Troy & Schwartz Attorneys-At-Law

Take Home Points

1. File at least a provisional patent application before taking steps to commercialize and sell an invention.
2. Understand the ramifications of the on-sale bar to patentability.
3. If engaging in experimentation with others prior to filing a patent application, ensure that contracts are very clear concerning the experimentation purpose.
4. Be very careful about making an offer for sale of the invention prior to filing a patent application. An offer for sale can take many forms including a contract, proposal and/or invoice.

Section 102(b) of the Patent Act involves the on-sale bar to patentability.  The America Invents Act (“AIA”) amended § 102(b).  Any patent issuing from an application filed before May 16, 2013 which is later subjected to an on-sale bar analysis in a patent infringement analysis will be analyzed under pre-AIA § 102(b). This section states that a patent claim is invalid under 35 U.S.C. § 102(b) if “the invention was  . . .  on sale in this country more than one year prior to the date of the application for patent in the United States.”

This commentator recently published a blog on the CAFC’s February 2022 opinion in Junker v. Medical Corp., Inc where the Court held that the patentee had not timely filed a patent application under § 102(b) of the Patent Act.  Also see that blog for a comparison of the pre-AIA § 102(b) and the post AIA statute.  In Junker, the patent owner’s damages for patent infringement awarded by the district court were negated.  Now we have another decision in just over two months where the patent owner has had patent claim rights adversely affected because of failure to timely file a patent application.

On April 29, 2022^, in Sunoco Partners Marketing v. U.S. Venture, Inc., the CAFC again addressed the on-sale bar to patentability.  The patent at issue involved an application filed on February 9, 2001.  Accordingly, based on 35 U.S.C. § 102(b), the critical date (the latest date on which the patentee could have made an offer for sale without violating the on-sale bar) was Feb. 9, 2000.  Here, the patentee’s offer for sale was Feb. 7, 2000.  Put another way, once the offer for sale was made, the patent applicant had exactly one year to file the patent application or until Feb. 7, 2001.

In Sunoco, the defendant asserted an on-sale bar defense to invalidate claims in two of Sunoco’s patents. To prevail, the defendant needed to demonstrate by clear and convincing evidence that the patented invention was both: (1) “the subject of a commercial offer for sale”; and (2) “ready for patenting.”  Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 57 (1998).

A factor which may allow the patent owner to negate an on-sale bar invalidation is whether the offer for sale occurred primarily for purposes of experimentation.  The “experimentation” exception to the on-sale bar was first articulated by the U.S. Supreme Court in City of Elizabeth v. Am. Nicholson Pavement Co., 97 U.S. 126, 137 (1877):  [E]xperimental use allows inventors to delay patenting to engage in “bona fide effort[s] to bring his invention to perfection or to ascertain whether it will answer the purpose intended.”  At the same time, “[a]ny attempt to use [the invention] for a profit and not by way of experiment” before the critical date will “deprive the inventor of his right to a patent.”  Ultimately, as the City of Elizabeth court explained, the on-sale bar is related to the monopoly afforded to a patentee – to have the government-granted right to seek legal recourse for the unauthorized use of the patented invention for a statutory period of time.   The on-sale bar prevents a subsequent patentee from “acquiring an undue advantage over the public by “preserv[ing] their monopoly . . .  for a longer period than is allowed.”

Sunoco, the current owner of the patents at issue, argued the on-sale bar was not violated because the inventor’s company, MCE Blending (“MCE”) offer to sell the invention to Equilon Enterprise, LLC (“Equilon”) was primarily for experimentation purposes.  The district court agreed and held found that the defendant’s on-sale bar defense was negated by the experimental use doctrine.

The CAFC disagreed on the basis of the terms of a contract between the inventor’s company and MCE.  The opinion is instructive because it demonstrates how a contract’s terms can play a critical role in upholding or defeating patent rights.  Whether such a transaction was for primarily for experimental or commercial purposes is a “question of law to be analyzed based on the totality of the surrounding circumstances.”   The Sunoco court assessed the transaction “under contract law as generally understood, focusing on those activities that would be understood to be commercial offers for sale in the commercial community.”

