IP UPDATE

Fifth Circuit Rejects Recruiter’s Trade Secret Misappropriation and Contract Defenses

by Amol Parikh | Apr 18, 2024 | Trade Secrets

The US Court of Appeals for the Fifth Circuit affirmed a district court’s decision finding trade secret misappropriation and breach of contract based on a recruiter’s improper use of confidential client information. Counsel Holdings, Incorporated v. Jowers, Case No. 22-50936 (5th Cir. Apr. 1, 2024) (King, Ho, Engelhardt, JJ.) (per curiam).

In April 2006, Evan Jowers was hired by MWK (whose successor is Counsel Holdings) as a legal recruiter. Jowers signed an employment agreement with noncompete and nonsolicitation covenants. During his employment, Jowers relocated to Hong Kong, where he began recruiting for law firms in Asia. Jowers resigned from MWK in December 2006, after which he began working for another recruiting firm in Hong Kong called Legis Ventures.

MWK sued Jowers for trade secret misappropriation and breach of the restrictive covenants in the employment contract. MWK alleged that while Jowers was still employed with MWK, he submitted its candidates for employment through Legis Ventures. After a bench trial, the district court found in favor of MWK on both claims. As to the trade secret claim, the district court concluded that MWK’s customers’ “names, their clients, how much their practices were worth, their language skills, their goals for switching firms, and their law school records” constituted trade secrets. As for the contract claim, the district court found that enforcement of the restrictive covenants was justified because MWK’s client information was a legitimate business interest. Jowers appealed.

The Fifth Circuit affirmed. As to the trade secret claim, the Court explained that Jowers’s employment agreement explicitly required confidentiality and that MWK’s customers requested that Jowers keep their information secret. Despite the restrictions, Jowers divulged MWK’s customer information to others, including a competing recruitment firm, without authorization. The Fifth Circuit agreed with the district court’s determination that Jowers’s actions constituted trade secret misappropriation.

As to the breach of contract claim, Jowers argued that MWK lacked a “legitimate business interest.” The Fifth Circuit found no clear error with the district court’s determination that MWK’s client information was a legitimate business interest that justified enforcement of the restrictive covenant.

Easy Tiger: Docuseries Summary Judgment Remanded for Further Fair Use Consideration

by Sarah Bro and Eleanor B. Atkins | Apr 11, 2024 | Copyrights

Addressing copyright fair use in the wake of the Supreme Court’s recent guidance in Warhol, the US Court of Appeals for the Tenth Circuit partially reversed the district court’s grant of summary judgment in favor of the defendants. The Tenth Circuit held that the first fair use factor (the purpose and character of the use) weighed in favor of the plaintiffs and remanded for further consideration of the accused infringing work’s effect on the potential market for the copyrighted work. Whyte Monkee Productions, LLC; Timothy Sepi v. Netflix, Inc.; Royal Goode Productions, LLC, Case No. 22-6068 (10th Cir. Mar. 27, 2024) (Holmes, C.J.; Hartz, Carson, JJ.)

In 2020, Netflix and Royal Goode Productions (the defendants) released the popular multipart documentary Tiger King: Murder, Mayhem and Madness. Tiger King included eight videos filmed by Timothy Sepi (the plaintiff), seven of which were filmed while Sepi was employed by the zoological park featured in the docuseries. The eighth video, a 24-minute recording of the funeral of Travis Maldonado (who was the husband of Joe Exotic, aka the Tiger King) was filmed by Sepi after his employment ended. After the release of Tiger King, the plaintiffs registered the copyrights for the eight videos and sued the defendants for copyright infringement.

The district court granted summary judgment in favor of the defendants, holding that Sepi did not own the copyright for the seven videos he filmed during his employment because they were “works made for hire” and that the defendant’s use of the eighth video was permissible fair use. The plaintiffs appealed.

On appeal, the plaintiffs argued that the district court erred in holding that seven of the videos were works made for hire because Sepi’s scope of employment “did not extend to cinematography and film editing conducted on his own time.” The plaintiffs also argued that the district court incorrectly assessed each of the fair use factors in connection with the eighth video.

