Chicago IP Attorney & Lawyer : R. David Donoghue : Chicago IP Litigation Blog

SourceOne Global Partners LLC v. KGK Synergize, Inc., No. 08 C 7403, Slip Op. (N.D. Ill. Jul. 21, 2009) (Schenkier, Mag J.).

Judge Schenkier dismissed declaratory judgment defendant/counter-plaintiff KGK Synergize's ("KGK") patent, trademark, Lanham Act and related state law claims against declaratory judgment plaintiff/counter-defendant SourceOne's President for failure to meet the Twombly/Iqbal pleading standards.*  The Court held that KGK had not sufficiently pled allegations to support the factors in the veil piercing analysis, in particular:

• Allegations of episodes of "subpar record keeping" was not sufficient to prove SourceOne's failure to observe corporate formalities;
   
• Conclusory statements that SourceOne's corporate officers were allegedly not given autonomy to make decisions were not sufficient to show that officers or directors were non-functioning;
   
• The President and his family borrowing against a home equity loan to support SourceOne was not sufficient to show SourceOne was a "mere 'dummy or sham.'"; and
   
• the allegation that the President exerted significant control over SourceOne and personified the company was not sufficient to show a failure to maintain arm's-length relationships among related entities.

The Court also held that KGK's direct patent infringement claims against the President did not meet the Twombly/Iqbal pleading standards.  KGK's only allegations about the President were conclusory and tied to SourceOne's alleged infringing actions.  KGK did not plead sufficient facts about the President independent of SourceOne to support direct patent infringement claims.

*  For more on the application of the Twombly pleading standards to patent cases, click here in the Blog's archives.

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Bryan Cave's art law blog has an excellent post by Jonathan Pink discussing eleven copyright myths -- click here to read it.  Every corporate executive and small business owner needs to be aware of how the copyright laws impact their business, especially the intersection of copyright law and the internet.  I developed a presentation as an element of a corporate copyright compliance program and I am amazed by the results every time I give the presentation to a new corporate division or small business.  People are routinely, and largely accidentally, violating copyrights.  But the worst part is that a little education, such as my presentation, followed by a few days of generally simple, inexpensive fixes resolves most accidental copyright infringement issues and provides a significant measure of protection for any business, large or small.

Pink's eleven copyright myths, written in multiple choice format, are a great start toward improving copyright compliance and they are written both humorously and in plain language.  Here are two of my favorites:

Myth 4:

If it's on the Web, it's free for the taking.

a. No. Stealing is stealing.

b. Sure, why not?

c. This is true, but only if I use a 28KB modem, and the copyright expires before I finish downloading it.

The answer is a. Unless the work falls under a generally recognized exception to the copyright law, if it's on the Web, copyright protection attaches, and you can get hit with an infringement lawsuit for misappropriating it. See 17 USC §501(a). Nothing about the Web strips otherwise protectable work of its copyright protection.

Myth 5:

Copying just a little bit does not constitute copyright infringement.

a. Maybe.

b. Maybe.

c. Maybe.

The answer is all of the above. Though the "fair use" doctrine allows for some limited copying of a small portion of some works-for example, quotes for use in educational or scholarly works, criticism, parody, and news reporting-there is no bright-line rule as to how much is too much.

                                                              * * *

That means that if you take your kid's Darth Vader action figure, give it Barbie-like hair, and dress it in platform shoes, you're going to get hit with an infringement action when you try selling it at Toys-R-Us as Ella Vader. You also risk getting hit with a morals charge.

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Merrill Primack v. Pearl B. Polto, Inc., No. 08 C 4539, Slip Op. (N.D. Ill. Jul. 8, 2009) (Dow, J.).

