INTELLECTUAL PROPERTY SURVEY
CASES
PROF. PAUL M. JANICKE
UNIVERSITY OF HOUSTON LAW CENTER
Note: All cases herein have been edited. Most footnotes and string cites have been
deleted, without a specific signal. Asterisks *** indicate text deletions.
1
I.P. Survey Cases
Prof. Janicke
TRADE SECRET CASES
LAMB-WESTON, INC.
v.
McCAIN FOODS, LTD.
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
941 F.2d 970
August 12, 1991
Before Eugene A. Wright, Robert R. Beezer and Charles Wiggins, Circuit Judges.
WRIGHT, Circuit Judge
Lamb-Weston's attempt to spiral ahead of its competitors was allegedly thwarted by the
misappropriation by McCain of Lamb-Weston's trade secrets for manufacturing curlicue
french fries. To keep Lamb-Weston from being left to twist in the wind before the trial on
the merits, an eight-month preliminary injunction was imposed, barring McCain from
producing or selling products made with the technology in question. McCain appeals and
we affirm.
I
Lamb-Weston, a potato processor, began in 1986 to develop the technology for
producing curlicue french fries. The unique process involved a helical blade and waterfeed system. McCain, a competitor, began work on a manufacturing process for curlicue
fries in 1989.
2
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
In January 1990, McCain approached several Lamb-Weston employees to help its
development. At that time, Richard Livermore, who had helped create the Lamb-Weston
blade and process, allegedly gave McCain a copy of Lamb-Weston's confidential patent
application. Livermore later went to work for McCain. Subsequently, Jerry Ross, the
independent contractor who fabricated the Lamb-Weston blade, was hired by McCain to
craft a helical blade for it. McCain left the decisions about the specifications, materials
and manufacturing process to Ross, knowing he was still working on Lamb-Weston's
blades.
Lamb-Weston was issued two patents for its blade system on May 22, 1990. In August,
after discovering Ross was working for McCain, Lamb-Weston had him sign a
confidentiality agreement. Contemporaneously, it sent a letter to McCain asserting
concern that McCain was misappropriating its trade secrets. In October, Lamb-Weston
insisted Ross sign an exclusivity agreement. McCain then requested and received from
Ross all the information he had on the McCain blade.
According to Lamb-Weston, with the help of Ross and Livermore, McCain built a
prototype before the patents issued in May 1990. By June, McCain had the blades hooked
up to a prototype water-feed system and by December was producing curlicue fries.
During the following month, Lamb-Weston sued for misappropriation of trade secrets.
The parties consented to proceedings before a magistrate judge, who entered an eightmonth preliminary injunction against McCain in March 1991. n1
n1 Oregon law governs this diversity action. Oregon has adopted the Uniform Trade
Secrets Act. 1989 Or. Rev. St. § 646.475. Where there is no Oregon law on point, we
have looked to other courts' interpretations of the Act for guidance.
II
McCain asserts that the court abused its discretion in granting the injunction because it
based its determination of probable success on the merits on clearly erroneous findings. It
contends that it had no reason to know that trade secrets were being transmitted through
Ross, as he was an independent contractor who assured McCain that there would be no
confidentiality problems.
Misappropriation of trade secrets under Oregon law requires a showing of (1) a
valuable commercial design, (2) a confidential relationship between the party asserting
trade secret protection and the party who disclosed the information and (3) the key
features of the design that were the creative product of the party asserting protection.
3
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Holland Dev. v. Manufacturers Consultants, 81 Ore. App. 57, 62, 724 P.2d 844, 847
(1986).
This court reviews for abuse of discretion the grant or denial of a preliminary
injunction. The use of an erroneous legal standard, the misapplication of law or a clearly
erroneous finding of fact may serve as grounds for reversal. Big Country Foods v. Board
of Educ., 868 F.2d 1085, 1087 (9th Cir. 1989).
Circumstantial evidence supports the court's preliminary conclusion that despite Ross's
assurance he would not breach confidentiality, McCain knew that he would. McCain
hired him knowing he was working on Lamb-Weston's blade. McCain told him to build a
helical blade but said nothing about how he was to do it. In contrast, Lamb-Weston had
specified what materials, dimensions and process to use. As a practical matter, it would
be difficult for a person developing the same technology for two clients not to use
knowledge gained from the first project in producing the second. This is obviously true
here because McCain left the development to Ross.
McCain points to Ross's testimony that he left both the McCain and Lamb-Weston
blades in the open where anyone could see them. McCain argues this shows that LambWeston knew Ross was working on a McCain blade but was unconcerned about breaches
of confidence. It was not clear error for the court to reject this proposition. Ross's failure
to keep the blades segregated suggests he was using the same information to build both
blades.
Furthermore, Lamb-Weston employees testified that they did not see the McCain blade
at Ross's shop and that, when they learned in August 1990 that Ross was working for
McCain, Lamb-Weston had him sign a confidentiality agreement. This demonstrates
Lamb-Weston was concerned about protecting its trade secrets.
Probable success in showing misappropriation is also supported by testimony that
Livermore gave McCain a copy of the confidential patent application five months before
the patent issued. McCain did not challenge this testimony.
Were we to view this argument as part of McCain's assertion that it did not know Ross
was breaching any confidentiality and address it, we would find no clear error. McCain
acknowledges that at the outset Ross orally agreed to keep Lamb-Weston's information
confidential. It also does not challenge the finding that the blade and the fabrication
process were trade secrets.
In addition, Lamb-Weston's efforts to secure first a written confidentiality agreement
and then an exclusivity agreement show it believed the information Ross had was
4
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
confidential. See Holland Dev. v. Manufacturers Consultants, 81 Ore. App. 57, 62-63,
724 P.2d 844, 847-48 (1986) (finding a confidential relationship existed and noting that
the employer would not invest time and money to develop a project simply to allow its
employee to turn around and use the developed technology for personal benefit); E.V.
Prentice Dryer Co. v. Northwest Dryer & Machinery Co., 246 Ore. 78, 81-82, 424 P.2d
227, 229 (1967) (finding no confidentiality agreement where the information was not of
a confidential nature and there was nothing in the employment relationship indicating that
the plaintiff wanted it to be secret).
The district court's findings were not clearly erroneous. The court determined correctly
that Lamb-Weston showed a probability of success on the merits. The court's granting of
the injunction was not an abuse of discretion.
III
McCain argues that the court abused its discretion by imposing a geographically
overbroad injunction. The court enjoined it from selling curlicue french fries worldwide
even though Lamb-Weston's foreign market is limited. Arguing that Lamb-Weston
cannot be harmed in countries where it is not selling, McCain urges this court to limit the
injunction to those countries where Lamb-Weston actually sells its product.
A district court has considerable discretion in fashioning suitable relief and defining the
terms of an injunction. Appellate review of those terms "is correspondingly narrow."
Coca-Cola Co. v. Overland, Inc., 692 F.2d 1250, 1256 n.16 (9th Cir. 1982). Injunctive
relief, however, must be tailored to remedy the specific harm alleged. Aviation
Consumer Action Project v. Washburn, 175 U.S. App. D.C. 273, 535 F.2d 101, 108 (D.C.
Cir. 1976); see also Califano v. Yamasaki, 442 U.S. 682, 702, 61 L. Ed. 2d 176, 99 S. Ct.
2545 (1979) ("injunctive relief should be no more burdensome to the defendants than
necessary to provide complete relief to the plaintiffs"). An overbroad injunction is an
abuse of discretion. United States v. BNS, Inc., 858 F.2d 456, 460 (9th Cir. 1988).
McCain's reliance on Mantek Div. of NCH Corp. v. Share Corp., 780 F.2d 702 (7th Cir.
1986), is not persuasive. The case involved violations of covenants not to compete signed
by the plaintiff's former employees. The injunction barred the defendants from calling on
the plaintiff's actual and potential customers. Noting that the injunction was to protect the
goodwill the plaintiff had built up with its customers through its sales staff and reasoning
that the plaintiff had no goodwill with respect to unsolicited but potential customers, the
court held enjoining the defendants from approaching the unsolicited ones was an abuse
of discretion. Id. at 710-11.
5
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
The interest protected here is fundamentally different. An injunction in a trade secret
case seeks to protect the secrecy of misappropriated information and to eliminate any
unfair head start the defendant may have gained. Winston Research Corp. v. Minnesota
Mining and Mfg., 350 F.2d 134, 141 (9th Cir. 1965). A worldwide injunction here is
consistent with those goals because it "places the defendant in the position it would have
occupied if the breach of confidence had not occurred prior to the public disclosure, . . ."
Id. at 142.
Lamb-Weston alleged that without the worldwide injunction it will be irreparably
harmed because its novel french fries are important in creating a niche for its products.
According to Lamb-Weston, this novelty will enable it to compete more effectively with
McCain, which apparently has a more established distribution system. Allowing McCain
to sell the french fries at all will permit it to profit from its head start and to shut LambWeston out of new markets it is trying to reach.
The geographic scope of the injunction was not an abuse of discretion.
IV
McCain argues that the court erred by failing to make specific findings about the
length of its alleged head start. McCain also contends the injunction was an abuse of
discretion because it is too long.
A
The court made no explicit findings about how long it would have taken McCain to
develop independently its helical blade. It simply imposed an eight-month injunction for
McCain's head start without explaining its method of calculation. McCain asserts that this
violates Federal Rule of Civil Procedure 52(a), which requires that the court specify its
findings of fact and conclusions of law. See Atari Games Corp. v. Nintendo Inc., 897
F.2d 1572, 1578, 14 U.S.P.Q.2D (BNA) 1034 (Fed. Cir. 1990) (applying Ninth Circuit
law).
The court indicated that the eight-month duration corresponded to McCain's head start.
Although we encourage district courts to make more specific findings of fact, we
conclude that the statement here was sufficient for the purposes of Rule 52(a).
B
6
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
"The appropriate duration for the injunction should be the period of time it would have
taken he defendant], either by reverse engineering or by independent development, to
develop [the product] legitimately without use of [plaintiff's] trade secrets." K2 Ski Co. v.
Head Ski Co., 506 F.2d 471, 474 (9th Cir. 1974).
Cf. Surgidev Corp. v. Eye
Technology, Inc., 828 F.2d 452, 457 (8th Cir. 1987) (injunction is warranted to insure
defendants are not unjustly enriched by their misappropriation); Premier Indus. Corp. v.
Texas Indus. Fastener Co., 450 F.2d 444, 448 (5th Cir. 1971) (a court has equitable
powers to enjoin defendants for a time beyond the expiration of covenants not to compete
to effectuate relief for the time they violated the covenants).
McCain argues that April 19, 1990 is the only date for which there is evidence of
misappropriation and that at most it had a one-year advantage beginning on that date. It
asserts that with a one-year head start, the injunction imposed on March 27, 1991, should
have ended on April 19, 1991, one year from the misappropriation date.
If we were to accept McCain's argument that the misappropriation was April 19 and the
head start should be calculated from that date, see A.L. Laboratories, Inc. v. Philips
Roxane, 803 F.2d 378, 385 (8th Cir. 1986), cert. denied, 481 U.S. 1007, 95 L. Ed. 2d 206,
107 S. Ct. 1632 (1987), the injunction imposed was not an abuse of discretion simply
because it ended a year and seven months after that date. See Winston Research Corp. v.
Minnesota Mining and Mfg., 350 F.2d 134, 142-43 (9th Cir. 1965). Lamb-Weston
presented testimony that its development time for the materials, dimensions and
fabricating process for the blade was about a year and a half. Additional testimony was
given about Lamb-Weston's reputation for ingenuity and its development time for the
blade design.
We reject McCain's argument that if the misappropriation through Ross occurred on
April 19, it had only a 33-day head start because Lamb-Weston's patents were issued
May 22. Although the shape of the blade and the slicing process was public on May 22,
the specifications, materials and manufacturing process for making the blade were still
trade secrets because they were not included in the patent applications.
Oregon law affords broad protection to trade secrets so public disclosure of the blade
shape did not exonerate McCain from previous illegal use of that trade secret or the
subsequent illegal use of the remaining trade secrets. Although a defendant may ask the
court to vacate an injunction after the trade secret is public, "the injunction may be
continued for an additional reasonable period of time in order to eliminate commercial
advantage that otherwise would be derived from the misappropriation." 1989 Or. Laws
646.463(1); Kamin v. Kuhnau, 232 Ore. 139, 157-59, 374 P.2d 912, 921-22 (1962).
The eight-month injunction was not an abuse of discretion.
AFFIRMED.
7
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
8
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
LEARNING CURVE TOYS, INC.
v.
PLAYWOOD TOYS, INC.
U.S. Court of Appeals for the Seventh Circuit
342 F.3d 714
Decided Aug. 18, 2003.
Before RIPPLE, KANNE and ROVNER, Circuit Judges.
RIPPLE, Circuit Judge.
PlayWood Toys, Inc. (“PlayWood”) obtained a jury verdict against Learning Curve Toys,
Inc. and its representatives, Roy Wilson, Harry Abraham and John Lee (collectively,
“Learning Curve”), for misappropriation of a trade secret in a realistic looking and
sounding toy railroad track under the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq.
The jury awarded PlayWood a royalty of “8% for a license that would have been
negotiated [absent the misappropriation] to last for the lifetime of the product.” R.194.
Although there was substantial evidence of misappropriation before the jury, the district
court did not enter judgment on the jury's verdict. Instead, it granted judgment as a
matter of law in favor of Learning Curve, holding that PlayWood did not have a
protectable trade secret in the toy railroad track. PlayWood appealed. For the reasons
set forth in the following opinion, we reverse the judgment of the district court and
reinstate the jury's verdict. We further remand the case to the district court for a jury
trial on exemplary damages and for consideration of PlayWood's request for attorneys'
fees.
I
BACKGROUND
A. Facts
In 1992, Robert Clausi and his brother-in-law, Scott Moore, began creating prototypes of
9
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
wooden toys under the name PlayWood Toys, Inc., a Canadian corporation. Clausi was
the sole toy designer and Moore was the sole officer and director of PlayWood. Neither
Clausi nor Moore had prior experience in the toy industry, but Clausi had “always been a
bit of a doodler and designer,” Trial Tr. at 58, and the two men desired to “create highquality hard-wood maple toys for the independent toy market,” id. at 241. As a newly
formed corporation, PlayWood did not own a facility in which it could produce toys.
Instead, it worked in conjunction with Mario Borsato, who owned a wood-working
facility.
Subject to a written confidentiality agreement with PlayWood, Borsato
manufactured prototypes for PlayWood based on Clausi's design specifications.
10
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
PlayWood's first attempt to market publicly its toys was at the Toronto Toy Fair on
January 31, 1992. PlayWood received favorable reviews from many of the toy retailers
in attendance; PlayWood also learned that the best way to get recognition for its toys was
to attend the New York Toy Fair (“Toy Fair”) the following month. Based on this
information, Clausi and Moore secured a position at the Toy Fair in order to display
PlayWood's prototypes.
It was during this Toy Fair that Clausi and Moore first
encountered Learning Curve representatives Roy Wilson, Harry Abraham and John Lee.
11
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
On the morning of February 12, 1993, the first day of the Toy Fair, Roy Wilson stopped
at PlayWood's booth and engaged Clausi and Moore in conversation. Wilson identified
himself as Learning Curve's toy designer and explained that his company had a license
from the Britt Allcroft Company to develop Thomas the Tank Engine & Friends TM
(hereinafter “Thomas”) trains and accessories.
Wilson commented that he was
impressed with the look and quality of PlayWood's prototypes and raised the possibility
of working together under a custom manufacturing contract to produce Learning Curve's
line of Thomas products. Clausi and Moore responded that such an arrangement would
be of great interest to PlayWood. Later that same day, Harry Abraham, Learning
Curve's vice president, and John Lee, Learning Curve's president, also stopped by
PlayWood's booth. They too commented on the quality of PlayWood's prototypes and
indicated that PlayWood might be a good candidate for a manufacturing contract with
Learning Curve.
Clausi and Moore continued to have discussions with Learning Curve's representatives
over the remaining days of the Toy Fair, which ended on February 14. During these
discussions, Lee indicated that he would like two of his people, Abraham and Wilson, to
visit PlayWood in Toronto the day after the Toy Fair ended in order to determine whether
the two parties could work out a manufacturing arrangement for some or all of Learning
Curve's wooden toys. Clausi, feeling a little overwhelmed by the suggestion, requested
that their visit be postponed a few days so that he could better acquaint himself with
Learning Curve's products. The parties ultimately agreed that Abraham and Wilson
would visit PlayWood at Borsato's facility on February 18, 1993, four days after the
conclusion of the Toy Fair. Clausi spent the next several days after the Toy Fair
researching Learning Curve's products and considering how PlayWood could produce
Learning Curve's trains and track.
On February 18, 1993, Abraham and Wilson visited PlayWood in Toronto as planned.
The meeting began with a tour of Borsato's woodworking facility, where the prototypes
on display at the Toy Fair had been made. After the tour, the parties went to the
conference room at Borsato's facility. At this point, according to Clausi and Moore, the
parties agreed to make their ensuing discussion confidential. Clausi testified:
After we sat down in the board room, Harry [Abraham of Learning Curve]
immediately said: “Look, we're going to disclose confidential information
to you guys, and we're going to disclose some designs that Roy [Wilson of
Learning Curve] has that are pretty confidential. If Brio were to get their
hands on them, then we wouldn't like that. And we're going to do it under
the basis of a confidential understanding.”
12
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
And I said: “I also have some things, some ideas on how to produce the
track and produce the trains now that I've had a chance to look at them for
the last couple of days, and I think they're confidential as well. So if we're
both okay with that, we should continue.” So we did.
Trial Tr. at 76-77. Moore testified to the existence of a similar conversation:
It was at this point that Harry Abraham told us that they were going to
disclose some confidential documents, drawings, pricing, margins, and
asked us if we would keep that information confidential.
I believe it was Robert [Clausi] who said that, you know, absolutely, we
would keep it confidential. In fact, we had some ideas that we felt would
be confidential we would be disclosing to them, and would they keep it,
you know, confidential? Would they reciprocate? And Harry [Abraham]
said: “Absolutely.” And then we proceeded to go along with the meeting.
Trial Tr. at 247-48.
***
The parties' discussion eventually *** focused on track design. Wilson showed Clausi
and Moore drawings of Learning Curve's track and provided samples of their current
product. At this point, Abraham confided to Clausi and Moore that track had posed “a
bit of a problem for Learning Curve.” Trial Tr. at 85. Abraham explained that sales
were terrific for Learning Curve's Thomas trains, but that sales were abysmal for its
track. Abraham attributed the lack of sales to the fact that Learning Curve's track was
virtually identical to that of its competitor, Brio, which had the lion's share of the track
market.
Because there was “no differentiation” between the two brands of track,
Learning Curve's track was not even displayed in many of the toy stores that carried
Learning Curve's products. Id. Learning Curve had worked unsuccessfully for several
months attempting to differentiate its track from that of Brio.
After detailing the problems with Learning Curve's existing track, Abraham inquired of
Clausi whether “there was a way to differentiate” its track from Brio's track. Trial Tr. at
86. Clausi immediately responded that he “had had a chance to look at the track and get
a feel for it [over] the last few days” and that his “thoughts were that if the track were
more realistic and more functional, that kids would enjoy playing with it more and it
would give the retailer a reason to carry the product, especially if it looked different than
the Brio track.” Id. at 87. Clausi further explained that, if the track “made noise and
looked like real train tracks, that the stores wouldn't have any problem, and the Thomas
13
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
the Tank line, product line would have its own different track” and could “effectively
compete with Brio.” Id. Abraham and Wilson indicated that they were “intrigued” by
Clausi's idea and asked him what he meant by “making noise.” Id.
Clausi decided to show Abraham and Wilson exactly what he meant. Clausi took a piece
of Learning Curve's existing track from the table, drew some lines across the track (about
every three-quarters of an inch), and stated: “We can go ahead and machine grooves
right across the upper section ..., which would look like railway tracks, and down below
machine little indentations as well so that it would look more like or sound more like real
track. You would roll along and bumpity-bumpity as you go along.” Trial Tr. at 255.
Clausi then called Borsato into the conference room and asked him to cut grooves into
the wood “about a quarter of an inch deep from the top surface.” Id. at 88. Borsato left
the room, complied with Clausi's request, and returned with the cut track three or four
minutes later. Clausi ran a train back and forth over the cut piece of track. The track
looked more realistic than before, but it did not make noise because the grooves were not
deep enough. Accordingly, Clausi instructed Borsato to cut the grooves “just a little bit
deeper so that they go through the rails.” Id. Borsato complied with Clausi's request once
again and returned a few minutes later with the cut piece of track. Clausi proceeded to
run a train back and forth over the track. This time the track made a “clickety-clack”
sound, but the train did not run smoothly over the track because the grooves were cut “a
little bit too deep.” Id. at 258. Based on the sound produced by the track, Clausi told
Abraham and Moore that if PlayWood procured a contract with Learning Curve to
produce the track, they could call it “Clickety-Clack Track.” Id. at 89.
*** Before he left, Wilson asked Clausi if he could take the piece of track that Borsato
had cut with him while the parties continued their discussions. Clausi gave Wilson the
piece of track without hesitation. The piece of track was the only item that Abraham and
Wilson took from the meeting. Clausi and Moore did not ask Wilson for a receipt for the
cut track, nor did they seek a written confidentiality agreement to protect PlayWood's
alleged trade secret. After the meeting, Clausi amended PlayWood's confidentiality
agreement with Borsato to ensure that materials discussed during the meeting would
remain confidential. Clausi also stamped many of the documents that he received from
Learning Curve during the meeting as confidential because they included information on
products not yet released to the public. PlayWood never disclosed the contents of
Learning Curve's documents to anyone.
During March of 1993, PlayWood and Learning Curve met on three separate occasions to
discuss further the possibility of PlayWood manufacturing Learning Curve's Thomas
products. At one of the meetings, and at Learning Curve's request, PlayWood submitted
a manufacturing proposal for the Thomas products.
Learning Curve rejected
PlayWood's proposal. Learning Curve told Clausi that its licensor wanted the Thomas
14
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
products to be made in the United States.
Thereafter, PlayWood had no contact with Learning Curve until late October of 1993,
when Abraham contacted Clausi to discuss another possible manufacturing contract
because Learning Curve's secondary supplier was not providing enough product. Again,
PlayWood submitted a manufacturing proposal at Learning Curve's request, but it too
was rejected. Learning Curve later stated that its new business partner had decided to
manufacture the product in China.
*** In December of 1994, while shopping for additional track with which to experiment,
Moore discovered that Learning Curve was selling noise-producing track under the name
“Clickety-Clack Track.” Like the piece of track that Clausi had Borsato cut during
PlayWood's February 18, 1993, meeting with Learning Curve, Clickety-Clack Track TM
has parallel grooves cut into the wood, which cause a “clacking” sound as train wheels
roll over the grooves. Learning Curve was promoting the new track as
the first significant innovation in track design since the inception of wooden
train systems.... It is quite simply the newest and most exciting development
to come along recently in the wooden train industry, and it's sure to cause a
sensation in the marketplace.... [I]t brings that sound and feel of the real
thing to a child's world of make-believe without bells, whistles, electronic
sound chips or moving parts.
PlayWood's Tr. Ex.71.
Moore was “stunned” when he saw the track because he believed that Learning Curve
had stolen PlayWood's concept. Trial Tr. at 268. He testified: “This was our idea.
This is what we've been working on even up to that day to go back to [Learning Curve]
as an opportunity to get in the door, and there it is on the shelf.” Id. Moore purchased a
package of Clickety-Clack Track TM and showed it to Clausi. Clausi testified that he was
disappointed when he saw the track because he believed that Learning Curve had taken
PlayWood's name and design concept “almost exactly as per [their] conversation” on
February 18, 1993. Trial Tr. at 103.
PlayWood promptly wrote a cease and desist letter to Learning Curve. The letter
accused Learning Curve of stealing PlayWood's concept for the noise-producing track
that it disclosed to Learning Curve “in confidence in the context of a manufacturing
proposal.”
PlayWood's Tr. Ex.66 at 1. Learning Curve responded by seeking a
declaratory judgment that it owned the concept.
Previously, on March 16, 1994, Learning Curve had applied for a patent on the noise15
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
producing track. The patent, which was obtained on October 3, 1995, claims the
addition of parallel impressions or grooves in the rails, which cause a “clacking” sound to
be emitted as train wheels roll over them. The patent identifies Roy Wilson of Learning
Curve as the inventor.
Clickety-Clack Track TM provided an enormous boost to Learning Curve's sales.
Learning Curve had $20 million in track sales by the first quarter of 2000, and $40
million for combined track and accessory sales.
B. District Court Proceedings
Learning Curve responded to PlayWood's cease and desist letter by seeking a declaratory
judgment that it owned the concept for noise-producing toy railroad track, as embodied in
Clickety-Clack Track.TM PlayWood counterclaimed against Learning Curve, as well as its
representatives, Roy Wilson, Harry Abraham and John Lee. PlayWood asserted that it
owned the concept and that Learning Curve had misappropriated its trade secret.
Learning Curve voluntarily dismissed its complaint for declaratory relief, and
PlayWood's claim for trade secret misappropriation proceeded to trial. The jury returned
a verdict in favor of PlayWood. The trial court declined to enter judgment on the verdict
and instead asked the parties to brief Learning Curve's [JMOL] motion on the issue of
whether PlayWood had a protectable trade secret under the Illinois Trade Secrets Act,
765 ILCS 1065/1 et seq. The district court granted Learning Curve's motion and entered
judgment in its favor on the ground that PlayWood presented insufficient evidence of a
trade secret. See R.202. Specifically, the court determined that PlayWood did not have a
trade secret in its concept for noise-producing toy railroad track under Illinois law
because: (1) PlayWood did not demonstrate that its concept was unknown in the
industry; (2) PlayWood's concept could have been easily acquired or duplicated through
proper means; (3) PlayWood failed to guard the secrecy of its concept; (4) PlayWood's
concept had no economic value; and (5) PlayWood expended no time, effort or money to
develop the concept. See id.
II
DISCUSSION
A. Trade Secret Status
We review the district court's decision to grant Learning Curve's motion for judgment as
16
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
a matter of law de novo, viewing the evidence in the light most favorable to PlayWood.
See Veach v. Sheeks, 316 F.3d 690, 692 (7th Cir.2003). “We shall not second-guess the
jury's view of the contested evidence; the proper inquiry is whether, given the totality of
the evidence, [PlayWood] presented sufficient evidence from which a reasonable jury
could find in [its] favor.” David v. Caterpillar, Inc., 324 F.3d 851, 858 (7th Cir.2003).
The parties agree that their dispute is governed by the Illinois Trade Secrets Act (“Act”),
765 ILCS 1065/1 et seq. To prevail on a claim for misappropriation of a trade secret
under the Act, the plaintiff must demonstrate that the information at issue was a trade
secret, that it was misappropriated and that it was used in the defendant's business. The
issue currently before us is whether there was legally sufficient evidence for the jury to
find that PlayWood had a trade secret in its concept for the noise-producing toy railroad
track that it revealed to Learning Curve on February 18, 1993.
The Act defines a trade secret as:
[I]nformation, including but not limited to, technical or non-technical data,
a formula, pattern, compilation, program, device, method, technique,
drawing, process, financial data, or list of actual or potential customers or
suppliers, that:
(1) is sufficiently secret to derive economic value, actual or potential, from
not being generally known to other persons who can obtain economic value
from its disclosure or use; and
(2) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy or confidentiality.
765 ILCS 1065/2(d). Both of the Act's statutory requirements focus fundamentally on
the secrecy of the information sought to be protected. However, the requirements
emphasize different aspects of secrecy. The first requirement, that the information be
sufficiently secret to impart economic value because of its relative secrecy, “precludes
trade secret protection for information generally known or understood within an industry
even if not to the public at large.” Pope, 230 Ill.Dec. 646, 694 N.E.2d at 617. The
second requirement, that the plaintiff take reasonable efforts to maintain the secrecy of
the information, prevents a plaintiff who takes no affirmative measures to prevent others
from using its proprietary information from obtaining trade secret protection.
See
Jackson v. Hammer, 274 Ill.App.3d 59, 210 Ill.Dec. 614, 653 N.E.2d 809, 816 (1995)
(“[T]he Act requires a plaintiff to take ‘affirmative measures' to prevent others from
using information.”).
Although the Act explicitly defines a trade secret in terms of these two requirements,
Illinois courts frequently refer to six common law factors (which are derived from § 757
17
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
of the Restatement (First) of Torts) in determining whether a trade secret exists: (1) the
extent to which the information is known outside of the plaintiff's business; (2) the extent
to which the information is known by employees and others involved in the plaintiff's
business; (3) the extent of measures taken by the plaintiff to guard the secrecy of the
information; (4) the value of the information to the plaintiff's business and to its
competitors; (5) the amount of time, effort and money expended by the plaintiff in
developing the information; and (6) the ease or difficulty with which the information
could be properly acquired or duplicated by others.
Contrary to Learning Curve's contention, we do not construe the foregoing factors as a
six-part test, in which the absence of evidence on any single factor necessarily precludes
a finding of trade secret protection. Instead, we interpret the common law factors as
instructive guidelines for ascertaining whether a trade secret exists under the Act. The
language of the Act itself makes no reference to these factors as independent
requirements for trade secret status, and Illinois case law imposes no such requirement
that each factor weigh in favor of the plaintiff. See ILG Indus., Inc. v. Scott, 49 Ill.2d 88,
273 N.E.2d 393, 396 (1971) (“An exact definition of a trade secret, applicable to all
situations, is not possible. Some factors to be considered in determining whether given
information is one's trade secret are [the six factors enumerated in the Restatement].”)
(internal quotation marks omitted). In this respect, Illinois law is compatible with the
approach in other states. Courts from other jurisdictions, as well as legal scholars, have
noted that the Restatement factors are not to be applied as a list of requisite elements.
See, e.g., Basic American, Inc. v. Shatila, 133 Idaho 726, 992 P.2d 175, 184 (1999);
Minuteman, Inc. v. Alexander, 147 Wis.2d 842, 434 N.W.2d 773, 778 (Wis.1989); 2
Gregory E. Upchurch, Intellectual Property Litigation Guide: Patents & Trade Secrets §
16.02, at 16-17 to 16-18 (2002) (“On the whole, these factors are a guide to the proper
decision on the existence of a trade secret, not a list of requirements.”).
The existence of a trade secret ordinarily is a question of fact. As aptly observed by our
colleagues on the Fifth Circuit, a trade secret “is one of the most elusive and difficult
concepts in the law to define.” Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286,
288 (5th Cir.1978). In many cases, the existence of a trade secret is not obvious; it
requires an ad hoc evaluation of all the surrounding circumstances. For this reason, the
question of whether certain information constitutes a trade secret ordinarily is best
“resolved by a fact finder after full presentation of evidence from each side.” Id. at 289.
We do not believe that the district court was sufficiently mindful of these principles.
The district court, in effect, treated the Restatement factors as requisite elements and
substituted its judgment for that of the jury. PlayWood presented sufficient evidence for
the jury reasonably to conclude that the Restatement factors weighed in PlayWood's
favor.
18
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
1. Extent to which PlayWood's concept for noise-producing toy railroad track was
known outside of PlayWood's business
PlayWood presented substantial evidence from which the jury could have determined that
PlayWood's concept for noise-producing toy railroad track was not generally known
outside of Playwood's business. It was undisputed at trial that no similar track was on
the market until Learning Curve launched Clickety-Clack Track TM in late 1994, more
than a year after PlayWood first conceived of the concept. Of course, as Learning Curve
correctly points out, “[m]erely being the first or only one to use particular information
does not in and of itself transform otherwise general knowledge into a trade secret.”
George S. May Int'l, 195 Ill.Dec. 183, 628 N.E.2d at 654. “If it did, the first person to use
the information, no matter how ordinary or well known, would be able to appropriate it to
his own use under the guise of a trade secret.” Serv. Ctrs., 129 Ill.Dec. 367, 535 N.E.2d
at 1137. However, in this case, there was additional evidence from which the jury could
have determined that PlayWood's concept was not generally known within the industry.
First, there was substantial testimony that Learning Curve had attempted to differentiate
its track from that of its competitors for several months, but that it had been unable to do
so successfully.
Furthermore, PlayWood's expert witness, Michael Kennedy, testified that PlayWood's
concept, as embodied in Clickety-Clack Track TM, was unique and permitted “its seller to
differentiate itself from a host of competitors who [were] making a generic product.”
Trial Tr. at 518. Kennedy explained that the look, sound and feel of the track made it
distinct from other toy railroad track: “[W]hen a child runs a train across this track, he
can feel it hitting those little impressions. And when you're talking about young children
[,] having the idea that they can see something that they couldn't see before, feel
something that they couldn't feel before, hear something that they couldn't hear before,
that is what differentiates this toy from its other competitors.” Id. at 489.
Finally, PlayWood presented evidence that Learning Curve sought and obtained a patent
on the noise-producing track. It goes without saying that the requirements for patent and
trade secret protection are not synonymous. Unlike “a patentable invention, a trade
secret need not be novel or unobvious.”
2 Rudolf Callmann, The Law of Unfair
Competition, Trademarks and Monopolies § 14.15, at 14-124 (4th ed.2003). “The idea
need not be complicated; it may be intrinsically simple and nevertheless qualify as a
secret, unless it is common knowledge and, therefore, within the public domain.” Forest
Labs., Inc. v. Pillsbury Co., 452 F.2d 621, 624 (7th Cir.1971) (internal quotation marks
omitted). However, it is commonly understood that “[i]f an invention has sufficient
novelty to be entitled to patent protection, it may be said a fortiori to be entitled to
19
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
protection as a trade secret.” 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.08[1],
at 1-353 (2002) (internal footnotes omitted). In light of this evidence, we cannot accept
Learning Curve's argument that no rational jury could have found that PlayWood's
concept was unknown outside of its business.
2. Extent to which PlayWood's concept was known to employees and others involved
in PlayWood's business
The district court did not address the extent to which PlayWood's concept was known to
employees and others involved in PlayWood's business.
However, we agree with
PlayWood that the evidence was sufficient to establish that its concept for noiseproducing track was known only by key individuals in its business.
At the outset, we note briefly that PlayWood was a small business, consisting only of
Clausi and Moore.
Illinois courts have recognized on several occasions that the
expectations for ensuring secrecy are different for small companies than for large
companies. See Jackson, 210 Ill.Dec. 614, 653 N.E.2d at 815 (“[T]he determination of
what steps are reasonably necessary to protect information is different for a large
company than for a small one.”); Elmer Miller, Inc. v. Landis, 253 Ill.App.3d 129, 192
Ill.Dec. 378, 625 N.E.2d 338, 342 (1993) (“[R]easonable steps for a two or three person
shop may be different from reasonable steps for a larger company.”). Apart from Clausi
(PlayWood's sole toy designer and the person who conceived of the concept for noiseproducing track) and Moore (PlayWood's sole officer and director), the only person who
knew about the concept was Borsato, the person who physically produced PlayWood's
prototype at Clausi's direction. The concept was disclosed to Borsato in order for
PlayWood to develop fully its trade secret. See 1 Roger M. Milgrim, Milgrim on Trade
Secrets § 1.04, at 1-173 (2002) (“A trade secret does not lose its character by being
confidentially disclosed to agents or servants, without whose assistance it could not be
made of any value.”) (internal quotation marks omitted). Moreover, Borsato's actions
were governed by a written confidentiality agreement with PlayWood. Indeed, as an
extra precaution, Clausi even amended PlayWood's confidentiality agreement with
Borsato immediately after the February 18, 1993, meeting to ensure that materials
discussed during the meeting would remain confidential. From this evidence, the jury
reasonably could have determined that this factor also weighed in favor of PlayWood.
3. Measures taken by PlayWood to guard the secrecy of its concept
There also was sufficient evidence for the jury to determine that PlayWood took
reasonable precautions to guard the secrecy of its concept. The Act requires the trade
20
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
secret owner to take actions that are “reasonable under the circumstances to maintain
[the] secrecy or confidentiality” of its trade secret; it does not require perfection. 765
ILCS 1065/2(d)(2). Whether the measures taken by a trade secret owner are sufficient to
satisfy the Act's reasonableness standard ordinarily is a question of fact for the jury.
Indeed, we previously have recognized that “only in an extreme case can what is a
‘reasonable’ precaution be determined [as a matter of law], because the answer depends
on a balancing of costs and benefits that will vary from case to case.” Rockwell Graphic
Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179 (7th Cir.1991).
Here, the jury was instructed that it must find “by a preponderance of the evidence that
PlayWood's trade secrets were given to Learning Curve as a result of a confidential
relationship between the parties.” Trial Tr. at 1449. By returning a verdict in favor of
PlayWood, the jury necessarily found that Learning Curve was bound to PlayWood by a
pledge of confidentiality. The jury's determination is amply supported by the evidence.
Both Clausi and Moore testified that they entered into an oral confidentiality agreement
with Abraham and Wilson before beginning their discussion on February 18, 1993. In
particular, Clausi testified that he told Abraham and Wilson: “I also have some things,
some ideas on how to produce the track and produce the trains now that I've had a chance
to look at them for the last couple of days, and I think they're confidential as well. So if
we're both okay with that, we should continue.” Trial Tr. at 77. In addition to this
testimony, the jury heard that Learning Curve had disclosed substantial information to
PlayWood during the February 18th meeting, including projected volumes, costs and
profit margins for various products, as well as drawings for toys not yet released to the
public. The jury could have inferred that Learning Curve would not have disclosed such
information in the absence of a confidentiality agreement. Finally, the jury also heard
(from several of Learning Curve's former business associates) that Learning Curve
routinely entered into oral confidentiality agreements like the one with PlayWood.
PlayWood might have done more to protect its secret. As Learning Curve points out,
PlayWood gave its only prototype of the noise-producing track to Wilson without first
obtaining a receipt or written confidentiality agreement from Learning Curve-a decision
that proved unwise in hindsight. Nevertheless, we believe that the jury was entitled to
conclude that PlayWood's reliance on the oral confidentiality agreement was reasonable
under the circumstances of this case.FN4 First, it is well established that “[t]he formation
of a confidential relationship imposes upon the disclosee the duty to maintain the
information received in the utmost secrecy” and that “the unprivileged use or disclosure
of another's trade secret becomes the basis for an action in tort.” Burten v. Milton
Bradley Co., 763 F.2d 461, 463 (1st Cir.1985). Second, both Clausi and Moore testified
that they believed PlayWood had a realistic chance to “get in the door” with Learning
Curve and to produce the concept as part of Learning Curve's line of Thomas products.
Clausi and Moore did not anticipate that Learning Curve would violate the oral
21
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
confidentiality agreement and utilize PlayWood's concept without permission; rather,
they believed in good faith that they “were going to do business one day again with
Learning Curve with respect to the design concept.” Trial Tr. at 236-37. Finally, we
believe that, as part of the reasonableness inquiry, the jury could have considered the size
and sophistication of the parties, as well as the relevant industry. Both PlayWood and
Learning Curve were small toy companies, and PlayWood was the smaller and less
experienced of the two. Viewing the evidence in the light most favorable to PlayWood,
as we must, we conclude that there was sufficient evidence for the jury to determine that
PlayWood took reasonable measures to protect the secrecy of its concept.
FN4. We iterate that the proper inquiry is not whether, in our independent
judgment, we believe that PlayWood took reasonable precautions to maintain the
secrecy of its concept; rather, the issue is whether PlayWood's “failure to do more
was so plain a breach of the obligation of a trade secret owner to make reasonable
efforts to maintain secrecy as to justify” overturning the jury verdict in its favor.
Rockwell, 925 F.2d at 177.
4. Value of the concept to PlayWood and to its competitors
There was substantial evidence from which the jury could have determined that
PlayWood's concept had value both to PlayWood and to its competitors.
It was
undisputed at trial that Learning Curve's sales skyrocketed after it began to sell ClicketyClack Track TM. In addition, PlayWood's expert witness, Michael Kennedy, testified that
PlayWood's concept for noise-producing track had tremendous value. Kennedy testified
that the “cross-cuts and changes in the [track's] surface” imparted value to its seller by
causing the track to “look different, feel different and sound different than generic track.”
Trial Tr. at 504. Kennedy further testified that, in his opinion, the track would have
commanded a premium royalty under a negotiated license agreement because the
“invention allows its seller to differentiate itself from a host of competitors who are
making a generic product with whom it is competing in a way that is proprietary and
exclusive, and it gives [the seller] a significant edge over [its] competition.” Id. at 51819.
Despite this evidence, the district court concluded that PlayWood's concept had no
economic value. The court's conclusion was based, in part, on the fact that PlayWood's
prototype did not work perfectly; as noted by the court, the first set of cuts were too
shallow to produce sound and the second set of cuts were too deep to permit the train to
roll smoothly across the track. In the district court's view, even if the concept of cutting
grooves into the wooden track in order to produce noise originated with Clausi, the
concept lacked value until it was refined, developed and manufactured by Learning
22
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Curve.
We cannot accept the district court's conclusion because it is belied by the evidence. At
trial, Kennedy was asked whether, in his opinion, the fact that PlayWood's prototype did
not work perfectly affected the value of PlayWood's concept, and he testified that it did
not. See Trial Tr. at 578. Kennedy testified that he would assign the same value to
PlayWood's concept as it was conceived on February 18, 1993, as he would the finished
product that became known as Clickety-Clack Track TM because, at that time, he would
have known “that most of the design [had] already been done and that [he] just need[ed]
to go a little bit further to make it really lovely.” Id. at 578. Kennedy further testified
that it was standard practice in the industry for a license to be negotiated based on a
prototype (much like the one PlayWood disclosed to Learning Curve) rather than a
finished product and that the license generally would cover the prototypical design, as
well as any enhancements or improvements of that design. See Trial Tr. at 500-01.
Based on this testimony, we cannot accept the district court's conclusion that PlayWood's
concept possessed no economic value.
It is irrelevant under Illinois law that PlayWood did not actually use the concept in its
business. “[T]he proper criterion is not ‘actual use’ but whether the trade secret is ‘of
value’ to the company.” Syntex Ophthalmics, Inc. v. Tsuetaki, 701 F.2d 677, 683 (7th
Cir.1983).FN6 Kennedy's testimony was more than sufficient to permit the jury to
conclude that the concept was “of value” to PlayWood. It is equally irrelevant that
PlayWood did not seek to patent its concept. So long as the concept remains a secret,
i.e., outside of the public domain, there is no need for patent protection. Professor
Milgrim makes this point well: “Since every inventor has the right to keep his invention
secret, one who has made a patentable invention has the option to maintain it in secrecy,
relying upon protection accorded to a trade secret rather than upon the rights which
accrue by a patent grant.” 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.08[1], at
1-353 (2002). It was up to PlayWood, not the district court, to determine when and how
the concept should have been disclosed to the public.
FN6. Both the Uniform Trade Secrets Act and the Restatement (Third) of Unfair
Competition expressly reject prior use by the person asserting rights in the
information as a prerequisite to trade secret protection. See Unif. Trade Secrets
Act § 1 cmt. (1990) (“The broader definition in the proposed Act extends
protection to a plaintiff who has not yet had an opportunity or acquired the means
to put a trade secret to use.”); Restatement (Third) of Unfair Competition § 39
cmt. e (1995) (“Use by the person asserting rights in the information is not a
prerequisite to protection under the rule stated in this Section,” in part, because
such a “requirement can deny protection during periods of research and
23
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
development and is particularly burdensome for innovators who do not possess the
capability to exploit their innovations.”).
5. Amount of time, effort and money expended by PlayWood in developing its
concept
PlayWood expended very little time and money developing its concept; by Clausi's own
account, the cost to PlayWood was less than one dollar and the time spent was less than
one-half hour. The district court determined that “[s]uch an insignificant investment is ...
insufficient as a matter of Illinois law to establish the status of a ‘trade secret.’ ” R.202
at 16. We believe that the district court gave too much weight to the time, effort and
expense of developing the track.FN7
FN7. Professor Milgrim, for one, rejects any per se requirement of developmental
costs:
Where cost is referred to it is almost always invariably incidental to other, basic
definitional elements, such as secrecy. Since it is established that a trade secret
can be discovered fortuitously (ergo, without costly development), or result purely
from the exercise of creative facilities, it would appear inconsistent to consider
expense of development of a trade secret as an operative substantive element.
See 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.02[2], at 1-146 & 1-150
(2002) (internal footnotes omitted).
Although Illinois courts commonly look to the Restatement factors for guidance in
determining whether a trade secret exists, as we have noted earlier, the requisite statutory
inquiries under Illinois law are (1) whether the information “is sufficiently secret to
derive economic value, actual or potential, from not being generally known to other
persons who can obtain economic value from its disclosure or use;” and (2) whether the
information “is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy or confidentiality.” 765 ILCS 1065/2(d). A significant expenditure
of time and/or money in the production of information may provide evidence of value,
which is relevant to the first inquiry above. However, we do not understand Illinois law
to require such an expenditure in all cases.
As pointed out by the district court, several Illinois cases have emphasized the
importance of developmental costs. However, notably, none of those cases concerned
the sort of innovative and creative concept that we have in this case. Indeed, several of
the cases in Illinois that emphasize developmental costs concern compilations of data,
24
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
such as customer lists. In that context, it makes sense to require the expenditure of
significant time and money because there is nothing original or creative about the alleged
trade secret. Given enough time and money, we presume that the plaintiff's competitors
could compile a similar list.
Here, by contrast, we are dealing with a new toy design that has been promoted as “the
first significant innovation in track design since the inception of wooden train systems.”
PlayWood's Tr. Ex.71. Toy designers, like many artistic individuals, have intuitive
flashes of creativity. Often, that intuitive flash is, in reality, the product of earlier
thought and practice in an artistic craft. We fail to see how the value of PlayWood's
concept would differ in any respect had Clausi spent several months and several thousand
dollars creating the noise-producing track. Accordingly, we conclude that PlayWood's
lack of proof on this factor does not preclude the existence of a trade secret.
6. Ease or difficulty with which PlayWood's concept could have been properly
acquired or duplicated by others
Finally, we also believe that there was sufficient evidence for the jury to determine that
PlayWood's concept could not have been easily acquired or duplicated through proper
means. PlayWood's expert witness, Michael Kennedy, testified: “This is a fairly simple
product if you look at it. But the truth is that because it delivers feeling and sound as
well as appearance, it isn't so simple as it first appears. It's a little more elegant, actually,
than you might think.” Trial Tr. at 504. In addition to Kennedy's testimony, the jury
heard that Learning Curve had spent months attempting to differentiate its track from
Brio's before Clausi disclosed PlayWood's concept of noise-producing track. From this
evidence, the jury could have inferred that, if PlayWood's concept really was obvious,
Learning Curve would have thought of it earlier.
Despite this evidence, the district court concluded that PlayWood's concept was not a
trade secret because it could have been easily duplicated, stating that “[h]ad PlayWood
succeeded in producing and marketing [the] notched track, the appearance of the track
product itself would have fully revealed the concept PlayWood now claims as a secret.”
R.202 at 5-6. Of course, the district court was correct in one sense; PlayWood's own
expert recognized that, in the absence of patent or copyright protection, the track could
have been reverse engineered just by looking at it. See Trial Tr. at 562. However, the
district court failed to appreciate the fact that PlayWood's concept was not publicly
available. As Professor Milgrim states: “A potent distinction exists between a trade
secret which will be disclosed if and when the product in which it is embodied is placed
on sale, and a ‘trade secret’ embodied in a product which has been placed on sale, which
product admits of discovery of the ‘secret’ upon inspection, analysis, or reverse
25
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
engineering.” 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.05[4], at 1-228
(2002). “Until disclosed by sale the trade secret should be entitled to protection.” Id.;
see also 2 Rudolf Callmann, The Law of Unfair Competition, Trademarks and
Monopolies § 14.15, at 14-123 (4th ed. 2003) (“The fact that a secret is easy to
duplicate after it becomes known does not militate against its being a trade secret prior to
that time.”). Reverse engineering can defeat a trade secret claim, but only if the product
could have been properly acquired by others, as is the case when the product is publicly
sold. Here, PlayWood disclosed its concept to Learning Curve (and Learning Curve
alone) in the context of a confidential relationship; Learning Curve had no legal
authority to reverse engineer the prototype that it received in confidence. See Laff v.
John O. Butler Co., 64 Ill.App.3d 603, 21 Ill.Dec. 314, 381 N.E.2d 423, 433 (1978) (“[A]
trade secret is open to anyone, not bound by a confidential relationship or a contract with
the secret's owner, who can discover the secret through lawful means.”). Accordingly,
we must conclude that the jury was entitled to determine that PlayWood's concept could
not easily have been acquired or duplicated through proper means.
B. Exemplary Damages
The Illinois Trade Secrets Act authorizes exemplary damages of up to twice the amount
of compensatory damages if there was a “willful and malicious misappropriation.” 765
ILCS 1065/4(b). The jury was not given an instruction on exemplary damages because
the district court granted Learning Curve's motion for judgment as a matter of law on this
issue prior to closing argument. See Trial Tr. at 1355. PlayWood submits that the jury
should have been permitted to determine whether Learning Curve's intentional
misappropriation of PlayWood's trade secret in the realistic looking and sounding toy
railroad track justified an award of exemplary damages. *** We agree with PlayWood
that a rational jury could determine that exemplary damages are justified in this case.
Specifically, we believe that a rational jury could determine that Learning Curve
intentionally misappropriated PlayWood's trade secret in the noise-producing track and
then attempted to conceal the misappropriation by creating false evidence of prior
independent development. Accordingly, we remand this case to the district court with
the instruction to hold a jury trial on exemplary damages. We leave it to the district court
on remand to consider PlayWood's request for attorneys' fees. See 765 ILCS 1065/5(iii)
(permitting the court to award reasonable attorneys' fees to the prevailing party where
“willful and malicious misappropriation exists”).
Conclusion
For the foregoing reasons, the judgment of the district court is reversed, and the jury's
26
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
verdict is reinstated. The case is remanded to the district court for a jury trial on
exemplary damages and for consideration of attorneys' fees by the court. PlayWood may
recover its costs in this court.
Reversed And Remanded.
MANGREN RESEARCH AND DEVELOPMENT CORPORATION
v.
NATIONAL CHEMICAL COMPANY, INCORPORATED
United States Court of Appeals, Seventh Circuit.
Decided July 3, 1996.
Before MANION, ROVNER, and EVANS, Circuit Judges.
ILANA DIAMOND ROVNER, Circuit Judge.
This diversity case involves a misappropriation claim under the Illinois Trade Secrets Act
(“ITSA”), 765 ILCS 1065/1 et seq. Mangren Research and Development Corporation
(“Mangren”) contends that defendants misappropriated its trade secrets in the course of
developing and marketing a competing mold release agent. The claim was tried to a
jury, which found for Mangren and awarded $252,684.69 in compensatory damages and
$505,369.38 in exemplary damages. The district court entered judgment on the jury's
verdict and later denied defendants' renewed motion for judgment as a matter of law or
for a new trial.
The court also awarded Mangren its attorney's fees and costs.
Defendants contend in this appeal that Mangren did not establish any protectable trade
secrets under the Illinois statute, or that defendants had misappropriated any such secrets.
They further argue that the jury's compensatory damage award is excessive and that there
is no evidentiary basis for exemplary damages. For the reasons that follow, we reject
defendants' arguments and affirm the judgment below.
I.
A.
27
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Mangren's story is one of a grass-roots operation that made good. The company was
founded in 1974 by Ted Blackman and Peter Lagergren while they were chemistry
students at the University of Texas. Mangren initially manufactured dog shampoo and
industrial cleaners and solvents in a garage that belonged to Blackman's father-in-law.
Eventually, however, the company began to produce mold release agents. Rubber and
plastics manufacturers apply such agents to the molds and presses they use in the
manufacturing process. Typically, the end-product is formed by filling a mold or press
with a liquified rubber or plastic and then heating, which causes the liquid to solidify and
to take the shape of the vessel containing it. The mold release agent is designed to
prevent the solidifying substance from sticking to the mold during this process.
In the mid-1970s, Masonite was a major user of mold release agents. At the time,
Masonite was using a DuPont product called Vydax that was primarily composed of a
flurotelemer (a type of fluorocarbon).
Vydax was quite expensive, however, and
Masonite asked Mangren to attempt to develop a cheaper mold release agent that would
be even more effective. Blackman and Lagergren then began to study and to experiment
with different component chemicals. They decided that the key ingredient in their mold
release agent would be a fluorocarbon resin that would impart a low surface energy to the
molding surface. After eighteen months of study and testing, Mangren found that a
particular type of polytetrafluoroethylene (“PTFE”) performed this function. This type
of PTFE had three essential characteristics: (1) it was highly degraded; (2) it had a low
molecular weight; and (3) it had low tensile strength. At the time, PTFEs having these
characteristics were used only as additives in manufacturing processes; they had never
before been used as the primary component of a mold release agent. Indeed, the
available literature indicated that this type of PTFE was unsuited for such an application.
Mangren first began selling a mold release agent that included TL-102, a highly degraded
PTFE that had a low molecular weight and low tensile strength, in 1976. Before
purchasing Mangren's product, Masonite tested it extensively to ensure its effectiveness.
Masonite eventually approved the product and began using it with great success.
Once the formula was developed, Mangren's mold release agent was relatively
inexpensive to produce.FN1 Because the product was extremely valuable to Masonite,
however, Mangren was able to price its product high and to earn a considerable profit.
Indeed, Mangren's prices caused Masonite to investigate other potential suppliers and, at
one point, even to attempt to develop its own mold release agent. Yet Masonite was
unable to locate or to develop a mold release agent that could match the effectiveness of
Mangren's product.
28
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
FN1. Over time, Mangren developed other formulations of its original mold
release agent, but each utilized the same type of PTFE.
Having had considerable success selling to Masonite, Mangren decided to market its
product to others as well. It first compiled a list of companies that produced molded
rubber and plastic products. Yet, because not all of those manufacturers would have the
equipment necessary to use Mangren's mold release agent, the company contacted each
one individually, explaining its product and the equipment needed to use it. In this way,
Mangren developed a list of potential customers, but only after devoting a considerable
amount of time and effort to the project.
Even as its sales grew, Mangren remained a small company, never having more than six
employees at any one time. Because its success depended on the uniqueness of its mold
release agent, Mangren took a number of steps to ensure that its formula remained secret.
First, all employees were required to sign a confidentiality agreement, and nonemployees were not permitted in the company's laboratory. Once chemical ingredients
were delivered to the company's premises, moreover, the labels identifying those
ingredients were removed and replaced with coded labels understood only by Mangren
employees. The company's financial and other records also referred to ingredients only
by their code names.
B.
The seeds of the present lawsuit were planted when Mangren made two ill-fated hiring
decisions in the 1980s. First, it hired Rhonda Allen in 1986 to be its office manager.
Eventually, however, Allen became Mangren's sales manager, a position that provided
her access to Mangren's customers and its pricing policies. In 1988, Mangren hired
Larry Venable, an organic chemist, to help Blackman develop a chromium-free mold
release agent. Although Venable did not have prior experience with PTFE-based mold
release agents, he and Blackman succeeded in developing a chromium-free product that
also used a highly degraded PTFE with low molecular weight and low tensile strength.
For reasons not relevant here, Mangren terminated the employment of Allen and Venable
in 1989. After holding two intervening jobs, Venable met William Lerch early in 1990.
Lerch had recently incorporated defendant National Chemical Company, Inc. (“National
Chemical”), which was but one of a number of companies he then owned. Venable told
Lerch about his Mangren experience and about an idea he had for developing a mold
release agent to be used in the rubber industry. Lerch was excited about the prospect and
inquired about the market for such a product. Venable responded that Masonite was a
29
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
large user and therefore a potential customer.
The two discussed the possibility that they might be sued by Mangren if they developed a
competing mold release agent. Venable was especially concerned because he realized
that any product he could develop would be similar to Mangren's mold release agent. He
knew, for example, that a mold release agent using TL-102-the PTFE that Mangren usedwould be “potentially troublesome” and probably would prompt a lawsuit. Lerch told
Venable not to worry about a misappropriation suit and explained that he had once been
accused of trade secret infringement but had won the case by changing one ingredient or
proportion of ingredients in creating his product. Lerch laughed and said the same thing
would happen here.
Shortly thereafter, Lerch and Venable incorporated defendant
National Mold Release Company to manufacture the mold release agent that National
Chemical would sell.
Venable then set about developing a mold release agent that would be more effective than
Mangren's product. The agent he produced, like Mangren's, used a highly degraded
PTFE that had a low molecular weight and low tensile strength. For the most part,
Venable used a PTFE designated as TL-10, although he at times also used TL-102, the
very same PTFE used by Mangren.
Venable then recommended that Lerch hire Allen to market defendants' product. Lerch
knew that Allen, too, was a former Mangren employee. Defendants hired Allen as a vice
president and assigned her the responsibility of developing a customer base for their mold
release agent. From their days at Mangren, Venable and Allen knew that company's
customers and pricing policies. Allen therefore approached Mangren customers with the
news of defendants' new mold release agent and quoted a slightly lower price for
defendants' product than that charged by Mangren.
Allen contacted Masonite, for
example, a company with whom she had dealt on behalf of Mangren, and informed them
about National Chemical and the mold release agent it had developed.
Masonite
expressed interest, and after at least one preliminary test and one control test, defendants
were able to qualify their mold release agent for use at Masonite. Masonite then began
purchasing defendants' product.
Venable and Allen left defendants in April 1991. Venable began to work as a consultant
for Bash Corporation (“Bash”), a Chicago-based construction supply company. Venable
provided Bash with a mold release agent formula that was substantially derived from
defendants' formula. Allen, whom Bash had hired on Venable's recommendation, then
presented Bash's product to Masonite as the same high quality product she had sold on
behalf of National Chemical. Indeed, in a letter notifying Masonite of her association
with Bash, Allen represented that:
This change will not affect Masonite in any way, except for the better. You can still
30
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
expect the same quality coatings and service I have provided you with in the past.... The
only change will be in my company name and address. Even the names of the coatings
will not change.
(Joint Ex. 21.) Because of its similarity to defendants' mold release agent, Bash was
quickly able to qualify its product for use at Masonite and to begin selling to that
company. Early in 1992, however, Bash went out of business, prompting Allen to
incorporate Bash Chemical Corporation (“Bash Chemical”) in Texas. That company
then continued to manufacture and market the same mold release agent previously sold
by the Illinois-based Bash.
C.
Mangren filed this suit in May 1993, after sales of its mold release agent markedly
declined in the three previous years.
Mangren alleged that defendants had
misappropriated its mold release agent formula, and specifically its use of a highly
degraded PTFE that had a low molecular weight and low tensile strength. Mangren also
alleged the misappropriation of its customer list and pricing information. Mangren
sought to recover the profits it lost due to defendants' misappropriation, including profits
lost through sales of PTFE-based mold release agents by defendants and Bash, and profits
lost when Mangren lowered its prices to meet defendants' competition. See 765 ILCS
1065/4(a).
The jury found for Mangren and awarded compensatory damages of
$252,684.69. Because it found defendants' misappropriation to have been “willful and
malicious,” moreover, the jury awarded exemplary damages of $505,369.38, twice the
compensatory damage award. See 765 ILCS 1065/4(b). The district court subsequently
denied defendants' renewed motion for judgment as a matter of law (see Fed.R.Civ.P.
50(b)), as well as its motion for a new trial (see Fed.R.Civ.P. 59). Based on the jury's
finding of a willful and malicious misappropriation, the district court awarded Mangren
$113,426.50 in attorney's fees. See 765 ILCS 1065/5.
II.
Defendants first contend that Mangren failed to establish at least one protectable trade
secret under Illinois law. Even if it did, moreover, defendants argue that there was no
misappropriation of that trade secret.
In denying defendants' renewed motion for
judgment as a matter of law or for a new trial, the district court found that the trial
evidence was sufficient to support the jury's verdict. We review de novo the denial of
defendants' renewed motion for judgment as a matter of law, but in doing so, we view the
evidence in the light most favorable to Mangren and draw all reasonable inferences in its
favor. LaFollette v. Savage, 63 F.3d 540, 543-44 (7th Cir.1995); DeBiasio v. Illinois
31
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Cent. R.R., 52 F.3d 678, 682 (7th Cir.1995), cert. denied, 516 U.S. 1157, 116 S.Ct. 1040,
134 L.Ed.2d 188 (1996). In this diversity case, we apply the federal standard for
judgments as a matter of law, meaning that we will reverse only if no reasonable person
could have found that Mangren established the challenged aspects of its claim. Mayer v.
Gary Partners and Co., Ltd., 29 F.3d 330, 335 (7th Cir.1994); Fed.R.Civ.P. 50(a). Our
review of the district court's denial of the alternative motion for new trial is even more
limited. As LaFollette explains, a new trial is warranted only “where the jury's verdict is
against the weight of the evidence, and because that decision is committed to the district
court's discretion, we will not disturb it except under exceptional circumstances showing
a clear abuse of discretion.” 63 F.3d at 543-44 (internal quotations and citations
omitted).FN3
FN3. Although Mangren asserted below that defendants had misappropriated two
distinct trade secrets-the formula for its mold release agent and its customer list
and pricing information - the jury was not asked to make findings as to each but
instead returned a general verdict in Mangren's favor. That verdict must be
sustained if the evidence supports either aspect of Mangren's claim. Composite
Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir.1992)
(citing Griffin v. United States, 502 U.S. 46, 112 S.Ct. 466, 116 L.Ed.2d 371
(1991)).
We therefore confine our discussion to whether the formula for
Mangren's mold release agent was a trade secret and whether that secret was
misappropriated by defendants. We express no opinion on whether the evidence
also was sufficient to establish the customer list aspect of Mangren's claim.
A.
Under the ITSA, the term “trade secret” means
information, including but not limited to, technical or non-technical data, a
formula, pattern, compilation, program, device, method, technique,
drawing, process, financial data, or list of actual or potential customers or
suppliers, that:
(1) is sufficiently secret to derive economic value, actual or potential, from
not being generally known to other persons who can obtain economic value
from its disclosure; and
(2) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy or confidentiality.
32
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
765 ILCS 1065/2(d).
This definition codifies two requirements for trade secret
protection that had developed under the state's common law, both of which focus on the
secrecy of the information sought to be protected. [Citations omitted.] Defendants argue
that Mangren failed to establish either element here.
Under the first statutory requirement, the information at issue “must be sufficiently secret
to impart economic value to both its owner and its competitors because of its relative
secrecy.” George S. May, 195 Ill.Dec. at 189, 628 N.E.2d at 653. This requirement
precludes trade secret protection for information generally known within an industry even
if not to the public at large. Id.; see also ILG Indus., Inc. v. Scott, 49 Ill.2d 88, 273
N.E.2d 393, 396 (1971); Minogue, 129 Ill.Dec. at 371, 535 N.E.2d at 1136. A plaintiff
like Mangren must prove that the real value of the information “lies in the fact that it is
not generally known to others who could benefit [from] using it.” Minogue, 129 Ill.Dec.
at 371, 535 N.E.2d at 1136. The evidence in this case presents a textbook example of
information satisfying this requirement.
When Mangren first embarked on its mission to develop for Masonite a more effective
mold release agent, Masonite was purchasing a product from DuPont that employed a
flurotelomer as its primary ingredient. After eighteen months of intensive research and
testing, Blackman and Lagergren found that a particular type of PTFE (one that was
highly degraded and that had a low molecular weight and low tensile strength) would
make their mold release agent more effective and less expensive than that of DuPont.
When they made this discovery, the prevailing view was that such a PTFE was unsuited
for the type of application that Blackman and Lagergren envisioned. Thus, Mangren was
the first to successfully use this particular type of PTFE in a mold release agent.
Although defendants are quick to point out that “[m]erely being the first or only one to
use particular information does not in and of itself transform otherwise general
knowledge into a trade secret” (George S. May, 195 Ill.Dec. at 190, 628 N.E.2d at 654;
see also Minogue, 129 Ill.Dec. at 372, 535 N.E.2d at 1137), there was sufficient evidence
for the jury to conclude that Mangren was not using general knowledge at all. A
reasonable jury could find instead that Mangren had developed a distinctive formula
based on information not generally known or accepted within the industry.
Mangren proved, moreover, that secrecy imparted considerable economic value to its
new formula. Although its mold release agent was relatively inexpensive to produce,
Mangren was able to exact a substantial price because of the product's value to the
customers who used it. Masonite, in fact, attempted to find another supplier and even to
develop its own mold release agent at one point, but was unable to find or to develop an
equally effective product. Mangren, then, clearly satisfied the first of the statute's two
requirements for a trade secret.
33
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Defendants nonetheless contend that Mangren did not satisfy the second, as it did not
make a reasonable effort to maintain the secrecy of its formula.
They argue, for
example, that all of Mangren's employees (of which there were never more than six at a
time) knew Mangren's formula, that an observer of Mangren's premises could identify the
formula's ingredients because Mangren did not replace existing labels with coded labels
until ingredients had been delivered, and that Mangren could not produce signed
agreements from Venable or Allen promising to maintain the confidentiality of its
formula.
Arrayed against these purported deficiencies, however, is considerable evidence that the
company made substantial efforts to protect the secrecy of its formula.
Although
Mangren was unable to produce confidentiality agreements for Venable and Allen, it
presented to the jury signed agreements for other Mangren employees. Blackman
testified, moreover, that each employee (including Venable and Allen) was required to
sign a confidentiality agreement and that employees were further advised of the secret
status of the company's mold release agent formula. Lagergren added that only Mangren
employees were permitted in the company's laboratory. Mangren also demonstrated that
it regularly replaced identifying labels with coded labels once ingredients were delivered
to its premises. Those ingredients were then referred to in Mangren's financial and other
records only by their code names. Even if Mangren could have taken further protective
measures just in case, as defendants suggest, a devious potential competitor were to stake
out its premises and attempt to identify the chemicals delivered there, whether or not the
actions Mangren actually took were sufficient to satisfy the ITSA's reasonableness
standard was a question for the jury. See Rockwell Graphic Sys., Inc. v. DEV Indus.,
Inc., 925 F.2d 174, 179-80 (7th Cir.1991). The evidence was certainly sufficient to
enable reasonable jurors to conclude that Mangren made ample efforts to maintain the
secrecy of its formula.
B.
Having determined that Mangren established a protectable trade secret in its mold release
agent formula, we turn to the question of misappropriation.
The ITSA defines a
“misappropriation” in pertinent part as follows:
[D]isclosure or use of a trade secret of a person without express or implied
consent by another person who:
* * * * * *
34
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
(B) at the time of disclosure or use, knew or had reason to know that
knowledge of the trade secret was:
(I) derived from or through a person who utilized improper means to
acquire it:
(II) acquired under circumstances giving rise to a duty to maintain its
secrecy or limit its use; or
(III) derived from or through a person who owed a duty to the person
seeking relief to maintain its secrecy or limit its use....
765 ILCS 1065/2(b)(2). Defendants argue that they did not “use” Mangren's trade secret
under this definition because their mold release agent formula is not the same as
Mangren's. Although they concede that the primary ingredient of their formula is also a
highly degraded PTFE with a low molecular weight and low tensile strength, defendants
emphasize that many of the other ingredients are different. Furthermore, the specific
PTFE used in defendants' product is typically not the same as the one used by Mangren,
although its essential characteristics are identical. Finally, defendants use a slightly
smaller volume of PTFE in their mold release agent-twenty as opposed to twenty-three
percent in Mangren's product. These differences, in defendants' view, should have
precluded the jury from finding that they misappropriated Mangren's formula.
Defendants' argument, however, is inconsistent even with the jury instruction to which
they agreed below. The jury was instructed that:
In order for you to find that defendants misappropriated one of Mangren's
trade secrets, you do not have to find that defendants copied or used each
and every element of the trade secret. You may find that defendants
misappropriated Mangren's trade secrets even if defendants created a new
product if defendants could not have done so without use of Mangren's
trade secret.
(Tr. at 781.) That instruction, as defendants apparently conceded below, is consistent
with traditional trade secret law. We observed in In re Innovative Constr. Sys., Inc., 793
F.2d 875, 887 (7th Cir.1986), for example, that “the user of another's trade secret is liable
even if he uses it with modifications or improvements upon it effected by his own efforts,
so long as the substance of the process used by the actor is derived from the other's
secret.” (Internal quotations omitted). Although that decision involved Wisconsin law,
the law of Illinois is in accord. [Citations omitted.] We have observed before, in fact, that
if trade secret law were not flexible enough to encompass modified or even new products
that are substantially derived from the trade secret of another, the protections that law
provides would be hollow indeed. Innovative Constr., 793 F.2d at 887; American Can
Co. v. Mansukhani, 742 F.2d 314, 329 (7th Cir.1984).
35
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Mangren emphasizes, moreover, that the trade secret misappropriated here was not
necessarily its overall formula, but the essential secret ingredient-a highly degraded PTFE
having a low molecular weight and low tensile strength, which had previously been
considered unsuitable for such an application. Defendants do not contest that they use a
similar PTFE in their mold release agent and that it was Venable, the former Mangren
employee, who revealed to them that such a PTFE could be used effectively. Once
Venable let defendants in on the secret and defendants then used that secret to develop
their own product, there plainly was a misappropriation even if defendants' product was
not identical to Mangren's. In other words, reasonable jurors could conclude from the
evidence in this case that defendants' mold release agent was substantially derived from
Mangren's trade secret, for defendants could not have produced their product without
using that secret. Defendants were not therefore entitled to judgment as a matter of law
or to a new trial on the trade secret and misappropriation issues.
This hyperbolic argument misses the mark. Mangren has never suggested that because it
was the first to develop a PTFE-based mold release agent, it has the exclusive right to
produce and market such a product-as if it held a patent on the product, for example.
Mangren would certainly have no claim for misappropriation if another company, after
months of independent research and testing, developed a mold release agent using a
similar PTFE. Under that scenario, of course, there would be no misappropriation at all
because our hypothetical company would have developed its product in the same way
that Mangren did-through its own ingenuity. See American Can, 742 F.2d at 329. But
if, as Mangren proved to the jury's satisfaction in this case, the other company markets a
PTFE-based mold release agent that it developed not through independent research and
testing, but by using Mangren's trade secret, there was a misappropriation for which the
law provides a remedy.
See PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1270 (7th
Cir.1995) (describing this scenario as “a traditional trade secret case”). That conclusion,
which is actually where Mangren's argument leads, makes neither bad law nor bad sense.
III.
We turn then to the issue of damages. As we have explained, the jury awarded Mangren
$252,684.69 in compensatory damages and $505,369.38 in exemplary damages.
Defendants challenge only one aspect of the compensatory damage award, but contend
that the entire exemplary damage award must go. *** Under the ITSA, a party proving
trade secret misappropriation is entitled to recover the “actual loss caused by [the]
misappropriation,” as well as any unjust enrichment not taken into account in computing
actual loss. *** In denying a new trial on damages, the district court believed there was
sufficient evidence to permit a reasonable jury to conclude that the Bash sales represented
lost profits to Mangren that were caused by defendants' misappropriation.
36
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
By agreement of the parties below, the jury received the following instruction on
compensatory damages:
Damages can include both the actual loss caused by defendants'
misappropriation and the unjust enrichment caused by defendants'
misappropriation that is not taken into account in computing actual loss.
Here, Mangren's actual loss would be the profit it would have made on the
product it would have sold but for the defendants' misappropriation. The
unjust enrichment would be the profits others made because of defendants'
misappropriation.
(Tr. at 782.) Under this instruction, Mangren demonstrated to the jury's satisfaction that
absent defendants' misappropriation, it would have made the sales ultimately made by
Bash. Mangren proved, for example, that it was Venable who provided Bash with its
mold release agent formula, a formula that Venable had developed in conjunction with
Lerch while he was employed by defendants.
Bash's mold release agent was
substantially similar to and even carried the same name as defendants' product, which
enabled Bash to quickly qualify its product for use at Masonite. Allen also represented
to Masonite that Bash's product was the same as National's, and that only the company
name had changed.
A reasonable jury could conclude from this evidence that if
defendants had not financed Venable's development of a mold release agent derived from
Mangren's trade secret, and also had not supported Allen's subsequent effort to market
that product to Mangren customers like Masonite, Bash would never have gotten its
hands on Mangren's trade secret and would not have made the sales at issue here. A
reasonable jury could therefore conclude that but for defendants' misappropriation,
Mangren would have made the disputed sales. The fact that defendants may not have
personally benefitted from Bash's sales is not dispositive under the jury instruction so
long as defendants' misappropriation was a “but for” cause of the third party's sales. The
district court thus did not abuse its discretion in refusing to grant defendants a new trial
on damages.
[Exemplary damages were also affirmed.]
37
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
A. C. CROUCH
v.
SEWING MACHINERY COMPANY, INC.
Court of Civil Appeals of Texas, Fourth District, San Antonio
468 S.W.2d 604; 1971 Tex. App. LEXIS 2584
June 9, 1971
CADENA, J.
Defendants, A. C. Crouch and W. L. Bedford, appeal from an order temporarily
enjoining them from soliciting the customers of, or contacting the suppliers represented
by their former employer, Swing Machinery Company, Inc., plaintiff below.
Plaintiff alleged that Crouch had been its office manager, while Bedford had been one
of plaintiff's salesmen. According to plaintiff's petition:
1. As office manager, Crouch occupied a position of trust and confidence, and had
access to plaintiff's trade secrets, customer lists, mailing lists and price lists.
2. Bedford, as a salesman, had access to such information because he occupied a
position of trust and confidence. At the time that he entered plaintiff's employ, Bedford
agreed that he would not engage in a business competitive with plaintiff for a period of
five years after termination of his employment.
3. Both Crouch and Bedford, after terminating their employment with plaintiff by
resignation, were employed by Southwest Vacu-Blast and Industrial Sales, Inc., a newly
organized company which was in direct competition with plaintiff. Both Crouch and
Bedford immediately began to call upon the customers and accounts of plaintiff,
soliciting their business. In soliciting plaintiff's customers, defendants made use of
plaintiff's trade secrets.
At the outset, we affirm the order below insofar as it applies to William L. Bedford.
The evidence shows that at the time he entered plaintiff's employ, Bedford signed an
agreement not to engage in post-employment competition with plaintiff. Bedford has
failed to present any evidence which even tends to indicate that such agreement is
unreasonable, and the record discloses no reason why he should not be compelled to
abide by his agreement pending trial on the merits.
38
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Crouch never agreed not to compete with plaintiff. On the effective date of his
resignation, Crouch called on plaintiff for his accrued salary. His salary was withheld
until he signed an instrument stating that he had been entrusted with trade secrets, and
that he agreed not to divulge them. Despite the circumstances under which the instrument
was signed by Crouch, it is, perhaps, some evidence that he had, in fact, been entrusted
with some trade secrets. But even if his agreement not to divulge such secrets is
enforcible, it imposes on him no obligation greater than that which is imposed on him by
the common law doctrine, which prohibits an ex-employee from disclosing, or using for
his own benefit and to the detriment of his former employer, any confidential information
obtained by virtue of his former employment. Hyde Corporation v. Huffines, 158 Tex.
566, 314 S.W.2d 763 (1958).
With reference to Crouch, we consider first the propriety of that portion of the order
which prohibits him from "contacting" suppliers whom plaintiff represented in the San
Antonio area. In this connection, plaintiff's pleadings fail to allege that the identity of
such suppliers is not generally known to all persons engaged in the same business as
plaintiff. Plaintiff's evidence discloses that the identity of such suppliers can be easily
ascertained by any interested person merely by referring to trade journals. In fact, under
the terms of plaintiff's sales representative agreement with one supplier, plaintiff was
under a duty to advertise, at its own expense, by inserting at least one display listing in
the classified section (yellow pages) of the telephone directories in all cities within
plaintiff's trade area which prominently displayed the name of such supplier. We find
nothing in the record to indicate that such information is not of a routine nature. Such
information is nothing more than that which is necessarily known to all persons engaged
in the business. Although there are cases where courts have gone to rather extreme
lengths in protecting business information which represents nothing more than the normal
accretion of day-to-day routines, 43 A.L.R. 2d, Anno: Employee -- Restrictive Covenant
-- Area, pp. 94, 168-70 (1955), we do not believe that knowledge of the ordinary routines
of a business is sufficient to justify a restriction on a person's post-employment economic
mobility.
In reaching the conclusion that the temporary injunction prohibiting defendant, Crouch,
from contacting the suppliers must be dissolved, we do not overlook the fact that we are
reviewing the action of the trial court in granting a temporary injunction. As our Supreme
Court has said, we may not reverse the decision below unless it appears that the trial
court abused its discretion, and "there is no abuse of discretion in the issuance of a writ if
the petition alleges a cause of action and the evidence adduced tends to sustain it."
Transport Co. of Texas v. Robertson Transports, Inc., 152 Tex. 551, 261 S.W.2d 549, 552
(1953). Admittedly, the trial court has a wide discretion in determining whether a
temporary injunction shall be granted or denied. But to authorize the issuance of a
39
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
temporary injunction, the applicant has the "burden of not only pleading facts which, if
proved, would entitle it to a permanent injunction, but, as well, of offering evidence
tending to prove its probable right thereto on final hearing and of probable injury in the
interim." Millwrights Local Union No. 2484 v. Rust Engineering Co., 433 S.W.2d 683,
686 (Tex. 1968). Far from tending to show a breach of any duty by Crouch, the evidence
merely shows that Crouch, after he left plaintiff's employ, was making use of information
which is necessarily known to all persons in the trade. What is known to all cannot be
converted into confidential information worthy of equitable protection by merely
whispering into the ear of even the most highly trusted employee.
The customer list cases stand on the periphery of that area of the law which can best be
described as "the trade secret quagmire. " The confusion created by decisions concerning
the use of customer lists and customer contact by ex-employees is due to the fact that the
decisions seemingly turn on arbitrary distinctions unrelated to trade practices. n1
n1 In the numerous decisions in this area will be found language which at least tends to
support each of the following statements: (1) Practically all customer lists will be
protected; (2) practically no such lists will be protected; (3) only written lists will be
protected; (4) only lists of retail customers will be protected. Notes: Protection and Use
of Trade Secrets, 64 Harv. L. Rev. 976, 977 (1951). ***
In the absence of an express agreement restricting the post-employment activities of an
employee, it is generally held that an ex-employee is free to compete with, and to solicit
the customers of, his former employer. Therefore, what is described as an "ordinary"
customer list is not considered a trade secret. Texas Shop Towel v. Haire, 246 S.W.2d
482, 485 (Tex. Civ. App. -- San Antonio 1952, no writ); 28 A.L.R. 3d, Anno: Customer
List -- As Trade Secrets -- Factors, pp. 7, 18 (1969).
However, the former employer will be protected in some situations. An ex-employee
will not be permitted to make use of a secret list of customers, nor of any other
confidential information obtained about the customers by virtue of his former
employment. This rule has been applied in a multitude of cases. In addition, there is
considerable language in the decisions to the effect that injunctive relief will be granted
when the defendant occupied a fiduciary relationship, such as that occupied by an officer
of a corporation or other employee who has been the repository of special trust. 73 Harv.
L. Rev. 625, 655, supra.
But neither of these two "exceptions" to the general rule against restraints on postemployment activities will explain the decisions. Admittedly, the courts have shown a
40
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
willingness to protect secret customer lists and to prevent the use by an ex-employee of
confidential information concerning the customers of his former employer. But there is
no reliable test for determining when a list is secret, nor is there agreement as to the type
of customer information which will be considered confidential. Further, the employer has
been protected in many cases where the identity of the customers could not be classified
as secret, as in the numerous cases where the courts have enjoined salesmen assigned to
service a regular route. 43 A.L.R. 2d, Anno: Employee -- Restrictive Covenant -- Area,
pp. 94, 316-21 (1958). Nor is the "fiduciary relationship" rationale particularly helpful.
The fact that certain information is divulged only to the most trusted employees may be
evidence of its confidential nature, but not all information revealed to such employees is
necessarily confidential.
Where the list of customers is not secret, some courts have been inclined to grant relief
where the employee's relationships with customers have been such as to create a
substantial risk that he may be able to divert all or a part of their business. Absent
secrecy, it is in cases where the employer's sole, or at least major, contact with his
customers is through agents that there exists a real danger that the customers will come to
regard their relationship with the agent as more important than the quality of products or
services furnished by the employer, so that some of the customers may be persuaded, or
even be willing, to forsake the employer and follow the employee. See Arthur Murray
Dance Studios of Cleveland v. Witter, 62 Ohio L. Abs. 17, 105 N.E.2d 685, 705-09
(Common Pleas, Ohio 1952), for an enlightening discussion of the
customer list
problem. The "customer contact" approach is discussed in 73 Harv. L. Rev. 625, 657-61,
supra.
It may be, as Crouch insists, that there is no evidence tending to show that the identity
of plaintiff's customers is a secret, since plaintiff's president admitted potential buyers of
the products sold by it could be ascertained by consulting the telephone directory or by
touring the industrial section of a city. However, there is evidence to the effect that the
important information relates not to the identity of particular businesses which might
purchase plaintiff's products, but the identity of officers or other employees of such
concerns who make the decisions concerning the purchase of such equipment. There is
also evidence which at least tends to show that ascertaining the identity of such key
personnel requires the expenditure of considerable time and money. While one may be
justified in viewing with skepticism plaintiff's insistence that purchasers of industrial
equipment try to keep the identities of their purchasing agents secret, such evidence
stands uncontradicted.
In addition, there is testimony, uncontradicted, that because Crouch occupied a position
of confidence, he acquired information concerning the credit ratings of plaintiff's
customers and other useful customer data which, according to plaintiff's president, were
41
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
strictly confidential and of great value to plaintiff in the conduct of his business. While
the nature of such data was described in rather general terms, and the testimony of
plaintiff's president concerning its confidential nature is not completely persuasive, in
view of his insistence that such things as "telephone manners" and general accounting
principles were also "secrets," we believe that such evidence, standing unchallenged,
prevents the conclusion that the trial court abused its discretion in issuing the temporary
injunction. See Ellis, Trade Secrets, Sec. 79 (1953).
That portion of the temporary injunction which prohibits Crouch from contacting
plaintiff's suppliers is dissolved. In all other respects the order appealed from is affirmed.
The costs of this appeal are taxed one-half to appellant, W. L. Bedford, one-fourth to
appellant, A. C. Crouch, and one-fourth to appellee, Swing Machinery Company, Inc.
CHICAGO LOCK CO.
v.
Morris v. FANBERG and Victor Fanberg
UNITED STATES COURT OF APPEALS, NINTH CIRCUIT.
676 F.2d 400
Decided May 6, 1982.
Before ELY and NORRIS, Circuit Judges, and PECKHAM, District Judge.
ELY, Circuit Judge:
The Chicago Lock Company (“the Company”), a manufacturer of “tubular” locks,
brought suit against Morris and Victor Fanberg, locksmiths and publishers of specialized
trade books, to enjoin the unauthorized dissemination of key codes for the Company's
“Ace” line of tubular locks. The District Court granted summary judgment in favor of
the Fanbergs as to the Company's federal claims of trademark infringement and unfair
competition, but held trial on the common law claim of unfair competition under former
Cal.Civ.Code s 3369.
42
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
The court concluded that the key codes for the Company's tubular locks were improperly
acquired trade secrets and enjoined distribution of the Fanbergs' compilation of those
codes. For the reasons set forth in this opinion, we reverse the District Court and order
that judgment be entered in favor of the Fanbergs.
THE FACTS
Since 1933 the Chicago Lock Company, a manufacturer of various types of locks, has
sold a tubular lock, marketed under the registered trademark “Ace,” which provides
greater security than other lock designs. Tubular Ace locks, millions of which have been
sold, are frequently used on vending and bill changing machines and in other maximum
security uses, such as burglar alarms. The distinctive feature of Ace locks (and the
feature that apparently makes the locks attractive to institutional and large-scale
commercial purchasers) is the secrecy and difficulty of reproduction associated with their
keys.
The District Court found that the Company “has a fixed policy that it will only sell a
duplicate key for the registered series ‘Ace’ lock to the owner of record of the lock and
on request of a bona fide purchase order, letterhead or some other identifying means of
the actual recorded lock owner.” Finding of Fact No. 14, Excerpt of Record at 89. In
addition, the serial number-key code correlations are maintained by the Company
indefinitely and in secrecy, the Company does not sell tubular key “blanks” to locksmiths
or others, and keys to Ace locks are stamped “Do Not Duplicate.” See Excerpt at 86-91.
If the owner of an Ace lock loses his key, he may obtain a duplicate from the Company.
Alternatively, he may have a proficient locksmith “pick” the lock, decipher the tumbler
configuration, and grind a duplicate tubular key. The latter procedure is quicker than the
former, though more costly. The locksmith will, to avoid the need to “pick” the lock
each time a key is lost, record the key code (i.e., the tumbler configuration) along with
the serial number of the customer's lock. See Excerpt at 92. Enough duplicate keys have
been made by locksmiths that substantial key code data have been compiled, albeit
noncommercially and on an ad hoc basis.
Appellant Victor Fanberg, the son of locksmith Morris Fanberg and a locksmith in his
own right, has published a number of locksmith manuals for conventional locks.
Realizing that no compilation had been made of tubular lock key codes, in 1975 Fanberg
advertised in a locksmith journal, Locksmith Ledger, requesting that individual
locksmiths transmit to him serial number-key code correlations in their possession in
exchange for a copy of a complete compilation when finished. A number of locksmiths
43
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
complied, and in late 1976 Fanberg and his father began to sell a two-volume publication
of tubular lock codes, including those of Ace locks, entitled “A-Advanced Locksmith's
Tubular Lock Codes.” In 1976 and 1977 Fanberg advertised the manuals in the
Locksmith Ledger for $49.95 and indicated that it would be supplemented as new
correlations became known. See Excerpt at 95-98. About 350 manuals had been sold at
the time of trial. The District Court found that Fanberg “had lost or surrendered control
over persons who could purchase the books,” id. at 98, meaning that nonlocksmiths could
acquire the code manuals.
The books contain correlations which would allow a person equipped with a tubular key
grinding machine to make duplicate keys for any listed Ace lock if the serial number of
the lock was known. On some models, the serial numbers appear on the exterior of the
lock face. Thus, Fanberg's manuals would make it considerably easier (and less
expensive) for a person to obtain (legitimately or illegitimately) duplicate keys to Ace
locks without going through the Company's screening process. This is what caused
consternation to the Company and some of its customers. At no time did Fanberg seek,
or the Company grant, permission to compile and sell the key codes. Nor did the
individual locksmiths seek authorization from the Company or their customers before
transmitting their key code data to Fanberg.
The Company filed a three-count complaint against the Fanbergs, alleging federal
question jurisdiction and diversity of citizenship, on December 2, 1976. The complaint,
see Excerpt at 1-12, was predicated on theories of trademark infringement under 15
U.S.C. §§ 1051 et seq., federal unfair competition under 15 U.S.C. §§ 1125(a), and
California common law unfair competition under former Cal.Civ.Code s 3369. On
November 17, 1977, Judge Enright granted summary judgment for the Fanbergs on the
federal claims, but left intact the state law claim. See Excerpt at 32-34. The complaint
was amended, see Excerpt at 38-46, and a four-day bench trial was held before Judge
Kerr on January 23-26, 1979. On November 28, 1979, Judge Kerr entered judgment in
favor of the Company and filed findings of fact and conclusions of law. See Excerpt at
75-121.
The court found that the Company's high security policy for its Ace tubular locks, of
which the confidential key code data were a part, was a “valuable business or trade
secret-type asset” of the Company, and that the Fanbergs' publication of their compilation
of these codes so undermined the Company's policy as to constitute “common law unfair
competition in the form of an unfair business practice within the meaning of Section 3369
of the Civil Code of the State of California,” as broadly interpreted in Barquis v.
Merchants Collection Association, 7 Cal.3d 94, 496 P.2d 817, 101 Cal.Rptr. 745 (1972).
Excerpt at 118-120. The court enjoined the Fanbergs from publishing or distributing any
lists of key code correlations for the Company's registered series Ace tubular locks. See
44
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Excerpt at 121.
On this appeal the Fanbergs argue that the District Court erred on three grounds: (1) that
the injunction against publication of their book constitutes a prior restraint prohibited by
the First Amendment to the United States Constitution; (2) that the statute under which
the injunction issued, former Cal.Civ.Code § 3369, is unconstitutionally vague; and (3)
that the District Court applied erroneously the common law doctrine of trade secrets in
concluding that the Fanbergs had committed an “unfair business practice” under Section
3369.
