Troy & Schwartz Attorneys-At-Law

Unlike a patent, registered copyright, or registered trademark, all of which are the result of a formal grant by a government agency such as the United States Patent & Trademark Office, a trade secret has no such formal governmental recognition.  Instead, the trade secret owner must take proactive steps to both establish and protect its trade secrets.  To prevail in a trademark misappropriation lawsuit, the trade secret claimant must be able to define the trade secret, explain why it’s a trade secret, and demonstrate the steps it has taken to protect the trade secret from dissemination.

A common mistake in the world of trade secret IP is that many think that simply designating a document as confidential will automatically confer trade secret status on that document and its underlying content.  As discussed in our Nov. 21, 2023 blog entitled “Boosting Enterprise Value Through Trade Secrets,” this understanding is incorrect.

Consider a recent 2023 case out of Texas where the jury concluded that a telecom company acted in bad faith by filing a $23 million trade secret misappropriation lawsuit against a competitor; the court found that the underlying technology was not a trade secret.  Telegistics, Inc. v. Advanced Personal Computing, Inc. d/b/a/ Liquid Networx, no. 2019-15000 in the 190th District Court of Harris County, Texas.  Telegistics alleged that its former employee obtained a copy of Teligistic’s internal Request for Proposal (“RFP”) and used it as the basis for tweaking his new employer’s (Liquid Networx) internal RFP.  That is, the former employee altered the RFP so that it could be used by his new employer.  As such, Liquid Nerworx did not itself spend time and resources developing its own RFP.

Telegistics had made its RFP available to on-line to bidders who were invited to submit responses for Telegistics’ products and services.  The document included a confidentiality notice and information that permitted bidders to submit responses for Telegistic’s telecom products and services.  Telegistics claimed that the RFP was a trade secret.

Defendant Liquid Networx challenged the existence of Teligistic’s alleged trade secrets, claiming the plaintiff had not clearly defined its trade secrets.  Liquid Networx argued that while the source code of Telegistic’s platform, for example, could qualify as a trade secret, the actual output generated by the platform, such as the RFP, was not entitled to trade secret protection just because a confidentiality label was affixed to it.  Unfortunately for it, Telegistics was also unable to demonstrate any reasonable efforts it had made to keep the information it received from bidders confidential once received.

The jury agreed.  Interestingly, the jury went a step further and additionally found that Teligistics acted in bad faith by filing its lawsuit.  Networx is now seeking its attorneys’ fees as a result.

As our earlier blog emphasized, the plaintiff in a trade secret misappropriation lawsuit must at the get-go establish that it does indeed have protectable, definable trade secrets.  Telegistics did not meet this threshold.  Texas, as with almost all of the other fifty states, including Florida, has adopted the Uniform Trade Secrets Act as its statutory trade secret law.  Accordingly, it is highly likely that the same decision would have been reached no matter what jurisdiction the Telegistics case had been brought, namely, that the RFP was not a trade secret.

Take-Home Points.

The “confidential” labelling of a document, without more, will likely be insufficient for converting the confidential document into a trade secret.   Moreover, documents generated automatically by a software program that itself qualifies as a trade secret (e.g., source code and/or object code) may not qualify as a trade secret if other factors are not present.  For example, what steps has the trade secret claimant made to limit the dissemination of the collected information within the organization?

Here are some tips for consideration.

1. Consider the nature of the document. Is it a general information form or something highly unique to be used in generating a potential economic benefit, e.g., a manufacturing document containing trade secret raw material specifications and which has limited access within the company.
2. What is the purpose of the document?  Does it contain information about a trade secret (e.g., generally unknown information about a critical raw material component) where the development of the underlying trade secret involved creativity, considerable time, and considerable resources from human resources to financial resources (e.g., R&D spending)?
3. Is the “confidential” document more of a general information form or a specially developed form?
4. Is there an economic value that comes from maintaining the document’s confidence?
5. What steps are taken to keep it from third parties and to limit access to the document within the company?
6. If it is to be disseminated to third parties, what safeguards are in place to limit the dissemination of the document?
7. When hiring an employee who has worked for a competitor, consider having the employee sign a document stating that, if he had any access to his/her former employer’s trade secrets, that he/she will not use any such trade secrets in the course of his new employment.  Such a document may help the new employer, if ever accused of trade secret misappropriation, establish that it took reasonable precautions to prevent the “entrance” of any trade secret information belonging to the trade secret claimant into new employer’s business.   This approach could help reduce the amount of any damages award.

