In This Issue
Crowdsourced Content in Video Games: How Ownership Issues Almost “Ganked” a Copyright Case
In Blizzard Entertainment v. Lilith Games (Shanghai) Company, a federal court denied a motion for partial summary judgment for alleged copyright infringement involving some of the biggest names in the video game industry. The case — in which Blizzard Entertainment and Valve Software sued mobile game developers uCool and Lilith Games for allegedly infringing the copyrights in the “Defense of the Ancients” series of games (commonly known as “DotA”) — demonstrates how important it is for would-be claimants to have their chain of title documents in order, lest they be "ganked" (snuck up on and defeated by an opponent) in the early stages of litigation. — Jennifer Lloyd Kelly, Nicholas A. Plassaras and Chieh Tung
Avoiding “Genericide”: Lessons from a Recent Case
When does a trademark stop being a trademark? ASPIRIN, CELLOPHANE and ESCALATOR are all examples of words that were once trademarks, but ultimately came to be used as the names for the products themselves, not as specific brands indicating the sources of those products. When potential customers think of a trademark as a term for the category of products, the trademark becomes generic and is no longer entitled to protection. This loss of trademark rights is known as “genericide.” A recent case provides insight into how genericide can occur — and how it can be avoided. — Jeffrey H. Greene and Anne Marie Longobucco
Efforts to Censor American Speech with Foreign Injunctions Dealt Another Blow by California Court
The Supreme Court of South Australia issued an injunction ordering the Electronic Frontier Foundation to remove a blog post criticizing the litigation and patent practices of Global Equity Management, an Australian corporation. EFF took the fight back to the United States, and a California court ruled recently that EFF's blog post is protected speech. This is the second time in recent months that a U.S. federal court has rebuffed efforts to enforce foreign injunctions that threaten the speech of American actors. — Armen N. Nercessian and Chieh Tung
Quick Updates
Failure to Quantify U.S. vs. Worldwide Sales Costs Life Sciences Company a Damages Award — Lauren E. Whittemore
Trio of Decisions Sheds Light on Protectability of Customer Lists as Trade Secrets — Guinevere Jobson
U.S. Copyright Office’s Wet Signature Requirement Evaporates — Stuart P. Meyer
USPTO Issues New Guidelines for Reviving Abandoned Trademark Applications and Reinstating Expired/Cancelled Registrations — Paul Famiglietti
Crowdsourced Content in Video Games: How Ownership Issues Almost “Ganked” a Copyright Case
By Jennifer Lloyd Kelly, Nicholas A. Plassaras and Chieh Tung
In Blizzard Entertainment v. Lilith Games (Shanghai) Company, a federal court denied a motion for partial summary judgment for alleged copyright infringement involving some of the biggest names in the video game industry. The case — in which Blizzard Entertainment and Valve Software sued mobile game developers uCool and Lilith Games for allegedly infringing the copyrights in the “Defense of the Ancients” series of games (commonly known as “DotA”) — demonstrates how important it is for would-be claimants to have their chain of title documents in order, lest they be "ganked" (snuck up on and defeated by an opponent) in the early stages of litigation.
There are also twists to the case: Much of the intellectual property identified in Blizzard’s and Valve’s complaint was based on content created by players, not by the game publishers themselves. Moreover, the relevant end-user license agreements (EULAs) did not assign the rights in those assets from the players back to the game publishers.
The lawsuit, therefore, raised an unusual question: Can game publishers sue for copyright infringement of crowdsourced content?
The Rise of DotA
The DotA games trace their origin to Blizzard’s blockbuster hit, "Warcraft III" — the progenitor to the well-known massively multiplayer online game, "World of Warcraft." Warcraft III was a computer strategy game in which players controlled armies of different fantastical species aiming to dominate the fictional world of Azeroth. The game included an editing tool called the “World Editor” that enabled players to create new battle maps, settings, characters, storylines and gameplay rules. It allowed players to share these modifications with the rest of the online gaming community. Importantly, Warcraft III’s EULA did not contain any provisions assigning the intellectual property rights of content created in the World Editor from the players back to Blizzard. It did prohibit players from using their creations for commercial purposes, however.
In 2002, a particularly ambitious player named “Eul” created a mod for Warcraft III called “Defense of the Ancients.” The mod significantly altered the gameplay, rules, sequences and character roster of "Warcraft III," making DotA almost a new game. (As a mod, DotA required a copy of Warcraft III in order for players to play it.) Eul’s mod placed a heavy emphasis on the special “hero” characters from Warcraft III in addition to including a number of new hero characters.
