Specification Must Sufficiently Describe Claimed Invention to Show Possession of Claimed Subject Matter

Reversing a grant of summary judgment holding that patents covering claims to a beverage can and a method for making a beverage can were invalid for failure to satisfy the written description requirement and being anticipated, the U.S. Court of Appeals for the Federal Circuit concluded that under the “problem solution” analysis of Revolution Eyeware, the patent in issue satisfied the written descriptive requirement by providing multiple solutions to the stated problem and that a genuine issue of material fact existed as to whether a prior art reference inherently disclosed elements of the claims.   Crown Packaging Tech., Inc. v. Ball Metal Container Corp., Case No. 10-1020 (Fed. Cir. April 1, 2011) (Whyte, J., N.D. Cal., sitting by designation) (Dyk, J, concurring-in-part and dissenting-in-part).

Crown Packaging sued Ball Metal Container asserting infringement of two patents sharing a common specification that related to beverage cans that use less metal, based on the connection of the can end to the can body.   The district court granted Ball a summary judgment ruling of invalidity, finding that the patents in suit failed to satisfy the written description requirement and were anticipated under principles of inherency.   The district court found that the asserted claims cover driving a chuck either inside or outside of the reinforcing bead of the lid, but the specification only supports driving a chuck outside of the reinforcing bead at the end of the can, thus failing to satisfy the written description requirement.  Further, the district court found that a published Japanese patent application anticipated the asserted claims, with at least one claim limitation being inherently disclosed.  Crown Packaging appealed.

The Federal Circuit began the analysis by reviewing the written description requirement.  Citing Ariad Pharms., Inc. v. Eli Lilly & Co. (see IP Update, Vol. 12, Nos. 5  and 9) the Court noted that the test for the written description requirement is “whether the disclosure clearly ‘allow[s] persons of ordinary skill in the art to recognize that [the inventor] invented what is claimed.”  Put another way, the disclosure must convey that “the inventor has possession of the claimed subject matter as of the filing date.” Possession is shown by the specification disclosing what is claimed.  The Court noted that the originally filed claims are part of the specification and often satisfy the written description requirement.

The Court, distinguishing the enablement requirement from written description, agreed with Crown Packaging that the specification taught two different ways to address the problem of reducing metal usage in beverage cans and that the specification does not require the use of both methods in all instances.  Since the patents in suit teach two separate ways to save metal and the original claims show that Crown Packaging recognized that two independent ways to save metal were disclosed in the patent, the written description requirement was satisfied.

Turning to the issue of anticipation, the Federal Circuit found that the experts’ reports materially differed regarding the disclosure of the prior art Japanese patent application, thus summary judgment was  inappropriate in this case, as a genuine issue of material fact existed.

Judge Dyk dissented in part, writing that the patents should be invalid for failing to satisfy the written description requirement.   Judge Dyk found that specification did not teach the combination of elements found in the claims, and thus, the patents should be invalidated.   Judge Dyk wrote that Revolution Eyewear v. Aspex Eyewear requires “explicit disclosure of the embodiments in the claims.”  In his view, “[t]he fact that the claims are broad enough to cover such an invention or imply that the claims cover such an invention is not sufficient when the invention itself is not described either in the claims or elsewhere in the specification.”

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KUBA KUBA Held to be Geographically Deceptively Misdescriptive for Cigars

The determination of whether a mark is geographically misdescriptive involves only the “primary significance” of the mark when viewed in connection with the goods applied for, not any potential alternative meanings of the mark, even if those alternative meanings are non-geographic. This holding, along with the rejection of a heightened materiality standard, was the result of the Trademark Trial and Appeal Board (TTAB)’s opinion in In re Jonathan Drew Inc d/b/a Drew Estate (Serial No 77099522, January 28 2011), which found the mark KUBA KUBA to be primarily geographically deceptively misdescriptive when used in connection with cigars.

The TTAB began by stating the Federal Circuit’s test for finding a mark to be primarily geographically deceptively misdescriptive under Section 2(e)(3) of the Lanham Act:

  • whether the mark’s primary significance is a generally known geographic location;
  • whether consumers would likely believe (falsely) that the goods originate from that place; and
  • whether the misrepresentation is a material factor in the consumers’ decision.

