TLJ News from August 6-10, 2005

9th Circuit Rules in Trademark Case

8/9. The U.S. Court of Appeals (9thCir) issued its opinion [10 pages in PDF] in Yellow Cab v. Yellow Cab, which is, as the title suggests, a Lanham Act case.

The plaintiff, Yellow Cab of Sacramento, filed a complaint in U.S. District Court (EDCal) against the defendant, Yellow Cab of Elk Grove, alleging trademark violation under the Lanham Act and related state law claims for unfair competition, false advertising, and intentional interference with prospective business advantage. Elk Grove is a suburb of Sacramento.

The District Court granted summary judgment to the defendant on the basis that "yellow cab" is a generic term, and, alternatively, that even if it is a descriptive term, the plaintiff failed to show secondary meaning and is therefore not entitled to trademark protection.

The Court of Appeals reversed and remanded. It held that "there are issues of material fact as to (1) whether the mark ``Yellow Cab´´ has become generic through widespread use in the marketplace, and (2) if descriptive, whether the mark has acquired secondary meaning. We therefore reverse the judgment of the district court. We also determine that the burden of proof as to validity and protectability of an unregistered mark lies with the party claiming trademark protection."

This case is Yellow Cab of Sacramento v. Yellow Cab of Elk Grove and Michael Steiner, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 03-16218, an appeal from the U.S. District Court for the Eastern District of California, D.C. No. CV-02-00704-FCD, Judge Frank Damrell presiding. Judge Sidney Thomas wrote the opinion of the Court of Appeals, in which Judges Carlos Bea and Betty Fletcher joined.

Recess Appointments in the August Break

8/9. On August 9, 2005, President Bush made another recess appointment. The House and Senate are on recess until after Labor Day. He gave a recess appointment to Eric Edelman to be Under Secretary of Defense for Policy. See, White House release and DOD release. President Bush gave a recess appointment on August 1 to John Bolton.

However, for technology law issues, the most significant stalled nomination is that for the head of the Criminal Division at the Department of Justice (DOJ). President Bush nominated Alice Fisher back on March 29, 2005. See also, story titled "Bush to Nominate Alice Fisher to Head DOJ's Criminal Division" TLJ Daily E-Mail Alert No. 1,107, April 1, 2005. The Senate has not yet voted on her nomination.

The Criminal Division is responsible for many matters related to the CALEA, cybercrime, enforcement of intellectual property laws, wiretaps, and electronic surveillance, searches and seizures involving new information technologies.

Although, the delay of the Fisher nomination has nothing to do with technology related issues. There is a hold on the Fisher nomination that is related to the partisan politics of Guantanamo Bay. John Richter is the acting head of the Criminal Division.

Also, Deputy Attorney General James Comey is about to leave the DOJ. On May 24, 2005, President Bush picked Timothy Flanigan to replace him. See, "People and Appointments" column in TLJ Daily E-Mail Alert No. 1,142, May 25, 2005. He has had a hearing before the Senate Judiciary Committee (SJC). However, the SJC has not yet voted on his nomination.

When the Senate returns in September, the SJC and its members are likely to be occupied with the nomination of John Roberts to be a Justice of the Supreme Court. See, story titled "Bush Nominates John Roberts for Supreme Court" in TLJ Daily E-Mail Alert No. 1,178, July 20, 2005. Since Flanigan has experience in judicial confirmation battles, the President may have a special incentive to get him into office, and some Senate Democrats may have an incentive to keep him out.

In short, Fisher and Flanigan are both potential candidates for recess appointments.

Court Holds Cable Companies Do Not Have to Pay Fees to Multiple Local Franchising Authorities

8/9. The U.S. Court of Appeals (1stCir) issued its opinion in Liberty Cablevision of Puerto Rico v. Municipality of Caguas, appeals from two related cases regarding the collection of fees by multiple local franchising authorities.

Liberty CableVision of Puerto Rico provides cable service in Puerto Rico, including cable modem service. The municipalities of Caguas, Barceloneta and Las Piedras all have ordinances that impose a 5% annual fee on Liberty's gross revenues for use of the municipalities' rights of way. In addition, the Telecommunications Regulatory Board of Puerto Rico (TRB) has imposed an annual fee.

The Puerto Rico Legislative Assembly has designated the TBR as the local franchising authority under the Cable Act.

Liberty filed complaints in U.S. District Court (PR) against the municipalities seeking declaratory relief that the municipal ordinances are preempted by the Cable Act. The District Court reached opposite conclusions in the two cases.

On appeal, the Court of Appeals held that the municipal ordinances conflict with the Cable Act, and are preempted.

