IP Update, August 2009 - Part 2.

Patent Unobvious If Examiner Fails to Articulate Factual Basis for Rejection

Massachusetts Attorney's Lien Statute Applies to Patent Prosecution Costs

".com" Does Not Convert a Generic Term into a Brand Name

Similarity of Marks Should Be Determined by Marks as Encountered in the Marketplace

A Champagne Toast to Reversal of Laches Decision

European Court of Justice Delivers Judgment on the Meaning of "Unfair Advantage"

Parallel Imports in China Are Forbidden for Goods Without 3C Approval

"Objectionable Material" Under CDA Means More than Just Porn

Copyright Registrations Can Be Invalidated Based on Intentional Misrepresentations of Originality

Four Factor Test when Use of Information Is Business Tort

Trade Secret Plaintiff Loses Customers to Defendant but Is Not Entitled to Damages

Patent Unobvious If Examiner Fails to Articulate Factual Basis for Rejection By Aamer S. Ahmed

The U.S. Patent and Trademark Office Board of Patent Appeals and Interferences (Board) recently reversed a final rejection in the reexamination of Competitive Technologies, Inc's. U.S. Patent No. 4,940,658, for which the U.S. Supreme Court previously granted and subsequently dismissed certiorari over a spirited dissent by Justice Breyer. The Board found the rejection of claims lacked a sufficient factual basis to support the conclusion of obviousness. Ex parte Competitive Technologies, Inc., Appeal No. 09/5519 (B.P.A.I., July 30, 2009) (Spiegel, APJ).

Illustrative claim 13 of the patent was directed to "a method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: assaying a body fluid for an elevated level of total homocysteine; and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate." The '658 patent was licensed to Metabolite, which in turn sublicensed the patent to LabCorp. LabCorp originally performed total homocysteine assays under the sublicense, but later switched to an assay developed by Abbott Laboratories and discontinued royalty payments to Metabolite. In response, Metabolite sued LabCorp for infringement.

In requesting certiorari, LabCorp asserted that the '658 patent was invalid under 35 U.S.C. s.101 because it was attempting to patent a natural phenomenon. This came after a decision from the Federal Circuit rejecting LabCorp's appeal alleging that claim 13 was invalid under s.s. 112, 102 and 103.

In his dissent from the decision to dismiss certiorari, Justice Breyer contended that claim 13 was invalid no matter how narrowly the natural phenomenon doctrine is interpreted. In his view, there could be little doubt that the correlation between homocysteine and vitamin deficiency set forth in claim 13 was a "natural phenomena," citing respondent's brief for the assertion that the correlation recited in claim 13 is an observable aspect of biochemistry in at least some human populations.

Reversing the examiner's rejection of claim 13, the Board explained that the dispositive issue was whether the applied prior art teaches, or would have suggested, all of the claim limitations to one of ordinary skill in the art. The Board found that, according to the '658 patent, both cobalamin (vitamin B12) and folate deficiencies result in an elevated homocysteine level, but an elevated homocysteine level cannot distinguish between a folate and/or cobalamin deficiency. The primary reference was found to disclose a method to determine total homocysteine, but the three secondary references were not found to fairly teach or suggest a correlation between elevated total homocysteine levels and a folate deficiency, as recited in claim 13.

Basing its decision solely on the issue of obviousness under s. 103(a) and not addressing whether or not the subject matter of claim 13 was patent eligible (per Justice Breyer's dissent), the Board held that the examiner failed to provide a sufficient factual basis for her conclusion that the applied prior art teaches or suggests all of the claim limitations.

Massachusetts Attorney's Lien Statute Applies to Patent Prosecution Costs By Leigh J. Martinson

The Supreme Judicial Court of Massachusetts determined, in a case of first impression, that Massachusetts's attorney's lien statute permits placing a lien on a patent (and any proceeds later derived from that patent) for legal fees earned while representing a client before the U.S. Patent and Trademark Office (USPTO). Ropes & Gray LLP v. Jalbert, Case No. SJC-10333 (Mass. S.J.C., July 28, 2009) (Spina, J.)

R&G represented Engage, Inc. (Engage) from approximately June 2002 through May 2003 in connection with the prosecution of various patents. On June 19, 2003, Engage filed bankruptcy petitions under Chapter 11 in Massachusetts. In a filing with the Bankruptcy Court, R&G asserted that it was owed over $100,000 for patent prosecution work, secured by an attorney's lien under Massachusetts law. Engage sold off its patents and applications before and after filing under Chapter 11.

