IP News

IBM Strikes Back in the Battle Over Linux

In the widely-publicized case filed by The SCO Group (SCO) against IBM in March of 2003, SCO claims that IBM distributed SCO's confidential UNIX software code into the open source Linux community in breach of an agreement between the parties. SCO also claims that, as a result, every current user of the Linux operating system may be subject to royalties payable to SCO, and it has terminated licenses to IBM for other UNIX-based products such as Dynix.

In its first formal response to SCO's accusations, IBM denies that it violated any of SCO's rights and counter-claims that SCO violated the GNU General Public License; infringed several of IBM's patents; and improperly terminated IBM's right to distribute Unix. IBM is seeking an injunction to prevent SCO from misrepresenting its rights in Unix and from using IBM's patents without permission. The patents at issue deal with data compression, navigation among graphical menu items, verification of receipts for electronically sent data and methods for monitoring components in a network. Claiming patent infringement raises the stakes in this closely-monitored battle for Linux.

Congress Explores Options to Improve the Quality of Patents

On July 24, 2003, the House Subcommittee on Courts, the Internet, and Intellectual Property held hearings on proposed legislation to improve the quality of issued patents. A panel of experts provided comments on the draft legislation. The first reform would permit third parties opposing a published patent application to submit invalidating prior art to the examiner. Supporters of this proposal asserted that this initiative would result in more relevant prior art being made available during the examination process, thereby improving the quality of issued patents. Opponents argued that any such benefits would be far outweighed by the burdens it would create, and that the proposed provision would allow any member of the public to prevent a patent from issuing in a timely matter.

Draft legislation also proposed providing five factors for a court to consider in determining whether to issue a preliminary injunction against the marketing of an alleged infringing product, including whether the party seeking the injunction is marketing a product covered by the patent and whether alternatives to the challenged product exist. Supporters of this legislation claim that it will curb the practices of “patent trolls,” who buy dubious patents with the sole intent to use them in litigation and use the threat of an injunction to maximize settlement. Detractors believe that the amendments are unnecessary and are already a part of the traditional likelihood of success analysis. Other proposals discussed in the subcommittee advocate mandatory prior art searches by the applicant, removing the estoppel effect of inter partes reexamination and changing the standard for declaratory relief.

Injunction Against Blackberry Makers Stayed

Judge James R. Spencer in the Federal District Court for the Eastern District of Virginia stayed an injunction that would have prevented Research in Motion Ltd. (RIM) from selling its popular Blackberry e-mail devices. Last year, NTP Inc. successfully sued RIM for patent infringement on several patents involving the use of radio frequencies in e-mail communication. A jury awarded NTP $23.1 million in damages. The award has since been increased to $53.7 million and NTP has also been awarded legal fees in excess of $5 million.

In accordance with the stay, an injunction would not come into effect until after the appeal is decided. RIM plans to petition the court to stay the appeal until the reexamination of the patents at issue is complete.

United States Joins the Madrid Protocol

On August 2, 2003 the United States deposited accession documents with the World Intellectual Property Organization, thus signaling its formal entry into the Madrid Protocol. As a result, U.S. trademark owners will be able to file a single online application, pay one fee in one currency, and receive trademark protection in any or all of the 58 member foreign countries. In accordance with the PTO's goal of being a fully electronic trademark operation by the year 2004, all applications will be submitted online. Joining the Madrid Protocol is predicted to reduce the time and expense involved in obtaining international trademark protection.

For more than a decade, the United States refused to join the Madrid Protocol because of a dispute with the European Union over voting rights, but Congress finally passed legislation to implement the treaty on November 2, 2002. The PTO has sought comments for rules for the filing and processing of Madrid Protocol applications, and final rules are expected soon. The PTO will begin accepting Madrid Protocol applications beginning November 2, 2003.

