The U.S. Copyright Act permits, but does not require, registration of copyright-protected works with the U.S. Copyright Office.  Nevertheless, under the U.S. Copyright Act, registration by the Copyright Office (or ruling by the Copyright Office refusing to register) is, among other things, a prerequisite to bringing a copyright infringement action.  The federal courts have long disagreed about whether an application for registration satisfies the rule.  In other words, does the copyright owner have to wait for the Copyright Office to rule on the registration application before suing?

The United States Supreme Court has now agreed to hear a case that could resolve this long-disputed issue.  Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC., Case No. 17-571.  The appeal is from the Eleventh Circuit Court of Appeals, which held – recognizing the disagreement among the courts – that a registration application is insufficient to sue.

Whichever way the Supreme Court rules, early registration has distinct advantages for the copyright owner.  Advantages includes easier proofs at trial on liability and damages and the possibility of collecting attorneys’ fees for registration applications filed before infringement begins or, for published works, within three months of publication.

In the globalized economy, it can be hard for businesses to know what country’s laws apply.  The stakes can be especially high in patent cases, which often involve millions and even billions of dollars.

The United States Supreme Court gave patent owners a victory on one aspect of this controversy last week. In Westerngeco LLC v. Ion Geophysical Corp., Slip Op. No. 16-1011 (June 22, 2018), the Court held that an owner of a United States patent can be awarded lost profits that a competitor earns outside the United States.

Westerngeco owned U.S.  patents for a system used to survey the ocean floor.  A competitor, ION Geophysical Corp., began selling competing systems.  ION made some of those competing systems in the United States; they were found to infringe Westerngeco’s patents, and a trial jury awarded Westerngeco $12.5 million in royalties.  That award was not at issue before the Supreme Court.

What the Supreme Court did consider was the jury’s additional award of $93.4 million in lost profits for sales outside the U.S.  ION made some specialized components inside the U.S. and then shipped them overseas, where there were assembled into systems that would infringe Westerngeco’s U.S. patents if made or sold in the U.S.  ION sold these systems to foreign customers who, presumably, would otherwise have purchased from Westerngeco.

Patents are issued on a jurisdiction-by-jurisdiction basis.  Generally, an owner of a U.S. patent cannot recover for conduct in a foreign country, even if that conduct would infringe the U.S. patent.  In other words, conduct outside the U.S. generally cannot infringe a U.S. patent because the U.S. patent owner’s rights are limited to the U.S.  To recover for conduct in a foreign country, that conduct generally must infringe a valid patent issued in that foreign country and the patent owner must sue the infringing party in that foreign country.

The Patent Act, however, has a section that arguably gives U.S. patents “extraterritorial” effects in specific circumstances. One of those circumstances is when someone “especially make[s] or especially adapt[s]” components of a U.S.-patented invention “for use in the invention” knowing it will be used overseas in a way that would infringe the U.S. patent if made or used on U.S. soil.  35 U.S.C. § 271(f)(2).  Under this provision, a person who makes a specially designed component in the U.S. with the intention that it be used outside the U.S. in a way that would infringe the U.S. patent is an infringer of the U.S. patent.  That is what the jury found ION did.

The question before the Supreme Court was whether Westerngeco could recover lost profits that the infringer, ION, earned from sales abroad.  The Supreme Court held that it can.  The Court reasoned that the infringing activity – the manufacture of the specially-made components on U.S. soil – was a domestic, not a foreign, act.  The Court held the statute permitted recovery of lost overseas profits for that domestic act of infringement.  The Court therefore affirmed a $93.4 million foreign lost profits award that dwarfed the $12.5 million in royalties awarded for ION’s sales on U.S. soil.

The Supreme Court’s decision was arguably narrow.  It turned on a particular section of the Patent Act that seeks to redress clear efforts to evade U.S. patent law.  It remains to be seen whether the decision will be given a wider interpretation.  Nonetheless, as Westerngeco  itself shows, the dollar consequences of splitting otherwise infringing conduct among multiple jurisdictions can be substantial.

Hasbro, Inc. recently made headlines when it received a federal trademark registration for the scent of its Play-Doh product. While it isn’t impossible to register a trademark for a scent, it is rare, and it is a reminder of the many options business owners have to create connections with customers (and even make a big splash while doing it).

Scent trademarks – and other marks like tastes, colors, sounds, product designs, textures, and even moving images – are part of a larger family of marks often referred to as non-traditional trademarks. The USPTO has issued registrations on all kinds of non-traditional trademarks, including the scent of strawberry for toothbrushes, the “Nationwide is on your side” song for insurance agencies, the word “yummm” sung at the end of Red Robin restaurant commercials, and even a cherry scent for synthetic lubricants.

