The FTC Revises Its Guidance For Advertising Through Blogs, Endorsements, Testimonials, And More

If you advertise through blogs, testimonials, or celebrity endorsements, the Federal Trade Commission’s (“FTC”) recent revisions to its official guidance (the first revisions since 1980) on that topic are a must read. The revised guidance makes it clear that both the advertiser and endorser may be held liable under the FTC Act for false or unsubstantiated claims or for failure to disclose material connections between the advertiser and endorser.

Consumers today greatly rely upon advertising that appears as journalism, like blogs, or as anecdotal endorsements or testimonials, including celebrity advertisements. Hence, businesses have a greater imperative to fully disclose any media that is, in reality, advertising, as well as any material connections between a business and bloggers or endorsers of its products and services.

A Summary Of Revisions To The Guides

The revised guidance asks businesses to disclose “material connections” between advertisers and endorsers, especially when such connections may not be expected by the consumer. So, if your favorite radio talk-show host raves about a new spinal decompression therapy that helps his back pain, but never discloses that he gets this therapy for free in exchange for “talking it up” on his show, both the therapy provider (advertiser) and the talk show host (endorser) could end up being in trouble with the FTC, along with being held liable under the FTC Act.

Similarly, when a blogger reviews a product or service in exchange for cash or in-kind payment, it is considered to be an endorsement. The FTC requires that the blogger disclose any relationship with the seller of the product or service, and payment received, in the blog post. With many consumers browsing online reviews of products and services before making a purchase, the FTC’s revised guidance is aimed at blogs that may be perceived by consumers as a source of independent opinion on a particular product or service, but are, in reality, endorsements paid for by the seller of the product or service.

Also, a business may refer to research findings in its advertising, and this often occurs with health and nutrition products and services. If that business sponsored the research, it must disclose this material connection in the advertising. On a related note, businesses can no longer get away with featuring the experience of a consumer, for example of losing 50 pounds with a weight loss product, and disclaim that “results are not typical.” The FTC now advises that businesses clearly disclose the results that consumers can generally expect.

What This Means For You

As a practical matter, any business looking to reach consumers through blogs, viral videos, testimonials, or other unconventional forms of advertising should take steps to ensure that consumers understand that the media is really an advertisement and to ensure that the advertising clearly conveys the nature of the business’s relationship with the advertising source.

-- Anuj Desai, Esq.

Not if, but how

Arnall Golden Gregory, LLP has significant experience in the area of marketing and promotions, including evaluating advertisements and advertising-related disputes. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information, www.agg.com.

A copy of the FTC’s revised Guides Concerning the Use of Endorsements and Testimonials in Advertising, with illustrations of applications of the revised guidance, is available at www.ftc.gov.

Senate Moves to Clarify Tension between Patent and Antitrust Law

Patent law limits competition, keeping prices high in order to foster innovation. Antitrust law promotes competition, keeping prices low to benefit consumers. The following “reverse payment” scenario illustrates the tension between the two:

Branded Drug Company sells a patented drug. Generic Drug Company files an application to bring a competing generic drug to market. Branded sues Generic for patent infringement. A settlement is reached where Branded pays Generic to delay entering the market, a so-called “reverse payment.” Branded maintains its patent, and continues to monopolize the market for the patented drug.

The question at the heart of the reverse payment scenario is whether drug patents are truly property. According to both pharmaceutical companies and the U.S. Court of Appeals for the Eleventh Circuit, less competition and higher prices are the natural result of the “permissible monopoly” created by patents, and thus there is nothing wrong with reverse payments. Lawyers for the federal government disagree, arguing that patents are not true property rights, but rather a right to “try to exclude.” The Federal Trade Commission (FTC) has thus determined that “collusion by pharmaceutical manufacturers is contrary to free competition, to the interests of consumers, and to the principles underlying antitrust law.” The Department of Justice (DOJ), which did not oppose the settlements during the Bush administration, now considers these deals to be straightforward violations of antitrust law, and thus “presumptively unlawful.”

Regardless of who is correct, the decade long battle reached an important point on October 13th, when the Senate Judiciary Committee voted 12 to 7 to approve its draft legislation, the Preserve Access to Affordable Generics Act of 2009. The bill makes it unlawful for a person, in connection with the sale of a drug product, to be a party to any agreement resolving or settling a patent infringement claim in which: (1) an abbreviated new drug (generic) application filer receives anything of value; and (2) such filer agrees not to research, develop, manufacture, market, or sell the generic product for any period.

The Judiciary Committee bill specifically cites the appellate court decision approving reverse payments, and points out that several settlements since that decision have resulted in generic companies receiving compensation to keep cheaper drugs off the market. According to an FTC study released in June, consumers, insurance companies, and the federal government have spent an extra $3.5 billion for prescription drugs every year because of such settlements.

As expected, the Senate’s reverse payment legislation is strongly opposed by both generic and branded drug companies. These companies argue that parties need to be able to negotiate such agreements, given the uncertainties of litigation, and that reverse payment legislation will result in more cases going to trial rather than settling. The result, they say, could be less predictable litigation costs, less generic drug filings, and less generic drugs for consumers.

Although courts are reluctant to oppose reverse payments, both Democrats in Congress and the Obama Administration seem eager to score political points by slamming pharmaceutical companies as responsible for the high cost of healthcare. With the DOJ and FTC aligned on the issue, it is increasing likely that the recently approved Senate Judiciary bill will end the era of reverse payments between branded and generic drug companies.

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

New Wireless False Advertising Litigation: A Reminder to Look at "The Big Picture"

The battle that broke out last week over the accuracy of Verizon Wireless’ new cell phone coverage campaign is not focused solely on the language of Verizon’s advertisements. It is focused on the images, and specifically, on two coverage maps and the message they convey. In two television pieces and on its website, Verizon uses side-by-side maps of the US with color coding to show 3G coverage. The maps emphasize what Verizon believes is its overwhelming advantage over AT&T in territorial 3G coverage. The ads parody the popular iPhone advertisements with the refrain that to explain spotty AT&T coverage, “there’s a map for that.”


AT&T, locked in competition in its most important quarter of the year, is not laughing. In a lawsuit filed in federal district court in Atlanta, AT&T claims that the maps mislead its customers “into believing that when they are

in the areas depicted by large swaths of white or blank space in AT&T’s ‘3G’ coverage maps, they have no coverage whatsoever.” The lawsuit, at least at this point, is actually fairly narrow. AT&T is not claiming anything in the ads is actually false but believes the overall piece is still misleading. Even though Verizon added the phrase, in small font, “Voice & data services available outside 3G coverage areas,” and even though the map is based on actual coverage data, AT&T suggests that the maps convey the complete absence of coverage in the white areas. It asks the Court, at least in its initial request for a temporary restraining order, to stop Verizon from displaying the maps.

To obtain an injunction where no statement is literally false, AT&T is required to put forward some evidence of deception. Usually in federal advertising cases, that evidence takes the form of consumer focus group or survey data. Here, AT&T offers a survey it says shows a 23.5% level of confusion among wireless customers: Assuming AT&T’s survey is valid and was conducted in accordance with generally accepted survey principles, that data is more than enough to justify a finding of confusion. Verizon has not yet filed its response, but it will be interesting to see the competing testimony and market research on the effect of the advertisements. And certainly, the district court will be looking at more than just deception in making its decision.
We’ll continue to follow the dispute and report on the first round. Argument is scheduled for later this month – though we’re certain AT&T would have preferred an earlier hearing – so we should have some early insight fairly soon. If AT&T loses its early TRO request, its momentum is gone and much of the steam leaves its suit.

