IP Litigation Summer 2011 Newsletter

25 October 2011 Publication
Authors: Kevin M. Littman Jeffrey A. Simmons

Legal News: IP Litigation

Court Denies Apple, Inc. a Preliminary Injunction to Protect Its APP STORE Mark
By Jeffrey A. Simmons (jsimmons@foley.com)

In a decision that may have surprised many observers, in July 2011, the U.S. District Court for the Northern District of California denied Apple, Inc.’s (Apple) motion for a preliminary injunction that would have prohibited Amazon.com, Inc.’s (Amazon) use of the APP STORE mark to sell applications for Android mobile devices. The decision in Apple, Inc. v. Amazon.com, Inc., Case No. 11-cv-1327 (N.D. Cal. July 6, 2011), shows both the difficulty of proving a likelihood of confusion when the parties’ goods are not interchangeable and the difficulty of proving that a mark is “famous” for purposes of the federal Trademark Anti-Dilution Act.

Apple has used the APP STORE mark since at least July 2008, when it began selling applications for its iPhone® and other mobile devices through its online “App Store” service. In March 2011, Amazon.com launched an “Amazon Appstore for Android,” which offers software applications that can be downloaded onto Android mobile devices. According to the district court, many of the applications offered at Amazon’s “Appstore” are the same as some of the most popular titles offered at Apple’s App Store.

When Apple became aware of Amazon’s plans, it filed suit and moved for a preliminary injunction, claiming that it was likely to prevail on claims that Amazon’s actions constituted trademark infringement and dilution under the Lanham Act.

The district court denied the motion and found that Apple had not shown that it was likely to succeed on either of its Lanham Act claims. In evaluating whether Amazon’s use of “Appstore” created a likelihood of confusion for purposes of Apple’s infringement claim, the court applied the eight Sleekcraft factors used by courts in the Ninth Circuit: (1) the strength of the mark; (2) the proximity or relatedness of the goods; (3) the similarity of the marks; (4) evidence of actual confusion; (5) the marketing channels used; (6) the degree of care used by customers purchasing the goods; (7) the defendant’s intent in selecting the mark; and (8) the likelihood of expansion into other markets.

Apple argued, among other things, that because it has authorized Amazon to sell certain Apple products on its Web site, “consumers are likely to be confused when they also see Amazon is offering a mobile download service using Apple’s mark.” But the district court was not persuaded by Apple’s argument.

The court found that only two of the Sleekcraft factors — relatedness of the goods and the similarity of the marks — favored Apple. The rest of the factors, it concluded, were either neutral or favored Amazon. In particular, the court questioned the strength of the APP STORE mark and was especially influenced by the fact that the applications offered at Amazon’s Appstore can only be used on Android products. According to the court, the latter fact “suggests that the class of purchasers is not the same” for Apple and Amazon products and “Amazon will not be able to offer apps for Apple devices unless Apple licenses Amazon to do so.” Moreover, the court said, “Amazon’s website makes clear that the apps it offers are to be used with Android devices only.” The court seemed to believe that owners of Apple products would never be confused into buying applications from Amazon’s store.

Apple fared no better on its trademark dilution claim. Dilution occurs “when a mark previously associated with one product also becomes associated with a second.” Dilution can occur when a junior mark “blurs” the distinctiveness of the senior mark or “tarnishes” the goodwill associated with the senior mark. However, the federal dilution statute does not protect all marks. It only protects marks that are shown to be famous. Under the statute, a famous mark is one that is “widely recognized as a designation of source of the goods or services of the mark’s owner.”

The court found that Apple failed to show that its APP STORE mark is famous. Apple presented evidence that it had spent hundreds of millions of dollars advertising and publicizing its App Store service, and more than 160 million users of Apple mobile devices had been exposed to the mark. However, Apple failed to present any survey evidence or other expert testimony regarding the degree to which consumers actually recognize the mark. In addition, there was evidence that other companies use the term App Store as a descriptive term for a place to obtain software applications for mobile devices, which cast doubt on whether consumers solely associated that mark with Apple.

