Intellectual Property Practice [3 ed.] 1575899361

Table of contents :
Preliminary Pages
ACKNOWLEDGMENTS
ABOUT THE EDITOR
ABOUT THE AUTHORS
TABLE OF CONTENTS
TABLE OF EXHIBITS
Chapter 1
Metes and Bounds of Intellectual Property
§ 1.1 INTRODUCTION TO INTELLECTUAL PROPERTY
§ 1.1.1 Forms of U.S. Intellectual Property
(a) Basic Types
(b) Other Types
(c) Extended Effects
§ 1.1.2 International Dimensions
§ 1.2 CONTENT OF THIS BOOK
§ 1.2.1 Patents
§ 1.2.2 Trade Secrets
§ 1.2.3 Trademarks/Trade Identities/Anticounterfeiting
§ 1.2.4 Copyrights
§ 1.2.5 FDA Practice
§ 1.2.6 Ethics and Loss Prevention for IP Attorneys
§ 1.3 LIMITATIONS OF IP, COMPARISONS, COMMON ISSUES, AND ADJUNCT ISSUES OF DIVERSE IP TYPES
§ 1.3.1 Duration
§ 1.3.2 Scope and Exceptions
§ 1.3.3 Perfection of Rights
(a) Nationally
(b) Internationally
§ 1.3.4 Enforcement/Defense
§ 1.3.5 Exploiting IP
§ 1.4 PUBLIC POLICY AND IP
§ 1.5 CAREERS IN RELATION TO IP
Chapter 2
Developing and Realizing Value from a Patent Portfolio
§ 2.1 PATENTS AS A BUSINESS ASSET
§ 2.1.1 Developing a Patent Portfolio
§ 2.1.2 Realizing Value from Patents
(a) “Licensed Products” or “Licensed Processes” (or Both)
(b) “Patent Rights”
(c) “Technology”
(d) “Field”
(e) “Territory”
(f) “Net Sales”
§ 2.1.3 Assuring Commercialization
§ 2.2 OWNERSHIP OF PATENTS
EXHIBIT 2A—Mononucleosis Detection Technology License Agreement (Version A, Tending to Favor Licensor)
EXHIBIT 2B—Viral Detection Technology License Agreement (Version B, Tending to Favor Licensee)
EXHIBIT 2C—Form of Agreement for Confidential Disclosure to a Third Party
EXHIBIT 2D—Form of Patent Assignment
EXHIBIT 2E—Employee Noncompetition, Nonsolicitation, Nondisclosure, and Assignment of Inventions
EXHIBIT 2F—Form of Agreement for Two-Way Exchange of Confidential Information
EXHIBIT 2G—Form of Assignment Accompanying Patent Application
EXHIBIT 2H—Biological Material Transfer Agreement
EXHIBIT 2I—UBMTA Form of Biological Material Transfer Agreement
EXHIBIT 2J—Form of Agreement for Employees and Consultants
Chapter 3
Understanding Patents for the Legal Advisor
§ 3.1 PRELIMINARY CONSIDERATIONS
§ 3.1.1 “Patent” Defined
§ 3.2 WHY SHOULD YOUR CLIENT BE THINKING ABOUT PATENTS?
§ 3.2.1 Risks and Prevention of Infringement
§ 3.2.2 Securing a Unique Advantage in the Market
§ 3.3 PATENTS VERSUS OTHER TYPES OF INTELLECTUAL PROPERTY
§ 3.3.1 Advantages and Disadvantages of Obtaining Patents
§ 3.4 WHAT IS PATENTABLE?
§ 3.4.1 The America Invents Act
§ 3.4.2 Subject Matter Considerations
(a) The Four Enumerated Categories
(b) Utility
(c) Judicially Created Exceptions to Eligibility
§ 3.4.3 Design and Plant Patents
§ 3.4.4 Novelty
§ 3.4.5 Public Use
§ 3.4.6 Sales and Offers for Sale
§ 3.4.7 Experimental Use Exception
§ 3.4.8 Publication
§ 3.4.9 Secret Prior Art
§ 3.4.10 Obviousness
§ 3.5 ELEMENTS OF A PATENT APPLICATION
§ 3.5.1 Disclosure
§ 3.5.2 Claims
§ 3.5.3 Oath
§ 3.5.4 Fees
§ 3.5.5 Provisional Application
§ 3.5.6 Continuation-in-Part Applications
§ 3.6 THE PROCESS OF OBTAINING AND ENFORCING A PATENT
§ 3.6.1 Patent Prosecution
§ 3.6.2 Preissuance and Postissuance Procedures
(a) Procedures Available to a Patent Owner to Correct an Issued Patent
(b) Adversarial Procedures to Determine Ownership of Claimed Subject Matter
Proceedings Available to Third Parties to Correct the Scope of Claims
§ 3.7 LITIGATION
§ 3.7.1 Enforcement and Defense
§ 3.7.2 Major Litigation Issues
§ 3.7.3 Clearance Opinions
§ 3.7.4 Precomplaint Considerations
§ 3.7.5 Injunction and Damages Remedies
§ 3.7.6 Additional Prefiling Considerations
(a) Multiple Defendants
(b) Staffing
Company Staffing
(c) How Shall the Claim of Infringement Be Asserted?
§ 3.7.7 Claim Interpretation
§ 3.7.8 Markman Hearing
EXHIBIT 3A—Timing and Costs for Patent Protection
EXHIBIT 3B—Patent Infringement Complaint
EXHIBIT 3C—Patent Infringement Answer and Counterclaim
EXHIBIT 3D—Reply to Counterclaim
EXHIBIT 3E—Patent Infringement Demand Letter
Chapter 4
Trade Secret Law
§ 4.1 INTRODUCTION
§ 4.2 STATUTORY AND COMMON LAW BASES
§ 4.2.1 State Law
(a) Statutory Basis
Civil Statute
Criminal Statute
(b) Restatement (First) of Torts
Trade Secret Defined
Proscribed Conduct
Harm
(c) Uniform Trade Secrets Act
Section 1—Definitions of Improper Means, Misappropriation, Person, and Trade Secret
Section 2—Injunctive Relief
Section 3—Damages
Section 4—Attorney Fees
Remaining Sections
(d) Restatement (Third) of Unfair Competition
Trade Secret Defined
Proscribed Conduct
Harm
(e) Common Law
Trade Secrets Defined
The Cause of Action
Harm/Remedies
Inevitable Disclosure Doctrine
(f) Related State Law Claims
§ 4.2.2 Federal Law
(a) Possible Private Right of Action Under the Economic Espionage Act
(b) Scope of the Computer Fraud and Abuse Act
(c) Recent Use of the International Trade Commission for Foreign Trade Secret Misappropriation
§ 4.2.3 International Law
§ 4.3 ESTABLISHING A TRADE SECRET PROTECTION PROGRAM
§ 4.3.1 Trade Secret Audit
(a) Catalog
(b) Review
(c) Analyze
§ 4.3.2 Trade Secret Protection Program
(a) Identification and Disclosure of Trade Secrets
(b) Standards Applicable to Injunctive Relief
§ 4.3.3 Special Contexts of Trade Secret Issues
(a) Mobile Devices
(b) Government Procurement
(c) Federal and State Regulatory Submissions
(d) Preemption by and of Related Laws
Patent Laws
Copyright Laws
UTSA Preemption of Other State Law Claims
Chapter 5
Noncompetition Agreements and Related Restrictive Covenants
§ 5.1 INTRODUCTION
§ 5.2 THE LAW OF NONCOMPETITION AGREEMENTS
§ 5.2.1 Reasonableness
(a) Test for Reasonableness
Noncompetition Agreements Arising from Employment
Noncompetition Agreements Arising from Independent Contractor Relationships
Noncompetition Agreements Arising from the Sale of a Business
Other Issues of Reasonableness
(b) Modification of Unreasonable Restrictions/Reformation
§ 5.2.2 Duration
§ 5.2.3 Geographic Reach
§ 5.2.4 Scope of Proscribed Activities
§ 5.2.5 Legitimate Business Interests
(a) Recognized Legitimate Business Interests
Goodwill
Trade Secrets and Confidential Information
Special Skills
Training
(b) Business Interests That Are Not Recognized as Legitimate
§ 5.2.6 Public Policy Considerations
§ 5.2.7 Statutory and Rule-Based Industry Exemptions
(a) Statutory Exemptions
Physicians
Nurses, Psychiatrists, Social Workers
Broadcasters
(b) Rule-Based Exemptions
Lawyers
Financial Service Providers
§ 5.3 NEGOTIATING AND DRAFTING NONCOMPETITION AGREEMENTS
§ 5.3.1 Requirement of a Writing
§ 5.3.2 Required Elements: Duration, Geographic Reach, Scope of Prohibited Activities
§ 5.3.3 Identification of the Legitimate Business Interests
§ 5.3.4 Preparation to Compete
§ 5.3.5 Extension/Scaling Back of the Term
§ 5.3.6 Acknowledgment of Consideration, Legitimate Interests and Their Reasonableness, and Irreparable Harm
§ 5.3.7 Assignment/Successors in Interest
§ 5.3.8 Change of Position/Responsibilities
§ 5.3.9 Specification of Remedies
§ 5.3.10 Disclosure Obligations
§ 5.3.11 Return of Company Property and Information
§ 5.3.12 Other Terms
§ 5.3.13 Additional and Alternative Restrictive Covenants
(a) Garden Leave Clause/Notice Requirement
(b) Forfeiture-for-Competition/Compensation-for-Competition Clauses
(c) Nonsolicitation Agreements
(d) No-Raid/Nonraiding/Antiraiding/Antipiracy Agreements
(e) No-Hire and No-Poach Agreements
(f) Nondisclosure/Confidentiality Agreement (NDA)
(g) Invention Assignment Agreements
§ 5.4 ENFORCING AND DEFENDING AGAINST NONCOMPETITION AGREEMENTS
§ 5.4.1 Applicable Standards
§ 5.4.2 Injunctive Relief Is Not an Entitlement
§ 5.4.3 Initial Considerations
§ 5.4.4 Satisfying the Irreparable Harm Requirement
§ 5.4.5 Special Considerations
(a) Loss of Trade Secrets and Confidential Information as Irreparable Harm
(b) Loss of Goodwill as Irreparable Harm
(c) The Developing Impact of Social Media
§ 5.4.6 Enforcing a Noncompetition Agreement
(a) Before the Lawsuit Is Even Contemplated
(b) Investigate
(c) Conduct an Exit Interview
(d) Determine Whom to Sue
(e) Send a Cease and Desist Letter
(f) Act Quickly
(g) Credible Evidence—Percipient Witnesses, Expert Witnesses, and Expedited Discovery
(h) Bond
§ 5.4.7 Defending Against a Noncompetition Agreement
(a) Initial Considerations
Former Employee’s Initial Steps
New Employer’s Initial Steps
Impact of the New Position on the Former Employer
Sue or Wait to Be Sued?
Joint or Individual Representation?
Indemnification of Employee?
(b) Possible Defenses
Basic Requirements
Consideration
Lack of Irreparable Injury
Balancing of Harms
Competitors and Competition
Scope of Restriction
Delay/Mootness
Equity and Fairness
Employer’s Breach
Employer’s Changes: Successors and Assigns
Ambiguity
Waiver, Amendment, and Other Mitigating Conduct
Novation
Antitrust
EXHIBIT 5A—Web Logs Addressing Trade Secrets and Noncompetes
Chapter 6
Trademarks: Law, Practice, and Current Issues
§ 6.1 INTRODUCTION
§ 6.2 WHY SHOULD CLIENTS CONSIDER PROTECTING TRADEMARKS?
§ 6.3 BASIC PRINCIPLES OF TRADEMARK LAW
§ 6.3.1 What Is a Trademark?
§ 6.3.2 Goals of Trademark Protection
§ 6.3.3 Legal Bases for Trademark Rights (Statutory and Common Law)
§ 6.3.4 Acquisition of Rights
§ 6.3.5 Fundamental Concepts of Trademark Law
(a) Distinctiveness of Marks and Acquisition of Secondary Meaning
(b) Likelihood of Confusion
(c) Fame and Principles of Dilution
Definition of “Fame”
Dilution by Tarnishment or Blurring
§ 6.3.6 Trademark Rights Can Be Abandoned
§ 6.3.7 Joint Ownership of Trademarks Can Create Issues
§ 6.3.8 Trademarks Conceived by Employees or Partners
§ 6.3.9 Trademarks Used by Third Parties, Distributors
§ 6.4 TRADEMARK CLEARANCE SEARCH AND ANALYSIS
§ 6.4.1 Avoiding Likelihood of Confusion
§ 6.4.2 Assessing a Mark’s Distinctiveness
§ 6.4.3 Trademark and Trade Name Searching
(a) A Word of Caution About Searches
(b) Is There Ever a Time When Searching Is Unnecessary?
§ 6.5 TRADEMARK REGISTRATION PRACTICE
§ 6.5.1 Federal Registration Practice
§ 6.5.2 Federal Trademark Applications
(a) Obtaining a Filing Date
Name of Applicant
Correspondent Address
Clear Drawing of the Mark
Listing of Goods and Services with Which the Mark Will Be Used
Filing Fees
(b) Completing the Application and Getting to Registration
§ 6.5.3 Types of Federal Applications
(a) Use-Based Applications and Use in Commerce
Use in Commerce
(b) Intent-to-Use Applications
(c) Sections 44 and 66 Applications
§ 6.5.4 Examination of Applications—Bases for Refusal
(a) Lack of Distinctiveness
(b) Likelihood of Confusion
Overcoming Likelihood of Confusion Refusals
§ 6.5.5 Responding to Office Actions
§ 6.5.6 Postexamination Issues
(a) Publication
(b) Notice of Allowance and Statement of Use
(c) Declaration of Use
(d) Specimens
(e) Registration Timeline
§ 6.6 TRADEMARK REGISTRATION MAINTENANCE
§ 6.6.1 Section 9 Renewal
§ 6.6.2 Section 8 Affidavit of Use
§ 6.6.3 Section 15 Incontestability
§ 6.7 TRADEMARK ENFORCEMENT AND DEFENSES
§ 6.7.1 Proper Trademark Usage
(a) Trademarks Are Adjectives
(b) Forms of Notice
§ 6.7.2 Policing Trademark Rights Through Watch Services
§ 6.7.3 Taking Action Against Potential Infringers
(a) Demands to Cease and Desist
(b) Trademark Trial and Appeal Board Proceedings
(c) Civil Action
§ 6.7.4 Bringing a Trademark Claim in Federal Court
(a) Note on Internet Presence and Jurisdiction
(b) Trademark Infringement Claims
Similarity of Marks
Similarity of Goods or Services
Channels of Trade
Advertising
Class of Purchasers
Actual Confusion in Marketplace
Bad Intent of Defendant
Strength of Mark
(c) False Advertising/Designation of Origin
(d) Dilution
State Antidilution Provisions
(e) Counterfeiting
(f) Counterfeiting—Criminal Enforcement
Federal Criminal Law
State Criminal Law
Defenses to Criminal Counterfeiting
(g) Counterfeiting—Criminal Penalties
(h) Customs and Border Patrol—Seizures
(i) International Trade Commission
(j) Counterfeiting—Civil Enforcement
(k) Other State Law Civil Claims
§ 6.7.5 Defenses to Trademark Infringement or Related Claims
(a) Laches
(b) Acquiescence
(c) Unclean Hands
(d) Fair Use
(e) License
§ 6.7.6 Relief
(a) Injunctions
Likelihood of Success on the Merits
Irreparable Harm
Balancing Harm to Defendant
Public Interest
(b) Destruction and Seizure Orders
(c) Monetary Damages
§ 6.8 TTAB OPPOSITION AND CANCELLATION PROCEEDINGS
§ 6.8.1 Applicable Procedure and Governing Law
§ 6.8.2 Standing to Bring a TTAB Action
§ 6.8.3 Opposition Proceedings
§ 6.8.4 Cancellation Proceedings
§ 6.8.5 Matters Specific to TTAB Proceedings
(a) Form of Complaint
(b) Answer
(c) Defenses
§ 6.8.6 Issue Preclusion and the Impact of TTAB Proceedings on Subsequent Litigation
§ 6.9 TRADE DRESS
§ 6.9.1 Packaging Versus Configuration: Two Standards
§ 6.10 TRADEMARKS IN TRANSACTIONS
§ 6.10.1 Licensing and Franchise Agreements
§ 6.10.2 Trademark Assignments
(a) Valid Trademark Assignments Versus Assignments in Gross
(b) Recording a Trademark Assignment
(c) Trademarks and Security Interests
§ 6.11 SPECIAL ISSUES RELATING TO TRADEMARKS: THE INTERNET, NEW TECHNOLOGIES, AND DEVELOPMENTS IN THE INTERSECTION OF THE LANHAM ACT, PRODUCT LABELING, AND DECEPTIVE ADVERTISING
§ 6.11.1 Domain Names
(a) The Anticybersquatting Consumer Protection Act
(b) Domain Name Dispute Resolution Proceedings
§ 6.11.2 New Generic Top-Level Domains and New Domain Name Rights Enforcement Mechanisms
(a) Sunrise Registration Period
(b) Trademark Claims Service
(c) Uniform Rapid Suspension System
§ 6.11.3 Keywords, Online Advertising, and Search Engine Optimization
§ 6.11.4 Social Networking and Media
§ 6.11.5 3D Printing and Trademarks
§ 6.11.6 The Lanham Act, Unfair Competition, and Intersections with Product Labeling and Promotion After the Supreme Court’s 2014 Term
§ 6.12 INTERNATIONAL TRADEMARK PROTECTION
§ 6.12.1 The Paris Convention and “Convention Priority”
§ 6.12.2 Madrid Protocol and Madrid Agreement
(a) Advantages
(b) Disadvantages
§ 6.12.3 Community Trade Mark
(a) Advantages
(b) Disadvantages
EXHIBIT 6A—Glossary of Trademark-Related Concepts
EXHIBIT 6B—Trademark-Related Resources
EXHIBIT 6C—Trademark Request Form (Internal/Corporate)
EXHIBIT 6D—New Trademark Application Filing Checklist
Chapter 7
Copyright Law
§ 7.1 INTRODUCTION: OVERVIEW OF COPYRIGHT LAW
§ 7.1.1 Copyright Protection
§ 7.1.2 The Copyright Owner
§ 7.1.3 When Does Copyright Protection Begin?
§ 7.1.4 When Does Copyright Protection End?
§ 7.1.5 Rights of a Copyright Owner
§ 7.1.6 What May Be Copyrighted?
§ 7.1.7 The Purpose of Copyright Law
§ 7.1.8 Sources of Copyright Law
§ 7.1.9 Federal Preemption of State Law
(a) “Equivalent” Rights and the “Extra Element” in Preemption Cases
§ 7.1.10 International Copyright Treaties
(a) National Treatment
§ 7.2 COPYRIGHTABLE VERSUS NONCOPYRIGHTABLE SUBJECT MATTER
§ 7.2.1 What Is Copyrightable?
(a) Originality: A Low Threshold
What Is Original?
(b) Fixation
What Is Fixation?
Copyright Law Protects Expression, But Does Not Protect Ideas
(c) Which Types of Works Are Entitled to Copyright Protection?
Importance of the Right Copyright Pigeonhole
Literary Works
Pictorial, Graphic, and Sculptural Works
Photographic Expression
(d) Compilation and Collective Works
Extent of Compilation Protection
(e) Derivative Works
Original Work and Derivative Work Have Separate Copyrights
§ 7.2.2 What Is Not Copyrightable?
(a) Names, Titles, Slogans, and Short Phrases
(b) Useful Articles
(c) Systems and Methods of Operation
Lotus: Massachusetts Software Case
Contrast with Altai Analysis
Interoperability Is a Favored Public Policy
Systems Are Not Protectable
(d) Facts
§ 7.3 WHO OWNS THE COPYRIGHT?
§ 7.3.1 General Rule: The Creative Party Owns the Copyright
§ 7.3.2 Works Made for Hire
(a) Who Is an “Employee”?
(b) Commissioned Works
(c) The Relevance of Classifying a Work as Made for Hire
§ 7.3.3 Joint Authors
(a) Key Factors for a Joint Work
(b) All Joint Authors Share Equally
(c) Limitations on Joint Authors
§ 7.3.4 Government-Authored Works
§ 7.4 DURATION OF COPYRIGHT
§ 7.4.1 Works Created on or After January 1, 1978
§ 7.4.2 Works Made for Hire
§ 7.4.3 Anonymous or Pseudonymous Works
§ 7.4.4 Works Created Before January 1, 1978
(a) Works Created Before 1978 but Published in 1978 or Later
(b) Works Created and Published Before 1978
§ 7.4.5 December 31 Rule
§ 7.4.6 Public Domain at Expiration of Copyright Period
§ 7.4.7 Exception for Foreign Works
§ 7.4.8 Summary of Above
§ 7.5 OBTAINING A COPYRIGHT; REGISTRATION AND NOTICE
§ 7.5.1 Copyright Is Automatic
§ 7.5.2 The Advantages of Federal Registration
§ 7.5.3 Mechanics of Registration
(a) Effective Date of Registration
§ 7.5.4 Mandatory Deposit
§ 7.5.5 Copyright Notice
(a) Notice Still Advisable
§ 7.5.6 Form of Notice
(a) Notice on Phonorecords
(b) Where Should the Notice Be Placed?
§ 7.6 RIGHTS OF A COPYRIGHT OWNER
§ 7.6.1 Exclusive Rights and Their Limitations
§ 7.6.2 Reproduction Right
(a) Limitations on the Reproduction Right
Libraries and Archives
Musical Works: “Mechanical” Compulsory License
Certain Software Copying Permitted
Broadcasters’ Ephemeral Recordings
Organizations Serving Blind and Disabled
§ 7.6.3 Derivative Work Right
§ 7.6.4 Distribution Right
(a) Right to Distribute or Not Distribute
(b) Preventing Importation
(c) Limitations on the Distribution Right: The “First Sale” Doctrine
First Sale Right Does Not Permit Rental of Phonorecords and Computer Programs
§ 7.6.5 Public Performance Right
(a) Exclusive Right Relates to Public Performances Only
Public Defined
Performing Rights Societies
(b) Limitations on the Owner’s Performance Right
Face-to-Face Instruction
Transmissions to Classrooms and Limited Distance Education
Religious Services
Nonprofit Performances
Sound Recordings
§ 7.6.6 Public Display Right
(a) Framing and Inline Linking Are Not Infringing Public Displays
(b) Limitations on the Public Display Right
Viewers in the Same Place
Similar Limitations to Public Performance Right
§ 7.6.7 “Moral Rights” for Works of Visual Art
(a) Moral Rights Are Noneconomic Rights
(b) The Visual Artists Rights Act
What Is a “Work of Visual Art”?
Three Rights of Attribution
Right of Integrity
Rights of Attribution and Integrity Are Separate from Copyright Rights
Rights Are Personal and Not Transferable
Rights Waivable
§ 7.7 TRANSFERRING A COPYRIGHT AND TERMINATING THE TRANSFER
§ 7.7.1 Rights Transferable in Whole or in Part
§ 7.7.2 What Is a Transfer?
§ 7.7.3 How May Copyrights Be Transferred?
(a) No Writing Necessary for Nonexclusive Licenses
(b) Contributions to Collective Works Such as Periodicals
(c) Does the Written Instrument Transferring Copyright Need to Meet Any Specific Requirements?
(d) Can Cashing a Check from the Proposed Assignee Constitute a Valid Assignment?
(e) Duration
(f) Should Copyright Transfers Be Recorded in the Copyright Office?
(g) Mechanics for Recording a Copyright Transfer
(h) Conflicts Between Transferees
(i) New Media
(j) Assignments and Licenses of Copyright May Be Terminated as a Matter of Law, Regardless of Contract
What About Derivative Works Prior to Termination?
Formalities of Termination Notice
Can a Licensor Waive the Right to Terminate?
Works Made for Hire Are Not Subject to the Termination Right
Effect of Termination
§ 7.8 LITIGATION OF COPYRIGHT INFRINGEMENT AND CLAIMS UNDER OTHER LAWS
§ 7.8.1 Where to Sue? Subject Matter Jurisdiction
(a) Federal Courts . . . Usually
(b) Diversity Jurisdiction
§ 7.8.2 Federal Jurisdiction: Copyright Infringement
§ 7.8.3 Federal Jurisdiction: Interpretation of the Copyright Act
§ 7.8.4 Personal Jurisdiction
§ 7.8.5 Venue
§ 7.8.6 Suits Against the Government
§ 7.8.7 State Government Immunity from Suit
§ 7.8.8 International Issues
(a) Governing Law
(b) The Yellow Submarine Case: Authorization to Infringe Overseas Not a Violation of the U.S. Copyright Act
§ 7.8.9 Who May Sue?
(a) Copyright Owner and Exclusive Licensee
(b) Assignment and Prior Infringement Claims
§ 7.8.10 Statute of Limitations
(a) When Does the Claim Accrue?
(b) Each Infringement Is a Distinct Injury
§ 7.8.11 Civil Copyright Infringement Complaint
§ 7.9 CIVIL COPYRIGHT INFRINGEMENT: DIRECT, CONTRIBUTORY, AND VICARIOUS INFRINGERS
§ 7.9.1 Who Is Liable?
§ 7.9.2 Direct Infringers
§ 7.9.3 Liability for the Infringement of Others—Vicarious Infringement and Contributory Infringement
§ 7.9.4 Elements of Contributory Infringement
(a) Knowledge: Actual or Constructive
(b) Material Contribution to the Infringement
§ 7.9.5 Limit on Contributory Infringement: The “Staple Article of Commerce” Theory
(a) The Betamax Case
Inducement Liability Under Grokster
(b) Requirement of Direct Infringement
§ 7.9.6 Elements of Vicarious Infringement
(a) Supervision
(b) Financial Interest
(c) Personal Liability of Corporate Officers
§ 7.10 WHAT IS COPYRIGHT INFRINGEMENT?
§ 7.10.1 Elements of an Infringement Claim
(a) Plagiarism Is Not the Same as Infringement
§ 7.10.2 Ownership: The First Element of Infringement
§ 7.10.3 Copying: The Second Element of Infringement
(a) How Does a Plaintiff Show Copying?
(b) First Element of Copying: Opportunity to Access Plaintiff’s Work
Example of Successful Wide Dissemination Argument
What if the Work Is Not Widely Disseminated?
Striking Similarity
(c) Second Element: Copying of Copyrightable Elements
Merger Doctrine and “Scenes a Faire”
(d) Substantial Similarity
Copying the Overall Pattern of a Work
Copying Individual Segments of a Work
The Ordinary Observer Test
Total Concept and Feel
Abstraction-Filtration-Comparison in Software Cases
§ 7.11 DEFENSES TO COPYRIGHT INFRINGEMENT
§ 7.11.1 Fair Use
(a) History of Fair Use
(b) Purpose of the Doctrine
(c) Fair Use as Codified
(d) Fair Use Factors Not Exclusive . . . Supposedly
(e) No Single Fair Use Factor Is Decisive
(f) Fair Use Is an Affirmative Defense
The Oh Pretty Woman Case: Example of Defendant Bearing the Burden of Proof
(g) Case-by-Case
(h) The First Fair Use Factor: The Purpose and Character of the Use
“Good Faith” Is Relevant to the Character of Use
“Transformative” Use
“Incidental Use”?
Classroom Use . . . Brevity and Spontaneity
Reverse Engineering
“Temporary” and “Intermediate” Use
(i) The Second Fair Use Factor: Nature of the Copyrighted Work
Fair Use of Unpublished Works
(j) Third Fair Use Factor: Amount and Substantiality of the Portion Used
Gerald Ford Biography: Important Qualitative Taking
The Importance of the Material Used to the Defendant’s Work May Also Be Relevant
(k) The Fourth Fair Use Factor: Effect on the Potential Market for, or the Value of the Copyrighted Work
Example of Use’s Negative Impact on Market for the Original
The Market Test Is Focused on the Particular Work
But Not Necessarily on the Particular Use
§ 7.11.2 Copyright Misuse
(a) Misuse Is Not Limited to Antitrust Violations
(b) Examples of Copyright Misuse
Plaintiff’s Software License Forbids Development of Potentially Competing Products
Plaintiff’s License Implicitly Forbids Development of Products That Compete with the Copyrighted Product
Plaintiff Prevents Customer from Using a Competing Product
§ 7.11.3 Fraud on the Copyright Office
§ 7.12 PLAINTIFF’S REMEDIES FOR INFRINGEMENT
§ 7.12.1 Monetary Damages
(a) No Double Counting
(b) Statutory Damages
(c) Increase for Willfulness
(d) Decrease for Innocent Infringement
(e) Statutory Damages Only Permitted for Timely Registered Works
§ 7.12.2 Injunctions
(a) Permanent Injunctions
(b) Relief in Claims Against Federal Entities
§ 7.12.3 Impoundment, Recall Orders, and Destruction
(a) Impoundment
(b) Recall Orders
(c) Destruction or Other Disposition of Infringing Articles and Means of Production
§ 7.12.4 Attorney Fees
§ 7.13 PROTECTING COPYRIGHT MANAGEMENT SYSTEMS: ANTICIRCUMVENTION
§ 7.13.1 Summary of Anticircumvention Provisions
§ 7.13.2 What Are Technological Measures?
(a) Example of Encryption
(b) The Streambox “Secret Handshake” Case: Example of Equipment that Facilitates Circumvention
§ 7.13.3 Permitted Circumvention
§ 7.13.4 Classes of Exempted Works
§ 7.13.5 Copyright Management Information
§ 7.14 LIABILITY FOR ONLINE COPYRIGHT INFRINGEMENT
§ 7.14.1 Background
§ 7.14.2 Summary of Section 512 Safe Harbor
(a) Who Is an ISP?
(b) What Steps Must an ISP Take to Benefit from the Safe Harbor?
What Kind of Notice Must the Copyright Owner Give?
What Must an ISP Do When It Receives a Notice of Alleged Infringement?
A Party Sending a Takedown Notice Must Act in Good Faith and Consider Fair Use
ISPs Must Register Their Copyright Compliance Agents with the Copyright Office
(c) Safe Harbor for Linking to Infringing Sites
§ 7.14.3 Special Consideration for Nonprofit Universities
§ 7.15 CRIMINAL COPYRIGHT INFRINGEMENT
§ 7.15.1 Elements of Criminal Copyright Infringement
§ 7.15.2 Willfulness
§ 7.15.3 Only Two Exclusive Rights May Form Basis of Felony
§ 7.15.4 Tampering with Copyright Notices
(a) Penalties
§ 7.16 BUILDING A COPYRIGHT PROTECTION PLAN
EXHIBIT 7A—Online Resources for Copyright Law
EXHIBIT 7B—U.S. Copyright Office Information Circulars and Form Letters
EXHIBIT 7C—Assignment of Copyrights
Chapter 8
FDA Approval and Licensing as Intellectual Property
§ 8.1 BIOSIMILARS
§ 8.1.1 Affordable Care Act
§ 8.1.2 Biosimilar Approval
§ 8.1.3 Why Are Biosimilars Important?
§ 8.1.4 How Biosimilars Differ
§ 8.1.5 Biosimilars Landscape
§ 8.1.6 Data Exclusivity
§ 8.1.7 Actual Approval of Biosimilars (Zarxio)
§ 8.1.8 Additional FDA Guidance Documents
(a) FDA Draft Guidance for Clinical Evaluations
(b) Comparative Safety and Effectiveness Data
(c) FDA Draft Guidance for Patient Population
(d) Extrapolation
(e) FDA Draft Guidance for Industry
§ 8.1.9 Patent Issues
§ 8.2 HATCH-WAXMAN
§ 8.2.1 Drug Price Competition and Patent Term Restoration Act
§ 8.2.2 Branded Drug Approval
§ 8.2.3 Generic Drug Approval
§ 8.2.4 Types of Applications
(a) ANDA
(b) Paper NDA Section 505(b)(2) Application
§ 8.2.5 New Drug Exclusivity
(a) Nonpatent Exclusivities
§ 8.2.6 Patent Exclusivity and the Orange Book
§ 8.2.7 Challenging Patent Exclusivity
(a) Patent Certification
§ 8.2.8 Paragraph IV Certification
§ 8.2.9 ANDA Exclusivity
(a) Exclusivity Forfeiture
§ 8.2.10 Patent Term Extension
§ 8.2.11 Commencing Litigation and Approval Stays
§ 8.2.12 Potential Litigation Claims and Defenses
§ 8.2.13 Proof of Infringement
§ 8.2.14 Safe Harbor
§ 8.2.15 Final Remedies
§ 8.2.16 Settlement and Unfair Competition Challenges
§ 8.2.17 Periods of Exclusivity in Foreign Countries
§ 8.2.18 Conclusion
§ 8.3 U.S. MEDICAL DEVICE LAW
§ 8.3.1 Premarket Notification/510(k)
§ 8.3.2 Premarket Approval
§ 8.3.3 Investigational Device Exemptions
§ 8.4 INFORMATION COLLECTED BY FDA AND ACCESS THERETO
§ 8.5 PROTECTING THE INVESTMENT/FDA COMPLIANCE
§ 8.5.1 Relationships Between Manufacturers and Researchers
§ 8.5.2 Postmarketing Requirements
§ 8.6 TENSIONS BETWEEN U.S. DEVICE AND PATENT LAW
§ 8.7 HATCH-WAXMAN FOR MEDICAL DEVICES
§ 8.7.1 Patent Term Extension for Medical Devices
§ 8.7.2 Research Exemptions for Medical Devices
§ 8.8 TRANSFERS OF 510(k)s AND PMAs
EXHIBIT 8A—8+2(+1) Exclusivity Formula
Chapter 9
Ethics Issues in Intellectual Property
§ 9.1 INTRODUCTION
§ 9.2 ADMISSION TO PRACTICE AND GOVERNING RULES
§ 9.3 CANDOR
§ 9.4 COMPETENCE
§ 9.5 CONFLICT
§ 9.6 PRIVILEGE AND CONFIDENTIALITY
§ 9.7 DECORUM AND PROPER ADVOCACY
Table of Cases
Table of Statutes Rules and References
FEDERAL
MASSACHUSETTS
OTHER STATES
ADDITIONAL REFERENCES AND RESOURCES
Index

Citation preview

Intellectual Property Practice

Jerry Cohen et al.

MCL E

NEW ENGLAND

Keep raising the bar.®

Intellectual Property Practice 3RD EDITION 2016

EDITOR Jerry Cohen AUTHORS Sara Yevics Beccia Russell Beck David E. Blau Jerry Cohen John A. Hamilton Renee Inomata Timothy M. Murphy Deborah J. Peckham Jay Sandvos Mark Schonfeld John C. Serio William S. Strong Bruce D. Sunstein

2160324B03—3rd Edition 2016

© 2016 by Massachusetts Continuing Legal Education, Inc. All rights reserved. Published 2016. Permission is hereby granted for the copying of pages or portions of pages within this book by or under the direction of attorneys for use in the practice of law. No other use is permitted without prior written consent of Massachusetts Continuing Legal Education, Inc. Printed in the United States of America This publication should be cited: Intellectual Property Practice (MCLE, Inc. 3rd ed. 2016) Library of Congress Control Number: 2015959809 ISBN: 1-57589-936-1 All of Massachusetts Continuing Legal Education, Inc.’s (“MCLE’s”) products, services, and communications (“MCLE Products”) are offered solely as an aid to developing and maintaining professional competence. The statements and other content in MCLE Products may not apply to your circumstances and no legal, tax, accounting, or other professional advice is being rendered by MCLE or its trustees, officers, sponsors, or staff, or by its authors, speakers, or other contributors. No attorney-client relationship is formed by the purchase, receipt, custody, or use of MCLE Products. The statements and other content in MCLE Products do not reflect a position of and are not ratified, endorsed, or verified by MCLE or its trustees, officers, sponsors, or staff. Contributors of statements and other content in MCLE Products are third-party contributors and are not agents of MCLE. No agency relationship, either express, implied, inherent or apparent, exists between MCLE and any third-party contributor to MCLE Products. Due to the rapidly changing nature of the law, the statements and other content in MCLE Products may become outdated. Attorneys using MCLE Products should research original and current sources of authority. Nonattorneys using MCLE Products are encouraged to seek the legal advice of a qualified attorney. By using MCLE Products, the user thereof agrees to the terms and conditions set forth herein, which are severable in the event that any provision is deemed unlawful, unenforceable, or void. To the fullest extent permitted by applicable law, MCLE Products are provided on an “As Is,” “As Available” basis and no warranties or representations of any kind, express or implied, with respect to MCLE Products are made by MCLE or its trustees, officers, sponsors, or staff, individually or jointly. To the fullest extent permitted by applicable law, neither MCLE nor its trustees, officers, sponsors, or staff are responsible for the statements and other content in MCLE Products or liable for any claim, loss, injury, or damages of any kind (including, without limitations, attorney fees and costs) arising from or involving the use of MCLE Products. Failure to enforce any provision of these terms and conditions will not be deemed a waiver of that provision or any other provision. These terms and conditions will be governed by the laws of the Commonwealth of Massachusetts, notwithstanding any principles of conflicts of law. These terms and conditions may be changed from time to time without notice. Continued use of MCLE Products following any such change constitutes acceptance of the change. IRS Circular 230 Notice: Any U.S. tax advice found to be included in MCLE Products (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. tax penalties or for promoting, marketing, or recommending to another party any tax-related matter or any other transaction or matter addressed therein. Massachusetts Continuing Legal Education, Inc. Ten Winter Place, Boston, MA 02108-4751 800-966-6253 | Fax 617-482-9498 | www.mcle.org

ACKNOWLEDGMENTS This practical treatment of patent, trademark, trade secret, and copyright law and practice was first envisioned by Jerry Cohen, an expert in intellectual property law and a generous volunteer for MCLE. We acknowledge and warmly thank Jerry for serving as chief editor of this work. His editorial leadership and advice and the care that he has taken in the editing of the chapters is much appreciated by MCLE. MCLE’s appreciation extends as well to the authors of this work, who were selected for their particular areas of intellectual property expertise. Those who joined Jerry Cohen in the writing and updating of the chapters for the 2016 edition include Sara Yevics Beccia, Russell Beck, David E. Blau, John A. Hamilton, Renee Inomata, Timothy M. Murphy, Deborah J. Peckham, Jay Sandvos, Mark Schonfeld, John C. Serio, William S. Strong, and Bruce D. Sunstein. Each of these individuals has taken a unique role in the success of this publication, and we are grateful to them for their participation. The MCLE Board of Trustees is acknowledged and thanked for its ongoing support of and enthusiasm for the publishing program. Finally, we thank the many MCLE staff members who formatted, edited, copyedited, indexed, and printed these pages. John M. (Jack) Reilly, Esq. Publisher

3rd Edition 2016

Maryanne G. Jensen, Esq. Editor-in-Chief January 2016

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ABOUT THE EDITOR JERRY COHEN is a partner of the Boston firm of Burns & Levinson LLP. He has forty-five years of experience in dealing with patent, copyright, trademark, unfair competition, licensing/franchising, visual arts, software, databases, and publication law; formation and operation of business enterprises and not-forprofit organizations; international trade; litigation/alternative dispute resolution; and legal ethics. He handles acquisition, licensing, and litigation of intellectual property rights and has served as an expert witness, arbitrator, and mediator in intellectual property matters, currently with JAMS, and is a fellow of the Chartered Institute of Arbitrators. Mr. Cohen is a frequent author and presenter on intellectual property topics and an adjunct professor at Suffolk University Law School and Roger Williams University Law School. He is a member of the American Bar Association, the American Intellectual Property Law Association, the Copyright Society, Fédération Internationale des Conseils en Propriété Industrielle, the International Trademark Association, the board of editors of the Rhode Island Bar Journal, the advisory board of the United States Patent Quarterly, and the boards of editors of the Massachusetts Law Review and the Rhode Island Bar Journal. His books include Trade Secret Law, Trademarks and Unfair Competition, Modern Patent Law Precedents, and International Trade Practice. He is a past president of the Massachusetts Bar Foundation and a 2015 recipient of the foundation’s Great Friend of Justice Award. Mr. Cohen is a graduate of George Washington University School of Law and Rensselaer Polytechnic Institute. Contact: [email protected]

ABOUT THE AUTHORS SARA YEVICS BECCIA is an associate of the Boston firm of Burns & Levinson LLP, where she concentrates on domestic and international trademark, copyright, unfair competition, false advertising, and Internet-related matters. Previously, she was with the Boston office of K&L Gates LLP. She is admitted to practice in Massachusetts and New York and before the U.S. Court of Appeals for the First Circuit and the U.S. District Court for the District of Massachusetts. Ms. Beccia is a member of the International Trademark Association Internet committee and the Boston Bar Association Internet and computer law committee. She is a graduate of Boston University School of Law and Lafayette College. Contact: [email protected] RUSSELL BECK is a founding partner of the Boston firm of Beck Reed Riden LLP, where he concentrates on business litigation and related advice, including complex business and contract disputes, high-tech matters, protection of trade secrets, enforcement and defense of noncompetition agreements, copyright and iv

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trademark disputes, postmerger and acquisition claims, land use cases, and health-care payor/provider disputes. His services range from litigation prevention and advice to trials and appeals, including all methods of alternative dispute resolution, and from mediation to binding mediation to arbitration, both as the advocate and as the neutral. He is admitted to practice in Massachusetts and New York and before the U.S. Court of Appeals for the First, Fourth, and Fifth Circuits and the U.S. District Court for the Districts of Massachusetts and Eastern and Southern New York. Mr. Beck is a frequent author and presenter on intellectual property issues and noncompetition agreements and litigation. He also teaches a course on trade secrets and restrictive covenants at Boston University School of Law. Previously, he was a partner with Foley & Lardner LLP and an associate with Simpson, Thacher & Bartlett LLP and Reynolds, Rappaport & Kaplan. He is a graduate of Boston University School of Law and Tufts University. Contact: [email protected] DAVID E. BLAU is an associate of the Boston firm of Sunstein Kann Murphy & Timbers LLP, where he concentrates in patent preparation and prosecution. He is a registered patent agent. Previously, he was a software developer and project manager, worked for a leading gemstone retailer as a senior systems developer and at the National Security Agency in the field of crypto-mathematics, and was a senior engineer at a leading Internet content management provider. Mr. Blau is a member of the American Intellectual Property Law Association, the Boston Patent Law Association, and the American, Massachusetts, and Boston Bar Associations. He is a graduate of Chicago-Kent College of Law and the California Institute of Technology. Contact: [email protected] JOHN A. HAMILTON is counsel to Burns & Levinson LLP in the Boston office. He works with corporations and institutions handling patent prosecution, licensing, portfolio strategy, opinions and enforcement, and U.S. Food and Drug Administration (FDA) regulatory matters. He is also experienced in patent and other intellectual property law. Previously, he was with Perkin Elmer, Avid Technology, Perkins Smith & Cohen LLP, and the FDA. Mr. Hamilton is a member of the Licensing Executives Society, the Boston Patent Law Association, and the Massachusetts and Boston Bar Associations. He is a graduate of Suffolk University Law School and the Massachusetts Institute of Technology. Contact: [email protected] RENEE INOMATA is a partner of the Boston firm of Burns & Levinson LLP and chair of the labor, employment, and employee benefits practice group. She counsels clients on workplace issues, including strategic planning for staffing; compensation and wage; discrimination, harassment, and retaliation; policy development and implementation; personnel performance management; and the drafting, implementing, and enforcing of noncompetition, nonsolicitation, and confidentiality agreements. Ms. Inomata also handles all aspects of clearing, securing, enforcing, 3rd Edition 2016

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and maintaining trademark, service mark, trade dress, and trade secret rights and copyrights, including registration, licensing, and enforcement at the state, federal, and international levels and proceedings before the Trademark Trial and Appeal Board. She is a graduate of Boston University School of Law and Brown University. She is a member of the American, Massachusetts, Boston, and Women’s Bar Associations, the International Trademark Association, and the Asian American Lawyers Association. Contact: [email protected] TIMOTHY M. MURPHY is a partner of Sunstein Kann Murphy & Timbers LLP in Boston and cochair of the firm’s patent practice group. He develops and implements strategies for protecting technologies and avoiding allegations of infringement; devises strategies for maximizing the value of patent portfolios for litigation licensing or acquisition; and handles complex patent interference and reexamination proceedings. He has extensive experience in shaping and executing strategies in patent litigations. Previously, he was with the legal department of a multinational computer manufacturer in New York and California. Mr. Murphy is a frequent lecturer and author on intellectual property topics and was a member of the board of editors of the Boston Bar Journal. He is a graduate of Columbia University School of Law and Columbia University. Contact: [email protected] DEBORAH J. PECKHAM is a partner of Burns & Levinson LLP in Boston, where she provides intellectual property counseling and enforcement advice, with a focus on strategic acquisition and maintenance of domestic and international intellectual property assets. Her practice also encompasses privacy, data protection, and information law issues. Ms. Peckham’s litigation experience includes trademark, patent, copyright, counterfeiting, and general commercial disputes. Previously, she was with the Boston firms of K&L Gates LLP and Testa, Hurwitz & Thibeault LLP. She is a member of the American Bar Association Intellectual Property Law Section, the American Intellectual Property Law Association, the Massachusetts and Boston Bar Associations, the Boston Patent Law Association, and the International Trademark Association enforcement committee and courts & tribunals subcommittee. Ms. Peckham is a graduate of Boston College Law School and the University of Michigan. Contact: [email protected] JAY SANDVOS is a partner of Sunstein Kann Murphy & Timbers LLP in Boston, where he specializes in prosecuting patents to help clients establish dominant patent portfolios in highly advanced fields of technology. He is experienced in developing, managing, and coordinating large complex patent portfolios and supporting patent litigation cases in federal, district, and appellate courts. Mr. Sandvos regularly advises and coordinates with patent colleagues outside the United States to guide their clients’ patents through the special customs and practices that are unique to American patent law. He is a frequent author of commentaries on developments in patent law. He is a graduate of Boston College Law School and the State University of New York Regents College. Prior to attending law school, he vi

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served in the Naval Nuclear Power Program, leading the reactor controls division on the submarine USS San Juan. Mr. Sandvos is admitted to practice in Massachusetts and before the U.S. District Court for the District of Massachusetts, the U.S. Court of Appeals for the Federal Circuit, and the U.S. Patent and Trademark Office. He is cochair of the Boston Bar Association international intellectual property committee. Contact: [email protected] MARK SCHONFELD is a partner of the Boston firm of Burns & Levinson LLP, where he concentrates in complex business and intellectual property litigation, especially protection of corporate intellectual property through effective methods of trademark, copyright, and patent litigation. He has extensive experience in protecting some of the world’s leading brand names from infringement and is responsible for the seizure of millions of dollars in counterfeit merchandise from distribution centers, retail operations, and factories that manufacture counterfeit products, as well as in preventing and stopping “gray market” imports. Mr. Schonfeld is admitted to practice in Massachusetts and New York and before the U.S. Court of Appeals for the First and Third Circuits and the U.S. District Court for the Districts of Massachusetts, Colorado, and Eastern New York. He is a frequent presenter and author on intellectual property topics and is a graduate of Cornell Law School and New York University. Contact: [email protected] JOHN C. SERIO is a partner of Burns & Levinson LLP in the Boston office. He focuses on intellectual property related to biotechnology, pharmaceuticals, medical devices, chemistry, health care, and analytic scientific equipment. His practice involves drafting and prosecution of patents, right to use and patentability opinions, patent litigation, licensing of technology, and trademark issues. He has extensive experience in U.S. Food and Drug Administration regulatory issues. Mr. Serio is a member of the Boston Chamber of Commerce Life Science Alliance, the Boston Patent Law Association, and the Boston Bar Association. He is a graduate of Western New England College School of Law and the University of Rhode Island School of Pharmacy. Contact: [email protected] WILLIAM S. STRONG is head of the intellectual property practice at Kotin, Crabtree & Strong LLP in Boston. He is admitted to practice in Massachusetts and New Hampshire. He is a graduate of Harvard Law School and Harvard College. Mr. Strong is the author of The Copyright Book: A Practical Guide, currently in its 6th edition (The MIT Press 2014); the chapter on copyright in The Chicago Manual of Style; the chapter on legal issues in the Columbia Guide to Digital Publishing; and the chapter on American copyright licensing law in the forthcoming treatise Cross-Border Copyright Licensing: Law and Practice (Edward Elgar Publishing, Ltd.). He has been active in the American Bar Association’s Intellectual Property Law Section and has twice served on the board of trustees of the Copyright Society of the U.S.A. He is a former adjunct professor 3rd Edition 2016

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of copyright law at the Franklin Pierce Law Center in Concord, New Hampshire. Contact: [email protected] BRUCE D. SUNSTEIN is the founder of Sunstein Kann Murphy & Timbers LLP in Boston, where he focuses on portfolio development, litigation, and licensing of patents, trademarks, and copyrights. His practice includes bioinformatics, electronic circuits and systems, computer hardware and software, communications and speech, medical devices, pharmaceuticals, and mechanical devices. Mr. Sunstein is an experienced expert witness and arbitrator in intellectual property disputes. He is the coinventor and holder of a business method patent (No. 6,985,887) covering methods for assisting in the prevention of identity theft. He is a frequent author and presenter on intellectual property law and business strategy. Mr. Sunstein is a graduate of the Boalt Hall School of Law at the University of California/Berkeley, Indiana University, and the Massachusetts Institute of Technology. He is admitted to practice in California and Massachusetts and before the U.S. District Court for the Districts of Massachusetts and Northern California; the U.S. Court of Appeals for the First, Ninth, and Federal Circuits; the U.S. Tax Court; and the U.S. Supreme Court. Contact: [email protected]

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TABLE OF CONTENTS Chapter 1

Metes and Bounds of Intellectual Property Jerry Cohen, Esq. Burns & Levinson LLP, Boston

Chapter 2

Developing and Realizing Value from a Patent Portfolio Bruce D. Sunstein, Esq. Sunstein Kann Murphy & Timbers LLP, Boston Timothy M. Murphy, Esq. Sunstein Kann Murphy & Timbers LLP, Boston Jay Sandvos, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Chapter 3

Understanding Patents for the Legal Advisor Bruce D. Sunstein, Esq. Sunstein Kann Murphy & Timbers LLP, Boston David E. Blau, Esq. Sunstein Kann Murphy & Timbers LLP, Boston Timothy M. Murphy, Esq. Sunstein Kann Murphy & Timbers LLP, Boston Jay Sandvos, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Chapter 4

Trade Secret Law Russell Beck, Esq. Beck Reed Riden LLP, Boston

Chapter 5

Noncompetition Agreements and Related Restrictive Covenants Russell Beck, Esq. Beck Reed Riden LLP, Boston

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Chapter 6

Trademarks: Law, Practice, and Current Issues Sara Yevics Beccia, Esq. Burns & Levinson LLP, Boston Renee Inomata, Esq. Burns & Levinson LLP, Boston Deborah J. Peckham, Esq. Burns & Levinson LLP, Boston Mark Schonfeld, Esq. Burns & Levinson LLP, Boston

Chapter 7

Copyright Law William S. Strong, Esq. Kotin, Crabtree & Strong LLP, Boston

Chapter 8

FDA Approval and Licensing as Intellectual Property John C. Serio, Esq. Burns & Levinson LLP, Boston John A. Hamilton, Esq. Burns & Levinson LLP, Boston

Chapter 9

Ethics Issues in Intellectual Property Jerry Cohen, Esq. Burns & Levinson LLP, Boston

Table of Cases Table of Statutes, Rules, and References Index

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TABLE OF EXHIBITS EXHIBIT 2A—Mononucleosis Detection Technology License Agreement (Version A, Tending to Favor Licensor) ......................................................... 2–13 EXHIBIT 2B—Viral Detection Technology License Agreement (Version B, Tending to Favor Licensee) ......................................................... 2–29 EXHIBIT 2C—Form of Agreement for Confidential Disclosure to a Third Party ............................................................................................... 2–45 EXHIBIT 2D—Form of Patent Assignment................................................... 2–47 EXHIBIT 2E—Employee Noncompetition, Nonsolicitation, Nondisclosure, and Assignment of Inventions ............................................... 2–49 EXHIBIT 2F—Form of Agreement for Two-Way Exchange of Confidential Information ............................................................................ 2–61 EXHIBIT 2G—Form of Assignment Accompanying Patent Application ..... 2–63 EXHIBIT 2H—Biological Material Transfer Agreement .............................. 2–65 EXHIBIT 2I—UBMTA Form of Biological Material Transfer Agreement ... 2–71 EXHIBIT 2J—Form of Agreement for Employees and Consultants ............. 2–73 EXHIBIT 3A—Timing and Costs for Patent Protection ................................ 3–45 EXHIBIT 3B—Patent Infringement Complaint ............................................. 3–49 EXHIBIT 3C—Patent Infringement Answer and Counterclaim .................... 3–53 EXHIBIT 3D—Reply to Counterclaim .......................................................... 3–57 EXHIBIT 3E—Patent Infringement Demand Letter ...................................... 3–61 EXHIBIT 5A—Web Logs Addressing Trade Secrets and Noncompetes ..... 5–127 EXHIBIT 6A—Glossary of Trademark-Related Concepts ............................ 6–89 EXHIBIT 6B—Trademark-Related Resources .............................................. 6–93 EXHIBIT 6C—Trademark Request Form (Internal/Corporate) ..................... 6–95 EXHIBIT 6D—New Trademark Application Filing Checklist ...................... 6–97 EXHIBIT 7A—Online Resources for Copyright Law ................................. 7–103 EXHIBIT 7B—U.S. Copyright Office Information Circulars and Form Letters ........................................................................................................... 7–107 EXHIBIT 7C—Assignment of Copyrights .................................................. 7–113 EXHIBIT 8A—8+2(+1) Exclusivity Formula................................................ 8–51

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CHAPTER 1

Metes and Bounds of Intellectual Property Jerry Cohen, Esq. Burns & Levinson LLP, Boston § 1.1

Introduction to Intellectual Property ................................. 1–1 § 1.1.1

§ 1.1.2 § 1.2

§ 1.3

Forms of U.S. Intellectual Property ...................... 1–1 (a)

Basic Types .................................................. 1–1

(b)

Other Types .................................................. 1–2

(c)

Extended Effects .......................................... 1–2

International Dimensions ...................................... 1–2

Content of this Book............................................................. 1–3 § 1.2.1

Patents ................................................................... 1–4

§ 1.2.2

Trade Secrets ......................................................... 1–5

§ 1.2.3

Trademarks/Trade Identities/Anticounterfeiting ... 1–6

§ 1.2.4

Copyrights ............................................................. 1–6

§ 1.2.5

FDA Practice ......................................................... 1–7

§ 1.2.6

Ethics and Loss Prevention for IP Attorneys ......... 1–7

Limitations of IP, Comparisons, Common Issues, and Adjunct Issues of Diverse IP Types ............................. 1–8 § 1.3.1

Duration ................................................................ 1–8

§ 1.3.2

Scope and Exceptions ........................................... 1–9

§ 1.3.3

Perfection of Rights............................................... 1–9 (a)

Nationally ..................................................... 1–9

(b)

Internationally .............................................1–10

§ 1.3.4

Enforcement/Defense ...........................................1–10

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§ 1.3.5

Exploiting IP ........................................................ 1–11

§ 1.4

Public Policy and IP ............................................................ 1–12

§ 1.5

Careers in Relation to IP .................................................... 1–14

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CHAPTER 1

Metes and Bounds of Intellectual Property Jerry Cohen, Esq. Burns & Levinson LLP, Boston

Scope Note This chapter provides a brief overview of intellectual property (IP) and an introduction to Intellectual Property Practice. The chapter begins by identifying the forms of IP and describing the authors’ treatment of IP topics in each of the book’s chapters. It then addresses the duration, scope, perfection, enforcement, and exploitation of IP rights. The chapter concludes with a discussion of public policy considerations and IP-related careers.

§ 1.1

INTRODUCTION TO INTELLECTUAL PROPERTY

§ 1.1.1

Forms of U.S. Intellectual Property

(a)

Basic Types

Intellectual property (IP) is familiarly recognized for its four major types— patents, trade secrets, trademarks, and copyrights. But there are several distinct subdivisions within these types and several overlaps. IP also involves overlaps of federal and state laws and certain allocation of exclusive federal jurisdiction (patents and copyrights), local jurisdiction (trademarks), and deference to issues of IP license controversy and alleged attorney malpractice not implicating serious federal IP issues. It also involves preemptions of state law by federal law and even preemptions within state law, as in the Uniform Trade Secrets Act. Some subdivisions of U.S. patents include utility patents, design patents, plant patents, and as to patent applications, provisional, nonprovisional, continuations, divisional, continuations-in-part, and other forms abroad.

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1–1

§ 1.1

(b)

INTELLECTUAL PROPERTY PRACTICE

Other Types

The importance of investor-backed innovation in life sciences, coupled with concern for consumer safety, efficacy, and full disclosure, has produced special forms of quasi-IP, including FDA approval of pharmaceuticals, biologics, and medical devices as prerequisites to marketing; label approval; limiting exclusive rights for first-approved markets independent of patent rights; and data protection and an interplay between patents and marketing approval delays. Similarly, regulatory agency collection of data from regulated companies leads to issues of how much of the data will or will not be publicly available. Government procurement of goods and services from private parties or research and development sponsorship through contracts and grants raise similar issues. Freedom of Information Act (FOIA) exceptions echoed in particular agency regulations govern this subset of trade secret law.

(c)

Extended Effects

Antitrust laws and equitable doctrines of IP misuse have plagued IP systems in past years, but less so currently. But adverse reaction to “patent trolls” is a current cause célèbre.

§ 1.1.2

International Dimensions

IP rights are inherently of national character—a U.S. patent is effective to protect against infringing acts in the United States, a Japanese patent in Japan, etc. If it were otherwise, the intrusions on sovereignty would be intolerable. Yet, by common consent, there is some reach beyond boundaries. For example, the law of the sea codified in treaties gives immunity to aircraft and sea vessels when they are temporarily in a foreign country’s port. Also, nations participating in space flight claim sovereignty over the spacecraft as to control from their ground stations. Countries agree to means for sharing rights to mine for minerals in seabeds in international waters. Countries impose border controls on importation of goods that would infringe IP rights and even on noninfringing goods made abroad by processes that if practiced in the host country would be infringing. Section 271(f) of 35 U.S.C. imposes infringement liability upon persons who export one or more components of a U.S.-patented invention from the United States for the purpose of assembly and sale or use outside the United States. Section 271(f)(1) makes such an act of export an act of direct infringement of the U.S. patent under 35 U.S.C. § 271(a) if a hypothetical U.S. sale for assembly in the United States would constitute indirect infringement (i.e., inducing infringement under 35 U.S.C. § 271(b) or contributory infringement under 35 U.S.C. § 271(c)). 1–2

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§ 1.1

Beyond the limited unilateral measures of nations, there are major treaties, including the Paris Treaty of 1883, that provide for reciprocal access to U.S. patents and priority for home country filings when echoed abroad in foreign country filings. The Berne Convention of 1888 provides similar copyright relations, but the United States did not join until 1988. The Madrid Protocol acceded to by the United States in 2003 provided an even more robust regime for international trademark protection. The latest framework pieces of multinational accords are the TRIPs Agreement of 1994, made as part of the Uruguay Round modifications of the General Agreement on Trade and Tariffs (GATT), and modified by the Doha Declaration and other accords for allowing compulsory licensing of pharmaceuticals in case of epidemics and similar exigent circumstances. Also, the Hague Agreement Concerning the International Registration of Industrial Designs enables industrial design owners to protect their interests through a streamlined registration process. The Trans Pacific Partnership (TPP) Agreement lacks the twelve-year data exclusivity of U.S. law on biologics (a disappointment to U.S. industry). It also engages abuses of the patent system by including an antipatent-troll provision with remedial measures, including attorney fee-shifting in favor of trolling victims. Arguments and facts for and against the trolling phenomenon appear at various points in patent discussion of this volume. For better or worse, trolling is finding its way into other areas of IP and private equity opportunism. It is important, in IP counseling, to remind clients that the United States, with 5 percent of the world population, has had a large share of world wealth. It currently makes up 25 percent of the world gross domestic product (GDP), but while the U.S. dollar has been the main benchmark of currency and investment valuations, it is declining. United States IP has buffered forces driving such shrinkage, but innovation and knowledge, along with supporting IP, is growing worldwide. A majority of U.S. patent grants are awarded each year to their foreign owners. The time for insular approaches to patents has long passed. Trademark, copyrights, and trade secrets show similar trends. The IP outlook must embrace an international perspective. All the chapters in this book do just that.

§ 1.2

CONTENT OF THIS BOOK

This book digs down into each of the major types of IP in separate chapters, including common features of the development of IP and how it is used to perfect, enforce, and exploit rights. Perspectives of rights owners and of parties accused of (or potentially accused of) infringement or misappropriation are provided. This treatment is directed to readers who counsel such parties as well as officers and managers, investors, lenders, employees, consultants, government regulators, judges in courts and those sitting on administrative tribunals. Last 3rd Edition 2016

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but not least, the guidance in this book is directed to the growing cadre of professors of intellectual property and authors and publishers in the field. The book’s goal is to help readers spot issues surrounding IP pitfalls and opportunities. A further goal is to engage specialists in the various IP fields in a continuing conversation about the latest changes of status, regulation, case law, best practices, and perspectives.

§ 1.2.1

Patents

Chapters 2 (Developing and Realizing Value from a Patent Portfolio) and 3 (Understanding Patents for the Legal Advisor) by Bruce D. Sunstein, David E. Blau, Timothy M. Murphy, and Jay Sandvos of the Boston Law firm Sunstein Kann Murphy & Timbers LLP illustrate the pattern of reaching out to diverse reader segments. Chapter 2 addresses patents as a business asset and ownership issues and is complemented by end-of-chapter exhibits (which are also available for download from the MCLE website), including specimen licenses, assignments, and material transfer opportunities. Chapter 3 traces the metes and bounds of the patent system, including details of processing an invention disclosure, patent application filings, prosecution, and infringement litigation. The accompanying practice tools include timing/costs of patent protection and specimen litigation documents as exhibits on the CD. Both chapters show the sequence of events in recent years through actions of the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit, the exclusive courts for review of the U.S. Patent & Trademark Office (PTO), the U.S. District Courts, the Court of Federal Claims, and the International Trade Commission. It is useful to consult additional sources and blogs, including those of the U.S. Patent & Trademark Office (PTO) and of Prof. Dennis Crouch (patentlyo.com), as well as foreign IP offices, the World Intellectual Property Organisation (WIPO), the American Intellectual Property Law Association (AIPLA), the Boston Patent Law Association (BPLA), the American Bar Association Intellectual Property Law (ABA-IPL) Section, and U.S. and foreign law firms and other associations such as the Intellectual Property Owners Organization (IPO), Federation de Conseilles en Proprietary Intellectual (FICPI), and the Federal Circuit Bar Association (FCBA). The economics of IP law practice in patents and other types of IP for clients and lawyers/law firms are set out in biennial publications of in-depth economic surveys published by AIPLA. These include breakdowns by geography, experience, categories of cases, and projections in litigation and trademarks and amounts involved. The principal treatises are Chisum on Patents and various texts on 1–4

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practice before the PTO examining groups (technology centers), before the PTO’s Patent Trial & Appeal Board (PTAB), and before the Court of Appeals for the Federal Circuit and in federal District Courts.

§ 1.2.2

Trade Secrets

Russell Beck of Beck Reed Riden LLP, Boston, provides Chapters 4 (Trade Secret Law) and 5 (Noncompetition Agreements and Related Restrictive Covenants). Mr. Beck shows in Chapter 4 the legal/historical cases of trade secrets law and how to establish and maintain trade secret protection program protections, and in Chapter 5, one important element of a trade secret (and also goodwill) protection program—the usage of covenants not to compete in various relationship contexts: employees, consultants, investors, vendors, and customers. Trade secrets are getting increasing attention of late due to instability in some areas of patent law; but trade secret reliance has always dwarfed patent system reliance when one takes into account innovations not qualifying for patent protection of sufficient scope. Often, good lawyers find ways to have the best of both worlds. While trade secrets have been primarily matters of state law, federal law and courts have played roles through diversity and adjunct jurisdiction for federal courts deciding state law cases, the Economic Espionage Act (EEA), primarily a criminal statute (at least for now, but with bills pending to open it up as a private civil action basis), federal wire fraud, retail fraud laws, and the Computer Fraud and Abuse Act (CFAA), essentially an antivandalism statute. Currently, there is momentum in Congress to open up the EEA to create as a private right of civil action for reasons discussed in Chapter 5. Further studies and resources in trade secrets and the covenant not to compete areas are mentioned above at § 1.2.1. The reader should also reference Mr. Beck’s own faircompetition.com blog and other resources listed in Chapters 4 and 5. Separate treatises by Roger Milgrim, Mark Halligan, and James Pooly also provide useful information, including strongly held points of view. There are several adjunct areas of study and practice, including protection of trade secrets in dealing with federal and state agencies in government procurements, responding to providing information to regulatory agencies and/or consumers, export control laws, FOIA exceptions, insider trading bans and other limits in the securities areas, fiduciary duties, and professional confidentiality obligations, including but not limited to those of lawyer-client relationships.

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§ 1.2.3

INTELLECTUAL PROPERTY PRACTICE

Trademarks/Trade Identities/Anticounterfeiting

A team from Boston’s Burns & Levinson LLP (Sara Y. Beccia, Renee Inomata, Deborah J. Peckham, and Mark Schonfeld) provides in Chapter 6 (Trademark: Law, Practice, and Current Issues) discussion of basic principles, adoption of trade source identifiers, clearance, registration, and enforcement/defense. The chapter also discusses variant forms of trademark rights, such as trade dress, initial intent confusion, dilution, special anticounterfeiting remedies, Internet/ new technologies issues, and international protection. The accompanying exhibits include a glossary, resources listing, internal corporate trademark report form, and a new trademark application filing checklist. Additional resources include those mentioned above at § 1.2.1 and § 1.2.2, the website of the International Trademark Association (http://www.inta.org), and blogs cited at Chapter 6. The leading treatise is McCarthy on Trademarks. The Internet/new technologies issues in the trademark realm feature the Anticybersquatting Consumer Protection Act (ACPA) and the Uniform Dispute Resolution Procedure (UDRP) with its adjunct Uniform Rapid Suspension (URS) procedure for rapid suspension of URLs to abate predatory domain-name practices.

§ 1.2.4

Copyrights

In Chapter 7 (Copyright Law), William Strong of Kotin, Crabtree & Strong LLP, Boston, covers the spectrum of copyright law, including issues of eligible subject matter, ownership and transfer, registration, owner rights, litigation under copyright law and other laws, forms of infringement, defenses, civil and criminal law, remedies, and extensive coverage of Internet and new technology issues. The complementary practice tools include resources listings and Copyright Office circulars. Mr. Strong provides a number of resources, including the site of the U.S. Copyright Office (http://www.copyright.gov, not copyright.com, which is a private company site). See also the websites of players in the discrete copyright industries—e.g., Business Software Alliance (BSA), Electronic Frontier Foundation (EFF), Association of American Publishers (AAP), Motion Picture Association of America (MPAA), Recording Industry Association of America (RIAA), American Society of Authors, Composers and Publishers (ASCAP), and Broadcast Music (BMI). There are journals of most of the above organizations and also Billboard, Variety, Hollywood Reporter, Publishers Weekly, etc., and treatises such as Nimmer on Copyright, Goldstein on Copyright.

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Title 17 of the U.S. Code hosts the Copyright Act of 1976 in Chapters 1 through 8 with several later amendments. It also hosts the Semiconductor Chip Protection Act (SCPA) of 1986 (Chapter 9), Digital Audio Recording Act (DMCA) (Chapter 10), Sound Recording and Video Act (Chapter 11), the Digital Millennium Copyright Act of 1998 (Chapter 12), and the Protection of Original (Yacht Hull) Designs Act of 1998 (Chapter 13). Sections 2318–2319B of Title 18 of the U.S. Code (Criminal Code) punish trafficking in counterfeit goods and labels and unauthorized fixation of performances or other related unauthorized activities.

§ 1.2.5

FDA Practice

In Chapter 9 (FDA Approval and Licensing as Intellectual Property), John Serio and John Hamilton of Burns & Levinson LLP introduce the interaction of market approval by the U.S. Food & Drug Administration under the Food, Drug, and Cosmetic Act and the Biologics Price Competition and Innovation Act (BPCIA) component of the Affordable Care Act (Obamacare) with the patent system. The chapter also shows exclusive FDA-licensed marketing rights and data rights independent of patents or lack of patents. These exclusive rights may be thought of as quasi-IP.

§ 1.2.6

Ethics and Loss Prevention for IP Attorneys

In Chapter 8, yours truly, Jerry Cohen of Burns & Levinson LLP, editor of this volume, presents the changing scene of legal ethics for IP partners. These include compliance and avoidance of bar discipline and reputational damage, avoiding malpractice liability and other loss prevention issues for lawyers and firms, and the interplay of ethics with legal substantive and procedural issues, including disqualification from representation. Special attention is given to duties of confidentiality, client-property protection, and compliance in using technology to protect client information from cyberattacks and other forms of theft and vandalism. The American Bar Association, the state bar discipline offices, the state bar association ethics committees, liability insurers, a national advocate of loss prevention counsels of large- and medium-size firms and increasingly from small firms are all sources for additional information. Published rules of professional conduct adopted by state supreme courts and echoed in federal court and administrative agency rules must be considered further with state and federal courts’ and agencies’ procedural local rules with variation from court to court, agency to agency, and even judge to judge. Last and not least are requirements placed by liability insurers as conditions of coverage. 3rd Edition 2016

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§ 1.3

LIMITATIONS OF IP, COMPARISONS, COMMON ISSUES, AND ADJUNCT ISSUES OF DIVERSE IP TYPES

§ 1.3.1

Duration

It is important to note the beginning and end points of duration of IP rights. Patent rights begin upon patent issuance (setting aside some potential royalty rights growing out of U.S. publication of a pending patent application and priority rights based on that) but are related back to the effective filing date as the beginning of a twenty-year term from that date subject to some extension to compensate for undue delay of the PTO in granting the patent (a patent term adjustment or PTA) or in the case of inventions subject to FDA regulatory processes that can delay exploitation (Patent Term Extension, PTE). Copyright vests upon an eligible author fixing an original work in tangible form and runs under U.S. and European Union law, if applicable, for the life of the author (or authors, for a joint work) plus seventy years. Both patents and copyrights are deemed to fit the U.S. Constitution provision (art. I, sec. 8, par. 8) granting Congress power to reserve to authors and inventors exclusive rights for limited times. Of course, the long durations described above can be undermined by court invalidation of the IP rights for various reasons discussed in Chapters 3, 6, and 7 concerning patents, trademarks, and copyrights, respectively, or in the case of patents, failure to pay periodic maintenance fees and for trademarks failure to renew at ten-year intervals or failure to certify use in five to six years from initial registration. Assignments and license grants of copyright can be resolved in a thirty-five- to fortyyear window from grant with a further right of revocation as to the twenty-year term extension granted in the Sonny Bono Copyright Term Extension Act of 1998. Trade secret rights begin on the creation of the product and processes in secrecy and are of potentially infinite duration, but can evaporate at any time due to careless protection by the owner or by other means, as described in Chapter 5. Trademark rights begin in most instances with bona fide adoption and use in interstate commerce or commerce otherwise regulatable by Congress (e.g., international commerce) and have a potentially indefinite duration. The federal registration process includes an option for you to file, in behalf of your client, an application to register based on bona fide intent to use the mark. This gives nationwide constructive notice cutting off bona fides of a later user/applicant (contingent on eventual issuance of a registration on the application you have filed). Registrations have a ten-year life, subject to an indefinite number of renewals, provided the mark is still in use at the time of each renewal. Registrations and 1–8

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related rights can terminate for deeded abandonment of the mark and other circumstances, as outlined in Chapter 6.

§ 1.3.2

Scope and Exceptions

Patents are for inventions (the “discoveries” by inventors, referred to in the enabling Constitutional provisions and in 35 U.S.C. § 100). Copyrights cover the “writings” of authors fixed in tangible form but exclude processes, products, and other items enumerated in 17 U.S.C. § 102(b). The federal law of copyright per the highly nuanced 17 U.S.C. § 301 preempts state laws equivalent to copyright. Preemption of state laws equivalent to patent laws is partly judge-made and partly by 28 U.S.C. § 1338(a), limiting jurisdiction of trademark and copyright law to federal courts. Federal trademark law does not preempt state law. Indeed, state courts can enforce the U.S. Trademark Act (Lanham Act) of 1946 but rarely do so. State courts do enforce state trademarks and trade names/corporate name statutes. The Uniform Trade Secrets Act (USTA), adopted so far in forty-eight states and the District of Columbia with Massachusetts and New York being the reactive holdouts, preempts state law of like character and if and when adopted in Massachusetts would likely preempt parts of G.L. c. 93A (the state unfair and deceptive practices and unfair competition statute). State trade secret laws are not preempted by the federal patent and copyright law nor by federal government control of interstate and international commerce. Pending efforts would turn the federal Economic Espionage Act (EEA), presently a federal criminal statute with some leeway to the Department of Justice (alone) to prosecute offenders via civil action, into one giving a private right of civil action. While it would not assert nonpreemption of state trade secret laws, the practical effect would likely be preemptive.

