Intellectual Property Newsletter Summer 2009

It’s Not That Easy Being Green
by Linda Norcross

A 2008 survey found that four out of ten Americans have expressed their preference for purchasing “environmentally friendly” products. With green advertising claims becoming increasingly popular and potentially profitable, many companies are jumping on the green bandwagon, incorporating a barrage of eco-buzzwords: organic, biodegradable, sustainable, natural, and recycled, to name a few. The challenge is ensuring that such claims are valid, thereby avoiding a trip to the courtroom or some damage control at the very least.

The Federal Trade Commission (“FTC”) issued its first version of the Green Guides (“Guides”) in 1992 (updated in 1998), to assist the advertising industry in formulating eco-friendly product claims that would not be considered false or deceptive in accordance with Section 5(a) of the FTC Act. The Guides are administrative guidelines which interpret the FTC Act that prohibits “unfair or deceptive acts or practices in or affecting commerce.” The Guides apply to all forms of marketing for both goods and services. They are not independently enforceable; but rather, provide a “safe harbor” for advertisers whose product claims fall within their four corners.

The current Guides address eight specific categories of claims: (i) general environmental benefit claims,
(ii) degradable/biodegradable/photodegradable claims, (iii) compostable claims, (iv) recyclable claims, (v) recycled content claims, (vi) refillable claims, (vii) source reduction claims, and (viii) ozone safe and ozone friendly claims.

Given the increase in consumer environmental awareness, how do companies ensure that their advertising claims fall within these guidelines and avoid “greenwashing,” or misleading consumers as to the eco-friendliness of a company’s practices or the environmental benefits of a particular product or service? In 2007, TerraChoice Environmental
Marketing, Inc. (“TerraChoice”) conducted a survey of six leading retail stores in which it identified 1,018 products that bore 1,753 environmental claims. Of the products analyzed, all but one made a false or misleading environmental claim. Based on the survey results, TerraChoice identified six repeated “sins” of greenwashing that companies should avoid:

(1) Sin of the Hidden Trade-Off: Environmental claims that emphasize one or a narrow set of ecofriendly attributes without paying attention to more significant environmental issues.

Example: Paper and lumber products that promote their recycled content without attention to the impact on air or water emissions or global warming.

(2) Sin of No Proof: Environmental claims that are not substantiated by supporting information made easily accessible, such as on the product’s website or at the point of purchase, or by reliable third party certification.

Example: Cosmetic products that claim no animal testing but provide no evidence or certification to substantiate the claim.

(3) Sin of Vagueness: Environmental claims that are broad or poorly defined.

Example: “Chemical free”—Nothing is actually free of chemicals; even water is a chemical. Plants, animals and humans are made of chemicals. “Nontoxic”— Virtually everything can be toxic if a sufficient amount is consumed.

(4) Sin of Irrelevance: Environmental claims that may be true but are neither helpful nor important to the consumer in search of eco-friendly products.

Example: The most frequently made irrelevant claim is with respect to chlorofluorocarbons (“CFC’s”), which are considered a significant factor in depletion of the ozone. Many products declare that they are “CFC free,” which is irrelevant since CFC’s were banned almost 30 years ago.

(5) Sin of Lesser of Two Evils: “Green” claims that may be true with respect to a particular product category but that may distract the consumer from the more significant environmental impact of the product category in its entirety.

Example: Organic cigarettes.

(6) Sin of Fibbing: Environmental claims that are outright false.

Example: A dishwasher detergent that claims its packaging is “100% recycled paper,” but is actually plastic.

Identifying the sins is only half the battle, the remaining question is how can companies stay sin free? Companies should have legal counsel review ad content to ensure that the advertiser has “competent and reliable evidence” to substantiate the claims, whether express or implied. In the case of environmental claims, establishing a reasonable basis in support of a particular claim may require scientific evidence, and involve “tests, analyses, research, studies or other evidence based on the expertise of professionals in the relevant area conducted and evaluated in an objective way by qualified people using procedures generally accepted in the profession to yield accurate and reliable results.” Given society’s current focus on preserving the Earth and its resources for future generations, companies can be sure that this issue will remain an important marketing consideration well into the future.