In the bankruptcy proceedings, Engage's liquidating supervisor, Jalbert, contended that the attorney's lien did not apply to patents and that the debt owed to R&G was therefore unsecured. After the bankruptcy court agreed, R&G appealed first to the U.S. District Court, which affirmed the bankruptcy court, and then to the U.S. Court of Appeals for the First Circuit, which decided to certify the following two questions to the Supreme Judicial Court of Massachusetts for its interpretation of Massachusetts law on two issues:

1. Does the statute grant a lien on patents and patent applications to a Massachusetts attorney for patent prosecution work performed on behalf of a client?

2. If the statute does grant a lien and the issued patents or patent applications are sold, does the attorney's lien attach to the proceeds of the sale?

In answering yes to both questions, the Supreme Judicial Court of Massachusetts emphasized that the attorney's lien protects attorneys "against the knavery of their clients, by disabling the clients from receiving the fruits of recoveries without paying for the valuable services by which the recoveries were obtained." Further, the Court stated that "[t]he purpose of the lien statute would be eviscerated if an inventor could just sell a valuable property right, one that was obtained by the attorney's work in the first instance, and pocket the proceeds." In the end, the Court announced that "[a] patent attorney who successfully secures a patent for his client in proceedings before the USPTO is entitled to the same protection under [the statute] as an attorney who obtains a favorable judgment for his client in court."

Practice Note: Although the issue had never been raised in Massachusetts, two other states-- New York and Minnesota--had previously held that the lien applies to patent prosecution.

".com" Does Not Convert a Generic Term into a Brand Name By Tiffany M. Scurry

The U.S. Court of Appeals for the Federal Circuit recently affirmed a decision by the Trademark Trial and Appeal Board, refusing registration of the mark "hotels.com" because it is generic. In re Hotels.com, Case No. 2008-1429 (Fed. Cir., July 23, 2009) (Newman, J.).

Hotels.com originally applied to register a service mark, "hotels.com," for the service of providing information, specifically, "providing information for others about temporary lodging; travel agency services, namely, making reservations and bookings for temporary lodging for others by means of telephone and the global computer network." During prosecution, applicant argued that its mark was registrable, and not descriptive, because the company is in the business of providing information, not providing hotel services.

The trademark examiner disagreed and denied registration on the basis that "hotels.com" is merely descriptive of hotel reservation services. Hotels.com appealed the rejection, but the examiner's decision was affirmed. The Board found that the word "hotels" identified "the central focus of the information and reservation services" provided on the Hotels.com website and consequently held that the term "hotels.com, consisting of nothing more than a term that names that central focus of the services, is generic for the services themselves." Moreover, the Board found that the addition of ".com" to a mark "did not impart registrability to a generic term." Hotels.com appealed.

At the Federal Circuit, Hotels.com argued that its mark was not generic because its website does not provide lodging and meals for its users, i.e., it is not a hotel. It argued that, therefore, the mark, is not synonymous with the word "hotel." Instead, Hotels.com argued, its "hotels.com" mark is associated with the company itself, and is not publicly viewed as a generic term or a common name for hotel services.

The Federal Circuit, after noting that although generic terms cannot be registered as trademarks but that descriptive terms can acquire distinctiveness and become trademarked, concluded that adding ".com" to a mark is not a method by which a descriptive term can become distinctive. The Court further noted that the addition of ".com" to the mark did not render a new meaning to the term "hotels."

Thus, the Court affirmed the Board and concluded that the term "hotels.com" has the same meaning as the word "hotels" by itself and that the term is descriptive of the company's services: providing information and reservation services for hotels.

Similarity of Marks Should Be Determined by Marks as Encountered in the Marketplace By Sara E. Coury

The U.S. Court of Appeals for the Fifth Circuit reversed a district court's grant of summary to defendant Xtended Beauty, Inc. (Xtended) on plaintiffs Xtreme Lashes, LLC (Xtreme) infringement claims, explaining that the district court's focus on visual, side-by-side comparison of the features of the two marks ("Xtreme Lashes" and "Xtended Beauty") was not the correct way to judge similarity. The Fifth Circuit also held that the district court erred by ordering the cancellation of Xtreme's EXTEND YOUR BEAUTY mark. Xtreme Lashes, LLC v. Xtended Beauty, Inc., Case No. 08-20578 (5th Cir., July 15, 2009) (Barksdale; J., DeMoss; J., Stewart, J.).

