Eastern District of Virginia IP
Year In Review 2016
Published in February 2017
TABLE OF CONTENTS
INTRODUCTION AND OVERVIEW COPYRIGHT CASES PATENT CASES TRADEMARK CASES TRADE SECRET CASES
2 3 6 17 30
INTRODUCTION AND OVERVIEW
Patent litigation filings in the Eastern District of Virginia (the District) were down again this year although there was an increase in trademark-related litigation. In the copyright arena, the District decided a case of first impression under the Digital Millennium Copyright Act (DMCA), sustaining a jury verdict of willful infringement against an ISP and denying it the benefit of the "safe harbor" provided for under that statute. That decision is of national significance and the appeal to the Fourth Circuit will be closely watched by ISPs and copyright owners alike.
The District continued its long tradition of moving cases along quickly regardless of their complexity, the number of parties or procedural challenges. Motions are promptly heard and decided, discovery extensions
are rare and trial dates are set early and are adhered to -- which present both challenges and opportunities for litigants in intellectual property cases. While some other jurisdictions may see more filings, none is better than the District in bringing cases to trial expeditiously (often within a year of filing) and in giving careful consideration to complicated issues whether heard by judge or jury. The cases that are filed in the District are handled efficiently and with a healthy regard for adherence to deadlines, precedent and the rules of procedure. In short, the District remains a robust forum for litigating all types of intellectual property cases.
The District considered a number of interesting cases in 2016 in the copyright, trademark and patent arenas. Below we review some of the key decisions and findings from the year.
2 2016 Eastern District of Virginia IP Year in Review
We begin our discussion this year with a significant copyright decision, BMG Rights Management LLC v. Cox Communications, Inc., which resulted in a jury verdict against Cox for $25 million in statutory damages.1 The decision is currently on appeal to the Fourth Circuit.
The court's opinion commences with a discussion of the "safe harbor" provision for Internet Service Providers (ISPs) under the DMCA. In an extraordinary holding prior to trial, Judge Liam O'Grady ruled on summary judgment that Cox could not rely on the safe harbor in its defense at trial. Stressing that "Congress reserved its safe harbors for ISPs who hold up their end of the bargain,"2 Judge O'Grady then proceeded to articulate the numerous ways in which Cox failed to do so: "[T]he record was replete with evidence that foreclosed any assertion by Cox that it had reasonably implemented a repeat-infringer policy."3 Most notably, the pretrial record included detailed evidence of Cox's implementation of a cynical "thirteen-strike policy" that seemed designed more to frustrate than to promote the goals of a legitimate safe harbor. Judge O'Grady took particular note of the fact that Cox took no action on the receipt of the subscriber's first notice of copyright infringement. Similarly, the second, third, fourth, fifth, sixth and seventh notices simply generated an email to the subscriber warning that if Cox "continues to receive infringement claims such as this one concerning your use of our service, we will suspend your account and disable your connection until you confirm you have removed the infringing material."4 The eighth and ninth notices consisted of a single web page containing a warning. The customer could self-reactivate by simply clicking an acknowledgement. After the tenth and eleventh notices, Cox suspended service and required the subscriber to call a support technician. But this suspension was short lived as the technician merely advised the customer of the reason for suspension, recommended that the customer remove the allegedly infringing material and then reactivated service. On the twelfth notice, the subscriber was again suspended and directed to specialized technicians. Finally, on the thirteenth notice, the subscriber was again suspended and this time considered for termination. In addition
1 No. 1:14-cv-1611, 2016 WL 4224964 (E.D. Va. Aug. 8, 2016) (appeal filed). 2 Id. at *4. 3 Id. 4 Id.
to this thirteen-strike policy, Cox implemented its graduated response system on a rolling six-month basis. This meant that if a customer did not hit termination review within six months, the process would start over.5
Based on these undisputed facts, Judge O'Grady determined that Cox could not invoke the protection afforded by the DMCA's safe harbor. Thus, the case proceeded to trial under "the nebulous doctrines of secondary copyright liability to the digital world."6 As noted above, Cox was found liable by a jury, which awarded the plaintiff $25 million in statutory damages.
In its post-trial motions, Cox first argued that BMG failed to show direct copyright infringement, based on the testimony and analysis of plaintiff's investigator. Specifically, the testimony at trial consisted of BMG's authorized agent, Rightscorp, acting in an investigative capacity as part of BMG's efforts to stop infringement of its copyrights. Cox argued that such evidence could not be the basis of a unauthorized distribution claim under the Copyright Act. Judge O'Grady expressly rejected this argument, noting courts have "consistently relied upon evidence of downloads by a plaintiff's investigator to establish both unauthorized copying and distribution of a plaintiff's work."7 Judge O'Grady concluded that "the evidence that Cox IP addresses uploaded over 100,000 copies of BMG's works to Rightscorp can form the basis of a distribution claim."8
Cox further argued that BMG did not establish Cox's secondary liability for infringement.9 This argument broke down into two parts: (i) Cox argued the evidence at trial established that its Internet services are capable of substantially noninfringing uses, which should have generally immunized Cox from liability for contributory infringement under the US Supreme Court's holding in Sony Corp. of America v. Universal City Studies, Inc.10; and (ii) Cox argued that the only way BMG could overcome the Sony safe harbor would be to establish inducement under the Supreme Court's holding in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd.11 Judge O'Grady rejected both of these arguments.
5 Id. 6 Id. 7 Id. at *9. 8 Id. 9 Id. 10 464 U.S. 417 (1984). 11 545 U.S. 913 (2005).
3 2016 Eastern District of Virginia IP Year in Review
First, Judge O'Grady disagreed with Cox's broad interpretation of Sony. The court held that Sony precludes "the imputation of fault based solely on `the design or distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement.' "12 However, BMG's claim against Cox was not so limited. Judge O'Grady stated that "BMG's claim goes beyond design choice or the mere provision of a service and therefore it goes beyond Sony."13 BMG claimed, for example, that Cox "ignored specific notices of infringing activity and continued to provide material support to its users' infringement of BMG works despite its ability to suspend or terminate customers with the push of a button."14 Unlike the seller in Sony, Cox maintained an ongoing relationship with the users of its services. Judge O'Grady emphasized that "an ongoing relationship between a defendant and direct infringers presents a potential for culpability quite beyond distribution or design."15
Judge O'Grady also rejected Cox's second argument that BMG was required to prove active inducement.16 The court held that this was too narrow a reading of the case law. Rather, BMG was only required "to prove that Cox had knowledge that users of its internet service were infringing BMG's copyrights and that Cox materially contributed to that infringement."17 The court also discussed the knowledge standard and held that BMG was required to prove that "Cox knew or should have known of [the] infringing activity [that is, direct infringement of
12 BMG, 2016 WL 4224964 at *11. 13 Id. at *12. 14 Id. 15 Id. 16 Id. 17 Id.
BMG's copyrighted works by users of Cox's Internet service]."18 The court held that there was sufficient evidence for the jury to find in favor of BMG on this issue. This included evidence that Cox configured its graduated response system in such a way as to reduce both the total number of notices entering the system and the amount of customer-facing action. Judge O'Grady concluded, "Cox could not also turn a blind eye to specific infringement occurring on its network."19 Judge O'Grady recognized the significance of his rulings and stated: "the Court acknowledges that the application of traditional contributory infringement to large intermediaries like Cox magnifies the uncertainties in this area of the law and raises the specter of undesirable consequences that may follow. This case may provide the vehicle for consideration of those questions."20 This highly unusual comment may further invite close scrutiny of this case by the Fourth Circuit.
The court went on to discuss various jury instructions and evidentiary rulings challenged by Cox. Most notably, Cox argued that the court's instruction on statutory damages did not properly explain that a compilation is considered a single work for purposes of statutory damages.21 The court rejected this argument. The court held that BMG was entitled to a per-work recovery even though some of the works were, at one time, published as part of an album. Thus, the instruction proposed by Cox was not necessary.22
18 Id. at *13. 19 Id. at *14. 20 Id. 21 Id. at *16. 22 Id. at *17.
4 2016 Eastern District of Virginia IP Year in Review
The court next turned to BMG's post-trial motions. The jury returned a verdict in favor of Cox on BMG's claim for vicarious infringement, and BMG filed a motion for judgment as a matter of law on this issue. The court noted that vicarious liability requires proof that the defendant had "an obvious and direct financial interest" in the infringing activity.23 The court determined that the evidence supported the jury's verdict in favor of Cox on this issue.24
The court then turned to BMG's motion for permanent injunction. Specifically, BMG requested an injunction whereby Cox would be "enjoined from knowingly and materially contributing to the unauthorized copying, uploading, downloading, transmitting, or distributing by others using its network of any musical composition in which BMG owns or controls an exclusive right under the United States Copyright Act."25 In rejecting this proposed injunction, Judge O'Grady noted that it was "essentially an order to Cox not to violate the law." As such, the requested injunction failed Rule 65(d)'s requirement that an injunction "state its terms specifically [ ] and describe in reasonable detail ... the act or acts restrained or required."26 The court further observed that the proposed injunction lacked conductbased instructions. Specifically, the only conduct identified required Cox to notify subscribers of certain information within BMG's notices within two days of receipt. Finally, Judge O'Grady stressed that the balance of hardship did not favor an injunction. "The relief requested would have a substantial spillover effect far beyond the parties to this lawsuit. While there is without a doubt a significant public benefit
in reducing copyright infringement, BMG has not demonstrated to the court's satisfaction that such a reduction here would not come at the expense of other nontrivial interests, including privacy and access to the internet."27 Accordingly, Judge O'Grady denied the request for permanent injunction.
BMG was by far the most significant copyright case decided in the District this year, but a few others are worth noting.
In Humphreys & Partners Architects, L.P. v. Lessard Design, Inc., the defendant filed a motion alleging that the plaintiff committed a fraud on the court based on an allegation that plaintiff's counsel assisted in the preparation of an expert report.28
This matter before Judge T.S. Ellis, III, arose out of an architectural design copyright infringement case. Judge Ellis had previously awarded summary judgment in favor of the defendant on all of the plaintiff's claims. The defendant subsequently moved for costs and attorneys' fees. In those filings, defendant's counsel submitted detailed billing records.
Upon review of the billing records, plaintiff's counsel found alleged evidence that defendant's counsel committed fraud before the court by "improperly" assisting in the preparation of the expert report. Accordingly, the plaintiff moved to set aside the judgment based on a claim of fraud on the court pursuant to Fed. R. Civ. P. 60(d)(3).
23 Id. at *24 (citations omitted). 24 Id. 25 Id. at *26. 26 Id.
27 Id. at *28. 28 No. 1:13-cv-433, 2016 WL 4578146 (E.D. Va. Jan. 1, 2016).
5 2016 Eastern District of Virginia IP Year in Review
In rejecting this argument, Judge Ellis held that the plaintiff could not show, based on the time entries alone, that the expert reports were false. Similarly, plaintiff could not show the expert reports were part of "a deliberate scheme to directly subvert the judicial process."29 Judge Ellis then rejected plaintiff's argument that the time entries called into question the award of summary judgment in favor of the defendants. The plaintiff argued that because the time entries created "genuine issues of material fact" with respect to the independence and credibility of the expert witnesses, summary judgment should have not been entered.
Judge Ellis disagreed. The court noted that the plaintiff had failed to raise any issues of credibility with respect to the expert reports during the summary judgment briefing. As such, plaintiff was required to do more than "raise a genuine issue of material fact as to the credibility of the witnesses."30 Instead, in order to prevail on a motion to set aside the judgment for fraud, the plaintiff was required to prove a "deliberate scheme to directly subvert the judicial process."31 In Judge Ellis' view, the plaintiff's proffered evidence that an attorney played some role in preparing an expert report fell far short of establishing fraud on the court.