Judge Dow granted the Polto defendants' (collectively "Polto") Fed. R. Civ. P. 12(b)(2) motion to dismiss for lack of personal jurisdiction in this Lanham Act dispute regarding plaintiff's "Credit Lifeline" mark.  Plaintiff alleged only specific jurisdiction, not general jurisdiction.  Plaintiff's evidence of specific jurisdiction was based upon the following facts: 1) Polto's 2006 trip to Chicago to put on a Credit Lifeline seminar; and 2) Polto's interactive website.  Polto, however, had not been aware of plaintiff's trademark during the 2006 trip.  Plaintiff did not file for its trademark until 2008.  So, when Polto made its 2006 trip there was no evidence of notice of plaintiff's mark.  Furthermore, no one attended Polto's 2006 Chicago seminar and Polto returned to Philadelphia immediately after leaving the seminar site.  Finally, the Court held that Polto's interactive website by itself could not confer specific jurisdiction.

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Only the First, Ltd. v. Seiko Epson Corp., No. 07 C 1333 (N.D. Ill. Jul. 7, 2009) (Dow, J.).

Judge Dow construed the claims of plaintiff's patent to a printing system that used a combination of four to six colors to achieve a wider range of brighter colors than possible just using the primary colors.  The following constructions were of particular interest:

• The parties agreed that each of the six colors were defined by three component colors in order of intensity.  Defendant argued the three colors had to be the top three colors by intensity, but plaintiff argued that the three colors simply had to be in order of intensity allowing for other colors to be between the three along the intensity spectrum as long as the three were in the correct order.  The Court denied defendant's construction because it would read a preferred embodiment out of the claims.  And the Court rejected plaintiff's construction because in certain cases a single color could be defined as two different of the six colors.  Instead, the Court held that one of ordinary skill in the art would understand that the first two colors in the order had to be the highest intensity, but that the third component could fall anywhere thereafter.
   
• The Court held that "quantity" and "intensity" were synonyms in the phrase "quantity or intensity" of a color.  The Court held that bot terms referred to the area under the color's spectroscopic graph.
   
• The Court held that because colors are necessarily subjective, the six colors required a definition in order to avoid indefiniteness.  The Court, therefore, used a table in the specification identifying a range of wavelengths for each color, slightly modifying the range for red to account for a wavelength of red identified in a preferred embodiment.

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Here are a few stories from the blogosphere that I did not have time to fully cover this week because of pressing client matters and some new opportunities:

• The Federalist Society is offering an excellent podcast discussing Bilski from almost every possible angle.  The podcast features West Virginia University Law Professor Michael Risch and American University Law Professor Joshua Sarnoff, who filed competing amicus briefs.  The podcast is a half-hour well spent for  anyone involved in patent law.  Click here to listen to the podcast.  Hat tip to Duncan Bucknell at the IP Think Tank Blog for pointing out the podcast.
   
• Doug Lichtman's IP Colloquium takes a thorough look at the copyright issue of the year thus far, Shepard Fairey's iconic Obama image, and Lichtman offers free CLE credit for listening.  Click here for that edition and here for the IP Colloquium's archives.
   
• Michael Atkins has identified the top five trademark cases of the last year at the Seattle Trademark Lawyer.  Number 4 is the Seventh Circuit's decision in AutoZone v. Strick.  Click here for more on the district court decisions in the case from the Blog's archives.  This is what Atkins had to say about the Seventh Circuit's decision:

[G]ood likelihood of confusion analysis in reversal of hard-fought trademark infringement case, which also was one of the first dilution cases under the [Trademark Dilution Revision Act].

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Mindy's Restaurant, Inc. v. Watters, No. 08 C 5448, Slip Op. (N.D. Ill. Jun. 9, 2009) (Der-Yeghiayan).

Judge Der-Yeghiayan granted defendants' Fed. R. Civ. P. 12(b)(1) motion to dismiss for lack of subject matter jurisdiction even though plaintiff brought a federal Lanham Act trademark infringement claim.  While Lanham Act claims are generally considered federal questions creating subject matter jurisdiction, plaintiffs claims were in essence breach of contract claims.  Plaintiff was a franchisor of Mindy's Restaurants.  Defendants were franchisees, until they allegedly stopped making required franchise payments and plaintiff terminated the franchise agreement.  While plaintiff's claims were for use of plaintiff's trademarks when defendants allegedly continued operating their restaurant after the franchise agreement was canceled.  As a result, the Court held that the parties dispute and plaintiff's claims sounded in contract, not the Lanham Act.  The reason the trademarks were allegedly infringed was the termination of the franchise agreement.