THE TRADE SECRETS CLAIM
Appellants argue that the District Court erroneously concluded that they are liable under
Section 3369 for acquiring appellee's trade secret through improper means. We agree,
and on this basis we reverse the District Court.
Although the District Court's Findings of Fact and Conclusions of Law are lengthy, the
thrust of its holding may be fairly summarized as follows: appellants' acquisition of
appellee's serial number-key code correlations through improper means, and the
subsequent publication thereof, constituted an “unfair business practice” within the
meaning of Section 3369. See Excerpt at 119-20. Even though the court did not make an
explicit finding that appellee's serial number-key code correlations were protectable trade
secrets, both appellants and appellee premise their appeal on such an “implicit” finding.
See Brief of Appellee at 13-14. We think it clear that the District Court based its decision
on a theory of improper acquisition of trade secrets, and in the following discussion we
assume arguendo that appellee's listing of serial number-key code correlations constituted
a trade secret.[FN2]
FN2. Both parties devote much of their argument to whether the Company's key
code data properly constitutes a “trade secret” within the meaning of Restatement
(First) of Torts s 757, comment b (1939). See Brief of Appellants at 30-33; Brief
of Appellees at 13-20. Although for purposes of our holding we may assume
arguendo that the correlations do constitute a trade secret, we think it clear that
because the correlations are an unpatented compilation of information, they
constitute a “trade secret” within the meaning of the Restatement as adopted by
California courts. See Sinclair v. Aquarius Electronics, Inc., 42 Cal.App.3d 216,
222, 116 Cal.Rptr. 654, 658 (1974); Restatement (First) of Torts s 757, comment b
(1939).
45
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
California courts have adopted the theory of trade secret protection set out in the
Restatement (First) of Torts, § 757, and the comments thereto, in resolving disputes
involving trade secrets. See Sinclair v. Aquarius Electronics, Inc., 42 Cal.App.3d 216,
116 Cal.Rptr. 654 (1974); Uribe v. Howie, 19 Cal.App.3d 194, 96 Cal.Rptr. 493 (1971);
Cal Francisco Investment Corp. v. Vrionis, 14 Cal.App.3d 318, 92 Cal.Rptr. 201 (1971).
Commission of this common law tort is enjoinable under the purview of “unfair
competition” and “unlawful” or “unfair business practice” under Section 3369. See
Barquis v. Merchants Collection Association, 7 Cal.3d 94, 496 P.2d 817, 101 Cal.Rptr.
745 (1972); Hesse v. Grossman, 152 Cal.App.2d 536, 313 P.2d 625, 627 (1957).
The pertinent portion of Section 757 of the Restatement provides:
One who discloses or uses another's trade secret, without a privilege to do
so, is liable to the other if
(a) he discovered the secret by improper means, or
....
(c) he learned the secret from a third person with notice of the facts that it
was a secret and that the third person discovered it by improper means ...
....
Trade secrets are protected, therefore, in a manner akin to private property, but only when
they are disclosed or used through improper means. Trade secrets do not enjoy the
absolute monopoly protection afforded patented processes, for example, and trade secrets
will lose their character as private property when the owner divulges them or when they
are discovered through proper means. “It is well recognized that a trade secret does not
offer protection against discovery by fair and honest means such as by independent
invention, accidental disclosure or by so-called reverse engineering, that is, starting with
the known product and working backward to divine the process.” Sinclair, 42
Cal.App.3d at 226, 116 Cal.Rptr. at 661.
Thus, it is the employment of improper means to procure the trade secret, rather than
mere copying or use, which is the basis of liability. Restatement (First) of Torts, s 757,
comment a (1939). The Company concedes, as it must, that had the Fanbergs bought and
examined a number of locks on their own, their reverse engineering (or deciphering) of
the key codes and publication thereof would not have been use of “improper means.”
Similarly, the Fanbergs' claimed use of computer programs in generating a portion of the
key code-serial number correlations here at issue must also be characterized as proper
reverse engineering. Excerpt at 96, 100-01; Brief of Appellee at 29-30. The trial court
found that appellants obtained the serial number-key code correlations from a
“comparatively small” number of locksmiths, who themselves had reverse-engineered the
46
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
locks of their customers. See Excerpt at 96-97. The narrow legal issue presented here,
therefore, is whether the Fanbergs' procurement of these individual locksmiths' reverse
engineering data is an “improper means” with respect to appellee Chicago Lock
Company.
The concept of “improper means,” as embodied in the Restatement, and as expressed by
the Supreme Court, connotes the existence of a duty to the trade secret owner not to
disclose the secret to others. See Restatement (First) of Torts, § 757, comment h (1939).
“The protection accorded the trade secret holder (i.e., in this case the Company) is against
the disclosure or unauthorized use of the trade secret by those to whom the secret has
been confided under the express or implied restriction of disclosure or nonuse.”
Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475, 94 S.Ct. 1879, 1883, 40 L.Ed.2d
315 (1974).
Thus, under Restatement § 757(c), appellants may be held liable if they intentionally
procured the locksmiths to disclose the trade secrets in breach of the locksmiths' duty to
the Company of nondisclosure. See Restatement (First) of Torts, § 757, comment h
(1939). Critical to the District Court's holding, therefore, was its conclusion that the
individual locksmiths, from whom the Fanbergs acquired the serial number-key code
correlations, owed an implied duty to the Company not to make the disclosures. See
Excerpt at 116.
We find untenable the basis upon which the District Court concluded that the individual
locksmiths owe a duty of nondisclosure to the Company. The court predicated this
implied duty upon a “chain” of duties: first, that the locksmiths are in such a fiduciary
relationship with their customers as to give rise to a duty not to disclose their customers'
key codes without permission, see Excerpt at 116; and second, that the lock owners are in
turn under an “implied obligation (to the Company) to maintain inviolate” the serial
number-key code correlations for their own locks, see id.
The court's former conclusion is sound enough: in their fiduciary relationship with lock
owners, individual locksmiths are reposed with a confidence and trust by their customers,
of which disclosure of the customers' key codes would certainly be a breach. This duty,
however, could give rise only to an action by “injured” lock owners against the individual
locksmiths, not by the Company against the locksmiths or against the Fanbergs.
The court's latter conclusion, that lock owners owe a duty to the Company, is contrary to
law and to the Company's own admissions. A lock purchaser's own reverse-engineering
of his own lock, and subsequent publication of the serial number-key code correlation, is
an example of the independent invention and reverse engineering expressly allowed by
trade secret doctrine. See Sinclair, 42 Cal.App.3d at 226, 116 Cal.Rptr. at 661. Imposing
47
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
an obligation of nondisclosure on lock owners here would frustrate the intent of
California courts to disallow protection to trade secrets discovered through “fair and
honest means.” See id. Further, such an implied obligation upon the lock owners in this
case would, in effect, convert the Company's trade secret into a state-conferred monopoly
akin to the absolute protection that a federal patent affords. Such an extension of
California trade secrets law would certainly be preempted by the federal scheme of patent
regulation. [Citations omitted.]
Appellants, therefore, cannot be said to have procured the individual locksmiths to breach
a duty of nondisclosure they owed to the Company, for the locksmiths owed no such
duty. The Company's serial number-key code correlations are not subject to protection
under Restatement § 757, as adopted by the California courts, because the Company has
not shown a breach of any confidence reposed by it in the Fanbergs, the locksmiths, or
the lock purchasers - i.e., it has failed to show the use of “improper means” by the
Fanbergs required by the Restatement.
The District Court's conclusion that the Fanbergs committed an “unfair business practice”
under Section 3369, therefore, must be reversed, and judgment should be entered in favor
of appellants. In view of the foregoing we find it unnecessary to reach appellants' First
Amendment and vagueness claims.
REVERSED AND REMANDED with instructions that judgment be entered in favor of
defendants-appellants.
SMITH
v.
DRAVO CORP.
UNITED STATES COURT OF APPEALS SEVENTH CIRCUIT
203 F.2d 369
April 10, 1953
48
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Before DUFFY, LINDLEY and SWAIM, Circuit Judges.
LINDLEY
Plaintiffs appeal from a judgment for defendant entered at the close of a trial by the
court without a jury. The complaint is in four counts: 1 and 2 charge an unlawful
appropriation by defendant of plaintiffs' trade secrets relating to the design and
construction and selling and leasing of freight containers; 3 and 4 aver infringement of
plaintiffs' patents Nos. 2,457,841 and 2,457,842. Under count 1 plaintiffs seek: (a) to
enjoin defendant from (1) competing with plaintiffs in the freight container business until
such time as plaintiffs shall have re-established their container in the trade and (2)
manufacturing any such container embodying the features of plaintiffs' design; (b) the
surrender and destruction of defendant's containers and drawings and tools especially
designed for the manufacture of the containers; (c) the assignment of all patents obtained
by defendant on freight containers, container ships and lifting rigs; (d) an accounting of
and payment to plaintiffs of the profits realized by defendant, together with threefold the
amount of damages suffered by plaintiffs, as a result of the alleged unlawful
appropriation of plaintiffs' trade secrets; (e) reasonable attorney's fees. Count 2 seeks
recovery in the sum of $ 1,000,000 on a theory of unjust enrichment, while counts 3 and
4 demand the customary patent infringement relief of damages and injunction. We
concern ourselves first with counts 1 and 2.
In the early 1940s Leathem D. Smith, now deceased, began toying with an idea which, he
believed, would greatly facilitate the ship and shore handling and transportation of
cargoes. As he was primarily engaged in the shipbuilding business, it was quite natural
that his thinking was chiefly concerned with water transportation and dock handling.
Nevertheless his overall plan encompassed rail shipping as well. He envisioned
construction of ships especially designed to carry their cargo in uniformly sized steel
freight containers. These devices (which, it appears, were the crux of his idea) were:
equipped with high doors at one end; large enough for a man to enter easily; weather and
pilfer proof; and bore collapsible legs, which (1) served to lock them to the deck of the
ship by fitting into recesses in the deck, or to each other, when stacked, by reason of
receiving sockets located in the upper four corners of each container, and (2) allowed
sufficient clearance between deck and container or container and container for the facile
insertion of a fork of a lift tractor, and (3) were equipped with lifting eyelets, which,
together with a specially designed hoist, made possible placement of the containers upon
or removal from a ship, railroad car or truck, while filled with cargo. The outer
dimensions of the devices were such that they would fit compactly in standard gauge
49
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
North American railroad cars, or narrow gauge South American trains, and in the holds of
most water vessels.
World War II effectually prevented Smith from developing his conception much beyond
the idea stage. Nevertheless blue prints were drawn in 1943, and in 1944, as a result of
considerable publicity in trade journals and addresses delivered by Smith before trade
associations, Agwilines, one of the principal New York ship operators, displayed great
interest in the proposals. Certain refined features, particularly in dimensions and folding
legs, were the result of discussions between Smith and Agwilines' officials.
In 1945 production started, and in the fall of that year twelve containers were used by
Agwilines in an experimental run. Relative success was experienced, with the result that,
by the spring of 1946, Brodin Lines, Grace Lines, Delta Lines and Stockard, in addition
to Agwilines, were leasing Safeway containers. (Leathem D. Smith Shipbuilding
Company was the owner of the design and manufactured the containers. Safeway
Container Corporation purchased the finished containers from the shipbuilding company
and leased them to shippers.)
[The following drawing if from one of Smith’s patents for containers:
50
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
51
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
During this period the containers were occasionally seen on the docks. However, in view
of their limited number (100) this was far from an everyday occurrence. Furthermore, the
details of their construction could not be ascertained by casual, distant appraisal. But, in
the quest for acceptance, some minor construction details were revealed in the publicity
material distributed throughout the shipping trade, including: the outer dimensions, cubic
and weight capacities, placement of the lifting lugs, stacking sockets, double doors and
the fact that the legs were folding. Three dimensional perspective illustrations
demonstrated the use of the containers.
Up until this time the devices were of a 'knock-down' variety, i.e., they could be taken
apart when not in use, thus enabling the user to conserve storage space when hauling a
cargo for which they were not adapted. However, in the spring of 1946, having
determined that return cargoes for which the containers could be employed were
generally available, and that the cost of erecting and dismantling and empty 'knock-down'
was greater than the cost of the hold space occupied by an empty container, the design
was altered slightly so that future containers would be rigidly constructed. The first of
the rigid type was placed in use in early 1947.
On June 23, 1946, Smith died in a sailing accident. The need for cash for inheritance tax
purposes prompted his estate to survey his holdings for disposable assets. It was decided
that the container business should be sold. Devices in process were completed but no
work on new ones was started.
Defendant was interested in the Safeway container, primarily, it appears, for use by its
subsidiary, the Union Barge Lines. In October 1946 it contacted Agwilines seeking
information. It watched a loading operation in which Agwilines used the box. At
approximately the same time, defendant approached the shipbuilding company and
inquired as to the possibility of purchase of a number of the containers. It was told to
communicate with Cowan, plaintiffs' eastern representative. This it did, and, on October
29, 1946, in Pittsburgh, Cowan met with defendant's officials to discuss the proposed sale
of Safeways. But, as negotiations progressed, defendant demonstrated an interest in the
entire container development. Thus, what started as a meeting to discuss the purchase of
individual containers ended in the possible foundation for a sale of the entire business.
Based upon this display of interest, Cowan sent detailed information to defendant
concerning the business. This included: (1) patent applications for both the 'knock-down'
and 'rigid' crates; (2) blue prints of both designs; (3) a miniature Safeway container; (4)
letters of inquiry from possible users; (5) further correspondence with prospective users.
In addition, defendant's representatives journeyed to Sturgeon Bay, Wisconsin, the home
of the shipbuilding company, and viewed the physical plant, inventory and manufacturing
operation.
52
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Plaintiffs quoted a price of $ 150,000 plus a royalty of $ 10 per unit. This was rejected.
Subsequent offers of $ 100,000 and $ 75,000 with royalties of $ 10 per container were
also rejected. Negotiations continued until January 30, 1947, at which time defendant
finally rejected plaintiffs' offer.
On January 31, 1947 defendant announced to Agwilines that it 'intended to design and
produce a shipping container of the widest possible utility' for 'coastal steamship
application * * * (and) use * * * on the inland rivers and * * * connecting highway and
rail carriers.' Development of the project moved rapidly, so that by February 5, 1947
defendant had set up a stock order for a freight container which was designed, by use of
plaintiffs' patent applications, so as to avoid any claim of infringement. One differing
feature was the use of skids and recesses running the length of the container, rather than
legs and sockets as employed in plaintiffs' design. However, Agwilines rejected this
design, insisting on an adaptation of plaintiffs' idea. In short defendant's final product
incorporated many, if not all, of the features of plaintiffs' design. So conceived, it was
accepted by the trade to the extent that, by March 1948, defendant had sole some 500
containers. Many of these sales were made to firms who had shown considerable prior
interest in plaintiffs' design and had been included in the prospective users disclosed to
defendant.
One particular feature of defendant's container differed from plaintiffs: its width was four
inches less. As a result plaintiffs' product became obsolete. Their container could not be
used interchangeably with defendant's; they ceased production. Consequently the
prospects of disposing of the entire operation vanished.
The foregoing is the essence of plaintiffs' cause of action. Stripped of surplusage, the
averment is that defendant obtained, through a confidential relationship, knowledge of
plaintiffs' secret designs, plans and prospective customers, and then wrongfully breached
that confidence by using the information to its own advantage and plaintiffs' detriment.
Our jurisdiction of count 1 rests on the diverse citizenship of plaintiffs (citizens of
Wisconsin and a Wisconsin corporation) and defendant (a Pennsylvania corporation).
Eckert v. Braun, 7 Cir., 155 F.2d 517. Therefore, under Erie R. Co. v. Tompkins, 304
U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, the law of the forum, Illinois, is determinative of
the substantive issues raised. And this includes the Illinois law of conflict of laws.
Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed.
1477. Count 1 sounds in tort,- the misappropriation of trade secrets obtained through
breach of a confidential relationship, Pidot v. Zenith Radio Corp., 1941, 308 Ill.App. 197,
31 N.E.2d 385; Aktiebolaget Bofors v. United States, 90 U.S.App.D.C. 92, 194 F.2d 145;
Restatement, Torts, Sec. 757 (1939), the liability for which the courts of Illinois ascertain
by the law of the place of the wrong. Whitney v. Madden, 400 Ill. 185, 79 N.E.2d 593.
This is Pennsylvania, for it was there that the breach of confidence occurred by reason of
53
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
defendant's employing the information acquired to its benefit and plaintiffs' detriment.
Therefore, we look to the law of Pennsylvania.
In Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 86 A. 688, the Supreme Court of
Pennsylvania painted, in broad strokes, the general picture of a claim of this nature,
holding the essential elements to be: (1) existence of a trade secret, (2) communicated to
the defendant (3) while he is in a position of trust and confidence and (4) use by the
defendant to the injury of the plaintiff. This, then, is our broad basis for decision.
(1) The Existence of a Trade Secret
*** We assume that almost any knowledge or information used in the conduct of one's
business may be held by its possessor in secret. *** We do not understand that defendant
seriously contends otherwise. Rather its position is that the structural designs of plaintiffs'
containers were disclosed by (1) public use of the containers and (2) publicity material
freely circulated. Thus, defendant says, at the crucial time of communication, plaintiffs'
knowledge was no longer secret, it had been publicly disclosed. As to the customer lists,
defendant denies their very existence.
The [last] of these assertions can be disposed of readily. The evidence is undisputed that
plaintiffs had in their possession, at the time of their negotiations with defendant, original
letters of inquiry from numerous shipping companies and a consequential number of files
of further correspondence between plaintiffs and the inquirers. Together these comprised
a valuable prospective customer list, the existence of which can in no way be challenged.
The continued secrecy of the construction plans presents a different question. The
District Court entered the following finding of fact: ' * * * the record shows that Plaintiffs
had published to the world, through public uses of the containers and unrestricted
publications by circulars and in trade magazines, complete information concerning the
subject-matter with which the material (the patent applications and plans) * * * was
concerned.' From this the court concluded that no secrets were confidentially disclosed to
defendant.
The publicity material did not, in any way, disclose plaintiffs' design. The outward
dimensions were revealed, and the fact that the container employed large double doors,
lifting eyelets, stacking sockets and folding legs was publicized. But this was not
equivalent to a disclosure of the structural design, the engineering details, of either the
container as a whole or its various working parts. These could be obtained only by
careful inspection of the article and the drawings. Therefore, in this respect the finding of
fact that plaintiffs had, through unrestricted publications in trade magazines and circulars,
'Published * * * complete information concerning the subject', was clearly erroneous and
must be set aside.
There is no dispute that 100 of plaintiffs' products had been in public use at the time of
the communication. There is, however, serious debate over the legal consequences of
54
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
this fact. The lower court, in refusing plaintiffs recovery, applied the following
conclusion of law: 'There can be no confidential disclosure where, as here, the alleged
novel container was being manufactured and sold. * * * and all information concerning
its construction was available from an inspection of the container.' Certain cases appear
to give support to this broad statement. See, e.g., Sandlin v. Johnson, 8 Cir., 141 F.2d
660; Northup v. Reish, 7 Cir., 200 F.2d 924; Carver v. Harr, 132 N.J.Eq. 207, 27 A.2d
895. But, close examination reveals that the inquiry is much deeper than whether 'all
information * * * was available from an inspection of the containers.'
As a starting point we must look again to Pennsylvania for our guide. In Pressed Steel
Car Co. v. Standard Steel Car Co., 210 Pa. 464, 60 A. 4, 7, plaintiff sought to protect its
secret construction design for railroad cars. These plans had been obtained by defendant
through a known breach of confidence. It was urged by defendant that because it could
have obtained the design from an inspection of the car (which was in public use) its use
of knowledge gained through improper means would be condoned. In short, defendant
suggested, as does defendant here, that the existence of a lawful means of acquiring the
information precluded recovery for the employment of unlawful means. The court said:
' * * * these engineers and draftsmen * * * should have been able to
measure the cars made by the company, and to produce in a short time
detailed and practical drawings from which the cars could be constructed.
They did not do this, for the obvious reason that blue prints of drawings
were available and were accurate. * * * '
The court then affirmed recovery for the plaintiff.
Thus, Pennsylvania will not deny recovery merely because the design could have been
obtained through inspection. Rather, the inquiry in that jurisdiction appears to be: How
did defendant learn of plaintiffs' design? And this, we regard as the proper test. It
recognizes the very nature of the type of wrong with which we are here concerned.
Confidential business information is not given protection merely as a reward to its
accumulator. If the creator is entitled to reward it is available to him in the patent and
copyright statutes. Nims, Unfair Competition and Trade Marks, Sec. 142. Instead our
function is that of condemning 'the employment of improper means to procure the trade
secret.' Restatement, Torts, Sec. 757, comment. Those who gain their information
improperly are brought to book in recognition of 'the general principle that intentionally
inflicted harm is actionable unless privileged.' Protection and Use of Trade Secrets, 64
Harv.L.Rev. 976.
It is unquestionably lawful for a person to gain possession, through proper means, of his
competitor's product and, through inspection and analysis, create a duplicate, unless, of
course, the item is patented. But the mere fact that such lawful acquisition is available
does not mean that he may, through a breach of confidence, gain the information in
usable form and escape the efforts of inspection and analysis. 'The fact that a trade secret
55
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
is of such a nature that it can be discovered by experimentation or other fair and lawful
means does not deprive its owner of the right to protection from those who would secure
possession of it by unfair means.' Nims, Unfair Competition and Trade Marks, Sec. 148.
*** It is, therefore, our conclusion, that the District Court applied an erroneous
conclusion of law to the facts at hand. Here was no simple device, widely circulated, the
construction of which was ascertainable at a glance. Cf. Carver v. Harr, 132 N.J.Eq.
207, 27 A.2d 895 and Northup v. Reish, 7 Cir., 200 F.2d 924. If such were the case our
problem would be simple. Instead we are concerned with a relatively complex apparatus;
designed to carry large and heavy amounts of cargo; proper inspection of which was,
perhaps, accessible to defendant but, in no way shown to have been made. Under such
circumstances the District Court's conclusion that plaintiffs no longer possessed a trade
secret at the time of their negotiations with defendant was erroneous.
(2) Communication of the Secret Information to Defendant
Here we are concerned solely with a question of fact which the trial court decided
adversely to plaintiffs in the following language:
'25. For the purpose of enabling Dravo to appraise the worth of the
Safeway Container business, Cowan sent Dravo a model, several patent
applications, an unassorted group of letters from users and potential users, a
report of its patent attorney * * * and several drawings.'
'28. Out of the thousands of pages of papers in the many exhibits
introduced by Plaintiffs * * * it is impossible to determine what particular
papers or drawings, referred to in finding 25, were sent * * * to the
Defendant * * * .'
In this context, finding 28 was equivalent to a finding that plaintiffs had failed to prove
communication of the secret information to defendant. And, of course, this was fatal to
plaintiffs' case. We think the finding is clearly erroneous for the following reasons. First,
defendant stipulated prior to trial that it had received plaintiffs' exhibits 46, which is the
application for a patent on the rigid container, and 47-1 through 47-38, which are original
letters of inquiry and further correspondence files. Secondly, plaintiffs' exhibit 56 is a
letter from defendant to Cowan notifying the latter of the return to plaintiffs, defendant,
of (1) patent applications relating to the containers, (2) correspondence files, (3) a
miniature Safeway container and (4) 'drawings'. These drawings were identified by the
testimony of Stearn and Cowan as plaintiffs' exhibit 53, blue prints of both the 'knockdown' and 'rigid' containers. Thus, by stipulation and a letter, supplemented in slight
detail by plaintiffs' witnesses, defendant admitted receipt, at the time of the negotiations,
56
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
of the information upon which plaintiffs predicated their case and which we have herein
held to have been secret information.
(3) Was Defendant in a Position of Trust and Confidence at the Time of the Disclosure?
Mr. Justice Holmes once said that the existence of the confidential relationship is the
'starting point' in a cause of action such as this. E. I. DuPont de Nemours Powder Co., v.
Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 61 L.Ed. 1016. While we take a slightly
different tack, there is no doubt as to the importance of this element of plaintiffs' case.
*** Here plaintiffs disclosed their design for one purpose, to enable defendant to appraise
it with a view in mind of purchasing the business. There can be no question that
defendant knew and understood this limited purpose. Trust was reposed in it by plaintiffs
that the information thus transmitted would be accepted subject to that limitation. '(T)he
first thing to be made sure of is that the defendant shall not fraudulently abuse the trust
reposed in him. It is the usual incident of confidential relations. If there is any
disadvantage in the fact that he knew the plaintiffs' secrets, he must take the burden with
the good.' E. I. DuPont de Nemours Powder Co. v. Masland, 244 U.S. 100 at page 102,
37 S.Ct. 575, at page 576, 61 L.Ed. 1016.
Nor is it an adequate answer for defendant to say that the transactions with plaintiffs were
at arms length. So, too, were the overall dealings between plaintiffs and defendants in
Booth v. Stutz Motor Car Co., 7 Cir., 56 F.2d 962; Allen-Qualley Co. v. Shellmar
Products Co., D.C., 31 F.2d 293, affirmed, 7 Cir., 36 F.2d 623 and Schavoir v. American
Rebonded Leather Co., 104 Conn. 472, 133 A. 582. That fact does not detract from the
conclusion that but for those very transactions defendant would not have learned, from
plaintiffs, of the container design. The implied limitation on the use to be made of the
information had its roots in the 'arms-length' transaction.
(4) The Improper Use by Defendant of the Secret Information
Defendant's own evidence discloses that it did not begin to design its container until after
it had access to plaintiffs' plans. Defendant's engineers admittedly referred to plaintiffs'
patent applications, as they said, to avoid infringement. It is not disputed that, at the
urging of Agwilines, defendant revised its proposed design to incorporate the folding leg
and socket principles of plaintiffs' containers. These evidentiary facts, together with the
striking similarity between defendant's and plaintiffs' finished product, were more than
enough to convict defendant of the improper use of the structural information obtained
from plaintiffs.
[The customer lists were also protected secrets that were misappropriated.]
57
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
All that remains in this branch of the case is to outline the relief to which plaintiffs are
entitled. Initially defendant must be enjoined from making further use of the information
received from plaintiffs in confidence. Allen-Qualley Co. v. Shellmar Products Co., D.C.,
31 F.2d 293, affirmed, 7 Cir., 36 F.2d 623; Pressed Steel Car Co. v. Standard Steel Car
Co., 210 Pa. 464, 60 A. 4. This may be accomplished by enjoining further production and
sale of shipping containers incorporating plaintiffs' design. However, we do not think it
necessary that the equipment used by defendant in this venture be destroyed. It may be
that it is adaptable to other purposes. The injunction against continued use of the secret
information should adequately protect plaintiffs in the future. Nor should defendant be
totally restrained from continuing to engage in the container business. The injunctive
relief should be restricted to the benefits flowing from the breach of the confidential
relationship.
The record discloses that the taking of evidence relating to monetary recovery was
deferred until after the presentation of the proof upon the issues herein discussed.
Consequently the cause must be remanded for the purpose of hearing such evidence as
the parties desire to present on this issue. However, we deem it proper to suggest that, in
our opinion, plaintiffs are entitled to recover (1) the loss suffered with respect to their
investment, Package Closure Corp. v. Sealright Co., 2 Cir., 141 F.2d 972 and (2) the
profits realized by defendant as a result of the use of plaintiffs' design. Booth v. Stutz
Motor Car Co., 7 Cir., 56 F.2d 962. There is, however, no basis upon which a threefold
award of damages can be made. Nor are plaintiffs entitled to attorney's fees.
E.I. DUPONT DENEMOURS & COMPANY, INC.
v.
ROLFE CHRISTOPHER
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
July 20, 1970
431 F.2d 1012, cert. denied, 400 U.S. 1024 (1971)
58
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Wisdom, Goldberg and Ingraham, Circuit Judges.
GOLDBERG, Circuit Judge:
This is a case of industrial espionage in which an airplane is the cloak and a camera the
dagger. The defendants-appellants, Rolfe and Gary Christopher, are photographers in
Beaumont, Texas. The Christophers were hired by an unknown third party to take aerial
photographs of new construction at the Beaumont plant of E. I. duPont deNemours &
Company, Inc. Sixteen photographs of the DuPont facility were taken from the air on
March 19, 1969, and these photographs were later developed and delivered to the third
party.
DuPont employees apparently noticed the airplane on March 19 and immediately began
an investigation to determine why the craft was circling over the plant. By that afternoon
the investigation had disclosed that the craft was involved in a photographic expedition
and that the Christophers were the photographers. DuPont contacted the Christophers that
same afternoon and asked them to reveal the name of the person or corporation
requesting the photographs. The Christophers refused to disclose this information, giving
as their reason the client's desire to remain anonymous.
Having reached a dead end in the investigation, DuPont subsequently filed suit against
the Christophers, alleging that the Christophers had wrongfully obtained photographs
revealing DuPont's trade secrets which they then sold to the undisclosed third party.
DuPont contended that it had developed a highly secret but unpatented process for
producing methanol, a process which gave DuPont a competitive advantage over other
producers. This process, DuPont alleged, was a trade secret developed after much
expensive and time-consuming research, and a secret which the company had taken
special precautions to safeguard. The area photographed by the Christophers was the
plant designed to produce methanol by this secret process, and because the plant was still
under construction parts of the process were exposed to view from directly above the
construction area. Photographs of that area, DuPont alleged, would enable a skilled
person to deduce the secret process for making methanol. DuPont thus contended that the
Christophers had wrongfully appropriated DuPont trade secrets by taking the photographs
and delivering them to the undisclosed third party. In its suit DuPont asked for damages
to cover the loss it had already sustained as a result of the wrongful disclosure of the
trade secret and sought temporary and permanent injunctions prohibiting any further
circulation of the photographs already taken and prohibiting any additional
photographing of the methanol plant.
59
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
The Christophers answered with motions to dismiss for lack of jurisdiction and failure
to state a claim upon which relief could be granted. Depositions were taken during which
the Christophers again refused to disclose the name of the person to whom they had
delivered the photographs. DuPont then filed a motion to compel an answer to this
question and all related questions.
On June 5, 1969, the trial court held a hearing on all pending motions and an additional
motion by the Christophers for summary judgment. The court denied the Christophers'
motions to dismiss for want of jurisdiction and failure to state a claim and also denied
their motion for summary judgment. The court granted DuPont's motion to compel the
Christophers to divulge the name of their client. Having made these rulings, the court
then granted the Christophers' motion for an interlocutory appeal under 28 U.S.C.A. §
1292(b) to allow the Christophers to obtain immediate appellate review of the court's
finding that DuPont had stated a claim upon which relief could be granted. Agreeing
with the trial court's determination that DuPont had stated a valid claim, we affirm the
decision of that court.
This is a case of first impression, for the Texas courts have not faced this precise factual
issue, and sitting as a diversity court we must sensitize our Erie antennae to divine what
the Texas courts would do if such a situation were presented to them. The only question
involved in this interlocutory appeal is whether DuPont has asserted a claim upon which
relief can be granted. The Christophers argued both at trial and before this court that they
committed no "actionable wrong" in photographing the DuPont facility and passing these
photographs on to their client because they conducted all of their activities in public
airspace, violated no government aviation standard, did not breach any confidential
relation, and did not engage in any fraudulent or illegal conduct. In short, the
Christophers argue that for an appropriation of trade secrets to be wrongful there must
be a trespass, other illegal conduct, or breach of a confidential relationship. We disagree.
It is true, as the Christophers assert, that the previous trade secret cases have contained
one or more of these elements. However, we do not think that the Texas courts would
limit the trade secret protection exclusively to these elements. On the contrary, in Hyde
Corporation v. Huffines, 1958, 158 Tex. 566, 314 S.W.2d 763, the Texas Supreme Court
specifically adopted the rule found in the Restatement of Torts which provides:
"One who discloses or uses another's trade secret, without a privilege to do
so, is liable to the other if
(a) he discovered the secret by improper means, or
60
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
(b) his disclosure or use constitutes a breach of confidence reposed in him
by the other in disclosing the secret to him * * *."
Restatement of Torts § 757 (1939).
Thus, although the previous cases have dealt with a breach of a confidential relationship,
a trespass, or other illegal conduct, the rule is much broader than the cases heretofore
encountered. Not limiting itself to specific wrongs, Texas adopted subsection (a) of the
Restatement which recognizes a cause of action for the discovery of a trade secret by any
"improper" means.
The defendants, however, read Furr's Inc. v. United Specialty Advertising Co.,
Tex.Civ.App.1960, 338 S.W.2d 762, writ ref'd n.r.e., as limiting the Texas rule to breach
of a confidential relationship. The court in Furr's did make the statement that
"The use of someone else's idea is not automatically a violation of the law.
It must be something that meets the requirements of a 'trade secret' and has
been obtained through a breach of confidence in order to entitle the injured
party to damages and/or injunction.” 338 S.W.2d at 766 (emphasis added).
We think, however, that the exclusive rule which defendants have extracted from this
statement is unwarranted. In the first place, in Furr's the court specifically found that
there was no trade secret involved because the entire advertising scheme claimed to be
the trade secret had been completely divulged to the public. Secondly, the court found
that the plaintiff in the course of selling the scheme to the defendant had voluntarily
divulged the entire scheme. Thus the court was dealing only with a possible breach of
confidence concerning a properly discovered secret; there was never a question of any
impropriety in the discovery or any other improper conduct on the part of the defendant.
The court merely held that under those circumstances the defendant had not acted
improperly if no breach of confidence occurred. We do not read Furr's as limiting the
trade secret protection to a breach of confidential relationship when the facts of the case
do raise the issue of some other wrongful conduct on the part of one discovering the trade
secrets of another. If breach of confidence were meant to encompass the entire panoply
of commercial improprieties, subsection (a) of the Restatement would be either
surplusage or persiflage, an interpretation abhorrent to the traditional precision of the
Restatement. We therefore find meaning in subsection (a) and think that the Texas
Supreme Court clearly indicated by its adoption that there is a cause of action for the
61
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
discovery of a trade secret by any "improper means." Hyde Corporation v. Huffines,
supra.
The question remaining, therefore, is whether aerial photography of plant construction
is an improper means of obtaining another's trade secret. We conclude that it is and that
the Texas courts would so hold. The Supreme Court of that state has declared that "the
undoubted tendency of the law has been to recognize and enforce higher standards of
commercial morality in the business world." Hyde Corporation v. Huffines, supra 314
S.W.2d at 773. That court has quoted with approval articles indicating that the proper
means of gaining possession of a competitor's secret process is "through inspection and
analysis" of the product in order to create a duplicate. K & G Tool & Service Co. v. G &
G Fishing Tool Service, 1958, 158 Tex. 594, 314 S.W.2d 782, 783, 788. Later another
Texas court explained:
"The means by which the discovery is made may be obvious, and the
experimentation leading from known factors to presently unknown results
may be simple and lying in the public domain. But these facts do not
destroy the value of the discovery and will not advantage a competitor who
by unfair means obtains the knowledge without paying the price expended
by the discoverer." Brown v. Fowler, Tex.Civ.App.1958, 316 S.W.2d 111,
114, writ ref'd n.r.e. (emphasis added).
We think, therefore, that the Texas rule is clear. One may use his competitor's secret
process if he discovers the process by reverse engineering applied to the finished product;
one may use a competitor's process if he discovers it by his own independent research;
but one may not avoid these labors by taking the process from the discoverer without his
permission at a time when he is taking reasonable precautions to maintain its secrecy. To
obtain knowledge of a process without spending the time and money to discover it
independently is improper unless the holder voluntarily discloses it or fails to take
reasonable precautions to ensure its secrecy.
In the instant case the Christophers deliberately flew over the DuPont plant to get
pictures of a process which DuPont had attempted to keep secret. The Christophers
delivered their pictures to a third party who was certainly aware of the means by which
they had been acquired and who may be planning to use the information contained
therein to manufacture methanol by the DuPont process. The third party has a right to
use this process only if he obtains this knowledge through his own research efforts, but
thus far all information indicates that the third party has gained this knowledge solely by
taking it from DuPont at a time when DuPont was making reasonable efforts to preserve
its secrecy. In such a situation DuPont has a valid cause of action to prohibit the
62
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Christophers from improperly discovering its trade secret and to prohibit the undisclosed
third party from using the improperly obtained information.
We note that this view is in perfect accord with the position taken by the authors of the
Restatement. In commenting on improper means of discovery the savants of the
Restatement said:
"f. Improper means of discovery. The discovery of another's trade secret by improper
means subjects the actor to liability independently of the harm to the interest in the secret.
Thus, if one uses physical force to take a secret formula from another's pocket, or breaks
into another's office to steal the formula, his conduct is wrongful and subjects him to
liability apart from the rule stated in this Section. Such conduct is also an improper
means of procuring the secret under this rule. But means may be improper under this rule
even though they do not cause any other harm than that to the interest in the trade secret.
Examples of such means are fraudulent misrepresentations to induce disclosure, tapping
of telephone wires, eavesdropping or other espionage. A complete catalogue of improper
means is not possible. In general they are means which fall below the generally accepted
standards of commercial morality and reasonable conduct." Restatement of Torts § 757,
comment f at 10 (1939).
In taking this position we realize that industrial espionage of the sort here perpetrated
has become a popular sport in some segments of our industrial community. However,
our devotion to free wheeling industrial competition must not force us into accepting the
law of the jungle as the standard of morality expected in our commercial relations. Our
tolerance of the espionage game must cease when the protections required to prevent
another's spying cost so much that the spirit of inventiveness is dampened. Commercial
privacy must be protected from espionage which could not have been reasonably
anticipated or prevented. We do not mean to imply, however, that everything not in plain
view is within the protected vale, nor that all information obtained through every extra
optical extension is forbidden. Indeed, for our industrial competition to remain healthy
there must be breathing room for observing a competing industrialist. A competitor can
and must shop his competition for pricing and examine his products for quality,
components, and methods of manufacture. Perhaps ordinary fences and roofs must be
built to shut out incursive eyes, but we need not require the discoverer of a trade secret to
guard against the unanticipated, the undetectable, or the unpreventable methods of
espionage now available.
In the instant case DuPont was in the midst of constructing a plant. Although after
construction the finished plant would have protected much of the process from view,
during the period of construction the trade secret was exposed to view from the air. To
require DuPont to put a roof over the unfinished plant to guard its secret would impose an
63
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
enormous expense to prevent nothing more than a school boy's trick. We introduce here
no new or radical ethic since our ethos has never given moral sanction to piracy. The
market place must not deviate far from our mores. We should not require a person or
corporation to take unreasonable precautions to prevent another from doing that which he
ought not do in the first place. Reasonable precautions against predatory eyes we may
require, but an impenetrable fortress is an unreasonable requirement, and we are not
disposed to burden industrial inventors with such a duty in order to protect the fruits of
their efforts. "Improper" will always be a word of many nuances, determined by time,
place, and circumstances. We therefore need not proclaim a catalogue of commercial
improprieties. Clearly, however, one of its commandments does say "thou shall not
appropriate a trade secret through deviousness under circumstances in which
countervailing defenses are not reasonably available."
Having concluded that aerial photography, from whatever altitude, is an improper
method of discovering the trade secrets exposed during construction of the DuPont plant,
we need not worry about whether the flight pattern chosen by the Christophers violated
any federal aviation regulations. Regardless of whether the flight was legal or illegal in
that sense, the espionage was an improper means of discovering DuPont's trade secret.
The decision of the trial court is affirmed and the case remanded to that court for
proceedings on the merits.
WEED EATER, INC., Appellant
v.
THOMAS W. DOWLING, JR., Appellee
COURT OF CIVIL APPEALS OF TEXAS, FIRST DISTRICT, HOUSTON
562 S.W.2d 898
February 9, 1978
COLEMAN, J.
This is an appeal from an order denying a temporary injunction. Weed Eater, Inc., sued
Thomas W. Dowling to enforce the provisions of an employment agreement containing a
covenant not to compete and a covenant against the disclosure of trade secrets or
64
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
confidential information. The trial court enjoined Dowling from revealing trade secrets or
confidential information, but refused to enforce the covenant not to compete.
Thomas W. Dowling, Jr., was employed by Weed Eater, Inc., as vice president of
manufacturing. While so employed, he designed and organized an assembly line for the
production of a string line trimmer. He was included in all company meetings and was on
the list of vice presidents who received confidential information. He had access to all
trade secrets and confidential information including new product plans, market forecast,
testing methods and results, market strategy, sales prices, performance specifications for
components, and the confidential list of component vendors.
All employees were required to sign nondisclosure agreements. The company
maintains a security system utilizing guards, employee badges, sign-in procedures,
television monitors, restricted areas, and censor devices. Visitors are required to wear a
special badge and to be escorted at all times by an employee.
About a year after Weed Eater, Inc., hired Dowling, Emerson Electric Company
acquired Weed Eater, Inc., as a subsidiary. Shortly after the acquisition, Emerson
presented all Weed Eater vice presidents with a new employment contract. Dowling
signed such a contract on March 2, 1977. On October 21, 1977, Dowling resigned and
went to work in California for Hawaiian Motor Company as its director of
manufacturing.
For some time prior to that date, Hawaiian Motor Company had been purchasing from
Weed Eater a flexible line trimmer "head" which they used in manufacturing a flexible
line trimmer. Dowling's employment with Hawaiian Motor Company would place him in
control of the assembly line required to manufacture the Hawaiian Motor Company's
trimmer heads.
By his contract with Weed Eater, Dowling agreed that he would not directly or
indirectly use for himself or disclose to any party other than Emerson any secret or
confidential information or data regarding the business of Emerson or any secret or
confidential information or data regarding the cost, uses, methods, applications or
customers, trade accounts, or suppliers of products made, produced or sold by Emerson
or its subsidiaries, or regarding any secret or confidential apparatus, process, system,
manufacturing or other method at any time used, developed or investigated by or for
Emerson or its subsidiaries.
The agreement provided that for a period of one year following any termination of
employment by Emerson or a subsidiary, the employee would not engage in or enter the
employ of or have any interest in, directly or indirectly, any other person, firm,
65
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
corporation or other entity engaged in activities relating to lawn and garden care and the
contract specifically provided that the restriction would only be applicable with respect to
the manufacturing and sales areas in which Emerson or its subsidiaries shall conduct
business operations during Dowling's employment by Emerson.
After an evidentiary hearing, the trial court entered an order reciting that Weed Eater
was entitled to a temporary injunction "because the plaintiff has various proprietary and
trade secret information which has been disclosed to defendant in confidence and because
the defendant was employed by the plaintiff in a fiduciary relationship as vice president
of manufacturing under an employment agreement which the defendant has threatened to
breach by attempting to take employment with a competitor of plaintiff." The order then
enjoined Dowling from disclosing to any third party any confidential or secret
information of plaintiff relating to new product development, layout and design of the
assembly line for flexible line trimming devices, marketing strategy and forecasts,
product specifications, performance specifications, testing equipment, testing procedures,
vendor identity, past proposed product design, proposed but unadopted product
components and/or designs, and past assembly line modifications and refinements.
It is clear from the evidence that Dowling was fully informed as to Weed Eater's new
product development, layout and design of the assembly line for flexible line trimming
devices and all of the other matters mentioned in the trial court's order. Dowling,
however, testified that he knew of no confidential or secret information relating to these
matters.
In reaching a decision on the issues presented by this case, we will apply certain well
established general rules of law. The trial court has broad discretion in determining
whether or not to issue a temporary injunction, and his judgment will not be overturned
unless the record discloses a clear abuse of discretion. However, it is an abuse of
discretion where the trial court makes an erroneous application of the law to undisputed
facts. City of Spring Valley v. Southwestern Bell Telephone Co., 484 S.W.2d 579
(Tex.1972).
It is well settled that injunctive relief may be granted when one breaches his
confidential relationship in order to unfairly use a trade secret. In the area of confidential
relationship such as between employer and employee, the injured party is not required to
rely upon an express agreement to hold the trade secret in confidence. Hyde Corporation
v. Huffines, 158 Tex. 566, 314 S.W.2d 763 (1958); Thermotics, Inc. v. Bat-Jac Tool Co.,
Inc., 541 S.W.2d 255 (Tex.Civ.App. Houston (1st Dist.) 1976, no writ history).
66
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
Where an employee will acquire trade secrets by virtue of his employment, the law
permits greater restrictions to be imposed on the employee than in other contracts of
employment. 14 Williston on Contracts § 1643 (3rd edition, 1972).
Confidential business information is not given protection merely as a reward to its
accumulator. The courts condemn the employment of improper means to procure trade
secrets. The fact that a trade secret is of such a nature that it can be discovered by
experimentation or other fair and lawful means does not deprive its owner of the right to
protection from those who would secure possession of it by unfair means. An injunction
to prevent one from making use of trade secrets acquired in a confidential relationship
such as that of the employer and employee relationship does not run counter to a public
policy which discourages contracts which tend to lessen competition. K and G Oil Tool
and Service Company v. G and G Fishing Tool Service, 158 Tex. 594, 314 S.W.2d 782
(Tex.1958).
A covenant by an employee not to compete with his employer for a period of time after
the termination of the employment will be enforced if the restraint placed upon the
employee is necessary for the protection of the business or the good will of the employer,
and the restraint on the employee is not unduly onerous.
The trial court found that Weed Eater disclosed to Thomas W. Dowling various
proprietary and trade secret information in confidence. He was enjoined from disclosing
to any third party, confidential or secret information with relation to a number of specific
matters including the layout and design of an assembly line for flexible line trimming
devices, and past assembly line modifications and refinements. He was not specifically
enjoined from using such information in his employment as director of manufacturing for
a company which proposed to compete directly with Weed Eater.
Since the trial court enjoined Dowling from revealing to third parties information
relating to the matters above set out, the court necessarily found that Dowling had
received confidential information with respect to these matters as a result of his
employment by Weed Eater. Dowling has been employed by Hawaiian Motor Company
to supervise the production of a device which it formerly purchased from Weed Eater.
He set up the assembly line by which the product was produced by Weed Eater. Even in
the best of good faith, Dowling can hardly prevent his knowledge of his former
employer's confidential methods from showing up in his work. The only effective relief
for Weed Eater is to restrain Dowling from working for Hawaiian Motor Company in any
capacity related to the manufacture by Hawaiian Motor Company of a flexible line
trimming device. Electronic Data Systems Corp. v. Powell, 524 S.W.2d 393
(Tex.Civ.App. Dallas 1975, writ ref'd n. r. e.); Grace v. Orkin Exterminating Co., 255
S.W.2d 279 (Tex.Civ.App. Beaumont 1953, writ ref'd n. r. e.).
67
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
The contract between Dowling and Weed Eater provides for a contract not to compete
during the period of one year from the date of termination of employment. The agreement
is unrestricted as to area. The period of time during which the restraint is to last and the
territory that is included are important factors to be considered in determining the
reasonableness of the agreement. There is testimony that there are some 18 firms engaged
in the manufacture of flexible line trimmers and 2 foreign corporations engaged in this
business. The evidence establishes that it is a highly competitive business and that the
devices manufactured by Weed Eater are sold in all parts of the United States. It is clear
that Dowling's experience gained by setting up Weed Eater's assembly line and by
observing it in operation for more than a year would enable Hawaiian Motor Company to
set up an efficient assembly line immediately. As a result, that company would become
more competitive in a shorter period of time than would likely be the case without the
services of Mr. Dowling.
The enforcement of this covenant will restrict Dowling's ability to work only in
employment closely related to his field of activity as an employee of Weed Eater. The
covenant is not unreasonable as to time or, under the circumstances, area. The evidence
establishes that there is imminent danger of irreparable injury to Weed Eater's business.
Electronic Data Systems Corp. v. Powell, supra; Continental Group, Inc. v. Kinsley, 422
F. Supp. 838 (D.Conn.1976); Auto Club Affiliates, Inc. v. Donahey, 281 So.2d 239
(Fla.Ct.App.1973); World Wide Pharmacal Distributing Co. v. Kolkey, 5 Ill. App. 2d
201, 125 N.E.2d 309 (Ill.Ct.App.1955).
The trial court abused its discretion in failing to include in the injunction order a
provision restraining Thomas W. Dowling, Jr., from continuing in the employment of
Hawaiian Motor Company so long as his duties include activities related to developing,
manufacturing and marketing lawn and garden trimmers, lawnmowers and similar
products. The order will be modified to include this additional restraint.
As thus modified, the judgment of the trial court is affirmed.
***
SCHALK
v.
68
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
THE STATE OF TEXAS
COURT OF APPEALS OF TEXAS, Fifth District, Dallas
767 S.W.2d 441 (1988)
Devany, McClung and Thomas, JJ.
McCLUNG, Justice
This is an appeal from a jury trial for the theft of trade secrets. Appellant was found
guilty and assessed punishment at two years confinement and a fine of $ 5,000, probated
for two years.
Specifically, appellant was indicted under Texas Penal Code section 31.05 for
knowingly making a copy of five separately identified computer programs that were the
trade secrets of his employer.
Appellant contends that: 1) the evidence is insufficient to establish that the five
computer programs listed in the indictment were, in fact, trade secrets; 2) the evidence is
insufficient to prove that appellant knowingly committed the offense charged; 3) his
motion to suppress the product of the search warrant for lack of probable cause should
have been sustained; 4) the evidence was the product of an impermissible general
exploratory search; 5) the seizures were not made pursuant to the authority granted under
the search warrant, and 6) jury misconduct occurred. Having found no error, we affirm
the judgment of the trial court.
FACTS
The complainant, appellant's former employer, is a major corporation with worldwide facilities and engaged primarily in the electronics industry in various capacities.
This case involves a computer programming area sometimes referred to as speech
synthesis, or voice recognition. It can be described in an oversimplified manner as a
computer software program that causes a device to respond in a specified manner to
commands issued orally or by voice. The complainant is generally understood to be a
pioneer in this field and an industry leader in the research and development of this type of
programming for various applications.
The complainant kept and maintained a facility on their premises in Dallas designated
as the "speech research laboratory" where this type of programing, research and
development was conducted. Appellant had been employed by the complainant for
69
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
approximately twelve years as an engineer in the speech laboratory. The laboratory was
kept physically separated from other facilities within the confines of the overall premises.
Access to the laboratory was limited to only certain authorized personnel, estimated to be
something less than one hundred out of the several thousand that were admitted daily
through the gates of the fences around the perimeter. The exterior gates were monitored
by security guards around the clock. Speech laboratory employees were required to wear
a certain type identity badge to gain access to the laboratory. Appellant, as an employee
in this speech laboratory, was provided with the appropriate identity badge and was one
of the limited group of employees granted access to the laboratory.
While so employed, appellant was under the direct supervision and authority of the
Branch Manager of the Speech Research Laboratory. This branch manager was also
known as the Chief Speech Scientist. Over the years of appellant's employment, his
relationship with the department head became somewhat informal; however, the branch
manager was appellant's immediate superior, and appellant always received all job
assignments from the Chief Speech Scientist and was responsible directly to him.
Appellant's immediate superior had been associated with the complainant company for
many years prior to appellant's employment and, as Chief Speech Scientist, had originally
written many of the programs utilized in the research conducted in the speech laboratory.
Part of appellant's primary job assignment was to modify or convert certain portions of
those original programs so as to accomplish a specific result, such as producing sounds
from a speaker rather than a visual output displayed on a video screen, on receipt of an
oral command. The final product, while perhaps producing a different result, was
primarily made up of the basic original program that had been previously developed and
carefully preserved as confidential by the complainant company.
These programs were stored in a memory bank of a computer system in the speech
laboratory. Appellant was allowed access to these programs through a code or password
specifically assigned to him. The password or code assigned to an employee in the
laboratory was personal to that employee and was assigned only if their job duties
required access to the information and any of those confidential programs stored in the
memory bank. Essentially, access was permitted on a "need to know basis" as it related to
their duties. Only by the proper use of his assigned password or code could appellant
withdraw information from a memory bank and into a computer terminal. Appellant
could also call data from the memory bank into a computer terminal located off of the
complainant's premises via telephone modem, with the right kind of computer equipment
and the use of his personal password. On certain occasions, persons from outside the
company were assigned a guest/user password or code so as to allow access to the
computer within the laboratory. This decision and assignment, however, was made by
persons within the company other than appellant, and appellant was not consulted or
involved in such a decision.
70
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
As was customary with all laboratory employees, appellant had a "directory"
designated as his and identified as such. Appellant's work product was saved or stored
under this directory in the memory bank of the computer in the speech laboratory.
Appellant also could, and did, store other data, programs and information in this same
directory, some of which was personal to him. The speech laboratory computer
equipment had the capability of receiving from, sending to, or copying to another
medium, such as magnetic tape, any information stored in the memory when the
appropriate instructions or commands were entered. Whenever a computer memory was
accessed, the date, time, and identification of the user and the terminal was automatically
logged into the memory. Appellant was experienced and very sophisticated in the use of
this equipment and was a top level employee in the laboratory, working at a computer
terminal regularly on a full time basis.
Appellant resigned his position with the complainant company to take a position as a
vice-president with another company that also engaged in voice recognition and speech
synthesis research and development. Although this new company was much smaller in
overall size and scope and said to be utilizing a different method or system, the new
employer was in fact a direct competitor of the complainant in the area of voice control
technology. Appellant's background, knowledge, and experience in this field was a major
factor in making the new job available to him.
Over a period of a few years, several other speech laboratory personnel had left the
complainant's employment to take positions with this same new employer, primarily
because their specialized knowledge in this field gave them unique qualifications that
competitive companies would seek out. One such employee had occasion to see some
information stored in the memory of the computer he was using on his new job that he
believed he recognized and he thought belonged to his former employer, the complainant.
Feeling something was amiss, this employee contacted complainant's company security
to report what he had seen. (This informant acknowledged that he felt that he had been
wrongfully terminated previously by the complainant and that he hoped that bringing this
information to the complainant's attention would help get his old job back.) A series of
meetings between security personnel and the informant took place and during these
meetings, additional information was delivered. The informant was also recruited to act
as a "mole" to search his employer's premises and equipment for further information or
like material. The mole took several photos of various offices and their contents and
made copies of some documents he thought belonged to the complainant and contained
sensitive material. One of the photographs taken in appellant's office revealed a shelf
containing one or more magnetic tapes of the type used to store computer data. Although
the contents of the tapes were unknown at that time, at least one of them bore a label with
the names of certain programs which the mole recognized from his former employment
and job assignments with the complainant.
71
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
The information from the informant was passed along through the complainant's
corporate structure, and an internal investigation within the speech laboratory took place.
From the automatic entries made when the computer memory was accessed, the
complainant determined that only a few hours before appellant left complainant's employ,
a copy of the entire directory assigned to appellant was made onto a magnetic tape by
someone using the personal access code assigned to the appellant. Imbedded within that
directory and the information copied onto that tape from that directory were programs
identified by the complainant to be trade secrets. Among these were the five programs
that were ultimately made the subject of this indictment.
Armed with this information, complainant contacted the District Attorney. A search
warrant for the premises of appellant's employer was obtained and executed shortly
thereafter. During this search, the tape in question was among the items seized from
appellant's office. Examination of the data recorded on the tape using compatible
equipment revealed that it did, in fact, contain the five programs listed on the indictment.
Appellant was arrested at the time the search warrant was executed at his place of
employment.
Appellant does not dispute the fact that he did copy the directory that had a plethora
of data recorded on it, or that the programs on the indictment were included, or that he
took the tape with him when he left complainant's employ.
TRADE SECRET
Section 31.05(b)(2) of the Texas Penal Code, entitled "Theft of Trade Secrets,"
provides:
A person commits an offense if, without the owner's effective consent, he
knowingly makes a copy of an article representing a trade secret.
Section 31.05 defines a trade secret in subsection (a):
"Trade secret" means the whole or any part of any scientific or technical
information, design, process, procedure, formula or improvement that has
value and that the owner has taken measures to prevent from becoming
available to persons other than those selected by the owner to have access for
limited purposes.
72
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
To be a "trade secret" within the clear meaning of this section, the information,
design, process, procedure, formula or improvement must not only be a secret, but must
also be generally unavailable to the public and it must give one who uses it an advantage
over competitors that do not know of or use the trade secret. A fair reading of this section
suggests that to qualify as a "trade secret", the article in question must meet a three prong
test:
1) Be all or part of scientific or technical information,
2) Be of value to the owner,
3) Be protected by measures taken by the owner from access, except
those selected by the owner for limited purposes.
Appellant does not contest the first two prongs of the test, that is, the fact that the
programs are a "part of any scientific or technical information . . . . . that has value. . . ."
Rather, he asserts in his first point of error that the evidence is insufficient to support the
third prong: He contends that the complainant failed to designate the computer programs
as trade secrets or prevent access to the computer where this information was stored;
therefore, the complainant did not take measures to prevent access to them. Appellant
argues that the programs in question were not trade secrets at the time he made the copy,
or, if they had been, they had lost their status as trade secrets because the complainant
had not protected them. Clearly, if an article that is a trade secret becomes known to the
community, it loses its status as a trade secret. Furr's Inc. v. United Specialty Advertising
Co., 338 S.W.2d 762, 765 (Tex. Civ. App. -- El Paso 1960, writ ref'd n.r.e.). However, a
limited disclosure to others pledged to secrecy will not destroy the trade secret's status as
such. Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195, 1200 (5th Cir. 1986).
There is no question but that appellant was one of the limited persons that had been
granted limited access to this information since his job function required him to work
with this data on a regular basis. We must determine, therefore, if the data was ever a
trade secret and, if so, whether it had lost its status as such for some reason at the time it
was copied by appellant.
Appellant points out that several persons had been granted guest/user codes, including
a summer intern who was allowed to utilize the laboratory equipment to write his college
thesis. That intern testified, however, that he felt the information and codes entrusted to
him were a secret and were not to be disclosed. Appellant argues that access could be
gained through use of a telephone modem, but recognizes that it took the right kind of
computer and user password to do so. Appellant claims that his superior, the Chief
Speech Scientist and Branch Manager of the Speech Research Laboratory, had made a
ten minute presentation at a seminar where he discussed the "concepts" involved
73
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
concerning the series of programs listed on the indictment. Although concepts were
briefly discussed, the algorithms used in the creations of the programs were not
mentioned or disclosed. Appellant further maintains that certain data base programs were
released to the National Bureau of Standards to aid them in establishing an industry
standard. These programs were unrelated to those in the indictment. Appellant further
argues that data was released to a university engaged in similar research. This release was
only under a nondisclosure agreement. Appellant insists that the internal procedures
manual provided to all employees set out the manner that trade secrets were to be
identified and handled and these programs were not so identified. Significantly, the basic
programs from which the items in question were derived were, in fact, listed in the Trade
Secret Register kept by the complainant. While appellant points out certain areas that he
feels show complainant's weaknesses in the security of the information, he presents no
evidence to suggest that any of the series of programs in the indictment had ever been
released to anyone outside the speech laboratory. The complainant vigorously and
steadfastly denied that any of these programs and the algorithms had ever been published
or given out to anyone and that none of complainant's speech recognition, speech
synthesis, speaker verification, or voice verification software had ever been released nor
had anyone ever been authorized to do so. Finally, appellant admitted that he had
personally told fellow employees that such programs had not been given out.
It is an axiom in our jurisprudence that when interpreting a statute, we should start
with the statute itself. A statute must generally be construed according to the fair import
of its terms, and with a view to effect its objects and to promote justice. The plain
meaning of words used in a statute is not to be disregarded Casillas v. State, 733 S.W.2d
158, 163 (Tex. Crim. App. 1986) cert. dismissed at 484 U.S. 918, 108 S. Ct. 277, 98 L.
Ed. 2d 238 (1987); Campos v. State, 623 S.W.2d 657, 658 (Tex. Crim. App. [Panel Op.]
-- 1981); Ramos v. State, 419 S.W.2d 359, 364 (Tex. Crim. App. 1967). We must assume
that the Legislature meant the section to be read as it was written and we cannot create an
offense by enlarging on, or inserting or deleting words, nor should we do so by giving
false meaning to its words. State ex rel. Vance v. Hatten, 600 S.W.2d 828, 830 (Tex.
Crim. App. 1980).
Turning to the statute, the pertinent portion reads "that the owner has taken measures
to prevent from becoming available to persons other than those selected by the owner. . .
." This statute does not deal with the degree or extent to which an owner must go to
protect a secret but simply specifies that for it to be an offense to copy information
without the owners' permission, the owner must have taken some measures to protect the
information from unauthorized disclosure. Although appellant's attack is directed more
toward the type, degree, or extent of the measures taken to protect the data than it is
toward the question of whether the ". . . owner has taken measures . . ." we, nevertheless,
will treat this point as one of factual insufficiency and address the record under that
standard.
74
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
The relevant question is whether, after viewing the evidence in the light most
favorable to the prosecution, a rational trier of fact could find the essential elements of
the offense beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319, 61 L. Ed.
2d 560, 99 S. Ct. 2781 (1979). This standard is applicable to both direct and
circumstantial evidence cases. Taylor v. State, 684 S.W.2d 682, 684 (Tex. Crim. App.
1984).
This voluminous record is replete with evidence detailing the strict security measures
taken by the complainant to prevent any and all information emanating from the speech
laboratory from falling into the hands of unauthorized persons. All employees, including
appellant, signed nondisclosure agreements when hired. This was a necessary condition
of the employment of the appellant. Various applications of identification badges were
provided to all employees and these badges had to be displayed at all times and places
while on or about the premises. Different levels of security were applied to different areas
and the badges carried features to delineate whether a particular employee was cleared to
enter a particular area. The full time security guards, regular employees, receptionist, and
so forth, were required to remain alert for anyone they might observe without a proper
identification badge for a particular section or area. Visitors were subjected to sign-in
procedures and were provided escorts and special identification badges. The entry gates
were manned by security guards. Security guards were stationed in selected locations,
and closed circuit television monitors were used throughout the building. Entry to the
speech laboratory was limited to only a very small segment of the total employee
population, and was contained in a separate wing or building and isolated with security
doors from other areas. Within this area, all print-outs or hard copies of any data were
kept put away. Night time security checks were made for data left out on desks. In the
event any documents were seen by security personnel during routine off-hour inspections,
they were put away and the incident made the subject of a report. Appellant was assigned
a password or access code which allowed limited access to some information stored in
the computer memory but other data stored in restricted directories was not available.
Any access at all required certain code clearance or password information to be given
before the computer would respond. A highly confidential Trade Secret Register was kept
and maintained as a permanent record in the legal department which contained reference
to the "speech processing" programs being utilized in the laboratory. Employees in the
laboratory were given an admonition that they were to protect any software programs
being used, developed, or being researched by the laboratory. In addition, an "exit"
interview was conducted with any employee whose job involved sensitive proprietary
and confidential information by a member of the Legal Department staff for the specific
purpose of re-emphasizing their non-disclosure responsibility upon termination.
We conclude that these facts are sufficient for this jury, as a rational trier of fact, to
find beyond a reasonable doubt that these elaborate security precautions were taken by
the owner/complainant to protect its information, that such information was secret and
75
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
intended by the owner to remain so. Having determined that the evidence is sufficient to
meet the test of "measures taken by the owner to protect", we hold the programs listed in
the indictment were trade secrets as defined in Texas Penal Code section 31.05(a).
Appellants point of error number one is overruled.
KNOWLEDGE
In his second point of error, appellant maintains that the evidence is insufficient to
prove that he "knowingly" made copies of trade secrets. Appellant having admitted that
he made the copy, and our having previously held the items to be trade secrets, we then
come to the question of whether appellant "knew" the items were trade secrets when he
made the copy, thus that he acted knowingly as set out in Texas Penal Code section
31.05(b)(2). The necessary culpable mental state is described in Texas Penal Code
section 6.03(b) thusly:
A person acts knowingly, or with knowledge, with respect to the nature of
his conduct or to circumstances surrounding his conduct when he is aware of
the nature of his conduct or that the circumstances exist. A person acts
knowingly, or with knowledge, with respect to a result of his conduct when he
is aware that his conduct is reasonably certain to cause the result.
TEX. PENAL CODE ANN. (Vernon 1974).
Evidence in regard to a culpable mental state must be viewed in the light most
favorable to the verdict. See Humason v. State, 728 S.W.2d 363 (Tex. Crim. App. 1987).
Absent a confession, proof that appellant acted knowingly must be based on
circumstantial evidence. Dillon v. State, 574 S.W.2d 92, 94 (Tex. Crim. App. 1978).
Being mindful of the above and the standard of review of factual insufficiency claims as
set out above, we again turn to the record.
Because appellant had been a full time, high level employee in the speech laboratory
for twelve years, he had been subjected to the elaborate security precautions implemented
by his employer every day. The controlled physical access to the plant through the use of
guards, employee identification badges, visitor escorts and special sign-in procedures,
confidential materials kept locked up or destroyed when no longer needed, closed circuit
television monitoring, and the necessity of the regular use of secret identity codes on the
computer all served as a constant reminder of the restricted environment in which
appellant worked. Appellant signed a nondisclosure agreement when he was hired. He
discussed the need for secrecy and the nature of the confidential aspects of their work
with his immediate superior and fellow employees on a regular basis during his
76
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
employment. Periodic staff meetings were held where the nature and progress of their
work was discussed and the subject of much of the discussions was the secret and
confidential aspects of work appellant and his fellow employees were doing. The value of
work and how it did or would affect the complainant's competitive position in the general
market place was a significant factor discussed in the regular staff meetings.
Appellant, during his testimony at trial, stated that it would have taken hours to have
gone through the numerous programs and data in his directory to selectively pick out
items for copying, so in the interest of time, he intentionally entered the commands that
would copy all files in the directory, knowing that all files would be copied. He further
stated that he had worked on the files that were in his directory and was familiar with
them and what they were, but that he did not consider them to be trade secrets; that they
were not so marked or designated in the computer and that they were readily accessible to
him.
Significantly, appellant not only copied his own entire directory, but also copied one
other directory called the "speech utility" directory. He did so very close to his last day
on the job, and used his secret identity code to gain access to all of this data for copying.
In his exit interview, which took place as one of the last official events on the job, he
signed a document titled Trade Secret Listing for Termination of Employment where he
acknowledged that his nondisclosure responsibility and the confidentiality of his work
was discussed. Appellant testified he felt he had a right to copy and take anything he was
interested in because he never had any intention of using this information. The issue of
whether the data and information in question was wrongfully used is not before us. There
was also testimony that during the time appellant was in the employ of the new company,
he was heard to make reference to items belonging to the complainant as the "stolen data
base" and the "stolen files," on a periodic basis.
We hold this evidence is sufficient to support the finding by the jury that appellant
knowingly made copies of protected programs that were of value to his employer.
Appellant's second point of error is overruled.
***
AFFIRMED.
77
Trade Secret Cases
I.P. Survey Cases
Prof. Janicke
COPYRIGHT CASES
78
Copyright Cases
I.P. Survey Cases
Prof. Janicke
MAZER
v.
STEIN
SUPREME COURT OF THE UNITED STATES
74 S.Ct. 460
Decided March 8, 1954
Mr. Justice REED delivered the opinion of the Court.
This case involves the validity of copyrights obtained by respondents for statuettes of
male and female dancing figures made of semivitreous china. The controversy centers
around the fact that although copyrighted as ‘works of art,’ the statuettes were intended
for use and used as bases for table lamps, with electric wiring, sockets and lamp shades
attached.
Respondents are partners in the manufacture and sale of electric lamps. One of the
respondents created original works of sculpture in the form of human figures by
traditional clay-model technique. From this model, a production mold for casting copies
was made. The resulting statuettes, without any lamp components added, were submitted
by the respondents to the Copyright Office for registration as ‘works of art’ or
reproductions thereof under § 5(g) or § 5(h) of the copyright law, and certificates of
registration issued. Sales (publication in accordance with the statute) as fully equipped
lamps preceded the applications for copyright registration of the statuettes. Thereafter,
the statuettes were sold in quantity throughout the country both as lamp bases and as
statuettes. The sales in lamp form accounted for all but an insignificant portion of
respondents’ sales.
Petitioners are partners and, like respondents, make and sell lamps. Without
authorization, they copied the statuettes, embodied them in lamps and sold them.
The instant case is one in a series of reported suits brought by respondents against various
alleged infringers of the copyrights, all presenting the same or a similar question.
79
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Because of conflicting decisions, we granted certiorari. In the present case respondents
sued petitioners for infringement in Maryland. Following the Expert decision and
rejecting the reasoning of the District Court in the Rosenthal opinion, both referred to in
the preceding note, the District Court dismissed the complaint. The Court of Appeals
reversed and held the copyrights valid. It said: ‘A subsequent utilization of a work of art
in an article of manufacture in no way affects the right of the copyright owner to be
protected against infringement of the work of art itself.’ 204 F.2d at 477.
Petitioners, charged by the present complaint with infringement of respondents’
copyrights of reproductions of their works of art, seek here a reversal of the Court of
Appeals decree upholding the copyrights. Petitioners in their petition for certiorari
present a single question:
‘Can statuettes be protected in the United States by copyright when the copyright
applicant intended primarily to use the statuettes in the form of lamp bases to be
made and sold in quantity and carried the intentions into effect?
Stripped down to its essentials, the question presented is: Can a lamp manufacturer
[have] copyright [in] his lamp bases?’
The first paragraph accurately summarizes the issue. The last gives it a quirk that
unjustifiably, we think, broadens the controversy. The case requires an answer, not as to a
manufacturer’s right to register a lamp base but as to an artist’s right to copyright a work
of art intended to be reproduced for lamp bases. As petitioners say in their brief, their
contention ‘questions the validity of the copyright based upon the actions of
respondents.’ Petitioners question the validity of a copyright of a work of art for ‘mass’
production. ‘Reproduction of a work of art’ does not mean to them unlimited
reproduction. Their position is that a copyright does not cover industrial reproduction of
the protected article. Thus their reply brief states:
‘When an artist becomes a manufacturer or a designer for a manufacturer
he is subject to the limitations of design patents and deserves no more
consideration than any other manufacturer or designer.’
It is not the right to copyright an article that could have utility under § 5(g) and (h), note
1, supra, that petitioners oppose. Their brief accepts the copyright-ability of the great
carved golden saltcellar of Cellini but adds:
80
Copyright Cases
I.P. Survey Cases
Prof. Janicke
‘If, however, Cellini designed and manufactured this item in quantity so
that the general public could have salt cellars, then an entirely different
conclusion would be reached. In such case, the salt cellar becomes an
article of manufacture having utility in addition to its ornamental value
and would therefore have to be protected by design patent.’
It is publication as a lamp and registration as a statue to gain a monopoly in manufacture
that they assert is such a misuse of copyright as to make the registration invalid. No
unfair competition question is presented. The constitutional power of Congress to confer
copyright protection on works of art or their reproductions is not questioned. Petitioners
assume, as Congress has in its enactments and as do we, that the constitutional clause
empowering legislation ‘To promote the Progress of Science and useful Arts, by securing
for limited Times to Authors and Inventors the exclusive Right to their respective
Writings and Discoveries,’ Art. I, § 8, cl. 8, includes within the term ‘Authors’ the creator
of a picture or a statue. The Court’s consideration will be limited to the question
presented by the petition for the writ of certiorari. In recent years the question as to
utilitarian use of copyrighted articles has been much discussed.
In answering that issue, a review of the development of copyright coverage will make
clear the purpose of the Congress in its copyright legislation. In 1790 the First Congress
conferred a copyright on ‘authors of any map, chart, book or books already printed.’
Later, designing, engraving and etching were included; in 1831 musical composition;
dramatic compositions in 1856; and photographs and negatives thereof in 1865.
The Act of 1870 defined copyrightable subject matter as:
'* * * any book, map, chart, dramatic or musical composition, engraving, cut,
print, or photograph or negative thereof, or of a painting, drawing, chromo, statute,
statuary, and of models or designs intended to be perfected as works of the fine
arts’. (Emphasis supplied.)
The italicized part added three-dimensional work of art to what had been protected
previously. In 1909 Congress again enlarged the scope of the copyright statute. The new
Act provided in § 4:
‘That the works for which copyright may be secured under this Act shall include
all the writings of an author.’
81
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Some writers interpret this section as being coextensive with the constitutional grant, but
the House Report, while inconclusive, indicates that it was ‘declaratory of existing law’
only. Section 5 relating to classes of writings in 1909 read as shown in the margin with
subsequent additions not material to this decision. Significant for our purposes was the
deletion of the fine-arts clause of the 1870 Act.20 Verbal distinctions between purely
aesthetic articles and useful works of art ended insofar as the statutory copyright
language is concerned.
The practice of the Copyright Office, under the 1870 and 1874 Acts and before the 1909
Act, was to allow registration ‘as works of the fine arts’ of articles of the same character
as those of respondents now under challenge. Seven examples appear in the
Government’s brief amicus curiae. In 1910, interpreting the 1909 Act, the pertinent
Copyright Regulations read as shown in the margin. Because, as explained by the
Government, this regulation ‘made no reference to articles which might fairly be
considered works of art although they might also serve a useful purpose,’ it was reworded
in 1917 as shown below. The amicus brief gives sixty examples selected at five-year
intervals, 1912—1952, said to be typical of registrations of works of art possessing
utilitarian aspects.25 The current pertinent regulation, published in 37 CFR, 1949, § 202.8,
reads thus:
‘Works of art (Class G)—(a)—In General. This class includes works of artistic
craftsmanship, in so far as their form but not their mechanical or utilitarian aspects
are concerned, such as artistic jewelry, enamels, glassware, and tapestries, as well
as all works belonging to the fine arts, such as paintings, drawings and sculpture. *
* *’
So we have a contemporaneous and long-continued construction of the statutes by the
agency charged to administer them that would allow the registration of such a statuette as
is in question here.
This Court once essayed to fix the limits of the fine arts. That effort need not be appraised
in relation to this copyright issue. It is clear Congress intended the scope of the copyright
statute to include more than the traditional fine arts. Herbert Putnam, Esq., then Librarian
of Congress and active in the movement to amend the copyright laws, told the joint
meeting of the House and Senate Committees:
‘The term ‘works of art’ is deliberately intended as a broader specification than
‘works of the fine arts’ in the present statute with the idea that there is subject82
Copyright Cases
I.P. Survey Cases
Prof. Janicke
matter (for instance, of applied design, not yet within the province of design
patents), which may properly be entitled to protection under the copyright law.’
The successive acts, the legislative history of the 1909 Act and the practice of the
Copyright Office unite to show that ‘works of art’ and ‘reproductions of works of art’ are
terms that were intended by Congress to include the authority to copyright these
statuettes. Individual perception of the beautiful is too varied a power to permit a narrow
or rigid concept of art. As a standard we can hardly do better than the words of the
present Regulation, § 202.8, supra, naming the things that appertain to the arts. They
must be original, that is, the author’s tangible expression of his ideas. Such expression,
whether meticulously delineating the model or mental image or conveying the meaning
by modernistic form or color, is copyrightable. What cases there are confirm this
coverage of the statute.
The conclusion that the statues here in issue may be copyrighted goes far to solve the
question whether their intended reproduction as lamp stands bars or invalidates their
registration. This depends solely on statutory interpretation. Congress may after
publication protect by copyright any writing of an author. Its statute creates the copyright.
It did not exist at common law even though he had a property right in his unpublished
work.
But petitioners assert that congressional enactment of the design patent laws should be
interpreted as denying protection to artistic articles embodied or reproduced in
manufactured articles. They say:
‘Fundamentally and historically, the Copyright Office is the repository of what
each claimant considers to be a cultural treasure, whereas the Patent Office is the
repository of what each applicant considers to be evidence of the advance in
industrial and technological fields.’
Their argument is that design patents require the critical examination given patents to
protect the public against monopoly. Attention is called to Gorham Mfg. Co. v. White, 14
Wall. 511, 20 L.Ed. 731, interpreting the design patent law of 1842, 5 Stat. 544, granting
a patent to anyone who by ‘their own industry, genius, efforts, and expense, may have
invented or produced any new and original design for a manufacture * * *.’ A pattern for
flat silver was there upheld. The intermediate and present law differs little. ‘Whoever
invents any new, original and ornamental design for an article of manufacture may obtain
a patent therefor, * * *’ subject generally to the provisions concerning patents for
invention. 35 U.S.C.A. § 171. As petitioner sees the effect of the design patent law:
83
Copyright Cases
I.P. Survey Cases
Prof. Janicke
‘If an industrial designer cannot satisfy the novelty requirements of the design
patent laws, then his design as used on articles of manufacture can be copied by
anyone.’
Petitioner has furnished the Court a booklet of numerous design patents for statuettes,
bases for table lamps and similar articles for manufacture, quite indistinguishable in type
from the copyrighted statuettes here in issue. Petitioner urges that overlapping of patent
and copyright legislation so as to give an author or inventor a choice between patents and
copyrights should not be permitted. We assume petitioner takes the position that
protection for a statuette for industrial use can only be obtained by patent, if any
protection can be given.
As we have held the statuettes here involved copyrightable, we need not decide the
question of their patentability. Though other courts have passed upon the issue as to
whether allowance by the election of the author or patentee of one bars a grant of the
other, we do not.37 We do hold that the patentability of the statuettes, fitted as lamps or
unfitted, does not bar copyright as works of art. Neither the Copyright Statute nor any
other says that because a thing is patentable it may not be copyrighted. We should not so
hold.
Unlike a patent, a copyright gives no exclusive right to the art disclosed; protection is
given only to the expression of the idea—not the idea itself. Thus, in Baker v. Selden,
101 U.S. 99, the Court held that a copyrighted book on a peculiar system of bookkeeping
was not infringed by a similar book using a similar plan which achieved similar results
where the alleged infringer made a different arrangement of the columns and used
different headings. The distinction is illustrated in Fred Fisher, Inc. v. Dillingham, D.C.,
298 F. 145, 151, when the court speaks of two men, each a perfectionist, independently
making maps of the same territory. Though the maps are identical each may obtain the
exclusive right to make copies of his own particular map, and yet neither will infringe the
other’s copyright. Likewise a copyrighted directory is not infringed by a similar directory
which is the product of independent work. The copyright protects originality rather than
novelty or invention—conferring only ‘the sole right of multiplying copies.’ Absent
copying there can be no infringement of copyright. Thus, respondents may not exclude
others from using statuettes of human figures in table lamps; they may only prevent use
of copies of their statuettes as such or as incorporated in some other article. Regulation §
202.8, supra, makes clear that artistic articles are protected in ‘form but not their
mechanical or utilitarian aspects.’ The dichotomy of protection for the aesthetic is not
beauty and utility but art for the copyright and the invention of original and ornamental
design for design patents. We find nothing in the copyright statute to support the
argument that the intended use or use in industry of an article eligible for copyright bars
or invalidates its registration. We do not read such a limitation into the copyright law.
84
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Nor do we think the subsequent registration of a work of art published as an element in a
manufactured article, is a misuse of the copyright. This is not different from the
registration of a statuette and its later embodiment in an industrial article.
‘The copyright law, like the patent statutes, makes reward to the owner a secondary
consideration.’ United States v. Paramount Pictures, 334 U.S. 131, 158. However, it is
‘intended definitely to grant valuable, enforceable rights to authors, publishers, etc.,
without burdensome requirements; ‘to afford greater encouragement to the production of
literary (or artistic) works of lasting benefit to the world.’ Washingtonian Pub. Co. v.
Pearson, 306 U.S. 30, 36.
The economic philosophy behind the clause empowering Congress to grant patents and
copyrights is the conviction that encouragement of individual effort by personal gain is
the best way to advance public welfare through the talents of authors and inventors in
‘Science and useful Arts.’ Sacrificial days devoted to such creative activities deserve
rewards commensurate with the services rendered.
Affirmed.
Dissenting opinion of Mr. Justice DOUGLAS, in which Mr. Justice BLACK concurs.
An important constitutional question underlies this case—a question which was stirred on
oral argument but not treated in the briefs. It is whether these statuettes of dancing figures
may be copyrighted. Congress has provided that ‘works of art’, ‘models or designs for
works of art’, and ‘reproductions of a work of art’ may be copyrighted, 17 U.S.C § 5; and
the Court holds that these statuettes are included in the words ‘works of art’. But may
statuettes be granted the monopoly of the copyright?
Article I, § 8 of the Constitution grants Congress the power ‘To promote the Progress of
Science and useful Arts, by securing for limited Times to Authors the exclusive Right to
their respective Writings * * *.’ The power is thus circumscribed: it allows a monopoly to
be granted only to ‘authors’ for their ‘writings.’ Is a sculptor an ‘author’ and is his statue
a ‘writing’ within the meaning of the Constitution? We have never decided the question.
Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, held that a photograph could be
copyrighted.
85
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, held that chromolithographs to
be used as advertisements for a circus were ‘pictorial illustrations’ within the meaning of
the copyright laws. Broad language was used in the latter case, ’* * * a very modest
grade of art has in it something irreducible, which is one man’s alone. That something he
may copyright unless there is a restriction in the words of the act.’ 188 U.S. at 250. But
the constitutional range of the meaning of ‘writings’ in the field of art was not in issue
either in the Bleistein case nor in F. W. Woolworth Co. v. Contemporary Arts, 344 U.S.
228, recently here on a writ for certiorari limited to a question of damages.
***
The interests involved in the category of ‘works of art,’ as used in the copyright law, are
considerable. The Copyright Office has supplied us with a long list of such articles which
have been copyrighted—statuettes, book ends, clocks, lamps, door knockers,
candlesticks, inkstands, chandeliers, piggy banks, sundials, salt and pepper shakers, fish
bowls, casseroles, and ash trays. Perhaps these are all ‘writings’ in the constitutional
sense. But to me, at least, they are not obviously so. It is time that we came to the
problem full face. I would accordingly put the case down for reargument.
LAUREYSSENS
v.
IDEA GROUP, INC.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
964 F.2d 131 (1992)
Before: OAKES, Chief Judge, MESKILL and PRATT, Circuit Judges.
OAKES, Chief Judge:
At issue in this trade dress and copyright infringement case are the similarities between
two sets of foam rubber puzzles. The puzzles produced by the parties contain six pieces
with a variety of notches cut into each of their four edges. By interlocking the notched
edges, the puzzles can be assembled either in a flat form in a rectangular frame or into a
86
Copyright Cases
I.P. Survey Cases
Prof. Janicke
three-dimensional hollow cube. The more intrepid puzzler can piece together more
challenging multi-puzzle combinations such as a larger cube or other three-dimensional
figures including a beam of two or three cubes joined in a line, a cross of five cubes, and
a star comprised of pieces from six cube puzzles.
One set of puzzles is marketed under the name HAPPY CUBE. The HAPPY CUBE
puzzles were designed by Dirk Laureyssens and are produced, distributed, exported from
Europe, and marketed in the United States through a number of entities including I Love
Love Company, N.V., Creative City Limited, and Extar Corporation (collectively
"Laureyssens"). The competing set is marketed under the name SNAFOOZ by Idea
Group, Inc., a California corporation ("Idea Group").
[A portion of the Happy Cube web page is here reproduced.]
Happy Cube
... probably the finest puzzle in the World
Here
are
the
four
types
of
Happy
Cube-puzzles
:
87
Copyright Cases
I.P. Survey Cases
Prof. Janicke
---------------
[A portion of the Snafooz 2007 web page is here reproduced.]
Snafooz puzzle.png
---------------
88
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Idea Group appeals from an order entered pursuant to a July 31, 1991 opinion of the
United States District Court for the Southern District of New York, Robert M. Sweet,
Judge, granting a preliminary injunction for trade dress infringement under section 43(a)
of the Lanham Act, 15 U.S.C. § 1125(a) (1988), and under the New York common law of
unfair competition. 768 F. Supp. 1036 (S.D.N.Y. 1991). Pursuant to that order, Idea
Group is enjoined from marketing SNAFOOZ puzzles "in flat form and in transparent
packaging, unless the puzzle package contains an assembled SNAFOOZ puzzle." In
addition, Laureyssens cross-appeals from the district court's denial of a preliminary
injunction against Idea Group for copyright infringement, 17 U.S.C. §§ 101-914 (1988),
which, if granted, would have forced Idea Group to cease all activities relating to the
SNAFOOZ puzzles.
For the reasons set forth below, we reverse the district court's decision to grant a
preliminary injunction based on trade dress infringement under section 43(a) of the
Lanham Act and under the New York common law of unfair competition, and affirm the
district court's decision to deny a preliminary injunction based on copyright infringement.
I.
Dirk Laureyssens, a designer of various toys and puzzles, first began creating cube
puzzles in 1985. Over the next few years, he refined his cube puzzle designs by selecting
puzzle pieces which would not only permit assembly in flat and cube form, but which
also were aesthetically pleasing. Six puzzle designs emerged, each of which contains
pieces with edges that are five notch-widths to a side. n1
n1 A notch-width is equal to the thickness of the puzzle material. The notch-width
must be equal to the thickness of the puzzle material in order to join two pieces
smoothly in the perpendicular alignment.
By 1991, Laureyssens had filed certificates of copyright registration with the Copyright
Office in Washington for each of his six designs. The certificates indicate that the nature
of authorship claimed consists of the shape of the pieces; the certificates also refer to
earlier filings with the Copyright Office in 1987 and 1988 which also covered his puzzle
designs.
89
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Laureyssens introduced his puzzles for sale in the United States at the 1988 International
Toy Fair held in New York City. Subsequently, he decided to market them on his own
under the name CUBE-IT. After his counsel discovered a trademark conflict, prior to the
1990 International Toy Fair in New York, Laureyssens changed the name of the puzzles
to HAPPY CUBE.
HAPPY CUBE puzzles come in six colors and each is named after a well-known city.
The yellow puzzle is named Tokio [sic], the green New York, the purple Brussels, the
orange Amsterdam, the blue Milano, and the red Paris. By design, some of the puzzles
are harder to assemble than others.
HAPPY CUBE puzzles are packaged for sale in the flat assembled form in clear plastic
shrink-wrap with a cardboard insert. The HAPPY CUBE name is printed on the upper
right hand portion of the cardboard insert against a black background. Each letter of the
word HAPPY is colored in one of the puzzle colors. The word "CUBE" is colored blue,
the color of the sixth puzzle variation. Underneath the logo is a color and model chart
identifying all six puzzles by color and city name. Beneath the chart is a color photograph
of two hands assembling a double-sized cube involving pieces from all six puzzles. The
reverse side of the insert, which can only be read after removing the insert from the
packaging, depicts the different "missions" for the puzzler. These range from assembling
a one-color cube to assembling the HAPPY CUBE star, involving
thirty of the thirtysix pieces from the six different puzzles.
Since their introduction in the United States market, Laureyssens claims to have sold
103,000 puzzles, 90,000 of which were marketed in the HAPPY CUBE packaging.
Raphael Berkien, the chief executive officer of Laureyssens' exclusive United States
distributor Extar Corporation, declared in an affidavit that sales since 1988 were worth
$50,000, but one week later was unable to substantiate the figure during his deposition.
Berkien also claims to have orders for an additional 250,000 puzzles, and to have entered
into an agreement with an organization possessing a nationwide sales force of 40 sales
representatives, each of whom apparently committed to selling 100,000 puzzles per
month.
Following the original appearance at the 1988 American International Toy Fair in New
York, Laureyssens exhibited the puzzles at toy and novelty shows across the country
90
Copyright Cases
I.P. Survey Cases
Prof. Janicke
where leaflets in the style of the packaging were distributed. Laureyssens also advertised
the puzzles in various trade publications, such as the New York Toy Fair Directory.
Television advertising has been limited. The Laureyssens puzzles were featured during an
episode
of "Family Feud" in which two wrestling teams that were competing on the
show played with the cubes. In addition, Maui Productions produced an installment of its
half-hour promotional show "Incredible Breakthroughs" about the puzzles, featuring
representatives from the National Football League and professional football players,
which was scheduled to air for four months beginning on July 4, 1991.
Dirk Laureyssens testified that he has spent approximately $80,000 in connection with
these advertising and promotional efforts, a figure which includes his salary. Berkien
stated that, by his estimation, approximately $180,000 had been expended to advertise
and promote the puzzles over the last three years, but later conceded during his
deposition that these expenditures covered the entire line of HAPPY toy products.
