Introducing a New Product? Should a Freedom to Operate Study Be Undertaken?

When developing a new product, companies will frequently engage counsel to perform a “freedom to operate” study in an effort to identify patents that might raise a risk of patent infringement following the introduction of the product. While there is nothing fundamentally wrong with this approach, there are pros and cons associated with the decision to proceed with such a study that are frequently not considered. What should be done if you find a patent or pending application that includes claims that might cover the product? Would the company have been better off had it not engaged counsel to perform the study initially?

The Law of Willful Infringement
As a prelude to this discussion, it is important to understand the laws applicable to willful infringement. If one manufactures uses or sells an infringing product with knowledge of the infringement, they can be liable for willful infringement under the patent laws. A party is liable for willful infringement if the patent owner demonstrates that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. If willful infringement is found, the patent laws provide that the infringer can be liable for up to treble damages and the patentee’s attorney’s fees.

The Pros:
If one or more issued patents are located that would cover the design of the product under development, it may be possible to redesign the product in a manner so as to avoid the infringement. Avoidance of a potential lawsuit for patent infringement is certainly desirable provided that a redesigned product can be manufactured and sold at a competitive price and that a redesigned product can provide the features desired in the marketplace.

If no issued patents are located as a result of a freedom to operate study that disclose or suggest the design of the new product, such may be informative of opportunities to obtain patent protection on the new design and offer guidance as to the scope of protection that may be available should a patent application be filed.

The Cons:

Not all freedom to operate studies have happy endings. What if a patent is located that contains claims that apply to the product under development and a viable product cannot be produced without violating the claims of the patent. If the non-infringing product cannot be designed that provides the desired features, or cannot be produced in a way that is commercially viable for reasons of cost, the company has several options. One option would be to inquire of the patent owner whether a license is available and on what terms. If a license in not available or is not available on reasonable terms, proceeding with a product introduction poses a heightened risk that a suit for infringement will be initiated by the patent owner. A second option would be to abandon the product introduction. This decision may involve substantial losses of investment in the product development, depending on how far along the product development has progressed. A third option would be to proceed with the product introduction and assume the risk that the patent owner may take notice and initiate a suit for patent infringement. If a court determines that a product infringes a patent, that the infringer had knowledge of the patent, and that the infringer’s conduct was “objectively reckless” the court may hold the infringer liable for willful infringement. In such a case, the patent owner could be awarded up to treble damages and its attorney’s fees associated with the pursuit of the litigation.

If a product is introduced and a suit for patent infringement follows, the infringement could be held to be willful as noted above if the conduct of the infringer is determined to be objectively reckless. Although it is not required that an opinion of counsel be obtained to counter a charge of willful infringement, a competent opinion of patent counsel concluding that a product does not infringe or, that any relevant patent claims are invalid, will generally serve as a defense to a charge of willful infringement. When such an opinion is obtained, the continued sale of the accused product during litigation is seldom considered to be objectively reckless. The preparation of a competent opinion of counsel requires study of the patent and its prosecution history and the preparation of such an opinion can involve substantial legal costs.

If a party chooses to sell a product with knowledge of a patent and chooses not to obtain an opinion of counsel, a court will determine whether the sale of the product was objectively reasonable or objectively reckless based on the specific facts in the case. It should be noted that an opinion of counsel does not serve as a defense to a charge of infringement, only a defense to a charge that the infringement was willful.

If a freedom to operate search results in the identification of a published patent application with claims that, if issued, would cover the product under development another issue is raised. The application that was identified in the search may never issue as a patent and, if it does issue, the claims may not resemble those that existed in the published application or in the public records of the U.S. Patent and Trademark Office. Thus, a company developing a product must decide how to proceed in a period of uncertainty regarding claim coverage that may ultimately be obtained.

In such a circumstance does one shut down the development of the product, defer the project or continue the development with the recognition that the product would infringe if the patent issues with existing claims? While one can study the progress of a given patent prosecution if the prosecution is available in the public records of the U.S. Patent and Trademark Office, it would require a crystal ball to determine the scope of protection that would ultimately be granted. Unfortunately, the correct decision to many of the questions raised can only be determined in hindsight and must be based on an educated guess as to what patent coverage may ultimately be achieved.