DotA was a huge hit in the Warcraft community, inspiring dozens of other spin-off mods created by avid fans. Building on one of these spinoffs, a different player known as “Guinsoo” released his own mod called “DotA Allstars.” It included a series of new characters, spells and improvements, many of which were suggested by other players.
In 2004, Eul decided to retire from managing DotA and announced that “DotA is now open source,” and that anyone who wished to release a new version of DotA may do so without his consent as long as they give him “a nod in the credits to [their] map.” Soon after, Guinsoo also stepped down, leaving players “Icefrog” and “Neichus” to manage future DotA development. At this point, the game had attracted so many new fans that a forum dedicated to DotA was seeing over one million visitors every month, with a million page views every day.
Seizing on this popularity, Valve began development of its own standalone game, "DotA 2," based on DotA and DotA Allstars. Valve eventually hired Eul and Icefrog, who agreed to assign any rights they had in DotA and DotA Allstars over to Valve. Guinsoo was eventually hired by Riot Games (of “League of Legends” fame). Like Eul and Icefrog, Guinsoo assigned his rights to DotA Allstars to his new employer. Riot Games later assigned those rights to Blizzard.
After Blizzard and Valve Sue, uCool Moves to Dismiss
In September 2015, Blizzard and Valve jointly filed a copyright infringement lawsuit against California-based uCool and China-based Lilith Games. They asserted that uCool’s “Heroes Charge” and Lilith’s “DotA Legends” mobile games infringed on the copyrights in DotA and DotA 2. Blizzard’s and Valve’s amended complaint alleged various forms of infringement, but paid particular attention to the similarities between characters in the games at issue. uCool responded by moving for summary judgment against Valve, arguing that the company could not prove that it owned all of the copyrights in DotA and DotA Allstars that it needed in order to sue.
uCool's arguments focused on the DotA and DotA Allstars characters — specifically, whether Valve owned the copyrights to all of the characters it asserted against uCool and Lilith. The company contended that many of the characters allegedly copied from DotA and DotA Allstars never belonged to Eul, Guinsoo and Icefrog, but were instead created by other fans. uCool pointed to evidence that many of DotA and DotA Allstar’s characters — including their appearance, abilities and backstories — were based on concepts and suggestions that fans submitted to Eul, Guinsoo and Icefrog. According to uCool, this meant the fans — not Eul, Guinsoo or Icefrog — owned the copyrights in many of the characters asserted in Valve’s lawsuit. Under this theory, Valve would have needed to obtain separate assignments from each creator in order to assert the fan-created characters as part of its lawsuit.
uCool also argued that DotA and DotA Allstars were properly viewed as “collective works” — works that take others’ copyrightable expression (e.g., the game characters) and combine them into a single package, like a newspaper or an encyclopedia. Under this characterization, Eul, Guinsoo and Icefrog only owned rights in the selection and arrangements of characters in DotA and DotA Allstars, respectively; they did not own the rights to the underlying characters. Again, this theory would have required Valve to obtain assignments from the characters’ creators — something it did not have. The crowdsourced nature of the DotA and DotA Allstar’s characters raised an important question: In assessing ownership, should a court’s analysis focus on the individual characters, or the overall game? In denying uCool’s motion for summary judgment, the court offered a clear answer: The focus is on the game as a whole.
Dismissal Denied
First, the court rejected uCool’s argument that DotA and DotA Allstars were collective works. Referring to Section 101 of the Copyright Act, the court concluded that each version of DotA and DotA Allstars should be viewed as a unitary whole with “inseparable” and “interdependent parts.” Even though characters are independently copyrightable, the court noted that the “[h]eroes do battle in teams on fictional battlefields — together. They do not stand alone in self-contained bubbles.”
Second, the court rejected uCool’s argument that individual fans had authored many of the characters featured in DotA and DotA Allstars, and later asserted as part of Blizzard’s and Valve’s lawsuit. Drawing on well-established Ninth Circuit precedent in the movie-making context, the court concluded that the “master minds” behind a work — the people who exercise creative control — are considered the work’s “authors.” It further noted that individual contributions, even if “extremely helpful” or separately copyrightable, do not transform the corresponding contributors into authors of the overall work.