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Seattle Trademark Lawyer Michael Atkins did a superb job hosting this week's Blawg Review -- click here to read it.  Atkins takes a stroll through Seattle's famous Pike's Place Market looking at Seattle-based blogs -- Washington State Patent Law Blog, LexBlog and the China Law Blog, among others -- as well as a number of trademark blogs.  I was fortunate to be featured on Atkins's tour with last week's post about the Lettuce trademark dispute -- click here to read my post.  Thanks Mike, for a great Blawg Review and for including the Blog.

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Illinois's senior senator Dick Durbin recently sent President Obama the names of seven nominees to fill three vacancies on the Northern District of Illinois bench.  The nominees are AUSA Edmond Chang, Illinois appellate Judge Sharon Coleman, Magistrate Judge Susan Cox (click here to read about Judge Cox's IP opinions in the Blog's archives), Thomas Durkin, Gary Feinerman, Mary Rowland and Magistrate Judge Maria Valdez (click here to read about Judge Valdez's IP opinions in the Blog's archives). 

A hat tip to Ameet Sachdev at the Chicago Tribune's Chicago Law Blog for identifying this story last week.

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Lettuce Entertain You Enters., Inc. v. Leila Sophia AR, LLC d/b/a Lettuce Mix, No. 09 C 2582, Slip Op. (N.D. Ill. Jun. 8, 2009) (Lefkow, J.).

Judge Lefkow denied plaintiff Lettuce Entertain You Enterprises' ("LEYE") motion for a temporary restraining order against defendants' use of a banner reading "Let us be!" flanked by images of lettuce heads (the "Banner") on a building in which defendants plan to open a salad bar restaurant to be named "Lettuce mix."  LEYE filed this suit seeking the removal of a "Lettuce mix" sign (the "Sign") defendants placed on the same building.  As an effort at resolving the dispute, defendants replaced the Sign with the Banner.  After the Banner appeared, LEYE made the instant motion for a temporary restraining order, arguing that the Banner infringes LEYE's LETTUCE trademarks used in connection with LEYE's operation of more than seventy restaurants throughout the Chicago area and nationwide.  The Court held that LEYE did not meet its burden as to the first prong of the TRO analysis, LEYE's likelihood of success on the merits, and, therefore, the Court did not consider the remaining two elements, whether an adequate remedy at law existed and whether LEYE would have been irreparably harmed if the injunction was not granted. 

The Court held that defendants' Banner was a fair use of LEYE's trademarks and that, therefore, LEYE did not have a likelihood of success on the merits of its Lanham Act claims.  Defendants were not using the Banner's combination of the phrase "Let us be!" (which the parties agreed sounded like "Lettuce") and the lettuce images as a service mark.  "Lettuce mix" may have been a service mark, but "Let us be!" and the lettuce images were used to draw attention to this case and were meant to say "Hey, Lettuce Entertain You, leave us alone!"  And the use of the "let us"/lettuce pun was intended to parody LEYE's use of "lettuce" in place of "let us" throughout LEYE's website and other materials.  The Court explained that the Banner was not used to identify defendants' services, but to make a statement of protest:

The [B]anner thus conveys a message from its authors, the proprietors of the unopened restaurant, to the owners of the LETTUCE marks, essentially saying, "Leave us alone!"  Even if potential customers viewing the [B]anner do not know or learn of the dispute, it is clear at first glance that the banner is being used to communicate a message of protest.

The Court also noted that this decision had no bearing upon the question of whether defendants' Lettuce mix restaurant name infringed LEYE's LETTUCE marks.

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The Compak Cos., LLC v. Johnson, No 03 C 7427 & 08 C 4665, Slip Op. (N.D. Ill. Jun. 1, 2009) (Grady, J.).