Regardless of the outcome, though, the case provides a good reminder: If your company sells products or services in a competitive market, especially head-to-head using comparative advertising, keep your eye on more than just the accuracy of advertising copy. Also look to the advertising’s overall impact and impression, and ask what messages a reasonable customer will take away. For purposes of this kind of competitive advertising review, marketing-savvy businesses should be aware that federal law prohibits not just false, but misleading advertising. Even if the words themselves literally true, they may imply a false message, especially when the advertising piece is considered as a whole.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

ICANN's New gTLD Initiative -- A Potential "Top-Level" Problem for Brand Owners

In 2010, the Internet Corporation for Assigned Names and Numbers (ICANN), the non-profit body dedicated to coordinating the Internet’s unique identifier system, will begin accepting applications for new generic top-level domains (gTLDs).

The new gTLD program presents an unprecedented opportunity for brand owners. While individuals and businesses have historically distinguished themselves with second-level domains (e.g., the “icann” in www.icann.org) and shared gTLDs with their “.com” or “.net” competitors and others, ICANN’s new gTLD program provides a mechanism for brand owners to operate and control an entire universe of internet addresses with common domains. To illustrate, a company such as Microsoft may wish to acquire the gTLD “microsoft,” thereby opening the door to the registration of virtually any conceivable second-level domain with a top-level “microsoft” suffix.

However, where there is opportunity for brand owners, there is also potential for danger. Chief among the concerns of brand owners is that individuals or entities will apply for and obtain a gTLD that is identical or confusingly similar to the brand owner’s trademark. While many brand owners have had to contend with identical or confusingly similar second-level domains from time to time, contending an entire set of infringing top-level domains could present a problem of staggering proportions.

In addition, the acquisition of a gTLD will carry with it the ability to control the registration of second-level domains within that gTLD. Thus, brand owners could acquire gTLDs for the generic name of their products (e.g., “.computers,” “.wine,” or “.jeans.”) and freeze out competitors in the same generic product category. Thus, for example, Apple Computers could acquire the gTLD “.computers” and prevent Hewlet-Packard from registering the domain www.hp.computers.

In response to this and other brand owner concerns, ICANN has set forth proposed applicant screening and dispute resolution procedures in its Applicant Guidebook. The current version of the Applicant Guidebook is available at ICANN’s website. Importantly, the Applicant Guidebook has not been finalized, and, in fact, is open for public comment through November 22, 2009.

While the procedures set forth in the Applicant Guidebook likely will filter out obvious trademark conflicts without the brand owner having to intervene (e.g., a company other than Microsoft that attempts to register the gTLD “microsoft”), they may not catch less obvious trademark conflicts. If ICANN does not identify a conflict, it will be up to the band owner to come forward to object to potentially-problematic gTLD applications. Critically, the Applicant handbook provides only a two-week window to make such an objection.

Brand owners should become familiar with ICANN’s new gTLD program, and, specifically, the Applicant Handbook. In addition, even those brand owners who do not wish to apply for a gTLD should closely monitor pending applications, and, if necessary, take prompt action.

-- Tucker Barr

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

ICANN’s New gTLD Program Presents Opportunities and Risks for Brand Owners

In 2010, the Internet Corporation for Assigned Names and Numbers (ICANN), the non-profit body dedicated to coordinating the Internet’s unique identifier system, will begin accepting applications for new generic top-level domains (gTLDs).

The new gTLD program presents an unprecedented opportunity for brand owners. While individuals and businesses have historically distinguished themselves with second-level domains (e.g., the “icann” in www.icann.org) and shared gTLDs with their “.com” or “.net” competitors and others, ICANN’s new gTLD program provides a mechanism for brand owners to operate and control an entire universe of internet addresses with common domains. To illustrate, a company such as Microsoft may wish to acquire the gTLD “microsoft,” thereby opening the door to the registration of virtually any conceivable second-level domain with a top-level “microsoft” suffix.

However, where there is opportunity for brand owners, there is also potential for danger. Chief among the concerns of brand owners is that individuals or entities will apply for and obtain a gTLD that is identical or confusingly similar to the brand owner’s trademark. While many brand owners have had to contend with identical or confusingly similar second-level domains from time to time, contending an entire set of infringing top-level domains could present a problem of staggering proportions.

In addition, the acquisition of a gTLD will carry with it the ability to control the registration of second-level domains within that gTLD. Thus, brand owners could acquire gTLDs for the generic name of their products (e.g., “.computers,” “.wine,” or “.jeans.”) and freeze out competitors in the same generic product category. Thus, for example, Apple Computers could acquire the gTLD “.computers” and prevent Hewlet-Packard from registering the domain www.hp.computers.

In response to this and other brand owner concerns, ICANN has set forth proposed applicant screening and dispute resolution procedures in its Applicant Handbook. The current version of the Applicant Handbook is available at ICANN’s website. Importantly, the Applicant Handbook has not been finalized, and, in fact, is open for public comment through November 22, 2009.

While the procedures set forth in the Applicant Handbook likely will filter out obvious trademark conflicts without the brand owner having to intervene (e.g., a company other than Microsoft that attempts to register the gTLD “microsoft”), they may not catch less obvious trademark conflicts. If ICANN does not identify a conflict, it will be up to the band owner to come forward to object to potentially-problematic gTLD applications. Critically, the Applicant handbook provides only a two-week window to make such an objection.

Brand owners should become familiar with ICANN’s new gTLD program, and, specifically, the Applicant Handbook. In addition, even those brand owners who do not wish to apply for a gTLD should closely monitor pending applications, and, if necessary, take prompt action.





Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

False Advertising In The Marketplace: Cautionary Examples

Have you ever scratched your head after seeing an outlandish claim made in an advertisement? Often, businesses, in an effort to “one-up” their competitors, throw caution to the wind and come up with slick marketing campaigns that overstep the boundaries of truth. When that happens, a business could face stiff liability in legal action taken by consumers, competitors, or the government.

As the brief examples below demonstrate, it would be wise to make sure that your company’s marketing checklist includes the step of verifying the veracity of what you advertise to your customers.

The Lawsuits

In Smith v. Wm Wrigley Jr. Co., a consumer brought a class-action lawsuit against Wrigley, the manufacturer of Eclipse gum. Wrigley advertised Eclipse as scientifically proven to help kill germs that cause bad breath. The plaintiff claims that this is not true and that Wrigley charged consumers a premium for the gum. Unfortunately for Wrigley, the National Advertising Division, an industry-supported advertising watchdog group, had earlier ruled that Eclipse may not actually “kill” germs that cause bad breath. The lawsuit is still pending in a federal district court in Florida.

In Federal Trade Commission v. Improvita Health Products, Inc., the FTC filed a complaint against Improvita, which advertised that its “Germ Defense” lozenges and tablets could, among other things, reduce the risk of or prevent colds and flu. The FTC claims that Improvita has no proof for these claims. Rite Aid Corporation, which marketed and sold Germ Defense, previously settled with the FTC for $500,000 for its role in falsely advertising the product. Improvita has not settled and the case against it is ongoing in a federal district court in Ohio.

