

In conclusion, advertisers should conduct an analysis regarding how a typical consumer will interpret the advertisement that is used in connection with the purchase of trademarks as Adwords. Clearly identifying the name of the sponsor in the advertisement can help eliminate initial interest confusion. Likewise, comparing the sponsored product to the trademark owner’s product will also avoid confusion. But, failing to label the advertisement, or using misleading text, could subject the sponsor to trademark infringement liability. As with many purchases, Adwords are no different – Caveat Emptor!

Vincent Allen is a partner at Carstens & Cahoon. He focuses on the litigation of intellectual property disputes and the prosecution of patent and trademark applications.

P.J. Putnam is General Counsel and Executive Vice President at Calvet Companies, LLC.

Use Unlicensed Music in Wedding Films at Your Peril

Quantum leaps have been made in both the quality and popularity of wedding films over the past 10 years. The advances are a result of technology improvements in post-production editing systems and the introduction of low profile cameras that rival the production quality of movie sets. Most recently, the availability of relatively low cost DSLR cameras has added a cinematic element to event film productions that previously was not available.

Event filmmakers have begun creating works of art that capture the emotions of the wedding day. So it is no surprise that wedding films are often set to music selected to create the desired mood. Historically, event filmmakers have not given much thought to obtaining permission to use a popular song in a wedding film, and some have even operated under the erroneous belief that purchasing the song on a CD or iTunes will avoid a copyright violation. Event filmmakers have now begun paying more attention to copyright issues as rights holders have stepped up enforcement activity directed to unlicensed use of music on the internet.

One notable example is the film of Tony Romo’s wedding that was streamed on the Internet by Austin event filmmaker Joe Simon in 2011. Although the film was only up for one day before it was taken down, that was long enough for a record label to notice that Simon had used a Coldplay song without a license. The record label sent Simon a cease and desist letter and demanded $150,000 for the unlicensed use of the song in violation of copyright law. Simon ultimately settled the claim for an undisclosed five figure sum.

The attention given to Simon’s film caused event filmmaker internet forums to erupt with discussions about the routine use of popular songs without a license. Many that had previously used popular songs in wedding videos without permission have stopped the practice, or at least are no longer streaming the wedding films on the Internet. Some are still using unlicensed music, and in some cases, admitting to the knowing improper use in event filmmaker forums.

Many event filmmakers complain about the inability to obtain a license to popular music for a reasonable fee. This has been a problem as the cost and time to contact a copyright owner to obtain a one-time license for a song is not feasible for a wedding film or other film intended primarily for personal use. However, the inability to obtain a license does not justify the willful infringement of the copyright in a song.

The vacuum in the market that has been created by the growth of the event filmmaking industry has, however, resulted in the birth of niche licensing companies that have negotiated deals with copyright owners that allow the licensing company to offer synch and streaming licenses for a substantial inventory of songs. For example, The Music Bed, located in Fort Worth, has numerous songs available at fees ranging between $49 and $399 for uses ranging from wedding films to corporate promotional videos. Song Freedom also offers a similar service at a cost of $34.99 per song for personal event video and photography. The licenses provided allow streaming in perpetuity and a limited number of DVDs or Blu-Rays. However, it is important to read the fine print of the license granted to be sure that the desired uses are permitted under the license.

Elizabeth Allen of Copper Penny Films in McKinney is an event filmmaker who has elected to use only licensed songs in her films. She notes, “While the number of popular songs offered by companies such as The Music Bed and Song Freedom is growing, I will often spend a significant amount of time listening to less popular music to find a song that fits the film. Although a bride may request a mainstream song, that song is not always the best fit, and I have found that the use of an indie song can help tell the story better than popular music that may take attention away from the film. But I still must explain to the bride why I can’t use the song she requested when other filmmakers are willing to risk using popular music without permission.”

In conclusion, the use of unlicensed music is not worth the risk of statutory damages of up to $150,000 and up to five years imprisonment. License companies will continue to fill their inventories with songs that can be licensed for a nominal fee. Event filmmakers should take advantage of the songs offered to avoid the risk of copyright infringement and to encourage the licensing companies to obtain more songs in their inventories.