Judge Grady accepted the bankruptcy court's recommendations, with some modifications, and granted defendants' motion to dismiss plaintiff The Compak Companies' ("TCC") claims for legal title to the patents in suit and for infringement of those patents, all related to a container for holding wine and communion wafers for religious services.  BMJ Partners purchased the assets of Compak Corp. ("Compak") in a bankruptcy sale.  BMJ assigned the assets to TCC.  TCC alleged that Compak wrongly licensed the patents in suit to DuoTech Holdings.  DuoTech was identified in the bankruptcy proceeding as a party to an executory contract identified as a patent license.  The Court noted that the bankruptcy court had a right to extinguish DuoTech's license and transfer Compak's assets free of the license, so long as DuoTech was given notice of the sale.  But DuoTech was not provided notice of the sale, as required by the bankruptcy law.  TCC argued that DuoTech had sufficient notice because various people related to DuoTech received notice in other capacities.  But the Court held that DuoTech's President was served notice of the bankruptcy filing not the sale and the other individuals were not proven to have a sufficient relationship to DuoTech to create notice.  As a result, DuoTech did not have sufficient notice and the license was, therefore, not terminated by the bankruptcy sale.

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Here are several stories to start your Monday morning with that I was not able to get to last week because of client commitments and some new business opportunities:

• The first round of Bilski briefing has been filed  with the Supreme Court.  Click here for links to the various amici briefs at Patently-O, and here for an analysis of Bilski's opening brief at BlawgIT.
   
• Victoria Pynchon has an important warning for IP litigators about understanding a client's insurance coverage at her IP ADR Blog -- click here to read the story and here to check out Pynchon's husband's new Catastrophic Insurance Coverage Blog.  The blog appears to be a good read, but more importantly IP litigators should make sure that they investigate client's insurance policies early in a case.
   
• William Patry has a new copyright-related blog, Moral Panics and the Copyright Wars.  It is a companion to his book of the same name, which is excellent.  I had the privilege of receiving an advance copy, which I loved.  I will post a review soon.  For now though, click here for Patry's first post on the new blog.
   
• Finally, last Friday, as they were headed into the August recess the Senate confirmed David Kappos as the next Director of the PTO -- click here for the PTO's press release.

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The Houston Business and Tax Law Journal's ("HBTLJ") Submissions Editor Andrew Doud emailed me last week seeking help in getting the word out that the HBTLJ is looking for new intellectual property articles.  This is a great opportunity for those looking to publish articles.  Here is a little more about what the HBTLJ is looking for, according to Doud:

HBTLJ is a scholarly journal published by students at the University of Houston Law Center.  The Journal is a medium for academic discussion and practical application insight in business, commerce, taxation, and intellectual property. 

The HBTLJ is specifically seeking IP articles, they do not need to have a tax perspective.  Here are the submission guidelines

Please forward articles for consideration to this email and direct questions to Doud here.

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**  This post is cross-posted at Patently-O  **

The Northern District of Illinois judges are currently considering public comments on a new set of proposed Local Patent Rules – click here to download a copy of the proposed rules.  The Court expects to enact a finalized version of the proposed Patent Rules later this year. As currently written, the rules likely will have a significant impact on the way that patent cases are litigated in the Northern District, and may result in an influx of patent cases to the Northern District, which is already among the top five for patent cases. As a result, patent litigators throughout the country should keep an eye on the proposed Patent Rules as they progress through the Court's committee. While the proposed Patent Rules resemble those of the other major patent districts such as the N.D. California and the E.D. Texas, they differ in two rather significant respects:

1.      The proposed Patent Rules promote uniformity, not speed.

The proposed Patent Rules contemplate a trial approximately two years after a complaint is filed. During a public comment session, several Northern District judges pointedly stated that, in seeking to promulgate local patent rules, the Court does not want to become a "rocket docket" for patent cases. And the Court does not seek to become the busiest patent docket in the country.   Instead, the aim of the local patent rules is simply to promote uniformity and best practices among the judges of the Northern District. The Northern District of Illinois is one of the largest districts in the country, and uniformity among the District's judges would promote case management predictability for both the Court and the litigants. Each Northern District judge currently schedules patent cases based upon her own experience, with little uniformity among the judges. The proposed Patent Rules attempt to remedy that. 