In LHF Productions, Inc. v. John Does 1-10, Judge M. Hannah Lauck granted a motion to sever in a copyright infringement case alleging claims against multiple defendants who used BitTorrent protocol to download and/or share the movie London Has Fallen.32 In granting the motion, the court stated: "LHF has merely alleged that the Defendants used
29 Id. at *3. 30 Id. at *4. 31 Id. 32 No. 3:16-cv-248, 2016 WL 7422657 (E.D. Va. Dec. 22, 2016).
BitTorrent to download and share pieces of the Movie. LHF has not included any facts that suggest the Defendants shared those pieces with each other, thus engaging in the same transaction or occurrence."33 Judge Lauck granted similar motions in several other BitTorrent cases.34
We next turn to several patent litigation decisions from the District in 2016. Similar to last year, we review several invalidity cases, mostly holding the patentat-issue invalid. This year's review also includes recent claim construction opinions once again emphasizing plain and ordinary meaning of patent terms. The District also had an opportunity to consider several inequitable conduct cases. We round out the discussion with a few miscellaneous cases involving procedural and evidentiary issues and a decision affirming an arbitration award.
In 2016, the District continued to invalidate computerrelated patents based on the lack of subject matter eligibility under the Supreme Court's decision in Alice Corp. v. CLS Bank Int'l.35 In each such case over the last year except part of one, the District disposed of the plaintiff's case based on a motion to dismiss and without holding a Markman hearing. Thus, over two consecutive years, the District has plainly demonstrated a clear pattern of taking an early and hard look at the subject matter eligibility of
33 Id. at *3. 34 LHF Productions, Inc. v. John Does 1-18, No. 3:16-cv-274, 2016 WL 7422658 (E.D. Va.
Dec. 22, 2016); LHF Productions, Inc. v. John Does 1-24, No. 3:16-cv-282, 2016 WL 7422659 (E.D. Va. Dec. 22, 2016); LHF Productions, Inc. v. John Does 1-25, No. 3:16cv-283, 2016 WL 7422661 (E.D. Va. Dec. 22, 2016); LHF Productions, Inc. v. John Does 1-20, No. 3:16-cv-284, 2016 WL 7423094 (E.D. Va. Dec. 22, 2016); Cell Film Holdings, LLC v. John Does 1-12, 2016 WL 7494319 (E.D. Va. Dec. 30, 2016). 35 134 S. Ct. 2347 (2014).
6 2016 Eastern District of Virginia IP Year in Review
patent cases that involve any computer functionality, especially if the patents claim protection of "business methods." And plaintiffs beware, because despite the principle that patents are presumed valid and can only be invalidated by "clear and cogent evidence,"36 the District is strongly disposed to dismiss at an early stage of the litigation any computer-related patent case that fails to pass muster under the District's strict application of the Alice formulation of subject matter eligibility.
One of the most exceptional demonstrations of the District's intellectual flexibility to resolve such cases on the basis of a motion to dismiss arose in Orbcomm Inc. v. CalAmp Corp.37 In that case, Judge Henry E. Hudson was confronted with five patents that broadly dealt with computer platforms for tracking and monitoring "widely dispersed" fleets and mobile assets.38 Judge Hudson initially denied the defendant's motion to dismiss based upon ineligible subject matter and failure to state a "plausible" claim of patent infringement.39 Reasoning that the initial record did not require the "level of granular particularity" urged by the defendant, Judge Hudson decided that the complaint passed muster under the patent eligibility standard established in Alice and the pleading requirements set forth in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009).
Upon a motion for reconsideration based on an intervening Federal Circuit decision, Electric Power Group, LLC v. Alstom S.A.,40 Judge Hudson reversed himself and granted the motion to dismiss with respect to one of the patents, but not the other four.41 In the Alstom case, the Federal Circuit invalidated several patents for failure to satisfy both steps of the Alice analysis. First, the patents in Alstom were directed to ineligible subject matter because they failed to claim anything more than the collection, analysis and display of information derived from "real-time performance monitoring of an electric power grid ...."42 Secondly, the patents in Alstom did not limit the claims to "technical means for performing the functions that are arguably an advance over conventional computer and network
technology," thereby failing to satisfy step two of the Alice analysis (i.e., whether the patents contained an "inventive concept" sufficient to remove them from the class of ineligible subject matter).43
Judge Hudson found these holdings dispositive of the validity of the asserted claims of one of the patentsin-suit but not the other four. As to that one patent (US Patent No. 8,855,626), Judge Hudson found that the asserted claims did nothing more than what the Federal Circuit had held to be insufficient in Alston, namely, merely describe a process for the selection of information for analysis and display.44 As to the first Alice step, Judge Hudson found that the claims were directed "to the wholly abstract idea of translation."45 Turning to the second step of Alice, Judge Hudson read the Federal Circuit's decision in Alstom to confirm that simply identifying the "parameters" for monitoring information did not suffice to qualify as an inventive concept. Nor did the "format translation" called for by the claims do anything more than automate the process of manually inputting information into standardized freight messages. "Reformatting information," Judge Hudson concluded, did not provide the inventive concept essential to validity under the second step of the Alice test.46
Another example of the District's willingness to entertain early Alice motions was Judge Robert G. Doumar's decision in Nader Asghari-Kamrani and Kamran Asghari-Kamrani v. United Services Automobile Association.47 The patent claims in that case involved a "system and method provided by a Central-Entity for centralized identification and authentication of users and their transactions to increase security in e-commerce."48 Judge Doumar did not hesitate to grapple with the often-difficult distinction between patents that merely recite well-known business practices in computer terms versus those that are " `necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.' "49 Judge Doumar found the claims of the patent-in-suit to fall within the former category, and he invalidated them on a motion to
36 Microsoft v. i4i Limited Partnership, 564 U.S. 91, 101 (2011). 37 No. 3:16-cv-208, 2016 WL 3965205 (E.D. Va. 2016), reversed on reconsideration, 2016
WL 6126941 (Oct. 19, 2016). 38 Id. at *1. 39 Id.
40 830 F. 3d 1350 (Fed. Cir. 2016). 41 Orbcomm Inc. v. Calamp Corp, 2016 WL 6126941 (E.D. Va. Oct. 19, 2016). 42 Id. at *3, citing Alstom, 830 F. 3d at 1353.
43 Id. at *3, citing Alstom, 830 F. 3d at 1351. 44 Id. at *4. 45 Id. 46 Id. at *5.
47 No. 2:15-cv-478, 2016 WL 3670804 (E.D. Va. July 5, 2016). 48 Id. at *1. 49 Id. at *3, quoting, DDR Holdings, LLC v. Hotels.com. L.P., 773 F. 3d 1245, 1257 (Fed Cir.
7 2016 Eastern District of Virginia IP Year in Review
dismiss. In doing so, Judge Doumar reasoned that the claims did nothing more than recite an abstract idea in computer terms: the use of "a third party [intermediary] and a random, time-sensitive code to confirm the identity of a participant to a transaction."50 This simply did not pass muster under the Alice standard.
Judge Liam O'Grady reached the same conclusion in another patent case involving a computer-based map and navigation system. In Peschke Map Technologies LLC v. Rouse Properties Inc., Judge O'Grady granted the defendant's motion to dismiss under Alice without holding a claim construction hearing.51 He found that the patent-in-suit addressed a problem " `known from the pre-Internet world': navigating through maps and locating information about structures appearing on those maps."52 Thus the court found that the patent claimed nothing more than an "abstract idea."53 Moreover, Judge O'Grady did not find in the patent claims an "inventive concept" that would preserve patentability under the second prong of Alice. The argument presented by the plaintiff was that the "inventive concept" was "the improvement of computerized mapping through the use of layers and linking."54 Judge O'Grady was not persuaded, finding instead that the alleged improvement was nothing more than "the computerization of a well-known practice" -- namely, the use of a map to depict the shapes of stores as viewed from above to provide users with information about the location and spatial relationship of those stores.55
These cases decided over the last year demonstrate the District's continued determination to weed out and invalidate computer-based patents that embody abstract ideas and "pre-Internet" business practices at an early stage of the litigation and without need for a claim construction hearing. Plaintiffs who are considering bringing such cases in the District should expect to face an early invalidity challenge and a rigorous application of the Alice standard by judges in the District.
As in years past, the cases from the District in 2016 reaffirm the strong presumption in favor of construing claims based on ordinary and customary meaning without reading more into a claim than the terms expressly provide.
Claim construction begins with the words of the claims. It is a "bedrock principle" of patent law that the claims of a patent define the invention to which the patentee is granted the right to exclude.56 Claim terms are generally given the ordinary and customary meaning according to a person of ordinary skill in the art at the time of the invention. In some instances, the claim terms are so simple that the ordinary meaning of claim language as understood by a person of skill in the art may be readily apparent even to lay persons, and claim construction in such cases involves little more than the application of the widely accepted meaning of commonly understood words.57
50 Id. at *4.
51 168 F. Supp. 3d 881 (E.D. Va. 2016). 52 Id. at 888-89, quoting, DDR, 773 F. 3d at 1257. 53 Id. at 889. 54 Id. at 890. 55 Id.
56 Aventis Pharmaceuticals Inc. v. Amino Chemicals Ltd., 715 F.3d 1363, 1373 (Fed. Cir.
2013). 57 Id.
8 2016 Eastern District of Virginia IP Year in Review
The claims should not be read alone, however, but rather should be considered within the context of the specification of which they are a part. Moreover, the court must not read in limitations from the specification without a clear intent to do so.58
In Vir2us, Inc. v. Invincea, Inc., Judge Henry C. Morgan, Jr., declined to construe several disputed terms and instead relied upon the plain and ordinary meaning of the terms in question.59 For "microprocessor," even though the patent did not define this term, the court found the meaning to be readily apparent to a person of ordinary skill in the art and found that the term did not need to be construed.60 Similarly, Judge Morgan recognized that a lay person would understand "website address" and thus found that this term needed no further construction.61 For other technical terms relating to computer storage devices, the court refused to limit these terms to a particular environment. The specification explained that the devices "can consist of hardware, and/or software, and/or a combination of both." Based on the specification's permissive language, the court found that it would be improper to limit these terms to only physical devices.62 Judge Morgan, however, did limit the term "virtual browsing environment" to a specific application because the claim language itself unambiguously required "a web browser."63
In Tissue Anchor Innovations LLC v. Astora Women's Health, LLC, Judge Robert G. Doumar declined to construe claim terms that had an ordinary and customary meaning to a person of ordinary skill in
58 Hill-Rom Services, Inc. v. Stryker Corp., 755 F.3d 1367, 1371-1372 (Fed. Cir. 2014). 59 No. 2:15-cv-162, 2016 WL 453486 (E.D. Va. Feb. 4, 2016). 60 Id. at *5. 61 Id. at *7. 62 Id. at *5. 63 Id. at *6.
the art.64 Judge Doumar applied an agreed-upon construction to other terms for which a single ordinary and customary meaning was not ascertainable.65
In addressing the term "tissue anchor," Judge Doumar refused to include the descriptive term "rigid" in the claim construction because that term was itself not defined. The specification used the language "sufficiently" and "fairly" in connection with the rigidity of the tissue anchor, but offered no guidance on how to differentiate between the two. Judge Doumar found that this ambiguity failed to provide any guidance for a person with ordinary skill in the art to determine the appropriate level of rigidity in connection with the claim scope. Moreover, the specification described both a rigid tissue as well as a preferred flexible tissue anchor tip. Thus, Judge Doumar held that "the embodiments and descriptions describing a rigid tissue anchor should not be interpreted as universal limitations on the device, but rather as one or more embodiments of the device."66
In ORBCOMM Inc. v. CalAmp Corp.,67 Judge Hudson denied a motion to dismiss a counterclaim asserting that the patent-in-suit was unenforceable for inequitable conduct. In that case, the operative act was the filing of a certificate of correction with the US Patent and Trademark Office (USPTO) to alter claim language based on a district court's claim construction order, but without disclosing that the order had been vacated. The underlying litigation occurred in the Eastern District of Texas. Early in the litigation, the trial judge entered a claim construction order in which she
64 No. 2:15-cv-473, 2016 WL 3685079 (E.D. Va. July 6, 2016). 65 Id. at *13. 66 Id. at *6. 67 No. 3:16-cv-208, 2016 WL 4726548 (E.D. Va. Sept. 9, 2016).