Even if Eul, Guinsoo and Icefrog solicited and even incorporated fan feedback into DotA and DotA Allstars, the evidence showed that they ultimately decided which suggestions made it into the final games and which did not. Because they exercised creative control over the final product, Eul, Guinsoo and Icefrog were the games’ authors. To interpret ownership any differently, the court concluded, would allow individual contributors to carve out ownership rights in their own contributions, rendering worthless copyright in movies, comic books and video games.
As a result of the court’s decision, Valve did not need to obtain assignments from individual fan contributors. Eul’s and Icefrog’s assignments to Valve would be sufficient so long as they were valid — an issue that was left for the jury to decide.
Takeaways and Cautionary Tales
The court’s denial of uCool’s motion highlights the important but sometimes overlooked role that ownership plays in every copyright infringement lawsuit. Would-be claimants should make sure that their chain of title documents are in order to avoid a potentially devastating blow early in a litigation, especially in cases of crowdsourced, user-generated content where ownership is likely to be a contentious issue.
The case also offers a cautionary tale about the importance of EULAs. Recall that Blizzard or Valve might never have been put in this position if Warcraft III’s EULA had assigned the rights in any player-created content in the World Editor back to Blizzard. It’s unclear whether this was a conscious choice by Blizzard to give fans an ownership stake in the content they create — a trend we see with increasing regularity in current gaming communities. But the message remains the same: Game developers should regularly review their consumer-facing agreements to ensure they meet both the legal and business objectives of the company.
Meanwhile, the DotA dispute shows no signs of slowing down. As of this writing, Lilith has moved to dismiss Blizzard’s and Valve’s second amended complaint. A number of important aspects of the case remain unresolved, including whether Eul’s decision to make DotA “open source” amounted to copyright abandonment — an issue that could severely limit the scope of the lawsuit — and the validity of the relevant assignments.
Although the future of this dispute remains uncertain, one thing is clear: The battle over DotA’s Azeroth-inspired in-game assets will have a lasting impact on the copyright protections for crowdsourced content.
Avoiding “Genericide”: Lessons from a Recent Case
By Jeffrey H. Greene and Anne Marie Longobucco
When does a trademark stop being a trademark? ASPIRIN, CELLOPHANE and ESCALATOR are all examples of words that were once trademarks, but ultimately came to be used and understood by the public as the names for the products themselves, not as specific brands indicating the sources of those products. When potential customers think of a trademark as a term for the category of products, the trademark becomes generic and is no longer entitled to protection. This loss of trademark rights is known as “genericide.” A recent case, Elliott v. Google, provides insight into how genericide can occur — and how it can be avoided.
In October 2017, the U.S. Supreme Court refused, without opinion, to hear a claim that the GOOGLE trademark had become a victim of genericide, based on the widespread use of GOOGLE to refer to internet searching (for example, “I googled it”). The petitioner, David Elliott, had attempted to register a number of Google-inclusive domain names, such as googledisney.com and googlebarackobama.net. After Google successfully challenged the registrations in Uniform Domain-Name Dispute-Resolution Policy (UDRP) proceedings, Elliott sued in Arizona federal district court to cancel the GOOGLE trademark on the ground that it had become generic. The district court had earlier granted summary judgment for Google, and the Ninth Circuit affirmed.
Genericide by “Verbing”
Elliott’s main argument, both in the district court and on appeal, was that GOOGLE had automatically become generic when it entered common use as a verb to mean the act of searching on the internet (a process Elliott referred to as “verbing”). According to Elliott, a word could function as a trademark — identifying the source of a product or service — only when used as an adjective modifying the generic noun for the type of product or service (for example, “Kleenex tissues” or “Nike sneakers”). Because the public used “google” primarily as a verb, the GOOGLE trademark could no longer function as a source identifier for Google’s search engine.
There has been a history of some trademarks falling into common use as generic nouns for products or services, resulting in genericide. For example, consumers referred to “taking an aspirin,” not “taking an ASPIRIN pain reliever.” Often, these uses became common because the brand was prominent in the market, so that customers thought of it as synonymous with the product itself. Eventually, the brand became a victim of its own success, losing its association with a single source. Trademark owners concerned with generic noun use have emphasized the distinction between the trademark and the product to “recapture” the trademark’s source-identifying significance, as in Band-Aid’s advertising campaign: “I am stuck on Band-Aid brand and Band-Aid brand is stuck on me.”
