IP News

Geographically Misdescriptive Marks

In In re Spirits International, N.V., 2008-1369, the Federal Circuit held that a geographically deceptive mark may still be valid if no substantial portion of the intended audience would be deceived, even if the reason for the lack of deception is that the plainly geographically deceptive mark is in a foreign language that only an insignificant minority of the target audience understands.

In April 1993, Spirits International filed an application for use of the mark MOSKOVSKAYA for vodka. Moskovskaya is a famous Russian vodka brand, and translates to “of or from Moscow.” However, the vodka, while produced in Russia, is not produced in Moscow. The examining attorney at the PTO rejected the application in August 1993, and suspended examination pending the disposition of three similar applications. A final rejection was not issued until March 2006, and the TTAB affirmed the rejection in February 2008.

The TTAB discussed the fact that Russian is a “common, modern language of the world [that] will be spoken or understood by an appreciable number of U.S. consumers for the product or service at issue,” noting that 706,000 people in the United States spoke Russian according to the 2000 Census. The TTAB also considered a survey submitted by Spirits International claiming that only an insignificant percentage of consumers would believe the vodka to come from Moscow, and none of them would be less inclined to buy it upon learning it was produced in another Russian city. The TTAB dismissed the survey for, among other reasons, not screening for Russian speakers.

The Federal Circuit vacated and remanded, holding that the Board had incorrectly applied the “substantial portion of the intended audience” test. The court reasoned that only 0.25% of the U.S. population speaks Russian, and if only 0.25% of the intended audience for the product is deceived, that would not be a substantial portion of the intended audience. However, that fact is not decisive; the court suggested that Russian speakers may be a higher proportion of the vodka-consuming market and that a number of non-Russian speakers would still recognize the mark as indicating a Moscow origin, and these groups combined could make up a substantial portion of the intended audience. Accordingly, the court remanded to the TTAB for determination of whether there was a prima facie case of material deception under the correct legal test, namely that a “substantial portion of the intended audience” must be deceived.

'Reverse Payment' Agreements in Patent Infringement Settlements

On March 25, 2009, plaintiffs Arkansas Carpenters Health and Welfare Fund, Paper, A.F. of L., et al., filed a petition for certiorari to the Supreme Court appealing the Federal Circuit's decision in Arkansas Carpenters Health and Welfare Fund v. Bayer AG, No. 08-1194. The Federal Circuit in that case held that a settlement of a patent infringement lawsuit in which the patentee pays the infringer to not produce the product is per se lawful, and can only be challenged if it goes beyond the scope of the patent or the patent was gained fraudulently.

Bayer owns U.S. Patent No. 4,670,444, which is directed to ciprofloxacin hydrochloride, the active ingredient in the well-known antibiotic Cipro'. The patent issued in June 1987, and expired in December 2003. In October 1991, Barr Laboratories filed an ANDA for a generic version of Cipro, and challenged Barr's patent as invalid and unenforceable. In the ensuing patent infringement lawsuit, Bayer and Barr entered into a settlement where Barr would not challenge Bayer's patent or manufacture a generic version of Cipro in the United States, and in turn Bayer would provide quarterly payments to Barr until the patent expired. A number of other companies later tried to file their own ANDAs for generic versions of Cipro, and Bayer defeated their challenges to the patent.

In 2000 and 2001, a number of purchasers of Cipro and some advocacy groups filed several antitrust actions challenging Bayer's settlement agreement. These cases were consolidated in the Eastern District of New York, which granted summary judgment to defendants. The court found that any anticompetitive effects of the settlement were within the exclusionary right of the patent, so the settlement was not an antitrust violation. In particular, the court did not consider the validity of the patent in deciding the antitrust claim, holding that under a rule of reason analysis the agreement was within the scope of the patent.

The Federal Circuit affirmed summary judgment for defendants in October 2008, writing that, “The essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent.” The Federal Circuit also explicitly held that, “in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment.”