In conclusion, every business, no matter how small, should be looking into trade secrets as a valuable asset, meaning one which can be monetized and form a part of an IP portfolio.  However, claiming something is a trade secret in a trade secret misappropriation lawsuit does not necessarily make it so as the Telegistics case demonstrates.    Any attorney who commences a trade secret lawsuit on behalf of a client needs to honestly assess whether the alleged trade secret will actually qualify as a trade secret under state statues and case law.   The same also applies where federal trade secret theft claims are involved as under, e.g., the Defend Trade Secrets Act.  Contact Susan at Troy & Schwartz (305-279-4740) to request a complimentary copy of her trade secret implementation checklist and work with her to conduct a trade secret audit, create appropriate protection systems, etc. or to represent you in trade secret misappropriation matter.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2023 by Troy & Schwartz, LLC

Background & Current Issues.  Trade secrets have historically been an outlier in the area of intellectual property (IP) law because they have not been viewed as “real” IP.  Today they are being increasingly viewed as valuable IP assets.  Indeed Gene Quinn, one of the most influential IP thought leaders in the U.S., has predicted that trade secrets may pass patents in terms of valuation.

Nevertheless, trade secrets have their own unique challenges and characteristics.  The following lists some of the issues currently comprising the trade secret ecosystem.

1. A weakened patent system resulting from the America Invents Act and subsequent court decisions which have both invalidated patents and impacted the issuance of new patents. Trade secret protection either singularly or in connection with patents may be a viable way to reduce patent invalidation risk and and/or strengthen a patent’s commercial viability over the long term.
2. The explosion of AI and Large Language Models (LLMs). Here the issue pertains to controlling what can and cannot be shared. Where the possibility of divulging copyrighted, patented, or trade secrets as the result of generative AI exists, the resulting output could infringe on intellectual property rights, divulge valuable trade secrets, or breach confidentiality obligations (e.g., the need to protect personally identifiable information or to comply with obligations under an NDA).
3. Remote work and employee mobility. Today, more and more potentially valuable business information is “leaving” the office traveling through space so to speak to remote servers, computers, and the “cloud.”   The locked file cabinet with tightly controlled access of years past is fast becoming a relic, being replaced by systems subject to cybersecurity risks 24/7.   Trade secrets are often viewed as a potential liability by companies due to cyber threats and employee “movement”.
4. The move to eliminate non-competes. The Federal Trade Commission is attempting to regulate non-competes out of existence, and some states already have or are in the process of doing so.
5. A patent document, registered copyright certificate, or registered trademark certificate issued by a government agency provides proof that the associated IP rights actually exist. With trade secrets, however, no government agency is involved in establishing the IP right.  Instead, the trade secret owner is tasked with establishing that the confidential information indeed qualifies as a trade secret.  Proof that a trade secret actually exists is required by the courts in any trade secret misappropriation lawsuit.  Requiring proof of documentation establishing the existence of the trade secret is considered a reasonable measure by the court.
6. Trade secrets are protected under state law and federal law. Damages in a misappropriation case often exceed the damages in patent infringement case.  Europe has largely adapted the trade secret law of the United States and trade secret law is seeing global standardization.

Trade Secrets and Confidential Information. Referring to item #5 above, many still assume that confidential company information automatically qualifies as a trade secret.  Trade secrets of course constitute confidential information, but not all confidential information will qualify as a trade secret.  For example, Florida’s Uniform Trade Secrets Law, largely based on the Uniform Trade Secrets Act, defines “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process that: “Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by other person.”

The unauthorized use of a trade secret is known as misappropriation.  To prevail in a court of law on a trade secret misappropriation claim, the plaintiff must first establish that the misappropriated information is indeed a trade secret and has been handled as a trade secret by the plaintiffs.  Documentary proof is generally the standard required for meeting this requirement.  Contracts such as an employment handbook, NDAs, employee onboarding/exit documentation, trade secret assignment documents, an in-house trade secret policy, etc. are types of acceptable documentation.

Several years ago, the commentator was able to get a motion for summary judgment granted on behalf of the defendants because the plaintiff could provide no documentary proof that he indeed had a trade secret.  Even large companies one would think should know better have lost their trade secret misappropriation lawsuits because of the lack of documentation or poor documentation.  See e.g., California Healthcare Services v. Amgen and Bundy Baking Solutions v. Mallet.  Other helpful factors in establishing trade secrets to the satisfaction of a court include having conducted trade secret audits to evaluate the efficacy of a business’s procedures to protect its trade secrets, using robust cybersecurity efforts, etc.