If a freedom to operate search had not been performed and there was no knowledge of the patent in advance of the introduction of the product to the marketplace and the filing of suit by a patent owner, it is more difficult to sustain a claim for willful infringement. Of course, it this path is followed, following the filing of a suit for patent infringement, the company is faced with a decision of whether to discontinue the product, attempt to settle the dispute or contest the assertion in a litigation.

Conclusion 

There are perfectly good and valid reasons for performing freedom to operate studies. If a study is to be conducted, it is generally advisable that it be undertaken before substantial sums have been invested in product development.

It should be recognized however, that is often unknowable whether a patent owner will become aware of a product that enters the marketplace, whether the patent owner would view the product as constituting an infringement should it become aware of the product, whether the patent would ever be asserted by the patent owner even after becoming aware of the product or, if a license would be available upon reasonable terms. Of course, it is considerably more likely that the introduction of a product will become known to a competitor. The ultimate decision whether to commission a freedom to operate study and what to do if such a study is performed, relates to ones tolerance for risk and an understanding of the ramifications that flow from such a course of action. Before a company engages patent counsel to perform a freedom to operate study, it is therefore worthwhile to discuss with counsel what the company plans to do with the search results since, once the search has been performed, if relevant issued patents are located as a result of the search, the specter of willful infringement is out of the bag.

UPDATE: President Signs Defend Trade Secrets Act of 2016 (DTSA) into Law and Imposes New Employer Whistleblower Immunity Notice Requirements

President Barack Obama signed the federal Defend Trade Secrets Act of 2016 (DTSA) into law on Wednesday, May 11, 2016.

As discussed in a prior blog article, the new federal trade secret law provides a new federal civil cause of action for trade secret misappropriation, and imposes new whistleblower immunity notice requirements on employers. The effective date of the DTSA is the date of enactment. 

Starting May 12, 2016, all employers will be required by federal law to “provide notice of the immunity set forth in [the DTSA] in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The notice requirement applies to “contracts and agreements that are entered into or updated after the date of enactment.” The DTSA broadly defines “employee” to include “any individual performing work as a contractor or consultant for an employer.”

Businesses should review agreements and documents addressing trade secrets and confidentiality with counsel. Employers should consult with counsel to ensure compliance with the new whistleblower immunity notice requirements.

Congress Passes Defend Trade Secrets Act of 2016 (DTSA) and Imposes New Employer Whistleblower Immunity Notice Obligation

Congress has passed a new intellectual property law to protect trade secrets. The law provides a new federal civil cause of action for trade secret misappropriation. The law also imposes a new whistleblower immunity notice requirement on employers.

On April 27, 2016, the U.S. House of Representatives voted 410 to 2 in favor of a bill to enact the Defend Trade Secrets Act of 2016 (DTSA). Congress presented the bill to the White House on April 29, 2016 for signature by President Barack Obama. The President is expected to sign the bill, based on prior support of the bill by his administration.

The DTSA is a bipartisan bill to amend a federal criminal statute known as the Economic Espionage Act of 1996 (EEA) to create the first federal private civil cause of action for theft or misappropriation of trade secrets. Although the EEA made trade secret theft a federal crime, some felt that the federal criminal statute did not go far enough to stem the rising tide of trade secret theft, economic espionage, and online hacking by cybercriminals.

Previously, trade secret misappropriation claims were generally brought under state laws. However, trade secret laws vary from state to state, which has made it difficult for U.S. companies to develop uniform policies. The DTSA is expected to assist U.S. companies by providing a harmonized federal standard for protection of trade secrets. The DTSA does not preempt state trade secret laws, however, so trade secret owners may still pursue remedies under applicable state laws.

The DTSA authorizes trade secret owners to file a civil action in federal court for trade secret misappropriation related to a product or service in interstate or foreign commerce. 