The plaintiffs have now filed a petition for certiorari with the Supreme Court, presenting the question: “Are pharmaceutical 'reverse payment' agreements ' whereby the manufacturer of a brand-name drug (and patent holder) pays a generic manufacturer (and alleged patent infringer) to not launch a generic version of the brand-name drug ' per se lawful without regard to the amount of cash paid or the strength of the underlying patent challenge?” Additionally, a group of 54 intellectual property law, antitrust law, economics, and business professors, together with the American Antitrust Institute, the Public Patent Foundation, and the AARP have filed an amicus brief supporting certiorari. The amicus brief suggests, as the presented question, “Whether an agreement by a patent owner to pay a potential competitor not to enter the market is illegal per se, as the Sixth Circuit has held, is legal per se, as the Second and Federal Circuits have held, or should be judged under the antitrust rule of reason, as the Eleventh Circuit has held.” Respondents Bayer et al. have requested, and received, an extension of time to respond to the petition, and their brief was due on May 26.

Whether a 'Covenant Not to Sue' Is Equivalent to a License

In Transcore, LP v. Electronic Transaction Consultants Corp., 2008-1430, the Federal Circuit held that a “covenant not to sue” counted as an “authorization” for the purpose of exhaustion of patent rights.

In 2000, Transcore sued a competitor, Mark IV Industries, for infringement of various Transcore patents related to automated toll collection systems. In settling that lawsuit, Mark IV agreed to pay Transcore $4.5 million in exchange for an unconditional covenant not to sue and a release of all existing claims. Several years later, Electronic Transaction Consultants (“ETC”) won a bid with the Illinois State Toll Highway Authority to install and test a new open-road tolling system, and used toll-collection systems purchased by the state agency from Mark IV. Transcore sued ETC for infringement of patents that were included in Transcore's covenant not to sue with Mark IV. ETC filed for, and the district court granted, summary judgment on the grounds of patent exhaustion.

The Federal Circuit affirmed, rejecting Transcore's argument that a “covenant not to sue” was not an “authorization” under the patent exhaustion doctrine. The court reasoned that a patent does not grant an affirmative right to practice an invention, but only the right to exclude others from doing so. Therefore, a patent license is equivalent to a covenant not to sue, because the only right the patentee can give up is the right to sue to enforce its exclusive patent rights. The only question is then whether the covenant not to sue includes a license to sell as well as manufacture the patented product. The court looked to the language of the contract, determined that it was not limited to “making” or “using” the patented invention, and held that Mark IV's sales were authorized by its license with Transcore.

Howard J. Shire is editor-in-chief of this newsletter and a partner in the New York office of Kenyon & Kenyon LLP. Brian J. Beck is an associate in the same office.

Geographically Misdescriptive Marks

In In re Spirits International, N.V., 2008-1369, the Federal Circuit held that a geographically deceptive mark may still be valid if no substantial portion of the intended audience would be deceived, even if the reason for the lack of deception is that the plainly geographically deceptive mark is in a foreign language that only an insignificant minority of the target audience understands.

In April 1993, Spirits International filed an application for use of the mark MOSKOVSKAYA for vodka. Moskovskaya is a famous Russian vodka brand, and translates to “of or from Moscow.” However, the vodka, while produced in Russia, is not produced in Moscow. The examining attorney at the PTO rejected the application in August 1993, and suspended examination pending the disposition of three similar applications. A final rejection was not issued until March 2006, and the TTAB affirmed the rejection in February 2008.

The TTAB discussed the fact that Russian is a “common, modern language of the world [that] will be spoken or understood by an appreciable number of U.S. consumers for the product or service at issue,” noting that 706,000 people in the United States spoke Russian according to the 2000 Census. The TTAB also considered a survey submitted by Spirits International claiming that only an insignificant percentage of consumers would believe the vodka to come from Moscow, and none of them would be less inclined to buy it upon learning it was produced in another Russian city. The TTAB dismissed the survey for, among other reasons, not screening for Russian speakers.

The Federal Circuit vacated and remanded, holding that the Board had incorrectly applied the “substantial portion of the intended audience” test. The court reasoned that only 0.25% of the U.S. population speaks Russian, and if only 0.25% of the intended audience for the product is deceived, that would not be a substantial portion of the intended audience. However, that fact is not decisive; the court suggested that Russian speakers may be a higher proportion of the vodka-consuming market and that a number of non-Russian speakers would still recognize the mark as indicating a Moscow origin, and these groups combined could make up a substantial portion of the intended audience. Accordingly, the court remanded to the TTAB for determination of whether there was a prima facie case of material deception under the correct legal test, namely that a “substantial portion of the intended audience” must be deceived.