In LG Electronics U.S.A., Inc. v. Whirlpool Corp., Whirlpool advertised its clothes dryers as “Steam Dryers.” LG sued complaining that these advertisements were false because Whirlpool dryers do not actually use steam. LG was the innovator of introducing dryers with steam technology, won accolades from Consumer Reports, and is, obviously, looking to protect its dominant market share. The lawsuit is still pending in a federal district court in Illinois.

What This Means For You

Your company should not only be careful in what it represents to the public about its products and services, but it should also be mindful of what its competitors are advertising. Remaining vigilant in the marketplace is necessary to your company’s success, especially in this economy.

-- Anuj Desai, Esq.

Not if, but how

Arnall Golden Gregory, LLP has significant experience in the area of marketing and promotions, including evaluating advertisements and advertising-related disputes. Do not hesitate to contact us if we can be of help to you.

Please visit our website for more information, http://www.agg.com/.

Pay to Delay - Draft Legislation Takes Aim at Reverse Payments Between Branded and Generic Drug Companies

The federal government achieved a significant victory on October 13th in its decade long war against reverse payments between branded and generic drug companies , when the Senate Judiciary Committee voted 12 to 7 to approve its draft legislation, the Preserve Access to Affordable Generics Act of 2009. The bill makes it unlawful for a person, in connection with the sale of a drug product, to be a party to any agreement resolving or settling a patent infringement claim in which: (1) an abbreviated new drug (generic) application filer receives anything of value; and (2) such filer agrees not to research, develop, manufacture, market, or sell the generic product for any period.

The so-called “pay for delay” deals have been increasingly common since 1994, when Bristol-Myers Squibb paid $290 million to delay the sale of a generic anxiety drug. The Federal Trade Commission (FTC) began to challenge such settlements in 1999, and under the leadership of new FTC chairman Jon Leibowitz has made opposing such settlements one of its highest priorities. According to the Department of Justice (DOJ), which did not oppose the settlements during the Bush administration, these deals are considered by the new administration to be straightforward violations of antitrust law, and thus “presumptively unlawful.”

Are Patents True “Property”?

The question at the heart of this issue is whether drug patents are truly property. According to both pharmaceutical companies and the U.S. Court of Appeals for the Eleventh Circuit, less competition and higher prices are the natural result of the “permissible monopoly” created by patents, and thus there is nothing wrong with reverse payments. FTC lawyers disagree, arguing that patents are not true property rights, but rather a right to “try to exclude.” The FTC has thus determined that “collusion by pharmaceutical manufacturers is contrary to free competition, to the interests of consumers, and to the principles underlying antitrust law.”

The Judiciary Committee bill specifically cites the appellate court decision approving reverse payments, and points out that several settlements since that decision have resulted in generic companies receiving compensation to keep cheaper drugs off the market. According to an FTC study released in June, consumers, insurance companies, and the federal government have spent an extra $3.5 billion for prescription drugs every year because of such settlements.

The Senate’s reverse payment legislation is strongly opposed by both generic and branded drug companies. These companies argue that parties need to be able to negotiate such agreements, given the uncertainties of litigation, and that reverse payment legislation will result in more cases going to trial rather than settling. The result, they say, could be less predictable litigation costs, less generic drug filings, and less generic drugs for consumers.

Conclusion

Although courts are reluctant to oppose reverse payments, both Democrats in Congress and the Obama Administration seem eager to score political points by slamming pharmaceutical companies as responsible for the high cost of healthcare. With the DOJ and FTC aligned on the issue, it is increasing likely that the recently approved Senate Judiciary bill will end the era of reverse payments between branded and generic drug companies.

McProblem in Malaysia

Admit it. You have done it. Whether describing the “McMansion” recently purchased by a family member, dreaming of breaking the chains that bind you to your “McJob,” or bemoaning the “McWorld” we live in, we are guilty of tacking on the prefix “Mc” to regular words, for the sake of evoking associations with our favorite fast food restaurant chain. “McWords,” so dubbed by Wikipedia.com, have infiltrated our vernacular, and are now even common place on our favorite television shows – did you see McDreamy and McSteamy in last nights’ season premier of Grey’s Anatomy?

We owe this phenomenon to the outstanding marketing and promotion work done by the McDonald’s Corporation (“McDonald’s”) to build a brand and create a unifying concept that identifies products and services associated with its Company. McDonald’s has invested heavily in a significant portfolio of “Mc” trademarks used by the company to identify products, services and concepts within their organization. We encounter many of these “McTerms” all too often while scanning the menu in the drive-thru -- McNugget, McFlurry, McGriddle, McCafe’ and Big Mac, to name a few. Did you know, however, that McDonald’s has registered the term McMobile for a McDonald’s computer software program used in sales and marketing, McD for an all-purpose cleaning product, and McDTV for use on television programming offered by the company? Clearly, the company is committed to building its “McBrand” through the use of trademarks bearing the “Mc” prefix.

You may or may not know, but creating such a unifying concept has significant implications and potential benefits under trademark law in the United States. It provides a means for obtaining a broader scope of trademark protection than would ordinarily be afforded to a trademark owner. A recent legal decision from Malaysia underscores the significance of this broader scope of protection in the U.S., protections apparently not available to trademark owners in certain other destinations around the world.

Recent Legal Decision in Malaysia

Specifically, McDonald’s recently lost a legal dispute with a restaurant owner in Malaysia who named his restaurant “McCurry.” As the name implies, the restaurant owner adopted a western-style fast-food ambience to serve traditional Indian and Malaysian dishes to its customers. McDonald’s, in an effort to protect their brand, sued the restaurant owner in 2001, and an eight-year battle ensued. In 2006, McDonald’s won its case in the lower court, but the restaurant owner appealed. In April of this year, Malaysia’s highest court overturned the lower court decision. (For more information on McDonald’s Malaysian legal battle, see online.wsj.com/article/SB125240245264591953.html). This decision appears to open the McDonald’s brand to attack, by allowing other companies to utilize the “Mc” prefix on their goods and services in Malaysia. This result demonstrates the importance of the doctrine of a “family of marks” in the United States, and the protection that doctrine provides to business owners and trademark holders alike.

Protection of the McFamily of Marks

In trademark parlance, a portfolio of trademarks that utilize a unifying prefix or common term is known as a “family of marks.” A “family of marks” is a group of marks having a recognizable common characteristic, wherein the marks are composed and used in such a way that the public associates not only the individual marks, but the common characteristic of the family, with the trademark owner. The “family of marks rule” recognizes that a family of marks may have a synergistic quality that is greater than the sum of each mark, considered on an individual basis. Because the consuming public associates the recognizable common characteristic of the family with the trademark user, the trademark user has established secondary meaning in the common feature of its multiple marks, in its respective channels of trade. Thus, they may have the ability to preclude others from using this feature, even if the trademark used by that third party is not otherwise confusingly similar to the trademark owner’s mark. It is this additional scope of protection, in the common feature, only enjoyed by owners of a family of trademarks.

