Legal Geek No. 108: Ban on Disparaging Trademarks slants to Unconstitutional

Welcome back to Legal Geek. This week, we review the biggest Supreme Court trademark decision of the term, which dropped this week in Matal v. Tam.

https://archive.org/details/LegalGeekEp108


In the Lanham Act that defines federal trademark rights in the U.S., Section 2 defines a series of grounds upon which a trademark application can be refused registration.  One of these grounds is if the trademark consists of "matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute".  In other words, offensive and disparaging trademarks can be denied registration under this so-called disparagement clause.  This clause has been in effect for over 70 years, as it was in the original 1946 Lanham Act.

As you'll recall, both the Washington Redskins football franchise and the Asian rock band The Slants were fighting separate high-profile court battles to contest the constitutionality of this disparagement clause.  We most recently discussed this 18 months ago when The Slants won at the intermediate federal court, but this case was taken up by the Supreme Court to settle it for all such disputes.  And this week, The Slants won again.

The Slants are comprised of Asian-Americans, and while their band name is a derogatory term towards their race, they chose the band name to reclaim the term and drain any denigrating force it had over people of their race.  Simon Tam, a singer in the band and lead plaintiff in this case, was denied federal trademark registration based on the disparagement clause of the Lanham Act.  Despite presenting boatloads of survey evidence and arguments to convince the Examining Attorney at the US Trademark Office that there was no disparaging effect, but quite the opposite, the trademark was always denied.

By the time this case reached the higher courts, the key issue became whether the ban on disparaging trademarks is constitutional, or a violation of First Amendment free speech rights.  Although the final opinion is complicated with many concurring opinions, the primary part of the Supreme Court decision was a unanimous 8-0 in favor of striking this disparagement clause as an unconstitutional violation of First Amendment rights. 

The government tried to argue that trademarks are government speech, which is not subjected to First Amendment scrutiny.  The Court disagreed, determining that trademarks are definitely private speech because if the whole register of trademarks were considered government speech, the government would be babbling "prodigiously and incoherently" according to Justice Alito's opinion.  In short, if a limited government approval process were enough to convert private speech to government speech, this would be a dramatic expansion of items not covered by Free Speech protections, including potentially all copyright registrations.  That's not a step the Supreme Court was comfortable with, for obvious reasons.

Unlike the rest of the trademark refusal grounds in Section 2 of the Lanham Act, which are viewpoint neutral and are based on things relating to consumer confusion as to the source of goods and services, AKA the entire point of trademark law, the disparagement clause discriminates based on particular viewpoints.  It does not fit with the rest of trademark law, and it violates the First Amendment in the Court's judgement, so this part of the Lanham Act is now gone after 70 years.  That victory for free speech may result in some nasty word and phrase trademarks in the future, but it's a win for the Redskins and The Slants all the same.

The same section of the Lanham Act also bans immoral and scandalous marks from registration, but this also seems to be inconsistent with the rest of trademark law and will likely go down as unconstitutional in parallel cases ongoing now.

The Bottom Line is, the disparagement clause and other offensive mark refusals were always tough for Trademark Office Examining Attorneys to judge, and this ruling should bring clarity as Examiners focus more on consumer confusion and the core tenets of trademark law rather than whether something may be offensive.  Even if free speech protections allow a few "bad apple" disparaging marks to be registered in the future, consumers can always vote with their wallets to effectively reject the use of such trademarks in commerce.

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Legal Geek No. 107: Supreme Court Grants Cert to Evaluate Constitutionality of AIA

Welcome back to Legal Geek. This week, we continue our run through patent law at the Supreme Court with a look at the certiorari grant that could bring down the biggest part of the patent reforms enacted in 2012 and 2013 by Congress.

https://archive.org/details/LegalGeekEp107

While our past two segments have focused on significant patent law decisions of the Supreme Court in the 2016 term, we're always looking ahead at Legal Geek to the next huge case.  The Supreme Court did not disappoint in this regard, as it decided to grant cert for the 2017 term to a huge case called Oil States Energy Services v. Greene's Energy Group.

The issue presented in Oil States is this: whether it is constitutional for executive branch tribunals such as the Patent Office's Patent Trial and Appeal Board to invalidate patents in review proceedings, or is that invalidation process only allowable by federal courts?  Let's explain first why that is such a significant question.

When enforcing a patent, one defense that can be raised is that no infringement of the claims is present, while another defense is that the patent is invalid and should never have been granted by the Patent Office.  Currently, defendants can pursue invalidity claims in federal court lawsuits, but also in several review proceedings available at the Patent Office.

One type of post grant review is a reexamination by examiners, which has been around since 1980, and another type called Inter Parties Review or IPR was created by the America Invents Act in 2012.  IPR is kind of a mini litigation of the validity of a patent, but done in front of the Patent Trial and Appeal Board, which hypothetically should have more patent and tech savvy judges than your average federal district court.