What You Need to Consider Before Sending Your Next Demand Letter
by Emily A. Bayton

Copyright and trademark holders commonly rely on demand letters to enforce their intellectual property rights. Demand letters can be a great way to deter infringers without incurring the expense and uncertainty of a lawsuit. Not all infringers, however, will go quietly into the night. Rather than complying with the demand letter, some recipients file for declaratory relief. If this happens, intellectual property owners may be forced to defend their intellectual property rights, sometimes in unfavorable forums, while incurring the expense and uncertainty they initially sought to avoid by sending the letter in the first place. To minimize the risk of having to defend a declaratory judgment suit, copyright and trademark owners should understand what can trigger a declaratory judgment action.

Congress passed the Declaratory Judgment Act, which gives federal courts the authority to grant declaratory relief, in part, to address the anti-competitive practices of certain intellectual property holders. 28 U.S.C. § 2201(a); see also Societe de Conditionnement v. Hunter Eng’g, 655 F.2d 938, 943 (9th Cir. 1981). Prior to the Act, patent holders would try to discourage competition by threatening competitors with infringement suits. Id. The Declaratory Judgment Act offers threatened parties early adjudication of issues and relieves them from having to make the difficult choice of whether to give in to the demands and withdraw from the market or to run the risk and potentially face hefty damages in an infringement suit.

Parties seeking declaratory relief must satisfy two requirements. First, they must show that an “actual controversy” exists. 28 U.S.C. § 2201(a). Second, they must persuade the court to exercise its discretionary jurisdiction. Id. In other words, “the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941).

The Ninth Circuit determines that an actual controversy exists in intellectual property disputes if a declaratory judgment plaintiff “has a real and reasonable apprehension that he will be subject to liability.” Societe, 655 F.2d at 944. Unfortunately, there is generally no bright line test or specific acts that trigger an apprehension of suit. See Chesebrough-Pond’s, Inc. v. Faberge, Inc., 666 F.2d 393, 396 (9th Cir. 1982). Instead, the court analyzes the acts of the defendant, how these acts impact competition, and whether the acts impose any additional risks on the plaintiff such that a claim for declaratory relief is warranted. Then, the court will decide whether “the threat perceived by the plaintiff [was] real and reasonable.” Id.

The Ninth Circuit analyzes each situation on a case-by-case basis. Different acts can trigger a real and reasonable apprehension, including oral demands. For example, in Societe de Conditionnement v. Hunter Eng’g, the Ninth Circuit held that a threatening phone call to a third party can trigger a declaratory judgment suit, even if the caller lacked the authority to speak for the company. 655 F.2d 938 (9th Cir. 1981). In Hunter, the court held that an actual controversy existed because Hunter’s threatening phone call made Societe reasonably apprehensive of suit. Id. at 944. Moreover, the call put Societe “in a defensive posture with respect to its continued manufacture of [the allegedly infringing product].” Id. The court found that it did not matter that Hunter’s employee was not authorized to speak for the company because the “reasonable apprehension” test focuses on the perceptions of the plaintiff. Id.

Written demands can also serve as a basis for a declaratory judgment action. In Chesebrough-Pond’s, the court found that Chesebrough satisfied the “reasonable apprehension” standard because: (1) Faberge’s demand letter established a prima facie case for trademark infringement; and (2) the threat of infringement had a chilling effect on Chesebrough’s efforts to market its products. 666 F.2d 393, 396-97. The court found that Faberge used the threat of infringement to its advantage and to Chesebrough’s disadvantage because Faberge expanded the marketing of its products while Chesebrough halted further use of its mark upon receiving the demand letter. If Chesebrough could not seek declaratory relief it would have to “choose between continuing to forego competition in this quickly expanding market, and entering the market, risking substantial future damages and harm to relationships with its customers and retailers.” Id.