Non-disclosure agreements (NDAs) can be confusing when it comes to trade secret protection because they are generally limited to protection of exchanged confidential information for a period of only 1 to 3 years following the NDAs’ termination. However, if trade secrets are to be divulged, it is important that any disclosed trade secrets be protected by the receiving party indefinitely and the NDA should state as such.  Otherwise, trade secret protection could be at risk.  Most receiving parties do not want the burden of protecting the disclosing party’s divulged trade secrets indefinitely.   Accordingly, the NDA’s disclosing party should think twice before disclosing a trade secret or insist on adequate provisions in the NDA to protect any divulged trade secrets.

Gearing Up for Trade Secret Protection. Any business, no matter how small, may have valuable trade secret assets which can enhance the business’s value.  A robust trade secret approach may also be attractive to potential venture capitalists and future buyers of the business.   If you aren’t sure is something could be a trade secret, ask yourself the $64,000 question:  What would be the consequences for my business if this confidential information became known by others?

How does one get started in identifying and protecting a trade secret?  Here are some questions to ask to get the process going.

What is the trade secret (e.g., software code, a special recipe, a customer list that the business has spent money and time on developing, certain steps of a manufacturing process requiring tight control, a raw material having “special” requirements, etc.)?

Who will have access to the trade secret (e.g., employee, independent contractor, business partner)?

What documentation should the business have in place to protect the trade secret asset (e.g., employee handbook, code of conduct, onboarding/exit documentation, IP assignment of any developed trade secrets to the business, NDAs, independent contractor agreements, trade secret policy documents, shareholder/partnership/operating agreements, etc.)?

How do we educate employees and independent contractors that it’s a trade secret which must be carefully and diligently protected (e.g., asset notice and acknowledgement documentation)?

How do we train those who require access to the trade secret to protect the trade secret (e.g., ensure they know it’s a trade secret)?

How do we monitor the interaction between those who have access and the frequency of interaction (e.g., by maintaining a privilege or access log which states the people who have access, how the access is provided, and have them document the dates on which they accessed the trade secret)?

Getting Started with a Legal Advisor.   In conclusion, every business, no matter how small, should be looking into trade secrets as a valuable asset, meaning one which can be monetized and form a part of an IP portfolio.   Contact Susan at Troy & Schwartz (305-279-4740) to request a complimentary copy of her trade secret implementation checklist and work with her to perform a trade secret audit, create appropriate documents, etc. or to represent you in trade secret misappropriation matters.  As an IP attorney who practices patent, trade secret, trademark, and copyright law, she is uniquely qualified to address best practices for procuring, monetizing, and enforcing IP rights.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2023 by Troy & Schwartz, LLC

The Moral of the Blog.  Choreographic works are copyrightable under the 1976 Copyright Act.  However, just how far that protection reaches under the jurisprudence of the various circuits may well depend on whether the circuit adopts the U.S. Copyright Compendium’s definition of choreography which is favorable to choreographers.  As with any copyright infringement case, the trier of fact is tasked with determining whether the copyrighted work and the alleged infringing work are substantially similar wherein the analysis involves both a quantitative (how much?) and qualitative (how significant?) analysis.  District courts are generally the gate keeper in determining if a work qualifies for copyright protection.  Although choreographic works are among the least copyrighted works, the decision discussed below is instructive because of its focus on quantitative vs qualitative analyses of infringement.

A Word of Caution.  It is not clear just how the plaintiff in the case discussed below became aware of potential copyright infringement of his registered work.  It must be emphasized that today numerous AI programs exist which can search the Internet to find infringing works.  Such software is now being routinely used by photographers.  Generative AI also has huge implications in the arena of copyright infringement which the Copyright Office is well aware of and attempting to address.

Discussion.  When it comes to copyrightable works, we generally think of books, musical compositions, sound recordings, paintings, and software.   The Ninth Circuit’s Nov. 1, 2023 decision in Hanagami v. Epic Games, Inc., et al. is a reminder that choreography is a protectable work under U.S. copyright law since the enactment of the 1976 Copyright Act, the first federal copyright statute to provide express protection for “choreographic works” which are “original works of authorship.”  17 U.S.C. § 102(a)(4).

In Hanagami, a choreographer commenced a copyright infringement lawsuit against the creator of a videogame having virtual animation known as “emote” which the choreographer claimed depicted portions of his registered choreography.  The dance routine had first appeared on YouTube in 2017, and Hanagami obtained a copyright registration in 2021.  Epic Games argued that the choreographer had failed to state a claim because the allegedly copied dance steps were not protectable elements of the copyrightable work and thus not substantially similar to Epic’s remote.  The district court agreed by focusing on the choreography’s individual poses rather than the “whole” work, concluding that the copied portion of the work was closer to a uncopyrightable “short routine” and comprised a “small component” of the choreographer’s work.  As such, there was no substantial similarity between the copyrighted work and the emote and the case was dismissed.