9 2016 Eastern District of Virginia IP Year in Review
determined "the patent examiner had made an obvious clerical error in the `686 patent that could be corrected by the court." She then construed the term "inputs to be controlled" to mean "inputs to be monitored."68 The case was then consolidated with another case asserting infringement of the same patent, and the court vacated the claim construction order to allow claim construction to start over.69 As the litigation proceeded, ORBCOMM took the position that there was no obvious error, and that the court could not alter the claim terms. ORBCOMM was ultimately successful in this position.70
Subsequently, ORBCOMM became the patent owner via a stipulated motion to dismiss. ORBCOMM's representative (the same attorney that represented ORBCOMM in the litigation) filed a certificate of correction to alter the claim language at issue in the litigation on the basis of an error by the patent examiner.71 This was the opposite position than that ORBCOMM took in the consolidated case. Judge Hudson determined that the intent of ORBCOMM's representative was inferable from the representative's conduct, including expediting the request for the certificate of correction, attaching one claim construction order and not the other, and not including a complete record of the patent litigation.72 Additionally, Judge Hudson determined that materiality was sufficiently alleged because the plaintiff had specifically identified an individual and the allegedly material documents, and "outlined how [the representative] potentially mis[led] the PTO by
68 Id. at *1. 69 Id. at *2. 70 Id. 71 Id. at *2. 72 Id. at *4-5.
providing only the vacated [ ] Claim Construction Order and how that omission was material to the PTO's decision to grant the certificate of correction."73
In Certusview Technologies, LLC v. S&N Locating Services, LLC, Judge Mark S. Davis considered whether an earlier finding of patent ineligibility precluded a determination of inequitable conduct.74 The court held that it did not, citing to Federal Court precedent, and went on to determine whether the defendant had proved its inequitable conduct counterclaim.75 Judge Davis ultimately determined that the patent-at-issue was not unenforceable due to inequitable conduct.76
In Asghari-Kamrani v. United Services Automobile Association, Judge Doumar determined that the defendant had properly raised facts sufficient to survive a motion to dismiss an inequitable conduct affirmative defense.77 The defendant alleged that the patent owner had engaged in inequitable conduct with the USPTO by providing false certifications in the form of nonpublication requests in two patents, and had misrepresented the priority claims of the patents.78 Specifically, the defendant alleged that the patent owner had certified on the nonpublication request that the invention would not be the subject of an overseas application, but a PCT application had in fact been filed covering the same invention.79 Additionally, the defendant alleged that the patent owner had claimed priority to prior applications as "continuations" when the applications should have been identified as
73 Id. at *5. 74 No. 2:13-cv-346, 2016 WL 4134643 (E.D. Va. Aug. 2, 2016). 75 Id. at *2-3. 76 Id. at *26-28, *33-40. 77 No. 2:15-cv-478, 2016 WL 7177617 (E.D. Va. Dec. 9, 2016). 78 Id. at *4. 79 Id. at *8-10.
10 2016 Eastern District of Virginia IP Year in Review
"continuations-in-part."80 Judge Doumar determined that the facts alleged by the defendant were sufficient to meet the standard for surviving a motion to dismiss.81
MISCELLANEOUS PATENT CASES
Motion to amend Final Pretrial Order denied In Samsung Elec. v. NVIDIA Corp., Judge Robert E. Payne addressed a request to amend the final pretrial order entered in the case.82 A key issue in the case was whether the defendant controlled its supplier of the accused products.83 The plaintiff had moved to amend the final pretrial order to include the defendant's response to an interrogatory, which included a document that plaintiff argued showed defendant's control over its supplier.84 This motion was granted and in response, defendant filed a motion to amend the final pretrial order to add its executive vice president of operations as a witness to testify about the statements that were made in defendant's response to this interrogatory.
Judge Payne considered the four factors outlined in Koch v. Koch Indus., Inc., in assessing the defendant's motion: "(1) prejudice or surprise to the party opposing trial of the issue; (2) the ability of that party to cure any prejudice; (3) disruption to the orderly and efficient trial of the case by inclusion of the new issue; and (4) bad faith by the party seeking to modify the order."85
Regarding the first factor, the court found that the record was clear that plaintiff was surprised by the addition of defendant's witness because the witness
80 Id. at *15-16. 81 Id. at *17. 82 No. 3:14-cv-757, 2016 WL 356083 (E.D. Va. Jan. 28, 2016). 83 Id. at *1. 84 Id. 85 Id. (quoting Koch v. Koch Indus., Inc., 203 F.2d 1202, 1222 (10th Cir. 2000)).
had never been disclosed, under Fed. R. Civ. P. 26(a), as a knowledgeable person on any issue.86 Additionally, granting defendant's motion would prejudice plaintiff because it would require plaintiff to take a deposition on the eve of trial.87 The court also found the second factor to weigh against defendant. While the court could allow a deposition of this additional witness, because discovery had closed, plaintiff would not be able to pursue additional paths of discovery that the witness's testimony might reveal.88
Additionally, given that commencement of the trial was only a few days away, allowing testimony of this additional witness would disrupt an orderly and efficient trial by requiring adjustment of the trial preparations. Thus the timing of the defendant's motion weighed in favor of denying it.89 Regarding the fourth factor, the court determined that defendant had not acted in bad faith.90
Based on the Koch factors, the court held that the defendant had not shown that its requested amendment of the final pretrial order was necessary to prevent manifest injustice, and accordingly the defendant's motion to supplement its witness list was denied.91 In reaching this conclusion, Judge Payne noted that defendant itself had acknowledged that there were four previously identified witnesses who could potentially provide testimony about the issue of control over the supplier.92
86 Id. at *2. 87 Id. 88 Id. 89 Id. 90 Id. 91 Id. at *3. 92 Id.
11 2016 Eastern District of Virginia IP Year in Review
Motive for filing suit is irrelevant In Samsung Elec. v. NVIDIA Corp., plaintiff filed a motion to exclude the testimony of its vice president regarding the plaintiff's motive for instituting the action.93 The plaintiff also sought a curative instruction to address a "thinly veiled implication" in defendant's opening statement regarding plaintiff's motive, specifically that plaintiff brought this action as a means of retaliation against defendant.94
Judge Robert E. Payne relied on the general rule that "a plaintiff's motive for bringing suit is irrelevant, except in the face of certain equitable defenses, bad faith, or questions of witness bias," in finding that plaintiff's motive was irrelevant to the underlying questions of infringement and validity.95 The court found that bringing an infringement action does not in itself raise any issue of bad faith that makes motive relevant.96 As such, the court granted plaintiff's motion to exclude the testimony regarding plaintiff's motive for instituting the action, reasoning that the introduction of such testimony would be unfairly prejudicial, which would substantially outweigh any marginal relevance of the motive evidence.97 The court also gave a curative instruction regarding defendant's opening statement implicating the plaintiff's motive for filing suit.98
Mistrial declared as a sanction for failure to disclose information relied upon by expert In Samsung Elec. v. NVIDIA Corp., defendant moved to strike the expert testimony and reports offered by plaintiff after the expert testified at trial that he had
93 No. 3:14-cv-757, 2016 WL 754547 (E.D. Va. Feb. 23, 2016). 94 Id. 95 Id. at *2. 96 See Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 873 (Fed. Cir. 1997). 97 Id. at *4. 98 Id. at *1.
relied on undisclosed images in forming his opinion.99 The plaintiff's reverse engineering expert was asked to "tear down" the allegedly infringing chips and offer an opinion about the design of the accused chips and how defendant's supplier had made them.100 During cross-examination at trial, plaintiff's reverse engineering expert testified that, in forming his opinions, he had relied on images that were not disclosed in discovery or in his expert reports provided to counsel for either side.101
The defendant moved for sanctions pursuant to Fed. R. Civ. P. 37(c)(1).102 The process of deciding whether to impose such sanctions involves three steps: "(1) determining that a violation of a discovery order or one of the Federal Rules of Civil Procedure occurred; (2) determining whether that violation was harmless and substantially justified; and (3) fitting a sanction to the violation, if one is found."103 In this case, the parties had agreed to a stipulated discovery order that provided: "all materials generated by a testifying expert with respect to that person's work are exempt from discovery rules unless relied upon by the expert in forming any opinions in this litigation."104 As such, plaintiff's obligation was to disclose the documents relied upon by the expert, and by failing to disclose all of the materials relied upon by its expert, plaintiff violated the stipulated discovery order.105
Standing alone, nondisclosure does not require or justify corrective action, and a court only takes action if the failure to disclose was not "(1) substantially
99 314 F.R.D. 190 (E.D. Va. 2016). 100 Id. at 194. 101 Id. at 195. 102 Id. 103 Id. at 195-96. 104 Id. at 196 (emphasis in original). 105 Id. at 196-97.
12 2016 Eastern District of Virginia IP Year in Review
justified and (2) harmless."106 In the Fourth Circuit, this standard requires consideration of five factors set forth in Southern States: "(1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the evidence."107 In applying the Southern States factors to this case, the court found that plaintiff's non-disclosure was neither harmless nor substantially justified.108
Specifically, the court found that even though the defendant may have been on notice that not all of the images had been disclosed when the witness testified in deposition, such notice was insufficient to cure a failure to disclose materials that ought to have been included in the expert report because "disclosure in the right form (complete) and at the right time (with the expert report, before the expert's deposition) is critical to an opposing party's ability to engage in meaningful expert discovery (critical analysis of the expert's report and taking of a targeted deposition)."109 The only way to cure the surprise would be to give defendant an opportunity to engage in the full expert discovery to which it was entitled.110
Since the court found that a violation occurred and that the violation was not harmless or substantially justified, it was necessary to determine what sanction to impose. District courts enjoy broad discretion to select an appropriate remedy in light of the totality of
106 Id. at 197 (citing Fed. R. Civ. P. 37(c)(1); Southern States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 595 (4th Cir. 2003)).
107 See Southern States, 318 F.3d at 597. 108 Samsung Elec. Co., 314 F.R.D. at 197. 109 Id. at 198. 110 Id.
the circumstances.111 The Fourth Circuit employs a four-part test to guide the exercise of that discretion, determining: "(1) whether the non-complying party acted in bad faith, (2) the amount of prejudice that noncompliance caused the adversary, (3) the need for deterrence of the particular sort of noncompliance, and (4) whether less drastic sanctions would have been effective."112 In assessing these factors, the court found that limited cost-shifting, in conjunction with a mistrial, best effectuated the need for deterrence of nondisclosure, while not granting defendant a windfall for plaintiff's inaction.113
Shortly after the mistrial was declared, defendant filed a motion renewing its request to supplement its witness list to add its executive vice president of operations as a witness to testify about defendant's control over its supplier. The court again denied this request, citing the cumulative nature of the testimony and that plaintiff could not take the type of discovery necessary to cure the surprise associated with defendant's addition of a new witness.114
Arbitration award affirmed
Bayer CropScience AG v. Dow AgroSciences LLC involved a dispute arising from a patent license agreement between the parties.115 The plaintiff alleged that defendants violated the agreement, causing plaintiffs to terminate the agreement and sue for patent infringement.116 The license agreement contained a mandatory arbitration clause that provided for final binding arbitration in accordance with the Rules of
111 Id. at 200. 112 Id. (citations omitted). 113 Id. at 201. 114 Samsung Elec. Co., Ltd. v. NVIDIA Corp., No. 3:14-cv-757, 2016 WL 1064535 (E.D. Va.
Mar. 14, 2016). 115No. 2:12-cv-47, 2016 WL 205378 (E.D. Va. Jan. 15, 2016) (appeal filed). 116 Id. at *1.
13 2016 Eastern District of Virginia IP Year in Review
the International Chamber of Commerce (ICC).117 The arbitration proceeding was commenced in August 2012, and it concluded with a final award issued in October 2015.118 The plaintiffs filed a motion to confirm the final arbitration award, and defendants subsequently filed a motion to vacate the arbitration award.119
Arbitration agreements are favored in federal courts, as are those awards stemming from such agreements, and there is a presumption that courts should confirm the arbitration award.120 The Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq., applies to patent contracts including settlement and licensing agreements.121 Pursuant to the Federal Arbitration Act, a district court may vacate an arbitration award if the court finds: "(1) fraud in procuring the award; (2) partiality on the part of the arbitrators; (3) gross misconduct by the arbitrators; or (4) failure of the arbitrators to render a mutual, final, and definite decision."122
Judge Raymond A. Jackson found the arbitration award at issue to be final and binding pursuant to the license agreement and that it had already been scrutinized and approved by the ICC.123 The court evaluated the grounds for vacating an arbitration award enumerated by the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, which establish a very heavy burden to vacate an arbitration award.124 The court found that the record in no way supported a finding that
117 Id. at *3. 118 Id. at *2. 119 Id. 120 Id. 121 Id. at *3. 122 Id. (citing Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1370 (Fed. Cir. 2006); 9 U.S.C.