The Tenth Circuit swiftly affirmed the grant of summary judgment on the first seven videos, noting that the plaintiffs’ argument regarding the scope of Sepi’s employment was a new theory on appeal and therefore had been waived. Nonetheless, the Court reversed the grant of summary judgment in favor of the defendants with respect to the eighth video, stating that the district court erred in concluding that the first and fourth fair use factors weighed in favor of the defendants.

As set forth in the Copyright Act, there are four nonexclusive factors to consider in assessing whether the use of a copyrighted work is protected fair use:

The purpose and character of the use
The nature of the copyrighted work
The amount and substantiality of the portion used
The effect of the use on the potential market for or value of the copyrighted work.

Important here, the Tenth Circuit noted that all four factors should be weighed together “in light of the aim of copyright, which is ‘to promote the progress of science and the arts, [...]

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ITU Applicants Beware: Federal Courts Have Jurisdiction Over Pending Trademark Applications

by Cecilia Choy, Ph.D. | Apr 11, 2024 | Trademarks

The US Court of Appeals for the Ninth Circuit affirmed in part a district court’s ruling in a trademark dispute, upholding its decision to invalidate trademark applications. The Ninth Circuit held that district courts have jurisdiction to alter or cancel trademark applications in an action properly brought under 15 U.S.C. § 1119, and that in the context of challenges to intent-to-use (ITU) applications, proof of a lack of bona fide intent can invalidate. BBK Tobacco & Foods LLP v. Central Coast Agriculture, Inc., Case Nos. 22-16190; -16281 (9th Cir. Apr. 1, 2024) (Hurwitz, Desai, JJ.) (Bumatay, J., dissenting).

BBK sells and distributes smoking-related products with BBK’s “RAW” branding. Central Coast Agriculture (CCA) sells cannabis products using “Raw Garden” branding. BBK filed a complaint against CCA including claims of trademark infringement and a petition to void several ITU trademark applications owned by CCA for lack of a bona fide intent to use the relevant trademarks in commerce. Instead of disputing the merits of BBK’s claims, CCA argued that the district court had no jurisdiction to adjudicate this issue. The district court granted summary judgment in favor of BBK on its claims to invalidate the trademark applications. CCA appealed.

The Ninth Circuit affirmed the summary judgment in favor of BBK on its claims to invalidate CCA’s trademark applications. The Court explained that “when an action involves a claim of infringement on a registered trademark, a district court also has jurisdiction to consider challenges to the trademark application of a party to the action.” The Lanham Act, at 15 U.S.C. § 1119, provides that “[i]n any action involving a registered mark the court may determine the right to registration, order the cancelation of registrations, . . . restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action.” The Lanham Act, at § 1051, defines an application for use of trademark as a “request for registration of a trademark on the principal register.” Because a challenge to an application affects the applicant’s right to the registration, the Court reasoned that § 1119 authorizes a district court to resolve disputes over trademark applications.

The Ninth Circuit held that a “lack of bona fide intent to use a mark in commerce is a valid basis to challenge a trademark application,” aligning with decisions in sister circuits and the Trademark Trial & Appeal Board. An applicant can seek to register a mark if the mark is already being used in commerce or if the applicant has a bona fide intention, under circumstances showing the good faith of such person, to use a trademark in commerce. While applicants filing under the ITU provisions may begin the registration process based on a bona fide intent to later use the mark in commerce, the Lanham Act requires such applicants to either subsequently file a verified statement of actual use of the mark or convert their application into a use application. As a result, the Ninth Circuit affirmed the district court’s ruling [...]

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Reasonable Royalty Available for Foreign Activities (But Not This Time)

by Amol Parikh | Apr 11, 2024 | Patents

The US Court of Appeals for the Federal Circuit affirmed a district court’s decision to preclude a patent owner from seeking damages based on method claims infringed outside of the United States but confirmed that reasonable royalties are available based on foreign activities. Harris Brumfield v. IBG LLC, Case No. 22-1630 (Fed. Cir. Mar. 27, 2024) (Prost, Taranto, Hughes, JJ.)

Trading Technologies International (TT), whose successor is Harris Brumfield, filed a lawsuit against IBG in 2010 alleging infringement of four patents directed to graphical user interfaces for commodity trading and methods for placing trade orders using those interfaces. During the underlying proceeding, the district court issued several orders. The district court granted IBG’s motion for summary judgment that the claims of two of the patents were invalid. The district court also excluded one of TT’s damages theories concerning foreign activities. Prior to trial, the district court found that two of the patents were invalid as patent ineligible and that the other two patents contained patent eligible subject matter. The district court also excluded one of TT’s damages theories concerning foreign activities.