§ 1.3.3 (a)

Perfection of Rights Nationally

An inventor (or in over 90 percent of all cases, the inventor’s corporate assignee) files a nonprovisional U.S. patent application at the PTO, where it is examined, and if it overcomes PTO challenges, it issues as a patent. It can be preceded by one or more U.S. provisional patent applications filed within a year prior to the nonprovisional application and/or by another nonprovisional application copending with it or descended from an international patent application described below. A U.S. person can but need not file a U.S. registration application to preserve copyright rights but must do so to gain standing to sue to enforce the copyright in federal court (and state court is not available for such purpose). A foreign owner of copyright can sue without prior registration. It is in any event 3rd Edition 2016

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desirable for U.S. owners to register copyrights to enjoy remedies of statutory damages and attorney fee awards (described in Chapter 7). Trade secret owners guard their trade secrets with adequate measure (not necessarily perfect or heroic measures) as a price of legal right, but have no government office to register their rights. Federal owners similarly can seek and obtain and receive registrations at the PTO. Patent grants and trademark registrations can be invalidated in whole or in part in postissuance/postgrant proceedings at the PTO conducted by the Patent Trial and Appeal Board (PTAB) or the Trademark Trial and Appeal Board (TTAB), with appeal to the Court of Appeals for the Federal Circuit or, for patents, to the U.S. District Court for Eastern District of Virginia (in turn subject to Federal Circuit review), or, for trademarks, to the District Court, subject to regional appeals court review.

(b)

Internationally

A U.S. patent applicant can file a provisional patent application or a nonprovisional in the United States and by filing in a foreign country within a year retaining priority of the earlier U.S. filing date. Similarly, a foreign applicant can preserve priority of an early home country patent application filing when making a later U.S. filing directly. Treaty structures also bar discrimination against foreign persons under national patent system of all treaty countries. Going beyond this are common filing systems under the Patent Cooperation Treaty (PCT), European Patent Convention (EPC), and other regional management in Scandinavia, Latin America, Africa, and still beyond that an imminent EU patent to be effective in 2017.

§ 1.3.4

Enforcement/Defense

IP exclusive rights carry enforcement remedies of injunction and monetary recovery in various forms. Patent injunctions are the norm but with a wide swath of exceptions created by the Supreme Court in eBay v. Merc. Exchange,1 applying traditional equitable principles and rejecting a privileged range for patents, a doctrine that has carried over to other IP forms. The Uniform Trade Secrets Act contemplates a royalty in lieu of injunction where equities favor a misappropriating party. Momentous damages in patent cases have a flaw of not less than a reasonable royalty. Copyright, trademark, and trade secret rights, when infringed, carry a high likelihood of injunction and monetary damages equal to the defendant’s profits and the plaintiff’s lost profits (without double counting) and, in the case of an optional alternative in copyright cases, of statutory damages. A defendant in a patent case (or a plaintiff in a Department of Justice action on counterfeiting) challenging a patent’s validity must establish it by clear and convincing evidence. On the other hand, in postpatent issuance review, a reissue 1–10

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proceeding invalidity of a claim can be established by preponderance and the claim is construed using the broadest reasonable interpretation, making it more valuable. Copyright, trademark, and trade secret cases place the plaintiff’s burden in establishing its right (with varying benefits of agreement and trademark registration) and the infringement (propounding a likelihood of confusion in a trademark case without necessity establishing this unfair has occurred), with the defendant having the burden of proving invalidity of the IP right and/or other affirmative defenses. Pleadings have evolved under the influence of the Twombly and Iqbal cases2 and scientific or proofs presented via experts or otherwise are increasingly subject to modern Daubert-Joiner-Kumho3 gatekeeper screening by trial by jury in court. The right to trial by jury applies in all the IP areas determining infringement and damages but certain matters are reserved to the trial judge with de novo appellate review—e.g., construction of patent claims,4 equitable remedies including preliminary and permanent injunction, admissibility of evidence, summary judgment, trial control and sanctions, and enablement in patent cases (but oddly, written description is for the jury). Copyright infringement claims are not infrequently dismissed under Fed. R. Civ. P. 12(b) where the pleadings and attached exhibits show the defendant’s entitlement to dismissal.

§ 1.3.5

Exploiting IP

The principal manner of exploiting IP is the use of the exclusive right maintained by the remedies of injunction and fair assessment of damages (sufficient to make whole the plaintiff IP process and enhanced for willful infringement. But plaintiffs who do not practice IP and (in most cases, not all) suffer no damages through other violations of their right can offer usage grants via voluntary license payments (or even compulsory licensing payments in some situations, particularly for copyright statute compulsory licenses). IP rights also provide negotiation leverage, trading counties, reputation benefits and in some cases defensively preempt later claimants. Exploitation of IP has become complicated in the realm of pharmaceuticals, biologic materials and medical devices, as explained in Chapter 8 by John Serio and John Hamilton. The quasi-IP and limits on classical IP of the HatchWaxman Act have engendered problems for the industries . . . and also opportunities to game the system with reverse payment agreements in an evolving legal landscape. Those life science areas are also subject to compulsory licensing carve-outs from the TRIPs regimen and varying application of patent systems among nations.

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§ 1.4

PUBLIC POLICY AND IP

IP-based industries form a major part of the U.S. gross domestic product (which is about 25 percent of world GDP even though the United States has 5 percent of the world’s population). But the United States’ wealth advantage is shrinking, especially as manufacturing of hard goods declines. Republican and Democratic administrations and Congress have recognized the need to strengthen IP rights while curbing abuses of such rights. This has produced in recent years—and will produce in the near future—“reform” legislation in all the areas of IP, including the following: Ÿ the America Invents Act of 2011, with various effective dates from 2011 to 2013, contains provisions converting the U.S. patent system from a so-called first-to-invent priority system to a firstinventor-to-file system, providing expanding PTO review of issued patents and removal or mitigation of certain restraints on patent applicants and patentees; Ÿ past and pending attention to the Economic Espionage Act (EEA) and Computer Fraud and Abuse Act (CFAA) to widen the scope of punishable offenses and open the EEA to allow a federal right of civil action; and Ÿ bilateral agreements known as free trade agreements (FTAs) entered into, by, or promoted by the 1994 TRIPS multinational agreement and expanded protections for IP. The now pending Trans-Pacific Partnership to expand IP rights and remedies of its twelve initial participants (and more to follow) is subject to running a rigorous gauntlet of Congressional controversy. The Supreme Court has paid unusual attention to IP, including the following recent decisions: Ÿ reinforcing growing barriers to patent eligibility, Ass’n for Molecular Pathology v. Myriad5 (natural genetic materials), Alice Corp. Pty Ltd. v. CLS Bank International6 (abstract ideas/business methods), and Mayo Collaborative Services v. Prometheus Labs, Inc.7 (abstractions—diagnostic methods based on natural phenomenon), all endangering investor expectations of patent system exclusivity; Ÿ modifying sanctions against weak and abusive patents for indefiniteness in Nautilus v. Biosig Instruments, 8 fee shifting in the Octane Fitness v. Icon Health 9 and Allcare 10 cases, refining 1–12

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jury-judge roles in patent claims construction in Teva v. Sandoz,11 maintaining the strict presumption of patent validity and the “clear and convincing” standard in court proceedings in i4i v. Microsoft,12 and holding the line against new theories of induced infringement in Akamai v. Limelight;13 Ÿ defining rights to sue for copyright infringement within the statute of limitations under extreme laches circumstances, Petrella v. Metro Goldwyn Mayer; 14 Ÿ sustaining the fifty-year-old rule of Brulotte v. Thys, 379 U.S. 29 (1964) that royalty payment obligations in a patent license cannot outlive the patent against a spirited campaign for overruling it, Kimble v. Marvel;15 and Ÿ linking PTO rulings of likelihood of confusion to later court cases between the same parties on the same issues, B&B Hardware, Inc. v. Hargis Industries.16 Lower federal courts and administrative agencies have also been breaking new ground in IP, for example, Ÿ the Court of Appeals for the Federal Circuit affirmed the International Trade Commission’s (ITC’s) banning of U.S. imports of unpatented products made in China with misappropriation there of trade secrets of a U.S. party. (See Tianrui Corp. v. Int’l Trade Comm’n;)17 Ÿ in Lexmark International v. Impression Products Inc., the Federal Circuit is considering en banc whether the circuit shall overrule its prior decision of no international exhaustion of patent rights in Jazz Photo Corp. v. ITC, 264 F.3d 1094 (2001) in view of the Supreme Court’s decision as to international exhaustion in the copyright case, Kirtsaeng v. John Wiley Sons. Inc., 133 S. Ct. 1351 (2012); and Ÿ in Petrella v. MGM,18 the Supreme Court gave a broad charter for belated copyright-related suit for violation of a right long prior to the statute of limitations, period. But on September 18, 2015, the Federal Circuit held in a six-five en banc decision, SCA Hygiene Products v. First Quality Baby Products, LLC,19 that the laches— statute of limitations relationship in patent law would not track the copyright standard set in Petrella. Copyright and patent law, both authorized in U.S. Const. art I, sec. 8(e), sometimes converge 3rd Edition 2016

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in statute and case law developments and sometimes diverge, as in the SCA Hygiene case. The point of this listing of developments is to warn readers of this volume to expect continuation of a dynamic system where change of treaty, statute, regulation, and precedents upset settled expectations of prior court rulings.

§ 1.5

CAREERS IN RELATION TO IP

Each of the IP branches has a mix of generalists and specialists—for example, business litigation generalists and litigation specialists in patents, trade secrets, trademark, and copyright. There are also divisions of transaction and litigating lawyers, with some crossover. A U.S. District Court judge tends to cover the full spectrum of IP, while federal patent appeals are limited to the Federal Circuit. Experts who advise, opine, and/or testify are a staple of bit IP rights perfection projects, M&A transactions with significant IP components, litigation and alternative dispute resolution, and administrative law matters. Cyberexperts have joined forces with law firms. For discovery of electronically stored information (ESI), there are measures to prevent cyberbreach and remediation. Patent law firms often include patent agents and technology specialists along with their patent attorneys. The federal government has patent examiners, trademark attorney examiners, copyright specialists, regulators of commerce involving IP, the areas of goods, drugs, cosmetics, biological, medical devices, telecommunications, transportation, and competition. There are many career paths, some intertwined with successful stints in government and private sector (the so-called revolving door), law firms, and in-house and engineering/science. All these now make room to accommodate venture capitalists, hedge fund managers, banks, and a category known by various names: trolls, nonpracticing entities, and patent assertion entities. The pejorative term “trolls” is used (sometimes fairly, sometimes not) to signify abusers of patent laws. The supposed degradation of trolls have induced massive lobbying and Congressional and judicial response and reform measures that may have unintended consequences that built the U.S. IP system while attempting to purge the harms of trolls. Some of the so-called trolls are legitimate inventors/ small businesses that failed while trying to exploit IP and seek to recoup some of the losses for themselves and other inventors by selling or licensing their IP, but some trolls and those who aid and abet their activities are rascals. Trolling is not limited to patents. The term has seen or will see usage in trademarks (e.g. in cybersquatting, counterfeiting), copyright and trade secret areas, and in the FDA licensing as IP arena. 1–14

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IP careers have the benefits of productive association with creative people, entrepreneurs, and government officials, generally in a civil, collegial manner. We constantly learn new things about science, engineering, business, and law. The careers are profitable, and more often than not enable comfortable lifestyles. IP is not immune to business cycles and there are cutbacks, layoffs, and declines in activity from time-to-time, but less so than in most other careers and we have remarkable mobility prospects. The courts’ and legislatures’ attempts to stabilize IP law itself are often destructive of settled expectations. But the IP communities eventually adapt well and through professional associations lobby well in legislative halls and in courts (with amicus briefs) to buffer destabilizing events and in some instances to restabilize. All in all, it is a charmed life. __________ 1

126 S. Ct. 1837 (2006)

2

Bell Atl. Corp. v. Twombly, 550 U.S. 555 1955 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009), with effects migrating into IP cases and superseding the long-standing simple complaint safe harbors of pleading. 3

Merrell Dow Pharms. v. Daubert, 509 U.S. 579 (1993); Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997); and Kumho Tire Co. v. Carmichael, 118 S. Ct. 2339 (1998), rev’d, 119 S. Ct. 1167 (1999).

4

But in Teva Pharmaceuticals v. Sandoz, Inc., 135 S. Ct. 831 (2014), it was made clear that fact findings incidental to claim construction are for the jury, or in a hearing trial for the judge subject to deferential review under Fed. R. Civ. P. 52(a). Other aspects of allocation between law and fact remain to be determined. Considerable deference is due to juries and judges in bench trials as to fact findings.

5

133 S. Ct. 2107 (2013)

6

134 S. Ct. 2347 (2015)

7

132 S. Ct. 1289 (2012)

8

134 S. Ct. 2120 (2014)

9

134 S. Ct. 1719 (2014)

10

134 S. Ct. 1744 (2014), construing 35 U.S.C. § 285 and also applying general standards of fee-shifting exceptions to the “American rule.” The Supreme Court recently granted certiorari in two cases to consider whether enhanced damages (up to and defined under 35 U.S.C. § 284) should be more readily obtainable in patent cases, i.e., tracking its Octane decision as to fee shifting (or perhaps not).

11

135 S. Ct. 831 (2014)

12

131 S. Ct. 2278 (2011)

13

134 S. Ct. 2111 (2014). On remand, a Federal Circuit panel at 786 F.3d 899, 114 U.S.P.Q.2d (BNA) 1749 (Fed. Cir. 2014) denied relief to the patentee by forgoing an option

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to find 35 U.S.C. § 271(a) direct infringement under the circumstances but in rehearing en banc, the Federal Circuit gave that relief belatedly to the patentee. __ F.3d __, 116 U.S.P.Q.2d (BNA) 1344, 2014 U.S. App. LEXIS 14175 (Fed. Cir. 2015) (en banc). Following the Akamai en banc ruling, a District Court, in Eli Lilly & Co. v. Teva Parenteral Medicines Inc., __ F.3d __, __ U.S.P.Q.2d (BNA) __, 2015 U.S. Dist. LEXIS 112221 (S.D. Ind. Aug. 25, 2015) found direct infringement under 35 U.S.C. § 271(a). 14

134 S. Ct. 1962 (2014)

15

135 S. Ct. 2401, 114 U.S.P.Q.2d (BNA) 1941 (2015)

16

135 S. Ct. 1293 (2015)

17

661 F.3d 1327 (Fed. Cir. 2011). Further, in Suprema, Inc. v. International Trade Commission, __ F.3d __, 116 U.S.P.Q.2d (BNA) 2d 1177 (Fed. Cir. 2015) (en banc), the court held that the Commission was correct to find importation of articles not infringing a U.S. patent but usable once in the U.S. to form an infringing product nevertheless amounted to 19 U.S.C. § 1337 unfair competition as a form of indirect infringement, giving administrative agency deference (“the Chevron deference”) to the Commission.

18

134 S. Ct. 1962 (2014)

19

__ F.3d __, 116 U.S.P.Q.2d (BNA) 1541, No. 2013-1564 (Fed. Cir. 2015)

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CHAPTER 2

Developing and Realizing Value from a Patent Portfolio Bruce D. Sunstein, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Timothy M. Murphy, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Jay Sandvos, Esq. Sunstein Kann Murphy & Timbers LLP, Boston § 2.1

Patents as a Business Asset .................................................. 2–1 § 2.1.1

Developing a Patent Portfolio ............................... 2–2

§ 2.1.2

Realizing Value from Patents ................................ 2–4

§ 2.1.3 § 2.2

(a)

“Licensed Products” or “Licensed Processes” (or Both)..................................... 2–5

(b)

“Patent Rights”............................................. 2–5

(c)

“Technology” ............................................... 2–5

(d)

“Field” .......................................................... 2–6

(e)

“Territory” .................................................... 2–6

(f)

“Net Sales” ................................................... 2–6

Assuring Commercialization ................................. 2–7

Ownership of Patents ..........................................................2–10

EXHIBIT 2A—Mononucleosis Detection Technology License Agreement (Version A, Tending to Favor Licensor) .......................2–13 EXHIBIT 2B—Viral Detection Technology License Agreement (Version B, Tending to Favor Licensee) ...........................................2–29

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EXHIBIT 2C—Form of Agreement for Confidential Disclosure to a Third Party ................................................................................. 2–45 EXHIBIT 2D—Form of Patent Assignment ................................... 2–47 EXHIBIT 2E—Employee Noncompetition, Nonsolicitation, Nondisclosure, and Assignment of Inventions ................................ 2–49 EXHIBIT 2F—Form of Agreement for Two-Way Exchange of Confidential Information.............................................................. 2–61 EXHIBIT 2G—Form of Assignment Accompanying Patent Application ......................................................................................... 2–63 EXHIBIT 2H—Biological Material Transfer Agreement ............. 2–65 EXHIBIT 2I—UBMTA Form of Biological Material Transfer Agreement .......................................................................................... 2–71 EXHIBIT 2J—Form of Agreement for Employees and Consultants ................................................................................. 2–73

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CHAPTER 2

Developing and Realizing Value from a Patent Portfolio Bruce D. Sunstein, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Timothy M. Murphy, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Jay Sandvos, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Scope Note This chapter offers practical guidance on how to create a patent portfolio that serves as a valuable business asset. The authors set forth and define concepts such as “licensed products,” “licensed processes,” “patent rights,” “technology,” “field,” and “net sales.” The chapter also addresses considerations surrounding the ownership of patents.

§ 2.1

PATENTS AS A BUSINESS ASSET

Patent portfolio development should be viewed in the context of the client’s business goals. Patents may be considered tools for protecting the technological position of the company in the market. The technological position of the client is often best protected by seeking to develop systematically a portfolio of patents, rather than by filing or acquiring individual patents on an ad hoc basis. The value of a patent is typically based on the extent to which the patent is capable of blocking competing products from the marketplace. After all, a patent is an exclusionary right, namely, the right to exclude others from unauthorized making, using, or selling of the patented product or process. If the patented product or process has market value, the right to exclude competitors from making, using, or selling it will also have value. The market value of a patent can be far higher than its book value, particularly if the patent covers products or processes that have market value; and if there are 3rd Edition 2016

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no noninfringing alternatives available at competitive cost; and if the patent is likely to survive an attack on validity.

§ 2.1.1

Developing a Patent Portfolio

Start by identifying technology that has business importance to the company or to competitors (which are not necessarily the same thing). Technology that is the most sophisticated is not necessarily the most important: it must be evaluated in relation to the company’s mission, the potential to contribute to profit over the long term, and the strategic benefits to the company. Assess the competition and the technological background. This can start by prior art searches to gain information about the level of development of competition, approaches of competition to solve various technological problems, and strategy of competition; the risk of patent infringement suits; and the state of the art (to establish areas for possible patent protection for company and for technical direction). Legal opinions can reduce the risk of enhanced damages and attorney fees if infringement suit is brought. In addition, employ strategies to protect the technology. One important such strategy may be patent protection. There are a number of general patent protection approaches ranging from one extreme of not protecting anything, to another extreme of patenting everything possible. In between those extremes are various other protection strategies, which are not necessarily mutually exclusive: • Patent only “the crown jewels,” i.e., technology crucial to the company’s business plan. • Patent technology that has a clear application to your own company’s business, products, and services. • Patent technology that has a high commercial potential, regardless of its applicability to the company’s current business, products, and services. • Patent technology in order to block or impede your competitor’s business, products, and services. • Patent technology pursuing a value realization strategy by developing a portfolio to be used for licensing, cross-licensing, and other value-realizing transactions.

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§ 2.1

To oversee implementation of the patent strategy, a business can use a patent committee with representatives from various different internal entities such as the business units, research and development, marketing, legal, and finance. Each representative can consider the potential impact of patentably new technologies with respect to his or her core area. Practice Note An invention review program should be set up to recognize inventions early on, and to determine if a patent (or trade secret, etc.) is the best way to protect the invention.

Practice Note Possible inventors should be educated on the value of filing patent applications as soon as practicable.

An initial patent application filing can now be started by a series of one or more relatively inexpensive, informal provisional applications that are followed within a year from the first filing by a formal application. To protect foreign patent rights, the U.S. application must generally be filed prior to any public divulgation of the invention. If patent coverage is desired only in the United States, it is sufficient under present law if the U.S. filing is commenced within one year after the first offer for sale of a product or service embodying the invention and within one year after public use or disclosure of the invention. Because the U.S. patent system has recently adopted a first-to-file rule, it is wise to file a patent application as soon as practicable. At some point before the application issues, continuation, divisional, and continuation-in-part applications based on the original should also be weighed, particularly where there is ongoing development activity. Practice Note The Paris Convention gives applications filed outside of the United States the benefit of the filing date of an earlier filed U.S. application if the foreign applications are filed within a year after the filing date of the U.S. application. Moreover, an application filed under the Patent Cooperation Treaty (PCT) permits deferring the time when foreign filings must be commenced if the PCT application is filed within the twelve-month time limit. Accordingly, a common strategy in developing a patent portfolio is to file first a provisional application in the United States, and, within twelve months after filing the provisional application, filing a PCT application that claims priority of the provisional application. (Optionally, a regular U.S. application can also be filed at this time or when entering the national phase through the PCT.) Then, within thirty months after filing the provisional application, “national phase” applications can be filed in countries where

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patent coverage is desired, claiming the benefit of the PCT application. This strategy is discussed in further detail in chapter 3 of this book.

In addition, foreign filings can be important. The expense of foreign protection requires careful planning of filing for maximum benefit in relation to cost. Practice Note The practitioner should consider use of the Patent Cooperation Treaty, the European Patent Convention, and other regional arrangements to conserve costs. These considerations are addressed further in chapter 3 of this book.

Other forms of intellectual property may also be useful for protecting new business activities. Thus, trademark, trade secret, trade dress, design patents, and copyright may all have a place in an integrated strategy. For pharmaceutical companies, there are also a series of rights under the Food and Drugs Act, including certification of an orphan drug and data exclusivity associated with FDA drug approval. Specific forms of protection of plants exist in plant patents and in plant variety certificates. Consider “licensing in” pertinent technology and technology rights. This can be a means to provide valuable and sometimes core technology. It can work only if the company avoids hostility to outside technology—the “not invented here” phobia. License payments do not have to be in the form of traditional royalty installments over time. Consider, especially for start-up, but also for mature companies, the possible issuance of stock or stock options, and the possible use of cross-licenses (i.e., also incorporating into the agreement a “license out”) either of technology developed using the licensed-in technology (i.e., a “grant back”) or of technology developed independently.

§ 2.1.2

Realizing Value from Patents

Established companies often choose direct use of the protected technology, and use patents to maintain market exclusivity. Licensing is available to a company regardless of size and depending on various strategic considerations. Licensing is too often ignored, but it is often difficult to find a suitable and willing licensee, particularly if the technology has not been commercialized. Licensing permits a company that has developed technology to concentrate on what it does best and to leave downstream tasks such as manufacturing and marketing to others. 2–4

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§ 2.1

It is often valuable to include know-how and trademark rights in a license agreement. Know-how and trademarks can provide a basis for royalties to the licensor even if patent protection terminates or is unavailable. The licensee may need the know-how to speed product introduction and benefit from the trademark rights in marketing the products. Definitions are critical to the scope of the license.

(a)

“Licensed Products” or “Licensed Processes” (or Both)

These are usually the subject of a license grant clause, giving the licensee the right to make, use, and sell them. They are usually referred to in a royalty clause, requiring the licensee to pay a royalty based on the dollar volume of them. They are themselves often defined only by reference to other definitions, which must be carefully drafted and scrutinized. They are commonly defined in terms of “patent rights.” Unless their definition includes a reference to “technology” or “technical information,” the licensee may not have rights to know-how, technical information, or trade secrets.

(b)

“Patent Rights”

Often, these are defined by a reference to one or more issued U.S. patents, pending patent applications, or both. Without a reference in the definition to “foreign counterparts,” the licensee may not be granted rights under patents that have been granted outside of the United States. Without a reference to “continuationin-part” patent applications, the licensee may not have been granted rights to practice improvements to the technology that have been developed after filing of the referenced patent application or applications. (The right to improvements could be extremely important to the parties.)

(c)

“Technology”

This term may be used in connection with “patent rights” in defining “licensed products” and “licensed processes.” Often, it will be defined in reference to technical information contained in one or more technical disclosure documents, patent applications, or patents. Unless “improvements” are referred to in this definition or in a definition that refers to this definition, the licensee may not have a right to improvements.

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§ 2.1

(d)

INTELLECTUAL PROPERTY PRACTICE

“Field”

This term means “field of use,” and commonly appears in a grant clause to restrict to a particular market or technological area the scope of rights granted with respect to licensed products or licensed processes. The definition of this term, if it appears, should be broad enough to give the licensee the rights it needs to commercialize the technology while (in the case of technology having wide application) preserving the right of the licensor to make other arrangements for different products and markets.

(e)

“Territory”

This term means the geographical region covered by the grant of license. In evaluating a reference in a license agreement to a specific territory, it must be borne in mind that the grant can be effective only in a region where the licensor has patent rights. For example, a licensor cannot have a patent in Antarctica (which does not have a patent system), so a grant by the licensor of patent rights in Antarctica will have no significant value. On the other hand, a territory does not need to have the same geographical extent as a country with a patent office; it is permissible, for example, to grant a license to a first licensee in a territory defined as all of the continental United States west of the Mississippi River and a second license in a territory defined as all of the continental United States east of the Mississippi.

(f)

“Net Sales”

This term is usually a measure of gross revenue, although in unusual cases (which should be watched for because they are much harder to determine and verify) is defined in terms of net profit, i.e., gross revenue less overhead expenses. It is used in the royalty clause, wherein the royalty payable is determined as the product of the royalty rate and the net sales of licensed products (and any licensed processes). It is common to define “Net Sales” as the gross amount invoiced, less various defined expenses borne by the licensee, such as for transportation, credits for returns and rejects, trade or cash discounts, and taxes paid by the licensee on the sale of goods that are not recouped from the purchaser. There are many variations on this definition, usually based on industry standards, and the amount and types of expenses that can be deducted. It is usually wise to provide for consulting to assist in the technology transfer. Payment for the consulting can be an additional source of revenue for the licensor. The licensee will want to argue that a certain measure of consulting should be provided as consideration for royalties payable. 2–6

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§ 2.1

The royalty rate should be determined in relation to the financial structure of the market to provide incentive to the licensee to utilize and pay for the technology. The rate should be based on economic considerations in commercializing the technology. Consider manufacturing costs, reasonable general and administrative expenses, and the selling price to determine profit, and then a fair split of the profit, so the licensee makes a good profit after payment of the royalty. Then, use the profit split to determine the percentage of net sales payable by the licensee as a royalty. Example: This can be illustrated by an example where the sale price of the existing product is $10, of which $5 represents the costs of materials and $3 represents overhead. In such a product, the profit is $2, or 20 percent. If the patented technology allows the enhanced product to be sold at $13, assuming that the cost of materials and overhead remain the same, profit on the enhanced device will be $5. It would be reasonable to propose a 50-50 split in the additional $3 in profit attributable to the patented technology. That would be $1.50 in royalty to the licensor for the sale of each patented product, resulting in an 11.5 percent royalty rate ($1.50 royalty divided into the $13 sale price). Royalties are usually reported and paid quarterly, with the licensor having the right to have the licensee’s books reviewed by a certified public accountant. For an example of a license form favoring the licensor, see Exhibit 2A. For an example of a license form favoring the licensee, see Exhibit 2B.

§ 2.1.3

Assuring Commercialization

Up-front payments may provide some incentives and compensate the licensor earlier. A license fee, often resisted by the licensee, is a payment made in consideration for signing the license. Advance against royalties is a compromise characterization of an up-front payment, permitting the licensee to credit the payment against future royalty obligations. The licensor can require minimum royalties to be paid in each of a succession of years. The amount might increase over time. If the amounts are thoughtfully established, it may be hard for the licensee to argue against payment, since there is usually some level of production below which it is not economically feasible for the licensee to be utilizing the licensor’s technology. There are a number of other important considerations. For example, exclusivity may be essential to the licensee in order to justify the burden of commercialization. 3rd Edition 2016

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Practice Note Antitrust laws and the doctrine of “patent misuse” impose limitations on licensing activities. See, e.g., Zenith v. Haseltine, 395 U.S. 100, 139 (1969) (patent holder cannot require royalties to be measured by gross sales that include sales of nonpatented items, but such a practice is lawful if for the convenience of the parties); Brulotte v. Thys, 375 U.S. 29 (1964) (misuse to require payment of royalties for use of patent rights after expiration of the patent); Kimble v. Marvel Entm’t, LLC, 135 S. Ct. 2401 (2015) (Brulotte rule followed); cf. Practice Mgmt. Info. Corp. v. Am. Med. Ass’n, 121 F.3d 516 (9th Cir. 1997) (analogous finding of copyright misuse). On the other hand, patent misuse is infrequently found. See U.S. Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179, 1193 (Fed. Cir. 2005) (mandatory package licensing does not constitute per se misuse); Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992) (rule of reason analysis applied to patent misuse). Moreover, the 1998 Patent Misuse Reform Act reigned in patent misuse as a defense to patent infringement; under 35 U.S.C. § 271(d)(5), for example, misuse is a defense when a tie-in arrangement is alleged only if it can be demonstrated that the patent owner has market power in the relevant market.

Practice Note Antitrust laws impose additional constraints on license agreements. Price fixing is a principal focus of the antitrust laws; price fixing in a license agreement can give rise to antitrust liability. United States v. Line Material Co., 333 U.S. 287, 314 (1948). Another source of antitrust liability is failure to license a standard-essential patent on terms that are reasonable and nondiscriminatory (RAND). Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 (1988); see also U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of Intellectual Property (1995), available at http://www.ftc .gov/bc/0558.pdf; U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition (2007), available at http://www.ftc.gov/reports/ innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf. (Sometimes a similar standard is referenced as fair, reasonable, and nondiscriminatory (FRAND).)

Practice Note Developments in decisional law now put a patent owner at risk of a suit for declaratory relief merely by making an offer to a party to enter into a license agreement. MedImmune v. Genentech, 549 U.S.

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§ 2.1

118 (2007) (suit by licensee for declaration of noninfringement and patent invalidity held proper even though licensee was still in good standing under patent license); SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007) (patent holder expressly stating that there were no plans to sue held amenable to suit for declaratory relief on the basis of MedImmune); Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358 (Fed. Cir. 2009) (patent holder held amenable to suit for declaratory relief even without having made a demand or offer for a license).

Sublicensing rights should also be considered. These are often regulated by the licensor. The licensor can be compensated either by sharing in sublicense revenue or by requiring the sublicensee to pay a royalty as if standing in the shoes of the licensee. Control over patent prosecution may need to be addressed. Consider the degree to which a licensee can become involved. Are there rights to institute and conduct infringement litigation against third parties and to retain any damages recovered? See Exhibit 2C for the form of an agreement regarding confidential disclosure to a third party. Insurance, indemnification, dispute handling, and arbitration provisions should also be included in any license agreement. There are several useful references on licensing, including the following: • Les Nouvelles, Journal of the Licensing Executives Society, http:// www.lesi.org/les-nouvelles/about-les-nouvelles; • Patent Licensing Transactions (Matthew Bender), http://www .lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?page Name=relatedProducts&prodId=10203; • Epstein and Politano, ed., Drafting License Agreements (Wolters Kluwer 4th ed. 2015), http://www.wklawbusiness.com/store/ products/drafting-license-agreements-fourth-prod-0735533792/ looseleaf-item-1-0735533792; and • Melville: Forms and Agreements on Intellectual Property and International Licensing (Sweet & Maxwell 3d ed. 2015) (emphasizing English law), http://www.sweetandmaxwell.co.uk/Catalogue/ ProductDetails.aspx?recordid=149.

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Strategic alliances and joint ventures are possible if the company is comfortable with a partner-like relationship. Partners require even more careful picking than traditional licensees, since a partnership is typically a more intimate relationship than one via a license agreement. Sale of the business (via stock or asset sale) that is based on the technology is another alternative. This requires less involvement with the acquirer of the technology than in the case of a license. Note that any earn-out payments will depend on conduct of a business that the seller will not likely be able to control.

§ 2.2

OWNERSHIP OF PATENTS

In the United States, the question of ownership of patents and inventions is generally governed by state law. State law also governs the interpretation and enforcement of license agreements. (Federal courts have exclusive jurisdiction for patent infringement cases, pursuant to 28 U.S.C. § 1338, but not for enforcement of license agreements.) Although the interpretation of license and assignment agreements is generally a state law question, there are important federal provisions that one needs to pay attention to, in particular regarding the recording of assignments in the PTO as set forth in 35 U.S.C. § 261, which reads in part as follows: A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, . . . shall be prima facie evidence of the execution of an assignment, grant or conveyance of a patent or application for patent. An assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage. Patents are presumed to be owned by the inventor or inventors, not by their employers. It should go without saying then, that employers should have each employee execute ahead of time—preferably at the time of hiring—an explicit written agreement in order to avoid any misunderstandings about who owns what. Typically, an employer will want all employees to assign to the employer all inventions relating to the field of the employer or developed using the resources of the employer. Sample assignment forms are provided as Exhibit 2D and Exhibit 2E. A form of agreement for the two-way exchange of confidential 2–10

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§ 2.2

information is provided as Exhibit 2F. See Exhibit 2G for a form of assignment accompanying a patent application. See Exhibits 2H and 2I for transfer agreements pertinent to biological materials. Only for employees that are “hired to invent” is there generally an implicit obligation to assign inventions to the employer. Dalzell v. Dueber Watch Case Manufacturing Co., 149 U.S. 315 (1893) stated the general rule about employee inventions: [A] manufacturing corporation, which has employed a skilled workman, for a stated compensation, to take charge of its works, and to devote his time and services to devising and making improvements in articles there manufactured, is not entitled to a conveyance of patents obtained for inventions made by him while employed, in the absence of express agreement to that effect. Dalzell v. Dueber Watch Case Mfg. Co., 149 U.S. at 320. Showing that an employee was “hired to invent” is not as easy as one may suppose. Many factors are usually considered, and usually the employer’s testimony and the employee’s testimony are in sharp conflict. Officers and directors generally have a fiduciary duty to assign relevant inventions to a corporation. In some cases where an employee retains ownership of an invention, but—in a typical scenario—used an employer’s resources to conceive it or reduce it to practice, and then allowed the employer to use the invention, the employer may retain a nontransferable “shop right.” The employee, however, is still free to license competitors to practice the invention. The shop right generally allows the employer to practice the invention, or in some cases only certain embodiments of the invention, or only in certain ways (e.g., under some circumstances the employer may be allowed to use the invention but not sell it). Whether a shop right arises and the scope of the shop right depends on the circumstances of the particular case. The shop right doctrine—or a similar principle such as estoppel, implied license, or equity—may also apply in some contractor and consultant arrangements. Presumably, however, the employer, in addition to ensuring the full right to practice the invention itself, will want to prevent others from practicing an invention developed by an employee, or by a consultant or contractor or whoever may be working for the employer. An explicit written agreement is the only way to ensure that the employer will retain the ownership rights to inventions developed by others while working for the employer. 3rd Edition 2016

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Practice Note Companies should obtain written agreements from all employees and anyone else who may be inventing on behalf of the company. A sample employment agreement is provided as Exhibit 2J. It is wise to avoid making assumptions about inventorship and to anticipate events that might otherwise be unexpected. In Ethicon v. United States Surgical Corp., 135 F.2d 1456 (Fed. Cir. 1998), a lab assistant was found to be a coinventor, and, because he had not assigned to the plaintiff where he worked, he was able to license the defendant and prevent recovery by the plaintiff. In Stanford v. Roche, a Stanford researcher “agree[d] to assign” inventions to Stanford, but while at Stanford also signed an agreement with Cetus, a sponsor, and the Supreme Court held that the second agreement, which recited a present assignment, trumped the first agreement. Stanford v. Roche, 131 S. Ct. 2188 (2011).

Joint inventors or other joint owners can practice the invention without the consent of or an accounting to the other owners, unless there is an agreement to the contrary. 35 U.S.C. § 262. For multinational companies operating outside the United States, different countries have different laws as to employer rights to employee inventions. In some countries, but not all, employee inventions in their field of employment are automatically owned by the employer. Even in such countries, though, it is prudent to maintain the U.S. practice of requiring that employees execute confirmatory written assignments. Many countries also have laws that require that employers pay their employees “reasonable compensation” for the value of their inventions. But it often is difficult to develop a reliable projection of the future value of a new invention. Moreover, there are examples of foreign courts second-guessing the particulars of inventor compensation and concluding that far more money was owed. Where one or more patent inventors resides outside the United States, it is wise to investigate and determine the specific requirements of local law.

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EXHIBIT 2A—Mononucleosis Detection Technology License Agreement (Version A, Tending to Favor Licensor) Effective as of the ___ day of February, 2015 (the “Effective Date”) Duzmor Biotech, Inc., (“DBI”) a Massachusetts corporation, having a business address of 24 Clules Street, Cambridge, MA 09999, and YYY Company (“Licensee”), a corporation duly organized and existing under the laws of __________, and having its principal place of business at __________, hereby agree as follows: 1.

Basis of Agreement.

DBI is the owner of the Mononucleosis Detection technology, as defined below, and desires to have such technology further developed and marketed by granting a license thereunder. Licensee has experience in R&D relating to products, as well as manufacturing, sales and marketing. It is the desire and interest of the parties that Licensee obtain a license from DBI to utilize the Mononucleosis Detection technology. The purpose of this Agreement is to set forth the terms, conditions, mutual promises and considerations, under which DBI will grant and Licensee will accept such a license. 2.

Definitions.

2.1 “Affiliate” shall mean any corporation or other business entity controlled by, controlling, or under common control with Licensee. For this purpose, “control” means direct or indirect beneficial ownership of at least fifty percent (50%) of the voting stock, in the case of a corporation, or of the rights to receive distributable net income, in the case of any other business entity. 2.2

“Field” means the field of mononucleosis detection products.

2.3 “Joint Invention” means an invention which both DBI and any employee of Licensee are the inventors. 2.4 “Licensed Process” shall mean any process which (a) is covered in whole or in part by a Valid Claim in the country in which the process is used or sold or (b) embodies, utilizes, or is derived from any of the Mononucleosis Detection Technology. 2.5 “Licensed Product(s)” shall mean any product (a) the manufacture, sale, or use of which is covered in whole or in part by a Valid Claim in the country in which the product is made, used or sold or (b) embodies, utilizes, is derived from, or is made in accordance with any of the Mononucleosis Detection Technology. 3rd Edition 2016

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2.6 “Mononucleosis Detection Technology” shall mean the technology disclosed in pending United States patent application serial number __________, filed __________, 20__, for an invention of William Helpum, Kevin Sharpe, John Engineer, and Joan Programmer entitled “__________” and any Technical Information relating to such technology. 2.7 “Net Sales” shall mean the gross amount invoiced for sales of Licensed Products or Licensed Processes to independent third parties less: (a)

Transportation charges or allowances actually paid or granted;

(b)

Trade, quantity, cash or other discounts, if any, allowed and paid by Licensee to independent parties in arms-length transactions;

(c)

Credits or allowances made or given on account of rejects, returns, recalls or retroactive price reductions for any amount not collected;

(d)

Any tax or governmental charge directly on sale or transportation, use or delivery or services paid by Licensee and not recovered from the purchaser.

Licensed Products and Licensed Processes shall be considered “sold” when invoiced or billed out. 2.8 “Patent Rights” shall mean any United States or foreign patent applications or any patents issuing thereon directed to the invention or inventions included in the Mononucleosis Detection Technology owned by, or assignable to, DBI, together with any divisions, reissues, continuations, extensions, or additions thereof. In the case of a regional patent, such as a European patent, an application shall be deemed to be pending in a country if there is pending a regional patent application for which such country has been designated; and a patent shall be deemed to have issued in a country if a regional patent shall have issued and such patent shall have been registered in such country so as to be enforceable in such country. 2.9 “Technical Information” shall mean DBI’s and its Affiliates’ proprietary, technical information, including trade secrets, know-how, techniques, specifications and procedures in existence on the Effective Date. 2.10 “Valid Claim” shall mean any claim set forth in the Patent Rights that, in the case of a claim set forth in a patent, has (i) been maintained, (ii) not expired, and (iii) not been held invalid or unenforceable by a court of competent jurisdiction; or, in the case of a claim set forth in a patent application, has (iv) been diligently prosecuted and (v) not been finally rejected by the patent office of the country in which the application has been filed, such rejection having 2–14

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become unappealable by virtue of a waiver or a failure to file and diligently prosecute an appeal. 3.

Grant.

3.1 General. DBI hereby grants to Licensee, subject to all the terms and conditions of this Agreement, the exclusive right and license to make, have made, use, lease, promote, market, distribute and sell the Licensed Products and Licensed Processes and Other Products in the Field throughout the world. 3.2 Sublicense Rights. Licensee shall have the right to sublicense worldwide any of the rights, privileges and licenses granted hereunder, subject to the provisions of this section 3.2. (a)

Any sublicense granted by Licensee under this Agreement shall be in a written document signed by Licensor and the sublicensee. Such sublicense shall provide for termination of the sublicense on termination of the license granted under this Agreement and for termination of exclusivity of the sublicense on termination of the exclusivity of the license granted under the Agreement.

(b)

Any sublicense granted by Licensee shall provide that the Licensee’s obligations to DBI under terms of sections 2, 3, 6, 8, 10, 12, 13, and 15–18 of this Agreement shall bind the sublicensee as if it were a party to this Agreement and that DBI is an intended beneficiary of such sublicense. A copy of such sections shall be attached to and incorporated in such sublicense.

(c)

Licensee shall provide DBI with a copy of any sublicense hereunder within thirty (30) days after it has been signed by the parties.

(d)

No consideration other than cash shall be paid to Licensee under any sublicense without DBI’s prior written consent.

3.3 Retained Rights. DBI retains the non-transferable right under Patent Rights to make and use the Licensed Products and to practice the Licensed Processes in the United States for its own non-commercial use. [DBI also retains the right to grant a royalty-free non-exclusive license to the Government of the United States (the “Government”) if and to the extent required by any funding agreement entered into between DBI and the Government pursuant to 35 U.S.C. § 202.] 4.

Best Efforts of Licensee.

Licensee shall devote its best efforts to bring one or more Licensed Products or Licensed Processes to the marketplace through a program of development, 3rd Edition 2016

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production and distribution, including the expenditure of not less than one million dollars per year for three years for such program in accordance with the budget attached hereto and incorporated herein by reference as Exhibit A. The aggregate annual expenditure levels constitute a material provision of this agreement, the breach of which affords Licensor grounds for termination. In connection with its program, on each anniversary of the Effective Date Licensee shall provide to DBI (i) an annual report identifying specific goals and objectives in commercializing the Mononucleosis Detection Technology and progress in meeting these goals and objectives, together with (ii) an update to Exhibit A setting forth actual expenditures for the items listed therein as well as a revision of the projected expenditures for the three following years. A revision of the projected expenditures does not affect the million dollar per year requirement set forth in the first sentence of this section. 5.

Royalties and License Fees for Licensed Products and Processes.

5.1 License Fee. In partial consideration for the license granted by this Agreement, Licensee shall pay DBI a license fee of $100,000 upon the execution of this Agreement. 5.2 Basic Royalty. In further consideration of the license granted by this Agreement, Licensee shall pay a basic royalty of ____ percent (____%) of Net Sales of Licensed Products and Licensed Processes by Licensee and its Affiliates and its non-affiliated third party sublicensees. 5.3

Reductions.

(a)

If No Patent Issues. If no patent has issued with respect to the Patent Rights by December 31, 2018, the applicable royalty rate shall be reduced by fifty percent (50%) unless the patent application is involved in an interference or subject to a secrecy order from the U.S. Patent and Trademark Office, in which cases the full royalty rate shall apply. If the royalty rate is reduced by fifty percent (50%) as provided by this paragraph and a patent subsequently issues, the full royalty rate shall be payable as of the issue date of the patent. If no patent has issued with respect to the Patent Rights by the fourth anniversary of this Agreement, the applicable royalty rate shall be reduced by one hundred percent (100%) until a patent subsequently issues, at which time the full royalty rate shall be restored.

(b)

Joint Inventions. If Licensee experiences Net Sales of Licensed Products and Processes involving Joint Inventions, the applicable royalty rate shall be reduced by fifty percent (50%).

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5.4 Minimum Royalties: Minimum Net Sales. In each calendar year during the term of this Agreement after 2015, Licensee shall pay minimum royalties of twelve thousand five hundred dollars ($12,500) per calendar quarter. Net Sales of Licensed Products shall be not less than five million dollars ($5,000,000) for each calendar year after 2015. 6.

Reports, Records and Royalty Payments.

6.1 Records. Licensee shall keep adequate and complete records showing all Net Sales of Licensed Products and Licensed Processes, with respect to which basic royalties are due under this Agreement. Such records shall include all information necessary to verify the total amount and computation of basic royalties and minimum royalties due hereunder, and shall be open to inspection by DBI or an agent on behalf of DBI during normal business hours to the extent necessary to verify the amounts thereof or to ascertain such amounts in the event of a failure of Licensee to report. Licensee shall retain such records for not less than five (5) years after the close of any calendar year to which they relate. Should such inspection reveal a shortfall of more than ten percent between the royalties reported and those actually owed by Licensee, the cost of such inspection shall be paid by Licensee. 6.2 Reports. Within thirty (30) days after the closing of each calendar quarter during the term of the License herein granted, including the quarter in which the license terminates, Licensee shall furnish DBI with a written report, signed by an authorized representative of Licensee, showing: (a)

With respect to sales of all Licensed Products and Processes sold by Licensee and its Affiliates and sublicensees in each country during the preceding calendar quarter, the gross amount invoiced or billed out, the deductions therefrom pursuant to section 2.3, and the Net Sales thereof;

(b)

that portion of the Net Sales reported pursuant to clause (a) above which involve a Joint Invention;

(c)

the amount of basic royalties due on Licensed Products and Processes sold by Licensee and its Affiliates and sublicensees during the preceding calendar quarter, computed pursuant to the provisions of Section 4.1 and 4.2 hereof;

(d)

any minimum royalty payment due pursuant to section 4.3 hereof, accompanied by a statement showing how the amount was computed; and

(e)

the names and addresses of all sublicensees hereunder of Licensor.

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6.3 Royalty Payments. With each such quarterly report, Licensee shall remit to DBI the total amount of royalties shown thereby to be due, subject to any credits which may be taken by Licensee hereunder. Subject to the provisions of Section 6.4 hereof, payment shall be made in lawful money of the United States. Payments of royalties under this section and of patent prosecution costs under Section 7 that are not made when due shall accrue interest at the rate of two percent over the prime rate in effect at the Chase Manhattan Bank (N.A.) on the due date. 6.4 Currency Conversion. All payments due hereunder from foreign sales of Licensed Products and Licensed Processes from time to time shall be paid in United States funds collectible at par in Boston, Massachusetts. For purposes of computing such payments, the Net Sales shall first be determined in the foreign funds for which such Licensed Products or Licensed Processes are sold (herein called “selling funds”) and then converted into its equivalent in United States funds at either: (a)

the rate applicable to the transfer of funds arising from royalty payments as established by the exchange control authorities of the country of which selling funds are the national currency, for the last business day of the accounting period for which payment is thus made; or

(b)

if there is no applicable rate so established, then the selling rate in United States funds as published by leading commercial banks in the major city of the country of which selling funds are the national currency, for the last business day of such accounting period; or

(c)

if there is no rate so published, then the buying rate for selling funds as published by First National Bank of Boston, N.A., for the last business day of such accounting period.

7.

Patent Prosecution.

7.1 U.S. Patents. DBI, at Licensee’s expense, shall file, prosecute and maintain all patents and patent applications specified under Patent Rights and Licensee shall be licensed thereunder. Licensee will provide payment authorization no later than one month after receipt of written notice by DBI of the action to be taken. Actual payments for patent costs authorized by Licensee shall be made within thirty (30) days after invoice therefor. 7.2 Foreign Patents. DBI shall file foreign applications corresponding to United States patent applications that are to be filed in all such countries as may be selected by Licensee at Licensee’s expense. In any country where Licensee elects not to have a patent application filed or not to pay expenses associated with filing, 2–18

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prosecuting, or maintaining a patent application or patent, DBI may then, file, prosecute, and/or maintain a patent application or patent at its own expense and Licensee, thereafter, shall not be licensed under such patent or patent application for that country. However, Licensee shall not lose its exclusive license unless Licensee has been given written notice that DBI has at its own expense filed, prosecuted or maintained a patent application or patent and, within thirty (30) days after such notice, Licensee has failed to reimburse DBI for such payment. 7.3 Licensee Participation. Licensee shall have reasonable opportunities to advise DBI and shall cooperate with DBI in the prosecution, filing and maintenance of patents and patent applications included in Patent Rights. 8.

Infringement.

8.1 Notice. If either DBI or Licensee learns that a Valid Claim in any issued and unexpired patent licensed exclusively under this Agreement is allegedly infringed or contributorily infringed by a third party, the party learning of the alleged infringement or contributory infringement shall promptly notify the other party. Within thirty (30) days after learning of such infringement or contributory infringement, DBI shall notify Licensee of its decision whether or not to bring an action against the alleged infringer. 8.2 Licensor Prosecution of Claim. In the event that DBI brings an action for infringement or contributory infringement, in the name of Licensee and/or the name of DBI, Licensee will cooperate with DBI and DBI will bear all costs and the expenses relating to the litigation. DBI will be entitled to all damages and other recoveries awarded in such litigation. 8.3 Licensee Prosecution of Claim. In the event that DBI decides not to bring an action for infringement or for contributory infringement, then Licensee shall have the right, but not the obligation, to bring an action in the name of DBI and/or the name of Licensee. DBI will cooperate with Licensee. Licensee shall bear all costs and expenses relating to the litigation, and Licensee will be entitled to all damages and other recoveries awarded in such litigation. 8.4 Claim Against Licensee. If Licensee is charged with or sued in any country for infringement of any patent of a third party by doing acts necessary to practice the inventions of the Patent Rights, Licensee shall promptly notify DBI of the name and address of any such third party. DBI shall cooperate and assist Licensee in the disposition of each such charge and in the defense of each suit at Licensee’s expense. 8.5 Licensor’s Participation in Defense. If, after DBI fails to cause such infringement to terminate or to bring a suit or action to compel termination, 3rd Edition 2016

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Licensee has brought suit or action to compel termination, DBI independently shall have the right to join any such suit or action brought by Licensee and, in such event, shall pay one-half of the cost of such suit or action from the date of joining. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent of Licensee, which consent shall not unreasonably be withheld. 8.6 Licensor Control of Defense. In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against Licensee, DBI, at its sole option, shall have the right, within thirty (30) days after commencement of such action, to intervene and take over the sole defense of the action at its own expense. 8.7 Cooperation. In any infringement suit as either party may institute to enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and expense of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like. 9.

Consulting.

DBI shall make available up to 500 person-hours per year of its services to Licensee in connection with development of the Mononucleosis Detection Technology, the Licensed Products and Processes and the Patent Rights. DBI shall perform such services, at DBI’s then-current rates, for Licensee as Licensee may reasonably request and at such locations (including Licensee’s headquarters in [city], [state]) as Licensee may reasonably request. Licensee shall reimburse DBI for its actual, out-of-pocket travel expenses associated with the provision of services hereunder. Without limiting the generality of this Section, Licensee may request DBI to assist it with patent studies, engineering conferences, prototype models, layouts, drawings and prototype testing. 10.

Patent Marking.

Any Licensed Products that are covered by or are made or used in accordance with any claims of an issued patent included in the Patent Rights shall be marked in accordance with the patent laws of each country in which such products are made, sold, or sold for use. 11.

Licensee Improvements.

Licensee shall keep DBI apprised on a current basis of any improvements made by Licensee in the Mononucleosis Detection Technology, and shall upon DBI’s request grant DBI a royalty-bearing non-exclusive license to make, have made, use, and sell 2–20

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products and services utilizing such improvements. The royalty rate shall be an amount customary in the trade and shall be negotiated in good faith by the parties. 12.

Term and Termination.

12.1 Term. Unless earlier terminated as hereinafter provided, this Agreement shall remain in full force and effect until the last to expire of any patent included in the Patent Rights. 12.2 Licensor’s Cessation of Business. If Licensee shall cease to carry on its business, DBI shall have the right to terminate this Agreement on notice to Licensee. 12.3 Licensor’s Failure to Pay. Should Licensee fail to pay DBI such royalties or license fees as are due and payable under Section 5 or patent prosecution expenses due under Section 7.1, DBI shall have the right to terminate this Agreement on thirty (30) days written notice, unless Licensee shall pay DBI within the thirty (30) days notice period, all such amounts as are due and payable. 12.4 Repeated Late Payments. If Licensee has defaulted on three separate occasions within any consecutive three-year period for failure to pay royalties when due, DBI shall have the right to terminate this Agreement on notice to Licensee. 12.5 Other Material Breach. Upon any material breach or default of this Agreement by Licensee (other than as described in connection with section 12.3 and 12.4 above), DBI shall have the right to terminate this Agreement and the rights, privileges and license hereunder granted upon sixty (60) days written notice to Licensee. Such termination shall become effective immediately at the conclusion of such notice period unless Licensee shall have cured any such breach or default prior to the expiration of the sixty (60) day period or, in the case of breaches or defaults which are not susceptible of cure within such period, Licensee has commenced such cure and is diligently pursuing it. 12.6 Rights and Obligation After Termination. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. Licensee and its Affiliates and any non-affiliated third party sublicensees thereof may, after the effective date of such termination, sell all Licensed Products which are in inventory at the time of termination and Licensed Processes for which inventory was received at the time of termination, and complete and sell Licensed Products which Licensee can clearly demonstrate were in the process of manufacture at the time of such termination, provided that Licensee shall pay to DBI the royalties thereon as required by Section 4 of this Agreement and shall 3rd Edition 2016

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submit the reports required by Section 5 hereof on the sales of Licensed Products and Licensed Processes. 12.7 Survival. The provisions of sections 5, 6, 10, and 12–18 shall survive termination of this Agreement. 13.

Indemnification and Insurance.

13.1 Duty to Defend and Indemnify. Inasmuch as DBI will not, under the provisions of this Agreement or otherwise, have control over the manner in which Licensee or its Affiliates or its agents or its sublicensees or those operating for its account, or third parties who purchase Licensed Products from any of the foregoing entities, practice the invention encompassed by the license granted herein, Licensee shall defend and hold DBI harmless as against any judgments, fees, expenses or other costs (including reasonable attorney’s fees) arising from or incidental to any product liability or other lawsuit brought as a consequence of the practice of said invention by any of the foregoing entities, whether or not DBI is named as party defendant in any such lawsuit. Licensee shall have the right to defend such a product liability lawsuit with counsel of its own choosing and DBI will cooperate in the defense of such action at Licensee’s expense. Practice of the invention encompassed by the license granted herein by an Affiliate or an agent or a sublicensee, or a third party on behalf of or for the account of Licensee or by a third party who purchases Licensed Products from any of the foregoing shall be considered practice of said invention for purposes of this Section. 13.2 Insurance. Within thirty days after execution of this Agreement, Licensee shall, at its expense, provide to DBI a certificate of insurance evidencing a product liability insurance policy from a national insurance carrier to whom DBI has no reasonable objection naming DBI as an additional named insured and requiring thirty days advance written notice to DBI prior to cancellation or material modification of the policy. The policy shall be maintained at Licensee’s expense, and shall have limits of not less than one million dollars ($1,000,000) per occurrence and three million dollars ($3,000,000) in the aggregate for personal injury or death and one million dollars ($1,000,000) for property damage. 13.3 Procedure. In the event any such action is commenced or claim made or threatened against DBI or other Indemnities as to which Licensee is obligated to indemnify it (them) or hold it (them) harmless, DBI or the other Indemnities shall promptly notify Licensee of such event and Licensee shall assume the defense of, and may settle, that part of any such claim or action commenced or made against DBI (or other Indemnities) which relates to Licensee’s indemnification and Licensee may take such other steps as may be necessary to protect itself. Licensee shall not be liable to DBI or other Indemnities on account of any settlement of any such claim or litigation affected without Licensee’s consent. 2–22

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The right of Licensee to assume the defense of any action shall be limited to that part of the action commenced against DBI and/or Indemnities which relates to Licensee’s obligation of indemnification and holding harmless. 14.

Representations and Warranties of DBI.

DBI hereby represents and warrants to Licensee that: 14.1 Power and Authority. DBI has the full legal power, authority and right to grant the option and exclusive license under the Patent Rights to perform its obligations under this Agreement and upon execution and delivery by Licensee, this Agreement will constitute valid and binding agreements of DBI enforceable against it in accordance with its terms. 14.2 Title and Validity. It is the sole owner of all right, title and interest in and to the Patent Rights. Except for such Patent Rights, there are no patents issued or, to DBI’s knowledge, other patent applications filed in any country covering any of the Mononucleosis Detection Technology, except for patents owned or filed by or specifically licensed to DBI or any of its Affiliates. DBI has no knowledge of any fact which casts substantial doubt on the validity of any of the Patents Rights as of this date. 14.3 No Conflict. DBI hereby represents and warrants that no other person or organization presently has any assignment, option, license under the Patent Rights with respect to the manufacture, use or sale of Licensed Product or Process in the U.S. or anywhere in the world. Execution, delivery and consummation of this Agreement will not result in the breach of or give rise to cause for termination of any agreement or contract to which DBI or its Affiliates may be a party or, to DBI’s knowledge, which otherwise relates to the Patent Rights, the Licensed Product or Process, or any Technical Information relating to any of the foregoing. Neither DBI nor any of its Affiliates after the date hereof shall enter into any agreement or take or fail to take any action which shall restrict its legal right to grant to Licensee the rights and benefits contemplated under this Agreement. 14.4 Indemnity. It is understood that if any of the representations and warranties hereunder are not true and correct as of the date hereof and Licensee or its Affiliate incur damages, costs or other expenses as a result of such falsity or circumstances falsely represented, DBI shall defend, indemnify and hold harmless Licensee and its Affiliate for any such damages, costs or expenses incurred. This obligation shall survive termination of this Agreement. 14.5 DISCLAIMERS. THE RIGHTS GRANTED HEREIN BY DBI DO NOT INCLUDE ANY WARRANTY WHATSOEVER WITH RESPECT TO THE PERFORMANCE OF A LICENSED PRODUCT INCLUDING ITS 3rd Edition 2016

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SAFETY, EFFECTIVENESS, COMMERCIAL VIABILITY OR MERCHANTABILITY, AND LICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY IN THIS REGARD. 15.

Export Controls.

Licensee shall not sell, transfer, export, or reexport any Licensed Products or Licensed Processes or related information in any form, or any direct product of such information, except in compliance with all applicable laws, including the export laws of any U.S. government agency and any regulations thereunder, and will not sell, transfer, export or reexport any such Licensed Products or Licensed Processes or information to any persons or any entities with regard to which there exist grounds to suspect or believe that they are violating such laws. Licensee shall be solely responsible for obtaining all licenses, permits or authorizations required from the U.S. and any other government for any such export or reexport. To the extent not inconsistent with this Agreement, DBI shall provide Licensee with such assistance as it may reasonably request in such license, permits or authorization. 16.

Notices.

All reports, notices and other communications provided hereunder shall be made or given hereunder may be made or given by either party by facsimile, by first-class mail, postage prepaid, or by air courier to the mailing address or facsimile numbers set out below or such other address or facsimile numbers as such party shall have furnished in writing to the other party in accordance with this Section: If to DBI, to:

Jane Duzmor, President Duzmor Biotech, Inc. 24 Clules Street Cambridge, MA 09999 Tel: (617) 999-9000 Fax: (617) 999-9500

with a copy to: Sunstein Kann Murphy & Timbers LLP 125 Summer Street Boston, Massachusetts 02111 Attn.: Bruce D. Sunstein Tel: (617) 443-9292 Fax No. (617) 443-0004 If to Licensee, to:

Insert Name and Address

with a copy to: 2–24

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or to such other individuals or at such address as either party hereto may from time to time designate by written notice to the other. In the event of notice by facsimile the sending party shall confirm the facsimile notice by mailing said notice to the other party in accordance with this Section no later than the first business day following the date of facsimile. Notice sent by first-class mail shall be deemed to be received three (3) days after being deposited in the U.S. mails. Notice sent by facsimile machine or by overnight delivery service shall be deemed received one day after having been sent. 17.

Confidentiality.

Licensee and DBI contemplate that it may be necessary to exchange trade secrets or other confidential information in connection with the terms of this Agreement. Each party to this Agreement agrees, therefore, that information marked CONFIDENTIAL that is received from the other shall be maintained in confidence and that reasonable and prudent practices shall be followed to maintain the information in confidence including, where necessary, obtaining written confidentiality agreements from persons not already bound by a written confidentiality agreement having access to information obtained from the other. The obligation to maintain the confidentiality of such information shall survive this Agreement for a period of three (3) years. However, a party shall not be obligated to maintain information in confidence which it can reasonably prove by written documentation: (a)

to have been publicly known prior to submission by the other; or

(b)

to have been known or available to it prior to submission by the other; or

(c) to have become publicly known, without fault on its part, subsequent to submission by the other; or (d) to have been received by it from a third party not under a direct or indirect duty of confidence to the other; or (e) to have been required to be disclosed by order of any court or government agency, provided that reasonable advance notice is given to the other to afford an opportunity to protect the information. Notwithstanding any other provision of this Agreement, Licensee may disclose confidential or trade secret information of DBI relating to this Agreement to any person or entity with whom Licensee has, or is proposing to enter into, a business relationship, as long as Licensee obtains from such person or entity an agreement containing provisions concerning confidentiality substantially similar to those provided in this Agreement. 3rd Edition 2016

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18.

Miscellaneous.

18.1 Relationship of Parties. For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party. 18.2 Severability. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 18.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of DBI and its successors and assigns. As to Licensee, this agreement is personal in its character; Licensee’s duties hereunder cannot be delegated and, except as provided herein, its rights cannot be assigned, sold, transferred or encumbered in any manner, any attempt to do so being void. 18.4 Merger. This instrument contains the entire Agreement between the parties hereto. No verbal agreement, conversation or representation between any officers, agents, or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained. 18.5 Amendment and Waiver. No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party. 18.6 Captions. The captions are provided for convenience and are not to be used in construing this Agreement. 18.7 No Presumptions. The parties agree that they have participated equally in the formation of this Agreement and that the language herein should not be presumptively construed against either of them. 18.8 Counterparts. This Agreement may be signed in counterparts which collectively shall constitute a single agreement. 18.9 Choice of Law; Prorogation. This Agreement shall be governed by and interpreted in accordance with Massachusetts law, without giving effect to conflict of laws. Any controversy of claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration at Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American 2–26

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Arbitration Association. The arbitrator shall have no power to add to, subtract from, or modify any of the terms or conditions of this Agreement. Any award rendered in such arbitration may be enforced by either party in either the courts of the Commonwealth of Massachusetts or in the United States District Court for the District of Massachusetts, to whose exclusive jurisdiction for such purposes each of the parties hereby irrevocably consents and submits. The parties will not raise in connection with any action or suit hereunder, and hereby waive any defenses based upon, the venue, the inconvenience of the forum, the lack of personal jurisdiction or the like in any action or suit brought in any of such courts. 18.10 Force Majeure. Neither party shall be in breach hereof by reason of its delay in the performance of or failure to perform any of its obligations hereunder, if that delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental priorities for materials, or any fault beyond its control or without its fault or negligence. 18.11 Further Assurances. The parties each, at any time or from time to time, shall execute and deliver or cause to be delivered such further assurances, instruments or documents as may be reasonably necessary to fulfill the terms and conditions of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LICENSOR: Duzmor Biotech, Inc. (“DBI”) By Its LICENSEE: YYY Company By Its

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EXHIBIT 2B—Viral Detection Technology License Agreement (Version B, Tending to Favor Licensee) Effective as of the ___ day of February, 2015 (the “Effective Date”) Duzmor Biotech, Inc., (“DBI”) a Massachusetts corporation, having a business address of 24 Clules Street, Cambridge, MA 09999, and YYY Company (“Licensee”), a corporation duly organized and existing under the laws of __________, and having its principal place of business at __________, hereby agree as follows: 1.

Basis of Agreement.

DBI is the owner of the Viral Detection Technology, as defined below, and desires to have such technology further developed and marketed by granting a license thereunder. Licensee has experience in R&D relating to __________ products, as well as manufacturing, sales and marketing. It is the desire and interest of the parties that Licensee obtain a license from DBI to utilize the Viral Detection Technology. The purpose of this Agreement is to set forth the terms, conditions, mutual promises and considerations, under which DBI will grant and Licensee will accept such a license. 2.

Definitions.

2.1 “Affiliate” shall mean any corporation or other business entity controlled by, controlling, or under common control with Licensee. For this purpose, “control” means direct or indirect beneficial ownership of at least fifty percent (50%) of the voting stock, in the case of a corporation, or of the rights to receive distributable net income, in the case of any other business entity. 2.2

“Field” means the field of viral detection products.

2.3 “Joint Invention” means an invention which both DBI and any employee of Licensee are the inventors. 2.4 “Licensed Process” shall mean any process which is covered in whole or in part by a Valid Claim in the country in which the process is used or sold. 2.5 “Licensed Product” shall mean any product the manufacture, sale, or use of which is covered in whole or in part by a Valid Claim in the country in which the product is made, used or sold. 2.6 “Net Sales” shall mean the gross amount invoiced for sales of Licensed Products or Licensed Processes or Other Products to independent third parties less: 3rd Edition 2016

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(a)

Transportation charges or allowances actually paid or granted;

(b) Trade, quantity, cash or other discounts, if any, allowed and paid by Licensee to independent parties in arms-length transactions; (c) Credits or allowances made or given on account of rejects, returns, recalls or retroactive price reductions for any amount not collected; (d) Any tax or governmental charge directly on sale or transportation, use or delivery or services paid by Licensee and not recovered from the purchaser. 2.7 “Patent Rights” shall mean any United States or foreign patent applications or any patents issuing thereon directed to the invention or inventions included in the Viral Detection Technology owned by, or assignable to, DBI, together with any divisions, reissues, continuations, continuations in part, extensions, or additions thereof. In the case of a regional patent, such as a European patent, an application shall be deemed to be pending in a country if there is pending a regional patent application for which such country has been designated; and a patent shall be deemed to have issued in a country if a regional patent shall have issued and such patent shall have been registered in such country so as to be enforceable in such country. 2.8 “Sublicense Income” shall mean the net amounts actually received by Licensee from non-affiliated third party sublicensees on their Net Sales under the license herein granted, after the deduction of all reasonable legal costs actually incurred by Licensee in connection with the negotiation and procurement of the pertinent sublicenses. 2.9 “Valid Claim” shall mean any claim set forth in the Patent Rights that, in the case of a claim set forth in a patent, has (i) been maintained, (ii) not expired, and (iii) not been held invalid or unenforceable by a court of competent jurisdiction; or, in the case of a claim set forth in a patent application, has (iv) been diligently prosecuted and (v) not been finally rejected by the patent office of the country in which the application has been filed, such rejection having become unappealable by virtue of a waiver or a failure to file and diligently prosecute an appeal. 2.10 “Viral Detection Technology” shall mean the technology disclosed in pending United States patent application serial number __________, filed __________, 20__, for an invention of William Helpum, Kevin Sharpe, John Engineer, and Joan Programmer entitled “__________” and any enhancements or improvements made by DBI thereto during the term of this Agreement.

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3.

Grant.

3.1 General. DBI hereby grants to Licensee, subject to all the terms and conditions of this Agreement, the exclusive right and license to make, have made, use, lease, promote, market, distribute and sell the Licensed Products and Licensed Processes and Other Products in the Field throughout the world. Upon termination of the consulting period under Section 7 of this Agreement, all inventions resulting from consulting work which have been reduced to practice in form sufficient for filing a patent application shall be subject to Licensee’s right to receive a license thereto as provided herein and in Section 6.1. 3.2 Sublicense Rights. Licensee shall have the right to sublicense worldwide any of the rights, privileges and licenses granted hereunder. 4.

Royalties Licensed Products and Processes.

4.1 Basic Royalty. In consideration of the license granted by this Agreement, Licensee shall pay a basic royalty of percent ( %) of Net Sales of Licensed Products and Licensed Processes by Licensee and its Affiliates. 4.2

Reductions.

(a) If No Patent Issues. If no patent has issued with respect to the Patent Rights by the date when Net Sales by Licensee of Licensed Products and Processes exceed one million dollars ($1,000,000), or December 31, 2003, whichever first occurs, the applicable royalty rate shall be reduced by fifty percent (50%) unless the patent application is involved in an interference or subject to a secrecy order from the U.S. Patent and Trademark Office, in which cases the full royalty rate shall apply. If the royalty rate is reduced by fifty percent (50%) as provided by this paragraph and a patent subsequently issues, the full royalty rate shall be payable as of the issue date of the patent. If no patent has issued with respect to the Patent Rights by the fourth anniversary of this Agreement, the applicable royalty rate shall be reduced by one hundred percent (100%) until a patent subsequently issues, at which time the full royalty rate shall be restored. (b) Joint Inventions. If Licensee experiences Net Sales of Licensed Products and Processes involving Joint Inventions, the applicable royalty rate shall be reduced by fifty percent (50%). (c) Sublicenses to Non-Affiliates. In the event Licensee grants any sublicenses to nonaffiliated third parties during the term of this Agreement, then for each such sublicense, the royalty payable by Licensee shall equal fifty percent (50%) of the Sublicense Income of Licensee.

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4.3

Minimum Royalties.

(a) In each calendar year during the term of this Agreement after 2015, Licensee shall pay minimum royalties of twelve thousand five hundred dollars ($12,500) per calendar quarter. (b) Minimum royalty payments due under this Section shall be reduced (but not below zero) by the Licensee’s cumulative excess royalty payments, computed in accordance with the following formula: CERP = CBRP – ($50,000 * Years) Where: CERP means the Licensee’s cumulative excess royalty payments; CBRP equals the cumulative amount of basic royalty payments made hereunder (including royalty payments made with respect to sublicenses); and Years equals the number of years (including any fractional portion thereof) that have elapsed during the period beginning on January 1, 2015 and ending on the last day of the calendar quarter or month with respect to which the minimum royalty is being computed. 5.

Reports, Records and Royalty Payments.

5.1 Records. Licensee shall keep adequate and complete records showing all Net Sales of Licensed Products and Licensed Processes, with respect to which basic royalties are due under this Agreement. Such records shall include all information necessary to verify the total amount and computation of basic royalties and minimum royalties due hereunder, and shall be open to inspection on behalf of DBI upon reasonable notice during reasonable business hours to the extent necessary to verify the amount thereof. Such inspection shall be made not more often than once each calendar year at the expense of DBI by a certified public accountant appointed by DBI and to whom Licensee has no reasonable objection; the accountant shall not divulge to DBI any information that would not otherwise be contained in a report pursuant to section 5.2 of this Agreement. Licensee shall not be required to retain such records for more than three (3) years after the close of any calendar quarter. 5.2 Reports. Within sixty days after the closing of each calendar quarter during the term of the License herein granted, including the quarter in which the license terminates, Licensee shall furnish DBI with a written report, signed by an authorized representative of Licensee, showing: 2–32

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(a) the Net Sales of all Licensed Products and Processes sold by Licensee and its Affiliates in each country during the preceding calendar quarter; (b) the total amount of Sublicense Income received by Licensee and its Affiliates and from non-affiliated sublicensees under this License during the preceding calendar quarter; (c) that portion of the Net Sales reported pursuant to clause (a) above which involve a Joint Invention; (d) the amount of basic royalties due on Licensed Products and Processes sold by Licensee and its Affiliates during the preceding calendar quarter, computed pursuant to the provisions of Section 4.1 and 4.2 hereof; (e) the amount of DBI’s pro rata share of such Sublicense Income received by Licensee and its Affiliates during the preceding calendar quarter, computed pursuant to the provisions of clause (c) of Section 4.2 hereof; and (f) any minimum royalty payment due pursuant to section 4.3 hereof, accompanied by a statement showing how the amount was computed. 5.3 Royalty Payments. With each such quarterly report, Licensee shall remit to DBI the total amount of royalties shown thereby to be due, subject to any credits which may be taken by Licensee hereunder. Subject to the provisions of Section 5.4 hereof, payment shall be made in lawful money of the United States. If it is necessary for Licensee to have one or more royalty-bearing licenses from third parties in order to fully exercise the rights granted by DBI hereunder, then Licensee shall be entitled to credit such royalty payments against the then prevailing royalty payments it is due to pay hereunder, but in no case will the royalty otherwise due DBI be reduced by more than fifty percent (50%) from such then prevailing royalty payable. 5.4 Currency Conversion. All payments due hereunder from foreign sales of Licensed Products and Licensed Processes from time to time shall be paid in United States funds collectible at par in Boston, Massachusetts. For purposes of computing such payments, the Net Sales shall first be determined in the foreign funds for which such Licensed Products or Licensed Processes are sold (herein called “selling funds”) and then converted into its equivalent in United States funds at either: (a) at the conversion rate published in the Wall Street Journal on the last business day of the applicable calendar quarter; or (b) if there is no applicable conversion rate so published, then the selling rate in United States funds as published by leading commercial banks in the 3rd Edition 2016

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major city of the country of which selling funds are the national currency, for the last business day of such calendar quarter. If there is no selling rate so published, then the selling funds shall not be converted by Licensee, but shall be deposited in a bank account in DBI’s name in the pertinent country. 6.