In the case of McDonald’s, courts have recognized, acknowledged and enforced the “McFamily” of marks against others who have attempted to usurp the goodwill and brand recognition built by the company. McDonald’s has successfully opposed registration and use of the trademarks “McPretzel” and “McDugal’s McPretzels” by a company in the business of selling frozen pretzel products, and they have obtained a judgment for trademark infringement and an injunction against a restaurant going by the name “McBagel.” J & J Snack Foods Corp. v. McDonald’s Corp., 932 F.2d 1460 (Fed. Cir. 1991); McDonald’s Corp. v. McBagels, Inc., 649 F.Supp. 1268 (S.D.N.Y. 1986). Even on non-food items and services, in wholly unrelated channels of trade, McDonald’s has successfully protected their family of marks. McDonald’s obtained an injunction preventing a dentist’s use of the term “McDental” for his practice, and they successfully defended a case whereby a large hotel conglomerate sought a declaratory judgment stating that the use of the term “McSleep Inn” for a hotel chain did not constitute trademark infringement. McDonald’s Corp. v. Druck and Gerner, D.D.S., P.C., 814 F. Supp. 1127 (N.D.N.Y 1993); Quality Inns International, Inc. v. McDonald’s Corp., 695 F.Supp. 198 (D. Mar. 1988). Trademarks such as “McDental” and “McSleep” were not necessarily similar to any mark registered by McDonald’s, but the court nonetheless held that use of these marks constituted trademark infringement on account of their use of the well-known “Mc” prefix.

While these cases make it clear that McDonald’s enjoys a significant scope of trademark protection in the United States, beyond the protections enjoyed on each individual mark, the recent Malaysia outcome demonstrates that this does not appear to be the case in other parts of the world.

What this Means for Trademark Holders

If you or your company is building a portfolio of trademarks, and is considering the adoption of additional marks, it may be beneficial to consider use of a unifying characteristic for each and every one of your marks. Successful use of a common characteristic could lead to the development of a “family of marks,” thereby providing an increased scope of trademark protection in the marketplace, not necessarily enjoyed by your competitors. And, you may just become the next household phenomenon in the process.

- Devin Gordon, devin.gordon@agg.com

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Trade Secret Licensing Arrangements Require Vigilance

A technology license agreement can link competitors in unexpected, and, from the standpoint of technology protection, potentially dangerous ways. Whether your company licenses its technology to a direct competitor, licenses to a supplier who may integrate back into your industry, or licenses to a company who may decides to expand its market, a written agreement should define the trade secrets and critically, should protect them for so long as they have value. A recently decided dispute between plastics manufacturers illustrates the point.

Industrial concern NOVA Chemical took a license on a Styrofoam-type manufacturing process, Piocelan, from Japanese plastics company Sekisui. After extensive negotiation and the exchange of multiple drafts, the two companies hammered out a licensing agreement for the Piocelan process. Except for an Asian markets carve-out, the agreement gave NOVA an exclusive right to use the process and provided for NOVA to Sekisui’s secret technical information and certain patent rights for time periods that NOVA would elect.

When, in 2002, NOVA rolled out a competing product in Asia, Sekisui cried foul. NOVA filed suit to clarify that the agreement had been terminated and that it was entitled not only to sell in Asia, but to use any information that Sekisui had disclosed to it under the agreement. Sekisui argued that the actual term of the license was perpetual, because its subject matter concerned trade secrets, which have no fixed life. The agreement, however, contained no restriction on use of the supposedly secret information beyond the term of the license.

Alert readers will see the red flag waving – as did the trial court. Despite Sekisui’s claims that disclosure would harm it, the court saw no intent to extend the term of the agreement past either five or ten years, and saw no provision in the agreement requiring NOVA to keep the information secret past the term. How, wondered the Court, could Sekisui claim trade secret protection when it did not restrict the use of the Piocelan information in any manner after ten years?

Under NOVA’s reading of the Agreement, with which a trial court and now the court of appeals have agreed, NOVA was obligated not to disclose the Sekisui information only for the length of the license, either a five- or ten-year period, depending on what license term NOVA chose. Sekisui lost out, and NOVA can sell the product anywhere in the world, and use as much of the information provided to it under the expired license as it may wish.

The lesson? In negotiating technology license arrangements, assume the worst case scenario: direct competition by your contract partner. With this forethought, Sekisui’s result should absolutely have been avoided. The law of trade secrets is commercially practical, recognizing the need for such licensing arrangements. Simply because a license expires, the underlying trade secrets do not necessarily expire as well. But in order for the trade secret owner to maintain ownership, with the licensee obtaining rights only to temporary use, and for the trade secrets to survive, appropriate drafting is necessary. A specific commitment to maintain the trade secrets in confidence, enforceable through injunctive relief, must form part of the consideration. It must also be spelled out in the agreement’s terms.


--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Did You Inadvertently Allow Your Licensee To Sell Your Valuable Intellectual Property?

If your company licenses software, music, movies, or similar intellectual property, two recent federal court decisions may leave you scratching your head as to whether your license is, in reality, a “sale,” allowing your licensee freely to transfer or sell the licensed copy of your intellectual property to others. In light of these decisions, it may be prudent to include license termination provisions triggered by the licensee’s end of use of the licensed work or based on a future date.

The Lawsuits

Traditionally, under copyright law, a license is treated differently from a sale in one crucial respect. A licensee does not have the right to transfer or sell the licensed copy of the copyrighted work. A purchaser of a copy of the copyrighted work, however, is free to further transfer or sell the purchased copy of the work to others under the First Sale Doctrine. Note that neither a licensee nor a purchaser has the right to make additional copies of a copyrighted work; that right remains with the copyright holder unless otherwise assigned.

In Vernor v. Autodesk, a lawsuit filed in a federal court in Washington, and UMG Recordings, Inc. v. Augusto, a lawsuit filed in a federal court in California, this traditional principle was given a fresh look, and the courts came to a very surprising conclusion.

In the Vernor case, the plaintiff sought a declaratory judgment that the used copies of Autodesk software purchased and sold by him on eBay were lawful pursuant to the First Sale Doctrine. Autodesk, of course, disputed this contention because it claimed that its software was “licensed” and that the license agreement allowed only for nonexclusive use of the software, prohibiting the further sale, rent, lease, or transfer of the software.

Similarly, in the Augusto case, the plaintiff music recording company brought a copyright infringement suit against an individual who was selling promotional music CDs. The company claimed that the promotional CDs had been provided to a limited number of industry insiders and had been stamped “not for resale,” creating a license only to use the CD. The defendant claimed that he was allowed to sell the CDs under the First Sale Doctrine.

Both courts ruled that the sellers were “owners” for purposes of the First Sale Doctrine, and that their sales of the copyrighted works were lawful. The courts paid short shrift to the license agreement in Vernon and the CD stamped not for resale in Augusto. Rather, considering the totality of circumstances, the courts found it important that the person to whom the software or music was originally transferred had been allowed to keep the software or music perpetually. The courts found it crucial that the transferees were not required to return the software or music to the licensor. The courts found that the licensee’s right perpetually to possess and use the copyrighted work evidenced a sale, and not a license, thus allowing further transfer of the copyrighted work under the First Sale Doctrine.

What This Means For You

The law of intellectual property is constantly changing. While these decisions do not presently constitute the majority view, they may in the future. To safeguard your intellectual property rights, it may make sense to review your licenses and determine whether the operative language gives your licensee the right perpetually to possess the licensed intellectual property. If so, you may want to revise your licensing agreements to include a provision whereby the licensed work must be returned to your company after the licensee terminates its use of that work. Optionally, you may want to include a specific end date by which the licensed work must be returned. While this date may be several years out, this provision could help negate the argument that the licensee has the right perpetually to possess a copy of your intellectual property.

