Phillips & Sutherland, LLP

Patent Assignments to Native American Tribes: Brilliant or Bad Business?

The recent trend of companies transferring patents to Native American tribes has raised some concerns about anticompetitive business practices.  Lawsuits brought by patent-holding tribes as a result of these assignments have been popping up a lot lately, and major companies are fit to be tied.

Essentially, companies are assigning their patents to tribes in order to take advantage of the tribes’ sovereign immunity, thus shielding them from the patent review process and potential patent invalidation.  The most recent targets of these lawsuits in the tech industry have been Apple, Amazon and Microsoft.

The method works something like this.  A company files for and is granted a patent.  That patent is assigned by the company to a Native American tribe, meaning the tribe is now the owner of the patent. The tribe then licenses the patent back to the company in exchange for a substantial royalty (last month pharmaceutical company Allergan agreed to pay the St Regis Mohawk Tribe $13.5 million up front and a royalty of $15 million annually for its now defunct Restasis patent).  Then, when instructed by the company, the tribe files a lawsuit against a third party (i.e. Apple) for patent infringement.

Normally at this stage (as previously discussed in our Battle of the Copper Pans article), the best course of action for the company being sued would be to attempt to invalidate the patent it is allegedly infringing upon through the USPTO’s inter partes review process (“IPR”).  The IPR occurs before the Patent Trial and Appeals Board (“PTAB”) rather than in the courts, and is therefore a much more time and cost-effective way to invalidate improperly issued patents.  However, if the owner of the patent is a Native American entity, it has sovereign immunity, and is not subject to the jurisdiction of the PTAB.  The company is therefore forced to litigate the infringement claims, which typically lasts over a year, and can result in the defendant companies being enjoined from selling their “infringing products” during such time.

Although defendants are crying foul at this tactic, it seems brilliant for owners who want to ensure their patents are not subject to invalidation proceedings.  However, this trend may not continue for long as we certainly expect to see the defendants of the lawsuits challenge these so-called “sham” transactions and the sovereign status of the tribes.

It is best to have a knowledgeable attorney during all stages of the patent process.  Please email us if you have any questions or if you would like more information regarding the content above.

Jury Awards 9.4 Million to Quincy Jones in Michael Jackson Royalty Suit

Remember the time when Michael Jackson and Quincy Jones were a power duo, churning out music that rocked our world? Jones produced Michael’s Off the Wall, Thriller and Bad albums. Jones and the rest of musical world were devastated by the King of Pop’s untimely death in June 2009.

Luckily for fans, Michael’s death spurred the release of new material from and inspired by MJ; material that Jones claimed he was owed royalties based on contracts dating back to 1978 and 1985. As producer of Michael’s albums, Jones was granted rights and royalties to the music he produced, including the right of first refusal for reediting or remixing songs. Jones claimed that not only was he not consulted by companies such as MJJ Productions and Sony prior to the release of material containing edited music, but he was not paid royalties in full. Though Quincy has received $8 million in royalties since 2009, taking his cue from Michael, Jones was not going to stop till he got enough, and sued Michael’s Estate seeking $30 million in damages.

Material at the heart of the suit included, This Is It, a concert movie and documentary that was released just a few months after Michael’s death. Gross receipts from the film topped $500 million, with Jackson’s estate allegedly receiving $90 million. Additionally, the Cirque du Soleil production, Michael Jackson: The Immortal World Tour, was performed for over 2 million audience members and earned over $300 million. Michael Jackson One, the Cirque production at Mandalay Bay in Las Vegas, continues to wow audiences 5 times a week.

As trial was getting underway, Jones made an off the wall allegation of elder financial abuse; a cause of action dismissed by the judge as being too late to include in the case. Jones may have been getting a little greedy, but perhaps that’s just human nature. After the refusal, Jones’ attorneys got down to business and made the case out to be a very black and white breach of contract.

Jones should be pleased with his award of $9.4 million (as Michael’s Estate alleged he was owed less than $400,000). Jones’ case is a great example of why it is so important to have clear and concise contract terms, including those regarding royalties and audit rights in the event of a dispute. These types of disputes are more common than some may think; particularly for video/infomercial production companies. Be sure to consult with an attorney when negotiating or attempting to collect royalties.

Update: The USPTO’s Slanted Viewpoint on Trademark Applications is Unconstitutional

In January, we told you about how the Asian-American rock band, The Slants, had been making noise in the courts for years fighting for the right to register the band’s trademark with the United States Patent and Trademark Office (USPTO). The USPTO had denied registration of the band’s name, citing Section 2(a) of the Lanham Act, which allowed the USPTO to refuse registration of marks that it deemed to be immoral, scandalous, or disparaging.

