In-House Counsel Solutions Series: 4Q 2023
In-House Counsel Solutions
This is the 4Q installment of our In-House Counsel Solutions Series. The series is focused on identifying trending legal issues facing in-house counsel and providing practical solutions to these problems.
In this issue, we discuss intellectual property indemnity clauses in supply contracts, trending roadblocks to trademark prosecution, enforcing and defending against business method patents, and strategies for defending against copyright trolls.
Plus, gain access to the eBook "Stopping Knockoffs: 6 Steps for IP Program Enforcement". The download provides a comprehensive summary of designing, implementing, and optimizing an IP enforcement program that stops loss of market share and profits due to knockoffs, piracy, and other forms of infringement.
Vexing Problems with Intellectual Property Indemnity in Supply Contracts
By Mark Stachiw
Purchasers of products and software usually expect some form of protection against intellectual property infringement claims. While the UCC § 2-312(3) creates a default indemnity for purchasers of goods from merchants, it has a number of flaws and it is not best practice to rely solely on it. To address some of the shortcomings of the UCC default intellectual property, purchasers usually utilize a contractual intellectual property indemnity provision. However, in our experience, the typical provision proffered by suppliers, can have a number of significant flaws, such as it might limit the protection to certain geographical areas; it has a number of carve-outs; and it limits the amount of money that a Purchaser will be reimbursed if the Product or software needs to be returned.
The solution is to:
Modify any intellectual property indemnity to include a defense and hold harmless obligation;
Carve out from any limitation of liability provision intellectual property infringement indemnity;
Exclude from any waiver of implied warranties the UCC non-infringement warranty and the implied warranty of fitness for intended purpose;
Include an express warranty that the manufacturer/licensor: (a) has good, marketable (and licensable) title to the equipment/software, and (b) is unaware of any claim that the equipment or software is subject to any claim by a third party that it infringes their intellectual property rights; and
Make sure any combination carve-out from the indemnity anticipates the actual use the equipment or software is being used for and, if the equipment or software is being combined with other equipment or software and addresses, addresses how the parties will defend and indemnify against a combination claim.
A more comprehensive discussion of the problems with intellectual property infringement indemnities, including sample contractual language, can be found at IP Indemnity in Supply Contracts: Common Vexing Problems.
Recent Roadblocks to Federal Trademark Registration
In recent years, certain roadblocks to registration appear to be trending, including, (1) refusal of a mark as “primarily merely a surname” under Trademark Section 2(e) and (2) broad-form refusal of a mark for goods or services as “likely to cause confusion” with another mark in a separate industry, i.e., equating hotel services to restaurant or gym services or equating mixed-use in the real estate industry to nursing or assisted living facilities, restaurants, or bars.
A refusal based on the mark purportedly being “primarily merely a surname” under Trademark Section 2(e) is evaluated according to the following factors: (1) whether the surname is rare; (2) whether the mark is the surname of anyone connected with the applicant; (3) whether the mark has any alternative meanings other than as a surname (i.e., non-surname significance); (4) whether the mark has the structure and pronunciation of a surname; and (5) whether the stylization of lettering is distinctive enough to create a separate commercial impression. To minimize the risk of such a refusal, consider these factors prior to filing a trademark application and revise or distinguish your mark as necessary. Otherwise, upon receiving this type of refusal, argue the factors above as demonstrating meaning other than primarily as a surname and/or attempt to demonstrate acquired distinctiveness under Trademark Section 2(f) when possible.
A refusal under Section 2(d) that a proposed mark is likely to cause confusion with an existing registration for goods or services in a separate industry can sometimes be avoided by conducting a trademark search prior to submitting and application and additional terms or a design to a proposed mark to further distinguish it from others identified in the search. At a minimum, conducting a pre-application search can at least identify the risk of this type of rejection and allow for strategic planning ahead of time.
A more comprehensive discussion of trending roadblocks to trademark registration can be found at Recent Roadblocks to Federal Trademark Registration.
Are Your Business Method Patents Worth the Paper They’re Printed On?
By Brian Casper
Before you decide to enforce your patent rights, you need to understand why relying on the presumption of validity is no longer enough to avoid having your case dismissed and potentially even being sanctioned for filing a frivolous lawsuit. There are four distinct types of utility patents: processes, machines, manufactures, and compositions of matter. Processes, often referred to as a “method” patents or sometimes “business method patents” tend to be drafted broadly—sometimes, too broadly.
In 2014, the Supreme Court issued its opinion in the Alice Corp. v. CLS Bank International case. That decision expanded the eligibility analysis of Mayo v. Prometheus, (2012), and Association for Molecular Pathology v. Myriad Genetics, Inc., (2013). The Alice decision resulted in a proliferation of invalidity judgments and a sharp decline in business method patent applications at the USPTO. The Patent Act does not allow inventors to patent the laws of nature, natural phenomena, and abstract ideas and the Supreme Court devised a two-step test to determine whether the patent is directed a patent-ineligible concept, such as an abstract idea. If patent claims are directed to an abstract concept, courts then look for an inventive concept that transforms the claimed abstract idea into a patent-eligible application.