Elliott’s argument attempted to extend these generic noun cases to a categorical rule that all trademarks used as either nouns or verbs were generic. According to him, trademarks that had become commonly used as nouns — such as ASPIRIN, CELLOPHANE and THERMOS — or as verbs — such as ROLLERBLADE, XEROX, PHOTOSHOP, TIVO, FEDEX and FACETIME — had automatically lost their trademark status.
Both the district court and the U.S. Court of Appeals for the Ninth Circuit rejected this argument. As the Ninth Circuit noted, nothing in the Lanham Act or its legislative history limits trademark use to any particular part of speech or grammatical function. Moreover, consumers may use a trademark as either a noun or verb while continuing to associate it with a specific source for a product or service. For example, in Coca-Cola Company v. Overland, the Ninth Circuit had found that restaurant customers who ordered “a coke” (using Coke as a noun) were not necessarily using the name in a generic sense to mean a carbonated or cola-flavored beverage; they might well have been thinking of Coca-Cola in particular.
Similarly, a consumer who referred to “googling something” could mean using Google’s search engine (what the court called “discriminate” verb use) or just any search engine (“indiscriminate” verb use). Verb use alone was not enough to prove that the public had stopped associating GOOGLE with Google’s search engine.
Primary Significance: The Test for Genericness
Elliott’s argument also failed to recognize that, under the Lanham Act’s “primary significance” test for genericness, a claim of genericide must relate to a particular good or service. Even if a majority of the public primarily used “google” in the “indiscriminate” sense, to mean the act of searching on the internet (as the district court assumed for purposes of summary judgment), that was not enough to prove genericide. Elliott had to prove that the public primarily understood GOOGLE as a generic term for search engines. Elliott’s expert and survey evidence, however, focused on proving that the public used GOOGLE primarily as a verb, not that it was generic for search engines or any other good or service. Google, on the other hand, introduced surveys showing strong public recognition of GOOGLE as a brand.
Pointers for Protecting Brand Rights
TheElliott case is clearly good news for trademark owners concerned about erosion of their brand rights through “indiscriminate” use by the public. Although the Ninth Circuit did not mention other marks that are often used as verbs (such as XEROX, FEDEX and PHOTOSHOP), owners of these marks might be able to worry less about such use as a result of the ruling. Because trademark rights lost to genericide are difficult if not impossible to recapture, however, all trademark owners should take steps to maintain the strength of their brands. (For a rare case in which lost trademark rights were revived, see Singer Manufacturing v. Briley, where Singer Manufacturing re-established SINGER as a trademark for sewing machines through advertising and public education after the mark had fallen into generic use.)
Here are important takeaways from Elliott, and other practical tips for protecting brand rights:
- Elliott underscores the benefits of U.S. trademark registration. As the Ninth Circuit noted, Google’s registration entitled it to a presumption that GOOGLE was not generic, placing a heavier burden of proof on Elliott. In some cases, this evidentiary burden could make the difference between a win and loss for the trademark owner. See Filipino Yellow Pages v. Asian Journal Publications. (There, the owner of an unregistered mark had the burden of proof that the mark was not generic.)
- Although it rejected the genericide claim in Elliott, the Ninth Circuit did not hold that verb use could never be relevant to show that a mark was generic. Under different circumstances, the court noted, verb use, like noun use, could be evidence that the public primarily understands a mark to refer to a type of good or service. Preferred trademark use should still be as an adjective, followed by the generic name of the product or service (for example, “ROLLERBLADE inline skates” or “PHOTOSHOP photo editing software”).
- Trademark owners should be careful to use their own marks in a way that emphasizes their trademark significance, not in a generic sense. Although Elliott tried unsuccessfully to show that Google used its own mark generically, other marks have been found to be generic where the owner used the mark to refer to the type of goods or services offered.See e.g. Boston Duck Tours v. Super Duck Tours (use of DUCK TOURS to refer to amphibious tour services) and Pilates v. Current Concepts. (use of PILATES to refer to exercise method and equipment).
- Employees, licensees, distributors and contractors — as well as potential customers and the general public — should be educated about the proper use of the brand and its distinction from the product or service being offered.
- In written advertisements and marketing materials (including websites and online advertising), trademark owners should use the registered trademark symbol (®) after the trademark, if it is registered, and the trademark symbol (™), if it is unregistered.
- Trademark owners should display the trademark so as to distinguish it from surrounding text, for example, by using a different font or color, larger or bold type, and/or capitals. (For example, BAND-AID® appears in large, red capital letters above the words “brand adhesive bandages” in smaller type.)