The invention was for an automated butane-blending system to maximize a desirable property of combining butane and similar gasoline components.

Based on the following contractual words and terms, the transaction was deemed to be a commercial offer for sale for the following reasons:

1. The contract expressly described the transaction as a sale without any mention of any experimental purpose.
2. The contract stated that MCE already developed the relevant technology and equipment, that Equilon wanted to purchase it, and that MCE was willing to sell it, install it, and supply butane for it in return for Equilon’s agreement to purchase several hundred barrels of butane from it over a period of five years.
3. The contract stated that MCE is willing to install the blending Equipment and to supply the butane required for such blending to Equilon.
4. The contract stated that the ownership and title to the Equipment shall be conveyed to Equilon by MCE upon completion of the installation and training. MCE was to execute a bill of sale to effectuate the conveyance of ownership of the Equipment to Equilon.
5. The contract referred to Equipment Testing and not Experimental Evaluation.

The district court concluded that there had been no offer of sale of the invention because the contract “did not require Equilon to pay MCE anything in exchange for the system which incorporated the invention.  In contrast, the CAFC opined that Equilon purchased MCE’s equipment by committing to buy MCE’s butane.  In other words, it incurred a real if indirect cost.   Had the contract not intertwined the equipment’s required installation with Equilon’s obligation to buy butane, the CAFC indicated that it would not have characterized the transaction as a sale.

The CAFC further emphasized that the concept of experimental use can be difficult to establish.  For example, the contract had a section entitled “Equipment Testing” with two sets of testing:  pre-installation testing and post-installation testing.  Sunoco argued that MCE wanted “to experiment at the actual tank farm and determine whether their inventive idea was capable of performing its intended purpose in its intended environment.” MCE therefore would need access to Equilon’s facility to test under action conditions.  However, testimony revealed that the testing, which focused on determining whether that system could communicate with one of the equipment’s components was not done at Equilon, after all but by a third party.  Additionally, the testing could have been done at any time prior to entering into the offer for sale with Equilon.   This was not a situation involving, e.g., street pavement, which cannot be experimented upon satisfactorily except on a highway.  Sunoco court quoting City of Elizabeth, 97 U.S.C. 134.

The commentator adds that large, expensive equipment is often set up and qualify assurance tests conducted by the seller’s employees.  However, these are not “experimental purpose” activities because the buyer is expecting the equipment to work.  A good example is medical diagnostics equipment.

The inventor’s subjective intent concerning experimentation is of minimal importance.  The courts have generally looked to objective evidence to show that a precritical date sale was primarily for experimentation.   The opinion includes a useful list of objective indicia relied on by the courts in footnote 5.  In this case: 1) the terms of the sale agreement itself constituted objective evidence; and 2) the nature of the experimentation was such that it could have been done prior to the sales offer.

In conclusion, the CAFC held that the Equilon agreement was an offer for sale to commercially exploit the invention rather than primarily for experimentation purposes. Equipment which incorporated the invention was ready for use at the time the contract was entered into and ready for patenting based on objective evidence.   The district court’s experimental-use determination was reversed and its infringement determination with respect to the pertinent claims was vacated.   The decision involved some other issues which are separate from the 102(b) discussion of this blog for those interested.

If you have any questions about when you should file a patent application to preserve your rights, contact Susan at 305-279-4740.

WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE.  IF YOU ARE CONTEMPLATING ANY ACTION THAT MAY HAVE LEGAL CONSEQUENCES, CONSULT WITH AN ATTORNEY.

©2022

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

(305) 279-4740

Opinion Background & Discussion – In re Dare Foods, Inc.