Patent Prosecution.

6.1 U.S. Patents. DBI shall file, prosecute and maintain all patents and patent applications specified under Patent Rights and Licensee shall be licensed thereunder. 6.2 Foreign Patents. DBI shall at its expense file and prosecute foreign applications corresponding to United States patent applications in all such countries as may reasonably be selected by Licensee. In any country where DBI fails to have a patent application filed or to pay expenses associated with filing, prosecuting, or maintaining a patent application or patent and in which Licensee wishes to pursue commercialization of the Licensed Products, Licensee may then file, prosecute, and/or maintain a patent application or patent in its name or the name of any appropriate Licensor, and Licensee, thereafter, shall be fully licensed under such patent or patent application for that country, and shall not be obliged to pay any royalty, whether basic or incentive, for sales of Licensed Products or Processes (or for the use of Clinical Data) in such country. 6.3 Extensions. Licensee shall have the right, but not the obligation, to file for extensions of any Patent Rights. Any Licensor may, at its expense, file for such extensions. DBI agrees that it will not file or prosecute a patent application for the Patent Rights when Licensee has demonstrated to DBI that the patent application filing or prosecution would be prejudicial to plans for worldwide development and commercialization of the Melatonin Technology. 6.4 Credit. Licensee can credit one hundred percent (100%) of its patent prosecution and maintenance expenses (including those incurred for extensions of Patent Rights), to the extent that it makes any such payments, against its then prevailing royalties payable to DBI. Unused credits may be carried over to subsequent quarters. 6.5 Licensee Participation. With respect to any Patent Right, each patent application, office action, response to office action, interference proceeding, request for terminal disclaimer, and request for reissue or reexamination of any patent issuing from such application filed or received by either party, such document shall be provided to the other party sufficiently prior to the filing or due

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date of such application, response or request to allow for and comment by such other party, and in no event later than one week prior thereto. 6.6 In no event shall the scope of patent coverage within such Patent Rights be significantly modified by either party or any Licensor without prior review and opportunity to comment by the other party. 7.

Infringement.

7.1 Notice. If either DBI or Licensee learns that a Valid Claim in any issued and unexpired patent licensed exclusively under this Agreement is allegedly infringed or contributorily infringed by a third party, the party learning of the alleged infringement or contributory infringement shall promptly notify the other party. Within thirty (30) days after learning of such infringement or contributory infringement, Licensee shall notify DBI of its decision whether or not to bring an action against the alleged infringer. 7.2 Licensee Prosecution of Claim. In the event that Licensee brings an action for infringement or contributory infringement, in the name of Licensee and/or the name of DBI, DBI will cooperate with Licensee and Licensee will bear all costs and the expenses relating to the litigation. Licensee will be entitled to all damages and other recoveries awarded in such litigation. 7.3 Licensor Prosecution of Claim. In the event that Licensee decides not to bring an action for infringement or for contributory infringement, then DBI shall have the right, but not the obligation, to bring an action in the name of DBI and/or the name of Licensee. Licensee will cooperate with DBI. DBI shall bear all costs and expenses relating to the litigation, and DBI will be entitled to all damages and other recoveries awarded in such litigation. 7.4 Claim Against Licensor. If Licensee is charged with or sued in any country for infringement of any patent of a third party by doing acts necessary to practice the inventions of the Patent Rights, Licensee shall promptly notify DBI of the name and address of any such third party. DBI shall cooperate and assist Licensee in the disposition of each such charge and in the defense of each suit at Licensees expense. 7.5 Licensee’s Participation in Defense. If, after Licensee fails to cause such infringement to terminate or to bring a suit or action to compel termination, DBI has brought suit or action to compel termination, Licensee independently shall have the right to join any such suit or action brought by DBI and, in such event, shall pay one-half of the cost of such suit or action from the date of joining. No settlement, consent judgment or other voluntary final disposition of the

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suit may be entered into without the consent of Licensee, which consent shall not unreasonably be withheld. 7.6 Credit. Licensee can credit fifty percent (50%) of its litigation expenses in either an infringement or invalidity action against its then prevailing royalties payable to DBI. Unused credits may be carried over to subsequent quarters. Any damages recovered by such suit or action shall be first used to reimburse each party hereto for the cost of such suit or action (including attorney’s fees) actually paid by each party hereto as the case may be, then to reimburse DBI for any royalties waived under this Section 7 and the residue, if any, shall be divided equally between the parties hereto. 7.7 Licensor Control of Defense. In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against DBI, Licensee, at its sole option, shall have the right, within thirty (30) days after commencement of such action, to intervene and take over the sole defense of the action. 7.8 Cooperation. In any infringement suit as either party may institute to enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and expense of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like. 8.

Consulting.

DBI shall make its services available to Licensee in connection with development of the Viral Detection Technology, the Licensed Products and Processes and the Patent Rights. DBI shall perform such services for Licensee as it may reasonably request and at such locations (including Licensee’s headquarters in [city], [state]) as Licensee may reasonably request. Licensee shall reimburse DBI for its actual, out-of-pocket travel expenses associated with the provision of services hereunder. Without limiting the generality of this Section, Licensee may request DBI to assist it with patent studies, engineering conferences, prototype models, layouts, drawings and prototype testing. DBI shall provide up to 200 hours of such service to Licensee during the period commencing on the date hereof and ending on December 31, 2015 at no charge to Licensee. Additional consulting time provided by DBI at Licensee’s request shall be billed and paid for at DBI’s then-current rates. Time spent traveling shall not be billed or counted towards consulting services to be provided hereunder.

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9.

Term and Termination.

9.1 Term. Unless earlier terminated as hereinafter provided, this Agreement shall remain in full force and effect until the last to expire of any patent included in the Patent Rights. 9.2 Insolvency. In the event that either party shall go into involuntary bankruptcy or insolvency proceedings, or a receiver or trustee is appointed for the property or estate of either party, or either party makes an assignment of substantially all of its assets for the benefit of its creditors, and whether any of the aforesaid events is by the outcome of voluntary acts of either party or otherwise, this Agreement and the License and rights herein granted can be terminated at the option of the other party. 9.3 Failure to Pay License Fee or Basic Royalty. Should Licensee fail to pay DBI such royalties or license fees as are due and payable under sections 4.1 or 4.4, DBI shall have the right to terminate this Agreement on forty-five (45) days written notice, unless Licensee shall pay DBI within the forty-five day (45) notice period, all such royalties and license fees that are due and payable. 9.4 Failure to Pay Minimum Royalties. Should Licensee fail to pay DBI such royalties as are due and payable under section 4.3, DBI shall have the right to cancel the exclusivity of any exclusive rights granted hereunder on forty-five (45) days written notice, unless Licensee shall pay DBI within the forty-five day (45) notice period, all such royalties that are due and payable. 9.5 Licensee Termination. Licensee shall have the right to terminate this Agreement at any time upon three (3) months written notice to DBI, and upon payment of all amounts due DBI through the effective date of termination. 9.6 Other Material Breach. Upon any material breach or default of this Agreement by Licensee, other than those delineated in Sections 9.2, 9.3 and 9.4, which shall always take precedence in that order over any material breach or default referred to in this Section, DBI shall have the right to terminate this Agreement and the rights, privileges and license hereunder granted upon ninety (90) days written notice to Licensee. Such termination shall become effective immediately at the conclusion of such notice period unless Licensee shall have cured any such breach or default prior to the expiration of the ninety (90) day period or, in the case of breaches or defaults which are not susceptible of cure within such period, Licensee has commenced such cure and is diligently pursuing it. 9.7 Rights and Obligations After Termination. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either 3rd Edition 2016

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party from any obligation that matured prior to the effective date of such termination. Licensee and its Affiliates and any non-affiliated third party sublicensees thereof may, after the effective date of such termination, sell all Licensed Products which are in inventory at the time of termination and Licensed Processes for which inventory was received at the time of termination, and complete and sell Licensed Products which Licensee can clearly demonstrate were in the process of manufacture at the time of such termination, provided that Licensee shall pay to DBI the royalties thereon as required by Section 4 of this Agreement and shall submit the reports required by Section 5 hereof on the sales of Licensed Products and Licensed Processes. 9.8 Survival of Sublicenses. In the event that the License granted to Licensee under this Agreement are terminated, any granted sublicenses shall remain in full force and effect, provided that the sublicensee is not then in breach of its sublicense agreement and the sublicensee agrees to be bound to DBI as a licensor under the terms and conditions of the sublicense agreement. 10.

Indemnification and Insurance.

10.1 Duty to Defend and Indemnify. Inasmuch as DBI will not, under the provisions of this Agreement or otherwise, have control over the manner in which Licensee or its Affiliates or its agents or its sublicensees or those operating for its account, or third parties who purchase Licensed Products from any of the foregoing entities, practice the invention encompassed by the license granted herein, Licensee shall defend and hold DBI harmless as against any judgments, fees, expenses or other costs (including reasonable attorney’s fees) arising from or incidental to any product liability or other lawsuit brought as a consequence of the practice of said invention by any of the foregoing entities, whether or not DBI is named as party defendant in any such lawsuit. Licensee shall have the right to defend such a product liability lawsuit with counsel of its own choosing and DBI will cooperate in the defense of such action at Licensee’s expense. Practice of the invention encompassed by the license granted herein by an Affiliate or an agent or a sublicensee, or a third party on behalf of or for the account of Licensee or by a third party who purchases Licensed Products from any of the foregoing shall be considered practice of said invention for purposes of this Section. The provisions of this Section shall survive termination of this Agreement. 10.2 Warranty. Licensee warrants that it has product liability insurance in or is self insured at a level that is commensurate with the risks to which it is exposed. 10.3 Force Majeure. No liability under this Agreement shall result to a party from delay in performance caused by force majeure, that is, circumstances beyond the reasonable control of the party affected thereby, including, without

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limitation, acts of God, earthquake, fire, flood, war, government regulations, labor unrest, or shortage of or an inability to obtain material or equipment. 10.4 Notice of Claims. In the event any such action is commenced or claim made or threatened against DBI or other Indemnities as to which Licensee is obligated to indemnify it (them) or hold it (them) harmless, DBI or the other Indemnities shall promptly notify Licensee of such event and Licensee shall assume the defense of, and may settle, that part of any such claim or action commenced or made against DBI (or other Indemnities) which relates to Licensee’s indemnification and Licensee may take such other steps as may be necessary to protect itself. Licensee shall not be liable to DBI or other Indemnities on account of any settlement of any such claim or litigation affected without Licensee’s consent. The right of Licensee to assume the defense of any action shall be limited to that part of the action commenced against DBI and/or Indemnities which relates to Licensee’s obligation of indemnification and holding harmless. 11.

Representations and Warranties of DBI.

DBI hereby represents and warrants to Licensee that: 11.1 Power and Authority. DBI has the full legal power, authority and right to grant the option and exclusive license under the Patent Rights to perform its obligations under this Agreement and upon execution and delivery by Licensee, this Agreement will constitute valid and binding agreements of DBI enforceable against it in accordance with its terms. 11.2 Title and Validity. It is the sole owner of all right, title and interest in and to the Patent Rights. Except for such Patent Rights, there are no patents issued or, to DBI’s knowledge, other patent applications filed in any country covering any of the Viral Detection Technology, except for patents owned or filed by or specifically licensed to DBI or any of its Affiliates. DBI has no knowledge of any fact which casts substantial doubt on the validity of any of the Patents Rights as of this date. 11.3 No Conflict. DBI hereby represents and warrants that no other person or organization presently has any assignment, option, license under the Patent Rights with respect to the manufacture, use or sale of Licensed Product or Process in the U.S. or anywhere in the world. Execution, delivery and consummation of this Agreement will not result in the breach of or give rise to cause for termination of any agreement or contract to which DBI or its Affiliates may be a party or, to DBI’s knowledge, which otherwise relates to the Patent Rights, the Licensed Product or Process, or any Technical Information relating to any of the foregoing. Neither DBI nor any of its Affiliates after the date hereof shall enter into any agreement or take or fail to take any action which shall restrict its legal 3rd Edition 2016

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right to grant to Licensee the rights and benefits contemplated under this Agreement. 11.4 Indemnity. It is understood that if any of the representations and warranties hereunder are not true and correct as of the date hereof and Licensee or its Affiliate incur damages, costs or other expenses as a result of such falsity or circumstances falsely represented, DBI shall defend, indemnify and hold harmless Licensee and its Affiliate for any such damages, costs or expenses incurred. This obligation shall survive termination of this Agreement. 11.5 DISCLAIMERS. THE RIGHTS GRANTED HEREIN BY DBI DO NOT INCLUDE ANY WARRANTY WHATSOEVER WITH RESPECT TO THE PERFORMANCE OF A LICENSED PRODUCT INCLUDING ITS SAFETY, EFFECTIVENESS, COMMERCIAL VIABILITY OR MERCHANTABILITY, AND LICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY IN THIS REGARD. 12.

Notices.

All reports, notices and other communications provided hereunder shall be made or given hereunder may be made or given by either party by facsimile, by first-class mail, postage prepaid, or by air courier to the mailing address or facsimile numbers set out below or such other address or facsimile numbers as such party shall have furnished in writing to the other party in accordance with this Section: If to DBI, to:

Jane Duzmor, President Duzmor Biotech, Inc. 24 Clules Street Cambridge, MA 09999 Tel: (617) 999-9000 Fax: (617) 999-9500

with a copy to: Sunstein Kann Murphy & Timbers LLP 125 Summer Street Boston, Massachusetts 02111 Attn.: Bruce D. Sunstein Tel: (617) 443-9292 Fax No. (617) 443-0004 If to Licensee, to:

Insert Name and Address

with a copy to: 2–40

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or to such other individuals or at such address as either party hereto may from time to time designate by written notice to the other. In the event of notice by facsimile the sending party shall confirm the facsimile notice by mailing said notice to the other party in accordance with this Section no later than the first business day following the date of facsimile. Notice sent by first-class mail shall be deemed to be received three (3) days after being deposited in the U.S. mails. Notice sent by facsimile machine or by overnight delivery service shall be deemed received one day after having been sent. 13.

Confidentiality.

Licensee and DBI contemplate that it may be necessary to exchange trade secrets or other confidential information in connection with the terms of this Agreement. Each party to this Agreement agrees, therefore, that information marked CONFIDENTIAL that is received from the other shall be maintained in confidence and that reasonable and prudent practices shall be followed to maintain the information in confidence including, where necessary, obtaining written confidentiality agreements from persons not already bound by a written confidentiality agreement having access to information obtained from the other. The obligation to maintain the confidentiality of such information shall survive this Agreement for a period of three (3) years. However, a party shall not be obligated to maintain information in confidence which it can reasonably prove by written documentation: (a)

to have been publicly known prior to submission by the other; or

(b)

to have been known or available to it prior to submission by the other; or

(c)

to have become publicly known, without fault on its part, subsequent to submission by the other; or

(d)

to have been received by it from a third party not under a direct or indirect duty of confidence to the other; or

(e)

to have been required to be disclosed by order of any court or government agency, provided that reasonable advance notice is given to the other to afford an opportunity to protect the information.

Notwithstanding any other provision of this Agreement, Licensee may disclose confidential or trade secret information of DBI relating to this Agreement to any person or entity with whom Licensee has, or is proposing to enter into, a business relationship, as long as Licensee obtains from such person or entity an agreement containing provisions concerning confidentiality substantially similar to those provided in this Agreement. 3rd Edition 2016

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14.

Miscellaneous.

14.1 Relationship of Parties. For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party. 14.2 Severability. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 14.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Licensee and its successors and assigns. As to DBI, this agreement is personal in its character; DBI’s duties hereunder cannot be delegated and, except as provided herein, its rights cannot be assigned, sold, transferred or encumbered in any manner, any attempt to do so being void. Notwithstanding the foregoing, DBI’s right to receive royalty payments hereunder will bind and inure to the benefit of DBI and its successors and assigns. 14.4 Merger. This instrument contains the entire Agreement between the parties hereto. No verbal agreement, conversation or representation between any officers, agents, or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained. 14.5 Amendment and Waiver. No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party. 14.6 Captions. The captions are provided for convenience and are not to be used in construing this Agreement. 14.7 No Presumptions. The parties agree that they have participated equally in the formation of this Agreement and that the language herein should not be presumptively construed against either of them. 14.8 Counterparts. This Agreement may be signed in counterparts which collectively shall constitute a single agreement. 14.9 Choice of Law; Prorogation. This Agreement shall be governed by and interpreted in accordance with Massachusetts law, without giving effect to conflict of laws. Any dispute or controversy arising out of or involving this 2–42

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Agreement shall be tried exclusively either to a state court or to a federal court located in the state of , and each party hereto hereby irrevocably consents to the jurisdiction of such courts. The parties will not raise in connection with any action or suit hereunder, and hereby waive any defenses based upon, the venue, the inconvenience of the forum, the lack of personal jurisdiction or the like in any action or suit brought in any of such courts. 14.10 Force Majeure. Neither party shall be in breach hereof by reason of its delay in the performance of or failure to perform any of its obligations hereunder, if that delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental priorities for materials, or any fault beyond its control or without its fault or negligence. Notwithstanding the foregoing, failure of DBI to notify Licensee of the commencement of a legal action in the time required for such notice in Section 10.4 for any reason shall relieve Licensee of its indemnity obligations with respect to such legal actions (and any subsequent legal actions in which the results of the prior action are used as evidence of liability). 14.11 Further Assurances. The parties each, at any time or from time to time, shall execute and deliver or cause to be delivered such further assurances, instruments or documents as may be reasonably necessary to fulfill the terms and conditions of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LICENSOR: Duzmor Biotech, Inc. (“DBI”) By Its LICENSEE: YYY Company By Its

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EXHIBIT 2C—Form of Agreement for Confidential Disclosure to a Third Party Duzmore Biotech, Inc. 24 Clules Street Cambridge, MA 09999 Dear Sir/Madam: Your company, [company name] (hereinafter “you”), has indicated interest in obtaining technical and business information and materials (hereinafter the “Confidential Information and Materials”) from me regarding the development and marketing of infectious disease diagnostic kits, materials and instruments technology for the purpose of evaluation for possible purchase, license, investment, or supply arrangements. I propose the following terms for my disclosure to you of the Confidential Information and Materials: (1) I will disclose to you such of the Confidential Information and Materials as is available for disclosure by me and is, in my judgment, reasonably needed by you in connection with your evaluation. (2) All Confidential Information and Materials which I make available or disclose to you shall be kept confidential by you, and you will not without my prior written permission use any Confidential Information and Materials supplied hereunder for any purpose other than that specified hereinabove. (3) You shall have no obligation with respect to any portion of such Confidential Information and Materials which: (a) is or shall have been known to you before receipt thereof as evidenced by dated writings; (b) is disclosed to you in good faith without restriction on further disclosure by a third party who has a right to make such disclosure; or (c) is or shall have become generally known to the industry through no fault of your own. (4) This agreement may be enforced by me personally and for the benefit of any entity I control that has rights to any of the Confidential Information and Materials, and shall be governed by Massachusetts law without giving effect to its conflict of laws provisions, and is intended to take effect as a sealed instrument. 3rd Edition 2016

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If the foregoing meets with your approval, please indicate your acceptance by signing and dating both copies of this letter, and then return one copy to me. Very truly yours, DUZMOR BIOTECH, INC. By: Jane Duzmore Accepted: [Company Name] By: Authorized Agent Date:

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EXHIBIT 2D—Form of Patent Assignment ASSIGNMENT WHEREAS, Duzmor Biotech, Inc. (hereinafter “Assignor”), a Massachusetts corporation, having a place of business at 24 Clules Street, Cambridge, Massachusetts 09999, is the owner of the entire right, title and interest in and to the inventions disclosed in the United States patent applications and United States patents on the schedule attached hereto and incorporated herein by reference as Exhibit A and in and to such patent applications and such patents; WHEREAS, __________, (hereinafter “Assignee”), a Delaware corporation, having a place of business at __________, is desirous of acquiring the entire right, title and interest in and to such inventions, patent applications and patents; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor has sold, assigned and transferred, and by these presents does hereby sell, assign and transfer to Assignee, its successors and assigns, the entire right, title and interest in and to such inventions, such patent applications and such patents and any patents, and any reissues and extensions thereof, which issue or have issued in any country upon patent applications which correspond with or claim priority from any of such applications or patents or any divisional, continuation-in-whole, or continuation-in-part thereof, including the right to sue and collect for past infringement; the same to be held and enjoyed by Assignee for its own use, and for the use of its legal representatives, to the full term for which such patents have been granted as fully and entirely as the same would have been held by Assignor had this assignment not been made. Assignor does hereby further covenant and agree that it will not execute any writing or do any act whatsoever conflicting with these presents, and that Assignor, its successors and assigns, will at any time upon request without further additional consideration, but at the expense of Assignee, its successors and assigns, execute such additional writings and do such additional acts as Assignee, its successors and assigns, may determine as necessary or desirable in the enjoyment of this grant, and in any proceedings or transactions involving such inventions, patent applications or patents. DUZMOR BIOTECH, INC. Date: By: Jane Duzmore, President

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COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK

) ) ss. )

On January 8, 2015, before me, a notary public in and for said county and state, personally appeared Jane Duzmor, proven to me by satisfactory evidence of identification, which was a Massachusetts driver’s license, to be the person whose name is signed on the foregoing instrument, and who, being by me first duly sworn, declared that she is the President of Duzmor Biotech, Inc., and that the foregoing instrument was voluntarily signed for its stated purpose on behalf of the corporation by authority of its board of directors. (seal)

Notary Public EXHIBIT A Applications

Serial No.

Date Filed

Reel/ Frame

Date of Assignment Recordal

Inventor(s)

Title of Invention

Inventor(s)

Title of Invention

Patents

Serial No.

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EXHIBIT 2E—Employee Noncompetition, Nonsolicitation, Nondisclosure, and Assignment of Inventions AGREEMENT In consideration of and as a condition of my initial or continuing employment by Duzmor Biotech, Inc. (the “Company”), a corporation organized under the laws of the State/Commonwealth of Massachusetts (the “State”) with principal executive offices located at 24 Clules Street, Cambridge, Massachusetts 09999, and the additional benefits associated therewith, I certify by signing below that I have read, understood and agreed to the following: 1. Background. The Company possesses Confidential Information (as defined hereinafter) which is of substantial competitive and monetary value to the Company and which has been acquired at considerable Expense to the Company. I recognize that the Company is engaged in a continuous program of research and development of such Confidential Information. Additional Confidential Information may be created, and Developments (as defined hereinafter) may be made in the course of my employment, which may also be of significant competitive and monetary value to the Company. Some of such Confidential Information and Developments may be made available to me solely to enable me to perform my duties as an employee of the Company. I acknowledge that my employment creates a relationship of confidence and trust between the Company and me with respect to information of a confidential nature which I discover or learn during the period of my employment, including Confidential Information. 2. Ownership. All such Confidential Information and Developments are and shall be the property of the Company and the Company is entitled to the provisions hereof to assure the Company’s ownership thereof and the protection thereof against loss by the Company. 3. Best Efforts. I will devote my best efforts to the business of the Company during the Term (as defined hereinafter). I shall be a full-time employee, devoting my entire time, undivided loyalty and best efforts to the business of the Company. I shall not during the term of my employment be engaged in any other occupation, professional or business activity. 4. Noncompetition. I recognize that the Company is engaged in the research, development, and marketing of proprietary products, and that it is of utmost importance to the Company to maintain the confidentiality of its Proprietary Information and preserve the good-will of its business. In order to safeguard 3rd Edition 2016

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that Proprietary Information and good-will, I understand that it is a condition of my employment not to compete with the Company, in the United States or any other country, for a period of time following the termination of my employment, as set forth in further detail below. During the Term and for a period of two (2) years thereafter, I will not, without the prior consent of an officer of the Company, (a) engage in any business activity that could interfere with my Company duties (if any), or (b) directly or indirectly, alone or as partner, officer, director, employee or stockholder (other than an investment interest of less than 5% of the total outstanding shares of a publicly traded company) of any entity, engage in any business enterprise which (i) is in competition with the products being developed, manufactured, licensed or sold by the Company, (ii) provides goods or services to the Company or (iii) is a customer for the products of the Company or (c) research, develop or manufacture or assist any other person in researching, developing or manufacturing any product or service that competes with any product or service conceived, manufactured, licensed or sold or under development by the Company at the end of the Term. 5. Nonsolicitation. During the Term and for a period of three (3) years thereafter, I will not, directly or indirectly, alone or as a partner, officer, director, employee or stockholder of any entity, solicit, interfere with or endeavor to entice away any director, employee, consultant or agent of the Company or any customer or supplier of the Company who is such during the Term, or any prospective employee of the Company or any prospective customer of the Company who is such at the end of the Term. 6. Nondisclosure. I understand that during my course of employment I may have access to Confidential Information of the Company and of third parties which the Company is under an obligation to keep confidential, and that such access is given in trust and confidence. Therefore, I agree: (a) not to disclose Proprietary Information (as defined hereinafter) at any time, whether during or after the termination of my employment, directly or indirectly to any person or entity except as may be required in the ordinary course of performing my duties as an employee of the Company; (b) not to make, use or permit to be used such Proprietary Information otherwise than for the benefit of the Company, either during or after the Term; (c) not to use or attempt to use any such Proprietary Information in any manner which may injure or cause loss or may be calculated to injure or cause loss whether directly or indirectly to the Company;

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(d) to safeguard the Proprietary Information by all reasonable steps by abiding by all company policies and procedures regarding storage, copying and handling of documents marked “confidential”; (e) not to disclose or use the Proprietary Information after my employment. This obligation shall be in force unless and until such Proprietary Information becomes generally available to the trade by publication or other legal means (but not as a result of unlawful use of publication thereof); (f) upon leaving the employ of the Company, to deliver promptly to the Company all written and graphic materials as well as physical property such as hardware components, magnetic tapes or disks, test equipment, models, etc. owned by the Company, in my possession or under my control and execute a certificate in the form of Appendix A at the time of termination of employment confirming compliance with the requirements of this Section and other provisions of this Agreement relating to the treatment of Proprietary Information; and (g) not to publish any such Proprietary Information, any information derived therefrom or information regarding Developments, without the express written permission of the Company. 7. Assignment of Inventions. I agree to disclose promptly and fully to the Company and to no one else any Development that results from tasks assigned to me by the Company or results from the use of the Company’s time, materials or facilities at any time or times during my employment, whether such Development is made, conceived, discovered or reduced to practice alone or with another. Such Developments and the benefits thereof shall immediately become the sole and absolute property of the Company. I hereby assign any rights I may have or acquire in the Developments and benefits and/or rights resulting therefrom to the Company without further compensation and shall communicate, without cost or delay, and without publishing the same, all available information relating thereto (with all necessary plans and models) to the Company. I agree that any invention in the Company’s business or field of interest which is disclosed to a subsequent employer or in a patent application within six (6) months following my termination will be presumed to have been made during the terms of employment, unless I can demonstrate that the conception and reduction to practice of the invention occurred after termination. The determination as to whether an invention is in the Company’s business or field of interest will be made solely by an authorized representative of the Company. 8. Conflicts of Interest and Gifts. I agree to disclose all current and potential interests, direct or indirect, in any entity dealing with the Company which may affect actions and decisions made as a representative of the Company. I agree to

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fully disclose acceptance of a gift or entertainment which raises any possibility of conflict or interest. 9. No Conflicting Agreements. I represent that, except as stated on Appendix C, if any, to this Agreement, I have no existing agreements, obligations, hold no interests which conflict with any of the foregoing statements. In addition, I agree to make appropriate disclosures in writing to the Vice President, Finance and Administration of any future situations which may be in violation of these precepts. I have provided the Company with copies of all employment, proprietary information and other similar agreements to which I am a party that are currently in effect. 10. Remedies Upon Breach. I agree that any breach of this Agreement by me will cause irreparable damage to the Company and that in the event of such breach the Company shall have, in addition to any and all remedies at law, the right to an injunction, specific performance or other equitable relief to prevent the violation of my obligations hereunder. In the event that I breach my duty of loyalty to the Company or any of my covenants in Sections 4 through 7, in addition to any and all other remedies which the Company may have available to it, the Company will be entitled, at its election, to recover from me (i) the value of anything belonging to the Company which the Employee uses in breach of such duty, or (ii) any benefit which I received as a result of my breach, or its proceeds, (iii) its reasonable attorney’s fees incurred in enforcing this Agreement, and (iv) the amount of damages thereby caused. In the event of termination of my employment for breach of any of the covenants under this Agreement, I agree that I shall thereby forfeit all rights granted to me under any stock option, profit participation, bonus or deferred compensation arrangement of the Company then existing in which I participate, to the extent permitted by law. 11. No Guarantee of Continued Employment. I understand that this Agreement is not an employment contract nor does it create an obligation on the Company or any other person or entity to continue my employment for any period, in any capacity or at any compensation level. 12. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and hand delivered or if sent by Federal Express or certified mail, return receipt requested, to my last known residence (in the case of notices to me) and to the Company’s principal place of business (in the case of notices to the Company). 13. Consent and Waiver by Third Parties. I understand that the Company does not desire to acquire from me any trade secrets, know-how or confidential information that I may have acquired from others. Accordingly, I represent and warrant that I am free to divulge to the Company, without any obligation to, or 2–52

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violation of any right of others, any and all information, practices and techniques which I will use, describe, demonstrate, divulge or in any other manner make known to the Company during the course of my employment. I represent that I am not bound by any agreement or any other existing or previous business relationship which conflicts with or prevents the full performance of my duties and obligations to the Company during the course of my employment. 14. No Waiver. Any waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof. 15. Severability. I hereby agree that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 16. Survival of Obligations. My obligations under this Agreement shall survive the severance or termination of my employment (regardless of the manner of such termination), my death or my resignation, and shall be binding upon my heirs, executors, administrators and legal representatives. 17. Reasonableness of Provisions. I recognize and agree that the enforcement of this Agreement is necessary to ensure the preservation, protection and continuity of the business, trade secrets and goodwill of the Company. I agree that, due to the confidential nature of the Company’s business, the restrictions set forth in this Agreement are reasonable as to time and scope. 18. Content of Provisions. If I dispute the validity or applicability of section 3 or 4 of this Agreement in connection with my intended or actual employment by, or business activity with, an entity other than the Company, then the end of the Term shall be that date upon which the court enters final judgment, from which no further appeal is possible, in favor of the Company. 19. Assignment by the Company. The Company shall have the right to assign this Agreement to its successors and assigns, and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by said successors or assigns.

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20. Priority of Agreement. This Agreement supersedes and replaces any other agreement between us related to the same subjects, dated prior to the date hereof. 21. Governing Law; Jurisdiction. The validity, interpretation and performance of this Agreement shall be governed by and construed in accordance with the laws applicable to contracts fully made, entered into, and performed within the State. The Employee hereby agrees to the jurisdiction of the courts in the State and waives any objection based upon forum non conveniens with respect to any action instituted concerning any dispute arising in connection with this Agreement or the employment of the Employee by the Company. The Company shall have the right to bring any action or proceeding against me in the courts of any other jurisdiction the Company reasonably deems necessary to rely on its rights under this Agreement. 22. Entire Agreement. This instrument contains the entire Agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the parties. 23. Definitions. (a) “Company” shall include the Company and any of its subsidiaries, subdivisions or affiliates. (b) “Confidential Information” means the following, whether furnished or made accessible to me by the Company or developed in whole or in part by me alone or jointly with the Company or others: All inventions, discoveries, know-how, techniques, devices, ideas, research, engineering methods, practices, processes, systems, formulae, designs, products, projects, computer programs, materials, improvements and developments which have not been generally available and which were or are conceived or reduced to practice at any time prior to the termination of my employment hereunder, in whole or in part, by any of the Company’s employees or consultants, at the expense of the Company, on the premises of the Company, or with the Company’s equipment; and All client or customer lists, trade secrets, or other information pertaining to the financial condition, business affairs or prospects of the Company including, without limitation, information relative to customers, suppliers or other parties with which the Company has a business relationship; samples; sketches; bulletins; correspondence; company forms and records (including financial statements 2–54

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and product specification sheets); information concerning sources of supply; costs of manufacture and sale and applications of equipment; whether or not published or unpublished, confidential or protected or susceptible to protection by patent, trademark, copyright or any other form of legal protection and whether or not any attempt has been made to secure such protection; and whether or not in any way related to the subject matter of any work done by me for or at the request of the Company. (c) “Developments” means any inventions, modifications, discoveries, designs, developments, improvements, processes, formulae, data, techniques, technology, works of authorship, materials, know-how, secret or intellectual property rights whatsoever or any interest therein (whether or not patentable or registerable under copyright or similar statutes or subject to analogous protection) which are related to the business or field of interest of the Company. (d) “Proprietary Information” means Confidential Information of the Company or of any third party which the Company is under an obligation to keep confidential, and Developments. (e) “Term” means the period of my employment by the Company and any period that I am retained by the Company as a consultant or in any other capacity for which efforts I am compensated. Executed Under Seal as of the ______ day of _________, 2015. Signature of Employee

Agreed to and accepted by DUZMOR BIOTECH, INC.

Print Name of Employee

By signature

Street Address City State

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APPENDIX A ACKNOWLEDGMENT UPON TERMINATION OF EMPLOYMENT I have re-read and understand my obligations under section 6(f) of my EMPLOYEE NONCOMPETITION, NONSOLICITATION, NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT (the “Agreement”) with the Company and will abide therewith. 1.

DEFINITIONS. The following definitions shall form an integral part of this Acknowledgment.

The Company means __________, and except where context otherwise requires, its Affiliates. Affiliate. Means any business entity controlled by, controlling or under common control with the Company. Trade Secrets. Concepts, devices, designs, developments, disclosures, discoveries, formulae for chemical compounds, ideas, improvements, inventions, know-how, materials, formulations, methods, processes, research and development projects and results, specifications, systems, technical data, and any other technical information concerning the identity of actual or prospective customers or suppliers, business and marketing plans and strategies, all whether written or unwritten, and whether patentable or not. Related Materials. Any and all documentation, memoranda, notebooks, photos, sketches, prints, drawings, research materials, charts, graphs, machinery, prototypes, tools, written material, and plans. Proprietary Information. All Trade Secrets and Related Materials, plus such financial data, statistical data, marketing data, data of all kinds, production and other costs, salaries, and any other information dealing with business operations or proposed business activities which Employee knows or has reason to know are intended by the Company to remain confidential 2.

OWNERSHIP, ASSIGNMENT, AND DISCLOSURE OF TRADE SECRETS, RELATED MATERIALS, PROPRIETARY INFORMATION, AND PATENTS.

(a) Acknowledgment: The Employee recognizes that the Company is or will be engaged in highly competitive business in which the protection of its Trade

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Secrets, Related Materials, Proprietary Information, and Patents is essential to the success of the Company. (b) Prior Inventions: As a matter of record, and in order to avoid disputes over the applications of the Agreement, Employee attaches to this Agreement as Schedule 1, a complete list of all inventions made, conceived, or first reduced to practice alone or jointly with others, prior to his employment, that are not, and will not be, described in a publication or patent application in existence on the effective date of this Agreement, and that Employee wants to exclude from the effect of this Agreement. If Employee has no such Inventions as of the effective date of this Agreement, Employee should represent that Employee has no such Inventions where indicated on Schedule 1. (c) Ownership of Trade Secrets, Related Materials, and Proprietary Information: Employee acknowledges and agrees that the Company and its successors and assigns are the sole, absolute, unqualified, and exclusive owner of all Trade Secrets, Related Materials, and Proprietary Information learned, supplied, developed, or conceived by Employee during Employee’s employment with the Company, even if learned or developed with, by, or from other sources. The Employee also agrees that he/she will not use for personal benefit during or after employment with the Company any information relating to Trade Secrets, Related Materials, or Proprietary Information owned or controlled by the Company or the Partnership and acquired during employment at the Company. (d) Assignment of Trade Secrets, Related Materials, Proprietary Information, and Patents: In consideration of his/her employment by the Company and the salary or wages to be paid or being paid to Employee and regardless of any change in Employee’s salary or the nature of Employee’s employment, Employee hereby Assigns to the Company (or to an Affiliate as agent for the Partnership, as the Company, the Affiliate and the Partnership shall agree), his/her entire right, title, and interest in and to any and all Trade Secrets, Related Materials, and Proprietary Information (i) originated with, learned, acquired, or developed by Employee solely or jointly with others, whether on Company time or his/her own, during the period of employment with the Company, or (ii) created or developed using the Company’s resources or materials, or (iii) suggested by any work which Employee has done, is doing, or may do, for the Company, so far and only so far as the same relate to or may be useful in the business of the Company as now or at anytime carried on, including experimental or research work. (e) Assistance in Prosecution of Patents, Etc.: The Company or its assigns (sometimes collectively, “Assignee”), at Assignee’s expense, shall be entitled to procure patents, domestic and foreign, and registration of copyrights, on any of the Trade Secrets, Related Materials, and Proprietary Information above assigned, 3rd Edition 2016

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in their own name. Employee shall execute all documents necessary to permit the Company or its assigns to obtain such patents and copyright registrations, and will cooperate fully in regard to Assignee’s obtaining or attempting to obtain such patents, and copyrights. Employee further agrees to sign all papers, take all rightful oaths, and perform all acts necessary to make this Agreement effective as to any particular Trade Secret, Related Material, Proprietary Information, patent applications, domestic and foreign, including any extension, division, continuation, continuation in part, or reissue thereof, and will do all lawful acts to protect the patents, copyrights, and other rights and interests of the Company and any Affiliate, including the giving of testimony without expense to Employee and without further compensation except as may be provided in accordance with the Company’s patent awards policy, if any, of which, if applicable, a copy is attached hereto as Schedule 2 and made a part of this Agreement by reference. (f) Non-Disclosure of Trade Secrets Related Materials and Proprietary Information: Employee agrees that at no time, whether during Employee’s employment by the Company or at any time thereafter, and regardless of the reason for the termination of Employee, shall Employee disclose any Trade Secret, Related Materials, or Proprietary Information owned or controlled by the Company to any person, firm, government entity, corporation, association, or entity without the prior written consent of the Company, or the Affiliate, whichever is authorized to permit such disclosure, nor shall Employee disclose any Trade Secrets, Related Materials, or Proprietary Information furnished to the Company under confidential or proprietary contracts or agreements with any other person, firm, government agency, or entity. 3.

EMPLOYEE CERTIFICATIONS.

(a) I certify that in accordance with the terms of said Agreement, I have disclosed to the Company any and all inventions, formulas, methods, materials formulations, devices, ideas, concepts, developments, research results, discoveries, and improvements, patentable or unpatentable, originating with, acquired or developed by me solely or jointly with others, during the course of my employment with the Company. (b) I certify that all Proprietary Information, Trade Secrets, and Related Materials that are the property of employers previous to my employment with the Company, were not disclosed to the Company or any of its Affiliates, nor were these used during my employment at the Company. (c) I further certify that I have not in the past, and will not in the future, use for my own benefit nor disclose to any person, firm, government agency, corporation, association, or entity any Trade Secret, Related Material, or Proprietary Information owned or controlled by the Company without the prior written consent 2–58

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of the Company. Neither have I in the past nor will I in the future, disclose any Trade Secret, Related Material, or Proprietary Information furnished to the Company under confidential or proprietary contracts or agreements with any other person, firm, government agency or entity, except to such extent as has been necessary and permitted in the original course of performance of my duties as an Employee of the Company. Witness

Employee Date:

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APPENDIX B Prior Inventions (If Any)

APPENDIX C Conflicting Agreements (If any)

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EXHIBIT 2F—Form of Agreement for Two-Way Exchange of Confidential Information NON-DISCLOSURE AGREEMENT Discussions will be held between Duzmor Biotech, Inc. and the Interested Party named below relating to Technical and Business Information which is briefly described as: . Either party (the disclosing party) may provide the other (the receiving party) with such information useful to assist in determining whether the parties have a mutual business interest. This agreement does not obligate either party to enter into any further agreement. Information that the disclosing party wants to make subject to the nondisclosure provisions of this Agreement shall, if in writing, be clearly marked on its face as being confidential or not for disclosure without prior written permission of the disclosing party, and if not in writing shall be reduced to writing and delivered to the receiving party, similarly marked, within thirty (30) days after first disclosure to the receiving party. The receiving party agrees that for a period of three years it shall not, without the prior written consent of the disclosing party, use any Technical and Business Information for any purpose other than to evaluate its interest in mutual business. The receiving party shall take the same degree of care to prevent disclosure of such information to third parties as it applies to its own confidential information. The receiving party shall have no obligation under this Agreement with respect to such of the Technical and Business Information which: 1)

is demonstrably known to the receiving party prior to receipt; or

2) is in or shall have entered the public domain through no act or omission of the receiving party; or 3) is or shall have been lawfully disclosed to the receiving party by a third party without restriction on further disclosure; or 4)

is or shall have been developed independently by the receiving party; or

5) is produced by the receiving party under order of any court or government agency, provided that the receiving party notifies the disclosing party in

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writing promptly after the receiving party has notice of the order, to afford the disclosing party an opportunity to act to protect such information. This is the entire agreement between the parties relating to the subject of this Agreement unless a written amendment is subsequently signed by both parties. Each individual signing below represents that he or she is authorized to sign on behalf of his or her respective party. Signing for Duzmor Biotech, Inc. (Signature) Jane Duzmor, President (Date Signed) Signing for: (Print full name of Interested Party) By: (Authorized Signature) (Print Name and Title of Signer) (Date Signed)

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EXHIBIT 2G—Form of Assignment Accompanying Patent Application ASSIGNMENT ASSIGNOR:

William Helpum, Kevin Sharpe, John Engineer, and Joan Programmer

ASSIGNEE:

Duzmor Biotech, Inc. 24 Clules Street Cambridge, MA 09999

STATE OF INCORPORATION OF ASSIGNEE:

Massachusetts

INVENTION:

Viral Detection System

ATTORNEY DOCKET:

9999/101

SERIAL NO: FILED: Assignors are inventors of a certain new and useful invention (the “Invention”) described in a United States patent application (the “Application”) bearing the above attorney docket number and having the above title. If a filing date and application number are shown, the Application has a Patent and Trademark Office filing date and application number as indicated above. For valuable consideration, receipt of which is acknowledged, each Assignor hereby assigns to Assignee (which term shall include Assignee’s successors and assigns), all of Assignor’s right, title and interest in the Invention, all improvements therein, the Application and all priority rights arising therefrom, and any patents, and any reissues and extensions thereof, which issue in any country upon any patent applications which correspond with any of the following: the Application; any application that claims priority from the Application (including as a divisional, continuation-in-whole or continuation-in-part, or as an application claiming priority from a provisional application); or any application based in whole or in part on any of the foregoing. Each Assignor further agrees that such Assignor and Assignor’s heirs and legal representatives will, without further consideration, cooperate with Assignee in the prosecution of all of the above applications, execute, verify, acknowledge 3rd Edition 2016

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and deliver all such further papers, including applications for patents and for reissues and extensions therefor, and instruments of assignment and transfer thereof, and will communicate any facts known to Assignor relating to the Invention, to obtain or maintain or enforce patents for the Invention and improvements therein in any and all countries and to vest title thereto in Assignee. Each Assignor further agrees that such Assignor will, without further compensation to Assignor during the term of such Assignor’s employment by Assignee and thereafter for reasonable compensation as determined by Assignee, perform such other acts as may be reasonably required when requested by Assignee, including attending depositions, preparing and executing declarations and affidavits and testifying as a witness, to obtain or maintain or enforce patents for the Invention and improvements therein in any and all countries and to vest title thereto in Assignee. IN WITNESS WHEREOF, each Assignor hereby executes this instrument on the date set forth below. Date: , Assignor

COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK

) ) ss. )

Before me, a notary public in and for said county and state, personally appeared William Helpum, to me known to be the person described in the foregoing instrument, who, being first duly sworn, acknowledged his signature on the foregoing instrument in my presence and declared the same to be his free act and deed on the date written above opposite his signature. Notary Public My commission expires: (seal) [REPEAT SIGNATURE LINE AND NOTARIZATION FOR EACH INVENTOR]

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EXHIBIT 2H—Biological Material Transfer Agreement Effective as of __________, 20__, Duzmor Biotech, Inc. (DBI), a Massachusetts corporation having a principal business address of 24 Clules Street, Cambridge, Massachusetts, 09999; and __________ (“Institution”), having a business address at __________ ; and __________ (“Scientist”), an employee of Institution using its facilities at __________ (the “Facilities”) (the Scientist having a business address of __________) hereby agree as follows: 1.

Definitions.

l.1 “Original Material” means the biological material (and any related documentation), described in the schedule attached hereto and incorporated herein by reference as Exhibit A, which is being transferred to Institution by DBI. 1.2 A “Derivative” of biological material shall mean any of the following: (a) any nucleic acid, cell, tissue, organ, plant or animal derived or descended in whole or part from the material; or (b) any substance expressed or modified by the material or derived from it; or (c) any substance that contains or incorporates the material; or (d) any article depicting, representing or characterizing the material; or (e) any fragment of any of the foregoing. 1.3 “Covered Material” means the Original Material or any material that is directly or indirectly a Derivative of it. “Covered Material” includes a Derivative of a Derivative of the Original Material. 1.4 “DBI Invention” means any invention (i) the practice of which would be covered by a claim of any issued patent or pending application held by DBI or (ii) that incorporates any Covered Material. An invention shall not be considered a DBI Invention merely because it involves a new use of a Covered Material or results from the use of any Covered Material. 2. The Covered Material is the property of DBI, and shall be used by Institution solely for academic non-profit research purposes, only at Institution’s 3rd Edition 2016

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Facilities, only under the direction of Scientist while Scientist is an employee of Institution, and only for the project specified in Exhibit A. 3. The Scientist shall inform DBI in writing in confidence of research results related to the Covered Material. 4.

Inventions.

4.1 If the research that involves the Covered Material results in an invention that may be commercially useful, the provisions of this section 4 shall govern rights with respect to the invention. The Scientist shall promptly disclose the invention to the Institution’s Patent Administrator and notify the Patent Administrator of DBI’s role as a supplier of Covered Material used. The Institution, in cooperation with the Scientist, shall promptly supply DBI in confidence with a copy of the disclosure and with samples of the Derivatives for DBI’s research and evaluation purposes only. 4.2 If the invention is a DBI Invention, DBI shall own the invention, and the Institution shall have a non-assignable royalty-free non-exclusive license, without the right to sublicense, to practice the subject matter of the invention for non-profit research purposes only. The institution and the Scientist, shall, at no charge to DBI but at the expense of DBI, cooperate in signing any documents and performing any acts deemed necessary or useful by DBI in perfecting its rights in the invention and filing and in prosecuting any patent applications pertinent in the invention. Notwithstanding the foregoing, not less than 90 days after the disclosure pursuant to section 4.1, the Institution shall have the right to request in writing whether DBI intends to file a patent application on the invention. DBI shall have the right to reply that the invention is covered by an issued patent or a pending application if it believes in good faith that this is the case. If DBI fails to reply within 60 days after such request or states that the invention is not covered by an issued patent or pending application and that DBI does not intend to file a patent application for the invention, or, having stated that it does intend to file a patent application, fails to do so within 120 days after its statement of intent to file, the Institution shall have the right to file in its own name or on its behalf one or more patent applications directed to the invention in the United States and foreign countries. In the event that the Institution obtains any patents on the applications thus filed, they shall be owned by the Institution and its assignees, subject to a royalty-free non-exclusive license held by DBI, without the right to sublicense, to make, have made, use and sell any apparatus and compositions covered by the patents and to practice any methods covered by the patents. Nothing in this agreement, however, shall limit the activities of DBI in publicizing or commercializing a DBI Invention, even if such activities may adversely affect the rights to obtain patent coverage for this invention.

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4.3 If the invention is not a DBI Invention, it shall be governed by this section 4.3. To the extent that it is able, the Institution shall provide DBI with appropriate recognition of DBI’s contribution, in the form of a first option to negotiate an exclusive license to the invention. For a period of 120 days after the later of the disclosure pursuant to section 4.1 or the filing of a patent application covering the invention, the Institution shall not negotiate with any third party concerning terms of a license to the invention. During this period, the license shall be negotiated in good faith on commercially reasonable terms taking into account the early state of development of the invention. 5. Use of the Covered Material in the development of data for submission to FDA, USDA, EPA or other United States or foreign regulatory agency or to provide support for a patent application to be filed in the United States or abroad, is not permitted without written permission of DBI. The Covered Material shall not be used in research that is subject to consulting or licensing obligations to any third party, unless written permission is obtained from DBI. 6. Covered Material will not be distributed or released to any person other than co-workers who are working under the Scientist’s direct supervision and who have agreed below in writing on a copy of this agreement, to be bound by the provisions of this agreement, and no one will be allowed to take or send Covered Materials to any other location, unless written permission is obtained from DBI. All individuals to whom the Covered Materials have been distributed shall be promptly and contemporaneously identified by Scientist to DBI. Covered Material shall not be deposited without the written permission of DBI. Covered Material shall not be exported from the United States. 7. Any Covered Material delivered pursuant to this Agreement is understood to be experimental in nature and may have hazardous properties. It is supplied AS IS. DBI MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE COVERED MATERIAL WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS. 8. Each of Scientist and Institution hereby indemnifies DBI against any claims, demands, and liabilities (including reasonable attorneys’ fees), whether or not now known, arising directly or indirectly from the use, storage or disposal of the Covered Material. 9. Institution agrees to use the Covered Material in compliance with all applicable statutes and regulations including, for example, those relating to research involving the use of animals or recombinant DNA. 3rd Edition 2016

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10. Institution and Scientist will be permitted to publish papers dealing with results of research under this agreement in accordance with the provisions of this section. Institution shall provide DBI with a final version of the copy of any such paper for review at least sixty (60) days prior to date of intended submission for publication. DBI will be given credit and acknowledgment for the Original Material provided to Institution in any publication resulting from this research. Original research data shall belong to Institution and title to and the right to determine the disposition of any copyrights, or copyrightable material, first produced or composed in the performance of this research, shall remain with Institution; provided, however, that Institution shall grant to DBI an irrevocable royalty-free, non-exclusive right to reproduce, translate, and use all such copyrighted material for its own purposes, including, but not limited to, publishing or otherwise publicly disclosing such copyrighted materials. In order to assure that the rights of DBI to obtain patents for any inventions relating to Derivatives, DBI shall have the right to delay any publication of such result for a period of ninety (90) days after the receipt of a proposed paper in order to file foreign or domestic patent applications. DBI shall expedite its review and patent filings so that publication will not be unreasonably delayed. 11. The rights granted under this Agreement to Institution and to Scientist to the Covered Material shall terminate on the happening of the earliest of any of the following events: 11.1 immediately on the completion of the project specified in Exhibit A; 11.2 on the expiration date set forth in a written notice of termination sent by either party to the other not less than thirty days before the effective date; 11.3 immediately on the termination of Scientist’s employment by Institution or the removal of Scientist from responsibility for the project set forth in Exhibit A or from use of the Facilities; or 11.4 the occurrence of the following date: On such termination, Institution and Scientist shall discontinue use of the Covered Material and will, upon direction of DBI, return or destroy all such Covered Material in their possession or under their control. 12. This agreement sets forth the entire understanding of the parties. No modification to this agreement shall be binding unless it is in writing, signed by the parties. Neither Scientist nor Institution is an agent of DBI, and neither will purport to represent DBI. No delay or omission by DBI in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by DBI on any one occasion is effective only in that 2–68

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instance and shall not be construed as a bar to or waiver of any right on any other occasion. This Agreement shall be governed by the law of Massachusetts without giving effect to conflict of laws. Any legal proceeding arising hereunder shall be brought in the state or federal courts of Massachusetts. Any controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration at Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators(s) may be entered in any court having jurisdiction thereof. DBI:

SCIENTIST: (Individually)

By: Jane Duzmor, President

Signature of Scientist

Date

Name Date Phone INSTITUTION: By: Signature of Date Institutional Representative Name Institution Address SIGNATURE OF ADDITIONAL PERSONS COVERED BY THIS AGREEMENT Each of the undersigned individuals acknowledges that such individual has read the above agreement, agrees to abide by the restrictions on use and transfer of Covered Material, and hereby indemnifies DBI against any claims, demands, and liabilities (including reasonable attorneys’ fees), whether or not now known,

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arising directly or indirectly from the use, storage or disposal of the Covered Material. Signature

Printed Name

Date

Signature

Printed Name

Date

Attachment:

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Exhibit A

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EXHIBIT 2I—UBMTA Form of Biological Material Transfer Agreement EXHIBIT A ORIGINAL MATERIAL: PROJECT:

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EXHIBIT 2J—Form of Agreement for Employees and Consultants DUZMOR BIOTECH, INC. Confidential Information and Non-Competition Agreement For good and valid consideration, the receipt and sufficiency of which I hereby acknowledge, Duzmor Biotech, Inc. (the “Company”) and I hereby agree as follows: 1.

Definitions.

For the purposes of this Agreement, the following terms shall have the following meaning: (a) “Client” shall mean any individual, firm, corporation, federal or state government agency or other entity (any of the foregoing being referred to below as “Person”) for whom or which the Company provided goods or services during the course of my engagement as an employee or consultant with the Company, regardless whether I induced or solicited such Person to give its patronage or business to the Company. (b) “Prospective Client” shall mean any Person (as defined above) with whom or which negotiations or discussions occurred (as evidenced in writing) during the course of my engagement as an employee or consultant with the Company concerning the provision by the Company of goods or services to such Person, regardless whether I solicited such Person to give its patronage or business to the Company. (c) “Business” shall mean the business of developing and marketing infectious disease diagnostic kits, materials and instruments or any other business in which the Company may engage. 2.

Inventions.

Any and all inventions, processes, procedures, systems, discoveries, designs, configurations, technology, works of authorship, trade secrets and improvements (whether or not patentable and whether or not they are made, conceived or reduced to practice during working hours or using the Company’s data or facilities) which I make, conceive, reduce to practice, or otherwise acquire during my engagement as an employee or consultant by the Company (either solely or jointly with others) and which are related to the Company’s Services or present 3rd Edition 2016

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or planned business (“Inventions”) shall be the sole property of the Company and shall at all times and for all purposes be regarded as acquired and held by me in a fiduciary capacity for the sole benefit of the Company. All Inventions that consist of works of authorship capable of protection under copyright laws shall be prepared by me as works made for hire, with the understanding that the Company shall own all of the exclusive rights to such works of authorship under the United States copyright law and all international copyright conventions and foreign laws. I hereby assign to the Company, without further compensation, all such Inventions and any and all patents, copyrights, trademarks, trade names or applications therefor, in the United States and elsewhere, relating thereto. I shall maintain adequate and current written records of all such Inventions (in the form of notes, sketches, and/or drawings all as may be specified by the Company), which records shall be available to and remain the sole property of the Company at all times. I shall promptly disclose to the Company all such Inventions and shall assist the Company in obtaining and enforcing for its own benefit patent, trademark and copyright registrations on and with respect to such Inventions in all countries. Upon request, I shall execute all applications, assignments, instruments and papers and perform all acts, such as the giving of testimony in interference proceedings and infringement suits or other litigation, necessary or desired by the Company to enable the Company and its successors, assigns, and nominees to secure and enjoy the full benefits and advantages of such Inventions. I understand that my obligations under this Section 2 shall continue after the termination of my engagement by the Company. I further understand that if I am not engaged by the Company at the time I am requested to perform any obligations under this Section 2, I shall receive reasonable compensation for such performance, as well as reimbursement of any expenses incurred at the Company’s request. In addition, I understand that the absence of a request by the Company for information, or for the making of an oath, or for the execution of any document shall in no way be construed to constitute a waiver of the Company’s rights under this Agreement. 3.

Proprietary Information.

I recognize that my relationship with the Company is one of high trust and confidence by reason of my access to and contact with the trade secrets and confidential and proprietary information of the Company. I shall use my best efforts to protect the Inventions and any and all confidential, proprietary or secret information relating to the products, services, customers, or business operations or activities of the Company (collectively, “Proprietary Information”). I shall not, during my engagement as an employee or consultant by the Company or at any time thereafter, disclose to others or use for my own benefit or for the benefit of another any Proprietary Information (whether or not learned, obtained or developed solely by me or jointly with others). My undertakings and obligations under 2–74

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this Section 3 shall not apply, however, to any such information which: (a) is or becomes in the public domain through no action or failure to act on my part, (b) is generally disclosed to third parties by the Company without restrictions on such third parties, or (c) is approved for release by written authorization of the Board of Directors of the Company. Upon termination of my engagement or at any other time upon request, I shall promptly deliver to the Company all Proprietary Information and all notes, memoranda, notebooks, drawings, records, files, and other documents (and all copies or reproductions of such materials) in my possession or under my control, whether prepared by me or others, which are or which contain Proprietary Information or other information or material which is secret, confidential or proprietary to the Company, all of which I acknowledge is the sole property of the Company. 4.

Absence of Restrictions upon Disclosure and Competition.

I hereby represent that, except as disclosed in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my engagement by the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement and of my duties as an employee of or consultant to the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company, and I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others. 5.

Other Obligations.

I acknowledge that the Company from time to time may have agreements with other persons or entities or with the U.S. Government, or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company. 6.

Non-competition.

(a) During the course of my engagement as an employee or consultant with the Company, for any reason whatsoever, I shall not engage or become interested, directly or indirectly, as employee, owner, consultant, officer, director, or partner, through stock ownership, investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with 3rd Edition 2016

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others, in the operation of any type of business or enterprise competitive with the Company’s Business, otherwise than on behalf of the Company. (b) During the course of my engagement as an employee or consultant with the Company and for a period of one (1) year after the termination of my engagement with the Company for any reason whatsoever, I shall not, otherwise than on behalf of the Company, directly or indirectly as employee, owner, consultant, officer, director, or partner, through stock ownership, investment of capital, lending of money or property, rendering of services or otherwise, either alone or in association with others, (i) solicit any of the employees of the Company to leave the employ of the Company or (ii) solicit any Client or Prospective Client for any purpose except on behalf of the Company. (c) My holding of any investment in any business or enterprise other than the Company shall not be deemed to be a violation of this Section 6 if such investment does not constitute over five percent (5%) of the outstanding issue of such security and I do not otherwise accept employment with, act as a consultant to, become an officer, director or partner of, or otherwise become actively associated with the issuer of such security. 7.

Reasonableness.

I recognize, acknowledge and agree that the foregoing limitations are reasonable and properly required for the adequate protection of the Company’s business and do not preclude me from pursuing my livelihood. However, if any such limitation is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 8.

Breach.

If I violate any provisions of this Agreement, then the time limitations set forth in this Agreement shall be extended for a period of time equal to the period of time during which such breach occurs; and, in the event the Company is required to seek relief from such breach before any court, board, or other tribunal, then the time limitation shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 9.

Equitable Relief; Liquidated Damages.

I acknowledge that any breach of this Agreement by me may give rise to irreparable injury to the Company, which may not be adequately compensated by 2–76

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damages. Moreover, I acknowledge that to the extent that any breach of this Agreement by me may give rise to injury to the Company which may be adequately compensated by damages, such damages are difficult or impossible to calculate. Accordingly, in the event of a breach or threatened breach of any of Sections 2 through 6 of this Agreement by me, the Company shall have, in addition to any remedies it may have at law, the right to an injunction or other equitable relief to prevent the violation of its rights hereunder. 10.

Miscellaneous.

(a) Any action or proceeding brought by either party against the other arising out of or related to this Agreement shall be brought only in a state court of competent jurisdiction located in the county of Suffolk, Massachusetts, or the Federal District Court for the District of Massachusetts, and the parties hereby consent to the personal jurisdiction of such courts. (b) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (c) This Agreement supersedes all previous agreements, written or oral, between the Company and me relating to the subject matter of this Agreement. This Agreement may not be modified, changed or discharged in whole or in part, except by an agreement in writing signed by the Company and me. I agree that any subsequent change or changes in the scope of or compensation for my engagement with the Company, the duration of my engagement with the Company, or the reasons for the cessation or termination of my engagement with the Company shall not affect the validity or scope of this Agreement. This Agreement shall be binding upon me and my heirs and personal representatives and shall inure to the benefit of the Company and its successors, assigns and nominees, provided that Section 3 above shall be binding upon such heirs and personal representatives only to the extent that they obtain from me Proprietary Information of the Company. (d) No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion. (e) I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate thereof without the necessity for any separate execution of this Agreement in favor of such parent, subsidiary or affiliate.

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(f) This Agreement is governed by the laws of the Commonwealth of Massachusetts, without giving effect to conflict of laws provisions thereof. signature printed name Agreed to and accepted by DUZMOR BIOTECH, INC. By:

Date:

Title:

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CHAPTER 3

Understanding Patents for the Legal Advisor Bruce D. Sunstein, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

David E. Blau, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Timothy M. Murphy, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Jay Sandvos, Esq. Sunstein Kann Murphy & Timbers LLP, Boston § 3.1

Preliminary Considerations ................................................ 3–1 § 3.1.1

§ 3.2

§ 3.3

Why Should Your Client Be Thinking About Patents? ..... 3–2 § 3.2.1

Risks and Prevention of Infringement ................... 3–2

§ 3.2.2

Securing a Unique Advantage in the Market......... 3–2

Patents Versus Other Types of Intellectual Property ........ 3–4 § 3.3.1

§ 3.4

“Patent” Defined.................................................... 3–1

Advantages and Disadvantages of Obtaining Patents .............................................. 3–4

What Is Patentable? ............................................................. 3–6 § 3.4.1

The America Invents Act ....................................... 3–6

§ 3.4.2

Subject Matter Considerations .............................. 3–7

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(a)

The Four Enumerated Categories................. 3–7

(b)

Utility ........................................................... 3–8

(c)

Judicially Created Exceptions to Eligibility ................................................. 3–8 3–i

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§ 3.4.3

Design and Plant Patents ...................................... 3–11

§ 3.4.4

Novelty ................................................................. 3–11

§ 3.4.5

Public Use ............................................................ 3–16

§ 3.4.6

Sales and Offers for Sale ...................................... 3–17

§ 3.4.7

Experimental Use Exception................................ 3–17

§ 3.4.8

Publication ........................................................... 3–18

§ 3.4.9

Secret Prior Art .................................................... 3–18

§ 3.4.10 Obviousness ......................................................... 3–19 § 3.5

§ 3.6

§ 3.7

3–ii

Elements of a Patent Application ....................................... 3–21 § 3.5.1

Disclosure ............................................................ 3–21

§ 3.5.2

Claims .................................................................. 3–22

§ 3.5.3

Oath ...................................................................... 3–22

§ 3.5.4

Fees ...................................................................... 3–23

§ 3.5.5

Provisional Application ........................................ 3–24

§ 3.5.6

Continuation-in-Part Applications ....................... 3–24

The Process of Obtaining and Enforcing a Patent ........... 3–25 § 3.6.1

Patent Prosecution ................................................ 3–25

§ 3.6.2

Preissuance and Postissuance Procedures ............ 3–28 (a)

Procedures Available to a Patent Owner to Correct an Issued Patent ......................... 3–29

(b)

Adversarial Procedures to Determine Ownership of Claimed Subject Matter ....... 3–30

Litigation.............................................................................. 3–33 § 3.7.1

Enforcement and Defense .................................... 3–33

§ 3.7.2

Major Litigation Issues ........................................ 3–34

§ 3.7.3

Clearance Opinions .............................................. 3–35

§ 3.7.4

Precomplaint Considerations ............................... 3–36

§ 3.7.5

Injunction and Damages Remedies ...................... 3–39

§ 3.7.6

Additional Prefiling Considerations ..................... 3–40 3rd Edition 2016

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(a)

Multiple Defendants....................................3–40

(b)

Staffing ........................................................3–40

(c)

How Shall the Claim of Infringement Be Asserted?................................................3–42

§ 3.7.7

Claim Interpretation .............................................3–42

§ 3.7.8

Markman Hearing ................................................3–43

EXHIBIT 3A—Timing and Costs for Patent Protection ...............3–45 EXHIBIT 3B—Patent Infringement Complaint ............................3–49 EXHIBIT 3C—Patent Infringement Answer and Counterclaim ..............................................................................3–53 EXHIBIT 3D—Reply to Counterclaim ...........................................3–57 EXHIBIT 3E—Patent Infringement Demand Letter.....................3–61

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CHAPTER 3

Understanding Patents for the Legal Advisor Bruce D. Sunstein, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

David E. Blau, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Timothy M. Murphy, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Jay Sandvos, Esq. Sunstein Kann Murphy & Timbers LLP, Boston

Scope Note This chapter guides a lawyer in the many considerations adherent to counseling a client in a patent matter. It defines the concept of a patent, discusses what is patentable, describes the process of obtaining a patent, and covers enforcement and litigation.

§ 3.1

PRELIMINARY CONSIDERATIONS

§ 3.1.1

“Patent” Defined

A patent is a government grant of the right to exclude others from making, using, or selling the invention as claimed. Patent laws vary widely from nation to nation. For instance, some countries, unlike the United States, have compulsory licensing provisions. Patents are intended to promote innovation and the exchange of ideas. The granting of a patent is traditionally considered an exchange between the applicant and the government. The applicant permits the invention to be disclosed to the public (and pays a variety of fees), and in return the government grants to the applicant a timelimited right to exclude others from practicing the invention as claimed in the 3rd Edition 2016

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patent document. Of course, the invention and the patent application must meet all of the government’s requirements. Article 1, section 8, clause 8 of the U.S. Constitution states as follows: “The Congress shall have the power . . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” Congress has exercised this power by creating statutory schemes for copyrights and patents. The patent statutes are found at Title 35 of the U.S. Code. Congress has also established the U.S. Patent and Trademark Office (PTO), the primary responsibility of which is to review patent applications and issue a patent if the application meets the statutory requirements.

§ 3.2

WHY SHOULD YOUR CLIENT BE THINKING ABOUT PATENTS?

§ 3.2.1

Risks and Prevention of Infringement

If someone else has a patent that covers your client’s product or process, your client may be enjoined from making, using, and selling the product or process. In addition, the client may be subject to significant monetary damages. These risks exist even if your client did no copying or did not know about the patent. In certain cases, the damages may be trebled and attorney fees granted. Moreover, additional risks can arise due to the emergence of a business model based on acquiring and asserting (or threatening to assert) patents covering technologies that a business may not even actually practice. These risks can be partially mitigated by developing a portfolio of patents for your client. Your client’s competitors and those who might seek to assert patents against the client may be operating in the client’s technological space. Thus, the client is likely to develop technology that is used by the competitor. If the competitor has a patent that covers your client’s product or process, having a patent for your client that covers the competitor’s product or process can be valuable leverage during negotiation and may lead to a settlement rather than a protracted litigation.

§ 3.2.2

Securing a Unique Advantage in the Market

If your client can obtain a patent, he or she may be able to prevent others from practicing the invention (including copycats and those who independently develop 3–2

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§ 3.2

their own product). The client may also be able to obtain license fees from others who wish to practice the invention. In addition, a patent can be a valuable marketing tool (e.g., “the patented pocket slicing and dicing machine!”). Filing for a patent early puts your client in a better position vis-à-vis later inventors. Practice Note Obtaining a patent does not mean that the claimed invention can be practiced without infringing someone else’s patent. The PTO determines whether an invention is new enough to be entitled to a patent, but not whether a device, such as that described in a patent application, infringes anyone else’s patent. A typical example is when someone obtains a patent for an improvement on someone else’s patent; until the earlier patent expires, a license may be required to practice the later invention. The earlier patent is therefore called a “blocking” patent. In some cases, however, the fact that a person obtains a patent for an invention can be evidence that a product incorporating that later invention does not infringe an earlier patent cited by the later patent before the PTO.

Having a portfolio of patents may permit your client to cross-license with other companies. Building a patent portfolio can also increase the value of your client’s company in the eyes of potential investors or buyers. Sometimes just one good patent is the difference that allows a small company to obtain capital. Investors, of course, would like to invest in a company that has a product that is in demand, but has no competition. Investors also do not want to invest in a company that has made or will make significant expenditures in research, only to have its products knocked off by a low-cost producer who is able to avoid similar research costs simply by copying. On the other hand, if your client is a potential investor, the value of a patent must not be overestimated. The mere fact that a company has a patent does not mean that the company is valuable—the patent may be narrow (thereby allowing plenty of competition), there may be no demand for the product covered by the patent (“the invention is way ahead of its time”), or the company’s product might be of poor quality. Patents by themselves do not necessarily result in royalty streams. The invention or the products incorporating the invention still have to be marketed—to customers, licensees, or assignees—in order to make money. Sometimes, obtaining the patent is the easy part; it is the money-making part that is difficult. Also, a patent is not a seal of approval from the U.S. government. A look through the weekly Official Gazette put out by the Patent and Trademark Office (http://www.uspto.gov/ learning-and-resources/official-gazette/official-gazette-patents) will show plenty of silly inventions that are not practical and that will not make any money. 3rd Edition 2016

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§ 3.3

PATENTS VERSUS OTHER TYPES OF INTELLECTUAL PROPERTY

§ 3.3.1

Advantages and Disadvantages of Obtaining Patents

There are some disadvantages to patents over other types of protection. • Patents have a short, limited life compared to copyrights, trade secrets, and trademarks. (Trade secret protection and trademarks can last indefinitely.) • Utility patents (the most common type of patent) have a nominal term of twenty years from the earliest effective filing date. There are several exceptions to these general rules regarding the term of a utility patent, including the following: –

delays by the PTO in acting on or examining a patent application may result in a patent term adjustment under 35 U.S.C. § 154(b);

–

patents covering products subject to approval by the federal Food and Drug Administration may, in some cases, receive a patent term extension under 35 U.S.C. § 156;

–

the patent applicant may have filed a terminal disclaimer in order to overcome a double-patenting rejection by the PTO;

–

a statutory disclaimer of all the claims was filed;

–

a reexamination of the patent or other postgrant proceeding resulted in cancellation of all the claims; and

–

all the maintenance fees were not timely paid.

Practice Note A patent is in force only after it has been issued by the PTO, although as discussed below, provisional rights may exist for the time period between the publication of the patent application and the issuance of the patent. It is therefore important in cases where competitors are using or may start using the technology to have the examination of the application accelerated in order to stop competitors from using the claimed technology as quickly as possible.

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§ 3.3

• Obtaining a patent requires providing a very complete disclosure to the public, especially in the United States. Such a disclosure may be useful to the competition, which may not otherwise know how to practice the invention. • Patents are usually more expensive to obtain than registrations of copyrights or trademarks or agreements and procedures protecting trade secrets. (However, the costs of maintaining a robust tradesecret protection program at a large company can add up over time.) As noted, patent applications require a fairly thorough written disclosure. In addition, the applicant will likely engage in some argument with the PTO after the application is filed. Further, although smaller than the attorney fees involved, the various official patent fees are greater than the official fees for copyrights and trademarks. Practice Note The cost of obtaining and maintaining a foreign patent is frequently greater than in the United States. Thus, an aggressive foreign patent filing strategy can multiply costs many times over the cost of pursuing protection only in the United States.

On the other hand, sometimes a patent is the only way to protect adequately an invention. In many cases, trade secret protection is impossible or impractical because of the nature of the invention (e.g., the invention is mass-marketed and can be reverse engineered) or because of other circumstances (e.g., the engineers move freely among competitors in the industry). A copyright does not usually protect technological works (although it can protect against slavish copying of computer software and of a user interface), but rather only expressive works. Also, trademarks and trade dress protection are meant to prevent consumers from being misled about the origin of a product and are not intended to prevent competition in the underlying product. There are other advantages that patents have over other types of intellectual property protection. To prove copyright infringement, one has to show—by one means or another—copying of the copyrighted work. To prove misappropriation of trade secret, one must show that the trade secret was improperly appropriated. However, in order to prove infringement of a patent, one does not have to show copying or misappropriation by the accused party; i.e., someone can innocently infringe a patent and still be liable. Issued patents are entitled to a statutory presumption of validity. 35 U.S.C. § 282. In addition, since the institution in the early 1980s of the U.S. Court of Appeals for the Federal Circuit, which hears the appeals of all patent infringe3rd Edition 2016

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ment cases, patents have become much more valuable than they were forty or so years ago. A larger percentage of patents have their validity upheld now than before the institution of the U.S. Court of Appeals for the Federal Circuit. However, recent decisions of the court have made the task of proving infringement more difficult. E.g., Festo Corp. v. Shoketzu Kinzoku Kogyo Kabushiki Co., 234 F.3d 558 (Fed. Cir. 2000), rev’d in part by 535 U.S. 722 (2002).