Both Xtreme and Xtended sell eyelash extension kits used by professional cosmetologists. Xtreme had used the marks XTREME LASHES and EXTEND YOUR BEAUTY since 2005, and Xtended had been using its XTENDED BEAUTY mark since 2006. The district court held that there was no likelihood of confusion between the marks and found EXTEND YOUR BEAUTY was descriptive as a matter of law. Xtended Beauty appealed.

In evaluating the likelihood of confusion between XTREME LASHES and XTENDED BEAUTY, the Fifth Circuit applied eight non-exhaustive "digits" of confusion. The Court found that all of the digits either weighed in favor of Xtreme or were neutral. In evaluating the second digit of confusion, the similarity of the marks, the Court stated that it is improper to compare marks side-by-side in courtroom and focus on the dissimilar visual elements, rather than as the marks are viewed in actual market conditions. Given that both marks contain a large stylized "X" and appear in nearly identical contexts on the companies' kits, a consumer could believe that XTENDED BEAUTY was a product line offered by Xtreme. The Court further noted that a finding of likelihood of confusion turns on confusion of origin, not confusion of marks. In addition, the fact that the companies sold nearly identical products to the same class of consumers and targeted their advertising to that same class of consumers weighed in favor of Xtreme. The Fifth Circuit also rebuked the district court for disregarding Xtreme's evidence of actual confusion, stating that ignoring evidence of actual confusion as "anecdotal or irrational tramples upon the province of the trier of fact."

With regard to the EXTEND YOUR BEAUTY mark, the Court held that the mark was entitled to trademark protection because customers had to use "imagination, thought and perception" to conclude that "extend your beauty" referred to eyelash extensions rather than another cosmetic product. The Court further stated that the commonness of the constituent terms of a compound mark do not render the entire mark descriptive. As with the XTREME LASHES mark, in terms of the infringement issue, the Court found that most of the digits of the confusion analysis weighed in Xtreme's favor and as such there was genuine issue of fact for the jury.

A Champagne Toast to Reversal of Laches Decision By Suzanne Wallman and Rita J. Yoon

The U.S. Court of Appeals for the Eighth Circuit recently overturned a district court's dismissal of a trademark infringement suit on the basis of laches, holding that the district court abused its discretion by failing to conduct "a meaningful analysis" of key factors relevant to a laches defense in trademark infringement cases. Champagne Louis Roederer v. J. Garcia Carrion, S.A., Case No. 08-2907 (8th Cir., June 24, 2009) (Shepherd, J.).

Champagne Louis Roederer, the maker of CRISTAL champagne, sued J. Garcia Carrion, S.A., the Spanish maker of CRISTALINO sparkling wine, for trademark infringement in 2006.

Roederer had previously opposed registration of the CRISTALINO mark in Spain in 1990. Roederer first learned that CRISTALINO was being sold in the United States in 1995, when Roederer's attorneys discovered an affidavit indicating that a Spanish sparking wine called CRISTALINO was being sold in California. Seven years later in 2002, Carrion's U.S. trademark application to register the CRISTALINO mark was published for opposition. Roederer responded with a cease-and-desist letter. After settlement talks failed, Roederer filed a notice of opposition at the Trademark Trial and Appeal Board (TTAB), as well as the present suit.

Carrion moved for summary judgment, arguing that Roederer's delay in filing its trademark action was unreasonable and prejudiced Carrion because Carrion had already invested millions to expand its sales of CRISTALINO in the United States. The district court agreed, ruling that Roederer's seven-year delay from 1995 to 2002, the time it first objected to Carrion's use of the CRISTALINO mark in the United States, was inexcusable and constituted laches. Roederer appealed.

The Eighth Circuit reversed, holding that the district court failed to properly analyze laches in a trademark context. To successfully assert a laches defense, a defendant must prove that the plaintiff delayed in asserting a right or a claim, that the delay was not excusable and that there was undue prejudice to the defendant. The Eighth Circuit focused its analysis on two additional factors that courts apply when evaluating the merits of a laches defense in a trademark context: "(1) the doctrine of progressive encroachment, and (2) notice to the defendant of the plaintiff's objections to the potentially infringing mark."