The Laureyssens puzzles received some unsolicited media coverage when NBC News
broadcast a segment on the puzzles which was filmed at the Dallas Toy Fair in 1990. n2
n2 The nature of the coverage was not detailed in the record.
Laureyssens is also attempting to sell his puzzles in the novelty and premium item
market. For example, in March 1991, Extar obtained a license from the National Football
League allowing Laureyssens to place various NFL trademarks on the puzzles. Also,
Extar entered into an agreement with Strottman International, Inc., a supplier of premium
and novelty products to packagers such as fast food chains and breakfast cereal
companies, which granted Strottman exclusive promotional rights to the Laureyssens
puzzles in the premium industry.
The first conflict between Laureyssens and Idea Group arose at the 1990 American
International Toy Fair in New York City. During the fair, Dirk Laureyssens discovered
that Idea Group was manufacturing and marketing identical puzzles called SNAFOOZ.
After receiving cease and desist letters from Laureyssens' counsel, Idea Group
acknowledged on March 19, 1990 that "our puzzle apparently was copied from a sample
91
Copyright Cases
I.P. Survey Cases
Prof. Janicke
obtained through your French distributor or licensee and, in its present form, cannot be
marketed in the U.S. without your permission."
The president of Idea Group was approached by Mr. Berkien of Extar Corporation
approximately one month after
the Toy Fair about the possibility of Idea Group
marketing the Laureyssens puzzles in the United States. Apparently, Berkien was
unaware of the recent dispute between Dirk Laureyssens and Idea Group until a few
hours before he was supposed to meet with Idea Group. After a few weeks of
negotiations, however, the parties failed to reach an agreement.
Following the breakdown of negotiations with Laureyssens, Idea Group decided to
develop its own version of the flat-to-cube puzzle series, utilizing pieces whose edges
were six notch-widths in length rather than five. Late in July 1990, an executive vice
president of Idea Group contacted a graduate student in computer science at the
Massachusetts Institute of Technology, Eric Brewer, and described the new series of
puzzle designs that Idea Group was hoping
to market. Brewer then met with the
executive vice president who provided him with two of the old SNAFOOZ Puzzles and
discussed the nature of the computer program Idea Group desired. An agreement was
reached in August 1990, and the graduate student completed the work for Idea Group a
few weeks later. Brewer stated in an affidavit that he designed the new series entirely
from scratch, utilizing the old SNAFOOZ Puzzles only to gain an understanding of the
desired product and to calibrate the difficulty of his puzzle designs against the five notchwidth designs of the Laureyssens puzzles.
After receiving the designs from Brewer, Idea Group made arrangements to manufacture
the new SNAFOOZ puzzles. From September 1990 to February 1991, Idea Group
received approximately 300,000 SNAFOOZ puzzles from its manufacturer in Korea. In
preparation for the maiden exhibition of the new six-notch width SNAFOOZ puzzles at
the 1991 American International Toy Fair in New York City, Idea Group conducted a
direct mail campaign to potential customers, and placed advertisements in the 1991 Toy
Fair Directory and other trade publications.
The packaging for Idea Group's SNAFOOZ puzzles consists of several different styles,
all of which were originally designed between June 1989 and February 1990, for the
exhibition of the old SNAFOOZ puzzles at the 1990 American International Toy Fair.
92
Copyright Cases
I.P. Survey Cases
Prof. Janicke
The simplest packaging consists of one puzzle assembled in flat form, wrapped in shrink
wrap, and a cardboard wraparound insert. The cardboard insert features the word
SNAFOOZ across the top in large, wind-swept,
rainbow-colored lettering against a
black background. Each letter is colored in at least two different rainbow hues. Beneath
the SNAFOOZ logo is a black and white depiction of an assembled cube which protrudes
into a cut-out window revealing the puzzle itself. The back of the insert, which can be
seen by turning over the package, displays the various combinations the puzzler can
attempt. Idea Group also markets SNAFOOZ puzzles in blister packs of one, three, and
six puzzles. The blister packs feature the same SNAFOOZ logo printed on black
cardboard backing. Inside the molded plastic blister, Idea Group includes one puzzle in
the assembled cube form.
SNAFOOZ puzzles are offered in the same six colors as the Laureyssens puzzles.
Although Idea Group attempted to branch out by manufacturing the puzzles in "hot" neon
colors, these puzzles did not meet child-safety toxicity specifications.
During the 1991 American International Toy Fair in February, Laureyssens paid a visit to
Idea Group's showroom but made no effort to stop Idea Group from selling the
SNAFOOZ puzzles at the fair. At the end of the fair, Laureyssens met with
representatives from Idea Group in his counsel's office, but
made no demand on Idea
Group to cease and desist from infringing on his copyrights or the HAPPY CUBE trade
dress.
In April 1991, Laureyssens instituted this action against Idea Group seeking, inter alia, to
enjoin Idea Group from infringing Laureyssens' copyrights and trade dress by distributing
the SNAFOOZ puzzles. On June 5, 1991, Laureyssens moved for a preliminary
injunction to prevent Idea Group from engaging in any further activity with respect to the
marketing and sale of SNAFOOZ puzzles. Testimony was heard on the motion on July 1
and 2, and the matter was argued and fully submitted on July 10, 1991.
On July 31, 1991, the district court issued an opinion, 768 F. Supp. 1036, denying
Laureyssens' motion for a preliminary injunction based on copyright infringement, but
granting Laureyssens' motion on the grounds that Idea Group's flat-form, shrink wrapped
SNAFOOZ packaging raises a serious question of trade dress infringement under section
43(a) of the Lanham Act and under the New York common law of unfair competition. A
93
Copyright Cases
I.P. Survey Cases
Prof. Janicke
corresponding order issued on August 7, 1991 preliminarily enjoined Idea Group from
"marketing its SNAFOOZ puzzles . . . in flat form and in transparent packaging, unless
the puzzle package contains an assembled SNAFOOZ puzzle."
This appeal and cross-appeal followed.
II.
[Court reverses the unfair-competition-by-trade-dress holding, because the packaging at
issue was not distinctive of source yet; hence its use by defendants was not likely to cause
mistake as to source. There was no palming off or other act of intentional deception.]
C. Copyright infringement
In order to establish a claim for copyright infringement, a plaintiff must show ownership
of a valid copyright and the defendant's infringement by unauthorized copying. See
Rogers v. Koons, 960 F.2d 301 (2d Cir. 1992); Folio Impressions, Inc. v. Byer
California, 937 F.2d 759, 763 (2d Cir. 1991); Weismann v. Freeman, 868 F.2d 1313,
1320
(2d Cir.), cert. denied, 493 U.S. 883, 107 L. Ed. 2d 172, 110 S. Ct. 219 (1989).
After conducting this analysis, the district court concluded that Laureyssens did not raise
a serious question whether Idea Group's SNAFOOZ puzzles infringe his copyrights in the
HAPPY CUBE puzzle designs.
In this cross-appeal by Laureyssens, the parties do not take issue with the district court's
conclusion that Laureyssens owns valid copyrights in the HAPPY CUBE puzzle designs.
Therefore, we will focus our review on Laureyssens' claim that the district court erred in
its analysis of whether the SNAFOOZ puzzles raise a serious question of actionable
copying.
It is now an axiom of copyright law that actionable copying can be inferred from the
defendant's access to the copyrighted work and substantial similarity between the
copyrighted work and the alleged infringement. See Walker v. Time Life Films, Inc., 784
F.2d 44, 48 (2d Cir.), cert. denied, 476 U.S. 1159, 90 L. Ed. 2d 721, 106 S. Ct. 2278
(1986). We have recently explained this recitation to mean that a plaintiff must first show
94
Copyright Cases
I.P. Survey Cases
Prof. Janicke
that his work was actually copied by proving "access and substantial similarity between
the works." See Folio Impressions, 937 F.2d at 765. The plaintiff then must show that
the copying amounts to an "improper" or "unlawful" appropriation, Arnstein v. Porter,
154 F.2d 464, 468 (2d Cir. 1946), by demonstrating that substantial similarities relate to
protectible material. See Folio Impressions, 937 F.2d at 765; see also Latman, "Probative
Similarity" as Proof of Copying: Toward Dispelling Some Myths in Copyright
Infringement, 90 Colum. L. Rev. 1187, 1191-1204 (1990) (clarifying that copyright
infringement claims involve consideration of similarity at two different stages of the
analysis--actual copying and improper appropriation).
The presence of a "substantial similarity" requirement in both prongs of the analysis-actual copying and whether the copying constitutes an improper appropriation creates the
potential for unnecessary confusion, especially because a plaintiff need not prove
substantial similarity in every case in order to prove actual copying. Cf. Universal
Athletic Sales Co. v. Salkeld, 511 F.2d 904, 907 (3d Cir.) ("Substantial similarity to show
that the original work has been copied is not the same as substantial similarity to prove
infringement. As the Arnstein case points out, dissection and expert testimony in the
former setting are proper but are irrelevant when the issue turns to unlawful
appropriation. While 'rose is a rose is a rose is a rose,' substantial similarity is not always
substantial similarity."), cert. denied, 423 U.S. 863, 46 L. Ed. 2d 92, 96 S. Ct. 122 (1975).
As Professor Latman explains:
Copying in the first instance may be established by direct or indirect proof. Though direct
proof may not be routinely available, its potential should not be overlooked.
A common form of indirect proof of copying--but far from the only form--is a showing of
defendant's opportunity to come into contact with plaintiff's work and such similarities
between the works which, under all the circumstances, make independent creation
unlikely. Such similarities may or may not be substantial. They are not, however, offered
for their own sake in satisfaction of the requirement that defendant has taken a substantial
amount of protected material from the plaintiff's work. Rather, they are offered as
probative of the act of copying and may accordingly for the sake of clarity conveniently
be called "probative similarity."
95
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Latman, supra, at 1214 (emphasis added); see also 3 M. Nimmer & D. Nimmer, Nimmer
on Copyright § 13.03[A], at 13-23 (1991) ("Although the term 'substantial similarity'
often is invoked as a proxy to prove copying as a factual proposition, we have seen that
the term 'probative similarity' is to be preferred in that context and the question of
'substantial similarity' arises analytically only thereafter.").
For these reasons, we wish to restate some of our previous explanations of the
requirements for proving actionable copying in copyright infringement cases. A plaintiff
must first show that his or her work was actually copied. Copying may be established
either by direct evidence of copying or by indirect evidence, including access to the
copyrighted work, similarities that are probative of copying between the works, and
expert testimony. If actual copying is established, a plaintiff must then show that the
copying amounts to an improper appropriation by demonstrating that substantial
similarity to protected material exists between the two works.
In the case at hand, with respect to proof of actual copying, Idea Group does not dispute
that it had access to the HAPPY CUBE puzzles. n8 Furthermore, after examining pieces
of the HAPPY CUBE and SNAFOOZ puzzles, we find similarities in their shapes which
are probative of copying and which at least raise a question of actual copying. n9 The
central concern in this appeal, then, is whether the district court properly determined
that no serious question exists of unlawful appropriation of protected material.
n8 Idea Group, in fact, gave two of their original SNAFOOZ puzzles, which
admittedly were copies of the HAPPY CUBE puzzles, to the graduate student
hired to design the new SNAFOOZ puzzles.
n9 No expert testimony was included in the record pertaining to the ability of a
individual to create a series of puzzles with six-notch widths per edge based on a
visual inspection of puzzle pieces with five notch-widths per edge, which would
help to resolve whether a question of actual copying has been shown. See
Arnstein, 154 F.2d at 468.
The test for unlawful appropriation to prove infringement of another's copyright asks
whether substantial similarity as to protectible material exists between the works at issue.
Folio Impressions, 937 F.2d at 765. To that end, we determine in most cases whether
96
Copyright Cases
I.P. Survey Cases
Prof. Janicke
"the ordinary observer, unless he set out to detect the disparities, would be disposed to
overlook them, and regard their aesthetic appeal as the same." Peter Pan Fabrics, Inc. v.
Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960). However, where a design
contains both protectible and unprotectible elements, we have held that the observer's
inspection must be more "discerning," ignoring those aspects of a work that are
unprotectible in making the comparison. Folio Impressions, 937 F.2d at 765-66.
The district court applied the more discerning ordinary observer test for substantial
similarity of Folio Impressions, concluding that this was the appropriate test because only
the shapes of the HAPPY CUBE puzzle pieces are protected by Laureyssens' copyrights.
In doing so, the district court excluded from its consideration of substantial similarity the
fact that both sets of designs involve "a hollow cube puzzle formed from six pieces with
rectilinear interlocking projections which can also be assembled into a flat three-pieceby-two-piece form."
Laureyssens argues that it was clearly erroneous for the district court to exclude any
portion of the Laureyssens design because Laureyssens created the puzzles
independently, thereby rendering the entire puzzle design "original" under the standard of
Feist Publications, Inc. v. Rural Tel. Serv. Co., 113 L. Ed. 2d 358, 111 S. Ct. 1282, 1287
(1991). We disagree. "The protection granted to a copyrightable work extends only to the
particular expression of an idea and never to the idea itself." Durham Industries, Inc. v.
Tomy Corp., 630 F.2d 905, 912 (2d Cir. 1980) (quoting Reyher v. Children's Television
Workshop, 533 F.2d 87, 90 (2d Cir.), cert. denied, 429 U.S. 980, 50 L. Ed. 2d 588, 97 S.
Ct. 492 (1976)); see also Rogers, slip op. at 2619. In the case at hand, in order to express
the idea of a perfect hollow cube puzzle that can also be assembled in flat form, a
designer must use pieces that interlock through fingers and notches cut at right angles.
Indeed, Idea Group presented evidence of two different patents that were obtained for
flat-to-cube puzzles in 1974 and 1975; both were created prior to Laureyssens' work.
Therefore, we think the district court was correct in concluding that the Laureyssens
copyright extends only to his particular expression of the idea of a flat-to-cube puzzle,
manifested in the particular shapes of his puzzle pieces. Cf. Mattel, Inc. v. AzrakHamway Intern., Inc., 724 F.2d 357, 360 (2d Cir. 1983) (5 1/2" "Warlord" action figure
toy doll did not infringe Mattel's copyright in 5 1/2" "Masters of the Universe" action
figure toy doll because both are different expressions of the same unprotectible idea of a
superhuman muscleman crouching in a fighting pose).
97
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Finally, Laureyssens argues that the district court misapplied even the more discerning
ordinary observer test for substantial similarity because Laureyssens contends that any
differences between the shapes of the puzzle pieces reflect only a proportional
enlargement of the puzzle pieces.
As Judge Learned Hand pointed out in Peter Pan Fabrics, "No principle can be stated as
to when an imitator has gone beyond copying the 'idea' and has borrowed its
'expression.'" 274 F.2d at 489. However, he explained that in deciding whether unlawful
appropriation has taken place, "one should consider the uses for which the design is
intended, especially the scrutiny that observers will give to it as used." Id.
Here, the designs of the puzzle pieces at issue have as their purpose the creation of a
puzzle which can be assembled in either cube or flat form. The question, then, is whether
the ordinary observer would consider a design change in the shapes of the pieces from
five notch-widths per edge to six notch-widths per edge as effectuating essentially the
same puzzle challenge with pieces that have somewhat wider notches and fingers, or as
effectuating a completely different expression of a flat-to-cube puzzle.
We think that an ordinary observer would conclude that the design change to six notchwidths per edge in the shapes of the SNAFOOZ puzzle pieces results in a qualitatively
different challenge to the puzzler. A side-by-side visual comparison of the pieces
comprising the green HAPPY CUBE and the purple SNAFOOZ--the two puzzles with
the most pieces that are supposedly similar--provides the clearest evidence of the
different ways in which the HAPPY CUBE and SNAFOOZ puzzles express the idea of
a flat-to-cube: three of the six pieces in each puzzle share some similarities, none are
virtually identical, and the remaining three are quite different. Based on this observation,
we think the ordinary observer comparing the shapes of the pieces would conclude that
SNAFOOZ is a bona fide redesign of the idea of a flat-to-cube puzzle. If the ordinary
observer were asked to compare side-by-side two common cardboard 500-piece jigsaw
puzzles depicting the American flag where the two puzzles were configured differently,
and assuming that the copyright did not protect the particular depiction of the flag, we
certainly think the observer would conclude that the allegedly infringing jigsaw puzzle
was simply a different expression of the idea of a jigsaw puzzle.
98
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Our belief that the SNAFOOZ puzzles are not unlawful appropriations of the HAPPY
CUBE designs is reinforced by the testimony of the graduate student who designed the
SNAFOOZ puzzles. He stated in his affidavit that he generated a computer program from
scratch to create flat-to-cube puzzles that could also be assembled in multi-puzzle
combinations with six notch-widths per edge. Declaration of Eric Brewer ("I can state
without equivocation that I designed the SNAFOOZ Puzzles, along with their solutions
and the solutions for all of the complex shapes . . . without any reference to the FiveSegment Puzzles (other than to play with them); I started from scratch.").
For these reasons, we conclude that the district court did not abuse its discretion in
deciding that the SNAFOOZ puzzles pose no serious question of unlawful appropriation,
and accordingly, of copyright infringement with respect to the protectible elements of
Laureyssens' copyrights in his HAPPY CUBE designs.
***
PARAMOUNT PICTURES CORP.
v.
CAROL PUBLISHING GROUP
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK
11 F. Supp. 2d 329 (1998)
Samuel Conti, United States District Judge.
I. INTRODUCTION
This is an action for copyright infringement brought by plaintiff Paramount Pictures
Corporation ("Paramount") which owns copyrights in the Star Trek television series and
movies. Paramount contends that a book entitled The Joy of Trek, written by defendant
Sam Ramer ("Ramer") and published by defendant Carol Publishing Group ("Carol
99
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Publishing"), infringes a number of its Star Trek related copyrights. Paramount filed a
motion for a preliminary injunction, seeking to enjoin the publication and distribution of
The Joy of Trek. Having conducted a hearing on this issue, the Court makes the
following findings of fact and conclusions of law.
II. BACKGROUND
The original Star Trek series (the "Original Series") made its network television debut
in 1966. This unique science fiction television program chronicled the adventures of the
U.S.S. Enterprise and its crew as they traveled through space during the 23rd century.
Many of its characters, such as Captain Kirk and Mr. Spock, have become household
names. The Original Series was broadcast nationwide through 1969, and since that time
episodes of the Original Series have been rerun in syndication. In addition to the Original
Series there have been eight Star Trek Motion Pictures, as well three further Stark Trek
television series: Star Trek: The Next Generation; Star Trek: Deep Space Nine; and, Star
Trek: Voyager. Collectively, the Court will refer to these works as the Star Trek
Properties.
The Star Trek Properties created a subcultural phenomenom, fostering a number of
intensely loyal fans. The fervency of these fans apparently influenced n1 NBC to reverse
its decision to cancel the Original Series after its first season. The more devoted of these
fans are known as "Trekkers." Ramer, the author of The Joy of Trek, is a self confessed
Trekker.
n1 Undoubtedly the favorable demographic characteristics of these fans didn't hurt
their cause.
The popularity of the Star Trek Properties has given rise to a cottage of industry of
products, both licensed and unlicensed, that are in some way related to Star Trek. These
products range from toys and clothing to books which detail every conceivable aspect of
the Star Trek Properties. Although Paramount has spent considerable time and money
enforcing its rights in the intellectual property related to Star Trek, it has not instigated
legal proceedings against every entity that
has potentially run afoul of those rights.
Paramount estimates that, since 1994, it has brought over one hundred actions related to
100
Copyright Cases
I.P. Survey Cases
Prof. Janicke
the Star Trek Properties and spent one million dollars per year to enforce these
intellectual property rights.
In creating The Joy of Trek, Ramer and Carol publishing (collectively "Defendants")
sought to create a book that would explain the Star Trek phenomenon to the non-Trekker,
particularly someone who finds him or herself involved in a relationship with a Trekker.
The book's complete title is, The Joy of Trek: How to Enhance Your Relations with a
STAR TREK Fan. The book's back cover explains that it contains, "everything a Star
Trek novice needs to know to keep up with with a diehard Trekker." The 217-page book
contains three distinct sections. The first section, the Preface and Chapters One and Two,
contains an explanation of the popularity of Star Trek and a brief description of the
typical Trekker. The next section, (the "Middle Portion"), pages 33 through 190, is a
guide to the Star Trek Properties which contains: brief synopses of the major plots and
story lines of many of the Star Trek Properties; descriptions of the history and
personalities of the major Star Trek characters; and, descriptions of the fictional alien
species and fictional technologies that appear in the Star Trek Properties. The final
portion of the book consists of a variety of information, including ways to relate to
Trekkers and a personal recollection of Ramer's experiences at Star Trek conventions. n2
n2 These conventions are gatherings of Star Trek devotees at which Star Trek is
discussed, sometimes by actual cast members, and various Star Treks products are
displayed.
The Joy of Trek was published in November of 1997. Paramount became aware of the
publication on or about December 17, 1997. On January of 15, 1997, Paramount advised
Carol publishing by letter of counsel that it believed The Joy of Trek infringed on its
rights in the Star Trek Properties, and demanded the Carol Publishing cease publication.
On February 10, 1998, after being informed that Carol Publishing refused to discontinue
publishing the book, Paramount made this application for a preliminarily injunction
barring the publication, distribution and sale of The Joy of Trek.
III. DISCUSSION
In order to succeed on a motion for a preliminary injunction, a party must show (a)
irreparable harm should the injunction not be granted, and (b) either (i) a likelihood of
101
Copyright Cases
I.P. Survey Cases
Prof. Janicke
success on the merits or (ii) sufficient serious question going to the merits and a balance
of hardships tipping decidedly in the movant's favor. ABKCO Music. Inc. v. Stellar
Records, Inc., 96 F.3d 60, 64 (2d Cir. 1996). Because a prima facie case of copyright
infringement creates a presumption of irreparable harm, the Court begins its analysis with
the likelihood of success on the merits.
A. Likelihood of Success on the Merits
1. Infringement
To succeed on its claim for copyright infringement, Paramount must demonstrate two
elements: "(1) ownership of a valid copyright, and (2) copying of constituent elements of
the work that are original." Feist Publications, Inc. v. Rural Telephone Serv., Inc., 499
U.S. 340, 361, 111 S. Ct. 1282, 113 L. Ed. 2d 358 (1991). In the instant case, Paramount
has produced copies of copyright certificates which constitute prima facie evidence of
ownership of a valid copyright. See 17 U.S.C. § 410(c). Defendants do not dispute that
Paramount owns valid copyrights in the Star Trek television shows and movies. The sole
issue, therefore, is whether The Joy of Trek copies these works n3.
n3 Paramount's complaint claims that The Joy of Trek infringes on 222 Star Trek
television episodes and 8 Star Trek movies.
A plaintiff may establish copying either by direct evidence or by showing that the
defendant had access to the plaintiff's work and the two works are substantially similar.
Twin Peaks Productions, Inc. v.
Publications International Ltd., 996 F.2d 1366, 1372
(2d Cir. 1993). As an initial matter, it would be absurd to suggest that Ramer has not
copied from the Star Trek Properties n4.
His book contains quotations taken directly
from these works, and the Middle Portion is devoted to telling a large portion of the star
Trek story. See Castle Rock Entertainment v. Carol Publishing Group, Inc., 955 F. Supp.
260, 264 (S.D.N.Y. 1997). Indeed, the book's back cover explains that it contains
"everything a Star Trek novice needs to know to keep up with a diehard Trekker
[including] a concise history of the series and the movies." The fact that the Joy of Trek
copies from the Star Trek Properties as a factual matter is not dispositive. "Not all
copying . . . is copyright infringement . . . only the copying of the original elements of a
102
Copyright Cases
I.P. Survey Cases
Prof. Janicke
protected work." Id. (citing Feist, 499 U.S. at 345) (internal quotations omitted). The
Court must therefore decide whether the copying is actionable.
n4 Ramer admits to having watched each of the allegedly infringed properties at
least once.
The Court finds that The Joy of Trek consists of actionable copying because it is
substantially similar to the Star Trek Properties n5. The test for substantial similarity is
"whether an average lay observer would recognize the alleged copy as having been
appropriated from the copyrighted work." Knitwaves, Inc. v. Lollytogs Ltd., 71 F.3d 996,
1001 (2d Cir. 1995) (internal quotations omitted). There can be no question that The Joy
of Trek meets that test. The characters, devices and plot lines discussed in the book have
been taken directly from the Star Trek Properties. A reasonable person would easily
recognize these aspects of the book as having been appropriated from the copyrighted
properties. By relating synopses of individual episodes and encapsulations of the various
characters and alien species, the work copies "the heart" of the Star Trek properties. See
Castle Rock, 955 F. Supp. at 269.
n5 This discussion of substantially similarity concerns whether "the degree of
similarity suffices to demonstrate actionable infringement," as opposed to what
has come to be known as probative similarity which goes to proof of copying.
Ringgold v. Black Entertainment Teleyision, Inc., 126 F.3d 70, 74 (2d. Cir. 1997).
Defendants attempt to explain this problem away by claiming that the book is simply the
author's "descriptions" of that which he saw while watching Star Trek. An argument
similar to Defendants' was raised in the Castle Rock case. In Castle Rock, defendants had
authored and published a quiz book called The Seinfeld Aptitude Test, or SAT. 955 F.
Supp. at 261. This book contained trivia questions based on Seinfeld, the celebrated
television show about nothing. Id. Defendants sought to argue that the show discussed
"uncopyrightable facts about the Seinfeld show." Id. at 266. The Court disagreed stating,
"Seinfeld is fiction; both the 'facts' in the various Seinfeld episodes, and the expression of
those facts, are plaintiff's creations . . . In other words by copying 'facts' that plaintiff
103
Copyright Cases
I.P. Survey Cases
Prof. Janicke
invented, SAT appropriates plaintiffs original contribution." Id. (internal quotations and
citations omitted). Similarly, in the instant case, the passages which Defendants claim to
be "descriptions" are nothing more than a recapitulation of the fictitious history of Star
Trek. This fictitious history is a story, created and owned by Paramount. The characters,
plots and dramatic episodes
that comprise this story are its original elements. By
reproducing these elements The Joy of Trek infringes on the Star Trek Properties as a
matter of law.
The manner of infringement is most aptly characterized as fragmented literal similarity.
The Second Circuit has endorsed two distinct types of copying that it considers to be
substantially similar, fragmented literal similarity and comprehensive nonliteral
similarity. Ringgold, 126 F.3d at 75 n.3. Fragmented similarity refers to exact copying of
a portion of a work. Id. The Joy of Trek satisfies this form of substantial similarity by
combining two factors. First, it lifts dialogue directly from the Star Trek Properties. The
Joy of Trek contains a number of quotes, such as "live long and prosper" and 'make it so'
that are used in the Star Trek properties. Secondly, as discussed supra, The Joy of Trek
copies the fictitious facts that comprise "the heart" of the Star Trek Properties. Because
the fictitious history is presented in a different order then that in which it appeared in the
Star Trek Properties, the similarity is
fragmented. Nevertheless, the verbatim
recitations of quotes from the Star Trek Properties
along with the retelling of its
essential elements constitutes fragmented literal similarity.
A finding of substantial similarity is consistent with the Second Circuit's decision in Twin
Peaks. In Twin Peaks the court found that a guidebook which contained, among other
things, detailed plot summaries of the eight then existing episodes of the once popular
television series Twin Peaks, infringed on the copyrighted television shows. 996 F.2d at
1372, 1373. Twin Peaks, however, is not directly on point because the descriptions of the
episodes in that case were far more extensive that the excerpts in The Joy of Trek which
vary in length from a few paragraphs to a few lines, and therefore the Court found the
guidebook satisfied substantial similarity through comprehensive nonliteral similarity.
See Id. at 1372. Thus, although the narrow finding of this Court is not identical to the
holding in Twin Peaks, both works satisfy the broader test articulated in Knitwaves
because, "the average lay observer would recognize the alleged copy as having been
appropriated from the copyrighted work." Knitwaves, 71 F.3d at 1001. Moreover, a
104
Copyright Cases
I.P. Survey Cases
Prof. Janicke
distilled holding of Twin Peaks is that a book which tells the story of a copyrighted
television series infringes on its copyright n6. The Joy of Trek is clearly such a book.
n6 Twin Peaks also held that the book violated the plaintiff's right to make a
derivative work pursuant to 17 U.S.C. § 106(2). In light of the Court's finding on
infringement, such a determination is superfluous. See Twin Peaks, 996 F.2d at
1373 (citing 2 Melville B. Nimmer & David Nimmer, Nimmer on Copyright §
8.09[a] at 8-114 (1992) (hereafter "Nimmer").
Defendants also contend that the book cannot be considered substantially similar to the
Star Trek Properties because they comprise over 14,000 pages of script n7 while the
portion of the book which allegedly copies these works totals only 160 pages. Copying
only small portions of a series of copyrighted works offers no protection for a defendant.
"We recognize, of course, that a copyright infringement may occur by reason of a
substantial similarity that involves only a small portion of each work." Burroughs v.
Metro-Goldwyn-Mayer, Inc., 683 F.2d 610 (2d Cir. 1982). See also Craft v. Kobler, 667
F. Supp. 120 (S.D.N.Y. 1987) (issuing a preliminary injunction that prevented the
publication of a book which copied 3,500 words out of 14 volumes of copyrighted
writing.)
n7 The scripts themselves are not copyrighted, however, Defendants have used the
number of pages to illustrate the amount of material in the copyrighted works.
2. [Court finds against fair use:
a. The purpose and character of the work. “The Court finds that Mr. Ramer was
motivated, to a large extent, by a genuine desire to help others to understand the
idiosyncracies of the typical Trekker. This ulterior motive serves as a counter balance to
the profit motive also demonstrated at trial.”
b. Nature of the copyrighted work. “The resolution of this second factor is straight
forward. The Star Trek Properties are creative works of fiction and are therefore entitled
to the highest level of protection.”
c. Amount and substantiality of the portion used in relation to the copyrighted
work as a whole. “Defendants contend that the large amount of copying is necessary to
accomplish the book's purpose of explaining the appeal of Star Trek to its fans. This
105
Copyright Cases
I.P. Survey Cases
Prof. Janicke
argument is both factually and legally inaccurate. As discussed supra, the majority of this
book is devoted to recounting the story of Star Trek."
d. The effect of the defendant's use upon the potential market for or value of the
copyrighted work. “The Joy of Trek itself proclaims that, ‘this book provides you with
more than enough information . . . you do not need to consult encyclopedias or
compendiums.’ This statement speaks for itself.”]
3. [Other] Affirmative Defenses
Defendants raise two affirmative defenses, abandonment and estoppel. To establish
abandonment, an infringer must demonstrate: (1) an intent by the copyright holder to
surrender rights in its work; and (2) an overt act evidencing that intent. National Comics
Publications, Inc. v. Fawcett Publications, Inc., 191 F.2d 594, 598 (2d Cir. 1951); Schatt
v. Curtis Management Group. Inc., 764 F. Supp. 902, 907 (S.D.N.Y. 1991). Neither of
these elements are present in this case. Paramount has expended substantial resources in
enforcing its copyrights in the Star Trek Properties. In addition, the presence of a
copyright notice, as exists in each of the Star Trek Properties, has been held to be
evidence of an intent not to abandon one's copyrights. See Marvin Worth Prods, v.
Superior Films Corp., 319 F. Supp. 1269, 1273 (S.D.N.Y. 1970).
Recognizing the deficiencies in a traditional abandonment defense, Defendants invite the
Court to boldly go where no court has gone before and recognize the doctrine of limited
abandonment. The Court declines the invitation. The Court agrees with Metro-GoldwynMayer Inc. v. Showcase Atlanta Cooperative Productions, Inc., where the court stated "no
pertinent authority has been cited for the proposition [of limited abandonment] and the
Court knows of none. Further, the evidence before the Court falls far short of that
required to show that Plaintiffs have abandoned their copyrights. Even if the other
[allegedly infringing works] cited by defendants are not [fair use], the fact that an
occasional infringement slips through a copyright holder's surveillance not is insufficient
to establish the intent required to find abandonment." 217 U.S.P.Q. (BNA) 857, 858 (N.D.
Ga. 1981). Accordingly, Defendants' abandonment defense is ineffectual.
Defendants raise a similarly unique argument regarding estoppel. Because Paramount
contacted Carroll only a short time after becoming aware of The Joy of Trek, the
106
Copyright Cases
I.P. Survey Cases
Prof. Janicke
traditional estoppel defense n10 is unavailable to Defendants. Defendants instead allege
that Paramount's failure to commence litigation against other potentially infringing books
estops them from bringing this action. Extending the doctrine of estoppel so that a
defendant may rely on a plaintiff's conduct toward another party is both unsupported by
law and pernicious as a matter of policy.
n10 The elements of estoppel in a copyright case are: (1) the plaintiff knew about
defendant's wrongful conduct; (2) the plaintiff intended, or acted in such a way
that the defendant had a right to believe plaintiff intended, to permit defendant's
wrongful conduct, (iii) the defendant was ignorant of the true facts, and (iv) the
defendant relied on the plaintiff's conduct to his detriment. Lottie Joplin Thomas
Trust v. Crown Publishers, Inc., 456 F. Supp. 531, 535 (S.D.N.Y. 1977) aff'd, 592
F.2d 651 (2d Cir. 1978).
"The mere fact that Defendants heard from third parties that no one had complained
about their arguable infringing productions does not in any way estop Plaintiffs from
enforcing their rights against Defendants." Showcase Atlanta, 271 U.S.P.Q. (BNA) at
859. Allowing such a defense would compel courts to examine all the other allegedly
infringing works on which defendant's reliance was based in order to ascertain whether
these works were in fact infringing, thereby creating a number of smaller infringement
hearings within a single copyright action. Moreover, there is no legal duty to instigate
legal proceedings. Perhaps it is the case, as Defendants intimated, that Paramount has
chosen to eschew litigation with larger publishing houses, and instead bring suit against a
relatively small firm. It matters not. Provided it does not violate any other provision of
law, Paramount is free to instigate legal action against whomever it wishes. For these
reasons, the Court refuses to recognize a doctrine of estoppel by transitivity.
Defendants' reliance on National business Lists, Inc. v. Dun & Bradstreet, Inc., 552 F.
Supp. 89 (N.D. Ill. 1982) is unavailing. In that case, the plaintiff expressly permitted the
allegedly wrongful conduct of both the defendant as well as other parties. The defendant's
reliance, therefore, was based, at least in part, on plaintiff's acquiescence to the
defendant's own conduct. In the instant case, Defendants are relying entirely on
Paramount's conduct toward others. Defendants have therefore failed
to document a
prima facie case for their affirmative defenses. Accordingly, Paramount has established
the likelihood of success on the merits of this case.
107
Copyright Cases
I.P. Survey Cases
Prof. Janicke
B. IRREPARABLE INJURY
Generally, when a copyright plaintiff makes out a prima facie showing of infringement,
irreparable harm may be presumed. ABKCO Music, Inc. v. Stellar Records, Inc., 96 F.3d
60, 64 (1996). The burden is then shifted to the defendant to rebut this presumption. In
this case, Defendants have been unable to do so. Defendants' lone argument is that, if The
Joy of Trek is later found to infringe on the Star Trek Properties, money damages would
be a satisfactory remedy for Paramount. The Court is unpersuaded by this rationale.
Allowing this argument to prevail would, in effect, make any copyright holder an
involuntary licensor of the copyright to any entity that could be relied on to pay damages.
See Cadence Design Sys. Inc. v. Avant! Corp., 125 F.3d 824, 828 n.8 (9th Cir. 1997)
cert, denied, 140 L. Ed. 2d 936, 1998 WL 85997 (1998). Such a policy would
considerably weaken the integrity of a copyrighted work. In sum, Paramount has the
presumption of irreparable harm and Defendants have been unable to successfully rebut
it. Accordingly, the Court determines that Paramount has made a satisfactory showing of
irreparable harm.
IV. CONCLUSION
For the aforementioned reasons, Paramount has successfully established a likelihood of
success on the merits and irreparable harm. Accordingly, Paramount's motion for a
preliminary injunction, enjoining Carol Publishing Group, Inc. and Sam Ramer, their
agents, servants, employees, attorneys, successors, and assigns, and all persons, firms and
corporations acting in concert with them, from printing, duplicating manufacturing,
publishing, distributing, marketing, advertising, promoting, soliciting or accepting orders
for, selling or offering for sale The Joy of Trek pending the final determination of this
action, is hereby GRANTED upon Paramount posting a bond in the amount of $100,000
as a surety.
IT IS SO ORDERED.
108
Copyright Cases
I.P. Survey Cases
Prof. Janicke
HARPER & ROW, PUBLISHERS, INC.
v.
NATION ENTERPRISES
SUPREME COURT OF THE UNITED STATES
471 U.S. 539
May 20, 1985, Decided
O'CONNOR, J., delivered the opinion of the Court, in which BURGER, C. J., and
BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. BRENNAN, J.,
filed a dissenting opinion, in which WHITE and MARSHALL, JJ., joined, post.
JUSTICE O'CONNOR delivered the opinion of the Court.
This case requires us to consider to what extent the "fair use" provision of the Copyright
Revision Act of 1976 (hereinafter the Copyright Act), 17 U. S. C. § 107, sanctions the
unauthorized use of quotations from a public figure's unpublished manuscript. In March
1979, an undisclosed source provided The Nation Magazine with the unpublished
manuscript of "A Time to Heal: The Autobiography of Gerald R. Ford." Working directly
from the purloined manuscript, an editor of The Nation produced a short piece entitled
"The Ford Memoirs -- Behind the Nixon Pardon." The piece was timed to "scoop" an
article scheduled shortly to appear in Time Magazine. Time had agreed to purchase the
exclusive right to print prepublication excerpts from the copyright holders, Harper &
Row Publishers, Inc. (hereinafter Harper & Row), and Reader's Digest Association, Inc.
(hereinafter Reader's Digest). As a result of The Nation article, Time canceled its
agreement. Petitioners brought a successful copyright action against The Nation. On
appeal, the Second Circuit reversed the lower court's finding of infringement, holding
that The Nation's act was sanctioned as a "fair use" of the copyrighted material. We
granted certiorari, 467 U.S. 1214 (1984), and we now reverse.
I
109
Copyright Cases
I.P. Survey Cases
Prof. Janicke
In February 1977, shortly after leaving the White House, former President Gerald R. Ford
contracted with petitioners Harper & Row and Reader's Digest, to publish his as yet
unwritten memoirs. The memoirs were to contain "significant hitherto unpublished
material" concerning the Watergate crisis, Mr. Ford's pardon of former President Nixon
and "Mr. Ford's reflections on this period of history, and the morality and personalities
involved." App. to Pet. for Cert. C-14 -- C-15. In addition to the right to publish the Ford
memoirs in book form, the agreement gave petitioners the exclusive right to license
prepublication excerpts, known in the trade as "first serial rights." Two years later, as the
memoirs were nearing completion, petitioners negotiated a prepublication licensing
agreement with Time, a weekly news magazine. Time agreed to pay $25,000, $12,500 in
advance and an additional $12,500 at publication, in exchange for the right to excerpt
7,500 words from Mr. Ford's account of the Nixon pardon. The issue featuring the
excerpts was timed to appear approximately one week before shipment of the full length
book version to bookstores. Exclusivity was an important consideration; Harper & Row
instituted procedures designed to maintain the confidentiality of the manuscript, and
Time retained the right to renegotiate the second payment should the material appear in
print prior to its release of the excerpts.
Two to three weeks before the Time article's scheduled release, an unidentified person
secretly brought a copy of the Ford manuscript to Victor Navasky, editor of The Nation, a
political commentary magazine. Mr. Navasky knew that his possession of the manuscript
was not authorized and that the manuscript must be returned quickly to his "source" to
avoid discovery. 557 F.Supp. 1067, 1069 (SDNY 1983). He hastily put together what he
believed was "a real hot news story" composed of quotes, paraphrases, and facts drawn
exclusively from the manuscript. Ibid. Mr. Navasky attempted no independent
commentary, research or criticism, in part because of the need for speed if he was to
"make news" by "[publishing] in advance of publication of the Ford book." App. 416417. The 2,250-word article, reprinted in the Appendix to this opinion, appeared on April
3, 1979. As a result of The Nation's article, Time canceled its piece and refused to pay
the remaining $12,500.
Petitioners brought suit in the District Court for the Southern District of New York,
alleging conversion, tortious interference with contract, and violations of the Copyright
Act. After a 6-day bench trial, the District Judge found that "A Time to Heal" was
protected by copyright at the time of The Nation publication and that respondents' use of
110
Copyright Cases
I.P. Survey Cases
Prof. Janicke
the copyrighted material constituted an infringement under the Copyright Act, §§ 106(1),
(2), and (3), protecting respectively the right to reproduce the work, the right to license
preparation of derivative works, and the right of first distribution of the copyrighted
work to the public. App. to Pet. for Cert. C-29 -- C-30. The District Court rejected
respondents' argument that The Nation's piece was a "fair use" sanctioned by § 107 of
the Act. Though billed as "hot news," the article contained no new facts. The magazine
had "published its article for profit," taking "the heart" of "a soon-to-be published" work.
This unauthorized use "caused the Time agreement to be aborted and thus diminished the
value of the copyright." 557 F.Supp., at 1072. Although certain elements of the Ford
memoirs, such as historical facts and memoranda, were not per se copyrightable, the
District Court held that it was "the totality of these facts and memoranda collected
together with Ford's reflections that made them of value to The Nation, [and] this . . .
totality . . . is protected by the copyright laws." Id., at 1072-1073. The court awarded
actual damages of $12,500.
A divided panel of the Court of Appeals for the Second Circuit reversed. The majority
recognized that Mr. Ford's verbatim "reflections" were original "expression" protected by
copyright. But it held that the District Court had erred in assuming the "coupling [of
these reflections] with uncopyrightable fact transformed that information into a
copyrighted 'totality.'" 723 F.2d 195, 205 (1983). The majority noted that copyright
attaches to expression, not facts or ideas. It concluded that, to avoid granting a copyright
monopoly over the facts underlying history and news, "'expression' [in such works must
be confined] to its barest elements -- the ordering and choice of the words themselves."
Id., at 204. Thus similarities between the original and the challenged work traceable to
the copying or paraphrasing of uncopyrightable material, such as historical facts,
memoranda and other public documents, and quoted remarks of third parties, must be
disregarded in evaluating whether the second author's use was fair or infringing.
"When the uncopyrighted material is stripped away, the article in The Nation contains, at
most, approximately 300 words that are copyrighted. These remaining paragraphs and
scattered phrases are all verbatim quotations from the memoirs which had not appeared
previously in other publications. They include a short segment of Ford's conversations
with Henry Kissinger and several other individuals. Ford's impressionistic depictions of
Nixon, ill with phlebitis after the resignation and pardon, and of Nixon's character,
constitute the major portion of this material. It is these parts of the magazine piece on
111
Copyright Cases
I.P. Survey Cases
Prof. Janicke
which [the court] must focus in [its] examination of the question whether there was a 'fair
use' of copyrighted matter." Id., at 206.
Examining the four factors enumerated in § 107, see infra, at 547, n. 2, the majority
found the purpose of the article was "news reporting," the original work was essentially
factual in nature, the 300 words appropriated were insubstantial in relation to the 2,250word piece, and the impact on the market for the original was minimal as "the evidence
[did] not support a finding that it was the very limited use of expression per se which led
to Time's decision not to print the excerpt." The Nation's borrowing of verbatim
quotations merely "[lent] authenticity to this politically significant material . . .
complementing the reporting of the facts." 723 F.2d, at 208. The Court of Appeals was
especially influenced by the "politically significant" nature of the subject matter and its
conviction that it is not "the purpose of the Copyright Act to impede that harvest of
knowledge so necessary to a democratic state" or "chill the activities of the press by
forbidding a circumscribed use of copyrighted words." Id., at 197, 209.
II
We agree with the Court of Appeals that copyright is intended to increase and not to
impede the harvest of knowledge. But we believe the Second Circuit gave insufficient
deference to the scheme established by the Copyright Act for fostering the original works
that provide the seed and substance of this harvest. The rights conferred by copyright are
designed to assure contributors to the store of knowledge a fair return for their labors.
Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975).
Article I, § 8, of the Constitution provides:
"The Congress shall have Power . . . to Promote the Progress of Science and
useful Arts, by securing for limited Times to Authors and Inventors the exclusive
Right to their respective Writings and Discoveries."
As we noted last Term: "[This] limited grant is a means by which an important public
purpose may be achieved. It is intended to motivate the creative activity of authors and
inventors by the provision of a special reward, and to allow the public access to the
products of their genius after the limited period of exclusive control has expired." Sony
112
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984). "The
monopoly created by copyright thus rewards the individual author in order to benefit the
public." Id., at 477 (dissenting opinion). This principle applies equally to works of
fiction and nonfiction. The book at issue here, for example, was two years in the making,
and began with a contract giving the author's copyright to the publishers in exchange for
their services in producing and marketing the work. In preparing the book, Mr. Ford
drafted essays and word portraits of public figures and participated in hundreds of taped
interviews that were later distilled to chronicle his personal viewpoint. It is evident that
the monopoly granted by copyright actively served its intended purpose of inducing the
creation of new material of potential historical value.
Section 106 of the Copyright Act confers a bundle of exclusive rights to the owner of the
copyright. n1 Under the Copyright Act, these rights -- to publish, copy, and distribute the
author's work -- vest in the author of an original work from the time of its creation. §
106. In practice, the author commonly sells his rights to publishers who offer royalties in
exchange for their services in producing and marketing the author's work. The copyright
owner's rights, however, are subject to certain statutory exceptions. §§ 107-118. Among
these is § 107 which codifies the traditional privilege of other authors to make "fair use"
of an earlier writer's work. n2 In addition, no author may copyright facts or ideas. § 102.
The copyright is limited to those aspects of the work -- termed "expression" -- that
display the stamp of the author's originality.
n1 Section 106 provides in pertinent part:
"Subject to sections 107 through 118, the owner of copyright under this title has the
exclusive rights to do and authorize any of the following:
"(1) to reproduce the copyrighted work in copies . . . ;
"(2) to prepare derivative works based upon the copyrighted work;
"(3) to distribute copies . . . of the copyrighted work to the public. . . ."
n2 Section 107 states:
113
Copyright Cases
I.P. Survey Cases
Prof. Janicke
"Notwithstanding the provisions of section 106, the fair use of a copyrighted work . . . for
purposes such as criticism, comment, news reporting, teaching (including multiple copies
for classroom use), scholarship, or research, is not an infringement of copyright. In
determining whether the use made of a work in any particular case is a fair use the factors
to be considered shall include -"(1) the purpose and character of the use, including whether such use is of a commercial
nature or is for nonprofit educational purposes;
"(2) the nature of the copyrighted work;
"(3) the amount and substantiality of the portion used in relation to the copyrighted work
as a whole; and
"(4) the effect of the use upon the potential market for or value of the copyrighted work."
Creation of a nonfiction work, even a compilation of pure fact, entails originality. See, e.
g., Schroeder v. William Morrow & Co., 566 F.2d 3 (CA7 1977) (copyright in gardening
directory); cf. Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 58 (1884)
(originator of a photograph may claim copyright in his work). The copyright holders of
"A Time to Heal" complied with the relevant statutory notice and registration procedures.
See §§ 106, 401, 408; App. to Pet. for Cert. C-20. Thus there is no dispute that the
unpublished manuscript of "A Time to Heal," as a whole, was protected by § 106 from
unauthorized reproduction. Nor do respondents dispute that verbatim copying of excerpts
of the manuscript's original form of expression would constitute infringement unless
excused as fair use. See 1 M. Nimmer, Copyright § 2.11[B], p. 2-159 (1984) (hereinafter
Nimmer). Yet copyright does not prevent subsequent users from copying from a prior
author's work those constituent elements that are not original -- for example, quotations
borrowed under the rubric of fair use from other copyrighted works, facts, or materials in
the public domain -- as long as such use does not unfairly appropriate the author's
original contributions. Ibid.; A. Latman, Fair Use of Copyrighted Works (1958),
reprinted as Study No. 14 in Copyright Law Revision Studies Nos. 14-16, prepared for
the Senate Committee on the Judiciary, 86th Cong., 2d Sess., 7 (1960) (hereinafter
114
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Latman). Perhaps the controversy between the lower courts in this case over
copyrightability is more aptly styled a dispute over whether The Nation's appropriation of
unoriginal and uncopyrightable elements encroached on the originality embodied in the
work as a whole. Especially in the realm of factual narrative, the law is currently
unsettled regarding the ways in which uncopyrightable elements combine with the
author's original contributions to form protected expression. Compare Wainwright
Securities Inc. v. Wall Street Transcript Corp., 558 F.2d 91 (CA2 1977) (protection
accorded author's analysis, structuring of material and marshaling of facts), with
Hoehling v. Universal City Studios, Inc., 618 F.2d 972 (CA2 1980) (limiting protection to
ordering and choice of words). See, e. g., 1 Nimmer § 2.11[D], at 2-164 -- 2-165.
We need not reach these issues, however, as The Nation has admitted to lifting verbatim
quotes of the author's original language totaling between 300 and 400 words and
constituting some 13% of The Nation article. In using generous verbatim excerpts of Mr.
Ford's unpublished manuscript to lend authenticity to its account of the forthcoming
memoirs, The Nation effectively arrogated to itself the right of first publication, an
important marketable subsidiary right. For the reasons set forth below, we find that this
use of the copyrighted manuscript, even stripped to the verbatim quotes conceded by The
Nation to be copyrightable expression, was not a fair use within the meaning of the
Copyright Act.
*** Respondents, however, contend that First Amendment values require a different
rule under the circumstances of this case. The thrust of the decision below is that "[the]
scope of [fair use] is undoubtedly wider when the information conveyed relates to matters
of high public concern." Consumers Union of the United States, Inc. v. General Signal
Corp., 724 F.2d 1044, 1050 (CA2 1983) (construing 723 F.2d 195 (1983) (case below) as
allowing advertiser to quote Consumer Reports), cert. denied, 469 U.S. 823 (1984).
Respondents advance the substantial public import of the subject matter of the Ford
memoirs as grounds for excusing a use that would ordinarily not pass muster as a fair use
-- the piracy of verbatim quotations for the purpose of "scooping" the authorized first
serialization. Respondents explain their copying of Mr. Ford's expression as essential to
reporting the news story it claims the book itself represents.
*** Respondents' theory, however, would expand fair use to effectively destroy any
expectation of copyright protection in the work of a public figure. Absent such
115
Copyright Cases
I.P. Survey Cases
Prof. Janicke
protection, there would be little incentive to create or profit in financing such memoirs,
and the public would be denied an important source of significant historical information.
The promise of copyright would be an empty one if it could be avoided merely by
dubbing the infringement a fair use "news report" of the book. See Wainwright
Securities Inc. v. Wall Street Transcript Corp., 558 F.2d 91 (CA2 1977), cert. denied, 434
U.S. 1014 (1978).
Nor do respondents assert any actual necessity for circumventing the copyright scheme
with respect to the types of works and users at issue here. n6 Where an author and
publisher have invested extensive resources in creating an original work and are poised to
release it to the public, no legitimate aim is served by pre-empting the right of first
publication. The fact that the words the author has chosen to clothe his narrative may of
themselves be "newsworthy" is not an independent justification for unauthorized copying
of the author's expression prior to publication. To paraphrase another recent Second
Circuit decision:
"[Respondent] possessed an unfettered right to use any factual information
revealed in [the memoirs] for the purpose of enlightening its audience, but it can
claim no need to 'bodily appropriate' [Mr. Ford's] 'expression' of that information
by utilizing portions of the actual [manuscript]. The public interest in the free
flow of information is assured by the law's refusal to recognize a valid copyright in
facts. The fair use doctrine is not a license for corporate theft, empowering a court
to ignore a copyright whenever it determines the underlying work contains
material of possible public importance." Iowa State University Research
Foundation, Inc. v. American Broadcasting Cos., Inc., 621 F.2d 57, 61 (1980)
(citations omitted).
Accord, Roy Export Co. Establishment v. Columbia Broadcasting System, Inc., 503
F.Supp. 1137 (SDNY 1980) ("newsworthiness" of material copied does not justify
copying), aff'd, 672 F.2d 1095 (CA2), cert. denied, 459 U.S. 826 (1982); Quinto v. Legal
Times of Washington, Inc., 506 F.Supp. 554 (DC 1981) (same).
n6 It bears noting that Congress in the Copyright Act recognized a public interest
warranting specific exemptions in a number of areas not within traditional fair use,
see, e. g., 17 U. S. C. § 115 (compulsory license for records); § 105 (no copyright
116
Copyright Cases
I.P. Survey Cases
Prof. Janicke
in Government works). No such exemption limits copyright in personal narratives
written by public servants after they leave Government service.
***
The Court of Appeals erred in concluding that The Nation's use of the copyrighted
material was excused by the public's interest in the subject matter. It erred, as well, in
overlooking the unpublished nature of the work and the resulting impact on the potential
market for first serial rights of permitting unauthorized prepublication excerpts under the
rubric of fair use. Finally, in finding the taking "infinitesimal," the Court of Appeals
accorded too little weight to the qualitative importance of the quoted passages of original
expression. In sum, the traditional doctrine of fair use, as embodied in the Copyright Act,
does not sanction the use made by The Nation of these copyrighted materials. Any
copyright infringer may claim to benefit the public by increasing public access to the
copyrighted work. See Pacific & Southern Co. v. Duncan, 744 F.2d, at 1499-1500. But
Congress has not designed, and we see no warrant for judicially imposing, a "compulsory
license" permitting unfettered access to the unpublished copyrighted expression of public
figures.
The Nation conceded that its verbatim copying of some 300 words of direct quotation
from the Ford manuscript would constitute an infringement unless excused as a fair use.
Because we find that The Nation's use of these verbatim excerpts from the unpublished
manuscript was not a fair use, the judgment of the Court of Appeals is reversed, and the
case is remanded for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE BRENNAN, with whom JUSTICE WHITE and JUSTICE MARSHALL
joined, dissenting.
The Court holds that The Nation's quotation of 300 words from the unpublished 200,000word manuscript of President Gerald R. Ford infringed the copyright in that manuscript,
even though the quotations related to a historical event of undoubted significance -- the
117
Copyright Cases
I.P. Survey Cases
Prof. Janicke
resignation and pardon of President Richard M. Nixon. Although the Court pursues the
laudable goal of protecting "the economic incentive to create and disseminate ideas,"
ante, at 558, this zealous defense of the copyright owner's prerogative will, I fear, stifle
the broad dissemination of ideas and information copyright is intended to nurture.
Protection of the copyright owner's economic interest is achieved in this case through an
exceedingly narrow definition of the scope of fair use. The progress of arts and sciences
and the robust public debate essential to an enlightened citizenry are ill served by this
constricted reading of the fair use doctrine. See 17 U. S. C. § 107. I therefore respectfully
dissent.
***
MARVIN FISHER
v.
RICK DEES, ATLANTIC RECORDING
CORPORATION, WARNER COMMUNICATIONS, INC.
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
794 F.2d 432 (1986)
Wallace, Sneed, and Kozinski, Circuit Judges.
SNEED, Circuit Judge:
The plaintiffs-appellants, Marvin Fisher and Jack Segal, appeal the district court's grant
of summary judgment disposing of their federal claim for copyright infringement and
their state-law claims for unfair competition, defamation, and product disparagement. We
affirm.
I.
118
Copyright Cases
I.P. Survey Cases
Prof. Janicke
FACTUAL AND PROCEDURAL BACKGROUND
The plaintiffs-appellants, Marvin Fisher and Jack Segal (the composers), composed and
own the copyright to the '50s standard "When Sunny Gets Blue" (the song). In late 1984,
a law firm representing the defendants-appellees -- disc jockey Rick Dees, Atlantic
Recording Corp., and Warner Communications, Inc. n1 -- contacted Fisher and requested
permission to use part or all of the music to "When Sunny Gets Blue" in order to create a
comedic and inoffensive version of the song. Fisher refused the request.
n1 All the defendants-appellees occupy the same position in this suit. For
purposes of convenience, we shall henceforth refer only to defendant-appellee
Rick Dees. What is said with respect to him applies equally to the others.
A few months later, Dees released a comedy record album (also issued in cassette form)
called Put It Where the Moon Don't Shine. One cut on the album, entitled "When Sonny
Sniffs Glue" (the parody), is an obvious take-off on the composers' song. The parody
copies the first six of the song's thirty-eight bars of music -- its recognizable main theme.
In addition, it changes the original's opening lyrics -- "When Sunny gets blue, her eyes
get gray and cloudy, then the rain begins to fall" to "When Sonny sniffs glue, her eyes get
red and bulgy, then her hair begins to fall." The parody runs for 29 seconds of the
approximately forty minutes of material on Dees's album.
The composers brought an action in federal district
court for copyright infringement,
unfair competition, product disparagement, and defamation. The complaint included a
proper demand for a jury trial. Before the commencement of discovery, both sides filed
motions for summary judgment. The district court granted summary judgment in favor of
Dees on all the composers' claims and the composers timely filed this appeal.
II.
DISCUSSION
The district court did not reveal the bases for its decision. Nonetheless, we may affirm if
the record, viewed in the light most favorable to the composers, discloses no genuine
119
Copyright Cases
I.P. Survey Cases
Prof. Janicke
issues of material fact and if Dees was entitled to judgment as a matter of law. See
Frederick S. Wyle Professional Corp. v. Texaco, Inc., 764 F.2d 604, 609 (9th Cir. 1985).
A. Copyright Infringement
Dees urges affirmance of summary judgment on the claim for copyright infringement on
the ground that the copying of the song for purposes of parody constituted a fair use. We
agree for the reasons discussed below.
1. Overview of the fair-use doctrine
The fair-use doctrine was initially developed by courts as an equitable defense to
copyright infringement. In effect, the doctrine creates a limited privilege in those other
than the owner of a copyright to use the copyrighted material in a reasonable manner
without the owner's consent. See Harper & Row, Publishers, Inc. v. Nation Enterprises,
471 U.S. 539, 105 S. Ct. 2218, 2225, 85 L. Ed. 2d 588 (1985) (citing H. Ball, Law of
Copyright and Literary Property 260 (1944)). Congress codified this judge-made doctrine
in section 107 of the Copyrights Act of 1976, Pub. L. No. 94-553, § 107, 90 Stat. 2541,
2546 (codified at 17 U.S.C. § 107 (1982)); but that enactment did not freeze the fair-use
doctrine in stone. Rather, Congress expressly sought to preserve the doctrine's common
law character, leaving courts "free to adapt the doctrine to particular situations on a caseby-case basis." 17 U.S.C. § 107 historical and revision notes (1982).
In restating the fair-use doctrine in section 107, Congress enumerated four nonexclusive
factors for courts to consider:
(1) the purpose and character of the use, including whether such use is of a commercial
nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work
as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.
120
Copyright Cases
I.P. Survey Cases
Prof. Janicke
17 U.S.C. § 107 (1982). In addition, in the legislative notes accompanying the provision,
Congress listed examples "of the sort of activities the courts might regard as fair use
under the circumstances." Id. § 107 historical and revision notes (1982).
Congress named parody as one of these activities. Nonetheless, parody was not classified
as a presumptively fair use. See Harper & Row, 105 S. Ct. at 2231. Each assertion of the
"parody defense" must be considered individually, in light of the statutory factors, reason,
experience, and, of course, the general principles developed in past cases.
***
2. Applying the fair-use test
The composers advance five principal reasons why the parody before us is not a fair use:
(1) the so-called parody is not actually a parody, or at least is not a parody of the
composers' song; (2) Dees acted in bad faith; (3) Dees's use is commercial in nature; (4)
the parody competes in the same market -- record albums and tapes -- as the song; and (5)
the taking is more substantial than was reasonably necessary to "conjure up" the original
in the mind of the audience.
In addition, the composers assert that the question of fair use is an issue for the jury. Even
if the material facts pertaining to each factor in the fair-use test are undisputed, they
maintain, the ultimate issue, fair use or no, is appropriate for determination on
summary judgment only when no reasonable jury could have decided the question
differently.
(a) Judge or jury?
We dispose of this last argument first, because it is completely undercut by the Supreme
Court's recent decision in Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S.
539, 105 S. Ct. 2218, 85 L. Ed. 2d 588 (1985). The Court held in that case that "fair use is
a mixed question of law and fact", id. at 2231, and that "where the District Court has
found facts sufficient to evaluate each of the statutory factors," an appellate court may
conclude as a matter of law -- without remanding for further fact-finding -- "'that [the
121
Copyright Cases
I.P. Survey Cases
Prof. Janicke
challenged use] do[es] not qualify as a fair use of the copyrighted work,'" id. (quoting
Pacific & Southern Co. v. Duncan, 744 F.2d 1490, 1495 n.8 (11th Cir. 1984), cert.
denied, 471 U.S. 1004, 105 S. Ct. 1867, 85 L. Ed. 2d 161 (1985)).
No material historical facts are at issue in this case. The parties dispute only the ultimate
conclusions to be drawn from the admitted facts. Because, under Harper & Row, these
judgments are legal in nature, we can make them without usurping the function of the
jury.
(b) Substantive fair-use issues
We now turn to the composers' numerous substantive arguments as to why the fair-use
defense is not available.
(1) The subject of the parody
The composers assert that the parody, although it borrows from the original work, was
not "directed" at the original. That is, a humorous or satiric work deserves protection
under the fair-use doctrine only if the copied work is at least partly the target of the work
in question. See Walt Disney Productions v. Air Pirates, 581 F.2d 751, 758 n.15 (9th Cir.
1978), cert. denied, 439 U.S. 1132, 99 S. Ct. 1054, 59 L. Ed. 2d 94 (1979). Otherwise,
there is no need to "conjure up" the original in the audience's mind and no justification
for borrowing from it. Id; accord MCA, Inc. v. Wilson, 677 F.2d 180, 185 (2d Cir. 1981).
We requested counsel to provide us with tapes of both Dees's parody and the original (as
sung by Johnny Mathis). Although we have no illusions of musical expertise, it was clear
to us that Dees's version was intended to poke fun at the composers' song, and at Mr.
Mathis's rather singular vocal range. We reject the notion that the song was used merely
as a vehicle to achieve a comedic objective unrelated to the song, its place and time. Cf.
id. at 183-85 (purpose of saving the effort of composing original music); infra note 5.
(2) The propriety of Dees's conduct
One theme running through the composers' briefs is that Dees's alleged bad conduct
should bar his use of the equitable defense of fair use. The principle invoked is sound.
122
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Because "'fair use presupposes "good faith" and "fair dealing,"'" Harper & Row, 105 S.
Ct. at 2232 (quoting Time Inc. v. Bernard Geis Associates, 293 F. Supp. 130, 146
(S.D.N.Y. 1968)), courts may weigh "the propriety of the defendant's conduct" in the
equitable balance of a fair use determination, 3 M. Nimmer, Nimmer on Copyright §
13.05[A], at 13-72 to -73 (rev. ed. 1985).
Nonetheless, we conclude that the composers have failed to identify any conduct of Dees
that is sufficiently blameworthy. For example, Fisher and Segal fault Dees for using the
song after Fisher expressly refused him permission to do so. In their view, this shows bad
faith on Dees's part. We cannot agree. Parodists will seldom get permission from those
whose works are parodied. Self-esteem is seldom strong enough to permit the granting of
permission even in exchange for a reasonable fee. See Note, The Parody Defense to
Copyright Infringement: Productive Fair Use After Betamax, 97 Harv. L. Rev. 1395,
1397 n.12 (1984) [hereinafter cited as Parody Defense]. The parody defense to copyright
infringement exists precisely to make possible a use that generally cannot be bought. See
3 M. Nimmer, supra, § 13.05[C], at 13-89; Gordon, Fair Use as Market Failure: A
Structural and Economic Analysis of the Betamax Case and its Predecessors, 82 Colum.
L. Rev. 1600, 1633 & n.177. Moreover, to consider Dees blameworthy because he asked
permission would penalize him for this modest show of consideration. Even though such
gestures are predictably futile, we refuse to discourage them.
The composers also claim that the parody is immoral and thus unprotected by the fair-use
doctrine. They cite the parody's irreverent references to drug addiction and its purported
use of obscenities. Assuming without deciding that an obscene use is not a fair use, but
see Pillsbury Co. v. Milky Way Productions, Inc., 8 Media L. Rep. 1016, 215 U.S.P.Q.
(BNA) 124, 131 & n.10 (N.D. Ga. 1981), we conclude, after listening to it, that the parody
is innocuous -- silly perhaps, but surely not obscene or immoral.
(3) The purpose and character of the use
The first fair-use factor section 107 directs courts to consider is "the purpose and
character of the use, including whether such use is of a commercial nature or is for
nonprofit educational purposes." 17 U.S.C. § 107(1) (1982). The parties agree that the
parody is a commercial use of the song. This fact "tends to weigh against a finding of fair
use," Harper & Row, 105 S. Ct. at 2231, because "every commercial use of copyrighted
123
Copyright Cases
I.P. Survey Cases
Prof. Janicke
material is presumptively an unfair exploitation of the monopoly privilege that belongs to
the owner of the copyright." Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417,
451, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984).
We recognize, however, that many parodies distributed commercially may be "more in
the nature of an editorial or social commentary than . . . an attempt to capitalize
financially on the plaintiff's original work." Milky Way Productions, 215 U.S.P.Q. at 131
(footnote omitted). In such cases, of which this is one, the initial presumption need not be
fatal to the defendant's cause. The defendant can rebut the presumption by convincing the
court that the parody does not unfairly diminish the economic value of the original. See
id. & n.9.
(4) The economic effect of the use
Thus, we must turn our attention to the fourth factor in the fair-use analysis -- "the effect
of the use upon the potential market for or value of the copyrighted work," 17 U.S.C. §
107(4). This factor, not surprisingly, "is undoubtedly the single most important element
of fair use." Harper & Row, 105 S. Ct. at 2234 (footnote omitted).
In assessing the economic effect of the parody, the parody's critical impact must be
excluded. Through its critical function, a "parody may quite legitimately aim at garroting
the original, destroying it commercially as well as artistically." B. Kaplan, An Unhurried
View of Copyright 69 (1967). Copyright law is not designed to stifle critics.
"'Destructive' parodies play an important role in social and literary criticism and thus
merit protection even though they may discourage or discredit an original author." Parody
Defense, 96 Harv. L. Rev. at 1411. Accordingly, the economic effect of a parody with
which we are concerned is not its potential to destroy or diminish the market for the
original -- any bad review can have that effect -- but rather whether it fulfills the demand
for the original. Biting criticism suppresses demand; copyright infringement usurps it.
Thus, infringement occurs when a parody supplants the original in markets the original is
aimed at, or in which the original is, or has reasonable potential to become, commercially
valuable. See, e.g., Air Pirates, 581 F.2d at 756; Berlin v. E.C. Publications, Inc., 329
F.2d 541, 545 (2d Cir.), cert. denied, 379 U.S. 822, 85 S. Ct. 46, 13 L. Ed. 2d 33 (1964);
Parody Defense, supra, at 1409-11.
124
Copyright Cases
I.P. Survey Cases
Prof. Janicke
This is not a case in which commercial substitution is likely. "When Sunny Gets Blue" is
"a lyrical song concerning or relating to a woman's feelings about lost love and her
chance for . . . happiness again." Appellants' Opening Brief at 3. By contrast, the parody
is a 29-second recording concerning a woman who sniffs glue, which "ends with noise
and laughter mixed into the song." Id. at 7. We do not believe that consumers desirous of
hearing a romantic and nostalgic ballad such as the composers' song would be satisfied to
purchase the parody instead. Nor are those fond of parody likely to consider "When
Sunny Gets Blue" a source of satisfaction. The two works do not fulfill the same demand.
Consequently, the parody has no cognizable economic effect on the original.
(5) The amount and substantiality of the taking
This court has also consistently focused on the third fair-use factor -- the amount and
substantiality of the taking, 17 U.S.C. § 107(3). See Air Pirates, 581 F.2d at 756. Thus
far, however, we have provided few concrete guidelines; we have merely sketched the
outer boundaries of the inquiry. On the one hand, "substantial copying by a defendant,
combined with the fact that the portion copied constituted a substantial part of the
defendant's work," does not automatically preclude the fair use defense. Id. On the other
hand, "copying that is virtually complete or almost verbatim" will not be protected. Id.
In Air Pirates, we ultimately based our analysis on the so-called "conjure up" test. See Air
Pirates, 581 F.2d at 757 (citing Berlin v. E.C. Publications, Inc., 329 F.2d 541 (2d Cir.),
cert. denied, 379 U.S. 822, 85 S. Ct. 46, 13 L. Ed. 2d 33, 144 U.S.P.Q. (BNA) 464 (1964),
and Columbia Pictures Corp. v. National Broadcasting Co., 137 F. Supp. 348 (S.D. Cal.
1955)). As the Air Pirates opinion articulated it, the test asks "whether the parodist has
appropriated a greater amount of the original work than is necessary to 'recall or conjure
up' the object of his satire." Id. The composers interpret this test to limit the amount of
permissible copying to that amount necessary to evoke only initial recognition in the
listener.
We disagree with this rigid view. As the Second Circuit stated in Elsmere Music, Inc. v.
National Broadcasting Co., 623 F.2d 252 (2d Cir. 1980) (per curiam):
The concept of "conjuring up" an original came into the copyright law not as a
limitation on how much of an original
may be used, but as a recognition that a
125
Copyright Cases
I.P. Survey Cases
Prof. Janicke
parody frequently needs to be more than a fleeting evocation of an original in
order to make its humorous point. A parody is entitled at least to "conjure up" the
original.
Id. at 253 n.1 (citation omitted). Air Pirates does not compel a different view. In that case
-- which concerned the near-verbatim copying of Disney characters in the defendants'
underground comic book -- we concluded that the defendants "took more than was
necessary to place firmly in the reader's mind the parodied work and those specific
attributes that [were] to be satirized," 581 F.2d at 758. We did not set a fixed limit on
copying, but merely expressed our judgment that that particular parody could easily have
been accomplished through more restricted means.
We singled out three considerations that we thought important in determining whether a
taking is excessive under the circumstances -- the degree of public recognition of the
original work, the ease of conjuring up the original work in the chosen medium, and the
focus of the parody. See Air Pirates, 581 F.2d at 757-58. Because the Disney characters
were familiar and graphics was a relatively easy medium for parody, we concluded that
close copying was impermissible. See id. But we expressly noted that media other than
the graphic arts might justify greater leeway. We observed: "When the medium involved
is a comic book, a recognizable caricature is not difficult to draw, so that an alternative
that involves less copying is more likely to be available than if a speech, for instance, is
parodied." Id. at 758.
The unavailability of viable alternatives is evident in the present case. Like a speech, a
song is difficult to parody effectively without exact or near-exact copying. If the wouldbe parodist varies the music or meter of the original substantially, it simply will not be
recognizable to the general audience. This "special need for accuracy," provides some
license for "closer" parody. See id. To be sure, that license is not limitless: the parodist's
desire to make the best parody must be "balanced against the rights of the copyright
owner in his original expressions." n5 Id. We think the balance tips in the parodists' favor
here. In view of the parody's medium, its purposes, and its brevity, it takes no more from
the original than is necessary to accomplish reasonably its parodic purpose.
n5 Two music-related parody cases from the Second Circuit, MCA, Inc. v. Wilson,
677 F.2d 180 (2d Cir. 1981) and Elsmere Music, Inc. v. National Broadcasting
126
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Co., 482 F. Supp. 741 (S.D.N.Y.), aff'd per curiam, 623 F.2d 252 (2d Cir. 1980),
provide a useful contrast for purposes of assessing the amount and substantiality of
various takings. In MCA, Inc. v. Wilson, the court held the doctrine of fair use
inapplicable in the case of a song called "Cunnilingus Champion of Company C,"
which closely tracked the music and meter of the 40's standard, "Boogie Woogie
Bugle Boy of Company B." The composers of "Champion," which was created for
performance in the off-Broadway musical Let My People Come, admitted that the
song was not originally conceived as a parody of "Bugle Boy." Rather, they had
copied the original because it was "'immediately identifiable as something happy
and joyous and it brought back a certain period in our history when we felt that
way.'" 677 F.2d at 184 (quoting uncited trial record). Central to the court's holding
was the determination that "Champion" was not a parody of "Bugle Boy"; in
copying "Bugle Boy" almost verbatim, the composers' purpose was simply to reap
the advantages of a well-known tune and short-cut the rigors of composing
original music. See id. at 183-85.
Elsmere Music, Inc. v. National Broadcasting Co., 482 F. Supp. 741 (S.D.N.Y.), aff'd
per curiam, 623 F.2d 252 (2d Cir. 1980), concerned a Saturday Night Live parody of the
song "I Love New York." The SNL version, entitled "I Love Sodom," was "sung a
cappella by a chorus line of three SNL regulars to the tune of 'I Love New York,' with the
words 'I Love Sodom' repeated three times." Id. at 743. Having first determined that the
SNL song was indeed a parody of the original, the court went on to hold that the
parodist's copying and repetition of a four-note phrase from the original -- which it found
to be the "heart of the composition," id. at 744 -- was not an excessive taking. In support
of its decision, the court observed that (1) the repetition of the copied material served
both to ensure viewer recognition and to satirize the frequent broadcasting of the original;
and (2) the parodic use of the copied material lasted only 18 seconds, see id. at 747. The
instant case is much closer to the facts of Elsmere than to those of MCA.
(6) Summation
We conclude that "When Sonny Sniffs Glue" is a parody deserving of fair-use protection
as a matter of law. Thus, we affirm the district court's grant of summary judgment on the
copyright claim.
127
Copyright Cases
I.P. Survey Cases
Prof. Janicke
***
AFFIRMED.
128
Copyright Cases
I.P. Survey Cases
Prof. Janicke
SEGA ENTERPRISES LTD.
v.
ACCOLADE, INC.
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
1993 U.S. App. LEXIS 78 (1993)
Before: William C. Canby, Jr., Stephen Reinhardt, and Edward Leavy, Circuit Judges.
REINHARDT, Circuit Judge:
This case presents several difficult questions of first impression involving our copyright
and trademark laws. n1 We are asked to determine, first, whether the Copyright Act
permits persons who are neither copyright holders nor licensees to disassemble a
copyrighted computer program in order to gain an understanding of the unprotected
functional elements of the program. In light of the public policies underlying the Act, we
conclude that, when the person seeking the understanding has a legitimate reason for
doing so and when no other means of access to the unprotected elements exists, such
disassembly is as a matter of law a fair use of the copyrighted work. Second, we must
decide the legal consequences under the Lanham Trademark Act of a computer
manufacturer's use of a security system that affords access to its computers to software
cartridges that include an initialization code which triggers a screen display of the
computer manufacturer's trademark. The computer manufacturer also manufactures
software cartridges; those cartridges all contain the initialization code. The question is
whether the computer manufacturer may enjoin competing cartridge
manufacturers
from gaining access to its computers through the use of the code on the ground that such
use will result in the display of a "false" trademark. Again, our holding is based on the
public policies underlying the statute. We hold that when there is no other method of
access to the computer that is known or readily available to rival cartridge manufacturers,
the use of the initialization code by a rival does not violate the Act even though that use
triggers a misleading trademark display. Accordingly, we reverse the district court's grant
of a preliminary injunction in favor of plaintiff-appellee Sega Enterprises, Ltd. on its
129
Copyright Cases
I.P. Survey Cases
Prof. Janicke
claims of copyright and trademark infringement. We decline, however, to order that an
injunction pendente lite issue precluding Sega from continuing to use its security system,
even though such use may result in a certain amount of false labeling. We prefer to leave
the decision on that question to the district court initially.
n1 The recent decision by the Federal Circuit in Atari Games Corp. v. Nintendo of
America, Inc., No. 91-1293 (Fed. Cir. Sept. 10, 1992), which discusses a number
of the issues we decide here, is consistent both with our analysis and the result we
reach.
I. Background
Plaintiff-appellee Sega Enterprises, Ltd. ("Sega"), a Japanese corporation, and its
subsidiary, Sega of America, develop and market video entertainment systems, including
the "Genesis" console (distributed in Asia under the name "Mega-Drive") and video
game cartridges. Defendant-appellant Accolade, Inc., is an independent developer,
manufacturer, and marketer of computer entertainment software, including game
cartridges that are compatible with the Genesis console, as well as game cartridges that
are compatible with other computer systems.
Sega licenses its copyrighted computer code and its "SEGA" trademark to a number of
independent developers of computer game software. Those licensees develop and sell
Genesis-compatible video games in competition with Sega. Accolade is not and never has
been a licensee of Sega. Prior to rendering its own games compatible with the Genesis
console, Accolade explored the possibility of entering into a licensing agreement with
Sega, but abandoned the effort because the agreement would have required that Sega be
the exclusive manufacturer of all games produced by Accolade.
Accolade used a two-step process to render its video games compatible
with the
Genesis console. First, it "reverse engineered" Sega's video game programs in order to
discover the requirements for compatibility with the Genesis console. As part of the
reverse engineering process, Accolade transformed the machine-readable object code
contained in commercially available copies of Sega's game cartridges into humanreadable source code using a process called "disassembly" or "decompilation". n2
Accolade purchased a Genesis console and three Sega game cartridges, wired a
130
Copyright Cases
I.P. Survey Cases
Prof. Janicke
decompiler into the console circuitry, and generated printouts of the resulting source
code. Accolade engineers studied and annotated the printouts in order to identify areas of
commonality among the three game programs. They then loaded the disassembled code
back into a computer, and experimented to discover the interface specifications for the
Genesis console by modifying the programs and studying the results. At the end of the
reverse engineering process, Accolade created a development manual that incorporated
the information it had discovered about the requirements for a Genesis-compatible game.
According to the Accolade employees who created the manual, the manual contained
only functional descriptions of the interface requirements and did not include any of
Sega's code.
n2 Computer programs are written in specialized alphanumeric languages, or
"source code". In order to operate a computer, source code must be translated into
computer readable form, or "object code". Object code uses only two symbols, 0
and 1, in combinations which represent the alphanumeric characters of the source
code. A program written in source code is translated into object code using a
computer program called an "assembler" or "compiler", and then imprinted onto a
silicon chip for commercial distribution. Devices called "disassemblers" or
"decompilers" can reverse this process by "reading" the electronic signals for "0"
and "1" that are produced while the program is being run, storing the resulting
object code in computer memory, and translating the object code into source code.
Both assembly and disassembly devices are commercially available, and both
types of devices are widely used within the software industry.
In the second stage, Accolade created its own games for the Genesis. According to
Accolade, at this stage it did not copy Sega's programs, but relied only on the information
concerning interface specifications for the Genesis that was contained in its development
manual. Accolade maintains that with the exception of the interface specifications, none
of the code in its own games is derived in any way from its examination of Sega's code.
In 1990, Accolade released "Ishido", a game which it had originally developed and
released for use with the Macintosh and IBM personal computer systems, for use with the
Genesis console.
Even before Accolade began to reverse engineer Sega's games, Sega had grown
concerned about the rise of software and hardware piracy in Taiwan and other Southeast
131
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Asian countries to which it exported its products. Taiwan is not a signatory to the Berne
Convention and does not recognize foreign copyrights. Taiwan does allow prosecution of
trademark counterfeiters. However, the counterfeiters had discovered how to modify
Sega's game programs to blank out the screen display of Sega's trademark before
repackaging and reselling the games as their own. Accordingly, Sega began to explore
methods of protecting its trademark rights in the Genesis and Genesis-compatible games.
While the development of its own trademark security system (TMSS) was pending, Sega
licensed a patented TMSS for use with the Genesis home entertainment system.
The most recent version of the Genesis console, the "Genesis III", incorporates the
licensed TMSS. When a game cartridge is inserted, the microprocessor contained in the
Genesis III searches the game program for four bytes of data consisting of the letters "SE-G-A" (the "TMSS initialization code"). If the Genesis III finds the TMSS initialization
code in the right location, the game is rendered compatible and will operate on the
console. In such case, the TMSS initialization code then prompts a visual display for
approximately three seconds which reads "PRODUCED BY OR UNDER LICENSE
FROM SEGA ENTERPRISES LTD" (the "Sega Message"). All of Sega's game
cartridges, including those disassembled by Accolade, contain the TMSS initialization
code.
Accolade learned of the impending release of the Genesis III in the United States in
January, 1991, when the Genesis III was displayed at a consumer electronics show. When
a demonstration at the consumer electronics show revealed that Accolade's "Ishido" game
cartridges would not operate on the Genesis III, Accolade returned to the drawing board.
During the reverse engineering process, Accolade engineers had discovered a small
segment of code - the TMSS initialization code - that was included in the "power-up"
sequence of every Sega game, but that had no identifiable function. The games would
operate on the original Genesis console even if the code segment was removed. Mike
Lorenzen, the Accolade engineer with primary responsibility for reverse engineering the
interface procedures for the Genesis console, sent a memo regarding the code segment to
Alan Miller, his supervisor and the current president of Accolade, in which he noted that
"it is possible that some future Sega peripheral device might require it for proper
initialization."
132
Copyright Cases
I.P. Survey Cases
Prof. Janicke
In the second round of reverse engineering, Accolade engineers focused on the code
segment identified by Lorenzen. After further study, Accolade added the code to its
development manual in the form of a standard header file to be used in all games. The file
contains approximately twenty to twenty-five bytes of data. Each of Accolade's games
contains a total of 500,000 to 1,500,000 bytes. According to Accolade employees, the
header file is the only portion of Sega's code that Accolade copied into its own game
programs.
In 1991, Accolade released five more games for use with the Genesis III, "Star Control",
"Hardball!", "Onslaught", "Turrican", and "Mike Ditka Power Football." With the
exception of "Mike Ditka Power Football", all of those games, like "Ishido", had
originally been developed and marketed for use with other hardware systems. All
contained the standard header file that included the TMSS initialization code. According
to Accolade, it did not learn until after the Genesis III was released on the market in
September, 1991, that in addition to enabling its software to operate on the Genesis III,
the header file caused the display of the Sega Message. All of the games except
"Onslaught" operate on the Genesis III console; apparently, the programmer who
translated "Onslaught" for use with the Genesis system did not place the TMSS
initialization code at the correct location in the program.
All of Accolade's Genesis-compatible games are packaged in a similar fashion. The front
of the box displays Accolade's "Ballistic" trademark and states "for use with Sega
Genesis and Mega Drive Systems." The back of the box contains the following statement:
"Sega and Genesis are registered trademarks of Sega Enterprises, Ltd. Game 1991
Accolade, Inc. All rights reserved. Ballistic is a trademark of Accolade, Inc. Accolade,
Inc. is not associated with Sega Enterprises, Ltd. All product and corporate names are
trademarks and registered trademarks of their respective owners."
Sega filed suit against Accolade on October 31, 1991, alleging trademark infringement
and false designation of origin in violation of sections 32(1) and 43(a) of the Lanham
Act, 15 U.S.C. §§ 1114(a)(1), 1125(a). On November 29, 1991, Sega amended its
complaint to include a claim for copyright infringement. Accolade filed a counterclaim
against Sega for false designation of origin under section 43(a) of the Lanham Act, 15
U.S.C. § 1125(a). The parties filed cross-motions for preliminary injunctions on their
respective claims.
133
Copyright Cases
I.P. Survey Cases
Prof. Janicke
After expedited discovery and a hearing, the district court granted Sega's motion. Prior to
the hearing, Sega introduced the declaration of Takeshi Nagashima, an employee of Sega.
Nagashima stated that it was possible either to create a game program which did not
contain the TMSS code but would still operate on the Genesis III, or to modify a game
program so that the Sega Message would not appear when the game cartridge was
inserted. Nagashima stated that he had been able to make both modifications using
standard components, at a total extra cost of approximately fifty cents. At the hearing,
counsel for Sega produced two game cartridges which, he represented, contained the
modifications made by Nagashima, and demonstrated to the district judge that the Sega
Message did not appear when the cartridges were inserted into a Genesis III console.
Sega offered to make the cartridges available for inspection by Accolade's counsel, but
declined to let Accolade's software engineers examine the cartridges or to reveal the
manner in which the cartridges had been modified. ***
With respect to Sega's copyright claim, the district court rejected Accolade's contention
that intermediate copying of computer object code does not constitute infringement under
the Copyright Act. It found that Accolade had disassembled Sega's code for a commercial
purpose, and that Sega had likely lost sales of its games as a result of Accolade's copying.
The court further found that there were alternatives to disassembly that Accolade could
have used in order to study the functional requirements for Genesis compatibility.
Accordingly, it also rejected Accolade's fair use defense to Sega's copyright infringement
claim.
Based on its conclusion that Sega is likely to succeed on the merits of its claims for
copyright and trademark infringement, on April 3, 1992, the district court enjoined
Accolade from: (1) disassembling Sega's copyrighted code; (2) using or modifying Sega's
copyrighted code; (3) developing, manufacturing, distributing, or selling Genesiscompatible games that were created in whole or in part by means that included
disassembly; and (4) manufacturing, distributing, or selling any Genesis-compatible
game that prompts the Sega Message. On April 9, 1992, in response to a request from
Sega, the district court modified the preliminary injunction order to require the recall of
Accolade's infringing games within ten business days.
On April 14, 1992, Accolade filed a motion in the district court for a stay of the
preliminary injunction pending appeal. When the district court failed to rule on the
134
Copyright Cases
I.P. Survey Cases
Prof. Janicke
motion for a stay by April 21, ten business days after the April 9 recall order, Accolade
filed a motion for an emergency stay in this court pursuant to 9th Cir. R. 27-3, together
with its notice of appeal. On April 23, we stayed the April 9 recall order. The April 3
preliminary injunction order remained in effect until August 28, when we ordered it
dissolved and announced that this opinion would follow.
II. Standard of Review
In order to obtain a preliminary injunction, the movant must demonstrate "either a
likelihood
of success on the merits and the possibility of irreparable injury, or that
serious questions going to the merits were raised and the balance of hardships tips sharply
in its favor." Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173,
1174 (9th Cir. 1989). We may reverse the district court's grant of a preliminary injunction
to Sega if the district court abused its discretion, made an error of law, or based its
decision on an erroneous legal standard or on clearly erroneous findings of fact.
Religious Technology Ctr. v. Scott, 869 F.2d 1306, 1309 (9th Cir. 1989); Lou v. Belzberg,
834 F.2d 730, 733 (9th Cir. 1987), cert. denied, 485 U.S. 993, 99 L. Ed. 2d 512, 108 S.
Ct. 1302 (1988).
III. Copyright Issues
Accolade raises four arguments in support of its position that disassembly of the object
code in a copyrighted computer program does not constitute copyright infringement.
First, it maintains that intermediate copying does not infringe the exclusive rights granted
to copyright owners in section 106 of the Copyright Act unless the end product of the
copying is substantially similar to the copyrighted work. Second, it argues that
disassembly of object code in order to gain an understanding of the ideas and functional
concepts embodied in the code is lawful under section 102(b) of the Act, which exempts
ideas and functional concepts from copyright protection. Third, it suggests that
disassembly is authorized by section 117 of the Act, which entitles the lawful owner of a
copy of a computer program to load the program into a computer. Finally, Accolade
contends that disassembly of object code in order to gain an understanding of the ideas
and functional concepts embodied in the code is a fair use that is privileged by section
107 of the Act.
135
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Neither the language of the Act nor the law of this circuit supports Accolade's first three
arguments. Accolade's fourth argument, however, has merit. Although the question is
fairly debatable, we conclude based on the policies underlying the Copyright Act that
disassembly of copyrighted object code is, as a matter of law, a fair use of the
copyrighted work if such disassembly provides the only means of access to those
elements of the code that are not protected by copyright and the copier has a legitimate
reason for seeking such access. Accordingly, we hold that Sega has failed to demonstrate
a likelihood of success on the merits of its copyright claim. Because on the record before
us the hardships do not tip sharply (or at all) in Sega's favor, the preliminary injunction
issued in its favor must be dissolved, at least with respect to that claim.
A. Intermediate Copying
We have previously held that the Copyright Act does not distinguish between
unauthorized copies of a copyrighted work on the basis of what stage of the alleged
infringer's work the unauthorized copies represent. *** In order to constitute a "copy"
for purposes of the Act, the allegedly infringing work must be fixed in some tangible
form, "from which the work can be perceived, reproduced, or otherwise communicated,
either directly or with the aid of a machine or device." 17 U.S.C. § 101. The computer file
generated by the disassembly program, the printouts of the disassembled code, and the
computer files containing Accolade's modifications of the code that were generated
during the reverse engineering process all satisfy that requirement. The intermediate
copying done by Accolade therefore falls squarely within the category of acts that are
prohibited by the statute.
