Ahoy Mateys! Judge scuppers suit against Pirate Joe's

On Oct 2, 2013, a Washington District Court judge dismissed a trademark infringement lawsuit against Vancouver businessman, Michael Hallatt. Powerful U.S. discount grocer Trader Joe’s had filed the suit, irked by Hallatt’s business of reselling its products in his cheekily-named Vancouver shop, Pirate Joe’s. Trader Joe’s has no Canadian locations, so Hallatt made frequent buying trips to its U.S. outlets. There he paid retail prices, then declared the goods at the border, marked them up and sold them in his store.

In its complaint, Trader Joe’s made numerous allegations under the Lanham Act (the U.S. federal trademark legislation), including trademark infringement, false endorsement, unfair competition, trademark dilution and false advertising. It also alleged deceptive business practices and trademark dilution under state law. Trader Joe’s contended that Pirate Joe’s intentionally copied the appearance of its stores and used its product images in order to confuse customers and pass as an authorized Trader Joe’s retailer. This, it argued, would damage the Trader Joe’s brand and dilute the source-designating ability of its trademarks, as well as deter Canadian customers from traveling to the United States to purchase its products.

Hallatt countered the lawsuit with a motion to dismiss it on jurisdictional grounds. The court granted the motion. It held that, although the Lanham Act can apply to activities in a foreign jurisdiction, extraterritorial application was not supported in this case. Significantly, all alleged infringing activity occurred in Canada. As well, there was no proof of harm to Trader Joe’s – neither economic harm (since Hallatt paid retail prices), nor harm to goodwill.

Since the court’s decision was based on jurisdictional questions, the trademark issues were not resolved. However, as permitted in the court’s Oct 2 order, Trader Joe’s has now submitted an amended claim to support federal diversity jurisdiction over its state law claims. Diversity jurisdiction allows a U.S. federal court to hear cases involving citizens of different states or foreign citizenship, provided the value of the matter exceeds $75,000. As well, Trader Joe’s has filed a motion asking the court to reconsider its dismissal of the Lanham Act claims. So while Trader Joe’s may have lost the first battle, the “pirate wars” may not yet be over.

White House pushes for innovation in U.S. patent system

On June 4, 2013, the President of the United States announced seven legislative recommendations to Congress and five executive actions designed to protect innovators from frivolous litigation and to better the quality of patents issued by the United States Patent and Trademarks Office. (The informal Executive Actions differ from Executive Orders in that they are not legally binding and are seen more as a way to signal a policy shift.)

The Executive Actions announced by the White House are as follows:

  1. Identifying the “Real-Party-In-Interest”: the USPTO will begin a rulemaking process to require regular updates to ownership information, specifically designating the parent entity in control of the patent. This is expected to assist defendants in identifying the full extent of the patent portfolio held by a plaintiff, as such information is quite helpful in negotiating settlements.
  2. Additional USPTO training on Functional Claims: the USPTO will provide targeted training to examiners and develop strategies to address overly broad claims, especially in the context of software patents.
  3. Empowering “Downstream Users”: the USPTO will develop new education and outreach materials to aid those end-users using patented technology who face demands from a possible patent troll for simply using a product as intended. 
  4. Expanded Outreach and Study: the White House has acknowledged that engagement with stakeholders (including patent holders, research institutions, consumer advocates, public interest groups and the general public) is very important in ensuring that necessary reforms are identified to ensure that the U.S. patent system is efficient and reliable. The USPTO Edison Scholars Program, which permits academic experts to conduct research on the issues involved in abusive patent litigation, will be expanded.
  5. Exclusion Orders: the U.S. Intellectual Property Enforcement Coordinator will launch a review of existing procedures that U.S. Customs and Border Protection and the U.S. International Trade Commission use to evaluate the scope of exclusion orders (orders which prevent the importing of products that infringe patent claims) and work to ensure that the process for enforcement of those orders is transparent, efficient, and effective.

The Legislative Recommendations ask Congress to pursue the following measures (some of which echo the priorities set out above) to protect innovators from frivolous litigation. 

  1.  Require patentees and applicants to disclose the “Real-Party-In-Interest” by requiring the filing of updated ownership information with the USPTO or district court when sending demand letters, among other acts. 
  2. Permit more discretion in awarding “costs” to prevailing parties in patent cases. 
  3. Expand the USPTO’s “covered business method patent” transitional program to more types of computer-enabled patents, and permit a wider range of challengers to petition for review of issued patents. The program provides faster and cheaper review of covered patents as an alternative to litigation. 
  4. Protect consumers by providing them with better legal protection against liability if they are using a patented product “off-the-shelf” and solely for its intended use, and allowing a stay of judicial proceedings against consumers if there is a lawsuit against the vendor, retailer, or manufacturer of a product.
  5. Change the standard applied by the International Trade Commission for obtaining injunctive relief in order to enhance consistency in the standards applied by the ITC and district courts. 
  6. Initiating steps to incentivize public filing of demand letters so that the public may search them.
  7. Ensure the International Trade Commission has the flexibility required to hire judges with a background in administrative law

SEC comments on corporate disclosures on social media

Kaleb Honsberger -

Earlier this week, the U.S. Securities and Exchange Commission released a report of its investigation regarding whether Netflix and its CEO, Reed Hastings, violated certain securities regulations prohibiting the selective disclosure of corporate information when Hastings posted a comment on his personal Facebook page regarding the achievement of a corporate milestone.