-- Anuj Desai, Esq.

Not If, but How

Arnall Golden Gregory LLP has significant experience in the area of drafting licensing agreements for a variety of works, including software, music, motion picture, publications, and more. We serve the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen.

Please visit our website for more information, http://www.agg.com/.

Data Exclusivity - Lines are Drawn in the Battle for Biosimilars

The fight over biotechnology drugs has boiled down to a single number: the years the producers of those drugs should be exempt from generic competition. Over the last six weeks, some of the most influential politicians, government agencies, and lobbyists have drawn lines in the sand over what they feel is an appropriate time period to protect branded biotechnology medicines from cheaper generic rivals. Although the “Battle for Biosimilars” in unlikely to generate the dramatic protests that have plagued town hall Healthcare Reform Meetings across the country, the result of this battle will be crucial for both maintaining incentives for innovation and reducing health-care costs.

In March, Congress began to develop two different pieces of legislation for bringing follow-on biologics to market. In the “Promoting Innovation and Access to Life-Saving Medicine Act” (H.R. 1427) (the “LSMA”), the period for market exclusivity is 5 years. In the “Pathway of Biosimilars Act” (H.R.1548) (the “PBA”), the exclusivity period is 12 years. As of July the “12 Year” bill had well over 100 sponsors in Congress, while the “5 Year” bill only had about a dozen sponsors.

After a brief pause in the action, the last months have seen another flurry of activity as lobbyists, the White House, government agencies, and influential members of the Senate have weighed in on the biosimilar data exclusivity period.

The first developments clearly favored the branded biologics industry. In early June, the Federal Trade Commission (FTC) issued a detailed report on follow-on biologics questioning the need for a 12-year data exclusivity period. This sentiment was echoed in the second half of June by a letter from the White House stating that a follow-on biologics regulatory pathway providing a 7-year data exclusivity period would strike the appropriate balance between innovation and competition.

In July, members of the Senate countered with very different recommendations. First, Senator Ted Kennedy (D-MA) broke ranks with the White House, proposing on July 8 that any follow-up biologics legislation considered by Congress should give innovator biologic drugmakers up to 13.5 years of exclusivity. A mere five days later, the Senate Health, Education, Labor, and Pensions (“HELP”) Committee voted in favor of a pathway that provides 12 years of exclusivity, handing a major victory to the branded biotechnology industry.

The reaction to these new developments has been swift and strong. Jim Greenwood, the President of the Biotechnology Industrial Organization (BIO), expressed his disapproval that the White House derived its policy from the FTC report, which he argued “was based upon highly selective assumptions and has been rejected by many members of Congress as fundamentally flawed.” In contrast, the AARP has written Congress to urge support for the LSMA 5 year exclusivity, stating in a letter to house members that “it is critical that Congress pursues a legislative option that does not delay consumer access to less expensive generic versions of these life-saving medicines,” and in a letter to Senate members that no bill at all is better than a bill that gives brand-name pharmaceutical companies 12 years of protection.

The pharmaceutical industry has eagerly awaited news about where the most influential politicians and groups would come down on the length of time for market and data exclusivity. Now that the lines are clearly drawn, the battle can begin in earnest between those supporting the generic biologics industry, and those supporting the branded biologics industry.

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Arbitration Fairness Act May Push More Competitive Conflicts Into Court

Once favored as a litigation cost-and time-reduction panacea, arbitration as an institution may be falling out of favor, and a current legislative response to this climate of disfavor could eliminate arbitration as a forum for most non-competition and non-solicitation legislation. The Arbitration Fairness Act of 2009 is a pending bill that would, among other things, invalidate binding arbitration clauses in employment agreements. As drafted, the AFA would take effect for disputes “arising on or after” the date of enactment – in other words, it would apply retroactively to employment agreements, many of which include not only business non-competes and non-solicits, but mandatory arbitration provisions as well.

The result will be a trip to court for the business that may have contracted to avoid it. Suppose your business has key manager who leaves to work for a competitor. His non-compete should restrict that move, but the manager claims it is unenforceable. Assuming no challenge to the bargaining process or fundamental fairness of the agreement exists, your company might ordinarily invoke the arbitration clause. In arbitration, you have the opportunity to present arguments about the enforceability of the clause in a confidential setting, and a ruling against your company is not one that will set precedent that might impact your company’s other agreements.

With the AFA in effect, your company would need to head to Court, or, as is often the case, the manager might preempt that move by filing his own declaratory judgment action to declare your agreement unenforceable. In that forum, a negative ruling – especially one that is appealed unsuccessfully – could work to establish the invalidity of other, like agreements within the company. The litigation will be a very public undertaking, and the results accessible to anyone who chooses to view the docket.

If the AFA’s passage appears imminent, contingency planning may be in order. Here’s the text: http://tinyurl.com/bnjhk8. In committee now, the AFA stands a fair chance of passage by a Democratic Congress. We’ll keep you apprised of the bill’s progress, and in the meanwhile, it may be worth evaluating existing agreements and having in place a forward-looking response strategy that accounts for the AFA or similar legislation.

As an aside, your author is not so certain that arbitration is the necessarily the best forum to litigate these competitive provisions in every setting. For example, even if prevailing law favors your position, a negative arbitration result is virtually unappealable. The key is flexibility, and planning to account for your business’ particular competitive needs: there is no “one size fits all” solution.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

They Are From The Government and Are Here To Help You. Really.

Intellectual property owners should not overlook a valuable tool in protecting their assets from infringement from abroad – the U.S. Customs and Border Protection (“Customs and Border Protection”) division of the Department of Homeland Security. This agency offers a very cost effective opportunity for companies to exclude counterfeit, confusingly similar, and/or inferior goods into the U.S.. Depending on the nature of what is being imported, Customs and Border Protection can exclude, detain, seize or cause the forfeiture goods imported, introduced or shipped in or through the United States.

In order to take advantage of the services of Customs and Border Protection, an owner of a registered trademark, trade name or copyright should record its mark or copyright with Customs and Border Protection to prevent the entry, or attempted entry, of infringing products into the U.S.. One should use the electronic recordation program provided by Customs and Border Protection. The cost is $190 per application and it is much less cumbersome than filing a paper form. See, http://www.attts/apps.cdp.gov/e-recordation/.

After registration, the IP owner should open an ongoing dialog with Customs and Border Protection concerning unique characteristics of the protected products as well as guidance on identifying suspected counterfeit or infringing products. Under this “application process,” owners of registered and recorded trademarks may, and should, provide updated information designed to assist U.S. Custom Inspectors in intercepting illegal imports. Ideally, an IP owner should submit sufficient information to support a “Trade Alert,” which will be directed to all ports of entry throughout the country. The more information an IP owner can provide to an inspector to make a decision as to what is real, and what is counterfeit or infringing, the better. Of course, the IP owner should update this information regularly.

In summary, significant protection is available from the federal government for IP owners at a low cost. Surprising? Maybe. Worthwhile? Absolutely.

Steve Dorvee is a partner and member of the Litigation Group and Intellectual Property Team at Arnall Golden Gregory LLP (stephen.dorvee@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Federal Circuit Aligns Part of Patent Law With Realities of Biotechnology; Will the Court Go All the Way?

