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Welcome to Spring … we think!
In this issue, we emphasize information security, which has taken on new importance for all businesses in the wake of the Target episode. However, we also have significant discussion of other IP topics such as innovative trademark licensing strategy, implications for practice in the US Patent Office of the US Supreme Court decision in the Myriad and Prometheus gene and medical patent cases and significance of remedies analysis in IP contracting and disputes.
Why Information Security Matters More Now than Before … to Everyone!
The recent revelations about the massive Target data breach and its legal and economic aftermath should prompt you to address your data security exposure in a number of ways. Even apart from direct legal problems, data breaches present many business concerns ranging from unfair competition to disruption of billing/collection activities.
Whether you have a large or a small business, it can happen to you. Statistics compiled from California’s breach notification data of 2012 show that 50% of cyber attacks were aimed at businesses with 2,500 or fewer employees and 31% were aimed at businesses with fewer than 250 employees. That is, 81% of the attacks impacted firms with fewer than 2,500 employees. This is NOT just a big business problem! Anyone with a website or which collects customer data needs to act.
Target’s recent earnings release summarizes the business impact, which in relative terms would be the same for you as for them:
Costs may include liabilities to payment card networks for reimbursements of credit card fraud and card reissuance costs, liabilities related to REDcard fraud and card re-issuance, liabilities from civil litigation, governmental investigations and enforcement proceedings, expenses for legal, investigative and consulting fees, and incremental expenses and capital investments for remediation activities. These costs may have a material adverse effect on Target’s results of operations in fourth quarter 2013 and/or future periods.
Proactive steps with which we have a good deal of experience and can help to implement, include among other things:
Elevating data security and privacy matters to strategic business issue status overseen by Boards of Directors and senior management in addition to technical staff as noted in an excellent discussion in CFO Magazine, http://ww2.cfo.com/technology/2014/03/cyber-specter-mandates-new-cfo-dynamic/;
Review of privacy policies and website terms of use to tailor them to your specific circumstances and avoid making promises you can not keep [such as ‘your information is always perfectly secure with us’] which are the quickest way to cause legal problems;
Advice regarding applicable governmental guidance as to best practices, which is normally quite practical and helpful to those seeking to avoid problems;
Advice as to technical inquiries you should make of third party cloud and other IT providers to see if their environments appear to be secure and practices appropriate; and
Advice as to and negotiation of third party contract language regarding assurances that appropriate steps are being taken and remedies if this is not the case.
The CA Attorney general has very recently released a number of specific recommendations which make sense for any business whether or not it is located in CA. Cybersecurity in the Golden State, available at https://oag.ca.gov/cybersecurity, sets out some very straightforward recommendations directed primarily to small and mid-sized businesses. For example:
Assume you are a target … because you probably will be! Plan for the worst. Take precautions. Develop incident response and disaster recovery plans now.
Map your data. Review the data your business stores and shares with third parties including backup storage and cloud computing. Remove any data that is not necessary so that it is not available to cyber criminals. For example, credit card data from customers with whom you have had no dealings for the past two years are a security accident waiting to happen. An FTC Disposal Rule requires destruction of materials of this nature.
Encrypt your data. Encrypt [scramble] the data you need to keep. Strong encryption technology is commonly available for free, and it is easy to use.
Defend yourself. Deploy regularly updated firewalls, antivirus, and other internet security solutions that span all digital devices, from desktop computers, to smartphones, to tablets.
Operate and bank securely. Be password wise. Keep all operating systems and software up to date. Don’t install software you did not specifically seek out and don’t download software from untrusted or unknown sources. Online banking should only be performed using a secure browser connection; online banking sessions should be conducted in the private mode of your web browser, and you should erase your web browser cache, temporary Internet files, cookies, and history afterwards. Use strong passwords and don’t let your browser remember your passwords.
Somewhat more elaborate advice for business owners is available on the FTC’s website (http://www.ftc.gov/).
The technical and legal costs associated with these steps are inexpensive by any reckoning, particularly in view of the costs of preventable problems.
For breach situations that cannot be avoided, we can help you with:
Advice regarding procurement of insurance coverage for these specific situations, in addition to traditional liability insurance which is not applicable to data breach situations;
Advice regarding steps to be taken to comply with breach notification laws which typically impose rigorous time requirements;
Advice and representation in connection with insurance and vendor claims; and
Advice and representation in connection with private lawsuits and state/federal investigations or suits.
Trademark Filing and Licensing Helps You to Win … Even on the Gridiron!
Apart from its football implications, the recent success of the Seattle Seahawks, the current NFL Super Bowl champions, illustrates the importance of a prudent trademark registration, licensing and policing strategy of the sort discussed in our most recent blog post http://www.fisherbroyles.com/trademark-considerations-for-your-business/. The Seahawks enjoy vociferous support from their home crowd, which is often known as their ‘12th Man’ in addition to the 11 actually on the field. A recent Forbes article for which a link will be provided upon request, explains that the Seahawks’ use of the term is pursuant to a license from Texas A&M University, which originated it back in 1922 and registered the mark some time ago, before the Seahawks’ use became substantial.
When the Seahawks’ use became prominent, Texas A&M filed a lawsuit for infringement, which resulted in a licensing agreement pursuant to which the Seahawks made a substantial cash payment and pay annual fees, in return for which they receive the right to use the mark in a geographically limited area, which was intended to avoid conflict with the areas in which Texas A&M use the mark.