The applicant’s primary argument was that, due to the mark’s numerous other meanings and its spelling differences from ‘Cuba’, consumers would not identify the mark with the country Cuba. The TTAB, however, rejected each of those arguments. First, it noted that ‘Kuba’ is a mere one letter misspelling of ‘Cuba’, and that misspellings are considered the equivalent of the official name for the purposes of determining the primary meaning of a mark. The two words were not only similar in both appearance and pronunciation, but there was “nothing fanciful or unusual” about substituting a ‘K’ for a ‘C’ in English. Additionally, according to TTAB precedent, the repetition of the word ‘Kuba’ did not distract from the meaning of the word by itself.

Second, the TTAB rejected the argument that consumers would associate the mark with alternative meanings for ‘Kuba’, in particular the applicant’s argument that it would be associated with the ‘Kuba Kingdom‘ of 16th-century Africa. Using Wikipedia as a source, the TTAB found that the African kingdom was not only obscure, but known primarily for textiles, masks and other regalia – not cigars. Without disputing that it was an alternative meaning, the TTAB said that it was not relevant to the analysis because the mark’s primary meaning must be considered “in relation to the goods with which the mark is (or will be) used and from the perspective of the relevant purchasers”. The TTAB found that ‘Kuba Kingdom’, as well as the other alternative meanings suggested by the applicant (including little-known locations around Europe and acronyms from South Korea), would be “obscure to most consumers”, while ‘Cuba’ was well known to consumers of cigars. Therefore, the TTAB found that the primary meaning of the mark KUBA KUBA was a reference to the country Cuba.

Although the applicant’s goods did not originate from Cuba, the TTAB found that, because Cuba is famous for cigars, consumers would likely believe that the goods came from Cuba. It rejected the applicant’s argument that consumers would not believe that the goods came from Cuba due to the embargo on Cuba by the US government, as the applicant had no evidence beyond its legal briefs that the embargo would “have any effect on the perception” of the mark.

Finally, to establish the third and final element of the test, there must be an indication that “a substantial portion of the relevant consumers” will be “materially influenced” by the geographic meaning of the mark. The TTAB found that cigars are an important product of Cuba, and that Cuba is known for high-quality tobacco and cigars. Therefore, the TTAB held that at least a substantial portion of consumers would be influenced by the geographic deception into purchasing the goods. The TTAB rejected the applicant’s argument that recent Federal Circuit cases required a higher showing of deceptiveness, and that a mere inference is not enough to establish deceptiveness. According to the TTAB, the case that argument was based on, In re California Innovations Inc (329 F3d 1334 (Fed Cir 2003)), involved a mark without a strong goods/place association. Because in this case there was “a strong or heighted goods/place association”, an inference of deception was sufficient to support a finding of materiality.

Therefore, the examiner’s refusal to register KUBA KUBA on the grounds that the mark was primarily geographically deceptively misdescriptive was affirmed.

Federal Court Finds Allegations of “Bad Faith” in Sprinkler License Agreements to be “Vox Clamantis in Deserto”

On March 22, 2011, the United States District Court for the Northern District of California entered an order granting defendants The Toro Company‘s (“Toro”) motion to dismiss plaintiff Digital Sun’s (“Digital”) monopolization, unfair competition and fraud claims pursuant to FRCP 12(b)(6). Digital Sun v. The Toro Company, Case No. 10-CV-4567-LHK (N.D. Cal. 3/22/11). United States District Judge Lucy H. Koh granted the motion without oral argument, and dismissed all of the allegations, but with leave to amend. In so doing, she held that the complaint was bereft of any plausible allegation that would support a claim under Section 2 of the Sherman Act. The execution of an exclusive and a non-exclusive patent license for various fields of use do not raise antitrust concerns where one alleged monopolist is simply substituted for another. As such, the complaint can be currently described as a “dry hole”.

Digital developed a wireless sprinkler system that utilizes wireless sensors to activate a watering system based upon the dampness of the soil, thus improving efficiency and reducing water waste. Digital applied for and was granted patents in this technology. Defendant Toro was a leading provider of turf, landscape and irrigation equipment. It contacted Digital, and entered into negotiations to acquire it. During negotiations, Toro made a loan to Digital. A letter of intent provided that if Toro did not purchase Digital, the loans would be repaid at a set future date. Toro subsequently terminated negotiations.