In a recent decision (In re Kubin, 561 F.3d 1351 (Fed. Cir. 2009)) the Federal Circuit has done an end around the principle established in In re Deuel, holding that a method of cloning a gene makes obvious a claim to the gene.

In Deuel (51 F.3d 1552 (Fed. Cir. 1995)) the Federal Circuit reversed a Board of Patent Appeals Interferences decision holding a claim to a specific cDNA sequence obvious over the sequence of the protein encoded by the cDNA and known methods of cloning cDNA molecules using the sequence of the encoded protein. The decision in Deuel was clearly based on the priciple that the cDNA claimed was a chemical compound with a specific structure. The Federal Circuit reasoned there that because the cited prior art taught a method of obtaining a cDNA but (according to the court) did not provide any suggestion of the structure of the claimed cDNA, the claimed cDNA could not be obvious. The court in Deuel clearly focused on the lack of teaching in the prior art of any structure of the claimed cDNA. Although the court also mentioned that the prior art method of obtaining the cDNA was "obvious to try" and that "obvious to try" art was insufficient render a claim obvious, this was not the basis of the decision in Deuel, nor was it the legal principle thereafter applied from Deuel. The lasting legal principle from Deuel was that the structure of a claimed chemical compound could not be described by a mere method of obtaining that chemical (in the absence of a teaching suggesting the structure of the compound).

With amnesiatic sleight of hand, the Federal Circuit in In re Kubin recast In re Deuel as a case about the “obvious to try” principle in obviousness analysis. In Kubin the court affirmed a Board of Patent Appeals and Interferences decision holding a claim to a polynucleotide encoding a protein structurally and functionally related to a cell surface receptor protein obvious over prior art teaching the same receptor protein and a general method of obtaining the gene encoding the receptor protein.

The court first highlighted how obvious the art made it to isolate the gene encoding the receptor protein based on the protein and emphasizing that it was undisputed that the prior art method would almost surely result in obtaining the gene. Thus, the court agreed that there would have been a reasonable expectation of success in obtaining the gene using the method. The court then recognized that affirming the Board decision in Kubin would require the court to address the contrary decision of In re Deuel. To do so, the court noted that the Supreme Court decision in KSR v. Teleflex (550 U.S. 398 (2007)) had changed the landscape for obviousness determinations. In particular, the court spent some effort highlighting how KSR weakened the status of the “obvious to try” principle in assessing obviousness. The court even suggested that the Supreme Court in KSR was repudiating the obvious to try principle of In re Deuel (“Insofar as Deuel implies the obviousness inquiry cannot consider that the combination of the claim’s constituent elements was “obvious to try,” the Supreme Court in KSR unambiguously discredited that holding.”). The court also noted that the Supreme Court cited In re Deuel as supporting the “obvious to try” principle. However, as noted above, the holding in Deuel does not depend on the “obvious to try” principle. In any case, this repudiation of the holding in Deuel (now apparently based on application of the “obvious to try” principle) allowed the court to hold that the prior art method of obtaining the gene for the receptor protein made the claim to the gene itself obvious, noting that the proper application of the “obvious to try” principle supported a conclusion of obviousness.

In a sense, the decision in In re Kubin brings obviousness of biotechnology inventions back to more rational ground. Even in 1995 (and in the 1980s, the era of the invention in Deuel), biotechnologists considered cloning of a gene based on a protein sequence to be routine, with success given a high probability. Thus, the decision in In re Deuel was greeted with some disbelief by those knowledgeable in biotechnology. The Deuel decision was pro-patent and so might not have had clear negative consequences on the development and funding of the biotechnology industry except for one significant anti-patent decision that followed directly from the true principle of the Deuel holding.

In Regents of the University of California v. Eli Lilly (119 F.3d 1559 (Fed. Cir. 1997)) the Federal Circuit addressed the question of whether a method of obtaining a gene provided a sufficient written description of the gene to satisfy the requirements of 35 U.S.C. § 112, first paragraph. A specific human cDNA was claimed in patent at issue in Eli Lilly but the patent specification provided only the sequence of the rat version of the cDNA and a method of using the rat cDNA sequence to obtain the human cDNA sequence. It was agreed by the court and the parties that the method of obtaining the human cDNA was enabling and would (and did) result in the human cDNA when it was performed. However, neither the rat cDNA nor the method suggested the precise structure of the human cDNA. Citing the reasoning in Deuel, the court held that an enabled method of obtaining a gene did not provide an adequate written description of the gene because it did not provide sufficient information about the structure of the gene. There was no doubt that the method/structure aspect of Deuel was the basis for the holding in Eli Lilly:

"We had previously held that a claim to a specific DNA is not made obvious by mere knowledge of a desired protein sequence and methods for generating the DNA that encodes that protein. See, e.g., In re Deuel, 51 F.3d 1552, 1558, 34 USPQ2d 1210, 1215 (1995) ("A prior art disclosure of the amino acid sequence of a protein does not necessarily render particular DNA molecules encoding the protein obvious because the redundancy of the genetic code permits one to hypothesize an enormous number of DNA sequences coding for the protein."); In re Bell, 991 F.2d 781, 785, 26 USPQ2d 1529, 1532 (Fed.Cir.1993). Thus, a fortiori, a description that does not render a claimed invention obvious does not sufficiently describe that invention for purposes of § 112, ¶ 1. Because the '525 specification provides only a general method of producing human insulin cDNA and a description of the human insulin A and B chain amino acid sequences that cDNA encodes, it does not provide a written description of human insulin cDNA. Accordingly, the district court did not err in concluding that claim 5 is invalid for failure to provide an adequate written description.

* * *

A written description of an invention involving a chemical genus, like a description of a chemical species, "requires a precise definition, such as by structure, formula, [or] chemical name," of the claimed subject matter sufficient to distinguish it from other materials."

Eli Lilly, 119 F.3d at 1567-68 (emphasis in original).

The decision by the Federal Circuit in Ariad Pharmaceuticals v. Eli Lilly, 2008-1248 (Fed. Cir. 2009), issued the same day as In re Kubin, is just the latest written description case holding that a method of obtaining a compound does not provide an adequate written description of the compound.

I would hope that the more scientifically rational decision in In re Kubin would filter into the Federal Circuit’s written description jurisprudence, but I have serious doubts that it will.

Friday's Patent of the Week

Bill Gates won’t let anything stop him from reaching the peaks of success, not even a hurricane. So, what’s next for Bill Gates?..... The architect of the personal computer revolution is now controlling the weather.

This Friday’s “Patent of the Week,” US Patent Application No. 20090175685 titled: “Water alteration structure movement method and system,” is a member of a group of patent applications which recently published naming none other than William H. Gates, Founder of Microsoft, as one of the inventors. This group of applications revolve (literally and figuratively) around Hurricanes and methods of reducing their formation.

The warm water of the ocean is a primary element in hurricane formation. Common theory is that cooling the water temperatures will aid in dissipating these tropical storms. In fact, NASA believes that in 1998 Hurricane Bonnie left cool waters in its aftermath therefore disrupting the formation of Hurricane Danielle, which was quickly approaching.

Mr. Gates and his fellow co-inventors claim a structure to be placed in a body of water that is capable of lifting cold water from deep below the water surface level to eliminate the warm water needed for hurricane formation. The structure’s propulsion system can be driven by things such as fuel, solar energy or wind.