The municipalities also argued that since Liberty also provides cable modem service, it is a "telecommunications carrier" subject to fees under § 253 of the Telecommunications Act of 1996. The Court of Appeals rejected this argument, based on the June 27, 2005, opinion [59 pages in PDF] of the Supreme Court in NCTA v. Brand X

This case is Liberty Cablevision of Puerto Rico, Inc. v. Municipality of Caguas, et al., and consolidated appeals, U.S. Court of Appeals for the 1st Circuit, App. Ct. Nos. 04-1597, 04-2136, and 04-2137, appeals from the U.S. District Court for Puerto Rico. Judge Torruella wrote the opinion of the Court of Appeals, in which Judges Oberdorfer and Stahl joined.

More News

8/9. The U.S. Court of Appeals (7thCir) issued its opinion in Bretford Manufacturing v. Smith System Manufacturing, a Lanham Act, 15 U.S.C. § 1125(a), case involving the production of computer tables in which Bretford Manufacturing alleges trade dress infringement and reverse passing off. The District Court held for Smith System Manufacturing. The Court of Appeals affirmed. This case is Bretford Manufacturing, Inc. v. Smith System Manufacturing Corporation, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 03-3932, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No.  98 C 0287, Judge John Grady presiding. Judge Easterbrook wrote the opinion of the Court of Appeals, in which Judges Flaum and Williams joined.

8/9. The Federal Communications Commission (FCC) released the text [67 pages in PDF] of its Report and Order and Further Notice of Proposed Rulemaking in its proceeding titled "In the Matter of Biennial Regulatory Review – Amendment of Parts 1, 22, 24, 27, and 90 to Streamline and Harmonize Various Rules Affecting Wireless Radio Services". The FCC adopted this item on July 22, 2005, and released it on August 9, 2005 This item is FCC 05-144 in WT Docket No. 03-264. Comments on the FNPRM will be due 60 days after publication of a notice in the Federal Register, which has not yet occurred, and reply comments will be due 90 days after publication.

FTC and DOJ File Amicus Brief in Patent Tying Antitrust Case

8/8. The Federal Trade Commission (FTC) and the Department of Justice's (DOJ) Antitrust Division filed a joint amicus curiae brief [41 pages in PDF], on the merits, with the Supreme Court, in Illinois Tool Works v. Independent Ink, urging reversal of the U.S. Court of Appeals (FedCir).

Trident, Inc., a subsidiary of Illinois Tool Works, holds U.S. Patent No. 5,343,226, which pertains to ink jet printer technology. Trident also makes ink. Moreover, its standard form licensing agreement allowing the OEMs to use its patented product requires the OEMs to purchase their ink for Trident systems exclusively from Trident. Independent Ink also makes ink, and competes with Trident.

Independent Ink filed a complaint in U.S. District Court (CDCal) against Trident and Illinois Tool Works. It sought a declaratory judgment of non-infringement and invalidity against Trident’s patents. It also alleged Trident was engaged in illegal tying and monopolization in violation of sections 1 and 2 of the Sherman Act, which are codified at 15 U.S.C. § 1 and § 2.

The District Court granted summary judgment in favor of Trident on both claims. The District Court held that for patent tying to constitute a violation of the antitrust laws, the plaintiff must affirmatively prove market power.

The Court of Appeals issued its opinion [20 pages in PDF] on January 25, 2005. It held that "a rebuttable presumption of market power arises from the possession of a patent over a tying product". It further wrote that "Because no rebuttal evidence was submitted by the patent holder, we reverse the grant of summary judgment on the Sherman Act section 1 claim and remand for further proceedings. As to Independent’s Sherman Act section 2 claim, we affirm the district court’s grant of summary judgment." The opinion is also reported at 396 F.3d 1342.

The Supreme Court granted certiorari on June 20, 2005. See, story titled "Supreme Court Grants Certiorari in Patent Tying Antitrust Case" in TLJ Daily E-Mail Alert No. 1,158, June 21, 2005.

The DOJ and FTC argue that "This Court's decisions under Section 1 of the Sherman Act restrict per se condemnation of tying arrangements to those situations in which the defendant has coercive economic power in the tying product market that it uses to impair competition in the tied product market. ... The Court of Appeals' application of a presumption that patents confer market power is inconsistent with the rationale of those decisions, and it conflicts with the court's teaching that per se rules are properly applied only to conduct that is almost always anticompetitive."