Trademark blogs often focus on detailing decisions by the Trademark Trial & Appeal Board (“TTAB”) and the courts over whether a mark should be approved for registration or not based on the likelihood confusion with an existing registered mark.  However, trademark law provides a mechanism through which two registered marks having different owners can co-exist.  How is this possible? Because the mechanism involves a co-existence or consent agreement between a registered mark owner and an applicant.  As the Federal Circuit Court of Appeal’s predecessor court stated in the 1973 seminal Dupont case,

[W]hen those most familiar with use in the marketplace and most interested in precluding confusion enter agreements designed to avoid it, the scales of [likelihood of confusion] evidence are clearly tilted.  It is at least difficult to maintain a subjective view that confusion will occur when those directly concerned say it won’t.  A mere assumption confusion is likely will rarely prevail against uncontroverted evidence from those on the firing line that it is not.

The cited wording pertains to Dupont factor #10 in a likelihood of analysis determination which was referred by the Dupont court as the “market interface” factor.

On March 29, 2022, the TTAB recently reversed the examining attorney’s refusal to register the mark RAINCOAST DIP for “snack food dips” in view of the registered mark RAINCOAST TRADING for seafood products on likelihood of confusion grounds.  Note that the USPTO routinely finds likelihood of confusion problems with a registered mark and an applied-for mark where both marks have the same word as the first word (the aspect of the mark consumers are most apt to focus on) when the same or related goods/services are involved.  For example, the TTAB itself found that the involved goods were related because “it is not uncommon for snack food dips as well as seafood and seafood snacks to emanate from the same source.”    It was thus not surprising that the examining attorney found likelihood of confusion because the marks are more similar than dissimilar in appearance, and sounds, and “particularly connotation and commercial impression.”  The TTAB agreed.

However, the TTAB found that the examining attorney had failed to give proper credence to a 2013 agreement between the parties’ predecessors.  That agreement was detailed and covered the typical factors the TTAB will look at in determining whether the agreement meets at least the following requirements:

1. Shows agreement between both parties;
2. Whether the agreement includes a clear indication that the goods or services travel in separate trade channels;
3. Whether the parties agree to restrict their fields of use;
4. Whether the parties will make efforts to prevent confusion and cooperate and take steps to avoid any confusion that may arise in the future;
5. And whether the marks have been used for a period of time without evidence of actual confusion.

Simple agreements, which some sarcastically refer to as “naked agreements”, will not qualify as suitable co-existence/consent agreements.  Here, the TTAB concluded that the parties had entered into a detailed agreement with sufficient parameters for allowing the existence of the two registered marks.

This commentator has drafted detailed co-existence/consent agreements resulting in registration of an applied-for mark.  One fact that can be helpful is when the goods/services are provided in a different geographical market.  For example, this type of agreement was entered into between a Florida eatery (the commentator’s client) and an Oregon eatery. Obviously, the registered mark owner must be willing to enter into such an agreement.  Had the Oregon eatery instead been a Georgia-based company owned by a franchisor who planned to open franchise restaurants in Florida and across the Southeast, the possibility of obtaining a “USPTO-acceptable” co-existence/consent agreement would likely have been more difficult because of the stronger possibility of overlapping trade channels.

Take Home Point

A properly-drafted, accurate co-existence/consent agreement with appropriate provisions may allow an applied-for mark to be registered by the USPTO even where the applied-for mark would not otherwise be registered on the basis of its likelihood of confusion with the registered mark.

In Need of Legal Counsel on Trademark Matters?

Contact Susan at 305-279-4740 if you have any questions about co-existence/consent agreements or any other matter related to trademark law.

               THANK YOU FOR YOUR INTEREST IN THIS BLOG.

AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2022 by Troy & Schwartz, LLC

On Feb. 24, 2022 in a 6 to 3 decision, the U.S. Supreme Court held that mistakes of law – and not only mistakes of fact – could protect copyright infringement lawsuit plaintiffs from losing their copyrights on grounds of inaccurate registrations.  The decision is a win for creators who own registered copyrights.  Remember, since 2019, copyright registration is an absolute requirement for commencing a copyright infringement lawsuit as the result of the Supreme Court’s decision in Fourth Estate Public Benefit Corp. v Wall-Street.com, LLC.