However, the band is likely singing the Supreme Court’s praises because just this week the Court ruled in an 8-0 onion that this “disparagement clause” violates the First Amendment. The government’s arguments in support of the clause fell flat, and Justice Alito wrote that “[i]t offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.” Thanks to the unanimous ruling, The Slants will likely be able to register their name once and for all.

This is not only good news for the rockers, but for other groups and businesses seeking to protect and profit from their names, brands, etc., as well. This is particularly true for the Washington Redskins. Relying on the disparagement clause, the USPTO canceled the NFL team’s trademarks after over 40 years of registration due to complaints by members of the Native American community. The team should now be able to reclaim its rights to the marks for good.

Intellectual property, including trademarks, can be incredibly valuable assets and are key to protecting against infringement. If you are launching a new band, brand, or product, be sure to work in concert with an intellectual property attorney to keep your business humming along.

Bounding into Trouble: Trampoline Review Sites Launch Brothers into FTC Investigation

Trampoline selling brothers, Sonny and Bobby Le, are prohibited from engaging in deceptive marketing practices after sending consumers to “independent” product review sites that were actually owned and operated by the brothers’ company.

According to the FTC complaint, the brothers advertised and sold Infinity and Olympus Pro trampolines through various websites. These e-commerce websites displayed logos and seals for the Bureau of Trampoline Review, Trampoline Safety of America, and Top Trampoline Review. As a result, consumers were led to believe that these review sites containing ratings based on safety and performance, were comprised of unbiased, expert reviews. In reality, these organizations were made up by the brothers.

Not only did the websites for these “independent” bodies promote the products being sold by the brothers, but they also made representations regarding product safety. The Trampoline Safety of America site stated the organization included structural engineers. The Bureau of Trampoline Review website stated that safety was one of the bureau’s primary focuses, and that trampolines were put through rigorous testing such as having cars dropped on them. Allegedly, the only product to pass the car test was one of the brands sold by the brothers.

This of course is not the first time that product owners have created fake review sites; however, the safety claims contained in the brothers’ websites take these reviews to a dangerous new height. Despite this, the FTC surprisingly did not impose a monetary penalty. Perhaps no injuries resulted from the brothers’ claims on the review sites, and therefore the FTC was lenient. Instead, the brothers must refrain from engaging in these deceptive practices and must provide compliance reports and remain subject to compliance monitoring. As such, the pair has already made changes to the review sites, including identifying their company as being the owner and author.

Fake review sites and false claims are very common in the consumer product industry, and should they become the focus of an investigation, a company exposes itself to hefty monetary penalties. Be sure to contact an attorney prior to making product claims or participating in review sites.

Please email us if you have any questions or if you would like more information regarding the content above.

Truth in Advertising Going to the Dogs?

Last week a class action lawsuit was filed in California against Ainsworth Pet Nutrition, the owners of Rachael Ray™ Nutrish® dog food products for, among other claims, negligent misrepresentation and violations of California’s false advertising law and Consumer Legal Remedies Act.

According to the complaint, the defendants engaged in deceptive labeling practices by marketing the food as “natural” and containing “no artificial preservatives.” The ingredients at the center of the lawsuit are synthetic versions of vitamins B, C and K, as well as caramel color. Although not proven to be harmful, and present in animal and human foods, the ingredients are technically not “natural.”

The FDA regulates animal feed, including dog food. Although it has not defined the term “natural,” in human food labeling, the FDA considers “‘natural’ to mean that nothing artificial or synthetic (including all color additives regardless of source)” has been included or added to a food that “would not normally be expected to be in that food.” Further, according to an FTC publication, if companies market their products as “all natural” or “100% natural,” consumers have a right to believe they do not contain any artificial ingredients.

There has been much litigation in the last few years regarding use of the word “natural;” so much so that at the end of 2015, the FDA put out a call for comments on how to define the term. It received over 7000 responses! This probe by the FDA has had the effect of halting some, but not all, litigation. In fact, the judge presiding over a California class action lawsuit against Kraft Foods for using the term “natural cheese” to describe cheese containing artificial coloring, stated that FDA standards were not determinative of whether Kraft violated the relevant California laws; but rather, the issue is whether a reasonable consumer is likely to be deceived by the product’s packaging. The case is still pending.

These “natural” cases will be interesting to track, and it is not far-fetched to believe that if a definition is established by the FDA, the FTC and FDA may start barking up the trees of other companies engaged in similarly deceptive or misleading labeling practices.

Stay out of the dog house and treat yourself to a consultation with an attorney regarding product packaging.