The Ninth Circuit disagreed.   In doing so, the Court noted that the Act does not specifically define choreographic works and that there is little case law pertinent to infringement of choreographic works.  The Hanagami Court adopted the Copyright Office’s definition of choreography stated in the Compendium of U.S. Copyright Office Practices. The Compendium is not legally binding on any court, and was drafted by the Copyright Office to provide guidance and interpretation of various aspects of copyright law.  Here, the Court relied on the definition as persuasive authority.  Slip opinion, FN 10.  It concluded that the district court’s approach of reducing the choreography to “poses” was at odds with the Ninth Circuit’s way of analyzing copyright claims for other art forms, like musical compositions.

The Compendium defines choreography as “the composition and arrangement of a related series of dance movements and patterns into a coherent whole.”  Although related, dance and choreography are not synonymous.  Dance is defined by the Compendium as the “static and kinetic succession of bodily movement in certain rhythmic and spatial relationships.  The Court was careful to point out that the Compendium does not draw a bright line distinction between copyrightable choreography and uncopyrightable dance.   However, to be copyrightable, the choreography must not be simply based on common dance themes such as a basic foxtrot step or a common ballet position.  As with book themes (e.g., political satire) or song themes (e.g., a breakup), choreographers should be able to use certain “building” blocks of dance and choreography at will.   “The uncopyrightable elements of a dance instead function as the building clocks for a choreographer’s expression in such the same way that words and short phrases provide the basic material for writers.”  Slip opinion at 20.

The Court held that the district court incorrectly found that the choreographic work was not protectable by focusing on the individual, unprotectable elements.  Indeed, “reducing choreography to “poses” would be akin to deducing music to just “notes.”  Slip opinion at 22.  Instead, the Court agreed with the choreographer that his protectable elements include not only the dancer’s poses but also their body potion, body shape, body actions, transitions [between poses], use of space, pauses, timing, energy, canon, motif, contrast, and repetition.   Slip opinion at 21.  Accordingly, what defines choreographic works is the relationship between these movements and patterns and the Hanagami alleged that the copied segment is the most recognizable and distinctive portion of his work, similar to the chorus of song which is repeated more than once.  Hence, a jury may well find the copied portion to be qualitatively significant Slip opinion at 27.   Slip opinion at 22.

A good part of the Hanagami decision focuses on the challenges juries face when determining whether an alleged infringing work such as a choreographic work is substantially similar to a copyrighted work.   Generally, de minimis copying is not actionable.  In Hanagami, the alleged copying included a two-second combination of eight bodily movements, set to four beats of music performed ten times throughout the five-minute registered mark which at first blush may seem de minimis.   The district court had additionally dismissed the case by finding that the allegedly copied choreography was “short” and a “small component” of Hanagami’s overall five-minute routine.  Interestingly, Epic Games did not argue at the district court level that the alleged copying was de minimis.

The Ninth Circuit held that the district court had also erred in its de minimis analysis.  As the Court stated, the proper inquiry is not merely based on the mere length of the copied material.  “The question in each case is whether similarity relates to matter that constitutes a substantial portion of the plaintiff’s work which is an “evaluation [that]must occur in the context of each case, both qualitatively and quantitatively.  Slip opinion at 26 quoting Nimmer on Copyright § 13.03 (2023).   Accordingly, what matters is whether the copied portion is deemed significant.  The usage of a relatively small portion of an entire work may still be infringing if that portion is qualitatively important.  Indeed, Hanagami alleged that the copied segment is the most recognizable and distinctive portion of his choreographed work, similar to the chorus of song which is repeated more than once.

By way of a musical composition example, consider the iconic theme song for the movie “Jaws.”  The first few stanzas are the most recognizable portion of the score.  Those of us who have seen Jaws are reminded of the movie whenever those stanzas are heard.  Qualitatively, these few stanzas would be of immense qualitative importance in any copyright infringement lawsuit involving the score.

The determination of substantial similarity is generally made by the trier of fact.  In the Ninth Circuit, the standard is the “intrinsic test” which focuses on “the similarity of expression from the standpoint of the ordinarily reasonable observer with no expert assistance.”   Slip opinion at 17.  The commentator emphasizes that jury outcomes are difficult to predict in a copyright infringement case because of the subjectivity of the substantial similarity analysis even under the “reasonable observer” test.