Background of the Lawsuit

In 2020 Unicolor, a fabric design company, sued fashion giant Hennes & Mauritz, LP (H&M) for copyright infringement of Unicolor’ copyrighted 2-dimensional fabric designs.  Unicolor’ registered copyright stemmed from its copyright registration for 31 separate designs allegedly included in the same unit of publication.  The Copyright Office’s regulations governing the submission of applications provides that a single application may cover multiple works only if they were “included in the same unit of publication.” The opportunity to submit multiple works in one application can save the applicant considerable filing fees.  H&M argued that Unicolor had failed this requirement by making some of the designs exclusively available to certain customers while offering the rest to the general public.  That is, the designs were not included in the same unit of publication.

The Relevant Statute

The Copyright Act includes the following statements under section § 411(b):

(1)  A certificate of registration satisfies the requirements of this section and section 412, regardless of whether the certificate contains any inaccurate information, unless—

(A) the inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate; and

(B) the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration.

(2) In any case in which inaccurate information described under paragraph (1) is alleged, the court shall request the Register of Copyrights to advise the court whether the inaccurate information, if known, would have caused the Register of Copyrights to refuse registration.

The Decision

The Unicolor case involves interpretation of § 411(b)(1)(A), commonly referred to as a safe harbor provision.  The District Court determined that because Unicolor did not know when it filed its application that it had failed to satisfy the “single unit of publication” requirement, Unicolor copyright registration remained valid by operation of the safe harbor provision.  The Ninth Circuit disagreed and instead opined that the safe harbor provision only applied to good-faith mistakes of fact, not law.  Unicolor had known the relevant facts surrounding publication of the designs; its knowledge of the law (or lack   thereof) was irrelevant

The U.S. Supreme Court sided with the District Court by holding that 411(b)(1)(A) is applicable to both mistake of law and mistake of fact.  As such, lack of either factual or legal knowledge can be the basis for the application of the statute’s safe harbor provision.

In finding for Unicolor, the Court found that cases decided before § 411(b) was enacted “overwhelmingly” found that inadvertent mistakes in copyright registration did not invalidate copyrights.  The court also referred to the legislative history which suggested that § 411(b) was enacted to make it easier, not more difficult, for nonlawyers to obtain valid copyright registrations.  One of the goals behind the new section was to “improve intellectual property enforcement in the United States and abroad.” H. R. Rep. No. 110–617, p. 20 (2008).  Section 411(b) did so in part by “eliminating loopholes” that could be exploited to block otherwise valid copyrights.

H&R had argued that copyright owners would be allowed to avoid the consequences of an inaccurate application by claiming lack of knowledge.   The Court emphasized that courts need not accept the copyright owner’s claim that it was unaware of the relevant legal requirements.  For example, willful blindness may support a finding of actual knowledge on either the issue of law or fact, triggering the application of 411(b)(1)(B).

The Court’s opinion did not address section 411(b)(1)(B) which states: “the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration.  Section 411(b)(2) makes it clear that any decision concerning the validity of a registered copyright is not made by the court but by the Register of Copyrights.  This step is generally commenced upon the court’s grant of a defendant’s motion to Submit the Matter to the Register of Copyright and then submitting the matter to the Register of Copyrights. Based on Unicolor, the Register of Copyrights should only be involved if the court finds that the copyright registrant had knowledge of the facts and/or law associated with registration’s error(s).    In contrast to registered trademarks and patents, a federal court has no right to invalidate a registered copyright.  It’s up to the Register of Copyrights to determine what impact, if any, the misinformation had on the Copyright Office’s decision to register the copyright to the designated owner in the first place.

Take-Home Points

The decision helps bolster the validity of copyright registrations involving errors made by the applicant.  In the commentator’s opinion, applicants should not automatically assume that all errors are “excusable.”  Nevertheless, it’s still a good idea to ensure that all information presented in copyright registration applications is accurate to start with to prevent a situation where the defendant draws out the case by asserting the registration is invalid.  Also, where an attorney files the application on behalf of the applicant, will the attorney’s error be “excused” for errors of law?