§ 3.4

WHAT IS PATENTABLE?

§ 3.4.1

The America Invents Act

Congress passed a major overhaul of U.S. patent law with the Leahy-Smith America Invents Act (AIA), amending numerous portions of Title 35 of the U.S. Code. Pub. L. No. 112-29, 125 Stat. 284 (Sept. 16, 2011). Effective eighteen months after the signing of the legislation (that is, March 16, 2013), the previous first-to-invent system was replaced by a first-to-file system, discussed in detail below. The impetus for the new law came primarily from industrial giants in the financial and computer industries, which clamored for “patent reform” and sought to file the teeth of the patent system. Yet, over the years, the Federal Circuit, the court that hears all patent appeals, largely addressed these concerns, and some of the more aggressive positions urged by those sectors met vigorous opposition by the pharmaceutical industry and other sectors that depend on patents. The new law that emerged from this face-off represents serious tinkering but not too much teeth filing. It will have a major impact on patent owners, inventors, and practitioners for years to come. Inventors must give greater attention to their timetable for filing for patent protection, gird themselves for an array of possible challenges to their patent’s validity, and rethink their multiple-defendant enforcement strategies. Although the push came from large invention houses, small inventors received a number of benefits as well. For one, the Patent and Trademark Office has established an ombudsperson to help small businesses and independent inventors file applications on their own. Congress has commissioned a study on helping small inventors obtain international protection. The new law calls on the Patent and Trademark Office to support intellectual property (IP) law associations in providing pro bono assistance to small inventors. The America Invents Act recognized that patents are a commodity of great potential value, as cornerstones of development and attractors of investment. Still, 3–6

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the legislation requires applicants and their attorneys to recalibrate their approach to prosecuting and enforcing patents.

§ 3.4.2

Subject Matter Considerations

The subject matter that may be entitled to a utility patent is set forth in 35 U.S.C. § 101, which reads: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Under jurisprudential standards articulated by the courts, the determination whether subject matter in a claim in a patent or in a patent application is eligible to be patented under Section 101 has traditionally been made in relation to two criteria. First, is the claim directed to one of the four statutory categories: processes, machines, manufactures, and compositions of matter? Second, if so, is the inventive subject matter defined by the claim “useful”? Note that this second test pertains to the utility of the inventive concept itself, and differs from the separate tests for novelty (Section 102) and nonobviousness (Section 103) discussed below, which pertain to the particular technologies chosen to implement the concept. As the Supreme Court has aptly stated, a process may be patentable, irrespective of the particular form of the instrumentalities used, even if those instrumentalities themselves are not new or patentable. Cochrane v. Deener, 94 U.S. (4 Otto) 780, 787 (1876).

(a)

The Four Enumerated Categories

With respect to the first inquiry, it is determined whether the claimed subject matter falls into one of the four statutory categories. Congress intended these categories to include inventions of “anything under the sun that is made by man.” Diamond v. Diehr, 450 U.S. 175, 182 (1981). Ordinarily, therefore, this inquiry may be quickly resolved. Nevertheless, some subject matter has been determined, either legislatively or judicially, to exist outside these categories, and is therefore deemed not eligible to be patented. Such ineligible subject matter includes the following: • a mere arrangement of printed matter, In re Miller, 418 F.2d 1392, 1396 (C.C.P.A. 1969); • a computer program per se, Gottschalk v. Benson, 409 U.S. 63, 72 (1972); 3rd Edition 2016

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• naturally occurring organisms, Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980); • transitory signals, such as electromagnetic radiation, In re Nuijten, 500 F.3d 1346, 1357 (Fed. Cir. 2007); • a legal contractual agreement, In re Ferguson, 558 F.3d 1359, 1364 (Fed. Cir. 2009); • a company, In re Ferguson, 558 F.3d at 1366; and • humans per se, AIA § 33, 125 Stat. 284, 340 (Sept. 16, 2011); 35 U.S.C. § 101 n.

(b)

Utility

With respect to the second inquiry, that the invention must be useful, the claimed invention must have “specific and substantial utility.” Brenner v. Manson, 383 U.S. 519 (1966) (as interpreted by In re Fisher, 421 F.3d 1365, 1371 (Fed. Cir. 2005)). Although utility is a low threshold, it is not always satisfied. In re Fisher, 421 F.3d at 1371. (Why would anyone want to patent something that was not useful?) However, an invention that does not work is considered not to be useful. The PTO rarely makes a specific study to determine if an invention will work, but if the invention’s inoperability seems clear to the examiner, it will probably become an issue. Example: Models of inventions are normally not required. 37 C.F.R. § 1.91. However, when an inventor attempts to patent a perpetual-motion machine or another machine that defies the laws of physics, the PTO will typically require a model in order to prove that the machine cannot run perpetually. In some chemical and biological cases, the PTO does require a deposit of the claimed matter in order to ensure that the public can practice the invention after the patent has expired. 35 U.S.C. § 114.

(c)

Judicially Created Exceptions to Eligibility

While nearly all inventions possess facial eligibility, the Supreme Court, as a matter of public policy, has imposed three judicial exceptions to patent eligibility. Laws of nature, natural phenomena, and abstract ideas are not patentable subject matter, because they represent “basic tools of scientific and technological work.” Gottschalk v. Benson, 409 U.S. 63, 67 (1972). Processes that can be performed entirely in the human mind as “mental steps” are unpatentable for this reason. CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1373 (Fed. 3–8

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Cir. 2011) (citing Gottschalk v. Benson). Thus, one cannot patent a game defined as a set of rules. Nevertheless, an application of a law of nature or abstract idea to a known structure or process may deserve patent protection. Gottschalk v. Benson, 409 U.S. at 67. For example, altering a process for curing rubber to include a computer that constantly revises a time to open the rubber mold was found patent eligible because the inventive concept of the claim was directed to improving the rubber curing process, not to the time computation algorithm itself. Diamond v. Diehr, 450 U.S. 175, 184 (1981). In a series of three decisions, the Supreme Court radically expanded these three judicial exceptions: Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012); Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013); and Alice Corp. Pty Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014). These three cases, together with In re Bilski, 130 S. Ct. 3218 (2010), demonstrate a great willingness, passed down to the Patent and Trademark Office, to determine that patent claims are directed to one of these three judicial exceptions, making it much more difficult to obtain patent protection in the areas of biotechnology, computer software, and methods of conducting business, among others. As recognized by Mayo, all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas, and the judicial exceptions should not swallow the rule. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. at 1293. However, to transform an unpatentable law of nature into a patent-eligible application of such a law, a patent must do more than simply state the law of nature while adding the words “apply it.” It must limit its reach to a particular, inventive application of the law. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. at 1294 (citing Gottschalk v. Benson, 409 U.S. 63 (1972)). The Alice decision held that concern for “pre-emption” of the “basic tools of scientific and technological work” drives its application of the judicial exceptions to patent eligibility. Alice Corp. Pty Ltd. v. CLS Bank Int’l, 134 S. Ct. at 2354–55. It then read Mayo as setting out a two-step test for determining whether claims were patent eligible. According to the Alice/Mayo framework, after determining (or usually, assuming) that a claimed invention falls into one of the enumerated classes of invention and satisfies the utility requirement, a court first determines whether a claim at issue is directed, as a whole, to a patentineligible judicial exception. If so, the court then asks whether the claim’s elements, considered both individually and “as an ordered combination,” define an “inventive concept” that “transform[s] the nature of the claim” into a patenteligible application of that exception. Alice Corp. Pty Ltd. v. CLS Bank Int’l, 134 3rd Edition 2016

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S. Ct. at 2355. A principal problem with the analytical framework for determining patent eligibility defined by the Court is that it is hopelessly subjective. See generally Bruce D. Sunstein, “How Prometheus Has Upended Patent Eligibility: An Anatomy of Alice Corporation Proprietary Limited v. CLS Bank International,” 49 New Eng. L. Rev. 1 (2015). Following the Alice decision, the PTO and the courts have been rejecting and invalidating claims under Section 101 at an alarming rate. For example, as of the fall of 2015, approximately 90 percent of post-Alice Federal Circuit and District Court decisions that raised the issue of Section 101 utility have invalidated at least one, and usually all, of the challenged claims on that ground. Inventions that pertain to business methods and software improvements per se have been hit particularly hard, and are routinely rejected by the PTO. Practice Note It may eventually become easier to obtain a patent if Congress overrides the Supreme Court or the courts change direction, but that will take time. If you have received a rejection on the basis of Section 101, consider delaying prosecution by filing continuing applications, appeals, or requests for continued examination.

The requirement of subject matter eligibility has also been a thorny issue for certain chemical and biochemical compositions following the Myriad decision, which distinguished between naturally occurring compounds and those “made by man.” The Myriad Court held that separating a gene from its surrounding genetic material, with nothing more, is not an act of invention, and remarked that the groundbreaking, innovative, or even brilliant discovery required to do so does not by itself satisfy the § 101 inquiry. Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. at 2117. By contrast, complementary DNA (cDNA), which is synthetically created from messenger RNA (mRNA), is not a product of nature and is patent eligible under Section 101. Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. at 2119. This legal distinction holds even if the ineligible strand of isolated DNA is chemically indistinguishable from the eligible strand of synthetically produced cDNA (although such a strand would fail the novelty requirement of Section 102). Many foreign countries limit the patentability of medical procedures, but medical procedures are patentable in the United States. However, the patentee’s ability to sue all infringers of a patent directed to a medical procedure has been curtailed by recent legislation. 35 U.S.C. § 287(c) (enacted in 1996). This legislation makes it even more important to consider likely defendants when drafting a patent claim. (For instance, it is usually easier to sue the manufacturer of an infringing product than the consumers, so the patent should be drafted to cover the product as it leaves the factory—as opposed to how it may be used by the 3–10

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consumer—so as to avoid having to show the additional elements of contributory infringement.)

§ 3.4.3

Design and Plant Patents

Design patents have different subject matter requirements from utility patents, as set forth in 35 U.S.C. § 171, which reads as follows: Whoever invents any new, original and ornamental design for an article of manufacture may obtain a patent therefor, subject to the conditions and requirements of this title. The provisions of this title relating to patents for inventions shall apply to patents for designs, except as otherwise provided. One difference between utility patents and design patents is the length of their terms. As noted previously, utility patents have a term of twenty years from the earliest effective filing date (or seventeen years from issuance, depending on when they were filed). Design patents have a term of fourteen years from issuance. The aspects of the design claimed in a design patent must be ornamental, as opposed to functional—which is sometimes a very fine distinction. Design patents can be very useful (especially as a surrogate for or in conjunction with trade dress protection), but are not considered to be as valuable as utility patents, since they are not meant to protect the underlying concept that makes a product function the way that it does, and since it is usually very easy to design around an ornamental design. That being said, exceptions to the general rule exist, and some design patents may be very valuable, as demonstrated by the recent litigation between Apple and Samsung over Apple’s design patents. Design patents are generally easier and less expensive to obtain than utility patents. Plant patents also have different subject matter requirements, as set forth in 35 U.S.C. § 161. Cultivated plants that may be asexually reproduced, other than tubers, are eligible for protection. Plant patents are treated the same way as utility patents for purposes of computing duration of patent term.

§ 3.4.4

Novelty

To be patentable, an invention must be novel over the “prior art.” What constitutes prior art is set forth in 35 U.S.C. § 102. 3rd Edition 2016

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Section 102(a) sets forth the requirement of claim novelty in view of the prior art, and reads as follows: (a) Novelty; Prior Art.—A person shall be entitled to a patent unless— (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or (2) the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention. Thus, Section 102(a)(1) describes five categories of disclosures that can anticipate a claim: patents, printed publications, public use, sales, and public availability. The latter three disclosures are addressed in more detail below, and are effective prior art as of their disclosure date. While foreign patents and publications are anticipatory as of their publication date, Section 102(a)(2) provides that a U.S. patent or U.S. patent publication is anticipatory as of its effective filing date (which is earlier than the date of its publication). The AIA also provides that any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, will be deemed insufficient to differentiate a claimed invention from the prior art. AIA § 14, 125 Stat. 284, 327 (Sept. 16, 2011), 35 U.S.C. § 102 n. Section 102(b) sets forth exceptions to anticipatory prior art. Section 102(b)(1) provides exceptions to the novelty-destroying disclosures listed in Section 102(a)(1), and reads as follows: (b) Exceptions.— (1) Disclosures made 1 year or less before the effective filing date of the claimed invention.—A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if—

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(A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor. These provisions establish a limited one-year grace period, which an inventor may choose to use for testing the commercial success of a product before filing a patent application. The grace period is limited, however, because it does not protect the inventor against prior art created by a third party. For this reason, despite the availability of the limited grace period, an inventor is advised to file an application for the invention as soon as possible. It may still be possible to obtain a patent on any improvement over a divulged invention, as long as that improvement was not divulged more than one year previously. It is very important to note that under 35 U.S.C. § 102(b)(1), the inventor’s own activities (as well as the activities of others) can constitute prior art. Subsection (b)(1)(A) excludes disclosures made by the inventor, and subsection (b)(1)(B) excludes later disclosures made by third parties to the extent that they disclose the same subject matter found in the inventor’s earlier disclosure (for example, publications by a third party that build on the inventor’s work that intervene between the original publication and the inventor’s filing date). One distinction between the two provisions is that Section 102(b)(1)(A) is directed to the party making the disclosure, whereas Section 102(b)(1)(B) is directed to the subject matter of the disclosure. Thus, there was considerable consternation in the patent community that, while all disclosures made by the inventor are excepted, a subsequent disclosure made by a third party may be viewed as anticipatory if it contained mere insubstantial changes or only trivial or obvious variations. The Patent and Trademark Office has since clarified in a rulemaking that, under its interpretation, Section 102(b)(1)(B) does not prevent such a third-party disclosure, as a whole, from being considered as prior art; nevertheless, the subject matter appearing therein that was previously disclosed by the inventor does not operate as prior art, even if that subject matter is not reproduced verbatim in the later disclosure. Practice Note The term “inventor” is sometimes used herein in the singular for clarity. An invention may have joint inventors, and the rules are basically

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the same for both single inventors and joint inventors. In the United States, it is very important and necessary that all the actual inventors be determined and listed on the patent application. Nevertheless, there are (somewhat cumbersome) provisions for correcting honest mistakes in listing inventors.

Caution The vast majority of foreign countries do not have any grace period, except in very limited circumstances. Thus, if your client wishes to obtain foreign patent protection, he or she generally must file a patent application before the invention becomes known to the public, otherwise your client could be barred from obtaining a patent in another country.

Fortunately, one can at first file only in the United States and then file within one year in a country that is a signatory to the Paris Convention for the Protection of Industrial Property (most countries) with the U.S. filing date as the foreign application’s priority date. This way, one can avoid a statutory bar problem in foreign countries by initially filing only a U.S. application before any public use or publication of the invention. Once again, pursuing and maintaining foreign patents can be very expensive. The Patent Cooperation Treaty allows one at a reasonable initial expense to preserve the right to pursue patents in many jurisdictions, while delaying the filing of many individual national applications, by filing a single international application. If one wants patent protection in many jurisdictions, however, one must eventually—at great expense—pursue separate applications in each of the jurisdictions, regardless of whether an international application was filed. See Exhibit 3A for a discussion of the timing and costs of patent protection. Many European countries belong to the European Patent Convention, thereby streamlining the prosecution of patents in Europe, although perhaps not reducing the costs as much as one would like. Section 102(b)(2) sets forth exceptions to anticipation under Section 102(a)(2) for U.S. patents and printed publications, and reads as follows: (b) Exceptions. — 2. Disclosures appearing in applications and patents.—A disclosure shall not be prior art to a claimed invention under subsection (a)(2) if—

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(A) the subject matter disclosed was obtained directly or indirectly from the inventor or a joint inventor; (B) the subject matter disclosed had, before such subject matter was effectively filed under subsection (a)(2), been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (C) the subject matter disclosed and the claimed invention, not later than the effective filing date of the claimed invention, were owned by the same person or subject to an obligation of assignment to the same person. Sections 102(b)(2)(A) and (B) roughly parallel Sections 102(b)(1)(A) and (B), providing that prior art does not include subject matter that was disclosed to a third party and that appeared in the third party’s patent application. The discussion, caution, and practice note above apply to these sections. Sections 102(b)(2)(C) and 102(c) largely incorporate the pre-AIA Section 103(c)(1) exception relating to common ownership. As a notable difference, prior to passage of the AIA, this exception existed only with respect to commonly owned publications used in making an obviousness rejection under Section 103, and only with respect to those publications that would qualify under pre-AIA Sections 102(e), (f), or (g). The inclusion of the AIA exception under Section 102 indicates that it is intended to apply, more broadly, to all commonly owned patents and published applications. It is worth noting that, while this exception prevents a commonly owned published application or patent from qualifying as prior art under Section 102(a)(2), that document still qualifies as prior art under Section 102(a)(1), subject to the one-year grace period. Practice Note Under the new regime, when a given patent application is filed in the United States, a previously filed U.S. application constitutes prior art, as of its effective filing date, for all purposes once it has been published, even if the previously filed application was not published when the given application was filed. Moreover, for prior art purposes, a published U.S. application speaks as of its “effective filing date”, a term that reaches back to the filing date of a U.S. or foreign patent application that is a source of priority for the published U.S. application. These rules are harsher than those of the European patent

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system, under which an application previously filed but unpublished as of the filing date of the given application can be cited as prior art for purposes of a rejection based on lack of novelty but not for a rejection based on lack of an inventive step (called “obviousness” in the United States). On the other hand, another provision has the effect of shielding a company from a rejection of its patent application based on any previously filed applications of the company that were unpublished as of the date of filing of the given application. This provision suggests that companies might well consider filing successive applications with a view to the publication date of previously filed applications. This new approach makes provisional applications even more important than under the prior law, because a provisional application enables one to obtain a filing date for the invention with a minimum of formalities. Does this mean that inventors should rush to file the shortest imaginable applications without significant technical content? It does not, because other sections of the patent law, those requiring an enabling disclosure of the invention, remain intact. The application must still be well crafted. From now on, the earlier filing of provisional applications should figure prominently in patent strategies. Where provisionals have been filed relatively early in the development process, it may be productive to file a second, and even a third, provisional over the course of development—each time with more technical content—before the regular application is filed on or before the first anniversary of the initial provisional filing.

§ 3.4.5

Public Use

The public-use bar frequently creates problems, because courts in the United States have held many activities that do not seem very public to be public uses. (Foreign countries, however, may define what constitutes a public use differently from the United States.) For instance, in the corset-spring case, a female friend of the inventor wore her corset with the improved corset springs in public— under her outer garments, of course. Egbert v. Lippmann, 104 U.S. (14 Otto) 333 (1881). No member of the general public saw the invention or had any inkling that the woman was wearing an invention, yet the Supreme Court held that this was public use. In a similar case involving safes, the invention was incorporated into several safes in such a way that the invention could not be discerned without destroying the safe; this was also found to be a public use. Hall v. MacNeale, 107 U.S. (17 Otto) 90 (1883). 3–16

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Another area that can create a statutory bar is an inventor’s secret use of a process to make a product that is sold publicly. Although there may be nothing that is public about the process itself, the courts have considered this to be a public use, since the goods made by the process are introduced to the public. As a matter of public policy, the courts—and presumably, Congress—do not want an inventor to take commercial advantage of the process for more than one year and then apply for a patent on the process. Of course, in such a case, the inventor can continue to use trade secret protection for the process.

§ 3.4.6

Sales and Offers for Sale

The on-sale bar has some traps as well. The one-year grace period generally begins with the first offer for sale, not necessarily the date the first order was received or the ship date. Also, the customer does not need to know that an invention will be incorporated into the product that is being sold. Furthermore, the offer for sale, the sale itself, and the use of the product by the customer may all be confidential, yet the offer for sale still triggers the one-year grace period. An offer for sale can occur before the invention is actually reduced to practice, as long as the invention is “ready” for patenting. See Pfaff v. Wells Elecs. Inc., 525 U.S. 55 (1998). Confidential offers to assign or license the invention itself—as opposed to offers to sell a product incorporating the invention or a product made by means of a process invention—have generally not been considered on-sale activities. Caution A trap for the unwary, of which Congress itself may have been unaware, is that a confidential offer of the invention for sale before it has been made the subject of a patent filing might constitute an instant bar to patenting the invention in the United States, even though the invention could possibly be patented elsewhere, for example, in the European Patent Office. This strange result is due to the fact that a lack of publication of the offer operates to prevent the inventor from invoking the grace period.

§ 3.4.7

Experimental Use Exception

Experimental use is considered an exception to the public-use and on-sale bars. Netscape Communications Corp. v. Konrad, 295 F.3d 1315, 1321 (Fed. Cir. 2002); see also Pfaff v. Wells Elecs. Inc., 525 U.S. 55 (1998). As a general rule, since it is often difficult to establish definitively that a use is sufficiently experimental for patent law purposes, it is usually considered unwise to rely on the 3rd Edition 2016

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experimental-use exception prospectively. The safer course is to file an application within one year of the earliest date that could possibly be considered a publicuse or on-sale event—or a publication.

§ 3.4.8

Publication

Publication, which is another event starting the one-year grace period before one is barred from patenting an invention, is fairly straightforward. There are some instances, however, where there is a question as to what constitutes a publication. A publication need not be widely circulated; a single copy available in a library would be considered a publication under 35 U.S.C. § 102. The safest route, as mentioned above, is to file an application as soon as possible and certainly within one year after the earliest event that could be considered a statutory bar. Also, remember that a good patent application cannot normally be prepared overnight, and therefore the invention should preferably be disclosed to a patent attorney or agent well in advance of the statutory bar date. Nevertheless, it is sometimes possible to prepare and file a provisional application quickly in order to avoid a statutory bar, especially if an adequate description of the invention has already been prepared. (Provisional applications are discussed in § 3.5.5, below.) Companies must be wary of the good-intentioned inventor/employee who rushes to distribute an article about an invention in order to enhance the reputation of the company, or in order to promote cooperation among engineers or scientists in an industry. Such actions can create statutory bars that can prevent the company from obtaining a patent on the invention (especially in foreign countries that do not have a grace period). This is one of the reasons why inventors need to be educated about the importance of patents and the importance of getting a patent attorney involved at an early stage of the development of the invention.

§ 3.4.9

Secret Prior Art

Some prior art is not secret, but nevertheless may be difficult to know about ahead of time. For instance, an article published in an obscure journal in an obscure language in an obscure corner of the world is still considered prior art, even if no one in the United States knew about the article at the time of the invention. Even though it may be likely that neither the patent applicant nor the patent examiner would find out about such an obscure reference during the prosecution of the patent application, in patent litigation, a great deal of effort is frequently expended in order to find a reference, however obscure, that will invalidate a patent.

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Other prior art is truly secret—and unavailable to the public until sometime after its effective date. A pending U.S. patent application, which in some circumstances is kept secret until a patent issues from it, can be prior art as of its filing date. Thus, despite a very thorough search before a patent application is filed, it is always possible that a piece of prior art that one could not have known about ahead of time may be cited against a patent application, rendering the claimed invention unpatentable. A related issue, in the infringement area, is that your client can be found to infringe someone else’s patent, even if your client started making, using, or selling the accused product or process before the patent issued. In other words, there is no grandfather provision for avoiding the infringement of an ordinary patent (unless there was a public use or sale of the accused product more than one year before the patent’s filing date, in which case your client’s product or process would constitute prior art to the asserted patent). There are limited grandfather provisions for alleged infringers of reissue patents, which can (as mentioned below) broaden or narrow an original application (35 U.S.C. § 252), and for alleged infringers of business-method patents (35 U.S.C. § 273). Practice Note Arrange to have searches performed to determine novelty of inventions and to determine if others have patents that may cover your client’s product.

§ 3.4.10 Obviousness In order for an inventor to be entitled to a patent, an invention must not only be new, it must also not have been “obvious” in light of the prior art. The nonobviousness requirement is set forth in 35 U.S.C. § 103. Post-AIA, Section 103 reads as follows: A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Patentability shall not be negated by the manner in which the invention was made.

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The leading Supreme Court decisions on obviousness are Graham v. John Deere Co., 383 U.S. 1, 15 (1966) and KSR v. Teleflex, 550 U.S. 398, 407 (2007). Although these cases predate the AIA, they are still routinely applied, as the AIA did not significantly alter the nature of the obviousness inquiry. The major change between pre-AIA and AIA obviousness law is that the hypothetical determination by the person having ordinary skill in the art is now made relative to the effective filing date of the application claiming the invention, rather than the time the invention itself was made. Whether an invention would have been “obvious . . . to a person having ordinary skill in the art” is the issue that is most argued about during the prosecution of patent applications, and the second most argued about in patent litigation. (The most contentious issue in litigation is infringement, i.e., whether the accused product infringes the asserted patent.) The obviousness issue requires the resolution of several difficult concepts. One has to imagine a hypothetical person who has only ordinary skill in the field of the invention but who is aware of all the pertinent prior art, however obscure. One further has to place this ordinary and omniscient hypothetical person in the past—at the instant before the actual invention occurred. Would the solution embodied in the claimed invention have been obvious to such a hypothetical person? Even after all the subsidiary issues are resolved (e.g., what is the pertinent field, what was the level of skill in that field, what constitutes the pertinent prior art), determining whether an invention is obvious remains an inherently difficult question, because the arbiter (e.g., the PTO examiner or a jury) already knows the solution, which may seem obvious only in retrospect. Both the PTO and the courts can look at various indicia of patentability, called “secondary factors,” to help them decide if a given invention meets the nonobviousness requirement. The typical secondary factors include • a long-felt need in the industry for a solution to a problem, • repeated failures in the past to obtain a solution, • the commercial success of the invention, and • copying of the invention by others. As set forth in the last sentence of 35 U.S.C. § 103, it does not matter how an invention was made or conceived; a “flash of genius” is not required. To paraphrase Thomas Edison: invention is “99 percent perspiration and 1 percent inspiration,” and other ratios with more or less inspiration are permitted. Also, an invention can be discovered by accident. 3–20

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One cannot always trust the inventor to make an informed decision about whether an invention would have been obvious. Some inventors who are modest and/or brilliant may say that a clearly patentable invention was no big deal, because it was obvious to them—but they may have much more than ordinary skill. Therefore, despite what the inventors or others may think about the obviousness of an invention, one should nevertheless consider patent protection if the invention is important to the company.

§ 3.5

ELEMENTS OF A PATENT APPLICATION

§ 3.5.1

Disclosure

The patent laws require a disclosure of the invention. In most cases, drawings are required. 35 U.S.C. § 113. In all utility cases (except design cases), a written specification is required. This specification has two main parts: a disclosure of the invention that will teach the public about the invention (as part of the exchange referred to above between the inventor, who has made an advance in the field, and the government, which grants a monopoly in the invention), and the claims. What is required in the written disclosure is set forth in 35 U.S.C. § 112(a), which reads as follows: IN GENERAL.—The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor or joint inventor of carrying out the invention. Importantly, the statute requires that the “best mode” be disclosed, although post-AIA, failure to comply with the best mode requirement is no longer a defense to an infringement action. Congress does not want inventors withholding important information about the invention so that after the patent expires, others cannot practice the invention with the same benefits or efficiency as the inventor. For this reason, patents are sometimes incompatible with trade secrets. If a trade secret is important to know for “the best mode . . . of carrying out [the] invention,” then the failure to disclose the secret may invalidate any patent that issues.

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§ 3.5.2

Claims

Section 112(b) of 35 U.S.C. reads as follows: “The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the inventor or a joint inventor regards as the invention.” The claims are the numbered paragraphs found at the end of the patent. A patent may contain one claim or several claims. At least one claim is independent, and the other claims may be independent or dependent. A dependent claim refers to and incorporates another claim. The claims, which are usually written in a very arcane style, are the most critical part of the patent. The claims are meant to define what is covered by the patent, much like a deed to real property. If an accused product or process falls within the scope of a valid claim, it infringes the patent. Claims must be written in a manner that informs those skilled in the art about the scope of the invention. Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014). Practice Note A product or process may infringe a claim literally, or under the Doctrine of Equivalents, which allows in some cases a finding of infringement even if the accused product or process does not fall literally within the scope of the claims. Yet the claims cannot be so broad as to cover anything that would have been obvious in light of the prior art.

§ 3.5.3

Oath

An application requires an oath (or declaration under penalty of perjury) by all the inventors that they have reviewed and understand the specification, that they believe themselves to be the original and first inventors of the claimed invention, and that they will disclose all material prior art that they know about to the PTO. 35 U.S.C. § 115; 37 C.F.R. § 1.63. If an inventor refuses to cooperate, there are provisions that permit the other joint inventors, if any, or the assignee (or someone with sufficient proprietary interest) to file the application. 37 C.F.R. § 1.47. In the United States, perhaps because of our tradition of enterprising individualism, the correct naming of inventors is given great weight. The determination of who should be listed as inventors on an application should not be taken lightly, because any problems with inventorship can cause problems during litigation, and, in egregious cases, can result in the patent being invalidated. Individuals who help reduce an invention to practice by merely carrying out the routine instructions of others who have conceived the invention (e.g., someone in the machine shop who is merely following the inventor’s drawings) are ordinarily not

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considered to have made an inventive contribution. Only a natural person can be an inventor; a company cannot be an inventor. Joint inventors are dealt with in 35 U.S.C. § 116, which reads in part as follows: (a) JOINT INVENTIONS.—When an invention is made by two or more persons jointly, they shall apply for patent jointly and each make the required oath, except as otherwise provided in this title. Inventors may apply for a patent jointly even though (1) they did not physically work together or at the same time, (2) each did not make the same type or amount of contribution, or (3) each did not make a contribution to the subject matter of every claim of the patent . . . .

§ 3.5.4

Fees

The filing fees for a U.S. patent application are set forth in 37 C.F.R. § 1.16. Fees arising during the prosecution of the application and to maintain an issued patent are set forth in 37 C.F.R. §§ 1.17–1.21. In most cases, the fee for large entities (generally for-profit entities having more than 500 employees) is twice that for small entities (most others who have not assigned or licensed the invention to a large entity). The AIA also added a new third fee category, the microentity, with even smaller fees—half those of a small entity, one-quarter of the large entity fees. An applicant can be treated as a microentity (1) if the applicant’s employer, from which the applicant obtains the majority of the applicant’s income, is an institution of higher education, or (2) if the applicant has assigned or is under an obligation to assign a license or other ownership interest in the application to such an institution of higher education, or (3) if the Applicant: • qualifies as a small entity, and • neither the applicant nor any of the inventors has been named as an inventor on

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more than four previously filed U.S. patent applications, and • neither the applicant nor any of the inventors earned a gross income greater than three times the median household income for that preceding calendar year (as most recently reported by the Bureau of the Census), and • the Applicant has not granted rights in the application to a non-Micro entity. The fees usually increase annually in all the fee categories. Patent filings that are the subject of prior assignments and duties to assign to previous employers do not count against the five-application limit. This means that inventors who applied for patents while employed at a large research and development company still qualify as a microentity if they strike out on their own. This provision assures small inventors lower costs if they choose to start a home business.

§ 3.5.5

Provisional Application

A provisional application may be used for quickly and cheaply establishing an early priority date for a follow-up regular application. The provisional application must include a disclosure pursuant to 35 U.S.C. § 112, drawings (if appropriate), the names of the inventors, and a relatively small filing fee. The provisional application requires neither a claim nor an oath, but if time permits a set of claims or a summary of the invention may be included to show the intended scope of the disclosed invention. A provisional application is not examined by the PTO and becomes abandoned in one year. A regular application must be filed within that one year if patent protection is desired for the invention and if one wants to obtain the benefit of the provisional application’s filing date. Practice Note Provisional applications may be used to obtain as early a priority date as possible.

§ 3.5.6

Continuation-in-Part Applications

The U.S. patent laws, unlike the laws of most foreign countries, permit the filing of what is referred to as continuation-in-part applications. A continuation-in-part 3–24

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application (C-I-P), which has the same requirements as an ordinary application, can be useful when there are subsequent improvements to an invention with a pending patent application. Before the original application is issued or abandoned, a C-I-P may be filed incorporating disclosure of the original invention and disclosure of the improvements. Claims to content disclosed in the earlier application will have the benefit of the earlier application’s filing date; claims to the new content will have the benefit of the C-I-P’s filing date. Applications claiming priority from a provisional application will be similar to C-I-Ps, since some content will have different dates of priority from other content. (The ruling in Tronzo v. Biomet, Inc., 156 F.3d 1154 (Fed. Cir. 1998) limits the situations where a C-I-P is useful.) Practice Note Continuation-in-part applications once were quite common, but over time and for a variety of reasons, their usefulness has diminished.

§ 3.6

THE PROCESS OF OBTAINING AND ENFORCING A PATENT

§ 3.6.1

Patent Prosecution

Under the American Inventor’s Protection Act of 1999, the contents of an application are published eighteen months after the filing date (or earlier at the request of the applicant), unless the applicant has certified that the applicant will not be pursuing foreign patent protection based on the U.S. application. 35 U.S.C. § 122. Publication of the application can result in “provisional rights” for the applicant. (Provisional rights are not to be confused with a provisional application.) In particular, once an application is published, the applicant may notify infringers of the published application, and then later on after the patent issues and in a patent infringement suit, the applicant may be able, in some circumstances, to collect damages from the time the infringer was notified. 35 U.S.C. § 154. Previously, a patentee was entitled to damages only arising after the patent issued. Most foreign countries also publish patent applications eighteen months after the priority date, and international applications filed pursuant to the Patent Cooperation Treaty are also published eighteen months after the priority date. Practice Note When a patent application is published, the procedural history (sometimes called the “file wrapper”) of the application, and any provisional application from which it claims priority, is published as well.

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If a patent application is not published before it is issued, this information becomes public when the patent is issued. Valuable competitive intelligence can be acquired by investigating the procedural history and contents of published patent applications and competitors’ patents.

In the PTO, examiners with technical backgrounds do the substantive review of the applications, including searching for relevant prior art. Unlike trademark practice, only registered patent attorneys or agents, or the inventors themselves, can normally file and prosecute patent applications in the PTO. It usually takes the PTO a year or two after an application has been filed to begin to consider the application, but there are provisions for accelerating examination of an application. 37 C.F.R. § 1.102; Manual of Patent Examining Procedure (MPEP) § 708.02. An application may be “made special” and advanced out of turn for examination by petition. This is called “accelerated examination” if the applicant is sixty-five years of age or older or may be unable to assist in prosecution due to failing health, or if the invention relates to certain subject matter areas. The AIA introduced a “prioritized examination” procedure, also called “Track One,” which permits advancement out of turn for any application, subject to payment of a substantially larger fee and limits on the number of claims that may be pending at any time. Finally, a program called the Patent Prosecution Highway (PPH) is available to advance a first action by the PTO when a foreign patent office makes a determination that the claims are patentable. The PTO has PPH arrangements with more than a dozen foreign intellectual property offices. Practice Note As of the fall of 2015, the PTO had capped the number of Track One applications it will accept at 10,000 per year. For an undiscounted applicant, the petition fee is $4,000; small entities and microentities receive 50 percent and 75 percent discounts, respectively. By contrast, the petition to make an application special has no fee if one of the enumerated reasons above is used, and costs only $140 (which may be further discounted) otherwise.

Sometimes, if more than one “invention” is being claimed, the PTO will require that one invention be elected and the others pursued in divisional applications, if at all. After this restriction requirement, the application is examined substantively. Sometimes the examiner’s review immediately results in a notice of allowance, but in the vast majority of cases it results in an initial rejection of all the claims. The rejection is typically based on

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• lack of novelty in the invention (35 U.S.C. § 102); • obviousness of the invention (35 U.S.C. § 103); • failure to provide clear enough claims (35 U.S.C. § 112(b)); • failure to provide an enabling disclosure (35 U.S.C. § 112(a)); and/or • the invention’s subject matter, e.g., the claimed invention is merely a mathematical algorithm (35 U.S.C. § 101). Typically and hopefully, these rejections can be overcome. One responds to a rejection by amending the application (including usually the claims) and/or by arguing that the examiner’s rejection is ill-founded. (However, the application cannot be amended to add “new matter,” namely, subject matter that was not in the application when it was filed.) This response may result in a notice of allowance or another rejection. There may be several iterations of this process, and one may appeal from a final rejection by the examiner. Alternatively, an application may be abandoned without having its contents disclosed to the public, unless the application has been published. It is important that all relevant prior art that is known to the inventors and others involved in the prosecution of the patent be disclosed to the PTO during the prosecution. Section 1.56(a) of Title 37 of the Code of Federal Regulations states as follows: A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective patent examination occurs when, at the time an application is being examined, the Office is aware of and evaluates the teachings of all information material to patentability. Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability as defined in this section. Where there has been a failure to disclose all known material prior art during the prosecution of an application, a patent that issues from that application could be declared unenforceable in later litigation.

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Practice Note Ensure that all material prior art is disclosed to the PTO during prosecution.

After the notice of allowance is sent, an issue fee is due (37 C.F.R. § 1.18); the patent then issues after the issue fee is paid. Three maintenance fees (37 C.F.R. § 1.20) are required during the life of a utility patent, which for applications filed after June 7, 1995, will be twenty years from the earliest effective filing date (one of the factors disfavoring C-I-P applications). Failure to pay a maintenance fee results in the expiration of the patent. Like the application filing fee, the maintenance and issue fees for large entities (generally for-profit entities having more than 500 employees) are twice those for small entities (basically everyone else who has not assigned or licensed the invention to a large entity), which in turn are twice those for microentities. These fees also usually increase annually. Because of the detailed examination of the application by the technically trained examiners in the PTO, a patent, once issued, is presumed to be valid. 35 U.S.C. § 282. This presumption is usually of enormous benefit to patent owners in patent litigation. A defendant challenging the validity of a patent in court must prove invalidity by clear and convincing evidence. In Microsoft Corp. v. i4i Limited Partnership, 131 S. Ct. 2238 (2011), the Supreme Court reaffirmed that the strong presumption of validity should apply even for validity issues not considered by the patent examiner.

§ 3.6.2

Preissuance and Postissuance Procedures

Sixteen methods of correcting various defects in patents and pending applications have been available in some form starting with the passage of the 1952 Patent Act. Three of these were terminated by the AIA, and one is available only for applications and patents having a priority date before March 16, 2013. These procedures may be categorized by three different factors: • to whom they are available, • to which applications or issued patents they apply, and • the defect that each procedure is suitable for correcting.

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(a)

§ 3.6

Procedures Available to a Patent Owner to Correct an Issued Patent

The Patent Act of 1952 provided three postissuance procedures for correcting defects in issued patents: reissues, certificates of correction, and disclaimers. The AIA added a fourth procedure—supplemental examination. Any patent may be reissued if it contains substantive errors. Such errors include the patent having a defective specification or drawing and the patentee claiming more or less than he or she had a right to claim. In such circumstances, the patentee may ask the PTO to perform a substantive examination to correct the error, provided that the scope of the patent’s claims cannot be enlarged if the request is made more than two years after the patent issues. If the patentee is satisfied with the outcome, he or she may surrender the existing patent and obtain a reissue patent having a new patent number. 35 U.S.C. §§ 251, 252. Practice Note While a reissue proceeding that addresses claim scope may produce a favorable result, it may also produce an unfavorable one. A patentee is not required to surrender its patent after an unfavorable reissue, and can retain its rights under the issued patent. Nevertheless, reissue proceedings are in the public record, and a third party may attempt to institute its own alternate proceeding on the basis of any negative finding during the reissue. Any reissue should be undertaken only after considering the relative risks and rewards.

A patentee may obtain a certificate of correction for a patent that contains nonsubstantive errors. Such errors include, for example, typographical errors in the publication of the issued patent, failure to list the correct inventors, and other problems whose correction would not require further examination on the merits. A fee is required to correct mistakes made by the applicant. 35 U.S.C. §§ 254– 256. A patentee may disclaim ownership of any individual claim of the patent or any terminal part of the term of the patent by dedicating it to the public. Terminal disclaimers may be used strategically during prosecution to overcome rejections based on obviousness type double patenting, but are also available after the patent has issued. 35 U.S.C. § 253. Finally, the AIA added a procedure that is useful to a patentee that discovers that, for whatever reason, its duty of candor with respect to the PTO was not completely satisfied. In such situations, rather than risking a finding of inequitable conduct at trial, the patentee may request supplemental examination of the patent to have the PTO consider, reconsider, or correct information believed to 3rd Edition 2016

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be relevant to the patent. If ordered, the proceeding is conducted as if it were an ex parte reexamination, discussed below. A supplemental examination operates to prevent a patent from being held unenforceable due to withholding of information by the applicant in a manner that is not actually fraudulent. 35 U.S.C. § 257. Practice Note Ensure that all material prior art is disclosed to the PTO during prosecution.

(b)

Adversarial Procedures to Determine Ownership of Claimed Subject Matter

The 1952 Patent Act provided a procedure, called an interference, for two inventors (or two groups of coinventors) who each pursued a U.S. patent for the same invention to determine which party invented first under the first-to-invent system. Due to the change into a first-inventor-to-file system pursuant to the AIA, interferences are available only for applications and patents that can claim priority to a date earlier than March 16, 2013. For applications and patents claiming priority on or after this date, a new adversarial proceeding, the derivation proceeding, is available to determine whether an earlier-filing party actually obtained the invention from a later-filing party, and thereby resolve the party to whom rights should accrue. An interference is an elaborate adversarial process that takes place within the PTO to determine who is entitled to priority of invention. Interference contests can also be tried in federal District Court pursuant to 35 U.S.C. § 291. In order to establish an earlier date of invention, it is very important that the inventor or inventors contemporaneously kept detailed notebooks of their development— preferably witnessed by a noninventor at frequent intervals. If a party to an interference cannot supply adequate documentary proof of a date of invention, that party may be forced to constructively rely on the application’s filing date. Filing a patent application as early as possible was therefore usually the wisest course to follow. There is always the risk that the evidence of an earlier date of invention will not be satisfactory. In addition, there are procedural benefits in the interference for the party that filed its application first. As indicated in pre-AIA Section 102(g), it was important to have evidence showing the date of conception, the date of reduction to practice, and diligence from the time of conception in reducing the invention to practice. Filing a patent application was considered constructive reduction to practice. Since the AIA first-inventor-to-file provisions became effective in 2013, the determinative question regarding inventive priority is no longer who invented first, 3–30

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but rather who filed a patent application first. This inquiry may be resolved easily by comparing the respective filing dates of the two adversarial parties. Practice Note As between two inventors who develop the same technology and file applications to patent it, the one who files first will get the patent. It will no longer do any good for the second-to-file inventor to produce a notebook proving an earlier date of invention. Under the law implemented by the AIA, the application filing date determines the rights.

Nevertheless, an inventor who makes a disclosure of his or her invention is entitled to a limited one-year grace period in which to file an application, as described above in § 3.4.4, and this grace period would be undermined if someone else who obtained the disclosure filed a patent application covering the invention. Thus, the AIA made available a “derivation” proceeding that permits a laterfiling inventor to show that an inventor named in an earlier application derived the invention from the later filer. The Patent Trial and Appeal Board, an administrative tribunal within the PTO, has jurisdiction, and has the power to either correct the inventorship of an application or patent, or to refuse the claims to the losing party, whether by final rejection in a pending application or by cancellation in an issued patent.

Proceedings Available to Third Parties to Correct the Scope of Claims The 1952 Patent Act did not permit members of the public to address the PTO to prevent the issuance of unduly broad patent claims, with the sole exception of interferences that were available only to others who might have first invented the same subject matter. Recognizing the usefulness of public input on the patenting process, in 1977 the PTO introduced by regulation a very limited procedure for members of the public to protest pending applications, and in 1981 Congress adopted an ex parte reexamination procedure applicable to issued patents. In 1999, an inter partes reexamination procedure was passed as an adversarial complement to the ex parte procedure. The AIA supplemented these procedures with a variety of others: a preissuance submission process that is more flexible than a protest; a postgrant review (PGR) that permits a broad range of challenges to be asserted up to nine months after grant of a patent; and an inter partes review (IPR) that replaced the inter partes reexamination and permits a narrower range of challenges after the time for filing a PGR expires. Also, the AIA provided a transitional mechanism for defendants sued for infringing certain “covered business methods” to challenge the 3rd Edition 2016

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claims under the PGR protocols but without the PGR time limitation. These options are now addressed in the order of the prosecution time line at which they apply. The protest process is defined by 37 C.F.R. § 1.291. It permits a member of the public to protest claims of an unpublished application, before allowance, by submitting prior art and an explanation of the relevance of each reference. Because protests are only available to third parties prior to publication of the application, they are rarely used. Recognizing this impediment, Congress used the AIA to add preissuance submissions that considerably relax the publication restriction. 35 U.S.C. § 122(e). A preissuance submission must be made either before a first rejection issues or within six months of publication, whichever comes later. As with protests, no preissuance submission is allowed if the application has been allowed. Although the protest mechanism is still available, it is likely that no further protests will be filed, given that preissuance submissions are more flexible. Practice Note Applicants should look for preissuance submissions, especially if their claims cover business methods or other controversial subject matter, or ubiquitous, high-value technologies such as smartphones or certain drugs. If the applicant is in a litigious industry, he or she may also wish to monitor competitors for their patent publications. If competitors are copying the applicant’s products or methods, the applicant may already be aware of prior art that could be submitted to delay or prevent the competitors’ applications from issuing as patents.

Once a patent is granted, any party, including the patent holder, may request a reexamination that is conducted ex parte on the basis of prior art that raises a substantial new question of patentability affecting any claim of the patent. 35 U.S.C. § 302. The existence of a substantial new question of patentability is not precluded by the fact that a patent or printed publication was previously cited by or considered by the PTO. 35 U.S.C. § 303(a). Although participation by third parties in ex parte reexamination is inherently limited, PGR and IPR provide procedures where the rights of the patent holder and the rights of the party requesting review are carefully balanced, although outcomes of the procedure have favored the party requesting review. The PGR process allows any third party to challenge a patent on any invalidity ground for a period of up to nine months after its date of issue. A PGR can be granted only on a determination that the information presented would demonstrate “that it is more likely than not that at least [one] of the claims

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challenged . . . is unpatentable” or “that the petition raises a novel or unsettled legal question that is important to other patents or patent applications.” The well-established but more limited inter partes process, which permits challenges only to novelty and nonobviousness based solely on patents and printed publications, applies only after the expiration of the nine-month period (or any pending PGR proceeding). Under the new law, the IPR process involves a higher threshold than before: there must be “a reasonable likelihood that the petitioner would prevail with respect to at least [one] of the claims challenged,” whereas before, only a “substantial new question of patentability” was needed. This reordering of postgrant proceedings increases the opportunities for challenging patents, albeit with tougher standards than previously required. The nine-month PGR window will likely depress the value of issued patents somewhat while their challenge windows remain open. Finally, as mentioned above, the AIA provided defendants the ability to challenge the validity of “covered business method” (CBM) patents under the PGR protocols. A CBM patent is defined as “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” 35 U.S.C. § 321 n. Practice Note IPRs and CBM reviews are now routinely used by defendants in patent litigation. Expect your client’s patent to be subject to an IPR (or CBM review, if appropriate) if you choose to assert it. Conversely, if you anticipate a lawsuit, or if your client has already been sued, consider petitioning the PTO for an IPR or CBM review.

§ 3.7

LITIGATION

§ 3.7.1

Enforcement and Defense

Once a patent has issued, the owner of a patent can sue others in federal District Court for making, selling, or using the claimed invention. See Exhibit 3B, Exhibit 3C, and Exhibit 3D for examples of a patent infringement complaint, answer and counterclaim, and reply to counterclaim. As monetary damages, a patent owner can recover a reasonable royalty or in some cases lost profits, and may also obtain a trebling of damages when there is willful infringement. Courts may award a recovery of attorney fees in exceptional cases; exceptional status is 3rd Edition 2016

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determined after considering the totality of the circumstances. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). Injunctive relief is also available, which can be a powerful bargaining tool when an accused infringer is facing the possibility of being shut down. In the case of importation into the United States of an infringing product, an action may be brought before the International Trade Commission to prevent further importation of infringing articles. An accused infringer can bring a declaratory judgment action against the patent owner if the patent owner has alleged infringement but not yet filed suit. 28 U.S.C. §§ 2201, 2202. The right to bring an action for declaratory judgment has been expanded in a series of judicial developments. MedImmune v. Genentech, 549 U.S. 118 (2007) (suit by licensee for declaration of noninfringement and patent invalidity held proper even though licensee was still in good standing under patent license); SanDisk Corp. v. STMicroelecs., Inc., 480 F.3d 1372 (Fed. Cir. 2007) (patent holder expressly stating that there were no plans to sue held amenable to suit for declaratory relief on the basis of MedImmune); Hewlett Packard Co. v. Acceleron LLC, 587 F.3d 1358 (Fed. Cir. 2009) (patent holder held amenable to suit for declaratory relief even without having made a demand or offer for a license). Unlike patent prosecution, patent litigation may be handled by attorneys not admitted to practice before the PTO; however, because of the specialized issues involved, it is usually highly advisable to retain a patent litigator to try an important patent case.

§ 3.7.2

Major Litigation Issues

With respect to liability, the patent owner has the burden of showing infringement, either by showing literal correspondence between the claims and the accused product or under the Doctrine of Equivalents. The accused can try to show that the patent is invalid for failing to comply with one or more of the statutory requirements, e.g., 35 U.S.C. §§ 102 (lack of novelty, statutory bars), 103 (obviousness), or 112 (inadequate disclosure and unclear claims). Other common defenses include inequitable conduct before the PTO by the patentee (usually by failing to disclose a known piece of material prior art; see 37 C.F.R. § 1.56), patent misuse, estoppel, laches, expressed or implied license, first-sale exhaustion, attacks on the plaintiff’s ownership of the patent or lack of standing in general, and the failure to name inventors correctly. On the damages side, there are several recurring issues. The patentee should mark all products incorporating the invention, including those sold by licensees, with the patent number. If the patentee fails to do this, the patentee may not be 3–34

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entitled to damages arising before the accused received actual notice of infringement. 35 U.S.C. § 287. Thus, it is important for patentees to make sure that all of their products and all of their licensees’ products are properly marked. False marking can result in fines of “$500 for every such offense” (which is not necessarily for every product falsely marked). 35 U.S.C. § 292. This statutory section previously provided for qui tam actions that could be brought by anyone, who could then share one-half of the recovery with the government. But passage of the AIA expressly eliminated such qui tam actions. Still, it is important to make sure that, when products are marked with patent numbers, the product is covered by the listed patents; a patent attorney should be consulted to ensure that the marking is proper.

§ 3.7.3

Clearance Opinions

Clients need to be very careful to avoid being found to have willfully infringed a patent, because such a finding can result in a trebling of damages and the award of attorney fees. In order to avoid such a finding, a client may want to rely on a formal, comprehensive opinion—provided by patent counsel before a product is introduced—that the product in question does not infringe a patent and/or that the patent is invalid or otherwise unenforceable. This clearance opinion should be done as soon as it is realized that a given patent may pose a problem. Often, waiting until the litigation commences before requesting an opinion is too late. Practice Note Have a formal, comprehensive clearance opinion prepared by a patent attorney before market introduction of a product that has a patent infringement risk.

Caution Reliance on opinion of patent counsel will not be “reasonable” if the opinion is not the result of a competent, workmanlike effort by patent counsel.

But one major impact of introducing a clearance opinion in litigation in order to counter a charge of willful infringement is that all communications between the attorney and client on the subjects of infringement and validity can lose their privilege. Sometimes production of a clearance opinion and other related communications can be delayed or avoided by bifurcating the case into liability and damages stages. On the patentee side, not all communications between the inventor and attorney are considered confidential before a patent has issued; some of these communications are considered merely the relaying of technical information for inclusion 3rd Edition 2016

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into a patent application. Even strictly legal discussions can be discovered if a prima facie case of inequitable conduct is made.

§ 3.7.4

Precomplaint Considerations

Litigation should be evaluated for its utility in the context of its value to the client’s business. Litigation can seek to maintain an exclusive position in the market. It may recoup damages from unlicensed third party users of technology. Such damages are measured by at least a “reasonable royalty” or, in situations where there can be shown sufficient coverage by the patent of the market, lost profits. Litigation also may be used to defend the company’s right to enter a market dominated by the patent holder. There are a number of considerations preliminary to enforcement of patent rights. How difficult will it be to establish that claims of the patent(s) in question cover the offending technology? If literal infringement is a basis for recovery, then correspondence between every element of each asserted claim of the patent(s) with a counterpart in the offending technology is required. Each patent in question must contain disclosure sufficient to enable a person of ordinary skill in the art to practice the invention (as defined by each asserted claim of such patent) without undue experimentation. 35 U.S.C. § 112(a). (Sometimes this is called an “enablement” requirement or a requirement that the claims are properly “supported.”) An element of a claim defined as a means for performing a specified function (“means-plus-function clause”) covers only the corresponding structures disclosed in the patent for such element and equivalents of such structures. 35 U.S.C. § 112(f). Alternatively, a patent holder may establish infringement of a patent claim by an accused device under the Doctrine of Equivalents if the device has an equivalent counterpart for each element of the claim. WarnerJenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997). Coverage under this doctrine depends heavily on the facts, and its scope is problematic. Festo Corp. v. Shoketzu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002) (prosecution history estoppel substantially limits use of the Doctrine of Equivalents with respect to a claim that has been amended). Wherever possible, analysis of this question should be addressed with an actual sample of the offending technology at hand. What is the risk that the asserted claims will be invalidated by a court? Although a patent (or in fact, each its claims, separately) enjoys a presumption of validity, 35 U.S.C. § 282, a defendant who can produce prior art relating to the subject 3–36

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matter of the asserted claims—particularly prior art not considered by the PTO when the patent was applied for—may be able to have the asserted patent claims invalidated by a court or, in a reexamination proceeding, by the PTO. The invalidation may be on the ground that the claims are directed to subject matter that is anticipated by the prior art, 35 U.S.C. §§ 102(b) (application must be filed within a year after any publication of the invention) and 102(a) (date of invention must precede publication of description of invention or public use or knowledge of invention)—an “anticipation” defense. Alternatively, invalidation may be on the ground that the claimed subject matter would have been obvious in light of the prior art, 35 U.S.C. § 103—an “obviousness” defense. Typically, both grounds are asserted. U.S. patents can have prior art effect as of their filing date, even though they are not public when filed for. 35 U.S.C. § 102(d) (invention not patentable if previously described in a patent granted on an application filed in the United States before the invention date). To reduce the risk of a surprise attack on the patent(s) in question, it is usually advisable to procure a validity study of the asserted claims. A validity study involves a search of the prior art that is typically more comprehensive than a search conducted prior to filing the patent application. Other bases of invalidation might also be asserted. For example, commercial or other public activities may have occurred too soon in relation to the filing dates of applications leading to the patent(s) in question. 35 U.S.C. § 102(b) (in public use or on sale more than one year before the filing date). Or there may have been a failure to make disclosure in the patent • sufficient to enable a person of ordinary skill in the art to practice the invention (as defined by each asserted claim of such patent) without undue experimentation (the “enablement” defense discussed above) or • of the best mode contemplated by the inventor of carrying out the invention (the “best mode” defense). 35 U.S.C. § 112(a). An analysis should also be done to consider if the patent at issue may have been obtained by inequitable conduct (formerly—and often still informally—called “fraud on the Patent Office”), such as failure by inventor or company or patent attorney to disclose a prior art reference bearing on patentability in the course of the administrative process of seeking a patent (i.e., during the patent “prosecution”). 37 C.F.R. § 1.56; e.g., FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1415 (Fed. Cir. 1987). Other defenses exist, including patent misuse, statute of limitations (six years), laches, and estoppel. The high risk that one or more defenses such as these may be asserted requires that the “file wrapper” (i.e., the patent prosecution history) 3rd Edition 2016

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of the patent(s) in question be studied carefully before the assertion of an infringement claim. Similarly, the external circumstances surrounding the filing of the application (including, for example, matters such as timing of offers for sale and public disclosure of the invention) should also be investigated. Practice Note Be aware of laches and estoppel issues.

Also, prior to litigation, great care should be undertaken to make sure that the correct inventors have been listed on the patent, and to make sure that the chain of title from the inventors to the patent owner has been properly established. Cases have been dismissed—even in one case on appeal after judgment for the plaintiff—because the plaintiff failed to show it was the owner of the patent at the time suit was brought and thus failed to establish that it had standing to bring the lawsuit. Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359 (Fed. Cir. 2010). Should remedial strategies be employed to strengthen the patents in question? Pre-enforcement evaluation should include (as suggested above) study of the asserted claims and the file wrapper, investigation of the external circumstances surrounding prosecution, and conduct of prior art searches. These activities can be expected to uncover the potential weaknesses of the plaintiff’s case. Where the weaknesses are serious enough, remedial strategies seeking to rewrite portions of the patent or to have prior art considered may be appropriate. One such remedial strategy is filing and prosecution of a reissue application. This can lead to broader patent claims if filed within two years after original grant of patent, 35 U.S.C. § 251, but it is only available if one can show an error arising without any deceptive intention. A reexamination proceeding is limited to consideration of the effect of prior art on the scope of the claims. 35 U.S.C. § 301 et seq. A reissue or reexamination can be simultaneous with maintenance of litigation, but a pending reissue or reexamination proceeding gives the defendant grounds for seeking a stay of litigation pending outcome of the proceedings in the PTO. Note that a similar effect may possibly be obtained if the company has pending a continuation in whole or in part of the application leading to the patent being asserted. In such a case, the pending application can be used as a vehicle to present handcrafted claims directed to the offending technology and all known prior art can be cited to the PTO in the course of prosecution of these claims. Practice Note Consider the possibility of a broadening reissue (which must be filed within two years of issuance). Consider a narrowing reissue or a reexamination to strengthen an important patent that may result in litigation.

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§ 3.7.5

§ 3.7

Injunction and Damages Remedies

What relief should be sought? The infringer’s position in the marketplace vis-àvis that of the patent holder may dictate the contours of the relief desired and to be sought. A reasonable royalty is a floor on recovery. 35 U.S.C. § 284. Lost profits may be available if a sufficient showing can be made. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978); State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573 (Fed. Cir. 1989). If the infringement can be established as “willful,” 35 U.S.C. § 284; e.g., Cent. Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573 (Fed. Cir. 1983), damages may be increased up to three times the actual damages; similarly, in “exceptional” cases, attorney fees may be awarded. 35 U.S.C. § 285. Damages are available only from the point in time when the infringer has notice of infringement, whether actual notice through a communication from the patentee or constructive notice provided by “marking” a patented article or its packaging with the patent number or a website listing the patent number. 35 U.S.C. § 287(a). A party experiencing a competitive injury can sue for false marking, but whistle-blowers experiencing no competitive injury have no right of recovery. Placing an expired patent number on a product sold by the patent owner no longer amounts to false marking. Practice Note Be sure that your client and all of its licensees are properly marking their products with the appropriate patent numbers.

A preliminary injunction is available only upon a showing that usually requires the following: • a reasonable likelihood of success on the merits, • irreparable harm to the moving party if not granted, • a balance of the hardships favoring the moving party, and • that the public interest will be served by granting the injunction. Cordis Corp. v. Medtronic, Inc., 780 F.2d 991, 994 (Fed. Cir. 1985). Preliminary injunctions in patent cases are generally difficult to obtain and are seldom granted. Compare Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343 (Fed. Cir. 2001) (grant of preliminary injunction vacated on basis of patentability issue). A permanent injunction is granted only on a showing that damages would be inadequate to compensate the patent holder, and injunctions are not

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commonly awarded to companies having no products or services in the marketplace. eBay v. MercExchange, 547 U.S. 388 (2006).

§ 3.7.6 (a)

Additional Prefiling Considerations Multiple Defendants

In the case of multiple potential defendants, who is an appropriate first defendant? There are several possibilities: • The one causing the greatest harm. This approach makes the first case produce the most meaningful recovery if the company is successful. But it also may create the most aggressive defense, making victory more expensive, elusive, and remote. • The one most easily defeated. This choice provides an example to other defendants if the company is successful. But an easy victory may not deter more entrenched defendants, and may only delay the time of a confrontation with them. • Most or all of the potential defendants can be pursued simultaneously. This approach provides an opportunity for resolution of all matters in a single setting. Such an opportunity, however, is not likely to be easily realized, on account of the substantially increased magnitude and complexity of the litigation, which will entail substantially increased expense and human resources of the company and its counsel. Practice Note The decision to pursue a given defendant first should not preclude making appropriate demands on other defendants to avoid the assertion of equitable defenses by them. Hottel Corp. v. Seaman Corp., 833 F.2d 1570 (Fed. Cir. 1987).

(b)

Staffing

How is the case going to be staffed? What are the expected costs of litigation? Patent litigation that is contested with some vigor typically reaches dollar amounts into seven figures over time. Counsel for trial should be familiar with patent law. This sometimes means that the case is handled solely by patent counsel; other times, general trial lawyers are used in association with patent lawyers.

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Jury trials have become commonplace in patent litigation. As explained in further detail below, it is the role of the judge to interpret the claims of any patents asserted in the patent litigation, but it is a question for the trier of fact whether those claims have been infringed. Because either party to the litigation has the right to require that the trier of fact be a jury, the accused infringer, seeking a more sympathetic arbiter, or the patent holder, seeking to improve chances for a big recovery, will often opt for a jury trial. Given the likelihood of a jury trial, a party litigant is therefore usually better off with trial counsel who has jury trial experience. One or more technical experts are invariably required. At least one technical expert will be needed for infringement questions. Typically, the heart of the patent owner’s case will be presented at trial through one or more technical experts. It is the technical expert witness of the patent owner who will explain to the court how components of the accused structure are covered by one or more claims of the patent or patents in suit. Similarly, the technical expert witness of the accused infringer will explain to the court why components of the accused structure are not covered by one or more claims of the patent or patents in suit. It is therefore not unfair to characterize the conduct of a patent trial as a battle of experts. Owing to the critical nature of the testimony of the expert witness in the patent trial, the selection of the expert witness is a matter that should be addressed by the patent owner prior to commencement of the litigation, and by the accused infringer at the earliest possible date. Qualities that make a good expert witness include not merely a good technical command of the subject matter and good credentials, but also an ability to present the subject matter in a fashion that is clear and convincing to a jury. Where damages are at issue, one or more additional experts may be needed (for example, an accountant, economist, marketing expert, or licensing expert) to establish (or defend) “reasonable royalty” or lost profits. Also, a patent law expert may be needed for testimony as to claim construction, patent validity, and similar matters; nevertheless, the use of patent experts is often denied, since their testimony is typically on matters of law that the judge is capable of determining independently. See Markman v. Westview Instruments, Inc., 52 F.3d 967, 991 n.4 (Fed. Cir. 1995).

Company Staffing Technology issues require an interface between outside counsel and the company’s technical personnel. Business issues require an interface between outside counsel and the company’s management, accounting, and marketing personnel. The company’s general counsel can appropriately manage this interface, which

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is important throughout: development of the case, discovery, trial preparation, and trial.

(c)

How Shall the Claim of Infringement Be Asserted?

Threaten litigation only if prepared to litigate. A hollow threat may ring hollow the first time, and will certainly ring hollow the second time. It may also provide the offending party with equitable defenses. Threatened litigation may give rise to an action for declaratory judgment by the threatened party in a forum of such a party’s choice, which may well be its home forum. It takes very little to establish grounds for a suit for declaratory judgment. See MedImmune v. Genentech, 549 U.S. 118 (2007) and other cases discussed above. See also Genentech Inc. v. Eli Lilly & Co., 998 F.2d 931 (Fed. Cir. 1993). An offer of a license no longer avoids giving the offending party grounds for initiating a declaratory judgment action. Hewlett Packard Co. v. Acceleron LLC, 587 F.3d 1358 (Fed. Cir. 2009) (patent holder held amenable to suit for declaratory relief even without having made a demand or offer for a license). The best forum, however, may not be a local forum, but rather the forum most likely to reach a fair and expeditious resolution of the dispute. Similarly, the best demand is not necessarily the one that avoids giving rise to an action for declaratory judgment. Consider filing suit without a prior demand. This approach is sometimes appropriate where speedy injunctive relief (a temporary restraining order, for example) is needed. The suit itself can serve as notice for damages purposes. 35 U.S.C. § 287. Consider an explicit threat of suit to make clear to the offending party that it is expected to change its conduct forthwith. Practice Note Be aware that a demand letter can provoke a declaratory judgment suit. A sample demand letter is included as Exhibit 3E.

Litigation should be viewed as a tool for maintaining the value of the company’s technological position in the marketplace. What terms are appropriate for negotiation of settlement? Consider the likely recovery if litigation is successful, times the estimated probability of success in relation to the estimated direct and indirect costs of the litigation. License royalty should probably be regarded as a floor for settlement purposes, assuming a good case on liability can be established.

§ 3.7.7

Claim Interpretation

The test of infringement is not based on a comparison of the commercial products. The fact that the accused product is different from the patentee’s commercial product, or even that the accused product is different from the 3–42

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device disclosed in the patent, does not mean that there is no infringement. One must look to the claims when analyzing the scope of a patent. The claims are, however, interpreted in light of the disclosure, as well as the prior art and the prosecution history of the application in the PTO. In order for there to be literal infringement of a patent, an accused product (or process) must “read on” at least one valid claim of the patent. In order for an accused product to read on a claim, the accused product must include every element (and every limitation) required by the claim. If the accused product is missing one element (or one limitation), it does not literally infringe that claim. To read on a dependent claim, the accused product must include the element or elements set forth in the dependent claim as well as the elements required by the claim from which the dependent claim depends. For example, a patent is literally infringed if the accused product reads on a valid independent claim, even if the accused product does not include any of the elements set forth in the dependent claims depending from that independent claim. A dependent claim is nevertheless valuable if the broader claims from which it depends are found to be invalid in light of the prior art and if the dependent claim is broad enough to cover the accused product. Since it is easier for a patentee to prove that a product reads on a broad claim but it is harder for an accused infringer to invalidate a narrow claim, patentees typically attempt to obtain patents that have a range of claims of varying degrees of breadth. If there is no literal infringement by the accused product, the Doctrine of Equivalents may come into play. The Doctrine of Equivalents permits a finding of infringement in some cases even if the accused product does not fall literally within the scope of the claims. Practice Note Be aware that even if the claims of your client’s patent do not literally cover a competitor’s product, you might still be able to show infringement under the Doctrine of Equivalents.

§ 3.7.8

Markman Hearing

Under Markman v. Westview Instruments, Inc., 52 F.3d 967, 979 (Fed. Cir. 1995) (en banc), aff’d 517 U.S. 370 (1996), claim construction is a question of law determined by the judge, rather than a question of fact for the jury. A Markman hearing on claim construction is usually held before trial, often after the close of discovery on infringement as part of a hearing on motions for summary judgment. Often, a Markman hearing can determine the outcome of a patent trial.

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Practice Note Claim construction is subject to de novo review by the Federal Circuit Court of Appeals, which can (and regularly does) reverse the claim construction of the trial court.

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EXHIBIT 3A—Timing and Costs for Patent Protection A company engaged in the development of new technology and new products, particularly one interested in exploiting international markets, faces difficult and complex issues of timing and budgeting in developing a strategy for patent protection. Particularly for a new concern, the expense of patent protection may loom large in relation to the resources of the enterprise. Depending upon the technology involved and the scope of the disclosure received from the inventor, a single U.S. patent application may involve a typical expenditure of $10,000.00 to $40,000.00 or more from initial filing to issuance. This figure does not include the time required of inventors or other company officials. Pursuit of international protection may require multiples of these expenditures over a period of years. Nonetheless, the availability of provisional applications provides a lower cost means of securing early priority dates and permitting reassessment of the commercial value of the technology up to a year later, before the decision is made to invest in more expensive regular applications in the United States and in foreign jurisdictions. In an effort to assist business managers in planning and budgeting for patent protection, our firm has devised a general strategy chart which provides time lines and typical costs. This chart should only be used with guidance from a practitioner thoroughly grounded in the various procedures that must be employed in pursuing a successful program of patent protection in the United States and internationally. Note also that the endnote comments are an integral part of the strategy document. ********************

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Strategy For Patent Protection: Timing Of Events And Typical Costs Time

Event

Estimated Cost $

Start

Receive disclosure

0

2 weeks (1 – 4 weeks)2

Conduct patent and literature search and prepare report1

5,000 (1,500 – 7,000)2

3 weeks (1 – 8 weeks)

Prepare and file initial provisional application3

5,0004 (1,000 – 12,000)

various times before 12 months

Prepare and file additional provisional applications as 3,0005 (1,000 – necessary 10,000)

11 months

Prepare and file regular U.S. application

15,0006 (5,000 – 30,000)

11 months

Prepare and file international application under Patent Cooperation Treaty (PCT) designating European Patent Office and Japan with international search conducted in European Patent Office7

4,000 (4,000 – 7,0008)

20 – 48 months

Prosecute U.S. application to issuance

15,000 (5,000 – 30,000)

30 months

File in Japan and other countries

9,0009 for Japan

31 months

File in European Patent Office

12,00010 (8,000 – 15,000)

years 4–5

Prosecute application in European Patent Office

7,000 (4,000 – 12,000)

year 5

Issuance of European Patent and national phase recording in various European countries

12,00011 (8,000 – 40,000)

years 3–512+

Prosecute application in Japan to issuance

5,000 (3,000 – 12,000)

This step can be delayed until after filing of initial provisional application if it is deemed important to establish an early filing date. 1

For items in this column, the first figure represents a typical amount, and the figures in parentheses represent a likely range. 2

The provisional application can be filed with exceptional speed if necessary, since few formalities are required. The effectiveness of the application in establishing a filing date, however, depends on providing in the application enough detail of the invention to make the disclosure “enabling;” that is, the invention (as later claimed in the regular application) must be described in enough detail to enable a person of ordinary skill in the field of the invention to 3

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make and use the invention. The “best mode” of carrying out the invention must also be disclosed. (These considerations encourage the preparation of a rather thorough application.) As an alternative, if a relatively early examination is desired, it is possible to file a regular application directly, and to skip the filing of a provisional application. 4 This figure assumes a modest amount of work on the inventor’s disclosure prior to filing, perhaps preparing a number of broad claims, and putting the disclosure in patent application format. It is possible, however, to do more, at additional cost. If the technology is ripe enough, one could, for example, prepare an application meeting the formalities for a regular application but file it as a provisional application.

Similar cost considerations apply for successive provisional applications as described in the previous footnote. 5

6 The cost of a regular application depends not only on the technology and on the scope of the disclosure received from the inventor, but also on whether it has been preceded by a provisional application. If a provisional application has been filed that can be used as a basis for the regular application, then a portion of the work on a regular application has already been done. This figure assumes no previous provisional application.

This filing, together with the Request for Examination, referred to immediately below, has the effect of postponing for eighteen months the time when an application must be filed in Japan and Europe (and many other countries if designated). 7

8 Higher PCT filing fees apply to applications that are more than thirty pages long, or that designate effectiveness in additional countries. Higher fees can also result from applications having claims directed to what the international searching authority considers more than one invention; failure to pay a search surcharge does not invalidate the application, but prevents an international search from being conducted on the additional inventions.

The costs depend, among other things, on the number of countries being designated, which must be translated into Japanese. 9

The costs depend, among other things, on the length of the application.

10

The costs depend on the number of countries, and which countries, are designated. The patent must be in the native language of each country, and therefore translation is necessary for most countries, although a single translation 11

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can sometimes suffice for several countries: German for Switzerland, Germany, and Austria, for example. 12 Examination must be requested within three years after filing, although, if requested earlier, may commence a somewhat shorter number of years after filing.

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EXHIBIT 3B—Patent Infringement Complaint IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA BIGTIME PHARMACEUTICALS, INC., Plaintiff, v.

Civil Action No. 15-CV1264

DUZMOR BIOTECH, INC., Defendant. COMPLAINT AND JURY DEMAND Plaintiff, for its Complaint against defendant, states as follows: 1. Plaintiff Bigtime Pharmaceuticals, Inc. is a Delaware corporation with principal offices in Raleigh, North Carolina. 2. Upon information and belief, defendant Duzmor Biotech, Inc. is a Massachusetts corporation with principal offices in Cambridge, Massachusetts. 3. This is a civil action arising under the patent laws of the United States, Title 35, United States Code. The Court has jurisdiction under 28 U.S.C. § 1338 and 35 U.S.C. § 271. Venue is proper under 28 U.S.C. 1391(c) and 1400(b). 4. On February 24, 2004, U.S. Patent No. 7,550,167 was lawfully issued for an invention entitled IMMOBILIZED MONOCLONAL ANTIBODIES. Bigtime Pharmaceuticals, Inc. is the record owner of this patent. 5. Defendant has infringed U.S. Patent No. 7,550,167 by making, using and/or selling devices employing immobilized monoclonal antibodies in the Eastern District of North Carolina and elsewhere in the United States. Defendant will continue to infringe unless enjoined by this Court. WHEREFORE, Bigtime Pharmaceuticals, Inc. demands judgment as follows: A. Preliminary and final injunctions against continued infringement; B. Monetary damages adequate to compensate for the infringement; 3rd Edition 2016

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C. Treble damages resulting from defendant’s willful and deliberate infringement, D. Reasonable attorneys’ fees pursuant to 35 U.S.C. § 285; E. An assessment of interest and costs; and F.