As for progressive encroachment, the Eighth Circuit found that "the time of delay is to be measured not from when the plaintiff first learned of the potentially infringing mark, but from when such infringement became actionable and provable." As the Court explained, the rational for the doctrine of progressive encroachment is to avoid placing trademark holders on "the horns of an inequitable dilemma--sue immediately and lose because the alleged infringer is insufficiently competitive to create a likelihood of confusion or wait and be dismissed for unreasonable delay." As to the notice issue, the Court further observed that if the defendant knew that the plaintiff objected to the use of the mark, a laches defense generally will not lie. This rule can be understood either as an analogue to assumption of risk or as a factor that prevents the plaintiff from suffering undue prejudice. In either event, being forewarned of a trademark owner's objections generally prevents a defendant from raising a successful laches defense.

The 8th Circuit found that the district court erred by failing to adequately analyze these factors. The Eighth Circuit noted that since Roederer had opposed several trademark registration applications filed by Carrion in Spain, the U.S. and Columbia in the early and late 1990s--long before Carrion had made a significant investment in improving a particular production plant in 2003--Carrion was certainly on notice of Roederer's objection to Carrion's use of the CRISTALINO trademark.

In addition, the Eighth Circuit also held that the district court erred in finding that defendant was prejudiced by plaintiff's delay in bring its suit. "When a defendant has invested generally in an industry, and not a particular product, the likelihood of prejudicial reliance decreases in proportion to the particular product's role in the business," the Court wrote. Given the fact that the majority of defendant's investments were for the benefit of the defendant's general private label brands rather than the specific product line at issue, undue prejudice was not established. This failure of the defendant to show undue prejudice as a result in the plaintiff's delay in bringing suit is by itself sufficient to bar the laches defense.

Practice Note: Laches is no bar to trademark infringement suit when defendant was forewarned that plaintiff objected to defendant's use of its trademark, no undue prejudice is established by the defendant and the plaintiff acted reasonably soon after the claim became actionable.

European Court of Justice Delivers Judgment on the Meaning of "Unfair Advantage" By Hiroshi Sheraton and Desiree Fields

The European Court of Justice has handed down a landmark judgment having implications as to the concept of brand and protectable trademarks in a case concerning the importation and distribution in the UK of perfumes that looked and smelled similar to L'Oreal's fragrances. The English Court of Appeal referred five questions to the ECJ relating to the interpretation of Directive 89/104 (Trade Marks Directive) and Directive 89/104 (Comparative Advertising Directive) that addressed the meaning of "unfair advantage" and whether "free riding" amounts to trademark infringement even where there is no blurring, tarnishment or other negative impact on a registered mark. L'Oreal v. Bellure, Case No. C-487/07 (ECJ, June 18, 2009).

The ECJ confirmed that unfair advantage does not require a likelihood of confusion or detriment to the mark and covers cases in which, "by reason of a transfer of the image of the mark or of the characteristics which it projects to the goods identified by the identical or similar sign, there is clear exploitation on the coat-tails of the mark with a reputation."

To determine whether the use of a sign took unfair advantage of the distinctive character or repute of the mark, it was necessary to undertake a global assessment, taking into account all relevant factors, including the strength of the mark's reputation, the degree of distinctive character of the mark, the degree of similarity between the marks, the nature and degree of proximity of the goods or services, as well as whether there was a likelihood of dilution or tarnishment of the mark.

Specifically, the ECJ stated that unfair advantage was taken "where that party sought by that use to ride on the coat-tails of the mark with a reputation in order to benefit from the power of attraction, the reputation and the prestige of that mark and to exploit, without paying any financial compensation, the marketing effort expended by the proprietor of the mark in order to create and maintain the mark's image."

Further, the stricter trade mark protection provided for identical goods/services and for well known marks does not require damage to the essential function of a trade mark (of guaranteeing the origin of goods/services), provided that at least one of the other functions of the mark were affected. Those other functions included "in particular that of guaranteeing the quality of the goods or services in question and those of communication, investment or advertising."

Finally, the ECJ considered the extent to which the Comparative Advertising Directive provides a defence to trademark infringement. It pointed out that the Comparative Advertising Directive provided cumulative conditions that advertisements have to meet to be permissible under the directive, each of which must be met to qualify.