The decision shows the difficulty trademark owners face when attempting to enforce their marks against sellers of goods that are not interchangeable with their own. Here, the court was heavily swayed by the fact that owners of Apple mobile devices would likely realize that Amazon’s products would not work on those devices and, therefore, were unlikely to be confused into buying Amazon’s products. Given that fact, a claim for dilution was a logical alternative for Apple. But the court seemed to set a high evidentiary bar for showing that the APP STORE mark is famous. Based on this decision, it is best to have a consumer survey showing the widespread recognition of a mark if you want to show it is famous.


Federal Circuit Continues to Struggle With the Role of the Specification in Construing Claims
By Justin E. Gray (jegray@foley.com)

Despite the Federal Circuit’s 2005 en banc decision in Phillips v. AWH Corp., district courts and the Federal Circuit continue to struggle with how to draw the line between using a patent’s specification to properly interpret the claims and improperly importing limitations from the specification into the claims. A pair of recent Federal Circuit claim construction decisions illustrate this ongoing debate. In one case, the majority chose to narrow the scope of the claims using the specification. In the other, the majority appeared to rely on the specification to construe claims more broadly than a strict reading might suggest. But not all members of the panels were in agreement with either decision, as can be seen from the vigorous dissents filed.

Retractable Techs., Inc. v. Becton, Dickinson and Co., 653 F.3d 1296 (Fed. Cir. July 8, 2011)

In Retractable Techs., the patent at issue related to retractable syringes, which are medical syringes that feature a needle that retracts into the syringe body after the syringe is used. Judge Lourie, writing for the majority, reversed the district court’s claim construction and found the term “body,” as used in the patent, required a one-piece structure, rather than including multiple-piece structures. The majority opinion explained that “none of the [patent] claims expressly recite a body that contains multiple pieces.” The majority looked at the specification and found that it distinguished “prior art syringes comprised of multiple pieces” while not disclosing a multiple-piece body as part of the claimed invention.

In dissent, Judge Rader opined that the majority had improperly imported limitations from the specification into the claims. Judge Rader reasoned that the ordinary and customary meaning of the term “body” “does not inherently contain a one-piece structural limitation,” and “neither the claim language nor the written description evinces intent by the patentee to limit the scope of ‘body’ to one-piece bodies.” Judge Rader also noted that two dependent claims expressly recited a one-piece body limitation, which suggested that the independent claim was not so limited under the doctrine of claim differentiation.

While joining the “thorough and well reasoned opinion” of Judge Lourie, Judge Plager wrote a short concurrence. Judge Plager noted, “[H]owever much desired by the claim drafters, who want claims that serve as business weapons and litigation threats … the claim cannot go beyond the actual invention that entitled the inventor to the patent. For that we look to the written description. … I have written elsewhere about the curse of indefinite and ambiguous claims, divorced from the written description, that we regularly are asked to construe, and the need for more stringent rules to control the curse. … I understand how a perfectly competent trial judge can be persuaded by the siren song of litigation counsel to give the jury wide scope regarding what is claimed. But it is a song to which courts should turn a deaf ear if patents are to serve the purposes for which they exist, including the obligation to make full disclosure of what is actually invented, and to claim that and nothing more.”

Markem-Imaje Corp. v. Zipher Ltd., 100 U.S.P.Q. 2d 1068 (Fed. Cir. 2011)

In Markem-Imaje, by contrast, the Federal Circuit majority arguably ignored potentially limiting statements contained in the patent’s specification. The patent at issue related to devices for transfer printing, a process where ink is carried by a ribbon that is moved into contact with the substrate to be printed, and a print head impresses upon the ribbon and causes the ink to transfer from the ribbon to the substrate.

The central issue for claim construction was whether the claims required “some method of deriving a tension measurement.” The defendant argued that the claim itself did not recite measuring tension, and reading such a limitation into the claims would “violate the mandate of Rambus Inc. v. Infineon Tech. AG that ‘the claims need not recite every component necessary to enable operation of a working device.’” The majority agreed and explained that, while deriving a tension measurement may be required to make the claimed device operational, it was not proper for the district court to incorporate such a method into the claim construction. For example, the court stated, “A claim to an engine providing motive power to a car should not be construed to incorporate a limitation for an exhaust pipe, though an engine may not function without one.”