The DOJ and FTC continue that "There is no economic basis for inferring market power from the mere fact that the defendant holds a patent. That view is shared by diverse members of the antitrust community -- including scholars, enforcement agencies, and Congress. Such an inference would confound two quite distinct concepts: the legal right under intellectual property law to exclude a copyist's infringing products and the economic concept of market power. While a patent can provide significant protect from competition, only a small percentage of patents actually confer significant market power."

"The existence of a patent is relevant to the question of market power, and patentees may indeed possess such power in particular cases, but a court should consider evidence specific to the market at issue." The DOJ and FTC also argue that "The Court of Appeals was mistaken in concluding that this Court's decisions require courts to apply a presumption that patents confer market power."

The DOJ and FTC conclude that "Because the Court of Appeals misread this Court's decisions to require the presumption that patents confer market power, it noted but gave no weight to the mismatch between the presumption and the procompetitive policies of antitrust law. The presumption is an anomalous legal shortcut, encouraging meritless antitrust claims while discouraging innovation and efficiency-enhancing business practices. Those considerations confirm that the presumption should be rejected."

The American Intellectual Property Law Association (AIPLA) also filed an amicus brief [25 pages in PDF], on the merits, in support of neither party, on August 4. It urges the Supreme court to eliminate the presumption of market power in patent antitrust tying cases.

The AIPLA argues that "the mere issuance of a patent neither defines a relevant product market nor conveys market power in a relevant market, except in very rare cases. Consequently, the presumption that patents nearly always define a market unto themselves and provide sufficient power to raise prices or restrict output is not based on actual experience. Because the presumption does not reflect market realities, the Court should reject them."

The AIPLA continues that "the presumption will encourage routine filing of tying antitrust claims, because the accusers would not need to confront market realities. Those filings may arise not only in cases of express ties, but also where a license arrangement may be argued to have a tying effect. The increased risk of treble-damage antitrust liability may discourage patent owners from enforcing their patent rights, and thus may lessen the value of those rights and the incentive to make and disclose innovations to the public."

Intellectual Property Owners Association (IPO) also filed an amicus brief [27 pages in PDF], on the merits, in support of Illinois Tool Works, and urging reversal, on August 5.

The IPO argues that "The burden of proving market power should be placed and remain on the antitrust plaintiff in a patent tying case, as it is in all other tying cases. There should be no presumption that because the tying product is patented, it somehow inherently defines the relevant market and mandates a finding of market power."

The IPO adds that "The Court should overturn the precedent of International Salt and Loew’s".

This case is Illinois Tool Work, Inc. v. Independent Ink, Inc., Sup. Ct. No. 04-1329, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit. The Court of Appeals case number is 04-1196.

Rep. Boucher Proposes Network Neutrality Legislation

8/8. Rep. Rick Boucher (D-VA) proposed, but did not introduce, Congressional legislation that would codify principles of network neutrality. On August 5, the Federal Communications Commissions (FCC) announced, but did not release, a policy statement containing a somewhat different statement of network neutrality principles. The FCC policy statement carries no enforcement component.

See, story titled "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005.

Rep. Rick BoucherRep. Boucher (at right) stated that "The FCC's recent adoption of a Policy Statement regarding the principles of Net Neutrality is an appropriate first step in ensuring that all persons continue to enjoy the unfettered ability to access and use the Internet in a lawful manner without being impeded by broadband network operators. However, the next step must be taken by the Congress in codifying the Net Neutrality principles and bestowing on the FCC the clear authority to enforce the principles".

However, Rep. Boucher's concept differs from the concept embodied in the FCC's policy statement. He issued a release that states that network neutrality encompasses the following: "ensuring unimpeded consumer access to any lawful content, applications and services on the Internet; allowing consumers to attach and use any device that does not harm the broadband network; and prohibiting broadband network operators from unreasonably favoring themselves or their affiliates in the provision of Internet services."

The FCC's policy statement does not include Rep. Boucher's provision regarding "prohibiting broadband network operators from unreasonably favoring themselves or their affiliates in the provision of Internet services". Instead, it contains a provision regarding FCC preservation of "competition among network providers, application and service providers, and content providers".

"The absence of a binding statute codifying the principles of Net Neutrality leaves a significant gap in our regulatory structure which will undoubtedly be exploited again by companies seeking to gain an inappropriate competitive advantage", said Rep. Boucher. "As the House and Senate prepare to reexamine our nation's telecommunications laws, we have an opportunity to use a light regulatory touch and insert into the statutory law the very common sense principles of Net Neutrality".

The Congress is not in session. Members cannot introduce bills until the Congress returns in September.