The feasibility of this type of approach is yet to be determined. Many naysayers think it won’t work since there would be an extremely large surface area of water that would need to be temperature controlled, and controlling the atmosphere may be just as critical as controlling water temperature in hurricane formation.

Mr. Gates has proven himself successful time and time again, so just maybe he is the one to stop these tropical catastrophes. After all, he appears to have an “eye” for success.



Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Confusion Surrounds Eligibility for Patent Term Extensions and NCE Exclusivity

When has an active ingredient in a drug product been previously approved by the U.S. Food and Drug Administration (FDA)? That question, and conflicting precedent from the U.S. Court of Appeals for the Federal Circuit discussing that question, were addressed recently in a lawsuit filed in the Eastern District of Virginia against the Commissioner of the United States Patent Office, after the Commissioner refused to grant a patent term extension (PTE) to Photocure ASA. See Photocure ASA v. Dudas.

Whether an active ingredient has previously been approved is critical to drug companies in the United States because it determines whether an extension of patent term is available to the drug company, and whether the drug qualifies for exclusivity as a new chemical entity (NCE). Unfortunately, the legal situation is not always clear due to conflicting decisions from the U.S. Court of Appeals for the Federal Circuit. This lack of clarity is especially pronounced when evaluating different salts and esters of a previously approved drug product.

The U.S. Patent Laws provide that a patent for a drug that has been delayed from market by FDA approval requirements may have its term extended if the FDA approval is “the first permitted commercial marketing or use of the product.” A “product” is defined to include “the active ingredient of a new drug, including any salt or ester of the active ingredient.” Thus, a patent term extension is only available if FDA has not previously approved the same active ingredient or a salt or ester of the active ingredient.

Similar language governs the availability of new chemical entity exclusivity under the Federal Food Drug and Cosmetic Act (FFDCA). With limited exceptions, if FDA approves a new drug having an “active ingredient (including any ester or salt of the active ingredient)” that has not been previously approved, FDA will not accept another application for the same drug for five years. As with PTEs, NCE exclusivity is only available if FDA has not previously approved the same active ingredient or a salt or ester of the same active ingredient.

The similarity in language should come as no surprise to practitioners in this area because both provisions were included in the original 1984 legislation enacting the Waxman Hatch Act. But that is where the similarity ends. The Patent Office has interpreted the language in the Patent Laws differently than FDA has interpreted the FFDCA, and different court decisions have interpreted the language in the Patent Laws differently.

FDA’s interpretation of the NCE provisions has been consistent ever since the Hatch Waxman Act was first enacted. FDA considers the “active moiety” to be the active ingredient in a drug, and awards NCE exclusivity to the drug only if FDA has not previously approved the “active moiety” or a salt or ester form of the active moiety. FDA effectively substitutes “active moiety” for “active ingredient” in its interpretation of the law.

While this approach does not follow the strict language of the law, it does reflect FDA’s experience with drug approvals, during which FDA focuses on the active form of the drug after it has been administered and metabolized. In the case of a salt, which consists of the active moiety appended to a counter-ion, the active moiety is revealed after the drug is dissolved and the counter-ion disassociates from the active moiety. In the case of an ester, which consists of the active moiety appended to an ester function, the active moiety is revealed after enzymes cleave the ester function from the active moiety in the bloodstream.

Unlike FDA, the Patent Office has not been consistent in its interpretation of the PTE laws over the years, perhaps as a consequence of conflicting court decisions it has endured. These conflicts and inconsistencies culminated earlier this year in a lawsuit filed by Photocure ASA, when the Patent Office applied FDA’s active moiety approach and denied Photocure a patent term extension for its Metvix® chemotherapy product.

Against this backdrop were two conflicting decisions from the U.S. Court of Appeals for the Federal Circuit, the appeals court created in 1982. In a 1990 decision in Glaxo v. Quigg, a three-judge panel at the Federal Circuit had applied the literal terms of the Patent Laws and held that the axetil ester of cefuroxime was entitled to a patent term extension, even though two salts of cefuroxime had previously been approved, because FDA had not previously approved cefuroxime axetil or “any salt or ester of cefuroxime axetil.”

In 2004, a different three judge panel at the Federal Circuit reached a contradictory result in Pfizer v. Dr. Reddy’s. Applying the active moiety approach, the court held that Pfizer’s patent term extension for the besylate ester of amlodipine extended to all esters of amlodipine, including the maleate ester under development by Dr. Reddy’s, because the active moiety of both molecules was the same. Remarkably, the Federal Circuit did not refer to its earlier decision in Glaxo v. Quigg, or make any effort to reconcile the two decisions, even though both cases interpreted the exact same definition of “drug” in the Patent Laws.

Once the Photocure v. Dudas court appreciated the conflict that the Federal Circuit’s decisions had created, it had little difficulty resolving the conflict in Photocure’s favor. When decisions of two different panels of the same appeals court conflict, the first decision usually takes precedence over the second.

The Photocure v. Dudas court also had little difficulty resolving the Patent Office’s conflicting policies on the issue. While the Patent Office urged the court to defer to its judgment on the issue, the court had difficulty accepting the Patent Office’s argument because the Patent Office had not been consistent on the issue. To the contrary -- as of the 2008 printing of the Manual of Patent Examining Procedure (MPEP), the Patent Office was reportedly applying the Federal Circuit’s literal interpretation of the statute in Glaxo v. Quigg, stating: “the ester form is a different active ingredient from the salt form. Both the ester and the salt active ingredient may each support an extension of patent term of different patents provided the [base active moiety] itself has not previously been approved.” Because of the conflict between the interpretation advised in MPEP § 2751 and the active moiety approach used to deny Photocure’s PTE, the court refused to give the Patent Office’s decision any deference, and order the Patent Office to approve the patent term extension.

The district court’s Photocure v. Dudas decision is currently on appeal to the Federal Circuit. Unless the Patent Office can persuade the Federal Circuit to hear the appeal en banc, your authors predict that the district court’s decision will stand, and Photocure’s patent term extension will be granted. After all, as the district court so aptly observed, it is the first appellate decision on the issue that has precedential value, unless and until the court of appeals reconsiders its precedent through an en banc hearing.

TTAB ENDS FENDER’S BID TO REGISTER TRADEMARKS FOR ITS GUITAR SHAPES

In a recent decision, the Trademark Trial and Appeal Board (TTAB) ended Fender’s five-year fight to obtain federal trademark registrations for the shape of its Stratocaster, Telecaster, and Precision Bass guitars (pictured below). The TTAB determined that Fender did not show that the two-dimensional outlines of its guitars, standing alone, served to indicate source.



This case illustrates the importance more and more companies are placing on so-called “nonconventional” trademarks, and also the difficulty associated with obtaining a federal registration for such marks.

Most people are familiar with “traditional” trademarks, such as words, logos, or symbols. However, trademarks can take just about any form. Increasingly, providers of goods and services are claiming protection for nonconventional trademarks. Nonconventional trademarks can include sounds, shapes, textures, smells, movements, and even tastes.

Specific examples of nonconventional trademarks registered with the United States Patent and Trademark Office (USPTO) include the following:

O The sound of a roaring lion for use in connection with motion pictures (Metro-Goldwyn Meyer Lion Corp., U.S. Reg. No. 1,395,550).