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Such other and further relief as this Court deems just and proper.

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JURY DEMAND Bigtime Pharmaceuticals, Inc. demands a trial by jury. Dated: January 9, 2015

BARNHILL, BAGLEY, MEACHUM & STEIN

David Bagley William Shumate 1124 Wycliff Road Raleigh, NC 27622 (919) 222-8600 Attorneys for Plaintiff Of Counsel Samuel Strange Joseph Litigata JUMPWELL, JONES, BLIFEL and WESTERN 575 Madison Avenue New York, NY 10022 (212) 722-4000

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EXHIBIT 3C—Patent Infringement Answer and Counterclaim IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA BIGTIME PHARMACEUTICALS, INC., Plaintiff, v.

Civil Action No. 15-CV1264

DUZMOR BIOTECH, INC., Defendant. ANSWER AND COUNTERCLAIM OF DEFENDANT Defendant Duzmor Biotech, Inc. (“Duzmor”) for its answer to the complaint herein: 1. Denies knowledge or information sufficient to form a belief as to the truth of the allegations contained in paragraph 1 of the Complaint. 2. Admits the allegations contained in paragraph 2 of the Complaint. 3. Admits that plaintiff seeks relief under Title 35 United States Code and that jurisdiction and venue are proper, and denies each and every remaining allegation contained in paragraph 3 of the Complaint. 4. Denies knowledge or information sufficient to form a belief as to the truth of the allegations contained in paragraph 4 of the Complaint. 5. Denies each and every allegation contained in paragraph 5 of the Complaint. FIRST AFFIRMATIVE DEFENSE 6. Upon information and belief, Duzmor has not infringed any valid claim of United States Patent No. 7,550,167 (the “‘167 Patent”).

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SECOND AFFIRMATIVE DEFENSE 7. Upon information and belief, the ‘167 patent is invalid on grounds specified in Part II of Title 35 United States Code as a condition of patentability. THIRD AFFIRMATIVE DEFENSE 8. Upon information and belief, the ‘167 Patent is invalid for failure to comply with the requirements of 35 United States Code Section 112. FOURTH AFFIRMATIVE DEFENSE 9. The claims of the ‘167 Patent and each of them, are not directed to patentable combinations, but are directed to mere aggregations of parts, steps, means or elements which were matters of common knowledge in the art to which said patent relates before the alleged invention and more than one year prior to the date of the application for the patent. FIFTH AFFIRMATIVE DEFENSE 10. In light of the prior art at the time the alleged invention of the ‘167 Patent was made, the subject matter as claimed in the ‘167 Patent would have been obvious to a person skilled in the art to which the alleged invention relates and does not constitute a patentable invention. SIXTH AFFIRMATIVE DEFENSE 11. Upon information and belief, plaintiff has so misused its ‘167 Patent and has so used it in violation of the antitrust laws as to render it unenforceable. SEVENTH AFFIRMATIVE DEFENSE 12. Any claims of the ‘167 Patent which may be held to be valid are so restricted in scope that defendants have not infringed said claims. COUNTERCLAIM FOR DECLARATORY JUDGMENT 13. This is a claim for a declaratory judgement of patent invalidity, unenforceability and noninfringement. This Court has jurisdiction of the subject matter of this claim pursuant to 28 U.S.C. Section 2201. 14. Upon information and belief, plaintiff Bigtime Pharmaceuticals, Inc. (“Bigtime”) is the owner of the ‘167 Patent. 15. As evidenced by the Complaint herein and defendant’s answer thereto, there exists a real and actual controversy between Bigtime, on the one hand, and 3–54

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Duzmor, on the other hand, concerning the validity, enforceability and alleged infringement of the ‘167 Patent. 16. Defendant repeats and realleges paragraphs 6 through 12 hereof as if fully set forth herein. WHEREFORE, defendant Duzmor prays that: 1. The Complaint be dismissed in its entirety. 2. This Court declare that defendant Duzmor has not infringed the ‘167 Patent. 3. This Court declare that the ‘167 Patent is invalid and unenforceable. 4. Defendant Duzmor recover its costs and attorney fees pursuant to 35 U.S.C. Section 285. 5. This Court grant such other and further relief as it deems just and proper. Dated: Raleigh, North Carolina January 21, 2015 Defendant, DUZMOR BIOTECH, INC., by its attorneys, Kerry L. Timbers SUNSTEIN KANN MURPHY & TIMBERS LLP 125 Summer Street, 11th Floor Boston, MA 02110-1618 (617) 443-9292 Benjamin J. Nifty GOODOLD, BOISE & VICTOR 2601 Glenwood Avenue Raleigh, NC 27605 (919) 872-2600

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CERTIFICATE OF SERVICE I hereby certify that a true copy of the above document was served upon the attorney of record for each other party by first class mail on January 21, 2015. Kerry L. Timbers

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EXHIBIT 3D—Reply to Counterclaim IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA BIGTIME PHARMACEUTICALS, INC., Plaintiff, v.

Civil Action No. 15-CV1264

DUZMOR BIOTECH, INC., Defendant. REPLY TO DEFENDANT’S COUNTERCLAIM For its Reply to the counterclaim of defendant Duzmor Biotech, Inc. and responding to like-numbered paragraphs, plaintiff Bigtime Pharmaceuticals, Inc. states the following: 13. Admitted. 14. Admitted. 15. Admitted. 16. The allegations of paragraphs 6–12 of defendant’s Answer are denied in their entirety. As an additional response, Bigtime asserts that defendant’s request for declaratory judgment fails to state a claim upon which relief can be granted. WHEREFORE, Bigtime Pharmaceuticals, Inc. demands judgment dismissing defendant’s counterclaim, together with reasonable costs and attorneys’ fees and such other relief as this Court may deem just and proper.

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Dated: February 7, 2015 Plaintiff, BIGTIME PHARMACEUTICALS, INC. by its attorneys, David Bagley William Shumate BARNHILL, BAGLEY, MEACHUM & STEIN 1124 Wycliff Road Raleigh, NC 27622 (919) 222-8600 Attorneys for Plaintiff Of Counsel Samuel Strange Joseph Litigata JUMPWELL, JONES, BLIFEL and WESTERN 575 Madison Avenue New York, NY 10022 (212) 722-4000

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CERTIFICATE OF SERVICE I hereby certify that a true copy of the above document was served upon the attorney of record for each other party by first class mail on February 7, 2015. David Bagley

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EXHIBIT 3E—Patent Infringement Demand Letter BARNHILL, BAGLEY, MEACHUM & STEIN 1124 Wycliff Road Raleigh, NC 27622 January 2, 2015 VIA FEDERAL EXPRESS Duzmor Biotech, Inc. 24 Clules Street Cambridge, MA 09999 Dear Sirs: We have been retained by Bigtime Pharmaceuticals, Inc., (“Bigtime”) for the purpose of analyzing and ensuring the enforcement of the following patent rights which are owned by Bigtime. U.S. Patent 7,550,167, issue date February 24, 2004. A copy of this patent is enclosed. Based on an analysis made by those at Bigtime, as well as by ourselves, we have cause to believe that the manufacture, use and/or sale by Duzmor Biotech, Inc. (“DBI”) of the mononucleosis diagnostic test kit and device may be pertinent to one or more of the claims of the above identified United States Patent. We have been authorized to advise you that at this time the firm Bigtime is prepared to discuss the grant of a license to you under these patent rights on reasonable terms and conditions, provided that such an agreement can be concluded promptly. Although Bigtime is willing to discuss any reasonable licensing terms, one such term on which Bigtime must insist is that no restrictions be placed on the ability of Bigtime to make the existence of the license, and the patent involved in the license, publicly known. The above listing of Bigtime’s patent should not be considered an indication that no other patent rights owned by Bigtime are infringed by the above product, or other products, manufactured, used and/or sold by DBI; however, the above listing can be used as a basis for beginning a discussion if DBI desires to do so. Our own analysis has been based on a careful consideration of the information available to us; however, should you believe that our analysis is in error, we 3rd Edition 2016

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encourage you to inform us of your position at once. We believe that a period of 7 days from the date of this letter is sufficient to permit you to analyze this patent, and to make a determination as to whether DBI wishes to enter into a discussion of licensing terms. If 7 days from the date of this letter pass without a response from your company, Bigtime will assume that your company does not desire to enter into such licensing discussions. Should this period pass or should you choose not to enter into such licensing discussions, or should any such discussions which are conducted not culminate in a mutually acceptable agreement, we will have no alternative but to recommend that Bigtime take appropriate action to protect its patent rights. Please let us know whether you are interested in conducting a discussion regarding this matter and/or the possibility of a license grant, and we will take appropriate steps to arrange to meet with you as soon as possible at a mutually convenient time and place. Sincerely yours, David Bagley DB:smr

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CHAPTER 4

Trade Secret Law Russell Beck, Esq. Beck Reed Riden LLP, Boston § 4.1

Introduction .......................................................................... 4–1

§ 4.2

Statutory and Common Law Bases .................................... 4–3 § 4.2.1

§ 4.2.2

§ 4.2.3 § 4.3

State Law............................................................... 4–3 (a)

Statutory Basis ............................................. 4–5

(b)

Restatement (First) of Torts.......................... 4–8

(c)

Uniform Trade Secrets Act ..........................4–13

(d)

Restatement (Third) of Unfair Competition.................................................4–16

(e)

Common Law..............................................4–19

(f)

Related State Law Claims ...........................4–49

Federal Law..........................................................4–53 (a)

Possible Private Right of Action Under the Economic Espionage Act ......................4–53

(b)

Scope of the Computer Fraud and Abuse Act .............................................4–56

(c)

Recent Use of the International Trade Commission for Foreign Trade Secret Misappropriation .........................................4–64

International Law .................................................4–70

Establishing a Trade Secret Protection Program .............4–72 § 4.3.1

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Trade Secret Audit ................................................4–72 (a)

Catalog ........................................................4–72

(b)

Review.........................................................4–73 4–i

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(c) § 4.3.2

§ 4.3.3

4–ii

Analyze ....................................................... 4–73

Trade Secret Protection Program ......................... 4–73 (a)

Identification and Disclosure of Trade Secrets ......................................................... 4–75

(b)

Standards Applicable to Injunctive Relief........................................................... 4–78

Special Contexts of Trade Secret Issues............... 4–78 (a)

Mobile Devices ........................................... 4–79

(b)

Government Procurement ........................... 4–79

(c)

Federal and State Regulatory Submissions ................................................ 4–80

(d)

Preemption by and of Related Laws ........... 4–81

3rd Edition 2016

CHAPTER 4

Trade Secret Law Russell Beck, Esq. Beck Reed Riden LLP, Boston

Scope Note This chapter provides an introduction to the form of intellectual property known as trade secrets. Beginning with the statutory and common law bases for trade secrets, the chapter goes on to address considerations inherent in establishing a trade secret protection program, with a focus on Massachusetts law.

§ 4.1

INTRODUCTION

Recognized in the United States since 1837, trade secrets are generally the “forgotten” intellectual property (the recognized types of intellectual property are patents, copyrights, and trademarks). At least according to some commentators, however, trade secrets were protected under Roman law by a claim known as “actio servi corrupti” (interpreted roughly as an “action of a corrupted slave”). The Roman law is described as follows: [T]he Roman owner of a mark or firm name was legally protected against unfair usage by a competitor through the actio servi corrupti, . . . , which the Roman jurists used to grant commercial relief under the guise of private law actions. “If, as the writer believes [writes Schiller], various private cases of action were available in satisfying commercial needs, the state was acting in exactly the same fashion as it does at the present day.” Alan Watson, “Trade Secrets and Roman Law: The Myth Exploded,” 11 Tul. Eur. & Civ. L.F. 19, 19 (1996) (available at http://digitalcommons.law.uga.edu/ cgi/viewcontent.cgi?article=1472&context=fac_artchop) (hereinafter Watson). The legend seems to have been introduced in 1929 in an article entitled, “Trade Secrets and the Roman Law: The Actio Servi Corrupti,” 30 Colum. L. Rev. 837 (1930). (The article has been reproduced in A. Arthur Schiller, An American Experience in Roman Law 1 (Vandenhoeck & Ruprecht 1971).) See Watson, at 19. 3rd Edition 2016

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The existence of a claim for trade secrets during Roman times is not without its detractors. According to University of Georgia Law School professor Alan Watson, while the claim existed, it was not used to protect trade secrets. Watson, at 19. Rather, Professor Watson explains as follows: Schiller is sadly mistaken as to what was going on . . . . The actio servi corrupti presumably or possibly could be used to protect trade secrets and other similar commercial interests. That was not its purpose and was, at most, an incidental spin-off. But there is not the slightest evidence that the action was ever so used. In this regard the actio servi corrupti is not unique. Exactly the same can be said of many private law actions including those for theft, damage to property, deposit, and production of property. All of these could, I suppose, be used to protect trade secrets, etc., but there is no evidence they were. It is bizarre to see to any degree the Roman actio servi corrupti as the counterpart of modern law for the protection of trade secrets and other such commercial interests. Watson, at 19. Despite this dispute and whether trade secret law in fact traces back to Roman times, the Renaissance (see Mark A. Lemley, “The Surprising Virtues of Treating Trade Secrets as IP Rights,” 61 Stan. L. Rev. 311, 315 n.8 (2008) (hereinafter Lemley)), or some other time, there is general agreement that trade secrets law as we know it made its first appearance in England in 1817 in Newberry v. James, 35 Eng. Rep. 1011, 1013 (Ch. 1817) and in the United States in 1837 in Vickery v. Welch, 36 Mass. (19 Pick.) 523, 527 (1837). See Lemley, at 315 & n.6. While those cases involved the first known common law causes of action based on a modern concept of trade secret laws, neither involved injunctive relief; they involved damages only. Lemley, at 315 & n.6. In England, the first case involving injunctive relief came in 1820 in Yovatt v. Winyard, 37 Eng. Rep. 425, 426 (Ch. 1820), while in the United States, it took until 1866, in Taylor v. Blanchard, 95 Mass. (13 Allen) 370 (1866). Lemley, at 315 & n.7. But see Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 493 n.23 (1974) (stating that trade secret law was imported into the United States from England in 1868 in Peabody v. Norfolk, 98 Mass. 452 (1868)). Following its first appearance in the United States, trade secrets law evolved as a hodgepodge of state laws. In 1939, the American Law Institute issued the 4–2

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Restatement of Torts (discussed below), containing a summary of trade secrets law as it then existed. The summary served as the primary resource for most states until the latter part of the century. However, as of 2015, only two states— Massachusetts and New York—continue to rely on the Restatement formulation of trade secrets law as their primary source of guidance. All remaining states (and other jurisdictions) have turned to some version of the Uniform Trade Secrets Act (discussed below). Trade secrets have also recently taken on increasing importance in today’s world as our economy has shifted to an information economy, increasingly reliant on technology, software, and services. With that shift in focus has come an increasing need for awareness, risk of loss, and need for protection. Consistent with their rise in prominence, their misappropriation has, in recent years, grown year over year, resulting in more than a doubling in reported trade secret and related noncompete cases over the past decade. Moreover, despite the frequent reporting of high-profile computer hacking, a recent report indicated that 85 percent of trade secret thefts are committed by either an employee or a party to a contract, i.e., someone known to the party whose trade secrets were stolen. Another recent report indicated that over half of employees admit to taking company information when they terminate their employment: which, of course, begs the question of how many more employees have taken company information but simply refuse to admit it? This chapter first provides an overview of trade secret law, focusing on Massachusetts law. The discussion is broken down by source of law, followed by a more detailed discussion of Massachusetts common law. In the final section, this chapter provides a description of the practical measures necessary to preserve and protect trade secrets.

§ 4.2

STATUTORY AND COMMON LAW BASES

Trade secret law exists both at the state and federal levels. At its core, however, trade secret law is a creature of state law.

§ 4.2.1

State Law

In Massachusetts, trade secrets law is both statutory- and common-law based. The applicable statutes are G.L. c. 93, §§ 42 and 42A and G.L. c. 266, §§ 30 and 60A. Chapter 93 provides a civil cause of action, while Chapter 266 is the criminal analog. (As explained below, G.L. c. 93A provides an additional source of law insofar as it potentially provides enhanced relief for the misappropriation of 3rd Edition 2016

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trade secrets beyond that available at common law or through the trade secrets statute.) The common law, while relying in part on Chapter 93, derives primarily from the Restatement of Torts § 757, and, to a lesser extent, the Restatement (Third) of Unfair Competition §§ 38–45. Unlike virtually all other states, Massachusetts (along with only New York) has not yet adopted the Uniform Trade Secrets Act (UTSA). A bill to implement the Uniform Trade Secrets Act has been submitted to the Massachusetts legislature during each legislative session for about two decades. Envisn, Inc. v. Davis, No. 11-12246-TSH, 2013 WL 6571944, at *3 (D. Mass. Dec. 12, 2013) (Hillman, J.) (noting the existence of one such bill and that Massachusetts has not adopted it). Although there are various versions based on an earlier bill submitted by the Massachusetts Commissioners of Uniform Law, the current version submitted by the Commission (available at http:// FairCompetitionLaw.com) was revised to address concerns with prior versions. Given the changes to the bill (which, in the interest of full disclosure, the author proposed) and the recent focus on related noncompetition laws (which, again in the interest of full disclosure, the author has been extensively involved with), some version of the proposed UTSA is likely to pass in the current or next legislative session. Even if it were adopted, however, the Restatement and common law would continue to provide significant guidance in their interpretation in the courts. Given the foregoing and the broad significance of the Restatements (historically, and still in Massachusetts) and the UTSA (nationally), each is discussed in turn below, followed by a separate discussion of Massachusetts common law. Although the details are critical and must be reviewed and understood, trade secret law in Massachusetts can be summarized conceptually as follows: • trade secrets are confidential information in continuous use with commercial value; • confidential information not qualifying as a trade secret is equally protectable; • secrecy must be reasonably guarded; • misappropriation—which does not include reverse engineering— is unlawful; • the recipient of a stolen trade secret can be liable, depending on his or her knowledge; and • injunctive relief and damages, including multiple damages, are available. 4–4

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(a)

§ 4.2

Statutory Basis

The statutory basis for trade secret protection in Massachusetts is G.L. c. 93, §§ 42 and 42A and G.L. c. 266, § 30. Chapter 93 provides civil remedies, while Chapter 266 is a criminal statute.

Civil Statute General Laws Chapter 93, §§ 42 and 42A work together to identify the unlawful conduct, damages remedies, and entitlement to injunctive relief. They are summarized below. However, as the statute and Massachusetts common law are for most purposes essentially identical, the full treatment of the law in Massachusetts is discussed in § 4.2.1(e), Common Law, below. General Laws Chapter 93, § 42 provides as follows: Whoever embezzles, steals or unlawfully takes, carries away, conceals, or copies, or by fraud or by deception obtains, from any person or corporation, with intent to convert to his own use, any trade secret, regardless of value, shall be liable in tort to such person or corporation for all damages resulting therefrom. Whether or not the case is tried by a jury, the court, in its discretion, may increase the damages up to double the amount found. The term “trade secret” as used in this section shall have the same meaning as is set forth in section thirty of chapter two hundred and sixty-six. General Laws Chapter 93, § 42A provides as follows: Any aggrieved person may file a petition in equity in the supreme judicial court or in the superior court for the county in which either the petitioner or the respondent resides or transacts business, or in Suffolk county, to obtain appropriate injunctive relief including orders or decrees restraining and enjoining the respondent from taking, receiving, concealing, assigning, transferring, leasing, pledging, copying or otherwise using or disposing of a trade secret, regardless of value. The term “trade secret” as used in this section shall have the same meaning as set forth in section thirty of chapter two hundred and sixty-six.

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In an action by an employer against a former employee under the provisions of this section for the conversion of a trade secret and where such conversion is in violation of the terms of a written employment agreement between said employer and employee, said employer shall, upon petition, be granted a preliminary injunction if it is shown that said employee is working in a directly competitive capacity with his former employer in violation of the terms of such agreement and that in violation of the terms of such agreement said employee has used such trade secret in such competition. Most notable about these sections are the following characteristics: • Both rely on G.L. c. 266, § 30 (the criminal statute) to define “trade secret.” That definition is as follows: “anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.” • The proscribed conduct in Section 42 is comparatively narrow, focusing on the acquisition, as opposed to use, of a trade secret. In contrast, Section 42A, which addresses relief only and does not affirmatively establish the requisite elements of the tort, focuses on both acquisition and use. • Section 42 permits the award of (up to) double damages. (Some lawyers interpret Section 42 to permit up to treble damages, reading the language to allow the addition of up to double damages.) Section 42A provides injunctive relief only. • Although the Section 42A statute speaks in terms of state courts, such actions may be brought in federal court as well. See Casual Male Retail Group, Inc. v. Yarbrough, 527 F. Supp. 2d 172, 178–79 (D. Mass. 2007). • Venue is appropriate in Suffolk County (and therefore the Business Litigation Session) whenever equitable relief involving trade secrets is sought. Accordingly, even if venue would not otherwise exist in Suffolk County, a trade secrets claim may, by statute, be brought there.

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• In the context of an employment relationship, Section 42A instructs that injunctive relief must be granted where there is a noncompetition agreement, the employee is violating the agreement by working for a direct competitor, and the employee has used trade secrets to further his or her competitive activities. Although that statute mandates (not merely allows) injunctive relief, the standard (as articulated in the statute, at least) is significantly higher than that required by the common law to enforce a noncompetition agreement insofar as entitlement to an injunction requires that the trade secret has been used in competition. • The issue of whether the first paragraph of Section 42A can be read to permit the issuance of an injunction against an employee absent the noncompete required by the second paragraph of Section 42A has been directly addressed and analyzed in only Superior Court cases. See Lantor Inc. v. Ellis, 98-01064, 1998 WL 726502, *12 (Mass. Super. Oct. 2, 1998) (Gants, J.). In that case, following a lengthy analysis, Judge Gants concluded that the requirements of Section 42A must be met in order to issue an injunction against a former employee under Chapter 93. But see Atlas Box & Crating Co. v. Valerus, 2005 WL 3721353 (Mass. Super. Ct. Dec. 2, 2005) (Fecteau, J.) (issuing injunction under Section 42A despite absence of noncompete, but without any express analysis, presumably because the defendant did not raise the issue).

Criminal Statute General Laws Chapter 266, § 30 deals generally with the crime of larceny. Paragraph 4 deals in particular with trade secrets, and provides as follows: Whoever steals, or with intent to defraud obtains by a false pretense, or whoever unlawfully, and with intent to steal or embezzle, converts, secretes, unlawfully takes, carries away, conceals or copies with intent to convert any trade secret of another, regardless of value, whether such trade secret is or is not in his possession at the time of such conversion or secreting, shall be guilty of larceny, and shall be punished by imprisonment in the state prison for not more than five years, or by a fine of not more than twenty-five thousand dollars and imprisonment in jail for not more than two years. The term “trade secret” as used 3rd Edition 2016

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in this paragraph means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement. G.L. c. 266, § 30(4). In addition, G.L. c. 266, § 60A makes various other conduct relative to trade secrets illegal. The statute provides in full as follows: Whoever buys, receives, conceals, stores, barters, sells or disposes of any trade secret, or pledges or accepts as security for a loan any trade secret, regardless of value, knowing the same to have been stolen, unlawfully converted, or taken, shall be punished by imprisonment for not more than five years or by a fine of not more than five hundred dollars and imprisonment in jail for not more than two years. The term “trade secret” as used in this section shall have the same meaning as is set forth in section thirty.

(b)

Restatement (First) of Torts

As noted above, Massachusetts trade secrets law draws most heavily from the Restatement (First) of Torts § 757, which was Adopted by the American Law Institute in 1939. Section 757 provides as follows: One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his fiduciary duty to the other, or

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(d) he learned the secret with notice of the facts that it was secret and that its disclosure was made to him by mistake.

Trade Secret Defined Although not defined in the text of the section itself, the term “trade secret” is defined by the Restatement in comment b. Specifically, expressly noting that “[a]n exact definition of a trade secret is not possible,” comment b provides as follows: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business (see § 759) in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount of other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management. Restatement (First) of Torts § 757 cmt. b. The definition can be summed up as information used in business, which is not generally known to others, and provides a competitive advantage. (The requirement of a commercial advantage is rarely an issue; as Judge Hillman has explained, the “information need not provide competitors with a substantial advantage; any advantage, however small or ephemeral, is sufficient to satisfy these requirements.” Advanced Micro Devices, 3rd Edition 2016

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Inc., No. 13-40007-TSH, slip op. at 16 (citing Optos, Inc. v. Topcon Med. Sys., Inc., 777 F. Supp. 2d 217, 238 (D. Mass. 2011)).) The distinguishing element of this formulation in comparison to certain others, most notably the UTSA (see below) and the Restatement (Third) of Unfair Competition (see below), is that it limits trade secrets to information that is currently in use. Accordingly, so-called negative information—or information about what not to do—does not qualify as a trade secret under this formulation. Nor does information concerning a single, ephemeral event. Such information is simply considered confidential business information and is addressed separately in Restatement (First) of Torts § 759, which, for all intents and purposes, has the same effect as Section 757. See Restatement (First) of Torts § 759 cmt. c; Restatement (Third) of Unfair Competition § 39 cmt. d. Regardless of what type of information may qualify, the sine qua non of a trade secret is secrecy. People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 2010 WL 1267373 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.) (“The crucial issue to be determined in cases involving trade secrets . . . is whether the information sought to be protected is, in fact and in law, confidential information.” (quoting Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972))). While the Restatement does not address the secrecy requirement in the text of the section, that requirement is instead addressed in comment b as follows: The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process of formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except for the use of improper means, there would be difficulty in acquiring the information. Restatement (First) of Torts § 757 cmt. b; see also Boston Scientific Corp. v. Lee, 2014 WL 1946687, at *3 (D. Mass. May 14, 2014) (“The subject matter of a 4–10

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trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret.” (citations omitted)). The Restatement also makes clear that, while there is overlap between what can be patented and what can be protected by trade secret law, there is not a unity of identity. As may be evident from the secrecy requirement, any potentially patentable invention that necessarily reveals its secret (the wheel, for example) cannot be protected through trade secrets if it is to be sold in commerce or otherwise publicly revealed. If, on the other hand, its use is for internal purposes only, perhaps in the manufacture of other products, then it may potentially be protectable as a trade secret. Filling this out further, “[a] trade secret may be a device or process which is patentable; but it need not be that.” Restatement (First) of Torts § 757 cmt. b. In contrast to patents, “[n]ovelty and invention are not requisite for a trade secret as they are for patentability.” Restatement (First) of Torts § 757 cmt. b. In the end, comment b provides the following guidance. Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Restatement (First) of Torts § 757 cmt. b. It is this portion of Section 757, inclusive of the comments, that serves as the core analysis in trade secret cases following the Restatement.

Proscribed Conduct The Restatement (First) of Torts § 757, by its express terms, proscribes the use and disclosure of trade secrets under certain specified circumstances. It does not, however, proscribe the mere appropriation of a trade secret. Restatement (Third) of Unfair Competition § 40 cmt. b (“Improper acquisition of a trade secret was not independently actionable” under the Restatement (First) of Torts.). Nevertheless, 3rd Edition 2016

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courts have avoided this limitation by focusing on the subsequent violation of the terms of restrictions imposed on the appropriator of the trade secret by the owner of the trade secret. See, e.g., Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 176–77 (D. Mass. 2001) (“wrongful acquisition by employee may arise where employee properly obtains trade secret but then uses or discloses it ‘in breach or abuse of confidence’” (quoting L.H. Reece III, “Trade Secret Misappropriation: A Review and Analysis of Massachusetts Law,” 71 Mass. L. Rev. 171, 176 (1986))). Even in advance of an actual use or disclosure, the fact that the trade secret has been improperly acquired can give rise to an inference that the appropriator of the trade secret is likely to use or disclose the trade secret. See Restatement (Third) of Unfair Competition § 40 cmt. b (“A defendant’s willingness to resort to improper means in order to acquire a trade secret is itself evidence of a substantial risk of subsequent use or disclosure.”). As a separate matter, nothing in the Restatement focuses on the actor’s purpose. To the contrary, liability “is not based on the actor’s purpose to discover another’s trade secret but on the nature of the conduct by which the discovery is made.” Restatement (First) of Torts § 757 cmts. g, o. Thus, reverse engineering a trade secret is entirely permissible. In contrast, receiving a trade secret with knowledge (or reason to know) that the trade secret was acquired or disclosed in breach of a duty subjects the recipient of the trade secret to liability. Restatement (First) of Torts § 757(c), (d) cmts. l–o. The reason for liability under such circumstances is not that the recipient had the purpose to obtain the trade secret, but rather, that the conduct by which it was acquired in the first place was improper and taints all that flows from it. Consistent with this dichotomy, liability would not exist for the recipient’s use or disclosure of the trade secret prior to the time the recipient knew or had reason to know of the wrongful conduct; it does exist, however, from that moment forward, “unless prior thereto he has in good faith paid value for the secret or has so changed his position that to subject him to liability would be inequitable.” See Restatement (First) of Torts § 758; see also Restatement (First) of Torts § 757(c), (d) cmts. l–o. As to the nature of the conduct to discover a trade secret, the Restatement provides, “[a] complete catalogue of improper means is not possible. In general they are means which fall below the generally accepted standards of commercial morality and reasonable conduct.” Restatement (First) of Torts § 757 cmt. g. The comment provides the following nonexhaustive list of examples: taking by physical force, “fraudulent misrepresentations to induce disclosure, tapping of telephone wires, eavesdropping or other espionage.” Restatement (First) of Torts § 757 cmt. g.

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Harm Both disclosure and use constitute harm under the Restatement. Restatement (First) of Torts § 757 cmt. c. With regard to disclosure, the comment explains, “A mere disclosure enhances the possibilities of adverse use.” Restatement (First) of Torts § 757 cmt. c. While use is focused on competitive uses, it is not limited to use of the trade secret in the exact form in which it was received. Restatement (First) of Torts § 757 cmt. c. Rather, use includes use of even a substantially modified trade secret.

(c)

Uniform Trade Secrets Act

In 1979, the National Conference of Commissions on Uniform Laws issued the Uniform Trade Secrets Act (UTSA). The UTSA was later revised in 1985 to its current form today. The UTSA’s two major improvements over the Restatement (First) of Torts were to expand the definition of trade secrets and organize the topic into a straightforward outline. As such, albeit frequently with revisions, the UTSA has been adopted in nearly all states, the District of Columbia, and the U.S. Virgin Islands. The only states not to have adopted the UTSA in one form or another are Massachusetts and New York. As noted above, however, efforts have been made, and continue to be made, before the Massachusetts legislature to adopt the UTSA. The UTSA’s structure is described below.

Section 1—Definitions of Improper Means, Misappropriation, Person, and Trade Secret “Improper means” is defined only as “include[ing] theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” Recognizing, as the Restatement before it did, that “[a] complete catalogue of improper means is not possible,” the definition is intentionally not exhaustive. It does, however, provide the other end of the spectrum by identifying a nonexhaustive list of “proper means.” Specifically, the comments provide as follows: Proper means include: 1. Discovery by independent invention; 2. Discovery by ‘reverse engineering’, that is, by starting with the known product and working backward to find the method by which it was developed. The acquisition of the known product must, of 3rd Edition 2016

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course, also be by a fair and honest means, such as purchase of the item on the open market for reverse engineering to be lawful; 3. Discovery under a license from the owner of the trade secret; 4. Observation of the item in public use or on public display; 5. Obtaining the trade secret from published literature. “Misappropriation” is defined as follows: (i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who had utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake. The definition of “trade secret” is information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

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This definition was intended to expand the definition in the Restatement. Specifically, the definition extends protection to a plaintiff who has not yet had an opportunity or acquired the means to put a trade secret to use. The definition includes information that has commercial value from a negative viewpoint, for example the results of lengthy and expensive research which proves that a certain process will not work could be of great value to a competitor. UTSA § 1 cmt. Further, use of the terms “method” and “technique” were intended to capture the concept of “know-how.” UTSA § 1 cmt.

Section 2—Injunctive Relief Under Section 2, injunctive relief may be used to prevent an “[a]ctual or threatened misappropriation.”

Section 3—Damages Under Section 3, damages include exemplary damages up to two times the actual damages. As such, treble damages are recoverable under the UTSA, although only for misappropriations that are “willful and malicious.” No damages are available, however, where the recipient of the trade secret “material[ly] and prejudicial[ly] changed its position prior to acquiring knowledge or reason to know of a misappropriation” such that an award of damages would be inequitable.

Section 4—Attorney Fees Under Section 4, attorney fees must be paid to the prevailing party where the other party acted in bad faith or where the misappropriation was willful and malicious.

Remaining Sections The balance of the UTSA addresses preservation of secrecy during an action (Section 5), three-year statute of limitations (Section 6), preemption of “conflicting” laws (Section 7), uniformity of application and construction (Section 8), and other miscellaneous matters.

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Restatement (Third) of Unfair Competition

In 1995, the American Law Institute issued the Restatement (Third) of Unfair Competition, which now houses the Restatement’s treatment of the law of trade secrets under the appellation, “Appropriation of Trade Values.” (The Restatement (Second) of Torts, issued in 1978, did not cover trade secret law.) Section 1 of the Restatement states as follows: One who causes harm to the commercial relations of another by engaging in a business or trade is not subject to liability to the other for such harm unless: . . . (a) the harm results from acts or practices of the actor actionable by the other under the rules of this Restatement relating to: . . . (3) appropriation of intangible trade values including trade secrets . . . or (b) the acts or practices of the actor are actionable by the other under federal or state statutes, international agreements, or general principles of common law apart from those considered in this Restatement. Intangible trade values include not only the four various forms of intellectual property, but also the right of publicity. With regard to trade secrets, the Restatement establishes liability as [o]ne who causes harm to the commercial relations of another by appropriating the other’s intangible trade values is subject to liability to the other for such harm only if: (a) the actor is subject to liability for appropriation of the other’s trade secret under the rules stated in §§ 39–45. Restatement (Third) of Unfair Competition § 38.

Trade Secret Defined The first of these sections, Section 39, provides a new formulation for the definition of “trade secret” from that used in the Restatement (First) of Torts § 757. Specifically, Section 39 provides, “A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.” Accordingly, the new definition is considerably more simple and, most importantly, no longer adheres to the requirement of the Restatement (First) of Torts that the information must be in continuous use in business, which excludes so-called negative information and ephemeral information. This change reflects 4–16

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a harmonization of the Restatement with the Uniform Trade Secrets Act. Restatement (Third) of Unfair Competition § 39 cmt. b. As described in comment d to Section 39, A trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and requirements of customers (see § 42 comment f). Although rights in trade secrets are normally asserted by businesses and other commercial enterprises, nonprofit entities such as charitable, educational, governmental, fraternal, and religious organizations can also claim trade secret protection for economically valuable information such as lists of prospective members or donors. Restatement (Third) of Unfair Competition § 39 cmt. d. The secrecy requirement is described in part in the comments as follows: The secrecy . . . need not be absolute. The rule stated in this Section requires only secrecy sufficient to confer an actual or potential economic advantage on one who possesses the information. Thus, the requirement of secrecy is satisfied if it would be difficult or costly for others who could exploit the information to acquire it without resort to the wrongful conduct proscribed under § 40. Restatement (Third) of Unfair Competition § 39 cmt. f.

Proscribed Conduct The basic concepts of what constitutes unlawful conduct set forth in the Restatement (First) Torts concerning improper use and disclosure are carried over to the Restatement (Third) of Unfair Competition. However, the Restatement 3rd Edition 2016

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(Third) of Unfair Competition adds improper acquisition of the trade secret to the scope of proscribed conduct. Restatement (Third) of Unfair Competition § 40 cmt. b. Accordingly, the scope of what constitutes unlawful misappropriation is in line with that proscribed by the UTSA. Restatement (Third) of Unfair Competition § 40, reporter’s note, cmt. a. The Restatement (Third) of Unfair Competition does, however, flesh out the duties of confidence owed by a person to whom a trade secret is disclosed in Section 41. Specifically, Section 41 provides as follows: A person to whom a trade secret has been disclosed owes a duty of confidence to the owner of the trade secret. . . if: (a) the person made an express promise of confidentiality prior to the disclosure of the trade secret; or (b) the trade secret was disclosed to the person under circumstances in which the relationship between the parties to the disclosure or the other facts surrounding the disclosure justify the conclusions that, at the time of the disclosure, (1) the person knew or had reason to know that the disclosure was intended to be in confidence, and (2) the other party to the disclosure was reasonable in inferring that the person consented to an obligation of confidentiality. Section 41 is supplemented in the employment context by Section 42, which provides, “An employee or former employee who uses or discloses a trade secret owned by the employer or former employer in breach of a duty of confidence is subject to liability for appropriation of the trade secret under the rule stated in § 40.” Restatement (Third) of Unfair Competition § 42. The Restatement also describes—both in a specific and general way—what constitutes improper means of acquisition. Specifically, it recognizes that “[i]t is not possible to formulate a comprehensive list of the conduct that constitutes ‘improper’ means of acquiring a trade secret.” Restatement (Third) of Unfair Competition § 43 cmt. c. The Restatement states as follows: “‘Improper’ means . . . include theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence, and other means either wrongful in themselves or wrongful under the circumstances of the case.” Restatement (Third) of Unfair Competition § 43. As before, “Independent 4–18

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discovery and analysis of publicly available products or information are not improper means of acquisition.” Restatement (Third) of Unfair Competition § 43. Thus, as under the Restatement (First) of Torts, reverse engineering is entirely proper, subject to the notion that [t]he acquisition of a trade secret can be improper even if the means of acquisition are not independently wrongful. The propriety of the acquisition must be evaluated in light of all the circumstances of the case, including whether the means of acquisition are inconsistent with accepted principles of public policy and the extent to which the acquisition was facilitated by the trade secret owner’s failure to take reasonable precautions against discovery of the secret by the means in question. Restatement (Third) of Unfair Competition § 43 cmt. c. In this regard, “[a]mong the factors relevant to the reasonableness of the trade secret owner’s precautions are the foreseeability of the conduct through which the secret was acquired and the availability and cost of effective precautions against such an acquisition, evaluated in light of the economic value of the trade secret.” Restatement (Third) of Unfair Competition § 43.

Harm With the addition of recognizing that misappropriation in and of itself constitutes harm, the Restatement (Third) of Unfair Competition takes substantially the same view on harm as that taken by the Restatement (First) of Torts.

(e)

Common Law

As noted above, Massachusetts has both a statutory and common law foundation. They are, for all intents and purposes, the same in most respects. Incase Inc. v. Timex Corp., 488 F.3d 46, 52 n.10 (1st Cir. 2007) (“The statutory and common-law claims may be essentially equivalent.”) (citing Burten v. Milton Bradley Co., 592 F. Supp. 1021, 1028 (D.R.I. 1984), rev’d on other grounds, 763 F.2d 461, 467 (1st Cir. 1985)); Chomerics, Inc. v. Ehrreich, 12 Mass. App. Ct. 1, 10 n.17 (1981); Affinity Partners, Inc. v. Drees, 1996 WL 1352635, *4 (Mass. Super. Ct. 1996) (Cowin, J.) (“[t]here is no meaningful distinction between ‘trade secrets’ and ‘confidential information’”). It bears mention, however, that trade secrets may also be protectable under G.L. c. 93A, depending on the circumstances. (Because G.L. c. 93A is a statute 3rd Edition 2016

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of general applicability, not designed specifically to protect trade secrets, and is the subject of nuanced interpretation when it comes to trade secrets, the protections afforded under G.L. c. 93A are beyond the scope of this chapter. For a general discussion, see Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants ch. 5, at § 5.12 (MCLE, Inc. 5th ed. 2015).) “[T]he rationale behind state trade secret law is to encourage invention, and to provide innovators with protection for the fruits of their labors. . . [and] to maintain and promote standards of commercial ethics and fair dealing.” CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985). Accordingly, the protections afforded by the Massachusetts trade secret act and under common law apply not only to established relationships, but more broadly, to any person who may obtain a company’s trade secrets.

Trade Secrets Defined Massachusetts has defined trade secrets largely in accordance with the Restatement (First) of Torts § 757. Accordingly, confidential information is technically different from, and therefore not confined by, the definition of “trade secret.” (See discussion of confidential business information under Restatement (First) of Torts § 759 in § 4.2.1(b), above.) As discussed below, however, the distinction is without a difference; Massachusetts treats both virtually identically.

Essential Elements of a Trade Secret General Laws Chapter 266, § 30 both defines trade secrets and establishes the theft of trade secrets as a crime. The definition is as follows: “The term ‘trade secret’, . . means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.” Although the Supreme Judicial Court has observed that “no general and invariable rule can be laid down” as to what will qualify as a trade secret or confidential information, Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 389 (1939), it has adopted the following definition of a trade secret: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not 4–20

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know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. . . . A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. . . . The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. J.T. Healy & Son v. James A. Murphy & Son, 357 Mass. 728, 736 (1970) (quoting Restatement of Torts § 757 cmt. b); CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985); see also Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840; E. Marble Prods. Corp. v. Roman Marble, Inc., 372 Mass. 835, 838 (1977); Woolley’s Laundry, Inc. v. Silva, 304 Mass. at 390 (driver’s customer list and route were not confidential where they were “discoverable by observation” and no steps had been taken to protect them); Patriot Energy Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *11 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (“[w]hile knowledge of when a contract with a third-party supplier was due to expire” could be a trade secret, a customer list (without such information) created through cold calling off purchased lists where commission reports reflecting customers were mailed home with no confidentiality legend and no warning to employee to keep it confidential was not a trade secret); EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *4 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.) (“[T]he fact that certain components of a company’s marketing strategy or research are publicly available does not necessarily detract from an employer’s interest in maintaining the overall confidentiality of executive planning and decision making about that strategy.”); FMR, LLC v. Swanson, No. 11-1629-BLS2, slip op. at 8 (Mass. Super. Ct. May 13, 2011) (Roach, J.) (finding that the information sought to be protected “notwithstanding its potentially containing significant public information, also contained significant internal, non public information which became confidential as a matter of law”); Architext, Inc. v. Kikuchi, 2005 WL 2864244, at *2 (Mass. Super. Ct. May 19, 2005) (Lowy, J.) (information that was created as by-product of work product for customer was part of work product and therefore not proprietary to, or, therefore, protectable by, employer); Chiswick v. Constas, 2004 WL 1895044, at *3 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (“[I]nformation is not confidential if competitors could obtain the same information from a third party, or the information is obtainable from publicly available sources.”); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *4 (Mass. Super. Ct. 2002) (Burnes, J.) (“[c]onfidential information consists of a compilation of information which is 3rd Edition 2016

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used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it”—even if “other companies can obtain [the] information independently” (citations omitted)); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272; Boston Scientific Corp. v. Lee, No. 13-13156-DJC, 2014 WL 1946687, at *4 (D. Mass. May 14, 2014) (Casper, J.) (“no general and invariable rule can be laid down as to the existence of a trade secret” (citations omitted)); Advanced Micro Devices, Inc. v. Feldstein, No. 1340007-TSH, slip op. at 15 (D. Mass. May 15, 2013) (Hillman, J.) (“Technical specifications and business strategy data clearly satisfy [applicable] definitions so long as they are kept secret.”); Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *5–6 (D. Mass. Feb. 6, 2009); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 27–28 (D. Mass. 2004) (Gorton, J.) (“the essence of a trade secret is market advantage”); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (“[I]nformation obtainable from publicly available sources is not confidential.”). In general, whether information will qualify as a trade secret or confidential information is determined by an analysis of the following six factors: (1) the extent to which the information is known outside of plaintiff’s business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the employer to guard the secrecy of the information; (4) the value of the information to the employer and to his competitors; (5) the amount of effort or money expended by the employer in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840; EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *3; Banner Indus. v. Bilodeau, C.A. No. 3-236-C (refusing to protect “client lists, which detail customer identities, buying needs, and contracts” (for various fact-specific reasons) and “lists of manufacturers, which include quality, price, and other information” (which contained nothing confidential)); see also People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, No. 06-3958-BLS2, 2010 WL 1267373, at *14–15 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.) (finding customer leads used by a mortgage broker to be trade secrets); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 239 (D. Mass. 2013), aff’d, 731 F.3d 6 (1st Cir. 2013) (Woodlock, J.); Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *5–6 (“information available for public view cannot be protected as a trade secret”); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 27–28; see also Jet 4–22

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Spray Cooler, Inc. v. Crampton, 361 Mass. at 840; Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272. It bears mention that “[a] trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, afford a competitive advantage and is a protectable secret.” AthenaHealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *4–5 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) (quoting Sutra, Inc. v. Iceland Express, No. 04-11360-DPW, 2008 WL 2705580, at *4 (D. Mass. July 10, 2008)); Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 7 (Mass. Super. Ct. May 9, 2011) (Roach, J.) (finding that “notwithstanding [the marketing strategy] containing significant public information, [it] also contained significant internal, non-public information (for example, which customers used which specific products), which became confidential”). Nevertheless, “[t]he claimed trade secret must include ‘some aspect that is valuable and not known to the particular trade.’” Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 7 (quoting Sutra, Inc. v. Iceland Express, 2008 WL 2705580, at *4; citing Data Gen. Corp. v. Grumman Sys. Corp., 825 F. Supp. 340, 357 (D. Mass. 1993); Charles Tait Graves & Brian D. Range, “Identification of Trade Secret Claims in Litigation: Solutions for a Ubiquitous Dispute,” 5 Nw. J. Tech. & Intell. Prop. 68, 69 (2006)). “The existence of a trade secret depends on the facts of each case.” AthenaHealth, 2013 WL 4008198, at *4–5 (quoting Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840); see also Advanced Micro Devices, Inc. v. Feldstein, No. 1340007-TSH, slip op. at 15 n.14 (“Whether or not any particular piece of information constitutes a secret is a very context-specific determination.”). Significantly, “[t]he burden is on the plaintiff to ‘show that the information [it seeks to protect] constitutes a trade secret.’” AthenaHealth, Inc. v. Cady, 2013 WL 4008198, at *4–5 (quoting Harvard Apparatus Inc. v. Cowen, 130 F. Supp. 2d 161, 174 (D. Mass. 2001)). Moreover, “[t]he employer’s interest in the secret must be crystal clear to justify the restraint of the employee, for whom it may have become part of his general knowledge and experience.” Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 268 (1980) (internal quotations and citations omitted); Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *6–7 (Mass. Super. Ct. 2007) (Macdonald, J.). Thus, “an employer ‘is not entitled to protection of [a process or practice] created by its unique capability. Uniqueness without more is not commensurate with possession of a trade secret.’” Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *7 (quoting Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 274–75 (“finding no trade secret in coordinated approach of skilled engineers and scientists to a particular problem”)); CVD, Inc. v. Raytheon Co., 769 F.2d at 852 (“the fact that a product is unique tends to prove that a trade 3rd Edition 2016

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secret exists, ‘[u]niqueness without more is not commensurate with possession of a trade secret.’” (quoting Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 274–75)); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 29 (“A trade secret need not have the novelty that is requisite for a patent, it must only confer a competitive advantage on its possessor.”).

Confidential Information Distinguished Although there is substantial overlap between trade secrets and confidential information, they are in fact different things. See, e.g., Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 48–49 (1998) (confidential information is protectable even when it does not qualify as a trade secret); Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 839–40 (1972) (“confidential information is not limited to technical trade secrets”); Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 273 n.23 (1980); Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 316 (1982) (even in the absence of trade secrets, restriction was necessary to protect confidential information); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (“Massachusetts law also protects an employer’s confidential and proprietary business information even if such information does not enjoy the status of a trade secret.”). Specifically, trade secrets are a subset of confidential information. See generally Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 839–40; Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 273 n.23 (“Not every commercial secret . . . qualifies as a trade secret. It is well known that in business most matters are considered as confidential; however, only secrets affording a demonstrable competitive advantage may be properly considered as trade secrets.” (citations omitted)); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *2 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (referencing trade secrets and “other confidential information” (emphasis added)). Nevertheless, “[t]here is no meaningful distinction between ‘trade secrets’ and ‘confidential information.’” IME, Inc. v. Quaranto, 1991 WL 11007754, at *8 (Mass. Super. Ct. Feb. 7, 1991) (Barrett, J.) (citing Chomerics, Inc. v. Ehrreich, 12 Mass. App. Ct. 1, 10 n.17 (1981), Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 165 (1979)); see also Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *8 (D. Mass. Feb. 6, 2009) (Woodlock, J.) (“Massachusetts case law does not always define clearly whether trade secrets are synonymous with confidential information or proprietary information. Nevertheless, the case law does suggest that trade secrets and confidential information are essentially identical concepts.” (citations and internal quotations omitted)).

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Confidentiality Is Key Regardless of whether such information purports to be “confidential information” or a “trade secret,” the sine qua non of each is that it is “highly confidential or secret.” Slade Gorton & Co. v. O’Neil, 355 Mass. 4, 9–10 (1968); see also Augat v. Aegis, 409 Mass. 165, 168–70 (1991) (company failed to “consistently and diligently treat” the information as confidential, thereby losing protectability); Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 273 n.23 (1980) (“The subject matter of a trade secret must be secret.” (quoting 12 Business Organizations, Milgrim, Trade Secrets § 2.03 (1978))); CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850, 851 (1st Cir. 1985) (“The cornerstone of a trade secret . . . is secrecy.”); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (“[I]nformation about a third party is not confidential if competitors could obtain the same information directly from the third party.”); Hit Dog Training Ctr., Inc. v. Rappoli, C.A. No. 04-3176-BLS, at *5 (Mass. Super. Ct. July 23, 2004) (van Gestel, J.) (“The hallmark of confidential information, like trade secrets, is secrecy.” (citing J.T. Healy & Sons v. James A. Murphy & Son, 357 Mass. 728, 736 (1970), Jillian’s Billiard Club of Am., Inc. v. Beloff Billiards, Inc., 35 Mass. App. Ct. 372, 375–76 (1993))); Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *1 (Mass. Super. Ct. June 28, 2004) (Graham, J.) (protection afforded to trade secrets where plaintiff “attempts to preserve [their] confidentiality”); Chiswick v. Constas, 2004 WL 1895044, at *3 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (“[I]nformation is not confidential if competitors could obtain the same information from a third party, or the information is obtainable from publicly available sources.”); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *3–4 (Mass. Super. Ct. Apr. 29, 2002) (purported trade secrets were not entitled to protection as the plaintiff “made no effort to keep any information it now might call trade secrets or proprietary information during the two weeks [that the former employee] remained at [the plaintiff company] after announcing that he was going to [a competitor]”). Thus, “[o]ne who possesses a trade secret and wishes to protect it must act to preserve its secrecy.” USM Corp. v. Marson Fastener Corp., 379 Mass. 90, 97 (1979) (citations omitted). As the Supreme Judicial Court explained, “whether the information sought to be protected is, in fact and in law, confidential . . . depends on the conduct of the parties and the nature of the information.” Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); see also Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 275–76; Chiswick v. Constas, 2004 WL 1895044, at *3 (“The case law makes clear that where the employer openly shares information among its employees, that information will not be deemed confidential.”). In this regard, a party must have taken reasonable measures to preserve the confidentiality of any information that it claims constitutes a trade secret or 3rd Edition 2016

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confidential information. Specifically, “one seeking to prevent the disclosure or use of trade secrets or information must demonstrate that he pursued an active course of conduct designed to inform his employees that such secrets and information were to remain confidential.” Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 841; Chiswick v. Constas, 2004 WL 1895044, at *2; Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (Mass. Super. Ct. Aug. 15, 2002) (Agnes, J.). “To that end, the employer must ‘exercise eternal vigilance,’ and the employee must be ‘constantly admonished’ that information is confidential and ‘must keep it so.’” Chiswick v. Constas, 2004 WL 1895044, at *1 (quoting J.T. Healy & Son v. James A. Murphy & Son, 357 Mass. at 738). Further, an “agreement[] cannot make secret what is not secret, and it remains for the court to determine whether an alleged trade secret is in fact such.” EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *3 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.) (quoting Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 277). The reasonableness of the efforts is dependent on the facts and “circumstances of each case, considering the nature of the information sought to be protected as well as the conduct of the parties.” USM Corp. v. Marson Fastener Corp., 379 Mass. at 101; see also Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 390 (1939) (no protection where “it would not have been difficult for the plaintiff to have imparted this knowledge under conditions that made it confidential”); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (no protection where employer failed to take precautions to protect information and “[t]he nature of the interactions between customers and stylists[] suggests that the information was readily available to an alert stylist”); CVD, Inc. v. Raytheon Co., 769 F.2d at 852. Thus, the Supreme Judicial Court explained as follows: [W]here a plaintiff has actively sought to protect its trade secret, the question then becomes whether the protective measures are reasonable. “Reasonable precautions against predatory eyes we may require, but an impenetrable fortress is an unreasonable requirement, and we are not disposed to burden industrial inventors with such a duty in order to protect the fruits of their efforts.” No general rule may be established to determine whether the security precautions taken by the possessor of a trade secret are reasonable. “Relevant factors to be considered include (1) the existence or absence of an express agreement restricting disclosure, (2) the nature and extent of security precautions taken by the possessor to prevent acquisition of the information by 4–26

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unauthorized third parties, (3) the circumstances under which the information was disclosed . . . to [any] employee to the extent that they give rise to a reasonable inference that further disclosure, without the consent of the possessor, is prohibited, and (4) the degree to which the information has been placed in the public domain or rendered ‘readily ascertainable’ by the third parties through patent applications or unrestricted product marketing.” Additionally, a court should consider the relationship and the conduct of the parties. We think it appropriate to balance a plaintiff’s conduct in maintaining its security measures against the conduct of a defendant in acquiring the information. USM Corp. v. Marson Fastener Corp., 379 Mass. at 98–99 (citations and footnote omitted); see also Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *4 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.) (informing employees about confidentiality obligations and requiring them to sign a confidentiality agreement was reasonable to protect clients’ identity and information about clients’ recruiting needs); Boston Scientific Corp. v. Lee, No. 13-13156-DJC, 2014 WL 1946687, at *4 (D. Mass. May 14, 2014) (Casper, J.) (“It is not necessary that an impenetrable fortress be erected to retain legal protection for a trade secret. Instead, courts consider four relevant factors in determining whether plaintiffs asserting trade secret protections took reasonable security precautions: (1) the existence or absence of an express agreement restricting disclosure, (2) the nature and extent of security precautions taken by the possessor to prevent acquisition of the information by unauthorized third parties, (3) the circumstances under which the information was disclosed . . . to (any) employee to the extent that they give rise to a reasonable inference that further disclosure, without the consent of the possessor, is prohibited, and (4) the degree to which the information has been placed in the public domain or rendered ‘readily ascertainable’ by the third parties. Ordinarily, however, confidentiality agreements suffice to constitute reasonable protective measures.” (citations omitted)); Atlantic Research Mktg. Sys., Inc. v. Troy, 2010 WL 1904849, *1, 3 (D. Mass. 2010) (Saris, J.) (implicitly finding that the plaintiff took adequate measures to protect confidentiality where it had “an alarm system that was linked directly to the local police; its doors were kept locked; cameras were used to monitor the front door; visitors were required to sign a log book before entering the facilities and to sign nondisclosure agreements before being provided access to proprietary information”; and defendant was both told that “all [plaintiff’s] business and development information was confidential and proprietary” and required to sign a nondisclosure agreement); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 29–30 (D. Mass. 2004) (Gorton, J.) (finding information 3rd Edition 2016

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adequately protected even where plaintiff failed to comply with document labeling requirements in a confidentiality agreement). Simply put, the requirement of reasonableness does not necessitate “the possessor of a trade secret to take heroic measures to preserve its secrecy.” USM Corp. v. Marson Fastener Corp., 379 Mass. at 101; CVD, Inc. v. Raytheon Co., 769 F.2d at 851–52 (“Heroic measures to ensure privacy are not essential, but reasonable precautions must be taken to protect the information.”); Boston Scientific Corp. v. Lee, 2014 WL 1946687, at *4 (“It is not necessary ‘that an “impenetrable fortress” be erected to retain legal protection for a trade secret.’ Picker Int’l Corp. v. Imaging Equip. Servs., Inc., 931 F. Supp. 18, 23 (D. Mass. 1995) (citations omitted), aff’d sub nom. Picker Int’l Inc. v. Leavitt, 94 F.3d 640 (1st Cir. 1996).”). Alternatively stated, “the standard is reasonableness, not perfection.” Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 30. Thus, for example, restricting access to the confidential information to those who need to know, putting it under lock and key (or the electronic equivalent), and requiring employees to sign nondisclosure agreements will likely qualify as reasonable efforts. See, e.g., Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *1; see also Steelcraft, Inc. v. Mobi Med., LLC, C.A. No. 08-1934, at *3–4 (Mass. Super. Ct. Nov. 10, 2008) (Tucker, J.) (a written confidentiality agreement or noncompetition agreement may be enough to safeguard confidential business information); Boston Scientific Corp. v. Lee, 2014 WL 1946687, at *4 (“Ordinarily, . . . confidentiality agreements suffice to constitute reasonable protective measures. Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 176 (D. Mass. 2001); People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 06-3958-BLS2, 2010 WL 1267373, at *15 (Mass. Super. Ct. Mar. 31, 2010).”). As the Supreme Judicial Court has cautioned, however, an expectation that any information is to be kept confidential must be “expressed or otherwise brought to the attention” of the party expected to maintain the secrecy of such information. Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840–41; see also USM Corp. v. Marson Fastener Corp., 379 Mass. at 99–100 (even in the absence of an express statement, circumstances may indicate that the information is confidential); People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 26 Mass. L. Rptr. 582, 2010 WL 1267373, *15 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.) (relying on a confidentiality agreement’s specification of customer contact information and prospect lists). As the court explained in Woolley’s Laundry, Inc. v. Silva, 304 Mass. at 390, “[t]he unexpressed intentions of the plaintiff cannot bind the defendant.” Woolley’s Laundry, Inc. v. Silva, 304 Mass. at 391 (refusing to enjoin a former employee who memorized his former employer’s customer list); Mitchell John Coiffures, Inc. v. Jordan & Co., 200001272 (no trade secret or confidential information where employer failed to express its expectation of confidentiality). 4–28

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Nevertheless, the fact that not all persons with access to the information are required to sign confidentiality agreements does not render the information unprotectable. See Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 642–43 (2004) (company “may reasonably decide which persons pose the greatest risk of using its confidential information competitively”); Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939 (1984) (where other protective measures are taken, “the absence of admonitions about secrecy or the failure to emphasize secrecy in employment contracts (if there were any in this relatively small business)” was not fatal). Even where a company “may not have done all it possibly could have to guard the secrecy of the information, the information [may] nevertheless [be] confidential,” and therefore protectable. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 639. Moreover, “[w]here the facts demonstrate that disclosure was made in order to promote a specific relationship, e.g., disclosure to a prospective purchaser to enable him to appraise the value of the secret, the parties will be bound to receive the information in confidence.” Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 31 (quoting Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985)).

Types of Trade Secrets and Confidential Information There is an endless variety of types of trade secrets and confidential information. Trade secrets and confidential information may include customer and vendor information . . . , products, product development, business strategy, financial information, . . . customer or employee lists, technical data, design, pattern, formula, computer program, source code, object code, algorithm, subroutine, manual, product, specification, or plan for a new, revised or existing product, or any business plan, marketing, financial or sales order, or the present and future business or products . . . . EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.). See generally Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *4 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.) (identifying “plan for development of [a] new product, information on its weaknesses, sales strategies, internal [employer] organizational information, and customer information” as the information requiring protection); Boston Scientific Corp. v. Lee, No. 13-13156-DJC, 2014 WL 1946687, at *4 (D. Mass. May 14, 2014) (Casper, J.) (“information concerning plans for research or business methods and practices can constitute trade secrets”); Lombard Medical Techs., Inc. v. Johannessen, 2010 WL 2682449, *5 (D. Mass. July 2, 2010) (Gertner, J.) (“While [the 3rd Edition 2016

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new employer] argues that information about [the former employer’s product] and its clinical trials are publicly available . . . , other information, including [the product’s] strengths and weaknesses and clinical trial analyses are confidential.”); Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (Lindsay, J.) (confidential information included the “strengths and weaknesses” of the plaintiff’s product). Trade secrets do not include “[i]nformation or methods generally known within an industry.” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *6 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.). Thus, “[g]eneral concepts, combined with an employee’s talent, are not trade secrets.” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *6 (citing Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 267 (1980)). However, “[a] situation where certain information could be obtained publicly, but the ex-employee had access to a confidential information superset of that information, poses a complex problem.” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8–9 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (positing that “an unscrupulous ex-employee could ‘launder’ confidential information by working down a memorized list . . . , methodically performing Internet searches designed to find the exact person they already have in mind, and saving the results of those searches as a defense against any claims of breach of confidentiality”); see also Modis, Inc. v. Revolution Group, Ltd., 1999 WL 144198, at *8 (Mass. Super. Ct. Dec. 29, 1999) (“The fact that certain . . . customers are well known corporations does not diminish the fact that [the company’s information about them] constitutes confidential information . . . .”). Nor does confidential information include information simply passed along (in trainings, for example) by a retailer that it “learns from its manufacturers and distributors,” but which is not its own confidential information, and which is available to other retailers and distributors. Banner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. Ct. Feb. 23, 2003) (Agnes, J.). Likewise, general concepts, combined with an employee’s talent, are not trade secrets. Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *7 (citing Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 271). Customer Lists/Information: Customer lists can, but will not always, constitute protectable confidential information. Wrentham Co. v. Cann, 345 Mass. 737, 741–43 (1963) (ordering return of customer list that “although confidential in the sense that the [employer] would not furnish it to a competitor, was a compilation that could be made by anyone familiar with the business, or from general knowledge, or from trade directories”); Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1, slip op. at 6–8 & n.2 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.) (ordering the return and the nonuse or disclosure of the former employer’s confidential information, including client names); Patriot Energy 4–30

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Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *11 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (“[w]hile knowledge of when a contract with a third-party supplier was due to expire” could be a trade secret, a customer list (without such information) created through cold calling off purchased lists where commission reports reflecting customers were mailed to the employee’s home with no confidentiality legend and no warning to the employee to keep it confidential was not a trade secret); KNF&T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 n.3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.) (in staffing industry, “lists of applicants and employers would [presumably] qualify as protectable confidential information”); Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2012 WL 3030268, at *12 (Mass. Super. Ct. July 16, 2012) (Kirpalani, J.) (“customer lists, financial information, pricing information, and business plans and strategies [are the] type of information [that] may constitute trade secrets”); Life Image, Inc. v. Brown, No. 201103764, 2011 WL 7443924, at *6 (Mass. Super. Ct. Dec. 22, 2011) (McIntyre, J.) (contact lists of customer names and contact information was among the information justifying enforcement of noncompete); Fid. Brokerage Servs. LLC v. Wilder, SUCV2011-3729-G, slip op. at 3 (Mass. Super. Ct. Oct. 25, 2011) (“the confidentiality of customer contact information is entitled to protection under the law”); Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 7 (Mass. Super. Ct. May 9, 2011) (Roach, J.) (“which customers used which specific products” was protectable confidential information); Next Generation Vending v. Bruno, C.A. No. 08-0365-G, at *7 (Mass. Super. Ct. May 20, 2008) (reference to client lists and pricing information was sufficient to avoid dismissal of trade secret misappropriation claim); Lunt v. Campbell, No. 07-3845-BLS, at *6 (Fabricant, J., Sept. 2007) (“[I]t is not apparent that mere names and telephone numbers of customers with whom [defendant] was well acquainted constitute confidential information belonging to [plaintiff].”); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.) (noting that “specific client information which enhanced [the employee’s] ability to serve clients . . . belongs to [the employer]”); Cabot Money Mgmt., Inc. v. Femia, C.A. No. 04-1188, *6 (Mass. Super. Ct. July 23, 2004) (MacLeod, J.) (“single justices have . . . held that client lists, and the financial and personal information relating to them, constitute confidential information subject to protection under such agreements”); Aggreko, LLC v. Koronis, No. 14-13034-TSH, 2013 WL 6835165, at *5 (D. Mass. Dec. 19, 2013) (Hillman, J.) (“customer lists with pricing, discount, equipment, and bid results information” were protectable); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 240–41 (D. Mass. 2013) (Woodlock, J.) (price quotes, customer’s anticipated future needs, and “superset” of customer information “synthesized and compiled from clients” were all protectable), aff’d, 731 F.3d 6 (1st Cir. 2013); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8–9 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (customer list can be protected); Banner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. 3rd Edition 2016

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Ct. Feb. 23, 2003) (Agnes, J.) (not protected because no evidence that it was taken and “[c]lient relationships alone cannot be protected” (citing Routhier Placement Specialists v. Brown, 2002 Mass. Super. LEXIS, at *4)). A naked customer list is not likely to be protected in the absence of special circumstances. See, e.g., Lunt v. Campbell, No. 07-3845-BLS, at *6 (“mere names and telephone numbers of customers” not likely to be protectable); but see Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1, slip op. at 6–8 & n.2 (names of customers were protectable because of the manner in which the names were developed and protected by the former employer); Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (protecting naked customer list as confidential information); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, C.A. No. 04 1005 (June 30, 2004) (Agnes, J.) (protecting database of customer names, addresses, and telephone numbers), the more information about the customers that is included in the list, the more likely it will be protected, provided that such information is maintained in confidence. Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 388–91 (1939) (failure to maintain customer lists as confidential will preclude their protection); Prof ’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *2 (Mass. Super. Ct. Nov. 18, 2004) (nonconfidential customer information is not protectable); Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (client contact information was not considered protectable); HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2 (Mass. Super. Ct. Feb. 8, 2008) (identity of advertising customers in regular publication could be readily determined and therefore did not constitute trade secrets, although notes about advertisers and identity of prospective advertisers were trade secrets); Banner Indus. v. Bilodeau, C.A. No. 3 236 C (citing Nat’l Hearing Aid Ctrs., Inc. v. Avers, 2 Mass. App. Ct. 285, 290 (1974) (“suggesting employer’s customer list is confidential information when described as such in contract with defendant employee”)); cf. Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2–4 (enforcing nonsolicitation agreement, but not nondisclosure agreement, where customer information was not sufficient to warrant protection as trade secret, but “coalesce[d]” with customer goodwill to create protectable legitimate business interest). In addition, the parties’ expectations based on circumstances and industry practice may also have a bearing on whether information is considered confidential. See, e.g., Morgan Stanley DW Inc. v. Winer, C.A. No. 06-4236-BLS1 (Mass. Super. Ct. Oct. 18, 2006) (van Gestel, J.) (pursuant to the securities brokerage industry’s “Protocol for Broker Recruiting,” “client names, addresses, telephone numbers, e-mail address and account titles” are not confidential); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (Mass. Super. Ct. Aug. 15, 2002) (Agnes, J.) (“it is common practice for stylists to carry their clientele with them should they leave a salon,” and employer failed to establish contrary expectation).

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Financial/Business Information: As a general rule, “general business information and routine data of a particular company normally are not protectible as confidential.” Augat v. Aegis, 409 Mass. 165, 168–69 (1991) (company’s annual sales were not confidential and therefore not protectable (citing New England Overall Co. v. Woltmann, 343 Mass. 69, 77 (1961)). Nevertheless, “the gross sales of a corporation might properly be protectible as confidential information in particular circumstances.” Augat v. Aegis, 409 Mass. at 169 (noting that such information “would not be a ‘trade secret’ of the traditional kind” (citation omitted)). Similarly, under certain circumstances, “a list of employees and associated information [can be] property protectible against misappropriation,” as can the names and addresses of members of an agricultural association. Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 48–49 (1998) (citing In re Civil Investigative Demand Addressed to Yankee Milk, Inc., 372 Mass. 353, 359–60 (1977) (list of association members protected where it “would be difficult to duplicate from independent sources, and . . . was made available to officers and employees with the understanding of its confidentiality”)). Other types of business information, such as financial information, pricing information, business plans and strategies, and marketing strategies, have also been specifically identified as protectable. See, e.g., EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *4–5 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.) (protecting “the overall confidentiality of executive planning and decision making about [its marketing] strategy,” “the timing of product offerings,” three-year “roadmaps” containing “competitive opportunities and competitive threats,” “full sales strategy across all product lines,” “structured ways to win business for specific products[,] and other information about [the employer’s] basic methodology and sales trends”—i.e., the strategic “‘how’ factor” or “how they do it”—to which the former employee was exposed in his last two years of employment); Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2012 WL 3030268, at *12 (Mass. Super. Ct. July 16, 2012) (Kirpalani, J.) (“financial information, pricing information, and business plans and strategies [are the] type of information [that] may constitute trade secrets”); Norkom Techs., Inc. v. Davilman, No. 111566-BLS2, slip op. at 6 (Mass. Super. Ct. May 9, 2011) (Roach, J.) (“at least some of the components of a marketing strategy would not be, or at least should not be, publicly available” and were therefore protectable). In a similar vein, financial research has also been specifically found to be protectable. See, e.g., FMR, LLC v. Swanson, No. 11-1629-BLS2, slip op. at 7 (Mass. Super. Ct. May 13, 2011) (Roach, J.) (“[I]t is obvious that ‘how they do it,’ i.e., what components of market information . . . analysts decide to weigh, and how they weigh them through particular formulae and scoring methodology, is unique to [the company] and embedded in various computer models they use. Likewise, how . . . portfolio managers and allocators choose to use the work of their analysts is unique.”).

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Software: While software may be subject to other protections (copyright, in particular), it may also be protected as a trade secret. Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *6 (D. Mass. Feb. 6, 2009) (Woodlock, J.); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 28 (D. Mass. 2004) (Gorton, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (a “computer program, source code, object code, algorithm, [or] subroutine” may constitute a trade secret). As Judge Gorton of the U.S. District Court for the District of Massachusetts explained: For software, trade secret protection is not limited to the source code. Harbor Software, Inc. v. Applied Sys., Inc., 887 F. Supp. 86, 90 (S.D.N.Y. 1995). Rather, the overall design of software can constitute a trade secret. Id. (“[I]t is the design of the program that is the most important, not the particular code that reflects that design”) (emphasis in original). In determining whether a particular software design is protectable, courts focus on whether that design could be duplicated without undue time or expense. See id.; Hamer Holding Group, Inc. v. Elmore, 202 Ill. App. 3d 994, 118 Ill. Dec. 310, 560 N.E.2d 907, 918 (1990). Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 28 (finding trade secrets in the program’s “source code, implementation, overall design and ‘distributed computing model’”). Clinical Trial Information: In the medical device industry, information concerning drugs and their clinical trials can be protected as confidential information warranting the enforcement of a worldwide noncompete. See, e.g., Lombard Med. Techs., Inc. v. Johannessen, 729 F. Supp. 2d 432, 439 (D. Mass. 2010) (Gertner, J.) (“During their employment with [the former employer], [the former employees] were party to trade secrets and confidential information about [a new drug’s] workings, [the former employer’s] clinical trial methodologies, and [the former employer’s] contacts at various medical centers. While [the new employer] argues that information about [the drug] and its clinical trials are publicly available, other information, including [the drug’s] strengths and weaknesses and clinical trial analyses are confidential.” (factual citation omitted)).