Accolade points to a number of cases that it argues establish the lawfulness of
intermediate copying. Most of the cases involved the alleged copying of books, scripts, or
literary characters. In each case, however, the eventual lawsuit alleged infringement only
as to the final work of the defendants. ***
In summary, the question whether intermediate copying of computer object code
infringes the exclusive rights granted to the copyright owner in section 106 of the
Copyright Act is a question of first impression. In light of the unambiguous language of
the Act, we decline to depart from the rule set forth in Walker for copyrighted works
generally. Accordingly, we hold that intermediate copying of computer object code may
136
Copyright Cases
I.P. Survey Cases
Prof. Janicke
infringe the exclusive rights granted to the copyright owner in section 106 of the
Copyright Act regardless of whether the end product of the copying also infringes those
rights. If intermediate copying is permissible under the Act, authority for such copying
must be found in one of the statutory provisions to which the rights granted in section 106
are subject.
B. The Idea/Expression Distinction
Accolade next contends that disassembly of computer object code does not violate the
Copyright Act because it is necessary in order to gain access to the ideas and functional
concepts embodied in the code, which are not protected by copyright. 17 U.S.C. §
102(b). Because humans cannot comprehend object code, it reasons, disassembly of a
commercially available computer program into human-readable form should not be
considered an infringement of the owner's copyright. Insofar as Accolade suggests that
disassembly of object code is lawful per se, it seeks to overturn settled law.
Accolade's argument regarding access to ideas is, in essence, an argument that object
code is not eligible for the full range of copyright protection. Although some scholarly
authority supports that view, we have previously rejected it based on the language and
legislative history of the Copyright Act. ***
Nor does a refusal to recognize a per se right to disassemble object code lead to an absurd
result. The ideas and functional concepts underlying many types of computer programs,
including word processing programs, spreadsheets, and video game displays, are readily
discernible without the need for disassembly, because the operation of such programs is
visible on the computer screen. The need to disassemble object code arises, if at all, only
in connection with operations systems, system interface procedures, and other programs
that are not visible to the user when operating - and then only when no alternative means
of gaining an understanding of those ideas and functional concepts exists. In our view,
consideration of the unique nature of computer object code thus is more appropriate as
part of the case-by-case, equitable "fair use" analysis authorized by section 107 of the
Act. See infra Part III(D). Accordingly, we reject Accolade's second argument.
C. Section 117
137
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Section 117 of the Copyright Act allows the lawful owner of a copy of a computer
program to copy or adapt the program if the new copy or adaptation "is created as an
essential step in the utilization of the computer program in conjunction with a machine
and . . . is used in no other manner." 17 U.S.C. § 117(1). Accolade contends that section
117 authorizes disassembly of the object code in a copyrighted computer program.
Section 117 was enacted on the recommendation of CONTU, which noted that "because
the placement of any copyrighted work into a computer is the preparation of a copy
[since the program is loaded into the computer's memory], the law should provide that
persons in rightful possession of copies of programs be able to use them freely without
fear of exposure to copyright liability." CONTU Report at 13. We think it is clear that
Accolade's use went far beyond that contemplated by CONTU and authorized by section
117. Section 117 does not purport to protect a user who disassembles object code,
converts it from assembly into source code, and makes printouts and photocopies of the
refined source code version.
D. Fair Use
Accolade contends, finally, that its disassembly of copyrighted object code as a necessary
step in its examination of the unprotected ideas and functional concepts embodied in the
code is a fair use that is privileged by section 107 of the Act. Because, in the case before
us, disassembly is the only means of gaining access to those unprotected aspects of the
program, and because Accolade has a legitimate interest in gaining such access (in order
to determine how to make its cartridges compatible with the Genesis console), we agree
with Accolade. Where there is good reason for studying or examining the unprotected
aspects of a copyrighted computer program, disassembly for purposes of such study or
examination constitutes a fair use.
1.
***
Section 107 lists the factors to be considered in determining whether a particular use is a
fair one. Those factors include:
138
Copyright Cases
I.P. Survey Cases
Prof. Janicke
(1) the purpose and character of the use, including whether such use is of a
commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the
copyrighted work.
17 U.S.C. § 107. The statutory factors are not exclusive. Rather, the doctrine of fair use is
in essence "an equitable rule of reason." Harper & Row, Publishers, Inc. v. Nation
Enterprises, 471 U.S. 539, 560, 85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985) (quoting H.R.
Rep. No. 1476, 94th
Cong., 2d Sess. 65, reprinted in 1976 U.S.C.C.A.N. 5659, 5679).
Fair use is a mixed question of law and fact. Id. "Where the district court has found facts
sufficient to evaluate each of the statutory factors," an appellate court may resolve the fair
use question as a matter of law. Id.
In determining that Accolade's disassembly of Sega's object code did not constitute a fair
use, the district court treated the first and fourth statutory factors as dispositive, and
ignored the second factor entirely. Given the nature and characteristics of Accolade's
direct use of the copied works, the ultimate use to which Accolade put the functional
information it obtained, and the nature of the market for home video entertainment
systems, we conclude that neither the first nor the fourth factor weighs in Sega's favor. In
fact, we conclude that both factors support Accolade's fair use defense, as does the
second factor, a factor which is important to the resolution of cases such as the one before
us.
(a)
With respect to the first statutory factor, we observe initially that the fact that copying is
for a commercial purpose weighs against a finding of fair use. Harper & Row, 471 U.S.
at 562. However, the presumption of unfairness that arises in such cases can be rebutted
by the characteristics of a particular commercial use. Hustler Magazine, Inc. v. Moral
139
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Majority, Inc., 796 F.2d 1148, 1152 (9th Cir. 1986); see also Maxtone-Graham v.
Burtchaell, 803 F.2d 1253, 1262 (2d Cir. 1986), cert. denied, 481 U.S. 1059, 95 L. Ed. 2d
856, 107 S. Ct. 2201 (1987). Further "the commercial nature of a use is a matter of
degree, not an absolute . . . ." Maxtone-Graham, 803 F.2d at 1262.
Sega argues that because Accolade copied its object code in order to produce a competing
product, the Harper & Row presumption applies and precludes a finding of fair use. That
analysis is far too simple and ignores a number of important considerations. We must
consider other aspects of "the purpose and character of the use" as well. As we have
noted, the use at issue was an intermediate one only and thus any commercial
"exploitation" was indirect or derivative.
The declarations of Accolade's employees indicate, and the district court found, that
Accolade copied Sega's software solely in order to discover the functional requirements
for compatibility with the Genesis console - aspects of Sega's programs that are not
protected by copyright. 17 U.S.C. § 102(b). With respect to the video game programs
contained in Accolade's game cartridges, there is no evidence in the record that Accolade
sought to avoid performing its own creative work. Indeed, most of the games that
Accolade released for use with the Genesis console were originally developed for other
hardware systems. Moreover, with respect to the interface procedures for the Genesis
console, Accolade did not seek to avoid paying a customarily charged fee for use of those
procedures, nor did it simply copy Sega's code; rather, it wrote its own procedures based
on what it had learned through disassembly. Taken together, these facts indicate that
although Accolade's ultimate purpose was the release of Genesis-compatible games for
sale, its direct purpose in copying Sega's code, and thus its direct use of the copyrighted
material, was simply to study the functional requirements for Genesis compatibility so
that it could modify existing games and make them usable with the Genesis console.
Moreover, as we discuss below, no other method of studying those requirements was
available to Accolade. On these facts, we conclude that Accolade copied Sega's code for
a legitimate, essentially non-exploitative purpose, and that the commercial aspect of its
use can best be described as of minimal significance.
We further note that we are free to consider the public benefit resulting from a particular
use notwithstanding the fact that the alleged infringer may gain commercially. See
Hustler, 796 F.2d at 1153 (quoting MCA, Inc. v. Wilson, 677 F.2d 180, 182 (2d Cir.
140
Copyright Cases
I.P. Survey Cases
Prof. Janicke
1981)). Public benefit need not be direct or tangible, but may arise because the
challenged use serves a public interest. Id. In the case before us, Accolade's identification
of the functional requirements for Genesis compatibility has led to an increase in the
number of independently designed video game programs offered for use with the Genesis
console. It is precisely this growth in creative expression, based on the dissemination of
other creative works and the unprotected ideas contained in those works, that the
Copyright Act was intended to promote. See Feist Publications, Inc. v. Rural Tel. Serv.
Co., ___ U.S. ___, 111 S. Ct. 1282, 1290 (1991) (citing Harper & Row, 471 U.S. at 55657). The fact that Genesis-compatible video games are not scholarly works, but works
offered for sale on the market, does not alter our judgment in this regard. We conclude
that given the purpose and character of Accolade's use of Sega's video game programs,
the presumption of unfairness has been overcome and the first statutory factor weighs in
favor of Accolade.
(b)
As applied, the fourth statutory factor, effect on the potential market for the copyrighted
work, bears a close relationship to the "purpose and character" inquiry in that it, too,
accommodates the distinction between the copying of works in order to make
independent creative expression possible and the simple exploitation of another's creative
efforts. We must, of course, inquire whether, "if [the challenged use] should become
widespread, it would adversely affect the potential market for the copyrighted work,"
Sony Corp. v. Universal City Studios, 464 U.S. 417, 451, 78 L. Ed. 2d 574, 104 S. Ct. 774
(1984), by diminishing potential sales, interfering with marketability, or usurping the
market, Hustler, 796 F.2d at 1155-56. If the copying resulted in the latter effect, all other
considerations might be irrelevant. The Harper & Row Court found a use that effectively
usurped the market for the copyrighted work by supplanting that work to be dispositive.
471 U.S. at 567-69. However, the same consequences do not and could not attach to a use
which simply enables the copier to enter the market for works of the same type as the
copied work.
Unlike the defendant in Harper & Row, which printed excerpts from President Ford's
memoirs verbatim with the stated purpose of "scooping" a Time magazine review of the
book, 471 U.S. at 562, Accolade did not attempt to "scoop" Sega's release of any
particular game or games, but sought only to become a legitimate competitor in the field
141
Copyright Cases
I.P. Survey Cases
Prof. Janicke
of Genesis-compatible video games. Within that market, it is the characteristics of the
game program as experienced by the user that determine the program's commercial
success. As we have noted, there is nothing in the record that suggests that Accolade
copied any of those elements.
By facilitating the entry of a new competitor, the first lawful one that is not a Sega
licensee, Accolade's disassembly of Sega's software undoubtedly "affected" the market
for Genesis-compatible games in an indirect fashion. We note, however, that while no
consumer except the most avid devotee of President Ford's regime might be expected to
buy more than one version of the President's memoirs, video game users typically
purchase more than one game. There is no basis for assuming that Accolade's "Ishido"
has significantly affected the market for Sega's "Altered Beast", since a consumer might
easily purchase both; nor does it seem unlikely that a consumer particularly interested in
sports might purchase both Accolade's "Mike Ditka Power Football" and Sega's "Joe
Montana Football", particularly if the games are, as Accolade contends, not substantially
similar. In any event, an attempt to monopolize the market by making it impossible for
others to compete runs counter to the statutory purpose of promoting creative expression
and cannot constitute a strong equitable basis for resisting the invocation of the fair use
doctrine. Thus, we conclude that the fourth statutory factor weighs in Accolade's, not
Sega's, favor, notwithstanding the minor economic loss Sega may suffer.
(c)
The second statutory factor, the nature of the copyrighted work, reflects the fact that not
all copyrighted works are entitled to the same level of protection. The protection
established by the Copyright Act for original works of authorship does not extend to the
ideas underlying a work or to the functional or factual aspects of the work. 17 U.S.C. §
102(b). To the extent that a work is functional or factual, it may be copied, Baker v.
Selden, 101 U.S. 99, 102-04, 25 L. Ed. 841 (1879), as may those expressive elements of
the work that "must necessarily be used as incident to" expression of the underlying
ideas, functional concepts, or facts, id. at 104. Works of fiction receive greater protection
than works that have strong factual elements, such as historical or biographical works,
Maxtone-Graham, 803 F.2d at 1263 (citing Rosemont Enterprises, Inc. v. Random
House, Inc., 366 F.2d 303, 307 (2d Cir. 1966), cert. denied, 385 U.S. 1009, 17 L. Ed. 2d
546, 87 S. Ct. 714 (1967)), or works that have strong functional elements, such as
142
Copyright Cases
I.P. Survey Cases
Prof. Janicke
accounting textbooks, Baker, 101 U.S. at 104. Works that are merely compilations of fact
are copyrightable, but the copyright in such a work is "thin." Feist Publications, 111 S.
Ct. at 1289.
Computer programs pose unique problems for the application of the "idea/expression
distinction" that determines the extent of copyright protection. To the extent that there are
many possible ways of accomplishing a given task or fulfilling a particular market
demand, the programmer's choice of program structure and design may be highly creative
and idiosyncratic. However, computer programs are, in essence, utilitarian articles articles that accomplish tasks. As such, they contain many logical, structural, and visual
display elements that are dictated by the function to be performed, by considerations of
efficiency, or by external factors such as compatibility requirements and industry
demands. Computer Assoc. Int'l, Inc. v. Altai, Inc., 1992 U.S. App. LEXIS 14305, 23
U.S.P.Q.2D (BNA) 1241, 1253-56 (2d Cir. 1992) ("CAI"). In some circumstances, even
the exact set of commands used by the programmer is deemed functional rather than
creative for purposes of copyright. "When specific instructions, even though previously
copyrighted, are the only and essential means of accomplishing a given task, their later
use by another will not amount to infringement." CONTU Report at 20.
Because of the hybrid nature of computer programs, there is no settled standard for
identifying what is protected expression and what is unprotected idea in a case involving
the alleged infringement of a copyright in computer software. We are in wholehearted
agreement with the Second Circuit's recent observation that "thus far, many of the
decisions in this area reflect the courts' attempt to fit the proverbial square peg in a round
hole." CAI, 23 U.S.P.Q. 2d at 1257. In 1986, the Third Circuit attempted to resolve the
dilemma by suggesting that the idea or function of a computer program is the idea of the
program as a whole, and "everything that is not necessary to that purpose or function [is]
part of the expression of that idea." Whelan Assoc., Inc. v. Jaslow Dental Laboratory,
Inc., 797 F.2d 1222, 1236 (3d Cir. 1986) (emphasis omitted). The Whelan rule, however,
has been widely - and soundly - criticized as simplistic and overbroad. See CAI, 23
U.S.P.Q. 2d at 1252 (citing cases, treatises, and articles). In reality, "a computer
program's ultimate function or purpose is the composite result of interacting subroutines.
Since each subroutine is itself a program, and thus, may be said to have its own 'idea,'
Whelan's general formulation . . . is descriptively inadequate." Id.. For example, the
computer program at issue in the case before us, a video game program, contains at least
143
Copyright Cases
I.P. Survey Cases
Prof. Janicke
two such subroutines - the subroutine that allows the user to interact with the video game
and the subroutine that allows the game cartridge to interact with the console. Under a
test that breaks down a computer program into its component subroutines and subsubroutines and then identifies the idea or core functional element of each, such as the
test recently adopted by the Second Circuit in CAI, 23 U.S.P.Q. 2d at 1252-53, many
aspects of the program are not protected by copyright. In our view, in light of the
essentially utilitarian nature of computer programs, the Second Circuit's approach is an
appropriate one.
Sega argues that even if many elements of its video game programs are properly
characterized as functional and therefore not protected by copyright, Accolade copied
protected expression. Sega is correct. The record makes clear that disassembly is
wholesale copying. Because computer programs are also unique among copyrighted
works in the form in which they are distributed for public use, however, Sega's
observation does not bring us much closer to a resolution of the dispute.
The unprotected aspects of most functional works are readily accessible to the human
eye. The systems described in accounting textbooks or the basic structural concepts
embodied in architectural plans, to give two examples, can be easily copied without also
copying any of the protected, expressive aspects of the original works. Computer
programs, however, are typically distributed for public use in object code form,
embedded in a silicon chip or on a floppy disk. For that reason, humans often cannot gain
access to the unprotected ideas and functional concepts contained in object code without
disassembling that code - i.e., making copies. n8 Atari Games Corp. v. Nintendo of
America, No. 91-1293, slip op. at 22 (Fed. Cir. Sept. 10, 1992).
n8 We do not intend to suggest that disassembly is always the only available
means of access to those aspects of a computer program that are unprotected by
copyright. As we noted in Part III(B), supra, in many cases the operation of a
program is directly reflected on the screen display and therefore visible to the
human eye. In those cases, it is likely that a reverse engineer would not need to
examine the code in order to understand what the program does.
Sega argues that the record does not establish that disassembly of its object code is the
only available method for gaining access to the interface specifications for the Genesis
144
Copyright Cases
I.P. Survey Cases
Prof. Janicke
console, and the district court agreed. An independent examination of the record reveals
that Sega misstates its contents, and demonstrates that the district court committed clear
error in this respect.
[T]he record clearly establishes that disassembly of the object code in Sega's video game
cartridges was necessary in order to understand the functional requirements for Genesis
compatibility. The interface procedures for the Genesis console are distributed for public
use only in object code form, and are not visible to the user during operation of the video
game program. Because object code cannot be read by humans, it must be disassembled,
either by hand or by machine. Disassembly of object code necessarily entails copying.
Those facts dictate our analysis of the second statutory fair use factor. If disassembly of
copyrighted object code is per se an unfair use, the owner of the copyright gains a de
facto monopoly over the functional aspects of his work - aspects that were expressly
denied copyright protection by Congress. 17 U.S.C. § 102(b). In order to enjoy a lawful
monopoly over the idea or functional principle underlying a work, the creator of the work
must satisfy the more stringent standards imposed by the patent laws. Bonito Boats, Inc.
v. Thunder Craft Boats, Inc., 489 U.S. 141, 159-64, 103 L. Ed. 2d 118, 109 S. Ct. 971
(1989). Sega does not hold a patent on the Genesis console.
Because Sega's video game programs contain unprotected aspects that cannot be
examined without copying, we afford them a lower degree of protection than more
traditional literary works. See CAI, 23 U.S.P.Q. 2d at 1257. In light of all the
considerations discussed above, we conclude that the second statutory factor also weighs
in favor of Accolade.
(d)
As to the third statutory factor, Accolade disassembled entire programs written by Sega.
Accordingly, the third factor weighs against Accolade. The fact that an entire work was
copied does not, however, preclude a finding a fair use. Sony Corp., 464 U.S. at 449-50;
Hustler, 795 F.2d at 1155 ("Sony Corp. teaches us that the copying of an entire work
does not preclude fair use per se."). In fact, where the ultimate (as opposed to direct) use
is as limited as it was here, the factor is of very little weight. Cf. Wright v. Warner
Books, Inc., 953 F.2d 731, 738 (2d Cir. 1991).
145
Copyright Cases
I.P. Survey Cases
Prof. Janicke
(e)
In summary, careful analysis of the purpose and characteristics of Accolade's use of
Sega's video game programs, the nature of the computer programs involved, and the
nature of the market for video game cartridges yields the conclusion that the first, second,
and fourth statutory fair use factors weigh in favor of Accolade, while only the third
weighs in favor of Sega, and even then only slightly. Accordingly, Accolade clearly has
by far the better case on the fair use issue.
We are not unaware of the fact that to those used to considering copyright issues in more
traditional contexts, our result may seem incongruous at first blush. To oversimplify, the
record establishes that Accolade, a commercial competitor of Sega, engaged in wholesale
copying of Sega's copyrighted code as a preliminary step in the development of a
competing product. However, the key to this case is that we are dealing with computer
software, a relatively unexplored area in the world of copyright law. We must avoid the
temptation of trying to force "the proverbial square peg into a round hole." CAI, 23
U.S.P.Q. 2d at 1257.
In determining whether a challenged use of copyrighted material is fair, a court must
keep in mind the public policy underlying the Copyright Act. "'The immediate effect of
our copyright law is to secure a fair return for an "author's" creative labor. But the
ultimate aim is, by this incentive, to stimulate artistic creativity for the general public
good.'" Sony Corp., 464 U.S. at 432 (quoting Twentieth Century Music Corp. v. Aiken,
422 U.S. 151, 156, 45 L. Ed. 2d 84, 95 S. Ct. 2040 (1975)). When technological change
has rendered an aspect or application of the Copyright Act ambiguous, "'the Copyright
Act must be construed in light of this basic purpose.'" Id. As discussed above, the fact
that computer programs are distributed for public use in object code form often precludes
public access to the ideas and functional concepts contained in those programs, and thus
confers on the copyright owner a de facto monopoly over those ideas and functional
concepts. That result defeats the fundamental purpose of the Copyright Act - to
encourage the production of original works by protecting the expressive elements of
those works while leaving the ideas, facts, and functional concepts in the public domain
for others to build on. Feist Publications, 111 S. Ct. at 1290; see also Atari Games
Corp., slip op. at 18-20.
146
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Sega argues that the considerable time, effort, and money that went into development of
the Genesis and Genesis-compatible video games militate against a finding of fair use.
Borrowing from antitrust principles, Sega attempts to label Accolade a "free rider" on its
product development efforts. In Feist Publications, however, the Court unequivocally
rejected the "sweat of the brow" rationale for copyright protection. 111 S. Ct. at 129095. Under the Copyright Act, if a work is largely functional, it receives only weak
protection. "This result is neither unfair nor unfortunate. It is the means by which
copyright advances the progress of science and art." Id. at 1290; see also id. at 1292 ("In
truth, 'it is just such wasted effort that the proscription against the copyright of ideas and
facts . . . [is] designed to prevent.'") (quoting Rosemont Enterprises, Inc. v. Random
House, Inc., 366 F.2d 303, 310 (2d Cir. 1966), cert. denied 305 U.S. 1009 (1967)); CAI,
23 U.S.P.Q. 2d at 1257. Here, while the work may not be largely functional, it
incorporates functional elements which do not merit protection. The equitable
considerations involved weigh on the side of public access. Accordingly, we reject Sega's
argument.
(f)
We conclude that where disassembly is the only way to gain access to the ideas and
functional elements embodied in a copyrighted computer program and where there is a
legitimate reason for seeking such access, disassembly is a fair use of the copyrighted
work, as a matter of law. Our conclusion does not, of course, insulate Accolade from a
claim of copyright infringement with respect to its finished products. Sega has reserved
the right to raise such a claim, and it may do so on remand.
***
Accolade's Request for Preliminary Injunctive Relief
Finally, we decline to order the district court to grant Accolade preliminary injunctive
relief on its Lanham Act claim. If requested, the district court may reconsider that issue in
light of the legal principles we have set forth. The parties have presented arguments
regarding the hardships they would suffer under various circumstances. We believe those
arguments should be weighed by the district court before any affirmative relief is ordered.
Moreover, the parties may have additional factual material they wish to present regarding
147
Copyright Cases
I.P. Survey Cases
Prof. Janicke
the question of Accolade's right to preliminary injunctive relief. Pending further
consideration of this matter by the district court, we are content to let the matter rest
where it stands, with each party as free to act as it was before the issuance of preliminary
injunctive relief. We are confident that preserving the status quo in this manner will not
lead to any serious inequity. Costs on appeal shall be assessed against Sega.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
TY, INC.
v.
PUBLICATIONS INTERNATIONAL, LTD.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS, EASTERN DIVISION
81 F. Supp. 2d 899 (2000)
James B. Zagel, United States District Judge.
MEMORANDUM OPINION AND ORDER [on motion for preliminary injunction]
Ty, Inc. makes Beanie Babies(R) which have been, to my perception, extraordinarily
popular toys both in terms of the sheer number (over a billion) of them which have been
distributed and the very number of years (at least five) that they have been prominent in
the marketplace.
The defendants do not make rival products -- plush toys; they make books about Beanie
Babies(R). Ty has designed and sold over 200 different Beanie Babies(R). New ones are
issued periodically and older ones are retired; that is to say, Ty stops making additional
toys of a model it retires. By making many different styles of Beanie Babies(R), Ty
creates the possibility that some people will wish to collect them. I have personal
148
Copyright Cases
I.P. Survey Cases
Prof. Janicke
knowledge of at least two such persons, both of them in the early stages of the American
educational process. One of these collectors displays her gift for cataloguing and her
nascent interest in zoology by organizing her collection into Beanie mammals, Beanie
acquatic creatures (excluding acquatic mammals), Beanie prehistoric creatures, Beanie
flying creatures and Beanie mythical creatures. There may have been, over the years,
other organizing principles of the collection, but I was unable to sustain my interest long
enough to grasp them fully. The other collector is primarily interested in the projected
cash value of the toys, particularly the discontinued models, all to the end of financing a
planned period of attendance at medical school in the far-off future.
By design, the Beanie Babies(R) become collectibles, and around them has arisen a
business devoted to serving the interest of the collectors by providing them with
information about Beanie Babies(R). There are books and websites that offer exhaustive
lists, with photographs, of all known Beanie Babies(R) and information about the current
and projected market value of each Beanie Baby. n2 There is information too about
peripheral Beanie Baby facts, i.e., the different kinds of heart-shaped hang tags that come
with each toy and how these tags evolved over time. Beanie Babies(R) are privately
traded and sold among collectors, and there are auctions over the internet. Perhaps there
are chat rooms for devotees. According to the defendants, there is a gray-market for
certain Beanie Babies(R) meant for sale only in the U.K. and Canada, but nonetheless
desired by collectors in the United States. Leaving to one side the average age of the
collectors, this is much like the world of baseball card enthusiasts.
The defendants produce and sell a book about Beanie Babies(R), which includes an
historical essay on the subject and a Baby-by-Baby catalogue, a page per Baby. Each
page has a picture of the toy, its date of birth, date of release, date of retirement, if any,
and its estimated value along with other data, including such things as misprinted labels,
which are rare and increase value. The author also rates some as Highly Recommended,
as is Floppity (the lilac rabbit). Gobbles (the turkey) is not highly recommended.
According to defendants, prices range from the $5-7 category, into which many fall, all
the way to the rarefied upper values of Bongo (the monkey) (tan-tailed Nana only) at
$4000, Peanut (the elephant) (royal blue only) $5000, and Punchers (not Pinchers) (the
lobster) at $4750.
149
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Ty holds copyrights to the original soft sculptures marketed as part of its line of toys, and
it has trademark registrations for the marks associated with the product and its heartshaped hang tags. It has common-law trademarks too. It wants me to enjoin defendants
from publishing and selling its books: For the Love of Beanie Babies and Beanie Babies
Collector's Guide. The books' covers do contain the legend: This publication is not
authorized or licensed by Ty, Inc. Publications International, Ltd. is not affiliated with
Ty, Inc.
Ty obviously is not displeased, in principle, with books or magazines for collectors of the
toys -- this is precisely what the creator of collectibles wants to occur. The company has
licensed three such publications and is willing to license others. Indeed, Ty has licensed a
corporation to form the BEANIE BABIES OFFICIAL CLUB. The club gives out
information about the toys and sells related products. At least one licensee has
complained to Ty about competing with defendants' unlicensed product. But, says Ty, the
defendants here do not have licenses, and their books display unauthorized photographs
of the copyrighted Babies and the trademarks. Ty wants the defendants stopped, as they
have had others stopped in this Court. See Ty Inc. v. West Highland Pub. Inc., 1998 U.S.
Dist. LEXIS 15869, 98 C 4091, 1998 WL 698922 (N.D. Ill. 1998) (Norgle, J.).
Defendants begin by saying that no injunction may issue against publication of its books
because the First Amendment prohibits such injunctions. They rely heavily upon Time,
Inc. v. Hill, 385 U.S. 374, 17 L. Ed. 2d 456, 87 S. Ct. 534 (1967), which held that the First
Amendment protected a magazine from an invasion of privacy suit (absent knowing or
reckless falsity) by a family, an incident from whose life was falsely portrayed by Life
magazine. The case is memorable for its divisions: two Justices joined the majority
opinion only "in order for the Court to be able to agree on an opinion in this important
case." 385 U.S. at 398 (Black and Douglas, JJ.). It is memorable for its alignments:
Brennan, Stewart, White (with Black and Douglas) vs. Harlan vs. Fortas, Clark and
Warren. It is memorable for the fact that Richard M. Nixon argued for Hill. It is
memorable that false portrayals did not cast the plaintiffs in a bad light. It is not
memorable for any discussion of the relationship of copyright and trademark protection
to the ambit of First Amendment protection.
The Supreme Court did address that relationship in Zacchini v. Scripps-Howard
Broadcasting Co., 433 U.S. 562, 53 L. Ed. 2d 965, 97 S. Ct. 2849 (1977), a case in which
150
Copyright Cases
I.P. Survey Cases
Prof. Janicke
a human cannonball sued a television station for videotaping his entire 15-second act and
then broadcasting it. Zacchini thought that the free broadcast might reduce the number of
persons willing to pay to see it. Over objection that Time, Inc. v. Hill precluded a lawsuit
over the broadcast, the Court wrote:
The Constitution no more prevents a State from requiring respondent to
compensate petitioner for broadcasting his act on television than it would privilege
respondent to film and broadcast a copyrighted dramatic work without liability to
the copyright owner. 433 U.S. at 575.
In Cohen v. Cowles Media Co., 501 U.S. 663, 669, 115 L. Ed. 2d 586, 111 S. Ct. 2513,
the Court said: "The press, like others interested in publishing, may not publish
copyrighted material without obeying copyright laws."
These cases do not destroy defendants' argument, because, they concede, at least at this
stage, that they might be liable for damages. It is the prior restraint, the injunction against
further distribution, which, they say, is a violation of the First Amendment. Taken
literally, the words of the Supreme Court authorize injunction, because "obeying
copyright laws" usually includes obeying orders to stop violating the copyright. But the
Supreme Court has not explicitly said that copyright injunctions are permissible against
the press, although there is a hint that such injunctions are legal in San Francisco Arts &
Athletics v. United States Olympic Committee, 483 U.S. 522, 97 L. Ed. 2d 427, 107 S. Ct.
2971 (1987) (upholding injunction against use of the term "Olympics" to describe an
athletic competition where Congress had granted exclusive use of word to the United
States Olympic Committee).
The hint must be fairly strong because there are not many reported cases in which
challenges to copyright or trademark injunctions are made upon First Amendment
grounds. Those challenges that are made have been summarily rejected. A parodist once
wrote a poem about the O.J. Simpson murder trial entitled The Cat NOT in the Hat! A
Parody by Dr. Juice, which was found to be an infringement of The Cat in the Hat, by Dr.
Seuss. On appeal, the panel of the Ninth Circuit said in a footnote that it "reject[s]
outright [the] claim that the injunction in this case constitutes a prior restraint in violation
of free speech guaranteed by the United States Constitution." Dr. Seuss Enterprises L.P.
v. Penguin Books, 109 F.3d 1394, 1403 n.11 (9th Cir. 1997). The short shrift given to the
151
Copyright Cases
I.P. Survey Cases
Prof. Janicke
claim is typical of all the cases cited by the Ninth Circuit. I too reject the bald claim that
the injunctive relief sought violates the First Amendment absent extraordinary
circumstances. I deny the motion to strike the request for injunctive relief. The fair use
doctrine, which I address in a moment, is adequate protection of the defendants'
constitutional right to comment upon and criticize the Beanie Babies, individually or as a
whole.
The standards for preliminary injunction are well known. I am to consider likelihood of
success (more than negligible is the minimum), inadequacy of money damages or
irreparable harm, the balance of harms to the parties from the wrongful granting or denial
of injunctive relief and the consequences of the ruling to the public. These factors are
somewhat interdependent, because an overwhelmingly good case on the merits might
justify an injunction even if the harm of denying the injunction is not very great. Storck
U.S.A., L.P. v. Farley Candy Co., 14 F.3d 311, 314 (7th Cir.1994); Abbott Lab. v. Mead
Johnson & Co., 971 F.2d 6, 11-12 (7th Cir. 1992).
The photographs of the Beanie Babies in defendants' books are reproductions of the
copyrighted works of the plaintiff, and I do not find that this is disputed. See, e.g.,
Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49 (2d Cir. 1936)(motion picture
copied from a play); Ringgold v. BET, 126 F.3d 70 (2d Cir. 1997)(artwork converted into
set decoration for television show). At the least, the books are derivative works as Judge
Norgle similarly concluded in Ty, Inc. v. West Highland Publishing Inc., 1998 U.S. Dist.
LEXIS 15869, 98 C 4091, 1998 WL 698922 (N.D. Ill. Oct. 5, 1998). The defendants do
not deny that they, along with the rest of America, had access to the Ty works.
***
Once likelihood of success on the merits is shown, irreparable harm is presumed to exist
when copyright or trademark is infringed. I have said so. Jackson v. MPI Video, 694 F.
Supp. 483, 488 (N.D. Ill. 1988). Much more importantly, our Court of Appeals (along
with every other Court of Appeals) has said so. Atari, Inc. v. North American Philips
Cons. Elec. Corp., 672 F.2d 607, 620 (7th Cir. 1982);
Wesley-Jessen v. Bausch &
Lomb, 698 F.2d 862, 867 (7th Cir. 1983). And, in any event, Ty has received complaints
from its licensees who compete with defendants, and damage to relationships with
licensees is real, not simply presumed, irreparable injury.
152
Copyright Cases
I.P. Survey Cases
Prof. Janicke
The public interest will not be disserved by issuance or denial of the injunction. The
public may benefit from enforcement of intellectual property rights of Ty, and the public
may benefit from access to the guidebooks of the defendants.
Balance of harms favors neither party when weighed in the abstract. Wrongfully granting
the injunction against defendants would entirely exclude their current products from the
marketplace, and, I assume, for purposes of this motion, that a substantial number (but
surely less than all) of those who would purchase a Beanie Baby collector's guide would
not purchase more than one. The defendants would lose forever the opportunity to sell
their products to some likely purchasers. Indeed, the collector's guides are perishable
goods, the information in them needs updating, and an injunction might destroy the value
of the entire current edition.
Wrongfully denying the injunction would leave Ty with the potential loss of its licensees
who produce products that compete with defendants' goods. Ty would not only lose its
royalties, it would have to find new licensees or repair its relationships with current ones.
Even if it waives its fees to keep its licensees happy, it may suffer losses to its image as a
steadfast protector of its copyrights and trademarks. Finally the wrongful denial of
injunction may well encourage others to do what defendants have done, thus increasing
the injury to Ty and inflicting expense on Ty to defend its intellectual property interests.
*** It is quite clear that the photographs of Ty's copyrighted and trademarked plush toys
are an important, perhaps even dominant, element of the attractiveness of the book to
potential purchasers. In their marketing materials, defendants compare their work to those
of their competitors and tout their own products by telling purchasers that "other guides
show only sketches of each Beanie Baby or cram several photos onto one page, but
Beanie Babies Collector's Guide features beautiful full-color photography and displays
each Beanie Baby on its own page. In this way, we are able to include all the most
important information, and the reader is able to get a great look at each and every Beanie
Baby."
The defendants' products are not transformative, and, quite likely, not meant to be
transformative.
153
Copyright Cases
I.P. Survey Cases
Prof. Janicke
2. The Nature of the Copyrighted Work.
That which is most creative deserves the most protection from copying. 4 NIMMER ON
COPYRIGHT § 13.05[A][2] (3d Ed. 1997). The Beanie Babies are "creative, fictional
works," as Judge Norgle said in West Highland, 1998 WL 698922, at *14. None of the
arguments offered by defendants helps their case, neither the wide publication of the
copyrighted works, nor the withdrawal of some of them from the market, i.e., retiring a
Beanie Baby, despite some scattered dicta to the contrary.
3. Amount and Substantiality of the Portion Used in Relation to the Copyrighted Work as
a Whole.
The defendants state, with some justice, that their works are commentary and criticism.
They evaluate each Beanie Baby. In such cases, one can use substantial parts of another's
work, because the commentary merely supplements but does not replace the
function
of the work that is the subject of the comment. 4 NIMMER ON COPYRIGHT §
13.05[A][3]; 17 U.S.C. § 107; Consumers Union v. General Signal Corp., 724 F.2d 1044,
1049 (2d Cir. 1983). Defendants wisely do not argue that they make insubstantial use of
the copyrighted materials; the most prominent feature of every page of their books is a
photograph of the copyrighted toys and the trademark heart-shaped hang tag. They do
point out that many of the Beanie Babies have features in common, and some of the
Beanie Babies came in multiple editions with small differences, usually of color, so that it
would be impossible to discuss them without showing what they look like. n4 To which
the plaintiff says that this might justify using photographs of some small percentage of
Beanie Babies, it does not justify the use of the complete line of copyrighted toys. The
defendants could use verbal descriptions, color samples and generalized drawings to
accomplish its goals of commenting on the plush toys. This too would suffice to permit
comment on the fourteen different bears and fifteen dogs which, necessarily, have some
features in common.
n4 There are three Bongos (the monkey) and the first Bongo was originally called
Nana, three Mystics (the unicorn), two Peanuts (the elephant), two lobsters (one
Pincher, the other Puncher), six Teddys (the new-faced bear), and five Teddys (the
old-faced bear).
154
Copyright Cases
I.P. Survey Cases
Prof. Janicke
4. Effect of Use Upon the Potential Market for Plaintiff's Toys.
I take as true the claim that defendants' products do not harm the market for Ty's plush
toys -- a point that Ty does not bother to dispute. I take as true that the defendants'
products do harm Ty's market to license the use of its copyrights, as it has already done
with six publishers -- a point which defendants do not bother to dispute. Both sides seek
to use the fact that Ty has said publicly that it intends to retire all current Beanie Babies.
In the milieu of this case, the fact cuts against defendants. I think that the licensing of
collector's guides are likely to become more valuable to Ty as more of the plush toys are
retired.
I find that the fair use doctrine is not likely to succeed, though only trial on the merits
will yield a definitive answer. In any event, there remains a reasonable likelihood that Ty
will prevail despite the fair use defense.
There is a strong showing of likelihood of success by and of irreparable injury to Ty.
There is nothing in the public interest to bar injunction. The balance of harms weighs
equally on both sides or slightly on the side of the defendants, but the likelihood of
success is sufficiently strong to justify the preliminary injunction despite the fact that the
defendants' harm may outweigh the plaintiff's harm by a bit. The balance of harms
analysis does affect the question of what bond ought to be posted by Ty, see Mead
Johnson v. Abbott Lab.,
F.3d , 2000 U.S. App. LEXIS 49, No. 99-2215, 2000 WL
10440 (7th Cir. Jan. 5, 2000), and I order the parties to submit simultaneous briefs on the
question of the amount of the bond by 27 January 2000. Once I determine the correct
amount of the bond, I will issue the preliminary injunction.
METRO-GOLDWYN-MAYER STUDIOS INC.
v.
GROKSTER, LTD.
155
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Supreme Court of the United States
545 U.S. 913 (2005)
Background: Copyright holders including songwriters, music publishers, and motion
picture studios brought copyright infringement action against distributors of peer-to-peer
file sharing computer networking software. The United States District Court for the
Central District of California, Stephen V. Wilson, J., 259 F.Supp.2d 1029, granted partial
summary judgment in favor of the distributors on issues of contributory and vicarious
infringement, and plaintiffs appealed. The United States Court of Appeals for the Ninth
Circuit, 380 F.3d 1154, affirmed, and the Supreme Court granted certiorari.
SOUTER, J., delivered the opinion for a unanimous Court. GINSBURG, J., filed a
concurring opinion, in which REHNQUIST, C. J., and KENNEDY, J., joined. BREYER,
J., filed a concurring opinion, in which STEVENS and O'CONNOR, JJ., joined.
Justice SOUTER delivered the opinion of the Court.
The question is under what circumstances the distributor of a product capable of both
lawful and unlawful use is liable for acts of copyright infringement by third parties using
the product. We hold that one who distributes a device with the object of promoting its
use to infringe copyright, as shown by clear expression or other affirmative steps taken to
foster infringement, is liable for the resulting acts of infringement by third parties.
I
A
Respondents, Grokster, Ltd., and StreamCast Networks, Inc., defendants in the trial court,
distribute free software products that allow computer users to share electronic files
through peer-to-peer networks, so called because users' computers communicate directly
with each other, not through central servers. The advantage of peer-to-peer networks
over information networks of other types shows up in their substantial and growing
156
Copyright Cases
I.P. Survey Cases
Prof. Janicke
popularity. Because they need no central computer server to mediate the exchange of
information or files among users, the high-bandwidth communications capacity for a
server may be dispensed with, and the need for costly server storage space is eliminated.
Since copies of a file (particularly a popular one) are available on many users' computers,
file requests and retrievals may be faster than on other types of networks, and since file
exchanges do not travel through a server, communications can take place between any
computers that remain connected to the network without risk that a glitch in the server
will disable the network in its entirety. Given these benefits in security, cost, and
efficiency, peer-to-peer networks are employed to store and distribute electronic files by
universities, government agencies, corporations, and libraries, among others.FN1
FN1. Peer-to-peer networks have disadvantages as well. Searches on peer-to-peer
networks may not reach and uncover all available files because search requests
may not be transmitted to every computer on the network.
There may be
redundant copies of popular files. The creator of the software has no incentive to
minimize storage or bandwidth consumption, the costs of which are borne by
every user of the network. Most relevant here, it is more difficult to control the
content of files available for retrieval and the behavior of users.
Other users of peer-to-peer networks include individual recipients of Grokster's and
StreamCast's software, and although the networks that they enjoy through using the
software can be used to share any type of digital file, they have prominently employed
those networks in sharing copyrighted music and video files without authorization. A
group of copyright holders (MGM for short, but including motion picture studios,
recording companies, songwriters, and music publishers) sued Grokster and StreamCast
for their users' copyright infringements, alleging that they knowingly and intentionally
distributed their software to enable users to reproduce and distribute the copyrighted
works in violation of the Copyright Act, 17 U.S.C. § 101 et seq. (2000 ed. and Supp.
II).FN2 MGM sought damages and an injunction.
FN2. The studios and recording companies and the songwriters and music
publishers filed separate suits against the defendants that were consolidated by the
District Court.
157
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Discovery during the litigation revealed the way the software worked, the business aims
of each defendant company, and the predilections of the users. Grokster's eponymous
software employs what is known as FastTrack technology, a protocol developed by
others and licensed to Grokster. StreamCast distributes a very similar product except
that its software, called Morpheus, relies on what is known as Gnutella technology. FN3 A
user who downloads and installs either software possesses the protocol to send requests
for files directly to the computers of others using software compatible with FastTrack or
Gnutella. On the FastTrack network opened by the Grokster software, the user's request
goes to a computer given an indexing capacity by the software and designated a
supernode, or to some other computer with comparable power and capacity to collect
temporary indexes of the files available on the computers of users connected to it. The
supernode (or indexing computer) searches its own index and may communicate the
search request to other supernodes. If the file is found, the supernode discloses its
location to the computer requesting it, and the requesting user can download the file
directly from the computer located. The copied file is placed in a designated sharing
folder on the requesting user's computer, where it is available for other users to download
in turn, along with any other file in that folder.
FN3. Subsequent versions of Morpheus, released after the record was made in this
case, apparently rely not on Gnutella but on a technology called Neonet. These
developments are not before us.
In the Gnutella network made available by Morpheus, the process is mostly the same,
except that in some versions of the Gnutella protocol there are no supernodes. In these
versions, peer computers using the protocol communicate directly with each other.
When a user enters a search request into the Morpheus software, it sends the request to
computers connected with it, which in turn pass the request along to other connected
peers. The search results are communicated to the requesting computer, and the user can
download desired files directly from peers' computers. As this description indicates,
Grokster and StreamCast use no servers to intercept the content of the search requests or
to mediate the file transfers conducted by users of the software, there being no central
point through which the substance of the communications passes in either direction.FN4
158
Copyright Cases
I.P. Survey Cases
Prof. Janicke
FN4. There is some evidence that both Grokster and StreamCast previously
operated supernodes, which compiled indexes of files available on all of the nodes
connected to them.
This evidence, pertaining to previous versions of the
defendants' software, is not before us and would not affect our conclusions in any
event.
Although Grokster and StreamCast do not therefore know when particular files are
copied, a few searches using their software would show what is available on the networks
the software reaches. MGM commissioned a statistician to conduct a systematic search,
and his study showed that nearly 90% of the files available for download on the
FastTrack system were copyrighted works.FN5 Grokster and StreamCast dispute this
figure, raising methodological problems and arguing that free copying even of
copyrighted works may be authorized by the rightholders. They also argue that potential
noninfringing uses of their software are significant in kind, even if infrequent in practice.
Some musical performers, for example, have gained new audiences by distributing their
copyrighted works for free across peer-to-peer networks, and some distributors of
unprotected content have used peer-to-peer networks to disseminate files, Shakespeare
being an example. Indeed, StreamCast has given Morpheus users the opportunity to
download the briefs in this very case, though their popularity has not been quantified.
FN5. By comparison, evidence introduced by the plaintiffs in A & M Records, Inc.
v. Napster, Inc., 239 F.3d 1004 (C.A.9 2001), showed that 87% of files available
on the Napster filesharing network were copyrighted, id., at 1013.
As for quantification, the parties' anecdotal and statistical evidence entered thus far to
show the content available on the FastTrack and Gnutella networks does not say much
about which files are actually downloaded by users, and no one can say how often the
software is used to obtain copies of unprotected material. But MGM's evidence gives
reason to think that the vast majority of users' downloads are acts of infringement, and
because well over 100 million copies of the software in question are known to have been
downloaded, and billions of files are shared across the FastTrack and Gnutella networks
each month, the probable scope of copyright infringement is staggering.
159
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Grokster and StreamCast concede the infringement in most downloads, Brief for
Respondents 10, n. 6, and it is uncontested that they are aware that users employ their
software primarily to download copyrighted files, even if the decentralized FastTrack and
Gnutella networks fail to reveal which files are being copied, and when. From time to
time, moreover, the companies have learned about their users' infringement directly, as
from users who have sent e-mail to each company with questions about playing
copyrighted movies they had downloaded, to whom the companies have responded with
guidance.FN6 And MGM notified the companies of 8 million copyrighted files that could
be obtained using their software.
FN6. The Grokster founder contends that in answering these e-mails he often did
not read them fully.
Grokster and StreamCast are not, however, merely passive recipients of information
about infringing use. The record is replete with evidence that from the moment Grokster
and StreamCast began to distribute their free software, each one clearly voiced the
objective that recipients use it to download copyrighted works, and each took active steps
to encourage infringement.
After the notorious file-sharing service, Napster, was sued by copyright holders for
facilitation of copyright infringement, StreamCast gave away a software program of a
kind known as OpenNap, designed as compatible with the Napster program and open to
Napster users for downloading files from other Napster and OpenNap users' computers.
Evidence indicates that “[i]t was always [StreamCast's] intent to use [its OpenNap
network] to be able to capture email addresses of [its] initial target market so that [it]
could promote [its] StreamCast Morpheus interface to them,” App. 861; indeed, the
OpenNap program was engineered “ ‘to leverage Napster's 50 million user base,’ ” id., at
746.
StreamCast monitored both the number of users downloading its OpenNap program and
the number of music files they downloaded. It also used the resulting OpenNap network
to distribute copies of the Morpheus software and to encourage users to adopt it. Internal
company documents indicate that StreamCast hoped to attract large numbers of former
Napster users if that company was shut down by court order or otherwise, and that
160
Copyright Cases
I.P. Survey Cases
Prof. Janicke
StreamCast planned to be the next Napster. A kit developed by StreamCast to be
delivered to advertisers, for example, contained press articles about StreamCast's
potential to capture former Napster users, and it introduced itself to some potential
advertisers as a company “which is similar to what Napster was.” It broadcast banner
advertisements to users of other Napster-compatible software, urging them to adopt its
OpenNap. An internal e-mail from a company executive stated: “ ‘We have put this
network in place so that when Napster pulls the plug on their free service ... or if the
Court orders them shut down prior to that ... we will be positioned to capture the flood of
their 32 million users that will be actively looking for an alternative.’ ”
Thus, StreamCast developed promotional materials to market its service as the best
Napster alternative. One proposed advertisement read: “Napster Inc. has announced
that it will soon begin charging you a fee. That's if the courts don't order it shut down
first. What will you do to get around it?” Another proposed ad touted StreamCast's
software as the “# 1 alternative to Napster” and asked “[w]hen the lights went off at
Napster ... where did the users go?” FN7 StreamCast even planned to flaunt the illegal
uses of its software; when it launched the OpenNap network, the chief technology officer
of the company averred that “[t]he goal is to get in trouble with the law and get sued. It's
the best way to get in the new[s].”
FN7. The record makes clear that StreamCast developed these promotional
materials but not whether it released them to the public.
Even if these
advertisements were not released to the public and do not show encouragement to
infringe, they illuminate StreamCast's purposes.
The evidence that Grokster sought to capture the market of former Napster users is
sparser but revealing, for Grokster launched its own OpenNap system called Swaptor and
inserted digital codes into its Web site so that computer users using Web search engines
to look for “Napster” or “[f]ree filesharing” would be directed to the Grokster Web site,
where they could download the Grokster software. And Grokster's name is an apparent
derivative of Napster.
StreamCast's executives monitored the number of songs by certain commercial artists
available on their networks, and an internal communication indicates they aimed to have
a larger number of copyrighted songs available on their networks than other file-sharing
161
Copyright Cases
I.P. Survey Cases
Prof. Janicke
networks. The point, of course, would be to attract users of a mind to infringe, just as it
would be with their promotional materials developed showing copyrighted songs as
examples of the kinds of files available through Morpheus. Id., at 848. Morpheus in fact
allowed users to search specifically for “Top 40” songs, id., at 735, which were inevitably
copyrighted. Similarly, Grokster sent users a newsletter promoting its ability to provide
particular, popular copyrighted materials.
In addition to this evidence of express promotion, marketing, and intent to promote
further, the business models employed by Grokster and StreamCast confirm that their
principal object was use of their software to download copyrighted works. Grokster and
StreamCast receive no revenue from users, who obtain the software itself for nothing.
Instead, both companies generate income by selling advertising space, and they stream
the advertising to Grokster and Morpheus users while they are employing the programs.
As the number of users of each program increases, advertising opportunities become
worth more. While there is doubtless some demand for free Shakespeare, the evidence
shows that substantive volume is a function of free access to copyrighted work. Users
seeking Top 40 songs, for example, or the latest release by Modest Mouse, are certain to
be far more numerous than those seeking a free Decameron, and Grokster and
StreamCast translated that demand into dollars.
Finally, there is no evidence that either company made an effort to filter copyrighted
material from users' downloads or otherwise impede the sharing of copyrighted files.
Although Grokster appears to have sent e-mails warning users about infringing content
when it received threatening notice from the copyright holders, it never blocked anyone
from continuing to use its software to share copyrighted files. StreamCast not only
rejected another company's offer of help to monitor infringement, but blocked the
Internet Protocol addresses of entities it believed were trying to engage in such
monitoring on its networks.
B
After discovery, the parties on each side of the case cross-moved for summary judgment.
*** The District Court held that those who used the Grokster and Morpheus software to
download copyrighted media files directly infringed MGM's copyrights, a conclusion not
162
Copyright Cases
I.P. Survey Cases
Prof. Janicke
contested on appeal, but the court nonetheless granted summary judgment in favor of
Grokster and StreamCast as to any liability arising from distribution of the then current
versions of their software. Distributing that software gave rise to no liability in the court's
view, because its use did not provide the distributors with actual knowledge of specific
acts of infringement.
The Court of Appeals affirmed. In the court's analysis, a defendant was liable as a
contributory infringer when it had knowledge of direct infringement and materially
contributed to the infringement. But the court read Sony Corp. of America v. Universal
City Studios, Inc., 464 U.S. 417 (1984), as holding that distribution of a commercial
product capable of substantial noninfringing uses could not give rise to contributory
liability for infringement unless the distributor had actual knowledge of specific instances
of infringement and failed to act on that knowledge. The fact that the software was
capable of substantial noninfringing uses in the Ninth Circuit's view meant that Grokster
and StreamCast were not liable, because they had no such actual knowledge, owing to the
decentralized architecture of their software. The court also held that Grokster and
StreamCast did not materially contribute to their users' infringement because it was the
users themselves who searched for, retrieved, and stored the infringing files, with no
involvement by the defendants beyond providing the software in the first place.
The Ninth Circuit also considered whether Grokster and StreamCast could be liable under
a theory of vicarious infringement.
The court held against liability because the
defendants did not monitor or control the use of the software, had no agreed-upon right or
current ability to supervise its use, and had no independent duty to police infringement.
We granted certiorari.
II
A
MGM and many of the amici fault the Court of Appeals's holding for upsetting a sound
balance between the respective values of supporting creative pursuits through copyright
protection and promoting innovation in new communication technologies by limiting the
incidence of liability for copyright infringement. The more artistic protection is favored,
163
Copyright Cases
I.P. Survey Cases
Prof. Janicke
the more technological innovation may be discouraged; the administration of copyright
law is an exercise in managing the trade-off. See Sony Corp. v. Universal City Studios,
supra, at 442, 104 S.Ct. 774; see generally Ginsburg, Copyright and Control Over New
Technologies of Dissemination, 101 Colum. L.Rev. 1613 (2001); Lichtman & Landes,
Indirect Liability for Copyright Infringement: An Economic Perspective, 16 Harv. J.L. &
Tech. 395 (2003).
The tension between the two values is the subject of this case, with its claim that digital
distribution of copyrighted material threatens copyright holders as never before, because
every copy is identical to the original, copying is easy, and many people (especially the
young) use file-sharing software to download copyrighted works. This very breadth of
the software's use may well draw the public directly into the debate over copyright
policy, and the indications are that the ease of copying songs or movies using software
like Grokster's and Napster's is fostering disdain for copyright protection. As the case
has been presented to us, these fears are said to be offset by the different concern that
imposing liability, not only on infringers but on distributors of software based on its
potential for unlawful use, could limit further development of beneficial technologies. FN8
FN8. The mutual exclusivity of these values should not be overstated, however.
On the one hand technological innovators, including those writing file-sharing
computer programs, may wish for effective copyright protections for their work.
On the other hand the widespread distribution of creative works through improved
technologies may enable the synthesis of new works or generate audiences for
emerging artists.
The argument for imposing indirect liability in this case is, however, a powerful one,
given the number of infringing downloads that occur every day using StreamCast's and
Grokster's software.
When a widely shared service or product is used to commit
infringement, it may be impossible to enforce rights in the protected work effectively
against all direct infringers, the only practical alternative being to go against the
distributor of the copying device for secondary liability on a theory of contributory or
vicarious infringement.
One infringes contributorily by intentionally inducing or encouraging direct infringement,
164
Copyright Cases
I.P. Survey Cases
Prof. Janicke
and infringes vicariously by profiting from direct infringement while declining to
exercise a right to stop or limit it. Although “[t]he Copyright Act does not expressly
render anyone liable for infringement committed by another,” Sony Corp. v. Universal
City Studios, 464 U.S. at 434, these doctrines of secondary liability emerged from
common law principles and are well established in the law.
B
Despite the currency of these principles of secondary liability, this Court has dealt with
secondary copyright infringement in only one recent case, and because MGM has tailored
its principal claim to our opinion there, a look at our earlier holding is in order. In Sony
Corp. v. Universal City Studios, supra, this Court addressed a claim that secondary
liability for infringement can arise from the very distribution of a commercial product.
There, the product, novel at the time, was what we know today as the videocassette
recorder or VCR. Copyright holders sued Sony as the manufacturer, claiming it was
contributorily liable for infringement that occurred when VCR owners taped copyrighted
programs because it supplied the means used to infringe, and it had constructive
knowledge that infringement would occur. At the trial on the merits, the evidence
showed that the principal use of the VCR was for “ ‘time-shifting,’ ” or taping a program
for later viewing at a more convenient time, which the Court found to be a fair, not an
infringing, use. There was no evidence that Sony had expressed an object of bringing
about taping in violation of copyright or had taken active steps to increase its profits from
unlawful taping. Although Sony's advertisements urged consumers to buy the VCR to “
‘record favorite shows' ” or “ ‘build a library’ ” of recorded programs, neither of these
uses was necessarily infringing.
On those facts, with no evidence of stated or indicated intent to promote infringing uses,
the only conceivable basis for imposing liability was on a theory of contributory
infringement arising from its sale of VCRs to consumers with knowledge that some
would use them to infringe. But because the VCR was “capable of commercially
significant noninfringing uses,” we held the manufacturer could not be faulted solely on
the basis of its distribution.
***
165
Copyright Cases
I.P. Survey Cases
Prof. Janicke
In sum, where an article is “good for nothing else” but infringement, there is no
legitimate public interest in its unlicensed availability, and there is no injustice in
presuming or imputing an intent to infringe. Conversely, the doctrine absolves the
equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and
limits liability to instances of more acute fault than the mere understanding that some of
one's products will be misused. It leaves breathing room for innovation and a vigorous
commerce.
The parties and many of the amici in this case think the key to resolving it is the Sony
rule and, in particular, what it means for a product to be “capable of commercially
significant noninfringing uses.” Sony Corp. v. Universal City Studios, supra, at 442.
MGM advances the argument that granting summary judgment to Grokster and
StreamCast as to their current activities gave too much weight to the value of innovative
technology, and too little to the copyrights infringed by users of their software, given that
90% of works available on one of the networks was shown to be copyrighted. Assuming
the remaining 10% to be its noninfringing use, MGM says this should not qualify as
“substantial,” and the Court should quantify Sony to the extent of holding that a product
used “principally” for infringement does not qualify. As mentioned before, Grokster and
StreamCast reply by citing evidence that their software can be used to reproduce public
domain works, and they point to copyright holders who actually encourage copying.
Even if infringement is the principal practice with their software today, they argue, the
noninfringing uses are significant and will grow.
We agree with MGM that the Court of Appeals misapplied Sony, which it read as limiting
secondary liability quite beyond the circumstances to which the case applied. Sony
barred secondary liability based on presuming or imputing intent to cause infringement
solely from the design or distribution of a product capable of substantial lawful use,
which the distributor knows is in fact used for infringement. The Ninth Circuit has read
Sony's limitation to mean that whenever a product is capable of substantial lawful use, the
producer can never be held contributorily liable for third parties' infringing use of it; it
read the rule as being this broad, even when an actual purpose to cause infringing use is
shown by evidence independent of design and distribution of the product, unless the
distributors had “specific knowledge of infringement at a time at which they contributed
to the infringement, and failed to act upon that information.” 380 F.3d, at 1162 (internal
166
Copyright Cases
I.P. Survey Cases
Prof. Janicke
quotation marks and alterations omitted). Because the Circuit found the StreamCast and
Grokster software capable of substantial lawful use, it concluded on the basis of its
reading of Sony that neither company could be held liable, since there was no showing
that their software, being without any central server, afforded them knowledge of specific
unlawful uses.
This view of Sony, however, was error, converting the case from one about liability
resting on imputed intent to one about liability on any theory. Because Sony did not
displace other theories of secondary liability, and because we find below that it was error
to grant summary judgment to the companies on MGM's inducement claim, we do not
revisit Sony further, as MGM requests, to add a more quantified description of the point
of balance between protection and commerce when liability rests solely on distribution
with knowledge that unlawful use will occur. It is enough to note that the Ninth Circuit's
judgment rested on an erroneous understanding of Sony and to leave further consideration
of the Sony rule for a day when that may be required.
C
Sony's rule limits imputing culpable intent as a matter of law from the characteristics or
uses of a distributed product. But nothing in Sony requires courts to ignore evidence of
intent if there is such evidence, and the case was never meant to foreclose rules of faultbased liability derived from the common law.FN10 Thus, where evidence goes beyond a
product's characteristics or the knowledge that it may be put to infringing uses, and shows
statements or actions directed to promoting infringement, Sony's staple-article rule will
not preclude liability.
FN10. Nor does the Patent Act's exemption from liability for those who distribute
a staple article of commerce, 35 U.S.C. § 271(c), extend to those who induce
patent infringement, § 271(b).
The classic case of direct evidence of unlawful purpose occurs when one induces
commission of infringement by another, or “entic[es] or persuad[es] another” to infringe,
Black's Law Dictionary 790 (8th ed.2004), as by advertising. Thus at common law a
copyright or patent defendant who “not only expected but invoked [infringing use] by
167
Copyright Cases
I.P. Survey Cases
Prof. Janicke
advertisement” was liable for infringement “on principles recognized in every part of the
law.” Kalem Co. v. Harper Brothers, 222 U.S., at 62-63 (copyright infringement). See
also Henry v. A.B. Dick Co., 224 U.S., at 48-49, 32 S.Ct. 364 (contributory liability for
patent infringement may be found where a good's “most conspicuous use is one which
will co-operate in an infringement when sale to such user is invoked by advertisement” of
the infringing use); Thomson-Houston Electric Co. v. Kelsey Electric R. Specialty Co.,
75 F. 1005, 1007-1008 (C.A.2 1896) (relying on advertisements and displays to find
defendant's “willingness ... to aid other persons in any attempts which they may be
disposed to make towards [patent] infringement”); Rumford Chemical Works v. Hecker,
20 F.Cas. 1342, 1346 (No. 12,133) (C.C.D.N.J.1876) (demonstrations of infringing
activity along with “avowals of the [infringing] purpose and use for which it was made”
supported liability for patent infringement).
The rule on inducement of infringement as developed in the early cases is no different
today.FN11 Evidence of “active steps ... taken to encourage direct infringement,” Oak
Industries, Inc. v. Zenith Electronics Corp., 697 F.Supp. 988, 992 (N.D.Ill.1988), such as
advertising an infringing use or instructing how to engage in an infringing use, show an
affirmative intent that the product be used to infringe, and a showing that infringement
was encouraged overcomes the law's reluctance to find liability when a defendant merely
sells a commercial product suitable for some lawful use
FN11. Inducement has been codified in patent law.
For the same reasons that Sony took the staple-article doctrine of patent law as a model
for its copyright safe-harbor rule, the inducement rule, too, is a sensible one for
copyright. We adopt it here, holding that one who distributes a device with the object of
promoting its use to infringe copyright, as shown by clear expression or other affirmative
steps taken to foster infringement, is liable for the resulting acts of infringement by third
parties. We are, of course, mindful of the need to keep from trenching on regular
commerce or discouraging the development of technologies with lawful and unlawful
potential. Accordingly, just as Sony did not find intentional inducement despite the
knowledge of the VCR manufacturer that its device could be used to infringe, mere
knowledge of infringing potential or of actual infringing uses would not be enough here
to subject a distributor to liability.
Nor would ordinary acts incident to product
distribution, such as offering customers technical support or product updates, support
168
Copyright Cases
I.P. Survey Cases
Prof. Janicke
liability in themselves. The inducement rule, instead, premises liability on purposeful,
culpable expression and conduct, and thus does nothing to compromise legitimate
commerce or discourage innovation having a lawful promise.
III
A
The only apparent question about treating MGM's evidence as sufficient to withstand
summary judgment under the theory of inducement goes to the need on MGM's part to
adduce evidence that StreamCast and Grokster communicated an inducing message to
their software users.
The classic instance of inducement is by advertisement or
solicitation that broadcasts a message designed to stimulate others to commit violations.
MGM claims that such a message is shown here. It is undisputed that StreamCast
beamed onto the computer screens of users of Napster-compatible programs ads urging
the adoption of its OpenNap program, which was designed, as its name implied, to invite
the custom of patrons of Napster, then under attack in the courts for facilitating massive
infringement.
Those who accepted StreamCast's OpenNap program were offered
software to perform the same services, which a factfinder could conclude would readily
have been understood in the Napster market as the ability to download copyrighted music
files. Grokster distributed an electronic newsletter containing links to articles promoting
its software's ability to access popular copyrighted music. And anyone whose Napster or
free file-sharing searches turned up a link to Grokster would have understood Grokster to
be offering the same file-sharing ability as Napster, and to the same people who probably
used Napster for infringing downloads; that would also have been the understanding of
anyone offered Grokster's suggestively named Swaptor software, its version of
OpenNap.
And both companies communicated a clear message by responding
affirmatively to requests for help in locating and playing copyrighted materials.
In StreamCast's case, of course, the evidence just described was supplemented by other
unequivocal indications of unlawful purpose in the internal communications and
advertising designs aimed at Napster users (“When the lights went off at Napster ...
where did the users go?” Whether the messages were communicated is not to the point
on this record. The function of the message in the theory of inducement is to prove by a
169
Copyright Cases
I.P. Survey Cases
Prof. Janicke
defendant's own statements that his unlawful purpose disqualifies him from claiming
protection (and incidentally to point to actual violators likely to be found among those
who hear or read the message). Proving that a message was sent out, then, is the
preeminent but not exclusive way of showing that active steps were taken with the
purpose of bringing about infringing acts, and of showing that infringing acts took place
by using the device distributed. Here, the summary judgment record is replete with other
evidence that Grokster and StreamCast, unlike the manufacturer and distributor in Sony,
acted with a purpose to cause copyright violations by use of software suitable for illegal
use.
Three features of this evidence of intent are particularly notable. First, each company
showed itself to be aiming to satisfy a known source of demand for copyright
infringement, the market comprising former Napster users.
StreamCast's internal
documents made constant reference to Napster, it initially distributed its Morpheus
software through an OpenNap program compatible with Napster, it advertised its
OpenNap program to Napster users, and its Morpheus software functions as Napster did
except that it could be used to distribute more kinds of files, including copyrighted
movies and software programs. Grokster's name is apparently derived from Napster, it
too initially offered an OpenNap program, its software's function is likewise comparable
to Napster's, and it attempted to divert queries for Napster onto its own Web site.
Grokster and StreamCast's efforts to supply services to former Napster users, deprived of
a mechanism to copy and distribute what were overwhelmingly infringing files, indicate a
principal, if not exclusive, intent on the part of each to bring about infringement.
Second, this evidence of unlawful objective is given added significance by MGM's
showing that neither company attempted to develop filtering tools or other mechanisms to
diminish the infringing activity using their software. While the Ninth Circuit treated the
defendants' failure to develop such tools as irrelevant because they lacked an independent
duty to monitor their users' activity, we think this evidence underscores Grokster's and
StreamCast's intentional facilitation of their users' infringement. FN12
FN12. Of course, in the absence of other evidence of intent, a court would be
unable to find contributory infringement liability merely based on a failure to take
affirmative steps to prevent infringement, if the device otherwise was capable of
170
Copyright Cases
I.P. Survey Cases
Prof. Janicke
substantial noninfringing uses. Such a holding would tread too close to the Sony
safe harbor.
Third, there is a further complement to the direct evidence of unlawful objective. It is
useful to recall that StreamCast and Grokster make money by selling advertising space,
by directing ads to the screens of computers employing their software. As the record
shows, the more the software is used, the more ads are sent out and the greater the
advertising revenue becomes. Since the extent of the software's use determines the gain
to the distributors, the commercial sense of their enterprise turns on high-volume use,
which the record shows is infringing. This evidence alone would not justify an inference
of unlawful intent, but viewed in the context of the entire record its import is clear.
The unlawful objective is unmistakable.
B
In addition to intent to bring about infringement and distribution of a device suitable for
infringing use, the inducement theory of course requires evidence of actual infringement
by recipients of the device, the software in this case. As the account of the facts
indicates, there is evidence of infringement on a gigantic scale, and there is no serious
issue of the adequacy of MGM's showing on this point in order to survive the companies'
summary judgment requests. Although an exact calculation of infringing use, as a basis
for a claim of damages, is subject to dispute, there is no question that the summary
judgment evidence is at least adequate to entitle MGM to go forward with claims for
damages and equitable relief.
***
In sum, this case is significantly different from Sony and reliance on that case to rule in
favor of StreamCast and Grokster was error. Sony dealt with a claim of liability based
solely on distributing a product with alternative lawful and unlawful uses, with
knowledge that some users would follow the unlawful course. The case struck a balance
171
Copyright Cases
I.P. Survey Cases
Prof. Janicke
between the interests of protection and innovation by holding that the product's capability
of substantial lawful employment should bar the imputation of fault and consequent
secondary liability for the unlawful acts of others.
MGM's evidence in this case most obviously addresses a different basis of liability for
distributing a product open to alternative uses. Here, evidence of the distributors' words
and deeds going beyond distribution as such shows a purpose to cause and profit from
third-party acts of copyright infringement. If liability for inducing infringement is
ultimately found, it will not be on the basis of presuming or imputing fault, but from
inferring a patently illegal objective from statements and actions showing what that
objective was.
There is substantial evidence in MGM's favor on all elements of inducement, and
summary judgment in favor of Grokster and StreamCast was error.
On remand,
reconsideration of MGM's motion for summary judgment will be in order.
The judgment of the Court of Appeals is vacated, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.
[Concurring opinions omitted.]
ARTHUR RUTENBERG HOMES, INC.
v.
DREW HOMES, INC.
UNITED STATES COURT OF APPEALS, ELEVENTH CIRCUIT.
29 F.3d 1569 (1994)
Successor in interest to builder sought to enforce copyright for “Verandah II”
172
Copyright Cases
I.P. Survey Cases
Prof. Janicke
architectural plans against competitor. The United States District Court for the Middle
District of Florida, No. 92-548-Civ-T-21A, Charles R. Wilson, Magistrate Judge, and
Ralph W. Nimmons, Jr., J., 829 F.Supp. 1314, entered judgment for competitor.
Successor in interest appealed.
Before TJOFLAT, Chief Judge, DYER and HILL, Senior Circuit Judges.
HILL, Senior Circuit Judge:
This case presents an issue of copyright law. Appellant Arthur Rutenberg Homes, Inc.
(“Rutenberg”), filed a complaint against Drew Homes, Inc. (“Drew Homes”), and its
president and sole shareholder, Andrew J. Vecchio, Jr. Rutenberg claimed copyright
infringement and common law unfair competition arising out of Drew Homes' use of
certain architectural drawings and plans on which Rutenberg claimed to hold the
copyright.
Drew Homes counterclaimed alleging trade defamation and seeking a
declaratory judgment that Rutenberg's copyright was invalid.
The case ultimately
proceeded to trial on Rutenberg's copyright infringement claim and Drew Homes'
counterclaim for declaratory relief.
The case was tried, by agreement, before a United States Magistrate Judge who found
that Rutenberg did not own a valid copyright at the time of the alleged infringement. 829
F.Supp. 1314. For the following reasons, we reverse.
The Creation of the Copyright
The undisputed facts are that in 1987, Chrysalis Homes Associates (“Chrysalis”) engaged
an architectural firm, the Heise Group, Inc. (“Heise”), to prepare for Chrysalis original
architectural drawings of single family homes.
At that time, Chrysalis and Heise
verbally agreed that any resulting architectural drawings would be owned by Chrysalis.
Pursuant to this agreement, Heise created an architectural drawing entitled the “Verandah
II” on which, as agreed, Heise placed a copyright notice identifying Chrysalis as the
copyright owner. On March 21, 1988, Chrysalis secured a Certificate of Copyright
Registration on the “Verandah II” drawings.
The copyright registration identified
173
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Chrysalis as both the author of the drawings, by “work-for-hire,” and the copyright
claimant. Chrysalis' claim of authorship by “work-for-hire” apparently reflected the
common practice at the time where drawings were created for an employer by an
“independent contractor.”
Two years later, the Eleventh Circuit decided in M.G.B. Homes Inc., v. Ameron Homes,
Inc., 903 F.2d 1486 (11th Cir.1990), that the “work-for-hire” doctrine does not confer
authorship upon the home builder employer of the independent contractor who creates
home floor plans. Chrysalis realized then that Heise was the author, and, therefore,
original copyright owner of the “Verandah II” plans.
Shortly thereafter, Chrysalis secured a written “Certificate of Release” from Heise
reciting and confirming that Heise had, from the beginning, assigned all of its rights,
interest and ownership in the copyright for the “Verandah II” plans to Chrysalis.
Subsequently, Chrysalis wound up its business and sold its “Verandah II” plans to the
Arthur Rutenberg Corporation (“ARC”). On February 19, 1990, Chrysalis assigned its
copyright in the “Verandah II” plans to ARC. The written copyright assignments for the
“Verandah II” plans from Heise to Chrysalis and from Chrysalis to ARC were duly
recorded in the United States Copyright Office. As part of a corporate reorganization,
ARC assigned all of its copyrights, including “Verandah II”, to Rutenberg on January 1,
1991. This assignment was also recorded in the copyright office.
Rutenberg's claim for copyright infringement arises out of Drew Homes' alleged use of
the “Verandah II” plans in preparing its own architectural drawings for a house
constructed by it in 1991.
While this action was pending, Rutenberg applied for and received from the copyright
office a Certificate of Supplementary Copyright Registration correcting the original
“Verandah II” copyright registration to reflect Heise as the author, and Chrysalis as
owner by assignment, and not the author by “work-for-hire”.
The Ownership of the Copyright
174
Copyright Cases
I.P. Survey Cases
Prof. Janicke
The original owner of the copyright in the “Verandah II” drawings was Heise, the author.
Heise was the owner because the Copyright Act of 1976 provides that ownership vests in
the author (Heise) as the party who actually creates the work. 17 U.S.C. § 201(a).
M.G.B. Homes made clear that Chrysalis did not obtain ownership under the “work-forhire” doctrine.
It is uncontroverted, however, that Heise and Chrysalis entered into an oral agreement
that Heise would prepare these plans for Chrysalis, and that the copyright in the
“Verandah II” plan would be owned by Chrysalis. Heise, in fact, placed a copyright
notice on the drawings identifying Chrysalis as the copyright owner. At this point,
Chrysalis held, at least, a contractual right by oral assignment to the copyright in the
“Verandah II” drawings.
Copyright ownership, however, can be conveyed only by a writing signed by the owner
of the copyright. 17 U.S.C. § 204(a) provides:
A transfer of copyright ownership, other than by operation of law, is not
valid unless an instrument of conveyance, or a note or memorandum of
transfer, is in writing and signed by the owner of the rights conveyed or
such owner's duly authorized agent.
Chrysalis, therefore, could have become the owner of the copyright only if there were
such a writing.
There is no dispute that a “Certificate of Release” was signed by Heise in early 1990, or
that there were subsequent written assignments of the “Verandah II” copyright from
Chrysalis to ARC, dated February 19, 1990 and from ARC to Rutenberg, effective
January 1, 1991. All these writings satisfy Section 204(a)'s requirement for a writing
and were recorded in the copyright office prior to the allegedly infringing acts.
Despite these written assignments of ownership, however, the trial court concluded that
Rutenberg “loses on its copyright claim solely because it did not own a valid copyright at
the time of the suggested infringement.” The trial court based its conclusion on the
following analysis: only the copyright owner can register a copyright. Since Chrysalis
was not the author of the “Verandah II” drawings (M.G.B. Homes, Inc.), it was not
175
Copyright Cases
I.P. Survey Cases
Prof. Janicke
entitled to register the copyright at all, since at the time of registration it was not the
owner of the copyright, there being no written assignment prior to registration.
Therefore, the registration was void from the beginning.
The trial court appears, however, to have extended M.G.B. Homes, Inc., beyond its
holding that the “work-for-hire” doctrine does not confer authorship upon the employer
of an independent contractor.
It does not hold that actual ownership, mistakenly
registered as authorship resulting from “work-for-hire,” may not be shown by assignment
from the independent contractor author.
Indeed, in M.G.B. Homes, Inc., no basis for ownership was asserted except “work-forhire.” In that case, if the party claiming ownership did not acquire that ownership as the
result of “work-for-hire,” that party had no other basis on which to assert ownership. In
this case, however, Chrysalis was the owner of a contractual right in the copyright by
assignment from the beginning. Its subsequent registration of that copyright merely
contained a statement, erroneous after M.G.B. Homes, Inc., of how it came to acquire that
ownership.
But certainly, if registration does not confer copyright, neither can erroneous registration
take it away. Copyright ownership and the effect of mistaken copyright registration are
separate and distinct issues.
Copyright inheres in authorship and exists whether or not it is ever registered. The
Copyright Act makes clear that registration is a separate issue from the existence of the
copyright itself:
Section 408. Copyright Registration in General.
(a) REGISTRATION PERMISSIVE.-At any time during the subsistence of
copyright in any published or unpublished work, the owner of a copyright
or of any exclusive right in the work may obtain registration of the
copyright.... Such a registration is not a condition of copyright protection.
(emphasis supplied); see also M. Nimmer & D. Nimmer, 3 Nimmer on Copyright §
7.16[A], (1992).
176
Copyright Cases
I.P. Survey Cases
Prof. Janicke
Unlike the claimant in M.G.B. Homes, Rutenberg's claim to ownership of the copyright is
not that the plans were created as a “work-for-hire,” but rather that they were assigned by
the original author to Chrysalis and subsequently to ARC and then to it. As there is no
dispute that these assignments did occur, and in writing, all prior to the alleged
infringement by Drew Homes, we conclude that Rutenberg did own a valid copyright at
the time of the alleged infringement.
The Effect of the Inaccurate Registration
Copyright registration is a pre-requisite to the institution of a copyright infringement
lawsuit. 17 U.S.C. § 411(a) provides that “no action for infringement of the copyright in
any work shall be instituted until registration of the copyright claim has been made....”
Furthermore, as noted above, only the copyright owner may apply for registration. See
17 U.S.C. § 408(a). Therefore, the dispositive issue in this case is whether Chrysalis
was the owner of the “Verandah II” copyright at the time of the original registration in
1988 so that the registration had legal effect. If so, then Rutenberg as a valid subsequent
assignee could bring this action to enforce its copyright on the original registration. If
not, then despite being the owner of the copyright, Rutenberg would not hold a valid
registration and could not bring this action.
Resolution of this issue requires that we inquire when Chrysalis obtained ownership of
the copyright in the “Verandah II” plans. Was ownership transferred in 1988 upon the
execution of the “Verandah II” plans pursuant to the agreement between Chrysalis and
Heise to create the plans with the express understanding and agreement that Chrysalis
would own the copyright? Or did Chrysalis obtain ownership only in early 1990, well
after the initial registration of the copyright, when Heise executed a written memorandum
of this agreement, as required by 17 U.S.C. § 204(a)?
Many courts have held that the requirements of 17 U.S.C. § 204(a) can be satisfied by an
oral assignment later ratified or confirmed by a written memorandum of the transfer. In
Eden Toys, Inc. v. Florelee Undergarment Co., Inc., 697 F.2d 27 (2d Cir.1982) the
Second Circuit reasoned that:
[S]ince the purpose of the provision is to protect copyright holders from
177
Copyright Cases
I.P. Survey Cases
Prof. Janicke
persons mistakenly or fraudulently claiming oral licenses, the “note or
memorandum of the transfer” need not be made at the time when the
license is initiated; the requirement is satisfied by the copyright owner's
late execution of a writing which confirms the agreement.... In this case,
in which the copyright holder appears to have no dispute with its licensee
on this matter, it would be anomalous to permit a third-party infringer to
invoke this provision against the licensee.
Id. at 36 (citations omitted) (emphasis added).
Every court which has considered the issue has arrived at the same result. *** In a case
closely on point with this case, Dan-Dee Imports, Inc. v. Well-Made Toy Mfg. Corp., 524
F.Supp. 615 (E.D.N.Y.1981), the defense was raised that plaintiff's copyright registration
was ineffective since it was secured prior to the execution of a written memorandum of
transfer from the author. The district court in a well-reasoned opinion rejected this
argument:
Furthermore, the regulations respecting registration do not clearly preclude
issuance of a copyright to an applicant who has only received oral
assignment prior to the registration since a “claimant” includes “a person or
organization that has obtained ... the contractual right to claim legal title to
the copyright in an application for copyright registration.” 37 C.F.R. §
202.3(a)(3)(ii) n. 1 (emphasis added).
. .
.
.
.
Accordingly, this Court holds that Dan-Dee was not required to have
written evidence of the transfer from [the author] as a prerequisite to the
issuance of copyright registration for the [copyrighted work], although such
proof would, of course, be necessary on its copyright infringement claim.
Id. at 618-19.
The regulation relied upon by the court in Dan-Dee Imports remains in full force and
effect. Since we have previously concluded that Chrysalis had at least a contractual right
178
Copyright Cases
I.P. Survey Cases
Prof. Janicke
to legal title to the copyright at the time of its original copyright registration, it was a
proper claimant under the regulation, and its registration, therefore, was valid.
This result is consistent with Section 204(a)'s allowance for a “note or memorandum of
the transfer” in lieu of a formal “instrument of conveyance” which one court has noted
“apparently codifies the judge made rule under the 1909 Act that if a prior oral grant is
subsequently confirmed in writing, this will validate the grant ab initio as of the time of
the oral grant.” Great Southern Homes, Inc. v. Johnson & Thompson Realtors, 797
F.Supp. at 612.
This Court today adopts the reasoning of the cases cited above and holds that Chrysalis
was not required to have written evidence of the assignment from Heise as a prerequisite
to application for and the issuance of a valid copyright registration. Therefore, in this
case, Chrysalis effectively registered its copyright on the “Verandah II” drawings in
March of 1988, and its subsequent assignee Rutenberg both owned the copyright in and
held a validly registered copyright on the “Verandah II” plans at the time of the alleged
infringement.
While the trial court appears to have felt that Drew Homes did copy the “Verandah II”
plans, he did not address that issue squarely because, having concluded that Rutenberg
did not own a valid copyright at the time of the infringement, he did not think it
necessary. The trial court has heard the evidence and can, we anticipate, make findings
on the infringement issue without further proceedings. The judge may wish to hear from
counsel on the issue.
The judgment is VACATED and the case is REMANDED for further proceedings.
179
Copyright Cases
I.P. Survey Cases
Prof. Janicke
TRADEMARK CASES
180
Trademark Cases
I.P. Survey Cases
Prof. Janicke
BLUE BELL, INC.
v.
FARAH MFG.
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
508 F.2d 1260 (1975)
Gewin, Ainsworth and Gee, Circuit Judges.
GEWIN, Circuit Judge:
In the spring and summer of 1973 two prominent manufacturers of men's clothing
created identical trademarks for goods substantially identical in appearance. Though the
record offers no indication of bad faith in the design and adoption of the labels, both
Farah Manufacturing Company (Farah) and Blue Bell, Inc. (Blue Bell) devised the mark
"Time Out" for new lines of men's slacks and shirts. Both parties market their goods on a
national scale, so they agree that joint utilization of the same trademark would confuse the
buying public. Thus, the only question presented for our review is which party established
prior use of the mark in trade. A response to that seemingly innocuous inquiry, however,
requires us to define the chameleonic term "use" as it has developed in trademark law.
After a full development of the facts in the district court both parties moved for
summary judgment. The motion of Farah was granted and that of Blue Bell denied. It is
not claimed that summary judgment procedure was inappropriate; the controversy
presented relates to the application of the proper legal principles to undisputed facts. A
permanent injunction was granted in favor of Farah but no damages were awarded, and
Blue Bell was allowed to fill all orders for garments bearing the Time Out label received
by it as of the close of business on December 5, 1973. For the reasons hereinafter stated
we affirm.
Farah conceived of the Time Out mark on May 16, after screening several possible titles
for its new stretch menswear. Two days later the firm adopted an hourglass logo and
authorized an extensive advertising campaign bearing the new insignia. Farah presented
its fall line of clothing, including Time Out slacks, to sales personnel on June 5. In the
meantime, patent counsel had given clearance for use of the mark after scrutiny of current
federal registrations then on file. One of Farah's top executives demonstrated samples of
the Time Out garments to large customers in Washington, D.C. and New York, though
181
Trademark Cases
I.P. Survey Cases
Prof. Janicke
labels were not attached to the slacks at that time. Tags containing the new design were
completed June 27. With favorable evaluations of marketing potential from all sides,
Farah sent one pair of slacks bearing the Time Out mark to each of its twelve regional
sales managers on July 3. Sales personnel paid for the pants, and the garments became
their property in case of loss.
Following the July 3 shipment, regional managers showed the goods to customers the
following week. Farah received several orders and production began. Further shipments
of sample garments were mailed to the rest of the sales force on July 11 and 14.
Merchandising efforts were fully operative by the end of the month. The first shipments
to customers, however, occurred in September.
Blue Bell, on the other hand, was concerned with creating an entire new division of
men's clothing, as an avenue to reaching the "upstairs" market. Though initially to be
housed at the Hicks-Ponder plant in El Paso, the new division would eventually enjoy
separate headquarters. On June 18 Blue Bell management arrived at the name Time Out
to identify both its new division and its new line of men's sportswear. Like Farah, it
received clearance for use of the mark from counsel. Like Farah, it inaugurated an
advertising campaign. Unlike Farah, however, Blue Bell did not ship a dozen marked
articles of the new line to its sales personnel. Instead, Blue Bell authorized the
manufacture of several hundred labels bearing the words Time Out and its logo shaped
like a referee's hands forming a T. When the labels were completed on June 29, the head
of the embryonic division flew them to El Paso. He instructed shipping personnel to affix
the new Time Out labels to slacks that already bore the "Mr. Hicks" trademark. The new
tags, of varying sizes and colors, were randomly attached to the left hip pocket button of
slacks and the left hip pocket of jeans. Thus, although no change occurred in the design or
manufacture of the pants, on July 5 several hundred pair left El Paso with two tags.
Blue Bell made intermittent shipments of the doubly-labeled slacks thereafter, though
the out-of-state customers who received the goods had ordered clothing of the Mr. Hicks
variety. Production of the new Time Out merchandise began in the latter part of August,
and Blue Bell held a sales meeting to present its fall designs from September 4-6. Sales
personnel solicited numerous orders, though shipments of the garments were not
scheduled until October.
By the end of October Farah had received orders for 204,403 items of Time Out
sportswear, representing a retail sales value of over $2,750,000. Blue Bell had received
orders for 154,200 garments valued at over $900,000. Both parties had commenced
extensive advertising campaigns for their respective Time Out sportswear.
182
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Soon after discovering the similarity of their marks, Blue Bell sued Farah for common
law trademark infringement and unfair competition, seeking to enjoin use of the Time Out
trademark on men's clothing. Farah counter-claimed for similar injunctive relief. The
district court found that Farah's July 3 shipment and sale constituted a valid use in trade,
while Blue Bell's July 5 shipment was a mere "token" use insufficient at law to create
trademark rights. While we affirm the result reached by the trial court as to Farah's
priority of use, the legal grounds upon which we base our decision are somewhat different
from those undergirding the district court's judgment.
Federal jurisdiction is predicated upon diversity of citizenship, since neither party has
registered the mark pursuant to the Lanham Act. Given the operative facts surrounding
manufacture and shipment from El Paso, the parties agree the Texas law of trademarks
controls. In 1967 the state legislature enacted a Trademark Statute. n5 Section 16.02 of
the Act explains that a mark is "used" when it is affixed to the goods and "the goods are
sold, displayed for sale, or otherwise publicly distributed." Thus the question whether
Blue Bell or Farah established priority of trademark use depends upon interpretation of
the cited provision. Unfortunately, there are no Texas cases construing § 16.02. This court
must therefore determine what principles the highest state court would utilize in deciding
such a question. In view of the statute's stated purpose to preserve common law rights, n6
we conclude the Texas Supreme Court would apply the statutory provision in light of
general principles of trademark law.
n5 Vernon's Tex.Code Ann., Bus. & Comm. §§ 16.01-16.28 (1968).
n6 Vernon's Tex.Code Ann., Bus. & Comm. § 16.27 (1968); see also Arnold,
Proposed New Texas Trademark Statute, 4 S.Tex.L.J. 1, 7 (1958).
A trademark is a symbol (word, name, device or combination thereof) adopted and
used by a merchant to identify his goods and distinguish them from articles produced by
others. Ownership of a mark requires a combination of both appropriation and use in
trade. Thus, neither conception of the mark nor advertising alone establishes trademark
rights at common law. Rather, ownership of a trademark accrues when goods bearing the
mark are placed on the market.
The exclusive right to a trademark belongs to one who first uses it in connection with
specified goods. Such use need not have gained wide public recognition, and even a
single use in trade may sustain trademark rights if followed by continuous commercial
utilization.
183
Trademark Cases
I.P. Survey Cases
Prof. Janicke
The initial question presented for review is whether Farah's sale and shipment of slacks
to twelve regional managers constitutes a valid first use of the Time Out mark. Blue Bell
claims the July 3 sale was merely an internal transaction insufficiently public to secure
trademark ownership. After consideration of pertinent authorities, we agree.