10 (1994)). 123 Id. at *4. 124 Id. at *5.
defendants suffered from incapacity, lack of notice, a partial tribunal, or faced a nonbinding award. The court also rejected the defendant's arguments that the subject matter was not subject to arbitration and that the panel's award fell outside the scope of what was contemplated in the arbitration.125 As such, the primary issue before the court was whether the arbitration award violated public policy.126 In evaluating the public policy concerns raised by defendants, the court found no reason to vacate the award of contract damages that were clearly contemplated when the case was submitted to arbitration. The court also declined to find that the panel disregarded unambiguous contract provisions or that it failed to draw the essence from the applicable agreements.127 As such, the court found that the arbitration was valid, and that the panel's award was final and binding.128
The defendants had alternatively moved for a stay of the proceedings until the USPTO issued final office actions in a pending reexamination proceeding of all the patents-at-issue.129 A district court may exercise its discretion when ruling on a motion to stay proceedings pending reexamination of the patents-in-suit by the USPTO.130 When considering a motion to stay pending USPTO reexamination, a court examines "(1) whether discovery is complete and a trial date is scheduled; (2) whether a stay would simplify the matters at issue; and (3) whether a stay would unduly prejudice or clearly disadvantage the non-moving party."131 In determining
125 Id. 126 Id. 127 Id. at *6. 128 Id. at *7. 129 Id. 130 Id. (citing NTP, Inc. v. Research in Motion, Ltd., 397 F. Supp. 2d 785, 787 (E.D. Va.
2005). 131 Id. (quoting ePlus, Inc. v. Lawson Software, 2012 WL 1279092, at *2 (E.D. Va. Mar. 31,
14 2016 Eastern District of Virginia IP Year in Review
that a stay was not warranted, the court reasoned that plaintiffs would suffer serious potential harm because prolonging the litigation may make satisfying the judgment more difficult.132 Furthermore, defendants had ample time to raise this issue well before the very end of the three-year binding arbitration process.133
CASES ORIGINATING IN THE USPTO
The District considered several cases originating in the USPTO. In these cases, the court considered such topics as the reviewability of Patent Trial and Appeal Board (PTAB or Board) institution decisions in postgrant proceedings, patent term adjustment, patent term extension, collateral estoppel, standing and the USPTO's recovery of attorneys' fees in 145 actions.
No jurisdiction to review termination of IPR proceeding
In Medtronic, Inc. v. Lee, Judge Gerald Bruce Lee held that the court lacked jurisdiction to review the decision of the PTAB terminating an inter partes review (IPR).134 Cardiocom, LLC (Cardiocom) had filed a petition requesting that the Board institute an IPR prior to Cardiocom's being acquired by Medtronic, Inc. (Medtronic). Cardiocom attempted to add Medtronic as a "Real Party in Interest" to the IPR, but shortly thereafter, the Board decided against instituting the IPR.135 Subsequently, Medtronic filed new petitions requesting IPRs against the same patents, but did not name Cardiocom, Medtronic's wholly owned subsidiary, as a Real Party in Interest to the IPRs.136 The Board instituted the petitions filed by Medtronic.137
132 Id. at *8. 133 Id. 134 151 F.Supp.3d 665 (E.D. Va. Jan. 21, 2016). 135 Id. at 669. 136 Id. 137 Id.
The patent owner opposed the requests based on the failure to name Cardiocom as a Real Party in Interest, and requested that the Board terminate the proceedings based on this failure.138 After briefing and additional discovery, the Board determined that, because Cardiocom "labeled itself" as the Real Party in Interest in the prior petitions, as well as other considerations, Cardiocom was a Real Party in Interest.139 The Board terminated the proceedings.
Medtronic appealed the termination of the proceedings to the district court for review.140 Under 314(d) of the America Invents Act (AIA), the "determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable."141 Medtronic argued that the Administrative Procedures Act (APA) gives plaintiffs "who have no other remedy an action to challenge an agency's final action."142 However, Judge Lee held that the APA does not provide review in this situation, as 314(d) of AIA explicitly precludes review of the institution decision. It is "undoubtedly clear that Congress intended to rebut the presumption of judicial reviewability the APA assigns and through the AIA, preclude district courts from exercising jurisdiction over APA challenges on the PTAB's determination of whether to institute inter partes review."143
Patent term adjustment was a popular topic in the E.D. Va. in 2016
In Singhal v. Lee, the patent owner challenged the length of patent term adjustment awarded to
138 Id. 139 Id. at 670. 140 Id. 141 Id. at 674 (citing 35 U.S.C. 314(d) (2011)). 142 Id. at 673. 143 Id. at 674.
15 2016 Eastern District of Virginia IP Year in Review
two patents.144 The patent owner argued that 35 U.S.C. 154(b)(2)(B) is "impermissibly vague as a constitutional matter because it does not define the term `request for continued examination.' "145 Judge Claude M. Hilton rejected this argument, determining that the "void for vagueness" doctrine only applies to statutes that prohibit conduct, which 154 does not.146 Additionally, the statute is not vague because the use of the phrase "request for continued examination" is clear, and it contains a cross-reference to the statute creating the request for continued examination procedure.147
Maass v. Lee also involved constitutional challenges related to patent term adjustment.148 In that case, the patent owner also challenged the amount of patent term adjustment awarded to one patent, arguing that the statute is "impermissibly vague," "overbroad" and an "impermissible restriction taking private property for public use with just compensation."149 In keeping with the decision in Singhal, Judge T.S. Ellis, III, determined that the statute is not impermissibly vague or overbroad.150 Additionally, Judge Ellis determined that the choice not to award "B-delay" under 35 U.S.C. 154(b)(1)(B) is "not a taking of property, but rather a decision not to award additional property rights."151
Actelion Pharmaceuticals Ltd. v. Lee also presented an issue involving the calculation of a patent term adjustment.152 Judge Liam O'Grady stayed the proceeding at the request of the USPTO in order to await a decision from the Federal Circuit in Pfizer v. Lee.153 The court noted that "[b]oth cases present the
question of whether a defective restriction requirement stops the A-Delay clock."154 Judge O'Grady considered judicial economy and the impact on the parties of the requested stay, and determined that a stay was proper given the similarity of the legal issues involved.155
USPTO's error in denying patent term extension on erroneous interpretation of law is harmless In Angiotech Pharmaceuticals Inc. v. Lee, Judge Ellis held that the USPTO's error in relying on the wrong definition of "medical device" in denying the request for patent term extension was harmless.156 The USPTO relied upon the Federal Food, Drug, and Cosmetic Act's definition of "medical device" to deny the patent term extension request of the patent owner.157 However, Judge Ellis determined that, while the USPTO should have relied upon the ordinary meaning of the phrase,158 the error was harmless because the claims at issue would not qualify as a medical device under the properly construed term.159
Prior patent proceeding did not collaterally estop USPTO from challenging plaintiff's standing In Realvirt, LLC v. Lee, the plaintiff sought summary judgment dismissing the USPTO's defense that the plaintiff lacked standing to pursue a 145 action.160 The plaintiff argued that the USPTO was collaterally estopped from raising this issue because the administrative proceeding in which the USPTO rejected the plaintiff's patent application already established plaintiff's ownership interest in the patent.161 Judge Ellis denied plaintiff's motion, and held
144No. 1:12-cv-708, 2016 WL 1305294 (E.D. Va. March 28, 2016). 145 Id. at *1. 146 Id. at *1-2. 147 Id. at *1-2.
148No. 1:16-cv-66, 2016 WL 2899262 (E.D. Va. May 17, 2016). 149 Id. at *2. 150 Id. at *3. 151 Id. at *4.
152No. 1:15-cv-1266, 2016 WL 205377 (E.D. Va. Jan. 13, 2016). 153 Pfizer v. Lee, 811 F.3d 466 (Fed. Cir. 2016).
154 Actelion, 2016 WL 205377 at *4. 155 Id. at *5.
156No. 1:15-cv-1673, 2016 WL 3248352 (E.D. Va. June 8, 2016). 157 Id. at *3. 158 Id. at *11. 159 Id. at *15.
160 No. 1:15-cv-963, 2016 WL 1532236 (E.D. Va. Apr. 14, 2016). 161 Id. at *2.
16 2016 Eastern District of Virginia IP Year in Review
that "where, as here, the underlying administrative proceedings were non-adversarial and wholly ex parte it is clear that the doctrine of collateral estoppel does not apply."162 The court further held that the issues in the administrative proceeding were not identical to those presented in the court and were not fully resolved in the prior proceeding. Moreover, the USPTO did not have a full and fair opportunity to litigate the standing issue, and any determination that the plaintiff had standing in the administrative proceeding was a preliminary finding and not a final determination on the merits.163
Plaintiff had no standing to pursue claim of patent ownership
Subsequently, in Realvirt, LLC v. Lee, Judge Ellis had an opportunity to consider the merits of the USPTO's standing defense.164 The plaintiff claimed ownership through an assignment from two of the inventors. The issue in the case turned on whether the inventors had an ownership interest in the patent at the time they allegedly assigned it to the plaintiff.165 The court noted that the inventors had previously assigned their rights to an entity known as Clearpoint Research Corporation (Clearpoint). The plaintiff argued that Clearpoint had assigned the patent back to the inventors, but the evidence was insufficient to prove that had occurred. The court observed that state law generally governs contract issues in a patent case, but that certain federal law preempts state law.166 Under federal law, an assignment of rights in a patent must be in writing, and an agreement to assign patent rights in the future is not a sufficient assignment.167 The plaintiff was unable to present written evidence to support an assignment that satisfied federal law, and thus, the plaintiff lacked standing to bring a suit under 145.168
Recovery by USPTO of attorney's fees
In the next installment in the Realvirt case, the USPTO filed a motion to recover its expenses, including attorney's fees.169 The motion arose after the plaintiff filed an appeal of the court's resolution of the standing issue. In light of the appeal, plaintiff moved to stay any decision on the USPTO's motion. Judge Ellis denied
162 Id. at *3. 163 Id. at *4. 164No. 1:15-cv-963, 2016 WL 3912855 (E.D. Va. July 19, 2016) (appeal filed). 165 Id. at *8. 166 Id. 167 Id. at *9. 168 Id. 169No. 1:15-cv-963, 2016 WL 6471033 (E.D. Va. Oct. 27, 2016) (appeal filed).
the motion to stay because, under the statute, plaintiff was required to pay the expenses regardless of the substantive outcome of the case.170 Judge Ellis then considered the merits of the USPTO's motion. He determined that the requirement that the plaintiff pay "all expenses" included the USPTO's attorney's fees. The court granted the motion, and awarded $48,455 in attorney and paralegal fees as well as expert witness fees.171 The plaintiff then appealed this decision to the Federal Circuit, and argued that the statute did not permit the USPTO to recover attorney's fees. The plaintiff moved to stay the payment obligation in light of this appeal. Judge Ellis granted the motion to stay with respect to the attorney's fees portion of the award during the pendency of the appeal.172
In Nankwest, Inc. v. Lee, the court reached the opposite result concerning the USPTO's request for fees.173 Judge Lee determined that 145 did not include the recovery of attorney's fees because, while the statute uses the phrase "expenses," the "American Rule" that each party is responsible for their own attorneys' fees will only be deviated from if the statute is "specific and explicit."174 Judge Lee concluded that 145 is not specific or explicit about the recovery of attorneys' fees, and, thus, it does not displace the "American Rule." This decision was also appealed to the Federal Circuit.175
INFRINGEMENT AND FALSE ADVERTISING
The District considered several trademark infringement and false advertising cases in 2016. The plaintiffs met with varying degrees of success. Some cases were dismissed, but at least one resulted in a bench trial with judgment in favor of the plaintiff, and another granted the plaintiff injunctive relief.