The court also indicated that an advertisement need not explicitly state that the product is an imitation and that the statement of imitation can relate only to "an essential characteristic" of that product (such as the smell of the goods in question).

Practice Note: The decision has been warmly welcomed by owners of well known brands as it strengthens and clarifies the requirements for "unfair advantage" infringement of marks with a reputation. Whereas dilution and tarnishment have recently been held to require a "change in economic behaviour" of consumers, no such requirement is mentioned in cases of unfair advantage. Indeed, it is now explicit that no confusion or other detriment to the mark or its owner is required and that transfer of the image of the mark can suffice. However, the judgment may also restrict the extent to which comparative advertisements can refer to individual elements of the characteristics of a competitor's goods. Thus, in terms of so-called famous marks, it seems that EU and China may be moving in opposite directions, with the EU set on expanding the concept of brand and protection of famous marks. See IP Update Vol. 12, No. 7, "The Supreme People's Court Set Limits on Recognition of Well-Known Trademark."

Parallel Imports in China Are Forbidden for Goods Without 3C Approval By Patrick Ma and Jia Yau*

The Changsha Intermediate People's Court held two tire dealers liable for trademark infringement for selling Japanese-made Michelin tires without authorization from the mark owner and without mandatory China Compulsory Product Certification (3C) approval. Michelin Group v. Tan Guoqiang and Ou Can, ChangZhongMinSanChuZi, Case No.0073 (2009).

After the Michelin Group engaged an agent to purchase Michelin branded tires from two tire dealers in Changsha, China, it brought a lawsuit against those tire dealers seeking injunctive relief against further sales, destruction of all Michelin branded tires in stock and monetary damages. The defendants engaged in the sales of authentic, Japanese-manufactured, Michelin branded tires in China, but without authorization from Michelin Group. Moreover, the tires had not been approved under China's 3C system, which is a statutory safety certification system used to safeguard consumers' rights and interests. The dispute centered on whether sales of genuine imported goods bearing a registered trademark, but unauthorized by the trademark owner for sale in China, infringe the holder's trademark rights if the products are not certified in accordance with the domestic quality control system.

The first instance court found that the products in question were subject to the inspection and approval required by the 3C system before entering the Chinese market and that, as a consequence of the importers' failure to obtain such approval, the tires had not been legally imported into China and should not have been sold in the Chinese market. The court also found that the defendants' sales of the tires were in violation of Chinese law.

The court also noted that because the tires had not been inspected under the 3C standards, certain quality and safety issues may arise, and it is foreseeable that consumers will attribute any such problems to the Michelin Group as the manufacturer. Consequently, the standard of quality denoted by the Michelin trademark and plaintiff's reputation as a leading tire manufacturer could be substantially damaged. Thus, the court found that even though the products were not counterfeit, the defendants' sales of the tires without Michelin's approval and without 3C certification constituted an infringement of the trademark owner's rights.

Practice Note: The importance of this case was that Michelin received a ruling of infringement for parallel imports into China on the basis that the imports were neither authorized by Michelin nor approved under the required 3C certification. Given that parallel imports of trademarked products is not addressed under Chinese statutory law and there are few judicial cases considering this issue, this unappealed (and now final) decision stands for the proposition that when sales of imported products violate the mandatory quality control regulations and are shown to be detrimental to the trademark owner's reputation, Chinese courts are likely to find trademark infringement even if the products in issue are not counterfeit. Thus, this decision offers a new offensive tool to rights holders to attack unauthorized sales of products that are manufactured outside China and sold within China, especially if imported without 3C certification.

*Patrick Ma is an associate at MWE China Law Offices and Jia Yau is foreign counsel at MWE China Law Offices. McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai, China.

"Objectionable Material" Under CDA Means More than Just Porn By Paul Devinsky

The U.S. Court of Appeals for the Ninth Circuit has confirmed that the safe harbor provisions of the Communications Decency Act (CDA) applies to screening or blocking software and covers more then just pornography; it covers spyware as well. Zango, Inc. v. Kaspersky Lab, Inc., Case No. 07-35800 (9th Cir., June 25, 2009) (Rymer, J.) (Fisher, J., concurring).

Zango provides access to a catalog of online videos, games, music, tools and utilities to consumers who agree to view advertisements while they browse the Internet. It brought this action against Kaspersky, which distributes software that filters and blocks potentially malicious software, alleging that Kaspersky's screening software improperly blocked Zango's software.