Secret, undisclosed internal shipments are generally inadequate to support the
denomination "use." Trademark claims based upon shipments from a producer's plant to
its sales office, and vice versa, have often been disallowed. Though none of the cited
cases dealt with sales to intra-corporate personnel, we perceive that fact to be a distinction
without a difference. The sales were not made to customers, but served as an accounting
device to charge the salesmen with their cost in case of loss. The fact that some sales
managers actively solicited accounts bolsters the good faith of Farah's intended use, but
does not meet our essential objection: that the "sales" were not made to the public.
The primary, perhaps singular purpose of a trademark is to provide a means for the
consumer to separate or distinguish one manufacturer's goods from those of another.
Personnel within a corporation can identify an item by style number or other unique code.
A trademark aids the public in selecting particular goods. As stated by the First Circuit:
But to hold that a sale or sales are the sine qua non of a use sufficient to amount to
an appropriation would be to read an unwarranted limitation into the statute, for so
construed registration would have to be denied to any manufacturer who adopted a
mark to distinguish or identify his product, and perhaps applied it thereon for
years, if he should in practice lease his goods rather than sell them, as many
manufacturers of machinery do. It seems to us that although evidence of sales is
highly persuasive, the question of use adequate to establish appropriation remains
one to be decided on the facts of each case, and that evidence showing, first,
adoption, and, second, use in a way sufficiently public to identify or distinguish the
marked goods in an appropriate segment of the public mind as those of the adopter
of the mark, is competent to establish ownership . . ..
New England Duplicating Co. v. Mendes, 190 F.2d 415, 418 (1st Cir. 1951) (Emphasis
added). Similarly, the Trademark Trial and Appeal Board has reasoned:
To acquire trademark rights there has to be an "open" use, that is to say, a use has
to be made to the relevant class of purchasers or prospective purchasers since a
trademark is intended to identify goods and distinguish those goods from those
manufactured or sold by others. There was no such "open" use rather the use can
be said to be an "internal" use, which cannot give rise to trademark rights.
Sterling Drug, Inc. v. Knoll A. G. Chemische Fabriken, supra at 631.
184
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Farah nonetheless contends that a recent decision of the Board so undermines all prior
cases relating to internal use that they should be ignored. In Standard Pressed Steel Co. v.
Midwest Chrome Process Co., 183 U.S.P.Q. 758 (TTAB 1974) the agency held that
internal shipment of marked goods from a producer's manufacturing plant to its sales
office constitutes a valid "use in commerce" for registration purposes.
An axiom of trademark law has been that the right to register a mark is conditioned
upon its actual use in trade. Theoretically, then, common law use in trade should precede
the use in commerce upon which Lanham Act registration is predicated. Arguably, since
only a trademark owner can apply for registration, any activity adequate to create
registrable rights must perforce also create trademark rights. A close examination of the
Board's decision, however, dispels so mechanical a view. The tribunal took meticulous
care to point out that its conclusion related solely to registration use rather than ownership
use.
It has been recognized and especially so in the last few years that, in view of the
expenditures involved in introducing a new product on the market generally and
the attendant risk involved therein prior to the screening process involved in
resorting to the federal registration system and in the absence of an "intent to use"
statute, a token sale or a single shipment in commerce may be sufficient to support
an application to register a trademark in the Patent Office notwithstanding that the
evidence may not show what disposition was made of the product so shipped. That
is, the fact that a sale or a shipment of goods bearing a trademark was designed
primarily to lay a foundation for the filing of an application for registration does
not, per se, invalidate any such application or subsequent registration issued
thereon.
***
Inasmuch as it is our belief that a most liberal policy should be followed in a
situation of this kind [in which dispute as to priority of use and ownership of a
mark is not involved], applicant's initial shipment of fasteners, although an intracompany transaction in that it was to a company sales representative, was a bona
fide shipment. . . .
Standard Pressed Steel Co. v. Midwest Chrome Process Co., supra at 764-65 (Emphasis
added).
Priority of use and ownership of the Time Out mark are the only issues before this
court. The language fashioned by the Board clearly indicates a desire to leave the
common law of trademark ownership intact. The decision may demonstrate a reversal of
185
Trademark Cases
I.P. Survey Cases
Prof. Janicke
the presumption that ownership rights precede registration rights, but it does not affect
our analysis of common law use in trade. Farah had undertaken substantial preliminary
steps toward marketing the Time Out garments, but it did not establish ownership of the
mark by means of the July 3 shipment to its sales managers. The gist of trademark rights
is actual use in trade. Though technically a "sale", the July 3 shipment was not "publicly
distributed" within the purview of the Texas statute.
Blue Bell's July 5 shipment similarly failed to satisfy the prerequisites of a bona fide use
in trade. Elementary tenets of trademark law require that labels or designs be affixed to
the merchandise actually intended to bear the mark in commercial transactions.
Furthermore, courts have recognized that the usefulness of a mark derives not only from
its capacity to identify a certain manufacturer, but also from its ability to differentiate
between different classes of goods produced by a single manufacturer. Here customers
had ordered slacks of the Mr. Hicks species, and Mr. Hicks was the fanciful mark
distinguishing these slacks from all others. Blue Bell intended to use the Time Out mark
on an entirely new line of men's sportswear, unique in style and cut, though none of the
garments had yet been produced.
While goods may be identified by more than one trademark, the use of each mark must
be bona fide. Mere adoption of a mark without bona fide use, in an attempt to reserve it
for the future, will not create trademark rights. In the instant case Blue Bell's attachment
of a secondary label to an older line of goods manifests a bad faith attempt to reserve a
mark. We cannot countenance such activities as a valid use in trade. Blue Bell therefore
did not acquire trademark rights by virtue of its July 5 shipment.
We thus hold that neither Farah's July 3 shipment nor Blue Bell's July 5 shipment
sufficed to create rights in the Time Out mark. Based on a desire to secure ownership of
the mark and superiority over a competitor, both claims of alleged use were
chronologically premature. Essentially, they took a time out to litigate their differences
too early in the game. The question thus becomes whether we should continue to stop the
clock for a remand or make a final call from the appellate bench. While a remand to the
district court for further factual development would not be improper in these
circumstances, we believe the interests of judicial economy and the parties' desire to
terminate the litigation demand that we decide, if possible, which manufacturer first used
the mark in trade.
Careful examination of the record discloses that Farah shipped its first order of Time
Out clothing to customers in September of 1973. Blue Bell, approximately one month
behind its competitor at other relevant stages of development, did not mail its Time Out
garments until at least October. Though sales to customers are not the sine qua non of
trademark use, they are determinative in the instant case. These sales constituted the first
186
Trademark Cases
I.P. Survey Cases
Prof. Janicke
point at which the public had a chance to associate Time Out with a particular line of
sportswear. Therefore, Farah established priority of trademark use; it is entitled to a
decree permanently enjoining Blue Bell from utilization of the Time Out trademark on
men's garments.
The judgment of the trial court is affirmed.
XTREME LASHES, LLC
v.
XTENDED BEAUTY, INC.
576 F.3d 221
UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT.
July 15, 2009.
[PART 1]
Appeal from the United States District Court for the Southern District of Texas.
Before BARKSDALE, DeMOSS and STEWART, Circuit Judges.
DeMOSS, Circuit Judge:
This dispute concerns trademarks for eyelash extensions. We hold that the district court
incorrectly granted summary judgment to Defendant-Appellee Xtended Beauty, Inc.
(“Xtended”) on infringement claims by Plaintiffs-Appellants Xtreme Lashes, LLC and
Joumana Mousselli (collectively “Xtreme”). We also hold that the district court
187
Trademark Cases
I.P. Survey Cases
Prof. Janicke
incorrectly stripped Xtreme’s mark EXTEND YOUR BEAUTY of trademark protection.
We reverse and remand for trial.
I.
Xtreme and Xtended sell kits used by professional cosmetologists to lengthen and accent
clients’ eyelashes. Xtreme has used the marks XTREME LASHES and EXTEND YOUR
BEAUTY since September 10, 2005. Xtreme obtained federal registration of EXTEND
YOUR BEAUTY on October 23, 2007, and registration of XTREME LASHES on April
1, 2008. XTREME LASHES appears on all or nearly all of Xtreme’s products. The mark
features a large X, half of which is formed by a stylized eyelash. The type-written mark
EXTEND YOUR BEAUTY appears on some products as well, but always in conjunction
with XTREME LASHES. Xtreme has spent $1.3 million to promote its products via
direct mail campaigns, trade shows, magazines (including American Spa, Beauty
Launchpad, and Skin, Inc.), and the Internet. Xtreme sells directly to licensed health and
beauty professionals (e.g., cosmetologists, doctors and nurses), as well as to prominent
but unlicensed professionals (e.g., make-up artists). Xtreme holds training workshops, for
which the participant normally pays between $695 and $900. Only those who complete a
workshop and receive Xtreme’s certification may buy its products. Xtreme sells a “gold”
and a “platinum” kit, which cost $529 and $949, respectively. Each kit comes in a silver
carrying case which bears the XTREME LASHES mark.
Xtended has used XTENDED BEAUTY on its products since July 29, 2006. The mark
features a large, type-written X. Xtended mainly sells to distributors, who then sell to
beauty professionals. Xtended markets its products via trade shows, trade publications
(including The Green Book and American Beauty), and the Internet. Xtended sells
eyelash kits for $345; the kits come in a silver carrying case which features the
XTENDED BEAUTY mark. Beauticians must receive training, either from Xtended or
another company, before purchasing a kit. Xtended’s training is normally free.
Xtreme alleged that Xtended has infringed and diluted its marks.1 Xtended
counterclaimed, seeking cancellation of EXTEND YOUR BEAUTY. Per the district
court’s order, the parties filed a joint trademark chart. Before the parties conducted
discovery, Xtended moved for summary judgment on all claims. In support of its motion,
Xtended filed a declaration and report by Dr. Robert Frank, a specialist in trademark
searches. After conducting database research, Dr. Frank found that “xtreme” (in its
misspelled form) is a common term in the beauty industry. Dr. Frank also found that
“extend your beauty” was used by at least thirty companies world-wide to describe or
188
Trademark Cases
I.P. Survey Cases
Prof. Janicke
market personal grooming products, including eyelash products and services. In response,
Xtreme demonstrated that many of the sellers of eyelash extensions in the United States
using the phrase “extend your beauty” were licensees of Xtreme.
1
Xtreme also alleged in the district court that Xtended infringed the mark XTREME
BEAUTY, which Xtreme has registered but never used. That issue is not before us.
After conducting a hearing, the court held that no reasonable person would likely confuse
either of Xtreme’s marks with XTENDED BEAUTY because the marks were so
dissimilar. Without a written statement of reasons, the court entered summary judgment
in favor of Xtended on trademark infringement and dilution claims. At a later hearing, the
court found EXTEND YOUR BEAUTY descriptive as a matter of law. The court ordered
the mark cancelled. The court dismissed other claims as moot and entered final judgment.
Xtreme appealed, seeking reversal of the adverse judgments.
II.
We review a district court’s grant of summary judgment de novo. In a trademark
infringement action, the paramount question is whether one mark is likely to cause
confusion with another. We examine the following nonexhaustive “digits of confusion”
in evaluating likelihood of confusion: (1) the type of trademark; (2) mark similarity; (3)
product similarity; (4) outlet and purchaser identity; (5) advertising media identity; (6)
defendant’s intent; (7) actual confusion; and (8) care exercised by potential purchasers.
No digit is dispositive, and the digits may weigh differently from case to case,
“depending on the particular facts and circumstances involved.” Marathon, 767 F.2d at
218. The court should consider all relevant evidence. Id. at 219. While likelihood of
confusion is typically a question of fact, summary judgment is proper if the “record
compels the conclusion that the movant is entitled to judgment as a matter of law.” Smack
Apparel, 550 F.3d at 474. We first consider likelihood of confusion between XTENDED
BEAUTY and XTREME LASHES. We then ask whether EXTEND YOUR BEAUTY is
a protectable mark, and if so, whether confusion is likely between it and XTENDED
BEAUTY.
A. XTREME LASHES
189
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Type of trademark.
“Type of trademark” refers to the strength of the senior mark. Stronger marks are entitled
to greater protection. Marks are normally assigned to “categories of generally increasing
distinctiveness”: (1) generic, (2) descriptive, (3) suggestive, (4) arbitrary, or (5) fanciful.
Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768, 112 S.Ct. 2753, 120 L.Ed.2d
615 (1992). “The latter three categories of marks, because their intrinsic nature serves to
identify a particular source of a product, are deemed inherently distinctive and are
entitled to protection.” Id. A generic term refers to the class of which a good is a member.
Id. A descriptive term provides an attribute or quality of a good. Id. at 769, 112 S.Ct.
2753. Generic terms receive no trademark protection, while descriptive terms merit
protection only if they have secondary meaning. Id. A suggestive term suggests, but does
not describe, an attribute of the good; it requires the consumer to exercise his imagination
to apply the trademark to the good. More distinctiveness and less natural or literal content
correspond with increased mark strength. It is proper to give more weight to distinctive
portions of a mark and less weight to unremarkable or generic portions. “Any given
term’s correct classification is a factual issue.” Soweco, Inc. v. Shell Oil Co., 617 F.2d
1178, 1183 n. 12 (5th Cir.1980) (citations omitted).
The district court did not determine whether the mark XTREME LASHES is weak or
strong. Xtreme does not contend that the mark has secondary meaning; thus, it is
protectable only if it is suggestive, fanciful, or arbitrary. Plainly, the mark as a whole is
not generic (e.g., “eyelash extensions”), despite the inclusion of the term “lashes.”
Viewing evidence in the light most favorable to Xtreme, we believe that XTREME
LASHES arguably has many of the indicia of a suggestive mark and is therefore entitled
to protection. The consumer must exercise some imagination to associate “xtreme lashes”
with “artificially elongated eyelashes.” The mark uses a misspelling of the word
“extreme” and a stylized eyelash forms part of the “X.” Cf. Soweco, 617 F.2d at 1186 n.
24 (noting that a misspelling alone does not make an otherwise generic term protectable).
Xtended showed that the term “xtreme” appears frequently on cosmetics and grooming
products. Cf. Amstar, 615 F.2d at 259-60 (holding that widespread use of DOMINO
across many industries weighed against mark strength). However, this prevalence should
be weighed by a jury. There is no evidence that other sellers of eyelash products use the
term “xtreme.” We cannot say with certitude that XTREME LASHES is strong or weak.
For summary judgment purposes, the mark is entitled to protection.
Mark similarity.
Mark similarity “is determined by comparing the marks’ appearance, sound, and
meaning.” Capece, 141 F.3d at 201. “Similarity of appearance is determined on the basis
of the total effect of the designation, rather than on a comparison of individual features.”
190
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Amstar, 615 F.2d at 260-61 (quotation omitted). Nevertheless, courts should give more
attention to the dominant features of a mark. Even if two marks are distinguishable, we
ask whether, under the circumstances of use, the marks are similar enough that a
reasonable person could believe the two products have a common origin or association.
To determine the “meaning and connotation” of the marks, we consider the context of
use, such as labels, packaging, and advertising. “The two marks must bear some
threshold resemblance in order to trigger inquiry into extrinsic factors, but this threshold
is considerably lower than the degree of similarity required where the plaintiff presents
little or no evidence on extrinsic factors supporting infringement.” Sun-Fun, 656 F.2d at
189.
XTREME LASHES and XTENDED BEAUTY have no common words and use different
typefaces. Each mark has two words, but there is minor aural similarity when the marks
are spoken aloud. Both marks suggest cosmetic enhancement. Two color schemes are
used for each mark (white lettering/black background and black lettering/white
background for XTREME LASHES, and white lettering/black background and white
lettering/azure background for XTENDED BEAUTY). Thus, both marks have employed
white lettering on a black background. Both marks also use a large stylized “X” as a
prominent feature of the mark. Xtreme’s letter X is formed in part by a golden eyelash,
while Xtended’s X uses regular typeface. Both marks use the X in an eye-catching
misspelling. Moreover, the marks appear in similar contexts. Each appears upon a silver
carrying case for the companies’ kits, as well as on the products inside the kits. The
companies use similar marketing channels to promote the marks.
Focusing on the marks’ distinct terms and typefaces, the district court concluded that no
reasonable person could be confused. The court in essence held that there was too little
“threshold resemblance” to engender any likelihood of confusion. See id. at 189. We
disagree. A focus on the marks’ distinguishable visual features, when viewed “side by
side in the judicial solemnity of the courtroom is by itself enough of a falsification of
actual market conditions to defy realistic appraisal.” Id. (quotation omitted). While a
large X alone should not be protectable, it is a visually striking common feature
integrated into both marks. See id. at 190 (holding that use of a sunburst in a similar
format, despite dissimilar brand names and stylistic features, created question of fact); cf.
Armstrong Cork Co. v. World Carpets, Inc., 597 F.2d 496, 504 (5th Cir.1979) (no
likelihood of confusion where term WORLD was prominent feature of senior mark but
“diminutive” feature in junior mark).
Taking all inferences in favor of Xtreme, we believe that the marks are similar enough to
suggest a common origin or association-especially because several other “digits” weigh
towards confusion. See Sun-Fun, 656 F.2d at 189. Even if a person recognized that the
marks are not identical, she might believe that XTENDED BEAUTY is a product line
191
Trademark Cases
I.P. Survey Cases
Prof. Janicke
offered by the makers of XTREME LASHES, such as a discount line. Confusion of
origin, not the identity of marks, is the gravamen of trademark infringement. KP
Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 117, 125 S.Ct. 542,
160 L.Ed.2d 440 (2004). The marks also appear in near-identical contexts on the
companies’ kits. For this reason, we find Xtended’s assertion unpersuasive that reversing
the district court would allow Xtreme “to preclude anyone that uses a Big X to promote
eyelash extension and related products.” Ultimately, “[a] jury might well conclude that
the marks are too dissimilar to justify a finding of infringement. We merely hold that it
was improper for the district judge to weigh these similarities and differences instead of
the jury.” See Sun-Fun, 656 F.2d at 190.
Product similarity.
“The greater the similarity between the products and services, the greater the likelihood
of confusion.” Exxon, 628 F.2d at 505. Xtreme and Xtended peddle kits which include
eyelash extensions, adhesive, special scissors, and other accouterments needed to affix,
touch up, or remove fake eyelashes. Both kits come in a silver case bearing the respective
mark. This factor weighs in favor of likelihood of confusion.
Outlet and purchaser identity.
Xtreme sells to health and beauty professionals who meet in-house training and
certification requirements. Xtended sells to beauty distributors, which in turn sell to
cosmetologists and other professionals. Buyers cannot “compare the products side by
side,” which “may increase the likelihood of confusion.” See Sun-Fun, 656 F.2d at 192.
Ultimately, both companies seek to land their kits in the hands of trained cosmetologists,
and have their products affixed to customers’ lashes. This supports an inference that
Xtended and Xtreme compete directly for end-users in the eyelash extension market. This
factor favors Xtreme.
Advertising media identity.
Both companies use print advertisements, direct mailings, and Internet promotion. The
parties do not advertise in identical magazines, but they target the same class of buyers.
This supports an inference that the parties use similar advertising and marketing
channels.
Defendant’s intent.
A junior user must avoid choosing a mark which may cause confusion with the senior
user’s mark. However, with no evidence of Xtended’s intent, this factor is neutral.
192
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Actual confusion.
Actual confusion need not be proven, but if consumers have confused the junior mark for
the senior mark, this is “the best evidence of a likelihood of confusion.” Smack Apparel,
550 F.3d at 483. “Moreover, reason tells us that while very little proof of actual confusion
would be necessary to prove the likelihood of confusion, an almost overwhelming
amount of proof would be necessary to refute such proof.” World Carpets, Inc. v. Dick
Littrell’s New World Carpets, 438 F.2d 482, 489 (5th Cir.1971).
Xtreme showed several incidences of confusion. For instance, Lisa Flowe, a
cosmetologist licensed for 26 years, stated in an affidavit that in 2007 she tried to buy
Xtreme’s kit. Flowe knew of Xtreme but never purchased its products: “When I saw a
picture in the catalogue of an eyelash extension kit with a name that begins with ‘X,’ I
assumed it was the Xtreme Lashes product I was looking for.” She ordered the kit and
contacted a salon affiliated with Xtreme, seeking to obtain training. Later she realized
that she bought the wrong kit. Before the entry of summary judgment, Xtreme presented
evidence that two other customers were confused, one of whom, like Flowe, actually
purchased Xtended’s kit but thought she had purchased Xtreme’s kit.2
2
After the district court’s grant of summary judgment, Xtreme moved for reconsideration
and presented evidence that three more people had experienced confusion. Even without
considering this evidence, we conclude that there is a genuine issue of fact.
Despite this evidence, the district court reasoned: “occasional confusion is not the same
thing as market confusion.” The court noted that some people might say Bloomingdale’s
when they mean Neiman Marcus, or Pepsi instead of Coke. Because the court considered
the marks so distinct, it reasoned that any confusion was irrational. In this vein, Xtended
argues that “isolated anecdotes of purchaser confusion do not constitute actual
confusion.” ***
The evidence of confusion in this case creates a genuine issue of material fact. While
summary judgment may be appropriate in outlier cases, see, e.g., Smack Apparel, 550
F.3d at 483, courts may not ignore competent evidence of actual confusion, see Fuji
Photo Film Co. v. Shinohara Shoji Kabushiki Kaisha, 754 F.2d 591, 597 (5th Cir.1985)
(“In no case have we sanctioned total disregard of evidence of actual confusion; there is
simply no precedent for such a view ....”). The evidence shows more than a fleeting mixup of names. It shows actual confusion about the origin of the parties’ products. The
confusion was caused by the trademarks employed and it swayed consumer purchases.
193
Trademark Cases
I.P. Survey Cases
Prof. Janicke
*** To ignore this evidence as anecdotal or irrational tramples upon the province of the
trier of fact.
***
Care exercised by potential purchasers.
“Where items are relatively inexpensive, a buyer may take less care in selecting the item,
thereby increasing the risk of confusion.” Smack Apparel, 550 F.3d at 483; see also
Oreck Corp. v. U.S. Floor Sys., Inc., 803 F.2d 166, 173-74 (5th Cir.1986) (reasoning that
because purchasers were “buying for professional and institutional purposes at a cost in
the thousands of dollars, they are virtually certain to be informed, deliberative buyers”)
(citation omitted). However, a high price tag alone does not negate other indicia of
likelihood of confusion, especially if the goods or marks are similar. See Fuji, 754 F.2d at
595-96.
Xtreme presented an affidavit by Martin Dale, a co-owner and director of Xtreme, who
stated that in his experience, the purchasers of eyelash kits, while experienced or licensed
estheticians, are often young, “very impressionable,” and impetuous in their purchasing
behavior. Xtreme also points to the affidavit of Lisa Flowe as evidence that buyers are
not always informed or careful. Despite decades of experience as a cosmetologist and an
intent to buy Xtreme’s kit, Flowe did not bat an eyelash before spending over $300 on
Xtended’s kit. Flowe did not realize her mistake until after she had called an Xtreme
affiliate for customer support and training. Xtended argues that the high price of
Xtreme’s kits ($529 for the “gold” kit, $949 for the “platinum”), and the requirement that
purchasers be trained professionals, impel the conclusion that customers exercise great
care when buying the kits. After an esthetician undergoes training on Xtreme’s products,
it is logical to say that confusion is less likely. However, this does not prevent confusion
by untrained buyers, like Lisa Flowe, seeking to extend their repertoire to this up-andcoming product. Whether Flowe’s case is aberrational or indicative of typical market
reaction cannot be adjudicated at this stage. We therefore infer that this factor favors
Xtreme.
Conclusion/weighing of digits.
For summary judgment purposes, all digits of confusion are either neutral or weigh in
Xtreme’s favor. Actual confusion weighs strongly in Xtreme’s favor. No factor favors
Xtended. Considering the record in the light most favorable to Xtreme, we cannot say
that judgment for Xtended is “preordained.” We therefore reverse the district court’s
grant of summary judgment.
194
Trademark Cases
I.P. Survey Cases
Prof. Janicke
STREETWISE MAPS, INC.
v.
VANDAM, INC.
United States Court of Appeals, Second Circuit.
159 F.3d 739
Decided Oct. 27, 1998.
CARDAMONE, WALKER, and MAGILL*, Circuit Judges.
*
Hon. Frank J. Magill, Senior Judge, United States Court of Appeals for the Eighth Circuit,
sitting by designation.
CARDAMONE, Circuit Judge:
Streetwise Maps, Inc. had a great idea when it began developing its simplified, foldable,
laminated street map. But, as with most good ideas, imitators were quick to follow. This
litigation concerns plaintiff Streetwise’s attempt to eliminate from the marketplace one
such imitator’s product—defendants’ StreetSmart maps. To accomplish that purpose,
plaintiff brought an action against defendants under the Lanham Act and copyright law.
Competitors, by copying and underselling a product’s originator, enjoy a “free ride” on
an originator’s efforts. Yet, since the common law favors competition, unless a plaintiff
can establish that the defendant encroached on its trademark or copyright, the law will
tolerate such conduct. Because plaintiff failed to make out a viable claim for either
trademark or copyright infringement, we affirm the district court’s dismissal of its
complaint.
BACKGROUND
195
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Plaintiff Streetwise Maps, Inc. (Streetwise) began publishing maps in 1985. One of the
first companies to market the laminated street maps now seen everywhere in the hands
and shirt pockets of tourists, Streetwise currently produces such maps for many large
international cities, including New York. Plaintiff owns the trademark, “STREETWISE,”
which it registered with the United States Patent and Trademark Office in 1985.
Defendants VanDam, Inc. and its president, Stephan Van Dam (Van Dam), entered the
map-making business in 1984, a year earlier than Streetwise did. Their first line of maps
were called “Unfolds,” which were pop-up street maps of various cities, the sale of which
was also aimed at tourists. Realizing that the trend of the major map publishers in the
early 1990s was toward offering a foldable, laminated street map, defendants, to remain
competitive, began selling their own version of such a map for New York City in 1995
under the trademark “StreetSmart.” Van Dam testified he chose that name because he
liked the combined effect the two separate words created. “Street” seemed like a good
way to describe the product and “smart” connoted how informed the user who purchased
the map would come to be about the city depicted. Put together, the name promoted the
idea that the product’s user would be smart about the streets of a given city.
VanDam, Inc. had already used the word “smart” in connection with its maps before
1995. In 1991 it produced a line of maps of Boston called the “Smartmap” for another
map manufacturer’s subsidiary. In addition, at the time it started selling the StreetSmart
line in 1995, it also produced a “TravelSmart” map. Defendants informally searched the
internet and a library for use of the StreetSmart name, but never conducted a formal
trademark search. Van Dam testified that while he knew plaintiff already marketed a line
of maps under the name Streetwise, he did not think the name he had chosen infringed on
that mark.
The StreetSmart map and plaintiff’s Streetwise Manhattan map share some cartographic
conventions, including the use of purple to depict water and a clarified white street grid
superimposed on a gray landmass background. Defendants aver that the cartography of
the StreetSmart map originated from their earlier New York City Unfolds map and a
Manhattan map they had created for Macy’s Department Store. While they knew
plaintiff’s map employed these two conventions at the time they designed their
StreetSmart map, defendants insist these salient features plaintiff contends were copied
had been in use for many years, predating plaintiff’s Streetwise maps.
Plaintiff’s and defendants’ maps are about the same size, but the Streetwise map uses the
traditional accordion fold, while the StreetSmart map employs a “triple gate fold.”
StreetSmart’s Metro Edition also includes an eight-page inserted booklet describing the
top sightseeing attractions with their addresses bound into the center of the map. The two
196
Trademark Cases
I.P. Survey Cases
Prof. Janicke
companies use different color schemes on the covers of their maps. VanDam, Inc. prints
“Street” in yellow (for the City Edition) or white (for the Metro Edition) and “Smart” in
red, both words appear in a black rectangle. In contrast, plaintiff’s “Streetwise
Manhattan” is written in large white block letters, outlined in black, in a rectangle with a
gold background. StreetSmart’s New York City map also devotes half of its cover to a
design using the letters “NYC” accompanied by an icon symbolizing New York, the
Statue of Liberty. The cover of Streetwise’s map shows the lower end of Manhattan.
As just stated, defendants began selling their StreetSmart New York City map in April
1995. In May plaintiff notified defendants that their map infringed upon its copyright.
Defendants, nevertheless, continued to sell their map. As a result, on July, 14, 1995,
Streetwise filed the instant action in the United States District Court for the Southern
District of New York (Chin, J.) against VanDam, Inc. and Van Dam individually for
trademark and trade dress infringement in violation of the Lanham Act, 15 U.S.C. §
1051, et seq.; copyright infringement in violation of 17 U.S.C. § 101, et seq.; and unfair
competition under New York law.
After a bench trial, Judge Chin, in an oral decision rendered on June 25, 1997, dismissed
Streetwise’s complaint in its entirety with prejudice. Relevant to this appeal, the trial
court denied Streetwise injunctive relief on its trademark infringement claim because it
found it unlikely that an appreciable number of purchasers would be confused as to the
source of the maps. With respect to the copyright infringement claim, the trial judge held
the evidence did not support the conclusion that defendants copied a protectible element
of Streetwise’s map. These holdings were reduced to a judgment entered on June 30,
1997.
Streetwise appeals the dismissal of its claim for injunctive relief under the Lanham Act
and the dismissal of its claim for copyright infringement.
DISCUSSION
I Trademark Infringement
A. Lanham Act Generally
The Lanham Act protects the rights of the first user of a trademark, particularly where
that mark is a strong one. Trademark law accomplishes this by barring a later user from
employing a confusingly similar mark, likely to deceive purchasers as to the origin of the
197
Trademark Cases
I.P. Survey Cases
Prof. Janicke
later user’s product, and one that would exploit the reputation of the first user. The
Lanham Act therefore makes a person who uses “any word, term, name, symbol, or
device ... or any false designation of origin, false or misleading description of fact ...
which is likely to cause confusion,” liable in a civil suit to one damaged by such act. 15
U.S.C. § 1125(a)(1).
To prevail on a claim of trademark infringement, a plaintiff must show that the defendant
(1) without permission, copied, reproduced, or imitated the plaintiff’s (2) registered
trademark in commerce (3) as part of the sale or distribution of goods or services (4) and
that such use is likely to cause confusion between the two marks. It is undisputed in the
instant case that defendants were without Streetwise’s permission to use the StreetSmart
mark, that the mark was used in commerce as part of the sale or distribution of goods,
and that “Streetwise” is a registered trademark entitled to protection. Thus, the only issue
we must decide is whether the district court erred when it determined that defendants’ use
of the StreetSmart mark is unlikely to cause confusion between their and Streetwise’s
mark.
To support a finding of infringement, a probability of confusion, not a mere possibility,
must exist. See Gruner + Jahr, 991 F.2d at 1077; see also Estee Lauder Inc. v. The Gap,
Inc., 108 F.3d 1503, 1510 (2d Cir.1997) ( “Likelihood of confusion means a probability
of confusion; ‘it is not sufficient if confusion is merely “possible.” ’ ”) (quoting 3 J.
Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 23:2, at 23–10
to –11 (1996)). A probability of confusion may be found when a large number of
purchasers likely will be confused as to the source of the goods in question.
To measure the likelihood of confusion, courts ordinarily will weigh the so-called
Polaroid factors: (1) the strength of the plaintiff’s mark; (2) the similarity of plaintiff’s
and defendant’s marks; (3) the competitive proximity of their products; (4) the likelihood
that plaintiff will “bridge the gap” and offer a product like defendant’s; (5) actual
confusion between products; (6) defendant’s good faith; (7) the quality of defendant’s
product as compared to plaintiff’s; and (8) the sophistication of the purchasers. See
Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir.1961). Other factors
may be added or initial factors abandoned. A district court’s findings with regard to each
individual factor are subject to the clearly erroneous standard of review, but the ultimate
issue of the likelihood of confusion is reviewed de novo.
B. Review of the Polaroid Factors
198
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Of the eight factors examined in this case, one is neutral and another irrelevant. Factor (#
7)—the quality of defendant’s product compared to plaintiff’s—is neutral because—as
the district court found and plaintiff concedes—both maps are of similar quality. See
Gruner + Jahr, 991 F.2d at 1079 (Quality is weighed against the defendant only “when
there is an allegation that a low quality product is taking unfair advantage of the public
good will earned by a well-established high quality product.”). The (# 4) factor—bridging
the gap—is not relevant because, in assessing this factor, we consider the likelihood that
the plaintiff will enter the market occupied by the defendant’s product to compete against
the defendant. See id. at 1078. Since plaintiff and defendants already occupy the same
market of simplified, laminated street maps, the gap has been bridged. In addition, this
factor is subsumed by one to be discussed in a moment, that is, the competitive proximity
of the products, and thus is not relevant as an individual factor.
Of the six remaining Polaroid factors, the district court found three in plaintiff’s favor
and three in defendants’. We begin by tracing the three factors found for Streetwise: the
strength of the mark (# 1), the similarity of the two marks (# 2), and the proximity of the
two products (# 3).
Factor # 1—Strength of Streetwise’s Mark
The strength of a mark refers to its distinctiveness, that is to say, the mark’s ability to
identify goods sold under it as coming from one particular source. To gauge a mark’s
strength, we consider two factors: its inherent distinctiveness, and its distinctiveness in
the marketplace. Discussing the former first, courts classify a mark in one of four
categories in increasing order of inherent distinctiveness: generic, descriptive, suggestive,
and arbitrary. The district court ranked the Streetwise mark as suggestive, meaning that
the term “suggested” the features of the product and required the purchaser to use his or
her imagination to figure out the nature of the product. We agree. Suggestiveness,
however, does not necessarily determine the issue regarding the strength of the mark. See
W.W.W. Pharm., 984 F.2d at 572 (“But a finding of suggestiveness does not guarantee a
determination that the mark is a strong one.”). We must still consider the mark’s
distinctiveness in the marketplace.
“Streetwise” is not particularly distinctive in the marketplace. Other map manufacturers
have used the word “street” in their product’s names. For example, Rand McNally
publishes a book of maps under the name, “StreetFinder,” and other map-related products
include “Streetmate” and “Streetscene.” Moreover, a trademark search revealed the
extensive use of the words “street” and “wise” in names registered by manufacturers of
199
Trademark Cases
I.P. Survey Cases
Prof. Janicke
other products. Such third party use of the words “street” and “wise” weakens the
strength of Streetwise’s mark. See Lang v. Retirement Living Publ’g Co., 949 F.2d 576,
581 (2d Cir.1991) (“[E]xtensive third party use of the words ‘Choice’ and ‘Choices’
weighs against a finding that Lang’s trade name is strong.”); see also Plus Prods. v. Plus
Discount Foods, Inc., 722 F.2d 999, 1005 (2d Cir.1983).
Hence, although plaintiff’s product is ranked as suggestive for its inherent
distinctiveness, it is not strong in the marketplace for maps. As a consequence, the district
court’s finding that plaintiff’s mark is “relatively strong” is clearly erroneous. While
Streetwise’s mark is entitled to some trademark protection, it should not receive the
fullest protection available under the law, unless a convincing combination of other
Polaroid factors militates strongly in favor of finding that a likelihood of confusion
exists.
Factor # 2—The Similarity of the Two Marks
In determining whether the two marks are similar, and therefore likely to provoke
confusion among prospective purchasers, courts appraise “the overall impression created
by the logos and the context in which they are found and consider the totality of factors
that could cause confusion among prospective purchasers.” Gruner + Jahr, 991 F.2d at
1078. The district court found the two marks to be very similar. Because we are firmly
persuaded that in making this finding the trial judge was mistaken, we set that finding
aside as clearly erroneous.
While the two names sound similar, the trademarks themselves are not confusingly
similar, given the context in which a purchaser sees them. See, e.g., Arrow Fastener Co.,
59 F.3d at 396 (concluding that defendant’s use of a six-digit model number that
contained the symbol “T50” was not confusingly similar to plaintiff’s use of the mark,
“Model T–50”); W.W.W. Pharm., 984 F.2d at 573 (finding the two marks “Sportstick”
and “Right Guard Sport Stick” distinct because of the second user’s addition of the
company name and different mode of presentation); Lang, 949 F.2d at 582 (holding that
defendant’s use of the name “New Choices for the Best Years” was not confusingly
similar to plaintiff’s mark, “New Choices Press,” based in part on the defendant’s
inclusion of additional words and use of a different typeface).
Several key distinctions may be observed between the products themselves and the
overall impression created by the marks that would lead consumers to believe the
products originated from different companies. For example, although the two maps are
200
Trademark Cases
I.P. Survey Cases
Prof. Janicke
similar in size, they have different folds (VanDam’s triple gate unfold versus Streetwise’s
accordion unfold), different logos (e.g., VanDam, Inc.’s use of the large NYC and Lady
Liberty logos), and different dress colors and typefaces. Further, while Streetwise appears
as one word, StreetSmart, because of its color scheme, appears as two separate words.
Moreover, while the mark “StreetSmart” stands by itself and encompasses roughly onetwelfth of the cover, “Streetwise” appears together with “Manhattan” and uses one-third
of the cover’s space. Hence, in our view the marks are not confusingly similar.
Factor # 3—The Proximity of the Two Products
This factor considers whether the two products compete in the same market. The district
court found that the two products compete in close proximity—both are aimed primarily
at visiting tourists who are shopping for a convenient map. We agree that this factor
weighs in favor of Streetwise’s argument that there is a likelihood of confusion.
The three Polaroid factors Judge Chin believed weighed in defendants’ favor were: (# 5)
actual confusion, (# 6) defendant’s good faith, and (# 8) sophistication of purchasers. We
review his findings regarding these factors.
Factor # 5—Actual Confusion
As discussed earlier, the Lanham Act seeks to prevent public confusion as to the origin of
products, and to prevent a second user who chooses a confusingly similar mark from
exploiting the goodwill a first user has created for its trademark. Hence, evidence of
actual consumer confusion is particularly relevant to a trademark infringement action. In
the instant case plaintiff failed to proffer any credible evidence of actual confusion
between the two products. Streetwise does not contest this finding on appeal.
Accordingly, the absence of proof of actual confusion, although not dispositive of the
question of likelihood of confusion, is a factor favoring defendants.
Factor # 6—Van Dam’s Good Faith
201
Trademark Cases
I.P. Survey Cases
Prof. Janicke
This factor examines whether defendants “adopted [their] mark with the intention of
capitalizing on plaintiff’s reputation and goodwill and any confusion between [their] and
[plaintiff’s] product.” Lang, 949 F.2d at 583. The district court found defendants acted in
good faith when they adopted the StreetSmart trademark. Like other map manufacturers,
Judge Chin reasoned, defendants probably copied the size and concept of Streetwise’s
map, but not in an effort to mislead consumers into believing that they were buying
Streetwise Manhattan. The intent to compete by imitating the successful features of
another’s product is vastly different from the intent to deceive purchasers as to the source
of the product. See George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1541 (2d
Cir.1992) (“Absent confusion, imitation of certain successful features in another’s
product is not unlawful and to that extent a ‘free ride’ is permitted.”). The trial judge
concluded that defendants’ lack of bad faith was a “significant factor” in rendering its
decision in favor of defendants.
Unlike the issue of actual confusion, Streetwise vigorously disputes this finding on
appeal. It declares that defendants acted in bad faith because they adopted the StreetSmart
trademark despite knowing that the trademark was registered and without first seeking
the advice of trademark counsel. Streetwise relies on International Star Class Yacht
Racing Assoc. v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753–54 (2d Cir.1996), to
support its argument. In that case, clothing designer Tommy Hilfiger copied verbatim for
his line of sportswear the plaintiff’s trademark, “Star Class,” used in yacht racing.
Hilfiger limited its trademark search solely to registered or applied-for federal
trademarks, despite its attorney’s specific advice that a wider search be conducted.
Holding that Hilfiger acted in bad faith, we stated that its choice not to perform a more
thorough trademark search “remind [ed] us of two of the famous trio of monkeys who, by
covering their eyes and ears, neither saw nor heard any evil.” See id. at 753–54.
The instant case is distinguishable. Defendants did not copy an identical trademark as did
Hilfiger, but rather concocted a different name by combining a descriptive word,
“street”—commonly used in map products—with another word they had used in previous
projects, “smart,” to indicate what the user would become if he purchased the product.
See Arrow Fastener Co., 59 F.3d at 397 (stating that a finding of good faith may be
supported by the defendant’s selection of a mark that reveals the product’s attributes).
They did not believe this mark infringed on plaintiff’s because of differences between the
two marks. Defendants’ failure to perform an official trademark search, even with the
knowledge that plaintiff marketed its maps under the Streetwise name, does not standing
alone prove that they acted in bad faith. Cf. id. (“Prior knowledge of a senior user’s trade
mark ... may be consistent with good faith.”).
Streetwise also relies on Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d
Cir.1987), where we found that the defendant acted in bad faith when it copied the mark
202
Trademark Cases
I.P. Survey Cases
Prof. Janicke
of Mobil Oil Corp.’s flying horse symbol in its name. See id. at 258–59. There, the trial
court discredited the testimony of the defendant oil company’s representative, who was
knowledgeable of Greek mythology and who attempted to argue that he did not choose
the name, pegasus, with plaintiff’s winged horse in mind. See id. at 258. Here, Judge
Chin believed Van Dam’s testimony that he chose the name with the twin goals of
describing and promoting his product, not to ride on the coattails of Streetwise. Because
the determination of good faith, “like many intent issues, is best left in the hands of the
trier of fact,” Sports Auth., 89 F.3d at 964, we will not disturb as clearly erroneous the
finding of defendants’ good faith.
Factor # 8—The Sophistication of the Buyers
Likelihood of confusion must be assessed by examining the level of sophistication of the
relevant buyers. A trial court must consider the general impression of the ordinary
consumer, buying under normal market conditions and giving the attention such
purchasers usually give in purchasing the product at issue. The district court found that
due to the fact that the subject maps were rarely offered for sale at the same place and
were generally impulse purchases, any lack of sophistication among buyers could not
contribute to confusion between the two maps. Streetwise does not contest this finding.
C. De Novo Review of Likelihood of Confusion
Having considered the district court’s treatment of each of the individual Polaroid
factors, we review its weighing of those factors de novo. Our task is simplified because
we set aside as clearly erroneous the trial court’s findings regarding the strength of
plaintiff’s mark and the similarity between the plaintiff’s and defendants’ marks, factors
the district court weighed in plaintiff’s favor. Although the maps continue to compete
directly with each other, the combined weight of the Polaroid factors leads us to hold that
there is not a likelihood consumers will be confused by defendants’ use of the
StreetSmart mark. Streetwise’s trademark infringement claim brought under the Lanham
Act therefore fails, and the district court’s dismissal of that claim must be affirmed.
***
203
Trademark Cases
I.P. Survey Cases
Prof. Janicke
QUILL CORP.
v.
QUILL PRINTING CORP.
UNITED STATES DISTRICT COURT,
NORTHERN DISTRICT OF ILLINOIS
1982 U.S. Dist. LEXIS 16347 (1982)
Bua, District Judge.
The court having heard the evidence and considered the testimony of the witnesses, the
pleading and exhibits, and having considered the stipulation of the parties as to
undisputed facts, and being fully advised in the premises does hereby enter orally the
following Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal
Rules of Civil Procedure.
Finding of Fact
1. Plaintiff Quill Corporation is an Illinois corporation with its principal place of
business at 100 South Schelter Road, Lincolnshire, Illinois. Plaintiff is engaged in the
business of selling business and office supplies, including printed business forms; custom
printed goods such as forms, letterheads and envelopes; stationery; paper and other
supplies for duplicating machines; labels and mailing supplies; storage boxes; shelving;
clocks; coffee makes and cups; bookends; calculators and related supplies; desks;
cabinets; paper shredders and punches; staples and staplers; typewriters and related
supplies; and numerous other types of office and business supplies. Plaintiff prints some
of its own products, using offset printing presses. In March 1982, plaintiff will begin
marketing a full line of forms through a new catalog.
2. Defendant Quill Printing Corporation is an Illinois corporation formed on October
22, 1976, with its principal office at 4427 West Cortland, Chicago, Illinois. Defendant is
primarily in the business of commercial printing, including magazine subscription blow204
Trademark Cases
I.P. Survey Cases
Prof. Janicke
in cards; padded forms for various government agencies including the Postal Service and
HEW; insurance application forms; control sheets; requisition requests; IRS tax forms;
promotional material for U.S. Savings Bonds; advertisements; brochures; posters; and
other forms the government purchases for internal use.
3. Plaintiff and defendant, both located in the Chicago area since their inceptions, do
business throughout the country. Neither business is confined to any particular locale. In
fact, defendant maintains offices in New York City and Washington. D.C.
4. Plaintiff sells its office supplies and other products to customers throughout the
United States, primarily by mail order sales through plaintiff's catalogs and flyers. From
its inception in 1956, plaintiff has continuously used in connection with is business in
interstate commerce the trade name, trademark and service mark QUILL. Among
plaintiff's customers are various agencies of the U.S. Government, state governmental
agencies and newspaper and magazine publishers. Plaintiff was originally operated as a
proprietorship called Quill Office Supply Company, later becoming a partnership and it
was eventually incorporated as Quill Office Supply Company on June 28, 1962. In about
November 1964, plaintiff changed its name to Quill Corporation.
5. Plaintiff is the owner of two U.S. Trademark Registrations covering QUILL and
QUILL plus a design as follows: Registration No. 1,132,012, dated April 1, 1980, and
Registration No. 1,137,326, dated July 1, 1980. These registrations are valid and in full
force and effect.
6. Plaintiff uses its marks QUILL and QUILL plus a design on its products, on
packaging for its products, on catalogs and flyers sent to its customers to solicit sales, and
on advertising and promotional materials. Since 1956, it is estimated that plaintiff's gross
revenues under the QUILL marks have continuously increased and now exceed $30
million per year. Plaintiff mails annually in excess of sixteen million flyers and four
hundred to five hundred thousand catalogs nationally to businesses, and has established
the QUILL name at a substantial cost. Plaintiff has advertised its name and products in
national magazines and newspapers.
7. As a result of widespread and extensive use of QUILL by plaintiff, QUILL has
become widely and favorably known to and recognized by the public throughout the
United States and in particular in Illinois as identifying plaintiff, its services and products.
8. Plaintiff became aware of defendant's use of the term QUILL in the early part of
1980 when plaintiff learned through an investigator for a life insurance company about a
lawsuit entitled: LaSalle Messenger v. Quill Printing Company. The insurance
205
Trademark Cases
I.P. Survey Cases
Prof. Janicke
investigator mistakenly believed that plaintiff was involved in the lawsuit, which it was
not.
9. Thereafter, plaintiff learned that defendant was involved in a voluntary debtor's
petition under the Federal Bankruptcy Act, Docket No. 79 B 40235.In August 1980,
plaintiff's counsel informed defendant that plaintiff objected to defendant's use of the
QUILL mark, and demanded that it cease such use. In September and October 1980,
counsel for the parties discussed settlement of this controversy, but it was not resolved,
and this suit ensued.
10. Defendant has known of plaintiff, plaintiff's business and plaintiff's use of the name
and mark QUILL since at least as of December 1976, the year of defendant's inception.
Defendant has also known of numerous instances of actual confusion by the public
between it and plaintiff since its inception. On a number of occasions as testified to by
Mr. Roger Jacobsen, defendant has received telephone calls from people who mistakenly
believed that they were calling plaintiff.
11. Roger Jacobsen, president of defendant, testified that in the summer of 1976, his
wife thought of the name "Quill" for the defendant corporation, and that he checked the
Chicago TELEPHONE DIRECTORY to see if any other companies called "Quill" were
listed, that he doesn't recall if he checked the alphabetical section. While Jacobsen said
the he found no telephone listings for any companies called "Quill" in 1976, the
undisputed evidence introduced by plaintiff shows that plaintiff's name was listed as
"Quill Corporation" in the 1976 Chicago TELEPHONE DIRECTORY, and its name was
listed in the directories published in each prior year at least as far back as 1959.
12. There have also been other instances of actual confusion between plaintiff and
defendant, such as when an insurance investigator mistakenly believed that plaintiff was
involved in a suit in which the defendant was a party.
13. Defendant was sued by two companies that formerly supplied it with paper.
LaSalle Messenger Paper Company, a former supplier of paper to the defendant, sued
defendant for unpaid supplies in the amount of forty-two thousand dollars. Defendant
was also sued by another supplier, Midland Paper Company, for money owed. Both
plaintiff and defendant deal with the same type of paper suppliers.
14. Defendant's printing business and plaintiff's office supply business, which includes
the sale of printed forms and goods, are closely related. Defendant's printed forms and
plaintiff's printed forms and office supplies are sold to the same class of purchasers. For
example, both defendant and plaintiff do business with advertising agencies and with the
U. S. government. The goods, themselves, are close in proximity; both defendant and
206
Trademark Cases
I.P. Survey Cases
Prof. Janicke
plaintiff sell printed forms used by businesses. Plaintiff intends to disseminate a catalog
of forms for business use beginning in March 1982. In addition, many companies are
both printing and office supply companies.Plaintiff already does some of its own printing
on its own offset printing presses. Defendant and plaintiff also deal with some of the
same suppliers, such as Regency Thermographers. Defendant has expressed an intent to
expand its printing business into new fields that are also closely related to plaintiff's
business. For example, defendant has indicated that it wants to print for direct-mail
marketers.
15. Many companies in the printing business are members of the National Office
Products Association (NOPA) and the Direct Mail/Marketing Association, Inc. (DMMA).
Plaintiff Quill Corporation is an active member of both associations inasmuch as plaintiff
is in the direct mail business and in the office supply business. Plaintiff's president has
spoken at meetings of DMMA in the past two years and also at meetings of NOPA in
prior years.
16. Plaintiff's name and mark QUILL is a strong mark that is applied to plaintiff's
business and products. Plaintiff has continuously used the mark since 1956 and has spent
substantial time, effort and money in building up valuable good will and a reputation in
the mark. Defendant's continued use of plaintiff's name and mark QUILL has caused and
is likely to continue to cause confusion or mistake or to deceive the public as to the source
or origin of defendant's products and/or defendant's association with or sponsorship by
plaintiff. The instances of actual confusion between defendant and plaintiff are probative
evidence of this.
17. That other unrelated firms may use the term "Quill" in connection with their
businesses does not detract from or diminish the strong good will built up by plaintiff in
the name or the likelihood of confusion between plaintiff's and defendant's concurrent use
of QUILL.
18. There is a real likelihood that the confusion between plaintiff and defendant may
detrimentally affect plaintiff's business reputation.
19. To the extent that any of the foregoing findings of fact are deemed to be
conclusions of law, they are hereby adopted as conclusions of law.
On the above and foregoing findings of fact, the court now makes the following
conclusions of law:
Conclusions of Law
207
Trademark Cases
I.P. Survey Cases
Prof. Janicke
1. Plaintiff's action is based on trademark infringement, false description or
representation as to defendant's goods and services and unfair competition. The court has
jurisdiction by virtue of Title 15 U.S.C., Sections 1114(1), 1121 and 1125(a), and Title 28
U.S.C., Section 1338. The court also has jurisdiction over the pendant claims arising
under state law pursuant to 28 U.S.C. 1338(b). Venue lies in this district by virtue of Title
28 U.S.C. 1391(b) and (c).
2. Plaintiff's Federal Registration No. 1,132,012 for the mark QUILL as applied to its
office supply business is prima facie evidence of the validity of the registration, plaintiff's
ownership of the mark, and of its exclusive right to use of the mark in commerce in
connection with the goods or services specified in the certificate. Plaintiff's aforesaid
registration is valid and owned by plaintiff.
3. Plaintiff's Federal Registration No. 1,137,326 for the mark QUILL plus a design as
applied to its office supply business is prima facie evidence of the validity of the
registration, plaintiff's ownership of the mark, and of its exclusive right to use of the mark
in commerce in connection with the goods and services specified in the certificate.
Plaintiff's aforesaid registration is valid and owned by plaintiff.
4. A trademark or service mark is infringed when an individual uses a trademark or
service mark of another:
(a) without consent;
(b) in connection with the sale of goods or performance of services; and
(c) where such use is likely to cause confusion or deceive purchasers as to the source, or
sponsorship or association of the goods or services.
5. To prove trademark or service mark infringement under the Lanham Act, it is not
necessary for plaintiff to show actual confusion, but only that defendant's activities are
likely to cause confusion or deceive the public. Since evidence of actual confusion is
difficult to obtain in actions such as this, any such evidence is persuasive of the existence
of likelihood of confusion. Accordingly, the instances of actual confusion presented by
plaintiff are strong evidence of a likelihood of confusion.
6. Likelihood of confusion is determined by evaluating, inter alia:
(1) the degree of similarity between the marks;
208
Trademark Cases
I.P. Survey Cases
Prof. Janicke
(2) the similarity between the products in connection with which the marks are used;
and
(3) the strength of complainant's mark.
7. The likelihood-of-confusion test requires only confusion as to approval, association
or sponsorship.
8. Competition between the parties is not necessary for there to be a likelihood of
confusion. The absence of direct competition is no obstacle to a finding of trademark
infringement or unfair competition where the goods or services of the parties are related
such that confusion is likely as to source, association or sponsorship. To determine
whether goods are so related that confusion is likely, certain relevant factors, inter alia,
should be considered:
(1) the likelihood that the junior user's goods or services will be mistaken for those of
the senior user;
(2) the likelihood that the junior user may expand its business into a field already
occupied by the senior user;
(3) the extent to which the junior and senior user's goods have common purchasers;
(4) the similarity between the goods themselves;
(5) the degree of similarity between the two marks; and
(6) the distinctiveness of the mark.
9. Defendant's name Quill Printing Corporation is almost identical to plaintiff's name
Quill Corporation, and plaintiff's mark QUILL forms the dominant part of defendant's
name. Defendant's printed forms and plaintiff's office supplies, which include printed
forms, are close in proximity, are sold to the same class of purchasers, and defendant has
indicated that it desires to expand into at least one business field in which plaintiff does
business. Plaintiff has used the name and mark QUILL from a time long prior to
defendant's first use and has established substantial good will in the mark through its long
and widespread use as evidenced by the actual confusion between the parties that has
already occurred. Defendant and plaintiff deal with the same class of suppliers to
purchase paper for the printing of their products. The court thus concludes that there is a
likelihood of confusion between defendant's use of the name QUILL in connection with
its business and plaintiff's use of QUILL in connection with its business. Because plaintiff
209
Trademark Cases
I.P. Survey Cases
Prof. Janicke
adopted and began to use the mark QUILL long prior to defendant's first use, plaintiff has
superior rights in the mark, and defendant's unauthorized use of plaintiff's name and mark
is trade name and trademark infringement in violation of 15 U.S.C. Section 1114 and the
laws of the State of Illinois.
10. Defendant's conduct is also unlawful under principles of unfair competition and
violates Section 43(a) of the Lanham Act, 15 U.S.C. Section 1125(a).
11. Under the Illinois Antidilution Statute, the owner of a trademark is entitled to
protection against dilution of the distinctive quality of its mark through use by another.
The continuing value of plaintiff's mark depends on plaintiff's exclusivity of use and
control.
12. The use by other unrelated firms of the term QUILL in connection with their
businesses is irrelevant to the question of plaintiff's right to relief against defendant in this
case. The propriety of such use in other situations would have to be determined on a
case-by-case basis depending on the circumstances of each case.
13. Assuming that the defendant ordered and received products from plaintiff in 1976,
this is not sufficient to impute knowledge of defendant's use of the mark QUILL to
plaintiff in 1976 since defendant has failed to show that anyone than plaintiff's
bookkeepers and clerks may have known of such usage. As a matter of law, the court
finds that plaintiff did not have knowledge of defendant's use of the mark QUILL until
the early part of 1980.
14. To establish laches, defendant must show that the plaintiff delayed in filing the suit,
that the delay was inexcusable, that defendant has relied on the delay and has made a
substantial change of its position so as to be prejudiced. Where a court finds deliberate
infringment on the part of defendant, it may refuse to allow the defense of laches to be
raised for any purpose. Even though laches may bar damages in an appropriate case, it
will generally not bar an injuction, which is the only relief sought in this case, because the
public must be protected from the use of confusingly similar trademarks, and trademark
infringement is a continuing wrong which gives rise to a claim for relief as long as the
infringement persists. Defendant has failed to show inexcusable delay resulting in
prejudice to it. Nor has it shown any substantial change of position. Furthermore,
defendant's infringement has been deliberate and has persisted in spite of its knowledge of
continuing actual confusion. For these reasons, defendant's laches defense must be
rejected.
15. Defendant has raised a defense under 15 U.S.C. Section 1115(b)(5). The status
requires innocent adoption and continuous use of the mark prior to issuance of the
210
Trademark Cases
I.P. Survey Cases
Prof. Janicke
registered mark. Here defendant's use has not been innocent. Defendant had knowledge
of plaintiff's mark at the time of adoption or within a very short time thereafter.
"Defendant has also been aware of actual confusion occurring between it and plaintiff, but
has persisted in the use of plaintiff's mark QUILL.
16. Defendant's defense under 15 U.S.C. 1115(b)(5) is not applicable here for an
additional reason. The defense is applicable only when the second comer has used the
conflicting mark in a geographic market distinct and separate from that of the senior user.
Plaintiff and defendant concurrently use the mark QUILL not only in the Chicago area,
but throughout the country.
17. Defendant also contends that plaintiff's mark QUILL is generic or merely
descriptive. Generic marks are the actual names or the designations of the products or
services themselves. A mark is descriptive if it describes the intended purpose, function,
qualities, appearance or other features of the goods or services. Plaintiff's mark QUILL is
not be common or descriptive name for plaintiff's products and services, and does not
merely describe plaintiff's products or services.
18. There are several kinds of harm that plaintiff is likely to suffer which are not likely
to be redressed by an award of damages. First, appropriation of plaintiff's good will and
injury to its business reputation resulting from defendant's adoption of the mark QUILL
cannot be adequately compensated in money damages.Second, plaintiff's lack of control
over the nature and quality of services and products which are likely to be associated with
plaintiff's mark, reputation and goodwill further constitutes irreparable injury. Third, it
would be impossible to measure the damages attributable to the dilution of plaintiff's
mark by its use by defendant.
19. To the extent that any of the foregoing conclusions of law are deemed to be
findings of fact, they are hereby adopted as findings of fact. On the basis of findings of
fact and conclusions of law entered concurrently herewith, the clerk is accordingly
directed to enter an order pursuant to Rule 58 of the Federal Rules of Civil Procedure
decreeing that:
A. Defendant, its agents, servants, employees, successors, assigns and all those
controlled by them or in active concert or participation with them are permanently
enjoined forthwith, except as provided in paragraphs B, C and D herein, from:
(1) reproducing, copying, counterfeiting, misappropriating, colorably imitating or
otherwise using in any way in connection with defendant's products or business without
the consent of plaintiff the mark QUILL either alone or in connection with any other
name, mark, designation or symbol;
211
Trademark Cases
I.P. Survey Cases
Prof. Janicke
(2) using in any way in connection with defendant's business or products without the
consent of plaintiff any mark, designation or name so similar to plaintiff's mark QUILL as
to be likely to cause confusion or cause mistake or deceive;
(3) licensing or authorizing others to use the aforesaid mark; and
(4) injuring plaintiff's business reputation and diluting the distinctive quality of
plaintiff's mark QUILL and otherwise unfairly competing, directly or indirectly, with
plaintiff.
B. Defendant is to deliver up for destruction to plaintiff by April 30, 1982 all signs,
stationery, articles of merchandise, displays, advertisements, or any other materials in its
possession or control or in the possession or contol of its agents which bear plaintiff's
aforesaid mark or to provide plaintiff by April 30, 1982 an affidavit of defendant's
president stating that all such items have been destroyed.
C. Defendant shall by April 30, 1982 have obtained an amendment to its Articles Of
Incorporation changing its name QUILL Printing Corporation to another name, not
including the word "Quill" or any confusingly similar term.
D. Defendant its agents, servants, employees, successors, assigns and all those
controlled by them or in active concert or participation with them shall by April 30, 1982
cease using any products or printed materials containing the term QUILL, except that
defendant may, until July 31, 1982, refer to itself as "formerly Quill Printing Corporation"
solely in connection with its dealings with the United States Government Printing Office
that are conducted by defendant's Washington, D.C. office.
E. Plaintiff shall recover the costs of this action in the amount of $950.00, to be paid by
Certified or Cashier's Check and to be delivered to plaintiff's counsel on or before March
1, 1982.
SUPREME COURT OF THE UNITED STATES
PARK 'N FLY, INC. v. DOLLAR PARK AND FLY, INC.
469 U.S. 189 (1985)
212
Trademark Cases
I.P. Survey Cases
Prof. Janicke
O'CONNOR, J., delivered the opinion of the Court, in which BURGER, C. J., and
BRENNAN, WHITE, MARSHALL, BLACKMUN, POWELL, and REHNQUIST, JJ.,
joined. STEVENS, J., filed a dissenting opinion, post.
JUSTICE O'CONNOR delivered the opinion of the Court.
In this case we consider whether an action to enjoin the infringement of an incontestable
trade or service mark may be defended on the grounds that the mark is merely descriptive.
We conclude that neither the language of the relevant statutes nor the legislative history
supports such a defense.
I
Petitioner operates long-term parking lots near airports. After starting business in St.
Louis in 1967, petitioner subsequently opened facilities in Cleveland, Houston, Boston,
Memphis, and San Francisco. Petitioner applied in 1969 to the United States Patent and
Trademark Office (Patent Office) to register a service mark consisting of the logo of an
airplane and the words "Park 'N Fly." n1 The registration issued in August 1971. Nearly
six years later, petitioner filed an affidavit with the Patent Office to establish the
incontestable status of the mark. n2 As required by § 15 of the Trademark Act of 1946
(Lanham Act), 60 Stat. 433, as amended, 15 U. S. C. § 1065, the affidavit stated that the
mark had been registered and in continuous use for five consecutive years, that there had
been no final adverse decision to petitioner's claim of ownership or right to registration,
and
that no proceedings involving such rights were pending. Incontestable status
provides, subject to the provisions of § 15 and § 33(b) of the Lanham Act, "conclusive
evidence of the registrant's exclusive right to use the registered mark. . . ." § 33(b), 15 U.
S. C. § 1115(b).
n1 The Trademark Act of 1946 (Lanham Act), 60 Stat. 427, as amended, 15 U. S. C.
§ 1051 et seq., generally applies the same principles concerning registration and
protection to both trade and service marks. See § 3, 15 U. S. C. § 1053. The Lanham
Act defines a trademark to include "any word, name, symbol, or device or any
combination thereof adopted and used by a manufacturer or merchant to identify his
goods and distinguish them from those manufactured or sold by others." § 45, 15 U. S.
C. § 1127. A service mark is "a mark used in the sale or advertising of services to
identify the services of one person and distinguish them from the services of others."
Ibid.
213
Trademark Cases
I.P. Survey Cases
Prof. Janicke
n2 Petitioner also applied in 1977 to register a mark consisting only of the words
"Park 'N Fly." That mark issued in 1979, but has not become incontestable. The
existence of this mark does not affect our resolution of the issues in this case.
Respondent also provides long-term airport parking services, but only has operations in
Portland, Oregon. Respondent calls its business "Dollar Park and Fly." Petitioner filed
this infringement action in 1978 in the United States District Court for the District of
Oregon and requested the court permanently to enjoin respondent from using the words
"Park and Fly" in connection with its business. Respondent counterclaimed and sought
cancellation of petitioner's mark on the grounds that it is a generic term. See § 14(c), 15
U. S. C. § 1064(c). Respondent also argued that petitioner's mark is unenforceable
because it is merely descriptive. See § 2(e), 15 U. S. C. § 1052(e). As two additional
defenses, respondent maintained that it is in privity with a Seattle corporation that has
used the expression "Park and Fly" since a date prior to the registration of petitioner's
mark, see § 33(b)(5), 15 U. S. C. § 1115(b)(5), and that it has not infringed because there
is no likelihood of confusion. See § 32(1), 15 U. S. C. § 1114(1).
After a bench trial, the District Court found that petitioner's mark is not generic and
observed that an incontestable mark cannot be challenged on the grounds that it is merely
descriptive. App. 75. The District Court also concluded that there was no evidence of
privity between respondent and the Seattle corporation. App. 76. Finally, the District
Court found sufficient evidence of likelihood of confusion. App. 76. The District Court
permanently enjoined respondent from using the words "Park and Fly" and any other
mark confusingly similar to "Park 'N Fly." App. 77.
The Court of Appeals for the Ninth Circuit reversed. 718 F.2d 327 (1983). The District
Court did not err, the Court of Appeals held, in refusing to invalidate petitioner's mark.
Id., at 331. The Court of Appeals noted, however, that it previously had held that
incontestability provides a defense against the cancellation of a mark, but it may not be
used offensively to enjoin another's use. Ibid. Petitioner, under this analysis, could
obtain an injunction only if its mark would be entitled to continued registration without
regard to its incontestable status. Thus, respondent could defend the infringement action
by showing that the mark was merely descriptive. Based on its own examination of the
record, the Court of Appeals then determined that petitioner's mark is in fact merely
descriptive, and therefore respondent should not be enjoined from using the name "Park
and Fly." Ibid.
The decision below is in direct conflict with the decision of the Court of Appeals for the
Seventh Circuit in Union Carbide Corp. v. Ever-Ready, Inc., 531 F.2d 366, cert. denied,
429 U.S. 830 (1976). We granted certiorari to resolve this conflict, 465 U.S. 1078 (1984),
and we now reverse.
214
Trademark Cases
I.P. Survey Cases
Prof. Janicke
II
Congress enacted the Lanham Act in 1946 in order to provide national protection for
trademarks used in interstate and foreign commerce. S. Rep. No. 1333, 79th Cong., 2d
Sess., 5 (1946). Previous federal legislation, such as the Federal Trademark Act of 1905,
33 Stat. 724, reflected the view that protection of trademarks was a matter of state
concern and that the right to a mark depended solely on the common law. S. Rep. No.
1333, at 5. Consequently, rights to trademarks were uncertain and subject to variation in
different parts of the country. Because trademarks desirably promote competition and the
maintenance of product quality, Congress determined that "a sound public policy requires
that trademarks should receive nationally the greatest protection that can be given them."
Id., at 6. Among the new protections created by the Lanham Act were the statutory
provisions that allow a federally registered mark to become incontestable. §§ 15, 33(b),
15 U. S. C. §§ 1065, 1115(b).
The provisions of the Lanham Act concerning registration and incontestability
distinguish a mark that is "the common descriptive name of an article or substance" from
a mark that is "merely descriptive." §§ 2(e), 14(c), 15 U. S. C. §§ 1052(e), 1064(c).
Marks that constitute a common descriptive name are referred to as generic. A generic
term is one that refers to the genus of which the particular product is a species.
Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (CA2 1976). Generic
terms are not registrable, and a registered mark may be canceled at any time on the
grounds that it has become generic. See §§ 2, 14(c), 15 U. S. C. §§ 1052, 1064(c). A
"merely descriptive" mark, in contrast, describes the qualities or characteristics of a good
or service, and this type of mark may be registered only if the registrant shows that it has
acquired secondary meaning, i. e., it "has become distinctive of the applicant's goods in
commerce." §§ 2(e), (f), 15 U. S. C. §§ 1052(e), (f).
This case requires us to consider the effect of the incontestability provisions of the
Lanham Act in the context of an infringement action defended on the grounds that the
mark is merely descriptive. Statutory construction must begin with the language
employed by Congress and the assumption that the ordinary meaning of that language
accurately expresses the legislative purpose. See American Tobacco Co. v. Patterson,
456 U.S. 63, 68 (1982). With respect to incontestable trade or service marks, § 33(b) of
the Lanham Act states that "registration shall be conclusive evidence of the registrant's
exclusive right to use the registered mark" subject to the conditions of § 15 and certain
enumerated defenses. n3 Section 15 incorporates by reference subsections (c) and (e) of §
14, 15 U. S. C. § 1064. An incontestable mark that becomes generic may be canceled at
any time pursuant to § 14(c). That section also allows cancellation of an incontestable
mark at any time if it has been abandoned, if it is being used to misrepresent the source of
215
Trademark Cases
I.P. Survey Cases
Prof. Janicke
the goods or services in connection with which it is used, or if it was obtained
fraudulently or contrary to the provisions of § 4, 15 U. S. C. § 1054, or §§ 2(a)-(c), 15 U.
S. C. §§ 1052(a)-(c). n4
n3 Section 33(b) of the Lanham Act, as set forth in 15 U. S. C. § 1115(b), provides:
"If the right to use the registered mark has become incontestable under section 1065
of this title, the registration shall be conclusive evidence of the registrant's exclusive
right to use the registered mark in commerce or in connection with the goods or
services specified in the affidavit filed under the provisions of said section 1065
subject to any conditions or limitations stated therein except when one of the following
defenses or defects is established:
"(1) That the registration or the incontestable right to use the mark was obtained
fraudulently; or
"(2) That the mark has been abandoned by the registrant; or
"(3) That the registered mark is being used, by or with the permission of the
registrant or a person in privity with the registrant, so as to misrepresent the source of
the goods or services in connection with which the mark is used; or
"(4) That the use of the name, term, or device charged to be an infringement is a use,
otherwise than as a trade or service mark, of the party's individual name in his own
business, or of the individual name of anyone in privity with such party, or of a term or
device which is descriptive of and used fairly and in good faith only to describe to
users the goods or services of such party, or their geographic origin; or
"(5) That the mark whose use by a party is charged as an infringement was adopted
without knowledge of the registrant's prior use and has been continuously used by such
party or those in privity with him from a date prior to registration of the mark under
this chapter or publication of the registered mark under subsection (c) of section 1062
of this title: Provided, however, That this defense or defect shall apply only for the area
in which such continuous prior use is proved; or
"(6) That the mark whose use is charged as an infringement was registered and used
prior to the registration under this chapter or publication under subsection (c) of
section 1062 of this title of the registered mark of the registrant, and not abandoned:
Provided, however, That this defense or defect shall apply only for the area in which
the mark was used prior to such registration or such publication of the registrant's
mark; or
216
Trademark Cases
I.P. Survey Cases
Prof. Janicke
"(7) That the mark has been or is being used to violate the antitrust laws of the
United States."
n4 Sections 2(a)-(c) prohibit registration of marks containing specified subject
matter, e. g., the flag of the United States. Sections 4 and 14(e) concern certification
marks and are inapplicable to this case.
One searches the language of the Lanham Act in vain to find any support for the
offensive/defensive distinction applied by the Court of Appeals. The statute nowhere
distinguishes between a registrant's offensive and defensive use of an incontestable mark.
On the contrary, § 33(b)'s declaration that the registrant has an "exclusive right" to use the
mark indicates that incontestable status may be used to enjoin infringement by others. A
conclusion that such infringement cannot be enjoined renders meaningless the "exclusive
right" recognized by the statute. Moreover, the language in three of the defenses
enumerated in § 33(b) clearly contemplates the use of incontestability in infringement
actions by plaintiffs. See §§ 33 (b)(4)-(6), 15 U. S. C. §§ 1115(b)(4)-(6).
The language of the Lanham Act also refutes any conclusion that an incontestable mark
may be challenged as merely descriptive. A mark that is merely descriptive of an
applicant's goods or services is not registrable unless the mark has secondary meaning.
Before a mark achieves incontestable status, registration provides prima facie evidence of
the registrant's exclusive right to use the mark in commerce. § 33(a), 15 U. S. C. §
1115(a). The Lanham Act expressly provides that before a mark becomes incontestable
an opposing party may prove any legal or equitable defense which might have been
asserted if the mark had not been registered. Ibid. Thus, § 33(a) would have allowed
respondent to challenge petitioner's mark as merely descriptive if the mark had not
become incontestable. With respect to incontestable marks, however, § 33(b) provides
that registration is conclusive evidence of the registrant's exclusive right to use the mark,
subject to the conditions of § 15 and the seven defenses enumerated in § 33(b) itself.
Mere descriptiveness is not recognized by either § 15 or § 33(b) as a basis for challenging
an incontestable mark.
The statutory provisions that prohibit registration of a merely descriptive mark but do
not allow an incontestable mark to be challenged on this ground cannot be attributed to
inadvertence by Congress. The Conference Committee rejected an amendment that
would have denied registration to any descriptive mark, and instead retained the
provisions allowing registration of a merely descriptive mark that has acquired secondary
meaning. See H. R. Conf. Rep. No. 2322, 79th Cong., 2d Sess., 4 (1946) (explanatory
217
Trademark Cases
I.P. Survey Cases
Prof. Janicke
statement of House managers). The Conference Committee agreed to an amendment
providing that no incontestable right can be acquired in a mark that is a common
descriptive, i. e., generic, term. Id., at 5. Congress could easily have denied
incontestability to merely descriptive marks as well as to generic marks had that been its
intention.
The Court of Appeals in discussing the offensive/defensive distinction observed that
incontestability protects a registrant against cancellation of his mark. 718 F.2d, at 331.
This observation is incorrect with respect to marks that become generic or which
otherwise may be canceled at any time pursuant to §§ 14(c) and (e). Moreover, as applied
to marks that are merely descriptive, the approach of the Court of Appeals makes
incontestable status superfluous. Without regard to its incontestable status, a mark that
has been registered five years is protected from cancellation except on the grounds stated
in §§ 14(c) and (e). Pursuant to § 14, a mark may be canceled on the grounds that it is
merely descriptive only if the petition to cancel is filed within five years of the date of
registration. § 14(a), 15 U. S. C. § 1064(a). The approach adopted by the Court of
Appeals implies that incontestability adds nothing to the protections against cancellation
already provided in § 14. The decision below not only lacks support in the words of the
statute; it effectively emasculates § 33(b) under the circumstances of this case.
SUPREME COURT OF THE UNITED STATES
QUALITEX CO. v. JACOBSON PRODS. CO.
514 U.S. 159 (1995)
JUSTICE BREYER delivered the opinion of the Court.
The question in this case is whether the Trademark Act of 1946 (Lanham Act), 15 U.S.C.
§§ 1051-1127 (1988 ed. and Supp. V), permits the registration of a trademark that
consists, purely and simply, of a color. We conclude that, sometimes, a color will meet
ordinary legal trademark requirements. And, when it does so, no special legal rule
prevents color alone from serving as a trademark.
I
218
Trademark Cases
I.P. Survey Cases
Prof. Janicke
The case before us grows out of petitioner Qualitex Company's use (since the 1950's) of
a special shade of green-gold color on the pads that it makes and sells to dry cleaning
firms for use on dry cleaning presses. In 1989, respondent Jacobson Products (a Qualitex
rival) began to sell its own press pads to dry cleaning firms; and it colored those pads a
similar green-gold. In 1991, Qualitex registered the special green-gold color on press pads
with the Patent and Trademark Office as a trademark. Registration No. 1,633,711 (Feb. 5,
1991). Qualitex subsequently added a trademark infringement count, 15 U.S.C. § 1114(1),
to an unfair competition claim, § 1125(a), in a lawsuit it had already filed challenging
Jacobson's use of the green-gold color.
Qualitex won the lawsuit in the District Court. 21 U.S.P.Q.2D (BNA) 1457 (CD Cal.
1991). But, the Court of Appeals for the Ninth Circuit set aside the judgment in Qualitex's
favor on the trademark infringement claim because, in that Circuit's view, the Lanham
Act does not permit Qualitex, or anyone else, to register "color alone" as a trademark. 13
F.3d 1297, 1300, 1302 (1994).
The Courts of Appeals have differed as to whether or not the law recognizes the use of
color alone as a trademark. Compare NutraSweet Co. v. Stadt Corp., 917 F.2d 1024, 1028
(CA7 1990) (absolute prohibition against protection of color alone), with In re OwensCorning Fiberglas Corp., 774 F.2d 1116, 1128 (CA Fed. 1985) (allowing registration of
color pink for fiberglass insulation), and Master Distributors, Inc. v. Pako Corp., 986
F.2d 219, 224 (CA8 1993) (declining to establish per se prohibition against protecting
color alone as a trademark). Therefore, this Court granted certiorari. 512 U.S. 1287
(1994). We now hold that there is no rule absolutely barring the use of color alone, and
we reverse the judgment of the Ninth Circuit.
II
The Lanham Act gives a seller or producer the exclusive right to "register" a trademark,
15 U.S.C. § 1052 (1988 ed. and Supp. V), and to prevent his or her competitors from
using that trademark, § 1114(1). Both the language of the Act and the basic underlying
principles of trademark law would seem to include color within the universe of things that
can qualify as a trademark. The language of the Lanham Act describes that universe in the
broadest of terms. It says that trademarks "include any word, name, symbol, or device, or
any combination thereof." § 1127. Since human beings might use as a "symbol" or
"device" almost anything at all that is capable of carrying meaning, this language, read
literally, is not restrictive. The courts and the Patent and Trademark Office have
authorized for use as a mark a particular shape (of a Coca-Cola bottle), a particular sound
(of NBC's three chimes), and even a particular scent (of plumeria blossoms on sewing
thread). See, e. g., Registration No. 696,147 (Apr. 12, 1960); Registration Nos. 523,616
(Apr. 4, 1950) and 916,522 (July 13, 1971); In re Clarke, 17 U.S.P.Q.2D (BNA) 1238,
219
Trademark Cases
I.P. Survey Cases
Prof. Janicke
1240 (TTAB 1990). If a shape, a sound, and a fragrance can act as symbols why, one
might ask, can a color not do the same?
A color is also capable of satisfying the more important part of the statutory definition
of a trademark, which requires that a person "use" or "intend to use" the mark
"to identify and distinguish his or her goods, including a unique product, from
those manufactured or sold by others and to indicate the source of the goods, even
if that source is unknown." 15 U.S.C. § 1127.
True, a product's color is unlike "fanciful," "arbitrary," or "suggestive" words or designs,
which almost automatically tell a customer that they refer to a brand. The imaginary word
"Suntost," or the words "Suntost Marmalade," on a jar of orange jam immediately would
signal a brand or a product "source"; the jam's orange color does not do so. But, over
time, customers may come to treat a particular color on a product or its packaging (say, a
color that in context seems unusual, such as pink on a firm's insulating material or red on
the head of a large industrial bolt) as signifying a brand. And, if so, that color would have
come to identify and distinguish the goods -- i. e., "to indicate" their "source" -- much in
the way that descriptive words on a product (say, "Trim" on nail clippers or "CarFreshner" on deodorizer) can come to indicate a product's origin. In this circumstance,
trademark law says that the word (e. g., "Trim"), although not inherently distinctive, has
developed "secondary meaning." See Inwood Laboratories, Inc. v. Ives Laboratories,
Inc., 456 U.S. 844, 851, n. 11, 72 L. Ed. 2d 606, 102 S. Ct. 2182 (1982) ("Secondary
meaning" is acquired when "in the minds of the public, the primary significance of a
product feature . . . is to identify the source of the product rather than the product itself").
Again, one might ask, if trademark law permits a descriptive word with secondary
meaning to act as a mark, why would it not permit a color, under similar circumstances,
to do the same?
We cannot find in the basic objectives of trademark law any obvious theoretical objection
to the use of color alone as a trademark, where that color has attained "secondary
meaning" and therefore identifies and distinguishes a particular brand (and thus indicates
its "source"). In principle, trademark law, by preventing others from copying a sourceidentifying mark, "reduce[s] the customer's costs of shopping and making purchasing
decisions," 1 J. McCarthy, McCarthy on Trademarks and Unfair Competition § 2.01[2], p.
2-3 (3d ed. 1994) (hereinafter McCarthy), for it quickly and easily assures a potential
customer that this item -- the item with this mark -- is made by the same producer as other
similarly marked items that he or she liked (or disliked) in the past. At the same time, the
law helps assure a producer that it (and not an imitating competitor) will reap the
financial, reputation-related rewards associated with a desirable product. The law thereby
"encourage[s] the production of quality products," ibid., and simultaneously discourages
220
Trademark Cases
I.P. Survey Cases
Prof. Janicke
those who hope to sell inferior products by capitalizing on a consumer's inability quickly
to evaluate the quality of an item offered for sale. It is the source-distinguishing ability of
a mark -- not its ontological status as color, shape, fragrance, word, or sign -- that permits
it to serve these basic purposes. See Landes & Posner, Trademark Law: An Economic
Perspective, 30 J. Law & Econ. 265, 290 (1987). And, for that reason, it is difficult to
find, in basic trademark objectives, a reason to disqualify absolutely the use of a color as
a mark.
Neither can we find a principled objection to the use of color as a mark in the important
"functionality" doctrine of trademark law. The functionality doctrine prevents trademark
law, which seeks to promote competition by protecting a firm's reputation, from instead
inhibiting legitimate competition by allowing a producer to control a useful product
feature. It is the province of patent law, not trademark law, to encourage invention by
granting inventors a monopoly over new product designs or functions for a limited time,
35 U.S.C. §§ 154, 173, after which competitors are free to use the innovation. If a
product's functional features could be used as trademarks, however, a monopoly over
such features could be obtained without regard to whether they qualify as patents and
could be extended forever (because trademarks may be renewed in perpetuity).
Functionality doctrine therefore would require, to take an imaginary example, that even if
customers have come to identify the special illumination-enhancing shape of a new
patented light bulb with a particular manufacturer, the manufacturer may not use that
shape as a trademark, for doing so, after the patent had expired, would impede
competition -- not by protecting the reputation of the original bulb maker, but by
frustrating competitors' legitimate efforts to produce an equivalent illumination-enhancing
bulb. See, e. g., Kellogg Co., supra, at 119-120 (trademark law cannot be used to extend
monopoly over "pillow" shape of shredded wheat biscuit after the patent for that shape
had expired). This Court consequently has explained that, "in general terms, a product
feature is functional," and cannot serve as a trademark, "if it is essential to the use or
purpose of the article or if it affects the cost or quality of the article," that is, if exclusive
use of the feature would put competitors at a significant non-reputation-related
disadvantage. Inwood Laboratories, Inc., supra, at 850, n. 10. Although sometimes color
plays an important role (unrelated to source identification) in making a product more
desirable, sometimes it does not. And, this latter fact -- the fact that sometimes color is
not essential to a product's use or purpose and does not affect cost or quality -- indicates
that the doctrine of "functionality" does not create an absolute bar to the use of color
alone as a mark. See Owens-Corning, 774 F.2d at 1123 (pink color of insulation in wall
"performs no non-trademark function").
It would seem, then, that color alone, at least sometimes, can meet the basic legal
requirements for use as a trademark. It can act as a symbol that distinguishes a firm's
goods and identifies their source, without serving any other significant function. See U.S.
221
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Dept. of Commerce, Patent and Trademark Office, Trademark Manual of Examining
Procedure § 1202.04(e), p. 1202-13 (2d ed. May, 1993) (hereinafter PTO Manual)
(approving trademark registration of color alone where it "has become distinctive of the
applicant's goods in commerce," provided that "there is [no] competitive need for colors
to remain available in the industry" and the color is not "functional"); see also 1
McCarthy §§ 3.01[1], 7.26, pp. 3-2, 7-113 ("requirements for qualification of a word or
symbol as a trademark" are that it be (1) a "symbol," (2) "used . . . as a mark," (3) "to
identify and distinguish the seller's goods from goods made or sold by others," but that it
not be "functional"). Indeed, the District Court, in this case, entered findings (accepted by
the Ninth Circuit) that show Qualitex's green-gold press pad color has met these
requirements. The green-gold color acts as a symbol. Having developed secondary
meaning (for customers identified the green-gold color as Qualitex's), it identifies the
press pads' source. And, the green-gold color serves no other function. (Although it is
important to use some color on press pads to avoid noticeable stains, the court found "no
competitive need in the press pad industry for the green-gold color, since other colors are
equally usable." 21 U.S.P.Q.2D (BNA) at 1460.) Accordingly, unless there is some
special reason that convincingly militates against the use of color alone as a trademark,
trademark law would protect Qualitex's use of the green-gold color on its press pads.
III
Respondent Jacobson Products says that there are four special reasons why the law
should forbid the use of color alone as a trademark. We shall explain, in turn, why we,
ultimately, find them unpersuasive.
First, Jacobson says that, if the law permits the use of color as a trademark, it will produce
uncertainty and unresolvable court disputes about what shades of a color a competitor
may lawfully use. Because lighting (morning sun, twilight mist) will affect perceptions of
protected color, competitors and courts will suffer from "shade confusion" as they try to
decide whether use of a similar color on a similar product does, or does not, confuse
customers and thereby infringe a trademark. Jacobson adds that the "shade confusion"
problem is "more difficult" and "far different from" the "determination of the similarity of
words or symbols." Brief for Respondent 22.
We do not believe, however, that color, in this respect, is special. Courts traditionally
decide quite difficult questions about whether two words or phrases or symbols are
sufficiently similar, in context, to confuse buyers. They have had to compare, for
example, such words as "Bonamine" and "Dramamine" (motion-sickness remedies);
"Huggies" and "Dougies" (diapers); "Cheracol" and "Syrocol" (cough syrup); "Cyclone"
and "Tornado" (wire fences); and "Mattres" and "1-800-Mattres" (mattress franchisor
telephone numbers). Legal standards exist to guide courts in making such comparisons.
222
Trademark Cases
I.P. Survey Cases
Prof. Janicke
See, e. g., 2 McCarthy § 15.08; 1 McCarthy §§ 11.24-11.25 ("Strong" marks, with greater
secondary meaning, receive broader protection than "weak" marks). We do not see why
courts could not apply those standards to a color, replicating, if necessary, lighting
conditions under which a colored product is normally sold. See Ebert, Trademark
Protection in Color: Do It By the Numbers!, 84 T. M. Rep. 379, 405 (1994). Indeed,
courts already have done so in cases where a trademark consists of a color plus a design,
i. e., a colored symbol such as a gold stripe (around a sewer pipe), a yellow strand of wire
rope, or a "brilliant yellow" band (on ampules).
Second, Jacobson argues, as have others, that colors are in limited supply. See, e. g.,
NutraSweet Co., 917 F.2d at 1028; Campbell Soup Co. v. Armour & Co., 175 F.2d 795,
798 (CA3 1949). Jacobson claims that, if one of many competitors can appropriate a
particular color for use as a trademark, and each competitor then tries to do the same, the
supply of colors will soon be depleted. Put in its strongest form, this argument would
concede that "hundreds of color pigments are manufactured and thousands of colors can
be obtained by mixing." L. Cheskin, Colors: What They Can Do For You 47 (1947). But,
it would add that, in the context of a particular product, only some colors are usable. By
the time one discards colors that, say, for reasons of customer appeal, are not usable, and
adds the shades that competitors cannot use lest they risk infringing a similar, registered
shade, then one is left with only a handful of possible colors. And, under these
circumstances, to permit one, or a few, producers to use colors as trademarks will
"deplete" the supply of usable colors to the point where a competitor's inability to find a
suitable color will put that competitor at a significant disadvantage.
This argument is unpersuasive, however, largely because it relies on an occasional
problem to justify a blanket prohibition. When a color serves as a mark, normally
alternative colors will likely be available for similar use by others. See, e. g., OwensCorning, 774 F.2d at 1121 (pink insulation). Moreover, if that is not so -- if a "color
depletion" or "color scarcity" problem does arise -- the trademark doctrine of
"functionality" normally would seem available to prevent the anticompetitive
consequences that Jacobson's argument posits, thereby minimizing that argument's
practical force.
The functionality doctrine, as we have said, forbids the use of a product's feature as a
trademark where doing so will put a competitor at a significant disadvantage because the
feature is "essential to the use or purpose of the article" or "affects [its] cost or quality."