The case proceeded to trial on the two remaining patents, and the jury found the asserted claims of those two patents infringed. IBG proposed $6.6 million in damages, which corresponds to the total demanded by IBG using IBG’s proposed royalty rate measured against domestic usage, rather than global users. By contrast, TT proposed damages of $962 million, which included all worldwide users of the accused product, regardless of whether they performed the claimed method. The jury agreed with IGB and awarded TT $6.6 million. the district court denied TT’s post-verdict motion for a new trial on damages, a motion in which TT alleged that IBG had misrepresented how it calculated the damages figures it presented to the jury. TT appealed.

Under the Supreme Court’s 2018 decision in WesternGeco v. Ion Geophysical, a patent owner can recover damages in the form of foreign lost profits when infringement is found under 35 U.S.C. § 271(f)(2) of the Patent Act. TT argued that under WesternGeco, it can seek damages in the form of a reasonable royalty based on IBG “making” the accused product in the US, even though the products were used overseas. The Federal Circuit engaged in a detailed description of WesternGeco, concluding that the Court must examine the particular acts alleged to constitute infringement under particular statutory provisions to determine if the allegations focus on domestic conduct. The Court explained that under § 271(a), the making, using, offering to sell and selling provisions are limited to domestic acts. The Court acknowledged that the WesternGeco framework applies to reasonably royalty awards (not just lost profits) and that a reasonable royalty would be the amount a hypothetical infringer would pay to engage in the domestic acts constituting the infringement.

Despite finding that reasonable royalties are permitted under WesternGeco, the Federal Circuit affirmed the district court’s exclusion of TT’s damages theory because TT’s infringement theory about making the accused product [...]

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ITC Shines Light on DI: Complainant Can’t Aggregate Investments Across Patents, Prongs

by Alexander P. Ott | Apr 11, 2024 | Patents

Addressing a determination by its chief administrative law judge (CALJ) finding a violation of § 337, the US International Trade Commission reversed and held that the complainant had not satisfied the economic prong of the domestic industry (DI) requirement by aggregating its investment across multiple asserted patents. Certain Replacement Automotive Lamps (II), Case No. 337-TA-1292 (USITC Mar. 22, 2024).

In late 2021, Hyundai filed a complaint seeking an investigation under 19 U.S.C. § 337 based on alleged infringement of 21 design patents, each covering a different automotive headlamp or taillamp. In response, two of the proposed respondents filed a request seeking early disposition of the economic prong of the domestic industry under the Commission’s 100-day program. Hyundai filed a response opposing the 100-day program request based on the complexity of the issues. The Commission instituted the investigation and denied the 100-day program request, but when setting the procedural schedule, the CALJ scheduled an early evidentiary hearing on the economic prong of the domestic industry pursuant to the Commission’s pilot program for interim initial determinations. Following that initial hearing, the CALJ issued an interim initial determination finding that Hyundai had satisfied the economic prong of the domestic industry requirement. After the full evidentiary hearing, the CALJ issued a final initial determination finding a violation of § 337 by the respondents based on infringement of all asserted patents. The Commission decided to review both the initial and final determinations.

On review, the Commission reversed the finding that the complainant had satisfied the economic prong of the domestic industry requirement. As the Commission explained, where DI products do not have overlapping protection across common asserted patents, a complainant must treat each product as requiring a separate DI showing. The Commission cannot aggregate investments in articles covered by one patent with investments in articles only covered by a different patent. Here, because each DI product practiced only one of the asserted design patents, to satisfy the economic prong Hyundai was required to demonstrate that the investments in each product were independently significant. The Commission also held that investments in plant and equipment (§ 1337(a)(3)(A)) cannot be combined with employment of labor or capital (§ 1337(a)(3)(B)) and concluded that Hyundai had mistakenly aggregated its investments from both prongs.

Commissioner Schmidtlein filed an opinion concurring with the outcome but declining to join the majority opinion based on her view that it went beyond what was necessary to dispose of the investigation.