On the other hand, defendants who think they can get away with infringement by trying to invalidate the plaintiff’s registered copyright in a future infringement lawsuit should think twice.  This approach is akin to a shoplifter blaming the retailer for not having shoplifting preventive measures in place.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  WE HOPE IT WAS INFORMATIVE.  HOWEVER, IT IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE!

Intellectual property law is a complex area of the law.  Contact us at 305-279-4740 for a complimentary strategy session on protecting your inventions, creative works, brands, and proprietary information through patents, copyrights, trademarks and trade secrets or our litigation services involving intellectual property disputes.   We represent both individuals and business entities.  Our mission is to serve innovators and creators in protecting the fruits of their hard work and ingenuity through our Client Services Creed:  Conscientious, Rigorous, Energic, Empathetic, and Diligent legal services. 

© 2022 by Troy & Schwartz, LLC

This blog discusses an often-missed fact about the potential impact of pre-patent-application-filing activity on the validity of any resulting patent.  In a nutshell, there is a “statute of limitations” for filing patent applications under certain circumstances.  Patents have been invalidated on the basis of late-application filing.  

On Feb. 10, 2022 in the case of Junker v. Medical Components, Inc., the U.S. Court of Appeals for the Federal Circuit (CAFC) effectively eliminated a bench trial award of $1.2 million to the plaintiff in a patent infringement lawsuit by invalidating the plaintiff’s design patent (Pat. No. D450,839).  The invalidation was not based on theories involving obviousness or novelty.  Instead, the validation was based on a written price quotation for a product incorporating the later patented design.

The CAFC’s opinion does not refer to the lower court’s finding of facts concerning the plaintiff’s lawsuit against the company & the individuals who are merely referred to as the plaintiff’s business partners but who were also defendants in the lawsuit.  The lower court found that these business partners were not credible in their assertions that one of them was actually the inventor of the design in patent no. ’839.  To add insult to injury, it was one of these business partners which corresponded with Boston Scientific, unbeknownst to the plaintiff.  It may be that the lower court’s judge, after hearing and reviewing the evidence, avoided invalidating the design patent because of the unsavory actions of the plaintiff’s business partners on several fronts.

The CAFC’s decision is a cautionary tale to inventors to timely file their patent applications once the invention is ready for patenting to avoid: 1) either not being awarded a patent; or 2) having a granted patent later invalidated.  Under the law pertaining to patent applications filed before  May 16, 2013, a patent claim is invalid under 35 U.S.C. § 102(b) if “the invention was  . . .  on sale in this country, more than one year prior to the date of the application for patent in the United States.”   In Junker, the plaintiff filed his application for a design patent on Feb. 7, 2000. The Boston Scientific quotation was dated Jan. 8, 1999. Under the statute, the plaintiff had until Jan. 8, 2000 to file his patent application if the quotation constituted an offer for sale.

Congress amended § 102 when it acted the America Invents Act (“AIA”).   The amended AIA is applicable to patent applications filed since March 16, 2013.    The Junker patent was thus analyzed under the pre-AIA statute.  In determining if the on-sale bar applies, a court will rely on the underlying factual findings.   The lower court found that the communication sent to Boston Scientific Boston was not a quotation and not an actual offer for sale.

The CAFC focused only on the pre-AIA statute.  Because it concluded the 102b bar applied, the CAFC did not address any of the other appealed issues.  The Junker appellate court’s analysis focused on determining if the January 8, 1999 letter was an offer for sale of the claimed design or merely a quote, as the letter stated three times, signaling the parties were engaged in preliminary negotiations.  In conducting its analysis, the court applied traditional contract law principles involving an offer and acceptance.   Based on the CAFC’s precedent, only an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance, constitutes an offer for sale under § 102(b).