- Trademark owners should avoid using trademarks as plural nouns, which can suggest generic use (“Kleenex tissues” instead of “Kleenexes”; “Nike sneakers” instead of “Nikes”).
- Ongoing policing and enforcement efforts can help to combat a claim of genericide. In Elliott, the Ninth Circuit noted Google’s proactive policing of its trademark as weighing in favor of trademark significance. Other marks have lost protection when their owners failed to police them. See e.g., BellSouth v. DataNational (a case that dealt with AT&T’s “Walking Fingers” logo for telephone directories).
Efforts to Censor American Speech with Foreign Injunctions Dealt Another Blow by California Court
By Armen N. Nercessian and Chieh Tung
A little over a year ago, the Supreme Court of South Australia issued an injunction ordering the Electronic Frontier Foundation to remove a post on its “Stupid Patent of the Month ” blog criticizing the litigation and patent practices of Global Equity Management (GEMSA), an Australian corporation. EFF took the fight back to the United States, seeking a declaratory judgment that the injunction was unenforceable and violated American free speech rights. Despite having several pending patent lawsuits in the same district, GEMSA failed to appear in the proceedings. On November 17, 2017, Judge Jon S. Tigar of the U.S. District Court for the Northern District of California granted a default judgment to EFF in Electronic Frontier Foundation vs. Global Equity Management (SA), and ruled that EFF’s blog post is protected speech.
The GEMSA decision, which follows fast on the heels of a similar ruling in the Northern District of California in Google v. Equustek, marks the second time in recent months that a U.S. federal court has rebuffed efforts to enforce foreign injunctions that threaten the speech of American actors.
“Stupid Patent of the Month”
In June 2016, EFF published an article on its “Stupid Patent of the Month” blog slamming a GEMSA patent and the company’s allegedly abusive litigation practices. EFF is a nonprofit organization that advocates digital civil liberties, and its “Stupid Patent” blog series takes aim at patents that EFF believes stifle innovation. The patent at issue claimed the idea of using “virtual cabinets” to graphically represent data storage and organization, and GEMSA had already sued dozens of American internet companies for infringement based on running websites with graphical user interfaces.
GEMSA took swift action. It asserted that the article was defamatory and demanded that EFF retract it, apologize and pay damages. Rather than respond to EFF’s request for clarification, however, GEMSA filed suit in the Supreme Court of South Australia (without properly serving EFF). The company sought an order requiring EFF to remove the article and enjoining it from publishing anything about GEMSA. The Australian court issued the injunction, and GEMSA demanded that EFF comply.
EFF responded with a lawsuit of its own, this time in the U.S. District Court for the Northern District of California. Its action sought relief from the injunction under the Securing the Protection of our Enduring and Established Constitutional Heritage Act (or SPEECH Act), 28 U.S.C. §§ 4101‑4105 and the Declaratory Judgment Act, 28 U.S.C. §§ 2201‑2202. Even though it had several pending infringement lawsuits in the Northern District concerning the same patent, GEMSA failed to appear. But the magistrate judge recommended denying EFF’s motion for default judgment anyway, based on the finding that it lacked personal jurisdiction over GEMSA.
The District Court’s Holding
EFF sought de novo review from the district court, which disagreed with the magistrate’s decision and found several bases for asserting personal jurisdiction over GEMSA, including its letter demanding that EFF comply with the injunction. The court then moved on to default judgment inquiry, which primarily focused on EFF’s likelihood of prevailing under its SPEECH Act claim.
The SPEECH Act prohibits U.S. courts from enforcing foreign defamation judgments unless the foreign law is at least as protective of speech as the First Amendment and forum state’s law, or the defendant would have been found liable for defamation by a U.S. court applying U.S. law. The court held that, under either standard, the Australian injunction failed. For one thing, it constituted a prior restraint on speech that could not withstand strict scrutiny. For another, none of GEMSA’s claims against EFF could give rise to defamation under U.S. and California law because they constituted protected opinions or lacked falsity. Indeed, the court also found that EFF would prevail under California’s anti-SLAPP law (Strategic Lawsuits Against Public Participation), which allows courts to dismiss lawsuits targeting people for exercising their political or legal rights.