Not surprisingly, the Court reversed the district court’s dismissal of Hanagami’s copyright infringement claims and remanded the case for further proceedings on two grounds:  1) its failure to focus on the choreographed work as a whole to determine its eligibility for protection rather than on the unprotectable individual elements; and 2) its failure to assess the qualitative significance of the allegedly copied portion of the work.  Apparently, the district court would only have “accepted” the work as being protectable if Epic Games had used the copyrighted work in its entirety.

The commentator notes that the work had been registered by the U.S. Copyright Office several years after the work had appeared on You Tube or was published.   Accordingly, the choreographer will most likely need to prove damages (a challenging endeavor) since statutory damages will not be available.  This is why it is important to seek copyright registration within 90 days of publication so that that any copyright infringement can seek statutory damages.  Apparently, the district court would only have “accepted” the work as being protectable if Epic Games had used the copyrighted work in its entirety.

Take Home Points.  The Hanagami decision drives home the point that copyright infringement cases are complex.    Even where issues of copyrightability do not arise, substantial similarity determinations are often not predictable and may vary from jury to jury for all but the most obvious cases of blatant copyright infringement.   Nevertheless, copyright protection is intended to protect creators from the unauthorized use of their creations.  It is highly recommended that copyright registration applications be filed within 90 days of the work’s publication to reap the benefits of statutory damages and shifted attorneys’ fees and costs in a copyright infringement lawsuit if infringement is proven.

In Need of Legal Counsel on Copyright Matters? Contact Susan at 305-279-4740 for all matters related to copyright law from registration to copyright infringement lawsuits.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2023 by Troy & Schwartz, LLC

This blog, part 1 of a 2-part series on the cancellation of federally registered trademarks, focuses on the cancellation of registered trademarks by operation of law.  The maintenance of federally registered trademarks should be part of a strategic planning approach for protecting and enhancing the value of intellectual property rights obtained through hard work, a dream, and perseverance.   For registered marks that are still being used in commerce, failure to renew these marks may well have a detrimental impact on registered mark’s owner strategic business plans including its exit strategy.  This blog discusses: I) the importance of trademark registration renewals; II) the USPTO’s registered trademark renewal schedule; and III) recommendations for monitoring registration due dates.

I. Background on Registered Trademarks & the Ramifications of Non-Renewal

Federally registered trademarks are valuable, monetizable business assets for even small businesses because they promote brand recognition in the minds of target consumers/businesses.   A registered mark may be leased, sold, and even used as collateral. Registered marks help establish the mark owner’s credibility amongst its customer base, whether that base is comprised of consumers or other businesses.  Also, registered marks allow the mark owner to use and enforce the mark throughout the country in which it is registered.  For the United States, the “reach” of registered trademarks includes all 50 states and U.S. territories.

Securing a registered trademark is no small feat.  That’s why registered mark owners need to understand that mark registration does not automatically result in “forever” associated rights under the law.  Continued registration status is contingent upon the periodic renewal of the mark with the United States Patent & Trademark Office (and/or the foreign office(s) in countries where the mark has been registered).  Failure to renew the registered mark will result in cancellation of the mark.  The only way to get the mark “back” is to submit a new application which may or may not be approved.

Failure to renew a registered mark can have serious ramifications including a decrease in a business’s valuation due to the loss of registration status; failure to procure the same registered mark upon submission of a new application; loss of brand awareness and client loyalty; and greater difficulty for a company to protect its goods or services against piracy or counterfeiting.

If a registered trademark loses its registration status and cannot “regain” registration status, the user of the mark will need to depend on common law rights which are generally more difficult and costly to enforce.   Common law trademarks generally only allow the owner to sue for infringement in state court.  Also, whereas federally registered trademark owners may seek injunctive relief, common law trademark owners are generally restricted to receiving monetary damages. Finally, lack of a registered trademark(s) can also interfere with a company’s growth strategy across state lines including growing a franchise.

Once a mark is cancelled, anybody may file an application to register the mark through the USPTO (or other relevant jurisdiction).  This does not mean that the application will actually evolve into a registered mark since the application will be examined on its own merits.  Theoretically, the former owner of the registered mark may also still have common law priority rights in the mark.