FCC Chairman Directs Enforcement Bureau to Conduct Payola Investigation

8/8. Federal Communications Commission (FCC) Chairman Kevin Martin announced that he has directed the FCC's Enforcement Bureau "to review the settlement agreement reached by Sony BMG and the New York Attorney General and investigate any incidents in which the agreement discloses evidence of payola rule violations".

Martin wrote in a statement [PDF] that "If the Bureau determines violations of the payola rules have occurred, the Commission will take swift action. In addition, if the Bureau is presented with evidence of payola rule violations outside of the Sony BMG Music Entertainment settlement, it is to thoroughly investigate those complaints as well".

The Office of the New York Attorney General announced its settlement with Sony BMG in a July 25 release. It wrote that under the settlement agreement "one of the world's leading record companies and owner of a number of major record labels, has agreed to stop making payments and providing expensive gifts to radio stations and their employees in return for ``airplay´´ for the company's songs. Such payoffs violate state and federal law."

Martin added that "The FCC has longstanding rules prohibiting payola. These rules serve the important purpose of ensuring that the listening public knows when someone is seeking to influence them. Broadcasters must comply with these rules. The Commission will not tolerate non-compliance. While payola may not be a widespread practice in the broadcasting industry, to the extent it is going on, it must stop."

Jonathan AdelsteinCommissioner Jonathan Adelstein (at right) issued a statement [PDF] in which he wrote that "I applaud the Chairman's decision to launch an investigation into the payola scandal uncovered by New State Attorney General Spitzer. The Commission has an affirmative, statutory obligation to enforce federal payola laws, and we should enforce them vigorously."

"I believe this payola scandal may represent the most widespread and flagrant violation of any FCC rules in the history of American broadcasting. Mr. Spitzer's office has collected a mountain of evidence on the potentially illegal promotion practices of not only Sony BMG, but also other major record companies, independent promoters and several of the largest radio station groups."

"The airwaves belong to the public, not the highest bidder", said Adelstein.

FCC Releases Order Approving Sprint Nextel Merger

8/8. The Federal Communications Commission (FCC) released a heavily redacted text [103 pages in PDF] of its Memorandum Opinion and Order approving the merger of Sprint and Nextel, with conditions.

On August 3, 2005, the FCC announced, but did not release, this MOO. Also on August 3, the Department of Justice's Antitrust Division announced in a release that it has conducted an antitrust merger review, and "has closed its investigation". See, story titled "FCC and DOJ Approve the Merger of Sprint and Nextel" in TLJ Daily E-Mail Alert No. 1,188, August 4, 2005.

The FCC's public interest analysis includes a lengthy competition analysis. In addition, it includes a public interest analysis of "public safety" issues, including "E911 deployment", "CALEA implementation", and "homeland security".

The FCC concluded that "We do not find that the merger will benefit public safety." The text regarding public safety issues is incomplete. The MOO contains numerous redactions, including discussion of the FCC's analysis of the effect of the merger on "CALEA obligations".

Subsequent to the adoption of the Sprint Nextel MOO, the FCC adopted an order regarding CALEA obligations, and a separate policy statement that addresses "the needs of law enforcement". See, stories titled "FCC Amends CALEA Statute" in TLJ Daily E-Mail Alert No. 1,191, August 9, 2005, and "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005.

This MOO is FCC 05-148 in WT Docket No. 05-63.

AG Gonzales Addresses PATRIOT Act Extension

8/8. Alberto Gonzales gave a speech in Chicago, Illinois, in which he discussed, among other topics, extending the sunsetted provisions of the PATRIOT Act.

The House and the Senate both approved bills in July that extend the sunsetted provisions. However, these are quite different bills. The Senate approved S 1389 on July 29, 2005. The House approved HR 3199 on July 21, 2005. See, story titled "House Approves PATRIOT Act Extension Bill" in TLJ Daily E-Mail Alert No. 1,180, July 22, 2005.

Alberto GonzalesGonzales (at right) said that "I am pleased that both the House and the Senate have voted to reauthorize key provisions of the PATRIOT Act and I look forward to them sending a bill to the President’s desk that does not undermine the ability of investigators and prosecutors to disrupt terrorist plots and combat terrorism effectively. I am committed to working with both the House and the Senate as we move toward the ultimate renewal of the Act."

He stated that "I've talked often about the reauthorization of this important law enforcement tool over the past several months. But the litany of misstatements and half-truths from others have complicated this debate and required a concerted effort to educate the American people -- and the bipartisan coalition in Congress who enacted this legislation -- about the singular importance of the PATRIOT Act."

"You've probably heard the arguments on both sides. Let me be straightforward: We are fighting terrorism with the tools and techniques provided for in the PATRIOT Act -- tools that have long been available to fight crime -- and we are doing so in a manner that protects our cherished rights and liberties. We are not interested in the reading habits of ordinary citizens -- as some have suggested", said Gonzales.