'Reverse Payment' Agreements in Patent Infringement Settlements

On March 25, 2009, plaintiffs Arkansas Carpenters Health and Welfare Fund, Paper, A.F. of L., et al., filed a petition for certiorari to the Supreme Court appealing the Federal Circuit's decision in Arkansas Carpenters Health and Welfare Fund v. Bayer AG, No. 08-1194. The Federal Circuit in that case held that a settlement of a patent infringement lawsuit in which the patentee pays the infringer to not produce the product is per se lawful, and can only be challenged if it goes beyond the scope of the patent or the patent was gained fraudulently.

Bayer owns U.S. Patent No. 4,670,444, which is directed to ciprofloxacin hydrochloride, the active ingredient in the well-known antibiotic Cipro'. The patent issued in June 1987, and expired in December 2003. In October 1991, Barr Laboratories filed an ANDA for a generic version of Cipro, and challenged Barr's patent as invalid and unenforceable. In the ensuing patent infringement lawsuit, Bayer and Barr entered into a settlement where Barr would not challenge Bayer's patent or manufacture a generic version of Cipro in the United States, and in turn Bayer would provide quarterly payments to Barr until the patent expired. A number of other companies later tried to file their own ANDAs for generic versions of Cipro, and Bayer defeated their challenges to the patent.

In 2000 and 2001, a number of purchasers of Cipro and some advocacy groups filed several antitrust actions challenging Bayer's settlement agreement. These cases were consolidated in the Eastern District of New York, which granted summary judgment to defendants. The court found that any anticompetitive effects of the settlement were within the exclusionary right of the patent, so the settlement was not an antitrust violation. In particular, the court did not consider the validity of the patent in deciding the antitrust claim, holding that under a rule of reason analysis the agreement was within the scope of the patent.

The Federal Circuit affirmed summary judgment for defendants in October 2008, writing that, “The essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent.” The Federal Circuit also explicitly held that, “in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment.”

The plaintiffs have now filed a petition for certiorari with the Supreme Court, presenting the question: “Are pharmaceutical 'reverse payment' agreements ' whereby the manufacturer of a brand-name drug (and patent holder) pays a generic manufacturer (and alleged patent infringer) to not launch a generic version of the brand-name drug ' per se lawful without regard to the amount of cash paid or the strength of the underlying patent challenge?” Additionally, a group of 54 intellectual property law, antitrust law, economics, and business professors, together with the American Antitrust Institute, the Public Patent Foundation, and the AARP have filed an amicus brief supporting certiorari. The amicus brief suggests, as the presented question, “Whether an agreement by a patent owner to pay a potential competitor not to enter the market is illegal per se, as the Sixth Circuit has held, is legal per se, as the Second and Federal Circuits have held, or should be judged under the antitrust rule of reason, as the Eleventh Circuit has held.” Respondents Bayer et al. have requested, and received, an extension of time to respond to the petition, and their brief was due on May 26.

Whether a 'Covenant Not to Sue' Is Equivalent to a License

In Transcore, LP v. Electronic Transaction Consultants Corp., 2008-1430, the Federal Circuit held that a “covenant not to sue” counted as an “authorization” for the purpose of exhaustion of patent rights.

In 2000, Transcore sued a competitor, Mark IV Industries, for infringement of various Transcore patents related to automated toll collection systems. In settling that lawsuit, Mark IV agreed to pay Transcore $4.5 million in exchange for an unconditional covenant not to sue and a release of all existing claims. Several years later, Electronic Transaction Consultants (“ETC”) won a bid with the Illinois State Toll Highway Authority to install and test a new open-road tolling system, and used toll-collection systems purchased by the state agency from Mark IV. Transcore sued ETC for infringement of patents that were included in Transcore's covenant not to sue with Mark IV. ETC filed for, and the district court granted, summary judgment on the grounds of patent exhaustion.

The Federal Circuit affirmed, rejecting Transcore's argument that a “covenant not to sue” was not an “authorization” under the patent exhaustion doctrine. The court reasoned that a patent does not grant an affirmative right to practice an invention, but only the right to exclude others from doing so. Therefore, a patent license is equivalent to a covenant not to sue, because the only right the patentee can give up is the right to sue to enforce its exclusive patent rights. The only question is then whether the covenant not to sue includes a license to sell as well as manufacture the patented product. The court looked to the language of the contract, determined that it was not limited to “making” or “using” the patented invention, and held that Mark IV's sales were authorized by its license with Transcore.

Howard J. Shire is editor-in-chief of this newsletter and a partner in the New York office of Kenyon & Kenyon LLP. Brian J. Beck is an associate in the same office.