One of the plaintiff’s business partners had responded through his company Xentek in response to Boston Scientific’s request for a quotation.   As such, the letter with its quotation was not an unsolicited price quotation or invitation to negotiate but a specific offer to Boston Scientific but not by the plaintiff who apparently knew nothing about the offer.  Additionally, the letter did not just include a quote but contained a number of terms typical of a commercial contract because if provided specific shipping conditions and that the shipment will be “FOB (free on board) Athens, Texas.” FOB is a standard contract term where goods shipping is involved to allocate the risks and responsibilities of the buyer and seller with respect to delivery, payment, and loss/damage of the goods.   The letter also included payment terms along with multiple different purchase options for Xentek’s goods where the listed prices were based the number of units ordered.  The court concluded that the detail of the relevant commercial sale terms in the letter establishes that the letter was not merely an invitation to negotiate.  The letter included multiple offers for sale, any one of which Boston Scientific could have simply accepted to bind the parties in a contract.  Additionally, later communications between the two companies used the exact same commercial terms suggesting that Xenex’s original terms were definite and not “suggestions.”

The Junker plaintiff argued that the letter was not an offer for sale but merely a price quotation inviting further negotiation, as the district court had found.   The court did state “[t] word quote is commonly understood as inviting an offer rather than as making one, even when directed to a particular customer.”  However, it opined that the terms of the letter must be considered in their entirety to determine whether an offer was intended, or if it was merely an invitation for an offer or further negotiations.  Here, the quotation went beyond merely providing a quote and included delivery, various ordering options, and payment terms.   Relying on a contracts law treatise which provides that if the quotation contains detailed terms, it may well be deemed an offer, the CAFC invalidated the patent due to the on-sale bar.

Would the same decision have been reached under the A1A had Junker’s design patent been filed after May 16, 2013? The AIA’s amendments to Section 102 for patent applications filed after March 16, 2013 have muddied the waters.  First, the AIA has relocated the statutory bar provisions to a new 35 U.S.C. § 102(a)(1).  Second, it has carried forward the concept of a “grace period” in a new 35 U.S.C. § 102(b).

102(a)(1)  NOVELTY; PRIOR ART

A person shall be entitled to a patent unless: (1) the claimed invention was patented, described, in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention….

102(b) EXCEPTIONS

(1) DISCLOSURES MADE ONE YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.

(A) the disclosure was made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if: (A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

(B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

The AIA’s oddly worded 102(a)(1) provision was ostensibly intended to exclude from the statutory bar any prior commercial activity by the inventor that does not place the details of the invention into the public domain.  That’s why the phrase “or otherwise available to the public” was added at least according to the AIA’s legislative history:  to exclude confidential sales or offers to sell an invention from triggering the on-sale bar. Under the pre-A1A statute, case law held that private offers for sale (as in Junker) or private uses or secret processes practiced in the US that result in a product or service that is then made public may be deemed patent-defeating prior art.  To add further confusion, Congress did not expressly define the word “disclosures” in the new Section 102(b) or the relationship of these “disclosures” to Section 102(a)(1)’s patent-barring events.   Congress should have left well enough alone and just modified the original 102(b) statute to explicitly state that confidential sales or offers for sell shall not trigger the on-sale bar.

In fact for now, the Supreme Court and the Federal Circuit have both concluded that Congress had not made that intent sufficiently clear to afford it a legally recognized policy.  In Heisinn Healthcare, S.A. v. Teva Pharmaceuticals USA, Inc., 686 U.S. (2019),  Supreme Court affirmed the CAFC’s conclusion that under Section 102(a)(1), a publicly disclosed commercial sale of an invention by an inventor, even if it does not place the details of the invention into the public domain (i.e., remains confidential), if made more than one year before the effective filing date of a patent.  As such, the disclosure can qualify as invalidating prior art under AIA Section 102(a)(1). Thus, the Heisinn decision arguably resurrects the pre-AIA separation of the statutory bars into two categories: public disclosures (patented, publication, in public use) and commercialization (on sale).