Inwood Laboratories, Inc., 456 U.S. at 850, n. 10. The functionality doctrine thus protects
competitors against a disadvantage (unrelated to recognition or reputation) that trademark
protection might otherwise impose, namely their inability reasonably to replicate
important non-reputation-related product features. For example, this Court has written
that competitors might be free to copy the color of a medical pill where that color serves
223
Trademark Cases
I.P. Survey Cases
Prof. Janicke
to identify the kind of medication (e. g., a type of blood medicine) in addition to its
source. See id., at 853, 858, n. 20 ("Some patients commingle medications in a container
and rely on color to differentiate one from another"); see also J. Ginsburg, D. Goldberg,
& A. Greenbaum, Trademark and Unfair Competition Law 194-195 (1991) (noting that
drug color cases "have more to do with public health policy" regarding generic drug
substitution "than with trademark law"). And, the federal courts have demonstrated that
they can apply this doctrine in a careful and reasoned manner, with sensitivity to the
effect on competition. Although we need not comment on the merits of specific cases, we
note that lower courts have permitted competitors to copy the green color of farm
machinery (because customers wanted their farm equipment to match) and have barred
the use of black as a trademark on outboard boat motors (because black has the special
functional attributes of decreasing the apparent size of the motor and ensuring
compatibility with many different boat colors). The Restatement (Third) of Unfair
Competition adds that, if a design's "aesthetic value" lies in its ability to "confer a
significant benefit that cannot practically be duplicated by the use of alternative designs,"
then the design is "functional." Restatement (Third) of Unfair Competition § 17,
Comment c, pp. 175-176 (1993). The "ultimate test of aesthetic functionality," it explains,
"is whether the recognition of trademark rights would significantly hinder competition."
Id., at 176.
The upshot is that, where a color serves a significant nontrademark function -- whether
to distinguish a heart pill from a digestive medicine or to satisfy the "noble instinct for
giving the right touch of beauty to common and necessary things," G. Chesterton,
Simplicity and Tolstoy 61 (1912) -- courts will examine whether its use as a mark would
permit one competitor (or a group) to interfere with legitimate (nontrademark-related)
competition through actual or potential exclusive use of an important product ingredient.
That examination should not discourage firms from creating esthetically pleasing mark
designs, for it is open to their competitors to do the same. See, e. g., W. T. Rogers Co. v.
Keene, 778 F.2d 334, 343 (CA7 1985) (Posner, J.). But, ordinarily, it should prevent the
anticompetitive consequences of Jacobson's hypothetical "color depletion" argument,
when, and if, the circumstances of a particular case threaten "color depletion."
Third, Jacobson points to many older cases -- including Supreme Court cases -- in
support of its position. In 1878, this Court described the common-law definition of
trademark rather broadly to "consist of a name, symbol, figure, letter, form, or device, if
adopted and used by a manufacturer or merchant in order to designate the goods he
manufactures or sells to distinguish the same from those manufactured or sold by
another." McLean v. Fleming, 96 U.S. 245, 254, 24 L. Ed. 828. Yet, in interpreting the
Trademark Acts of 1881 and 1905, 21 Stat. 502, 33 Stat. 724, which retained that
common-law definition, the Court questioned "whether mere color can constitute a valid
trade-mark," A. Leschen & Sons Rope Co. v. Broderick & Bascom Rope Co., 201 U.S.
224
Trademark Cases
I.P. Survey Cases
Prof. Janicke
166, 171, 50 L. Ed. 710, 26 S. Ct. 425 (1906), and suggested that the "product including
the coloring matter is free to all who make it," Coca-Cola Co. v. Koke Co. of America,
254 U.S. 143, 147, 65 L. Ed. 189, 41 S. Ct. 113 (1920). Even though these statements
amounted to dicta, lower courts interpreted them as forbidding protection for color alone.
These Supreme Court cases, however, interpreted trademark law as it existed before
1946, when Congress enacted the Lanham Act. The Lanham Act significantly changed
and liberalized the common law to "dispense with mere technical prohibitions," S. Rep.
No. 1333, 79th Cong., 2d Sess., 3 (1946), most notably, by permitting trademark
registration of descriptive words (say, "U-Build-It" model airplanes) where they had
acquired "secondary meaning." See Abercrombie & Fitch Co., 537 F.2d at 9 (Friendly,
J.). The Lanham Act extended protection to descriptive marks by making clear that (with
certain explicit exceptions not relevant here)
"nothing . . . shall prevent the registration of a mark used by the applicant which
has become distinctive of the applicant's goods in commerce." 15 U.S.C. § 1052(f)
(1988 ed., Supp. V).
This language permits an ordinary word, normally used for a nontrademark purpose (e. g.,
description), to act as a trademark where it has gained "secondary meaning." Its logic
would appear to apply to color as well. Indeed, in 1985, the Federal Circuit considered the
significance of the Lanham Act's changes as they related to color and held that trademark
protection for color was consistent with the
"jurisprudence under the Lanham Act developed in accordance with the statutory
principle that if a mark is capable of being or becoming distinctive of [the]
applicant's goods in commerce, then it is capable of serving as a trademark."
Owens-Corning, 774 F.2d at 1120.
In 1988, Congress amended the Lanham Act, revising portions of the definitional
language, but left unchanged the language here relevant. § 134, 102 Stat. 3946, 15 U.S.C.
§ 1127. It enacted these amendments against the following background: (1) the Federal
Circuit had decided Owens-Corning; (2) the Patent and Trademark Office had adopted a
clear policy (which it still maintains) permitting registration of color as a trademark, see
PTO Manual § 1202.04(e) (at p. 1200-12 of the January 1986 edition and p. 1202-13 of
the May 1993 edition); and (3) the Trademark Commission had written a report, which
recommended that "the terms 'symbol, or device' . . . not be deleted or narrowed to
preclude registration of such things as a color, shape, smell, sound, or configuration
which functions as a mark," The United States Trademark Association Trademark Review
Commission Report and Recommendations to USTA President and Board of Directors,
225
Trademark Cases
I.P. Survey Cases
Prof. Janicke
77 T. M. Rep. 375, 421 (1987); see also 133 Cong. Rec. 32812 (1987) (statement of Sen.
DeConcini) ("The bill I am introducing today is based on the Commission's report and
recommendations"). This background strongly suggests that the language "any word,
name, symbol, or device," 15 U.S.C. § 1127, had come to include color. And, when it
amended the statute, Congress retained these terms. Indeed, the Senate Report
accompanying the Lanham Act revision explicitly referred to this background
understanding, in saying that the "revised definition intentionally retains . . . the words
'symbol or device' so as not to preclude the registration of colors, shapes, sounds or
configurations where they function as trademarks." S. Rep. No. 100-515, at 44. (In
addition, the statute retained language providing that "no trademark by which the goods
of the applicant may be distinguished from the goods of others shall be refused
registration . . . on account of its nature" (except for certain specified reasons not relevant
here). 15 U.S.C. § 1052 (1988 ed., Supp. V).)
This history undercuts the authority of the precedent on which Jacobson relies. Much of
the pre-1985 case law rested on statements in Supreme Court opinions that interpreted
pre-Lanham Act trademark law and were not directly related to the holdings in those
cases. Moreover, we believe the Federal Circuit was right in 1985 when it found that the
1946 Lanham Act embodied crucial legal changes that liberalized the law to permit the
use of color alone as a trademark (under appropriate circumstances). At a minimum, the
Lanham Act's changes left the courts free to reevaluate the preexisting legal precedent
which had absolutely forbidden the use of color alone as a trademark. Finally, when
Congress reenacted the terms "word, name, symbol, or device" in 1988, it did so against a
legal background in which those terms had come to include color, and its statutory
revision embraced that understanding.
Fourth, Jacobson argues that there is no need to permit color alone to function as a
trademark because a firm already may use color as part of a trademark, say, as a colored
circle or colored letter or colored word, and may rely upon "trade dress" protection, under
§ 43(a) of the Lanham Act, if a competitor copies its color and thereby causes consumer
confusion regarding the overall appearance of the competing products or their packaging,
see 15 U.S.C. § 1125(a) (1988 ed., Supp. V). The first part of this argument begs the
question. One can understand why a firm might find it difficult to place a usable symbol
or word on a product (say, a large industrial bolt that customers normally see from a
distance); and, in such instances, a firm might want to use color, pure and simple, instead
of color as part of a design. Neither is the second portion of the argument convincing.
Trademark law helps the holder of a mark in many ways that "trade dress" protection does
not. See 15 U.S.C. § 1124 (ability to prevent importation of confusingly similar goods); §
1072 (constructive notice of ownership); § 1065 (incontestible status); §1057(b) (prima
facie evidence of validity and ownership). Thus, one can easily find reasons why the law
might provide trademark protection in addition to trade dress protection.
226
Trademark Cases
I.P. Survey Cases
Prof. Janicke
IV
Having determined that a color may sometimes meet the basic legal requirements for
use as a trademark and that respondent Jacobson's arguments do not justify a special legal
rule preventing color alone from serving as a trademark (and, in light of the District
Court's here undisputed findings that Qualitex's use of the green-gold color on its press
pads meets the basic trademark requirements), we conclude that the Ninth Circuit erred in
barring Qualitex's use of color as a trademark. For these reasons, the judgment of the
Ninth Circuit is
Reversed.
IN RE SLOPPY JOE'S INTERNATIONAL INC.
1997 TTAB LEXIS 20; 43 U.S.P.Q.2D (BNA) 1350 (1997)
Before Sams, Quinn, and Hairston, administrative trademark judges.
Hairston, administrative trademark judge.
An application has been filed by Sloppy Joe's International, Inc. to register the mark
shown below, for restaurant and bar services. FN1
Registration has been finally refused under Sections 2(a) and 2(d) of the Trademark Act.
Applicant has appealed the final refusals to register. Both applicant and the Trademark
Examining Attorney have filed briefs, but no oral hearing was requested.
227
Trademark Cases
I.P. Survey Cases
Prof. Janicke
I. Section 2(a) refusal
The refusal to register under Section 2(a) of the Act, 15 U.S.C. Section 1052(a), is based
on the contention that the mark falsely suggests a connection with author Ernest
Hemingway. FN2
A. “False Suggestion of a Connection”and the Right of Publicity
Before turning to the test for determining the propriety of a refusal to register under
Section 2(a), we will address two arguments made by applicant that relate to the false
suggestion of a connection portion of Section 2(a) and the right of publicity.
In University of Notre Dame du Lac v. J.C. Gourmet Food Imports Co., Inc., 703 F.2d
1372, 217 USPQ 505 (Fed. Cir. 1983), our primary reviewing court said that the “false
suggestion of a connection” portion of Section 2(a) evolved out of, and embraced, the
concepts of the rights of privacy and publicity. Applicant argues that, because the right of
publicity terminates upon the death of the individual, the Section 2(a) false suggestion of
a connection ground may not be asserted with respect to Ernest Hemingway, citing
Factors Etc., Inc. v. Pro Arts, Inc., 652 F.2d 278, 211 USPQ 1 (2d Cir. 1981) [in which
the Second Circuit applied Tennessee law] and Lugosi v. Universal Pictures, 205 USPQ
1090 (Cal. 1979). Besides the fact that these decisions are no longer controlling, as both
Tennessee and California have enacted statutes recognizing a post mortem right of
publicity, FN3 the Trademark Act prohibition under Section 2(a) extends to “persons,
living or dead.” (emphasis added). We find, therefore, that the Section 2(a) false
suggestion of a connection refusal is not improper here simply because it has been
asserted with respect to a deceased individual, Ernest Hemingway.
Applicant, citing Pirone v. MacMillan Inc., 894 F.2d 579, 13 USPQ2d 1799 (2d Cir.
1990), argues that not every picture or photograph of an individual is an invasion of the
rights of publicity and a violation of Section 2(a), and that the Hemingway portrait in
applicant's mark is not the kind of representation which infringes Hemingway's right of
publicity. In Pirone, the daughters of Babe Ruth, owners of a registration for the word
mark BABE RUTH for playing cards, writing papers and envelopes, and their licensees,
objected to the use of three photographs of Ruth in a baseball calendar published by
MacMillan. Plaintiffs alleged federal and common law trademark infringement and unfair
competition, infringement of the common law right of publicity, and violation of the New
York Civil Rights Law.
On the claims of federal trademark infringement and unfair competition, the Court of
Appeals affirmed the district court's entry of summary judgment in MacMillan's favor,
228
Trademark Cases
I.P. Survey Cases
Prof. Janicke
declining to hold that plaintiffs rights in the word mark BABE RUTH extended to
photographs of Ruth owned by MacMillan. At page 1803, the Court stated:
While these pictures of Ruth are in a sense symbols, they in no way indicate origin
or represent sponsorship.
Photographs of baseball, its players, and assorted memorabilia, are the subject matter of
the calendar. The pictures of Ruth no more indicate origin than does the back Cover's
picture of Jackie Robinson stealing home plate. Both covers are merely descriptive of the
calendar's subject matter. In neither case would any consumer reasonably believe that
Ruth or Robinson sponsored the calendar. Instead, the photographs identify great ballplayers and by so doing indicate the contents of the calendar, not its source. The source of
the publication is clearly indicated by the numerous prominent references to MacMillan.
(citations omitted)
The essence of the court's ruling on these claims is not that photographs or pictures of
person, per se, are not trademarks, but that the Ruth photographs, as used in this baseball
calendar, did not serve a source-indicating function.FN4 In the present case, applicant uses
and seeks to register the Hemingway portrait as part of its mark for bar and restaurant
services, thereby explicitly claiming the portrait functions to indicate source. The use of
the Hemingway portrait is, therefore, not analogous to McMillan's use of Ruth
photographs in a baseball calendar.
B. The Test for Section 2(a)
The test for determining the propriety of a refusal to register based on Section 2(a) has
four elements. The mark (or part of it) must be shown to be the same as or a close
approximation of the person's previously used name or identity, and it must be established
that the mark would be recognized as such (i.e., the mark points uniquely to that person).
Further, it must be shown that the person in question is not connected with the goods or
services of the applicant, and the person's name or identity must be of sufficient fame that
when it is used as part or all of the mark on applicant's goods/services, a connection with
that person would be presumed by someone considering purchasing the goods/services.
Buffett v. Chi-Chi's, Inc., 226 USPQ 428 (TTAB 1985).
Applicant maintains that there is a real connection between Ernest Hemingway and
applicant's bar, and therefore there is no “false suggestion” of a connection between
Hemingway and applicant's services. Further, applicant argues that Hemingway is an
historical figure, known for his writing, an activity unrelated to bar and restaurant
services, and prospective purchasers of applicant's services would not presume a
connection between Hemingway and such services. Lastly, applicant argues that
229
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Hemingway family members have impliedly consented to applicant's registration of the
involved mark for bar and restaurant services.
Turning to applicant's first argument, applicant maintains that Hemingway is connected
with applicant's bar and restaurant by virtue of his close association with the bar and its
original owner. In support of its position, applicant has submitted the declaration of its
president, Michael Halpern; a booklet entitled Sloppy Joe's Bar The First Fifty Years by
Sharon Wells, a Key West, Florida historian, and copies of excerpts from books,
brochures, and newspapers which chronicle Hemingway's years in Key West. According
to these materials, Hemingway and Joe Russell, the original owner of Sloppy Joe's bar,
were close friends. It is said that Hemingway modeled the main character in his novel To
Have and To Have Not after Russell. Hemingway was a frequent patron of Sloppy Joe's,
did a great deal of his writing in the back room of the bar; and after his death, original
manuscripts and sections of several of his most famous works were discovered there. In
the Well's booklet and another of the excerpted materials, Hemingway is quoted as
saying; “I used to be co-owner of Sloppy Joe's, silent partner they call it. We had
gambling in the back and that's where the real money is.” Applicant argues that the
refusal to register under Section 2(a) is improper because the “connection between
Hemingway and Sloppy Joe's is not falsely suggested.” (November 24, 1993 response to
Office action, p. 2).
The Examining Attorney acknowledges that “ [F]ew cases, if any, have dealt with the
issue of how much of a connection is required to overcome a Section 2(a) refusal.” It is
the Examining Attorney's position, however, that a financial or ownership interest in the
goods and/or services is required. The Examining Attorney argues that,
. . . . .spending a great deal of time in one's favorite bar is not a legally sufficient
“connection” to allow an establishment to secure trademark rights in its famous
patron's likeness. Hemingway may have had his own bar stool and even
maintained an office for writing in the back room, but there is no evidence that he
had any actual proprietary or financial interest in the bar. The claims of coownership listed by the applicant seem to refer more to folklore based on the
amount of time Hemingway spent in the bar than to any actual ownership interest.
Brief, pp. 3-4.
The question here is whether applicant has established a “connection” with Hemingway
which entitles it to register the involved mark. Although the legislative history of Section
2(a) offers no specific guidance on this issue, we are inclined to agree with the Examining
Attorney that Hemingway's friendship with the original owner of Sloppy Joe's bar, his
frequenting the bar and his use of the back room as an office is not the kind of
230
Trademark Cases
I.P. Survey Cases
Prof. Janicke
“connection” contemplated by Section 2(a). Rather, a commercial connection, such as an
ownership interest or commercial endorsement or sponsorship of applicant's services,
would be necessary to entitle applicant to register the involved mark. As to Hemingway's
purported claim of co-ownership of the bar, we agree with the Examining Attorney that
this appears to be mere folklore. Applicant has offered no documentary evidence, e.g., a
deed or contract, to support its contention that Hemingway was indeed the co-owner of
the bar. Thus, applicant has not established a connection with Hemingway which entitles
it to register the involved mark.
We turn next to applicant's argument that prospective customers of its bar and restaurant
services would not presume a connection between Hemingway and such services because
(1) Hemingway is known only for his writing and (2) Hemingway is an historical figure.
As the Examining Attorney correctly observes, the names and likenesses of well known
persons frequently are licensed for use on various goods and services. See, e.g.: In re
Sauer, 27 USPQ2d 1973 (TTAB 1993) [Record included Bo Jackson baseball and
football cards and advertisements for Bo Jackson figurines and toys.]; Buffett v. Chi-Chi's,
supra [Record included evidence of licensing agreements held by Jimmy Buffett for the
name “J.B.'s MARGARITAVILLE” for a restaurant, and for the sale of clothing.]; and
McFarland v. Miller, 29 USPQ2d 1586 (3d Cir. 1994) [Court noted that George
McFarland (“Spanky” of the “Little Rascals”) actively protected the right to license his
name.] Thus, the name and/or likeness of a well known writer may well be “extended” for
use on goods and services unrelated to writing. Additionally, as evidenced by the
materials submitted by applicant, Hemingway's frequenting Sloppy Joe's bar and his
“hard drinking” are well documented.
We are not persuaded by applicant's argument that, because Hemingway is an historical
figure, customers are not likely to connect Hemingway with applicant's bar and restaurant
services. Applicant relies on Lucien Picard Watch Corp. v. Since 1868 Crescent Corp.,
314 F. Supp. 329, 165 USPQ 459, 461 (S.D.N.Y. 1970) [Use of the mark Da Vinci on
jewelry and leather giftware “is scarcely likely to mislead” a significant number of
purchasers into believing that Leonardo da Vinci was in any way responsible for the
design or production of the goods; thus no false suggestion of a connection with Leonardo
da Vinci]. The facts here are distinguishable. Hemingway, who died just under 40 years
ago, is a figure -- and celebrity -- of our own times; many people who knew him are
undoubtedly still living. Hence, he is not “historical” in the way Leonardo da Vinci is
“historical.”
We have no doubt that prospective purchasers of applicant's services will recognize the
face in the mark as a portrait of Hemingway. Such recognition is implicit in applicant's
description of its mark and the fact that applicant is a sponsor of celebrations and festivals
231
Trademark Cases
I.P. Survey Cases
Prof. Janicke
honoring Hemingway's life and work. Applicant bills itself as the “Home of the ‘Papa’
Hemingway Look-Alike Contest.” Also, Mr. Halpern, applicant's president, states in his
declaration that the picture in applicant's mark is a sketch of Hemingway. All this
evidences applicant's intent to suggest a connection with Hemingway. “Evidence of such
intent would be highly persuasive that the public will make the intended false
association.”Notre Dame, supra at 217 USPQ at 509 .
We find, therefore, that, when the portrait of Hemingway is used as part of the mark for
applicant's bar and restaurant services, prospective purchasers would presume a
connection between Hemingway and applicant's services.
C. Implied Consent
The final argument pressed by applicant is that there is no false suggestion of a
connection here because members of the Hemingway family have consented to
applicant's use of Hemingway's name and likeness in connection with applicant's bar and
restaurant. Applicant implies this consent from the attendance and participation of
Hemingway family members at celebrations and festivals sponsored by applicant which
honor Hemingway's life and work.
We agree with the Examining Attorney, however, that no consent to register the involved
mark can be implied by the mere attendance and participation of some Hemingway family
members at these events. We have no basis on which to conclude that such family
members are authorized to consent to the registration of Hemingway's likeliness for the
involved services. In this regard, we note that apparently a separate entity, Hemingway,
Ltd., the owner of a registration for the mark HEMINGWAY for services identified as
“licensing others the right to use and/or exploit the name and likeness of Ernest
Hemingway,” has authority to license the use of the name and likeness of Ernest
Hemingway.
Since all of the elements of the test for refusal under Section 2(a) have been met, the
refusal to register is affirmed.
II. Section 2(d) refusal
Registration has been refused under Section 2(d) of the Trademark Act, 15 U.S.C. Section
1052(d), on the ground that the use of applicant's mark for its identified services is likely
to cause confusion with the registered marks below, owned by the same entity, for the
following goods and services:
232
Trademark Cases
I.P. Survey Cases
Prof. Janicke
HEMINGWAY licensing others the right to use and/or exploit the name and likeness of
Ernest Hemingway FN5
HEMINGWAY'S bar and restaurant services FN6
HEMINGWAY'S bar and restaurant services FN7
HEMINGWAY men's and women's outdoor clothing, namely, underwear, swimwear,
pajamas, nightgowns, robes, socks, shirts, t-shirts, sweatshirts, sweaters, pants,
sweatpants, dresses, skirts, shorts, jumpsuits, jackets, raincoats, vests, hats, gloves, ties
and scarves FN8
A. The Marks
In this case, we find that applicant's mark is similar to the cited marks HEMINGWAY
and HEMINGWAY'S.
In a composite mark, it is generally the word portion that is dominant. In re Appetito
Provisions Co., (TTAB 1987). We do not believe it appropriate, however to apply this
rule to applicant's mark, given the prominence of the design element, and the fact that it is
a recognizable portrait of a well known person, Ernest Hemingway. The Hemingway
portrait is not an ancillary or subordinate design. As used on the specimens of record, (the
front of a menu is shown below in reduced size), the Hemingway portrait is especially
eye-catching.
233
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Prospective customers viewing applicant's mark would be just as likely to remember the
Hemingway portrait and consequently the name Hemingway, as the words SLOPPY
JOE'S. In this regard, it is established that a picture and its literal equivalent are given the
same significance in determining likelihood of confusion. See Shunk Manufacturing Co.v.
Tarrant Mfg. Co. ], 318 F.2d 328, 137 USPQ 881, 883 (CCPA 1963) [caricature
representation of Scotchman, i.e., man in kilts and Scottish garb, and word
SCOTCHMAN for mechanical equipment]; Izod Ltd. v. Zip Hosiery Co., Inc., 405 F.2d
575, 160 USPQ 202, 204 (CCPA 1969) [representation of head of tiger-like animal and
words TIGER HEAD for clothing]; and In re Rolf Nilsson AB, 230 USPQ 141, 143
(TTAB 1986) [design of a lion's head silhouette and the word LION]. Thus, when we
compare the marks in their entireties, with appropriate weight given to the word and
design elements in applicant's mark, we find that the marks are similar and that when used
on identical or related goods/ services, confusion is likely to occur. We have kept in mind
that under actual marketing conditions, consumers do not necessarily have the
opportunity to make a side-by-side comparison between marks.
B. The Goods/Services
Having found that the parties' marks are similar, we have no difficulty concluding that
applicant's use of its mark in connection with bar and restaurant services is likely to cause
confusion with registrant's marks for identical services. The more difficult question is
whether applicant's bar and restaurant services are sufficiently related or connected to
234
Trademark Cases
I.P. Survey Cases
Prof. Janicke
registrant's licensing services and clothing such that when these goods/services are
offered under the parties' respective marks, confusion is likely to occur.
Goods and/or services need not be identical or even competitive in nature in order to
support a finding of likelihood of confusion. It is sufficient for the purpose that the goods
and/or services are related in some manner; or that they are marketed under such
conditions that they would be encountered (bearing similar marks) by the same persons in
an environment conductive to likelihood of confusion; or that the record shows that
special conditions or circumstances exist sufficient to support the inference that
purchasers encountering applicant's services bearing its mark would be likely to
mistakenly assume that applicant's services are in some way connected with the
registrant. Turner Entertainment Co. v. Nelson, 38 USPQ2d 1942 (TTAB 1996) and In re
Phillips-Van Heusen Corp., 228 USPQ 949 (TTAB 1986) and cases cited therein. Special
circumstances exist here which support the inference that purchasers encountering
applicant's bar and restaurant services bearing its mark would be likely to mistakenly
assume that these services are in some way connected with registrant.
As previously noted, the licensing of the names and/or likenesses of well known persons
for use on various goods and services is a common practice. Indeed, this is reflected in
registrant's registrations which cover the licensing of Hemingway's name and/or likeness
(with no limitation as to the goods/services which may be licensed thereunder), bar and
restaurant services, and clothing. In view thereof, and because the public is accustomed to
seeing the names and likenesses of well known individual on diverse items, it would be
reasonable for consumers to believe that bar and restaurant service and licensing services
for the name and/or likeness of a well known person and clothing emanate from the same
source. Under these circumstances, we find that applicant's bar and restaurant services
and registrant's licensing services and clothing are connected in such a way that when
offered under similar marks, confusion is likely to occur.
In sum, customers familiar with registrant's HEMINGWAY and HEMINGWAY'S marks
as used in connection with licensing services, bar and restaurant services, and clothing,
upon encountering applicant's mark consisting of SLOPPY JOE'S and a prominent
portrait of Ernest Hemingway, for bar and restaurant services, would be likely to believe,
mistakenly, that the goods and services originate with or are sponsored by the same
source.
Decision: The refusals to register under Section 2(a) and 2(d) of the Trademark Act are
affirmed.
235
Trademark Cases
I.P. Survey Cases
Prof. Janicke
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
MISTER DONUT OF AMERICA, INC. v. MR. DONUT, INC.
418 F.2d 838 (1969)
[Note: This case was decided before the addition of paragraph (c) to 15 U.S.C. § 1057
(application to register a mark is constructive use of the mark everywhere in the country).
Students of this case should consider what the result would have been if the case had
arisen after that addition.]
Hamley and Browning, Circuit Judges, and McNichols,* District Judge.
* Hon. Ray McNichols, United States District Judge, sitting by designation.
McNICHOLS, District Judge.
Appellant brought suit in the District Court alleging trademark infringement. Appellee
answered and counterclaimed alleging fraud in the procurement of the trademark
registration, and seeking both injunctive relief and attorney's fees. The trial court found
against each party on the merits and dismissed both the complaint and counterclaim with
prejudice. This appeal and cross-appeal were thereupon perfected.
Jurisdiction below was founded on 15 U.S.C., Sec. 1121; 28 U.S.C., Sec. 1338 (a) and
(b); and 28 U.S.C., Sec. 1332. We have jurisdiction under 15 U.S.C., Sec. 1121 and 28
U.S.C., Sec. 1291.
Plaintiff-appellant, Mister Donut of America, Inc. (hereinafter for clarity, "plaintiff"), is
a Massachusetts corporation with its principal place of business in that state and is
primarily engaged in the promotion and franchising of retail doughnut shops under the
name and style of Mr. Donut and Mister Donut. It began this business in Massachusetts in
1955 and now has more than 200 shops in numerous states ranging from coast to coast.
Plaintiff's first California shop opened in 1966; there were at the time of trial five such
shops operating in California.
236
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Defendant-appellee, Mr. Donut, Inc. (hereinafter for clarity, "defendant"), is a
California based corporation in the business of promoting and franchising retail doughnut
shops using the name Mr. Donut and operating essentially a similar type of business as
that of the plaintiff. Defendant opened its first shop in Orange County, California in
December of 1957 and at the time of trial had seven franchised businesses located in
various communities in Orange County.
The following chronology and factual situation is established by the record:
Plaintiff began to use the mark, Mister Donut in August, 1955; made sales in interstate
commerce and applied to the United States Patent Office for registration of the mark
pursuant to the provisions of the Trademark Act of 1946, codified as 15 U.S.C., Sec.
1051, et seq., and popularly known as the Lanham Act (hereinafter the "Act" or the
"Lanham Act"). This initial application for registration was rejected by the Patent Office
since research indicated that a like mark, Mr. Donut, had been previously registered to
one Ragsdale of Everett, Washington in 1947. Plaintiff discovered that Ragsdale was
deceased, but succeeded in purchasing an assignment of the Ragsdale rights from the
estate, which assignment was duly recorded in the Patent Office on July 23, 1956, in
accordance with the provisions of the Act. 15 U.S.C., Sec. 1060.
In October, 1957 (more than a year subsequent to the recordation of the Ragsdale
assignment), defendant, without any actual knowledge of any prior use of the mark by
anyone, first adopted the mark and, as indicated above, opened its first retail doughnut
shop in California in December of that year.
On October 21, 1958, plaintiff secured a certificate of registration of the Mister Donut
mark. (The trial court, rejecting the recording of the Ragsdale assignment, held that this
date was the date of constructive notice of plaintiff's claim to the mark). By this time
plaintiff had shops operating in Massachusetts, New York, Florida, Michigan and
Virginia. [The registration is reproduced below –
Serial
Registration
Number:
Number:
71698978
668784
Mark
237
Trademark Cases
I.P. Survey Cases
Prof. Janicke
(words
only):
Standard
MISTER
Character
DONUT
claim:
No
Current Status: This registration was not renewed and is considered to be expired.
Date
of
Status:
Filing
1999-07-26
Date:
Transformed
into
a
Registration
1955-11-28
National
Application:
Date:
No
1958-10-21
Register:
Principal
Law Office Assigned: (NOT AVAILABLE)
If you are the applicant or applicant's attorney and have questions about this file,
please
contact
the
Trademark
Assistance
Center
at
TrademarkAssistanceCenter@uspto.gov
Current
Location:
(NOT
AVAILABLE)
Date In Location: (DATE NOT AVAILABLE)
LAST APPLICANT(S)/OWNER(S) OF RECORD
1.
MISTER
Address:
MISTER
DONUT
DONUT
OF
OF
AMERICA,
AMERICA,
INC.
INC.
238
Trademark Cases
I.P. Survey Cases
Prof. Janicke
MINNEAPOLIS
Legal
Entity
Type:
State or Country Where Organized: (NOT AVAILABLE)
MINN.
Unknown
GOODS AND/OR SERVICES
U.S.
Class:
100
(International
Class
Status:
SNACK
BAR
Basis:
First
Use
Date:
First Use in Commerce Date: 1955-08-16
Class
042)
Expired
SERVICES
1(a)
1955-08-16
ADDITIONAL INFORMATION
Disclaimer: THE WORD "DONUT" IS DISCLAIMED APART FROM THE MARK
AS SHOWN.
MADRID PROTOCOL INFORMATION
(NOT AVAILABLE)
PROSECUTION HISTORY
1999-07-26
-
Expired
Section
9
1978-10-21 - First renewal
ATTORNEY/CORRESPONDENT INFORMATION
(NOT AVAILABLE) ]
239
Trademark Cases
I.P. Survey Cases
Prof. Janicke
March 1, 1959, defendant franchised a second shop in Orange County and thereafter
five more, in adjacent portions of the county, the opening being spaced over the following
several years.
It appears that neither party was aware of the activities of the other until about 1963. In
1965, plaintiff opened a Western district office in Palo Alto, California and on April 23,
1966 the first California doughnut shop came into existence at Campbell, California.
During 1966, three more shops were opened in California, not however, in Orange
County. Plaintiff now proposes to establish retail doughnut shops in the Los Angeles and
Orange County area. Undisputed evidence was presented at the trial to the effect that bona
fide prospective franchisees, interested in operating in Orange County and the Los
Angeles area, have, after discovering the competitive use of the mark by defendant,
abandoned plans to open shops in the area.
It is further undisputed that the parties each make prominent use of the mark in
advertising their respective doughnut shops. It is likewise conceded that the respective
marks Mr. Donut and Mister Donut are confusingly similar as used on a retailing basis.
On the defendant's counterclaim the court found, and we think properly, that defendant
was not entitled to attorney fees under 15 U.S.C., Sec. 1120, which provides:
"Any person who shall procure registration in the Patent Office of a mark by a
false or fraudulent declaration or representation, oral or in writing, or by any false
means, shall be liable in a civil action by any person injured thereby for any
damages sustained in consequence thereof."
Defendant contends that plaintiff's original purported sales in commerce were
"contrived sales" and constituted fraudulent conduct. The proof indicated that boxes of
doughnuts with labels MR. DONUT and MISTER DONUT were transported by an agent
of plaintiff from Massachusetts to other states and sold in those states. The Lanham Act
defines "use in commerce" at 15 U.S.C., Sec. 1127:
"For the purposes of this chapter a mark shall be deemed to be used in commerce (a) on
goods when it is placed in any manner on the goods or their containers or the displays
associated therewith or on the tags or labels affixed thereto and the goods are sold or
transported in commerce * * *"
Such a sale as we find here has been held in this Circuit to be a use or transportation in
commerce under the Act. Drop Dead Co. v. S. C. Johnson & Son, Inc., 326 F.2d 87, 93
(9th Cir. 1963). The trial court properly concluded that there was no false or fraudulent
240
Trademark Cases
I.P. Survey Cases
Prof. Janicke
conduct in the registration by plaintiff of its trademark here in question and that no
attorney fees were allowable.
The remaining and principal issues raised in this appeal are therefore limited to the
alleged infringement against a federally protected trademark. We turn our attention to that
question.
Plaintiff, of course, would like to have its trademark registration rights commence with
the recording of the Ragsdale assignment on July 23, 1955, as this date is prior to any use
of the offending mark by the defendant. The trial court held that the assignment by the
Ragsdale estate to plaintiff was an assignment in gross and conveyed no rights. He based
this determination on a finding of fact, supported by substantial evidence, that Ragsdale
had disposed of his doughnut business in 1951 and had not used the mark thereafter.
There was no pretense that the estate transferred any customer lists, merchandise,
equipment, recipes, decals or other goods. Thusly he held that the assignor estate had no
good will and therefore assigned none. The court concluded from this state of facts that
the assignment was in gross and that the recording thereof was ineffective to grant any
rights in the trademark and that as a matter of law the recording of the assignment was not
constructive notice to the defendant. The District Court was correct in so holding. The
law is well settled that there are no rights in a trademark alone and that no rights can be
transferred apart from the business with which the mark has been associated. Such was
the common law rule and is now made a part of the Lanham Act. 15 U.S.C., Sec. 1060.
With the Ragsdale assignment being inoperative to provide plaintiff with a right in the
MR. DONUT mark, the court went on to find, again on substantial evidence, that
defendant first adopted the mark in an intrastate action in October, 1957, and began the
use in a retail shop on December 3, 1957. It is clear that defendants' use has been
continuous from that time on. On the other hand, plaintiff's first effective registration of
the mark with the U.S. Patent Office was on October 12, 1958. The use of the
conflictingly similar mark by defendants up to this date was found by the court to be
without knowledge either actual or constructive of plaintiff's use. In this posture of the
evidence the court held that, if the Lanham Act applied, the defendants had established
the statutory defense provided in the Act against the charge of infringement of plaintiff's
exclusive right to the mark. The Act provides (15 U.S.C., Sec. 1115(b) (5)) for a defense
against infringement by a prior user in this language:
"(b) If the right to use the registered mark has become incontestable under
section 1065 of this title, the registration shall be conclusive evidence of the
registrant's exclusive right to use the registered mark in commerce on or in
connection with the goods or services specified in the affidavit filed under the
241
Trademark Cases
I.P. Survey Cases
Prof. Janicke
provisions of said section 1065 subject to any conditions or limitations stated
therein except when one of the following defenses or defects is established:
" ***
"(5) That the mark whose use by a party is charged as an infringement was
adopted without knowledge of the registrant's prior use and has been
continuously used by such party or those in privity with him from a date prior
to registration of the mark under this chapter or publication of the registered
mark under subsection (c) of section 1062 of this title: Provided, however,
That this defense or defect shall apply only for the area in which such
continuous prior use is proved; * * *."
It is important to note, in view of our determination of this appeal, that the quoted
language of the Act contains a limitation of the application of the defense to the area in
which the prior continuous use is proved. (Emphasis supplied)
We think it clearly established that so far as the area of use of the mark at defendants'
first shop, established in December, 1957, in Orange County, is concerned, Sec. 1115(b)
(5) is a complete defense to plaintiff's charge of infringement. To the extent that the trial
court so held, he was correct.
We come now to the most troublesome aspect of this appeal. The district judge
determined "that defendants' activities were and are outside the Lanham Act because they
do not affect interstate commerce". He therefore concluded that defendants' intrastate use
of plaintiff's federally registered mark was not an infringement for which relief should be
granted under the Lanham Act. In arriving at this holding, the District Court relied
exclusively on the authority of Fairway Foods v. Fairway Markets, 227 F.2d 193 (9th
Cir. 1955).
In Fairway Foods, the question facing the court was whether a large midwest grocery
chain could enjoin the use of its federally registered trademark by a grocer doing business
out of one store in California. The chain had no outlets in that state and no plans to locate
any there in the foreseeable future. The District Court refused to issue an injunction
because there was no present competition between the parties, and no likelihood of any in
the future. This court in affirming that decision agreed that the conduct of the intrastate
grocer would not warrant an injunction under the common law action for unfair
competition, unless by operation of the Lanham Act. The panel of this Circuit then went
on to hold that the activities of a purely intrastate grocer could not be made subject to the
provisions of the Act unless these activities had a substantial effect on interstate
commerce.
242
Trademark Cases
I.P. Survey Cases
Prof. Janicke
No such substantial effect was demonstrated as the parties were dealing in totally
remote markets without any foreseeable likelihood of competition. Therefore it was held
in Fairway Foods that the court should not enjoin the California grocer's activities.
We think Fairway Foods is good law, but is to be interpreted within the very narrow
limits of its factual situation. This is borne out by the following excerpts from the
opinion:
"* * * It will be important to note that plaintiff has not and never has had any
outlet for its merchandise in California, nor within 1500 miles of defendant's one
seat of business. (at p. 195)
"* * *
"The evidence without conflict supports the trial court's finding that there has
been no confusion and that there is no likelihood of confusion because of the use
by both parties of the word 'Fairway'. Neither party sells or tries to sell to any
customer who buys from the other party. Neither party sells or tries to sell or
offers to sell anything within the same territory that the other does business. There
is absolutely no competition between the parties. Perhaps the most important
element of unfair trade is that there be competition in the sale of like merchandise
and that there is, or is likelihood of, confusion as to which competitive article is
being purchased. * * (at p. 196)
"* * * We gain from the record that the judgment is based upon the court's view
of the law that whether or not the marks are valid under the statute, they do not and
cannot be effective as against defendant for the reason that the facts of the case do
not show any competition or likelihood of competition or dilution of plaintiff's
good will, and do not touch interstate or foreign commerce.
"We find no reversible error in the court's conclusion that defendant has not
infringed and is not infringing plaintiff's registered trade marks. And that there is
no competition or likelihood of competition between the parties, for the reason that
the facts do not bring the mark into issue." (at p. 198)
Fairway Foods thus stands for the rule that where the federal registrant and the
intrastate user of conflictingly similar trade marks are using the respective marks in
geographically separate and distinct market areas, with no real competition between them,
and where there is no present likelihood that the federal registrant will expand his use into
the area of use of the intrastate user, there is no cause shown for injunctive relief based on
243
Trademark Cases
I.P. Survey Cases
Prof. Janicke
infringement. The instant case is readily distinguishable from Fairway Foods as the facts
are nowise similar. Plaintiff has firmly established its nationwide doughnut shop business
in California and is now competing with the defendant for shop locations in the same
market area, i.e., Orange County. Each party has plans to expand throughout southern
California and thus increase the competitive situation.
The trial court erred in determining that Fairway Foods was controlling in this case.
We hold that where a federal registrant has expanded its business to the point that the
use of the conflictingly similar marks by the registrant and the unauthorized user are no
longer confined to separate and distinct market areas and there is established the
likelihood of public confusion, the federal registrant is entitled under the authority of the
Lanham Act to injunctive relief.
It is necessary that we remand the case to the District Court to determine the area of use
by the defendant which was developed prior to October, 1958 when plaintiff's initial
certificate of registration became effective. As to this area, defendant has perfected the
defense provided in the Act by Sec. 1115(b) (5). Thereafter the District Court will grant
such injunctive relief as is required consonant with the rules laid down in this opinion.
One additional issue merits brief discussion. Plaintiff seeks to obviate the effect of the
defense provided in Sec. 1115(b) (5) of the Act by attempting to interject California state
law. This issue was not presented to the trial court and we would be justified in refusing
to consider it now. Keegan v. United States, 385 F.2d 260 (9 Cir. 1967). However, since
the matter is to go back to the District Court, we choose to comment.
Plaintiff claims that, since it first adopted the mark outside of California, it is the
original owner and entitled under California law to exclusive right to the use of the mark
regardless whether or not defendant was aware of the prior use. Reliance for this assertion
is based on the California Business and Professions Code, Div. 6, Sec. 14270, which
provided at the time of trial as follows:
"Original owner. Any person who has first adopted and used a trademark,
whether within or beyond the limits of this State, is its original owner."
What the effect of this California statutory provision might be if the Lanham Act had
not been passed by Congress, we need not decide. The Lanham Act has pre-empted the
field of trademark law and controls. It follows that the defense provided in Sec. 1115(b)
(5) of the Act cannot be voided by state statute. Burger King of Florida, Inc. v. Hoots,
403 F.2d 904 (CA 7, 1968).
244
Trademark Cases
I.P. Survey Cases
Prof. Janicke
The judgment appealed from is affirmed in part and reversed in part. The cause is
remanded to the District Court for further proceedings in accordance with our holdings.
UNITED STATES COURT OF APPEALS THIRD CIRCUIT
AMBASSADOR EAST, INC. v. ORSATTI, INC.
257 F.2d 79 (1958)
Before MARIS, GOODRICH and McLAUGHLIN, Circuit Judges.
GOODRICH
***
The plaintiff complains of the defendant's use of the term 'Pump Room.' Plaintiff's 'Pump
Room' is a dining room in its hotel in Chicago and has been operated as such since 1938.
The name is taken from the Pump Room in Bath, England, with the consent and approval
of the proprietors of that establishment. Plaintiff's room is bazarre, garish and expensive;
the cuisine specializes in dishes served on flaming swords and other exotic items. It is a
room where quite evidently patrons go to see and be seen. It has been advertised
nationally and publicized through other media.
The defendant is a restaurant proprietor in Philadelphia and has been since 1942. The
name 'Orsatti's Pump Room' and the insignia of a pump was adopted about 1951. In
some cases the word 'Orsatti's' has not been used before the term ' Pump Room.' 155
F.Supp. at page 939. 'Orsatti's Pump Room' does not specialize in the same kind of things
for which the plaintiff's 'Pump Room' has become famous. Its physical appearance and
method of operation are different. It is claimed that Orsatti got the idea of the name
'Pump Room' from an elderly caretaker of the premises in which the Orsatti restaurant
was established. But that is not important unless the question of intent at the time of the
original assumption of the name becomes important and we do not think it does. See
Ambassador East, Inc. v. Shelton Corners, Inc., D.C.S.D.N.Y.1954, 120 F.Supp. 551, 554;
3 Callmann, Unfair Competition and Trade-Marks 1526-27 (2d ed. 1950). But see El
Chico, Inc. v. El Chico Cafe, 5 Cir., 1954, 214 F.2d 721. Whether adopted innocently or
not in the first place, Orsatti became aware of the plaintiff's objection to the use of the
245
Trademark Cases
I.P. Survey Cases
Prof. Janicke
words 'Pump Room' and nevertheless continued to use it. See 3 Restatement, Torts 565
(1938).
The heart of the plaintiff's claim is that through the years and at great expense it has
built up about the name 'Pump Room' a distinctive reputation. It may not be the kind of
reputation which would meet the approval of Cromwell's Puritans or their modern
successors if any. But, nevertheless, because of it, the name has developed a business
value which the plaintiff is entitled to have protected. See 3 Restatement, Torts 597-98
(1938).
Judge Learned Hand has described the controlling principle in words which are
characteristically apt in a paragraph which has been quoted over and over again by courts
in this type of case. We can do no better than to quote it ourselves. He said:
'His mark is his authentic seal; by it he vouches for the goods which bear it; it
carries his name for good or ill. If another uses it, he borrows the owner's
reputation, whose quality no longer lies within his own control. This is an injury,
even though the borrower does not tarnish it, or divert any sales by its use; for a
reputation, like a face, is the symbol of its possessor and creator, and another can
use it only as a mask. And so it has come to be recognized that, unless the
borrower's use is so foreign to the owner's as to insure against any identification of
the two, it is unlawful.'
The learned district judge was willing to allow the plaintiff some measure of
protection. He insisted that the name 'Orsatti' be put ahead of the term 'Pump Room.' It is
there now on the outside marquee of Orsatti's in Philadelphia but the photographs in
evidence show pretty clearly that 'Pump Room' is very prominent and the 'Orsatti's' is not.
The judge also thought that if the plaintiff wanted to establish a restaurant within ninety
miles of Philadelphia and call it 'Pump Room' that the defendant should then be
restrained from using the term. Both these contentions too narrowly restrict the plaintiff's
protection. It is entitled to have its name protected in full, not modified by other people's
qualifying names and, at least on the facts before us, not limited by distance. The distance
point is expressly covered by the cases cited below. See also Callmann, op. cit. supra §
76.3(b)(1), particularly at 1204.
Interestingly enough, this problem of protection of names of eating places has come up
in quite a number of cases involving restaurants whose proprietors have claimed to have
built up far-reaching reputations for a themselves. In every instance but one to which our
attention has been called the plaintiff has received full protection for the value of his
name. Stork Restaurant, Inc. v. Sahati, 9 Cir., 1948, 166 F.2d 348; Nagrom Corp. v.
Cock ' N Bull, Inc., D.C.1957, 149 F.Supp. 217; Ambassador East, Inc. v. Shelton
246
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Corners, Inc., D.C. S.D.N.Y.1954, 120 F.Supp. 551; Stork Restaurant, Inc. v. Marcus,
D.C.E.D.Pa.1941, 36 F.Supp. 90; Brass Rail, Inc. v. Ye Brass Rail of Massachusetts, Inc.,
D.C.Mass.1938, 43 F.Supp. 671; 51 West Fifty-First Corp. v. Roland, 1946, 139 N.J.Eq.
156, 50 A.2d 369; Maison Prunier v. Prunier's Restaurant & Cafe, Inc., Sup.Ct.1936, 159
Misc. 551, 288 N.Y.S. 529; see Bill's Gay Nineties, Inc. v. Fisher, Sup.Ct.1943, 180 Misc.
721, 41 N.Y.S.2d 234; cf. Pike v. Ruby Foo's Den, Inc., 1956, 98 U.S.App.D.C. 126, 232
F.2d 683.
The judgment of the district court will be reversed and the case remanded for further
proceedings not inconsistent with this opinion.
UNITED STATES COURT OF APPEALS SIXTH CIRCUIT
KELLOGG CO. v. TOUCAN GOLF, INC.
337 F.2d 616 (2003)
Before SUHRHEINRICH and COLE, Circuit Judges; CARR, District Judge.
FN*
FN* The Honorable James G. Carr, United States District Judge for the Northern
District of Ohio, sitting by designation.
SUHRHEINRICH, Circuit Judge.
Plaintiff Appellant Kellogg Company appeals from the district court's affirmation of the
Trademark Trial and Appeal Board's (TTAB) decision to permit the registration of the
word mark “Toucan Gold” by Defendant Appellee Toucan Golf, Inc. (TGI), a
manufacturer of promotional golf equipment.
Kellogg claims that TGI's word mark and its corresponding toucan logo create a
likelihood of confusion with, and dilute the distinctiveness of, Kellogg's five federallyregistered and incontestable “Toucan Sam” logos and word mark under the Lanham Act
as amended, 15 U.S.C. § § 1051, et seq.
We affirm the decision of the district court and deny Kellogg's claims. TGI's use of the
word mark “Toucan Gold” does not create a likelihood of confusion among consumers,
247
Trademark Cases
I.P. Survey Cases
Prof. Janicke
principally because TGI's use of its mark is in an industry far removed from that of
Kellogg.
Also, TGI's toucan logo, as a realistic toucan design, does not create a
likelihood of confusion with Kellogg's more cartoonish “Toucan Sam” designs.
Furthermore, Kellogg has not presented any evidence that TGI's use of its marks actually
dilutes the fame or distinctiveness of any of Kellogg's marks.
I. Facts
Kellogg, a Delaware corporation based in Battle Creek, Michigan, is the largest producer
of breakfast cereal in the world. On July 24, 1963, Kellogg first introduced Toucan Sam
on boxes of “Froot Loops” cereal. Kellogg has used Toucan Sam on Froot Loops boxes,
and in every print and television advertisement for the cereal, since. Toucan Sam is an
anthropomorphic cartoon toucan. He is short and stout and walks upright. He is nearly
always smiling with a pleasant and cheery demeanor, but looking nothing similar to a real
toucan. He has a royal and powder blue body and an elongated and oversized striped
beak, colored shades of orange, red, pink, and black. He has human features, such as
fingers and toes, and only exhibits his wings while flying. Moreover, in television
advertisements over the past forty years, Toucan Sam has been given a voice. He speaks
with a British accent, allowing him to fervently sing the praises of the cereal he
represents, and to entice several generations of children to “follow his nose” because “it
always knows” where to find the Froot Loops.
Kellogg is the holder of five federally-registered Toucan Sam marks at issue in this case.
The first was registered on August 18, 1964, under United States Patent and Trademark
Office FN1 (USPTO) Reg. No. 775,496, and consists of a simplistic toucan design, drawn
with an exaggerated, striped beak, standing in profile with hands on hips and smiling, as
reproduced below:
FN1. In 1964, the USPTO was known as the United States Patent Office.
248
Trademark Cases
I.P. Survey Cases
Prof. Janicke
The second mark was registered March 20, 1984, under USPTO Reg. No. 1,270,940, and
consists of an updated version of the same toucan, standing and smiling with his mouth
open widely; and pointing his left index finger upward:
The third mark is for the word mark, “Toucan Sam.” This mark was registered on June
18, 1985, under USPTO Reg. No. 1,343,023. The fourth mark, registered on June 21,
1994, under USPTO Reg. No. 1,840,746, is a shaded drawing of Toucan Sam flying, with
wings spread, and smiling.
The fifth mark, registered January 31, 1995, under USPTO Reg. No. 1,876,803, is
essentially the same drawing as in the fourth mark, except unshaded, as reproduced
below:
249
Trademark Cases
I.P. Survey Cases
Prof. Janicke
Together the five registrations indicate that Kellogg's marks are for use in the breakfast
cereal industry, and on clothing.
In 1994, Peter Boyko created TGI, an Ohio corporation with its principal place of
business in Mansfield, Ohio, with his wife, Janice Boyko, and daughter. TGI is a
manufacturer of golf equipment, mainly putter heads. TGI creates putter heads from
polycarbonate plastics, purchases shafts and grips from outside sources, and then
assembles and sells the putters. Principally, TGI's clientele consists of companies who
use TGI's goods as promotional gifts at charity events. For this purpose, TGI prints the
name or logo of its client on the putter head or other piece of equipment being sold. TGI
rarely, if ever, sells directly to retailers or the public.
TGI likewise uses a toucan drawing, known as “GolfBird” or “Lady GolfBird,” to
represent its products. TGI has placed this logo on letterhead, business cards, its web
site, and even on the outside of its building in Mansfield. GolfBird has a multi-colored
body, and TGI displays GolfBird in a myriad of color schemes for different purposes.
Invariably, however, she has a long, narrow, yellow beak with a black tip, not
disproportionate to or unlike that of a real toucan. GolfBird is always seen perched upon
a golf iron as if it were a tree branch. She has no human features whatsoever, and
resembles a real toucan in all aspects except, perhaps, her variable body coloring:
TGI has not registered its GolfBird logo with the USPTO. On December 15, 1994,
however, TGI did file an “intent to use” application with the USPTO for the word mark
“Toucan Gold.” The application, as later amended, sought to use the mark in relation to
“golf clubs and golf putters.” Specifically, TGI planned to use the mark for its newest
line of putters which consist of a putter head on a Boron Graphite shaft. On August 29,
1995, the USPTO published TGI's application for opposition.
Kellogg filed an
opposition with the TTAB, asserting that TGI's proposed use of the mark “Toucan Gold”
for golf-related merchandise infringed upon Kellogg's Toucan Sam marks under the
Lanham Act by creating a likelihood of consumer confusion. On May 19, 1999, the
TTAB dismissed the opposition without testimony.
On July 16, 1999, Kellogg appealed the TTAB decision to the district court below, and
commenced a de novo review under 15 U.S.C. § 1071(b). In its complaint, Kellogg
250
Trademark Cases
I.P. Survey Cases
Prof. Janicke
again claimed that TGI's use of the word mark “Toucan Gold” created a likelihood of
confusion among consumers with respect to Kellogg's Toucan Sam word mark. Kellogg
added a likelihood of confusion claim with respect to the GolfBird logo as well.
Furthermore, Kellogg added a dilution claim under the Federal Trademark Dilution Act of
1995 (FTDA). See 15 U.S.C. § § 1063 and 1125(c). On September 6, 2001, after a four
day bench trial, the district court dismissed Kellogg's complaint. The judgment was then
entered on September 10.
The court found that confusion was highly unlikely,
principally because Kellogg is in the business of selling cereal, whereas TGI is in the
business of selling putters. Moreover, the court found no dilution because the parties'
marks are “visually and verbally distinct.” Kellogg filed a notice of appeal on October 4,
2001, and this matter is timely before this Court pursuant to Fed. R.App. P. 4(a)(1)(A).
II. Standard of Review and Jurisdiction
The TTAB “may refuse to register a trademark that so resembles a registered mark ‘as to
be likely, when used on or in connection with the goods of the applicant, to cause
confusion, or to cause mistake, or to deceive.’ ” Recot, Inc. v. Becton, 214 F.3d 1322,
1326 (Fed.Cir.2000) (quoting 15 U.S.C. § 1052(d)).
The federal courts have jurisdiction over appeals from the TTAB. A party who lost before
the TTAB may appeal the decision to the United States Court of Appeals for the Federal
Circuit under a “substantial evidence” standard of review. Otherwise, a party may appeal
the TTAB decision, to be reviewed de novo, to the United States District Court in any
district where venue is proper. 15 U.S.C. § 1071(b)(1). A disappointed party may
present new evidence before the district court that was not presented to the TTAB.
Kellogg has chosen the latter route.
We review the district court's legal conclusions de novo;
conclusions for clear error.
but review its factual
III. Analysis
Essentially, Kellogg seeks to block the registration of the “Toucan Gold” word mark, and
to prevent further commercial use of both the word mark and the GolfBird logo. To this
end, Kellogg asserts that there is a Lanham Act violation because there exists a likelihood
that consumers will be confused as to the source of TGI's products. Moreover, Kellogg
asserts that, regardless of our confusion analysis, TGI's use of its marks dilutes the fame
of Kellogg's marks, and therefore TGI is in violation of the FTDA.
251
Trademark Cases
I.P. Survey Cases
Prof. Janicke
A. Likelihood of Confusion
In order to show trademark infringement under the Lanham Act, and that TGI is not
entitled to registration, Kellogg must show that TGI's use of its marks constitutes use “in
commerce” of a “reproduction, counterfeit, copy, or colorable imitation of a registered
mark in connection with the sale, offering for sale, distribution, or advertising of any
goods or services on or in connection with which such use is likely to cause confusion, or
to cause mistake, or to deceive....” 15 U.S.C. § 1114(1).
This Court has established an eight-part test for determining when a likelihood of
confusion exists between the origins of two products. The factors are: (1) the strength of
the plaintiff's mark; (2) the relatedness of the goods or services offered by the parties;
(3) similarity of the marks; (4) any evidence of actual confusion; (5) the marketing
channels used by the parties; (6) the probable degree of purchaser care and
sophistication; (7) the defendant's intent; and (8) the likelihood of either party expanding
its product line using the marks. Not all of these factors will be relevant in every case,
and “[t]he ultimate question remains whether relevant consumers are likely to believe that
the products or services offered by the parties are affiliated in some way.” Homeowners
Group, Inc. v. Home Mktg. Specialists, Inc., 931 F.2d 1100, 1107 (6th Cir.1991). Thus,
the question here, as in all trademark cases, is whether we believe consumers of TGI's
golf equipment are likely to think it was manufactured by Kellogg. None of the factors is
dispositive, but the factors guide us in our ultimate determination.
1. Strength of Kellogg's Marks
The first factor of the test focuses on the distinctiveness of a mark and the public's ability
to recognize it. See Therma-Scan, 295 F.3d at 631. In Daddy's Junky Music Stores, we
recognized a spectrum of distinctiveness for trademarks, ranging from “generic” to
“fanciful.” Daddy's Junky Music Stores, 109 F.3d at 280-81. For example, the word
“cereal” is generic, whereas the names “Xerox” and “Kodak” are fanciful, having been
completely fabricated by the trademark holders.
We find the “Toucan Sam” word mark and logo each to be fanciful. Kellogg completely
created the name “Toucan Sam.” Kellogg also completely fabricated Toucan Sam's logo
design. He does not resemble a real toucan. His unique shape, coloring, size, and
demeanor are entirely the creation of Kellogg, and not reminiscent of anything seen in the
wild. Therefore, as a logo, he is also a fanciful mark and distinctive.
In further support of the strength of its Toucan Sam marks, Kellogg has submitted survey
information indicating that 94% of Americans recognize Toucan Sam, and 81% of
children who recognize him correspond him with Froot Loops. Moreover, Kellogg has
252
Trademark Cases
I.P. Survey Cases
Prof. Janicke
submitted extensive records detailing the massive amount of time, money, and effort
expended in regard to the marketing of Toucan Sam and Froot Loops. We need not
delve into Kellogg's records; we find the fact that Kellogg is the largest cereal maker in
the world, that Froot Loops is one of its best selling cereals, and that Toucan Sam has
appeared in every print and television advertisement for Froot Loops since 1963 enough
to establish that Toucan Sam is visually recognizable by an overwhelming cross-section
of American consumers. Coupling that with his distinctiveness, Toucan Sam is a very
strong mark.
2. Relatedness of the Products
In consideration of the second factor, we must examine the relatedness of the goods and
services offered by each party. We have established three benchmarks regarding the
relatedness of parties' goods and services.
First, if the parties compete directly,
confusion is likely if the marks are sufficiently similar; second, if the goods and services
are somewhat related, but not competitive, then the likelihood of confusion will turn on
other factors; finally, if the products are unrelated, confusion is highly unlikely.
TGI makes golf equipment, mainly putter heads. TGI also sells bag tags, divot tools, and
full sets of clubs, but has never sold any merchandise unrelated to golf.
Kellogg is primarily a producer of breakfast cereal, but has branched off from cereal and
sold products in other industries on a limited basis. It has also at times licensed its name
and characters to outside companies. Kellogg asserts before this Court that it has
sufficiently entered the golf equipment industry. In support of this claim, Kellogg
presents a catalog, wherein it offers for sale golf balls and golf shirts on which is
imprinted the picture of Toucan Sam. Moreover, Kellogg has presented a mass-marketed
1982 animated television advertisement wherein Toucan Sam is portrayed soliciting his
Froot Loops on a golf course, and interacting with a golf-playing bear. Kellogg claims
these materials indicate that the Toucan Sam marks are related not only to the
manufacture of breakfast cereal, but to the golf equipment industry as well.
However, Kellogg, although it is the largest producer of breakfast cereal nationally, has
not presented evidence that its golf “equipment” has been marketed nationally. The golf
balls and shirts are available on a limited basis, either through the aforementioned
catalog-which is not widely distributed-or through select local theme stores, such as
Kellogg's own “Cereal City” in Battle Creek, Michigan. Moreover, the commercial in
which Toucan Sam plays golf is nonetheless an advertisement for Froot Loops, not golf
equipment. The district court found that Kellogg's presence in the golf industry was
insignificant, and nothing more than a marketing tool to further boost sales of its cereal.
253
Trademark Cases
I.P. Survey Cases
Prof. Janicke
We agree. We find that one thirty second advertisement does not render Toucan Sam a
golfer, nor does a novelty catalog make Kellogg a player in the golfing industry. In any
event, trademark law is grounded on a likelihood of confusion standard. We find that no
consumer would associate Kellogg with top-line golf equipment based on Kellogg's
extremely limited licensing of its characters on novelty items. We also believe that if any
consumers ever did associate Kellogg and Toucan Sam with golf based on the 1982
commercial, it is highly unlikely that they would still do so twenty years after the
advertisement last aired. We find the parties' products completely unrelated. And under
the benchmarks established in this Circuit, the second factor therefore supports a
conclusion that confusion is not likely to occur. See Therma-Scan, 295 F.3d at 632
(stating that confusion is highly unlikely where goods are completely unrelated).
3. Similarity of the Marks
Kellogg argues that it can prove a likelihood of confusion notwithstanding the
unrelatedness of the goods. It has presented several cases to demonstrate that courts have
held for trademark owners relying heavily on the similarity of the marks, even where the
parties' goods were in different product markets. See, e.g., Recot, 214 F.3d at 1328
(finding likelihood of confusion between “Frito Lay” and “Fido Lay” even though one is
used for snack chips and one is used for dog food); Hunt Foods & Indus., Inc. v. Gerson
Stewart Corp., 54 C.C.P.A. 751, 367 F.2d 431, 435 (C.C.P.A.1966) (holding “Hunt's” for
canned goods and “Hunt” for cleaning products confusingly similar); American Sugar
Refining Co. v. Andreassen, 49 C.C.P.A. 782, 296 F.2d 783, 784 (C.C.P.A.1961) (finding
“Domino” for sugar and “Domino” for pet food confusingly similar); Yale Elec. Corp. v.
Robertson, 26 F.2d 972, 974 (2d Cir.1928) (finding “Yale” for flashlights and locks
confusingly similar); Quality Inns Int'l, Inc. v. McDonald's Corp., 695 F.Supp. 198, 22122 (D.Md.1988) (finding similarity between “McSleep Inn” and McDonald's'
trademarks); John Walker & Sons, Ltd. v. Bethea, 305 F.Supp. 1302, 1307-08
(D.S.C.1969) (finding “Johnnie Walker” whiskey and “Johnny Walker” hotels
confusingly similar). But each of these cases is distinguishable. In some of the cases
cited by Kellogg, the courts did find that the goods were related. See, e.g., Recot, 214
F.3d at 1328 (finding that some snack chip makers might also make dog food); Hunt
Foods, 367 F.2d at 434 (finding a relationship between the respective products);
American Sugar Refining Co., 296 F.2d at 784 (finding goods related because both are
sold at grocery stores); Yale Elec. Corp., 26 F.2d at 974 (finding locks and flashlights
related because “the trade has so classed them”). In the other cases cited by Kellogg, the
names, as well as other marks, were either not only similar, but substantially identical, see
John Walker & Sons, 305 F.Supp. at 1307-08 (comparing “Johnnie Walker” whiskey to
“Johnny Walker” hotels and finding infringement where defendant also used same color
scheme and same script); or the similar portion of the senior mark was both famous and
254
Trademark Cases
I.P. Survey Cases
Prof. Janicke
fanciful, and thus so distinctive that its use would transcend its market. Cf. Recot, 214
F.3d at 1328 (stating that “Frito Lay” word mark “casts a ‘long shadow which
competitors must avoid’ ”) (citations omitted); Quality Inns, 695 F.Supp. at 216-21
(intimating that the prefix mark “Mc” used by McDonald's is highly distinctive in regard
to anything but surnames).
But here, the parties' goods are completely unrelated, and the “Toucan Sam” and “Toucan
Gold” word marks are similar only in that they each contain the common word “toucan.”
Although the name “Toucan Sam” is itself fanciful and distinctive, use of the word
“toucan” for cereal is merely arbitrary. Kellogg has taken an everyday word and applied
it to a setting where it is not naturally placed. See, e.g., Daddy's Junky Music Stores, 109
F.3d at 280-81 (recognizing distinctiveness spectrum and stating that a mark is arbitrary
when it is an everyday name or thing mismatched to the product it represents, such as
“Camel” for cigarettes or “Apple” for computers). As opposed to a fanciful mark, an
arbitrary mark is distinctive only within its product market and entitled to little or no
protection outside of that area. See, e.g., Amstar Corp. v. Domino's Pizza, Inc., 615 F.2d
252, 260 (5th Cir.1980) (implying that plaintiff's arbitrary term “Domino” is entitled to no
protection outside of the sugar and condiments market). Thus, unlike the Recot, John
Walker & Sons, and Quality Inns cases, here TGI has not used any distinctive portion of
Kellogg's word mark at all. Admittedly, we would have a far different case had TGI
attempted to use a mark such as “Toucan Sam Gold” for its line of products, because the
“Toucan Sam” word mark, in its entirety, is fanciful and likely transcends its market in
the same way “Frito Lay” and the “Mc” prefix do. Cf. Recot, 214 F.3d at 1328; Quality
Inns, 695 F.Supp. at 216-21. Kellogg has not cornered the market on all potential uses of
the common bird name “toucan” in commerce, only on uses of “Toucan Sam.” In regard
to the word marks, TGI's apparently similar use is therefore not enough to overcome the
unrelatedness of the goods.
As for the logos, the actual Toucan Sam design is fanciful. Hence, in step with cases like
Recot, if TGI's GolfBird is similar to Toucan Sam's design, there may be a Lanham Act
violation in spite of the unrelated goods. But we find GolfBird dissimilar to Toucan
Sam. GolfBird resembles a real toucan. She has the look and proportions of a toucan that
one would encounter in the wild. Toucan Sam is anthropomorphic, with a discolored,
misshaped beak. His body type is not the same as that of a real toucan; and he smiles
and has several other human features. We therefore find no similarity between Toucan
Sam and GolfBird.
4. The Other Confusion Factors
255
Trademark Cases
I.P. Survey Cases
Prof. Janicke
The other five factors can be disposed of quickly. Kellogg has presented no evidence of
actual customer confusion. Thus, we need not consider that factor.
The parties do not use similar avenues of commerce. Kellogg distributes Froot Loops
through regular wholesale and retail channels. Kellogg advertises its product nationally
on television and in print. Conversely, TGI distributes its product primarily at trade
shows and over the internet. TGI does not sell its golf equipment via retail outlets or
advertise on television or radio.
TGI's clientele is primarily, and almost exclusively, comprised of corporations and
wealthy golfers.FN3 We find each of these groups to be sufficiently sophisticated, so as
not to believe that Kellogg, a cereal company, has manufactured a golf club named
“Toucan Gold.” Moreover, we find the two industries sufficiently separate, so that there
will rarely, if ever, exist a consumer who is looking for Kellogg's product in the golf
equipment market.
FN3. A set of Toucan Gold clubs costs $1500.
Next, there is no evidence to suggest that Boyko chose his toucan marks in order to
dishonestly trade on Kellogg's marks. Again, the goods are so unrelated as to dispose of
this factor with little discussion. Boyko testified that he chose the name “toucan”
because of any bird's obvious connection to the game of golf, as evidenced through
golfing terms such as “eagle,” “birdie,” and “albatross.” The district court found his
testimony on this issue credible, and Kellogg has presented no evidence to cause us to
doubt that Boyko's intent was not dishonorable.
Lastly, there is no evidence to suggest that TGI has any desire to enter the cereal game, or
that Kellogg has any plan to begin manufacturing golf equipment on a full-scale basis.
As stated above, we do not believe Kellogg's limited licensing of golf balls and golf shirts
with a Toucan Sam logo, nor the single 1982 advertisement wherein Toucan Sam parades
around a golf course, announces Kellogg's entry into the golf market, or its intention to do
so.
Accordingly, we find no likelihood of confusion between TGI's use of its marks-the word
mark “Toucan Gold” and its GolfBird logo; and Kellogg's marks-the word mark “Toucan
Sam” and the Toucan Sam design. In fact, the only of the eight factors we find in favor
of Kellogg is the strength of its marks. The products sold by each party are wholly
unrelated; the similarity between the word marks or the bird designs is not enough to
overcome this unrelatedness; and TGI's clientele is not the sort to believe that Kellogg
256
Trademark Cases
I.P. Survey Cases
Prof. Janicke
now manufactures golf clubs.
likelihood of confusion.
We affirm the decision of the district court and find no
B. Dilution
Kellogg also raises claims of trademark dilution under the FTDA of 1995. The FTDA
amended § 43 of the Lanham Act to include a remedy for “dilution of famous marks.”
15 U.S.C. § 1125. “Dilution” is defined as “the lessening of the capacity of a famous
mark to identify and distinguish goods and services.” FTDA § 4, 15 U.S.C. § 1127.
Kellogg believes that TGI's marks dilute the fame of the Toucan Sam marks, and that
Kellogg may oppose TGI's marks on that ground and obtain relief under the FTDA. The
district court rejected Kellogg's argument.
Dilution law, unlike traditional trademark infringement law, does not exist to protect the
public. It is not based on a likelihood of confusion standard, but only exists to protect the
quasi-property rights a holder has in maintaining the integrity and distinctiveness of his
mark. We have developed a five part test to determine whether dilution has occurred
under the FTDA: the senior mark must be (1) famous; and (2) distinctive. Use of the
junior mark must (3) be in commerce; (4) have begun subsequent to the senior mark
becoming famous; and (5) cause dilution of the distinctive quality of the senior mark.
The first four factors are not in dispute and require no discussion. The only factor before
this Court is whether TGI has diluted Kellogg's Toucan Sam marks. The Supreme Court
has held that, under the plain language of the FTDA, for a plaintiff to show dilution, he
must demonstrate actual dilution, and not merely the likelihood of dilution.
The plaintiff need not show actual loss of sales or profit, but the mere fact that customers
might see the junior mark and associate it with a famous mark does not establish dilution.
In Moseley, the defendant created a lingerie shop called “Victor's Little Secret.” The
owners of the more famous lingerie-related mark “Victoria's Secret” sued under the
FTDA. The Supreme Court held that the plaintiff's claim failed, even though it presented
evidence that consumers had associated the two marks. The plaintiff did not present any
empirical evidence that consumers no longer clearly understood to which products the
“Victoria's Secret” mark was related, and thus failed to demonstrate the “lessening of the
capacity of the Victoria's Secret mark to identify and distinguish goods or services sold in
Victoria's Secret stores or advertised in its catalogs.” Id. at 1125. Likewise, here,
Kellogg has presented no evidence that TGI's use of its toucan marks has caused
consumers no longer to recognize that Toucan Sam represents only Froot Loops. In fact,
Kellogg's own 1991 study indicated that 94% of children recognize Toucan Sam and 81%
of children relate him to Froot Loops. Kellogg performed another study in 1997-after
257
Trademark Cases
I.P. Survey Cases
Prof. Janicke
TGI started business-wherein it determined that 94% of adults likewise recognized
Toucan Sam. Kellogg has failed to present evidence that any segment of the population
recognizes Toucan Sam as the spokesbird only for Froot Loops in lesser numbers than it
did before TGI started using its toucan marks. Accordingly, we affirm the decision of
the district court and deny Kellogg's FTDA claims.
Kellogg asks this Court for a remand on this issue in light of the fact that the Supreme
Court decided Moseley and clarified the dilution standard after the briefing stage in this
case. Kellogg believes it is entitled to the opportunity to present empirical evidence of
actual dilution before the district court. We find a remand inappropriate. In Moseley,
the Supreme Court provided a stricter standard for proving dilution than the likelihood of
dilution standard that was previously employed by this Court. See V Secret Catalogue,
Inc. v. Moseley, 259 F.3d 464 (6th Cir.2001), rev'd, 537 U.S. 418, 123 S.Ct. 1115, 155
L.Ed.2d 1 (2003). We find Kellogg's proffered empirical evidence insufficient even to
meet the lesser standard.
IV. Attorney's Fees and Sanctions
TGI has brought a separate motion for sanctions and attorney's fees. Under § 35(a) of
the Lanham Act, the prevailing party may recover attorney's fees in “exceptional cases.”
15 U.S.C. § 1117(a). TGI did not raise its claim below, but instead raises this issue for
the first time on appeal. We have made clear in the past that the award of attorney's fees
under § 35(a) is at the discretion of the district court alone. Having not raised the issue
with the district court, TGI's § 35 claim is waived.
TGI also moves for “just damages” under Fed. R.App. P. 38. That rule provides:
If a court of appeals determines that an appeal is frivolous, it may, after a
separately filed motion or notice from the court and reasonable opportunity to
respond award just damages and single or double costs to the appellee.
TGI's argument that Kellogg's appeal is frivolous is based solely on the contention that
Kellogg's arguments on appeal “mirror its arguments to the TTAB and the district courtand both tribunals rejected Kellogg's arguments as untenable.” Brief for Respondent, at
55. However, the fact that Kellogg has repeated the same argument that failed below
does not necessarily render that argument frivolous.
Kellogg has aggressively sought to protect its marks over the years. And it has challenged
smaller entities even where it is likely that no trademark infringement claim exists. But
although many of Kellogg's claims against smaller companies may border on excessive
258
Trademark Cases
I.P. Survey Cases
Prof. Janicke
and arguably warrant sanctions, the Supreme Court decision in Moseley, setting forth and
changing the standards for trademark dilution in this Circuit, was not entered until after
briefs were filed in this appeal. Therefore, we find sanctions under Fed. R.App. P. 38
inappropriate in this instance.
V. Conclusion
For the foregoing reasons, we AFFIRM the decision of the district court.
XTREME LASHES, LLC
v.
XTENDED BEAUTY, INC., Defendant-Appellee.
[PART 2]
576 F.3d 221
United States Court of Appeals, Fifth Circuit.
July 15, 2009.
Appeal from the United States District Court for the Southern District of Texas.
Before BARKSDALE, DeMOSS and STEWART, Circuit Judges.
DeMOSS, Circuit Judge:
[This is a continuation of the opinion studied above on a different mark.]
EXTEND YOUR BEAUTY
The district court held that, as a matter of law, there was no likelihood of confusion
between EXTEND YOUR BEAUTY and XTENDED BEAUTY. Later, the court ordered
the mark cancelled. We first ask if EXTEND YOUR BEAUTY is entitled to trademark
protection. We hold that it is, and then ask if summary judgment was appropriate on
likelihood of confusion. We hold that it was not.
259
Trademark Cases
I.P. Survey Cases
Prof. Janicke
1. Trademark Protection
A trademark registration by the Patent and Trademark Office (PTO) is “prima facie
evidence of the validity of the registered mark ....” 15 U.S.C. § 1115(a). However, if the
mark is found to be either generic or descriptive and lacking secondary meaning, a court
may cancel it. 15 U.S.C. § 1119; see Soweco, 617 F.2d at 1184 (holding that registration
does not bar defenses to infringement). Because categorization is a question of fact,
summary judgment is rarely appropriate. Xtreme does not argue that EXTEND YOUR
BEAUTY has secondary meaning. Consequently, the mark must be at least suggestive to
be protectable.
Descriptiveness is construed broadly. Indicia include: (1) the mark’s dictionary definition
corresponds with its meaning and context; (2) upon hearing the mark, one need not use
“imagination, thought and perception to reach a conclusion as to the nature of goods;” (3)
“competitors would be likely to need the terms used in the trademark in describing their
products;” and (4) others have used the term in marketing a similar service or product.
We examine the context in which a term appears, and the audience to which it is directed,
when determining eligibility for protection. We also look at a multi-word mark as a
unitary whole in its given arrangement, and do not parse apart the constituent terms.
Because we are reviewing a grant of summary judgment, we make all reasonable
inferences in favor of Xtreme, the non-moving party.
The district court held that EXTEND YOUR BEAUTY is descriptive as a matter of law.
Xtended’s expert, Dr. Frank, found that EXTEND YOUR BEAUTY is not used as a
company name, nor as product name or trademark. Dr. Frank found that thirty companies
had used the phrase in conjunction with hair care, eyelash, or personal grooming products
and services. Dr. Frank also found that the phrase appears in non-trademark contexts.
Xtreme insists that there is a question of fact whether EXTEND YOUR BEAUTY is
suggestive. The fact that the PTO registered the mark, says Xtreme, alone precludes
summary judgment. Xtreme next argues that others’ use of “extend your beauty” in a
textual sense or in conjunction with non-eyelash related beauty products should not
weigh in favor of descriptiveness. Xtreme also says “nearly every seller identified by
Xtended in the eyelash extension industry is a client of Xtreme and is using the EXTEND
YOUR BEAUTY trademark with its permission.”
Xtreme has the better argument. The tests posited in Zatarains mainly point to
suggestiveness. “Extend” describes a function of the product, but nothing in the
dictionary definitions of “extend,” “your,” or “beauty” relates to eyelash enhancements.
Beauty is an abstract concept. One cannot literally extend it. The district court observed
260
Trademark Cases
I.P. Survey Cases
Prof. Janicke
that beauty serves as a metaphor for eyelashes. We agree, but unlike the district court, we
conclude that metaphorical usage means the mark is arguably suggestive. The mark’s
meaning and context have little to do with the dictionary definitions of its parts. The
three-word mark, viewed as a whole, has no dictionary meaning or idiomatic resonance.
Additionally, consumers must use “imagination, thought and perception” to conclude that
an exhortation to “extend your beauty” markets eyelash extensions, as opposed to another
cosmetically enhanced feature. See id. It is worth noting that EXTEND YOUR BEAUTY
always appears in conjunction with XTREME LASHES. Use in this context may explain
the nature of the product, weighing towards descriptiveness. However, this is a matter
best weighed by a jury after a full presentment of the evidence.
As for other indicia of descriptiveness, nothing in the record shows that makers of
eyelash extensions need the phrase “extend your beauty” in order to describe their
products. Third-party use for unrelated products is not relevant when evaluating
descriptiveness. Companies which have used EXTEND YOUR BEAUTY for eyelash
products have done so mainly as licensees of Xtreme. A non-affiliated company called
Luscious Lashes apparently has used the phrase to sell eyelash products or services, but
this evidence alone does not entitle Xtended to judgment. A phrase is not descriptive
merely because it is catchy. Finally, words such as “extend” and “beauty” may be
common in advertisements and trademarks. However, the ubiquity of constituent terms
does not relegate a compound mark to the realm of the descriptive. “Just,” “do,” and “it”
are very common, but Nike can still trademark “Just Do It.” In sum, the evidence does
not compel the conclusion that EXTEND YOUR BEAUTY is descriptive and
unprotectable. We reverse the district court’s cancellation of the mark, and now consider
likelihood of confusion with XTENDED BEAUTY.
2. Likelihood of Confusion
[Court finds an issue of fact of likelihood of confusion between EXTEND YOUR
BEAUTY and EXTENDED BEAUTY, precluding summary judgment on the
infringement question.]
261
Trademark Cases
I.P. Survey Cases
Prof. Janicke
PATENT CASES
262
Patent Cases
Intellectual Property Cases
Prof. Janicke
ALICE CORPORATION PTY. LTD.
v.
CLS BANK INTERNATIONAL
SUPREME COURT OF THE UNITED STATES
2014 WL 2765283
Decided June 19, 2014.
Justice THOMAS delivered the opinion of the Court.
The patents at issue in this case disclose a computer-implemented scheme for mitigating
“settlement risk” (i.e., the risk that only one party to a financial transaction will pay what
it owes) by using a third-party intermediary. The question presented is whether these
claims are patent eligible under 35 U.S.C. § 101, or are instead drawn to a patentineligible abstract idea. We hold that the claims at issue are drawn to the abstract idea of
intermediated settlement, and that merely requiring generic computer implementation
fails to transform that abstract idea into a patent-eligible invention. We therefore affirm
the judgment of the United States Court of Appeals for the Federal Circuit.
I
A
Petitioner Alice Corporation is the assignee of several patents that disclose schemes to
manage certain forms of financial risk.1 According to the specification largely shared by
the patents, the invention “enabl[es] the management of risk relating to specified, yet
unknown, future events.” App. 248. The specification further explains that the “invention
relates to methods and apparatus, including electrical computers and data processing
263
Patent Cases
Intellectual Property Cases
Prof. Janicke
systems applied to financial matters and risk management.” Id., at 243.
1
The patents at issue are United States Patent Nos. 5,970,479 (the ′479 patent), 6,912,510,
7,149,720, and 7,725,375.
The claims at issue relate to a computerized scheme for mitigating “settlement risk”—
i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its
obligation. In particular, the claims are designed to facilitate the exchange of financial
obligations between two parties by using a computer system as a third-party
intermediary. The intermediary creates “shadow” credit and debit records (i.e., account
ledgers) that mirror the balances in the parties’ real-world accounts at “exchange
institutions” (e.g., banks). The intermediary updates the shadow records in real time as
transactions are entered, allowing “only those transactions for which the parties’ updated
shadow records indicate sufficient resources to satisfy their mutual obligations.” 717 F.3d
1269, 1285 (C.A.Fed.2013) (Lourie, J., concurring). At the end of the day, the
intermediary instructs the relevant financial institutions to carry out the “permitted”
transactions in accordance with the updated shadow records, ibid., thus mitigating the
risk that only one party will perform the agreed-upon exchange.
2
The parties agree that claim 33 of the ′479 patent is representative of the method claims.
Claim 33 recites:
“A method of exchanging obligations as between parties, each party holding a credit
record and a debit record with an exchange institution, the credit records and debit
records for exchange of predetermined obligations, the method comprising the steps of:
“(a) creating a shadow credit record and a shadow debit record for each stakeholder party
to be held independently by a supervisory institution from the exchange institutions;
“(b) obtaining from each exchange institution a start-of-day balance for each shadow
credit record and shadow debit record;
“(c) for every transaction resulting in an exchange obligation, the supervisory institution
adjusting each respective party’s shadow credit record or shadow debit record, allowing
only these transactions that do not result in the value of the shadow debit record being
less than the value of the shadow credit record at any time, each said adjustment taking
place in chronological order, and
“(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange
institutions to exchange credits or debits to the credit record and debit record of the
respective parties in accordance with the adjustments of the said permitted transactions,
the credits and debits being irrevocable, time invariant obligations placed on the
exchange institutions.” App. 383–384.
264
Patent Cases
Intellectual Property Cases
Prof. Janicke
In sum, the patents in suit claim (1) the foregoing method for exchanging obligations (the
method claims), (2) a computer system configured to carry out the method for
exchanging obligations (the system claims), and (3) a computer-readable medium
containing program code for performing the method of exchanging obligations (the
media claims). All of the claims are implemented using a computer; the system and
media claims expressly recite a computer, and the parties have stipulated that the method
claims require a computer as well.
B
Respondents CLS Bank International and CLS Services Ltd. (together, CLS Bank)
operate a global network that facilitates currency transactions. In 2007, CLS Bank filed
suit against petitioner, seeking a declaratory judgment that the claims at issue are invalid,
unenforceable, or not infringed. Petitioner counterclaimed, alleging infringement.
Following this Court’s decision in Bilski v. Kappos, 561 U.S. 593 (2010), the parties filed
cross-motions for summary judgment on whether the asserted claims are eligible for
patent protection under 35 U.S.C. § 101. The District Court held that all of the claims are
patent ineligible because they are directed to the abstract idea of “employing a neutral
intermediary to facilitate simultaneous exchange of obligations in order to minimize
risk.” 768 F.Supp.2d 221, 252 (D.D.C.2011).
A divided panel of the United States Court of Appeals for the Federal Circuit reversed,
holding that it was not “manifestly evident” that petitioner’s claims are directed to an
abstract idea. 685 F.3d 1341, 1352, 1356 (2012). The Federal Circuit granted rehearing
en banc, vacated the panel opinion, and affirmed the judgment of the District Court in a
one-paragraph per curiam opinion. 717 F.3d, at 1273. Seven of the ten participating
judges agreed that petitioner’s method and media claims are patent ineligible. See id., at
1274 (Lourie, J., concurring); id., at 1312–1313 (Rader, C.J., concurring in part and
dissenting in part). With respect to petitioner’s system claims, the en banc Federal Circuit
affirmed the District Court’s judgment by an equally divided vote. Id., at 1273.
Writing for a five-member plurality, Judge Lourie concluded that all of the claims at
issue are patent ineligible. In the plurality’s view, under this Court’s decision in Mayo
Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ––––, 132 S.Ct. 1289
(2012), a court must first “identif[y] the abstract idea represented in the claim,” and then
determine “whether the balance of the claim adds ‘significantly more.’ ” 717 F.3d, at
265
Patent Cases
Intellectual Property Cases
Prof. Janicke
1286. The plurality concluded that petitioner’s claims “draw on the abstract idea of
reducing settlement risk by effecting trades through a third-party intermediary,” and that
the use of a computer to maintain, adjust, and reconcile shadow accounts added nothing
of substance to that abstract idea. Ibid.
Chief Judge Rader concurred in part and dissented in part. In a part of the opinion joined
only by Judge Moore, Chief Judge Rader agreed with the plurality that petitioner’s
method and media claims are drawn to an abstract idea. Id., at 1312–1313. In a part of the
opinion joined by Judges Linn, Moore, and O’Malley, Chief Judge Rader would have
held that the system claims are patent eligible because they involve computer “hardware”
that is “specifically programmed to solve a complex problem.” Id., at 1307. Judge Moore
wrote a separate opinion dissenting in part, arguing that the system claims are patent
eligible. Id., at 1313–1314. Judge Newman filed an opinion concurring in part and
dissenting in part, arguing that all of petitioner’s claims are patent eligible. Id., at 1327.
Judges Linn and O’Malley filed a separate dissenting opinion reaching that same
conclusion. Ibid.
We granted certiorari, and now affirm.
II
Section 101 of the Patent Act defines the subject matter eligible for patent protection. It
provides:
“Whoever invents or discovers any new and useful process, machine, manufacture, or
composition of matter, or any new and useful improvement thereof, may obtain a
patent therefor, subject to the conditions and requirements of this title.” 35 U.S.C. §
101.
“We have long held that this provision contains an important implicit exception: Laws of
nature, natural phenomena, and abstract ideas are not patentable.” Association for
Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107, 2116 (2013). We have
interpreted § 101 and its predecessors in light of this exception for more than 150 years.
Bilski, supra, at 601–602; see also O’Reilly v. Morse, 15 How. 62, 112–120, 14 L.Ed. 601
(1854); Le Roy v. Tatham, 14 How. 156, 174–175, 14 L.Ed. 367 (1853).
We have described the concern that drives this exclusionary principle as one of pre266
Patent Cases
Intellectual Property Cases
Prof. Janicke
emption. See, e.g., Bilski, supra, at 611–612 (upholding the patent “would pre-empt use
of this approach in all fields, and would effectively grant a monopoly over an abstract
idea”). Laws of nature, natural phenomena, and abstract ideas are “ ‘ “the basic tools of
scientific and technological work.” ’ ” Myriad, supra, at ––––, 133 S.Ct., at 2116.
“[M]onopolization of those tools through the grant of a patent might tend to impede
innovation more than it would tend to promote it,” thereby thwarting the primary object
of the patent laws. Mayo, supra, at ––––, 132 S.Ct., at 1923; see U.S. Const., Art. I, § 8,
cl. 8 (Congress “shall have Power ... To promote the Progress of Science and useful
Arts”). We have “repeatedly emphasized this ... concern that patent law not inhibit further
discovery by improperly tying up the future use of” these building blocks of human
ingenuity. Mayo, supra, at ––––, 132 S.Ct., at 1301 (citing Morse, supra, at 113).
At the same time, we tread carefully in construing this exclusionary principle lest it
swallow all of patent law. Mayo, 566 U.S., at ––––, 132 S.Ct., at 1293–1294. At some
level, “all inventions ... embody, use, reflect, rest upon, or apply laws of nature, natural
phenomena, or abstract ideas.” Id., at ––––, 132 S.Ct., at 1293. Thus, an invention is not
rendered ineligible for patent simply because it involves an abstract concept. See
Diamond v. Diehr, 450 U.S. 175 (1981). “[A]pplication[s]” of such concepts “ ‘to a new
and useful end,’ ” we have said, remain eligible for patent protection. Gottschalk v.
Benson, 409 U.S. 63, 67, 93 S.Ct. 253, 34 L.Ed.2d 273 (1972).