He continued that "Several provisions in the PATRIOT Act were set to expire in the event that the terrorist threat ended or changed, or in the event that the Justice Department did not use these tools in a lawful and responsible manner. As we know from the headlines, the threat has not expired; the Department has acted responsibly. And that's why everything that was right about the PATRIOT Act nearly four years ago is still right today. We still need the investigative tools to track potential terrorist activity and share information more quickly. Some have expressed concerns about encroachments on privacy and civil liberties. Count me as someone who is always concerned about such matters."

7th Circuit Finds No Federal Jurisdiction in HP EEPROM Class Action

8/8. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Schorsch v. HP, a case regarding the effective date of the removal provision of the Class Action Fairness Act.

William Schorsch is the lead plaintiff in a lawsuit brought in state court in Illinois in 2003 against Hewlett Packard. The plaintiffs' attorneys seek class action status. They allege that the design of HP drum kits for use in printers violates state law. They complaint about an electrically erasable programmable read only memory (EEPROM) chip that tells the printer when to stop working, until a new drum kit has been installed.

Earlier this year, the Congress, responding to the large number of meritless class action lawsuits being brought in class action friendly state courts, enacted the Class Action Fairness Act. It allows certain cases, that are "commenced" after February 18, 2005, to be removed to federal court. See, S 5, the "Class Action Fairness Act of 2005", which is now Public Law No. 109-2. See also, story titled "Bush Signs Class Action Reform Bill" in TLJ Daily E-Mail Alert No. 1,080, February 18, 2005.

Numerous disputes have arisen over the meaning of "commenced". Defense counsel have been aggressively seeking removal of cases that were filed before February 18, 2005. See, for example, story titled "7th Circuit Construes Removal Provision of Class Action Fairness Act" in TLJ Daily E-Mail Alert No. 1,150, Wednesday, June 8, 2005.

In May 2005 the plaintiffs' lawyers tendered a proposed second amended complaint that would expand the class from purchasers of drum kits to purchasers of all printer consumables that contain EEPROM chips. Then, HP, asserting that this constitutes an action "commenced" after February 18, 2005, removed the action to the U.S. District Court (NDIll).

The Court of Appeals held that there is no federal jurisdiction. It wrote that "creative lawyering will not be allowed to smudge the line drawn by the 2005 Act: class actions ``commenced´´ in state court on or before February 18, 2005, remain in state court. Amendments to class definitions do not commence new suits. We can imagine amendments that kick off wholly distinct claims, but the workaday changes routine in class suits do not."

The Court of Appeals also stated that "Amendments could in principle initiate litigation, however: a defendant added after February 18 could remove because suit against it would have been commenced after the effective date, and tacking a wholly distinct claim for relief onto an old suit likewise might commence a new proceeding."

This case is William Schorsch v. Hewlett-Packard Company, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 05-8017, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 05 C 3397, Judge Ruben Castillo presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Williams and Sykes joined.

8th Circuit Enforces Covenant Not to Compete

8/8. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in Emerson Electric v. Guy Rogers, a misappropriation of trade secrets and covenant not to compete case.

Emerson Electric is a ceiling fan retailer. It hired Guy Rogers as a manufacturer's representative. He signed a Sales Representation Agreement that includes a covenant not to compete for one year. He left Emerson, and established his own company, Guy Rogers Sales, in competition with Emerson.

Emerson filed a complaint in state court alleging misappropriation of trade secrets in violation of the Missouri's Uniform Trade Secrets Act, and breach of the covenant not to compete. Rogers removed the action to the U.S. District Court (EDMo). The District Court issued a preliminary injunction against Rogers enjoining him from further violation of the covenant not to compete. The Court of Appeals affirmed.

This case is Emerson Electric Co. v. Guy Rogers and Guy Rogers Sales, Inc., U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 05-1441, an appeal from the U.S. District Court for the Eastern District of Missouri, Judge Richard Webber presiding. Judge Murphy wrote the opinion of the Court of Appeals, in which Judges Riley and Smith joined.

People and Appointments

8/8. Sandra Harris, the Associate Regional Director of the Securities and Exchange Commission's (SEC) Pacific Regional Office in Los Angeles, California, will leave the SEC at the end of September. See, SEC release.

More News

8/8. The Federal Election Commission (FEC) fined the Metro-Goldwyn-Mayer Political Action Committee $500 for not filing a 12 day pre-general election report in 2004. See, FEC release.

Go to News from August 1-5, 2005.