Aon & RPX Unveil Non-Practicing Entity Patent Litigation Coverage

It is becoming more and more common for technology business owners to be faced with patent infringement suits filed by a non-practicing entity (NPE), an entity that does not manufacture or sell the product covered by the patent. Defending a patent infringement suit can be very expensive, and for a small company, can threaten its very existence. Historically, patent litigation insurance has not been readily available. But now, patent aggregator RPX and insurance company Aon Risk Solutions have teamed up to offer patent litigation insurance for suits brought by non-practicing entities.

Developed specifically with small-to-medium-sized businesses in mind, Aon Risk Solutions is offering the product to companies with $1 billion or less in annual revenue. Underwritten by RPX, this new line of patent litigation insurance will initially allow up to $2.5 million in coverage against legal action from NPEs. In implementing this service, Aon aims to limit severity risk and is complemented by RPX’s talents in identifying and clearing high-risk patents through their core defensive patent acquisition service.

According to a study by James Bessen and Michael Meurer of the Boston University School of law, the total cost for NPE litigation in 2011 was $29 billion, up over 400% from 2005. The study also found that 82% of the defendants sued by NPEs had less than $100 million in revenues.

The joinder provision of the America Invents Act, which went into effect on September 16, 2011, has decreased the number of defendants that are sued by NPEs, but suits are still filed by NPEs on an almost daily basis. This joinder provision, however, makes it more difficult to file large multi-defendant infringement cases.

Also worth keeping an eye on is H.R. 6245, the Saving High-Tech Innovators from Egregious Legal Disputes Act (SHIELD Act). If the Shield Act is passed, this could potentially allow the defendant in a patent suit over computer hardware of software to recover legal fees if a court rules the plaintiff does not have a reasonable possibility of succeeding. Introduced August 1, 2012, the bill is currently under review by the House subcommittee on Intellectual Property, Competition, and the Internet. But even if the Shield Act is passed, the defendants must still defend the suit and will likely have a difficult time in most cases having the court rule that there is no reasonable possibility of success by the plaintiff.
So even with new and pending legislation, the risk of patent litigation by a NPE is still present for technology companies. Patent litigation insurance may be a good solution for companies looking to minimize company exposure to such risk.

For more information, visit www.aon.com/ip or www.rpxcorp.com.

DBA IP Section Lands Dallas Patent Office

The United States Patent and Trademark Office (USPTO) and the Department of Commerce announced July 2, 2012 that a Dallas patent office would be one of four new regional offices of the United States Patent and Trademark Office. The creation of satellite offices marks the first time in the 200-plus year history of the USPTO that it will have operations outside of the Washington, D.C. area.

In selecting the sites for the satellite offices, the USPTO considered factors such as geographic diversity, economic impact, available workforce and the local intellectual property community. Dallas was a good candidate for an office to serve the South, but there were other attractive cities vying for an office as well, including Houston, Atlanta and Austin. With more than 50 metro areas under consideration nationwide, the selection process was highly competitive according to Acting U.S. Commerce Secretary Rebecca Blank.

But it was Dallas’s intellectual property community that was instrumental in putting Dallas at the top of the list. A proposal in support of the selection of Dallas prepared by the DBA IP Section highlighted Dallas’s strong university and research community, talented workforce and robust business community. Emphasis was also placed on the fact that Texas is second only to California in the number of patent applications filed each year. David Kappos, the Director of the USPTO reportedly said, “The DFW area sprang off the page at me.” He knew when he read the proposal that the USPTO had to select Dallas as one of the satellite offices.

Hilda Galvan, Chair of the DBA IP Section and a partner at Jones Day, reports that although the proposal in support of Dallas was a group effort, Lisa Evert, a founding partner of Hitchcock Evert, is the one who spearheaded the preparation of the proposal. Marc Hubbard, a partner at Gardere, and Wei Wei Jeang, a partner at Andrews Kurth, were also instrumental in refining the proposal and rallying community support. Max Ciccarelli, a partner at Thompson & Knight, is credited with bringing the opportunity to the attention of the IP Section after his assistant saw a post by the USPTO on Facebook inviting comments on the selection of the satellite offices.

The proposal was joined by the Center for American and International Law, the Dallas Regional Chamber, Southern Methodist University, the University of Texas at Dallas and the University of Texas at Arlington. Michael Pegues, a partner at Bracewell Giuliani, reached out to various organizations and local and national political leaders to garner support. Through the efforts of the IP Section members, local companies Research in Motion, Ericsson and MetroPCS wrote separate letters in support of the proposal, as did Dallas Mayor Mike Rawlings.