II. The USPTO’s Trademark Renewal Schedule

The owners of a registered trademark must periodically renew their registered trademark to maintain the mark’s registered status.  This process of “renewing” a registered trademark is known as post-registration maintenance.  Failure to do so will result in cancellation of the mark. Trademark law imposes the following renewal deadlines:  between the 5^th and 6^th years after the registration date though a Section 8 Declaration, the 9^th and 10^th years after the registration date, and every 10 years thereafter.  The latter two types of renewals involve the filing of a combined Section 8 and Section 9 Declaration. The Section 8 Declaration actually refers to mark maintenance while the Section 9 Declaration refers to mark renewal.

It is important to note that the registrant is asserting that the mark is indeed being used in commerce when submitting the declarations.  Additionally, the registrant must amend the original description of goods and/or services to delete any goods/services no longer being sold or offered in commerce.  Specimens showing use of the mark must also be submitted. In other words, Section 8/9 Declarations require something more than a statement “we’re good to go.” If the registered mark is no longer being used in commerce with at least one of the registration’s specified goods/services, the registrant should not file a Section 8/9 Declaration.

The USPTO provides a 6-month grace period after each of the deadlines for filing the renewal for an additional filing fee.  Failure to at least file the required declaration within the 6-month grace period will result in cancellation of the registered mark.  The registrant may file a petition to revive the cancelled mark within 2 months of the USPTO’s notice of cancellation.  The petition must be accompanied by all necessary declarations and fees.  If more than 2 months have passed since the USPTO’s cancellation notice, a trademark owner will need to file a new application for the same mark.  There is no guarantee that the new application will evolve into a registered mark.

If a registered mark is subsequently cancelled by operation of law (i.e., for failure to renew), the effective cancellation date stated in the USPTO’s record’s publicly viewable records will be the last day immediately preceding the start of the 6-month grace period associated with the renewal period.

III. Steps a Registered Mark Owner Should Take to Monitor Renewal/Maintenance Due Dates

The commentator advises her trademark/IP clients to do the following to not only maintain their registered trademarks but also to enhance their value and the value of all of the registrant’s other intellectual property:

1. For a new registrant, calendar the due date for the 5/6 year Section 8 Declaration. Ideally, file the documentation on the 5^th anniversary date and no later than 6^th year anniversary date even though the USPTO does offer a 6-month grace period following the 6th year anniversary date .  If our law office obtained the registration on behalf of the registrant, our office also calendars the due dates.  It is recommended that the required documentation be filed by an attorney, preferably the original attorney of record to ensure that any required amendments to the original description of goods and services are made.
2. If a Section 8 Declaration 8 is filed as above, calendar the 10th anniversary date and the last date to timely file the Section 8/9 Declarations if the registrant is going to rely on the 6-month grace period.  Keep calendaring the renewal days in 10 year increments.
3. We encourage all registrants to establish an IP portfolio which contains all government-granted IP rights (patents, registered trademarks, and registered copyrights) wherein the portfolio is maintained by a designated authorized representative for business registrants. Such organized records may come in very handy for those businesses which are seeking investors, potentially involved in an M&A, establishing a growth strategy, or considering selling/licensing their IP assets.  It is noted that issued utility patents must also be maintained periodically. Any such patent owner also needs to calendar patent maintenance due dates.
4. If trademark rights are assigned by the registrant, the assignee should plan to take charge of all renewal dates and calendar the due dates.

In Need of Legal Counsel on Trademark Matters?

Trademark law is a complex area of the law.  Contact Susan at 305-279-4740 for a complimentary consultation on trademark law matters as well as matters related to patents, copyrights, and trade secrets.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2023 by Troy & Schwartz, LLC

In Trinity Info Media, LLC, et al. v. Covalent, Inc., the Federal Circuit Court of Appeals (CAFC) held that the patent claims were directed to an abstract idea of “matching users who gave corresponding answers to polling questions.” As such, they do not involve an inventive concept under § 101 and are patent ineligible.  The holding itself is not surprising based on previous case law in this post-Alice world.  The precedential decision is noteworthy because it addresses claim construction in the context of a 12(b)(6) motion to dismiss a patent infringement lawsuit on § 101 grounds.  This blog reviews the CAFC’s decision and ends with a discussion of the following two topics:

1. Could the invalidated claims have been written differently to avoid invalidation?
2. How does the proposed Patent Eligibility Restoration Act of 2023 address the § 101 boondoggle created by the courts?

BACKGROUND

Trinity sued Covalent for patent infringement asserting two patents –  nos. 9,087,321 and 10, 946,685.   Both patents are directed to a poll-based networking system that connects users based on similarities as determined through poll answering while providing real-time results to the users.   The later patent contains additional disclosures discussing progressive polling for ecommerce systems.