The Cause of Action A claim of misappropriation of trade secrets involves the proof of the existence of a trade secret and its misappropriation. Assuming that the existence of a trade

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secret has been established, the analysis turns to whether the secret has been misappropriated. The Appeals Court has explained as follows: Once information qualifies as a trade secret, determination of whether the secret has been misused steers the inquiry to examining the conduct of the defendant, and the legal character of that conduct, in turn, is much affected by the steps taken by the proprietor of the trade secret to protect it. Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939 (1984); see also Take It Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *5–6 (D. Mass. Feb. 6, 2009) (Woodlock, J.) (“In a common law misappropriation claim, ‘[r]elief is granted to protect the secret only where one is attempting to use or disclose it in violation of some general duty of good faith.’” (citation omitted)). The Massachusetts common law definition of misappropriation . . . is not without ambiguity. Some courts have held that acquisition of trade secrets by improper means is sufficient to establish misappropriation. . . . Other courts have required plaintiffs to prove actual use above and beyond acquisition by improper means. Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007-TSH, slip op. at 13–14 (D. Mass. May 15, 2013) (Hillman, J.). Under the acquisition-only standard, “a plaintiff must satisfy a three-part test: (1) the information at issue must constitute a trade secret, (2) the plaintiff must have taken reasonable steps to secure the confidentiality of the trade secret, and (3) the defendant must have used improper means to obtain the trade secret.” Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007-TSH, slip op. at 13–14; see also Enargy Power Co. v. Xiaolong Wang, No. 13-11348-DJC, 2013 WL 6234625, at *8 (D. Mass. Dec. 3, 2013) (Casper, J.) (“To prevail on a misappropriation of trade secrets claim under Massachusetts law, a plaintiff must demonstrate that ‘(1) the information at issue must constitute a trade secret, (2) the plaintiff must have taken reasonable steps to secure the confidentiality of the trade secret, and (3) the defendant must have used improper means to obtain the trade secret.’” (quoting Optos, Inc. v. Topcon Med. Sys., Inc., 777 F. Supp. 2d 217, 238 (D. Mass. 2011))); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 27 (D. Mass. 2004) (Gorton, J.) (“To prevail on a misappropriation claim, a plaintiff must show: 1) the existence of a trade secret, 2) reasonable steps to preserve secrecy, and 3) ‘use of improper means in breach of a confidential relationship’ to acquire the secret.” (quoting Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994))); see also Transkaryotic Therapies, Inc. v. Bain & Co., 14 3rd Edition 2016

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Mass. L. Rptr. 397, *3 (Mass. Super. Ct. 2002) (van Gestel, J.) (“[C]onfidential information, . . . even if there is no ascertainable damage, is entitled to protection by injunction. See, e.g., Warner-Lambert Company v. Execuquest Corp., 427 Mass. 46, 50 (1998); Middlesex Neurological Assoc., Inc. v. Cohen, 3 Mass. App. Ct. 126, 132 (1975).”). “Under [the] heightened standard, the plaintiff must satisfy a slightly different three-part test: ‘1) the existence of a trade secret, 2) reasonable steps to preserve secrecy and 3) use of improper means in breach of a confidential relationship to acquire and use the secret.’ A classic example of use above and beyond improper acquisition of a trade secret is the production by a misappropriator of competing goods or services that make use of the trade secret.” Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007-TSH, slip op. at 14 (citations omitted); see also Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 165 (1979) (“The essence of an action for the wrongful use of trade secrets is the breach of the duty not to disclose or to use without permission confidential information acquired from another.”); Athenahealth, Inc. v. Cady, No. 13-1098BLS1, 2013 WL 4008198, at *8 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) (“To succeed on a claim for misappropriation of trade secrets, a plaintiff must prove that (1) the plaintiff possesses a trade secret; (2) the plaintiff took reasonable steps to preserve the secrecy of the trade secret; and (3) the defendant breached the duty not to disclose or to use the trade secret.”); Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2012 WL 3030268, at *11 (Mass. Super. Ct. July 16, 2012) (Kirpalani, J.) (“To prevail on a claim of misappropriation of trade secrets, a plaintiff must show: 1) the information is a trade secret; 2) the plaintiff took reasonable steps to preserve the secrecy of the information; and 3) the defendant used improper means, in breach of a confidential relationship, to acquire and use the trade secret.” (citation omitted)); People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 2010 WL 1267373, at *14 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.) (duty not to disclose or use); Network Sys. Architects Corp. v. Dimitruk, No. 06-4717-BLS2 (Mass. Super. Ct. Dec. 6, 2007) (Fabricant, J.) (Plaintiff must prove that it “possessed nonpublic information of value to its business; that it took reasonable steps to preserve the secrecy of that information; that [the defendant] used or disclosed that information for his own benefit or [another]; and that it has been harmed as a result.”) (citing Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 940 and Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. at 939)); Comark Communications, LLC v. Anywave, LLC, 2014 WL 2095379, at *2 (D. Mass. May 19, 2014) (Ponsor, J.) (“To succeed under this claim, a plaintiff must show (1) the existence of a trade secret; (2) that the plaintiff took reasonable steps to protect the secret; and (3) that the defendant acquired and used, by improper means or through breach of a confidential relationship, the trade secret.” (citing Blake v. Prof’l Coin Grading Serv., 898 F. Supp. 2d 365, 393 (D. Mass. 2012))); Boston Scientific Corp. v. Lee, 2014 WL 1946687, at *3 (D. Mass. May 14, 2014) (Casper, J.) (similar) (citing Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994)); 4–36

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Envisn, Inc. v. Davis, No. 11-12246-TSH, 2013 WL 6571944, at *3 (D. Mass. Dec. 12, 2013) (Hillman, J.) (“To succeed under either [the common law or the Massachusetts Trade Secrets Act], a plaintiff must show (1) the existence of a trade secret; (2) that the plaintiff took reasonable steps to protect the secret; and (3) that the defendant acquired and used, by improper means or through breach of a confidential relationship, the trade secret.”); Aggreko, LLC v. Koronis, 2013 WL 6835165, at *4 (D. Mass. Dec. 19, 2013) (Hillman, J.) (“To succeed on a claim of misappropriation of trade secrets, a plaintiff must show (1) the existence of a trade secret; (2) that the plaintiff took reasonable steps to protect the secret; and (3) that the defendant acquired and used, by improper means or through breach of a confidential relationship, the trade secret.”); Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 176 (D. Mass. 2001) (Bowler, J.) (“Use or disclosure is, of course, an essential element.”). “Despite the inconsistent common law definition of misappropriation, . . . the standard of review for misappropriation of trade secrets may be ‘essentially identical’ . . . under both the common law and statute.” Advanced Micro Devices, Inc., No. 13-40007-TSH, slip op. at 14 (citing Incase Inc. v. Timex Corp., 488 F.3d 46, 52 n.10 (1st Cir. 2007) (citing Burten v. Milton Bradley Co., 592 F. Supp. 1021, 1028 (D.R.I. 1984), rev’d on other grounds, 763 F.2d 461 (1st Cir. 1985))). Citing to G.L. c. 93, § 42, the court stated that, under both statute and common law, a plaintiff “must prove ‘the acquisition, through improper means, of a trade secret with the intent to convert it for use by a party other than the rightful owner.’” Advanced Micro Devices, Inc., No. 13-40007-TSH, slip op. at 15. As to the intent to deceive, the court turned to patent law, stating, “[f]aced with similar facts in the area of patent law, courts have found that ‘[d]irect evidence of intent or proof of deliberate scheming is rarely available in instances of inequitable conduct, but intent may be inferred from the surrounding circumstances.’ Some courts have used the same approach for misappropriation of trade secrets.” Advanced Micro Devices, Inc., No. 13-40007-TSH, slip op. at 16–17 (citations omitted). As the Appeals Court has explained, Once information qualifies as a trade secret, determination of whether the secret has been misused steers the inquiry to examining the conduct of the defendant, and the legal character of that conduct, in turn, is much affected by the steps taken by the proprietor of the trade secret to protect it. Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. at 939; see also Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at * 5–6 (D. Mass. Feb. 6, 2009) (Woodlock, J.) (“In a common law misappropriation claim, ‘[r]elief is 3rd Edition 2016

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granted to protect the secret only where one is attempting to use or disclose it in violation of some general duty of good faith.’” (citation omitted)). Regardless of the damages element, all courts agree that there must be a misappropriation of the trade secret. (As noted above, this is a requirement of the Restatement (First) of Torts, but not the Restatement (Third) of Unfair Competition or the UTSA.) A common issue arises, therefore, when an employee—who properly acquired his or her employer’s confidential information—leaves. The question becomes, what recourse is available to the former employer. At least one court has addressed this issue as follows: “wrongful acquisition by employee may arise where employee properly obtains trade secret but then uses or discloses it ‘in breach or abuse of confidence.’” Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d at 176–77 (quoting L.H. Reece III, “Trade Secret Misappropriation: A Review and Analysis of Massachusetts Law,” 71 Mass. L. Rev. 171, 176 (1986)). Although the absence of any taking of a physical manifestation of a trade secret or confidential information is “significant,” such information can be protected even if only retained by a former employee in his or her memory. See Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); New Eng. Overall Co. v. Woltmann, 343 Mass. 69, 76–77 (1961) (in absence of contract, former employee may use “the names of customers retained in his memory”); Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 389–90 (1939) (“We fail to see why complainant is entitled to less protection when the names on the list are carried off in the employee’s memories.” (quoting Empire Steam Laundry v. Lozier, 165 Cal. 95 (1913))); Sherman v. Pfefferkorn, 241 Mass. 468, 472, 475 (1922) (restraining former employee from soliciting customers where he learned their names and addresses from the employer, even though no customer list was provided or taken); ); Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1, slip op. at 6 & n.2 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.) (ordering former employees to return and noting that “the strategy of memorizing names and then calling [the former employer’s] customers is suspect”); Chiswick v. Constas, 2004 WL 1895044, at *2 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (quoting Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840 and citing Velo-Bind, Inc. v. Scheck, 485 F. Supp. 102, 107 (S.D.N.Y. 1979) (“[a]ctual physical copying is not essential to establish an unlawful appropriation of trade secrets”)); Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *2 (Mass. Super. Ct. Nov. 18, 2004) (noting that a memory of nonconfidential customer information does not violate any recognized duty); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *9 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (noting that plaintiff might, after discovery, be able to prove that defendants had memorized confidential information, which would then warrant injunctive relief). But see Am. Window Cleaning Co. v. Cohen, 343 Mass. 195, 199 (1961) (discharged 4–38

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employee may use remembered information to solicit clients) (cited in Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 n.4 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.)); EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *2 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.) (“[A]n employee may carry away and use general skill or knowledge acquired throughout his career as well as during the course of his particular employment. This may include his own memory of customer names and purchasing habits, and general market information, but not tangible lists or other confidential internal records of the employer. In Massachusetts, this ‘carrying away’ must also comport with our statutory protection of trade secrets.” (citation omitted)); Forman, Itzkowitz, Berenson & LaGreca, P.C. v. Tankel, Rosenberg & Co., No. MICV201301520F, 2013 WL 5636655, at *3 (Mass. Super. Ct. Oct. 8, 2013) (Curran, J.) (“the publiclyavailable contact information for clients with whom [the former employee] was intimately familiar [and whose names he remembered] would seem to escape classification as confidential information”); Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 4 (Mass. Super. Ct. May 9, 2011) (Roach, J.) (“[A]n employee may carry away and use general skill or knowledge acquired throughout his career as well as during the course of his particular employment. This may include his own memory of customer names and purchasing habits, but not tangible lists or other confidential internal records of the employer.” (citations omitted)); HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2 (Mass. Super. Ct. Feb. 8, 2008) (where, albeit in the absence of a noncompetition agreement, the parties did not challenge that a former employee “could use anything ‘in his head,’ i.e., what he remembers from the [confidential] information he developed”); Prof’l Staffing Group, Inc. v. Champigny, No. 04-85A, 2004 WL 3120093, at *2 (Mass. Super. Ct. Nov. 18, 2004) (noting that a memory of nonconfidential customer information does not violate any recognized duty); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, C.A. No. 04-1005 (June 30, 2004) (Agnes, J.) (employee is permitted to use information in his or her memory); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078BLS, at *5 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.) (carrying away confidential information in one’s head “is not a misappropriation”). This issue was squarely presented to Judge Gertner in Lombard Medical Technologies, Inc. v. Johannessen, 2010 WL 2682449 (D. Mass. July 2, 2010). In that case, the employees argued that they had no relevant trade secrets or confidential information, and even if they did, they would not use it. Lombard Med. Techs., Inc. v. Johannessen, 2010 WL 2682449, at *7–8. In contrast to so many of these cases, there was no assertion that the employees had misappropriated the employer’s trade secrets or other confidential information. Accordingly, the court was left to reconcile the use of a noncompete against employees who had not misappropriated confidential information, but instead, had simply retained such information in their memories. The court analyzed the issue as follows: 3rd Edition 2016

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Even if they fully intend to protect [the former employer’s] confidential information, they do not begin at [the new employer] with “a tabula rasa with respect to [the former employer’s] products, its development strategies, its marketing plans, its customers and other significant business information. It is difficult to conceive how all of the information stored in [their] memory can be set aside as [they] appl[y] [themselves] to a competitor’s business and its products.” Marcam Corp., 885 F. Supp. 294, 297 (D. Mass. 1995). See also Boulanger, 815 N.E.2d at 579 n.12 (“[W]orking for a competitor of the defendant makes it likely that the information the plaintiff possesses will be used, yet it might be impossible to detect or prove.”); C.R. Bard, Inc. v. Intoccia, No. 94-11568-Z, 1994 WL 601944, at *3 (D. Mass. Oct. 13, 1994) (Former employee “could not and did not leave behind his special knowledge of plaintiff’s operation, and in serving his new employer he will inevitably draw upon that knowledge.”). Further, [the former employer] has invested considerable time and resources into the development, testing, and evaluation of [its product]. ($85 million dollars and 12 years . . .), and any loss in competitive edge could be significant. Despite defendants’ assertions, it is impossible to imagine that they will not use, consciously or not, information they have gleaned during their time at Lombard. And despite defendants’ best intentions, as Judge Lindsay found in Marcam Corp., 885 F. Supp. at 297, given the similarities among the products and the defendants’ positions at the companies, I find that disclosure would be inevitable. Plaintiffs have successfully demonstrated that without injunctive relief, they will suffer irreparable harm. Lombard Med. Techs., Inc. v. Johannessen, 2010 WL 2682449, at 8; see also Anaqua, Inc. v. Bullard, No. 14-1491-BLS1, slip op. at 12 (Mass. Super. Ct. July 24, 2014) (Billings, J.) (Although the employee and his new employer were “making a sincere effort to avoid” using the former employer’s trade secrets, “[i]t would be difficult, if not impossible, for him to put such information out of his mind, particularly if he is motivated to turn in his best possible performance.”); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 241, 243 4–40

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(D. Mass. 2013) (Woodlock, J.) (“Given the similarity of [defendant’s] position at both companies, he cannot simply forget the confidential information he has learned about his clients while employed with [his former employer], and he will inevitably call on this information in any dealings with those former clients during the course of his employment with [the new employer].”), aff’d, 731 F.3d 6 (1st Cir. 2013); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 109 (D. Mass. 2012) (Saris, J.) (“Even assuming the best of intentions . . . , it is difficult to conceive how all the information stored in [the former employee’s] memory can be set aside as he applies himself in a competitor business.”); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 129–30 (D. Mass. 2010) (Casper, J.) (Although “fully credit[ing] the sincerity of [the employee and his new employer’s] intent and the scrupulousness of their efforts [to protect the former employer’s trade secrets] . . . , it is difficult to conceive how all of the information stored in [the employee]’s memory can be set aside as he applies himself to a competitor’s business and its products.” (citation omitted)); cf., e.g., Life Image, Inc. v. Brown, No. 201103764, 2011 WL 7443924, at *6 (Mass. Super. Ct. Dec. 22, 2011) (McIntyre, J.) (although the employee had taken information that, because of the “quick work” in filing the case, was quickly “neutralized and unavailable,” the court still found that information likely “exists in his memory and came to him aurally during conversations with other high level executives of [the] fledgling company,” which would “inevitably or inadvertently surface during [his] employment”). Thus, to some extent, this issue may turn more on the confidentiality of the information than whether information can be misappropriated through memory. See BNY Mellon, N.A. v. Schauer, 27 Mass. L. Rptr. 329, 2010 WL 3326965, at *9 n.23 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.) (“While the publiclyavailable contact information for clients with whom [the employee] was ‘intimately familiar’ would seem to escape classification as confidential information, those clients were not the only ones on the list given to [the new employer].”). It bears noting that many of these issues arise during the analysis of trade secrets in noncompete cases; however, the impact of memory becomes critical in connection with stand-alone trade secrets claims where there has not yet been a use or disclosure of the trade secrets. See Inevitable Disclosure Doctrine, below.

Harm/Remedies Assuming that there has been a provable misappropriation of trade secrets, damages, including double damages, are available, as is injunctive relief. Damages may be lost profits, disgorgement of the defendant’s profits (i.e., unjust enrichment), or, in some cases, a reasonable royalty; no double recovery (excluding double damages) is permitted. See Curtiss-Wright Corp. v. Edel-Brown Tool & 3rd Edition 2016

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Die Co., 381 Mass. 1, 11 (1980). Notwithstanding the absence of an express limitation of its application, the double damages provision under G.L. c. 93, § 42 has been interpreted to apply only to the plaintiff’s lost profits—not apply to damages obtained through a disgorgement remedy. USM Corp. v. Marson Fastener Corp., 392 Mass. 334, 353–54 (1984). With regard to injunctive relief, the scope of any injunction must correspond to the injury. For example, the court in HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2 (Mass. Super. Ct. Feb. 8, 2008), found that the so-called head start rule entitled the plaintiff to benefit from its development efforts and precluded the defendant from profiting from its wrongdoing. HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2, at *2–4. Specifically, quoting Jillian’s Billiard Club of America, Inc. v. Beloff Billiards, Inc., 35 Mass. App. Ct. 372, 375–76 (1993), which was in turn quoting Restatement of Unfair Competition § 44(2) (Tent. Draft No. 4, 1993), cmt. c, the court explained, Injunctive relief is often appropriate in trade secret cases to insure against additional harm to the trade secret owner from further unauthorized use of the trade secret and to deprive the defendant of additional benefits from its wrongful conduct. If the information has not become generally known, an injunction may also be appropriate to prevent destruction of the plaintiff’s rights in the trade secret through a public disclosure by the defendant. If the trade secret has already entered the public domain, an injunction may be appropriate to remedy any head start or other unfair advantage acquired by the defendant as a result of the appropriation. If the defendant retains no unfair advantage from the appropriation, an injunction against the use of information that is no longer secret can be justified only on a rationale of punishment and deterrence. However, because of the public interest in promoting competition, punitive injunctions are ordinarily inappropriate in trade secret actions. HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2, at *2–3; see also Chiswick v. Constas, 2004 WL 1895044, at *2 (Mass. Super. Ct. June 17, 2004) (Kane, J.). In Peggy Lawton Kitchens, the Appeals Court explained that a permanent injunction, unlimited in space, is “unusual, but not without precedent.” Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 940 (1984).

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In a relatively recent case, Judge Saris focused on the so-called head start rule. Atl. Research Mktg. Sys., Inc. v. Troy, 2010 WL 1904849, *8 (D. Mass. 2010) (applying the head start rule). As Judge Saris explained, Where “the plaintiff’s product, including the trade secret, has been marketed,” Massachusetts courts often look to the “head start rule,” crafting injunctions to prevent defendants from receiving an unfair head start in competing with the plaintiff’s product. Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 171 n.11 . . . (1979). The head start rule follows from the fact that “[t]he marketing of the product gives competitors a legitimate opportunity to study the product and to learn the principles of the trade secret through reverse engineering or similar procedures.” Id. As such, “the time necessary to engineer in reverse is one factor to be considered in determining . . . the [appropriate] duration of injunctive relief.” Id. Also relevant is “evidence that other manufacturers have been able to design and produce devices nearly identical to” the product that incorporates the trade secret. Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 648 . . . (1976). These considerations insure that the defendant cannot benefit from an ill-gotten “head start,” but is not enjoined longer than necessary. “The scope of an injunction depends on a comparative appraisal of all of the facts of the case, and what is reasonable will depend in each instance on the particular facts.” Jillian’s Billiard Club, 619 N.E.2d at 638. In Jillian’s Billiard Club, the court found it instructive to look to the Restatement of Unfair Competition: If the trade secret has already entered the public domain, an injunction may be appropriate to remedy any head start or other unfair advantage acquired by the defendant as a result of the appropriation. If the defendant retains no unfair advantage from the appropriation, an injunction against the use of information that is no longer secret can be justified only on a rationale of punishment and deterrence. However, because of the public interest in promoting competition, 3rd Edition 2016

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punitive injunctions are ordinarily inappropriate in trade secret actions. Id. at 638–39 (quoting Restatement (Third) of Unfair Competition § 44(2) cmt. c (Tentative Draft No. 4, 1993)). Atl. Research Mktg. Sys., Inc. v. Troy, 2010 WL 1904849, *8–9 (D. Mass. 2010) (refusing to extend the injunction because the product had been marketed long enough that it had already been reversed engineered and marketed by other competitors). On July 28, 2014, the Supreme Judicial Court issued its much-anticipated decision in LightLab Imaging, Inc. v. Axsun Technologies, Inc., 469 Mass. 181 (2014), significant both because so few trade secrets cases make it to the Supreme Judicial Court and because, although in dicta, the decision has potentially far-reaching effects insofar as it seems to open the door for trade secrets misappropriation plaintiffs to develop new damages theories (beyond the traditional misappropriation theories of lost profits, unjust enrichment, and royalties) in Massachusetts. Specifically, responding to a challenge that the expert’s proffer of damages based on a “first mover advantage” was “too speculative and conjectural as a matter of law,” LightLab Imaging, Inc. v. Axsun Techs., Inc., 469 Mass. at 190, the court observed as follows: [W]e express our concern that traditional lost profits analysis as a measure of damages may not be an adequate model for analyzing harm caused by misappropriation of the trade secrets of a “start-up” business. Such businesses often operate for years without profit. This fact should not render them “damage proof.” In this case LightLab recovered other significant damages and attorney’s fees. We recognize that other theories of damages may lend themselves to misappropriation of trade secret cases and that such theories may be ripe for testing in our courts. See, e.g., Ritchey & McCallum, Enforcement of Trade Secret Rights and Noncompetition Agreements, at 23–32 (American Bar Association 2002). LightLab Imaging, Inc. v. Axsun Techs., Inc., 469 Mass. at 193–94.

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Inevitable Disclosure Doctrine When a former employee possesses confidential information of a former employer, the employer may be able to obtain injunctive relief preventing the employee not just from disclosing such information, but from working for a competitor under a doctrine known as the inevitable disclosure doctrine. Specifically, “the doctrine . . . allows the court to enjoin a former employee from working at a competitor of the employer . . . if the court finds that such employment would inevitably lead to a disclosure of the trade secret.” Architext, Inc. v. Kikuchi, 2005 WL 2864244, at *3 (Mass. Super. Ct. May 19, 2005) (Lowy, J.); see also Campbell Soup Co. v. Giles, 47 F.3d 467, 471 n.7 (1st Cir. 1995) (distinguishing facts from those in Pepsico, Inc. v. Redmond, 1994 WL 687544 (N.D. Ill. Dec. 15, 1994), which applied inevitable disclosure doctrine to untrustworthy former senior executive, and noting absence of “raiding”). After the First Circuit’s decision in Campbell Soup Co., the Seventh Circuit affirmed the PepsiCo District Court in the seminal decision, PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). Although neither the Supreme Judicial Court nor the Appeals Court has yet adopted or rejected the inevitable disclosure doctrine, Architext, Inc. v. Kikuchi, 2005 WL 2864244, at *3, Justice Gants (then sitting on the Massachusetts Superior Court, and now chief justice of the Supreme Judicial Court), rejected the notion that, in the absence of a noncompetition agreement, a former employer could prevent the “subtle inevitable disclosure” of the employer’s confidential information. Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2008) (Gants, J.). As Justice Gants stated, “the risk of subtle inevitable disclosure is precisely the type of competitive harm that a brief period of noncompetition is designed to prevent.” Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2008). In a less determinative decision, Judge Lindsay of the U.S. District Court for the District of Massachusetts approvingly articulated as a basis for the enforcement of a noncompetition agreement the precise rationale underlying the inevitable disclosure doctrine. Specifically, in Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (Lindsay, J.), although the plaintiff had the benefit of a noncompetition agreement, the court observed that the former employee would “inevitably, even if inadvertently, be influenced by the knowledge he possesses of all aspects of [the former employer’s] development efforts.” Quoting Bard v. Intoccia, 1994 WL 601944 (D. Mass. 1994), the court stated, “he could not and did not leave behind his special knowledge of plaintiff’s operation, and in serving his new employer he will inevitably draw upon that knowledge.” Marcam Corp. v. Orchard, 885 F. Supp. at 297. The consequent harm to the plaintiff “could not be avoided simply by the former employee’s intention not to disclose 3rd Edition 2016

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confidential information, or even by his scrupulous efforts to avoid disclosure.” Marcam Corp. v. Orchard, 885 F. Supp. at 297. Thus, the court found, “[t]he problem for [the former employer] is that when [the former employee] goes to [the new employer] he does not go with a tabula rasa .” Marcam Corp. v. Orchard, 885 F. Supp. at 297. The court further observed, “It is difficult to conceive how all of the information stored in [the former employee’s] memory can be set aside as he applies himself to a competitor’s business and its products.” Marcam Corp. v. Orchard, 885 F. Supp. at 297. Accordingly, the court concluded, “what [the employee] knows . . . is bound to influence what he does . . . , and to the extent it does, [the former employee] will be disadvantaged.” Marcam Corp. v. Orchard, 885 F. Supp. at 297; see also Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 643 n.12 (2004) (“working for a competitor of the defendant makes it likely that the information the plaintiff possesses will be used, yet it might be impossible to detect or prove”); Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *4 (Mass. Super. Ct. June 28, 2004) (Graham, J.) (former employee, who was bound by a noncompetition agreement, “will inevitably draw upon” her “special knowledge of plaintiff’s operation”). Although the Marcam, Boulanger, and Boch Toyota decisions implicitly recognize the validity of at least the rationale for the inevitable disclosure doctrine, each of the plaintiffs had obtained noncompetition agreements from the defendants. Accordingly, none of the courts was called upon to explain why an employer who was not diligent enough to obtain an enforceable noncompetition agreement should be able to de facto obtain the benefits of such an agreement through the application of the inevitable disclosure doctrine. In this respect, the inevitable disclosure doctrine is at odds with the general requirement that in order to be entitled to injunctive relief for the protection of confidential information and trade secrets, the employer must have taken steps to maintain the confidentiality of the information. The failure to require covenants not to compete from those entrusted with such information must call into question whether the steps taken by the employer in the first instance—i.e., before resorting to the courts—evince the required protective measures. Aware of these cases, the U.S. District Court for the District of Massachusetts has taken the issue head-on. In U.S. Electrical Services, Inc. v. Schmidt, No. 1210845-DJC, 2012 WL 2317358 (D. Mass. June 19, 2012) (Casper, J.), the court first explained that the inevitable disclosure doctrine (a doctrine of trade secrets law, not restrictive covenants law) is to be analyzed in connection with the likelihood of success on the merits. U.S. Elec. Servs., Inc. v. Schmidt, 2012 WL 2317358, at *9. In so doing, the court distinguished the doctrine from the risk of the type of subtle inevitable disclosure that might serve as a basis to enforce a restrictive covenant, which, the court explained, is an issue of irreparable harm. U.S. Elec. Servs., Inc. v. Schmidt, 2012 WL 2317358, at *9 & n.6. The court then 4–46

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explained that cases like Marcam Corp. v. Orchard, 885 F. Supp. 294 (D. Mass. 1995) (and two more recent cases, Lombard Medical Technologies, Inc. v. Johannessen, 729 F. Supp. 2d 432 (D. Mass. 2010) and Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118 (D. Mass. 2011)), although discussing future harm in the likelihood of success analysis, were in fact analyzing the likelihood of success on the merits of the claim for breach of a restrictive covenant and did “not show that a party may rely solely on inevitable future conduct, rather than conduct that has actually occurred, to establish likelihood of success on the merits of a trade secrets appropriation claim or a breach of confidentiality claim.” U.S. Elec. Servs., Inc. v. Schmidt, 2012 WL 2317358, at *9. Following that explanation, the court nonetheless performed a stand-alone analysis of likelihood of success on the merits analysis on the inevitable disclosure issue, finding that the plaintiff had not demonstrated a likelihood of success on the merits as the employees did not have the level of intimacy or control over the customer accounts purportedly at risk, and in any event, the information known by one of the former employees was “stale by at least two years.” U.S. Elec. Servs., Inc. v. Schmidt, 2012 WL 2317358, at *9–12. After U.S. Electrical, Judge Roach in the Superior Court explained that “[w]ith respect to an employee’s subjective memory, Massachusetts courts have . . . considered the need to guard against so-called inadvertent disclosure.” EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *3 (Mass. Super. Ct. Feb. 25, 2013). In so doing, Judge Roach cited Architext, Inc. v. Kikuchi, for the proposition that the “doctrine of inevitable disclosure may be appropriate in [the] situation of [a] direct competitor and significant likelihood of trade secrets.”). EMC Corp. v. Breen, 2013 WL 1907460, at *3. Less than a year later, the First Circuit, noting that it “need not plunge into this thicket,” observed that the inevitable disclosure doctrine is “sparingly used in Massachusetts.” Corporate Techs., Inc. v. Harnett, 731 F.3d 6, 14 (1st Cir. 2013). More recently, Judge Casper provided the following analysis in Boston Scientific Corp. v. Lee, 2014 WL 1946687 (D. Mass. May 14, 2014): Where plaintiffs have brought claims for misappropriation of trade secrets under Massachusetts law, they have consistently succeeded in achieving the immediate return of protected information, but absent a restrictive covenant, have not necessarily succeeded in enjoining their former employees’ employment in their new roles. Network Sys. Architects Corp. v. Dimitruk, No. 06–4717–BLS2, 2007 WL 4442349, at *3 (Mass. Super. Dec. 6, 2007) (quoting preliminary injunction order where motion judge found that “the plaintiff is not entitled to obtain a covenant not to 3rd Edition 2016

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compete in the absence of any agreement not to do so”); Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 938, 466 N.E.2d 138 (1984) (affirming trial court’s injunction against use of plaintiff’s trade secret but not enjoining former employee from competition); see also Aggreko, LLC v. Koronis, No. 13– 13034–TSH, 2013 WL 6835165, at *6 (D. Mass. Dec. 19, 2013) (concluding that plaintiff had demonstrated a likelihood of success on its claim for breach of non-disclosure agreement, but determining that “the public interest does not favor restraining lawful competition where steps are taken to ensure such competition is lawful”); Picker Int’l Corp., 931 F. Supp. at 45 (enjoining use of trade secrets only). Also instructive is another case, Corp. Techs., Inc. v. Harnett, 943 F. Supp. 2d 233 (D. Mass. 2013), in which the defendant had executed non-disclosure and non-solicitation agreements, but not a noncompetition agreement, and the court enjoined the defendant from divulging confidential information or soliciting his former employer’s clients. Id. at 248. In addition, the court noted that it would have granted the defendant’s reciprocal motion for preliminary relief enjoining the plaintiff from characterizing the defendant’s agreements with the plaintiff as a “non-compete” had defendant demonstrated the likelihood of future irreparable harm. Id. at 247–248. Boston Scientific cites Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995); Aspect, 885 F. Supp. at 297; Lombard Med. Tech., Inc. v. Johannessen, 729 F.Supp.2d 432, 442 (D. Mass. 2010); Corp. Techs., 943 F. Supp. 2d at 248; and C.R. Bard, Inc. v. Intoccia, No. 94–11568–Z, 1994 WL 601944, at *3 (D. Mass. Oct. 13, 1994) for the notion that an employee, now employing at a new company in the same field, will inevitably disclose confidential information absent an injunction. . . . In these cases, however, the court did not enjoin the defendant from competing with the plaintiff where the defendant had not executed a covenant not to compete. Marcam, 885 F. Supp. at 299–300 (enforcing non-competition agreement); Aspect, 787 F. Supp. 2d at 131 (same), 4–48

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Lombard, 729 F. Supp. 2d at 440 (same); Corp. Techs., 943 F. Supp. 2d at 248 (enforcing nonsolicitation and non-disclosure agreements); C.R. Bard, 1994 WL 601944 at *4 (enforcing noncompetition agreement). Boston Scientific Corp. v. Lee, 2014 WL 1946687, at *7–8 (the court then went on to determine that the facts would not support the application of the inevitable disclosure doctrine, even if the court had been convinced that the doctrine is used in Massachusetts).

(f)

Related State Law Claims

Cases involving claims of trade secret misappropriation typically involve myriad other state claims as well, some applicable generally, some applicable only to employees, and some not applicable to employees. Such claims typically include, among others, breach of contract (including noncompetition agreements, nondisclosure/confidentiality agreements, nonsolicitation agreements, no-raid agreements, and other restrictive covenants), breach of fiduciary duty, tortious interference with advantageous business relationships (or contracts), and unfair competition (including, in particular, a violation of G.L. c. 93A). These claims (and others) are discussed in Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (MCLE, Inc. 5th ed. 2015). Although the broad scope of G.L. c. 93A is not addressed here, its interaction with trade secrets laws is. The reason is that there has been significant uncertainty concerning whether and under what circumstances a claim under G.L. c. 93A exists against an employee who has misappropriated his or her former employer’s trade secrets. The problem first arose in 1983 in Manning v. Zuckerman, 388 Mass. 8 (1983). In that case (which was not a trade secrets case), the Supreme Judicial Court made it clear that Chapter 93A does not apply to disputes arising out of an employment relationship. Manning v. Zuckerman, 388 Mass. at 10. But the very next year, the Appeals Court decided Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937 (1984). Hogan, an employee of the plaintiff, had taken the plaintiff’s secret recipe for cookies and left to start a competing business using the plaintiff’s recipe. The opening line presages the decision: “Nothing is sacred.” The Appeals Court went on to hold that the plaintiff’s G.L. c. 93A claims against its former employee (and his new company) were proper. With respect to the company (which the former employee had started with the intent of competing with the plaintiff), the court concluded that, because the

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company was never an employee of the plaintiff, Manning v. Zuckerman did not apply and the claim under G.L. c. 93A could therefore proceed. As to Hogan, the court rejected Hogan’s argument that, under Manning v. Zuckerman, G.L. c. 93A did not apply because the dispute arose out of an employment relationship. The court rejected that argument as follows: “Hogan’s use of Kitchens’ trade secret was made when he was no longer an employee of Kitchens. Hogan’s argument crumbles.” This distinction (that Chapter 93A could be applied to conduct that took place after employment ended) lasted about twelve years. In 1996, the Appeals Court decided Informix, Inc. v. Rennell, 41 Mass. App. Ct. 161 (1996). There, the court held that it did not matter whether the conduct occurred during or after employment. In this regard, the court stated, “Manning held simply that any claim arising from the employment relationship was not actionable under c. 93A; it imposed no limitation that the employment relationship be ongoing.” Further, the Informix court distinguished Peggy Lawton Kitchens on the basis that the claim in Informix was based on a nondisclosure agreement, whereas there was no such agreement in Peggy Lawton Kitchens, and therefore the claim in Peggy Lawton Kitchens was independent of the employer /employee relationship. Instructively, the Appeals Court in Informix did not, as it could have, deny the Chapter 93A claim based on the nondisclosure agreement, and then allow a claim based on the common law and statutory obligations of all persons (not just employees) not to misappropriate trade secrets. Presumably, the court’s rationale was based on the case’s procedural posture and the fact that the claim was based “solely” on the parties’ contract. Since then, trial courts have been wrestling with these two decisions and trying to square them. For example, in Professional Staffing Group, Inc. v. Champigny, No. 04852A, 2004 WL 3120093 (Mass. Super. Ct. Nov. 18, 2004), the Superior Court reasoned as follows: Informix conflicts with the decision of Peggy Lawton Kitchens, Inc. v. Hogan. The panel reasoned that no express confidentiality or noncompetition agreement existed between Peggy Lawton Kitchens, Inc. and Hogan. However no doubt arises from the Peggy Lawton Kitchens decision that the wrongful misappropriation of trade secret information arose from the employment relationship. . . . Moreover the absence of an explicit employment contract is not essential to impose duties of loyalty upon a former trusted 4–50

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employee. The Massachusetts common law implies a covenant or promise of the trusted employee not to divulge trade secret or proprietary information. See Jet Spray Cooler v. Crampton, 361 Mass. 835, 839 (1972), and cases cited. Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *2. Having disposed of the notion that the existence or absence of a contract is controlling, the court then came back to the temporal distinction: The other ground of distinction [from Peggy Lawton Kitchens] asserted by the Informix panel is that the theft of trade secrets constitutes a wrong independently of an employment relationship and will be separately actionable under 93A. Nothing in the Peggy Lawton decision suggests such a special rule. Rather the Peggy Lawton panel concluded that the exemption from 93A for wrongdoing arising from an employment relationship was inapplicable for temporal reasons. “Moreover, Hogan’s use of Kitchens’ trade secret was made when he was no longer an employee of Kitchen’s.” Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *3 (quoting Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. at 940). It is on that temporal basis that the Superior Court in Professional Staffing Group found that Chapter 93A can apply to an employee’s misappropriation of trade secrets: “[H]ere, we are addressing conduct occurring long after the termination of the employment relationship between the contesting parties.” Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *3. The court went on to conclude that “Informix is a mechanical overextension of Manning” and “appears to drift away from the anchoring principle of c. 93A.” Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *3. In the end, however, after offering a few public policy reasons for applying Chapter 93A to this type of claim, the court observed that, following trial, there would be a complete record so the issue could be reviewed on appeal. However, no appellate decision followed. Another oft-cited case addressing this issue is TalentBurst, Inc. v. Collabera, Inc., 567 F. Supp. 2d 261 (D. Mass. 2008) (Young, J.). That case relies on yet another case (Intertek Testing Servs. NA, Inc. v. Curtis-Strauss LLC, No. 98903F, 2000 WL 1473126 (Mass. Super. Ct. Aug. 8, 2000) (Gants, J.)) and concludes that the Professional Staffing Group decision is distinguishable on the ground 3rd Edition 2016

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that it involved a counterclaim by the employee (rather than a claim by the former employer). Such was the state of affairs until 2011, when the Appeals Court decided Specialized Technology Resources, Inc. v. JPS Elastomerics Corp., 80 Mass. App. Ct. 841 (2011). The court addressed Informix, Peggy Lawton Kitchens, and Chapter 93A in the following terms: Applicability of c. 93A. The defendants separately assert that c. 93A is inapplicable to [the plaintiff’s] claim in the present case, as it arises out of an employer-employee relationship between [the plaintiff] and [defendant] Galica. See Manning v. Zuckerman, 388 Mass. 8, 12–15 (1983); Informix, Inc. v. Rennell, 41 Mass. App. Ct. 161, 163 (1996). However, [the defendant company] was never an employee of [the plaintiff]. See Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 172 (1991); S.C., 417 Mass. 484 (1994); Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 940 (1984). More to the point, though Galica obtained the trade secret during his employment with [the plaintiff] and was bound by a confidentiality agreement as part of his employment contract, his misappropriation of the trade secret was actionable independent of his contractual obligations and accordingly may support a claim under c. 93A. See Peggy Lawton Kitchens, Inc. v. Hogan, supra; Informix, Inc. v. Rennell, supra at 163 n.2. The former employer-employee relationship between [the plaintiff] and Galica does not stand as a bar to [the plaintiff’s] c. 93A claim against either Galica or [his new employer]. Specialized Tech. Res., Inc. v. JPS Elastomerics Corp., 80 Mass. App. Ct. at 846–47. In short, it appears that the court’s rationale is that, while the misappropriation of trade secrets may constitute a breach of an employee nondisclosure agreement, which cannot serve as a predicate to a Chapter 93A claim, the same conduct can also constitute a separate and independent wrong (presumably because it violates trade secret laws—as opposed to the fiduciary duty of loyalty referenced in Professional Staffing Group) that is actionable under Chapter 93A. But see Envisn, Inc. v. Davis, No. 11-12246-TSH, 2013 WL 6571944, at *4 (D. Mass. Dec. 12, 2013) (Hillman, J.) (“[W]hen a former employee breaches a 4–52

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confidentiality agreement by the misappropriation of trade secrets, the employee[‘]s conduct may support a 93A claim.”). The Specialized Technology Resources decision also holds that a judge may ignore a jury’s findings when deciding a Chapter 93A claim and allows two different injunctive remedies for the defendants’ misappropriation of trade secrets. Specialized Tech. Res., Inc. v. JPS Elastomerics Corp., 80 Mass. App. Ct. at 844–46, 847–49. As a related matter, as Judge Woodlock explained in Take It Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *5–6 (D. Mass. Feb. 6, 2009) (quoting Incase, Inc. v. Timex Corp., 421 F. Supp. 2d 226, 240 (D. Mass. 2006), there is no Chapter 93A claim for “the unauthorized use of . . . information by one party ‘where that information does not rise to the level of protected intellectual property.’”

§ 4.2.2

Federal Law

In addition to state law claims, there are various federal causes of action—some civil, some criminal—that should be evaluated. These claims include violation of the Economic Espionage Act, the Computer Fraud and Abuse Act, the Wiretap Act, and the Stored Communications Act. These claims are discussed in chapter 1 of this book. However, three matters bear brief attention here: • a summary of recent efforts to create a federal trade secrets cause of action; • the scope of the Computer Fraud and Abuse Act insofar as issues of misappropriation may be implicated; and • a recent trend toward bringing trade secrets claims under “federal common law” based on foreign misappropriation in the International Trade Commission.

(a)

Possible Private Right of Action Under the Economic Espionage Act

The Economic Espionage Act (18 U.S.C. §§ 1831–1839) was enacted in 1996 to criminalize the misappropriation of trade secrets, making it illegal to obtain, transfer, or receive in interstate commerce trade secrets to which one knows one has no right. 18 U.S.C. §§ 1831–1832; Andrew Serwin, Information Security and Privacy: A Practical Guide to Federal, State, and International Law ch. 3 (2d ed. West 2008).

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Section 1831 of the Act, “Economic espionage,” states as follows: (a) In General.—Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly— (1) steals, or without authorization appropriates, takes, away, or conceals, or by fraud, artifice, or deception obtains a trade secret; (2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret; (3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization; (4) attempts to commit any offense described in any of paragraphs (1) through (3); or (5) conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined not more than $5,000,000 or imprisoned not more than 15 years, or both. (b) Organizations.—Any organization that commits any offense described in subsection (a) shall be fined not more than the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided. 18 U.S.C. § 1831. Section 1832, which focuses on more traditional trade secret misappropriation, was amended by the Theft of Trade Secrets Clarification Act of 2012 to address the Second Circuit’s narrow interpretation of Section 1832 in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2013). Accordingly, Section 1832, “Theft of trade secrets,” now states as follows: (a) Whoever, with intent to convert a trade secret, that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, 4–54

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and intending or knowing that the offense will, injure any owner of that trade secret, knowingly—(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information; (2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information; (3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization; (4) attempts to commit any offense described in paragraphs (1) through (3); or (5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both. (b) Any organization that commits any offense described in subsection (a) shall be fined not more than $5,000,000. 18 U.S.C. § 1832. Although there is no private right of action, the criminal penalties for violation of the act are stiff and apply both to domestic and foreign perpetrators. 18 U.S.C. §§ 1831, 1832, 1834. In addition, the U.S. attorney general is authorized to pursue injunctive relief. 18 U.S.C. § 1836. Practice Note The Economic Espionage Act has been the focus of various legislative efforts to expand its scope and impact. Specifically, in addition to the Theft of Trade Secrets Clarification Act of 2012, Congress passed and the president signed the Foreign and Economic Espionage Penalty Enhancement Act of 2012, which increased the criminal penalties for a violation of the act, and starting in 2012 several senators have introduced multiple versions of legislation (including the Protecting American Trade Secrets and Innovation Act (PATSIA), the Defend Trade Secrets Act of 2014, the Trade Secrets Protection Act of 2014, and the Defend Trade Secrets Act of 2015) that would create a private right of action.

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INTELLECTUAL PROPERTY PRACTICE

Scope of the Computer Fraud and Abuse Act

The Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030, makes it unlawful to, without authorization or in excess of authorization, access, obtain, or damage information stored on a computer that is used in interstate or foreign commerce. 18 U.S.C. § 1030(a). (The specific requirements vary based on, in particular, the information at issue.) Section 1030(a) of 18 U.S.C. states as follows: Whoever (1) having knowingly accessed a computer without authorization or exceeding authorized access, and by means of such conduct having obtained information that has been determined by the United States Government pursuant to an Executive order or statute to require protection against unauthorized disclosure for reasons of national defense or foreign relations, or any restricted data, as defined in paragraph y. of section 11 of the Atomic Energy Act of 1954, with reason to believe that such information so obtained could be used to the injury of the United States, or to the advantage of any foreign nation willfully communicates, delivers, transmits, or causes to be communicated, delivered, or transmitted, or attempts to communicate, deliver, transmit or cause to be communicated, delivered, or transmitted the same to any person not entitled to receive it, or willfully retains the same and fails to deliver it to the officer or employee of the United States entitled to receive it; (2) intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains (A) information contained in a financial record of a financial institution, or of a card issuer as defined in section 1602 (n) of title 15, or contained in a file of a consumer reporting agency on a consumer, as such terms are defined in the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.); (B) information from any department or agency of the United States; or (C) information from any protected computer if the conduct involved an interstate or foreign communication; (3) intentionally, without authorization to access any nonpublic computer of a department or agency of the United States, accesses such a computer of that department or agency that is exclusively for the use of 4–56

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the Government of the United States or, in the case of a computer not exclusively for such use, is used by or for the Government of the United States and such conduct affects that use by or for the Government of the United States; (4) knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period; (5)(A)(i) knowingly causes the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization, to a protected computer; (ii) intentionally accesses a protected computer without authorization, and as a result of such conduct, recklessly causes damage; or (iii) intentionally accesses a protected computer without authorization, and as a result of such conduct, causes damage; and (B) by conduct described in clause (i), (ii), or (iii) of subparagraph (A), caused (or, in the case of an attempted offense, would, if completed, have caused) (i) loss to 1 or more persons during any 1-year period (and, for purposes of an investigation, prosecution, or other proceeding brought by the United States only, loss resulting from a related course of conduct affecting 1 or more other protected computers) aggregating at least $5,000 in value; (ii) the modification or impairment, or potential modification or impairment, of the medical examination, diagnosis, treatment, or care of 1 or more individuals; (iii) physical injury to any person; (iv) a threat to public health or safety; or (v) damage affecting a computer system used by or for a government entity in furtherance of the administration of justice, national defense, or national security; (6) knowingly and with intent to defraud traffics (as defined in section 1029) in any password or similar information through which a computer may be accessed without authorization, if (A) such trafficking affects interstate or foreign commerce; or (B) such computer is used by or for the Government of the United States; [or] (7) with intent to 3rd Edition 2016

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extort from any person any money or other thing of value, transmits in interstate or foreign commerce any communication containing any threat to cause damage to a protected computer; shall be punished as provided in subsection (c) of this section. 18 U.S.C. § 1030(a). “The breadth of this provision is difficult to understate.” Advanced Micro Devices, Inc. v. Feldstein, 951 F. Supp. 2d 212, 217 (D. Mass. 2013) (Hillman, J.). Liability for violation of the act is both criminal and civil. 18 U.S.C. § 1030(c), (g). In a civil action, a successful plaintiff is entitled to “compensatory damages and injunctive relief or other equitable relief.” 18 U.S.C. § 1030(g). In sum, liability generally arises where “[a]n individual . . . ‘knowingly and with the intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value.’” Guest-Tek Interactive Entm’t Inc. v. Pullen, 665 F. Supp. 2d 42, 44 (D. Mass. 2009) (Gorton, J.) (quoting 18 U.S.C. § 1030(a)(4)). However, “the CFAA is anything but a well-settled area of law.” Advanced Micro Devices, Inc. v. Feldstein, 951 F. Supp. 2d at 216–17. Over recent years, there has been a deepening split in the circuits concerning the reach of the CFAA—commonly arising in connection with employees’ (or former employees’) use of their employer’s (or former employer’s) computers to misappropriate confidential information (or for other illicit purposes). See Advanced Micro Devices, Inc. v. Feldstein, 951 F. Supp. 2d at 217 (“courts in different circuits have adopted significantly different interpretations of this act over the past decade”); Guest-Tek Interactive Entm’t Inc. v. Pullen, 665 F. Supp. 2d at 44–46 (discussing the split and leading cases); see Andrew Serwin, Information Security and Privacy: A Practical Guide to Federal, State, and International Law ch. 3 (2d ed. West 2008). The issue has been framed by the Ninth Circuit (in an en banc opinion issued in 2012) as follows: The CFAA defines “exceeds authorized access” as “to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.” 18 U.S.C. § 1030(e)(6). This language can be read either of two ways: First, . . . it could refer to someone who’s authorized to access only certain data 4–58

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or files but accesses unauthorized data or files—what is colloquially known as “hacking.” For example, assume an employee is permitted to access only product information on the company’s computer but accesses customer data: He would “exceed[ ] authorized access” if he looks at the customer lists. Second, . . . the language could refer to someone who has unrestricted physical access to a computer, but is limited in the use to which he can put the information. For example, an employee may be authorized to access customer lists in order to do his job but not to send them to a competitor. United States v. Nosal, 676 F.3d 854, 856–57 (9th Cir. 2012) (en banc). Stated somewhat differently, the Fourth Circuit (the most recent circuit to address the issue) expressed the issue as follows: “The crux of the issue presented here is the scope of ‘without authorization’ and ‘exceeds authorized access.’ We particularly examine whether these terms extend to violations of policies regarding the use of a computer or information on a computer to which a defendant otherwise has access.” WEC Carolina Energy Solutions LLC v. Miller, 687 F.3d 199, 203 (4th Cir. 2012). Prior to these decisions, the Fifth, Seventh, Ninth, and Eleventh Circuits had all spoken—and all but the Ninth Circuit had taken a broad interpretation of the CFAA. See United States v. John, 597 F.3d 263 (5th Cir. 2010); Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006); LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009); United States v. Rodriguez, 628 F.3d 1258 (11th Cir. 2010). (Although the First Circuit issued a decision touching on this issue in EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577 (1st Cir. 2001), the decision has been interpreted both as adopting the broad view and as not expressing any view.) Under the broad view (which was initially articulated by the Seventh Circuit), “when an employee accesses a computer or information on a computer to further interests that are adverse to his employer, he violates his duty of loyalty, thereby terminating his agency relationship and losing any authority he has to access the computer or any information on it.” See Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d at 420–21. The two most recent circuit court decisions, United States v. Nosal, 676 F.3d 854 (9th Cir. 2012) (en banc) and WEC Carolina Energy Solutions LLC v. Miller, 687 F.3d 199 (2012), have gone the other way.

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In reaching its conclusion, the Ninth Circuit stated as follows: We need not decide today whether Congress could base criminal liability on violations of a company or website’s computer use restrictions. Instead, we hold that the phrase “exceeds authorized access” in the CFAA does not extend to violations of use restrictions. If Congress wants to incorporate misappropriation liability into the CFAA, it must speak more clearly. The rule of lenity requires “penal laws . . . to be construed strictly.” United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 95, 5 L.Ed. 37 (1820). “[W]hen choice has to be made between two readings of what conduct Congress has made a crime, it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.” Jones, 529 U.S. at 858, 120 S. Ct. at 1912 (internal quotation marks and citation omitted). Similarly, the Fourth Circuit summed up its holding as follows: “[W]e conclude that an employee ‘exceeds authorized access’ when he has approval to access a computer, but uses his access to obtain or alter information that falls outside the bounds of his approved access. Notably, neither of these definitions extends to the improper use of information validly accessed.” WEC Carolina Energy Solutions LLC v. Miller, 687 F.3d at 204 (citation omitted). Although the plaintiff in WEC Carolina Energy Solutions initially petitioned the Supreme Court for certiorari, the petition was later withdrawn. Over time, Congress has amended the CFAA several times, each time broadening its scope. See Guest-Tek Interactive Entm’t Inc. v. Pullen, 665 F. Supp. 2d 42 (D. Mass. Oct. 19, 2009). However, in 2011, computer programmer/Internet “hacktivist” Aaron Swartz was arrested for hacking into and “downloading academic journal articles by the hundreds of thousands” from the electronic academic journal JSTOR. See “The Inside Story of MIT and Aaron Swartz,” Boston Globe, Mar. 30, 2014, available at http://www.bostonglobe.com/metro/2014/03/29/theinside-story-mit-and-aaron-swartz/YvJZ5P6VHaPJusReuaN7SI/story.html. “The cascade of events that followed would culminate in tragedy: a Secret Service investigation, a federal prosecution, and ultimately Swartz’s suicide.” “The Inside Story of MIT and Aaron Swartz,” Boston Globe, Mar. 30, 2014. Swartz’s suicide prompted U.S. Representatives Zoe Lufgren (D-CA), James Sensenbrenner (RWI), Mike Doyle (D-PA), Yvette Clarke (D-NY), and Jared Polis (D-CO) to file a bill called “Aaron’s Law Act of 2013” (generally referred to as “Aaron’s Law”) to narrow the reach of the CFAA. 4–60

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Since that time, several Massachusetts cases have struggled to discern the proper interpretation of the CFAA. For example, in Advanced Micro Devices, Inc. v. Feldstein, 951 F. Supp. 2d at 217, Judge Hillman adopted the narrow interpretation, noting that this approach “reflects a technological model of authorization, whereby the scope of authorized access is defined by the technologically implemented barriers that circumscribe that access” and that the “broader interpretation defines access in terms of agency or use.” In so doing, Judge Hillman disagreed with the court’s prior decision (issued by Judge Gorton) in EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577 (1st Cir. 2001), which favored a broad interpretation. In Enargy Power Co. v. Xiaolong Wang, No. 13-11348-DJC, 2013 WL 6234625 (D. Mass. Dec. 3, 2013), Judge Casper took a more nuanced approach, finding that the defendant (as opposed to a limited number of other employees at the third-party company) was not specifically provided access and, further, misled another employee to access the plaintiff’s computers on his behalf, thereby “employ[ing] a ‘means of deception,’” and his access therefore exceeded what was authorized. Enargy Power Co. v. Xiaolong Wang, 2013 WL 6234625, at *5; see also Moca Sys., Inc. v. Bernier, 2013 WL 6017295, at *3 (D. Mass. Nov. 12, 2013) (Chief Magistrate Judge Sorokin describing the different interpretations but noting that he did not need to reach a decision as to which was proper). In Verdrager v. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, No. SUCV200904717C, 2013 WL 7760827 (Mass. Super. Ct. Dec. 17, 2013), Judge Lauriat of the Massachusetts Superior Court issued what appears to be the first reported Massachusetts state court decision interpreting the CFAA. The case arose as an employment discrimination action but included, among other things, a counterclaim for violation of the CFAA. The court’s analysis of the CFAA claims was, in full, as follows: It is a violation of the CFAA to “intentionally access[ ] a computer without authorization or exceed[ ] authorized access and thereby obtain [ ] . . . information from any protected computer.” 18 U.S.C. § 1030(a)(2). The statute defines “exceeds authorized access” as “to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter[.]” 18 U.S.C. § 1030(e)(6). Courts are split on the interpretation of the “exceeds authorized access” language, and there are two main interpretations of this aspect of the statute. Advanced Micro Devices, Inc. v. Feldstein, 2013 U.S. Dist. LEXIS 81206 at *11 (D. Mass. June 10, 2013). 3rd Edition 2016

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A narrow view would define “authorized access” as whether an individual has been given technical access, e.g., a password log-in, whereas a broad reading would define such access as access that does not “breach[ ] a duty or loyalty or a contractual obligation, or otherwise acquires an interest adverse to the employer.” Id. Favoring the narrower view, the court in Advanced Micro Devices recognized that an overly broad interpretation may lead to sweeping and unintended effects where “any violation of a contractual obligation regarding computer use becomes a federal tort so long as a very minimal damages threshold is met.” Id. at *13. This is a case where any exceeded computer access would amount to a violation of the CFAA only to the extent that it is a violation of a fiduciary duty or contractual obligation under the broader interpretation of the statute, since [the plaintiff] Ms. Verdrager clearly had log-in access to the documents she viewed and transmitted. Here, the breach of fiduciary duty and breach of contract counterclaims are not premised on the fact that Ms. Verdrager obtained information in the computer that she was not entitled to obtain. Any employee of [defendant] Mintz Levin with [document management system] access had the ability to view the documents that Ms. Verdrager found. The only distinction between Ms. Verdrager and other employees of Mintz Levin is that the documents were arguably usable in Ms. Verdrager’s discrimination lawsuit. In this sense, it was not the obtaining of the documents that creates the basis for the defendants’ claims against Ms. Verdrager, but for what use she sought to obtain them. Ms. Verdrager’s disloyalty cannot amount to a violation of CFAA. Mintz Levin’s failure to block Ms. Verdrager’s access to documents discussing her case further weakens the defendants’ position that she has violated CFAA. Verdrager v. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, 2013 WL 7760827, at *6. Based on this analysis, the court granted summary judgment against Mintz Levin on the CFAA claim. Verdrager v. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, 2013 WL 7760827, at *6. 4–62

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Taking a different approach, U.S. District Court Judge Indira Talwani issued a decision in Pine Environmental Services, LLC v. Carson, 43 F. Supp. 3d 71 (D. Mass. 2014) that further narrowed the scope of the CFAA. Specifically, Judge Talwani focused on the use to which the computer had been put at the time of the allegedly wrongful access and its impact on whether the computer fell within the scope of the CFAA’s coverage. Judge Talwani’s evaluation of the CFAA arose in the context of determining the court’s federal question jurisdiction, which was premised solely on a claim under the CFAA. Pine Envtl. Servs., LLC v. Carson, 43 F. Supp. 3d at 74–75. Judge Talwani considered that the law provides a cause of action for improper access to a “protected computer,” which is defined in the statute as follows: (A) exclusively for the use of a financial institution or the United States Government, or, in the case of a computer not exclusively for such use, used by or for a financial institution or the United States Government and the conduct constituting the offense affects that use by or for the financial institution or the Government; or (B) which is used in or affecting interstate or foreign commerce or communication, including a computer located outside the United States that is used in a manner that affects interstate or foreign commerce or communication of the United States. Pine Envtl. Servs., LLC v. Carson, 43 F. Supp. 3d at 75 (quoting 18 U.S.C. § 1030(e)(2)(A)–(B)). Judge Talwani explained that the plaintiff (referred to as “Pine”) “asserts that the Laptop [accessed by the defendant] is a protected computer because Pine is ‘engaged in the business of providing rental equipment to other businesses throughout the country,’ Pine’s principal place of business is in a different state from the state in which Carson lived and worked, and the computer ‘was used in interstate commerce and communication.’” Pine Envtl. Servs., LLC v. Carson, 43 F. Supp. 3d at 75. The judge then observed as follows: The Act requires, however, that a computer, to be protected, “is used in” interstate commerce. 18 U.S.C. § 1030(e)(2)(B) (emphasis added). Here, during the period that the Laptop was being used in interstate 3rd Edition 2016

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commerce, Carson’s access was authorized. And at the time of her unauthorized use of the Laptop, the Laptop was not being used in interstate commerce. Indeed, as Pine conceded at the hearing on the pending motions, there is no allegation here that Carson used the Laptop to access Pine’s network or server after her employment was terminated. Pine Envtl. Servs., LLC v. Carson, 43 F. Supp. 3d at 75. Next, the judge considered the Congressional intent at the time the CFAA was enacted. In particular, the court quoted a portion of the Senate Report on the act that expressed a concern of the committee reviewing the then-bill “about the appropriate scope of Federal jurisdiction in this area” and rejecting a broad scope in favor of one “in which there is a compelling Federal interest, i.e., where the . . . crime itself is interstate in nature.” Pine Envtl. Servs., LLC v. Carson, 43 F. Supp. 3d at 75–76 (quoting S. Rep. 99–432, 4, 1986 U.S.C.C.A.N. 2479, 2482). Based on this, the court found that “the fact that the Laptop was formerly used in interstate commerce does not make the later deletion of files from that Laptop a crime that is ‘interstate’ in nature.” Pine Envtl. Servs., LLC v. Carson, 43 F. Supp. 3d at 76. As a consequence, the court held that the laptop was “not a ‘protected computer’ under the Act” and dismissed the action for lack of jurisdiction. For most claims likely to arise in the civil context, the loss caused by the unlawful access must aggregate “$5,000 in value during any 1-year period.” EF Cultural Travel BV v. Explorica, Inc., 274 F.3d at 584 (citing 18 U.S.C. § 1030(g)). This requirement is frequently satisfied if forensic work is necessary to determine the existence and extent of the violation, for example, where an employee refuses to return a company-owned laptop. See Lasco Foods, Inc. v. Hall & Shaw Sales, Mktg. & Consulting, LLC, 600 F. Supp. 2d 1045, 1052–53 (E.D. Mo. 2009). However, the $5,000 loss requirement can also be satisfied through other costs. For example, in Mahoney v. DeNuzzio, 2014 WL 347624 (D. Mass. Jan. 29, 2014) (Saylor, J.), the court found that the plaintiff had sufficiently plead loss under the CFAA by relying on (in addition to hiring a computer forensics firm) the cost of hiring an attorney in another matter to remedy the violation. Mahoney v. DeNuzzio, 2014 WL 347624, at *5 (and cases cited).

(c)

Recent Use of the International Trade Commission for Foreign Trade Secret Misappropriation

In 2011, the U.S. Court of Appeals for the Federal Circuit issued a decision making clear that the International Trade Commission (ITC or Commission) had 4–64

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jurisdiction to adjudicate a claim involving trade secret misappropriation that took place overseas (specifically, in China). TianRui Group Co. v. ITC, 661 F.3d 1322, 1324 (Fed. Cir. 2011). The case involved a ban on the importation of cast steel railway wheels made by a Chinese company using technology that it misappropriated from a domestic company, Amsted Industries Inc. (“Amsted”). TianRui Group Co. v. ITC, 661 F.3d at 1324. In affirming the ITC, the decision greatly expanded the tools available to trade secrets owners when trade secrets are misappropriated overseas and products using those secrets are imported into the United States. Further, in so doing, the court opened the door to the development of a federal standard for misappropriation of trade secrets. In TianRui, the court was asked to decide whether the Commission’s statutory authority over “[u]nfair methods of competition and unfair acts in the importation of articles . . . into the United States,” as provided by section 337(a)(1)(A) [of the Tariff Act of 1930, 19 U.S.C. § 1337], allows the Commission to look to conduct occurring in China in the course of a trade secret misappropriation investigation. TianRui Group Co. v. ITC, 661 F.3d at 1324 (“Section 337(a)(1)(A) prohibits ‘[u]nfair methods of competition and unfair acts in the importation of articles . . . into the United States, . . . the threat or effect of which is . . . to destroy or substantially injure an industry in the United States.’” TianRui Group Co. v. ITC, 661 F.3d at 1325.) The court decided in the affirmative, “conclud[ing] that the Commission has authority to investigate and grant relief based in part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injuries arising out of unfair competition in the domestic marketplace.” TianRui Group Co. v. ITC, 661 F.3d at 1324. As the court explained, the ITC “has interpreted section 337 to apply to trade secret misappropriation.” TianRui Group Co. v. ITC, 661 F.3d at 1326. Thus, the question that the court needed to answer was “whether section 337 authorizes the Commission to apply domestic trade secret law to conduct that occurs in part in a foreign country.” TianRui Group Co. v. ITC, 661 F.3d at 1326. In answering that question, the court started by noting that “whether particular conduct constitutes ‘unfair methods of competition’ and ‘unfair acts’ in importation, in violation of section 337, the issue is one of federal law and should be decided under a uniform federal standard, rather than by reference to a particular state’s tort law.” TianRui Group Co. v. ITC, 661 F.3d at 1327.

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As to the federal standard, the court reasoned as follows: trade secret law varies little from state to state and is generally governed by widely recognized authorities such as the Restatement of Unfair Competition and the Uniform Trade Secrets Act. Moreover, the federal criminal statute governing theft of trade secrets bases its definition of trade secrets on the Uniform Trade Secrets Act, so there is no indication of congressional intent to depart from the general law in that regard. TianRui Group Co. v. ITC, 661 F.3d at 1327–28. Concluding that the ITC’s administrative law judge had found that TianRui obtained access to Amsted’s confidential information through former [third party, Datong ABC Castings Company Limited (“Datong”),] employees, who were subject to duties of confidentiality imposed by the Datong’s code of employee conduct, and that TianRui exploited that information in producing the subject goods[, the facts were] sufficient to establish the elements of trade secret misappropriation under . . . the generally understood law of trade secrets, as reflected in the Restatement, the Uniform Trade Secrets Act, and previous Commission decisions under section 337. TianRui Group Co. v. ITC, 661 F.3d at 1329. Next the court analyzed the extraterritorial implications of its decision. Specifically, the court reasoned as follows: It is a “longstanding principle of American law ‘that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.’” EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991) (“Aramco”). That presumption expresses a canon of construction that is rooted in the “commonsense notion that Congress generally legislates with domestic concerns in mind.” Smith v. United States, 507 U.S. 197, 204 n. 5 (1993). The canon “serves to protect against unintended clashes between our laws and those of other nations which could result in international discord,” 4–66

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Aramco, 499 U.S. at 248, “preserv[es] a stable background against which Congress can legislate with predictable effects.” Morrison v. Nat’l Austl. Bank Ltd., ––– U.S. –––– (2010). The presumption is not an end in itself, but functions as a tool for ascertaining congressional intent. The presumption against extraterritoriality does not govern this case, for three reasons. First, section 337 is expressly directed at unfair methods of competition and unfair acts “in the importation of articles” into the United States. As such, “this is surely not a statute in which Congress had only ‘domestic concerns in mind.’” Pasquantino v. United States, 544 U.S. 349, 371–72 (2005) . . . . The focus of section 337 is on an inherently international transaction—importation. In that respect, section 337 is analogous to immigration statutes that bar the admission of an alien who has engaged in particular conduct or who makes false statements in connection with his entry into this country. See, e.g., 8 U.S.C. §§ 1101(f)(6), 1182(a). In such cases, the focus is not on punishing the conduct or the false statements, but on preventing the admission of the alien, so it is reasonable to assume that Congress was aware, and intended, that the statute would apply to conduct (or statements) that may have occurred abroad. See United States v. Villanueva, 408 F.3d 193, 199 (5th Cir. 2005) (“Immigration statutes, by their very nature, pertain to activity at or near international borders. It is natural to expect that Congress intends for laws that regulate conduct that occurs near international borders to apply to some activity that takes place on the foreign side of those borders.”); United States v. Delgado–Garcia, 374 F.3d 1337, 1345 (D.C. Cir. 2004) (holding that a statute that “protects the borders of the United States against illegal immigration” would apply to extraterritorial acts by foreign nationals despite the lack of a clear statement of extraterritorial application because “‘the natural inference from the character of the offense[s]’ is that an extraterritorial location ‘would be a probable place for [their] commission,’” quoting United States v. Bowman, 260 U.S. 94, 99 (1922)). 3rd Edition 2016

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Second, in this case the Commission has not applied section 337 to sanction purely extraterritorial conduct; the foreign “unfair” activity at issue in this case is relevant only to the extent that it results in the importation of goods into this country causing domestic injury. In light of the statute’s focus on the act of importation and the resulting domestic injury, the Commission’s order does not purport to regulate purely foreign conduct. See Morrison, 130 S. Ct. at 2884 (focusing the extraterritoriality analysis on the “objects of the statute’s solicitude”). Because foreign conduct is used only to establish an element of a claim alleging a domestic injury and seeking a wholly domestic remedy, the presumption against extraterritorial application does not apply. See Small v. United States, 544 U.S. 385, 388–89 (2005) (noting that the presumption against extraterritorial application does not apply to a prosecution for the domestic possession of a gun by someone convicted in a foreign court, although it would apply in considering whether the statute “prohibits unlawful gun possession abroad as well as domestically”); id. at 399 (Thomas, J., dissenting) (agreeing with the majority that the presumption against extraterritorial application does not apply because “the Government is enforcing a domestic criminal statute to punish domestic criminal conduct”). The dissent disregards the domestic elements of the cause of action under section 337 and characterizes this case as involving “conduct which entirely occurs in a foreign country.” That characterization accurately describes most of the events constituting the misappropriation, but the determination of misappropriation was merely a predicate to the charge that TianRui committed unfair acts in importing its wheels into the United States. In other words, the Commission’s interpretation of section 337 does not, as the dissent contends, give it the authority to “police Chinese business practices.” It only sets the conditions under which products may be imported into the United States.

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.... Third, the legislative history of section 337 supports the Commission’s interpretation of the statute as permitting the Commission to consider conduct that occurs abroad. Congress first enacted a prohibition against “unfair methods of competition” in the Federal Trade Commission Act, Pub. L. No. 63–203, § 5, 38 Stat. 717, 719 (1914), codified as amended at 15 U.S.C. § 45. Congress chose that phrase because it was “broader and more flexible” than the traditional phrase “unfair competition,” which had acquired a narrow meaning in its common law usages. R.F. Keppel, 291 U.S. at 310–12. TianRui Group Co. v. ITC, 661 F.3d at 1329–32 (citations and footnotes omitted). In determining that domestic law (i.e., federal common law) governs the determination of the misappropriation of trade secrets occurring in China, the court reasoned as follows: In the first place . . . , the Commission’s exercise of authority is limited to goods imported into this country, and thus the Commission has no authority to regulate conduct that is purely extraterritorial. The Commission does not purport to enforce principles of trade secret law in other countries generally, but only as that conduct affects the U.S. market. That is, the Commission’s investigations, findings, and remedies affect foreign conduct only insofar as that conduct relates to the importation of articles into the United States. The Commission’s activities have not hindered TianRui’s ability to sell its wheels in China or any other country. Second, TianRui has failed to identify a conflict between the principles of misappropriation that the Commission applied and Chinese trade secret law. Indeed, in its forum non conveniens motion TianRui argued that Chinese trade secret law would provide a “more than adequate” remedy for any alleged misappropriation. In addition, China has acceded to the Agreement on Trade–Related Aspects of Intellectual Property Rights (“TRIPS”), Apr. 15, 1994, Marrakesh 3rd Edition 2016

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Agreement Establishing the World Trade Organization, Annex 1C. We cannot discern any relevant difference between the misappropriation requirements of TRIPS article 39 and the principles of trade secret law applied by the administrative law judge in this case. We therefore detect no conflict between the Commission’s actions and Chinese law that would counsel denying relief based on extraterritorial acts of trade secret misappropriation relating to the importation of goods affecting a domestic industry. Finally, even apart from the acts of importation, the conduct at issue in this case is not the result of the imposition of legal duties created by American law on persons for whom there was no basis to impose such duties. The former Datong employees had a duty not to disclose Amsted’s trade secrets arising from express provisions in the Datong employee code and, in the case of most of the employees, from confidentiality agreements that they signed during their employment with Datong. Thus, the question in this case is whether the disclosure of protected information in breach of that duty is beyond the reach of section 337 simply because the breach itself took place outside the United States. To answer that question in the affirmative would invite evasion of section 337 and significantly undermine the effectiveness of the congressionally designed remedy. TianRui Group Co. v. ITC, 661 F.3d at 1332–33 (footnote omitted). Since the TianRui decision, the ITC has become a potentially potent tool for the protection of trade secrets that have been misappropriated overseas.

§ 4.2.3

International Law

The closest thing to an international standard for the protection of trade secrets is reflected in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS is administered by the World Trade Organization, and it is set forth in Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, signed on April 15, 1994. Trade secrets are addressed under Section 7: Protection of Undisclosed Information, Article 39. Specifically, Article 39 provides, in total, as follows: 4–70

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1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or governmental agencies in accordance with paragraph 3. 2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices [n.10] so long as such information: (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret. 3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use. TRIPS Agreement, Art. 39 (https://www.wto.org/english/tratop_e/trips_e/t_agm3d_e .htm#7). (Footnote 10 provides: “For the purpose of this provision, ‘a manner contrary to honest commercial practices’ shall mean at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.” TRIPS Agreement, Art. 39 n.10.) 3rd Edition 2016

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Despite TRIPS, internal law varies wildly from country to country. In 2013, however, the European Union took its first major, concrete step toward unifying its approach to trade secrets in Europe. Specifically, on November 28, 2013, the European Commission published a “Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure,” together with a working draft of an impact assessment of the proposed directive (“Impact Assessment”). See http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/ ?uri=CELEX:52013SC0471&qid=1419251177102&from=EN. On March 25, 2015, the European Economic and Social Committee (EESC) issued the “Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed knowhow and business information (trade secrets) against their unlawful acquisition, use and disclosure.” See http://eescopinions.eesc.europa.eu/eescopiniondocument .aspx?language=en&docnr=8066&year=2013. The EESC observed that the proposal fell short of the trade secret protections required by TRIPS and urged the amendment of the proposed directive “without any further delay.” Although progress continues to be made on acceptable terms of the directive, there is not yet a final agreement.

§ 4.3

ESTABLISHING A TRADE SECRET PROTECTION PROGRAM

The best practice for protecting trade secrets (including both trade secrets and other confidential information) is the establishment of a trade secret protection program to limit opportunities for their misappropriation and have a plan for responding to threatened or actual misappropriations. Indeed, as to the former, it is essential to have taken reasonable measures to preserve the secrecy of the trade secret, as failure to do so can result in the loss of the trade secret and any ability to protect it.

§ 4.3.1

Trade Secret Audit

The process for establishing a trade secret protection program starts with a trade secret audit. A trade secret audit consists of the following steps.

(a)

Catalog

The first step in the process is the identification of any trade secrets and other confidential information that may exist within an organization. As part of that

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process, the value of each must be determined, although it need not be determined with precision.

(b)

Review

Once the trade secrets and other confidential information are identified, a thorough review should be conducted to understand how each trade secret and other type of confidential information is presently protected. This will include reviewing any agreements in place, written policies, unwritten courses of conduct, employee handbooks, and physical security measures.

(c)

Analyze

Determine whether the current protections are adequate. Those protections that are adequate should be retained and those that are not adequate should be replaced. The end result should be a thorough inventory of the trade secrets and confidential information and a comprehensive plan of how to protect each.