Although the deadline for establishing at least three of the offices is August 2014, the USPTO has already begun developing a “concept of operations” for the Dallas patent office. On July 11, just nine days after the announcement of the cities selected, Secretary Blank and Director Kappos met with local officials, attorneys, university representatives and company representatives in Dallas to discuss the opening of the new Dallas patent office. Vikram Aiyer, Special Advisor to the Under Secretary of Commerce, says that although he cannot commit to an exact timeframe for the opening of the Dallas patent office, the plan is to open the office “as quickly as we can,” noting that the Detroit patent office was opened well ahead of schedule. Aiyer reports that the USPTO “couldn’t be happier or more excited to come to Dallas.” The July 11 meeting he said “energized the USPTO to move even faster.” The Dallas Bar Association will play a key role in helping to develop the new office, and the USPTO looks forward to working with the DBA, according to Aiyer.

Aiyer could not comment specifically on the location, but Galvan, who attended the meeting with Director Kappos, says that the UPSTO will take into consideration the location of its client base, namely patent attorneys, as well as access to public transportation.

The Dallas patent office will have a significant local economic impact. The opening of the Detroit patent office will result in the creation of 125 new jobs in its first year, and it is expected that the Dallas patent office will create a similar number. Dallas area patent attorneys expect that they will be able to attract new clients, and in particular foreign clients, that might otherwise select a D.C. based firm because of proximity to the USPTO.

Roger Burleigh, Director of the U.S. Patent Department for Ericsson, noted that a local USPTO office will provide tremendous value through the ease of face-to-face meetings with Examiners, which has been at best a rare occurrence during his twelve-year tenure as a patent attorney for the company. Moreover, “The Office will provide a fantastic opportunity for new Texas engineering graduates and could serve as a breeding ground for new patent attorneys who could gain the necessary experience to go directly into in-house practice at the completion of law school.”

The DBA IP Section will post updates in the future on the USPTO’s progress on the Dallas patent office at www.dbaip.com.

Importance of Patent Protection

Our firm now has a You Tube channel with educational videos about IP law.  Copper Penny Films did a great job creating the videos for us.  Here is my first video on the importance of patent protection and consulting with your patent attorney prior to bringing a product to market.  My colleagues Colin Cahoon and Bobby Braxton also have videos on our channel as well.

 

America Invents Act Provides a New Tool to Influence the Prosecution of Patent Applications with New Third Party Submission Rules

Last week the Patent Office proposed a new rule for preissuance submissions to implement the new requirments of the America Invents Act enacted in September of last year.  Previously, third party submissions of prior art to the Patent Office were very limited in that there was a short deadline for filing the submission and the third party could not include any analysis of the prior art submitted. The new third party submission law established by the America Invents Act is effective September 16, 2012, retroactive for all applications filed before that date.

Under the new rule, preissuance submissions will become a power tool for those with an interest in the denial of a patent application because now the third party can provide analysis of the prior art.  For example, if applicant mischaracterizes the prior art in the application, the record can be set straight with a third party submission.  The deadline for the submission under the new rule will be the earlier of 1) the date of the notice of allowance or 2) six months after publication of the application or the date of first rejection of any claim by the examiner, whichever is later.  So generally speaking, the deadline for any such third party submissions will be the date of the first office action.  Under current rules, the submission must be made within two months of publication of the application, and no analysis can be provided.  Because of the short time frame and the inability to provide analysis to the examiner, the procedure is not currently deemed as very effective in most cases and could in fact be detrimental because the third party could no longer argue to the court in an infringement action that the reference was not considered by the examiner.

Under the rule proposed by the Patent Office, the documents submitted must be “of potential relevance to the examination of the application” and a concise description of the relevance of each document must be provided.  Moreover, it is not required that the documents be “prior art” under the new rule–any relevant documents can be submitted for consideration by the examiner.  Concise submissions are encouraged–the proposed rule allows for three “free” submissions.  If more than three documents are submitted, a fee of $180 for each ten documents is required.  Finally, there is no longer a requirement to serve the applicant with the submission, but the applicant will receive notice of any such submission in the first office action.