Battle of the Copper Pans

Imitation may be the highest form of flattery, but such flattery is unwelcome when it comes to copying products. In the consumer product industry, hot items are quickly adapted by competing companies, resulting in consumer confusion as to the origin of the product; sometimes resulting in lengthy legal battles. We saw this most recently with retractable hoses (X Hose, Pocket Hose, etc.), which has been in litigation since 2013. Right now, the hottest product igniting lawsuits is copper.

Copper pots and pans (or at least copper in color) are the latest sensation in cookware. Big sellers such as Copper Chef (Tristar Products, Inc.), Red Copper (Telebrands Corp.) and Gotham Steel (E Mishan & Sons, Inc (“Emson”)) have spent thousands in marketing dollars to promote these competing products. However, with so many cooks in the kitchen, someone is bound to get burned; and if Keith Mirchandani has it his way, it won’t be Tristar.

On February 21, 2017 Tristar filed lawsuits against Telebrands (and Bulbhead.com LLC) and Emson for patent infringement, trade dress infringement and unfair competition. According to the complaints, Tristar has been marketing its Copper Chef product line since as early as June 2016 and holds three patents for its Copper Chef line, two of which were just issued this month. Tristar has also filed for injunctions to prevent Telebrands and Emson from “making, using, selling [and] offering for sale” the products allegedly infringing on the Copper Chef line. As of today, February 28, 2017, the orders have yet to be granted.

This isn’t the first time these companies have faced off in court, and at least Telebrands has proven time and time again that it has the recipe for stalling litigation so it can continue to sell a product. Telebrands’ secret sauce: the United States Patent Trial and Appeal Board (“PTAB”).

When an action is filed with the PTAB, courts halt litigation until such time that the PTAB makes a ruling on whether the patent in question is valid. In at least two separate lawsuits brought against Telebrands for patent infringement (for its Pocket Hose & Balloon Bonanza products), the company has filed invalidation proceedings with the PTAB challenging the validity of the patents it was accused of infringing. The strategy for invalidation is that if the patent is determined to have been improperly issued then, no infringement could have occurred. Telebrands successfully invalidated some of the patent claims with regard to the balloon product, but the PTAB declined to review the hose patent on the basis that it was determined to be valid. The action is now proceeding in court and could still take years to reach an outcome.

A successful product invites copycats, and Tristar will likely have a long battle on its hands for this one. It will be interesting to see if Telebrands stays true to its methods and attempts to invalidate Tristar’s patents.

It is imperative to have seasoned intellectual property attorneys filing patents and trademarks and diligently monitoring infringing activity as well as advising you on the risks of infringing third party patents. In some instances, it is more cost effective to license a product than to knock it off and face the consequences. A well-planned IP strategy will help product owners to better survive or avoid the messy and lengthy proceedings of IP litigation. Remember, if you can’t stand the heat, get out of the kitchen.

Please email Jessica@DigitalLawGroup.com if you have any questions or would like more information regarding the content above.

Is ‘Made in China’ a Thing of the Past? What tariffs and trade relations mean for the consumer product industry.

According to the Office of the U.S. Trade Representative, China is our largest goods trading partner with approximately $579 billion in total trade during 2016. Imports from China totaled $463 billion, resulting in a $347 billion U.S. trade deficit for the year. This deficit, along with the goal of bringing manufacturing jobs back home, has the President Trump contemplating high tariffs on Chinese and other imports, including those from another major trade partner – Mexico.

The World Trade Organization stipulates that tariffs can only be imposed when there is material injury to the domestic industry, such as the detrimental effects of currency manipulation. However, in the U.S. Treasury’s most recent semi-annual report, China was not found to be maintaining an artificially low Yuan. However, if the Treasury Department did designate China a currency manipulator, a one-year mandatory negotiation period would be required to attempt to resolve the problem. If unresolved, the U.S. could then retaliate by, among other actions, implementing the 45-percent tariff proposed by the Trump administration. However, given the current administration’s unconventional approach, tariffs could be levied – theoretically – without congressional approval.

The news media has been bombarding us with information on how this tariff will affect the auto industry, in particular, but what do increased tariffs mean for others – such as the consumer product industry? As it is commonplace for such products to be manufactured in China, if a product marketer chose to continue to manufacture in China after the implementation of a tariff, that $19.99 retail price could be pushed up to $28.99. Alternatively, rather than continuing to manufacture in China (and be subject to the threat of higher tariffs), the product marketer can choose to move its manufacturing to the U.S. or elsewhere.