IPR's have been wildly popular since their creation, thanks to lower costs compared to fighting over validity in federal courts.  Over 7000 IPR petitions have been filed, of which 1500 have come to final decision and 1300 of those have invalidated some or all of the patent claims reviewed.  Obviously a high success rate for defendants or patent challengers.

So this question is important because it could undo 5 years of strong invalidity or opposition procedures as well as impact the reexamination process that has been in force since 1980.  Countless so-called "bad patents" could come back into play if the work of the Patent Trial and Appeal Board is deemed unconstitutional.  Plus, challenging patents would immediately become much more expensive and difficult.

So what will this decision turn on?  In all likelihood, the argument will be won based on whether a granted patent is considered a private property right, which typically can only be revoked by courts, or a public right created by government regulation that could be revoked by governmental agencies.  There are relatively compelling arguments for both positions, but the lower court at the Federal Circuit deemed patents as public rights.  If the Supreme Court reverses the Federal Circuit, as they often do, this will mark a massive change in patent enforcement in the U.S.  But such a decision would also be favorable to patent owners, which is typically not how the Supreme Court has come out in recent years' decisions.

The Bottom Line is, whenever a massive change in procedures and rules comes around in law, like what happened in patent law with the AIA, it's only a matter of time before these large constitutionality challenges threaten the new regime.  It will be fascinating to see if the post grant review procedures from Congress survive like Obamacare did when facing similar challenges at the Supreme Court, and this shapes up to be the story of the year for next term in IP law.

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Legal Geek No. 106: Patent Exhaustion Doctrine Strengthened at Supreme Court

Welcome back to Legal Geek. This week, we review another recent Supreme Court decision that clarified the rules of patent exhaustion, Impression Products v. Lexmark.  We also discuss some comments from the main show last week on how this case could apply to other contexts like the John Deere copyright case.

https://archive.org/details/LegalGeekEp106

The doctrine of patent exhaustion is a limit on a patent owner's rights. Although a patent owner has the right to economically capitalize on a patented product, that right is exhausted after the product is sold.  In other words, bona fide purchasers of patented products can use and sell their product as they wish, without risk of a patent infringement claim from the patent owner.

A few months ago, we previewed this case by explaining Lexmark's legal theories and the economic reasons why it would fight for broad patent enforcement rights.  Lexmark and other printer companies had made primary revenue sources from the replaceable print cartridges rather than printers themselves, so this was further efforts to protect their primary source of revenue. 

There were two questions about patent exhaustion brought to the Supreme Court by how Lexmark does business.

First, Lexmark had a discount program called the Return Program where cartridges were sold at a lower price subject to contractual agreement that the buyer would return the cartridge when empty, and not transfer the cartridge to anyone other than Lexmark.  Lexmark argued that these contractual restrictions allowed it to sue third party resellers like Impression who bought these Return Program cartridges and then refilled and re-sold them. 

The Court disagreed with Lexmark on this point in an 8-0 decision.  In short, the Court ruled that a patent owner's decision to sell a product exhausts all patent rights in that item, regardless of any restrictions placed in contracts associated with the sale.  While Lexmark may be able to pursue breach of contract claims, there is no patent infringement claim in this circumstance thanks to patent exhaustion.  These types of post sale restrictions in sale contracts and licenses have become common in the last 20 years, so there will be a lot of adjustments made in these commercial licenses and sale agreements to account for this clarification of the rules.

Second, Lexmark would sell their cartridges in other countries at different, often lower rates, and Impression would buy those cartridges and import them to the U.S. to sell them at higher prices, while undercutting Lexmark's prices here.  Lexmark argued that this importation and sale could be stopped as patent infringement.

The Court also disagreed with Lexmark here, in a 7-1 decision.  The majority drew parallels to the Kirtsaeng copyright decision from 2013 on the first sale doctrine as it applied to foreign sales of textbooks.  The Court found no reason to treat first sales in patent and copyright differently, so patent exhaustion again applies to exhaust all rights of a patent owner after a sale, regardless of whether that sale is in the U.S. or not.  Considering that many industries beyond printer companies sell products at differing rates based on the economies of the countries they sell in, this may cause a significant shift in how patent owners price their products worldwide. 

The Bottom Line is, both of these parts of the decision make it clear that patent owners get one bite at the profit apple, so we should expect significant adjustments in how markets like the print cartridge business works moving forward.  Thanks to this decision, patent exhaustion applies clearly across the board, leaving companies to rely on other non-patent causes of action like contracts to control their marketplaces.

Finally, in response to the main show's discussion about extending this decision to copyright contexts like John Deere's claims to control tractor software in their sold products, it's not that far of a stretch to imagine thanks to the foreign sales part of the decision being largely based on a prior copyright decision on the same issue.  However, copyright provides a significantly different set of rights than patent, so while there are some parallel rules like first sale doctrines applied in both, there's no guarantee that courts will treat these different rights in exactly the same way.  In short, the legal arguments will continue on the different copyright issues, but I would expect all IP owners to adjust their business contracts and licenses to account for whatever limits may be applied to patent and copyright rights, to cover themselves via contract law, if nothing else.

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