§ 4.3.2

Trade Secret Protection Program

A proper trade secret protection program includes policies, procedures, and agreements to preserve and protect trade secrets and an action plan to respond to actual or threatened misappropriation. The program must be reasonable in relation to the value of the trade secrets. Coca-Cola needs to (and does) take heroic measures to protect its secret formula, but most trade secrets do not need that level of protection. Conceptually, the greater the value of the trade secret, the more protections will be expected to be in place. Similarly, the ease with which a protection can be implemented will inform whether such protection should be implemented. One caveat: If a company does not bother to protect itself, neither will a court. The tools for your trade secret protection program are myriad, complementary to one another, and may be separately required to some extent by the new Massachusetts data privacy law, G.L. c. 93H and 201 C.M.R. pt. 17. They include the following: • computer safeguards (protecting computer systems with the appropriate level of security, including passwords changed at regular intervals, firewalls, hard drive encryption, access notifications, access logs, etc.);

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• security measures for all electronic technologies (USB drives, flash cards, smartphones, ftp sites, social media sites, etc.); • restrictions on and protocols for access to and use of facilities that house confidential information; • policies for the use of company property (including computers, etc.); • protocols for accessing, handling, marking, storage, retention, and shredding of paper documents (e.g., including “confidential” legends, use of locked file cabinets, adoption of a “clean desk” policy); • protocols for sharing information with third parties; • procedures for ensuring employee awareness of all policies and procedures (including through new employee orientations, employee handbooks, discussions of the policies at meetings, and scheduled computer pop-up reminders); • protocols/checklists for when an employee resigns or has been terminated (proper exit interviews, shutting down computer accounts, terminating cell phones, eliminating facility access, examining all items taken by the employee, etc.); • postdeparture reviews of possible security breaches; and • restrictive covenants—with employees and others. Restrictive covenants include the following basic types: • noncompete agreements, • garden leave clauses, • forfeiture-for-competition agreements, • “compensation-for-competition” agreements, • forfeiture agreements, • nondisclosure/confidentiality agreements, • nonsolicitation agreements, • antipiracy/no-raid/no-hire agreements, and • invention assignment agreements. 4–74

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Each of these agreements serves a specific purpose. Which to use, when to use them, how to properly craft them, and how to enforce them are determined by a combination of the needs of the company, the corporate ethos, and the skill, knowledge, and experience of the attorney assisting. Proper attention to each of these issues in advance will save much needed time and unnecessary expense later. No matter what protections are in place, adherence to the policy is critical. The best policy is worthless if it is not followed and enforced. Enforcement includes, when necessary, litigation. Most often, cases involving trade secrets are preceded by a “cease and desist” letter. If litigation becomes necessary to protect trade secrets, several practical considerations will immediately present themselves. These include how trade secrets will be protected through the course of the litigation and the standards applicable to obtaining a temporary restraining order or preliminary injunction. Each is addressed below.

(a)

Identification and Disclosure of Trade Secrets

Courts typically require that a party asserting a claim for misappropriation of trade secrets identify, with reasonable specificity, the trade secrets allegedly misappropriated. Although different jurisdictions vary as to the timing and specificity of the required disclosure, “[s]everal courts have held that a party alleging a claim for misappropriation of trade secrets is required to identify its alleged trade secrets with reasonable particularity before it will be allowed to compel discovery of its adversary’s trade secrets.” Switch Communications Group v. Ballard, 2012 WL 2342929, *4 (D. Nev. June 19, 2012) (citing Engelhard Corp. v. Savin Corp., 505 A.2d 30 (Del. 1986) (citing Xerox Corp. v. Int’l Bus. Machs. Corp., 64 F.R.D. 367, 371–72 (S.D.N.Y. 1974); DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676, 680–81 (N.D. Ga. 2007); Automed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 925 (N.D. Ill. 2001); Dura Global Techs., Inc. v. Magna Donnelly Corp., 2007 WL 4303294 (E.D. Mich. 2007); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1322 (S.D. Fla. 2001); and Ikon Office Solutions, Inc. v. Konica Minolta Bus. Solutions, 2009 WL 4429156, *4–5 (W.D. N.C. 2009))). Accordingly, the time will quickly come when the plaintiff must particularize its alleged trade secrets. See, e.g., Medtech Prods. v. Ranir, 596 F. Supp. 2d 778, 789–90 & n.7 (S.D.N.Y. Sept. 30, 2008) (requiring identification of trade secrets after preliminary discovery); Cal. Code Civ. Proc. § 2019.210 (requiring identification of trade secrets before discovery); 3 Milgrim, Trade Secrets § 14.02. And regardless of when the obligation arises, it creates obvious concerns on the part of the trade secret holder that it may be required to disclose the trade secret to the opposing party or potentially the public. 3rd Edition 2016

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Balanced against the requirement of disclosure is that trade secrets enjoy a qualified privilege and are therefore entitled to some protection. As the U.S. Supreme Court explained, The federal courts have long recognized a qualified evidentiary privilege for trade secrets and other confidential commercial information. See, e.g., E. I. du Pont de Nemours Powder Co. v. Masland, 244 U.S. 100, . . . 103 (1917); 8 J. Wigmore, Evidence § 2212, pp. 156–157 (McNaughton rev. 1961). The Federal Rules of Civil Procedure provide similar qualified protection for trade secrets and confidential commercial information in the civil discovery context. Fed. Rule Civ. Proc. 26(c)(7), which replaced former Rule 30(b) in 1970, was intended in this respect to “reflec[t] existing law.” Advisory Committee’s Notes on Fed. Rule R. Civ. Proc. 26, 28 U.S.C. App. p. 444. Fed. Open Mkt. Comm. of Fed. Reserve Sys. v. Merrill, 443 U.S. 340, 356 (1979). Rule 26(c) “confers broad discretion on the trial court to decide when a protective order is appropriate and what degree of protection is required.” Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). “As specified in Fed. R. Civ. P. 26(c), however, a showing of good cause is required to justify any protective order.” Baker v. Liggett Group, Inc., 132 F.R.D. 123, 125 (D. Mass. 1990) (citing Anderson v. Cryovac, Inc., 805 F.2d 1, 7 (1st Cir. 1986)); see Int’l Equity Invs., Inc. v. Opportunity Equity Partners, Ltd., 2010 WL 779314, *3 (S.D.N.Y. Mar. 2, 2010). “A finding of good cause must be based on a particular factual demonstration of potential harm, not on conclusory statements.” Baker v. Liggett Group, Inc., 132 F.R.D. at 125 (quoting Anderson v. Cryovac, Inc., 805 F.2d at 7). “It is implicit in Rule 26(c)’s ‘good cause’ requirement that ordinarily (in the absence of good cause) a party receiving discovery materials might make them public.” Baker v. Liggett Group, Inc., 132 F.R.D. at 125 (quoting Pub. Citizen v. Liggett Group, Inc., 858 F.2d 775, 790 (1st Cir. 1988)). Accordingly, “[r]estrictions on the right to disseminate information obtained in discovery are appropriate if it is shown that such restrictions are necessary to protect . . . true trade secrets and confidential research, development and commercial information.” Baker v. Liggett Group, Inc., 132 F.R.D. at 125 (quoting Fed. R. Civ. P. 26(c)). In those jurisdictions that have adopted the Uniform Trade Secrets Act (UTSA), Rule 26(c) must also be read in light of UTSA § 5. See, e.g., Pappas v. Frank Azar & Assocs., P.C., 2007 WL 1549037, *4 (D. Colo. May 25, 2007) (“[B]oth 4–76

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[Section 5 of the UTSA] and [Rule 26(c)] contemplate that [trade secrets] may be discoverable, particularly when accompanied by collateral orders designed to preserve [their] confidentiality and limit [their] dissemination.”); Republic Servs., Inc. v. Liberty Mut. Ins. Cos., 2006 WL 1635655, *3 (E.D. Ky. June 9, 2006); Laffitte v. Bridgestone Corp., 674 S.E.2d 154 (S.C. 2009) (Section 5 of “[t]he Trade Secrets Act . . . does not supplant, but rather complements, Rule 26(c)”); Brostron v. Warmann, 546 N.E.2d 3, 5 (Ill. App. Ct. 1989); see also Vibromatic Co. v. Expert Automation Sys. Corp., 540 N.E.2d 659, 662 (Ind. Ct. App. 1989) (“To the extent that there may be a procedural conflict between [section 5 of the Uniform Trade Secrets Act] and . . . Rule 26(c), [Rule 26(c)] is controlling.”). Section 5 of the UTSA provides as follows: In an action under this [act], a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding incamera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval. UTSA § 5 (emphasis added.) The comment to Section 5 provides as follows: If reasonable assurances of maintenance of secrecy could not be given, meritorious trade secret litigation would be chilled. In fashioning safeguards of confidentiality, a court must ensure that a respondent is provided sufficient information to present a defense and a trier of fact sufficient information to resolve the merits. Accordingly, despite its mandatory language (i.e., “a court shall preserve the secrecy of an alleged trade secret”), Section 5 recognizes that only “reasonable means” must be used, and that in some situations, those means may (or may not) include a protective order. These risks and the practical extent of the party’s ability to protect its trade secrets from disclosure should be considered before commencing litigation.

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(b)

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Standards Applicable to Injunctive Relief

Trade secrets cases typically involve an early motion for a temporary restraining order and/or preliminary injunction. The rationale is that “[o]nce a trade secret enters the public domain, the possessor’s exclusive rights to the secret are lost,” CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985) (quoted in Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 175 (D. Mass. 2001) (Bowler, J.)), and “once . . . lost, it is gone forever,” Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 32 (D. Mass. 2004) (Gorton, J.) (citation omitted). See also Boston Scientific Corp. v. Lee, No. 13-13156-DJC, 2014 WL 1946687, at *6 (D. Mass. May 14, 2014) (Casper, J.) (“once the trade secret is lost, it is gone forever” (citation omitted)). Accordingly, injunctive relief must be sought early—before it becomes moot. The standards applicable to such motions in Massachusetts are governed in the federal and state courts by Rule 65 of the Federal Rules of Civil Procedure and the Massachusetts Rules of Civil Procedure, respectively. Significantly, however, the harm caused by the loss of trade secrets and other confidential information is generally viewed as irreparable, and thus a demonstration of misappropriation of a trade secret may obviate the need to prove irreparable harm. See, e.g., Aggreko, LLC v. Koronis, No. 13-13034-TSH, 2013 WL 6835165, at *5 (D. Mass. Dec. 19, 2013) (Hillman, J.) (“When a plaintiff demonstrates likelihood of success on a misappropriation of trade secrets claim, it need not prove irreparable injury because such harm is presumed.” (citations omitted)); Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007-TSH, slip op. at 23 (D. Mass. May 15, 2013) (Hillman, J.) (“persuasive authority” suggests that irreparable harm should be presumed when likelihood of success on a trade secrets misappropriation claim has been established); EchoMail, Inc. v. Am. Express Co., 378 F. Supp. 2d 1, 4 (D. Mass. 2005) (Gorton, J.) (“When a plaintiff demonstrates likelihood of success on a misappropriation of trade secrets claim, it need not prove irreparable injury because such harm is presumed.”); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 32 (“The loss of a trade secret is generally found to constitute irreparable harm.”); Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 50 (1998) (protection of confidential information may support injunctive relief); Salomon Smith Barney, Inc. v. Barcomb, 2003 WL 25932298, at *2 (Mass. App. Ct. 2003) (single justice decision) (“The disclosure of plaintiff’s confidential information [(i.e., its client list and information)] would clearly cause irreparable harm.”).

§ 4.3.3

Special Contexts of Trade Secret Issues

Trade secrets issues arise most frequently in the context of employee job changes. There are, however, myriad other circumstances in which trade secrets issues 4–78

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arise—some involving current employees and others not involving employees at all. Several are identified below.

(a)

Mobile Devices

Most employees have an iPhone (or equivalent) and many also have other portable devices such as a laptop. Sometimes the devices are provided by the employer and other times they are personal to the employee, but used for work as well. All mobile devices, whether company owned or owned by the employee, expose the company to a risk of misappropriation. The risk can arise from, among other things, the device being lost, stolen, hacked, or retained by an employee following the end of the employment relationship. In addition, with the employee’s information commingled with the company’s information, disentangling that commingling can be difficult, if not impossible. And, even the process of isolating company information can raise privacy considerations in connection with the employee’s personal information. See, e.g., Integral Dev. Corp. v. Tolat, 2013 WL 2389691 (N.D. Cal. May 30, 2013) (content of materials in employee’s position were produced to an independent expert to address privacy concerns); AllianceBernstein L.P. v. Atha, 954 N.Y.S.2d 44 (N.Y. App. Div. Nov. 15, 2012) (court performed in camera review to protect privacy interests). Further, providing employees with mobile devices—especially those over which the employer has limited if any control—has implications for whether the employer has taken reasonable measures to protect its trade secrets and whether the employee (by retaining or copying the information) has “misappropriated” the information. Given these various issues, companies should be counseled, at a minimum, to secure dual-use devices (password protections, encryption, the ability to remotewipe them, etc.), have policies in place that employees acknowledge (confidentiality, specifying whether devices may be used for personal use and what if any expectations of privacy an employee may have, proper safeguards for the devices, etc.), and train employees on the company’s expectations and the proper methods for using and protecting the devices and information contained on them.

(b)

Government Procurement

“The federal government is the world’s biggest customer.” See fedmarket, http://www .fedmarket.com/contractors/The-World%5C's-Biggest-Customer-. “[C]urrently[, it] spend[s] nearly $400 billion a year.” fedmarket, http://www.fedmarket.com/ contractors/The-World%5C's-Biggest-Customer-. Contracts with the government 3rd Edition 2016

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pose myriad challenges, among them the protection of trade secrets—particularly for contracts that involve the government’s purchase of information or products that are themselves trade secrets or contracts for the purchase of goods and services, where, although individual product or service pricing information or the purchasing agent may not be confidential, the compilation of information about the procurement may provide significant economic value or commercial advantage. “Generally, a request for proposals and the resultant contract spells out the ground rules for data and software acquisition with limited or unlimited rights to data, which is consistent with the general standard of development or not at private expense.” J. Cohen, “Federal Issues in Trade Secret Law,” 2 J. High Tech. L. 1, 4 (2003). However, that is not always the case. J. Cohen, “Federal Issues in Trade Secret Law,” 2 J. High Tech. L. 1, 4 (2003). For example, where there is ambiguity, “a contracting officer will decide the issue, subject to review by an agency board of appeals and, in turn, by federal courts.” J. Cohen, “Federal Issues in Trade Secret Law,” 2 J. High Tech. L. 1, 4 (2003). For a more detailed discussion, see J. Cohen, “Federal Issues in Trade Secret Law,” 2 J. High Tech. L. 1, 3–11 (2003) and cases cited therein.

(c)

Federal and State Regulatory Submissions

Often companies are required to provide information to governmental regulatory authorities. This can present potential problems for protection of trade secrets and confidential information insofar as, once information is in the government’s possession, the applicable public records act (the 1966 Freedom of Information Act (FOIA) and state analogs) may require its disclosure to others (including, potentially, competitors) who are interested in the information. Although FOIA (and its analogs) exempts trade secrets from mandatory disclosure, “courts generally construe the FOIA exemption . . . ‘trade secrets’ term more narrowly than the definition of trade secrets under state laws modeled after the Uniform Trade Secrets Act.” J. Cohen, “Federal Issues in Trade Secret Law,” 2 J. High Tech. L. 1, 11 (2003). The intersection between trade secrets and public records acts and the proper balance of the respective interests has recently been playing out in connection with hydraulic fracking, i.e., the injection of pressurized fluids into rock layers in the ground to release trapped petroleum or natural gas. The information at issue is the identity of the chemicals used by companies employing fracking techniques to obtain natural gas, which the companies contend is a trade secret. Powder River Basin Resource Council v. Wyoming Oil & Gas Conservation Commission, 320 P.3d 222 (2014) provides an example of the complexity of the issue. 4–80

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In that case, the Wyoming Supreme Court (where fracking is being widely used) considered whether the secrecy (and consequent protectability) of the chemicals should be determined under Wyoming’s version of the Uniform Trade Secrets Act, the Restatement (Third) of Unfair Competition, or FOIA. Powder River Basin Res. Council v. Wyo. Oil & Gas Conservation Comm’n, 320 P.3d at 232. Finding that the narrowest definition (i.e., that under FOIA) is “more in tune with the policies behind the [public records act]” than the other options, the court explained that FOIA’s “definition requires that there be a ‘direct relationship’ between the trade secret and the productive process.” Powder River Basin Res. Council v. Wyo. Oil & Gas Conservation Comm’n, 320 P.3d at 233. Discussing the reasoning of a decision upon which it was relying, the Wyoming Supreme Court stated, “The court explained that in the context of public records trade secret status is reserved for information involving the productive process itself, as opposed to collateral matters of business confidentiality such as pricing and sales volume data, sources of supply and customer lists.” Powder River Basin Res. Council v. Wyo. Oil & Gas Conservation Comm’n, 320 P.3d at 233 (internal quotations and citation omitted). After deciding the applicable definition, the court remanded the case for a determination of the application of the narrow definition to the chemicals at issue. While the policies underlying FOIA (and other public records acts) may favor the public’s interest in access to information, application of this narrow definition exposes trade secrets otherwise protectable to disclosure (and consequent loss of their value) when regulations mandate the disclosure of information to the government.

(d)

Preemption by and of Related Laws

Many other laws have implications for trade secrets or are affected by trade secrets laws. Several are identified below.

Patent Laws It has been said that every patent starts as a trade secret. This is because inventions are typically developed under a shroud of secrecy. However, to obtain the monopoly provided by patent law, an inventor must publicly disclose his or her invention. And, once the invention is publicly disclosed, the confidentiality requirement of trade secrets law can no longer be satisfied. Any trade secret rights that existed prior to that time are immediately extinguished. It was because of this close connection between the two areas of law that in 1974, the Supreme Court was asked to consider whether trade secrets law was preempted by patent law. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 3rd Edition 2016

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(1974). The Court found that while both trade secrets law and patent law are designed to spur innovation, the key difference is the element of secrecy. For that and related reasons, the Court held that the law of patents did not preempt the law of trade secrets. In the wake of the recently adopted Leahy-Smith America Invents Act (AIA), Pub. L. No. 112–29, 125 Stat. 284 (2011), the relationship between trade secrets and patents has changed in several material respects, most significantly with respect to the so-called “prior user defense.” In particular, the act expands the circumstances under which a trade secret owner (who has been using its trade secret for more than one year) may continue to use the trade secret despite the secret being subsequently patented by someone else. See, e.g., E. D. Manzo, “The Impact of the America Invents Act on Trade Secrets,” 13 J. Marshall Rev. Intell. Prop. L. 497, 518–22 (2014). As a consequence of this change, the protections offered by trade secrets have been enhanced.

Copyright Laws The Copyright Act, 17 U.S.C. §§ 101–1332, preempts “all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.” 17 U.S.C. § 301. As to the general scope, copyright protection extends to “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). However, 17 U.S.C. § 102(b) makes clear that it does not “extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” As a threshold matter, there is no “inherent conflict between the Federal Copyright Act and state trade secret law. The Copyright Act is designed to protect the form of a work while trade secret law applies to the contents or ideas in a work.” Technicon Med. Info. Sys., Inc. v. Green Bay Packaging, Inc., 687 F.2d 1032 (7th Cir. 1982) (cited in 2 Melvin F. Jager, Trade Secrets Law § 10:7). A question arises, however, when the trade secret is embodied in a work that is subject to copyright protection. In that vein, the issue of whether the Copyright Act preempts state law claims (including trade secrets law) concerning “processes and systems that had been fixed in a tangible medium of expression are included in the subject matter of copyright” was recently addressed by the Fifth Circuit in Spear Marketing, Inc. v. BancorpSouth Bank, 791 F.3d 586, 595 (5th Cir. 2015). As the court explained, there is a “clear and lopsided split” in the federal circuits that have addressed the issue. Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d at 595.

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The Second, Fourth, Sixth, and Seventh Circuit, as well as the Ninth Circuit en banc, all recognize that, for the purpose of preemption under § 301(a), ideas fixed in tangible media fall within the subject matter of copyright. Only the Eleventh Circuit disagrees, holding that “[i]deas are substantively ineligible for copyright protection and, therefore, are categorically excluded from the subject matter of copyright” even if “expressed in a tangible medium.” Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d at 595–96 (footnotes omitted); see also 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 101 [B][2][c] (Matthew Bender, rev. ed.) (“the better view is that ideas do fall within the subject matter of copyright for purposes of pre-emption (albeit preemption may still be avoided on the basis of lack of equivalence) (quoted in Spear Mktg. Inc. v. BancorpSouth Bank, 791 F.3d at 596). Accordingly, the court held that “state law claims based on ideas fixed in tangible media are preempted by § 301(a).” Spear Mktg. Inc. v. BancorpSouth Bank, 791 F.3d at 597. Having done so, the court then turned to the second part of the analysis: An examination of the “causes of action ‘to determine if [they] protect[ ] rights that are ‘equivalent’ to any of the exclusive rights of a federal copyright.” Spear Mktg. Inc. v. BancorpSouth Bank, 791 F.3d at 597 (citations omitted). Noting “that claims for conversion of intangible property are preempted,” the court held that the claims for conversion of trade secrets and confidential information were preempted. The court was not asked to, and did not, find that the claim for misappropriation of trade secrets was preempted. The reason for the Fifth Circuit’s finding of preemption of the conversion claim while leaving the trade secrets claim unaddressed (and treating it as not preempted) is (presumably) explained by the so-called functional test or extra element test. Under the functional test, “If a state cause of action requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display, then the state cause of action is qualitatively different from, and not subsumed within, a copyright infringement claim and federal law will not preempt the state action.” Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164 (1st Cir. 1994). “The extra element must be qualitatively different from the rights protected by copyright law. The extra element must be one which changes the nature of the action so that it is qualitatively different from a copyright infringement claim.” Tingley Sys., Inc. v. CSC Consulting, Inc., 152 F. Supp. 2d 95, 105 (D. Mass. 2001) (citations and internal quotations omitted).

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Accordingly, while a work (such as software) embodying trade secrets may be “within the subject matter of copyright,” the fact that a claim for misappropriation requires proof of additional elements—in particular “that the information have a status of secrecy and that a confidential relationship be breached”— means that the claim “go[es] beyond the rights regulated under the Copyright Act” and therefore is not preempted. Tingley Sys., Inc. v. CSC Consulting, Inc., 152 F. Supp. 2d at 104–05; 2 Melvin F. Jager, Trade Secrets Law § 10:7 (citing Seng-Tiong Ho v. Taflove, 98 U.S.P.Q.2d 1935, 2011 WL 2175878 (7th Cir. 2011) and Avtec Sys., Inc. v. Peiffer, 21 F.3d 568 (Fed. Cir. 1994), among others).

UTSA Preemption of Other State Law Claims One issue that has plagued states that have adopted the Uniform Trade Secrets Act is to what extent other state laws have been preempted. Section 7(a) of the UTSA provides that it “displaces conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret.” Section 7(b) then provides exceptions, including in particular contractual remedies. However, not all states have adopted this language. See, e.g., Iowa Code § 550 (not adopting Section 7). Even for those that have adopted the language (or similar language), case law is split on its effect. Some states find that “common law tort claims based upon misappropriation of confidential information that does not rise to the level of a ‘trade secret’” are preempted, while other states “leave[] untouched any other common law remedies based upon confidential information or theft of information.” Sid Leach, “Anything but Uniform: A State-By-State Comparison of the Key Differences of the Uniform Trade Secrets Act” 39–41 (available at http://www.swlaw .com/assets/pdf/news/2015/11/06/How%20Uniform%20Is%20the%20Uniform% 20Trade%20Secrets%20Act%20-%20by%20Sid%20Leach.pdf). Likewise, some states find that fraud claims are preempted, while other states find that they are not preempted. Sid Leach, “Anything but Uniform: A State-ByState Comparison of the Key Differences of the Uniform Trade Secrets Act” at 41. Some states also find that the doctrine of respondeat superior is preempted, while others find that it is unaffected. Sid Leach, “Anything but Uniform: A State-By-State Comparison of the Key Differences of the Uniform Trade Secrets Act” at 41.

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CHAPTER 5

Noncompetition Agreements and Related Restrictive Covenants Russell Beck, Esq. Beck Reed Riden LLP, Boston § 5.1

Introduction .......................................................................... 5–1

§ 5.2

The Law of Noncompetition Agreements ........................... 5–2 § 5.2.1

Reasonableness ..................................................... 5–4 (a)

Test for Reasonableness ............................... 5–4

(b)

Modification of Unreasonable Restrictions/Reformation ............................5–12

§ 5.2.2

Duration ...............................................................5–13

§ 5.2.3

Geographic Reach ................................................5–16

§ 5.2.4

Scope of Proscribed Activities .............................5–19

§ 5.2.5

Legitimate Business Interests ...............................5–21 (a)

Recognized Legitimate Business Interests ........................................5–22

(b)

Business Interests That Are Not Recognized as Legitimate ...........................5–29

§ 5.2.6

Public Policy Considerations ...............................5–30

§ 5.2.7

Statutory and Rule-Based Industry Exemptions ............................................5–32

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(a)

Statutory Exemptions ..................................5–32

(b)

Rule-Based Exemptions ..............................5–34

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§ 5.3

Negotiating and Drafting Noncompetition Agreements .......................................................................... 5–35 § 5.3.1

Requirement of a Writing .................................... 5–36

§ 5.3.2

Required Elements: Duration, Geographic Reach, Scope of Prohibited Activities.................. 5–36

§ 5.3.3

Identification of the Legitimate Business Interests ................................................. 5–36

§ 5.3.4

Preparation to Compete........................................ 5–37

§ 5.3.5

Extension/Scaling Back of the Term .................... 5–38

§ 5.3.6

Acknowledgment of Consideration, Legitimate Interests and Their Reasonableness, and Irreparable Harm ................ 5–39

§ 5.3.7

Assignment/Successors in Interest ....................... 5–40

§ 5.3.8

Change of Position/Responsibilities .................... 5–40

§ 5.3.9

Specification of Remedies.................................... 5–40

§ 5.3.10 Disclosure Obligations ......................................... 5–42 § 5.3.11 Return of Company Property and Information.................................................... 5–42 § 5.3.12 Other Terms.......................................................... 5–42 § 5.3.13 Additional and Alternative Restrictive Covenants........................................... 5–44

5–ii

(a)

Garden Leave Clause/Notice Requirement ................................................ 5–44

(b)

Forfeiture-for-Competition/ Compensation-for-Competition Clauses ........................................................ 5–45

(c)

Nonsolicitation Agreements ........................ 5–48

(d)

No-Raid/Nonraiding/Antiraiding/ Antipiracy Agreements ............................... 5–51

(e)

No-Hire and No-Poach Agreements ........... 5–51

(f)

Nondisclosure/Confidentiality Agreement (NDA) ...................................... 5–52

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(g) § 5.4

Invention Assignment Agreements..............5–54

Enforcing and Defending Against Noncompetition Agreements ..............................................5–54 § 5.4.1

Applicable Standards ...........................................5–55

§ 5.4.2

Injunctive Relief Is Not an Entitlement ................5–59

§ 5.4.3

Initial Considerations ...........................................5–61

§ 5.4.4

Satisfying the Irreparable Harm Requirement .....5–62

§ 5.4.5

Special Considerations .........................................5–63

§ 5.4.6

§ 5.4.7

(a)

Loss of Trade Secrets and Confidential Information as Irreparable Harm.................5–63

(b)

Loss of Goodwill as Irreparable Harm ........5–65

(c)

The Developing Impact of Social Media ....5–68

Enforcing a Noncompetition Agreement..............5–70 (a)

Before the Lawsuit Is Even Contemplated..5–70

(b)

Investigate ...................................................5–71

(c)

Conduct an Exit Interview ..........................5–72

(d)

Determine Whom to Sue .............................5–72

(e)

Send a Cease and Desist Letter ...................5–73

(f)

Act Quickly .................................................5–74

(g)

Credible Evidence—Percipient Witnesses, Expert Witnesses, and Expedited Discovery ............................5–75

(h)

Bond ............................................................5–76

Defending Against a Noncompetition Agreement ............................................................5–77 (a)

Initial Considerations ..................................5–77

(b)

Possible Defenses........................................5–80

EXHIBIT 5A—Web Logs Addressing Trade Secrets and Noncompetes .............................................................................5–127

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5–iv

3rd Edition 2016

CHAPTER 5

Noncompetition Agreements and Related Restrictive Covenants Russell Beck, Esq. Beck Reed Riden LLP, Boston

Scope Note In this chapter, the reader is introduced to noncompetition agreements. Topics covered include drafting considerations, negotiations, enforcement, and defense.

§ 5.1

INTRODUCTION

In its most basic form, a noncompetition agreement is a contract that prohibits one of the contracting parties (typically, although not always, an employee) from engaging in activities that are competitive with the other contracting party. Recognized in Massachusetts for almost 200 years, noncompetition agreements (“noncompetes”) have made their way into virtually every industry. The same is true for the related restrictive covenants that are also available to protect company trade secrets, confidential information, and goodwill. “A ‘[r]estrictive covenant’ is a clause in a contract . . . which ‘limit[s] a contracting party after termination of the contract in performing similar work for a period of time and within a certain geographical area.’” Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. 176, 180 (1994) (quoting Black’s Law Dictionary 1315 (6th ed. 1990)). Generally included under the “noncompete” rubric, restrictive covenants include not only true noncompetition agreements, but also agreements not to solicit customers, not to hire employees, and not to disclose information. Oxford Global Res., Inc. v. Consolo, 2002 WL 32130445, at *4 (Mass. Super. Ct. May 6, 2002) (Botsford, J.). Restrictive covenants will be enforced when a court determines that it is reasonable and appropriate to do so. The court’s determination requires a fact-intensive analysis based on an extremely abbreviated factual record prepared by the parties 3rd Edition 2016

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at the beginning of the case, typically very quickly, with no (or limited) discovery. Accordingly, successful enforcement of such agreements takes proper drafting of the agreements, advance planning, a thorough understanding of the governing law, and myriad strategic decisions. Similarly, successful defense of such agreements requires an in-depth understanding of their potential weaknesses and how to exploit them. This chapter provides background and analysis of noncompetition agreements in Massachusetts, including current trends in the law; discusses the proper drafting of noncompetition agreements; and identifies strategies for their enforcement and defense. For a more detailed discussion of these topics, see Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (MCLE, Inc. 5th ed. 2015). For more up-to-date information, see the blogs listed in Exhibit 5A. It should be noted at the outset that while the general legal framework is established by the Supreme Judicial Court and the Appeals Court, most of the cases are fully resolved by the Superior Court at the preliminary injunction stage.

§ 5.2

THE LAW OF NONCOMPETITION AGREEMENTS

Noncompetition agreements are enforceable in Massachusetts. However, they are only enforceable if, and to the extent that, they are • reasonable in duration, geographic reach, and scope of restricted activities; • necessary to protect the enforcing party’s legitimate business interests; and • to the extent that the agreement and its enforcement is consonant with public policy. See, e.g., Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 643 (2004); Marine Contractors Co. v. Hurley, 365 Mass. 280, 287–88 (1974); Cynosure, Inc. v. Detter, C.A. No. 2015-00724, at 8 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.); Interpros, Inc. v. Athy, No. 201300214F, 2013 WL 2181650, at *3 (Mass. Super. Ct. May 5, 2013) (Curran, J.); Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *4 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.); Akibia, Inc. v. Hood, No. 120294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.); 5–2

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§ 5.2

Grace Hunt IT Solutions, LLC v. SIS Software, LLC, No. 201200080BLS1, at *3 (Mass. Super. Ct. Feb. 14, 2012) (Lauriat, J.); Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Mass. Super. Ct. Dec. 31, 2007) (Fabricant, J.); Scully Signal Co. v. Guay, 2007 WL 1977714, at *1 (Mass. Super. Ct. June 7, 2007) (Brant, J.); Curves Int’l, Inc. v. Fox, 2013 WL 1946826, at *2 (D. Mass. May 9, 2013) (Stearns, J.); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 128 (D. Mass. 2010) (Casper, J.); TalentBurst, Inc. v. Collabera, Inc., C.A. No. 08-10940-WGY, *12 (D. Mass. July 25, 2008) (Young, J.); see also Restatement of Contracts (Second) § 188 (1981) (as a restraint on trade, a noncompete must satisfy the above requirements and be “ancillary to an otherwise valid transaction or relationship”). The Supreme Judicial Court stated the standard most recently as follows: “A covenant not to compete is enforceable only if it is necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest.” Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 639; A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *10 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); EMC Corp. v. Breen, No. 12-04477BLS2, 2013 WL 1907460, at *2 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.); Lunt v. Campbell, No. 07-3845-BLS, *5 (Mass. Super. Ct. Sept. 24, 2007). Although not stated in Boulanger and infrequently directly focused on, a noncompetition agreement must also be limited in the scope of proscribed activities. See, e.g., Forti v. Grand Circle Travel, C.A. No. 07-3622-BLS1 (Mass. Super. Ct. Jan. 11, 2008) (Gants, J.) (“Courts will enforce [noncompetition agreements] only when they have a legitimate business purpose and are reasonable in time, space, and scope, based on all the circumstances.” (emphasis added)); Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2006) (Gants, J.) (noncompetition agreement was “quite limited in its scope” insofar as it precluded employment by only two companies); Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (the agreement must not be unreasonable “in its time, space, or scope”); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *5–6, 10 (Feb. 12, 2004) (Burnes, J.) (restrictive covenants must be “reasonably limited in all circumstances, including time and space” (emphasis added)); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (finding that the “scope of activities proscribed is about as broad as conceivable, and a good deal broader than is reasonable, or capable of reasonable enforcement”); IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 128 (D. Mass. 1999) (Neiman, J.) (the noncompetition agreement must be “reasonably limited in all circumstances, including time and space” (emphasis added)); Marcam Corp. v. Orchard, 885 F. Supp. 294, 299 (D. Mass. 1995) (Lindsay, J.) (“[A] noncompetition agreement must be reasonable in terms of its restrictions as to time, location, and other respects.” (emphasis added)). 3rd Edition 2016

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It also bears mention that, although reasonable noncompetition agreements are generally permissible in Massachusetts, they are generally disfavored, see Genzyme Corp. v. Laidlaw, 84 Mass. App. Ct. 1134 (2014) (unpublished decision; text available at 2014 WL 470409, at *2); Synergistics Tech., Inc. v. Putnam Invs., LLC, 74 Mass. App. Ct. 686, 691 n.3 (2009), and certain statutory, regulatory, and common law exceptions to the enforcement of an otherwise enforceable noncompetition agreement have developed over time. See § 5.2.7, Statutory and Rule-Based Industry Exemptions, below.

§ 5.2.1

Reasonableness

The reasonableness of a noncompetition agreement is the touchstone of the enforceability analysis. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 639 (2004) (“Covenants not to compete are valid if they are reasonable in light of the facts in each case.”); Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 147 (1979) (“We have not automatically held a former employee to the terms of his covenant not to compete. A test of reasonableness, based on the circumstances of the parties and the public interest, has been traditional in our cases involving covenants not to compete.”). Determining whether the restrictions imposed by the noncompetition agreement are reasonable is a highly fact-based analysis. See, e.g., Blackwell v. Helides, 368 Mass. 225, 228 (1975); Marine Contractors Co. v. Hurley, 365 Mass. 280, 287–88 (1974); Loranger Constr. Co. v. C. Franklin Corp., 355 Mass. 727, 730 (1969); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716 (1961); New Eng. Tree Expert Co. v. Russell, 306 Mass. 504, 510 (1940); Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 551 (1935); EMC Corp. v. Breen, No. 12-04477BLS2, 2013 WL 1907460, at *2 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.); Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *4–5 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 104 (D. Mass. 2012) (Saris, J.) (applying Indiana law). As discussed below, the test for reasonableness is context specific, meaning that the context in which a noncompete arises will affect the nature of the court’s inquiry into the reasonableness of the agreement. For example, courts will analyze a noncompetition agreement arising from an employment relationship more vigorously than they analyze agreements arising from other relationships.

(a)

Test for Reasonableness

The reasonableness of a noncompetition agreement involves a balancing of each of the basic requirements (limitation in time, space, and scope). All Stainless, 5–4

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Inc. v. Colby, 364 Mass. 773, 778 (1974) (“In determining whether a covenant will be enforced, in whole or in part, the reasonable needs of the former employer for protection against harmful conduct of the former employee must be weighed against both the reasonableness of the restraint imposed on the former employee and the public interest.”); Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *4–5 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.). Each requirement operates in conjunction with the others and has a bearing on the overall reasonableness of the restriction. See, e.g., All Stainless, Inc. v. Colby, 364 Mass. at 779 (holding that a two-year restriction was reasonable when “[c]oupled with” the limited geographical reach); Tobin v. Cody, 343 Mass. 716, 723–24 (1962) (permitting lifetime injunction “[i]n light of the relatively small area covered”); Norkom Techs., Inc. v. Davilman, No. 11-1566BLS2, slip op. at 7 (Mass. Super. Ct. May 9, 2011) (Roach, J.); Bonneau v. Meaney, 343 Mass. 368, 370–71 (1961) (twenty years was reasonable in light of, among other things, the limited geographic scope); Cavanaugh v. McKenna, 2007 WL 2367556, at *2 (Mass. Super. Ct. July 25, 2007) (Freemont-Smith, J.) (virtually unlimited duration was allowed primarily because it was limited to just one town); Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *4 (Mass. Super. Ct. June 28, 2004) (Graham, J.) (“the restraints . . . are reasonable because of the narrow geographic scope and relatively short time frame”). But see Whiting Milk Cos. v. O’Connell, 277 Mass. 570, 573–74 (1931) (refusing to permit a broader than necessary geographic restriction even during a very short period on the ground that “[w]hile the period runs, the [geographic] restriction is unreasonable”). Further, the analysis will, to a large extent, be informed by the purpose of and particular need for the agreement: “That [noncompetition agreements] are permitted at all is due, in part, to the difficulty of detecting, and then proving, a former employee’s misuse of confidential information,” Anaqua, Inc. v. Bullard, No. 14-1491-BLS1, slip op. at 12 (Mass. Super. Ct. July 24, 2014) (Billings, J.), and goodwill. Thus, “[t]he covenant, if tailored to the employer’s legitimate interests, serves as a prophylactic protection for the plaintiff’s secrets [and goodwill] in the hands of its former employee.” Anaqua, Inc. v. Bullard, No. 14-1491BLS1, slip op. at 12 (citing Affinity Partners, Inc. v. Drees, 1996 WL 1352635, at *5 (Mass. Super. Ct. 1996) (Cowin, J.); Boulanger v. Dunkin’ Donuts, Inc., 442 Mass. 635, 642 n.12 (2004)). However, the enforceability “also depends to some degree on the relative constraints on economic freedom and well-being that each party will experience from an adverse ruling.” Genzyme Corp. v. Laidlaw, 84 Mass. App. Ct. 1134 (2014) (unpublished decision; text available at 2014 WL 470409, at *2). The context in which the noncompetition agreement arises is also critical to the analysis. See, e.g., Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 3rd Edition 2016

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488, 497 (1986) (noting the importance of identifying the context, as it dictates the concerns that must be evaluated and the level of scrutiny that will be applied); Wells v. Wells, 9 Mass. App. Ct. 321, 326 (1980) (context was “determinative” of outcome of case); Sherman v. Pfefferkorn, 241 Mass. 468, 474–75 (1922) (“Obviously, a greater measure of relief is ordinarily required in [connection with the sale of business involving goodwill] than . . . in a contract of employment . . . .”); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *1–2 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.) (context important for determining appropriate level of scrutiny). Specifically, while noncompetition agreements and related restrictive covenants most often arise in the context of an employment relationship, they are also frequently used in other contexts, including franchise agreements, deeds, commercial leases, contracts for the sale of a business, partnership agreements, independent contractor agreements, and settlement agreements. See, e.g., Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635 (2004) (franchise agreement); Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. 176, 180 (1994) (partnership); Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85 (1979) (deed restrictions); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714 (1961) (settlement agreement); R.M. Sedrose, Inc. v. Mazmanian, 326 Mass. 578 (1950) (commercial lease); Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488 (1986) (sale of business); Wells v. Wells, 9 Mass. App. Ct. 321, 323 (1980) (sale of interest in business in context of divorce); Majilite Corp. v. Abbott, MICV2008-00222-L2 (Mass. Super. Ct. June 5, 2008) (Walker, J.) (settlement agreement); Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549BLS2 (Dec. 31, 2007) (Fabricant, J.) (sale of company followed by employment); Cavanaugh v. McKenna, 2007 WL 2367556 (Mass. Super. Ct. July 25, 2007) (Freemont-Smith, J.) (divorce separation agreement); Adam Assocs. Int’l, Inc. v. William A. Berry & Son, C.A. No. 05-0997-BLS2 (Mass. Super. Ct. May 1, 2007) (Gants, J.) (independent contractor); Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 06-3319-BLS1 (Mass. Super. Ct. Aug. 16, 2006) (van Gestel, J.) (franchise agreement); TKO, Inc. v. Gentle, 1998 WL 1270649 (Mass. Super. Ct. June 23, 1998) (McEvoy, J.) (independent contractor).

Noncompetition Agreements Arising from Employment Noncompetition agreements arising from the employment relationship are different from other contexts insofar as they raise “concern[s] for an individual’s ability to earn a living”; are frequently the product of unequal bargaining power; are typically neither negotiated nor even reviewed by the employee; and have the potential to create a monopoly. Wells v. Wells, 9 Mass. App. Ct. 321, 323 (1980); Workflow Solutions, LLC v. Murphy, 2008 WL 4514315, at *1 (Mass. Super. Ct. Sept. 11, 2008) (Fremont-Smith, J.) (noncompetition “covenants restrict an individual’s ability to earn a living and may limit healthy competition in the marketplace”); see also Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 318–19 5–6

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(1982) (employees are frequently “in a poor position to argue about the terms of the employment contract” and the noncompetition agreements foster monopoly). Such concerns arise primarily because the “employee typically has only his own labor or skills to sell and often is not in a position to bargain with his employer,” Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496 (1986), and because “the employee is likely to give scant attention to the hardship he may later suffer through the loss of his livelihood.” Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 707 (1982) (quoting Restatement (Second) of Contracts § 188 cmt. g (1981)). Given these issues, such agreements “are scrutinized with particular care.” Sentry Ins. v. Firnstein, 14 Mass. App. Ct. at 707 (quoting Restatement (Second) of Contracts § 188 cmt. g (1981)); Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 312 (“Reluctance to give full effect to postemployment restraints has a long history in the law.”); KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.); Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406, at *3 (Mass. Super. Ct. Oct. 22, 2012) (Wilson, J.); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2 (law takes “disfavorable view of restrictive covenants arising from an employment relationship”); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *6 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *2 (Mass. Super. Ct. June 27, 2002) (Billings, J.); see also Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 496; Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.). But see McFarland v. Schneider, 1998 WL 136133, at *41 n.62 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.) (Where the employee was sophisticated, had access to counsel, entered into the agreement “freely and voluntarily,” renewed the agreement multiple times, “profited handsomely,” owed “the punctilio of an honor the most sensitive” as a partner in an investment firm, and received a ten-year postemployment income stream (“albeit relatively modest”), there was “no reason to give this noncompetition agreement any more restrictive scope and operation, or any greater scrutiny, than is customarily given commercial agreements generally.” (citations omitted)). The reasonableness test applies not only to the circumstances extant at the time of contract formation, but the existing circumstances at the time of enforcement. Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (D. Mass. Aug. 19, 1987). See the discussions under the following subheadings: “Circumstances at Signing,” “Stealth Agreements,” “Circumstances of Termination,” “Extraordinary Hardship,” “Compensation/Low-Level Employee,” and “Contracts of Adhesion,” all under Equity and Fairness, which is under § 5.4.7(b), below. With regard to the circumstances at the inception of the relationship, courts consider, among other things, “the employee’s low rank in the company,” the 3rd Edition 2016

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parties’ relative bargaining power and sophistication, whether there was assistance of counsel, and whether the agreement was entered into “without compulsion (an element frequently not present in the employer-employee context).” Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (rank and bargaining power); Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 639–40 (2004) (bargaining power); Wells v. Wells, 9 Mass. App. Ct. 321, 324–25 (1980) (counsel and compulsion (citations omitted)); BNY Mellon, N.A. v. Schauer, No. 20101344-BLS1, 2010 WL 3326965, at *8 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS, at *6 (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (sophistication); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *3 & nn.1, 6 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.) (sophistication and bargaining power, as (in part) evinced through compensation, about which the court commented, “While not a factor in this Court’s assessment of the issues before it, but rather to explicate what is meant by ‘highly compensated,’ the base pay that would be due to [the plaintiff] if the agreement is enforceable and enforced—and which he suggests is a mere 15 percent of his actual earnings in the most recent year—is just slightly less than three times the compensation of a Justice of the Superior Court.”); McFarland v. Schneider, 1998 WL 136133, at *41 n.62 (sophistication, access to counsel, lack of compulsion). With regard to the other temporal end of the relationship, courts will also consider the circumstances of the discharge. Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (“A discharge from employment, if it is inequitable, may render unenforceable an otherwise enforceable restraint.”); Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 320 (Where “the discharge is inequitable, an otherwise reasonable restraint may not be enforced.”). See Circumstances of Termination, under Equity and Fairness, below. Even this elevated scrutiny and the concerns giving rise to it, however, “do[] not make such covenants unenforceable” given that “[t]he consequence of every covenant not to compete . . . is that the covenantor is deprived of a possible means of earning his living, within a defined area and for a limited time.” Marine Contractors Co. v. Hurley, 365 Mass. 280, 289 (1974); A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *10 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); FMR, LLC v. Swanson, No. 11-1629-BLS2, slip op. at 16–17 (Mass. Super. Ct. May 13, 2011) (Roach, J.); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *6; Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *6–7 (quoting Marine Contractors Co. v. Hurley, 365 Mass. at 289); EMC Corp. v. Allen, 1997 WL 1366836, at *4 (Mass. Super. Ct. Dec. 15, 1997) (Kottmyer, J.); see also Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2. Indeed, the mere fact that such agreements are routinely enforced is itself proof that these concerns can be, and frequently are, overcome. See generally EMC Corp. v. Allen, 1997 WL 1366836, at *4 (“If [the typical] personal hardship . . . constituted irreparable harm overcoming the 5–8

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employer’s legitimate business interests, the protection afforded by covenants not to compete would be meaningless.”). It bears mention, however, that even where the employee-related concerns are overcome, the agreement must still be reasonable. See, e.g., Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 319 (A lack of inequality will “enlarge judicial tolerance of restraints by an employer which might [otherwise] be seen as unreasonable between parties of unequal bargaining strength.”). The reasonableness analysis in the context of an employer-employee relationship has been described as follows: “In deciding the reasonableness of [temporal and geographic] restrictions, the court should consider (1) the nature of the plaintiff’s business, (2) the type of employment involved, (3) the situation of the parties, (4) the employer’s legitimate business interests, and (5) the right to work and earn a livelihood.” McFarland v. Schneider, 1998 WL 136133, at *41; see also Richmond Bros. v. Westinghouse Broad. Co., 357 Mass. 106, 109 (1970) (discussing this standard in the context of the temporal limitations); Cavanaugh v. McKenna, 2007 WL 2367556, at *2 (Mass. Super. Ct. July 25, 2007) (Freemont-Smith, J.) (same, quoting All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974)); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *5 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.) (same, quoting Richmond Bros.); IME, Inc. v. Quaranto, 1991 WL 11007754, at *10 (Mass. Super. Ct. Feb. 7, 1991) (Barrett, J.).

Noncompetition Agreements Arising from Independent Contractor Relationships Noncompetition agreements arising from an independent contractor relationship are sometimes treated the same as, and sometimes treated differently from, those arising from an employment relationship. See, e.g., Zamora v. Rodriguez, No. 11-0579-A, slip op. at 6 n.1 (Mass. Super. Ct. Mar. 23, 2011) (Wilkins, J.) (“The inability of the contractor to obtain the benefits of employee status may (but will not always) suggest an even greater lack of bargaining power than that of an employee.”); Am. Express Fin. Advisors, Inc. v. Walker, No. Civ. A. 98-01673, 1998 WL 754620, at *2 n.2 (Mass. Super. Ct. Oct. 28, 1998) (Gants, J.) (independent contractors, though treated as employees); Adam Assocs. Int’l, Inc. v. William A. Berry & Son, Inc., No. 05-0997-BLS2 (Mass. Super. Ct. May 1, 2007) (Gants, J.) (independent contractor); TKO, Inc. v. Gentle, No. 94-2537B, 1998 WL 1270649 (Mass. Super. Ct. June 23, 1998) (McEvoy, J.).

Noncompetition Agreements Arising from the Sale of a Business In contexts such as the sale of a business, the same concerns that arise in employee noncompetition agreements (while potentially present) are significantly 3rd Edition 2016

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reduced. See, e.g., Wells v. Wells, 9 Mass. App. Ct. 321, 324 (1980) (“Concern about the restricted individual and the probability of unequal bargaining power between an employer and an employee recedes when the restriction arises in the context of the sale of a business or, as in the case at bar, the sale of an interest in a business.”). As such, as the Supreme Judicial Court has explained, “[i]n the context of the sale of a business, courts look ‘less critically’ at covenants not to compete because they do not implicate an individual’s right to employment to the same degree as in the employment context.” Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 639 (2004) (analogizing franchise agreement to sale of business); see also Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496 (1986); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.). As the Appeals Court has explained, Among the considerations which favor more liberal enforcement of buyer-seller covenants are: that a seller of a business interest may not derogate from the value of the business as sold by competing with it; that the buyer is entitled to the full value of the “benefit and advantages” of his purchase; and that the parties entered into the agreement with the assistance of counsel and without compulsion (an element frequently not present in the employer-employee context). Wells v. Wells, 9 Mass. App. Ct. at 324–25 (citations omitted). Moreover, “there is more likely to be equal bargaining power between the parties; the proceeds of the sale generally enable the seller to support himself temporarily without the immediate practical need to enter into competition with his former business; and a seller is usually paid a premium for agreeing not to compete with the buyer.” Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 496. In addition, the seller has received compensation for the sale, thereby minimizing the hardship caused by enforcement of the agreement. See Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.) (the seller “could hardly complain of financial hardship” where he was “paid handsomely for his interest” in the company he sold). On the other side of the equation, “[w]here the sale of the business includes good will . . . , a broad noncompetition agreement may be necessary to assure that the buyer receives that which he purchased.” Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 496; Alloy Media, LLC v. Landon, No. 11-4397BLS, slip op. at 5 (Mass. Super. Ct. Apr. 24, 2012) (Roach, J.); see also Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.). Thus, “courts consider whether ‘the parties entered into the 5–10

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agreement with the assistance of counsel and without compulsion (an element frequently not present in the employer employee context).’” Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635 (2004) (quoting Wells v. Wells, 9 Mass. App. Ct. at 324–25); see also Wells v. Wells, 9 Mass. App. Ct. at 324 (“The elements that must be considered in order to determine reasonableness differ” between postemployment noncompetition agreements and noncompetition agreements arising in other contexts (quoting Restatement of Contracts § 515 cmt. b (1932)).) With these additional protections in place, courts are more willing to expand the protectable interests and to find the noncompetition agreement reasonable. See, e.g., Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 645–46; Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 102–03 (1979) (interests that would not support a noncompetition agreement against an individual may support enforcement against a business entity); Wells v. Wells, 9 Mass. App. Ct. at 325. Thus, in light of the foregoing, in the context of a sale of a business (or business interest), “restrictions ‘are not rendered unenforceable merely because they protect an interest we might not recognize in any employment setting. Unreasonableness in time, space, or product line, or obstruction of the public interest, are the principal bars to enforcement.” Wells v. Wells, 9 Mass. App. Ct. at 325 (quoting Witinsville Plaza, Inc. v. Kotseas, 378 Mass. at 102–03). However, to the extent that the same concerns as in an employment context are present in a different context, courts will presumably return to a more restrictive review of the reasonableness of the noncompetition agreement and its enforcement. Cf. Wordwave, Inc. v. Owens, 2004 WL 3250472, at *1–2 (considering these concerns when analyzing whether it would be more appropriate to treat the agreement as arising out of an employer-employee agreement or in the context of the sale of a business).

Other Issues of Reasonableness In addition to context, the reasonableness of the noncompetition agreement may be affected by a variety of other factors, including matters entirely outside of the parties’ control. In Marine Contractors Co. v. Hurley, 365 Mass. 280, 289–90 (1974), for example, the reasonableness of the noncompetition agreement was affected by the duration of the legal proceedings. Similarly, the state of the economy may impact a court’s evaluation of the reasonableness of the enforcement of a noncompetition agreement. See All Stainless, Inc. v. Colby, 364 Mass. 773, 781 n.2 (1974); Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 553 (1935); Cognex Corp. v. Eichler, 2009 WL 5408166 (Mass. Super. Ct. June 17, 2009) (MacLeod-Mancuso, J.); Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (Gants, J.); Bear Stearns & Co. v. Sharon, 550 F. Supp. 2d 174, 178 (D. Mass. 2008) (Gorton, J.). Even the relative market position of the former employer can affect the reasonableness of 3rd Edition 2016

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the noncompetition agreement. See Marcam Solutions, Inc. v. Sweeney, 1988 WL 128184, at *2 (Mass. Super. Ct. Mar. 25, 1998) (finding it persuasive that “the plaintiff is vulnerable in the marketplace” as it had a comparatively “small customer base and has experienced declining market share”).

(b)

Modification of Unreasonable Restrictions/Reformation

An unreasonable restrictive covenant will, if feasible, be narrowed (“reformed”) to make it reasonable. As the Supreme Judicial Court explained, “If the covenant is too broad in time, in space or in any other respect, it will be enforced only to the extent that it is reasonable and to the extent that it is severable for the purposes of enforcement.” All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974); see also Blackwell v. Helides, 368 Mass. 225, 228 (1975) (same); New Eng. Tree Expert Co. v. Russell, 306 Mass. 504, 509 (1940) (“It is settled in this Commonwealth that such contracts are divisible and will not be enforced as to any parts of the covenant that are not reasonably necessary . . . .”); Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (Dec. 7, 2004) (Muse, J.); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *11 (Feb. 12, 2004) (refusing to enforce noncompetition agreement where the “geographical restraint [was] completely arbitrary” and did not serve to protect any goodwill). It bears mention that a slight variation has been stated as, “If a covenant is too broad in space, time or any other respect, it will be enforced only to the extent that it is reasonable and then only to the extent that the reasonable component is severable from the remainder.” McFarland v. Schneider, 1998 WL 136133, at *41 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.) (emphasis added). Accordingly, courts will narrow an overly broad noncompetition agreement if it is in fact capable of being narrowed. Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 147 (1979); All Stainless, Inc. v. Colby, 364 Mass. at 778; Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 718 (1961); New Eng. Tree Expert Co. v. Russell, 306 Mass. at 508–09; Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 312 (1982); Catania v. Hallisey, 352 Mass. 327, 331 (1967). But see Steelcraft, Inc. v. Mobi Med., LLC, C.A. No. 08-1934, at *3 (Mass. Super. Ct. Nov. 10, 2008) (Tucker, J.) (court undertook no effort to reform oral noncompetition agreement where the agreement contained no time limit or geographic reach). The purpose of permitting such reformation is to achieve, as closely as possible, the intent of the parties. See Edgecomb v. Edmonston, 257 Mass. 12, 20–21 (1926). Consistent therewith, an overly broad restriction that will be rendered too vague by attempting to scale it back will be deemed unenforceable. Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *8–9 (although impermissibly broad, the noncompetition agreement was too vague to be 5–12

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scaled back and appeared directed toward restraining ordinary competition). Likewise, a restriction that starts out too vague or ambiguous to provide the court with a sufficient understanding of its intended scope runs the risk of being deemed unenforceable. Payson’s Trucking, Inc. v. Yeskevicz, C.A. No. 20060155B, at *1 (Mass. Super. Ct. Mar. 27, 2006) (Anges, J.). In contrast, even a poorly drafted agreement that is capable of providing the court with an understanding of its intended effect will be enforced. Acordia N.E., Inc. v. Academic Risk Res. & Ins., LLC, 2005 WL 704870, at *3–4 & n.5 (Mass. Super. Ct. Jan. 5, 2005); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4–5 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (observing that agreement failed to provide sufficiently clear expression of its intended scope as would enable court to reasonably reform it). Thus, the reformation approach seeks to balance giving effect to the parties’ intentions to the extent reasonably permissible against wholesale rewriting of the agreed-upon restrictions based solely on the court’s judgment. The approach differs from the so-called blue pencil approach, in which a court simply deletes the offending language (literally crossing it out, with no new language written in) and, if—but only if—the agreement still makes sense with such language omitted, enforces the balance of the contract as written. See Edgecomb v. Edmonston, 257 Mass. at 20 (explaining blue pencil doctrine); Compass Bank v. Hartley, 430 F. Supp. 2d 973, 979 (D. Ariz. 2006) (blue penciling allows elimination of “grammatically severable, unreasonable provisions”); Hamrick v. Kelly, 392 S.E.2d 518, 519 (Ga. 1990) (“The ‘blue pencil’ marks, but it does not write.”). The approach also differs from the “red-pencil” approach taken in some states where a noncompetition agreement that purports to be more restrictive than the court deems necessary will be deemed unenforceable in its entirety, regardless of whether the agreement is capable of being narrowed. See, e.g., Harville v. Gunter, 495 S.E.2d 862, 864 (Ga. Ct. App. 1998) (agreement must be enforceable as written).

§ 5.2.2

Duration

The duration, like all other aspects of a restrictive covenant, must be reasonable. What is reasonable depends on many factors, including, among other things, the context in which the agreement arises, the interests sought to be protected, and the nature of the industry. See § 5.2.1, Reasonableness, above. Significantly, even if a time limitation is not expressly stated, a court may allow enforcement “for a ‘reasonable time.’” Catania v. Hallisey, 352 Mass. 327, 331 (1967) (quoting Childs v. Sherman, 351 Mass. 450, 456 (1966)). But see Steelcraft, Inc. v. Mobi Med., LLC, C.A. No. 08-1934, at *3 (Mass. Super. Ct. Nov. 10, 2008) (Tucker, J.) (absence of agreed-upon duration renders agreement unreasonable). Accordingly, “[t]he phrase ‘maximum period allowed by law’ used in the context 3rd Edition 2016

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of noncompetition agreements has no relevance under Massachusetts law, which evaluates the length of these agreements for reasonableness on a case-by-case basis.” Felix A. Marino Co. v. Anderson, 76 Mass. App. Ct. 1127 (2010) (unpublished decision; text available at 2010 WL 1655824, at *1 n.4). Generally, in the context of an employment relationship, a one-year duration has routinely been viewed as reasonable. See, e.g., Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *8 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.); Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.); EMC Corp. v. Allen, 1997 WL 1366836 (Mass. Super. Ct. Dec. 15, 1997) (Kottmyer, J.); Marcam Corp. v. Orchard, 885 F. Supp. 294, 296 (D. Mass. 1995) (Lindsay, J.). However, longer periods have also frequently been found to be entirely reasonable. See, e.g., Blackwell v. E.M. Helides, Jr., Inc., 368 Mass. 225, 229 (1975) (three years in real estate and brokerage business); Marine Contractors Co. v. Hurley, 365 Mass. 280, 289–90 (1974) (three years was reasonable, although “[t]he original five-year duration of the agreement might be somewhat troublesome”); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 718 (1961) (three years was reasonable when signed as part of restitution agreement by former employee); All Stainless, Inc. v. Colby, 364 Mass. 778, 779 (1974) (two years for salesman); New Eng. Tree Expert Co. v. Russell, 306 Mass. 504, 509 (1940) (three years); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.) (eighteen months in private jet company to protect goodwill); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *5 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.) (eighteen months in competitive legal recruiting industry, particularly when employee needed to be trained); McFarland v. Schneider, 1998 WL 136133, at *41 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.) (five-year ban on only solicitation of clients for investment advisor); cf. Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (Dec. 7, 2004) (Muse, J.) (two-year nonsolicitation agreement found to be reasonable in duration); Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444, at *4 (Mass. Super. Ct. Nov. 25, 1997) (Burnes, J.) (same). In certain circumstances, however, even one year may be too long. BNY Mellon, N.A. v. Schauer, No. 2010-1344BLS1, 2010 WL 3326965, at *10 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.) (reduced term to four months for nonsolicitation of wealth management clients); Am. Express Fin. Advisors, Inc. v. Walker, No. Civ. A. 98-01673, 1998 WL 754620, at *8 (Mass. Super. Ct. Oct. 28, 1998) (Gants, J.) (reduced term to four months to enable a broker-dealer to establish a relationship with former financial advisor’s clients). 5–14

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In other contexts, courts are more tolerant of significantly longer periods. See, e.g., Loranger Constr. Co. v. C. Franklin Corp., 355 Mass. 727, 730 (1969) (three years in narrow geographic area for independent contractor); Childs v. Sherman, 351 Mass. at 456 (two years for business restructuring); Tobin v. Cody, 343 Mass. 716, 723–24 (1962) (lifetime injunction in one county); Bonneau v. Meaney, 343 Mass. 368, 370–71 (1961) (twenty years for sale of business that operated in limited geographic area); R.M. Sedrose, Inc. v. Mazmanian, 326 Mass. 578 (1950) (five years pursuant to lease); Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 497 (1986) (five years for sale of business); Wells v. Wells, 9 Mass. App. Ct. 321, 324 (1980) (fifty-two months, which roughly equated to term of payout); Cavanaugh v. McKenna, 2007 WL 2367556 (Mass. Super. Ct. July 25, 2007) (Freemont-Smith, J.) (for as long as ex-husband operated funeral home); Adam Assocs. Int’l, Inc. v. William A. Berry & Son, C.A. No. 05-0997-BLS2 (Mass. Super. Ct. May 1, 2007) (Gants, J.) (three years in independent contractor agreement); Quaboag Transfer, Inc. v. Halpin, C.A. Nos. 02-0868A, 02-0869A (Mass. Super. Ct. Mar. 11, 2005) (Agnes, J.) (twelve years for sale of business). Depending on the business interests sought to be protected, the temporal limitation may be less of an issue, and may even allow for a restriction of indefinite, possibly unlimited, duration. For example, when the primary purpose of the noncompetition agreement is to protect confidential information and trade secrets—which have a potentially infinite duration—the temporal restriction has been viewed more liberally. Oxford Global Res., Inc. v. Cerasoli, 05-4016BLS (Mass. Super. Ct. June 22, 2006) (entering a preliminary injunction without expiration where, “[a]s is common in similar agreements [protecting confidential information], there is no time limitation on [the] obligation.”). Under such circumstances, the company “is entitled to have its trade secrets protected at least until others in the trade are likely, through legitimate business procedures, to have become aware of these secrets.” E. Marble Prods. Corp. v. Roman Marble, Inc., 372 Mass. 835, 842–43 (1977). Thus, unbounded enforcement of the restriction “is not unreasonable merely because it is permanent.” E. Marble Prods. Corp. v. Roman Marble, Inc., 372 Mass. at 842 (quoting Tobin v. Cody, 343 Mass. 716 (1962)); Tobin v. Cody, 343 Mass. at 723 (and cases cited). But see Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 278 n.32 (1980) (suggesting that “open ended” restriction would be “unenforceable as against public policy”). In assessing the reasonableness of the time necessary to protect the trade secret, “‘one factor which should be considered’ . . . [is] ‘the amount of time necessary to reverse engineer the plaintiff’s device without improper use of trade secrets.’” E. Marble Prods. Corp., 372 Mass. at 842–43 (quoting Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 648–49 (1976)). (This approach is known as the “head start 3rd Edition 2016

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rule.” Atl. Research Mktg. Sys., Inc. v. Troy, No. 07-11576-PBS, 2010 WL 1904849, at *8 (D. Mass. 2010).) In this regard, in Eastern Marble Products Corp. v. Roman Marble, Inc., the Supreme Judicial Court considered, among other things, the continued viability of a permanent injunction preventing use or disclosure by the defendants of the plaintiff’s trade secret manufacturing process. Although the defendants had already been enjoined for more than three years by the time of the decision, the court noted that “the permanent injunction may remain proper” and remanded the case for “a reexamination to determine if the process truly remains a trade secret.” E. Marble Prods. Corp. v. Roman Marble, Inc., 372 Mass. at 843.

§ 5.2.3

Geographic Reach

In determining the reasonableness of the geographic scope of a restrictive covenant, geographic reach in absolute terms is not controlling. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 644 (2004) (“even in the employment context, large geographic areas are deemed reasonable in some circumstances”). Rather, a noncompetition agreement must be reasonable in geographic scope “in relation to the interests served.” Lunt v. Campbell, No. 07-3845-BLS, at *6–7 (Fabricant, J., Sept. 2007); see also All Stainless, Inc. v. Colby, 364 Mass. 773, 779 (1974); Marine Contractors Co. v. Hurley, 365 Mass. 280, 289 (1974) (“The geographical scope of the agreement [within 100 miles of Boston] coincides with the area in which Marine performs almost all of its work, and thus is precisely drawn to protect Marine’s good will.”); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 717–18 (1961) (enforcing twenty-six-state limitation, noting that court has “rejected a rule which would arbitrarily limit the restriction to the geographical area of the place of employment”); New Eng. Tree Expert Co. v. Russell, 306 Mass. 504, 510–11 (1940) (appropriate geographic reach governed by reasonableness); Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.) (lack of geographical limit did not preclude national enforcement, as former employer “is a national manufacturer” of its products); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *11 (Feb. 12, 2004) (Burnes, J.) (refusing to enforce noncompetition agreement where the “geographical restraint [was] completely arbitrary” and did not serve to protect any goodwill); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *5 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.) (“essentially unlimited geographical reach” was reasonable “given that the business . . . is the chartering and flying of private jet aircraft all around the country and, indeed, the world”); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (“nationwide scope might be defensible in light of the national practices of [the employer] and, now, of [the employee]”); EMC Corp. v. Allen, 1997 WL 1366836, at *1 (Mass. Super. Ct. Dec. 15, 1997) 5–16

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(Kottmyer, J.) (worldwide restriction was reasonable where employee’s responsibilities had been worldwide); Marcam Corp. v. Orchard, 885 F. Supp. 294, 299 & n.4 (D. Mass. 1995) (Lindsay, J.) (recognizing that permissible restraints sometimes extend beyond reach of company’s business at time employee departs, court noted more generally that “[a] geographic restriction is reasonable as long as it restricts a former employee from doing business in an area in which the company itself conducts business”); cf. Steelcraft, Inc. v. Mobi Med., LLC, C.A. No. 08-1934, at *3 (Mass. Super. Ct. Nov. 10, 2008) (Tucker, J.) (rejecting agreement as unreasonable where no geographic area was agreed upon). The geographic reach of the noncompetition agreement protecting only a company’s goodwill (as opposed to other legitimate business interests (see § 5.2.5(a), below, for a discussion of recognized legitimate business interests)) generally cannot extend beyond the territory serviced by the employer and may sometimes be restricted to the geographic area serviced by the former employee. Blackwell v. E.M. Helides, Jr., Inc., 368 Mass. 225, 229 (1975); All Stainless, Inc. v. Colby, 364 Mass. at 780; Wells v. Wells, 9 Mass. App. Ct. 321, 323–24 (1980); A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *11 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *5 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.); IME, Inc. v. Quaranto, 1991 WL 11007754, at *9 (Mass. Super. Ct. Feb. 7, 1991) (Barrett, J.) (“In some cases, geographic restrictions in covenants not to compete have been limited to the territory in which the employee actually had contact with the employer’s customers. In others, they have closely coincided with the area in which the employer has developed good will.” (citations omitted)). See generally Loranger Constr. Co. v. C. Franklin Corp., 355 Mass. 727, 730 (1969) (“We do not consider the restriction on space to have been too restrictive in the light of [the] fact” that the plaintiff “had customers in the three counties to which the agreement referred.”). But see New Eng. Tree Expert Co. v. Russell, 306 Mass. at 510 (distinguishing earlier cases, court held that there is no established principal tying geographic scope to territory served by salesman; rather, “[t]he test is reasonableness”). As the Appeals Court has explained, the rationale for limiting the prohibition to the location in which the employer did business is “that where there has been no business, there cannot have been much good will.” Wells v. Wells, 9 Mass. App. Ct. at 324. In contrast, a noncompetition agreement necessary to protect confidential information and trade secrets may require a broader geographic reach. All Stainless, Inc. v. Colby, 364 Mass. at 780–81; Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 317 (1982); Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 7 (Mass. Super. Ct. May 9, 2011) (Roach, J.). Not all cases focus on this distinction, however. See Lombard Med. Techs., Inc. v. Johannessen, 2010 WL 2682449, *5 (D. Mass. July 2, 2010) (Gertner, J.) (ignoring distinction when protecting 3rd Edition 2016

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goodwill, but also protecting trade secrets and confidential information). It should be noted, however, that a noncompetition agreement is not unenforceable merely because it operates worldwide; to the extent that worldwide protection is necessary to protect legitimate business interests, worldwide application will be enforced. See Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 643–44; Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *3 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.); Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 7 (Mass. Super. Ct. May 9, 2011) (Roach, J.). When the noncompetition agreement arises from the sale of a business, the geographic reach may generally be larger, as it may properly factor in reasonable expectations for expansion—even if the restriction is intended to protect the company’s goodwill only. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 644; Wells v. Wells, 9 Mass. App. Ct. at 326–27. But see Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4 & n.2 (noting concern that agreement purports to broaden geographic reach to locations where employer “is actively contemplating engaging in”). The problem with the provision in Hurwitz Group was not simply that its reach could potentially increase, but rather that it required the employee (and the court) to be “clairvoyant” as to what the company may be “contemplating.” Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4. Regardless of the context, however, technological advances increase the potential need for—and therefore reasonableness of—protections spanning greater distances. In a case with language as applicable today as it was in 1980 (well before the Internet became ubiquitous), the Massachusetts Appeals Court echoed such a sentiment previously expressed as early as 1898: If it was possible to observe in 1898 in Anchor Elec. Co. v. Hawkes, 171 Mass. 101, 105–106 (1898), that modern communication had expanded an earlier more parochial view of the area of legitimate business interest, this is certainly true in the era of far more rapid travel and transmission of information in which we live. Wells v. Wells, 9 Mass. App. Ct. at 327; see also Synergistics Tech., Inc. vs. Putnam Investments, LLC, 74 Mass. App. Ct. 686, 691 n.3 (2009) (“Technological advances and Internet commerce have further complicated traditional analysis in this area.”). Accordingly, the court in Oxford Global Resources, Inc. v. Guerriero, 2003 WL 23112398 (D. Mass. Dec. 3, 2003) (Woodlock, J.), enforced restrictive covenants that were unlimited geographically, on the ground that the plaintiff’s business—“a nationwide recruiting firm that operates throughout the country using telephone and Internet-based methods”—was “unlike a more traditional sales or services position, where the value of goodwill and confidentiality diminishes rapidly beyond a certain radius.” Oxford Global Res., Inc. v. 5–18

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Guerriero, 2003 WL 23112398, at *9–10. But see Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *11 (although all contacts were made through telephone, court refused to enforce noncompetition agreement because no goodwill was developed through cold calls). The most recent comment on this issue by a Massachusetts appellate level court is in Synergistics Technology, Inc. vs. Putnam Investments, LLC, 74 Mass. App. Ct. 686 (2009). In that case, analyzing claims relating to a noncompete agreement, the Appeals Court observed in a footnote as follows: In this context it is pertinent, but not dispositive, that covenants not to compete are generally disfavored unless they are appropriately limited in time and space, and often require individualized judicial consideration. See Boulanger v. Dunkin’ Donuts, Inc., 442 Mass. 635, 639, 815 N.E.2d 572 (2004), cert. denied, 544 U.S. 922, 125 S. Ct. 1662, 161 L.Ed.2d 480 (2005). Technological advances and Internet commerce have further complicated traditional analysis in this area. Synergistics Tech., Inc. vs. Putnam Investments, LLC, 74 Mass. App. Ct. at 691 n.3 (emphasis added). The fact that the Appeals Court has now reiterated technology’s impact on the enforceability of noncompetition agreement (the first time since 1980—before the Internet was ubiquitous) may portend a greater tolerance for noncompetition agreements with a broad geographic reach, especially in the context in which services are delivered (or deliverable) through the Internet.