Covalent filed a motion to dismiss Trinity’s amended complaint, arguing that the claims asserted against it are invalid under 35 U.S.C. § 101.  The District Court for the Central District of California agreed with Covalent, finding that the claims do not improve computer functionality but instead use “generic computer components as tools to perform the functions faster than a human would.”

Trinity appealed the decision to the Federal Circuit, arguing that the dismissal was improper because the district court did not conduct claim construction and discovery before analyzing the claims under § 101 according to the Alice framework  articulated by the U.S. Supreme Court in Alice Corp. v. CLS Bank, Intl.  Citing its previous decisions, the CAFC disagreed, explaining that “[a] patentee must do more than invoke a generic need for claim construction or discovery to avoid grant of a motion to dismiss under § 101.  Instead, the patent holder must “propose a specific claim construction or identify specific facts that need development and explain why those circumstances must be resolved before the scope of the claims can be understood for § 101 purposes.”   Slip opinion at 7. Because Trinity did not identify a proposed claim construction or specific facts to be discovered that would change its analysis, the CAFC proceeded with analyzing Trinity’s asserted claims under the Alice framework.

Step 1 of the Alice Framework – The Claims are Abstract

In finding that the asserted claims are abstract, the CAFC stated: “A telltale sign of abstraction is when the claimed functions are mental processes that can be performed in the human mind or using a pencil and paper.   For example, in SAP Am., Inc. v. InvestPIC, LLC, the CAFC previously held that “[s]electing certain information, analyzing it using mathematical techniques, and reporting or displaying the results of the analysis . . . is all abstract.”   Slip opinion at 9.  Accordingly, Trinity’s independent claims are focused on “collecting information, analyzing it, and displaying certain results” which places them in the “familiar class of claims directed to patent ineligible material.”  Citing Elec. Power Group, LLC v. Alstom S.A., et al.  Slip opinion at 10.  Not surprisingly, the CAFC opined that “[a] human mind could review people’s answers to questions and identify matches based on those answers” and found that the independent claims of both patents are directed to an abstract idea.  As for the dependent claims, they merely add trivial variations of the abstract idea.

Trinity argued that “humans could not mentally engage in the same claimed process because “they could not perform ‘nanosecond comparisons and aggregate ‘result values with huge numbers of pools and members, nor could they select criteria using ‘servers, storage, identifiers, and/or thresholds.’” The CAFC noted that these arguments are not tethered to the asserted claims which do not require “nanosecond comparisons” or aggregating “huge numbers of pools and members.”   Slip opinion at 13.

In rejecting Trinity’s arguments, the CAFC cited its previous decisions where claims were found to be directed to a “forbidden” abstract idea when the claims required generic computer components or required operations that a human could not perform as quickly as a computer.   Moreover, Trinity’s claims relied on generic computing terms such as “data processing systems, processors, and memory.”   And even though Trinity emphasized the invention was intended for use with a hand-held device/mobile phone, such a device was viewed by the CAFC as being no different from a generic computer.  Slip opinion at 10.

Step 2 of the Alice Framework –  The Claim Elements Do Not Transform the Claim into a Patent-Eligible Claim

After finding that Trinity’s asserted claims are abstract, the Court proceeded with the second step of its Alice analysis. Here the CAFC concluded that the asserted claims do not ‘transform’ the claimed abstract idea into a patent-eligible claim.  In particular, the Court took issue with Trinity’s conclusory statements that the prior art did not include, “alone or in combination certain features, including (1) real-time matching based on progressive polling, (2) using match servers and a match aggregator, (3) using a mobile device, (4) displaying matches reviewable by swiping, and (5) using a mobile application. Under its precedent, the CAFC’s policy is to disregard conclusory statements under a Rule 12(b)(6) motion.  Slip opinion at 10.

The CAFC was left with viewing the claim limitations individually and in an ordered combination.  The Court concluded that the asserted claims do not add an inventive concept that would be “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.”  Trinity’s inventiveness arguments were found to merely reflect improved speed inherent with applying the abstract idea using a computer, or in this case a hand-held device.  Nor is there anything inventive in the ordered combination of elements because the asserted claims are organized in an expected was – receiving user information, asking the user questions, receiving answers, and identifying and displaying a match based on those answers.  Slip opinion at 18.  Nor did the CAFC find that the use of “multiple processors, match servers, unique identifications and/or match aggregator” transformed the abstract idea into an inventive concept in the application of an abstract idea.   The CAFC emphasized that has “ruled many times” that “invocations of computers and networks that are not even arguably inventive are insufficient to pass the test of an inventive concept.” Id.