There is no dispute that manufacturing is costlier in the U.S. than in China; that is why most manufacturing occurs overseas. However, in addition to current (underutilized) incentives, such as the Domestic Productions Activities Deduction, and export incentives including the Interest Charge Domestic Sales Corporation (IC-DISC), President Trump is promising to cut regulations and lower corporate taxes. This could, theoretically, make U.S. manufacturing a viable option. Further, should this tariff become a reality and manufacturing jobs do come home, it could significantly reduce the number of counterfeit products entering the country. This, perhaps, may be the biggest advantage to manufacturing in the U.S. or other countries that are not on the counterfeit watch list, such as Bangladesh or Vietnam.

As the product industry is fully aware, China is severely lagging in intellectual property protections. Product leaks (sometimes by the manufacturer or its employees) and subsequent infringement are rampant. A winning product is likely to be knocked off and/or counterfeited and selling on Alibaba and Amazon before it even hits the shelves.

The Commission on the Theft of American Intellectual Property reported that China is responsible for as much as 80 percent of counterfeit goods globally. It is unquestionably the largest source of counterfeits in the United States. Global imports of counterfeit and pirated goods are worth nearly half a trillion dollars per year, with 20 percent of that affecting U.S. intellectual property and product owners. In 2013 alone, U.S. Customs and Border Patrol (USCBP) seized $1.3 billion in counterfeit goods – and that’s just what was detected. Pulling manufacturing out of China would significantly reduce the ever-growing influx of counterfeit items into the country and around the world.

An organization’s ability to change and innovate quickly is a key competitive advantage. Similarly, its ability to anticipate and deal with change in a challenging environment is tantamount to survival. Any prudent business owner will need to do an analysis of alternative sources of supply, or renegotiate with suppliers for better pricing to offset increased tariffs and then decide the best course of action. Contact a knowledgeable attorney and seek professional accounting advice to conduct due diligence on the best options for your business.

FTC shakeup may be welcome news for online product marketers

The president appears to be making good on his promise to cut government regulations, as the Federal Trade Commission is the latest body to get “Trumped.” Maureen Ohlhausen of the FTC, a critic of government regulation, has been appointed the interim chair by President Trump. She replaces Edith Ramirez who will be resigning today, February 10, 2017.

Ohlhausen will be bringing a new focus to the FTC; specifically, an emphasis on pursuing claims based on actual consumer harm, not just whether a regulatory violation occurred. For example, on a recent $2.2M settlement with Vizio regarding the software in its T.V.s that tracked viewing activity of 11 million consumers without their knowledge, Ohlhausen agreed that although Vizio’s actions were deceptive, she seemed to oppose the notion that television viewing activity constitutes sensitive information. Ohlhausen also stated that the FTC needs to reexamine how it defines “substantial injury” to consumers and focus on the misuse of historically sensitive private consumer information, including health and financial information, information on children and social security numbers.

Not wasting anytime in this regard, Ohlhausen just announced that Jessica Rich, Director of the Bureau of Consumer Protection, is leaving the agency on February 17 and is being replaced by Thomas Pahl. During Rich’s tenure, the FTC brought numerous actions against businesses that resulted in billions of dollars being returned to consumers. These awards may soon be a thing of the past as Pahl, like Ohlhausen, supports deregulation.

While deceptive marketing practices will still be on the FTC’s radar, the good news for marketers is that Ohlhausen is not a proponent of how cavalierly investigations have been initiated; nor does she believe in the total disgorgement of profits of companies found to be in violation of (some) consumer protection laws.

Ohlhausen is just the interim chair, but it is rumored that Trump has a couple of like-minded candidates for the permanent position, including Sean Reyes, a former attorney general of Utah. Dietary supplements are the largest industry in Utah (worth over $7B annually). If selected, Reyes could be much welcome news for nutraceutical marketers. In fact, Utah Senator Orrin Hatch helped draft the 1994 Dietary Supplement Health and Education Act which regulates product claims, labeling, etc., and he is a strong supporter of the industry.

Regardless of who is chosen to permanently chair, recent moves should be encouraging to most product marketers and nutraceutical producers alike, though they may be less protective of consumer interests.

For questions or more information regarding the above content, email DLG@DigitalLawGroup.com

What’s in a name? The USPTO’s slanted viewpoint on trademark applications

For over 3 years now, Asian-American rock band, The Slants, has been making noise in the courts while fighting for the right to register the band’s trademark with the United States Patent and Trademark Office (USPTO). The band’s battle started in 2013 when the USPTO determined that the “The Slants” was disparaging to Asian Americans and refused registration of the mark.