The Kaspersky software detects malware in e-mail, web pages and software programs and warns the user that the download contains malware. The Kaspersky software classified Zango's programs as a type of malware that causes pop-up ads to appear on a computer screen. These pop-up ads open links to websites and computer servers that host the malware. Kaspersky invoked the protection of the safe harbor provision of the CDA (47 U.S.C. s. 230(c) and the district court granted summary judgment in Kaspersky's favor, holding that it was a provider of an "interactive computer service," entitled to immunity for actions taken to make available to others the technical means to restrict access to "objectionable material." Zango appealed.

On appeal Zango argued that Congress intended statutory immunity under s. 230(c) to apply to Internet content providers, not to companies that provide filtering tools. The Ninth Circuit disagreed, finding that "the statute plainly immunizes from suit a provider of interactive computer services that makes available software that filers or screens material that the user or the provider deems objectionable."

The Court noted that material that can be blocked under the exemption includes "material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected."

The Court agreed with the district court that Kaspersky was, under the statute, an "interactive computer service" and an "access software provider" and therefore was entitled to claim the safe harbor of the CDA. Kaspersky is a "provider" of an "interactive computer service" under the statute since it "provides or enables computer access by multiple users to a computer server" and is an "access software provider" since it provides its customers with online access to its update servers.

The Court explained that under the statute "a provider of software or enabling tools that filter, screen, allow, or disallow content that the provider or user considers obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable may not be held liable for any action taken to make available the technical means to restrict access to that material, so long as the provider enables access by multiple users to a computer server."

In his concurring opinion, Judge Fisher concurred that based on the issue presented by Zango in framing the appeal, Kaspersky was entitled to immunity under the CDA. However, Judge Fisher warned that the breath of the "otherwise objectionable" language was not put in issue by Zango in its appeal and warned against the possibility of an abuse of immunity by blocking software vendors that might attempt to use such immunity "to block content for anticompetitive purposes or merely at its malicious whim," invoking the "otherwise objectionable" category. Judge Fisher would impose a good faith limitation on what a blocking software vendor might consider "otherwise objectionable."

Copyright Registrations Can Be Invalidated Based on Intentional Misrepresentations of Originality By Jeremy T. Elman

Addressing the inter-related issues of cyberpiracy, copyright infringement and trademark infringement, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court's ruling that a website was owned by the employer but the copyright was invalid because the employer misrepresented the former employee's contribution to that website. St. Luke's Cataract and Laser Institute, P.A. v. Sanderson, Case No. 08-11848 (11th Cir., July 9, 2009) (Hull, J).

The defendant physician, Dr. James C. Sanderson, worked at the plaintiff hospital and collaborated with other employees on creating websites for "laserspecialist.com" and "lasereyelid.com" for his cosmetic eye surgery work in the late 1990s. The site was linked to the hospital's website, as were other specialty websites related to specialty services. In 2003, Dr. Sanderson left the hospital to start his own practice. Sanderson surreptitiously switched ownership of the domain names to his own practice and used content from the hospital's website on his own website, which used the same domain names as previously used at the hospital.

After learning of these actions, the hospital registered the two versions of the websites as its own copyrighted materials, although it included some of Sanderson's own materials. The hospital then sued Sanderson for violations including copyright infringement, violation of the Digital Millennium Copyright Act, Anti-Cybersquatting Protection Act, trademark infringement and various other torts. A jury found that the hospital deliberately misrepresented Dr. Sanderson's contributions to prevent his ownership of the copyrighted materials. St. Luke's appealed.

The Eleventh Circuit affirmed, finding that the copyright registrations were invalid because the hospital made numerous intentional misrepresentations about authorship and originality of the websites in its copyright applications. The court found that although the hospital called these misrepresentations "clerical mistakes," it affirmed the jury's finding that the misrepresentations were deliberate.

However, the court also found that Dr. Sanderson had infringed the hospital's trademark of the stylized version of the laserspecialist.com mark, which was used conspicuously on the hospital's website. The court found that the laserspecialist.com service mark was likely a suggestive mark or at least qualified as descriptive within the spectrum of trademark classifications and thus was entitled to protection. The hospital had used the mark continuously to promote Dr. Sanderson's practice for five years before he left, and the mark appeared on the laserspecialist.com website for three years. Since the likelihood of confusion was clear based on Dr. Sanderson's competing practice, the court affirmed the jury's finding of trademark infringement.