This is where patents that are drafted too broadly get into trouble. And there are many patents that were issued prior to this case that are still well within their terms. This means that any method patent that was issued prior to 2014 should be viewed with a more skeptical eye. Therefore, before deciding to enforce a patent—particularly if it is broadly drafted and was issued prior to 2014—it should first be tested against the current standard of eligibility.
A more in-depth discussion of the challenges of enforcing business method patents can be found at Are Your Business Method Patents Worth the Paper They're Printed On?
Defending Against Photograph Copyright Troll Infringement Cases
Generally, these cases begin with a demand letter demanding a large “fee” for the use of an allegedly copyrighted image along with a threat that if a settlement is not reached quickly the infringer could be liable for substantial statutory damages as well as attorney’s fees. Because the alleged infringer must pay its own attorney’s fees plus risk paying the troll’s fees and damages, these points provide a troll with significant settlement leverage at the onset. Having defended several of these claims, here are some steps that can be taken to mitigate risk and hopefully resolve the dispute:
Step 1: Document and Preserve all Relevant Evidence — Avoid spoliation issues that can arise if the offending image is taken down by making a copy of the website page as well as the image, researching how the image was originally found and used, determining whether a vendor was involved in use of the image that may owe indemnity, obtaining information showing when the image was first published and which URL(s), determining traffic to the URL on which the image was published, and determining if the image and the URL hosting the image was involved in any kind of sales or ecommerce.
Step 2: Cease Use of the Offending Image — After relevant information is preserved, consider removing the image. The cease-and-desist letter typically points out that removal of the image will not remedy past infringement. But removal can be used to limit future potential damages (assuming there is actual liability and damages) as well as demonstrate show good-faith behavior, which can be important later to defend against a claim for attorney’s fees.
Step 3: Request a Copy of the Copyright Registration, Deposit Specimen, and Attorney Authority — As with an intellectual property claim, it is prudent to confirm the chain of title for the asserted IP, so requesting a copy of the copyright registration, deposit specimen, and attorney authority are good initial steps. Most cease-and-desist letters include this information at the outset. The registration in a copyright case is critical to whether a lawsuit can be filed and also whether the rightsholder can recover attorney’s fees and statutory damages. If the alleged infringement began before the registration, attorney’s fees and statutory damages generally cannot be recovered.
Step 4: Offer a Reasonable Amount to Settle — An early settlement reduces litigation costs and the hassle of defending a lawsuit. It also establishes a pattern of conduct that may be helpful later if litigation ensues, the alleged infringer is found liable, and a judge is considering a motion for an award of attorney’s fees.
Step 5: Do Nothing — At this point, relevant evidence has been preserved, the alleged infringement has been taken down, and a reasonable settlement offer has been communicated. In most cases, either settlement negotiations will continue or a lawsuit will be filed. Having taken these actions, the ball is now in the rightsholder’s court.
Step 6: If a Lawsuit is Filed, Consider Making an Offer of Judgment Before Filing an Answer — If a pre-lawsuit settlement offer is rejected, an Offer of Judgment under Federal Rule of Civil Procedure 68 can be made with the strategy that the offer inclusive of attorney’s fees, expenses, and liability is at a higher amount than the plaintiff can later recover. If not accepted, this potentially opens the door to mitigating costs and even possibly recovering attorney’s fees later. Put another way, this starts a poker game. Defendants can also consider making more than one Offer of Judgment at a higher amount as the case proceeds. This can put substantial settlement pressure on a copyright troll plaintiff.
Step 7: Make Continuing the Lawsuit Unattractive to the Copyright Troll — Paying $5,000 to settle a case worth $500 plus $1,000 in attorney’s fees encourages more troll activity. While this settlement may be justified by the cost-benefit analysis to the defendant, looking at the bigger picture, these types of settlements make the troll business more lucrative.
In addition to the steps outlined above, taking discovery of past licenses and litigation could be ripe to generate facts supporting defenses. Another focus of discovery could be how the copyrighted image got into the public domain in the first place, how the image had its copyright notice removed, and how and when the troll discovered the alleged infringement. Efficient discovery coupled with a proactive settlement strategy can lead to an earlier and less expensive resolution.
For a comprehensive discussion on handling these cases, see the post Tips for Handling Photograph Copyright Troll Claims.
Importance of Intellectual Property Rights: Increasing Market Share Through Stopping Knockoffs & Infringements
This eBook provides a comprehensive summary of designing, implementing, and optimizing an intellectual property (IP) enforcement program that stops loss of market share and profits due to knockoffs, piracy, and other forms of infringement. The eBook highlights the importance of intellectual property rights in increasing marketshare. Download your copy today.
Klemchuk PLLC is a leading intellectual property law firm focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. We help clients protect innovation and increase market share through investments in IP.
This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2023 Klemchuk PLLC