Later, however, the parties entered into an agreement whereby Digital licensed Toro exclusive rights to sell its product through five home improvement retailers. Digital defaulted on its loan to Toro. The parties then negotiated a license agreement granting Toro an exclusive license to Digital’s patents in the golf and sports fields of use, in exchange for a cancellation of the defaulted debts to Toro.

Subsequently, the parties entered into a second license agreement, which granted Toro a non-exclusive license to Digital’s patents in all fields of use other than golf and sports. Negotiations for the acquisition of Digital by Toro continued, but were eventually terminated by Toro.

Subsequent to the termination of the acquisition negotiations, Digital brought an action in the district court alleging that Toro had attempted to monopolize the wireless sprinkler market by engaging in bad faith negotiations, in order to secure the negotiated patent licenses described above.

In dismissing the complaint, the court held that Digital had not sufficiently pleaded any of the elements of an attempted monopolization claim under Section 2 of the Sherman Act. The court began its analysis with Bell Atlantic v. Twombly, 550 U.S. 544 (2007). It held that Digital’s allegations were not plausible in the light of basic economic principles. Even taking all of the allegations of the complaint as true, the court held that Digital had done nothing more than describe a situation where one alleged monopolist was substituted for another. This, an antitrust claim does not make. Even assuming these facts to be true, there would be no downstream impact on competition, no allocative inefficiency, and no potential for consumer rents transfers.

The court articulated a litany of reasons why Digital’s allegations were insufficient under traditional antitrust and economic principles. Perhaps most importantly of all, the court noted that Digital had failed to plead that Toro possessed market power in a relevant market. Long gone is the former dicta that the grant of a U.S. patent is sufficient to raise a presumption of market power under the antitrust laws. See Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006). While Illinois Tool was a tying case, the truism remains that the starting point for any set of alleged facts under Section 2 is the articulation of a proper relevant market, and that the defendant, through acts of exclusionary conduct, has obtained or will obtain monopoly power, or in an attempt of monopolization context, has obtained the “dangerous probability of success” of actual monopolization.

The court noted that Toro had not obtained even whatever market power Digital may have had in the wireless sensor sprinkler systems market. This is because it only had an exclusive in one field of use, and a non-exclusive in others. Even assuming the transfer and substitution of whatever market power Digital may have had, at the end of the day, the net result is that there is at least one additional competitor in the market, that would tend to ameliorate the exclusionary exercise of market power, and tend to create expanded output and consumer welfare opportunities. Here, the complaint is bereft of allegations, plausible or otherwise, that Toro’s course of conduct could have injured either Digital, or competition, or either of them, or at all. The court noted that it must be careful to avoid constructions of Section 2 that might have a chilling effect on competition, citing Spectrum Sports v. McQuillan, 506 U.S. 447, 457 (1993).

Finally, the court was dismissive of Digital’s argument that Toro’s conduct should be analyzed “as a whole”, and not analyzed in its individual component parts. This would appear to be an appeal to the venerable dicta of the Supreme Court in Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962). There, the Court in commenting on the appropriateness of inferences to be drawn in support of an “agreement”, stated that courts should give plaintiff’s

the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each.

This dicta, historically referred to as the “monopoly broth” or “monopoly soup” hypothesis, has been at odds with further developments under the concept of “antitrust injury”, as developed by the Supreme Court over the last 49 plus years. See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).

In the modern jurisprudence of antitrust injury, the piling of one non-exclusionary act upon another is insufficient. This is clearly so, as here, where the plaintiff has not even articulated a proper relevant market, or identified any acts which could be plausibly described as “exclusionary” or “anticompetitive”. At most, we have two license agreements which have created an additional competitor in whatever the relevant market may be. The glass is neither half full, nor half empty. It is empty.

Supreme Court Validates Class Action Waiver Provisions in Arbitration Agreements

In our April 2010 issue of Labor and Employment Law, we discussed using mandatory arbitration agreements as one option for combating the proliferation of wage and hour class action litigation.  Under these agreements, an employee is required to waive the right to bring or participate in any collective or class action lawsuit.  In addition, such agreements often prohibit arbitration of class claims.  Arbitration agreements can be equally effective in requiring arbitration on an individual basis of all types of employment-related claims.  However, as we explained in our April 2010 newsletter, the enforceability of these agreements has been controversial and has been denied in some jurisdictions on “unconscionability” and public policy grounds.