Practice Note: Registering a copyright is not a mere formality. Only original work may be copyrighted and only by the author, work-for-him author or assignee of the author.

Four Factor Test when Use of Information Is Business Tort By Christopher L. May

In a case of first impression, a panel of the U.S. Court of Appeals for the Third Circuit articulated a standard under which the use of information that is not protectable as a trade secret may still form the basis of a tort action under New Jersey law. Thomas & Betts Corp. v. Richards Mfg. Co. et al., Case No. 08-3117 (3rd Cir., June 26, 2009) (Barry, J.)

Richards hired the former engineering director of Thomas & Betts (T&B). Within 18 months of his hire, Richards began successfully competing with T&B in a product area in which T&B had held an effective monopoly for the previous 20 years. The district court found that the information that Richards used to build the product was not protectable as a trade secret. Nevertheless, the court ruled that use of the information could be a business tort under New Jersey law, based on a four factor test that considered the following: the degree to which the information is generally known in the industry, the level of specificity and specialized nature of the information, the employer/employee relationship and the circumstances under which the employee was exposed to the information, as well as whether the information is of current value to the employer. The district court ruled that the plaintiff could not satisfy these factors and granted summary judgment. T&B appealed

The appeals court remanded, finding that the district court had based its analysis on post-employment restrictive covenants, which were not at issue. According to the Third Circuit, New Jersey law protects some trade information, even if it "does not raise to the level of trade secret." While keeping the four factor test, since this was not a trade secret case the Third Circuit modified the factors to consider whether the information was generally available to the public, whether the employee would have been aware of the information if not for his employment, whether the information gave the defendant a competitive advantage versus the plaintiff and if the employee knew the employer had an interest in protecting the information to preserve its competitive advantage.

The court further noted that on remand, when examining the first factor, the district court should examine the plaintiff's information in totality rather than as individual items, and as to the third factor, the court should consider that the importance of the plaintiff's information may derive solely from its relationship to other information, even if the other information is well known.

Trade Secret Plaintiff Loses Customers to Defendant but Is Not Entitled to Damages By Peter Siavelis and Rita J. Yoon

The U.S. Court of Appeals for the Eighth Circuit recently affirmed a district court's grant of summary judgment in favor of a trade secret plaintiff on the issue of liability, while also upholding a jury verdict denying the plaintiff damages for lack of proximate cause. PFS Distribution Co. v. Raduechel, Case Nos. 08-1701, -1789 (8th Cir., July 28, 2009) (Riley, J.).

The plaintiff, Pilgrim's Pride Corp., a poultry company, and its subsidiary PFS Distribution Co. sued two former long-time managers for misappropriation of trade secrets. These managers were responsible for the operation of a PFS distribution center in Iowa and had access to confidential financial information, including customer sales and PFS financial information. After Pilgrim's Pride acquired the PFS distribution center, it attempted to renegotiate the managers' compensation agreements. The managers formed a competing company while still employed by PFS and then ultimately resigned, taking two of PFS's largest poultry customers to the competing company.

On summary judgment, the district court held that the former managers were liable for trade secret misappropriation and granted the plaintiffs a preliminary injunction. Thereafter, the defendants' company ceased operations, but the former customers who defected to the competing company did not return to plaintiffs as customers.

The district court left the issues of causation and damages for the jury. The jury returned a verdict in favor of the defendants, finding that the defendants' misappropriation of trade secrets was not a proximate cause of damage to plaintiff. PFS appealed.

The Eighth Circuit affirmed, holding that a reasonable jury could have concluded that the defendants' misconduct did not proximately cause PFS to lose the defecting customers. Multiple witnesses testified that the defecting customers were dissatisfied with PFS's services and quality and as a result, were planning on leaving PFS regardless of the formation of defendants' new company. The court concluded that "the jury's proximate cause finding was not a miscarriage of justice, and the district court did not abuse its discretion in denying PFS's motion for a new trial."

Practice Note: When evaluating the recoverable damages in a potential trade secret misappropriation claim based upon the departure of a customer, it is prudent to investigate whether the plaintiff can prove that but for the alleged breach, the defecting customer would not have left.

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