Injunction issued in false advertising case In Handsome Brook Farm, LLC v. Humane Farm Animal Care, Inc., Judge James C. Cacheris granted prohibitory and mandatory preliminary injunctions in a false advertising case.176
170 Id. at *4. 171 Id. at *5. 172 Realvirt, LLC v. Lee, No. 1:15-cv-963, 2016 WL 7325704 (E.D. Va. Nov. 22, 2016). 173162 F.Supp.3d 540 (E.D. Va. Feb. 5, 2016) (appeal filed). 174 Id. at 542. 175No. 16-1794 (Fed. Cir. Apr. 5, 2016). 176No. 1:16-cv-592, 2016 WL 3348431 (E.D. Va. June 15, 2016) (appeal filed).
17 2016 Eastern District of Virginia IP Year in Review
Handsome Brook Farm (Handsome Brook), an egg producer, sued Humane Farm Animal Care (HFAC) for false advertising under Section 43(a) of the Lanham Act. Handsome Brook Farm produces eggs that it labels as "Certified Organic" (under a US Department of Agriculture program) and as "American Humane Certified" and "Pasture Raised" (under American Humane Association programs). HFAC, a nonprofit organization that promotes the humane treatment of animals, maintains a separate "Certified Humane" standard, which egg producers can use if they meet HFAC standards and also pay application fees, inspection fees and licensing fees to HFAC. Handsome Brook's eggs are not sold with the HFAC certification.177
This dispute arose when HFAC received a complaint and then a separate audit report suggesting that Handsome Brook was mislabeling its eggs at a certain egg packaging plant. Believing the audit report to be accurate and taking no independent steps to verify it, HFAC's executive director responded by writing an email about Handsome Brook's eggs entitled "Unverified Pasture Raised Label Claims."178 In the email, HFAC stated: (1) that it had inspected an egg packaging plant in response to a whistleblower complaint about Handsome Brook eggs; (2) that the Pasture Raised certifications on Handsome Brook's eggs could not be verified and at least some of Handsome Brook's eggs were not pasture raised; (3) that, although the Handsome Brook eggs displayed the Certified Organic label, this certification was not current; and (4) that the veracity of Handsome Brook's American Humane Certified labeling could not be substantiated. The email asked recipients to consider changing suppliers and touted the benefits of eggs
177 Id. at *1. 178 Id. at *3.
having HFAC's Certified Humane certification. HFAC sent the email to 69 individuals at 39 companies, including the top 10 conventional grocery chains in the United States.179
Handsome Brook sued HFAC for false advertising under Section 43(a), asserting that HFAC's email had caused Handsome Brook to lose customers, revenue and goodwill. After obtaining a TRO, Handsome Brook sought a preliminary injunction against HFAC, which the court granted in part.180
First, the court found that Handsome Brook was likely to succeed on the merits of its false advertising claim against HFAC. As a threshold matter, the court noted that, to be actionable under Section 43(a), HFAC's email had to be "commercial advertising or promotion."181 And, applying the four-part test set forth in Gordon & Breach Science Publishers v. American Institute of Physics, 859 F. Supp. 1521 (S.D.N.Y. 1994), the court held that the email was commercial advertising.182 First, the email was commercial speech. Although HFAC asserted that it is a nonprofit organization promoting the humane treatment of animals, the court noted that HFAC pursues that objective through distinctly commercial means. Farmers seek HFAC's Certified Humane certification for commercial reasons, and they pay HFAC inspection fees, application fees and licensing fees for that certification. Against this backdrop, the primary purpose of HFAC's email was commercial: to induce retailers to purchase HFAC-certified eggs rather than Handsome Brook's eggs. Second, there was a competitive relationship between HFAC and Handsome Brook. Although HFAC and Handsome
179 Id. 180 Id. at *4. 181 Id. at *5. 182 Id. at *5-9.
18 2016 Eastern District of Virginia IP Year in Review
Brook were not direct competitors, an indirect competitor has standing to pursue a Lanham Act false advertising claim, and competition at the same level of a distribution chain is not required. Third, the email was sent for a promotional purpose. HFAC asserted that the email was akin to a fundraising letter promoting a public purpose: the humane treatment of animals. But the court found that the true purpose of the letter was to communicate the value of HFAC's Certified Humane certification and to induce retailers to purchase Certified Humane eggs rather than Handsome Brook's eggs. Fourth, the email was disseminated sufficiently to constitute advertising. The court noted that whether a particular communication qualifies as advertising depends on the number of contacts made with the communication in relation to the total market at issue. Here, the email went to 36 companies, including national and regional grocers, including the top 10 conventional grocery chains in the country, and accounting for more than 16,000 grocery stores nationwide.183
Next, the court found that HFAC's email contained at least two literally false statements as well as one statement that was false by necessary implication. First, the email stated that HFAC's audit showed that eggs being packed into Handsome Brook cartons were not pasture raised, but Handsome Brook produced unrefuted documents showing that statement to be false. Second, the email stated that HFAC had obtained the audit of the egg packaging facility in response to a whistleblower complaint about Handsome Brook, when, in fact, the audit was conducted in response to the facility's request for an update of its HFAC certification, not in response to any complaint about Handsome Brook. Third, the email created the impression that Handsome Brook
mislabeled at least some of its eggs as Certified Organic, when in fact those eggs were properly labeled Certified Organic.184
Completing its analysis of Handsome Brook's likelihood of success on the merits, the court found no real dispute that the false and misleading statements in HFAC's emails: were material, in that they were likely to influence consumers' purchasing decisions; actually deceived consumers, since they were literally false and also caused some retailers to suspend sales of, or delay introduction of, Handsome Brook's eggs; and, for the same reason, injured Handsome Brook. Finally, the court found that HFAC's false statements were placed in interstate commerce because they were emailed to retailers throughout the country.185
As for the remaining preliminary injunction factors, the court found that Handsome Brook made a clear showing that it would be irreparably harmed absent a preliminary injunction against HFAC. HFAC's email had caused Handsome Brook to lose customers and goodwill, and it could cause a permanent loss of customers and goodwill unless enjoined. Moreover, because HFAC's email had "seeped even beyond the initial recipients" and created rumors at an industry trade show, the court found that mandatory preliminary injunctive relief, in the form of a corrective email from HFAC, was also required.186
The court also found that the balance of the equities favored both the prohibitory and mandatory preliminary injunctions. Any infringement on HFAC's right to express itself was trumped by the false and misleading nature of the email it had sent. And HFAC had brought the risk upon itself by disseminating
184 Id. at *9-10. 185 Id. at *11. 186 Id. at *11-12.
19 2016 Eastern District of Virginia IP Year in Review
an email that contained damaging statements after performing only a cursory investigation of the veracity of those statements.187
Finally, the court found that the public interest in fair competition and in avoiding consumer confusion and deception supported both the prohibitory and mandatory preliminary injunctions.188
Bench trial finds in favor of plaintiff in trademark infringement suit In Select Auto Imports Inc. v. Yates Select Auto Sales, LLC, the court conducted a bench trial and found in favor of the plaintiff on a trademark infringement claim and granted injunctive relief.189
This case involved two used car dealerships located less than four miles away from each other in Alexandria, Virginia. Plaintiff Select Auto Imports (Select Auto), the owner of the federally registered SELECT AUTO IMPORTS mark, sued defendant Yates Select Auto Sales (Yates) for federal trademark infringement and unfair competition (and for related Virginia state law claims) based on Yates' adoption and use of the mark YATES SELECT AUTO SALES.190
After a two-day bench trial, Judge Gerald Bruce Lee applied the nine Fourth Circuit likelihood of confusion factors to the evidence, found that each factor weighed in favor of confusion or was neutral, and thus found that the YATES SELECT AUTO SALES mark was confusingly similar to the SELECT AUTO IMPORTS mark.191
187 Id. at *12. 188 Id. at *13. 189No. 1:15-cv-679, 2016 WL 3742312 (E.D. Va. July 7, 2016). 190 Id. at *2-3. 191 Id. at *1.
Strength of the Plaintiff's Mark. The court found that Select Auto's SELECT AUTO IMPORTS mark was both conceptually and commercially strong. Although the USPTO required Select Auto to disclaim the terms "AUTO IMPORTS," the fact that the USPTO registered the SELECT AUTO IMPORTS mark without a showing of secondary meaning was "powerful evidence" that the mark was suggestive and thus inherently distinctive. The SELECT AUTO IMPORTS mark had also acquired secondary meaning, and was commercially strong, because Select Auto had been the exclusive user of the mark in the Washington, DC metropolitan area for nearly three decades, had spent millions in advertising, and had enjoyed commercial success under the mark. Although there was evidence of other businesses using SELECT marks, including some in the automotive business in other areas in Virginia and Maryland, Select Auto's market was the Washington, DC metro area, and there was no evidence of any third party SELECT marks being used there.192
Similarity of the Marks. The court found that the SELECT AUTO IMPORTS and YATES SELECT AUTO SALES marks were similar in sight and sound, because they contained the identical terms SELECT and AUTO, and were similar in meaning because the terms SELECT and AUTO had the same connotation in both marks. In addition, the dominant portions of the two marks were SELECT and YATES SELECT, and the addition of a house mark (i.e., YATES) to two otherwise identical marks often will not avoid a likelihood of confusion and can even aggravate rather
192 Id. at *9-11.
20 2016 Eastern District of Virginia IP Year in Review
than mitigate confusion. The court also noted that the logos used with the two marks were "essentially mirror images of each other."193
Similarity of the Goods and Services. The court found significant overlap in the goods and services that Select Auto and Yates offered. Both parties sold only used cars, and most of the cars that both sold were luxury imports. The court also found that the geographic proximity between two businesses can play a significant role in the likelihood of confusion analysis, and that the close proximity between Select Auto and Yates made the similarity of their goods and services "even more prominent."194
Similarity of the Facilities. The court easily dispensed with this factor, noting that both plaintiff and defendant "sell used cars to the general public, have parking lots where the used cars are displayed for sale, and have offices where sale transactions are conducted."195
Similarity of Advertising. The court found that Yates' advertising channels were entirely or almost entirely subsumed within Select Auto's advertising channels. Each party employed its own website, Google+, Twitter, Facebook, a blog, store signage and merchandise, such as polo shirts and hats. And, again, the proximity of the two businesses increased the similarity of their advertising because that advertising targeted consumers in the same geographic area.196
Defendant's Intent. In finding bad faith intent on the part of Yates, the court noted that courts have often inferred bad faith where the defendant had
193 Id. at *11-12 194 Id. at *12-13. 195 Id. at *13. 196 Id. at *13-14.
prior knowledge of the plaintiff's mark and there was other circumstantial evidence of intent as well. Yates admittedly had knowledge of Select Auto's mark (Mr. Yates had bought a car from Select Auto), and the proximity between the two dealerships, the success and reputation of Select Auto, the similarity between the two marks, and the use of the marks on similar goods and services all pointed toward a finding of bad faith intent. In addition, the court found Mr. Yates's explanation as to why he chose the term SELECT -- because he remembered the term being used in connection with "Safeway Select meats" -- to be unpersuasive.197
Actual Confusion. The court noted that evidence of actual confusion is not required to find a likelihood of confusion, given the difficulty of obtaining such evidence, and that actual confusion "is such persuasive evidence of the likelihood of confusion that even a minimal demonstration of actual confusion may be significant." In this case, there was evidence of at least three instances of actual confusion between Select Auto and Yates. These three actual confusion incidents weighed in favor of a likelihood of confusion, particularly given the fact that Yates had been using its YATES SELECT AUTO SALES mark for only a year, Select Auto sold about 50 cars per month, and Yates sold only about 9 cars per month.198
Sophistication of Consumers. The court found this factor to be neutral because the relevant consumer population for the parties' used cars was the public at large, and the sophistication of consumers would vary and would include unsophisticated individuals.199