Ninth Circuit courts have also found that an implicit threat of an infringement suit in a letter delivered as part of settlement negotiations can be enough to trigger an action for declaratory relief. See Rhoades v. Avon Products, Inc., 504 F.3d 1151 (9th Cir. 2007). In Rhoades, the court found that the declaratory judgment plaintiff was reasonably apprehensive of suit because Avon threatened it with litigation on three occasions. Id. at 1157–58. The court found that defendant’s acts produced a chilling effect on competition similar to that in Chesebrough and without declaratory relief, the declaratory judgment plaintiff would need to either pull out of the market in order to avoid an infringement suit, or remain in the market and risk substantial damages. Id.

These are just a few examples of the types of demands, written and oral, that rise to the level of supporting a suit for declaratory judgment relief. Unfortunately, there is no precise formula for avoiding a declaratory judgment suit—it is more of a balancing act. In the copyright and trademark context, sending a demand letter that does not ultimately trigger a declaratory judgment action requires being direct enough to effectively deter infringers, while also being vague enough to avoid making the letter recipient apprehensive of suit. The best way to strike this balance is to avoid any express threat of litigation and to suggest that settlement is a viable option. The precise contours of the letter will depend on what settlement options, if any, are acceptable and how the recipient is likely to perceive the letter. If an alleged infringer is already in a defensive posture even the most conciliatory letter may be perceived as a threat of litigation. Ultimately, no matter how conciliatory a demand letter may sound, there are no magic words that will insulate a copyright or trademark holder from a declaratory judgment suit.

Patenting of Business Methods—The Bilski Case
by Ken D’Alessandro

On June 1, 2009, the United States Supreme Court agreed to hear an appeal in a case (In re Bilski) in which the sole issue is whether and to what extent “business methods” are proper subjects for patent protection.

The patenting of business methods was first explicitly sanctioned by the Court of Appeals for the Federal Circuit in a case in 1998 (State Street Bank & Trust Co. v. Signature Financial Group, Inc.). This case established that business methods are potentially patentable subject matter if they are sufficiently novel. In order for the business method to be potentially patentable subject matter, it had to involve some practical application and had to produce “a useful, concrete and tangible result.” Id.

The patent in the State Street Bank case related to a “Data Processing System for Hub and Spoke Financial Services Configuration.” The patent protected performing steps to comply with an Internal Revenue Service regulation that allowed tax avoidance for partnerships and the invention related to a method in which mutual funds pooled their assets. The “useful, concrete and tangible result” was a share price.

After the State Street Bank case, applications for business method patents became very popular, to the point where the backlog for examination of such applications in the United States Patent and Trademark Office (“PTO”) became so large that the time it takes for a patent application to be first examined (considered by a patent examiner) has stretched out to four and five years in some instances. The topic has been controversial, with some people, including applicants for patents, in favor granting such patents, and others, including the PTO, opposing such grants. In the meanwhile, substantial numbers of business method patents have issued, and many more patent applications directed to business methods await examination in the PTO.

In 2008, the Bilski case materially narrowed the requirements for the patentability of business methods. The case arose from a refusal to grant a patent on a business method directed to hedging commodity trades. With all of its judges participating in the decision, the court rejected the earlier test approved in the State Street Bank case and established a new stricter “machine or transformation” test, which requires a patent claim to be “tied to a particular machine or brings about a particular transformation of a particular article.” The majority opinion stated that this test was required by precedent from the United States Supreme Court.

Three members of the court dissented. One dissenting judge pointed out (in the author’s opinion, correctly) that the test proclaimed by the majority to be the sole test for determining subject-matter patentability according to Supreme Court precedent was not the only test enunciated by the Supreme Court in its various decisions involving patentable subject matter. The Bilski case and its new test for subject matter patentability is to be decided by the Supreme Court during its next term. A few commentators have observed that the Supreme Court rarely takes an appeal from the Federal Circuit unless it intends to reverse the decision, an observation that, for the most part, appears to be historically correct. There are, however, three notable exceptions in which the Supreme Court affirmed that micro-organisms and computer program methods were proper subjects for patents. All three of these decisions date back to the early 1980’s.

It is presently not known how the justices at the Supreme Court are leaning, how they will decide, or how broadly the justices will cast their decision. Until then, patent applications directed to business methods will be under somewhat of a cloud.