WTO Meetings Grind to a Halt

The WTO talks in Cancun, Mexico collapsed on September 14, 2003. One of the issues to be discussed involved the compulsory licensing of patented drugs to make it easier for poorer companies to import generic drugs. The United States had been the sole holdout against the proposal, requiring a list of the specific diseases that the generic drugs would be used for. Last month the United States dropped this demand and agreed to support the proposal. Also at issue were trademark protections for geographic indications of origin products (GIs) such as Parma ham and Feta cheese. The EU had agreed on a list of 41 products that it felt should be protected. If successful, these GI products would enjoy global trademark protection, denying any products not made in the designated region of the use of the name to describe a product. While agricultural issues led to the collapse of the talks, the intellectual property issues were also tabled. More talks may resume on the intellectual property issues in Geneva, but it is unlikely that the WTO will meet its self-imposed deadline of a binding treaty by the end of next year.

Licensees Cannot be Estopped from Challenging Certification Marks

In Idaho Potato Comm'n v. M&M Produce Farm & Sales, 351 F.3d 130 (2d Cir. 2003), the Second Circuit would not enforce a licensing term that prohibited the licensee from challenging the validity of a certification mark. Idaho Potato owned a certification mark for potato packaging and licensed the mark to those who met the standards set for the mark. Part of those standards included rigorous record keeping standards. The license for the certification mark also included an express provision that prohibited a licensee from challenging the validity of the mark at any time. M&M Produce held a license for the certification mark, but had to return the license when M&M Produce's record keeping was found insufficient. After the license was returned, another licensee continued to use M&M Produce to package potatoes with the certification mark. Idaho Potato brought a trademark infringement suit, and M&M countered that the mark should be cancelled due to abuses such as excessive certification standards. The district court upheld the no challenge provision in the licensing agreement and prohibited M&M's counterclaim.

On appeal, the Second Circuit acknowledged that no circuit court had squarely addressed the issue of whether a no challenge clause for a certification mark was enforceable on a former licensee. Citing Lear, Inc v. Adkins, 395 U.S. 653 (1969), which held that the patent licensee estoppel doctrine was trumped by the federal policy behind patent laws, M&M Produce asserted that there could be “no licensee estoppel involving a certification mark.” The court stated that Lear's balancing test weighed the interests of enforcing the contract provisions against the public interest of discovering invalid patents and contributing to the “full and free use of ideas in the public domain.” The court held that Lear could be extended past patents to trademark licensing contracts. In analyzing the relevant public interests, the court stated that the public interest in challenging the validity of a certification mark was higher than that of a trademark because the certifier had a duty to license the mark to anyone who met the standard. Further, the court explained that certification marks protected free and open competition among producers of the certified product. The court held that the public interest in canceling a certification mark was akin to the public interest in invalidating patents. Holding that the public interest in being able to challenge a certification mark was greater than the de minimus harm resulting from the nonenforcement of a contract provision, the court found that M&M Produce was not estopped from challenging the validity of the certification mark.

The publisher of this newsletter is not engaged in rendering legal, accounting, financial, investment advisory or other professional services, and this publication is not meant to constitute legal, accounting, financial, investment advisory or other professional advice. If legal, financial, investment advisory or other professional assistance is required, the services of a competent professional person should be sought.

Jury Rules Against Microsoft in Patent Infringement Case

On August 11, 2003 a jury in the Northern District of Illinois awarded Eolas Technologies, Inc. $521 million in damages for patent infringement against Microsoft Corporation. The patent at issue, U.S. Patent 5,838,906, claims a method of sending interactive software applications over the Internet that makes “plug-ins” and “applets” possible. The suit, 99-CV-626, was filed in 1999 by Eolas, the exclusive licensee of the patent owned by the University of California. While at the University of California, Michael Doyle, founder of Eolas, helped develop the technology as a way of assisting medical students and practitioners to access inexpensive, high-resolution medical-image data over the Internet. The suit alleged that Microsoft began using the technology in its Web browser soon after the patent was filed and continued to use it after the patent issued in 1998. Eolas stated that a license had been offered to Microsoft, but the offer was declined.