197 Id. at *14. 198 Id. at *14-15. 199 Id.
21 2016 Eastern District of Virginia IP Year in Review
Having found a likelihood of confusion, the court entered a permanent injunction requiring Yates, among other things, to cease and desist from using the YATES SELECT AUTO SALES mark or any other mark confusingly similar to the SELECT AUTO IMPORTS mark.200
Trademark-related counterclaims dismissed In Evans v. Plusone Sports, LLC, Judge Claude M. Hilton dismissed two trademark-related counterclaims.201
The parties in Evans both make and sell equipment for the game known as FlingGolf (or ThrowGolf). FlingGolf is played on standard golf courses with standard golf balls, and many of the usual rules of golf apply. Rather than using a traditional set of golf clubs, however, players use a "stick" to throw and putt the ball.202
When defendants learned that plaintiffs had filed a patent application for a FlingStick throwing apparatus used in FlingGolf, defendants reached out to plaintiffs to discuss a potential license agreement. The parties signed a term sheet, but they never entered into a final license agreement. The plaintiffs sued defendants for breach of contract in connection with the term sheet. The court granted summary judgment to defendants on the breach of contract claims, finding that the term sheet was an "agreement to agree" and not a binding contract.203
The defendants also asserted several counterclaims against plaintiffs, including a few unusual trademarkrelated counterclaims. First, defendants asserted a Virginia slander of title counterclaim against plaintiffs
in connection with intent-to-use (ITU) applications that plaintiffs had filed with the USPTO to register FLING trademarks.204 Specifically, defendants asserted that plaintiffs, in their ITU applications, had misled the USPTO when they declared that they had a bona fide intent to use the FLING marks and that no other person had the right to use the FLING marks in commerce.205 The court recited the elements of a Virginia slander of title claim: (1) a false statement; (2) published by the defendant (or, in this case, by plaintiffs); (3) without justification or privilege; (4) made with malice; and (5) causing special damages to the plaintiff (or, in this case, to defendants).206 The court granted summary judgment against defendants on the slander of title counterclaim, focusing on the first, fourth and fifth elements of the tort. There was no evidence of a false statement because the record showed that plaintiffs did have an intent to use the FLING marks in commerce when they filed the ITU applications with the USPTO. There was no evidence of malice or special damages, either. In finding no malice, the court found it important that plaintiffs had engaged two attorneys before filing their FLING trademark applications and that neither attorney advised against filing the applications.207
In another counterclaim, defendants sought a declaratory judgment that they did not intentionally abandon ITU applications that they had filed for certain FLING trademarks.208 The court granted summary judgment to plaintiffs on this counterclaim because defendants' subjective intent in abandoning their ITU applications was not relevant. Under the Lanham Act and the USPTO rules for ITU applications, the court reasoned, failure to timely show use of the applied-for
201No. 1:15-cv-683, 2016 WL 2901553 (E.D. Va. May 16, 2016) (appeal filed). 202 Id. at *1. 203 Id. at *1-2.
204 Id. at *3. 205 Id. 206 Id. 207 Id. 208 Id.
22 2016 Eastern District of Virginia IP Year in Review
marks or to request extensions of time to show use results in abandonment of the applications, regardless of the applicant's intent.209
Motion to dismiss trademark infringement and false advertising claims denied In Software Consultants, Inc. v. Rachakonda, Judge O'Grady denied a motion to dismiss trademark infringement and false advertising claims arising from the split of a technology consulting business.210
This case arose from the demise of a business relationship between two sets of individuals -- Naveen Hota and the Rachakondas (Shankar and Rama) -- who owned Software Consultants, Inc. (SCI), a IT consulting company based in Vienna, Virginia. The Rachakondas also owned two other companies, Radiant Creative Group (Radiant) and SCI IT Solutions (SCI IT). SCI IT was formed to hire individual consultants with L-1 visas and to make them available to SCI for use on SCI projects.211
When the relationship between Hota and the Rachakondas deteriorated and they began to explore options for dividing the SCI business, one of the Rachakondas unilaterally began to divide SCI's assets by assigning certain SCI contracts to the SCI IT and Radiant companies and by transferring several SCI employees and subcontractors to SC IT and Radiant. The Rachakondas also caused SCI IT and Radiant to begin competing against SCI.212
When the relationship deteriorated further, SCI IT copied the SCI logo and content from the SCI website and replicated it on a new SCI IT website. According
to the amended complaint that SCI filed against the Rachakondas, Radiant and SCI IT, the new SCI IT website had a "strikingly similar look and feel" to the SCI website, and the SCI IT logo was "nearly identical" to the SCI logo. The amended complaint also alleged that SCI IT's website contained false and misleading representations: touting supposed SCI IT experience and accomplishments that were actually the experience and accomplishments of SCI (not SCI IT), stating that SCI IT worked closely with SCI and featuring the SCI logo (despite the fact that the affiliation between the two entities had ended).213
SCI sued defendants the Rachakondas, Radiant and SCI IT under the Lanham Act and state law. Assuming that SCI's Lanham Act claim was based solely on the alleged infringement of the SCI trademark, the defendants moved to dismiss that claim on two grounds: (1) that SCI IT was a joint owner of the allegedly infringed SCI trademark and that a joint owner's use of a jointly owned trademark could not give rise to liability under the Lanham Act; and (2) that the Lanham Act claim was time-barred because SCI IT had been using the SCI mark for more than two years.214
The court denied the defendants' motion to dismiss. The court acknowledged that one joint owner of a trademark cannot sue another joint owner for infringement of that trademark. But the court found no basis in SCI's amended complaint for finding that SCI IT was a joint owner of the SCI mark. Instead, the allegations of the amended complaint gave rise to a plausible claim that SCI was the senior user of the SCI mark, that SCI IT used the SCI mark with the
210No. 1:15-cv-1145, 2016 WL 234845 (E.D. Va. Jan. 19, 2016). 211 Id. at *1. 212 Id.
213 Id. at *2. 214 Id.
23 2016 Eastern District of Virginia IP Year in Review
permission of SCI and under an implied license from SCI, and that when the affiliation between SCI and SCI IT terminated, SCI IT's continued use of the SCI mark could constitute infringement of that mark.215
As for the statute of limitations defense, the court found that Virginia's analogous two-year statute of limitations applied to SCI's Lanham Act claim. But the court held that a ruling on this defense would be premature at the 12(b)(6) stage.216
The court also found that dismissal of SCI's Lanham Act claim was inappropriate given that SCI's amended complaint stated a claim for false advertising. The amended complaint alleged at least three misrepresentations by the defendants: claiming "SCI IT" experience and accomplishments that were actually SCI's; claiming that SCI IT worked closely with SCI when the affiliation had ended; and featuring the SCI logo when the affiliation with SCI was over.217
Summary judgment in favor of defendant In Wagner v. lindawagner.com, Judge Leonie M. Brinkema granted summary judgment in favor of the defendant in an anti-cybersquatting claim filed by a pro se plaintiff.218
This Anticybersquatting Consumer Protection Act (ACPA) case involved Linda Wagner, a Tennessee real estate agent, and eWeb, a Canadian company that registers domain names containing generic terms and offers to sell the domain names to customers and develop websites for customers using the domain names.219
215 Id. at *3-4. 216 Id. at *4. 217Id. at *4-5. 218No. 1:16-cv-53, 2016 WL 4385844 (E.D. Va. Aug. 15, 2016) (appeal filed). 219 Id. at *1.
Wagner used her name -- Linda Wagner -- in her real estate business and registered the domain name in 2003, but she allowed the domain name registration to lapse on November 2, 2010. eWeb purchased the domain name seven days later, on November 9, 2010. Wagner contacted eWeb and tried to buy the domain name, but the parties could not agree on a purchase price. Later, Wagner demanded that eWeb transfer the domain name to her, threatened to file suit and eventually filed this pro se ACPA lawsuit against the domain name.220
On cross-motions for summary judgment, the court ruled for eWeb, holding that Wagner did not have a protectable trademark interest in the name Linda Wagner and that eWeb did not have a bad faith intent to profit from the use of Wagner's name.
No Protectable Mark. In finding that Wagner had no protectable trademark rights in her Linda Wagner name, the court reasoned that "personal names are not per se protected as trademarks as a matter of course," that Wagner had no registration of her alleged mark, and that Wagner had no proof of secondary meaning in that alleged mark. Reciting the secondary meaning factors set forth in Perini Corp. v. Perini Const., Inc., 915 F.2d 121 (4th Cir. 1990) -- "(1) advertising expenditures; (2) consumer studies linking the mark to a source; (3) sales success; (4) unsolicited media coverage of the product; (5) attempts to plagiarize the mark; and (6) the length and exclusivity of the mark's use" -- the court found that Wagner had presented no evidence on any of these factors. The court also found that Wagner had never conducted a real estate transaction outside of Tennessee, that she had referred
220 Id. at *2.
24 2016 Eastern District of Virginia IP Year in Review
to herself as a "small time realtor" when negotiating with eWeb, that she had allowed her domain name registration to lapse, that she had not used the domain name for nearly six years, that she had not made consistent efforts to get the domain name back and that no one else had attempted to buy the domain name from eWeb in the nearly six years that eWeb had owned it.221
No Bad Faith Intent. Applying the nine bad faith factors set forth in the ACPA, the court also found that eWeb lacked the bad faith intent necessary for Wagner to succeed on her ACPA claim. While acknowledging that some of the ACPA factors weighed in favor of bad faith and that others were inapplicable, the court found that several of the factors weighed heavily against a finding of bad faith: (1) There was no evidence that eWeb acquired the domain name with the intent of diverting any consumers from a website or harming any goodwill associated with a Linda Wagner mark or domain name. In fact, eWeb had no specific knowledge of Wagner, her prior use of the domain name or her real estate business in Tennessee. (2) eWeb never approached Wagner to sell her the domain name. Instead, Wagner approached eWeb with offers to purchase the domain name. And eWeb did not put a time limit on Wagner's purchasing the domain name or threaten to auction the domain name off if Wagner did not purchase it. Instead, when Wagner and eWeb could not agree on a price for the domain name, eWeb simply walked away from the negotiations. (3) There was no suggestion that eWeb provided false or misleading contact information when applying for
221 Id. at *4-5.
registration of the domain name or any other domain names. (4) Although eWeb had registered multiple domain names, there was no evidence it knew that any of those domain names were "identical or confusingly similar" to any others' trademarks. (5) There was no evidence that Wagner's purported mark was distinctive or "famous."222
No standing to pursue claim against Better Business Bureau In Wall & Associates, Inc. v. Better Business Bureau of Central Virginia, Inc., Judge O'Grady held that the plaintiff lacked standing to pursue a false advertising claim against better business bureaus.223
Wall & Associates (Wall), a tax settlement business, brought a Lanham Act false advertising claim against the Council of Better Business Bureaus (CBBB), the Better Business Bureau Serving Central Virginia (Virginia BBB) and the Better Business Bureau of Metropolitan Washington (Washington BBB).224
The CBBB, a nonprofit organization that purports to provide consumers with objective, unbiased assessments of local businesses, licenses its BETTER BUSINESS BUREAU mark and model to a network of not-for-profit regional BBBs, including the Virginia BBB and the Washington BBB. Each regional BBB provides a free database of reviews of local businesses, which contain background information on a business, an indication of whether the business is BBB accredited, and a grade for the business from A+ to F generated by the application of 13 different elements.225