The DTSA provides remedies for theft or misappropriation of trade secrets that may include injunctive relief, damages (for actual loss plus any additional unjust enrichment not covered by an actual loss award, or, alternatively, a reasonable royalty), exemplary damages (for bad faith misappropriation, in an amount up to two times the amount of the damages award), an order for seizure of property, and attorney fees (for willful and malicious misappropriation or for pursuing a claim or opposing an injunction motion in bad faith). 

The statute of limitations for commencing a civil action under the DTSA is 3 years from the date that the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

Employers should take note that the DTSA imposes a new federal whistleblower immunity notice obligation. The DTSA provides whistleblower immunity against criminal or civil liability for confidential disclosure of a trade secret to the government or in a court filing under seal. The DTSA whistleblower provisions require employers to provide notice of the immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The DTSA broadly defines “employee” to include “any individual performing work as a contractor or consultant for an employer.” An employer who fails to comply with the notice requirement may forfeit exemplary damages or attorney fees in an action against an “employee” to whom the notice was not provided. The notice requirement applies to contracts and agreements that are “entered into or updated” after the date of enactment of the DTSA.

Employers should consult with counsel to ensure compliance with federal whistleblower immunity notice requirements, and may wish to review agreements and documents addressing trade secrets and confidentiality.

Your European Community Trademark Is About to Disappear - BUT DON'T WORRY!

On Wednesday, March 23, 2016, changes are coming to the world of European Community trademarks and Community designs.

The Office for Harmonisation in the Internal Market (OHIM) has to date been the European Union (EU) authority responsible for examining new European Community trademark (CTM) and Community design applications and for maintaining registers of granted CTMs and Community designs.

On March 23, 2016, OHIM will be renamed the European Union Intellectual Property Office (EUIPO), while the CTM will be renamed the European Union trademark (EUTM).  Existing CTMs and CTM applications will automatically become EUTMs and EUTM applications.  Other changes include some small adjustments to filing and renewal fees.

There is one particular change of note with regard to CTMs, though it is unlikely to impact many of our U.S. clients.  In the past, if a CTM applicant listed the respective Nice classification heading in its application, it was interpreted as including all goods or services within the respective class.  This practice was terminated on June 22, 2012.  If an applicant used a Nice class heading after this date, the goods and/or services of the application were defined by the normal meaning of the words used in the class heading.

Thus, at present, the scope of goods and/or services for a CTM depends upon whether it was filed before or after June 22, 2012 and whether it recited the respective Nice class heading.  That is about to change.

During a six month window extending from March 23, 2016 to September 24, 2016, a registrant that: 1) filed its application before June 22, 2012; and 2) used the entire and exact Nice classification heading that was in force as of the application filing date can explicitly add or expand goods and/or services that were merely implied under the old regime.  Importantly, such newly added goods and/or services must have been in use for at least the five preceding years – otherwise, the amended registration may be subject to a cancellation proceeding.

So, if you have a registered CTM, don’t panic.  Instead, it would be prudent to check with your trademark attorney to see if addition or expansion of the recited goods and/or services is available and recommended.

US Copyright Office Reports: WIPO Internet Treaties Require No Copyright Act Amendment to Protect Exclusive “Making Available” Rights

Has the United States lived up to its obligations under the WIPO Internet Treaties to protect the exclusive “making available” right of copyright owners? 

Some would argue no, and that Congress should amend the U.S. Copyright Act.  Others would argue that the exclusive rights provisions in Section 106 of the Copyright Act are adequate.

In Internet copyright infringement litigation, this issue has arisen in the context of a plaintiff’s evidentiary burden of proof and whether the “making available” right requires a plaintiff to prove that an infringing work was simply uploaded to the Internet, or both uploaded and downloaded.  Court cases have been inconsistent.

By way of background, when the Internet was relatively new and growing rapidly in the mid-1990s, the international copyright community wanted to ensure adequate copyright protection in the new medium.  Toward that goal, the World Intellectual Property Organization (WIPO) and its member states (including the United States) entered into the WIPO Internet Treaties, which consist of the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). 