Takeaways
The GEMSA decision again demonstrates the willingness of U.S. federal courts (and specifically the Northern District of California) to recognize the free speech implications of foreign injunctions against American entities and refuse to enforce orders from foreign courts when the foreign law conflicts with the First Amendment. Although the default judgment context counsels caution before reading too much into it, GEMSA offers an early signal of how American courts might rule in the face of the growing trend among foreign courts of issuing injunctions that threaten speech interests.
Quick Updates
Failure to Quantify U.S. vs. Worldwide Sales Costs Life Sciences Company a Damages Award
Any patent plaintiff would be thrilled to get a ruling of infringement on summary judgment — but if that win ultimately resulted in zero damages, it would ring hollow. In a recent case that emphasizes the importance of introducing granular evidence on damages, the U.S. Court of Appeals for the Federal Circuit affirmed (on remand from the U.S. Supreme Court) a district court’s ruling that overturned a jury’s $52 million damages award.
In Promega v. Life Technologies, Promega (a life sciences company) sued Life Technologies (a biotech company) for infringement of a patent related to genetic testing kits used in both clinical research and forensic identification. Life Technologies assembles the kits in the United Kingdom and sells them worldwide. All of the kits sold by Life Technologies include one component — Taq polymerase — made in the United States. Promega won its infringement case against Life Technologies on summary judgment under two sections of U.S. patent law: 35 U.S.C. § 271 (a) and § 271(f)(1).
Prior to the trial on damages, the parties stipulated that Life Technologies had worldwide sales of $708 million for the infringement period. Promega argued that all sales infringed under § 271(f)(1)because all kits contained the Taq polymerase component, which qualified as a “substantial portion” of the accused products. However, the jury verdict form did not break out a damages award under § 271(a)and § 271(f)(1)and did not provide an option for a lesser damages award based only on sales in the United States. The stipulation — and the jury verdict form — proved to be grave miscalculations by Promega.
The jury awarded Promega $52 million in lost damages based on the stipulated-to worldwide sales figure. Life Technologies then filed a motion for judgment as a matter of law. The company argued that the award was based on a misinterpretation of § 271(f)(1);it also argued that Promega had not provided adequate evidence of infringing sales under either § 271(a)or § 271(f)(1).The district court granted Life Technologies' motion, holding that no reasonable jury could have found, based on the trial record, that all of the accused products infringed under § 271(a)and § 271(f)(1) in light of the district court’s interpretation of “substantial portion.” It also held that Promega had waived any argument that the evidence at trial could support a damages calculation based on a subset of total sales. Subsequently, the district court also denied Promega’s motion for a new trial, filed by the company's new counsel.
The Federal Circuit initially reversed the district court, holding that a single component supplied from the United States could qualify as a “substantial portion” of a multicomponent product, and thus could be found to infringe under § 271(f)(1)no matter where it was sold. The court also vacated the denial of Promega’s motion for a new trial and remanded with instructions to conduct a new damages trial.
On appeal of that decision, the U.S. Supreme Court reversed the Federal Circuit’s judgment and remanded for further proceedings, consistent with the justices' opinion that “a single component does not constitute a substantial portion of the components that can give rise to liability under § 271(f)(1).”
Because Promega relied on a single damages theory at trial, a significant issue the Federal Circuit considered on remand was waiver. Specifically, did Promega waive all other damages theories, or could it have a second shot at proving a lesser damages award despite its all-or-nothing gamble at trial? The court ruled that Promega had, in fact, waived all other damages theories, and that it could not have another bite at the apple. The ruling was based partly on Promega’s decision to not present any expert testimony on damages at trial, as well as the company's decision to submit a jury verdict form that asked the jury to determine a single “United States sales” figure for sales falling under both § 271(a)and § 271(f)(1).
Proving damages is usually not the flashy part of any case. It is a rare trial where the lead partner has the starring role on damages. But as this case shows, it cannot be discounted. Although a jury might be convinced to reward an all-or-nothing strategy, they do not always have the last word. An alternate theory that results in a lower damages award might appear to be risky at trial, but it can be the difference between $52 million and nothing at all.
Trio of Decisions Sheds Light on Protectability of Customer Lists as Trade Secrets
In early December, the U.S. Court of Appeals for the Eighth Circuit, in Tension Envelope v. JBM Envelope, added to the patchwork of outcomes on the question of whether customer lists are considered trade secrets when it affirmed a Missouri lower court’s rejection of trade secrets (and other claims) related to allegedly pilfered customer lists.