Microsoft refuted the infringement claims and challenged the validity of Eolas' patent by claiming another had invented the technology earlier and that the patent described features the technology was not capable of performing. Eolas had initially requested $1.2 billion in damages, but the jury's special verdict awarded Eolas $521 million based on a reasonable royalty of $1.47 per unit of the more than 354 million copies of Microsoft's Windows Web-enabled operating system sold. Eolas has not yet sought an injunction against the sale of Windows, but is seeking to have the award increased. Microsoft has vowed to appeal the verdict. A decision from an inequitable conduct bench trial has yet to be rendered. Microsoft faces more than 30 other patent infringement suits.

IBM Strikes Back in the Battle Over Linux

In the widely-publicized case filed by The SCO Group (SCO) against IBM in March of 2003, SCO claims that IBM distributed SCO's confidential UNIX software code into the open source Linux community in breach of an agreement between the parties. SCO also claims that, as a result, every current user of the Linux operating system may be subject to royalties payable to SCO, and it has terminated licenses to IBM for other UNIX-based products such as Dynix.

In its first formal response to SCO's accusations, IBM denies that it violated any of SCO's rights and counter-claims that SCO violated the GNU General Public License; infringed several of IBM's patents; and improperly terminated IBM's right to distribute Unix. IBM is seeking an injunction to prevent SCO from misrepresenting its rights in Unix and from using IBM's patents without permission. The patents at issue deal with data compression, navigation among graphical menu items, verification of receipts for electronically sent data and methods for monitoring components in a network. Claiming patent infringement raises the stakes in this closely-monitored battle for Linux.

Congress Explores Options to Improve the Quality of Patents

On July 24, 2003, the House Subcommittee on Courts, the Internet, and Intellectual Property held hearings on proposed legislation to improve the quality of issued patents. A panel of experts provided comments on the draft legislation. The first reform would permit third parties opposing a published patent application to submit invalidating prior art to the examiner. Supporters of this proposal asserted that this initiative would result in more relevant prior art being made available during the examination process, thereby improving the quality of issued patents. Opponents argued that any such benefits would be far outweighed by the burdens it would create, and that the proposed provision would allow any member of the public to prevent a patent from issuing in a timely matter.

Draft legislation also proposed providing five factors for a court to consider in determining whether to issue a preliminary injunction against the marketing of an alleged infringing product, including whether the party seeking the injunction is marketing a product covered by the patent and whether alternatives to the challenged product exist. Supporters of this legislation claim that it will curb the practices of “patent trolls,” who buy dubious patents with the sole intent to use them in litigation and use the threat of an injunction to maximize settlement. Detractors believe that the amendments are unnecessary and are already a part of the traditional likelihood of success analysis. Other proposals discussed in the subcommittee advocate mandatory prior art searches by the applicant, removing the estoppel effect of inter partes reexamination and changing the standard for declaratory relief.

Injunction Against Blackberry Makers Stayed

Judge James R. Spencer in the Federal District Court for the Eastern District of Virginia stayed an injunction that would have prevented Research in Motion Ltd. (RIM) from selling its popular Blackberry e-mail devices. Last year, NTP Inc. successfully sued RIM for patent infringement on several patents involving the use of radio frequencies in e-mail communication. A jury awarded NTP $23.1 million in damages. The award has since been increased to $53.7 million and NTP has also been awarded legal fees in excess of $5 million.

In accordance with the stay, an injunction would not come into effect until after the appeal is decided. RIM plans to petition the court to stay the appeal until the reexamination of the patents at issue is complete.