222 Id. at *5-9. 223No. 1:16-cv-119, 2016 WL 3087055 (E.D. Va. May 31, 2016). 224 Id. at *1. 225 Id.
25 2016 Eastern District of Virginia IP Year in Review
When the Wall business was located in Washington, the Washington BBB assigned it a C- grade, and later lowered its grade to an F. When Wall later moved to Virginia, the Virginia BBB graded it a C- and later a D-, and also warned consumers of a "pattern of complaints" against Wall.226
Wall filed this federal false advertising action against the CBBB, the Virginia BBB and the Washington BBB, asserting that the websites contained misrepresentations that had injured it by causing customers and potential customers to stop doing business with it or to avoid doing business with it. The BBBs moved to dismiss, asserting that Wall lacked standing under the Lanham Act because its claimed injury was too attenuated from the BBBs' alleged misrepresentations.227
The court granted the BBBs' motion to dismiss. Quoting Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), the court noted that "[t]o invoke the Lanham Act's cause of action for false advertising, a plaintiff must plead (and ultimately prove)  an injury to a commercial interest in sales or business reputation  proximately caused by the defendant's misrepresentations."228 If Wall had suffered any direct injury, the court reasoned, it was from the low grades and the consumer warning on the Virginia BBB and Washington BBB websites. But Wall did not rely on those statements for his false advertising claim "because they are almost certainly non-actionable statements of opinion."229
Instead, Wall alleged that the BBBs falsely advertised their business rating system as a national, uniform and unbiased standard when, in reality, it was implemented by independent regional BBBs applying their own "subjective, biased, and personal criteria." And Wall alleged that it had been injured by this false advertising because consumers believed that Wall had been subjected to national, uniform and unbiased reviews when, in reality, Wall's ratings were the product of subjective, biased and arbitrary decisions made by the Virginia BBB and the Washington BBB. The court found this alleged injury too attenuated, noting that while the plaintiff and defendant need not be in direct
competition with each other to support a Lanham Act false advertising claim, it may be more difficult for a plaintiff (like Wall) to establish proximate causation where it does not compete with the defendants (like the BBBs). The court therefore dismissed Wall's Section 43(a) claim for lack of standing.230
No personal jurisdiction in trademark infringement case In Zaletel v. Prism Labs, Inc., the defendant challenged the court's exercise of personal jurisdiction over it in a trademark infringement case.231 The defendant was incorporated in Delaware but based in Moscow, Russia. Judge Ellis described plaintiff's theory of personal jurisdiction as follows: "(i) that defendant distributes its Prisma app to Virginia users via downloads through Apple and Google's on-line app store; (ii) that defendant distributes its Prisma app through defendant's website ... which links individuals directly to the Apple and Google stores; and (iii) that defendant processes images on servers outside of Virginia and sends the processed images (via defendant's Prisma app) to a Virginia user's device."232 The court held that this was insufficient to establish personal jurisdiction under existing case law.233 However, rather than dismiss the case, Judge Ellis transferred it to Delaware, the defendant's state of incorporation. The court noted that in the Fourth Circuit, a court may transfer a case under 1406 even if it lacks personal jurisdiction. Judge Ellis also cited 28 U.S.C. 1631 to support transfer where jurisdiction is lacking.234 The defendant had sought transfer to the Northern District of California, but the court held that the interests of justice favored transfer to Delaware for several reasons, including that it was a more convenient forum for the plaintiff.235
The District also considered several cases arising from the Trademark Trial and Appeal Board. We discuss three of these cases involving three distinct issues the standard of review and likelihood of confusion in the registration context, the award of attorney's fees and issue preclusion.
226 Id. 227 Id. 228 Id. at *2. 229 Id. at *3.
230 Id. at *2.
231No. 1:16-cv-1230, 2016 WL 7407424 (E.D. Va. Dec. 22, 2016). 232 Id. at *5. 233 Id. at *8. 234 Id. 235 Id. at *9.
26 2016 Eastern District of Virginia IP Year in Review
In Seacret Spa Int'l v. Lee, the plaintiff appealed a TTAB decision rejecting registration of a mark. In affirming the TTAB, Judge Cacheris had the opportunity to reaffirm the standard of review applicable in such a case and to discuss the likelihood of confusion factors as applied in the registration context.236
Section 21 of the Lanham Act provides a dissatisfied trademark applicant with a choice: (i) rely solely upon the evidentiary record in an appeal to the Federal Circuit; or (ii) present new evidence in a civil action before a district court. In Seacret Spa Int'l, the plaintiff, Seacret Spa, sought district court review of the TTAB's decision rejecting its application for the mark SEACRET for "products containing ingredients from the Dead Sea, namely, non-medicated skin care preparations, namely moisturizers, facial cleaners, facial peels, mask, lotions, creams, scrubs, soaps, nail care preparations, hand creams, cuticle oils; [and] after shave" based on a likelihood of confusion with Procter and Gamble's prior registrations for the mark SECRET for body sprays and personal deodorant. After the completion of discovery, both parties moved for summary judgment. Judge Cacheris ruled in favor of the defendant and affirmed the ruling of the TTAB.
Judge Cacheris began by noting the difference in the standard of review between an action before the Federal Circuit and the district court. "The parties may not present new evidence bearing on the registrability in an appeal to the Federal Circuit, but they may present new evidence in a `remedy by civil action' in a district court."237 He then further noted where new evidence is submitted, a "de novo review of the entire
record is required because the district court cannot meaningfully defer to the PTO's factual findings if the PTO considered a different set of facts."238
Judge Cacheris then considered the cross-motions for summary judgment. The court repeatedly emphasized the importance of the language in the applications in deciding whether there was a likelihood of confusion -- rather than market usage which is the focus of a trademark infringement case. The court stated: (i) "the relevant inquiry in a registration proceeding involves the mark and usage described in the application rather than as they appear in the marketplace"239; (ii) "[b] ecause the tag line [minerals from the Dead Sea] does not appear in the applications, it is irrelevant, to the question of similarity at the registration stage"240; and (iii) "Plaintiff's application contains no limitations as to the specific channels of trade."241
Given this guiding principle, Judge Cacheris focused on four issues in affirming the rejection of the SEACRET application.
First, without expressly excluding the expert report of Dr. Thomas J. Maronick offered by the plaintiff, Judge Cacheris noted the limited usefulness of the report and testimony because of the expert's "reliance on marketplace usage and his failure to perform any kind of survey on the issue of potential confusion between the `SECRET' and `SEACRET' marks."242
Second, with respect to the similarity of the marks, Judge Cacheris stressed that Procter and Gamble owned a standard character registration for the mark SECRET. Accordingly, "its registration extends to
236No. 1:15-cv-405, 2016 WL 880367 (E.D. Va. Mar. 8, 2016). 237 Id. at *2.
238 Id. 239 Id. 240 Id. at *4. 241 Id. at *6. 242 Id. at *2.
2016 Eastern District of Virginia IP Year in Review
a rendition of the word `secret' in the same font as the `SEACRET' mark, complete with a wave design element in the middle of the `E.' "243
Next, with respect to the similarity of the goods, the court pointed out the relatedness of the goods. Specifically, Judge Cacheris began by acknowledging the difference between the goods identified in the SEACRET application (i.e., skin care products) and the SECRET registrations (i.e., body spray and deodorants), but then noted the existence of abundant third-party registrations covering both goods. "As the abundance of trademark registrations covering both deodorant and skin care products suggests, Plaintiff's products and the goods covered by the `SECRET' trademarks are related products, both being toiletries."244
Finally, the court noted the lack of limitations regarding the channels of trade in the plaintiff's applications. Accordingly, the fact that the plaintiff currently operates primarily through a direct marketing business model with additional sales through kiosks while the "SECRET" mark is primarily sold through major retail stores is of no value in assessing the likelihood of confusion under the application."245
Review barred by issue preclusion In Treadwell Original Drifters, LLC. v. Original Drifters, Inc., Judge Liam O'Grady dismissed a complaint seeking review of a TTAB decision regarding cancellation of the trademark BILL PINKNEY'S ORIGINAL DRIFTERS on the grounds of issue preclusion.246 Though complicated, the facts centered
243 Id. at *4. 244 Id. at *5. 245 Id. at *6. 246No. 1:15-cv-580, 2016 WL 5899289 (E.D. Va. Jan. 28, 2016).
upon the claim of two different parties the Treadwell group and the Pinkney group to exclusive ownership rights to the trademark THE DRIFTERS for a "doo wop" musical group.
Even though formed in 1953, the group is still in existence and performing due to the constantly changing members, including in total more than 60 members. But, because of this constant change, various parties have claimed exclusive ownership of the mark THE DRIFTERS as applied to the band.247
The Treadwell group traced its ownership of the mark to 1954, when The Drifters, Inc., formed "to serve as the corporate owners of `The Drifters' trademark and to manage the group."248 George Treadwell purchased his shares to this company in 1957. His family, through himself, his wife and then daughter, continued to manage the group to this day, through an entity called Treadwell Original Drifters, LLC.
The Pinkney group traced its ownership to Bill Pinkney, one of the earliest members of the group. He was fired from the group, and in or around 1958, he formed his own group using the name "The Drifters."249
Sometime between 1958 and 1960, Treadwell's group and Pinkney's group participated in arbitration before the American Guild of Variety Artists (AGVA). The AGVA ruled Treadwell's group could use the mark "The Drifters" while Pinkney's group could use the marks "The Original Drifters" and/or "Bill Pinkney's Original Drifters." Notably, however, neither party filed federal trademark applications at that time.250
247 Id. at *1. 248 Id. at *1. 249 Id. 250 Id.
28 2016 Eastern District of Virginia IP Year in Review
For the next three decades the two bands coexisted without much dispute. In June of 1989, Treadwell's group filed an application for the mark THE DRIFTERS. Pinkney's group eventually opposed. For reasons not made clear in the opinion, the opposition was delayed until 2004, when the TTAB finally sided with Pinkney and denied Treadwell's application for THE DRIFTERS.251
Equally important, during the pendency of the opposition, Pinkney's group filed a trademark application on April 16, 1998, for the mark BILL PINKNEY'S ORIGINAL DRIFTERS. The PTO issued a registration for this mark on July 7, 2009.252
Finally, in March of 2010, the Treadwell group applied to cancel the Pinkney group's registration for the mark BILL PINKNEY'S ORIGINAL DRIFTERS. The TTAB dismissed the petition to cancel on March 5, 2015, and this case resulted.253
After reviewing the facts, Judge O'Grady turned to whether issue preclusion required dismissal of the complaint. He summarized the issue as follows: "Plaintiff's Complaint calls on this Court to determine whether Plaintiff has demonstrated ownership rights in the mark `The Drifters' that are prior to those of Defendant's in the mark `Bill Pinkney's Original Drifters' "254 The court explained that this issue was identical to that addressed by the TTAB in the opposition proceeding. There, the TTAB "concluded that Bill Pinkney had established, by a preponderance of the evidence, that he `has continuously used the service marks The Original Drifters and Bill Pinkney and the Original Drifters since long prior
251 Id. at *2. 252 Id. 253 Id. 254 Id. at *4.
to applicant's filing date, the earliest date to which applicant is entitled to rely.' "255 The court further held that: (i) the Treadwell group never appealed the TTAB proceeding, meaning that proceeding "actually resolved" the matter and was a final and valid judgment256; (ii) the TTAB decision regarding priority of ownership was "critical and necessary" to the TTAB decision257; and (iii) even though the current plaintiff, Treadwell Original Drifters, LLC, was not a party to the prior TTAB proceeding, it was a successor-ininterest to the party that was. Thus, the complaint was dismissed as barred by issue preclusion.258
Award of attorney's fees upheld
In Milo Shammas v. Lee, Judge T.S. Ellis, III, addressed the award of attorney's fees and costs to the TTAB in a Section 21(b) action.259
Judge Ellis' opinion reviews what the court describes as a "litany of failures" by the plaintiff, Milo Shammas, throughout the litigation foreshadowing the court's ultimate rejection of the plaintiff's post-judgment and post-appeal motion to vacate the award of attorney's fees and costs pursuant to Federal Rule of Civil Procedure 60(b). First, plaintiff's trademark application was rejected. Then, the TTAB affirmed that rejection. Next, the district court entered summary judgment against the plaintiff during Section 21 review and also awarded fees and costs under the provision that requires the plaintiff in a Section 21 review to pay "all the expenses of the proceeding ... whether the final decision is in favor of such party or not." The plaintiff sought appellate review of the fee award. The Fourth
255 Id. 256 Id. at *5 and *6. 257 Id. at *6. 258 Id. 2591:12-cv-1462, 2016 WL 2726639 (E.D. Va. May 9, 2016) (appeal filed).
