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U.S. Intellectual Property and New Media Law Update WHO’S PLAN IS IT ANYWAY Johnson v. Jones et al. (Sixth Cir. -Decided- July 21, 1998) DISTRIBUTOR FROM HELL Larsen et al. v. Terk Technologies Corp. (Fourth Cir. -Decided- July 14, 1998) THE SECOND CIRCUIT AND LANHAM ACT EXTRATERRITORIALITY Atlantic Richfield Co. v. Arco Globus Int’l Co., Inc. et al. (Second Cir. -Decided- July 17, 1998) GREEN LIGHT TO SOFTWARE PATENTS State Street Bank & Trust Co. v. Signature Financial Group, Inc. (Fed. Cir. -Decided- July 23, 1998) WHO’S PLAN IS IT ANYWAY Johnson v. Jones et al. (Sixth Cir. -Decided- July 21, 1998) Plaintiff is an architect/builder. He has brought a copyright action alleging, inter alia, that his architectural drawings were altered and used without his permission in violation of the Copyright Act and Section 43(a) of the Lanham Act. He also tossed in the stew breach of contract and unjust enrichment claims. Plaintiff and one of the defendants attempted to agree on a written contract for a house. After approximately $20,000 worth of work had been performed, a deal had not been struck He was dismissed. A Defendant Tosch then took the drawings and plans to another architect/builder. The defense against copyright was that Plaintiff has given an implied non-exclusive license to use the drawings for the house in question. The Court found no such implied license. Distinguishing cases such as Effects Associates, Inc . v. Cohen, 908 F.2d 55 (9th Cir. 1990), cert. denied 408 U.S. 1103 (1991), the court found that every objective fact pointed away from the existence of implied license. Plaintiff's draft contracts contained express provisions for retention of ownership of the drawings and that the drawings would not be used for completion of the house by others, except by written agreement with appropriate compensation. While never signed, they showed Plaintiff's lack of intent to licence. The court held that use of the drawings were not used in accordance with the original understanding since the building was built by another construction firm. The Court approved an award of attorney's fees against the architect/builder who replaced the Plaintiff and substituted his name on the drawings despite the fact that he obtained opinion of counsel. The Court said that this opinion did not pass the "smell" test insofar as the Defendant knew it was a copyright matter yet consulted a lawyer who had no experience in the copyright area. The builder received gross revenues of $16,560 and the Court below awarded $2500 based on testimony that its average profit was 15%. The Defendant did not satisfy the requirement that the infringer must prove deductible expenses. Since the drawings were stolen, their was little expense in their development and the entire amount was awarded. The decision can be viewed at: http://www.law.emory.edu/6circuit/july98/98a0221p.06.html DISTRIBUTOR FROM HELL Larsen et al. v. Terk Technologies Corp. (Fourth Cir. -Decided- July 14, 1998) Plaintiff is a foreign designer and manufacturer of a CD rack. Defendant was initially the U.S. distributor who stopped selling the genuine article and substituted duplicative racks in the same boxes. The Plaintiff sued. The District Court found violations of the Lanham Act and awarded treble damages in the amount of $217,779.78. Defendant, on appeal, produced a number of spurious arguments why the Lanham Act would not apply. First, they argued that Plaintiff was denied protection under Section 43(a) of the Lanham Act because Plaintiff's shipments to the U.S. has never been a sufficient use in the U.S. other than through them. The Court found this argument both brazen and disingenuous. Plaintiff itself acted as a distributor for sales to such institutions as the New York Museum of Modern Art (MOMA), Hammacher-Schlemmer, Bang & Olufsen and Defendant sold more than 11,000 genuine CD-25s before the defendant started passing off its counterfeit units in the same box. The Court found no rule allowing exclusive distributors to knock-off their supplier's products at will. Next, Defendant argued Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964) and Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964) and indicated that Larsen could not have a right under Section 43(a) since it did not hold a patent on the design. The Court indicated that in the thirty years since their decision, it is clear that Sears and Compco does not stand for the proposition that a party may copy an article in the public domain and then pass off the copy as being the genuine article. Further, the doctrine had not been held as a defense to a Lanham Act violation. Next, Defendants argued that there was no secondary meaning which was required since a surname is considered a descriptive mark. The Court here held that evidence of intentional, direct copying establishes a prima facie case of secondary meaning sufficient to shift the burden of persuasion to Defendant on that issue. The Court also noted that it also acts as a presumption upon which judgment "must issue" in the absence of rebutting proof. Defendant also argued that Larsen is entitled to no damages because Larsen proved no lost sales. The Court noted that this argument was "ludicrous." The decision can be viewed at: http://www.law.emory.edu/4circuit/july98/971032.p.html THE SECOND CIRCUIT AND LANHAM ACT EXTRATERRITORIALITY Atlantic Richfield Co. v. Arco Globus Int’l Co., Inc. et al. (Second Cir. -Decided- July 17, 1998) By this opinion, the Second Circuit maintains its title as the toughest circuit with regard to the question of extraterritorial application of the Lanham Act. This