Confusing, isn’t it?  Based on Helsinn, those who are considering filing a patent application in this AIA world should for now assume that any confidential sales activity prior to applying for a patent might not be accorded a safe harbor.   Thus it makes goods sense to file at least a provisional patent application before commencing any such transactions or clearly within a year of commencing any sales activity whether confidential or not.  Prompt disclosure of the invention in at least a provisional patent disclosure is further encouraged considering that patents are now granted to the first inventor to file, another outcome of the AIA.  Moreover, all inventors should proceed cautiously when revealing their invention to anyone by having proper confidentiality agreements in place with language curtailing the providing of any information to any third party without the inventor’s written permission.

As a reminder: 1) the pre-AIA statute remains applicable to all patents granted on applications filed before March 16, 2013; and 2) a patent infringement lawsuit can occur during the lifetime of the granted patent (about 20 years after the filing date or 14 years from the grant date for design patents granted pre-AIA and 15 years post-AIA) and some years thereafter as a result of the patent statute’s 6-year statute of limitations for bringing a lawsuit. The impact of the pre-AIA statute will be around for a while.  As for the AIA statute, perhaps the courts will have a chance to add some clarity around the Helsinn decision in the not-too-distant future.

Take Home Points for Those Contemplating a Patent Application in the AIA World

• Timely file patent applications to avoid any problems related to attempting to commercialize the invention before actual filing which could be violative of the AIA’s 102(a) and 102(b) provisions for patents resulting from applications filed since March 16, 2013 as the Helsinn decision demonstrates.
• Ensure that all communications with potential commercialization partners are maintained in confidence and exchanged under the terms of an executed NDA.
• Don’t broadcast “deals” of a business venture publicly before an application is filed.

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

           Have a question about intellectual property?  Contact us for a complimentary strategy session to determine your best course of action to protect and commercialize the fruits of your hard work, creativity, and innovativeness.

© 2022 by Troy & Schwartz, LLC

This September 2021 decision addresses complex aspects of Copyright Law involving both copyright ownership issues and termination rights wherein the Creator of a work can reclaim rights in an originally assigned copyright 35-40 years after the work’s assignment.  The commentator has previously posted blogs discussing the importance of properly categorizing the work’s Creator as a work-for-hire under the Copyright Act.   Failure to do so may result in a situation wherein the plaintiff in a copyright infringement case may actually not be the owner of the registered copyright. Under such circumstances, a copyright infringement case may be dismissed because the plaintiff, as a non-owner, may not have standing to sue for copyright infringement.

The public policy underlying the Copyright Act’s termination right under 17 U.S.C. § 203 is to give Creators a second chance when the work they licensed or sold (assigned) becomes more valuable than anticipated. Improper classification of the Creator also impacts a Creator’s termination rights because the Creator of a work-for-hire cannot invoke a termination right. Disputes over termination rights often turn on an analysis of the nature of the Creator’s relationship to the work.

The defendant in Horror (Victor Miller) was the screenplay writer of the 1980 horror movie “Friday the 13th”.   The screenplay was created for Manny, Inc. which later transferred its copyright in Miller’s screenplay to Georgetown Productions, Inc.  It was Georgetown Productions that registered the screenplay as a work-for-hire.  The rights were later acquired by Horror, Inc.  In 2016, Miller notified both the “first” company which had retained his screenplay writing services decades before and Horror, Inc. that he planned to exercise his termination rights.

Horror filed an action in the U.S. District Court of Connecticut, seeking a declaration that the screenplay was a work-for-hire by an employee and not subject to termination. The district court disagreed with Horror’s position, finding that Miller had instead been an independent contractor and the screenplay did not qualify as a work-for-hire.  Horror appealed. The Second Circuit affirmed the lower court’s decision.

Employment Status Analysis

In arriving at its “independent contractor” conclusion, the Second Circuit discounted the plaintiffs’ position that Miller had been an employee at the time he wrote the screenplay.  The plaintiffs’ argument focused on Miller’s membership in the Writers Guild of America (WGA) at the time he was hired to create the screenplay as grounds for his designation as an employee and the registered work’s classification as a work-for-hire.   Miller’s original agreement with Manny was conducted under a collective bargaining agreement governing WHA’s writers and signatory employers like Manny.