Judge Newman dissented, pointing out that the specification contained statements about measuring tension. In Judge Newman’s view, “while the invention is flexible as to how tension is measured, and permits measurement through indirect methods, some method of measurement is contemplated and required, as found by the trial court.” Judge Newman disagreed with the majority’s interpretation of Rambus and explained, “This court has no authority to enlarge the scope of the patent beyond what the patentee described as its invention, notwithstanding my colleagues’ curious analogy to a car and its tailpipe.”

Conclusion

Though it has been more than six years since the en banc Federal Circuit clarified claim construction law in Phillips v. AWH Corp., with scores of subsequent claim construction decisions by various panels of the court in the intervening time period, the Retractable Techs. and Marken-Imaje decisions show that the Federal Circuit still struggles with the basic issue of how to use the specification in construing claims. These two examples are not alone, as Federal Circuit panels have split over claim construction issues roughly a dozen times since the beginning of 2010. Perhaps it is nearing time for the Federal Circuit to take another claim construction case en banc to further clarify claim construction law and provide additional guidance to both itself and district courts.


Two Courts Address Constitutional Limits on Copyright Statutory Damages
By Kevin M. Littman (klittman@foley.com)

In two high-profile cases, the U.S. Court of Appeals for the First Circuit and a district court in Minnesota recently addressed the constitutional limits on statutory damage awards under the Copyright Act. Both cases involved illegal downloading of music by individuals that resulted in juries awarding extraordinarily large statutory damages — $675,000 in one case and $1.5 million in the other. The two cases provide guidance on the procedures for addressing arguably excessive jury awards in copyright cases and what courts may view as the maximum statutory damages permitted under the U.S. Constitution.

The Copyright Act provides for statutory damages ranging from $750 to $150,000 for each copyrighted work infringed. See 17 U.S.C. § 504(c). Because statutory damages are awarded on a per-work basis, cases involving large numbers of infringed works can sometimes result in total damage awards far greater than $150,000. In particular instances, a jury’s award may be so excessive in relation to the defendant’s wrongful conduct that it violates the Constitution’s Due Process Clause, even though the award is within the range permitted by the Copyright Act.

Courts also have a non-constitutional tool to correct excessive jury awards called remittitur, a process in which a court can reduce a jury award, but the plaintiff may reject it and instead proceed to a new trial on damages. The two recent court decisions addressed these constitutional and procedural methods for correcting excessive statutory damage awards.

Sony BMG Music Entertainment v. Tenenbaum, 100 U.S.P.Q. 2d 1161   (1st Cir. 2011)

The defendant in Tenenbaum was a college student who downloaded and made available to others thousands of music recordings using his parents’ home computers. At trial, he was found to have infringed the copyrights on 30 recordings. The jury awarded statutory damages of $22,500 for each infringed recording, resulting in a total award of $675,000. The defendant moved for a new trial or, alternatively, remittitur. The trial court, however, reasoned that remittitur would be futile because, in the court’s view, the plaintiff would never accept the reduced damage award and a new trial would result in yet another excessive award.

Instead, the district court ruled that the jury’s award violated due process and reduced the award to $67,500, or $2,250 per song. The $2,250 per-recording award was equivalent to three times the minimum amount of statutory damages. In reaching its decision, the district court applied factors set forth in BMW v. Gore, 517 U.S. 559, (1996), the seminal decision addressing the constitutionality of punitive — not statutory — damage awards.

The First Circuit reversed the district court’s due process ruling, finding that it was error to decide a constitutional question when a non-constitutional issue, remittitur, could have been decided first. The First Circuit rejected the district court’s suggestion that remittitur and a new trial would have been futile, reasoning that the constitutional issue would have been avoided if the plaintiff accepted a lower damages award or, if it did not, a new trial on damages resulted in a lower jury award that the defendant would not have sought to reduce. The First Circuit noted that by deciding the due process issue, “[t]he path the court chose unnecessarily embroiled it in several issues of constitutional dimension,” including whether the standard from the Gore case was even applicable to statutory damage awards. Both the plaintiff and the United States argued that an earlier U.S. Supreme Court case, St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67 (1919), rather than Gore, was the controlling law. The matter was remanded for the trial court to consider the issue of remittitur.