That said, the rules are optional, not mandatory—individual judges will be able to deviate from the proposed Patent Rules. But the proposed Patent Rules at least will provide a starting point for uniformity and a suggested framework for the judges who choose to adhere to them.

2.      Defendant opens and closes Markman briefing late in fact discovery.

The biggest deviation from the Northern District of California and Eastern District of Texas patent rules occurs in the claim construction phase. Significantly, the proposed Patent Rules do not contemplate two rounds of simultaneous briefing, as has become commonplace in patent cases. Instead, the proposed Patent Rules provide for a single set of briefs: the accused infringer files the opening brief, the patent holder responds, and the accused infringer replies. Notably, the accused infringer—not the patent holder—submits the initial and final briefs. The accused infringer necessarily will not have the benefit of the patentee's claim construction position at the outset of the briefing. The practical impact of having the accused infringer file the opening claim construction brief remains to be seen, although some practitioners view this provision as having the potential to greatly increase the number of patent cases filed in the Northern District. 

At the public comment session held on March 23, the judges on the rules committee explained the rationale behind this provision. Concurrent briefing, they noted, wasted a lot of time. The parties' opening briefs tend to be ships passing in the night—the parties often argue past each other, rendering the opening briefs incomprehensible, or they agree with each other, rendering those points moot. As a result, neither the disputed claims nor the parties' positions are fully understood until the concurrent responsive briefs. The proposed Patent Rules contemplate streamlining the process by eliminating simultaneous briefs.

The judges also addressed their decision to have the accused infringer, rather than the patent holder, begin the briefing. The judges explained that the patent holder's opening argument is often for the "ordinary" meaning of claim terms. As a result, when the patent holder opens the briefing, the accused infringer has no chance to address many of the patent holder's arguments because the patent holder often does not make those arguments until the reply brief. So, the judges explained, the Court and the parties are better served by having the accused infringer open the briefing with the patent holder responding to the accused infringer's claim construction arguments. 

Interestingly, a comment was made at the session pointing out that the Court has not decided how to schedule briefing when both parties assert patents against each other, that is, when each party is a patent holder and each party is an accused infringer. A possible resolution would be to allow two sets of parallel briefs with the accused infringer for each set of patents opening the briefing for those patents.

                                                                        Conclusion

The proposed Patent Rules notably differ from the rules of other courts in two significant respects: the new briefing schedule, and for the fact that they are not aimed at decreasing the time to trial or at significantly growing the Northern District of Illinois's patent docket. Assuming that the Court institutes the proposed Patent Rules with the current claim construction briefing schedule, it will be very interesting to see whether and how the claim construction procedures impact both case outcomes and the number of patent filings in the Northern District of Illinois.

For those interested in the specifics of the proposed Patent Rules, here is a general outline of the timeline and procedure that the proposed Patent Rules outline:

• A standard protective order in place from the beginning of the case, unless and until it is modified, to avoid discovery delays being blamed upon entry of a protective order;
   
• Automatic document production requirements of plaintiff when initial disclosures are served and of defendant when initial noninfringement and invalidity contentions are served;
   
• Plaintiff serves initial infringement contentions two weeks after initial disclosures and defendant respond with initial noninfringement and invalidity contentions two weeks after that, followed two weeks later by plaintiff's response to the invalidity contentions;
   
• Plaintiff files final infringement contentions twenty one weeks after its initial contentions and defendant responds four weeks later with final noninfringement, invalidity and unenforceability contentions (after the final contentions, leave of Court is required for any amendments);
   
• No party can seek a stay pending reexam after serving its final contentions;
   
• The claim construction process begins two weeks after defendant's final invalidity contentions are served;
   
• Defendant files an opening claim construction brief along with a joint appendix including the patents in suit and their prosecution histories consecutively paginated, plaintiff then files a responsive brief within four weeks, and defendant has two weeks to file a reply;
   
• Fact discovery closes forty two days after the claim construction rulings, which triggers expert discovery followed by a dispositive motion deadline; and
   
• A trial is contemplated approximately two years after the filing of the complaint.