As a result of the new rules for third party submission, and in light of the post grant review procedure that will come into effect in the future, it will be ever more important for companies to exercise vigilance in the monitoring of published patent applications.  Otherwise, you will not be able to take advantage of these new rules designed to help companies avoid finding themselves on the receiving end of a patent infringement lawsuit asserting an invalid patent.  The tool could be particularly useful in patent litigation where a continuation application is pending that has been crafted to read more closely on the alleged infringing method or apparatus.

 

America Invents Act: A Sea Change in Patent Law

President Obama signed the Leahy-Smith America Invents Act (AIA) into law on September 16, 2011.  The AIA is the first major change in the U.S. patent law system since 1952 and probably the most far reaching statutory changes since the 1836 Patent Act established the Patent Office and the modern system of patent examination.  The changes include substantive changes to the standards of patentability as well as significant changes to the way the Patent Office handles challenges to the grant of a patent.

Some parts of the law went into effect upon enactment, but the more significant changes will go into effect at various times in the future.  It will be years before we are fully converted to the new system, and practitioners must keep track of both the current law and the new law in the interim.

Although the AIA did not include venue or damages reform that was in past versions of patent reform legislation, it did include an anti-joinder rule in patent cases.  The new anti-joinder rule prohibits the joinder of multiple defendants in the same patent case just because they have infringed the same patent(s).  Rather, joinder is now only proper if the defendants all allegedly infringe the patent with the same product or process.

The anti-joinder rule went into effect on September 16, 2011 and has resulted in a decrease in the number of defendants that are sued in a single case, particularly in the Eastern District of Texas.  Although the full effect of the new anti-joinder provision remains to be seen, it will likely result in more cases being filed in venues other than the Eastern District of Texas.  Delaware, for example, has seen an increase in the number of patent cases filed there given that many corporations are incorporated in Delaware.

Another significant change of the American Invents Act is the conversion from a “first to invent” to a “first to file” patent system that will go into effect for patent applications with an effective filing date on or after March 16, 2013.  Under the current system, the first person to invent is generally entitled to a patent even if another inventor files an application first.  The first to file rule is not absolute, however.  For example, a new “derivation proceeding” will allow a second filer to obtain a patent upon proof that the first filer derived the invention from the second filer.

A number of changes to patent office procedure will go into effect on September 16, 2012, including a new third party submission procedure, post-grant review, and inter partes review.  These new procedures will affect strategies for both obtaining patent protection and defending against the patents of others.

To avoid getting caught behind the curve, it is important for companies to plan for the changes in the law now and to implement strategies to take advantage of the new laws.  Without proper planning, valuable patent protection may be lost or the ability to operate freely may be impeded by the patents of others.

Willful Blindness: The New Standard for Knowledge in Active Inducement of Patent Infringement

In a decision earlier this year that will have ramifications in numerous areas of the law where “knowledge” must be proven, the U.S. Supreme Court applied the doctrine of willful blindness to satisfy the knowledge element for a claim of active inducement of patent infringement. Although the willful blindness doctrine has been well established in criminal law and adopted by every federal court of appeals but one, the Global-Tech Appliances decision marks the first time the Court has approved the doctrine.

In a dissenting opinion, Justice Kennedy noted that the Court appeared to endorse the willful blindness doctrine for all federal criminal cases without receiving briefing or argument on this important issue from the criminal defense bar.

Under the willful blindness standard, the plaintiff must prove 1) the defendant believed that there is a high probability that a fact exists and 2) that the defendant took deliberate actions to avoid learning of that fact.  Using this standard, the Court defined a willfully blind defendant as “one who takes deliberate actions to avoid confirming a high probability of wrong doing and who can almost be said to have actually known the critical facts.”

In the case at bar, Pentalpha copied one of SEB’s deep fryers that was made for sale in Hong Kong and thus lacked any U.S. patent markings. Although Pentalpha retained an attorney to perform a patent search, Pentalpha did not inform the attorney that that the design was a copy of SEB’s design.  The attorney did not find SEB’s patent and issued an opinion that Pentalpha’s deep fryer did not infringe on any of the patents he had found.