Capitol Records Inc. v. Thomas-Rasset, 100 U.S.P.Q. 2d 1183 (D. Minn. 2011)

Earlier this summer, the U.S. District Court for the District of Minnesota reached the constitutional issues that the First Circuit had avoided. The district court in Thomas-Rasset held that a jury verdict of $1.5 million in statutory damages for copyright infringement arising from an individual defendant’s downloading of 24 musical recordings was unconstitutional, and reduced the total award to $54,000, based upon $2,250 per recording. However, the court reached that decision only after first ordering remittitur of a previous, even larger, jury award. The plaintiff had rejected that remitted award, resulting in a new trial on damages and the $1.5 million damage award. It was only after this second trial that the court addressed the constitutionality of the award.

The court first addressed the legal standard and determined that the Supreme Court’s decision in Williams, rather than Gore, applied to awards of statutory damages. Under Williams, a statutory damages award satisfies due process if it is not “so severe and oppressive as to be wholly disproportioned to the offense or obviously unreasonable.” 251 U.S. at 67. The court found that because Gore addressed the constitutionality of punitive damages, not statutory damages, it was not applicable. The court reasoned that although copyright statutory damages have a punitive component, they also contain a compensatory component and, thus, are distinct from punitive damages awards. In addition, the Gore decision was premised on the fact that defendants have no advance notice of how large a punitive damages award might be, whereas defendants have notice of potential statutory damage awards because, as the name implies, they are published in statutes.

To assess whether the jury award was too “severe and oppressive,” the court looked at a number of factors, including the proportionality between the actual harm and the jury’s damages award, evidence of willfulness and need for deterrence, and three factors set forth in Williams: “[1] the interests of the public, [2] the numberless opportunities for committing the offense, and [3] the need for securing uniform adherence … .” Williams, 251 U.S. at 67. The court reasoned that strict proportionality between actual harm and damages is not required because statutory damages by their nature do not require a plaintiff to present proof of actual damages and are designed to have both compensatory and punitive components. However, the court explained, there still must be some relation between the actual harm caused by the defendant’s acts and the total damage award.

The court rejected both parties’ arguments about what the actual damages to the plaintiff were (defendant arguing $1 per song; plaintiff citing to billions of dollars in damages from online piracy), concluding that some harm was caused, but that the defendant’s contribution to losses caused by online piracy in general was miniscule. The court also accepted the jury’s finding that the defendant acted willfully, which weighed in favor of a larger award because of the need for strong deterrence. Finally, with respect to the three Williams factors, the court found that: (1) the public interest favors rewarding and protecting copyright owners; (2) peer-to-peer networks, as used by the defendant, provide numberless opportunities to infringe; and (3) there is a need for uniform adherence, plus, again, a need for deterrence.

Although many of these factors suggested that a substantial damages award was justified, the court nonetheless held that $1.5 million was excessive. The specific facts regarding the defendant were crucial to the decision. The court described her as “an individual consumer, of limited means, acting with no attempt to profit,” who copied the recordings “for personal use.” The court also reasoned that although an award must be large enough to justify the costs a plaintiff must spend to pursue infringers, again, the defendant’s role in the overall online piracy problem was miniscule. Under the circumstances, the court stated that the $1.5 million award was “appalling” and unconstitutionally excessive under Williams.

The court’s reduced award of $2,250 per recording was based on tripling the $750 minimum award permitted by the Copyright Act. The court reasoned that treble damages awards are a common penalty for willful behavior and cited numerous federal and state statutes as examples. The court found those statutes persuasive in determining the constitutional limit of damages under the facts of this case, while acknowledging that the Copyright Act itself provides no treble damages provision.

The Thomas-Rasset and Tenenbaum cases provide important guidance regarding statutory damage awards under the Copyright Act. Although determinations about whether an award is excessive will always depend upon the specific facts of the case and the circumstances of the defendant, it is clear that district courts wishing to reduce jury awards must go through the remittitur process before declaring that an award is unconstitutionally excessive. When district courts do reach the constitutional issue, they must apply the Williams factors to determine whether the award is excessive. Finally, both cases suggest that district courts may use $2,250 per infringed work (triple the minimum statutory damages) as a rule of thumb when deciding what statutory damages are appropriate in cases involving individual defendants with no profit motive. Although both cases arose in the context of downloading music, the holdings of these cases may be applicable in a variety of other copyright contexts.

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