DISCUSSION

Could the Claims Have Been Written in Such a Way So as to Overcome the § 101 Rejection?

It is not surprising that Trinity’s patents were invalidated in our post-Alice patent invalidation environment.  This environment favors infringers who refuse to pay a licensing fee to patent owners and instead pursue patent invalidation through the courts or through administrative proceedings involving the Patent Trial and Appeal Board (PTAB).

Are all computer-based inventions at risk?  Is the current environment fair for patents that have passed the USPTO’s own strict requirements which are now based on judicial exceptions and case law?  For example, patent no. ‘321 was granted in 2015 or a short time after SCOTUS’s infamous holding in Alice Corp v. CLS Bank, Intl.  Patent no. ‘685 was granted in 2021 after the USPTO had developed its first § 101 guidance for its examiners in 2019.   But the CAFC found that both of Trinity’s patents were invalid under its case law involving its and the U.S. Supreme Court’s judicially-created exceptions.

The patents’ independent claims used the words “comparing” and “generating,” two words that are trigger points for the courts to find a § 101 problem.  Merely making conclusory statements that the method “is done on a computer/process” and therefore is done in the “human mind” will not overcome a § 101 rejection.   Under current case law, this is so even if the method could never be practically performed by the human mind.  That is, the courts have not cared if length of time required by a human to achieve the same results would totally defeat the invention’s utility.

Drafting claims for a computer-based invention is no easy task.  Here, the invention did not improve the functioning of a computer to overcome the § 101 rejection.   The § 101 issue in Trinity may have been avoided if the independent claims had been drafted to emphasize how the computer system’s method incorporated the unique ID or claimed just how the likelihood of a match is determined.  Both approaches would have required reciting the steps of an algorithm.

Unfortunately, even with these changes, it is likely that the CAFC would have reached the same conclusion.  The CAFC and other courts have routinely found ineligibility by finding that: 1) the claims are not directed to a technological improvement (slip opinion at 14); and/or 2) the invention merely uses generic computers components as tools to perform functions faster than a human would.  Slip opinion at 5.   Trinity’s inventions are not directed to a technological improvement of the generic computer’s functioning.   Also, given enough time, humans could perform the matching steps no matter how impractical the time commitment.

And this takes us to Congress’s attempt to correct what the judicially-created exceptions to patent eligibility under § 101 have done to thwart innovation, encourage infringement, and hurt the ability of U.S. companies to compete globally.

The Patent Eligibility Restoration Act of 2023 – How It May Fix the § 101 Invalidation Landscape

Thankfully, there is some relief on the horizon through the bipartisan efforts of Senators Thom Tillis and Chris Coons.  On June 22, 2023, these Senators introduced their Patent Eligibility Restoration Act of 2023. This legislation is intended to bring clarity to U.S. patent law by eliminating many of the judicial exceptions to patent eligibility and providing clear guidance on determining patent eligibility especially in areas such as medical diagnostics, biotechnology, personalized medicine, AI, 5G, and blockchain.  The proposed legislation states that the following inventions shall not be eligible for patent prosecution:

• A mathematical formula that is not part of an invention comprising a useful process, machine, manufacture, or composition of matter;
• A mental process performed solely in the mind of a human being;
• An unmodified gene, as that gene exists in the human body;
• An unmodified natural material, as that material exists in nature; and
• A process that is substantially economic, financial, business, social, cultural, or artistic.

However, the legislation includes an important exception:

The processes described in 5 above shall not be excluded from eligibility for a patent if the process cannot be practically performed without the use of a machine (including a computer) or manufacturer. 

The legislation is intended to stop the courts from invalidating patents under § 101 while ignoring the elements of the claimed invention and/or treating them as conventional.  If enacted, the eligibility focus by the USPTO and the courts will be far more focused on the patentability factors involving sections 102 (novelty), 103 (non-obviousness), and 112 (definiteness) of the Patent Act which in the commentator’s opinion is where the focus should be.

Perhaps had this legislation already been in place, Trinity’s patents would not have been invalidated because the invention clearly cannot be practically performed without a computer.   On the other hand, one factor that will likely be litigated with the new legislation is what exactly constitutes “practically performed.”  Regardless, this legislation is a huge step forward, something that has been needed for a long time as the courts have effectively taken over Congress’s patent law regulatory role through judicially-created law.

Have a question on obtaining a U.S. or foreign patent or enforcing your rights as a patent owner? Contact us at 305-279-4740.  And be sure to check out our other patent law blogs at www.troyandschwartzlaw.com.

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