One year ago, the Supreme Court held in Stolt-Nielsen S.A. v. Animalfeeds International Corp., No. 08-1198 (Apr. 27, 2010), that class arbitration claims could not be brought where an arbitration agreement is silent on the issue.  But the Supreme Court did not directly address the enforceability of arbitration provisions expressly disallowing class claims, and much uncertainty remained.  For example, the Supreme Court remanded the Second Circuit Court of Appeals’ decision in In re American Express to reconsider, in light of Stolt-Nielsen, its opinion denying enforceability of an arbitration agreement precluding class claims.  On remand, the Second Circuit held that American Express’s class action waiver provision in its merchant credit card arbitration agreement was still unenforceable because “the cost of plaintiffs individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.”  In re American Express, No. 06-1871 (2d Cir. Mar. 8, 2011).

The United States Supreme Court, in its April 27, 2011 decision in AT&T Mobility LLC v. Concepcion et ux. (No. 09-893), now has upheld these types of mandatory arbitration agreements in consumer contracts.

In AT&T, the plaintiffs signed a wireless service agreement requiring arbitration of all disputes and that any arbitration claims be brought on an individual basis.  Plaintiffs nevertheless filed a lawsuit in California federal district court alleging that AT&T engaged in false advertising and fraud by charging them $30.22 in sales tax for cell phones that were advertised as “free” upon agreement to a two-year contract term.  The district court and Ninth Circuit Court of Appeals refused to compel arbitration, holding the arbitration agreement unconscionable under state law.  Both courts relied heavily on the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), which held that class action waivers could be unconscionable under certain circumstances, and praised the class action vehicle for deterring and redressing wrongdoings especially where a company is accused of defrauding numerous individuals out of small sums of money.

In a 5-4 decision, the Supreme Court majority, led by Justice Antonin Scalia, reversed the Ninth Circuit’s decision and held that the Federal Arbitration Act (FAA), reflecting a broad federal policy promoting arbitration, preempts the California Supreme Court class action waiver rule set forth in the Discover decision.  The Court explained “‘the principal purpose’ of the FAA is to ‘ensur[e] that private arbitration agreements are enforced according to their terms.’”  The Court found that the California Supreme Court’s rule interfered with this goal by permitting plaintiffs to bring class actions in spite of an agreement’s clear language prohibiting class treatment.  The Court also found that requiring the availability of classwide arbitration would frustrate the benefits of arbitration fostered by the FAA by increasing costs, formality and delay.  More generally, the Court questioned the appropriateness of class arbitrations in light of the significant stakes involved in class litigation, limited appeal options for challenging an arbitrator’s certification decision and qualifications of arbitrators to make such certification decisions.

The holding and rationale in AT&T would appear to apply equally to employment-related claims and to eliminate challenges to the enforceability of such arbitration agreements on grounds of “unconscionability” under state law.  However, AT&T did not address the Second Circuit’s denial of enforceability under public policy grounds in American Express, and the dissenting justices in AT&T echoed the concern “that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system.”  But, the AT&T majority disagreed, making it clear that “[st]ates cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”  At a minimum, AT&T appears to have limited the types of public policy arguments employees may make to avoid the enforceability of class action waivers.

Employee advocates will undoubtedly interpret the majority’s opinion in AT&T as an attack on consumer and employee rights.  Legislation seeking to bar all mandatory arbitration provisions that require arbitration of employment-related claims will likely be reintroduced in Congress.  But passage of such legislation is unlikely while there is a Republican majority.

The Supreme Court also is expected to issue another significant class action decision this summer in Dukes v. Wal-Mart.  Employers are hopeful that in Dukes, the Court will bring some order and consistency to class action certification analysis and, in particular, the permissible scope of certified classes.  However, even a favorable decision in Dukes will not eliminate class actions.

Accordingly, in the wake of AT&T, employers may wish to re-evaluate the appropriateness of implementing mandatory arbitration agreements depending on their specific circumstances.  Employers with mandatory arbitration systems already in place may also want to consider adding a class action waiver provision.  As mentioned in our April 2010 newsletter, numerous other benefits may be gained through mandatory arbitration including protecting confidentiality, participation in the choice of arbitrator, elimination of juries and reduction of litigation costs.  We will keep you updated on any developments.