is an appeal from a judgment of the Southern District of New York, dismissing Plaintiff's trademark claims against appellee involving the use of the mark ARCO in the Former Soviet Union. The Defendant uses the mark "ARCO GLOBUS INTERNATIONAL" to identify its oil and gas operations, particularly in the Former Soviet Union. Defendants are two companies, a New York and a New Jersey corporation, which bear the name Arco Globus International Company, Inc. Only the New York corporation is active. The New York corporation has an office and two American employees but has never offered products for sale in the United States. In upholding the dismissal of these claims, the Second Circuit reviewed the history of extraterritorial application of the Lanham Act as seen through the eyes of the Second Circuit and, in particular, with regard to the standards for extraterritorial application, i.e., (1) were the Defendants United States citizens; (2) did there exists a conflict between the Defendant's trademark rights under foreign law and the Plaintiff's trademark rights under domestic law; and (3) did the Defendants' conduct have a substantial effect on United States commerce. The Court specifically noted that it had never applied the Lanham Act to extraterritorial conduct absent a substantial effect on United States commerce. The Court ultimately found that while Defendants have a geographic presence in the United States and that some decision making regarding AGI's foreign activities takes place on American soil, such presence and conduct alone is insufficient to trigger the extraterritorial application of the Lanham Act if there is no effect on U.S. commerce. The decision can be viewed at: http://www.law.pace.edu/lawlib/legal/us-legal/judiciary/second-circuit/test3/97-7829.opn.html GREEN LIGHT TO SOFTWARE PATENTS State Street Bank & Trust Co. v. Signature Financial Group, Inc. (Fed. Cir. -Decided- July 23, 1998) This case started as a declaratory judgment action asserting the invalidity, unenforceability and non- infringement of Defendant's software patent. This patent is generally directed to a data processing system for implementing an investment structure for mutual funds. At the District Court level, Plaintiff moved for summary judgment and the District Court found the patent invalid on the grounds that the claimed subject matter is non-statutory as a method of doing business. The primary mistake in the District Court's analysis was that while there were only apparatus claims in the case, the District Court construed the claims to be directed to a process with each means clause merely representing a step in that process. The Federal Circuit construed the claims differently as seen in the Court's understanding of Claim 1 (the subject matter in brackets stating the structure of the written description disclosed corresponds to the means recited in the claims): 1. A data processing system for managing a financial services configuration of a portfolio established as a partnership, each partner being one of a plurality of funds, comprising: a. computer processor means [a personal computer including a CPU] for processing data; b. storage means [a data disk] for storing data on a storage medium; c. first means [an arithmetic logic circuit configured to prepare the data disk to magnetically store selected data] for initializing the storage medium; d. second means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases or decreases based on specific input, allocate the results on a percentage basis, and store the output in a separate file] for processing data regarding assets in the portfolio and each of the funds from a previous day and data regarding increases or decreases in each of the funds, [sic, funds'] assets and for allocating the percentage share that each fund holds in the portfolio; e. third means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases and decreases based on specific input, allocate the results on a percentage basis and store the output in a separate file] for processing data regarding daily incremental income, expenses, and net realized gain or loss for the portfolio and for allocating such data among each fund; f. fourth means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases and decreases based on specific input, allocate the results on a percentage basis and store the output in a separate file] for processing data regarding daily net unrealized gain or loss for the portfolio and for allocating such data among each fund; and g. fifth means [an arithmetic logic circuit configured to retrieve information from specific files, calculate that information on an aggregate basis and store the output in a separate file] for processing data regarding aggregate year-end income, expenses, and capital gain or loss for the portfolio and each of the funds. The Court believed that since a machine is claimed, it is proper statutory subject matter under §101. The District Court also concluded that it was not statutory either because it was merely a mathematical algorithm or a business method. The Federal Circuit held that while a pure mathematical algorithm standing alone and representing nothing more than an abstract idea is not palatable until reduced to some type of practical application, when the mathematical algorithm is used to produce a useful result, this exception no longer holds. The Court also took the opportunity to lay the ill-conceived business method exception to rest. The case was reversed and remanded. Software patents are here to stay. The decision can be seen at: http://www.law.emory.edu/fedcircuit/july98/96-1327.wpd.html |
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