The Second Circuit concluded that Horror wrongly relied on labor law’s framework defining “employee.” Instead, Copyright law controls the analysis; its concept of employment is grounded in the “common law of agency” and serves different purposes from labor law.

The Second Circuit relied on the Supreme Court’s 1989 seminal case of Community for Creative Non-Violence v. Reid where the High Court laid out the scope of employment framework for establishing copyright ownership under 17 U.S.C. § 102.   In discussing CCNV, the Second Circuit noted that “the Copyright Act uses a more restrictive definition of employment” in order to protect authors whereas labor law construes employment broadly “to serve workers and their collective bargaining interests and establishing rights” including safety and pay rights.  Thus, Miller’s membership in the WGA and Manny’s status as a signatory employer to their collective bargaining agreement did not create an employment relationship that converted the screenplay into a work-for-hire.

In determining that Miller was an independent contractor who had the right to terminate Horror’s copyright, the Second Circuit considered CCNV’s enumerated factors for establishing whether the Creator of the work was indeed an employee:

• Miller’s previous screenwriting employment and graduate degree in theater established his expertise and skill in screenwriting requiring little oversight/direction;
• Manny, Inc. never provided Miller with typical employment benefits such as health insurance of paid vacation time;
• Manny, Inc. never withheld or deducted any taxes or social security payments from the two lump sums he received for his screen-writing services.
• Nothing in Miller’s employment agreement with Manny, Inc. could be construed as granting Manny the right to assign additional projects.
• Miller was the only person credited as the screenplay writer.

Certain types of commissioned works may also qualify as a work-for-hire under the Copyright Act when the Creator is an independent contractor and not an employee but only if the Creator and the commissioning party have both signed an agreement stating that the work is a work-for-hire. Additionally, the work must fall into one of the Copyright Act’s nine enumerated classifications for this type of work-for-hire.  Screenplays are not one of the enumerated classifications. Here, the agreement between Manny and Miller never specified that the screenplay would be a work-for-hire.  Even if the screenplay would have qualified as one of the enumerated classifications, the absence of the required agreement eliminated any chance of establishing the screenplay as a work-for-hire under the “independent contractor” scenario.

As a result of the Second Circuit’s decision, Miller now has the right to terminate his copyright.  He will presumably try to negotiate a licensing agreement seeking royalties commensurate with the movie franchise’s success.

Comments

Copyrights enjoy a long lifetime but  nobody has a crystal ball.  Parties who are contemplating obtaining the rights to a copyrighted work(s) should consider the money-making potential with the knowledge that the work’s Creator (including his/her estate) could seek to terminate the copyright 35-40 years into the future. Parties who are acquiring the rights as a successor-in-interest should consider the possibility of termination and determine if the work was a bona fide work-for-hire: 1) by an employee; or 2) via a “work for hire” agreement signed by both the Creator/independent contractor and the hiring party for certain classifications of works.   Why?  Because a “true” work-for-hire is not eligible for termination.  On the other hand, independent contractors may not wish to have their work designated as a work-for-hire and instead assign the rights in return for monetary compensation to preserve their termination rights.

As the Horror decision shows, a registration which specifies a work as a work-for-hire does not necessarily make it so. Had this been a copyright infringement lawsuit brought by Horror against another party, chances are that an astute copyright infringement attorney would have challenged Horror’s ownership and standing as the owner of the registered copyright.  Why?  Because the Creator was never an employee.  Nor would the work  have likely qualified as a work-for-hire under the “independent contractor” alternative provided for under the Copyright Act.

Copyright law is complex even though at first blush it appears relatively simple due to the ease of completing a copyright registration application.  However, numerous pitfalls abound for the unwary and even the issuance of a registration does not mean that the registration is absolutely immune from problems as the Horror decision demonstrates.

Copyrights can be extremely valuable intellectual property assets.  Make sure you understand the pitfalls to avoid problems down the road where your ownership may be questioned or the Creator may have the right to exercise termination rights.   Contact us for a complimentary consultation on your copyright matters.

WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE OR AN ATTORNEY-CLIENT RELATIONSHIP.  

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