For the past 70 years, the USPTO has used Section 2(a) of the Lanham Act to deny registration of marks that it deems to be immoral, scandalous, or disparaging. Perhaps most notably, the USPTO relied on section 2(a) when it canceled the Washington Redskins’ trademark after over 40 years of registration.  Fortunately for the Redskins, and any other company or individual looking to protect a name or image that isn’t exactly “G” rated, the law may be changing thanks to the not so straight-laced musical group.

The band hit a major high note in December 2015 when a Federal Circuit Court of Appeals held that the Lanham Act’s exclusion of “disparaging” trademarks from registration amounted to “viewpoint discrimination” and was a violation of the First Amendment.  However, the USPTO appealed the ruling to the Supreme Court; oral arguments for which were just heard in January 2017.

Justices Breyer, Kagan, Kennedy and Ginsburg voiced concerns regarding possible constitutional problems with the USPTO’s review process, authority to determine whether a mark is disparaging or scandalous, and its inconsistent application of those determinations.  However, the Justices also made it clear that imposing absolutely no limits on trademark registrations could also be problematic.

It is uncertain how the USPTO would be able to impose registration limits without having some degree of discretion as to what is or is not appropriate material for a trademark, or what guidance the Supreme Court will provide should it find Section 2(a) to be unconstitutional.  Until the law becomes more settled, it is best to consult an experienced trademark attorney prior to applying for a mark that may be considered disparaging or scandalous.

A ruling is expected in June.  Stay tuned to this space for updates.

Lawsuits and Fines Plague Amazon to Kick off 2017

Despite its recent announcement of plans to create 100,000 jobs during the next 18 months, 2017 is off to a rocky start for Amazon. Just days before the new year, RUN-DMC Brand filed a lawsuit against Amazon (and others, including Walmart and Jet.com) seeking $50 million in damages for trademark infringement, dilution, and unfair competition.

RUN-DMC’s complaint alleges that the defendants are advertising, manufacturing, selling, and distributing multiple products with the iconic 1980s rap/hip-hop group’s RUN-DMC trademark without the permission of RUN-DMC, which is owned by former band member, Darryl McDaniels. Run-DMC alleges that Amazon directly advertises and sells infringing products, as well as fulfills orders for infringing products sold by third parties who are also named in the lawsuit.

Although this complaint did not layout out an abundance of evidence against Amazon – unlike the complaint by DRTV companies Allstar Marketing Group LLC, Ontel Products Corp., and Ideavillage Products Corp. (filed just three weeks before RUN-DMC’s complaint) – the key is that, similar to the DRTV complaint, Amazon is accused of direct infringement, rather than just contributory or vicarious infringement claims, which Amazon has been able to successfully avoid liability for in the past.

In addition to troubles in the U.S., Amazon has agreed to pay $1.1 million Canadian in penalties and costs to the Canadian Competition Bureau to settle a matter regarding its pricing practices. The fine comes after a two-year investigation into list prices on Amazon’s Canadian site, Amazon.ca. According to the Competition Bureau, “Amazon often compared its prices to a regular price – or ‘list price’ – signaling attractive savings for consumers.” The Bureau concluded that these claims created the impression that prices for items offered on Amazon.ca were lower than usual market prices, even though they may not have been. The investigation found that Amazon relied on its suppliers to provide list prices and did not verify that those prices were accurate. The savings claims at issue were not only advertised on Amazon.ca, but were also e-mailed to customers and displayed in online ads.

Amazon has since made changes to these anticompetitive practices in Canada and now validates list prices provided by suppliers on the Canadian platform. According the Bureau, new practices have also been applied to Amazon.com, which was engaging in the same behaviors as its Canadian counterpart. Although unclear as to when exactly the plan to change this practice was set in motion, in May 2016, former general counsel of the U.S. Senate’s antitrust subcommittee, Seth Bloom, stated that he had not heard anything said about how Amazon was harming consumers (which is a necessary element in the test for antitrust violations). Just a few months later, amidst antitrust probes in Japan and Europe, Amazon hired Bloom to lobby on its behalf.

Although not insignificant, a million-dollar payout is just a drop in the bucket for the online behemoth, which has a market value of approximately $250 billion. The point, however, is that many more drops in the bucket could add up as an increasing number of lawsuits continue to be filed by similarly harmed marketers. In spite of these issues, marketers, distributors, and consumers alike love Amazon’s convenience, free shipping for Prime customers, and simple return policies. The point is not to take down Amazon with fines and lawsuits, but rather, persuade Amazon into changing its illegal and deceptive practices. The more product owners and governments take action against Amazon’s egregious counterfeit and knockoff goods problem and deceptive practices, the more likely Amazon will be forced to reform.

As always, stay tuned to this space for updates.