In doing so, the SEC considered the disclosure of corporate information on social media generally, ultimately finding that its 2008 guidance, which discusses the distribution of information on corporate websites, also applies to corporate disclosures made through social media channels such as Facebook and Twitter. Specifically, the SEC stated that where it is reasonably foreseeable that the recipients (securities professionals and/or shareholders) of such information will trade on the basis of such information, it must be disseminated in a manner reasonably designed to provide broad non-exclusionary distribution to the public. To achieve this, issuers must take sufficient steps to alert investors, the market and the media as to the channels that will be used for the dissemination of material, nonpublic information. As an example, the 2008 guidance encourages periodic reports or press releases to include web site addresses or other information regarding steps investors or the public can take to be in a position to receive important disclosure.

As such, the SEC does not preclude the use of social media sites to distribute material, nonpublic information so long as appropriate notice regarding the use of such sites has been made to investors. To this end, the SEC report cautions that issuers are expected to “rigorously” examine factors indicating whether a particular channel is a “recognized channel of distribution” for communicating with investors. While each case will be fact specific, in most cases (as in the Netflix example) disclosure of material nonpublic information on a personal Facebook page without advance notice is unlikely to qualify as an acceptable method of distribution even if the individual in question has a large number of subscribers or contacts.

In Canada, regulators have not specifically addressed issuer disclosure through social media, however, principles governing selective disclosure are set out in National Policy 51-201 Disclosure Standards. For TSX-listed companies, the TSX has published its own Electronic Communications Disclosure Guidelines. Staff of the Canadian securities administrators have also provided guidance on the use of social media by portfolio managers, noting that firms and registered individuals contemplating the use of social media should consider, among other things, establishing appropriate policies and procedures for the review, supervision, retention and retrieval of materials posted on social media websites.

Wikipedia, Google and many others protest proposed U.S. Stop Online Piracy Act

The proposed Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA) discussed in a prior blog post is garnering some very negative reactions from internet and technology companies, culminating in a day of protest by many websites to draw attention to the bills, which are making their way through the U.S. House of Representatives and Senate. Today, Wikipedia has blocked all of its English-language pages and Google has blacked out its U.S. home page logo (see sopastrike.com for a full list of the SOPA protest participants). Late last year, a group of nine technology companies (AOL, Ebay, Facebook, Google, Linkedin, Mozilla, Twitter, Yahoo and Zynga) took out a full-page ad in the New York Times voicing their concern that “the bills as drafted would expose law-abiding U.S. Internet and technology companies to new and uncertain liabilities, private rights of action, and technology mandates that would require monitoring of websites.” Both bills have been the subject of controversy because of the severe measures that can be invoked relatively quickly and easily to block access to, or financially cripple, allegedly infringing websites.

US considers tough legislation to cripple foreign sites that infringe US IP

Stuart McCormack and Lindsay Gwyer -

Recently, a controversial new bill was introduced in the United States House of Representatives. The new bill, entitled the Stop Online Piracy Act, aims to undercut the business model of websites who sell or distribute pirated American products or works by imposing obligations on third parties who deal with the sites. Its purpose is to indirectly target foreign websites that may be outside the direct reach of American law. 

One of the main components of the Stop Online Piracy Act is section 103, which provides IP owners with a tool to enforce their rights against sites “dedicated to theft of U.S. property.” Under this section, an IP rights-holder can notify a payment network provider (defined as an entity that directly or indirectly provides the proprietary services, infrastructure, and software to effect or facilitate a debit, credit, or other payment transaction) or company that provides internet advertising services of IP infringement by a particular site. Providing that the notification meets the requirements set out in the section, the recipient must respond with “technically feasible and reasonable measures” within 5 days to essentially cutting off the infringing site from its services. For payment network providers this would generally entail preventing the completion of transactions involving American customers and the infringing website, and for advertisers it would mean ceasing to advertise the website or provide advertisements to the website.

The owner of the allegedly infringing site can respond with a “counter-notification,” which requires that the site accept the jurisdiction of US courts. This allows the IP owner to bring a claim directly against the infringing site. Once a counter notification is provided, the payment networks and advertisers can return to dealing with the site. Companies that cease to deal with allegedly infringing sites cannot be held liable for doing so.

The bill also gives the US Attorney General the ability to get a court-ordered injunction, which would impose similar obligations on payment network providers and advertisers dealing with a foreign infringing site. In addition, the injunction would require Internet Service Providers and search engines to take reasonable measures essentially preventing access to the site, in the case of ISPs, and preventing search results from linking to the site, in the case of search engines. The injunction would be modified if the site removed the illegal activity.

In addition, the bill provides increased penalties for certain piracy-related criminal offences, including streaming of copyrighted works. It also contains several sections which call for ongoing study and consultation between various US government bodies and stake-holders on the issue of protecting US IP from foreign infringers.

The House’s bill is similar to the Protect IP Act of 2011 introduced last month by the Senate. Both bills have been the subject of controversy because of the severe measures that can be invoked relatively quickly and easily to block access to, or financially cripple, allegedly infringing websites. Both bills are still in the early stages of the legislative process, making it far from certain that either will be passed in its current form. However, if and when any such legislation becomes law it will have significant implications not only for websites that may contain potentially infringing content, but also for many legitimate companies that have dealings with these websites.