29 2016 Eastern District of Virginia IP Year in Review
Circuit affirmed the award. The plaintiff then sought review en banc and filed a petition for certiorari with the Supreme Court. These efforts also failed.260
Shammas then filed a motion with the district court under Fed. R. Civ. P. 60(b), requesting that the court vacate the fee award. The plaintiff argued that the Fourth Circuit's decision affirming the fee award in favor of the TTAB was overruled by the Supreme Court's decision in Baker Botts LLP v. ASARCO LLC.261 The plaintiff argued that the ruling in Baker Botts prohibited a statutory award of attorney's fees unless the statute explicitly provides that fees may be recovered. After noting several procedural defects in Shammas' argument, Judge Ellis held: "Baker Botts is binding only for the proposition that 330(a)(1) of the Bankruptcy Code does not permit a bankruptcy court to award attorney's fees for work performed in defending a fee application in court." 262 The court further stated that "plaintiff's argument ... is an overreading of Baker Botts, and there is simply no basis at all to conclude that a change in binding decisional authority has occurred."263
TRADE SECRET CASES
Lastly, we consider the trade secret cases from the District in 2016. We note that Congress recently passed the Defend Trade Secrets Act.264 This statute provides a federal cause of action for misappropriation of trade secrets. The statute is similar to the state statutes around the country that address misappropriation of trade secrets, but it
provides federal jurisdiction over such claims as well as some additional remedies. The trade secret cases we reviewed this year did not arise under the new federal statute, but rather invoked the Virginia Uniform Trade Secrets Act (VUTSA). We expect to see federal misappropriation claims in 2017.
In Afilias PLC v. Architelos, Inc., the jury returned a $5 million verdict in favor of plaintiff on a claim for misappropriation of trade secrets under the VUTSA, and an additional $5 million for conversion and civil conspiracy.265 The case includes an interesting discussion of the preemption provision of the VUTSA. The defendant argued post-trial that the conversion and civil conspiracy claims were barred by the preemption provision of VUTSA.266 In response, the plaintiff argued that the additional claims included the defendant's alleged improper use of confidential information that did not rise to the level of a trade secret.267 Judge Leonie Brinkema seemed to recognize that misappropriation of confidential information that was not a trade secret could exist outside of VUTSA. However, the court held that neither the evidence nor the jury's verdict made this distinction. Thus, the court set aside the jury's $5 million verdict on the conversion and civil conspiracy claims as preempted by the VUTSA.268 The court also granted the defendant's request for remittitur of the trade secret verdict as excessive, and reduced the damages to $2 million.269
Kancor Americas, Inc. v. ATC Ingredients, Inc., is a case that resulted in summary judgment dismissing a trade secret claim.270 The defendant asserted a
260 Id. at *1.
261 ___ U.S. ___, 135 S.Ct. 2158, 192 L.E.2d 208 (2015). 262 Shammas, 2016 WL 2726639 at *4. 263 Id. at *3. 26418 U.S.C. 1831, et seq.
265No. 1:15-cv-14, 2016 WL 1245006 (E.D. Va. Mar. 23, 2016). 266 Id. at *8. 267 Id. at *9-10. 268 Id. 269 Id. at *11.
270No. 1:15-cv-589, 2016 WL 740061 (E.D. Va. Feb. 25, 2016).
30 2016 Eastern District of Virginia IP Year in Review
counterclaim against the plaintiff for misappropriation of trade secrets under the VUTSA. Judge Lee granted summary judgment in favor of the plaintiff and dismissed the claim because the defendant failed to come forward with evidence to show the existence of a trade secret, misappropriation or damages.271 On the first element, the court noted that a mere list of categories of information that may constitute trade secrets is not sufficient. The court reiterated that a party asserting misappropriation of a trade secret must identify with "particularity" the trade secret at issue.272
T&B Equipment, Inc. v. RI, Inc., also resulted in summary judgment dismissing a trade secret claim brought under the VUTSA.273 Seating Solutions provided certain information to T&B Equipment as part of a quote for T&B to purchase the "901 Box Seat." T&B later purchased the product from another company, and Seating Solutions accused it of using its trade secret information. Judge Hudson granted summary judgment to T&B because there was no evidence that the information provided to T&B was provided "under circumstances that impose a duty on a party to refrain from using that information."274 Thus, Seating Solutions could not establish a critical element of its misappropriation claim.
In Hair Club for Men, LLC v. Ehson, Judge O'Grady denied a request for a preliminary injunction.275 The plaintiff filed suit against a former employee and his new employer to enforce a noncompete and nonsolicitation provision and to prohibit the disclosure and use of its trade secrets. The plaintiff sought a
271 Id. at *14. 272 Id. at *14-15. 273No. 3:15-cv-337, 2016 WL 3965208 (E.D. Va. July 22, 2016). 274 Id. at *6. 275No. 1:16-cv-236, 2016 WL 3636851 (E.D. Va. May 6, 2016).
preliminary injunction, which the court denied. The plaintiff identified several types of information that it contended were subject to trade secret protection, including pricing information, marketing information, client information and hair replacement techniques.276 The court considered each of these in turn, and held that the plaintiff had failed to prove a likelihood of success on the merits based on the evidence presented. The court noted that pricing information may be a trade secret if it is "qualitatively different from a standard price list" and "was not even made available to customers."277 For example, "a discount schedule used to develop quotes for customers using a blend" of factors could constitute a trade secret.278 The court also noted that a customer list may be a trade secret.279 However, the court recognized that a former employee may be able to "independent[ly] develop" a contact list without misappropriating a former employer's trade secrets.280 Overall, the court determined that the plaintiff had not met its burden at the preliminary injunction stage of the proceedings. The court subsequently revisited these issues on cross-motions for summary judgment, and held that there were factual issues "as to whether these classes of information are trade secrets and whether Ehson misappropriated them." Hair Club For Men, LLC v. Ehson.281
The Hair Club case ultimately went to trial, and the jury returned a verdict in favor of the plaintiff in excess of $900,000. Upon consideration of the defendant's post-trial motions, Judge O'Grady reduced the damage awards because the amounts were duplicative.282 The
276 Id. at *4. 277 Id. 278 Id. 279 Id. at *5. 280 Id. 281No. 1:16-cv-236, 2016 WL 4577019, *6 (E.D. Va. Aug. 31, 2016). 282 No. 1:16-cv-236, 2016 WL 6780310 (E.D. Va. Nov. 14, 2016).
31 2016 Eastern District of Virginia IP Year in Review
court then considered the scope of the injunctive relief to be awarded to the plaintiff. On the trade secrets claim, the plaintiff requested a permanent injunction prohibiting the defendant from using its "proprietary technological information concerning hair replacement techniques," client names and contact information, and "the requirements, hair specifications, and purchasing histories" of plaintiff's clients.283 The defendant objected to the permanent nature of the injunction because the
283 Id. at *3.
information may lose its trade secret protection over time.284 The plaintiff argued that it would continue to derive independent economic value from the subject information not being known to the general public and that it intended to maintain the secrecy of the information.285 The defendant presented no counterevidence. Thus, Judge O'Grady granted the motion for permanent injunction, but noted that the defendant could petition for dissolution or modification if the information lost its trade secret status.286
284 Id. at *5. 285 Id. 286 Id.
CONCLUSION AND LOOKING AHEAD
Despite a lower volume of cases, the District continues to consider important intellectual property cases, some of which may wind their way to the Supreme Court. As in years past, the 2016 cases reveal a bench that holds the lawyers who practice before it to high standards, both in meeting deadlines and in the presentation of evidence. The judges in the District do not hesitate to grant dispositive motions where warranted, and in most instances, the docket continues to move at a fast pace, offering litigants a swifter resolution to their disputes than might otherwise be had in any different venue.
Going forward, the volume of patent cases filed in the District may be affected by the Supreme Court's decision in TC Heartland, LLC D/B/A Heartland Group v. Kraft Foods Group Brands LLC. In that
case, in which certiorari was granted in December 2016,287 the Supreme Court will again consider the interplay between the patent venue statute (28 U.S.C. 1400 (b)) and the general venue statute (28 U.S.C. 1391(c)). The case is of great interest because the Federal Circuit has held that venue is proper in patent cases wherever a corporate defendant is deemed to reside under 28 U.S.C. 1391 (c) -- meaning, in any district in which personal jurisdiction could be exercised over a corporate defendant. See, e.g., VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (Fed. Cir. 1990).
The petitioner argued in Heartland that as a result of the Federal Circuit's erroneous interpretation of
287No. 16-341, 2016 WL 4944616 (Dec. 14, 2016).
32 2016 Eastern District of Virginia IP Year in Review
the venue statutes, "[a]n enormous amount of forum shopping ensued, with the result being that in 2015 more than 43% of patent infringement cases were brought in a single district (E.D. Tex.) ...." Petition for A Writ of Certiorari (Pet.), p. 5 (citation omitted). According to petitioner, proper interpretation of the patent venue statute should limit patent suits against corporate defendants to those jurisdictions in which they are incorporated -- where they "reside" under the language of 28 U.S.C.1400 (b). Pet, pp. 8-9.
The Supreme Court has consistently rejected the Federal Circuit's patent jurisprudence in recent years. The Heartland case may prove to be another example of the Supreme Court's "reigning in" of wideranging Federal Circuit law that may not be viewed as consistent with Supreme Court precedents (in this case, one of those precedents is alleged to be Fourco Glass Co v. Transmirra Products Corp., 353 U.S. 222 (1957)). If the Supreme Court rejects the Federal Circuit's expansive view of patent venue law in the Heartland case, it could result in the radical redistribution of patent filings in the United States -- to the detriment of the Eastern District of Texas in
particular as a popular forum for patent plaintiffs. The impact of the Heartland decision will likely resonate in this District as well, if indeed the Supreme Court once again parts ways with the Federal Circuit on fundamental questions of patent jurisprudence.
Beyond the Heartland case and its potential effect on patent cases, 2017 is likely to see a significant increase in the number and complexity of trade secret cases filed in the District, particularly those based upon the recently enacted Defend Trade Secrets Act, 18 U.S.C. 1831, et seq. Trade secret cases are highly contentious and are replete with motions practice and procedural hurdles that this District is accustomed to dealing with swiftly and efficiently. The speed of the District's docket, its unwillingness to countenance delays, its early setting of firm trial dates and its culture of expeditious justice may lead many trade secret litigants to the doors of the courthouses throughout the District. If the past is prelude, both plaintiffs and defendants alike should strap on their seat belts before embarking upon what could be a very fast ride through a trade secret litigation in this District.
33 2016 Eastern District of Virginia IP Year in Review
Charles Ossola Partner, Washington 202.955.1642 email@example.com
Stephen Demm Partner, Richmond 804.788.8331 firstname.lastname@example.org
Yisun Song Partner, Washington 202.955.1966 email@example.com
Anne Pearlman Associate, Washington 202.778.2205 firstname.lastname@example.org
Charles Ossola Partner, Washington 202.955.1642 email@example.com
Wendy McGraw Counsel, Norfolk 757.640.5336 firstname.lastname@example.org
John Gary Maynard Partner, Richmond 804.788.8772 email@example.com
Rose A. Zeck Associate, Washington 202.955.1801 firstname.lastname@example.org
Wendy McGraw Counsel, Norfolk 757.640.5336 email@example.com
34 2016 Eastern District of Virginia IP Year in Review
The chart below summarizes the number of intellectual property cases filed in the E.D. Va. in 2016 by judge.
JUDGE Rebecca Beach Smith (Chief)
Arenda Wright Allen Leonie M. Brinkema James C. Cacheris Mark S. Davis
Robert G. Doumar
T.S. Ellis, III John A. Gibney, Jr. Claude M. Hilton Henry E. Hudson Raymond A. Jackson
M. Hannah Lauck Gerald Bruce Lee Henry Coke Morgan, Jr.
Liam O'Grady Robert E. Payne James R. Spencer Anthony J. Trenga TOTAL
Norfolk/ Newport News
Norfolk/ Newport News Alexandria
0 3 4
Norfolk/ Newport News
Norfolk/ Newport News
Norfolk/ Newport 4 News
Norfolk/ Newport 2 News
TRADEMARK COPYRIGHT TOTAL 000
13 1 01 21
18 1 6
5 12 17
327 5 9 18 127 206
1 12 16 7 8 18 215
7 6 17 112 000 8 7 28 61 67 181
35 2016 Eastern District of Virginia IP Year in Review
2017 Hunton & Williams LLP. Attorney advertising materials. These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create an attorney-client or similar relationship. Please do not send us confidential information. Past successes cannot be an assurance of future success. Whether you need legal services and which lawyer you select are important decisions that should not be based solely upon these materials. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status. Contact: Walfrido J. Martinez, Managing Partner, Hunton & Williams LLP, 2200 Pennsylvania Avenue, NW, Washington, DC 20037, 202.955.1500