The agreement term expires in 2016, at which time it is likely that the Seahawks will be forced to substantially increase their annual fees, particularly in light of the burgeoning use of the term in social media such as Twitter hashtags.
Based upon the promotional success that both teams have enjoyed from the term, it appears that the licensing agreement has been very well conceived. This illustrates most fundamentally the importance of prompt registration of a valuable mark, without which there is usually nothing to license. It also illustrates the importance of taking steps to ‘police’ the registered mark when the owner becomes aware of a potentially conflicting use so that a balanced licensing agreement can be worked out.
Our IP partners are equipped to work with you in a cost effective manner on all of these issues so that you can use the names and marks which you have carefully developed in the same manner as Texas A&M and the Seahawks.
So What are you Gonna Do About It? IP Remedies Matter a Lot
When one is licensing IP of any kind or considering how to redress apparent infringement, the issue of the remedies which can be obtained are just as important as the issue of whether the IP has been misused. The ongoing controversy between Apple and Samsung over smartphone patents is an example of the parties spending as much time and money litigating over a potential sales ban [in addition to $900 million in money damages] as over the underlying infringement.
In many, if not most, cases the aggrieved party will not be made whole absent a prompt cessation of the infringing activity, even assuming that it will able to obtain a damage award against the other party. Fast moving marketplaces and frequent inability of infringers such as counterfeiters to satisfy judgments may make moot a damage award year down the line.
By the same token, if the holder of a dubious patent is able to seriously threaten an immediate shutdown of the allegedly infringing party, this greatly enhances their bargaining power, whatever may be the ultimate merits of their claim.
These considerations mean two things for clients. First, seemingly ‘boilerplate’ language in licensing or employment documentation needs to be carefully reviewed to ensure that it makes sense under the particular circumstances. If you are licensing IP or entrusting employees with trade secrets, does it contain language that allows you to promptly stop wrongful behavior before you incur irreparable injury in the marketplace? If you are asked to agree to such language, does it provide the other party with more than they are truly entitled to in such a way that it drastically tips the marketplace balance?
Once a controversy exists, it is critical to address at the outset before anything is filed, what relief is needed to make you whole. In other situations, a request for money damages of X and ‘such other relief as the court may deem just’ may suffice, but not in the IP context. If appropriate relief is not requested at the outset, it may not be available at all. If someone requests relief from you, it is necessary to promptly evaluate such request and craft and appropriate response.
Our IP, Patent, Employment and Litigation lawyers can you develop and evaluate appropriate contract language and dispute positions.
USPTO Guidance from Recent Supreme Court DNA and Diagnostic Method Patent Decisions
Two recent U.S. Supreme Court decisions relate to whether certain types of subject matter are eligible for patent protection. In AMP v. Myriad Genetics, the court held that DNA sequences that are unchanged from those found in nature are unpatentable, and in Mayo v. Prometheus, the court decided that diagnostic methods are unpatentable if based on a law of nature. In view of these two decisions, the U.S. Patent and Trademark Office (USPTO) issued a “guidance memorandum” on March 4, in which it provided factors that patent examiners and the public should weigh when determining whether a U.S. patent may be granted with respect to applications containing certain claims. The memorandum states that “all claims (i.e., machine, composition, manufacture and process claims) reciting or involving laws of nature/natural principals should be examined using the Guidance.”
The USPTO’s guidance applies to types of subject matter that are beyond the scope of what was considered by the Supreme Court. Examples of subject matter that the USPTO says fall within the scope of the guidance include chemicals derived from natural sources, foods, metals and metallic compounds that exist in nature, minerals, natural materials, nucleic acids, organisms (including bacteria, plants, and multicellular animals), proteins and peptides, and other substances found in or derived from nature.
Any claim that a patent examiner interprets as a “judicial exception” to subject matter eligibility (i.e, a law of nature, natural principle, natural phenomena, or natural product) will be examined under these new guidelines. The examiner is then tasked with determining whether the claim as a whole recites something that is significantly different than the judicial exception. Factors are provided to assist examiners with a determination as to whether a claim is “significantly different” than a natural product, law of nature, etc. The guidance specifically states that the previous strategy of adding words such as “isolated,” “recombinant,” or “synthetic” are not sufficient to impart a significant difference to an otherwise unpatentable natural product. However, adding additional steps or features to a claim that demonstrate the claimed subject matter is markedly different than what exists in nature and that do not preempt all uses of the claimed technology, will favor patentability.
Although it is unclear whether the courts would agree with the broad impact of the USPTO’s interpretation of Myriad and Prometheus, patent applicants should consider drafting claims in such as way as to avoid rejection in view of the USPTO’s new guidelines. In view of these guidelines, patent applicants should, whenever possible, include structural and/or functional distinctions between composition of matter claims and any naturally occurring counterparts. For method claims, steps should be included that highlight the differences between the claim and a law of nature or natural principle. Our patent attorneys can assist you with a proactive strategy to avoid a subject matter eligibility rejection or to argue against such a rejection if one is received from the USPTO.
Contributors:
Marty Robins
Alan Wernick
Kimberly Booher
Jill Jacobson
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Founded in 2002, FisherBroyles, LLP is a full-service, cloud-based national law firm with attorneys across the country. Conceived as the “Next Generation Law Firm™”, FisherBroyles eliminates unnecessary overhead that does not add value to clients and instead offers a more cost-effective solution to clients across all industries. Visit our website at www.fisherbroyles.com to learn more about our firm’s unique approach and how we can best meet your needs.
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