Subsequently, Pentalpha began selling the knock-off deep fryers to Sunbeam in Hong Kong.  Sunbeam then imported and sold the fryers in the United States.  SEB sued Sunbeam for patent infringement and Sunbeam notified Pentalpha of the claim.  After settling with Sunbeam, SEB then sued Pentalpha for infringing its U.S. patent by actively inducing Sunbeam and other purchasers of Pentalpha fryers to sell them in the U.S. in violation of SEB’s patent rights.

Pentalpha argued that it had no knowledge of the patent, and thus, SEB could not prove the knowledge required to recover for active inducement of infringement of the patent.  The Federal Circuit held that the knowledge element was satisfied because of Pentalpha’s deliberate indifference to a known risk that a patent existed covering SEB’s fryer.

The Supreme Court rejected the deliberate indifference standard because it does not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.  The Court also criticized the standard because it permits the finding of knowledge where there is merely a “known risk” that the induced acts are infringing.

Instead, the Court applied the willful blindness standard to affirm the holding of the Federal Circuit that Pentalpha had actively induced infringement of the patent by Sunbeam.  In reaching its decision, the Court found it significant that Pentalpha knew of  SEB’s superior product and knew that SEB’s fryer embodied advanced technology that would be valuable in the U.S. market.  The Court also pointed out that Pentalpha decided to copy an overseas model, knowing that products made for overseas markets usually do not bear U.S. patent markings.  Even more significant, according to the Court, was Pentalpha’s decision not to inform its patent attorney that the Pentalpha fryer was a copy of SEB’s fryer.

The Court could not fathom any other motive that Pentalpha had for withholding this information “other than to manufacture a claim of plausible deniability in the event that his company would later be accused of patent infringement.” Thus, the Court held that the evidence was more than sufficient for the jury to decide that Pentalpha subjectively believed that there was a high probability that SEB’s fryer was patented, that Pentalpha took deliberate steps to avoid knowing that fact, and therefore, Pentalpha had willfully blinded itself to the infringing nature of Sunbeam’s sales.

Although the willful blindness standard adopted by the Court is more restrictive than the Federal Circuit’s deliberate indifference standard, it is still not necessary to prove that the alleged infringer had actual knowledge that the product was covered by a patent.  The Court’s approval of the willful blindness standard as an alternative to proving actual knowledge could have wide reaching consequences, even outside the context of patent infringement.  The decision has already been cited in criminal cases, bankruptcy cases and in cases involving the False Claims Act.

The First Amendment Extends to Dillinger Tommy Guns

There has been significant activity over the past several years in the courts with regard to the First Amendment and how far it goes to protect the use of trademarks and the likeness of celebrities in video games.  I previously posted about the Madden NFL game and how the defendants were successful in a First Amendment Defense.

The Southern District of Indiana recently dismissed a case involving the use of “Dillinger” as the name of a weapon in the Godfather I and Godfather II video games.

The John Dillinger heirs sued EA under trademark infringement/right of publicity theories for using “Dillinger” and “Modern Dillinger” to refer to the Tommy Gun weapons available in the Godfather I and Godfather II games.  Although there were a number of issues raised in connection with a motion to dismiss/motion for summary judgment, the ultimate issue was whether EA had a First Amendment right to use “Dillinger” to refer to the weapons in the game.

In granting summary judgment for EA, the court applied the Second Circuit’s Rogers test, which requires an analysis of 1) whether the name used has any artistic relevance to the underlying work, and if so, 2) whether it explicitly misleads the public as to the source or content of the work.

In this case, the Godfather games were based on the novel and movie of the same name.  Neither the novel, nor the movie depicted John Dillinger.  However, it was undisputed that John Dillinger and Tommy Guns were closely related as that was Dillinger’s weapon of choice.  Because EA used the name to refer to Tommy Gun weapons in the games and the plaintiff presented no evidence of any confusion as to the source or content of the work, the First Amendment defense applies, the court held.  The court noted that even if it accepted plaintiff’s contention that the relationship between Dillinger and the games is attenuated, the threshold for “artistic relevance to the underlying work” is very low—it just needs to be above zero.

This is a good decision for game developers in that it presents a case where the artistic relevance of the use of the name to the underlying work is not as strong as it has been in other cases.  But the case will likely to be appealed to the Seventh Circuit according to plaintiff’s counsel.

It is important when developing a game to consider the artistic relevance of the use of celebrity names, likeness, and trademarks in video games.  Where there is no relevance, the courts have found that the First Amendment defense does not apply.