United States Joins the Madrid Protocol

On August 2, 2003 the United States deposited accession documents with the World Intellectual Property Organization, thus signaling its formal entry into the Madrid Protocol. As a result, U.S. trademark owners will be able to file a single online application, pay one fee in one currency, and receive trademark protection in any or all of the 58 member foreign countries. In accordance with the PTO's goal of being a fully electronic trademark operation by the year 2004, all applications will be submitted online. Joining the Madrid Protocol is predicted to reduce the time and expense involved in obtaining international trademark protection.

For more than a decade, the United States refused to join the Madrid Protocol because of a dispute with the European Union over voting rights, but Congress finally passed legislation to implement the treaty on November 2, 2002. The PTO has sought comments for rules for the filing and processing of Madrid Protocol applications, and final rules are expected soon. The PTO will begin accepting Madrid Protocol applications beginning November 2, 2003.

WTO Meetings Grind to a Halt

The WTO talks in Cancun, Mexico collapsed on September 14, 2003. One of the issues to be discussed involved the compulsory licensing of patented drugs to make it easier for poorer companies to import generic drugs. The United States had been the sole holdout against the proposal, requiring a list of the specific diseases that the generic drugs would be used for. Last month the United States dropped this demand and agreed to support the proposal. Also at issue were trademark protections for geographic indications of origin products (GIs) such as Parma ham and Feta cheese. The EU had agreed on a list of 41 products that it felt should be protected. If successful, these GI products would enjoy global trademark protection, denying any products not made in the designated region of the use of the name to describe a product. While agricultural issues led to the collapse of the talks, the intellectual property issues were also tabled. More talks may resume on the intellectual property issues in Geneva, but it is unlikely that the WTO will meet its self-imposed deadline of a binding treaty by the end of next year.

Licensees Cannot be Estopped from Challenging Certification Marks

In Idaho Potato Comm'n v. M&M Produce Farm & Sales, 351 F.3d 130 (2d Cir. 2003), the Second Circuit would not enforce a licensing term that prohibited the licensee from challenging the validity of a certification mark. Idaho Potato owned a certification mark for potato packaging and licensed the mark to those who met the standards set for the mark. Part of those standards included rigorous record keeping standards. The license for the certification mark also included an express provision that prohibited a licensee from challenging the validity of the mark at any time. M&M Produce held a license for the certification mark, but had to return the license when M&M Produce's record keeping was found insufficient. After the license was returned, another licensee continued to use M&M Produce to package potatoes with the certification mark. Idaho Potato brought a trademark infringement suit, and M&M countered that the mark should be cancelled due to abuses such as excessive certification standards. The district court upheld the no challenge provision in the licensing agreement and prohibited M&M's counterclaim.

On appeal, the Second Circuit acknowledged that no circuit court had squarely addressed the issue of whether a no challenge clause for a certification mark was enforceable on a former licensee. Citing Lear, Inc v. Adkins , 395 U.S. 653 (1969), which held that the patent licensee estoppel doctrine was trumped by the federal policy behind patent laws, M&M Produce asserted that there could be “no licensee estoppel involving a certification mark.” The court stated that Lear's balancing test weighed the interests of enforcing the contract provisions against the public interest of discovering invalid patents and contributing to the “full and free use of ideas in the public domain.” The court held that Lear could be extended past patents to trademark licensing contracts. In analyzing the relevant public interests, the court stated that the public interest in challenging the validity of a certification mark was higher than that of a trademark because the certifier had a duty to license the mark to anyone who met the standard. Further, the court explained that certification marks protected free and open competition among producers of the certified product. The court held that the public interest in canceling a certification mark was akin to the public interest in invalidating patents. Holding that the public interest in being able to challenge a certification mark was greater than the de minimus harm resulting from the nonenforcement of a contract provision, the court found that M&M Produce was not estopped from challenging the validity of the certification mark.

The publisher of this newsletter is not engaged in rendering legal, accounting, financial, investment advisory or other professional services, and this publication is not meant to constitute legal, accounting, financial, investment advisory or other professional advice. If legal, financial, investment advisory or other professional assistance is required, the services of a competent professional person should be sought.