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Welcome to the August 2009 Carnival of Trust.  The Carnival of Trust is a monthly, traveling review of the last month's best posts related to various aspects of trust in the business world.  It is much like the weekly Blawg Reviews that I post links to and have hosted (click here and here), but those generally contain far more than ten links.  My job this month was to pick those ten posts for you and provide an introduction to each post that makes you want to click through and read more.  For my regular Chicago IP Litigation blog readers, this will be a slight departure from the case analysis format you have come to expect, but very similar to my earlier stints hosting the Carnival of Trust and Blawg Review. 

It is the trust that matters, not the title.

At IP Think Tank, Duncan Bucknell added to the recent debate in the patent community about whether the IP function should move into the corporate C-level suite, adding a Chief Intellectual Property Office to the ranks of CEO, COO, CTO, CIO, CLO and CMO – click here and here to read Bucknell's posts. Following up on comments by Microsoft's Marshall Phelps and Rockwell Collins' Bill Elkington, Bucknell explained that the issue is not the name, but in a company having an IP champion that earns the organization's trust and respect, whatever title that person is given:

You have to build your own credibility within your organisation as someone who reliably gets the job done.  As you build trust with those senior to you, then your (ongoing?) commitment to communicating the value that can be added using intellectual property will become more prominent. 

Make some (achievable) promises and then deliver.  The more that you do this, the more credibility will be given to the IP function, and the greater awareness those senior to you will have.  Some would call such a person an ‘IP Evangelist’ – I would say that they are just doing their job.  People executing on difficult tasks bit by bit has always been what success is about.

As usual, Bucknell's analysis is excellent. A person's respect within an organization is at least as important as their title.

Running an organization is all about building trust.

The patent community focused much of its attention this week on the confirmation hearings for David J. Kappos, nominee for Director of the US Patent & Trademark Office. Click here for Patentability's summary of the hearing highlights and here for a copy of Kappos's statement at Patently-O. The hearings were relatively short, likely because there appears to be widespread trust in Kappos's background and abilities. And although much of the hearing focused on procedural patent office issues, Kappos showed he deserved that trust by focusing his statement on his plans to earn trust with all of the stakeholders in the patent world. He specifically addressed concerns that his corporate background could disadvantage individual inventors or academics:

I am mindful that the USPTO serves the interests of ALL innovators in this country, small and large, corporate and independent, academic and applied, and – most importantly -- the public interest. While I have spent my career to date at a large corporate enterprise, I am familiar with the concerns and issues of all USPTO constituents - including small and independent inventors, the venture and start-up community, public interest groups, the patent bar and many others - and will reach out to all of them.

Kappos addressed his plans to build trust with his employees at the USPTO:

I am mindful of the incredible dedication of the thousands of USPTO employees, and the essential role they play to the success of the US innovation system. I will work every day with the USPTO employees and the unions that represent them to establish strong, positive relationships grounded in professional treatment for these workers producing work product based on professional judgment.

He addressed the need to build global trust and relationships:

I am acutely mindful that innovation today is global and that IP policy is of paramount importance, not only in our country, but also in the EU and Japan, in China, India, Brazil and many other developing countries. I will use my international experience and my understanding of global IP trends to help this Administration represent, advance, and protect the interests of American innovators in the global arena and to lead the world in developing strong, balanced, inclusive intellectual property systems that advance the well-being of all participants.

And he addressed the need to build trust with the Administration he seeks to join and the American people the Administration serves:

Finally, I am mindful that the office for which I am being considered, working as part of Secretary Locke's team and within the Administration's agenda, must be intensely focused on how to serve the American people at this time of economic uncertainty.

Gene Quinn provides proof that Kappos's trust-building efforts worked in his IPWatchdog post about the hearings (click here to read the post):

In all, what Kappos said was certainly reassuring, and he should have absolutely no problem getting confirmed.  If he does stay mindful of the needs of all those who use the USPTO, small, large and in between, and the interests of the diverse industries who sometimes need contradictory things in order to thrive, he will not only be a good leader, but he will be an exceptional leader and might really reform the Patent Office into the entity it can and should be in order to foster economic development and job creation in the US. 
 

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