Lewis and Roca LLP Expands to Silicon Valley with Intellectual Property Group

Lewis and Roca LLP is proud to announce the expansion of its intellectual property practice with a new office in the Silicon Valley market. The new office furthers the firm’s strategic goals, and enables increased volume of the firm’s services to their high tech industry clients.

“We are very excited about our growing intellectual property practice,” says Ken Van Winkle, Managing Partner of Lewis and Roca. “This expansion into Silicon Valley helps further the firm’s goal of becoming one of the premier Intellectual Property firms, enhances our ability to service the firm’s existing clients in the Silicon Valley area, and provides the leverage of our favorable rates to California companies.” He added that the move is part of a growing trend of regional firms expanding to serve the needs of clients looking to shift work from national and international firms.

The office is spearheaded by partners Frank Hiscox and Dana Brody-Brown and Of Counsel Alexa Horne, all formerly of the Palo Alto office of White & Case.

The addition of this team strengthens Lewis and Roca’s existing intellectual property practice, which includes a broad range of services in the areas of trademark, copyright, patent, trade secrets, rights of publicity, and technology. Lewis and Roca currently holds national ranking as #2 in volume of trademark litigation and #19 in volume of trademark applications filed in the United States. The intellectual property group is headed by Michael McCue, a partner in Lewis and Roca’s Las Vegas office.

Introducing the Attorneys of the Silicon Valley office

Frank Hiscox
Mr. Hiscox is a partner in the firm’s Intellectual Property practice group. His practice focuses on global brand management matters for some of the foremost firms in the world.

Through Mr. Hiscox’s more than 25 years of practice, he has developed many areas of experience including domestic and international trademark, copyright, advertising and marketing law.

Mr. Hiscox counsels leading brand holders on brand selection, adoption, registration, and protection, and on advertising, promotion, licensing and enforcement matters of all kinds. His practice encompasses the protection of corporate names, Internet domains, advertising slogans and other key identity assets.

Dana Brody-Brown
Ms. Brody-Brown is a partner in the firm’s Intellectual Property practice group. Her work is focused in the areas of trademark counseling and prosecution, including trademark audits, portfolio analysis and strategic counseling, selection and searching of trademarks, domestic and worldwide registration and enforcement, domain name issues and licensing.

Ms. Brody-Brown facilitates trademark disputes, including domain name issues and opposition and cancellation proceedings before the Trademark Trial and Appeal Board of the United States Patent & Trademark Trial office.

Alexandra Horne
Ms. Horne is of counsel in the firm’s Intellectual Property practice group. She has over fifteen years experience counseling clients on trademark availability, registration, licensing and enforcement, including opposition and cancellation proceedings in the Patent and Trademark Office.

Ms. Horne possesses a wealth of knowledge gained through representation of a wide variety of domestic and foreign clients in the many areas of trademark and copyright law, with a focus on trademark counseling, prosecution and issues involving the Internet.

One-on-One with Jennifer Ko Craft

What is your favorite part of your job?
When clients and colleagues depend on me to know the answers and actually knowing them.

Who are your real-life heroes?
Hands down, my parents. I grew up with very little, but never felt deprived.

Where is the most amazing place you’ve ever been?
Backstage at a charity concert in 2000, with Wayne Gretsky and his wife standing next to me, Elton John in a bright red suit passing in front of me, while photographers snap photos of Andre Agassi a few feet away.

What is your favorite meal?
Toss up between a medium rare filet oscar with a glass of pinot noir and a bouillabaisse with lots of crusty bread

What CD/tape are you listening to?
Opus 24 by Dustin O’Halloran. I don’t know much about classical piano; I just know I like it.

When you were a child, what job did you most want to have when you grew up?
In my third grade yearbook, I listed two things I wanted to be when I grew up: lawyer and caterer. I loved to argue and eat. Still do.

This Newsletter has been prepared by Lewis and Roca LLP for informational purposes only and is not legal advice. Readers should seek professional legal advice on matters involving these issues.