The background is as follows: JBM supplied specialty envelopes to Tenison for approximately 10 years. During the course of the relationship, JBM allegedly assured Tenison that it would not sell directly to Tension’s customers, although JBM refused to sign a non-compete agreement. Eventually Tension learned that JBM had been selling directly to Tension’s customers. Tenison sued, asserting a number of causes of action, including misappropriation of its trade secrets — namely, the “identity of its customers and their unique requirements.”
Concurring with the lower court, the Eighth Circuit found that bare “customers contacts” — although potentially protectable — were not protectable under a theory of trade secret. The fact that they were accompanied by “customer requirements” did not sway the court, which determined that those requirements were “obtainable without recourse to misappropriation” — namely, that they were the customers’ information, not Tension’s.
The Tension decision comes after a 2016 ruling from the U.S. District Court for the Southern District of New York, Free Country v. Drennen, which also rejected the notion that customer lists are trade secrets on a motion for preliminary injunction and temporary restraining order. Free Country, a clothing company, had sued former employees asserting various claims under the Defend Trade Secrets Act and New York law. Its claim centered on a former employee's alleged misappropriation of the company's client list and pricing information, which he had sent to his personal email address. As in the Tension decision, the court in Free Country held that the customer list at issue included well-known apparel retailers whose identities were not protected and whose contact information was readily ascertainable; therefore, the list was not a trade secret.
Earlier decisions make clear, however, that customer lists are not immune from trade secret protection.
For example, although the court in a California case, Pyro Spectaculars North v. Souza, recognized that if the bare identities and contact information of the plaintiff’s customers, operators and vendors were the only information at issue, the list would not be protectable, it nevertheless held that the list did qualify as a trade secret. According to the court, the value of the plaintiff’s database was in its “comprehensive, if not encyclopedic, compilation of customer, operator and vendor information.” In this instance, the plaintiff had also taken certain steps, although imperfect, to protect the lists — including listing “customer lists” in the section of its employee handbook that described the company’s confidential and trade secret information. It also employed security practices, such as requiring a password to access the database where the list was housed.
This trio of decisions makes clear that businesses should not assume that courts will protect their customer lists: Courts come to different conclusions based on the unique facts of each case. At the same time, these cases also serve as a reminder that taking certain steps can improve the likelihood that valuable lists will be recognized as secret. For example, courts are more likely to protect lists that incorporate and reflect the company’s work and insight, as opposed to lists that are, essentially, bare compilations of names and contact information.
The bottom line? Take appropriate contractual and technical steps to protect information your company considers to be valuable.
U.S. Copyright Office’s Wet Signature Requirement Evaporates
Despite the fact that the Electronic Signatures in Global and National Commerce Act has been around since 2000, the U.S. Copyright Office has refused to accept electronic signatures for copyright assignments and other documents. That all changed on December 18, 2017, when new rules (37 C.F.R. § 201.4) became effective allowing 21stcentury electronic signatures to be used for documents submitted for recordation at the Office. The new rules are first steps as the Office moves toward implementing its planned fully electronic online recordation system.
For many years, the Office felt that the undefined statutory term “actual signature” (17 U.S.C. § 205) required original documents to bear handwritten, wet signatures, and that “copies” of such documents had to reproduce those wet signatures. Under the new rules, the Office considers an “actual signature” to be any legally binding signature, expressly including an electronic signature as defined by the E-Sign Act. Even clicking a button on a website can now qualify as such a signature, so long as this act is supported by appropriate evidence (e.g., a confirmation email showing that a particular user agreed to contractual terms by clicking “yes” on a particular date). Where the Office’s recordation examiners cannot determine on a case-by-case basis that a document has been actually signed, the Office will presume that the signature requirement has been satisfied, and such presumption is to be without prejudice to any party who later claims that the document was not in fact signed.
A related improvement is that while the Office will continue to require that documents submitted for recordation be “complete,” there is a very different sense now as to what that means. It used to be the case that if a copyright transfer represented only a small portion of a much larger transaction document (such as might occur in connection with an overall corporate asset transfer or other M&A activity), the Office would require the complete document package, including voluminous schedules and exhibits unrelated to the copyright transfer. The new rule deems a document “complete” for recordation where all of the terms relating to the copyright issues are provided, and allows unrelated schedules and exhibits to be omitted. Likewise, they allow for redactions of portions of transaction documents that do not relate to copyright. The notice (82 FR at 52213) announcing the new rules cautions parties not to over-redact, however, as in some instances it may impact whether a document adequately provides the statutory constructive notice the remitter desires to achieve by recordation.