Accordingly, in applying the § 101 exception, we must distinguish between patents that
claim the “ ‘buildin[g] block[s]’ ” of human ingenuity and those that integrate the
building blocks into something more, Mayo, 566 U.S., at ––––, 132 S.Ct., at 1303,
thereby “transform[ing]” them into a patent-eligible invention, id., at ––––, 132 S.Ct., at
1294. The former “would risk disproportionately tying up the use of the underlying”
ideas, id., at ––––, 132 S.Ct., at 1294, and are therefore ineligible for patent protection.
The latter pose no comparable risk of pre-emption, and therefore remain eligible for the
monopoly granted under our patent laws.
III
In Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ––––, 132
S.Ct. 1289, 182 L.Ed.2d 321 (2012), we set forth a framework for distinguishing patents
that claim laws of nature, natural phenomena, and abstract ideas from those that claim
patent-eligible applications of those concepts. First, we determine whether the claims at
issue are directed to one of those patent-ineligible concepts. Id., at ––––, 132 S.Ct., at
267
Patent Cases
Intellectual Property Cases
Prof. Janicke
1296–1297. If so, we then ask, “[w]hat else is there in the claims before us?” Id., at ––––,
132 S.Ct., at 1297. To answer that question, we consider the elements of each claim both
individually and “as an ordered combination” to determine whether the additional
elements “transform the nature of the claim” into a patent-eligible application. Id., at –––
–, 132 S.Ct., at 1298, 1297. We have described step two of this analysis as a search for an
“ ‘inventive concept’ ”—i.e., an element or combination of elements that is “sufficient to
ensure that the patent in practice amounts to significantly more than a patent upon the
[ineligible concept] itself.” Id., at ––––, 132 S.Ct., at 1294.3
3
Because the approach we made explicit in Mayo considers all claim elements, both
individually and in combination, it is consistent with the general rule that patent
claims “must be considered as a whole.” Diamond v. Diehr, 450 U.S. 175, 188, 101
S.Ct. 1048, 67 L.Ed.2d 155 (1981); see Parker v. Flook, 437 U.S. 584, 594, 98
S.Ct. 2522, 57 L.Ed.2d 451 (1978) (“Our approach ... is ... not at all inconsistent
with the view that a patent claim must be considered as a whole”).
A
We must first determine whether the claims at issue are directed to a patent-ineligible
concept. We conclude that they are: These claims are drawn to the abstract idea of
intermediated settlement.
The “abstract ideas” category embodies “the longstanding rule that ‘[a]n idea of itself is
not patentable.’ ” Benson, supra, at 67, 93 S.Ct. 253 (quoting Rubber–Tip Pencil Co. v.
Howard, 20 Wall. 498, 507, 22 L.Ed. 410 (1874)); see also Le Roy, supra, at 175 (“A
principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot
be patented, as no one can claim in either of them an exclusive right”). In Benson, for
example, this Court rejected as ineligible patent claims involving an algorithm for
converting binary-coded decimal numerals into pure binary form, holding that the
claimed patent was “in practical effect ... a patent on the algorithm itself.” 409 U.S., at
71–72, 93 S.Ct. 253. And in Parker v. Flook, 437 U.S. 584, 594–595, 98 S.Ct. 2522, 57
L.Ed.2d 451 (1978), we held that a mathematical formula for computing “alarm limits” in
a catalytic conversion process was also a patent-ineligible abstract idea.
We most recently addressed the category of abstract ideas in Bilski v. Kappos, 561 U.S.
593 (2010). The claims at issue in Bilski described a method for hedging against the
268
Patent Cases
Intellectual Property Cases
Prof. Janicke
financial risk of price fluctuations. Claim 1 recited a series of steps for hedging risk,
including: (1) initiating a series of financial transactions between providers and
consumers of a commodity; (2) identifying market participants that have a counterrisk for
the same commodity; and (3) initiating a series of transactions between those market
participants and the commodity provider to balance the risk position of the first series of
consumer transactions. Id., at 599, 130 S.Ct. 3218. Claim 4 “pu[t] the concept articulated
in claim 1 into a simple mathematical formula.” Ibid. The remaining claims were drawn
to examples of hedging in commodities and energy markets.
“[A]ll members of the Court agree[d]” that the patent at issue in Bilski claimed an
“abstract idea.” Id., at 609, 130 S.Ct. 3218; see also id., at 619, 130 S.Ct. 3218 (Stevens,
J., concurring in judgment). Specifically, the claims described “the basic concept of
hedging, or protecting against risk.” Id., at 611, 130 S.Ct. 3218. The Court explained that
“ ‘[h]edging is a fundamental economic practice long prevalent in our system of
commerce and taught in any introductory finance class.’ ” Ibid. “The concept of hedging”
as recited by the claims in suit was therefore a patent-ineligible “abstract idea, just like
the algorithms at issue in Benson and Flook.” Ibid.
It follows from our prior cases, and Bilski in particular, that the claims at issue here are
directed to an abstract idea. Petitioner’s claims involve a method of exchanging financial
obligations between two parties using a third-party intermediary to mitigate settlement
risk. The intermediary creates and updates “shadow” records to reflect the value of each
party’s actual accounts held at “exchange institutions,” thereby permitting only those
transactions for which the parties have sufficient resources. At the end of each day, the
intermediary issues irrevocable instructions to the exchange institutions to carry out the
permitted transactions.
On their face, the claims before us are drawn to the concept of intermediated settlement,
i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the
concept of intermediated settlement is “ ‘a fundamental economic practice long prevalent
in our system of commerce.’ ” Ibid.; see, e.g., Emery, Speculation on the Stock and
Produce Exchanges of the United States, in 7 Studies in History, Economics and Public
Law 283, 346–356 (1896) (discussing the use of a “clearing-house” as an intermediary to
reduce settlement risk). The use of a third-party intermediary (or “clearing house”) is also
a building block of the modern economy. See, e.g., Yadav, The Problematic Case of
Clearinghouses in Complex Markets, 101 Geo. L.J. 387, 406–412 (2013); J. Hull, Risk
Management and Financial Institutions 103–104 (3d ed. 2012). Thus, intermediated
settlement, like hedging, is an “abstract idea” beyond the scope of § 101.
Petitioner acknowledges that its claims describe intermediated settlement, see Brief for
269
Patent Cases
Intellectual Property Cases
Prof. Janicke
Petitioner 4, but rejects the conclusion that its claims recite an “abstract idea.” Drawing
on the presence of mathematical formulas in some of our abstract-ideas precedents,
petitioner contends that the abstract-ideas category is confined to “preexisting,
fundamental truth[s]” that “ ‘exis[t] in principle apart from any human action.’ ” Id., at
23, 26 (quoting Mayo, 566 U.S., at ––––, 132 S.Ct., at 1297).
Bilski belies petitioner’s assertion. The concept of risk hedging we identified as an
abstract idea in that case cannot be described as a “preexisting, fundamental truth.” The
patent in Bilski simply involved a “series of steps instructing how to hedge risk.” 561
U.S., at 599, 130 S.Ct. 3218. Although hedging is a longstanding commercial practice,
id., at 599, 130 S.Ct. 3218, it is a method of organizing human activity, not a “truth”
about the natural world “ ‘that has always existed,’ ” Brief for Petitioner 22 (quoting
Flook, supra, at 593, n. 15, 98 S.Ct. 2522). One of the claims in Bilski reduced hedging to
a mathematical formula, but the Court did not assign any special significance to that fact,
much less the sort of talismanic significance petitioner claims. Instead, the Court
grounded its conclusion that all of the claims at issue were abstract ideas in the
understanding that risk hedging was a “ ‘fundamental economic practice.’ ” 561 U.S., at
611, 130 S.Ct. 3218.
In any event, we need not labor to delimit the precise contours of the “abstract ideas”
category in this case. It is enough to recognize that there is no meaningful distinction
between the concept of risk hedging in Bilski and the concept of intermediated settlement
at issue here. Both are squarely within the realm of “abstract ideas” as we have used that
term.
B
Because the claims at issue are directed to the abstract idea of intermediated settlement,
we turn to the second step in Mayo ‘s framework. We conclude that the method claims,
which merely require generic computer implementation, fail to transform that abstract
idea into a patent-eligible invention.
1
[9]
At Mayo step two, we must examine the elements of the claim to determine whether it
270
Patent Cases
Intellectual Property Cases
Prof. Janicke
contains an “ ‘inventive concept’ ” sufficient to “transform” the claimed abstract idea into
a patent-eligible application. 566 U.S., at ––––, ––––, 132 S.Ct., at 1294, 1298. A claim
that recites an abstract idea must include “additional features” to ensure “that the [claim]
is more than a drafting effort designed to monopolize the [abstract idea].” Id., at ––––,
132 S.Ct., at 1297. Mayo made clear that transformation into a patent-eligible application
requires “more than simply stat[ing] the [abstract idea] while adding the words ‘apply it.’
” Id., at ––––, 132 S.Ct., at 1294.
Mayo itself is instructive. The patents at issue in Mayo claimed a method for measuring
metabolites in the bloodstream in order to calibrate the appropriate dosage of thiopurine
drugs in the treatment of autoimmune diseases. Id., at ––––, 132 S.Ct., at 1294–1296. The
respondent in that case contended that the claimed method was a patent-eligible
application of natural laws that describe the relationship between the concentration of
certain metabolites and the likelihood that the drug dosage will be harmful or ineffective.
But methods for determining metabolite levels were already “well known in the art,” and
the process at issue amounted to “nothing significantly more than an instruction to
doctors to apply the applicable laws when treating their patients.” Id., at ––––, 132 S.Ct.,
at 1298. “Simply appending conventional steps, specified at a high level of generality,”
was not “enough ” to supply an “ ‘inventive concept.’ ” Id., at ––––, ––––, ––––, 132
S.Ct., at 1300, 1297, 1294.
[10]
The introduction of a computer into the claims does not alter the analysis at Mayo step
two. In Benson, for example, we considered a patent that claimed an algorithm
implemented on “a general-purpose digital computer.” 409 U.S., at 64, 93 S.Ct. 253.
Because the algorithm was an abstract idea, see supra, at ––––, the claim had to supply a
“ ‘new and useful’ ” application of the idea in order to be patent eligible. 409 U.S., at 67,
93 S.Ct. 253. But the computer implementation did not supply the necessary inventive
concept; the process could be “carried out in existing computers long in use.” Ibid. We
accordingly “held that simply implementing a mathematical principle on a physical
machine, namely a computer, [i]s not a patentable application of that principle.” Mayo,
supra, at ––––, 132 S.Ct., at 1301 (citing Benson, supra, at 64, 93 S.Ct. 253).
Flook is to the same effect. There, we examined a computerized method for using a
mathematical formula to adjust alarm limits for certain operating conditions (e.g.,
temperature and pressure) that could signal inefficiency or danger in a catalytic
conversion process. 437 U.S., at 585–586, 98 S.Ct. 2522. Once again, the formula itself
was an abstract idea, see supra, at ––––, and the computer implementation was purely
conventional. 437 U.S., at 594, 98 S.Ct. 2522 (noting that the “use of computers for
‘automatic monitoring-alarming’ ” was “well known”). In holding that the process was
patent ineligible, we rejected the argument that “implement[ing] a principle in some
271
Patent Cases
Intellectual Property Cases
Prof. Janicke
specific fashion” will “automatically fal[l] within the patentable subject matter of § 101.”
Id., at 593, 98 S.Ct. 2522. Thus, “Flook stands for the proposition that the prohibition
against patenting abstract ideas cannot be circumvented by attempting to limit the use of
[the idea] to a particular technological environment.” Bilski, 561 U.S., at 610–611, 130
S.Ct. 3218 (internal quotation marks omitted).
In Diehr, 450 U.S. 175, 101 S.Ct. 1048, 67 L.Ed.2d 155, by contrast, we held that a
computer-implemented process for curing rubber was patent eligible, but not because it
involved a computer. The claim employed a “well-known” mathematical equation, but it
used that equation in a process designed to solve a technological problem in
“conventional industry practice.” Id., at 177, 178, 101 S.Ct. 1048. The invention in Diehr
used a “thermocouple” to record constant temperature measurements inside the rubber
mold—something “the industry ha[d] not been able to obtain.” Id., at 178, and n. 3, 101
S.Ct. 1048. The temperature measurements were then fed into a computer, which
repeatedly recalculated the remaining cure time by using the mathematical equation. Id.,
at 178–179, 101 S.Ct. 1048. These additional steps, we recently explained, “transformed
the process into an inventive application of the formula.” Mayo, supra, at ––––, 132
S.Ct., at 1299. In other words, the claims in Diehr were patent eligible because they
improved an existing technological process, not because they were implemented on a
computer.
These cases demonstrate that the mere recitation of a generic computer cannot transform
a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea
“while adding the words ‘apply it’ ” is not enough for patent eligibility. Mayo, supra, at –
–––, 132 S.Ct., at 1294. Nor is limiting the use of an abstract idea “ ‘to a particular
technological environment.’ ” Bilski, supra, at 610–611, 130 S.Ct. 3218. Stating an
abstract idea while adding the words “apply it with a computer” simply combines those
two steps, with the same deficient result. Thus, if a patent’s recitation of a computer
amounts to a mere instruction to “implemen [t]” an abstract idea “on ... a computer,”
Mayo, supra, at ––––, 132 S.Ct., at 1301, that addition cannot impart patent eligibility.
This conclusion accords with the pre-emption concern that undergirds our § 101
jurisprudence. Given the ubiquity of computers, see 717 F.3d, at 1286 (Lourie, J.,
concurring), wholly generic computer implementation is not generally the sort of
“additional featur[e]” that provides any “practical assurance that the process is more than
a drafting effort designed to monopolize the [abstract idea] itself.” Mayo, 566 U.S., at ––
––, 132 S.Ct., at 1297.
The fact that a computer “necessarily exist[s] in the physical, rather than purely
conceptual, realm,” Brief for Petitioner 39, is beside the point. There is no dispute that a
computer is a tangible system (in § 101 terms, a “machine”), or that many computer272
Patent Cases
Intellectual Property Cases
Prof. Janicke
implemented claims are formally addressed to patent-eligible subject matter. But if that
were the end of the § 101 inquiry, an applicant could claim any principle of the physical
or social sciences by reciting a computer system configured to implement the relevant
concept. Such a result would make the determination of patent eligibility “depend simply
on the draftsman’s art,” Flook, supra, at 593, 98 S.Ct. 2522, thereby eviscerating the rule
that “ ‘[l]aws of nature, natural phenomena, and abstract ideas are not patentable,’ ”
Myriad, 569 U.S., at ––––, 133 S.Ct., at 2116.
2
The representative method claim in this case recites the following steps: (1) “creating”
shadow records for each counterparty to a transaction; (2) “obtaining” start-of-day
balances based on the parties’ real-world accounts at exchange institutions; (3)
“adjusting” the shadow records as transactions are entered, allowing only those
transactions for which the parties have sufficient resources; and (4) issuing irrevocable
end-of-day instructions to the exchange institutions to carry out the permitted
transactions. See n. 2, supra. Petitioner principally contends that the claims are patent
eligible because these steps “require a substantial and meaningful role for the computer.”
Brief for Petitioner 48. As stipulated, the claimed method requires the use of a computer
to create electronic records, track multiple transactions, and issue simultaneous
instructions; in other words, “[t]he computer is itself the intermediary.” Ibid. (emphasis
deleted).
In light of the foregoing, see supra, at –––– – ––––, the relevant question is whether the
claims here do more than simply instruct the practitioner to implement the abstract idea
of intermediated settlement on a generic computer. They do not.
Taking the claim elements separately, the function performed by the computer at each
step of the process is “[p]urely conventional.” Mayo, supra, at ––––, 132 S.Ct., at 1298
(internal quotation marks omitted). Using a computer to create and maintain “shadow”
accounts amounts to electronic recordkeeping—one of the most basic functions of a
computer. See, e.g., Benson, 409 U.S., at 65, 93 S.Ct. 253 (noting that a computer
“operates ... upon both new and previously stored data”). The same is true with respect to
the use of a computer to obtain data, adjust account balances, and issue automated
instructions; all of these computer functions are “well-understood, routine, conventional
activit[ies]” previously known to the industry. Mayo, 566 U.S., at ––––, 132 S.Ct., at
1294. In short, each step does no more than require a generic computer to perform
273
Patent Cases
Intellectual Property Cases
Prof. Janicke
generic computer functions.
Considered “as an ordered combination,” the computer components of petitioner’s
method “ad[d] nothing ... that is not already present when the steps are considered
separately.” Id., at ––––, 132 S.Ct., at 1298. Viewed as a whole, petitioner’s method
claims simply recite the concept of intermediated settlement as performed by a generic
computer. See 717 F.3d, at 1286 (Lourie, J., concurring) (noting that the representative
method claim “lacks any express language to define the computer’s participation”). The
method claims do not, for example, purport to improve the functioning of the computer
itself. See ibid. (“There is no specific or limiting recitation of ... improved computer
technology ...”); Brief for United States as Amicus Curiae 28–30. Nor do they effect an
improvement in any other technology or technical field. See, e.g., Diehr, 450 U.S., at
177–178, 101 S.Ct. 1048. Instead, the claims at issue amount to “nothing significantly
more” than an instruction to apply the abstract idea of intermediated settlement using
some unspecified, generic computer. Mayo, 566 U.S., at ––––, 132 S.Ct., at 1298. Under
our precedents, that is not “enough ” to transform an abstract idea into a patent-eligible
invention. Id., at ––––, 132 S.Ct., at 1297.
C
Petitioner’s claims to a computer system and a computer-readable medium fail for
substantially the same reasons. Petitioner conceded below that its media claims rise or
fall with its method claims. En Banc Response Brief for Defendant–Appellant in No. 11–
1301 (CA Fed.) p. 50, n. 3. As to its system claims, petitioner emphasizes that those
claims recite “specific hardware” configured to perform “specific computerized
functions.” Brief for Petitioner 53. But what petitioner characterizes as specific
hardware—a “data processing system” with a “communications controller” and “data
storage unit,” for example, see App. 954, 958, 1257—is purely functional and generic.
Nearly every computer will include a “communications controller” and “data storage
unit” capable of performing the basic calculation, storage, and transmission functions
required by the method claims. See 717 F.3d, at 1290 (Lourie, J., concurring). As a result,
none of the hardware recited by the system claims “offers a meaningful limitation beyond
generally linking ‘the use of the [method] to a particular technological environment,’ that
is, implementation via computers.” Id., at 1291 (quoting Bilski, 561 U.S., at 610–611, 130
S.Ct. 3218).
Put another way, the system claims are no different from the method claims in substance.
274
Patent Cases
Intellectual Property Cases
Prof. Janicke
The method claims recite the abstract idea implemented on a generic computer; the
system claims recite a handful of generic computer components configured to implement
the same idea. This Court has long “warn[ed] ... against” interpreting § 101 “in ways that
make patent eligibility ‘depend simply on the draftsman’s art.’ ” Mayo, supra, at ––––,
132 S.Ct., at 1294 (quoting Flook, 437 U.S., at 593, 98 S.Ct. 2522); see id., at 590, 98
S.Ct. 2522 (“The concept of patentable subject matter under § 101 is not ‘like a nose of
wax which may be turned and twisted in any direction ...’ ”). Holding that the system
claims are patent eligible would have exactly that result.
Because petitioner’s system and media claims add nothing of substance to the underlying
abstract idea, we hold that they too are patent ineligible under § 101.
3
For the foregoing reasons, the judgment of the Court of Appeals for the Federal Circuit is
affirmed.
It is so ordered.
Justice SOTOMAYOR, with whom Justice GINSBURG and Justice BREYER join,
concurring.
I adhere to the view that any “claim that merely describes a method of doing business
does not qualify as a ‘process’ under § 101.” Bilski v. Kappos, 561 U.S. 593, 614, 130
S.Ct. 3218, 177 L.Ed.2d 792 (2010) (Stevens, J., concurring in judgment); see also In re
Bilski, 545 F.3d 943, 972 (C.A.Fed.2008) (Dyk, J., concurring) (“There is no suggestion
in any of th[e] early [English] consideration of process patents that processes for
organizing human activity were or ever had been patentable”). As in Bilski, however, I
further believe that the method claims at issue are drawn to an abstract idea. Cf. 561 U.S.,
at 619, 130 S.Ct. 3218 (opinion of Stevens, J.). I therefore join the opinion of the Court.
ASSOCIATION FOR MOLECULAR PATHOLOGY
v.
275
Patent Cases
Intellectual Property Cases
Prof. Janicke
MYRIAD GENETICS, INC.
SUPREME COURT OF THE UNITED STATES
133 S.Ct. 2107
Decided June 13, 2013
Justice THOMAS delivered the opinion of the Court.
Respondent Myriad Genetics, Inc. (Myriad), discovered the precise location and
sequence of two human genes, mutations of which can substantially increase the risks of
breast and ovarian cancer. Myriad obtained a number of patents based upon its discovery.
This case involves claims from three of them and requires us to resolve whether a
naturally occurring segment of deoxyribonucleic acid (DNA) is patent eligible under 35
U.S.C. § 101 by virtue of its isolation from the rest of the human genome. We also
address the patent eligibility of synthetically created DNA known as complementary
DNA (cDNA), which contains the same protein-coding information found in a segment
of natural DNA but omits portions within the DNA segment that do not code for proteins.
For the reasons that follow, we hold that a naturally occurring DNA segment is a product
of nature and not patent eligible merely because it has been isolated, but that cDNA is
patent eligible because it is not naturally occurring. We, therefore, affirm in part and
reverse in part the decision of the United States Court of Appeals for the Federal Circuit.
I
A
[Court provides a general discussion of DNA.]
B
276
Patent Cases
Intellectual Property Cases
Prof. Janicke
Myriad discovered the precise location and sequence of what are now known as the
BRCA1 and BRCA2 genes. Mutations in these genes can dramatically increase an
individual’s risk of developing breast and ovarian cancer. The average American woman
has a 12– to 13–percent risk of developing breast cancer, but for women with certain
genetic mutations, the risk can range between 50 and 80 percent for breast cancer and
between 20 and 50 percent for ovarian cancer. Before Myriad’s discovery of the BRCA1
and BRCA2 genes, scientists knew that heredity played a role in establishing a woman’s
risk of developing breast and ovarian cancer, but they did not know which genes were
associated with those cancers.
Myriad identified the exact location of the BRCA1 and BRCA2 genes on chromosomes
17 and 13. Chromosome 17 has approximately 80 million nucleotides, and chromosome
13 has approximately 114 million. Within those chromosomes, the BRCA1 and BRCA2
genes are each about 80,000 nucleotides long. If just exons are counted, the BRCA1 gene
is only about 5,500 nucleotides long; for the BRCA2 gene, that number is about 10,200.
Ibid. Knowledge of the location of the BRCA1 and BRCA2 genes allowed Myriad to
determine their typical nucleotide sequence.1 That information, in turn, enabled Myriad to
develop medical tests that are useful for detecting mutations in a patient’s BRCA1 and
BRCA2 genes and thereby assessing whether the patient has an increased risk of cancer.
1
Technically, there is no “typical” gene because nucleotide sequences vary between
individuals, sometimes dramatically. Geneticists refer to the most common
variations of genes as “wild types.”
Once it found the location and sequence of the BRCA1 and BRCA2 genes, Myriad
sought and obtained a number of patents. Nine composition claims from three of those
patents are at issue in this case.2 Claims 1, 2, 5, and 6 from the ‘282 patent are
representative. The first claim [recites] “[a]n isolated DNA coding for a BRCA1
polypeptide,” which has “the amino acid sequence set forth in SEQ ID NO:2.” App. 822.
SEQ ID NO:2 sets forth a list of 1,863 amino acids that the typical BRCA1 gene encodes.
See id., at 785–790. Put differently, claim 1 [recites] the DNA code that tells a cell to
produce the string of BRCA1 amino acids listed in SEQ ID NO:2.
2
At issue are claims 1, 2, 5, 6, and 7 of U.S. Patent 5,747,282 (the ‘282 patent),
claim 1 of U.S. Patent 5,693,473 (the ‘473 patent), and claims 1, 6, and 7 of U.S.
Patent 5,837,492 (the ‘492 patent). [Ed.: All are to DNA sequences, not methods.]
277
Patent Cases
Intellectual Property Cases
Prof. Janicke
Claim 2 of the ‘282 patent operates similarly. It claims “[t]he isolated DNA of claim 1,
wherein said DNA has the nucleotide sequence set forth in SEQ ID NO:1.” Id., at 822.
Like SEQ ID NO:2, SEQ ID NO:1 sets forth a long list of data, in this instance the
sequence of cDNA that codes for the BRCA1 amino acids listed in claim 1. Importantly,
SEQ ID NO:1 lists only the cDNA exons in the BRCA1 gene, rather than a full DNA
sequence containing both exons and introns. See id., at 779 (stating that SEQ ID NO:1’s
“MOLECULE TYPE:” is “cDNA”). As a result, the Federal Circuit recognized that claim
2 [recites] the cDNA nucleotide sequence listed in SEQ ID NO:1, which codes for the
typical BRCA1 gene. 689 F.3d, at 1326, n. 9; id., at 1337 (Moore, J., concurring in part);
id., at 1356 (Bryson, J., concurring in part and dissenting in part).
Claim 5 of the ‘282 patent claims a subset of the data in claim 1. In particular, it claims
“[a]n isolated DNA having at least 15 nucleotides of the DNA of claim 1.” App. 822. The
practical effect of claim 5 is to assert a patent on any series of 15 nucleotides that exist in
the typical BRCA1 gene. Because the BRCA1 gene is thousands of nucleotides long,
even BRCA1 genes with substantial mutations are likely to contain at least one segment
of 15 nucleotides that correspond to the typical BRCA1 gene. Similarly, claim 6 of the
‘282 patent claims “[a]n isolated DNA having at least 15 nucleotides of the DNA of
claim 2.” Ibid. This claim operates similarly to claim 5, except that it references the
cDNA-based claim 2. The remaining claims at issue are similar, though several list
common mutations rather than typical BRCA1 and BRCA2 sequences. See ibid. (claim 7
of the ‘282 patent); id., at 930 (claim 1 of the ‘473 patent); id., at 1028 (claims 1, 6, and 7
of the ‘492 patent).
C
Myriad’s patents would, if valid, give it the exclusive right to isolate an individual’s
BRCA1 and BRCA2 genes (or any strand of 15 or more nucleotides within the genes) by
breaking the covalent bonds that connect the DNA to the rest of the individual’s genome.
The patents would also give Myriad the exclusive right to synthetically create BRCA
cDNA. In Myriad’s view, manipulating BRCA DNA in either of these fashions triggers
its “right to exclude others from making” its patented composition of matter under the
Patent Act. 35 U.S.C. § 154(a)(1); see also § 271(a) (“[W]hoever without authority
makes ... any patented invention ... infringes the patent”).
But isolation is necessary to conduct genetic testing, and Myriad was not the only entity
to offer BRCA testing after it discovered the genes. The University of Pennsylvania’s
278
Patent Cases
Intellectual Property Cases
Prof. Janicke
Genetic Diagnostic Laboratory (GDL) and others provided genetic testing services to
women. Petitioner Dr. Harry Ostrer, then a researcher at New York University School of
Medicine, routinely sent his patients’ DNA samples to GDL for testing. After learning of
GDL’s testing and Ostrer’s activities, Myriad sent letters to them asserting that the
genetic testing infringed Myriad’s patents. App. 94–95 (Ostrer letter). In response, GDL
agreed to stop testing and informed Ostrer that it would no longer accept patient samples.
Myriad also filed patent infringement suits against other entities that performed BRCA
testing, resulting in settlements in which the defendants agreed to cease all allegedly
infringing activity. 689 F.3d, at 1315. Myriad, thus, solidified its position as the only
entity providing BRCA testing.
Some years later, petitioner Ostrer, along with medical patients, advocacy groups, and
other doctors, filed this lawsuit seeking a declaration that Myriad’s patents are invalid
under 35 U.S.C. § 101. Citing this Court’s decision in MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118 (2007), the District Court denied Myriad’s motion to dismiss for lack
of standing. Association for Molecular Pathology v. United States Patent and Trademark
Office, 669 F.Supp.2d 365, 385–392 (S.D.N.Y.2009). The District Court then granted
summary judgment to petitioners on the composition claims at issue in this case based on
its conclusion that Myriad’s claims, including claims related to cDNA, were invalid
because they covered products of nature. The Federal Circuit reversed, Association for
Molecular Pathology v. United States Patent and Trademark Office, 653 F.3d 1329
(2011), and this Court granted the petition for certiorari, vacated the judgment, and
remanded the case in light of Mayo Collaborative Services v. Prometheus Laboratories,
Inc., 132 S.Ct. 1289 (2012).
On remand, the Federal Circuit affirmed the District Court in part and reversed in part,
with each member of the panel writing separately. All three judges agreed that only
petitioner Ostrer had standing. They reasoned that Myriad’s actions against him and his
stated ability and willingness to begin BRCA1 and BRCA2 testing if Myriad’s patents
were invalidated were sufficient for Article III standing. 689 F.3d, at 1323; id., at 1337
(opinion of Moore, J.); id., at 1348 (opinion of Bryson, J.).
With respect to the merits, the court held that both isolated DNA and cDNA were patent
eligible under § 101. The central dispute among the panel members was whether the act
of isolating DNA—separating a specific gene or sequence of nucleotides from the rest of
the chromosome—is an inventive act that entitles the individual who first isolates it to a
patent. Each of the judges on the panel had a different view on that question. Judges
Lourie and Moore agreed that Myriad’s claims were patent eligible under § 101 but
disagreed on the rationale. Judge Lourie relied on the fact that the entire DNA molecule
is held together by chemical bonds and that the covalent bonds at both ends of the
279
Patent Cases
Intellectual Property Cases
Prof. Janicke
segment must be severed in order to isolate segments of DNA. This process technically
creates new molecules with unique chemical compositions. See id., at 1328 (“Isolated
DNA ... is a free-standing portion of a larger, natural DNA molecule. Isolated DNA has
been cleaved (i.e., had covalent bonds in its backbone chemically severed) or synthesized
to consist of just a fraction of a naturally occurring DNA molecule”). Judge Lourie found
this chemical alteration to be dispositive, because isolating a particular strand of DNA
creates a nonnaturally occurring molecule, even though the chemical alteration does not
change the information-transmitting quality of the DNA. See id., at 1330 (“The claimed
isolated DNA molecules are distinct from their natural existence as portions of larger
entities, and their informational content is irrelevant to that fact. We recognize that
biologists may think of molecules in terms of their uses, but genes are in fact materials
having a chemical nature”). Accordingly, he rejected petitioners’ argument that isolated
DNA was ineligible for patent protection as a product of nature.
Judge Moore concurred in part but did not rely exclusively on Judge Lourie’s conclusion
that chemically breaking covalent bonds was sufficient to render isolated DNA patent
eligible. Id., at 1341 (“To the extent the majority rests its conclusion on the chemical
differences between [naturally occurring] and isolated DNA (breaking the covalent
bonds), I cannot agree that this is sufficient to hold that the claims to human genes are
directed to patentable subject matter”). Instead, Judge Moore also relied on the United
States Patent and Trademark Office’s (PTO) practice of granting such patents and on the
reliance interests of patent holders. Id., at 1343. However, she acknowledged that her
vote might have come out differently if she “were deciding this case on a blank canvas.”
Ibid.
Finally, Judge Bryson concurred in part and dissented in part, concluding that isolated
DNA is not patent eligible. As an initial matter, he emphasized that the breaking of
chemical bonds was not dispositive: “[T]here is no magic to a chemical bond that
requires us to recognize a new product when a chemical bond is created or broken.” Id.,
at 1351. Instead, he relied on the fact that “[t]he nucleotide sequences of the claimed
molecules are the same as the nucleotide sequences found in naturally occurring human
genes.” Id., at 1355. Judge Bryson then concluded that genetic “structural similarity
dwarfs the significance of the structural differences between isolated DNA and naturally
occurring DNA, especially where the structural differences are merely ancillary to the
breaking of covalent bonds, a process that is itself not inventive.” Ibid. Moreover, Judge
Bryson gave no weight to the PTO’s position on patentability because of the Federal
Circuit’s position that “the PTO lacks substantive rulemaking authority as to issues such
as patentability.” Id., at 1357.
Although the judges expressed different views concerning the patentability of isolated
280
Patent Cases
Intellectual Property Cases
Prof. Janicke
DNA, all three agreed that patent claims relating to cDNA met the patent eligibility
requirements of § 101. Id., at 1326, and n. 9 (recognizing that some patent claims are
limited to cDNA and that such claims are patent eligible under § 101); id., at 1337
(Moore, J., concurring in part); id., at 1356 (Bryson, J., concurring in part and dissenting
in part) (“cDNA cannot be isolated from nature, but instead must be created in the
laboratory ... because the introns that are found in the native gene are removed from the
cDNA segment”).3 We granted certiorari.
3
Myriad continues to challenge Dr. Ostrer’s Declaratory Judgment Act standing in
this Court. Brief for Respondents 17–22. But we find that, under the Court’s
decision in MedImmune, Inc. v. Genentech, Inc., Dr. Ostrer has alleged sufficient
facts “under all the circumstances, [to] show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient immediacy and reality
to warrant the issuance of a declaratory judgment.” 549 U.S. 118, 127, 127 S.Ct.
764, 166 L.Ed.2d 604 (2007) (internal quotation marks omitted).
II
A
Section 101 of the Patent Act provides:
“Whoever invents or discovers any new and useful ... composition of matter, or any
new and useful improvement thereof, may obtain a patent therefor, subject to the
conditions and requirements of this title.” 35 U.S.C. § 101.
We have “long held that this provision contains an important implicit exception[:] Laws
of nature, natural phenomena, and abstract ideas are not patentable.” Mayo, 132 S.Ct., at
1293 (internal quotation marks and brackets omitted). Rather, “ ‘they are the basic tools
of scientific and technological work’ ” that lie beyond the domain of patent protection.
Id., at ––––, 132 S.Ct., at 1293. As the Court has explained, without this exception, there
would be considerable danger that the grant of patents would “tie up” the use of such
tools and thereby “inhibit future innovation premised upon them.” Id., 132 S.Ct., at
1301. This would be at odds with the very point of patents, which exist to promote
creation. Diamond v. Chakrabarty, 447 U.S. 303, 309, 100 S.Ct. 2204, 65 L.Ed.2d 144
281
Patent Cases
Intellectual Property Cases
Prof. Janicke
(1980) (Products of nature are not created, and “ ‘manifestations ... of nature [are] free to
all men and reserved exclusively to none’ ”).
The rule against patents on naturally occurring things is not without limits, however, for
“all inventions at some level embody, use, reflect, rest upon, or apply laws of nature,
natural phenomena, or abstract ideas,” and “too broad an interpretation of this
exclusionary principle could eviscerate patent law.” 566 U.S., at ––––, 132 S.Ct., at 1293.
As we have recognized before, patent protection strikes a delicate balance between
creating “incentives that lead to creation, invention, and discovery” and “imped[ing] the
flow of information that might permit, indeed spur, invention.” Id., at ––––, 132 S.Ct., at
1305. We must apply this well-established standard to determine whether Myriad’s
patents claim any “new and useful ... composition of matter,” § 101, or instead claim
naturally occurring phenomena.
B
It is undisputed that Myriad did not create or alter any of the genetic information encoded
in the BRCA1 and BRCA2 genes. The location and order of the nucleotides existed in
nature before Myriad found them. Nor did Myriad create or alter the genetic structure of
DNA. Instead, Myriad’s principal contribution was uncovering the precise location and
genetic sequence of the BRCA1 and BRCA2 genes within chromosomes 17 and 13. The
question is whether this renders the genes patentable.
Myriad recognizes that our decision in Chakrabarty is central to this inquiry. Brief for
Respondents 14, 23–27. In Chakrabarty, scientists added four plasmids to a bacterium,
which enabled it to break down various components of crude oil. 447 U.S., at 305, and n.
1, 100 S.Ct. 2204. The Court held that the modified bacterium was patentable. It
explained that the patent claim was “not to a hitherto unknown natural phenomenon, but
to a nonnaturally occurring manufacture or composition of matter—a product of human
ingenuity ‘having a distinctive name, character [and] use.’ ” Id., at 309–310, 100 S.Ct.
2204 (quoting Hartranft v. Wiegmann, 121 U.S. 609, 615, 7 S.Ct. 1240, 30 L.Ed. 1012
(1887); alteration in original). The Chakrabarty bacterium was new “with markedly
different characteristics from any found in nature,” 447 U.S., at 310, 100 S.Ct. 2204, due
to the additional plasmids and resultant “capacity for degrading oil.” Id., at 305, n. 1, 100
S.Ct. 2204. In this case, by contrast, Myriad did not create anything. To be sure, it found
an important and useful gene, but separating that gene from its surrounding genetic
material is not an act of invention.
282
Patent Cases
Intellectual Property Cases
Prof. Janicke
Groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the §
101 inquiry. In Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 68 S.Ct.
440, 92 L.Ed. 588 (1948), this Court considered a composition patent that claimed a
mixture of naturally occurring strains of bacteria that helped leguminous plants take
nitrogen from the air and fix it in the soil. Id., at 128–129, 68 S.Ct. 440. The ability of the
bacteria to fix nitrogen was well known, and farmers commonly “inoculated” their crops
with them to improve soil nitrogen levels. But farmers could not use the same inoculant
for all crops, both because plants use different bacteria and because certain bacteria
inhibit each other. Id., at 129–130, 68 S.Ct. 440. Upon learning that several nitrogenfixing bacteria did not inhibit each other, however, the patent applicant combined them
into a single inoculant and obtained a patent. Id., at 130, 68 S.Ct. 440. The Court held that
the composition was not patent eligible because the patent holder did not alter the
bacteria in any way. Id., at 132, 68 S.Ct. 440 (“There is no way in which we could call
[the bacteria mixture a product of invention] unless we borrowed invention from the
discovery of the natural principle itself”). His patent claim thus fell squarely within the
law of nature exception. So do Myriad’s. Myriad found the location of the BRCA1 and
BRCA2 genes, but that discovery, by itself, does not render the BRCA genes “new ...
composition[s] of matter,” § 101, that are patent eligible.
Indeed, Myriad’s patent descriptions highlight the problem with its claims. For example,
a section of the ‘282 patent’s Detailed Description of the Invention indicates that Myriad
found the location of a gene associated with increased risk of breast cancer and identified
mutations of that gene that increase the risk. See App. 748–749.4 In subsequent language
Myriad explains that the location of the gene was unknown until Myriad found it among
the approximately eight million nucleotide pairs contained in a subpart of chromosome
17. See Ibid.5 The ‘473 and ’492 patents contain similar language as well. See id., at 854,
947. Many of Myriad’s patent descriptions simply detail the “iterative process” of
discovery by which Myriad narrowed the possible locations for the gene sequences that it
sought.6 See, e.g., id., at 750. Myriad seeks to import these extensive research efforts into
the § 101 patent-eligibility inquiry. Brief for Respondents 8–10, 34. But extensive effort
alone is insufficient to satisfy the demands of § 101.
4
The full relevant text of the Detailed Description of the Patent is as follows:
“It is a discovery of the present invention that the BRCA1 locus which
predisposes individuals to breast cancer and ovarian cancer, is a gene
encoding a BRCA1 protein, which has been found to have no significant
homology with known protein or DNA sequences.... It is a discovery of the
present invention that mutations in the BRCA1 locus in the germline are
283
Patent Cases
Intellectual Property Cases
Prof. Janicke
indicative of a predisposition to breast cancer and ovarian cancer. Finally,
it is a discovery of the present invention that somatic mutations in the
BRCA1 locus are also associated with breast cancer, ovarian cancer and
other cancers, which represents an indicator of these cancers or of the
prognosis of these cancers. The mutational events of the BRCA1 locus can
involve deletions, insertions and point mutations.” App. 749.
Notwithstanding Myriad’s repeated use of the phrase “present invention,” it is
clear from the text of the patent that the various discoveries are the “invention.”
5
“Starting from a region on the long arm of human chromosome 17 of the human
genome, 17q, which has a size estimated at about 8 million base pairs, a region
which contains a genetic locus, BRCA1, which causes susceptibility to cancer,
including breast and ovarian cancer, has been identified.” Ibid.
6
Myriad first identified groups of relatives with a history of breast cancer (some of
whom also had developed ovarian cancer); because these individuals were related,
scientists knew that it was more likely that their diseases were the result of genetic
predisposition rather than other factors. Myriad compared sections of their
chromosomes, looking for shared genetic abnormalities not found in the general
population. It was that process which eventually enabled Myriad to determine
where in the genetic sequence the BRCA1 and BRCA2 genes reside. See, e.g., id.,
at 749, 763–775.
Nor are Myriad’s claims saved by the fact that isolating DNA from the human genome
severs chemical bonds and thereby creates a nonnaturally occurring molecule. Myriad’s
claims are simply not expressed in terms of chemical composition, nor do they rely in any
way on the chemical changes that result from the isolation of a particular section of DNA.
Instead, the claims understandably focus on the genetic information encoded in the
BRCA1 and BRCA2 genes. If the patents depended upon the creation of a unique
molecule, then a would-be infringer could arguably avoid at least Myriad’s patent claims
on entire genes (such as claims 1 and 2 of the ‘282 patent) by isolating a DNA sequence
that included both the BRCA1 or BRCA2 gene and one additional nucleotide pair. Such a
molecule would not be chemically identical to the molecule “invented” by Myriad. But
Myriad obviously would resist that outcome because its claim is concerned primarily
284
Patent Cases
Intellectual Property Cases
Prof. Janicke
with the information contained in the genetic sequence, not with the specific chemical
composition of a particular molecule.
Finally, Myriad argues that the PTO’s past practice of awarding gene patents is entitled to
deference, citing J.E.M. Ag Supply, Inc. v. Pioneer Hi–Bred Int’l, Inc., 534 U.S. 124, 122
S.Ct. 593, 151 L.Ed.2d 508 (2001). See Brief for Respondents 35–39, 49–50. We
disagree. J.E.M. held that new plant breeds were eligible for utility patents under § 101
notwithstanding separate statutes providing special protections for plants, see 7 U.S.C. §
2321 et seq. (Plant Variety Protection Act); 35 U.S.C. §§ 161–164 (Plant Patent Act of
1930). After analyzing the text and structure of the relevant statutes, the Court mentioned
that the Board of Patent Appeals and Interferences had determined that new plant breeds
were patent eligible under § 101 and that Congress had recognized and endorsed that
position in a subsequent Patent Act amendment. 534 U.S., at 144–145, 122 S.Ct. 593
(citing In re Hibberd, 227 U.S.P.Q. 443 (1985) and 35 U.S.C. § 119(f)). In this case,
however, Congress has not endorsed the views of the PTO in subsequent legislation.
While Myriad relies on Judge Moore’s view that Congress endorsed the PTO’s position
in a single sentence in the Consolidated Appropriations Act of 2004, see Brief for
Respondents 31, n. 8; 689 F.3d, at 1346, that Act does not even mention genes, much less
isolated DNA. § 634, 118 Stat. 101 (“None of the funds appropriated or otherwise made
available under this Act may be used to issue patents on claims directed to or
encompassing a human organism”).
Further undercutting the PTO’s practice, the United States argued in the Federal Circuit
and in this Court that isolated DNA was not patent eligible under § 101, Brief for United
States as Amicus Curiae 20–33, and that the PTO’s practice was not “a sufficient reason
to hold that isolated DNA is patent-eligible.” Id., at 26. See also id., at 28–29. These
concessions weigh against deferring to the PTO’s determination.7
7
Myriad also argues that we should uphold its patents so as not to disturb the
reliance interests of patent holders like itself. Brief for Respondents 38–39.
Concerns about reliance interests arising from PTO determinations, insofar as they
are relevant, are better directed to Congress. See Mayo Collaborative Services v.
Prometheus Laboratories, Inc., 566 U.S. ––––, ––––, 132 S.Ct. 1289, 1304–05, 182
L.Ed.2d 321 (2012).
285
Patent Cases
Intellectual Property Cases
Prof. Janicke
C
cDNA does not present the same obstacles to patentability as naturally occurring, isolated
DNA segments. As already explained, creation of a cDNA sequence from mRNA results
in an exons-only molecule that is not naturally occurring.8 Petitioners concede that cDNA
differs from natural DNA in that “the non-coding regions have been removed.” Brief for
Petitioners 49. They nevertheless argue that cDNA is not patent eligible because “[t]he
nucleotide sequence of cDNA is dictated by nature, not by the lab technician.” Id., at 51.
That may be so, but the lab technician unquestionably creates something new when
cDNA is made. cDNA retains the naturally occurring exons of DNA, but it is distinct
from the DNA from which it was derived. As a result, cDNA is not a “product of nature”
and is patent eligible under § 101, except insofar as very short series of DNA may have
no intervening introns to remove when creating cDNA. In that situation, a short strand of
cDNA may be indistinguishable from natural DNA.9
8
Some viruses rely on an enzyme called reverse transcriptase to reproduce by
copying RNA into cDNA. In rare instances, a side effect of a viral infection of a
cell can be the random incorporation of fragments of the resulting cDNA, known as
a pseudogene, into the genome. Such pseudogenes serve no purpose; they are not
expressed in protein creation because they lack genetic sequences to direct protein
expression. See J. Watson et al., Molecular Biology of the Gene 142, 144, fig. 7–5
(6th ed. 2008). Perhaps not surprisingly, given pseudogenes’ apparently random
origins, petitioners “have failed to demonstrate that the pseudogene consists of the
same sequence as the BRCA1 cDNA.” Association for Molecular Pathology v.
United States Patent and Trademark Office, 689 F.3d 1303, 1356, n. 5
(C.A.Fed.2012). The possibility that an unusual and rare phenomenon might
randomly create a molecule similar to one created synthetically through human
ingenuity does not render a composition of matter nonpatentable.
9
We express no opinion whether cDNA satisfies the other statutory requirements of
patentability. See, e.g., 35 U.S.C. §§ 102, 103, and 112; Brief for United States as
Amicus Curiae 19, n. 5.
III
286
Patent Cases
Intellectual Property Cases
Prof. Janicke
It is important to note what is not implicated by this decision. First, there are no method
claims before this Court. Had Myriad created an innovative method of manipulating
genes while searching for the BRCA1 and BRCA2 genes, it could possibly have sought a
method patent. But the processes used by Myriad to isolate DNA were well understood
by geneticists at the time of Myriad’s patents “were well understood, widely used, and
fairly uniform insofar as any scientist engaged in the search for a gene would likely have
utilized a similar approach,” 702 F.Supp.2d, at 202–203, and are not at issue in this case.
Similarly, this case does not involve patents on new applications of knowledge about the
BRCA1 and BRCA2 genes. Judge Bryson aptly noted that, “[a]s the first party with
knowledge of the [BRCA1 and BRCA2] sequences, Myriad was in an excellent position
to claim applications of that knowledge. Many of its unchallenged claims are limited to
such applications.” 689 F.3d, at 1349.
Nor do we consider the patentability of DNA in which the order of the naturally
occurring nucleotides has been altered. Scientific alteration of the genetic code presents a
different inquiry, and we express no opinion about the application of § 101 to such
endeavors. We merely hold that genes and the information they encode are not patent
eligible under § 101 simply because they have been isolated from the surrounding genetic
material.
***
For the foregoing reasons, the judgment of the Federal Circuit is affirmed in part and
reversed in part.
It is so ordered.
Justice SCALIA, concurring in part and concurring in the judgment.
I join the judgment of the Court, and all of its opinion except Part I–A and some portions
of the rest of the opinion going into fine details of molecular biology. I am unable to
affirm those details on my own knowledge or even my own belief. It suffices for me to
affirm, having studied the opinions below and the expert briefs presented here, that the
portion of DNA isolated from its natural state sought to be patented is identical to that
portion of the DNA in its natural state; and that complementary DNA (cDNA) is a
synthetic creation not normally present in nature.
287
Patent Cases
Intellectual Property Cases
Prof. Janicke
In re HALL
UNITED STATES COURT OF APPEALS, FEDERAL CIRCUIT
781 F.2d 897 (1986)
Applicant appealed from a decision of the United States Patent and Trademark Office's
former Board of Appeals, sustaining rejection of claims of a reissue application for an
enzyme.
Before BALDWIN, Circuit Judge, NICHOLS, Senior Circuit Judge, and KASHIWA,
Circuit Judge.FN*
FN* Circuit Judge Kashiwa retired on January 7, 1986. Prior to his retirement, he
participated in the consideration and decision of this case, and joined in this
opinion.
BALDWIN, Circuit Judge.
This is an appeal from the decision of the U.S. Patent and Trademark Office's (PTO)
former Board of Appeals, adhered to on reconsideration by the Board of Patent Appeals
and Interferences (board), sustaining the final rejection of claims 1-25 of reissue
Application No. 343,922, filed January 29, 1982, based principally on a “printed
publication” bar under 35 U.S.C. § 102(b). The reference is a doctoral thesis. Because
appellant concedes that his claims are unpatentable if the thesis is available as a “printed
publication” more than one year prior to the application's effective filing date of February
27, 1979, the only issue is whether the thesis is available as such a printed publication.
On the record before us, we affirm the board's decision.
Background
288
Patent Cases
Intellectual Property Cases
Prof. Janicke
A protest was filed during prosecution of appellant's reissue application which included
in an appendix a copy of the dissertation “1,4-a-Glucanglukohydrolase ein
amylotylisches Enzym ...” by Peter Foldi (Foldi thesis or dissertation). The record
indicates that in September 1977, Foldi submitted his dissertation to the Department of
Chemistry and Pharmacy at Freiburg University in the Federal Republic of Germany, and
that Foldi was awarded a doctorate degree on November 2, 1977.
Certain affidavits from Dr. Erich Will, who is the director and manager of the Loan
Department of the Library of Freiburg University, have been relied upon by the examiner
and the board in reaching their decisions. One document, styled a “Declaration” and
signed by Dr. Will, states that:
[I]n November 1977 copies of the dissertation FOLDI ... were received in
the library of Freiburg University, and in ... December 1977 copies of the
said dissertation were freely made available to the faculty and student body
of Freiburg University as well as to the general public.
In an August 28, 1981 letter responding to an inquiry from a German corporation, Dr.
Will said that the Freiburg University library was able to make the Foldi dissertation
“available to our readers as early as 1977.”
The examiner made a final rejection of the application claims. He said: “On the basis of
the instant record it is reasonable to assume that the Foldi thesis was available
(accessible) prior to February 27, 1979.” He also pointed out that there was no evidence
to the contrary and asked the appellant to state his “knowledge of any inquiry which may
have been made regarding ‘availability’ beyond that presently referred to in the record.”
Appellant did not respond.
By letter, the PTO's Scientific Library asked Dr. Will whether the Foldi dissertation was
made available to the public by being cataloged and placed in the main collection. Dr.
Will replied in an October 20, 1983 letter, as translated:
Our dissertations, thus also the Foldi dissertation, are indexed in a special
dissertations catalogue, which is part of the general users' catalogue. In the
289
Patent Cases
Intellectual Property Cases
Prof. Janicke
stacks they are likewise set apart in a special dissertation section, which is
part of the general stacks.
In response to a further inquiry by the PTO's Scientific Library requesting (1) the exact
date of indexing and cataloging of the Foldi dissertation or (2) “the time such procedures
normally take,” Dr. Will replied in a June 18, 1984 letter:
The Library copies of the Foldi dissertation were sent to us by the faculty
on November 4, 1977. Accordingly, the dissertation most probably was
available for general use toward the beginning of the month of December,
1977.
The board held that the unrebutted evidence of record was sufficient to conclude that the
Foldi dissertation had an effective date as prior art more than one year prior to the filing
date of the appellant's initial application. In rejecting appellant's argument that the
evidence was not sufficient to establish a specific date when the dissertation became
publicly available, the board said:
We rely on the librarian's affidavit of express facts regarding the specific
dissertation of interest and his description of the routine treatment of
dissertations in general, in the ordinary course of business in his library.
On appeal, appellant raises two arguments: (1) the § 102(b) “printed publication” bar
requires that the publication be accessible to the interested public, but there is no
evidence that the dissertation was properly indexed in the library catalog prior to the
critical date; and (2) even if the Foldi thesis were cataloged prior to the critical date, the
presence of a single cataloged thesis in one university library does not constitute
sufficient accessibility of the publication's teachings to those interested in the art
exercising reasonable diligence.
OPINION
The “printed publication” bar is found in 35 U.S.C. 102:
A person shall be entitled to a patent unless290
Patent Cases
Intellectual Property Cases
Prof. Janicke
***
(b) the invention was patented or described in a printed publication in this
or a foreign country ... more than one year prior to the date of the
application for patent in the United States....
The bar is grounded on the principle that once an invention is in the public domain, it is
no longer patentable by anyone. In re Bayer, 568 F.2d 1357, 1361 (CCPA 1978).
The statutory phrase “printed publication” has been interpreted to give effect to ongoing
advances in the technologies of data storage, retrieval, and dissemination. In re Wyer,
655 F.2d 221, 226 (CCPA 1981). Because there are many ways in which a reference
may be disseminated to the interested public, “public accessibility” has been called the
touchstone in determining whether a reference constitutes a “printed publication” bar
under 35 U.S.C. § 102(b). The § 102 publication bar is a legal determination based on
underlying fact issues, and therefore must be approached on a case-by-case basis. The
proponent of the publication bar must show that prior to the critical date the reference
was sufficiently accessible, at least to the public interested in the art, so that such a one
by examining the reference could make the claimed invention without further research or
experimentation.
Relying on In re Bayer, appellant argues that the Foldi thesis was not shown to be
accessible because Dr. Will's affidavits do not say when the thesis was indexed in the
library catalog and do not chronicle the procedures for receiving and processing a thesis
in the library.
As the board pointed out in its decision, the facts in Bayer differ from those here. Bayer,
who was himself the author of the dissertation relied upon by the PTO, submitted a
declaration from the university librarian which detailed the library's procedures for
receiving, cataloging, and shelving of theses and attested to the relevant dates that Bayer's
thesis was processed. The evidence showed that cataloging and shelving thesis copies
routinely took many months from the time they were first received from the faculty and
that during the interim the theses were accumulated in a private library office accessible
only to library employees. In particular, processing of Bayer's thesis was shown to have
291
Patent Cases
Intellectual Property Cases
Prof. Janicke
been completed after the critical date.
On those facts the CCPA held that Bayer's thesis was not sufficiently accessible and
could not give rise to the § 102(b) publication bar. But the court did not hold, as
appellant would have it, that accessibility can only be shown by evidence establishing a
specific date of cataloging and shelving before the critical date. While such evidence
would be desirable, in lending greater certainty to the accessibility determination, the
realities of routine business practice counsel against requiring such evidence. The
probative value of routine business practice to show the performance of a specific act has
long been recognized.
See, e.g., 1 Wigmore, Evidence
92 (1940); rule 406,
Fed.R.Evid.;
2 Weinstein, Evidence
406[01], 406[03] (1981).
Therefore, we
conclude that competent evidence of the general library practice may be relied upon to
establish an approximate time when a thesis became accessible.
In the present case, Dr. Will's affidavits give a rather general library procedure as to
indexing, cataloging, and shelving of theses. Although no specific dates are cited
(except that the thesis was received on November 4, 1977), Dr. Will's affidavits
consistently maintain that inasmuch as the Foldi dissertation was received by the library
in early November 1977, the dissertation “most probably was available for general use
toward the beginning of the month of December, 1977.”
The only reasonable
interpretation of the affidavits is that Dr. Will was relying on his library's general practice
for indexing, cataloging, and shelving theses in estimating the time it would have taken to
make the dissertation available to the interested public.
Dr. Will's affidavits are
competent evidence, and in these circumstances, persuasive evidence that the Foldi
dissertation was accessible prior to the critical date. Reliance on an approximation found
in the affidavits such as “toward the beginning of the month of December, 1977” works
no injustice here because the critical date, February 27, 1978, is some two and one half
months later. Moreover, it is undisputed that appellant proffered no rebuttal evidence.
Based on what we have already said concerning “public accessibility,” and noting that the
determination rests on the facts of each case, we reject appellant's legal argument that a
single cataloged thesis in one university library does not constitute sufficient accessibility
to those interested in the art exercising reasonable diligence.
We agree with the board that the evidence of record consisting of Dr. Will's affidavits
292
Patent Cases
Intellectual Property Cases
Prof. Janicke
establishes a prima facie case for unpatentability of the claims under the
publication bar. It is a case which stands unrebutted.
102(b)
Accordingly, the board's decision sustaining the rejection of appellant's claims is
affirmed.
AFFIRMED
PFAFF
v.
WELLS ELECTRONICS, INC.
SUPREME COURT OF THE UNITED STATES
525 U.S. 55 (1998)
Patentee brought action against competitor, alleging infringement of patent for computer
chip socket.
The United States District Court for the Northern District of Texas,
Barefoot Sanders, Chief Judge, entered summary judgment of noninfringement, and
patentee appealed. The United States Court of Appeals for the Federal Circuit, 5 F.3d
514, reversed and remanded for trial. On remand, the District Court, Sanders, Senior
District Judge, held that two claims of patent were invalid but other claims were
infringed, and appeal was taken. After reinstating appeal, the Court of Appeals, 124 F.3d
1429, reversed, finding all claims at issue invalid. Patentee's petition for certiorari was
granted.
Justice STEVENS delivered the opinion of the Court.
Section 102(b) of the Patent Act of 1952 provides that no person is entitled to patent an
293
Patent Cases
Intellectual Property Cases
Prof. Janicke
“invention” that has been “on sale” more than one year before filing a patent
application.FN1 We granted certiorari to determine whether the commercial marketing of
a newly invented product may mark the beginning of the 1-year period even though the
invention has not yet been reduced to practice.FN2
FN1. “A person shall be entitled to a patent unless....
“(b) the invention was patented or described in a printed publication in this or a
foreign country or in public use or on sale in this country, more than one year prior
to the date of the application for patent in the United States, or ....” 35 U.S.C.
102.
FN2. “A process is reduced to practice when it is successfully performed. A
machine is reduced to practice when it is assembled, adjusted and used. A
manufacture is reduced to practice when it is completely manufactured.
A
composition of matter is reduced to practice when it is completely composed.”
Corona Cord Tire Co. v. Dovan Chemical Corp., 276 U.S. 358, 383, 48 S.Ct. 380,
72 L.Ed. 610 (1928).
I
On April 19, 1982, petitioner, Wayne Pfaff, filed an application for a patent on a
computer chip socket.
Therefore, April 19, 1981, constitutes the critical date for
purposes of the on-sale bar of 35 U.S.C. 102(b); if the 1-year period began to run before
that date, Pfaff lost his right to patent his invention.
Pfaff commenced work on the socket in November 1980, when representatives of Texas
Instruments asked him to develop a new device for mounting and removing
semiconductor chip carriers.
In response to this request, he prepared detailed
engineering drawings that described the design, the dimensions, and the materials to be
used in making the socket. Pfaff sent those drawings to a manufacturer in February or
March 1981.
Prior to March 17, 1981, Pfaff showed a sketch of his concept to representatives of Texas
294
Patent Cases
Intellectual Property Cases
Prof. Janicke
Instruments. On April 8, 1981, they provided Pfaff with a written confirmation of a
previously placed oral purchase order for 30,100 of his new sockets for a total price of
$91,155. In accord with his normal practice, Pfaff did not make and test a prototype of
the new device before offering to sell it in commercial quantities.FN3
FN3. At his deposition, respondent's counsel engaged in the following colloquy
with Pfaff:
“Q. Now, at this time [late 1980 or early 1981] did we [sic] have any prototypes
developed or anything of that nature, working embodiment?
“A. No.
“Q. It was in a drawing. Is that correct?
“A. Strictly in a drawing. Went from the drawing to the hard tooling. That's the
way I do my business.
“Q. ‘Boom-boom’?
“A. You got it.
“Q. You are satisfied, obviously, when you come up with some drawings that it is
going to go-‘it works'?
“A. I know what I'm doing, yes, most of the time.” App. 96-97.
The manufacturer took several months to develop the customized tooling necessary to
produce the device, and Pfaff did not fill the order until July 1981. The evidence
therefore indicates that Pfaff first reduced his invention to practice in the summer of
1981. The socket achieved substantial commercial success before Patent No. 4,491,377
( '377 patent) issued to Pfaff on January 1, 1985.FN4
FN4. Initial sales of the patented device were:
1981
1982
1983
1984
$ 350,000
$ 937,000
$2,800,000
$3,430,000
295
Patent Cases
Intellectual Property Cases
Prof. Janicke
App. to Pet. for Cert. 223a.
After the patent issued, petitioner brought an infringement action against respondent,
Wells Electronics, Inc., the manufacturer of a competing socket. Wells prevailed on the
basis of a finding of no infringement. FN5 When respondent began to market a modified
device, petitioner brought this suit, alleging that the modifications infringed six of the
claims in the '377 patent.
FN5. Pfaff v. Wells Electronics, Inc., 9 USPQ2d 1366 (N.D.Ind.1988). The court
found that the Wells device did not literally infringe on Pfaff's '377 patent based
on the physical location of the sockets' conductive pins.
After a full evidentiary hearing before a Special Master,FN6 the District Court held that
two of those claims (1 and 6) were invalid because they had been anticipated in the prior
art. Nevertheless, the court concluded that four other claims (7, 10, 11, and 19) were
valid and three (7, 10, and 11) were infringed by various models of respondent's sockets.
App. to Pet. for Cert. 21a-22a. Adopting the Special Master's findings, the District Court
rejected respondent's 102(b) defense because Pfaff had filed the application for the '377
patent less than a year after reducing the invention to practice.
FN6. Initially the District Court entered summary judgment in favor of
respondent, but the Court of Appeals reversed and remanded for trial because
issues of fact were in dispute. See 5 F.3d 514 (C.A.Fed.1993).
The Court of Appeals reversed, finding all six claims invalid. 124 F.3d 1429
(C.A.Fed.1997). Four of the claims (1, 6, 7, and 10) described the socket that Pfaff had
sold to Texas Instruments prior to April 8, 1981. Because that device had been offered
for sale on a commercial basis more than one year before the patent application was filed
on April 19, 1982, the court concluded that those claims were invalid under 102(b).
That conclusion rested on the court's view that as long as the invention was “substantially
complete at the time of sale,” the 1-year period began to run, even though the invention
had not yet been reduced to practice. Id., at 1434. The other two claims (11 and 19)
described a feature that had not been included in Pfaff's initial design, but the Court of
296
Patent Cases
Intellectual Property Cases
Prof. Janicke
Appeals concluded as a matter of law that the additional feature was not itself patentable
because it was an obvious addition to the prior art.FN7 Given the court's 102(b) holding,
the prior art included Pfaff's first four claims.
FN7. Title 35 U.S.C. 103 provides: “A patent may not be obtained though the
invention is not identically disclosed or described ... if the differences between the
subject matter sought to be patented and the prior art are such that the subject
matter as a whole would have been obvious at the time the invention was made to
a person having ordinary skill in the art to which said subject matter pertains.”
Because other courts have held or assumed that an invention cannot be “on sale” within
the meaning of 102(b) unless and until it has been reduced to practice, see, e.g., Timely
Products Corp. v. Arron, 523 F.2d 288, 299-302 (C.A.2 1975); Dart Industries, Inc. v.
E.I. du Pont De Nemours & Co., 489 F.2d 1359, 1365, n. 11 (C.A.7 1973), cert. denied,
417 U.S. 933, 94 S.Ct. 2645, 41 L.Ed.2d 236 (1974), and because the text of 102(b)
makes no reference to “substantial completion” of an invention, we granted certiorari.
523 U.S. 1003, 118 S.Ct. 1183, 140 L.Ed.2d 315 (1998).
II
The primary meaning of the word “invention” in the Patent Act unquestionably refers to
the inventor's conception rather than to a physical embodiment of that idea. The statute
does not contain any express requirement that an invention must be reduced to practice
before it can be patented. Neither the statutory definition of the term in 100 FN8 nor the
basic conditions for obtaining a patent set forth in 101 FN9 make any mention of
“reduction to practice.” The statute's only specific reference to that term is found in
102(g), which sets forth the standard for resolving priority contests between two
competing claimants to a patent. That subsection provides:
“In determining priority of invention there shall be considered not only the respective
dates of conception and reduction to practice of the invention, but also the reasonable
diligence of one who was first to conceive and last to reduce to practice, from a time prior
to conception by the other.”
297
Patent Cases
Intellectual Property Cases
Prof. Janicke
Thus, assuming diligence on the part of the applicant, it is normally the first inventor to
conceive, rather than the first to reduce to practice, who establishes the right to the patent.
FN8. Title 35 U.S.C. 100, “Definitions,” states:
“When used in this title unless the context otherwise indicates“(a) The term ‘invention’ means invention or discovery....”
FN9. Section 101, “Inventions patentable,” provides:
“Whoever invents or discovers any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement
thereof, may obtain a patent therefor, subject to the conditions and requirements of
this title.”
It is well settled that an invention may be patented before it is reduced to practice. In
1888, this Court upheld a patent issued to Alexander Graham Bell even though he had
filed his application before constructing a working telephone. Chief Justice Waite's
reasoning in that case merits quoting at length:
“It is quite true that when Bell applied for his patent he had never actually
transmitted telegraphically spoken words so that they could be distinctly
heard and understood at the receiving end of his line, but in his
specification he did describe accurately and with admirable clearness his
process, that is to say, the exact electrical condition that must be created to
accomplish his purpose, and he also described, with sufficient precision to
enable one of ordinary skill in such matters to make it, a form of apparatus
which, if used in the way pointed out, would produce the required effect,
receive the words, and carry them to and deliver them at the appointed
place. The particular instrument which he had, and which he used in his
experiments, did not, under the circumstances in which it was tried,
reproduce the words spoken, so that they could be clearly understood, but
298
Patent Cases
Intellectual Property Cases
Prof. Janicke
the proof is abundant and of the most convincing character, that other
instruments, carefully constructed and made exactly in accordance with the
specification, without any additions whatever, have operated and will
operate successfully. A good mechanic of proper skill in matters of the
kind can take the patent and, by following the specification strictly, can,
without more, construct an apparatus which, when used in the way pointed
out, will do all that it is claimed the method or process will do....
“The law does not require that a discoverer or inventor, in order to get a
patent for a process, must have succeeded in bringing his art to the highest
degree of perfection.
It is enough if he describes his method with
sufficient clearness and precision to enable those skilled in the matter to
understand what the process is, and if he points out some practicable way of
putting it into operation.” The Telephone Cases, 126 U.S. 1, 535-536, 8
S.Ct. 778, 31 L.Ed. 863 (1888).
When we apply the reasoning of The Telephone Cases to the facts of the case before us
today, it is evident that Pfaff could have obtained a patent on his novel socket when he
accepted the purchase order from Texas Instruments for 30,100 units. At that time he
provided the manufacturer with a description and drawings that had “sufficient clearness
and precision to enable those skilled in the matter” to produce the device. Id., at 536, 8
S.Ct. 778. The parties agree that the sockets manufactured to fill that order embody
Pfaff's conception as set forth in claims 1, 6, 7, and 10 of the '377 patent. We can find no
basis in the text of 102(b) or in the facts of this case for concluding that Pfaff's invention
was not “on sale” within the meaning of the statute until after it had been reduced to
practice.
III
Pfaff nevertheless argues that longstanding precedent, buttressed by the strong interest in
providing inventors with a clear standard identifying the onset of the 1-year period,
justifies a special interpretation of the word “invention” as used in 102(b). We are
persuaded that this nontextual argument should be rejected.
299
Patent Cases
Intellectual Property Cases
Prof. Janicke
As we have often explained, most recently in Bonito Boats, Inc. v. Thunder Craft Boats,
Inc., 489 U.S. 141, 151, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989), the patent system
represents a carefully crafted bargain that encourages both the creation and the public
disclosure of new and useful advances in technology, in return for an exclusive monopoly
for a limited period of time. The balance between the interest in motivating innovation
and enlightenment by rewarding invention with patent protection on the one hand, and
the interest in avoiding monopolies that unnecessarily stifle competition on the other, has
been a feature of the federal patent laws since their inception. As this Court explained in
1871:
“Letters patent are not to be regarded as monopolies ... but as public
franchises granted to the inventors of new and useful improvements for the
purpose of securing to them, as such inventors, for the limited term therein
mentioned, the exclusive right and liberty to make and use and vend to
others to be used their own inventions, as tending to promote the progress
of science and the useful arts, and as matter of compensation to the
inventors for their labor, toil, and expense in making the inventions, and
reducing the same to practice for the public benefit, as contemplated by the
Constitution and sanctioned by the laws of Congress.” Seymour v.
Osborne, 11 Wall. 516, 533-534.
Consistent with these ends, 102 of the Patent Act serves as a limiting provision, both
excluding ideas that are in the public domain from patent protection and confining the
duration of the monopoly to the statutory term. See, e.g., Frantz Mfg. Co. v. Phenix Mfg.
Co., 457 F.2d 314, 320 (C.A.7 1972).
We originally held that an inventor loses his right to a patent if he puts his invention into
public use before filing a patent application. “His voluntary act or acquiescence in the
public sale and use is an abandonment of his right.” Pennock v. Dialogue, 2 Pet. 1, 24, 7
L.Ed. 327 (1829) (Story, J.). A similar reluctance to allow an inventor to remove existing
knowledge from public use undergirds the on-sale bar.
Nevertheless, an inventor who seeks to perfect his discovery may conduct extensive
testing without losing his right to obtain a patent for his invention-even if such testing
300
Patent Cases
Intellectual Property Cases
Prof. Janicke
occurs in the public eye. The law has long recognized the distinction between inventions
put to experimental use and products sold commercially. In 1878, we explained why
patentability may turn on an inventor's use of his product.
“It is sometimes said that an inventor acquires an undue advantage over the
public by delaying to take out a patent, inasmuch as he thereby preserves
the monopoly to himself for a longer period than is allowed by the policy of
the law; but this cannot be said with justice when the delay is occasioned
by a bona fide effort to bring his invention to perfection, or to ascertain
whether it will answer the purpose intended. His monopoly only continues
for the allotted period, in any event; and it is the interest of the public, as
well as himself, that the invention should be perfect and properly tested,
before a patent is granted for it. Any attempt to use it for a profit, and not
by way of experiment, for a longer period than two years before the
application, would deprive the inventor of his right to a patent.” Elizabeth
v. American Nicholson Pavement Co., 97 U.S. 126, 137, 24 L.Ed. 1000
(1877) (emphasis added).
The patent laws therefore seek both to protect the public's right to retain knowledge
already in the public domain and the inventor's right to control whether and when he may
patent his invention. The Patent Act of 1836, 5 Stat. 117, was the first statute that
expressly included an on-sale bar to the issuance of a patent. Like the earlier holding in
Pennock, that provision precluded patentability if the invention had been placed on sale at
any time before the patent application was filed. In 1839, Congress ameliorated that
requirement by enacting a 2-year grace period in which the inventor could file an
application. 5 Stat. 353.
In Andrews v. Hovey, 123 U.S. 267, 274, 8 S.Ct. 101, 31 L.Ed. 160 (1887), we noted that
the purpose of that amendment was “to fix a period of limitation which should be
certain”; it required the inventor to make sure that a patent application was filed “within
two years from the completion of his invention,” ibid. In 1939, Congress reduced the
grace period from two years to one year. 53 Stat. 1212.
Petitioner correctly argues that these provisions identify an interest in providing inventors
301
Patent Cases
Intellectual Property Cases
Prof. Janicke
with a definite standard for determining when a patent application must be filed. A rule
that makes the timeliness of an application depend on the date when an invention is
“substantially complete” seriously undermines the interest in certainty.FN11 Moreover,
such a rule finds no support in the text of the statute. Thus, petitioner's argument calls
into question the standard applied by the Court of Appeals, but it does not persuade us
that it is necessary to engraft a reduction to practice element into the meaning of the term
“invention” as used in 102(b).
FN11. The Federal Circuit has developed a multifactor, “totality of the
circumstances” test to determine the trigger for the on-sale bar. See, e.g., Micro
Chemical, Inc. v. Great Plains Chemical Co., 103 F.3d 1538, 1544
(C.A.Fed.1997) (stating that, in determining whether an invention is on sale for
purposes of 102(b), “ ‘all of the circumstances surrounding the sale or offer to
sell, including the stage of development of the invention and the nature of the
invention, must be considered and weighed against the policies underlying section
102(b)’ ”); see also UMC Electronics Co. v. United States, 816 F.2d 647, 656
(1987) (stating the on-sale bar “does not lend itself to formulation into a set of
precise requirements”). As the Federal Circuit itself has noted, this test “has been
criticized as unnecessarily vague.” Seal-Flex, Inc. v. Athletic Track & Court
Construction, 98 F.3d 1318, 1323, n. 2 (C.A.Fed.1996).
The word “invention” must refer to a concept that is complete, rather than merely one
that is “substantially complete.” It is true that reduction to practice ordinarily provides
the best evidence that an invention is complete. But just because reduction to practice is
sufficient evidence of completion, it does not follow that proof of reduction to practice is
necessary in every case. Indeed, both the facts of The Telephone Cases and the facts of
this case demonstrate that one can prove that an invention is complete and ready for
patenting before it has actually been reduced to practice.
We conclude, therefore, that the on-sale bar applies when two conditions are satisfied
before the critical date. First, the product must be the subject of a commercial offer for
sale. An inventor can both understand and control the timing of the first commercial
marketing of his invention.
The experimental use doctrine, for example, has not
generated concerns about indefiniteness, and we perceive no reason why unmanageable
302
Patent Cases
Intellectual Property Cases
Prof. Janicke
uncertainty should attend a rule that measures the application of the on-sale bar of 102(b)
against the date when an invention that is ready for patenting is first marketed
commercially. In this case the acceptance of the purchase order prior to April 8, 1981,
makes it clear that such an offer had been made, and there is no question that the sale was
commercial rather than experimental in character.
Second, the invention must be ready for patenting. That condition may be satisfied in at
least two ways: by proof of reduction to practice before the critical date; or by proof that
prior to the critical date the inventor had prepared drawings or other descriptions of the
invention that were sufficiently specific to enable a person skilled in the art to practice
the invention. In this case the second condition of the on-sale bar is satisfied because the
drawings Pfaff sent to the manufacturer before the critical date fully disclosed the
invention.
The evidence in this case thus fulfills the two essential conditions of the on-sale bar. As
succinctly stated by Learned Hand:
“[I]t is a condition upon an inventor's right to a patent that he shall not
exploit his discovery competitively after it is ready for patenting; he must
content himself with either secrecy, or legal monopoly.” Metallizing
Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 520
(C.A.2 1946).
The judgment of the Court of Appeals finds support not only in the text of the statute but
also in the basic policies underlying the statutory scheme, including 102(b). When
Pfaff accepted the purchase order for his new sockets prior to April 8, 1981, his invention
was ready for patenting. The fact that the manufacturer was able to produce the socket
using his detailed drawings and specifications demonstrates this fact. Furthermore, those
sockets contained all the elements of the invention claimed in the '377 patent. Therefore,
Pfaff's '377 patent is invalid because the invention had been on sale for more than one
year in this country before he filed his patent application. Accordingly, the judgment of
the Court of Appeals is affirmed.
It is so ordered.
303
Patent Cases
Intellectual Property Cases
Prof. Janicke
CITY OF ELIZABETH
v.
AMER. NICHOLSON PAVEMENT CO.
SUPREME COURT OF THE UNITED STATES
97 U.S. 126 (1878)
MR. JUSTICE BRADLEY delivered the opinion of the court.
This suit was brought by the American Nicholson Pavement Company against the city of
Elizabeth, N. J., George W. Tubbs, and the New Jersey Wood-Paving Company, a
corporation of New Jersey, upon a patent issued to Samuel Nicholson, dated Aug. 20,
1867, for a new and improved wooden pavement, being a second reissue of a patent
issued to said Nicholson Aug. 8, 1854. The reissued patent was extended in 1868 for a
further term of seven years. A copy of it is appended to the bill; and, in the specification,
it is declared that the nature and object of the invention consists in providing a process or
mode of constructing wooden block pavements upon a foundation along a street or
roadway with facility, cheapness, and accuracy, and also in the creation and construction
of such a wooden pavement as shall be comparatively permanent and durable, by so
uniting and combining all its parts, both superstructure and foundation, as to provide
against the slipping of the horses' feet, against noise, against unequal wear, and against
rot and consequent sinking away from below. Two plans of making this pavement are
specified. Both require a proper foundation on which to lay the blocks, consisting of
tarred-paper or hydraulic cement covering the surface of the road-bed to the depth of
about two inches, or of a flooring of boards or plank, also covered with tar, or other
preventive of moisture. On this foundation, one plan is to set square blocks on end
arranged like a checker-board, the alternate rows being shorter than the others, so as to
304
Patent Cases
Intellectual Property Cases
Prof. Janicke
leave narrow grooves or channel-ways to be filled with small broken stone or gravel, and
them pouring over the whole melted tar or pitch, whereby the cavities are all filled and
cemented together. The other plan is, to arrange the blocks in rows transversely across
the street, separated a small space (of about an inch) by strips of board at the bottom,
which serve to keep the blocks at a uniform distance apart, and then filling these spaces
with the same material as before. The blocks forming the pavement are about eight inches
high. The alternate rows of short blocks in the first plan and the strips of board in the
second plan should not be higher than four inches. The patent has four claims, the first
two of which, which are the only ones in question, are as follows: -"I claim as an improvement in the art of constructing pavements:
"1. Placing a continuous foundation or support, as above described, directly upon the
roadway; then arranging thereon a series of blocks, having parallel sides, endwise, in
rows, so as to leave a continuous narrow groove or channel-way between each row, and
then filling said grooves or channel-ways with broken stone, gravel, and tar, or other like
materials.
"2. I claim the formation of a pavement by laying a foundation directly upon the
roadway, substantially as described, and then employing two sets of blocks: one a
principal set of blocks, that shall form the wooden surface of the pavement when
completed, and an auxiliary set of blocks or strips of board, which shall form no part of
the surface of the pavement, but determine the width of the groove between the principal
blocks, and also the filling of said groove, when so formed between the principal blocks,
with broken stone, gravel, and tar, or other like material."
The bill charges that the defendants infringed this patent by laying down wooden
pavements in the city of Elizabeth, N.J., constructed in substantial conformity with the
process patented, and prays an account of profits, and an injunction.
The defendants answered in due course, admitting that they had constructed, and were
still constructing, wooden pavements in Elizabeth, but alleging that they were constructed
in accordance with a patent granted to John W. Brocklebank and Charles Trainer, dated
Jan. 12, 1869, and denied that it infringed upon the complainant.
305
Patent Cases
Intellectual Property Cases
Prof. Janicke
They also denied that there was any novelty in the alleged invention of Nicholson, and
specified a number of English and other patents which exhibited, as they claimed, every
substantial and material part thereof which was claimed as new.
They also averred that the alleged invention of Nicholson was in public use, with his
consent and allowance, for six years before he applied for a patent, on a certain avenue in
Boston called the Mill-dam; and contended that said public use worked an abandonment
of the pretended invention.
These several issues, together with the question of profits, and liability on the part of the
several defendants to respond thereto, are the subjects in controversy before us.
***
[After discussing prior literature on roadways of stone and wood --] None of these
pavements combine all the elements of Nicholson's, much less a combination of those
elements arranged and disposed according to his plan. We think they present no ground
for invalidating his patent, and no defence to this suit.
The next question to be considered is, whether Nicholson's invention was in public use or
on sale, with his consent and allowance, for more than two years prior to his application
for a patent, within the meaning of the sixth, seventh, and fifteenth sections of the act of
1836, as qualified by the seventh section of the act of 1839, which were the acts in force
in 1854, when he obtained his patent. It is contended by the appellants that the pavement
which Nicholson put down by way of experiment, on Mill-dam Avenue in Boston, in
1848, was publicly used for the space of six years before his application for a patent, and
that this was a public use within the meaning of the law.
To determine this question, it is necessary to examine the circumstances under which this
pavement was put down, and the object and purpose that Nicholson had in view. It is
perfectly clear from the evidence that he did not intend to abandon his right to a patent.
He had filed a caveat in August, 1847, and he constructed the pavement in question by
way of experiment, for the purpose of testing its qualities. The road in which it was put
down, though a public road, belonged to the Boston and Roxbury Mill Corporation,
306
Patent Cases
Intellectual Property Cases
Prof. Janicke
which received toll for its use; and Nicholson was a stockholder and treasurer of the
corporation. The pavement in question was about seventy-five feet in length, and was laid
adjoining to the toll-gate and in front of the toll-house. It was constructed by Nicholson at
his own expense, and was placed by him where it was, in order to see the effect upon it of
heavily loaded wagons, and of varied and constant use; and also to ascertain its
durability, and liability to decay. Joseph L. Lang, who was toll-collector for many years,
commencing in 1849, familiar with the road before that time, and with this pavement
from the time of its origin, testified as follows: "Mr. Nicholson was there almost daily,
and when he came he would examine the pavement, would often walk over it, cane in
hand, striking it with his cane, and making particular examination of its condition. He
asked me very often how people liked it, and asked me a great many questions about it. I
have heard him say a number of times that this was his first experiment with this
pavement, and he thought that it was wearing very well. The circumstances that made
this locality desirable for the purpose of obtaining a satisfactory test of the durability and
value of the pavement were: that there would be a better chance to lay it there; he would
have more room and a better chance than in the city; and, besides, it was a place where
most everybody went over it, rich and poor. It was a great thoroughfare out of Boston. It
was frequently travelled by teams having a load of five or six tons, and some larger. As
these teams usually stopped at the toll-house, and started again, the stopping and starting
would make as severe a trial to the pavement as it could be put to."
This evidence is corroborated by that of several other witnesses in the cause; the result of
the whole being that Nicholson merely intended this piece of pavement as an experiment,
to test its usefulness and durability. Was this a public use, within the meaning of the
law?
An abandonment of an invention to the public may be evinced by the conduct of the
inventor at any time, even within the two years named in the law. The effect of the law
is, that no such consequence will necessarily follow from the invention being in public
use or on sale, with the inventor's consent and allowance, at any time within two years
before his application; but that, if the invention is in public use or on sale prior to that
time, it will be conclusive evidence of abandonment, and the patent will be void.
But, in this case, it becomes important to inquire what is such a public use as will have
the effect referred to. That the use of the pavement in question was public in one sense
307
Patent Cases
Intellectual Property Cases
Prof. Janicke
cannot be disputed. But can it be said that the invention was in public use? The use of an
invention by the inventor himself, or of any other person under his direction, by way of
experiment, and in order to bring the invention to perfection, has never been regarded as
such a use. Curtis, Patents, sect. 381; Shaw v. Cooper, 7 Pet. 292.
Now, the nature of a street pavement is such that it cannot be experimented upon
satisfactorily except on a highway, which is always public.
When the subject of invention is a machine, it may be tested and tried in a building, either
with or without closed doors. In either case, such use is not a public use, within the
meaning of the statute, so long as the inventor is engaged, in good faith, in testing its
operation. He may see cause to alter it and improve it, or not. His experiments will
reveal the fact whether any and what alterations may be necessary. If durability is one of
the qualities to be attained, a long period, perhaps years, may be necessary to enable the
inventor to discover whether his purpose is accomplished. And though, during all that
period, he may not find that any changes are necessary, yet he may be justly said to be
using his machine only by way of experiment; and no one would say that such a use,
pursued with a bona fide intent of testing the qualities of the machine, would be a public
use, within the meaning of the statute. So long as he does not voluntarily allow others to
make it and use it, and so long as it is not on sale for general use, he keeps the invention
under his own control, and does not lose his title to a patent.
It would not be necessary, in such a case, that the machine should be put up and used
only in the inventor's own shop or premises. He may have it put up and used in the
premises of another, and the use may inure to the benefit of the owner of the
establishment. Still, if used under the surveillance of the inventor, and for the purpose of
enabling him to test the machine, and
ascertain whether it will answer the purpose
intended, and make such alterations and improvements as experience demonstrates to be
necessary, it will still be a mere experimental use, and not a public use, within the
meaning of the statute.
Whilst the supposed machine is in such experimental use, the public may be incidentally
deriving a benefit from it. If it be a grist-mill, or a carding-machine, customers from the
surrounding country may enjoy the use of it by having their grain made into flour, or their
wool into rolls, and still it will not be in public use, within the meaning of the law.
308
Patent Cases
Intellectual Property Cases
Prof. Janicke
But if the inventor allows his machine to be used by other persons generally, either with
or without compensation, or if it is, with his consent, put on sale for such use, then it will
be in public use and on public sale, within the meaning of the law.
If, now, we apply the same principles to this case, the analogy will be seen at once.
Nicholson wished to experiment on his pavement. He believed it to be a good thing, but
he was not sure; and the only mode in which he could test it was to place a specimen of it
in a public roadway. He did this at his own expense, and with the consent of the owners
of the road. Durability was one of the qualities to be attained. He wanted to know
whether his pavement would stand, and whether it would resist decay. Its character for
durability could not be ascertained without its being subjected to use for a considerable
time. He subjected it to such use, in good faith, for the simple purpose of ascertaining
whether it was what he claimed it to be. Did he do any thing more than the inventor of
the supposed machine might do, in testing his invention? The public had the incidental
use of the pavement, it is true; but was the invention in public use, within the meaning of
the statute? We think not. The proprietors of the road alone used the invention, and used
it at Nicholson's request, by way of experiment. The only way in which they could use it
was by allowing the public to pass over the pavement.
Had the city of Boston, or other parties, used the invention, by laying down the pavement
in other streets and places, with Nicholson's consent and allowance, then, indeed, the
invention itself would have been in public use, within the meaning of the law; but this
was not the case. Nicholson did not sell it, nor allow others to use it or sell it. He did not
let it go beyond his control. He did nothing that indicated any intent to do so. He kept it
under his own eyes, and never for a moment abandoned the intent to obtain a patent for it.
In this connection, it is proper to make another remark. It is not a public knowledge of
his invention that precludes the inventor from obtaining a patent for it, but a public use or
sale of it. In England, formerly, as well as under our Patent Act of 1793, if an inventor
did not keep his invention secret, if a knowledge of it became public before his
application for a patent, he could not obtain one. To be patentable, and invention must
not have been known or used before the application; but this has not been the law of this
country since the passage of the act of 1836, and it has been very much qualified in
England. Lewis v. Marling, 10 B. & C. 22. Therefore, if it were true that during the whole
309
Patent Cases
Intellectual Property Cases
Prof. Janicke
period in which the pavement was used, the public knew how it was constructed, it would
make no difference in the result.
It is sometimes said that an inventor acquires an undue advantage over the public by
delaying to take out a patent, inasmuch as he thereby preserves the monopoly to himself
for a longer period than is allowed by the policy of the law; but this cannot be said with
justice when the delay is occasioned by a bona fide effort to bring his invention to
perfection, or to ascertain whether it will answer the purpose intended. His monopoly
only continues for the allotted period, in any event; and it is the interest of the public, as
well as himself, that the invention should be perfect and properly tested, before a patent is
granted for it. Any attempt to use it for a profit, and not by way of experiment, for a
longer period than two years before the application, would deprive the inventor of his
right to a patent.
***
[Note: As late as 1916, wooden streets were common in the United States, probably
because wooden blocks were inexpensive in raw material and workmanship costs relative
to cut stones. Below is an ad appearing in a 1916 engineering book, touting the great
benefits of wooden streets.
310
Patent Cases
Intellectual Property Cases
Prof. Janicke
311
Patent Cases
Intellectual Property Cases
Prof. Janicke
GRAHAM
v.
JOHN DEERE COMPANY OF KANSAS CITY
SUPREME COURT OF THE UNITED STATES
383 U.S. 1 (1966)
In a patent infringement action, the United States District Court for the Western District
of Missouri, 216 F.Supp. 272, entered judgment for plaintiffs, and defendants appealed.
The Court of Appeals, Eighth Circuit, reversed, 333 F.2d 529. In separate actions,
plaintiffs sought declaration that patent was invalid and not infringed. The United States
District Court for the Western District of Missouri, 220 F.Supp. 414, held that patent was
valid and infringed and plaintiffs appealed. The Court of Appeals, Eighth Circuit,
affirmed, 336 F.2d 110.
Mr. Justice CLARK delivered the opinion of the Court.