Registering a non-traditional trademark can help a business protect the exact ways it connects with its consumers. As businesses think more about these non-traditional marks, they may find more ways to set their goods and services apart from their competitors’. These marks can be powerful marketing tools in their own rights as well. For example, Hasbro has earned heaps of free press for its scent registration, and even markets the scent on its own as part of a perfume.

Part of the reason these kinds of trademark registrations are so rare is that they are difficult to get. The U.S. Supreme Court has made clear that features of a product are never inherently distinctive. As a result, trademark applicants seeking to protect non-traditional trademarks have a high hurdle to clear to show that the scent, taste, color, etc. has acquired distinctiveness and functions as a trademark. Is the purported mark a functional element of the product? Are there third parties using the same mark? Has the mark been used for a long time? Has the mark (not just the underlying product) been advertised by the business or reported on by the media? These are just some of the questions a business must ask about its purported non-traditional marks.

In the end, Hasbro was able to clear this hurdle and was granted a trademark registration for “a scent of a sweet, slightly musky, vanilla fragrance, with slight overtones of cherry, combined with the smell of a salted, wheat-based dough.” Will this registration redefine Hasbro or its Play-Doh product? Probably not. But non-traditional trademarks could help your business mold its marketing efforts into something special, and should be considered as part of any overall branding strategy.

Animal selfie enthusiasts rejoice – your pet cannot sue you for copyright infringement for reproducing their pictures online under the Copyright Act of 1976.  The United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”) has now answered the concern that has (obviously) been at the forefront of every legal professional’s mind – whether a selfie-taking monkey can sue humans, corporations, and companies for copyright infringement.  The answer – (deep breath) – is no.

The copyright case at issue, Naruto, a crested macaque v. David John Slater, et al., Case No. 15-cv-4324, centered on the allegation that Naruto (a seven-year old Indonesian crested macaque) was the true author of a series of “selfies” allegedly taken by Naruto in 2011 with a camera owned by photographer David Slater and thereafter reproduced by Mr. Slater and certain companies.  The People for the Ethical Treatment of Animals (“PETA”), who brought the lawsuit on Naruto’s behalf, claimed that Mr. Slater and others violated the Copyright Act by falsely claiming to be the author of the “monkey selfies” and reproducing those images for profit.  In response, Mr. Slater argued that Naruto lacked constitutional “standing” to sue and that animals cannot sue under the Copyright Act.  The district court dismissed the action, agreeing that Naruto could not sue under the Copyright Act, but declining to assess whether Naruto has the constitutional “standing” to sue.  PETA appealed but settled the lawsuit with Mr. Slater while the appeal was pending.

Undeterred by the settlement, the Ninth Circuit affirmed the lower court’s dismissal.  Sharply criticizing PETA for bringing the lawsuit and then settling it without Naruto’s participation, the Ninth Circuit found that binding circuit precedent forced the court to accept that animals have constitutional standing to assert claims in the federal courts.  The Ninth Circuit, however, was not about to throw open the courthouse doors to all animal-plaintiffs.  The Ninth Circuit found that under the plain text of the Copyright Act Naruto (and all other nonhumans) could not file copyright infringement lawsuits.  In fact, the Ninth Circuit was so adamant about this conclusion that it awarded Mr. Slater his attorneys’ fees incurred in opposing the appeal.

Thus ended the saga of the monkey selfie seen ‘round the world – not with new, ground-breaking animal rights law, but with the strict interpretation of a federal statute, adherence to the doctrine of stare decisis, and a plea that the prior Ninth Circuit law on an animal’s constitutional standing be reexamined.

One little-publicized part of the new tax law (Tax Cuts and Jobs Act of 2017) may negatively affect the value of some patents and other intellectual property.  It does so by changing the tax treatment of income from sales of “patents, models and secret formulas or processes” from capital gains to ordinary income.

Prior to the amendment of Tax Code Section 1221(a)(3), income from sales of (1) “patents, models and secret formulas or processes,” (2) held by the IP creator, (3) for more than one year, was taxed at the capital gains rate.  This resulted in lower tax than the ordinary income tax rate that applied to other types of IP, such as copyrights, literary, musical, and artistic compositions.  Congress has now taken this tax advantage away.

The change in the law affects those that sell or license IP in the “primary market” only —in other words, the original creators of the IP.  It generally does not affect those that have paid to own the IP, including the IP creators’ employers.

There still remains an exception under Tax Code Section 1235 providing for lower tax on sales and licensing of all rights to patents, secret formulas and trade names (but only these types of IP).  For other types of IP, adjustments in sale prices and license royalties will need to compensate for the higher tax under the new law.

Our tax and IP groups can help you assess the new law’s impact on these valuable assets.