O The scent of an apple for use in connection with office supplies (The Smead Manufacturing Company, U.S. Reg. No. 3,140,701).

O Velvet textured covering on the surface of a bottle of wine (American Wholesale Wine & Spirits, Inc., U.S. Reg. No. 3,155,702).

O The shape of an eight-sided competition mat for use in connection with multi-disciplined fighting competitions (Zuffa, Inc., U.S. Reg. No. 2,098,577).

O The motion in which the door of a vehicle is opened (Lamborghini, U.S. Reg. No. 2793439, “The doors move parallel to the body of the vehicle but are gradually raised above the vehicle to a parallel position”).

The key to obtaining trademark rights to a nonconventional mark is establishing that the mark is capable of functioning as a source indicator, meaning that consumers are able to identify the mark as being associated with the maker or provider of a product or service.

Demonstrating this source-identifying function tends to be more difficult with non-traditional marks, and many have tried, but failed, to register a nonconventional mark with the USPTO. In addition to Fender, other notable failures include Harley-Davidson’s attempt to obtain federal trademark rights to the exhaust sound of its motorcycles and drug manufacturer Organon’s attempt to register an orange flavor for its anti-depressant medication.

As competition for customers becomes more and more fierce, and as marketers become more and more creative, providers of goods and services are likely to continue their efforts to establish brand recognition through nonconventional marks.



- Tucker Barr



Tucker Barr is an associate in the Litigation Group and Intellectual Property Team at Arnall Golden Gregory LLP (tucker.barr@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Friday's "Patent of the Week": The BILLION Dollar Patent

We have selected U.S. Patent No. 7,070,775 covering antibodies against tumor necrosis factor as this Friday’s “Patent of the Week.” The ‘775 patent is exclusively licensed by Johnson & Johnson, the maker of the drug Remicade. Abbott Labs markets a competing medicine Humira, which is used to reduce treat arthritis, psoriasis, Crohn's disease, and ankylosing spondylitis, and had $4.5 billion in sales last year.

Last week, in the largest patent verdict in U.S. history, an Eastern District of Texas jury held Abbott's drug Humira to infringe that patent, and award J&J $1.67 billion in damages (Centocor (Johnson & Johnson) & NYU v. Abbott Labs (E.D.Tex. 2009)). The jury also found Abbott to be a willful infringer of J&J’s patent.

The litigation is far from over. The court must now decide whether to uphold the verdict, and whether the adjudged willful infringement warrants additional damages, which could theoretically triple the award. Furthermore, as expected, Abbott is planning to appeal the verdict. Abbott argues that the human antibodies used in Humira could not have been covered by the ‘775 patent, since J&J admits that it did not work on the fully human antibody until after the filing of the patent application. But with this much money on the line, even Dr. Evil raises an eyebrow.

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Theft at Goldman Sachs: Even the Biggest Vulnerable to Trade Secret Loss

We just learned that Goldman Sachs, the venerable investment bank and one of the major movers in the U.S. financial markets, suffered a major security breach, one that teaches just how vulnerable companies are to rapid theft and potential devaluation of their trade secret information.

We know of the breach because the United States just lodged criminal charges against a former Goldman employee, a highly paid ($400K per year) programmer and vice-president for equity strategy tasked with developing one of the firm's most sophisticated trading programs. The facts are startling: the programmer, before he left to work for a Chicago firm, transferred computer code directly from Goldman's server to a London-registered computer server in Germany. Goldman makes it money, in part, using programs like this one to execute trades. This program delivered millions of dollars of value every year to the bank. So sophisticated was the program that the United States alleges in the criminal filings that it could be used to "manipulate markets."

The stolen program thus fits consummately the definition of a trade secret. With its theft disclosed, what are Goldman’s next steps?

An unnamed source reports that the investment bank say it has "secured its systems," http://tinyurl.com/m2gctg, but has the damage been done? We do not know where the actual code is now, or whether Goldman and/or the United States have foreclosed any possible future transfer. In the hands of another bank, with the right implementation, the program could be used to devastating effect. We wonder, too, whether Aleynikov (and his new firm if it employed him for any length of time) will be the subject of a civil lawsuit by Goldman to enjoin any work on similar trading models.

Another major question is how Goldman allowed Aleynikov to purloin a "crown jewel" application in the first place. The detection and response systems may have worked well, as one commentator observes in a New York Times piece, http://tinyurl.com/klnn28, but shouldn't an institution as large as Goldman have had controls to flag the export and data transfer of such commercially sensitive code?

For businesses trying to protect their own confidential business information, the story is a caution and reminder that trade secrets are only as valuable as the reasonable precautions taken to prevent their disclosure. For online data, that means, for example, restricted access, password protection, and it may mean, in addition to regular monitoring, firewall and other protocols to limit data transfer.

-Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Tax Preparation Firm That Dumped Sensitive Customer Records Faces Liability

If your company handles sensitive customer information, as most companies these days do, a recent lawsuit, Pinero v. Jackson Hewitt Tax Service, Inc., pending in a federal court in Louisiana bears consideration. The Pinero case reminds businesses that their privacy policies and protocols need to be up to date and adhered to by employees. Negligently exposing private customer information to the public may lead to liability and a public relations nightmare for your company.

The Lawsuit

The plaintiff in the lawsuit was a customer of one of the defendants, a popular tax preparation franchisee. In 2005, before engaging the defendant franchisee to provide tax preparation services, the plaintiff was shown the franchisee’s privacy policy, and was assured that her personal information would be safeguarded.

In 2008, however, someone found the plaintiff’s tax records, along with those of more than a hundred other individuals, in a dumpster behind the franchisee’s retail store. The records had not been shredded. A news station broke the story and returned the tax records to the plaintiff. The franchisee claimed that the tax records were stolen.

The plaintiff, likely angry that her confidential information had been disposed of so irresponsibly, brought suit against the franchisee and franchisor, setting forth a variety of claims, including fraud, breach of contract, and violation of state statutes. In a series of rulings, the court dismissed some of the plaintiff’s claims, but did allow the plaintiff to proceed with claims of fraud, violation of Louisiana’s Unfair Trade Practices Act, and an invasion of privacy claim against the defendants.

What This Means For You

The Pinero lawsuit is a reminder that companies must handle sensitive customer information with great care. Not only can improper exposure of private customer information lead to liability, it can also create a public relations nightmare for your company.

Privacy policies should be drafted carefully to define what constitutes private information and should set forth the company’s obligations and the customer’s rights. These policies should also be updated periodically to stay current with changes in law, technology, or to keep up with your company’s products and services.

Adequate security technology should be employed to safeguard the storage and transfer of electronic records of customer information. Employees should also be trained and routinely refreshed as to what constitutes “private” information, how that information should be handled and disposed, and their responsibility in ensuring that the information remains private.

Of course, despite the strictest measures, private customer information may be compromised inadvertently or through criminal acts such as hacking. In that situation, swift action must be taken to resolve the problem. In certain cases, it may be make sense to proactively inform the customer about the breach and the steps you are taking to remedy the situation.

-- Anuj Desai, Esq.

Not If, but How

Arnall Golden Gregory, LLP has significant experience in the area of privacy law, ranging from drafting privacy policies, counseling clients about privacy security technology solutions, as well as resolving related disputes. We serve the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen.

Please visit our website for more information, http://www.agg.com/.