The treaties required the U.S. and other member states to provide a “making available” right that gives copyright owners the exclusive right to authorize the on-demand transmission of their works and sound recordings to the public (e.g., via the Internet).  The treaties articulate the exclusive “making available” right as follows:

WCT Art. 8	Without prejudice to the provisions of Articles 11(1)(ii), 11bis(1)(i) and (ii), 11ter(1)(ii), 14(1)(ii) and 14bis(1) of the Berne Convention, authors of literary and artistic works shall enjoy the exclusive right of authorising any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them.
WPPT Art. 10	Performers shall enjoy the exclusive right of authorising the making available to the public of their performances fixed in phonograms, by wire or wireless means, in such a way that members of the public may access them from a place and at a time individually chosen by them.
WPPT Art. 14	Producers of phonograms shall enjoy the exclusive right of authorising the making available to the public of their phonograms, by wire or wireless means, in such a way that members of the public may access them from a place and at a time individually chosen by them.

Congress did not amend the Copyright Act to specifically refer to the “making available” right, instead assuming that the exclusive rights provisions in Section 106 of the Copyright Act adequately protect the right.

The Supreme Court in American Broadcasting Cos. v. Aereo, Inc., 573 U.S. __, 134 S.Ct. 2498 (2014), confirmed that the public performance right encompasses the transmission of copyright works to the public through individualized streams.  However, in the context of merely offering access to copyright content, some district courts questioned the existence of the “making available” right under U.S. law, declining to recognize a cause of action where copyright owners are unable to prove that downloads or receipt occurred.  Other courts simply rejected the “making available” right without acknowledging or discussing the international obligations of the United States under the WIPO Internet Treaties.  Appellate courts have not conclusively resolved the issues in cases involving works in digital format, although some appellate decisions have held that distribution does not necessarily require an actual transfer of copies in the context of a library offering physical copies of a work to the public.

In December 2013, Congress asked the U.S. Copyright Office (USCO) to weigh in on the debate.  Congress specifically requested feedback on the following issues: (1) how the existing bundle of exclusive rights under Title 17 covers the “making available” right in the context of digital on-demand transmissions such as peer-to-peer networks, streaming services, and music downloads, as well as more broadly in the digital environment; (2) how foreign laws have interpreted and implemented the relevant provisions of the WIPO Internet Treaties; and (3) the feasibility and necessity of amending U.S. law to strengthen or clarify the law in this area.

In response, the U.S. Copyright Office (USCO) released The Making Available Right in the United States: A Report of the Register of Copyrights on February 23, 2016.  The report concludes that the treaties require no Copyright Act amendment, but recommends that Congress continue to monitor case law and offers suggestions if Congress chooses to amend the law.

The report is available at HERE.

Final Office Actions - Sometimes Final Is Not So Final

Patent prosecution is a back and forth dialogue to get the broadest coverage allowable. In order to keep from bogging down the system, the USPTO can issue a Final Office Action to close off prosecution. There are limited choices to responding to these Final Office Actions. A recent pilot program has created a new option – the After Final Consideration Pilot 2.0 (AFCP 2.0).

The traditional options included filing a Request for Continued Examination (RCE), Appealing and submitting a Response. An RCE reopens prosecution but comes with a sizable fee. As the RCE can be moved to the back of the Examiner’s docket the Examiner may not respond to the RCE for some time. Appealing the Office Action also requires its own related fees. While a submission for a Pre-Appeal Brief Conference can offer a quick response, such review works best only in those rare situations where there is clear error by the Examiner.

Filing a Response to a Final Office Action is a tricky proposition. The Applicant is limited in their ability to change the claims as there is no right to amend. Such a Response works well for situations where claims are canceled, amended to comply with formal requirements or objected to claims are rewritten in independent form. In other situations, the limitations on amendments may be too restrictive and an RCE may be required in order to have the amendments entered.

Timing of a Response to a Final Office Action is also an issue. Unless the Response is filed within two-months from the date of mailing, there is no guarantee that the Examiner will respond. As the Response does not stop the clock on the six-month period for reply, this may leave Applicants waiting impatiently for the Examiner’s response while they enter ever more expensive extension periods. The Advisory Action procedure, which can be invoked by filing the Response within two-months, helps to alleviate some of this concern but the restrictions on amendments are still present.