After a lapse of 15 years, the Court again focuses its attention on the patentability of
inventions under the standard of Art. I, 8, cl. 8, of the Constitution and under the
conditions prescribed by the laws of the United States. Since our last expression on patent
validity, Great A. & P. Tea Co. v. Supermarket Equipment Corp., 340 U.S. 147 (1950),
the Congress has for the first time expressly added a third statutory dimension to the two
requirements of novelty and utility that had been the sole statutory test since the Patent
Act of 1793. This is the test of obviousness, i.e., whether ‘the subject matter sought to be
patented and the prior art are such that the subject matter as a whole would have been
obvious at the time the invention was made to a person having ordinary skill in the art to
which said subject matter pertains. Patentability shall not be negatived by the manner in
which the invention was made.’§103 of the Patent Act of 1952, 35 U.S.C. 103 (1964
ed.).
The questions, involved in each of the companion cases before us, are what effect the
312
Patent Cases
Intellectual Property Cases
Prof. Janicke
1952 Act had upon traditional statutory and judicial tests of patentability and what
definitive tests are now required. We have concluded that the 1952 Act was intended to
codify judicial precedents embracing the principle long ago announced by this Court in
Hotchkiss v. Greenwood, 11 How. 248, 13 L.Ed. 683 (1851), and that, while the clear
language of§103 places emphasis on an inquiry into obviousness, the general level of
innovation necessary to sustain patentability remains the same.
***
This Court formulated a general condition of patentability in 1851 in Hotchkiss v.
Greenwood, 11 How. 248, 13 L.Ed. 683. The patent involved a mere substitution of
materials-porcelain or clay for wood or metal in doorknobs - and the Court condemned it,
holding:
‘(U)nless more ingenuity and skill * * * were required * * * than were
possessed by an ordinary mechanic acquainted with the business, there was
an absence of that degree of skill and ingenuity which constitute essential
elements of every invention. In other words, the improvement is the work
of the skilful mechanic, not that of the inventor.’ At p. 267.
Hotchkiss, by positing the condition that a patentable invention evidence more ingenuity
and skill than that possessed by an ordinary mechanic acquainted with the business,
merely distinguished between new and useful innovations that were capable of sustaining
a patent and those that were not. The Hotchkiss test laid the cornerstone of the judicial
evolution suggested by Jefferson and left to the courts by Congress. The language in the
case, and in those which followed, gave birth to ‘invention’ as a word of legal art
signifying patentable inventions. Yet, as this Court has observed, ‘(t)he truth is, the word
(‘invention’) cannot be defined in such manner as to afford any substantial aid in
determining whether a particular device involves an exercise of the inventive faculty or
not.' McClain v. Ortmayer, 141 U.S. 419, 427 (1891); Great A. & P. Tea Co. v.
Supermarket Equipment Corp., supra, 340 U.S., at 151. Its use as a label brought about a
large variety of opinions as to its meaning both in the Patent Office, in the courts, and at
the bar. The Hotchkiss formulation, however, lies not in any label, but in its functional
approach to questions of patentability. In practice, Hotchkiss has required a comparison
313
Patent Cases
Intellectual Property Cases
Prof. Janicke
between the subject matter of the patent, or patent application, and the background skill
of the calling. It has been from this comparison that patentability was in each case
determined.
IV.
The 1952 Patent Act.
The Act sets out the conditions of patentability in three sections. An analysis of the
structure of these three sections indicates that patentability is dependent upon three
explicit conditions: novelty and utility as articulated and defined in§101 and§102, and
nonobviousness *** The pivotal section around which the present controversy centers is
103 [now § 103(a)]. It provides:
Conditions for patentability; non-obvious subject matter
‘A patent may not be obtained though the invention is not identically
disclosed or described as set forth in section 102 of this title, if the
differences between the subject matter sought to be patented and the prior
art are such that the subject matter as a whole would have been obvious at
the time the invention was made to a person having ordinary skill in the art
to which said subject matter pertains. Patentability shall not be negatived by
the manner in which the invention was made.’
***
Approached in this light, the § 103 additional condition, when followed realistically, will
permit a more practical test of patentability. The emphasis on non-obviousness is one of
inquiry, not quality, and, as such, comports with the constitutional strictures.
While the ultimate question of patent validity is one of law, Great A. & P. Tea Co. v.
Supermarket Equipment Corp., supra, 340 U.S. at 155, 71 S.Ct. at 131, the§103
condition, which is but one of three conditions, each of which must be satisfied, lends
itself to several basic factual inquiries. Under § 103, the scope and content of the prior art
are to be determined; differences between the prior art and the claims at issue are to be
314
Patent Cases
Intellectual Property Cases
Prof. Janicke
ascertained; and the level of ordinary skill in the pertinent art resolved. Against this
background, the obviousness or nonobviousness of the subject matter is determined. Such
secondary considerations as commercial success, long felt but unsolved needs, failure of
others, etc., might be utilized to give light to the circumstances surrounding the origin of
the subject matter sought to be patented. As indicia of obviousness or nonobviousness,
these inquiries may have relevancy. ***
What is obvious is not a question upon which there is likely to be uniformity of thought
in every given factual context. The difficulties, however, are comparable to those
encountered daily by the courts in such frames of reference as negligence and scienter,
and should be amenable to a case-by-case development. We believe that strict observance
of the requirements laid down here will result in that uniformity and definiteness which
Congress called for in the 1952 Act.
***
GRAVER TANK & MFG. CO., Inc.
v.
LINDE AIR PRODUCTS CO.
SUPREME COURT OF THE UNITED STATES
339 U.S. 605 (1950)
Mr. Justice JACKSON delivered the opinion of the Court.
***
In determining whether an accused device or composition infringes a valid patent, resort
must be had in the first instance to the words of the claim. If accused matter falls clearly
315
Patent Cases
Intellectual Property Cases
Prof. Janicke
within the claim, infringement is made out and that is the end of it.
***
[Note: This case is famous for its enunciation of the modern doctrine of equivalents
– that an accused structure outside the scope of the claim language can nevertheless
be an infringement of that claim. This doctrine will be taken up in the next case.
Graver is less known for the proposition excerpted here, by which claim language
determines patent scope. This has led patent draftspersons to devise numerous ways
of phrasing claims broadly, to include large classes of structures, compositions, or
methods in a single claim. In the written description portion of the patent the law
remains unclear whether anything more than a single configuration within the claim
is necessary to support the broad claim, except where chemical reactions are
involved.]
WARNER-JENKINSON CO.
v.
HILTON DAVIS CHEM. CO.
SUPREME COURT OF THE UNITED STATES
520 U.S. 17 (1996)
Patentee brought infringement action against competitor, alleging that competitor's
ultrafiltration method for purifying dye infringed patented method under doctrine of
equivalents. The United States District Court for the Southern District of Ohio, Herman
316
Patent Cases
Intellectual Property Cases
Prof. Janicke
J. Weber, J., entered judgment in favor of patentee, and competitor appealed. The Court
of Appeals of the Federal Circuit affirmed, 62 F.3d 1512, and certiorari was granted.
Justice THOMAS delivered the opinion of the Court.
Nearly 50 years ago, this Court in Graver Tank & Mfg. Co. v. Linde Air Products Co.,
339 U.S. 605 (1950), set out the modern contours of what is known in patent law as the
“doctrine of equivalents.” Under this doctrine, a product or process that does not
literally infringe upon the express terms of a patent claim may nonetheless be found to
infringe if there is “equivalence” between the elements of the accused product or process
and the claimed elements of the patented invention. Id., at 609, 70 S.Ct., at 856-857.
Petitioner, which was found to have infringed respondent's patent under the doctrine of
equivalents, invites us to speak the death of that doctrine. We decline that invitation.
The significant disagreement within the Court of Appeals for the Federal Circuit
concerning the application of Graver Tank suggests, however, that the doctrine is not free
from confusion. We therefore will endeavor to clarify the proper scope of the doctrine.
I
The essential facts of this case are few. Petitioner Warner-Jenkinson Co. and respondent
Hilton Davis Chemical Co. manufacture dyes.
Impurities in those dyes must be
removed. Hilton Davis holds United States Patent No. 4,560,746 ('746 patent), which
discloses an improved purification process involving “ultrafiltration.” The '746 process
filters impure dye through a porous membrane at certain pressures and pH levels,FN1
resulting in a high purity dye product.
FN1. The pH, or power (exponent) of Hydrogen, of a solution is a measure of its
acidity or alkalinity. A pH of 7.0 is neutral; a pH below 7.0 is acidic; and a pH
above 7.0 is alkaline. Although measurement of pH is on a logarithmic scale,
with each whole number difference representing a ten-fold difference in acidity,
the practical significance of any such difference will often depend on the context.
Pure water, for example, has a neutral pH of 7.0, whereas carbonated water has an
acidic pH of 3.0, and concentrated hydrochloric acid has a pH approaching 0.0.
317
Patent Cases
Intellectual Property Cases
Prof. Janicke
On the other end of the scale, milk of magnesia has a pH of 10.0, whereas
household ammonia has a pH of 11.9. 21 Encyclopedia Americana 844 (Int'l
ed.1990).
The '746 patent issued in 1985. As relevant to this case, the patent claims as its
invention an improvement in the ultrafiltration process as follows:
“In a process for the purification of a dye ... the improvement which comprises:
subjecting an aqueous solution ... to ultrafiltration through a membrane having a nominal
pore diameter of 5-15 Angstroms under a hydrostatic pressure of approximately 200 to
400 p.s.i.g., at a pH from approximately 6.0 to 9.0, to thereby cause separation of said
impurities from said dye....” App. 36-37 (emphasis added).
The inventors added the phrase “at a pH from approximately 6.0 to 9.0” during patent
prosecution. At a minimum, this phrase was added to distinguish a previous patent (the
“Booth” patent) that disclosed an ultrafiltration process operating at a pH above 9.0. The
parties disagree as to why the low-end pH limit of 6.0 was included as part of the claim.
FN2
FN2. Petitioner contends that the lower limit was added because below a pH of 6.0
the patented process created “foaming” problems in the plant and because the
process was not shown to work below that pH level. Brief for Petitioner 4, n. 5,
37, n. 28. Respondent counters that the process was successfully tested to pH
levels as low as 2.2 with no effect on the process because of foaming, but offers no
particular explanation as to why the lower level of 6.0 pH was selected. Brief for
Respondent 34, n. 34.
In 1986, Warner-Jenkinson developed an ultrafiltration process that operated with
membrane pore diameters assumed to be 5-15 Angstroms, at pressures of 200 to nearly
500 p.s.i.g., and at a pH of 5.0. Warner-Jenkinson did not learn of the '746 patent until
after it had begun commercial use of its ultrafiltration process. Hilton Davis eventually
learned of Warner-Jenkinson's use of ultrafiltration and, in 1991, sued Warner-Jenkinson
for patent infringement.
As trial approached, Hilton Davis conceded that there was no literal infringement, and
318
Patent Cases
Intellectual Property Cases
Prof. Janicke
relied solely on the doctrine of equivalents. Over Warner-Jenkinson's objection that the
doctrine of equivalents was an equitable doctrine to be applied by the court, the issue of
equivalence was included among those sent to the jury. The jury found that the '746
patent was not invalid and that Warner-Jenkinson infringed upon the patent under the
doctrine of equivalents. The jury also found, however, that Warner-Jenkinson had not
intentionally infringed, and therefore awarded only 20% of the damages sought by Hilton
Davis. The District Court denied Warner-Jenkinson's post-trial motions, and entered a
permanent injunction prohibiting Warner-Jenkinson from practicing ultrafiltration below
500 p.s.i.g. and below 9.01 pH. A fractured en banc Court of Appeals for the Federal
Circuit affirmed. 62 F.3d 1512 (1995).
The majority below held that the doctrine of equivalents continues to exist and that its
touchstone is whether substantial differences exist between the accused process and the
patented process. Id., at 1521-1522. The court also held that the question of equivalence
is for the jury to decide and that the jury in this case had substantial evidence from which
it could conclude that the Warner-Jenkinson process was not substantially different from
the ultrafiltration process disclosed in the '746 patent. Id., at 1525. ***
We granted certiorari, 516 U.S. 1145 (1996), and now reverse and remand.
II
In Graver Tank we considered the application of the doctrine of equivalents to an accused
chemical composition for use in welding that differed from the patented welding material
by the substitution of one chemical element. 339 U.S., at 610, 70 S.Ct., at 857. The
substituted element did not fall within the literal terms of the patent claim, but the Court
nonetheless found that the “question which thus emerges is whether the substitution [of
one element for the other] ... is a change of such substance as to make the doctrine of
equivalents inapplicable; or conversely, whether under the circumstances the change was
so insubstantial that the trial court's invocation of the doctrine of equivalents was
justified.” Ibid. The Court also described some of the considerations that go into
applying the doctrine of equivalents:
“What constitutes equivalency must be determined against the context of the
319
Patent Cases
Intellectual Property Cases
Prof. Janicke
patent, the prior art, and the particular circumstances of the case. Equivalence, in
the patent law, is not the prisoner of a formula and is not an absolute to be
considered in a vacuum. It does not require complete identity for every purpose
and in every respect. In determining equivalents, things equal to the same thing
may not be equal to each other and, by the same token, things for most purposes
different may sometimes be equivalents. Consideration must be given to the
purpose for which an ingredient is used in a patent, the qualities it has when
combined with the other ingredients, and the function which it is intended to
perform. An important factor is whether persons reasonably skilled in the art
would have known of the interchangeability of an ingredient not contained in the
patent with one that was.” Id., at 609.
Considering those factors, the Court viewed the difference between the chemical element
claimed in the patent and the substitute element to be “colorable only,” and concluded
that the trial court's judgment of infringement under the doctrine of equivalents was
proper. Id., at 612.
A
Petitioner's primary argument in this Court is that the doctrine of equivalents, as set out in
Graver Tank in 1950, did not survive the 1952 revision of the Patent Act, 35 U.S.C. 100
et seq., because it is inconsistent with several aspects of that Act. In particular, petitioner
argues: (1) The doctrine of equivalents is inconsistent with the statutory requirement that
a patentee specifically “claim” the invention covered by a patent, § 112; (2) the doctrine
circumvents the patent reissue process-designed to correct mistakes in drafting or the
like-and avoids the express limitations on that process, §§ 251-252; (3) the doctrine is
inconsistent with the primacy of the Patent and Trademark Office (PTO) in setting the
scope of a patent through the patent prosecution process; and (4) the doctrine was
implicitly rejected as a general matter by Congress' specific and limited inclusion of the
doctrine in one section regarding “means” claiming, § 112, ¶ 6. All but one of these
arguments were made in Graver Tank in the context of the 1870 Patent Act, and failed to
command a majority.
Indeed, petitioner's first argument was not new even in 1950. Nearly 100 years before
320
Patent Cases
Intellectual Property Cases
Prof. Janicke
Graver Tank, this Court approved of the doctrine of equivalents in Winans v. Denmead,
15 How. 330, 14 L.Ed. 717 (1854). The dissent in Winans unsuccessfully argued that
the majority result was inconsistent with the requirement in the 1836 Patent Act that the
applicant “particularly ‘specify and point’ out what he claims as his invention,” and that
the patent protected nothing more. Id., 15 How. at 347 (opinion of Campbell, J.).
*** In the context of infringement, we have already held that pre-1952 precedent
survived the passage of the 1952 Act. See Aro Mfg. Co. v. Convertible Top Replacement
Co., 365 U.S. 336, 342 (1961) (new section defining infringement “left intact the entire
body of case law on direct infringement”). We see no reason to reach a different result
here.
***
III
Understandably reluctant to assume this Court would overrule Graver Tank, petitioner
has offered alternative arguments in favor of a more restricted doctrine of equivalents
than it feels was applied in this case. [All these arguments are rejected by the Court.]
In this case, the patent examiner objected to the patent claim due to a perceived overlap
with the Booth patent, which revealed an ultrafiltration process operating at a pH above
9.0. In response to this objection, the phrase “at a pH from approximately 6.0 to 9.0”
was added to the claim. While it is undisputed that the upper limit of 9.0 was added in
order to distinguish the Booth patent, the reason for adding the lower limit of 6.0 is
unclear. The lower limit certainly did not serve to distinguish the Booth patent, which
said nothing about pH levels below 6.0. Thus, while a lower limit of 6.0, by its mere
inclusion, became a material element of the claim, that did not necessarily preclude the
application of the doctrine of equivalents as to that element.
We are left with the problem, however, of what to do in a case like the one at bar, where
the record seems not to reveal the reason for including the lower pH limit of 6.0. In our
321
Patent Cases
Intellectual Property Cases
Prof. Janicke
view, holding that certain reasons for a claim amendment may avoid the application of
prosecution history estoppel is not tantamount to holding that the absence of a reason for
an amendment may similarly avoid such an estoppel. Mindful that claims do indeed
serve both a definitional and a notice function, we think the better rule is to place the
burden on the patent holder to establish the reason for an amendment required during
patent prosecution. The court then would decide whether that reason is sufficient to
overcome prosecution history estoppel as a bar to application of the doctrine of
equivalents to the element added by that amendment.
Where no explanation is
established, however, the court should presume that the patent applicant had a substantial
reason related to patentability for including the limiting element added by amendment.
In those circumstances, prosecution history estoppel would bar the application of the
doctrine of equivalents as to that element. The presumption we have described, one
subject to rebuttal if an appropriate reason for a required amendment is established, gives
proper deference to the role of claims in defining an invention and providing public
notice, and to the primacy of the PTO in ensuring that the claims allowed cover only
subject matter that is properly patentable in a proffered patent application. Applied in
this fashion, prosecution history estoppel places reasonable limits on the doctrine of
equivalents, and further insulates the doctrine from any feared conflict with the Patent
Act.
Because respondent has not proffered in this Court a reason for the addition of a lower
pH limit, it is impossible to tell whether the reason for that addition could properly avoid
an estoppel. Whether a reason in fact exists, but simply was not adequately developed,
we cannot say. On remand, the Federal Circuit can consider whether reasons for that
portion of the amendment were offered or not and whether further opportunity to
establish such reasons would be proper.
***
IV
The various opinions below, respondents, and amici devote considerable attention to
whether application of the doctrine of equivalents is a task for the judge or for the jury.
*** The Federal Circuit held that it was for the jury to decide whether the accused
process was equivalent to the claimed process. There was ample support in our prior
322
Patent Cases
Intellectual Property Cases
Prof. Janicke
cases for that holding. Nothing in our recent decision in Markman v. Westview
Instruments, Inc., 517 U.S. 370 (1996) necessitates a different result than that reached by
the Federal Circuit. *** Whether, if the issue were squarely presented to us, we would
reach a different conclusion than did the Federal Circuit is not a question we need decide
today.
V
*** Both the parties and the Federal Circuit spend considerable time arguing whether the
so-called “triple identity” test-focusing on the function served by a particular claim
element, the way that element serves that function, and the result thus obtained by that
element-is a suitable method for determining equivalence, or whether an “insubstantial
differences” approach is better. There seems to be substantial agreement that, while the
triple identity test may be suitable for analyzing mechanical devices, it often provides a
poor framework for analyzing other products or processes. On the other hand, the
insubstantial differences test offers little additional guidance as to what might render any
given difference “insubstantial.”
In our view, the particular linguistic framework used is less important than whether the
test is probative of the essential inquiry: Does the accused product or process contain
elements identical or equivalent to each claimed element of the patented invention? ***
We expect that the Federal Circuit will refine the formulation of the test for equivalence
in the orderly course of case-by-case determinations, and we leave such refinement to
that court's sound judgment in this area of its special expertise.
***
[Concurring opinion omitted.]
ELI LILLY & CO.
323
Patent Cases
Intellectual Property Cases
Prof. Janicke
v.
MEDTRONIC, INC.
SUPREME COURT OF THE UNITED STATES
496 U.S. 661 (1990)
Justice SCALIA delivered the opinion of the court:
This case presents the question whether 35 U.S.C. § 271(e)(1) renders activities that
would otherwise constitute patent infringement noninfringing if they are undertaken for
the purpose of developing and submitting to the Food and Drug Administration
information necessary to obtain marketing approval for a medical device under § 515 of
the Federal Food, Drug, and Cosmetic Act, 90 Stat. 552, 21 U.S.C. § 360e (FDCA).
I
In 1983, pursuant to 28 U.S.C. § 1338(a), the predecessor-in-interest of petitioner Eli
Lilly filed an action against respondent Medtronic in the United States District Court for
the Eastern District of Pennsylvania to enjoin respondent's testing and marketing of an
implantable cardiac defibrillator, a medical device used in the treatment of heart patients.
Petitioner claimed that respondent's actions infringed its exclusive rights under United
States Patent No. Re 27,757 and United States Patent No. 3,942,536. Respondent sought
to defend against the suit on the ground that its activities were "reasonably related to the
development and submission of information under" the FDCA, and thus exempt from a
finding of infringement under 35 U.S.C. § 271(e)(1). The District Court rejected this
argument, concluding that the exemption does not apply to the development and
submission of information relating to medical devices. Following a jury trial, the jury
returned a verdict for petitioner on infringement of the first patent and the court directed a
verdict for petitioner on infringement of the second patent. The court entered judgment
for petitioner and issued a permanent injunction against infringement of both patents.
324
Patent Cases
Intellectual Property Cases
Prof. Janicke
On appeal, the Court of Appeals for the Federal Circuit reversed, holding that by virtue of
35 U.S.C. § 271(e)(1) respondent's activities could not constitute infringement if they had
been undertaken to develop information reasonably related to the development and
submission of information necessary to obtain regulatory approval under the FDCA. It
remanded for the District Court to determine whether in fact that condition had been met.
872 F.2d 402 (1989). We granted certiorari. 493 U.S. (1989).
In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act
of 1984, 98 Stat. 1585 (1984 Act), which amended the FDCA and the patent laws in
several important respects. The issue in this case concerns the proper interpretation of a
portion of section 202 of the 1984 Act, codified at 35 U.S.C. § 271(e)(1). That paragraph,
as originally enacted, provided:
"It shall not be an act of infringement to make, use, or sell a patented invention
(other than a new animal drug or veterinary biological product (as those terms are
used in the Federal Food, Drug, and Cosmetic Act and the Act of March 4, 1913))
solely for uses reasonably related to the development and submission of
information under a Federal law which regulates the manufacture, use, or sale of
drugs." 35 U.S.C. § 271(e)(1) (1982 ed., Supp. II). n1
The parties dispute whether this provision exempts from infringement the use of patented
inventions to develop and submit information for marketing approval of medical devices
under the FDCA.
n1 Unless otherwise specified, references to sections of the United States Code are
to those sections as they existed upon the effective date of the 1984 Act.
A
The phrase "patented invention" in § 271(e)(1) is defined to include all inventions, not
drug-related inventions alone. See 35 U.S.C. 100(a) ("When used in this title unless the
context otherwise indicates . . . the term 'invention' means invention or discovery"). The
core of the present controversy is that petitioner interprets the statutory phrase, "a Federal
325
Patent Cases
Intellectual Property Cases
Prof. Janicke
law which regulates the manufacture, use, or sale of drugs," to refer only to those
individual provisions of federal law that regulates drugs, whereas respondent interprets it
to refer to the entirety of any Act (including, of course, the FDCA) at least some of
whose provisions regulate drugs. If petitioner is correct, only such provisions of the
FDCA as § 505, 52 Stat. 1052, as amended, 21 U.S.C. § 355, governing premarket
approval of new drugs, are covered by § 271(e)(1), and respondent's submission of
information under 21 U.S.C. § 360e, governing premarket approval of medical devices,
would not be a noninfringing use.
***
The centrally important distinction in this legislation (from the standpoint of the
commercial interests affected) is not between applications for drug approval and
applications for device approval, but between patents relating to drugs and patents
relating to devices. If only the former patents were meant to be included, there were
available such infinitely more clear and simply ways of expressing that intent that it is
hard to believe the convoluted manner petitioner suggests was employed would have
been selected. The provision might have read, for example, "It shall not be an act of
infringement to make, use, or sell a patented drug invention . . . solely for uses reasonably
related to the development and submission of information required, as a condition of
manufacture, use, or sale, by Federal law." Petitioner contends that the terms "patented
drug," or "drug invention" (or, presumably, "patented drug invention") would have been
"potentially unclear" as to whether they covered only patents for drug products, or patents
for drug composition and drug use as well. Brief for Petitioner 22. If that had been the
concern, however, surely it would have been clearer and more natural to expand the
phrase constituting the object of the sentence to "patented invention for drug product,
drug composition, or drug use" than to bring in such a limitation indirectly by merely
limiting the laws under which the information is submitted to drug regulation laws.
On the other side of the ledger, however, one must admit that while the provision more
naturally means what respondent suggests, it is somewhat difficult to understand why
anyone would want it to mean that. Why should the touchstone of noninfringement be
whether the use is related to the development and submission of information under a
provision that happens to be included within an Act that, in any of its provisions, not
necessarily the one at issue, regulates drugs? ***
326
Patent Cases
Intellectual Property Cases
Prof. Janicke
As far as the text is concerned, therefore, we conclude that we have before us a provision
that somewhat more naturally reads as the Court of Appeals determined, but that is not
plainly comprehensible on anyone's view. Both parties seek to enlist legislative history in
support of their interpretation, but that sheds no clear light. We think the Court of
Appeals' interpretation is confirmed, however, by the structure of the 1984 Act taken as a
whole.
B
Under federal law, a patent "grants to the patentee, his heirs or assigns, for the term of
seventeen years, . . . the right to exclude others from making, using, or selling the
invention throughout the United States." 35 U.S.C. § 154. Except as otherwise provided,
"whoever without authority makes, uses or sells any patented invention, within the
United States during the term of the patent therefor, infringes the patent." 35 U.S.C. §
271(a). The parties agree that the 1984 Act was designed to respond to two unintended
distortions of the 17-year patent term produced by the requirement that certain products
must receive premarket regulatory approval. First, the holder of a patent relating to such
products would as a practical matter not be able reap any financial rewards during the
early years of the term. When an inventor makes a potentially useful discovery, he
ordinarily protects it by applying for a patent at once. Thus, if the discovery relates to a
product that cannot be marketed without substantial testing and regulatory approval, the
"clock" on his patent term will be running even though he is not yet able to derive any
profit from the invention.
The second distortion occurred at the other end of the patent term. In 1984, the Court of
Appeals for the Federal Circuit decided that the manufacture, use, or sale of a patented
invention during the term of the patent constituted an act of infringement, see 35 U.S.C.
§ 271(a), even if it was for the sole purpose of conducting tests and developing
information necessary to apply for regulatory approval. See Roche Products, Inc. v. Bolar
Pharmaceutical Co., 733 F.2d 858 (CA Fed.), cert. denied, 469 U.S. 856 (1984). Since
that activity could not be commenced by those who planned to compete with the patentee
until expiration of the entire patent term, the patentee's de facto monopoly would
continue for an often substantial period until regulatory approval was obtained. In other
327
Patent Cases
Intellectual Property Cases
Prof. Janicke
words, the combined effect of the patent law and the premarket regulatory approval
requirement was to create an effective extension of the patent term.
The 1984 Act sought to eliminate this distortion from both ends of the patent period.
Section 201 of the Act established a patent-term extension for patents relating to certain
products that were subject to lengthy regulatory delays and could not be marketed prior to
regulatory approval. The eligible products were described as follows:
"(1) The term 'product' means:
"(A) A human drug product.
"(B) Any medical device, food additive, or color additive subject to regulation under the
Federal Food, Drug, and Cosmetic Act.
Section 201 provides that patents relating to these products can be extended up to five
years if, inter alia, the product was "subject to a regulatory review period before its
commercial marketing or use," and "the permission for the commercial marketing or use
of the product after such regulatory review period [was] the first permitted commercial
marketing or use of the product under the provision of law under which such regulatory
review period occurred." 35 U.S.C. § 156(a).
The distortion at the other end of the patent period was addressed by § 202 of the Act.
That added to the provision prohibiting patent infringement, 35 U.S.C. § 271, the
paragraph at issue here, establishing that "it shall not be an act of infringement to make,
use, or sell a patented invention . . . solely for uses reasonably related to the development
and submission of information under a Federal law which regulates the manufacture, use,
or sale of drugs." 35 U.S.C. § 271(e)(1). This allows competitors, prior to the expiration
of a patent, to engage in otherwise infringing activities necessary to obtain regulatory
approval.
*** It seems most implausible to us that Congress, being demonstrably aware of the dual
distorting effects of regulatory approval requirements in this entire area -- dual distorting
effects that were roughly offsetting, the disadvantage at the beginning of the term
328
Patent Cases
Intellectual Property Cases
Prof. Janicke
producing a more or less corresponding advantage at the end of the term -- should choose
to address both those distortions only for drug products; and for other products named in
201 should enact provisions which not only leave in place an anticompetitive restriction
at the end of the monopoly term but simultaneously expand the monopoly term itself,
thereby not only failing to eliminate but positively aggravating distortion of the 17-year
patent protection. It would take strong evidence to persuade us that this is what Congress
wrought, and there is no such evidence here.
***
It must be acknowledged that the seemingly complete product-correlation between 201
and § 202 was destroyed in 1986, when, without adding "new infant formula" to the
defined products eligible for the patent-term extension under 156, Congress established a
premarket approval requirement for that product, and thus automatically rendered it
eligible for the 271(e)(1) exemption from patent infringement. See Pub. L. 99-570,
4014(a)(7), 100 Stat. 3207-116, codified at 21 U.S.C. § 350a(d). That subsequent
enactment does not change our view of what the statute means. ***
[A]bbreviated drug-application provisions incorporated an important new mechanism
designed to guard against infringement of patents relating to pioneer drugs. Pioneer drug
applicants are required to file with the FDA the number and expiration date of any patent
which claims the drug that is the subject of the application, or a method of using such
drug. See 21 U.S.C. 355(b)(1). ANDAs [abbreviated new drug applications] and paper
NDAs are required to contain one of four certifications with respect to each patent named
in the pioneer drug application: (1) "that such patent information has not been filed," (2)
"that such patent has expired," (3) "the date on which such patent will expire," or (4)
"that such patent is invalid or will not be infringed by the manufacture, use, or sale of the
new drug for which the application is submitted." 21 U.S.C. §§ 355(b)(2)(A),
355(j)(2)(A)(vii).
This certification is significant, in that it determines the date on which approval of an
ANDA or paper NDA can be made effective, and hence the date on which commercial
marketing may commence. If the applicant makes either the first or second certification,
approval can be made effective immediately. See 21 U.S.C. §§ 355(c)(3)(A),
329
Patent Cases
Intellectual Property Cases
Prof. Janicke
355(j)(4)(B)(i). If the applicant makes the third certification, approval of the application
can be made effective as of the date the patent expires. See 21 U.S.C. §§ 355(c)(3)(B),
355(j)(4)(B)(ii). If the applicant makes the fourth certification, however, the effective
date must depend on the outcome of further events triggered by the Act. An applicant
who makes the fourth certification is required to give notice to the holder of the patent
alleged to be invalid or not infringed, stating that an application has been filed seeking
approval to engage in the commercial manufacture, use, or sale of the drug before the
expiration of the patent, and setting forth a detailed statement of the factual and legal
basis for the applicant's opinion that the patent is not valid or will not be infringed. See
21 U.S.C. §§ 355(b)(3)(B), 355(j)(2)(B)(ii). Approval of an ANDA or paper NDA
containing the fourth certification may become effective immediately only if the patent
owner has not initiated a lawsuit for infringement within 45 days of receiving notice of
the certification. If the owner brings such a suit, then approval may not be made effective
until the court rules that the patent is not infringed or until the expiration of (in general)
309 months, whichever first occurs. See 21 U.S.C. §§ 355(c)(3)(C), 355(j)(4)(B)(iii).
This scheme will not work, of course, if the holder of the patent pertaining to the pioneer
drug is disabled from establishing in court that there has been an act of infringement. And
that was precisely the disability that the new § 271(e)(1) imposed, with regard to use of
his patented invention only for the purpose of obtaining premarketing approval. Thus, an
act of infringement had to be created for these ANDA and paper NDA proceedings. That
is what is achieved by § 271(e)(2) -- the creation of a highly artificial act of infringement
that consists of submitting an ANDA or a paper NDA containing the fourth type of
certification that is in error as to whether commercial manufacture, use, or sale of the new
drug (none of which, of course, has actually occurred) violates the relevant patent. Not
only is the defined act of infringement artificial, so are the specified consequences, as set
forth in paragraph (e)(4). Monetary damages are permitted only if there has been
"commercial manufacture, use, or sale." 35 U.S.C. § 271(e)(4)(C). Quite obviously, the
purpose of (e)(2) and (e)(4) is to enable the judicial adjudication upon which the ANDA
and paper NDA schemes depend. It is wholly to be expected, therefore, that these
provisions would apply only to applications under the sections establishing those
schemes -- which (entirely incidentally, for present purposes) happen to be sections that
relate only to drugs and not to other products.
330
Patent Cases
Intellectual Property Cases
Prof. Janicke
No interpretation we have been able to imagine can transform § 271(e)(1) into an elegant
piece of statutory draftsmanship. To construe it as the Court of Appeals decided, one
must posit a good deal of legislative imprecision; but to construe it as petitioner would,
one must posit that and an implausible substantive intent as well.
The judgment of the Court of Appeals is affirmed, and the case remanded for further
proceedings consistent with this opinion.
So ordered.
[Justice Kennedy’s dissent omitted.]
TITANIUM METALS CORP.
v.
BANNER
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
778 F.2d 775 (1985)
Before RICH, Circuit Judge, NICHOLS, Senior Circuit Judge, and NEWMAN, Circuit
Judge.
RICH, Circuit Judge.
This appeal is from an Order of the United States District Court for the District of
Columbia in a civil action brought pursuant to 35 U.S.C. 145 against Donald W. Banner
as Commissioner of Patents and Trademarks authorizing the Commissioner to issue to
appellee a patent containing claims 1, 2, and 3 of patent application serial No. 598,935
331
Patent Cases
Intellectual Property Cases
Prof. Janicke
for "TITANIUM ALLOY." The Commissioner has appealed. We reverse.
Background
The inventors, Loren C. Covington and Howard R. Palmer, employees of appellee to
whom they have assigned their invention and the application thereon, filed an application
on March 29, 1974, serial No. 455,964, to patent an alloy they developed.
The
application involved on this appeal is a continuation-in-part thereof, filed July 25, 1975,
containing the three claims on appeal. The alloy is made primarily of titanium (Ti) and
contains small amounts of nickel (Ni) and molybdenum (Mo) as alloying ingredients to
give the alloy certain desirable properties, particularly corrosion resistance in hot brine
solutions, while retaining workability so that articles such as tubing can be fabricated
from it by rolling, welding and other techniques. The inventors apparently also found
that iron content should be limited, iron being an undesired impurity rather than an
alloying ingredient. They determined the permissible ranges of the components, above
and below which the desired properties were not obtained. A precise definition of the
invention sought to be patented is found in the claims, set forth below, claim 3
representing the preferred composition, it being understood, however, that no iron at all
would be even more preferred.
1. A titanium base alloy consisting essentially by weight of about 0.6% to 0.9% nickel,
0.2% to 0.4% molybdenum, up to 0.2% maximum iron, balance titanium, said alloy being
characterized by good corrosion resistance in hot brine environments.
2. A titanium base alloy as set forth in Claim 1 having up to 0.1% iron, balance titanium.
3. A titanium base alloy as set forth in Claim 1 having 0.8% nickel, 0.3% molybdenum,
up to 0.1% maximum iron, balance titanium.
The examiner's final rejection, repeated in his Answer on appeal to the Patent and
Trademark Office (PTO) Board of Appeals (board), was on the grounds that claims 1 and
2 are anticipated (fully met) by, and claim 3 would have been obvious from, an article by
Kalabukhova and Mikheyew, Investigation of the Mechanical Properties of Ti-Mo-Ni
Alloys, Russian Metallurgy (Metally) No. 3, pages 130-133 (1970) (in the court below
and hereinafter called "the Russian article") under 35 U.S.C. 102 and 103, respectively.
332
Patent Cases
Intellectual Property Cases
Prof. Janicke
The board affirmed the examiner's rejection. However, it mistakenly proceeded on the
assumption that all three claims had been rejected as anticipated under 102 by the
Russian article and ignored the obviousness rejection. On this appeal the PTO says it
does not pursue the 103 rejection further. Appellee proceeds on the basis that only the
102 rejection is before us.
***
3. The merits
Finding, as we do, that claim 3 was never purposefully rejected under 102, both the
board and the district court being confused about that fact, we are left with the propriety
of the rejection of claims 1 and 2 under 102 and the rejection of claim 3 under 103,
both rejections having been held by the district court to have been erroneous. That
necessarily follows from the court's conclusion "that the Claims are patentable." We
find that conclusion contrary to statutory law and will deal with the two grounds of
rejection separately.
A. Anticipation, 102
From consideration of the trial court's memorandum opinion, we are unable to determine
whether it erred because of misconstruction of the claims, misreading of what the
reference discloses, lack of proper advice on the requirements of the patent statute
respecting patentability, or the technical legal meaning of "anticipation," a term which
some courts have erroneously used from time to time.
We are left in no doubt that the court was impressed by the totality of the evidence that
the applicants for patent had discovered or invented and disclosed knowledge which is
not to be found in the reference, nor do we have any doubt about that ourselves. But
those facts are beside the point. The patent law imposes certain fundamental conditions
for patentability, paramount among them being the condition that what is sought to be
patented, as determined by the claims, be new.
The basic provision of Title 35
applicable here is 101, providing in relevant part: "Whoever invents or discovers any
new ... composition of matter, or any new ... improvement thereof, may obtain a patent
therefor, subject to the conditions and requirements of this title." (Emphasis ours.) The
333
Patent Cases
Intellectual Property Cases
Prof. Janicke
title of the application here involved is "Titanium Alloy," a composition of matter.
Surprisingly, in all of the evidence, nobody discussed the key issue of whether the alloy
was new, which is the essence of the anticipation issue, including the expert Dr.
Williams. Plaintiff's counsel, bringing Dr. Williams' testimony to its climax, after he had
explained the nature of the ingredients, the alloys made therefrom, and their superior
corrosion resistance in hot brine, etc., repetitively asked him such questions as "Does the
[Russian] article direct you as one skilled in the art to a titanium alloy having nickel
present in an amount between .6 and .9 percent molybdenum in an amount between .2
and .4 percent?" (emphasis ours) followed by "Is there anything mentioned in the article
about corrosion resistance?" Of course, the answers were emphatically negative. But
this and like testimony does not deal with the critical question: do claims 1 and 2, to
which the questions obviously relate, read on or encompass an alloy which was already
known by reason of the disclosure of the Russian article?
Section 102, the usual basis for rejection for lack of novelty or anticipation, lays down
certain principles for determining the novelty required by 101, among which are the
provisions in 102(a) and (b) that the claimed invention has not been "described in a
printed publication in this or a foreign country," either (a) before the invention by the
applicant or (b) more than one year before the application date to which he is entitled
(strictly a "loss of right" provision similar to novelty). Either provision applies in this
case, the Russian article having a date some 5 years prior to the filing date and its status
as "prior art" not being questioned. The PTO was never specific as to what part of 102
applies, merely rejecting on 102. The question, therefore, is whether claims 1 and 2
encompass and, if allowed, would enable plaintiff-appellee to exclude others from
making, using, or selling an alloy described in the Russian article. See 35 U.S.C. 154.
Kalman v. Kimberly-Clark Corp., 713 F.2d 760 (Fed.Cir.1983).
To answer the question we need only turn to the affidavit of James A. Hall, a metallurgist
employed by appellee's TIMET Division, who undertook to analyze the Russian article
disclosure by calculating the ingredient percentages shown in the graph data points,
which he presented in tabular form. There are 15 items in his table. The second item
shows a titanium base alloy containing 0.25% by weight Mo and 0.75% Ni and this is
squarely within the ranges of 0.2- 0.4% Mo and 0.6-0.9% Ni of claims 1 and 2. As to
that disclosed alloy of the prior art, there can be no question that claims 1 and 2 read on it
and would be infringed by anyone making, using, or selling it. Therefore, the statute
334
Patent Cases
Intellectual Property Cases
Prof. Janicke
prohibits a patent containing them. This seems to be a case either of not adequately
considering the novelty requirement of the statute, the true meaning of the correlative
term "anticipation," or the meaning of the claims.
By reason of the court's quotations from cases holding that a reference is not an
anticipation which does not enable one skilled in the art to practice the claimed invention,
it appears that the trial court thought there was some deficiency in the Russian article on
that score. Enablement in this case involves only being able to make the alloy, given the
ingredients and their proportions without more. The evidence here, however, clearly
answers that question in two ways.
Appellee's own patent application does not
undertake to tell anyone how to make the alloy it describes and seeks to patent. It
assumes that those skilled in the art would know how. Secondly, appellee's expert, Dr.
Williams, testified on cross examination that given the alloy information in the Russian
article, he would know how to prepare the alloys "by at least three techniques."
Enablement is not a problem in this case.
As we read the situation, the court was misled by the arguments and evidence to the
effect that the inventors here found out and disclosed in their application many things that
one cannot learn from reading the Russian article and that this was sufficient in law to
justify granting them a patent for their contributions--such things as what good corrosion
resistance the claimed alloys have against hot brine, which possibly was not known, and
the range limits of the Ni and Mo content, outside of which that resistance diminishes,
which are teachings of very useful information. These things the applicants teach the art
and the Russian article does not. Indeed, appellee's counsel argued in his opening
statement to the trial court that the PTO's refusal of a patent was "directly contrary to the
requirement of Article I, Section 8, of the Constitution," which authorizes Congress to
create a patent law. But throughout the trial counsel never came to grips with the real
issues: (1) what do the claims cover and (2) is what they cover new? Under the laws
Congress wrote, they must be considered. Congress has not seen fit to permit the
patenting of an old alloy, known to others through a printed publication, by one who has
discovered its corrosion resistance or other useful properties, or has found out to what
extent one can modify the composition of the alloy without losing such properties.
It is also possible that the trial court did not properly interpret the claims and took them to
be directed only to the applicants' discoveries about the properties of the alloys instead of
335
Patent Cases
Intellectual Property Cases
Prof. Janicke
to the alloys themselves, as they are, possibly because of the phrase at the end of claim 1,
"characterized by good corrosion resistance in hot brine environments," which applies to
the other two dependent claims also. No light is shed by its opinion on what the court
thought the claims mean as the opinion does not construe the claims. Until it has been
definitely determined what subject matter is being claimed, it is not known what it is that
the PTO held to be unpatentable. Claim interpretation, which is the logical starting point
of the analysis, is a question of law free from the clearly erroneous standard of review.
Raytheon Co. v. Roper Corp., 724 F.2d 951, 956 (Fed.Cir.1983). It is the correct and
necessary construction of all three claims that they simply define titanium base alloys.
Claims 1 and 2 state certain narrow limits within which the alloying ingredients, Mo and
Ni, are present and necessarily cover a number of alloys. Claim 3 is specific to a single
alloy. This said, it is immaterial, on the issue of their novelty, what inherent properties
the alloys have or whether these applicants discovered certain inherent properties.
The trial court and appellee have relied on In re Wilder, supra, but they have both failed
to note those portions of that opinion most relevant to the present case. The issue there,
as here, was anticipation of certain claims. Wilder argued "that even though there may be
a technical anticipation, the discovery of the new property and the recitation of this
property in the claims 'lends patentable novelty' to the claims." The court answered:
However, recitation, in a claim to a composition, of a particular property said to be
possessed by the recited composition, be that property newly-discovered or not, does not
necessarily change the scope of the subject matter otherwise defined by that claim. [429
F.2d at 450.]
The court in that case also said:
[W]e start with the proposition that claims cannot be obtained to that which is not new.
This was the basis of the holding in In re Thuau [135 F.2d 344 (CCPA 1943) ]. It was
the law then, is now and will be until Congress decrees otherwise. [Id.]
It is also an elementary principle of patent law that when, as by a recitation of ranges or
otherwise, a claim covers several compositions, the claim is "anticipated" if one of them
is in the prior art. In re Petering, 301 F.2d 676, 682 (CCPA 1962).
336
Patent Cases
Intellectual Property Cases
Prof. Janicke
For all of the foregoing reasons, the court below committed clear error and legal error in
authorizing the issuance of a patent on claims 1 and 2 since, properly construed, they are
anticipated under 102 by the Russian article which admittedly discloses an alloy on
which these claims read.
B. Obviousness, 103
Little more need be said in support of the examiner's rejection of claim 3, affirmed by the
board, on the ground that its more specific subject matter would have been obvious at the
time the invention was made from the knowledge disclosed in the reference.
As admitted by appellee's affidavit evidence from James A. Hall, the Russian article
discloses two alloys having compositions very close to that of claim 3, which is 0.3% Mo
and 0.8% Ni, balance titanium. The two alloys in the prior art have 0.25% Mo--0.75%
Ni and 0.31% Mo--0.94% Ni, respectively. The proportions are so close that prima facie
one skilled in the art would have expected them to have the same properties. Appellee
produced no evidence to rebut that prima facie case. The specific alloy of claim 3 must
therefore be considered to have been obvious from known alloys.
Conclusion
For the foregoing reasons, the decision and order of the district court holding that claims
1, 2, and 3 are directed to patentable subject matter and authorizing the issuance of a
patent thereon were clearly erroneous and are reversed.
LIQUID DYNAMICS CORP.
v.
VAUGHAN CO.
337
Patent Cases
Intellectual Property Cases
Prof. Janicke
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
449 F.3d 1209 (2006)
Before GAJARSA, DYK, and PROST, Circuit Judges.
GAJARSA, Circuit Judge.
This is the second time we have heard an appeal in this case. In the previous appeal,
Liquid Dynamics ("LD") contested the claim construction and summary judgment of
non-infringement entered against it. Liquid Dynamics Corp. v. Vaughan Co., 355 F.3d
1361 (Fed. Cir. 2004) ("LD I"). In that decision, we found error in the district court's
claim construction, vacated the grant of summary judgment, and remanded for
proceedings based on the revised claim construction. Id.
On remand, the district court held a six-day jury trial to determine whether Vaughan
Company, Inc. ("Vaughan") infringed claims 1 and 8 of U.S. Patent No. 5,458,414 ("the
'414 patent") and whether the '414 patent was valid. On October 25, 2004, the jury
returned a verdict that Vaughan had infringed the '414 patent, that the infringement was
willful, and that Vaughan failed to prove that the '414 patent was invalid. The jury
awarded damages to LD in the amount of $1,183,722.
Subsequently, the district court held a bench trial on Vaughan's allegation of
inequitable conduct, but granted LD's motion for judgment as a matter of law on that
issue at the close of evidence. Final judgment was entered on November 15, 2004, and
the district court subsequently denied Vaughan's judgment-as-a-matter-of-law ("JMOL")
and new-trial motions on the issues of invalidity, infringement, and willfulness.
Thereafter, the district court granted, in part, LD's motions for enhanced damages and
attorney's fees. The court trebled the jury's damage award based upon the jury's
willfulness finding and "Vaughan's behavior as a litigant." Separately, the court awarded
attorney's fees amounting to $1,501,239. The court also entered a permanent injunction
on February 25, 2005.
Vaughan now appeals the district court's denial of its JMOL motion for noninfringement, invalidity, no willful infringement, and unenforceability due to inequitable
conduct. Further, Vaughan appeals the district court's orders for a permanent injunction,
enhanced damages, and attorney's fees. For the reasons stated below, we affirm the
judgment of the district court.
338
Patent Cases
Intellectual Property Cases
Prof. Janicke
I. BACKGROUND
The '414 patent involves a system of pumps that stir mixtures of solids and liquids in
large 1,000,000-gallon tanks. The invention is primarily directed to applications for
mixing wastewater and manure. Because we have already detailed the invention and its
background in LD I, we reproduce only a summary of the relevant facts below:
This case involves the structure of slurry tanks. Slurry tanks are used to
store and process chemicals and organic waste products (e.g., manure) that
retain value as useful inputs (e.g., fertilizer) into other processes. Large
storage tanks house these waste compounds in liquid or semisolid form
between their production and their subsequent use. The liquid and solid
components of these waste compounds tend to separate when stored, with
solid particles either forming a crust on the top of the tank and/or falling to
the bottom of the tank. Productive use of the stored compound requires
remixing both to suspend the heavy solid particles within the liquid and to
ensure that the resulting suspension is uniform. One standard approach has
been to stir the mix continuously to avoid settling. Because continuous
mixing can be expensive, however, tank designers sought ways to store the
mixtures in a still tank, to allow the settling to occur, and to remix only
when necessary for use. The '414 patent addressed these concerns.
LD I, 355 F.3d at 1363.
A. The '414 Patent
Claims 1 and 8 are the contested claims in this case. The patent recites a method and
apparatus for handling wastewater slurries: a storage tank equipped with submerged
agitator scapable of generating a flow of liquid throughout the tank. With the relevant
language underlined, claim 1 reads:
1. Apparatus for storing a slurry having solid and liquid components, comprising:
a storage tank defining a volume for holding a body of liquid and solid slurry
components, including a floor of generally circular configuration and having a
center, said storage tank further including an outer surrounding wall positioned
generally at a radial distance from the center;
339
Patent Cases
Intellectual Property Cases
Prof. Janicke
at least two flow generating means positioned to be submerged within the liquid
and solid slurry components for generating flow of at least one of the slurry
components along a rotational direction, each of said flow generating means being
disposed at distances from the center ranging between approximately 30 percent
and 70 percent of said radial distance;
each of said first and second flow generating means being pointed toward the
outer surrounding wall for generating a substantial helical flow path of the liquid
and solid components therein with the liquid and solid components traveling
outwardly, across the tank floor from the center portion of the tank toward the tank
wall and then upwardly along the tank outer surrounding wall to a first point and
then inwardly along an upper portion of the body toward the center of the tank and
then downwardly toward the tank floor, and then outwardly to a second point
spaced circumferentially in the direction of rotation of the entire body of liquid,
the liquid and solid components continuing to travel in the helical path as the
entire body of liquid and solid components continues to rotate;
a pressure source coupled to the first and second flow generating means to
generate directed streams from the flow generating means to rotate the body of
liquid and solid components and to cause the flow in the helical path; and
said flow generating means creating a substantially volume filling flow of at least
one of the slurry components within said storage tank which mixes the liquid and
solid slurry components to form a substantially homogeneous slurry suitable for
unloading from said storage tank using liquid handling devices.
'414 Patent, col. 8, l. 56 - col. 9, l. 39 (emphases added). In LD I, we construed the term
"substantial helical flow" to be "all flow patterns that are generally, though not
necessarily perfectly, spiral, and that fill much, though not necessarily all, of the tank's
volume." LD I, 355 F.3d at 1369. Claim 8 includes the relevant terms from claim 1. The
written description includes the following examples of tank arrangement and helical flow
path.
In Figure 7 [reproduced below], impellers or pumps 20 that are placed within the claimed
radii of r[1] and r[2] create the substantial helical flow as shown in Figures 5 and 6 [also
reproduced below].
340
Patent Cases
Intellectual Property Cases
Prof. Janicke
341
Patent Cases
Intellectual Property Cases
Prof. Janicke
342
Patent Cases
Intellectual Property Cases
Prof. Janicke
B. Prior Art and Pre-filing Activities
The inventors named in the '414 patent, James M. Crump and Bruce K. Doyle, Jr., were
dealers for the A.O. Smith Corporation ("A.O. Smith") and sold A.O. Smith's tank
agitation system containing a single, center-mounted, rotatable agitator nozzle, known as
the Slurrystore system. According to Crump, in 1990 the inventors first became involved
with the Slurrystore system when A.O. Smith asked them to help move a tank from a
farm to a wastewater treatment plant in Plymouth, Indiana.
Commonwealth Engineering, Plymouth's engineering firm, redesigned the tank for use
in the wastewater plant by moving the original agitator away from the tank center and
adding a second agitator that was placed on the same radial line on the same side of the
tank. The first and second agitators were placed at a distance of approximately 25 and 75
percent respectively, from the tank's center to the wall. The nozzles were designed to
rotate in position so that the workers could agitate different sections and clean out the
tank when needed. According to Crump, this new design did not help the mixing because
the tank slurry was still only agitated in zones and not throughout the whole tank. At
startup, the Plymouth tank did not operate properly until flow reducers were installed on
the nozzles to impart more energy into the liquid volume. LD presented a video tape
made in January of 1992 showing that flow occurred in only one section of the Plymouth
tank and not the entire tank.
In the summer and fall of 1991, Crump and Doyle designed and sold the next relevant
tank system to a hog processing plant called Indiana Packers. LD claims the Indiana
Packers tank was the same as the Plymouth tank and did not embody the invention
claimed by the '414 patent. Crump's diagrams and testimony suggest that the Indiana
Packers tank was similar in layout to Plymouth and, like Plymouth, only mixed the liquid
in zones.
In April of 1991, the inventors submitted a proposal to A.O. Smith asking that a patent
application be filed for their invention for zone mixing within the Indiana Packers and
Plymouth tanks. A.O. Smith declined to develop the proposal because it appeared that the
invention, as described, was not patentable. Crump testified that in February of 1992, he
and Doyle began to develop the idea for mixing throughout the entire tank volume
instead of just mixing in one zone at a time, as the Plymouth and Indiana Packers designs
provided. The '414 patent, incorporating the concept of volume-filling flow, was filed on
May 7, 1992. Although the original application did not claim a substantially helical flow
path, it was later amended to claim such a flow path.
343
Patent Cases
Intellectual Property Cases
Prof. Janicke
Crump further testified that on May 20, 1991 he offered to sell another system for
antibiotic industrial waste to Eli Lilly just after the critical date. According to Crump, the
Eli Lilly system was not only offered after the critical date, its nozzle placement was not
even within the limitations of the patent. At the time the patent was filed, the Plymouth,
Indiana Packers, and Eli Lilly tanks had been installed.
C. Infringement Evidence
1. Vaughan's Business History
Vaughan designs and manufactures "chopper pumps," which are used to mix solid
materials in large tanks. It claims to have supplied LD with pumps for many years.
Vaughan also claims that it was in the business of large-tank mixing designs, decades
before the '414 patent, with its roof-mounted chopper pump design called "Scumbuster."
Vaughan and LD's relationship soured when Vaughan began manufacturing floor
mounted systems and bid on a tank for the city of Augusta, Georgia. LD claims to have
been negotiating with Augusta in late 1999 to supply Augusta with its Jetmix system, the
commercial product covered by the '414 patent. In December of 1999, LD terminated
Richard Behnke, a sales engineer who had been "intimately involved" with the Augusta
design and negotiations. Soon thereafter, Behnke was hired by Vaughan and submitted
engineering drawings for nozzle layouts to Augusta, which Vaughan presented as its
Rotamix System. LD claims these drawings were directly copied by Behnke from LD's
previous engineering drawings. LD also includes statements from Glenn Dorsch,
Vaughan's Chief Engineer and Vice President, stating:
What is planned and requested is for us to remove the [LD] JetMix nozzles
from the drawings and put in our own floor mounts. . . . This should be very
easy for Wade to do, once we get final orientations from Rich Behnke.
Vaughan notes that even though the nozzles were located in the same place, they
constituted a special dual-nozzle design. Thus, whereas the LD Jetmix design had six
nozzles, Vaughan's design had twelve.
2. Vaughan's Business Records as Infringement Evidence.
LD confronted Vaughan with allegations of infringement of the '414 patent, and in June
of 2000, Vaughan consulted with patent counsel to evaluate the '414 patent and
Vaughan's potentially infringing Rotamix design. At about the same time, Vaughan
commissioned AEA Technology to perform two different computational fluid dynamics
("CFD") studies to analyze the flow patterns in its tanks. The first study, labeled PX20,
344
Patent Cases
Intellectual Property Cases
Prof. Janicke
evaluated a generic 50-foot-diameter tank that was 30-feet high. The second, labeled
PX19, was a study conducted for a proposed tank at Merced, California that
demonstrated the tank's mixing capabilities to the city's engineer. Dorsch testified that
these studies were representative of the flow patterns generated by Vaughan's Rotamix
systems.
Vaughan provided patent counsel with these studies to assist in forming an opinion
relative to infringement. Based on the CFD studies and the tank designs, patent counsel
rendered an opinion for Vaughan concluding that its Rotamix design did not infringe the
'414 patent because it did not produce substantially helical flow.
LD relies on Vaughan's CFD studies as evidence of both infringement and willfulness.
The report not only shows toroidial n1 flow in the vertical plane with downward velocity
in the center of the tank and upward velocity at the walls of the tank, but it also indicates
there was a "concern over terrodial [sic] flow." Moreover, as LD notes, the author of the
PX20 report explained that "the momentum from the nozzles pushes the fluid to the side
walls of the tank" and "then changes direction and heads up the side walls." LD's own
expert, Lueptow, relied on these same vertical vector plots to express a similar opinion
that Vaughan's tanks generate helical flow.
n1 Webster's defines "toroidal" as "of, relating to, or shaped like a torus or
toroid: doughnut-shaped." Webster's Ninth New Collegiate Dictionary 1245
(1985). The meaning of torodial is similar, if not identical, to helical flow for our
purposes.
3. Structure Evidence
Next, LD relies on testimony regarding the structure of Vaughan's designs and their
similarity to the '414 patent claims. Dorsch, Vaughan's chief engineer and its technical
expert at trial, testified that the Vaughan engineering manual included specifications and
drawings showing Vaughan's regular method of installation. Vaughan did not keep
accurate records of each of the 47 allegedly infringing installations. LD's technical expert
Gillette, a wastewater treatment engineer, reviewed the engineering records for all of the
accused systems, prepared a report establishing the parameters of each installation, and
testified regarding the systems and any missing installation data.
345
Patent Cases
Intellectual Property Cases
Prof. Janicke
Vaughan correctly points out that Gillette's report lacks nozzle placement and/or nozzle
angle data for 11 of the 47 systems. However, Dorsch testified that if records on
construction were missing it would be reasonable to assume that the installation was in
accordance with the standard procedure described in Vaughan's engineering manual.
4. LD's CFD Analysis
LD contends that 47 Vaughan installations infringe the '414 patent. Since some
installations are duplicates, there are 34 unique tank designs. Of these, Vaughan argues
that there is insufficient evidence to prove that two contested claim elements are present
in the accused tanks, namely "substantial helical flow" and "rotation of the entire body."
In addition to Vaughan's business records and its own CFD analysis, LD relies heavily on
Lueptow's expert opinion. His opinion concludes that each of the 47 installments infringe
by recreating the substantially helical flow path. LD supports Lueptow's conclusions with
the following evidence in the record: (1) Vaughan's two CFD studies for the generic 50foot and Merced tanks; (2) LD's prelitigation CFD study modeling the Merced tank; (3)
observation of a tank in Argos, Indiana; and (4) Lueptow's own CFD analysis of nine
tank configurations representative of various Vaughan installations.
Lueptow performed his own CFD analysis of the Vaughan systems using the same
software Vaughan had used in its own CFD studies; however, he did not recreate each of
the 47 tanks at issue in this case because CFDs are very time intensive. Instead, he
modeled the flows in nine representative tanks with various tank sizes and nozzle
configurations depending on different Vaughan designs. Lueptow based these models on
the Vaughan Engineering Manual and Gillette's testimony. Gillette had testified that there
was information missing in the record detailing some tank characteristics but that he
nonetheless had sufficient information to summarize the tank characteristics for flow
modeling.
Lueptow's CFD work resulted in 116 different graphical plots consisting of path-line
and vector plots. The vector plots detailed the overall flow path and magnitude in the
horizontal and vertical planes. The path-line plots estimated the path an individual
particle travels within the tank. Lueptow concluded that the Vaughan systems were very
robust and would produce the helical flow despite small changes to each tank. He opined
that his representative systems and tanks allowed him to render an opinion on all 47
tanks. This opinion, based on the nine CFD models Lueptow created, the Vaughan data
from Merced and a generic 50-foot tank, and LD's Merced Model, was that infringing
helical and volume-filling flow is present in all 47 models.
346
Patent Cases
Intellectual Property Cases
Prof. Janicke
During trial, Vaughan challenged Lueptow's analysis maintaining that the plots
simulated conditions just mere seconds after pump startup and that this could not be
sufficient evidence of helical and rotational flow during steady-state flow. Lueptow,
however, testified that his models were sufficient to determine that helical and rotational
flow existed despite the fact that only 40 to 50 iterations were performed.
II. DISCUSSION
A. Standard of Review
We review the denial of a JMOL de novo. Juicy Whip, Inc. v. Orange Bang, Inc., 292
F.3d 728, 736 (Fed. Cir. 2002). Upon review, we consider whether the jury verdict is
supported by substantial evidence. Id. In other words, we ask whether the record taken as
a whole would support the verdict in the mind of a reasonable person. Id. It is not our
duty, however, to reevaluate the weight or credibility of the evidence. Comark Commc'ns,
Inc. v. Harris Corp., 156 F.3d 1182, 1192 (Fed. Cir. 1998).
Evidentiary rulings by the district court are reviewed under regional circuit law.
Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., 265 F.3d 1294, 1308 (Fed. Cir.
2001). Thus, we review decisions to admit expert testimony for abuse of discretion under
Seventh Circuit law. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152, 119 S. Ct. 1167,
143 L. Ed. 2d 238 (1999); United States v. Allen, 390 F.3d 944, 949 (7th Cir. 2004).
Inequitable conduct pertains to and arises under the patent laws; we therefore review it
pursuant to Federal Circuit law. In re Spalding Sports Worldwide, Inc., 203 F.3d 800,
803-04 (Fed. Cir. 2000). We review an inequitable conduct determination under an abuse
of discretion standard and the underlying factual issues of materiality and intent for clear
error. Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., 326 F.3d 1226, 1234 (Fed.
Cir. 2003).
B. Infringement Evidence
Vaughan's first alleged error is that LD presented insufficient evidence that each of the
47 accused installations infringed. First, it explains that LD did not present sufficient
evidence that 11 of the 47 installations met the required nozzle placement and nozzle
angle limitations required by claims 1 and 8. Second, Vaughan argues that LD's computer
simulations presented at trial were inaccurate and therefore did not provide evidence of
infringement. Third, Vaughan contends that there is no evidence Vaughan knew or
347
Patent Cases
Intellectual Property Cases
Prof. Janicke
intended that 11 of its systems, which are located outside the United States, indirectly
infringe.
1. Tank Structure Limitations
The '414 patent requires that the tank nozzles be placed within 25 to 75 percent of the
tank's annular radius and that the nozzle angle be sufficient to "generate flows . . . [that]
impart a rotational movement of the entire body of liquid." '414 patent, col. 9, ll. 4-12.
Vaughan explains that the structural data compiled by Gillette do not provide nozzle
angles for 11 installations and do not provide radial distances and relative nozzle
placements for 8 of those 11 installations. Further, it points out that Dorsch testified to his
knowledge of four installations with nozzles located outside the annular regions claimed
by the patent.
LD agrees that 11 of the tanks had some missing structural information; however, it
submits Dorsch's testimony stating that even where there is missing information, one
could generally reconstruct a tank using the specification in the Vaughan engineering
manual. Moreover, it contends that the Vaughan engineering manual shows nozzle
placement within the claim limitations and that one drawing is almost an exact duplicate
of the Augusta installation.
Our task on appeal is to determine whether the jury could reasonably have inferred
from the engineering manual and Dorsch's testimony that 11 installations infringe even
though some structural data is missing from Vaughan's records. LD argues this was a
reasonable weighing of the evidence that is exclusively within the province of the jury.
We agree.
A patentee may prove direct infringement or inducement of infringement by either
direct or circumstantial evidence. Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261,
1272 (Fed. Cir. 1986). There is no requirement that direct evidence be introduced, nor is
a jury's preference for circumstantial evidence over direct evidence unreasonable per se.
See Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1374 (Fed. Cir. 2005);
Moleculon Research, 793 F.2d at 1272 (noting "it is hornbook law that direct evidence of
a fact is not necessary"); see also Michalic v. Cleveland Tankers, Inc., 364 U.S. 325, 330,
81 S. Ct. 6, 5 L. Ed. 2d 20 (1960) ("Circumstantial evidence is not only sufficient, but
may also be more certain, satisfying and persuasive than direct evidence."). Though
Dorsch testified that four tanks were outside the scope of the patent claims, the jury could
reasonably have discredited that evidence and given more weight to the circumstantial
evidence of the Vaughan engineering manual, which was created before litigation began.
Similarly, the jury could reasonably rely on the engineering manual and complete records
348
Patent Cases
Intellectual Property Cases
Prof. Janicke
for the remaining Vaughan designs to infer that the missing information on 11 tanks also
had infringing structural components.
Both parties argue that the other should have submitted additional evidence regarding
the tank parameters. Though it is LD's burden to prove infringement, it chose to rely on
circumstantial evidence for some installations. While direct evidence may have made
LD's case of infringement stronger, it does not render the case presented to the jury
unreasonable as a matter of law. Indeed, the jury could have reasonably inferred from the
evidence submitted that each of the tanks infringed the claims. Thus, we hold that there is
substantial evidence that all 47 accused tanks met the structural limitations of the '414
patent.
2. Computer Simulations
Next, Vaughan challenges the computer simulations used to establish the helical- and
rotational-flow claim limitations. Vaughan maintains that Lueptow's simulations were
insufficient for two reasons: (1) because the parameters used to run the nine different
modeled simulations were inaccurate and (2) because the simulations do not show the
required helical flow and general body rotation.
a. Lueptow's Model Parameters
First, Vaughan argues that the modeling parameters were inaccurate. It notes
specifically that the simulated Tank A and Tank G groupings in Lueptow's CFDs did not
match or approximate many of the known tank parameters such as the height, flow rate,
and nozzle diameter. Lueptow admitted that these parameters did not match the realworld parameters as Vaughan points out, but he also testified that the changes in the
nozzle design would do little to disrupt the robust helical flow in the tanks. Furthermore,
Lueptow performed a simulation of the Tank D parameters with different nozzle spacing
and concluded that even though the parameters changed and some aspects of the flow
changed, the helical flow was still present.
Vaughan appears to challenge the admissibility and reliability of Lueptow's expert
scientific analysis and opinion. LD argues that our previous opinion reversing the district
court's grant of summary judgment based on the genuine issue of material fact presented
by the vector plots makes the evidence admissible under the law-of-the-case doctrine.
Our previous opinion, LD I, did not directly consider the admissibility of the evidence,
only that such evidence would be sufficient to create a genuine issue of material fact for
trial. 355 F.3d at 1371. [HN5] Issues not decided by the court in a prior proceeding are
not covered by the law-of-the-case doctrine. Stearns v. Beckman Instruments, Inc., 737
349
Patent Cases
Intellectual Property Cases
Prof. Janicke
F.2d 1565, 1568 (Fed. Cir. 1984). Therefore, the admissibility of Lueptow's testimony
had not been previously resolved.
Vaughan's challenges to expert testimony and scientific evidence are analyzed under
the Supreme Court's Daubert factors. See Daubert v. Merrell Dow Pharms., 509 U.S.
579, 589, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). [HN6] When faced with expert
scientific testimony, a district court must first determine "whether the expert is proposing
to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or
determine a fact at issue." Id. at 592 . This requires an assessment of the reasoning and
methodology underlying the testimony to determine whether it is scientifically valid. Id.
In Daubert, the Supreme Court set forth four factors for district courts to consider when
evaluating the validity and relevance of scientific evidence pursuant to Rule 702 of the
Federal Rules of Evidence. Id. at 592-93. These factors include (1) whether the
methodology can and has been tested, (2) whether the methodology is subject to peer
review, (3) the potential rate of error, and (4) the general acceptance of the methodology.
Id. at 593-94. The court further noted that the focus of a court's inquiry into the relevance
and reliability of scientific evidence "must be solely on principles and methodology, not
on the conclusions that they generate." Id. at 595.
Here, Vaughan's argument focuses on the parameters Lueptow applied, not on the
reliability of CFD analysis in general. Indeed, CFD analysis has been previously
recognized in the scientific community and has been recognized as reliable by at least one
circuit. See Quiet Tech. DC-8, Inc. v. Hurel-Dubois UK Ltd., 326 F.3d 1333, 1343-44
(11th Cir. 2003). In Quiet Tech., the appellant challenged the credibility of CFD analysis
for modeling aerodynamic properties in a jet engine. Id. at 1344. The appellant argued
that the expert used incorrect data or was missing data to run the CFD software and used
the wrong equations to run his CFD analysis of the engine's aerodynamic properties. Id.
Such a flawed analysis, it argued, made the testimony and evidence unreliable. Id. at
1344-45. The court held that such an attack goes more to the weight of the evidence than
to its admissibility. "The identification of such flaws in generally reliable scientific
evidence is precisely the role of cross-examination." Id. at 1345; see also In re TMI Litig.,
193 F.3d 613, 692 (3d Cir. 1999) ("'So long as the expert's testimony rests upon "good
grounds," it should be tested by the adversary process--competing expert testimony and
active cross-examination--rather than excluded from jurors['] scrutiny for fear that they
will not grasp its complexities or satisfactory [sic] weigh its inadequacies.'" (quoting
Ruiz-Troche v. Pepsi Cola of Puerto Rico Bottling Co., 161 F.3d 77, 85 (1st Cir. 1998)));
Wilmington v. J.I. Case Co., 793 F.2d 909, 920 (8th Cir. 1986) ("Virtually all the
inadequacies in the expert's testimony urged here by [the defendant]were brought out
forcefully at trial . . . . These matters go to the weight of the expert's testimony rather than
to its admissibility.").
350
Patent Cases
Intellectual Property Cases
Prof. Janicke
Here, Vaughan's challenge goes to the weight of the evidence rather than the
admissibility of Lueptow's testimony and analysis. Though he admitted that his models
did not exactly match the various accused tanks, this fact was fully discussed on cross
examination. As in Quiet Tech., his models were not the perfect models of each
individual tank, but they were based on reliable scientific methodology and subject to
cross examination and the proffering of further scientific analysis by Vaughan. We
conclude that a reasonable juror could consider Lueptow's testimony explaining the very
robust, helical flow in the models and infer that the similar accused tanks will produce
flow similar to the modeled flow. Therefore, we will not contravene the province of the
jury by reweighing Lueptow's testimony.
b. Alleged Flows
Vaughan's challenges do not end with allegations of inaccurate data. It also challenges
the relevance of Lueptow's testimony regarding general rotation of the fluid in
combination with the helical flow. Vaughan argues that Lueptow's analysis performed
only 40 to 50 iterations, a time frame that it suggests is only a few seconds after pump
startup and, therefore, was not enough time to rotate the entire body of fluid.
However, such arguments do not overcome Lueptow's testimony that there was helical
flow and general body rotation in his simulation even after 50 iterations. Furthermore,
Lueptow did not rely solely on his CFD plots, but also on those that were admittedly
continued for longer periods of time by Vaughan and LD when they simulated the
Merced and generic tanks at AEA Technologies. Any fault within Lueptow's opinion was
properly covered during cross examination. But, sufficient evidence still existed for a
reasonable juror to find infringement.
Vaughan's last contention with the CFD analysis counters LD's reliance on the vertical
vector plots from the PX19 and PX20 reports by presenting an argument that they are
unreliable. Basically, Vaughan argues that movement shown in the vector plots
represents the single-plane movement of a particle flowing in two planes: vertical and
horizontal. For purposes of determining helical flow, the vertical-plane vector plot is
critical. Vaughan explains that the vertical plot shows particles with very little movement
in the vertical plane, but much more substantial movement in the horizontal plane. It
contends that the vertical vector plot in the PX19 report is consistent with a rotational
vortex, as in the prior art, rather than helical flow. Essentially, it maintains that even
though the vertical vector plots look helical, the actual particles are moving like a
whirlpool around a common center and that even in that configuration there will be flow
upward and downward somewhere in the tank.
351
Patent Cases
Intellectual Property Cases
Prof. Janicke
While Vaughan's interpretation could be correct, the evidence presented suggests that
the vertical vector plot is subject to different interpretations. There was substantial
evidence presented to the jury to suggest that this plot represents a helical pattern. The
plot appears to show two vortices on either side of the tank center. While these vortices
may be aided by the fluid intake sump in the tank center, it appears clear in this figure
that the downward speeds increase towards the pumps. Furthermore, for both the PX19
and PX20 reports, their authors acknowledge that flow vortices do exist in the vertical
plane. Upon consideration of the evidence, the jury may have had a different
interpretation than that postulated by Vaughan. There is certainly substantial evidence to
support this jury's findings.
3. Foreign Infringement
Vaughan makes one final argument with respect to infringement under 35 U.S.C. §
271(f) by six tanks located outside of the United States. It argues that under § 271(f) there
was insufficient evidence that it intended for the foreign purchasers to infringe the '414
patent. [HN8] Pursuant to § 271(f)(1), a party may be an infringer if it
supplies . . . in or from the United States all or a substantial portion of the
components of a patented invention, where such components are
uncombined in whole or in part, in such manner as to actively induce the
combination of such components outside of the United States in a manner
that would infringe the patent if such combination occurred within the
United States. . .
"A finding of inducement requires both an underlying instance of direct infringement
and a requisite showing of intent." Fuji Photo Film Co., 394 F.3d at 1377. Here, although
Vaughan contends that the requisite intent showing is missing, "[a] patentee may prove
intent through circumstantial evidence." Id.
Accordingly, LD identifies evidence in the record that Vaughan knew of the '414 patent
after its first sale to Augusta. Moreover, Vaughan's hiring of Behnke, a former LD
employee with knowledge of the patented design, and Dorsch's statements indicating that
Vaughan was relying on nozzle orientations from Behnke, support the proposition that
Vaughan intended for its Augusta design to infringe the claims of the '414 patent.
Furthermore, Vaughan's engineering manual was sent to its customers and is replete with
examples that are similar to the Augusta designs. This constitutes circumstantial evidence
352
Patent Cases
Intellectual Property Cases
Prof. Janicke
that Vaughan intended for its subsequent buyers, including foreign buyers, to install
systems that infringe the claims of the '414 patent. Vaughan argues that the engineering
manual itself expresses an intent to mix by rotation, such that Vaughan's dissemination of
the manual did not intend its customers to create the infringing helical flow. Vaughan's
arguments ask us to reweigh the evidence, a task reserved for the jury, not this court. See
Teleflex, Inc. v. Ficosa N. Am. Corp., 299 F.3d 1313, 1335 (Fed. Cir. 2002). Thus, we
hold that there is substantial evidence to support the jury's verdict under § 271(f).
C. Invalidity of the '414 Patent
Vaughan's second allegation of error is that the court should have found the '414 patent
invalid because the specification did not disclose the inventor's best mode of practicing
the invention and did not enable the claims. See BJ Servs. Co. v. Halliburton Energy
Servs., 338 F.3d 1368, 1371-72 (Fed. Cir. 2003) ; Eli Lilly & Co. v. Barr Labs., 251 F.3d
955, 963 (Fed. Cir. 2001). It argues that the inventors failed to disclose the need for
reducers on the tank nozzles and that the specification failed to enable the creation of
helical flow in the tank.
1. Best Mode
Vaughan argues that the use of reducers on the tank nozzles was the best mode of
practicing the invention, that it was known to the inventors, and that they failed to
disclose it in their patent application. Vaughan presented evidence that the inventors
installed reducers on the Plymouth and Indiana Packers tanks in order to increase flow
velocity and impart more momentum into the large tanks.
Inventors are required by 35 U.S.C. §112, P1 to disclose the best mode for practicing
their claimed inventions. A finding of patent invalidity based on best mode " requires
clear and convincing evidence that the inventor both knew of and concealed a better
mode of carrying out the claimed invention than that set forth in the specification."
Teleflex, 299 F.3d at 1330. This is a two-part factual test inquiring into (1) whether the
inventor subjectively "considered a particular mode of practicing the invention to be
superior to all other modes at the time of filing" the application and (2) whether the
inventor adequately disclosed that superior mode. Id.; accord Eli Lilly & Co., 251 F.3d at
963. The best mode requirement does not require the disclosure of "routine details" that
would be apparent to one of ordinary skill in the art practicing the invention. Teleflex,
299 F.3d at 1331-32. "Known ways of performing a known operation cannot be deemed
intentionally concealed absent evidence of intent to deliberately withhold that
information." High Concrete Structures, Inc. v. New Enter. Stone & Lime Co., 377 F.3d
1379, 1384 (Fed. Cir. 2004).
353
Patent Cases
Intellectual Property Cases
Prof. Janicke
In light of all the evidence presented on this issue, a reasonable jury could conclude that
Vaughan failed to demonstrate by clear and convincing evidence that LD did not disclose
the best mode. First, the '414 patent states that "[t]he jet nozzle units 20 are preferably of
a type disclosed in U.S. Pat. No. 4,332,484 (herein incorporated by reference) [("the '484
patent")] and commercially available from A.O. Smith, as part of its Slurrystore . . .
systems." '414 patent, col. 4, ll. 52-55. The '484 patent describes a nozzle that discharges
"a high velocity high volume jet," col. 3, ll. 50-51, and a nozzle which is "concentrically
reduced in diameter in its upward extend . . . ," col. 3, ll. 65-68. Second, Crump testified
that the Plymouth and Indiana Packers installations did not incorporate the invention and
were used to achieve zone mixing instead of helical flow. Third, LD presented evidence
that adding reducers is a routine detail and did not need to be disclosed to a person of
ordinary skill in the art. Fourth, Lueptow testified that a particular flow velocity did not
matter given that the fluid flow began to dissipate further from the nozzle.
Admittedly, the '414 patent does not disclose a particular size of reducer, but Vaughan
failed to demonstrate by clear and convincing evidence that it must. Ideal flow rates and
flow velocities depend on the nature of the tank to be mixed. Moreover, Vaughan has not
made a sufficient showing to overcome the jury determination that the best mode
requirement was satisfied.
2. Enablement
Vaughan argues that the '414 specification fails to enable the claimed helical flow. It
contends that Crump's testimony that he did not discover helical flow until after his
patent application was filed is proof that the specification does not enable the claim to
such flow. n2
n2 Vaughan also argues that the district court improperly excluded expert
testimony regarding enablement. The district court excluded the expert opinion
evidence as irrelevant because it was based on an impermissible claim
construction and relied heavily on Figure 6 of the patent specification that shows
perfect helical flow instead of substantial helical flow. Furthermore, the court
found that the evidence could prejudice and confuse the jury. Since the
enablement inquiry necessarily depends on an interpretation of the claims, we
conclude that the district court did not abuse its discretion in excluding the expert's
testimony pertaining to enablement.
354
Patent Cases
Intellectual Property Cases
Prof. Janicke
In order to enable the claims of a patent pursuant to §112 , the patent specification
must teach those of ordinary skill in the art "how to make and use the full scope of the
claimed invention without undue experimentation." Bruning v. Hirose, 161 F.3d 681, 686
(Fed. Cir. 1998). Some experimentation is permissible although it cannot be unduly
excessive. Hybritech, Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1384 (Fed.
Cir. 1986). Enablement is a question of law which we ultimately review de novo, but it
is based on factual findings that are reviewed for clear error. Bruning, 161 F.3d at 686.
Here, because the underlying inquiry was inherently factual, "we look to whether a
reasonable jury could have made the underlying factual findings necessary to provide
substantial evidence in support of its conclusion." BJ Servs. Co., 338 F.3d at 1371-72.
First, LD submitted Gillette's testimony to establish that even though the patent does
not discuss a specific combination of elements to create helical flow, it could be produced
by a person of ordinary skill in the art without undue experimentation. Second, Crump's
testimony indicates that he conceived of the idea of producing helical flow in late 1991 or
early 1992, constructively reduced his idea to practice in the patent application, then
confirmed that the helical flow could be produced in his later tank designs. This
testimony, along with Lueptow's indication that helical flow is robust, provides
substantial evidence that helical flow could be generated by following the '414 patent
written description.
D. Willful Infringement
Vaughan also argues that there was not clear and convincing evidence to support the
jury's verdict of willful infringement. Vaughan's only contentions are that there was no
basis on which the jury could disregard Vaughan's reliance on counsel's opinion of noninfringement and that there was insufficient evidence that Vaughan copied the Augusta
system.
A finding of willful infringement is made after considering the totality of the
circumstances. See Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp.,
383 F.3d 1337, 1342-43 (Fed. Cir. 2004) (en banc). The evidence is weighed and
evaluated by the trier of fact. Id. at 1343. "The drawing of inferences, particularly in
respect of an intent-implicating question such as willfulness, is peculiarly within the
province of the fact finder that observed the witnesses." Rolls-Royce, Ltd. v. GTE Valeron
Corp., 800 F.2d 1101, 1110 (Fed. Cir. 1986).
Courts consider several factors when determining whether an infringer has acted in bad
faith and whether damages should be increased. They include: "(1) whether the infringer
355
Patent Cases
Intellectual Property Cases
Prof. Janicke
deliberately copied the ideas or design of another; (2) whether the infringer, when he
knew of the other's patent protection, investigated the scope of the patent and formed a
good-faith belief that it was invalid or that it was not infringed; . . . (3) the infringer's
behavior as a party to the litigation;" (4) "defendant's size and financial condition;" (5)
"closeness of the case;" (6) "duration of defendant's misconduct;" (7) "remedial action by
the defendant;" (8) "defendant's motivation for harm;" and (9) "whether defendant
attempted to conceal its misconduct." Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27
(Fed. Cir. 1992) (superseded on other grounds as recognized in Hoechst Celanese Corp.
v. BP Chems. Ltd., 78 F.3d 1575, 1578 (Fed. Cir. 1996)). Good faith may normally be
shown by obtaining the advice of legal counsel as to infringement or patent validity. See
id. at 828. If counsel's opinion is found to be incompetent, however, a fact finder may
discount its usefulness in determining a party's good faith. See id. at 828-29; see also
Goodwall Constr. Co. v. Beers Constr. Co., 991 F.2d 751, 758 (Fed. Cir. 1993) (holding
that a jury could have concluded that the infringing party concealed incriminating
evidence from its opinion counsel).
Here, LD cites to several pieces of evidence the jury may have relied on to find
copying. One of the most persuasive pieces of evidence appears to be Vaughan's
competing bid on the Augusta tank. Though the engineering drawings are virtually
duplicates of LD's job proposal, that is not the most persuasive evidence that the jury may
have relied upon to infer copying. LD presented evidence that Vaughan used Behnke, a
former LD employee with intimate knowledge of the Augusta tank and LD's Jetmix
system, to establish a nozzle angle of its own Rotamix system. While Vaughan discounts
this evidence because it used a different nozzle height and a dual-nozzle design instead of
the single-nozzle design LD proposed to Augusta, the jury could reasonably infer that
Vaughan was deliberately trying to create the same flow pattern as LD's Jetmix system in
violation of the '414 patent. There is no limitation in the '414 patent requiring singlenozzle systems. In fact, the '414 patent contemplates the use of "various flow devices of a
system [that] may be installed at differing heights, if desired . . . and may be combined in
pairs." Col. 8, ll. 35-44. Thus, Vaughan's argument that the jury could not find copying
because its Augusta proposal made insubstantial changes to a patented invention does not
overcome the substantial evidence to the contrary. Furthermore, the Vaughan engineering
manual includes a drawing similar in detail to the Augusta tank layout, a fact the jurors
could have used to infer copying.
Though Vaughan relies heavily on its opinion of counsel, LD presented flaws in that
opinion's factual basis. LD explains that patent counsel was not given the complete CFD
analysis because he was not provided with the vertical vector plots of fluid flow. Patent
counsel was advised that the vertical plots did not show anything of significance. In fact,
the report on the Merced and generic 50-foot tanks explained that the vertical plots
356
Patent Cases
Intellectual Property Cases
Prof. Janicke
indicated vertical flow and secondary flow vortices. The jury could use such a
concealment of evidence from the attorney to discount the opinion. See Goodwall
Constr., 991 F.2d at 758 . Although Vaughan asserts that the district court's enhancement
of damages should be reversed, the primary basis for this position is that the jury's
finding of willfulness should be reversed, an argument we have already rejected.
Vaughan's only other argument is that litigation misconduct did not justify enhancement
but that argument was made only in a footnote in the opening brief and therefore was not
sufficiently preserved. SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1320
(Fed. Cir. 2006).
E. Inequitable Conduct
Finally, Vaughan argues that the district court improperly granted LD's JMOL for its
inequitable conduct claim. Vaughan maintains that the court committed clear error by
finding that the Plymouth and Indiana Packers installations were not prior art that should
have been disclosed to the patent examiner.
Patent applicants are required to prosecute patents "with candor, good faith, and
honesty." See Bristol-Myers Squibb Co., 326 F.3d at 1233 (citation omitted). "A breach
of this duty can take several forms: 'affirmative misrepresentation of a material fact,
failure to disclose material information, or submission of false material information.'
Further, a breach of this duty, when coupled with an intent to deceive or mislead the
PTO, constitutes inequitable conduct, which, when proven, renders the patent
unenforceable." Id. (citations omitted). In order to establish inequitable conduct, Vaughan
must present clear and convincing evidence that the inventors "failed to disclose material
information with an intent to mislead the PTO." Id. at 1233-34.
The district court found that Crump's testimony regarding the process of invention was
credible and believed that the Plymouth and Indiana Packers installations were not
material information because they were "very different configurations" from the claimed
invention and were part of an "evolving process of experimentation by the inventors."
The court also found that even if the previous installations had been material, Crump's
testimony that he did not intend to deceive the patent office was credible and his
extensive prior art disclosures during prosecution strongly suggested good faith.
Our inquiry into materiality is an objective one. "Materiality is not limited to prior art
but embraces any information that a reasonable examiner would be substantially likely to
consider important in deciding whether to allow an application to issue as a patent."
Bristol-Myers Squibb Co., 326 F.3d at 1234 (citation omitted). Here, the district court
erred in its analysis of materiality. The court focused on whether the prior installations
357
Patent Cases
Intellectual Property Cases
Prof. Janicke
actually embody the invention, when the correct analysis asks whether a reasonable
examiner would find it important. In this case, the inventors explain how they developed
the invention and their use of the Plymouth and Indiana Packers tanks to do so. They
certainly used the previous tanks to assist in developing the invention and the tanks were
part of a sale, not an experiment. A reasonable patent examiner would find such
information important to his consideration of the patent application.
However, Vaughan fails to establish that the inventors had the requisite intent to
deceive. Intent is a subjective inquiry into whether the inventor knew the information
was material and chose not to disclose it. See id. at 1239. Here, Vaughan asks us to
reweigh the credibility of the evidence and testimony, something we cannot do. See LNP
Eng'g Plastics, Inc. v. Miller Waste Mills, Inc., 275 F.3d 1347, 1361 (Fed. Cir. 2001).
The trial court relied on the evidence that Crump did not believe the prior installations
were necessary disclosures because they were not embodiments of the invention and were
similar to other disclosures. Furthermore, Crump testified that he did inform the examiner
of the prior tanks. We see no reversible error in the district court's analysis of intent.
Thus, the court's finding of no inequitable conduct was not clearly erroneous.
III. CONCLUSION
In this appeal, Vaughan asks us to review the district court's denial of their JMOL
motion for non-infringement, invalidity, no willful infringement, and unenforceability
due to inequitable conduct. For the reasons stated in this opinion, we find no reversible
error. Accordingly, we affirm.
AFFIRMED
358
Patent Cases
Intellectual Property Cases
Prof. Janicke
The patent involved in the preceding Liquid Dynamics case is presented in full here:
359
Patent Cases
Intellectual Property Cases
Prof. Janicke
360
Patent Cases
Intellectual Property Cases
Prof. Janicke
361
Patent Cases
Intellectual Property Cases
Prof. Janicke
362
Patent Cases
Intellectual Property Cases
Prof. Janicke
363
Patent Cases
Intellectual Property Cases
Prof. Janicke
364
Patent Cases
Intellectual Property Cases
Prof. Janicke
365
Patent Cases
Intellectual Property Cases
Prof. Janicke
366
Patent Cases
Intellectual Property Cases
Prof. Janicke
367
Patent Cases
Intellectual Property Cases
Prof. Janicke
368
Patent Cases
Intellectual Property Cases
Prof. Janicke
369
Patent Cases
Intellectual Property Cases
Prof. Janicke
370
Patent Cases
Intellectual Property Cases
Prof. Janicke
371
Patent Cases
Intellectual Property Cases
Prof. Janicke