Another move toward modernization is a loosening of the requirement for English-language translations of documents originally in another language. The translation need no longer be “signed by the individual making the translation.” Instead, automated translations are now acceptable.
When reviewing submissions such as copyright assignments, the Office is clear that its examination is for only “facially obvious deficiencies,” and that more comprehensive review is done only at its discretion. The rules expressly warn that recordation of such a document is not to be construed as a determination by the Office that a document is valid or legally effective. Nonetheless, it is likely that these new rules will help further the general adoption of various types of electronic signatures.
Although the E-Sign Act covers many transactions, others are subject to state law. Not all states have adopted the Uniform Electronic Transactions Act (New York, Illinois and Washington are very notable exceptions) — so even within the United States there remains some uncertainty regarding the effectiveness of certain types of electronic signatures in certain situations. Some other countries recognize as binding only certain types of electronic signatures or recognize electronic signatures for only certain types of use. That said, with the new rules from the Copyright Office, we are one step closer to universal acceptance of electronic signatures.
In a related development, the day after the new rules became effective, the Ninth Circuit issued a ruling that seems to indicate a further loosening of the formalities needed for a transfer of copyright. Specifically, the court held that where a company owner signed an annual report containing a statement that “all assets” from a predecessor company were transferred to a new company upon its incorporation a year earlier, such a report by itself could be sufficient to satisfy the requirement (17 U.S.C. § 204(a)) that copyright transfers be in writing. The court quoted prior case law in observing that the writing requirement does not call for any “magic words” or “have to be the Magna Carta.” As the need for formality and ceremony appears to be diminishing, companies should be careful that they do not inadvertently take any action that might later be argued to constitute a transfer of copyright ownership under the Copyright Act.
USPTO Issues New Guidelines for Reviving Abandoned Trademark Applications and Reinstating Expired/Cancelled Registrations
In July 2017, the U.S. Patent and Trademark Office amended the rules for filing petitions to revive abandoned trademark applications, petitions to reinstate expired/cancelled trademark registrations and petitions to the Director of the USPTO regarding other trademark matters.
The new rules, released in August 2017 as the “Examination Guide 4-17, ” clarify the requirements and harmonize the deadlines for filing petitions to revive abandoned trademark applications with other types of petitions to the Director. They also remove any uncertainty for applicants, registrants, third parties and the USPTO as to whether a petition to revive an abandoned trademark application or petition to reinstate an expired or cancelled trademark registration is timely.
Previously, the Trademark Manual of Examining Procedure (TMEP § 1714 (37 C.F.R. § 2.66)) provided that when a trademark application became abandoned — for example, because an applicant failed to timely respond to an Office Action issued by the USPTO — the applicant could file a petition to revive the application either (1) within two months of the date of issuance of the notice of abandonment, or (2) within two months of the applicant’s actual knowledge of the abandonment, if the applicant did not receive the notice of abandonment but was “duly diligent” in tracking the status of his or her application. Similar timing rules previously applied to registrations that became cancelled or expired — for example, if the registrant timely filed renewal documents that were lost or mishandled by the USPTO.
However, the old rules led to situations where it was difficult for the USPTO to determine when the party had actual notice of the abandonment of an application or expiration/cancellation of a registration, and whether the party was duly diligent in prosecuting the application or maintaining the registration. This meant that a petition to revive an abandoned application filed more than two months after a notice of abandonment was issued, or more than two months after the USPTO’s online records were updated, was likely to be dismissed as untimely, even if the applicant never received the notice of abandonment.
The new Examination Guide 4-17 clarifies the timing for filing a petition to revive an abandoned application and removes the uncertainty in the USPTO’s assessment of whether an applicant was “duly diligent” in monitoring the status of his or her application. Specifically:
- The new rules make it clear that petitions to revive abandoned applications must be filed no later than six months after the USPTO’s electronic records are updated to show that the application is abandoned.
- The same deadlines also apply to petitions to reinstate applications and registrations that have been abandoned, cancelled or expired due to USPTO error.
These new instructions were incorporated into the October 2017 revision to the TMEP.
By removing the uncertainty in the USPTO’s assessment of whether an applicant or registrant was “duly diligent” in monitoring the status of an application or registration, the new rules should help ensure that the public has proper notice of the deadlines and requirements for making timely requests to the USPTO to revive an abandoned trademark application, or a petition to reinstate an expired or cancelled trademark registration.