In an effort to help fill an unmet need left by these traditional options, the USPTO has created the AFCP 2.0. This program is intended to enhance communication between the USPTO and Applicants, and to help reduce the number of RCEs being filed.

Using the AFCP 2.0, an Applicant can submit a request for consideration under the program with a response to a Final Office Action which includes an amendment. If the request is granted, the Examiner considers the amendment and, if the amendment does not place the application in condition for allowance, the Examiner is to reach out to the Applicant in order to hold an interview to discuss the case.

The AFCP 2.0 requires an amendment to at least one independent claim. The amendment can introduce new elements to the claims that have not been considered previously. However, the claim’s scope may not be broadened in any way. Even with this limitation, this process provides more flexibility than previously allowed without an RCE.

Another key requirement is based on the amount of time the Examiner would need to consider the Response. The program gives Examiners an additional two to three hours. If the Examiner determines that this additional time is not sufficient to consider the amendments and arguments they can refuse the request.

No additional fees are required for the program. However, the request for consideration under AFCP 2.0 does not stop the clock on the six-month period for a response and the Applicant may enter extension periods waiting for a response from the Examiner. The USPTO recommends Applicants request a status update if the Examiner has not responded to the request within a month.

The AFCP 2.0 fills a void in the prior USPTO procedures in order to help move applications through prosecution. Given the ability to consider cases which can be handled swiftly Examiners are now able to devote their limited time to promptly address such applications. Additionally, Applicants can avoid costly fees further incentivizing participation in the program.

No Monkey Business Will Be Permitted in the Court

Under the U.S. Copyright laws “Copyright protection subsists … in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”  Copyright protection includes works of authorship in pictorial form, including photographs.

With this background I’d like to report on a case filed in the U.S. District Court for the Northern District of California in September 2015.  As alleged in the Complaint, sometime in 2011, a photographer by the name of David Slater briefly left his camera unattended and a 6 year old named Naruto, using Mr. Slater’s camera, took a number of selfies without any assistance from Mr. Slater.  Mr. Slater located the selfies that were taken by Naruto on his camera and, he, along with the co-defendant, Blurb, Inc., published and widely distributed the selfies online beginning in 2014, all without the authorization of Naruto.  Naruto filed the complaint against Slater and Blurb, Inc. and alleged that Slater and Blurb, Inc. infringed his rights of copyright by reason of the unauthorized distribution of Naruto’s selfies.
 
On first blush, this sounds like a fairly clearcut case of copyright infringement.  The selfies purportedly were original works of Naruto which were reproduced and widely distributed by Mr. Slater and Blurb, Inc. without Naruto’s permission. So why should these set of facts be of particular interest?  What if Naruto was a crested macaque monkey that snapped the selfies?  This was the novel question that faced the District Court in the action Naruto v. David John Slater and Blurb, Inc. The case was filed through Naruto’s “Next Friends,” People for the Ethical Treatment of Animals, Inc. (PETA) and Dr. Antje Engelhardt, a professor of behavioral ecology and anthropology.

Slater and Blurb, Inc., filed a Motion to Dismiss based on several legal theories.  First, the defendants asserted that Naruto lacked standing to pursue the claim through the courts because Naruto was a monkey.  Though PETA and Dr. Engelhardt, as Naruto’s “Next Friends,” stated that their intent was to use the proceeds from the commercialization of the selfies for habitat preservation and for the benefit of Naruto’s brethren, the defendants asserted that all of these activities would be pursued without Naruto’s consent since Naruto was not capable of providing consent.  Furthermore, the Defendants asserted that the phrase “works of authorship” in the copyright laws, relate to works by humans, not animals.

Sadly for Naruto, on January 6, 2016 the District Court, in a tentative opinion, held that the U.S. Copyright Act extends to humans, not animals, thereby dashing any hopes Naruto and his brethren might have harbored for the betterment of the primate community.  One can only imagine what the deposition of Naruto would have been like had the case continued. The moral of this story should the decision become final – there will be no monkey business in the district courts, at least with respect to claims of copyright infringement.  It remains to be seen whether Naruto will appeal the District Court’s decision.