§ 5.2.4

Scope of Proscribed Activities

Although Massachusetts courts rarely identify the scope of proscribed activities as a separate element of the analysis, the scope of the noncompetition agreement is nevertheless reviewed. Sometimes it is reviewed as an independent factor, although, more typically, it is incorporated as part of the courts’ analysis of reasonableness and the protection of legitimate business interests. For example, in each of the following cases, the Superior Court reviewed the scope of the proscribed activities as an independent part of its analysis: Cynosure, Inc. v. Detter, No. 201500724, slip op. at 8 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 n.5 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.); Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *8 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2006); and EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 3rd Edition 2016

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14, 2001) (van Gestel, J.). Similarly, in Sherman v. Pfefferkorn, 241 Mass. 468, 475–77 (1922), the Supreme Judicial Court, focusing in on what restrictions were necessary to protect the former employer’s legitimate business interests, refused to enjoin the former employee from mere stock ownership in the competitor or from employment by the competitor in capacities that did not implicate the former employer’s legitimate business interests. In contrast, in Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.), although raising issue in context of its analysis of geographic scope, the court found that plaintiff “has not demonstrated how completely banning [former employee’s] employment in the industry, including administrative services devoid of client contact, would protect [the plaintiff’s] interests in good will or confidential information.” Likewise, in All Stainless, Inc. v. Colby, 364 Mass. 773, 781 (1974), the Supreme Judicial Court analyzed the scope of the restrictions in the context of its review of the legitimate business interests and how they are addressed. In that case, the court stated, Our cases have generally not limited the enforcement of a former salesman’s restrictive covenant so as only to bar sales (a) to persons formerly solicited by the salesman within a geographical area or (b) to those to whom sales were in fact made in that geographical area through the salesman. All Stainless, Inc. v. Colby, 364 Mass. at 781. The court explained that such a limitation would create practical difficulties (both with respect to enforcement and for the new employer) “far greater” than a straight geographical limitation. All Stainless, Inc. v. Colby, 364 Mass. at 781 n.3. But see Whiting Milk Cos. v. O’Connell, 277 Mass. 570, 573–74 (1931) (rejecting straight geographical restriction in favor of restriction based on customers serviced by former employee). In this regard, Massachusetts courts have held that “[i]t [is] not unreasonable to include prospective customers” or new product lines within the scope of the noncompetition agreement, as a company has “a legitimate interest in extending its business to them.” Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 498 (1986) (sale of business context). But see R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *11 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.) (“prospective customers” (without more) was too “vague [as that] term could conceivably include every entity that might hire [the employer]”); Oxford Global Res., Inc. v. Cerasoli, 05-4016BLS (Mass. Super. Ct. June 22, 2006) (refusing to extend injunction to prohibit contact with customers with whom employee had no relationship or that company simply “sought” to service); cf. Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4 & n.2 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (expressing concern over “too many ref5–20

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erences to ‘indirect’ activity” and that broadening geographic reach to unidentified locations in which employer “is actively contemplating engaging in” requires employee (and court) to be “clairvoyant” as to what company may be “contemplating.”). In Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.), the Superior Court reviewed the scope of the purported restrictions as part of the legitimate business interest analysis. There, the court refused to prohibit the employee (an engineer) from working for a company that did not compete, but instead merely manufactured products for the plaintiff’s competitors (as well as others). Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2. However, relying on language that precluded the employee from “directly or indirectly” competing with the former employer, the court determined that certain injunctive relief was appropriate. Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2. Accordingly, while allowing the employee to work at the new employer, the court narrowed the scope of the stated restriction to prohibit the former employee only from “any involvement in contracts relating to” the type of work he had done for his former employer. Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2. Nevertheless, the appropriate scope of a restriction may sometimes extend beyond the specific job function that the employee held at the prior employer. Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 109 (D. Mass. 2012) (Saris, J.) (prohibiting a former salesperson from working for a competitor in a marketing role, the court observed that “[w]hile there are distinctions in sales and marketing roles, it is easy to envision how this type of sales information could be useful to someone who develops marketing plans and advertising campaigns, and who creates products catalogs”).

§ 5.2.5

Legitimate Business Interests

Even when a noncompetition agreement is limited in duration, geographic reach, and scope, it will be enforced “only to the extent . . . necessary to protect the legitimate business interests of the employer.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.); see also Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 641–42 (2004); Marine Contractors Co. v. Hurley, 365 Mass. 280, 287 (1974); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716 (1961); Cynosure, Inc. v. Detter, No. 2015-00724, slip op. at 8 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.); Athenahealth, Inc. v. Cady, No. 13-1098, 2013 WL 4008198, at *4 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.); Akibia, Inc. v. Hood, No. 12-0294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.); Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *4 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Zabota Cmty. Ctr., 3rd Edition 2016

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Inc. v. Frolova, 2006 WL 2089828, at *1 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.); Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.).

(a)

Recognized Legitimate Business Interests

In Massachusetts, the recognized legitimate business interests are generally identified as the protection of trade secrets, confidential information, and goodwill. E.g., Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 641 (2004); New Eng. Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 674 (1977); Marine Contractors Co. v. Hurley, 365 Mass. 280, 287 (1974) (citing All Stainless, Inc. v. Colby, 364 Mass. 773, 779–80 (1974)); Cynosure, Inc. v. Detter, No. 2015-00724, slip op. at 8 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); Patriot Energy Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *9 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.); KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 n.5 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.); Athenahealth, Inc. v. Cady, No. 13-1098, 2013 WL 4008198, at *4 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.); Insight Global, LLC v. Signature Consultants, LLC, No. 2012-4556-BLS1, slip op. at 13 (Mass. Super. Ct. Mar. 1, 2013) (Kaplan, J.); Akibia, Inc. v. Hood, 12-0294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.); Grace Hunt IT Solutions, LLC v. SIS Software, LLC, No. 201200080BLS1, at *3 (Mass. Super. Ct. Feb. 14, 2012) (Lauriat, J.); Randstad Gen. Partner (US) LLC v. Cruz, No. 09-2046-A, slip op. at 4–5 (Mass. Super. Ct. May 28, 2010) (Whitehead, J.); Penders v. Carvajal, No. 2007-2451-E, 2009 WL 4889188 (Mass. Super. Ct. June 22, 2009) (Roach, J.); Lunt v. Campbell, No. 073845-BLS2, 2007 WL 2935864, at *3 (Mass. Super. Ct. Sept. 24, 2007) (Fabricant, J.); Edwards v. Athena Capital Advisors, Inc., No. 07-2418E, 2007 WL 2840360, at *2 (Mass. Super. Ct. Aug. 7, 2007) (MacDonald, J.); Ounce Labs, Inc. v. Harwood, No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2006) (Gants, J.); Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *1 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.). However, courts analyzing restrictive covenants outside of the employment context have occasionally seen fit to expand these traditionally recognized interests. Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 102–03 (1979). For example, in Boulanger v. Dunkin’ Donuts Inc., the Supreme Judicial Court, in the context of a franchise agreement, identified protection of the “franchise system” as a legitimate business interest. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 645–46; see also Curves Int’l, Inc. v. Fox, No. 12-12250-RGS, 2013 WL 1946826, at *2 (D. Mass. May 9, 2013) (Stearns, J.) (protecting the company’s “business of selling fitness franchises”). Curves International notwithstanding, the Boulanger decision has been described by the Superior Court as “suggest[ing] a special affinity by the Supreme Judicial Court for franchise operations.” 5–22

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Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 06-3319BLS1, at *7 (Mass. Super. Ct. Aug. 16, 2006) (van Gestel, J.). Franchise agreements aside, it also bears noting that, in contrast to enforcement of a noncompetition agreement against an individual, legitimate interests are more broadly defined when enforced against a business entity, where “[u]nreasonableness in time, space, or product line, or obstruction of the public interest, are the principal bars to enforcement.” Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 102–03 (1979).

Goodwill “Good will is a broad term and encompasses a variety of intangible business attributes such as the name, location and reputation, which tends to enable the business to retain its patronage.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (quoting Slate Co. v. Bikash, 343 Mass. 172, 175–76 (1961)) (internal quotations omitted). “Goodwill has been defined as a company’s positive reputation in the eyes of its customers or potential customers . . . .” Patriot Energy Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *9 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (citing North Am. Expositions Co. Ltd. P’ship v. Corcoran, 452 Mass. 852, 869–70 (2009)); A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *10 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (citing Marine Contractors Co. v. Hurley, 365 Mass. 280, 287–89 (1974)); Cypress Group, Inc. v. Stride & Assocs., Inc., No. 03-6070-BLS2, 2004 WL 616302, at *3 (Feb. 12, 2004) (Burnes, J.). As such, “[g]ood will generally applies to customer relationships.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 316 (1982) (citations omitted); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *3 (Mass. Super. Ct. June 27, 2002) (Billings, J.); Marcam Corp. v. Orchard, 885 F. Supp. 294, 298 (D. Mass. 1995) (Lindsay, J.). Goodwill does not include the mere knowledge of “sales development to assist [in the development of] marking strategies.” Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 5 (Mass. Super. Ct. May 9, 2011) (Roach, J.). Goodwill “is generated by repeat business with existing customers or by referrals to potential customers.” Patriot Energy Group, Inc. v. Kiley, No. 1304177BLS1, 2014 WL 880880, at *9 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (citing North Am. Expositions Co. Ltd. P’ship v. Corcoran, 452 Mass. 852, 869– 70 (2009)); A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *10 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); Cypress Group, Inc. v. Stride & Assocs., Inc., No. 03-6070-BLS2, 2004 WL 616302, at *3 (citations omitted); Boston Software Sys., Inc. v. Doherty, C.A. No. 07-10593rd Edition 2016

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BLS1, at *5 (Apr. 3, 2007) (van Gestel, J.); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *4 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.) (citing Marine Contractors Co. v. Hurley, 365 Mass. at 287–89). It results from “[p]rompt service, integrity, and loyalty [which] are of some importance to customers who would tend to rely on key personnel who have demonstrated those qualities in the past.” Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 497 (1986). It “is the product of the employees[’] skill, knowledge or customer needs, ‘[p]rompt service, integrity, and loyalty.’” Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *4 (quoting Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 497). “For good will to be protectable, the product or service must normally be of the sort to garner referrals.” IME, Inc. v. Quaranto, 1991 WL 11007754, at *9 (Mass. Super. Ct. Feb. 7, 1991) (Barrett, J.) (citing Folsom Funeral Servs., Inc. v. Rodgers, 6 Mass. App. Ct. 843, 844 (1978) and Nat’l Hearing Aid Ctrs., Inc. v. Avers, 2 Mass. App. Ct. 285, 291–92 (1974)). Moreover, “[i]n order for an individual to infringe on the former employer’s goodwill that individual must be ‘in a position . . . to develop close relationships with a wide range of [the employer’s] customers or suppliers.’” Cypress Group, Inc. v. Stride & Assocs., Inc., No. 03-6070-BLS2, 2004 WL 616302, at *3 (citations omitted) (no goodwill where employee makes only cold calls and is precluded from developing relationship with customer); see also Patriot Energy Group, Inc. v. Kiley, No. 1304177BLS1, 2014 WL 880880, at *9 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (no protectable goodwill where inside sales employee’s “relationship and communications with the customers . . . was sporadic at best” through brief telephone calls and e-mails only and he was therefore “in no position to take [the former employer’s] goodwill with him”); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *5 (finding protectable goodwill where “[a]ny close associations [the employee] had with [the] customers was in his capacity as [an employee]”). Thus, while, for example, “salesman or sales managers have the capacity to injure the good will of their former employers,” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 316 (citations omitted), the mere existence of such a relationship in and of itself is not the end of the inquiry; the employee must be able to exploit the relationship in a way that would “injure . . . the former employer’s good will.” Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *3; Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *4–6 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (“If the employee, during his employment, was ‘not in a position . . . to develop close relationships with a wide range of [the employer’s] customers or suppliers,’ then the employer’s goodwill is not at risk.” (quoting Flexcon Co. v. McSherry, 123 F. Supp. 2d 42, 45 (D. Mass. 2000))). While that ability typically arises from the employee’s close customer contact, “[a]n ability to harm the employer’s good will may

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derive from knowledge of confidential information.” Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.). As a related matter, in order for goodwill to serve as the basis for the enforcement of the noncompetition agreement, the goodwill must belong to the employer—not the employee. See Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 708 (1982); Workflow Solutions, LLC v. Murphy, 2008 WL 4514315, at *1 (Mass. Super. Ct. Sept. 11, 2008) (Fremont-Smith, J.); BNY Mellon, N.A. v. Schauer, No. 2010-1344BLS1, 2010 WL 3326965, at *8 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549BLS2 (Dec. 31, 2007) (Fabricant, J.); Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.); IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 128 (D. Mass. 1999). Distinguishing between employer goodwill and employee goodwill, however, can present significant challenges. See Smith Barney Div. of Citigroup Global Mkts. Inc. v. Griffin, C.A. No. 08-0022-BLS1, at *4 (Mass. Super. Ct. Jan. 23, 2008) (Gants, J.); Boston Software Sys. Inc. v. Doherty, C.A. No. 07-1059BLS1, at *5–6; Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.); McFarland v. Schneider, 1998 WL 136133, at *42–43 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.); RE/MAX of New Eng., Inc. v. Prestige Real Estate, Inc., 2014 WL 3058295, at *3 (D. Mass. July 7, 2014) (O’Toole, J.). As a general matter, three scenarios should be considered: • customer relationships developed by the employee prior to his or her employment; • customer relationships developed by the employer prior to hiring the employee; and • customer relationships developed during the employment relationship. The first category is generally recognized to be goodwill of the employee. See, e.g., Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 708 (1982); Routhier Placement Specialists, Inc. v. Brown, 2002 Mass. Super. LEXIS 362, *5 (Mass. Super. Ct. Sept. 26, 2002) (Agnes, J.). For the same reason, the second category is goodwill of the employer. The third category and the circumstance in which customer relationships fall simultaneously within both category 1 and category 2 are the problem areas. To the extent that theory can be proven in practice, the employer develops its goodwill where, for example, “the employer introduced the client to the salesman or the salesman cultivated his relationship with the client while employed by the employer.” IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d at 128 (citing Bowne of Boston, Inc. v. Levine, 1997 WL 3rd Edition 2016

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781444, at *2); Randstad Gen. Partner (US) LLC v. Cruz, No. 09-2046-A, slip op. at 5 (Mass. Super. Ct. May 28, 2010) (Whitehead, J.); BNY Mellon, N.A. v. Schauer, No. 2010-1344BLS1, 2010 WL 3326965, at *8 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); see also Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (employee “had regular client contact and the opportunity to cultivate good will on [employer’s] behalf”); McFarland v. Schneider, 1998 WL 136133, at *42–43; Lombard Med. Techs., Inc. v. Johannessen, 729 F. Supp. 2d 432, 439 (D. Mass. 2010) (Gertner, J.). But see Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (goodwill was developed by employee). This is the case because (albeit typically overlooked by customers), it is the employer who is supplying, “among other things, the institutional training, support and synergy that enable the employee to provide services of the quality the client values so highly.” McFarland v. Schneider, 1998 WL 136133, at *42–43. It also bears mention that, although not often seen (and almost never expressly distinguished), a distinction can be made between “internal” goodwill and “external” goodwill. Such a distinction was made in McFarland v. Schneider, 1998 WL 136133, at *42–43. While external goodwill is the type described above, internal goodwill was described as follows: The internal element of goodwill, expressly recognized in [the parties’ agreement], is equally important. [The employer], like many other organizations offering professional services to sophisticated clients through highly skilled service providers, is, [by] its very nature, an association of individuals who have the capacity to provide comparable services on their own. Moreover, successful execution of [the employer’s] day-to-day functions depends, at least in part, on [the] formation of relationships of trust and confidence between individual employees and [company] clients. Ultimately, therefore, [the company’s] continued growth and viability depend on nurturing close relationships between its own employees and its clients and on maintaining its own relationship with employees whom it has placed in a position to form client relationships and necessarily supported while those relationships formed and grew. Institutionally, maintaining that internal goodwill produces an enterprise stable and vibrant enough to provide current and prospective employees with a vision of future returns handsome enough to warrant their current investments of energy and insight. Maintaining 5–26

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that internal goodwill promotes a willingness to share information and strategies because it tends to create an atmosphere in which employees believe that rewards flow from their common enterprise and not from amassing institutional information for use in entrepreneurial adventures. And maintaining that internal goodwill helps to prevent the kind of unseemly machinations for acquisition of clients and employees the record in this case demonstrates, machinations that, whatever their success or lack of success, can only have a deleterious—perhaps extremely deleterious—impact on common esprit and morale. McFarland v. Schneider, 1998 WL 136133, at *43. Much of the caselaw on solicitation in Massachusetts deals with former employees soliciting customers from their former employers. Colleagues can generally be expected to have even closer personal relationships than do employees and customers; and wherever closer working relationships are involved, courts must bear in the mind the fact that solicitation can be quite subtle. See Ziplink, LLC v. Pencom Systems, Inc., No. 97-01787B, 1999 WL 1318966, *3 (March 17, 1999) (observing that the solicited employee had “close working relationship” with defendant “and could have been encouraged to apply in any number of subtle ways”). Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007-TSH (D. Mass. May 15, 2013) (selected citations omitted). The court’s analysis in McFarland v. Schneider is instructive not only insofar as it demonstrates that “internal” goodwill is an important legitimate business interest not to be overlooked, but also because it highlights one of the significant connections between goodwill and confidential information (and trade secrets). Specifically, in one respect, goodwill greases the skids for the sharing of confidential information, McFarland v. Schneider, 1998 WL 136133, at *43; in another respect, facts concerning a company’s goodwill (e.g., customer lists) can themselves be confidential information. See “Trade Secrets and Confidential Information,” below; cf. Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2–3 (involving interrelationship between customer information and goodwill).

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The practical ability to protect goodwill has been brought into focus recently with the now ubiquitous use of social media platforms that may further blur the lines between employer goodwill and employee goodwill. See, e.g., KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 n.5 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.) (a LinkedIn profile disclosing an employee’s new employment did not improperly appropriate the former employer’s goodwill where the scope of the employee’s work at the new employer, which was identified in the LinkedIn profile, did not fall within the restricted conduct).

Trade Secrets and Confidential Information It is well established that trade secrets and confidential information are legitimate business interests that may be protected through a noncompetition agreement. See § 5.2, The Law of Noncompetition Agreements, above; Scully Signal Co. v. Guay, 2007 WL 1977714, at *1 (Mass. Super. Ct. June 7, 2007) (Brant, J.); Banner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. Ct. Feb. 23, 2003) (Agnes, J.). As has been explained, “[t]he limitation on employee use of trade secrets or confidential information is based on basic principles of equity.” Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (Mass. Super. Ct. Aug. 15, 2002) (Agnes, J.). Although there is substantial overlap between trade secrets and confidential information, they are in fact different things. For a detailed discussion of trade secrets and confidential information, see chapter 4 of this book; Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants § 2.2.5(a) (MCLE, Inc. 5th ed. 2015).

Special Skills Although Massachusetts courts rarely identify the protection of special skills— as opposed to ordinary skills, which are not protected—as a legitimate business interest, the issue has come up in the negative. Specifically, when explaining a decision not to enforce a noncompetition agreement, courts have occasionally observed that the former employee had no special skills. See, e.g., Club Aluminum Co. v. Young, 263 Mass. 223, 226–28 (1928); Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *6 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Scully Signal Co. v. Guay, 2007 WL 1977714, at *1 (Mass. Super. Ct. June 7, 2007) (Brant, J.); Banner Industries v. Bilodeau, C.A. No. 3236-C (Mass. Super. Ct. Feb. 23, 2003) (Agnes, J.).

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Training Training is virtually never identified as even a potentially legitimate interest. However, in Edwards v. Athena Capital Advisors, 2007 WL 2840360 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.), the company identified “its investment in training its employees” in support of its position that the employee should be held to the noncompetition agreement. Edwards v. Athena Capital Advisors, 2007 WL 2840360, at *4. Instructively, in balancing the respective harms, while the court found that the employee’s “interest in earning a living outweigh[ed the employer’s] speculative interest in training its employees,” it did not summarily reject such an interest as failing to qualify as a recognized legitimate interest. Edwards v. Athena Capital Advisors, 2007 WL 2840360, at *4. More recently, in BNY Mellon, N.A. v. Schauer, 27 Mass. L. Rptr. 329, 2010 WL 3326965, at *8, n.23 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.), the court again raised the issue of training, this time in the negative. Specifically, there, Judge Hinkle stated, “Granted, [the employer] provided [the employee] the platform with which to work, but this was not a case where the employee owed his abilities to the training and experience provided by the employer.” BNY Mellon, N.A. v. Schauer, 27 Mass. L. Rptr. 329, 2010 WL 3326965, at *8, n.23. Similarly, in Patriot Energy Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *10, 12 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.), the court denied a preliminary injunction noting (among other things) that “there is no evidence . . . that [the employer] provided [the employee] with any specialized training.”

(b)

Business Interests That Are Not Recognized as Legitimate

It is well established that protection from “ordinary competition” is not a legitimate business interest, and will not support enforcement a noncompetition agreement. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 641 (2004); All Stainless, Inc. v. Colby, 364 Mass. 773, 779 (1974); Marine Contractors Co. v. Hurley, 365 Mass. 280, 287–88 (1974); Felix A. Marino Co. v. Anderson, 76 Mass. App. Ct. 1127 (2010) (unpublished decision; text available at 2010 WL 1655824, at *1 n.6); Cynosure, Inc. v. Detter, No. 2015-00724, slip op. at 8 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); Patriot Energy Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *9, *12 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.); KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.); Akibia, Inc. v. Hood, No. 12-0294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.); Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *5 (Mass. Super. Ct., Aug. 7, 2007) 3rd Edition 2016

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(Macdonald, J.); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *3–4 (Mass. Super. Ct. June 27, 2002) (Billings, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *6 (D. Mass. Dec. 3, 2003) (Woodlock, J.); Marcam Corp. v. Orchard, 885 F. Supp. 294, 299 (D. Mass. 1995) (Lindsay, J.). Thus, “[a] covenant not to compete which is designed solely to protect the employer from competition is not enforceable.” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *5 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.). As a corollary, “[i]t is well-settled ‘that an employee upon terminating his employment may carry away and use the general skill or knowledge acquired during the course of the employment.’” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *5–6 (quoting Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 267 (1980)); Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 267 (quoting Junker v. Plummer, 320 Mass. 76, 79 (1946)). It is important to note that “‘general knowledge, experience, memory and skill’ belong to the employee even if that knowledge and skill is enhanced by the employment experience.” Banner Indus. v. Bilodeau, C.A. No. 3-236-C (quoting Junker v. Plummer, 320 Mass. 76, 79 (1946)); see also Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 274–75; Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *3 (Mass. Super. Ct. June 27, 2002) (Billings, J.). As the Appeals Court has observed, an argument that the enhancement of the employee’s knowledge and skill belongs to the former employer “is tantamount to an assertion that [the employee’s] skill is a trade secret which [the former employer] owned and continues to own despite termination of the employment relation.” Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 267 (quoting Keohring Co. v. E.D. Etnyre & Co., 254 F. Supp. 334, 339 (N.D. Ill. 1966)).

§ 5.2.6

Public Policy Considerations

Although rarely implicated (see Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444, at *5 n.1 (Mass. Super. Ct. Nov. 25, 1997) (Burnes, J.); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *10 (D. Mass. Dec. 3, 2003) (Woodlock, J.), even if all of the other factors are satisfied, a noncompetition agreement will not be enforced unless it is consonant with public policy. All Stainless, Inc. v. Colby, 364 Mass. 778, 778 (1974); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *11 (Feb. 12, 2004) (Burnes, J.). It bears noting that “the test is not whether enforcing the restrictive covenant would advance the public interest, but, more simply, whether enforcement would be ‘consonant with the public interest’ or ‘not injurious to

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the public interest.’” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *10 (citations and quotations omitted). While there are myriad potential public policy implications, the most basic one implicated by enforcing such agreements (and the one that causes such agreements to receive the level of scrutiny they do) is that “public policy favors an employee’s right to move from job to job unencumbered by restrictions that are not narrowly tailored to protect an employer’s legitimate interests.” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *6 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.) (citing Club Aluminum Co. v. Young, 263 Mass. 223, 225 (1928)); see also Woolley’s Laundry v. Silva, 304 Mass. 383, 387 (1939); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *11–12; Banner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. Ct. Feb. 23, 2003) (Agnes, J.). Others include, for example, national security, L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *10, 12 (Dec. 2, 2004) (van Gestel, J.); impact on nonparties, Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (Gants, J.) (observing that enforcement of the agreement “would be fundamentally unfair to the . . . clients”); Bear Stearns & Co. v. Sharon, 550 F. Supp. 2d 174, 178 (D. Mass. 2008) (Gorton, J.); and the state of the economy, All Stainless, Inc. v. Colby, 364 Mass. 773, 781 n.2 (1974) (comparing decisions “imposing a broad restraint” during wartime with decisions imposing narrow or no restraints “during an economic depression”); Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 553 (1935); cf. Bear Stearns & Co. v. Sharon, 550 F. Supp. 2d 174, 178 (D. Mass. 2008) (Gorton, J.) (discussing irreparable harm, the court considered the implications of the fact that enforcement would occur “in times of economic turmoil”). There are likewise many public policy implications supporting enforcement of restrictive covenants. Indeed, “[a]s a matter of long-standing Massachusetts case law, it is ‘beneficial to the public that contracts for the partial restraint of trade should be upheld to a reasonable extent.’” Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 245 (D. Mass. 2013) (Woodlock, J.) (quoting New Eng. Tree Expert Co. v. Russell, 306 Mass. 504 (1940)), aff’d, 731 F.3d 6 (1st Cir. 2013); see also Aggreko, LLC v. Koronis, No. 13-13034-TSH, 2013 WL 6835165, at *6 (D. Mass. Dec. 19, 2013) (Hillman, J.); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 110 (D. Mass. 2012) (Saris, J.); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398. Public policy recognizes that an employer has a right to protect its trade secrets, confidential information, and goodwill. See, e.g., Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1, slip op. at 6 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.); Edwards v. Athena Capital Advisors, Inc., 2007 WL 2840360, at *2; Boston Scientific Corp. v. Lee, No. 13-13156-DJC, 2014 WL 3rd Edition 2016

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1946687, at *7 (D. Mass. May 14, 2014) (Casper, J.); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 128 (D. Mass. 2010) (Casper, J.). Indeed, the protection of trade secrets, confidential information, and goodwill are the primary reason that noncompetition agreements are enforceable. Consistent with the trade secrets and confidential information policies, and particularly apropos of the public discussions in Massachusetts concerning modification of Massachusetts noncompetition and trade secrets laws, “[i]t is in the public interest to protect and create incentives for innovation.” Enargy Power Co. v. Xiaolong Wang, No. 13-11348-DJC, 2013 WL 6234625, at *10 (D. Mass. Dec. 3, 2013) (Casper, J.). More generally, there is also a public interest in “uphold[ing] the duty to honor one’s word, and respect a contract that an individual entered knowingly, willingly and voluntarily, for financial gain.” E. Bag & Paper Co. v. Ross, 2007 WL 2367636, at *3 (June 23, 2007); see also New Eng. Tree Expert Co. v. Russell, 306 Mass. 504, 508–09 (1940); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *12; EMC Corp. v. Allen, 1997 WL 1366836, at *5 (Mass. Super. Ct. Dec. 15, 1997) (Kottmyer, J.).

§ 5.2.7

Statutory and Rule-Based Industry Exemptions

Certain broad-based exceptions to the enforceability of noncompetition agreements have developed over time. Some have arisen by statute (physicians, nurses, psychiatrists, social workers, and members of the broadcast industry), while others have been the result of specialized industry rules (lawyers and certain members of the financial services industry). Each is discussed below and at greater length in Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants § 2.2.7 (MCLE, Inc. 5th ed. 2015).

(a)

Statutory Exemptions

Physicians General Laws Chapter 112, § 12X prohibits the enforcement of noncompetition agreements against physicians. See Pettingell v. Morrison, Mahoney & Miller, 426 Mass. 253, 257 (1997); Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. 176, 179 & n.5 (1994). The policy underlying Section 12X is that “[t]he law should provide the fullest possible freedom of choice to [patients].” Pettingell v. Morrison, Mahoney & Miller, 426 Mass. at 257; Falmouth Ob-Gyn Assocs. v. Abisla, 417 Mass. at 182 (quoting Meehan v. Shaughnessy, 404 Mass. 419, 431 (1989), and noting that both the physician exemption under Section 12X and the 5–32

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rule applicable to lawyers reflect “a choice between competing policies”). It bears mention that the court did not expressly foreclose the possibility that a forfeiture for competition or compensation for competition clause tying liquidated damages to something other than the competition might be enforceable. Instructively, in a later case, Judge Zobel took a broader view of the statute’s scope—one that did not seem to derive from the physician-client relationship. Specifically, in Metroplex Pathology Associates v. Horn, 2013 WL 22197 (D. Mass. Jan. 2, 2013), Judge Zobel noted that “[p]laintiffs argue that M.G.L. c. 112, § 12X applies only to physicians who deal directly with patients, not to doctors like [the defendants], who work in a lab analyzing biopsies and tissue slides. The language of the statute, however, contains no such limitations, and plaintiffs have cited no case law espousing their view.” Metroplex Pathology Assocs. v. Horn, 2013 WL 22197, at *4 n.7. Similarly, although less determinative, when Judge Leibensperger of the Superior Court was even more recently faced with a non-physician-client issue, he “declined [at the preliminary injunction stage of the litigation] to address whether the provisions of the [relevant agreements] directed to prohibiting management activity of a practice larger than [the physician’s] own practice may be enforced.” Velazquez v. Eye Health Assocs., LLC, 2014 WL 7466732, at *5.

Nurses, Psychiatrists, Social Workers Like the statute applicable to physicians, the legislature has adopted similar exemptions for nurses (G.L. c. 112, § 74D), psychiatrists (G.L. c. 112, § 129B), and social workers (G.L. c. 112, § 135C). Although none of these statutes has been tested in any reported decision, each would presumably be analyzed much in the same way as the physician exemption.

Broadcasters The legislature has also adopted a limited exemption for the broadcast industry where the employment is terminated by the employer, by agreement of the employer and the employee, or by expiration of the employment contract. G.L. c. 149, § 186. The first and only case to date to interpret this statute was issued out of the Business Litigation Session of the Massachusetts Superior Court in late 2007. Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *11, 15 (Mass. Super. Ct. Sept. 19, 2007) (van Gestel, J.) (observing that “[t]he Court, therefore, writes here on a tabula rasa”). In that case, the court noted that “[s]ome limited statutory history suggests that the reasoning behind the law is the substantial imbalance in bargaining power between employers and employees in this industry, resulting from the concentration of ownership of broadcasting companies.” Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *11. 3rd Edition 2016

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Nevertheless, the court’s analysis focused on a right of first refusal provision, rather than the noncompetition provisions, but leaving open the possibility that, in certain circumstances, a right of first refusal might violate the statutory proscription on noncompetition agreements. Carr v. Entercom Boston LLC, C.A. No. 072935-BLS1, at *12–14.

(b)

Rule-Based Exemptions

Lawyers Rule 5.6 of the Massachusetts Rules of Professional Conduct prohibits lawyers from entering into noncompetition agreements. SJC Rules 3:07, 5.6. In the seminal case of Pettingell v. Morrison, Mahoney & Miller, 426 Mass. 253 (1997), the Supreme Judicial Court made clear that “[t]he basic concerns of [the rule] are the interests of the clients, not the interrelationship of the partners and former partners as such.” Pettingell v. Morrison, Mahoney & Miller, 426 Mass. at 255. In Pierce v. Morrison Mahoney LLP, 452 Mass. 718 (2008), the Supreme Judicial Court considered the validity of a forfeiture clause that required all partners who withdrew from the firm to forfeit their right to payments for distributions of the firm’s profits. Pierce v. Morrison Mahoney LLP, 452 Mass. at 722–23. The court held that, because departing lawyers were treated equally regardless of whether they compete or not, the agreement did not implicate Rule 5.6, and was therefore enforceable. Pierce v. Morrison Mahoney LLP, 426 Mass. at 726.

Financial Service Providers The financial services industry has received special consideration over time because of the close relationships that frequently arise between clients and their advisors. Not all financial service providers are viewed the same, however, as the natures of the relationships vary depending on both the role of the advisor and the type of client. In this regard, for example, “the relationship between a fund manager and [an] investment advisor . . . does not typically produce or require the kind of intimacy that typically attend[s] the doctor-patient and lawyer-client relationships and even, perhaps, the relationship an investment advisor and an individual.” McFarland v. Schneider, 1998 WL 136133, at *45 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.). Since December 21, 2001, securities dealers have been subject to an industry rule prohibiting the enforcement of noncompetition agreements. Initially, that rule was adopted by National Association of Securities Dealers (NASD). Rule 2110-7; Salomon Smith Barney, Inc. v. Barcomb, 2002 WL 31957010, at *1 (Dec. 10, 2002) (van Gestel, J.). In July 2007, the NASD was replaced by the Financial Industry Regulatory Authority, Inc. (FINRA), which 5–34

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(during the transition period) continued to apply Rule 2110-7 (as well as other NASD rules). Effective March 3, 2009, the Securities and Exchange Commission permitted FINRA to adopt Rule 2110-7 as a FINRA rule (adopted as FINRA Rule 2140). SEC Release No. 34-59495; File No. SR-FINRA-2008-052. Practice Note The noncompetition agreement landscape in Massachusetts continues to evolve, primarily as the result of myriad cases at the trial court level. In addition, as of the writing of this book, there is pending legislation at the Massachusetts Statehouse that would make significant changes to applicable restrictive covenant law. While the legislation, if adopted, would apply prospectively only, arguments have already been surfaced that the law would provide some amount of guidance for the courts in their analysis of the reasonableness of pre-existing restrictive covenants. Accordingly, unless the bill is ultimately rejected by the legislature, practitioners drafting and litigating restrictive covenants would be well advised to consult not only recent case law, but the latest version of the legislation.

§ 5.3

NEGOTIATING AND DRAFTING NONCOMPETITION AGREEMENTS

Practice Note This section is written with an eye toward restrictive covenants in the employment context. As such, it covers the issues that arise in connection with restrictive covenants arising in other, less specific contexts as well.

When negotiating and drafting noncompetition agreements, it must be kept in mind that although Massachusetts courts will typically reform overly broad agreements to fit within the strictures of the law, see, e.g., Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 149 (1979), such favorable treatment should not, and cannot, be assumed, see, e.g., Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *8–9 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.) (noncompetition agreement considered too vague to permit proper reformation). Moreover, to the extent that the noncompetition agreement may implicate interstate or international issues (whether because of a choice of law analysis or because enforcement—or invalidation—is ultimately adjudicated in another state or country), a proper noncompetition agreement should be narrowly tailored and address all potentially significant issues.

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§ 5.3.1

INTELLECTUAL PROPERTY PRACTICE

Requirement of a Writing

Noncompetition agreements are contracts. Subject to certain recognized exceptions, contracts—including employment agreements—need not be in writing. See G.L. c. 259, §§ 1–7 (statute of frauds); G.L. c. 106, § 2-201 (statute of frauds under Massachusetts’s version of the Uniform Commercial Code); Klein v. President & Fellows of Harvard Univ., 25 Mass. App. Ct. 204 (1987) (oral employment agreement). Although courts typically presume the existence of a written instrument (likely because such agreements are almost always in writing, and thus, that is what is presented to the court), no case has expressly required a noncompetition agreement to be in writing or definitively stated that a writing is not required. Recently, however, two Superior Court cases have come close to addressing the issue, albeit ultimately they did not expressly rule on it; nevertheless, they shed at least some (perhaps conflicting) light on the issue. Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (Gants, J.) (requiring “an agreement executed by the employee” (emphasis added); Steelcraft, Inc. v. Mobi Med., LLC, C.A. No. 08-1934 (Mass. Super. Ct. Nov. 10, 2008) (Tucker, J.) (not invalidating the noncompetition agreement on the ground that there was no written agreement, although questioning the employer’s ability to ultimately prove its existence).

§ 5.3.2

Required Elements: Duration, Geographic Reach, Scope of Prohibited Activities

Every noncompetition agreement should address the three essential elements: duration, geographic reach, and scope of the proscribed activities. See § 5.2.2, § 5.2.3, and § 5.2.4, above. Each of these provisions must be drafted with an eye toward what would be reasonable. In addition, care should be taken to tailor the agreement to the specific facts and circumstances existing at the time and likely to exist if and when the covenant will be enforced.

§ 5.3.3

Identification of the Legitimate Business Interests

The legitimate business interests sought to be protected by the noncompetition agreement should be identified with sufficient particularity to enable a reader to understand exactly what is covered by the agreement. In that regard, examples should be included—and denominated as such; confidential information should be identified by type (failure to identify information as confidential can have a preclusive effect on the company’s ability to later claim that it requires protection); 5–36

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and customers and goodwill should be identified by category and relationship to the party to be restricted. Equally importantly, because these interests frequently change and develop over time, the agreement should address that possibility as appropriate. When addressing the need for specificity, care must be taken to avoid unintentionally narrowing the scope of the desired protections. Depending on how the agreement is written, it may be necessary to include a provision that makes clear that the expressed specificity should not be misinterpreted to indicate that matters not specifically identified were intended to be omitted. Although implicit in the above, it bears mention that in order to prepare an agreement that has the best chance of enforcement, the drafter needs more than a passing familiarity with the interests at issue and circumstances giving rise to the need for the noncompetition agreement. A thorough understanding of both the facts and law in this regard is necessary to the proper drafting of such an agreement.

§ 5.3.4

Preparation to Compete

The Appeals Court stated quite unequivocally that absent an express proscription in a party’s agreement, an employee may “prepare to compete.” Brooks Automation, Inc. v. Blueshift Techs., Inc., 69 Mass. App. Ct. 1107, 2007 WL 1713370, *2 (2007) (unpublished opinion) (citing Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 172–73 (1991)); see also Baxter, Inc. v. Landry, 74 Mass. App. Ct. 1102, 2009 WL 838145, *1 (2009) (in an unpublished opinion, noting that, where employees were not subject to a noncompetition or nonsolicitation agreement, they were free to take “active steps” to prepare to compete (citing Augat, Inc. v. Aegis, Inc., 409 Mass. at 172)); DeLong Corp. v. Lucas, 278 F.2d 804, 808 (2d Cir. 1960); Meehan v. Shaughnessy, 404 Mass. 419, 433 (1989) (“We have stated that fiduciaries may plan to compete with the entity to which they owe allegiance, provided that in the course of such arrangements they do not otherwise act in violation of their fiduciary duties.” (internal quotations and citations omitted)); Nat’l Econ. Research Assocs., Inc. v. Evans, 2008 WL 4352600, at *10 (Mass. Super. Ct. Sept. 10, 2008) (Gants, J.); McFarland v. Schneider, 1998 WL 136133, at *46 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.). As noted by Judge McHugh, the fact that persons owing a fiduciary duty may prepare to compete is somewhat ironic: It is, however, somewhat ironic that, in an era where a broad duty of good faith and fair dealing exists between contractual adversaries, see, e.g., Anthony’s Pier Four, Inc. v. HBC Associates, 411 Mass. 451, 3rd Edition 2016

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471–473 . . . (1991); G.L. c. 93A, § 11, we view clandestine preparations for departure as fully consistent with the fiduciary ties that exist between those bound together in ostensibly common cause. Among other things, such preparations are never fully secret and inevitably produce, if not the manipulative excesses this record demonstrates, at least some disruptions of a type that usually spring from the shadowy places where secrecy and intrigue are breeding. McFarland v. Schneider, 1998 WL 136133, at *46 n.76.

§ 5.3.5

Extension/Scaling Back of the Term

Consideration should be given to whether the restrictive period will toll as a consequence of events outside of the employer’s control. For example, it may be appropriate to toll the agreement for the period before the employer learns that the former employee is engaged in proscribed activity. Likewise, it may be appropriate for the agreement to toll until the employer is reasonably able to obtain injunctive relief enjoining the employee’s competitive activity. The enforceability and effectiveness of such provisions has not been extensively addressed. Nevertheless, most courts that have raised the issue have been willing (or at least appeared willing) to extend the term of restrictive covenants when equitable to do so, and particularly when the agreement so provides. See, e.g., Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 492 n.3 (1986) (observing that company did not argue that one of noncompetition agreements “should be extended to give [it] the benefit of having the covenant enforced for [its] full two-year period”); Wells v. Wells, 9 Mass. App. Ct. 321, 328 (1980); Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. 126, 127 n.1 (1975); Oxford Global Res., Inc. v. Cerasoli, 05-4016BLS (Mass. Super. Ct. June 22, 2006) (Gants, J.); Oxford Global Res., Inc. v. Consolo, 2002 WL 32130445, at *6 (Mass. Super. Ct. May 6, 2002) (Botsford, J.). But see Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (raising the concern that such a provision might render the duration of the restriction unreasonable). In the absence of an agreed-upon tolling provision, a court may equitably toll the duration of the restriction when appropriate. Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 243–44 (D. Mass. 2013) (Woodlock, J.), aff’d, 731 F.3d 6 (1st Cir. 2013). But see EMC Corp. v. Arturi, 655 F.3d 75, 77–78 & n.2 (1st Cir. 2011); A-Copy, Inc. v. Michaelson, 599 F.2d 450, 452 (1st Cir. 1978).

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Practice Note This issue becomes potentially much more troublesome to the extent that the noncompetition agreement may be reviewed in another jurisdiction or governed by the law of another state. For example, clauses such as this may be viewed as rendering the entire noncompetition agreement invalid—even where the agreement includes a savings clause (i.e., a provision that states that the invalidation of any particular provision does not invalidate the entire agreement). See, e.g., ALW Mktg. Corp. v. Hill, 422 S.E.2d 9, 13 (Ga. Ct. App. 1992) (finding a noncompetition agreement invalid because the tolling provision “potentially extends the time of such a covenant perpetually”); Prods. Action Int’l v. Mero, 277 F. Supp. 2d 929 (S.D. Ind. 2003). Accordingly, inclusion of such a term should be carefully considered, particularly when the agreement may be interpreted under the laws of another jurisdiction.

§ 5.3.6

Acknowledgment of Consideration, Legitimate Interests and Their Reasonableness, and Irreparable Harm

While provisions acknowledging the existence and adequacy of consideration, existence of the employer’s legitimate interests and their reasonableness, and acknowledging that a breach of the agreement would cause irreparable injury to such interests may be viewed as mere “boilerplate,” they could be helpful in establishing consideration and irreparable injury—particularly if reaffirmed posttermination. See Nat’l Hearing Aid Ctrs., Inc. v. Avers, 2 Mass. App. Ct. 285, 290 (1974); A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *9 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 9 n.2 (Mass. Super. Ct. May 9, 2011) (Roach, J.); Genuine Parts Co. v. Autoparts Int’l, Inc., 26 Mass. L. Rptr. 21, 2009 WL 2603163, *4 (Mass. Super. Ct. Aug. 6, 2009) (McCann, J.); BNY Mellon, N.A. v. Schauer, 27 Mass. L. Rptr. 329, 2010 WL 3326965, at *7, 8, 10 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); E. Bag & Paper Co. v. Ross, 2007 WL 2367636, at *3 (June 23, 2007) (Curran, J.) (“These are not mere words. They are express contract terms.”); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.); Curves Int’l, Inc. v. Fox, No. 12-12250-RGS, 2013 WL 1946826, at *2 (D. Mass. May 9, 2013) (Stearns, J.); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 128 n.8, 131 (D. Mass. 2010) (Casper, J.).

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§ 5.3.7

INTELLECTUAL PROPERTY PRACTICE

Assignment/Successors in Interest

Although no appellate level court has directly addressed the issue, several trial level courts have concluded that noncompetition agreements are not assignable in the absence of consent. See the subheading entitled “Employer’s Changes: Successors and Assigns,” under § 5.4.7(b), below. An agreement must be clear whether—and under what circumstances—it will apply to successor entities, as well as assignees.

§ 5.3.8

Change of Position/Responsibilities

The law is unclear whether a change in position or responsibilities will vitiate an existing noncompetition agreement, thereby requiring execution of either a reaffirmation or entirely new agreement. See the subheading entitled “Change in Position” under § 5.4.7(b), below. Accordingly, the agreement should address what effect a change in position will have on the continuing viability of the agreement. See Slade Gorton & Co. v. O’Neil, 355 Mass. 4, 6, 8–10 (1968) (noncompetition agreement where parties anticipated at outset of employment that employee’s duties would change was assumed to be valid, though it was not enforced for other reasons).

§ 5.3.9

Specification of Remedies

It is good practice for an agreement to expressly state the potential consequences of a breach so that the ramifications are clear. Accordingly, the agreement should explain what injunctive relief may be appropriate, and why such relief would be appropriate. Specification of monetary damages (i.e., a liquidated damages provision) should also be considered. In the absence of such a provision, damages for breach of a noncompetition agreement are typically lost profits, although other damages may be available as well. See, e.g., My Bread v. Jesi, 350 Mass 282, 285–86, 288–89 (1966); Lufkin’s Real Estate, Inc. v. Aseph, 349 Mass. 343, 345–46 (1965); Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 50 (1998) (where confidential employee list is misappropriated, damages may include, “for example, loss of [the company’s] human resource investment in recruiting, training, and retaining its valued employees, especially those women and minorities who may have been underrepresented in professional and executive level positions”); People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 26 Mass. L. Rptr. 582, 2010 WL 1267373, *11 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.); Penders v. Carvajal, 2009 WL 4889188 (Mass. Super. Ct. June 22, 2009) (Roach, J.); Adam Assocs. Int’l, Inc. v. William A. Berry & Son, C.A. No. 5–40

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05-0997-BLS2 (Mass. Super. Ct. May 1, 2007) (Gants, J.); Atl. Research Marketing Sys., Inc. v. Troy, 2010 WL 1904849, *5 (D. Mass. 2010) (Saris, J.) (court took evidence of both disgorgement damages and lost profits); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *11 (D. Mass. Dec. 3, 2003) (Woodlock, J.). Proving such damages, however, can be “particularly difficult and elusive.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 322 (1982); see also Randstad General Partner (US) LLC v. Cruz, C.A. No. 09-2046-A, *6 (Mass. Super Ct. May 28, 2010) (Whitehead, J.); People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 26 Mass. L. Rptr. 582, 2010 WL 1267373, *11 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.); Acordia N.E., Inc. v. Academic Risk Res. & Ins., LLC, 2005 WL 704870, at *5 (Mass. Super. Ct. Jan. 5, 2005). Any liquidated damages provision should be a reasonable estimate of what the likely monetary damages would be. See Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 325 (dissent); see also Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 709 (1982). It bears mention that the specification of monetary damages generally will not affect entitlement to injunctive relief, but will provide some degree of certainty in the amount of the damages in exchange for the potential loss of more significant damages for the employer or more limited damages for the employee. See Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716–17 (1961). But see Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (noting the “rather weak showing of irreparable injury since the [agreements] provide for financial penalties in the event [of a breach]”). Frequently, fee-shifting provisions (i.e., clauses allowing for the recovery of attorney fees) are appropriate, and provide additional disincentive for a departing employee to risk violating the noncompetition agreement. (In the absence of such a provision, recovery of attorney fees is not available for a breach of a noncompetition agreement, except to the extent that they might be available for any other type of case. See, e.g., Mass. R. Civ. P. 11; Fed. R. Civ. P. 11; G.L. c. 231, § 6F.) Quite often (for reasons of corporate culture, to avoid seeming overreaching, or otherwise), companies will choose not to include a fee-shifting provision or will permit the recovery by either party (i.e., either the employer or the employee), rather than just by the employer. An often overlooked provision is a waiver of a bond. While bonds are often not required, they can be quite substantial when they are required. Even where a court would be inclined to require one, however, a waiver may avoid the need. See Randstad Gen. Partner (US) LLC v. Cruz, No. 09-2046-A, slip op. at 7 (Mass. Super. Ct. May 28, 2010) (Whitehead, J.).

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§ 5.3.10 Disclosure Obligations Noncompetition agreements can, and should, include a requirement that the employee provide a copy of the noncompetition agreement to any potential employer. Likewise, the agreement can, and should, require that the employee immediately notify the former employer of any potential employment that is likely to violate his or her obligations under the noncompetition agreement.

§ 5.3.11 Return of Company Property and Information It may seem axiomatic (and it is), but it is important to remember and acknowledge that company property and information belong to the company. Noncompetition agreements should include an express requirement and representation that an employee will not take company property or information, will only use the same for company purposes, and, upon termination of employment, will return to the company any such property or information in the employee’s possession.

§ 5.3.12 Other Terms Noncompetition agreements are nothing more than specialized contracts. As such, typical contractual considerations must be assessed. For example, choice of law and forum selection provisions are typically enforced and lend certainty to the framework in which the noncompetition agreement will be analyzed. See, e.g., Gianocostas v. Interface Group-Mass., Inc., 450 Mass. 715, 723 (2008); Steranko v. Inforex, Inc., 5 Mass. App. Ct. 253, 260 (1977); Anaqua, Inc. v. Bullard, No. 14-1491-BLS1, slip op. at 3–4 (Mass. Super. Ct. July 24, 2014) (Billings, J.); EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2 (Mass. Super. Ct. May 4, 2009) (Neel, J.); Next Generation Vending v. Bruno, C.A. No. 080365-G, at *6, 8 (Mass. Super. Ct. May 20, 2008) (Quinlan, J.); Aware, Inc. v. Ramirez-Mireles, C.A. No. 01-1134-BLS, at *2 (Mass. Super. Ct. Apr. 4, 2001) (van Gestel, J.); Atl. Marine Constr. Co. v. United States Dist. Court for the W. Dist. of Tex., 134 S. Ct. 568, 579–83 (2013) (strengthening forum selection clauses generally); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 125–27 (D. Mass. 2010) (Casper, J.); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *4–6 (D. Mass. Dec. 3, 2003) (Woodlock, J.); BDO Seidman Fin. Servs. v. Gorman, 1994 WL 879698 (Mass. Super. Ct. Apr. 8, 1994) (enforcing choice of New York law). Of course, while the presumption is in favor of enforcement, such provisions do not alter the facts of a case that render their enforcement improper. See, e.g., Aware, Inc. v. Ramirez-Mireles, C.A. No. 01-1134-BLS (Mass. Super. Ct. Apr. 4, 2001) (van Gestel, J.).

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Likewise, although injunctive relief is available through the courts, mandatory mediation, binding mediation, and/or arbitration of the underlying dispute can sometimes provide a relatively more controlled process for the balance of the case. See Nitro-Lift Techs., LLC v. Howard, 133 S. Ct. 500, 501–02 (2012) (per curiam); Bear, Stearns & Co. v. Sharon, 550 F. Supp. 2d 174 (D. Mass. 2008) (Gorton, J.); Morgan Stanley DW Inc. v. Winer, C.A. No. 06-4236-BLS1 (Mass. Super. Ct. Oct. 18, 2006) (van Gestel, J.); Morgan Stanley DW, Inc. v. Clayson, 2005 WL 1009651, at *1, 5 (Mass. Super. Ct. Mar. 14, 2005); Salomon Smith Barney, Inc. v. Barcomb, 2002 WL 31957010, at *1 (Mass. Super. Ct. Dec. 10, 2002) (van Gestel, J.). (Binding mediation (or “Med/Arb”) is, in its essence, a blend of arbitration and mediation; for a discussion of binding mediation, see Russell Beck, “Binding mediation: a nearly perfect imperfect solution,” Mass. Law. Wkly. (Oct. 20, 2008), available at http://www.dolanmedia.com/view. cfm?recID=424451.) It bears noting, however, that even though the arbitral process can be tailored by the parties, only limited judicial review will be available afterward. Adam Assocs. Int’l, Inc. v. William A. Berry & Son, C.A. No. 05-0997BLS2 (Mass. Super. Ct. May 1, 2007) (Gants, J.). Another provision that should be considered is a severability clause, i.e., a provision that permits a court to enforce the agreement to the fullest extent permissible, even if a portion of the agreement is found to be void. Although Massachusetts presumptively permits reformation (see § 5.2.1(b), Modification of Unreasonable Restrictions/Reformation, above), a severability provision is nevertheless a recommended provision to ensure that the parties’ intent in that regard is manifest—especially if the agreement may be reviewed in a different state. As a related matter, consideration must be given to whether the agreement may be reviewed by a court outside of Massachusetts and, if so, how such courts will handle an overreaching restriction. This is particularly true with regard to those states that employ the blue pencil doctrine (see § 5.2.1(b), above). Although the best approach (regardless of jurisdiction) is to specify reasonable restrictions from the outset, some noncompetition agreements attempt to preempt any possible blue pencil problem by including a “step-down” provision, i.e., a clause that identifies multiple decreasing restrictions, stated in the alternative. For example, the agreement might provide that the restricted period will last for two years, but in the event that the two-year period is stricken, the parties agree that the restricted period will be one year instead. Although the effectiveness of (or need for) such a provision in Massachusetts has never been tested, its likely success in other jurisdictions varies. Finally, consideration should be given to the following:

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• an acknowledgment by the employee that he or she will devote his or her best efforts to fulfill his or her duties and full business and professional time to the employer; • a representation that the employee’s employment will not conflict with any prior agreements; • a provision that the obligations survive termination of the employment relationship, regardless of the reason for termination; • a statement that the employee has been given a reasonable time to review the agreement and understands its terms; • an integration clause; and • an acknowledgment that the agreement does not change the at-will nature of the employee’s employment (assuming that the employment is in fact at will).

§ 5.3.13 Additional and Alternative Restrictive Covenants (a)

Garden Leave Clause/Notice Requirement

A “garden leave” clause is a type of noncompetition agreement in which the former employee is compensated during the operative period that his or her activities are restricted. Depending on the specific terms of the clause, the compensation may make enforcement of the noncompetition restriction more palatable. See Marcam Corp. v. Orchard, 885 F. Supp. 294, 298 (D. Mass. 1995) (Lindsay, J.); C.R. Bard, Inc. v. Solano, 1988 WL 92469, *3 (D. Mass. Aug. 4, 1988) (Zobel, J.); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *6 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.); Marcam Solutions, Inc. v. Sweeney, 1988 WL 128184, at *2 (Mass. Super. Ct. Mar. 25, 1998) (Neel, J.). Another variation of such agreements is a provision that gives the employer the option to elect whether—and for how long—it will enforce (and pay for) the restrictive covenant. Reebok Int’l, Ltd. v. Rattet, C.A. No. 08-0747, *6–8 (Mass. Super. Ct. Apr. 29, 2008) (covenant rejected agreement for reasons relating the particular facts of the case and therefore did not decide whether such a provision would be enforceable); cf. Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *2, 6 (court assumed the enforceability of a covenant that required the employee to provide the employer with notice of his new job and

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seven days within which to decide whether to pay the employee to sit out for the full term of the noncompetition agreement). Certain aspects of a garden leave clause can, however, be problematic. For example, in a traditional garden leave clause, the employee remains employed by the former employer, although typically his or her duties are essentially to not work during the restricted period. Such a provision would likely not be enforceable, given that mandating an employee to work for a particular employer against his or her will potentially violates the Thirteenth Amendment and public policy. Cf. Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 06-3319-BLS1, at *9 (Mass. Super. Ct. Aug. 16, 2006) (van Gestel, J.) (“Court should not enter injunctive relief . . . that compels [a party] to continue to operate [a] franchise[].”). This issue was somewhat elided, however, in Bear, Stearns & Co. v. Sharon, 550 F. Supp. 2d 174 (D. Mass. 2008) (Gorton, J.), where the clause not only provided for the continuation of employment, but gave the employer the ability to call on the employee to resume certain duties, as the employer may from time to time require. Bear, Stearns & Co. v. Sharon, 550 F. Supp. 2d at 176, 178–79. There, the court rejected the agreement explaining that “[t]he so-called ‘garden leave’ provision is not a simple restrictive covenant against competition or the solicitation of clients. If it were, a different result might be warranted but to give it full effect would be to force Sharon to submit to Bear Stearns’s whim regarding his employment activity in the near future.” Bear, Stearns & Co. v. Sharon, 550 F. Supp. 2d at 178–79; see also Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008).

(b)

Forfeiture-for-Competition/Compensation-forCompetition Clauses

Forfeiture-for-competition clauses and compensation-for-competition clauses are covenants that impose adverse financial consequences for engaging in competitive activities. See Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. 176, 178–79 & n.4 (1994) (observing that “[t]he terms ‘compensation for competition’ clause and ‘forfeiture for competition’ clause . . . are drawn from a recent article: Reece, “Employee Noncompetition Agreements and Related Restrictive Covenants: A Review and Analysis of Massachusetts Law,” 76 Mass. L. Rev. 2 (1991)”). Typically, in forfeiture-for-competition clauses, the penalty is the forfeiture of the restricted party’s unvested benefits, such as severance pay or stock options or grants. See, e.g., Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. at 180; Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct., 310, 312 (1982); Securitas Sec. Servs. USA, Inc. v. Jenkins, 2003 WL 21781385, at *4 (Mass. Super. Ct. July 18, 2003) (van Gestel, J.). In a compensation-for-competition clause, the penalty is the payment of money, typically tied to the competitive activities; for example, the restricted party might be required to disgorge some or all—or some 3rd Edition 2016

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multiple—of the profits or revenues derived from any competitive activities. See Eisenstein v. Conlin, 444 Mass. 258, 259–60 (2005); Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. at 180; Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 144–49 (1979). Although the specifics of the source of the payment vary among these two types of clauses, they are conceptually the same: a financial penalty for engaging in competitive activities. Prior to 1979, such agreements “receive[d] unconditional enforcement” in Massachusetts. Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 311–12. Since 1979, however, forfeiture-for-competition clauses have been subject “to the same tests of reasonableness as apply to the enforcement of covenants not to engage in competition with a former employer, whether independently or by working for a competitor.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 311–12; Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 144; Securitas Sec. Servs. USA, Inc. v. Jenkins, 2003 WL 21781385, at *4. As the Supreme Judicial Court has expressly recognized, “an agreement requiring forfeiture of deferred compensation (or . . . requiring compensation in the form of liquidated damages) if a former employee competes with his former employer imposes the same ‘inhibitory effect on present and former employees’ as does an agreement absolutely barring competition by a former employee.” Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 417 Mass. at 180 (quoting Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 147–48 n.7); see also Pettingell v. Morrison, Mahoney & Miller, 426 Mass. 253, 256–57 (1997) (observing the same inhibitory effect of a forfeiture-for-competition clause in the context of a lawyer departing a law firm partnership). Instructively, forfeiture-for-competition clauses appear to be afforded somewhat more latitude than noncompetition agreements insofar as there is a possibility of their enforcement even in circumstances in which a true noncompetition agreement would not be enforced. Specifically, as the court in Cheney stated, If the former employee is not working in circumstances in which a covenant not to compete would be enforceable, the burden of justification of the forfeiture becomes particularly onerous on the former employer. In such a case, the former employee’s loss may assume the character of a forfeiture in the classical sense. Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 148. Thus, the court noted, “We do not discount . . . the possibility that a financial inducement to an employee, especially a key employee, to continue to work for his employer might be reasonable in particular instances.” Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 148 & n.8 (“Of course, the careful negotiation of an 5–46

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agreement, particularly an initial agreement, expressing such an interest on the employer’s part would do much to support the enforceability of a forfeiture.”). Presumably, the Cheney court’s tolerance was greater because “[p]ossible forfeitures of deferred compensation present a different problem from the usual postemployment restraint cases in that the question is not whether the employee may follow the occupation he knows, but what price in dollars he shall pay for doing so.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 319. In contrast, such a clause raises the question, “shall the employee be made to forfeit money which he has in fact earned?” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 319. In the end, regardless of the level of justification required, if a forfeiture-forcompetition clause is otherwise enforceable, “the amount and nature of the forfeiture come into play and are subject to modification.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 311–12; Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 147–48 (“Even if the former employee is working in circumstances in which a covenant not to compete would be enforceable, the reasonableness of the employee’s loss must still be weighed, and, in an appropriate case, it might be modified to a reasonable level.”). In analyzing the appropriate amount of the forfeiture, “[t]he amount and nature of the forfeiture and the nature of the employee’s duties and responsibilities in his former and current employment are important.” Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 148. Moreover, “[p]articularly in the case of retirement benefits which an employee has earned, courts should avoid forfeiture of those rights where possible.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 320–21. Thus, for example, “when an employee is discharged in circumstances involving no misconduct by the employee, the employee’s deferred compensation benefits should not be forfeited to the extent those benefits have been earned, even though the employee violates a valid postemployment restriction.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 320–21 (citation omitted). It bears mention that the inclusion of a forfeiture clause does not necessarily preclude equitable relief. See FMR, LLC v. Swanson, No. 11-1629-BLS2, slip op. at 15 (Mass. Super. Ct. May 13, 2011) (Roach, J.) (“I have been presented with no Massachusetts authority that forfeiture is an either/or proposition for purpose of noncompetes. Injunctive relief may co exist with repayment of the consideration, and the employer need not choose between the two. Moreover, in situations as here where the bargained for awards will not fully vest for several years, an employee is not deferring payment of money he has actually earned.”).

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Nonsolicitation Agreements

Nonsolicitation agreements prohibit the solicitation of a company’s customers, but without precluding the former employee from obtaining employment by a competitor. See Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 239, 246 (D. Mass. 2013) (Woodlock, J.), aff’d, 731 F.3d 6 (1st Cir. 2013). See generally Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.); Palladium Group, Inc. v. MacGillivray, No. 2010-2246 (Mass. Super. Ct. Aug. 31, 2010) (Kottmyer, J.); Randstad Gen. Partner (US) LLC v. Cruz, No. 09-2046-A (Mass. Super. Ct. May 28, 2010) (Whitehead, J.); Acordia N.E., Inc. v. Academic Risk Res. & Ins., LLC, 2005 WL 704870, at *3–4 (Mass. Super. Ct. Jan. 5, 2005); Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *1–2 (D. Mass. Aug. 19, 1987). Nevertheless, such agreements are analyzed as though they were standard noncompetition agreements. Randstad Gen. Partner (US) LLC v. Cruz, C.A. No. 09-2046-A, *4 (Mass. Super Ct. May 28, 2010) (Whitehead, J.); BNY Mellon, N.A. v. Schauer, 2010 WL 3326965, at *7–8 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); Smith Barney Div. of Citigroup Global Mkts. Inc. v. Griffin, C.A. No. 08-0022-BLS1, at *4 n.4 (Mass. Super. Ct. Jan. 23, 2008) (Gants, J.); Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.); Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.); Acordia N.E., Inc. v. Academic Risk Res. & Ins., LLC, 2005 WL 704870, at *4; Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.); Chiswick v. Constas, 2004 WL 1895044, at *1 (Mass. Super. Ct. June 17, 2004) (Kane, J.); Oxford Global Res., Inc. v. Consolo, 2002 WL 32130445, at *4 (Mass. Super. Ct. May 6, 2002) (Botsford, J.). Notwithstanding application of the standard noncompetition agreement analysis, because the restricted party is not precluded from employment, courts appear to enforce nonsolicitation agreements somewhat more liberally than they would a standard noncompetition agreement. See, e.g., Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d at 245 (“The time-bound non-solicitation and non-disclosure obligations in this case are less restrictive than other covenants that Massachusetts courts frequently uphold.”). Moreover, in Oxford Global Resources, Inc. v. Consolo, for example, the court considered business interests beyond only the three generally recognized legitimate business interests applicable to employee noncompetition agreements (i.e., goodwill, trade secrets, and confidential information). Specifically, the court expressly identified “business success” as among the legitimate business interests that will support a nonsolicitation agreement. Oxford Global Res., Inc. v. Consolo, 2002 WL 32130445, at *5; cf. Quaboag Transfer, Inc. v. Halpin, C.A. Nos. 02-0868A, 02-0869A (Mass. Super. Ct. Mar. 11, 2005) (Agnes, J.) (referencing protection “from loss or misuse of 5–48

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. . . employees, customers and/or business information” as legitimate interests in the context of a nonraiding provision). (For a discussion of nonraiding agreements, see § 5.3.13(d), below.) But see BNY Mellon, N.A. v. Schauer, No. 20101344BLS1, 2010 WL 3326965, at *9 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.) (applying the standard noncompete analysis, seemingly with the same rigor as applicable to noncompetition agreements). Nevertheless, despite the courts’ apparent willingness toward more liberal enforcement, nonsolicitation agreements must still rigorously satisfy the basic requirements necessary to enforce a noncompetition agreement. See, e.g., Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.); Banc of Am. Corporate Ins. Agency, LLC v. Verille, C.A. No. CV2007-01099 (Mass. Super. Ct. Aug. 6, 2007) (Connors, J.); Tyler Techs., Inc. v. Reidy, 2006 WL 4119598, at *3–4 (Mass. Super. Ct. Oct. 30, 2006) (van Gestel, J.); Smith Barney Div. of Citigroup Global Mkts. Inc. v. Griffin, C.A. No. 08-0022-BLS1, at *4; Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2. Similarly, even where the agreement is enforceable, establishing a breach requires more than mere suspicions. See KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.) (denying preliminary injunction where “the evidence that [the employee] has violated—or that she necessarily will violate—the covenants in her agreement . . . is somewhere between very weak and nonexistent”); Iron Mountain Info. Mgmt., Inc. v. Viewpointe Archive Servs., LLC, 707 F. Supp.2d 92, 111 (D. Mass. 2010) (Collings, J.) (finding “a dearth of evidence [of] material contact” with the customer (emphasis added)); cf. Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406, at *5 (Mass. Super. Ct. Oct. 22, 2012) (Wilson, J.) (“[I]t does not constitute ‘solicitation’ of [the former employer’s] customers to post a notice on [the employee’s] page that she is joining [the new employer]. It would be a very different matter if [the employee] had contacted [the customer] to tell her that she was moving to [the new employer] . . . .”). An issue that arises with nonsolicitation agreements that does not arise with a standard noncompetition agreement is whether, in the absence of an express prohibition, a person can—without solicitation—accept business from a company of the former employer. See generally Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.) (express prohibition on acceptance of business was enforceable). The Appeals Court has answered that question in the negative. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 498–99 (1986) (nonsolicitation agreements may be used to prevent even the acceptance of business from a former employer’s customers); see also Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (there is a “thin line between [an employee] 3rd Edition 2016

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explaining that he has left [his former employer for his new employer] and him subtly encouraging the client to transfer his business from [the former employer] to [the new employer],” but “a real difference between [the former employee] initiating a telephone call or meeting with a former client and the client initiating that contact himself”); McFarland v. Schneider, 1998 WL 136133, at *43–44 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.) (“the difference between solicitation and nonsolicitation . . . can be as metaphysical in fact as the Appeals Court has opined that they may be in theory” and “[the defendant’s] conventions and understandings about disclosing future plans only in response to specific questions do not transform his clear solicitations into some kind of a benign serendipity.”). In contrast, in UBS Paine Webber Inc. v. Dowd, 2001 WL 1772856 (Mass. Super. Ct. Nov. 29, 2001) (van Gestel, J.), the court held that a “weddingstyle” announcement (i.e., notification of the employee’s new job and contact information only) was not a solicitation. See also BNY Mellon, N.A. v. Schauer, 2010 WL 3326965 (Mass. Super. Ct. May 14, 2010); Cabot Money Mgmt., Inc. v. Femia, C.A. No. 04-1188, *5 (Mass. Super. Ct. July 23, 2004) (MacLeod, J.); Am. Express Fin. Advisors, Inc. v. Walker, 1998 WL 754620 (Mass. Super. Ct. Oct. 28, 1998). Solicitation of customers has continued to come up, with courts generally adhering to the “wedding-style” announcement rule. See, e.g., Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337-BLS1, slip op. at 6 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.); Fid. Brokerage Servs. LLC v. Wilder, No. SUCV20113729-G, slip op. at 3 (Mass. Super. Ct. Oct. 25, 2011) (McIntyre, J.); BNY Mellon, N.A. v. Schauer, No. 10-1344BLS1, 2010 WL 3326965 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); Cabot Money Mgmt., Inc. v. Femia, No. 04-1188, slip op. at 5 (Mass. Super. Ct. July 23, 2004) (MacLeod, J.). But see Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406, at *5 (Mass. Super. Ct. Oct. 22, 2012) (Wilson, J.) (suggesting in dicta that had the employee “contacted [the customer] to tell her that she was moving,” such conduct might have been solicitation). Cf. Corporate Techs., Inc. v. Harnett, 731 F.3d 6, 10–11 (1st Cir. 2013) (whether there has been solicitation is a question of fact; liability is not avoided simply because a client made the first contact). The foregoing is not intended to suggest that where the restricted party is entirely uninvolved in that aspect of the new employer’s business, the nonsolicitation agreement can be used to prevent the new employer from receiving business from the same customers. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 500.

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(d)

§ 5.3

No-Raid/Nonraiding/Antiraiding/Antipiracy Agreements

Agreements that prohibit the solicitation of a company’s employees are sometimes referred to as a “nonsolicitation agreement,” but more properly are known as “no-raid,” “nonraiding,” “antiraiding,” or “antipiracy” agreements. See L.H. Reece III, “Employee Noncompetition Agreements and Related Restrictive Covenants: A Review and Analysis of Massachusetts Law,” 76 Mass. L. Rev. 2, 17 (1991). The law in Massachusetts concerning these agreements is comparatively sparse. Nevertheless, even from the dearth of case law, it is clear that while the traditional noncompetition agreement analysis applies to these agreements, the courts are more willing to enforce no-raid agreements than other types of restrictive covenants. See Quaboag Transfer, Inc. v. Halpin, C.A. Nos. 02-0868A, 020869A (Mass. Super. Ct. Mar. 11, 2005) (Agnes, J.) (twelve-year no-raid agreement enforced to protect expanded legitimate business interests, but did not prohibit social contact with former colleagues); see also, e.g., Filmore & Stern, Inc. v. Frankel, 2002 WL 31678307, at *1–2 (Mass. Super. Ct. Sept. 17, 2002) (Fecteau, J.) (enforcing two-year so-called noninterference agreement, including noraid covenant, albeit with no significant analysis, other than interpretation of significance of lack of geographic limitation); Modis, Inc. v. Revolution Group, Ltd., 1999 WL 144198 (Mass. Super. Ct. Dec. 29, 1999) (two-year no-raid agreement); see also Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007TSH (D. Mass. May 15, 2013) (Hillman, J.) (comparing conduct that was insufficient to constitute a breach with conduct that was not). But see KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.) (providing an employee’s name to a thirdparty employer was not a solicitation). Part of the rationale for the increased enforceability of these agreements is that there is no restriction on a former employee’s ability to earn a living; such employee can immediately compete against his or her former employer and hire anyone it wishes outside of a limited pool of restricted employees. Modis, Inc. v. Revolution Group, Ltd., 1999 WL 144198, at *8–9.

(e)

No-Hire and No-Poach Agreements

A variant of nonraiding agreements, a “no-hire” agreement bears specific mention insofar as it is an absolute ban on the hiring—as opposed to just a bar to the solicitation—of a company’s employees. Where such an agreement is necessary to protect legitimate business interests, as opposed to merely protecting from ordinary competition, the agreement will likely be enforceable to the same extent that a nonraiding provision is enforceable. See Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4 & n.3 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (noting, but not deciding, that the particular no-hire agreement seemed reasonable and enforceable); Modis, Inc. v. Revolution Group, Ltd., 1999 WL 144198, at 3rd Edition 2016

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*1, 7 (Mass. Super. Ct. Dec. 29, 1999) (making no distinction between a no-hire agreement and a nonraiding agreement). See generally Linkage Corp. v. Trustees of Boston Univ., 425 Mass. 1, 21 (1997) (tacitly approving such agreements in its observation in dicta that “[t]here is no question that the evidence warranted a finding that [the defendant] had violated the no-hire provisions of the agreements and thus would be liable for breach of contract”). Further support for the enforcement of a no-hire agreement (as distinguished from a standard antiraiding provision) can be found in Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488 (1986), in which the Appeals Court observed, albeit in the context of a nonsolicitation agreement, that, “[a]s a practical matter, the difference between accepting and receiving business on the one hand, and indirectly soliciting on the other, may be more metaphysical than real.” Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 498–99. Given that a no-hire agreement merely eliminates that metaphysical distinction extant in the context of a nonraiding agreement, it seems that a no-hire agreement would likely be enforced in Massachusetts. See Modis, Inc. v. Revolution Group, Ltd., 1999 WL 144198, at *1, 7 (enforcing no-hire agreement without focusing on distinction). Another variant is a “no-poach” agreement. These are agreements between two or more companies (whether connected through a business relationship or not) to refrain from recruiting the other companies’ employees. While their enforceability has not been tested in Massachusetts, a high-profile no-poach agreement was recently challenged by the U.S. Department of Justice (DOJ) in California. The DOJ claimed that the agreement—between Adobe Systems, Inc.; Apple Inc.; Google Inc.; Intel Corp.; Intuit Inc.; and Pixar—violated antitrust laws. That case was settled, however, before it was even filed. The settlement imposed only a five-year prohibition on the use of a no-poach agreement. Accordingly, its impact beyond large competitors is at best dubious.

(f)

Nondisclosure/Confidentiality Agreement (NDA)

A nondisclosure agreement (also known as an “NDA” or “confidentiality agreement”) is an agreement that restricts a person’s use of confidential information and trade secrets. See generally Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 643 n.12 (2004); Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 175 (D. Mass. 2001) (Bowler, J.). Although the standard applicable to its enforceability is rarely discussed, some courts have applied the same standard applicable to other restrictive covenants. Wordwave, Inc. v. Owens, 2004 WL 3250472, at *4 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.) (denying enforcement where no legitimate business interest will be protected); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *3–6 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.) (confidentiality provisions analyzed together with other aspects of 5–52

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noncompetition agreement); see generally Flexcon Co. v. McSherry, 123 F. Supp. 2d 42, 43 (D. Mass. 2000) (Gorton, J.) (although denying preliminary injunctive relief, court noted that defendant “remains under a contractual and general duty not to disclose any confidential or trade secret information he learned during his employment” and that “this Court will be prepared to impose stiff sanctions” if the defendant violated this obligation). It bears mention that a nondisclosure agreement need not specify the particular information considered secret or confidential. USM Corp. v. Marson Fastener Corp., 379 Mass. 90, 99–100 (1979) (“employees knew or should have known” that information at issue was confidential). However, where it does not and the party subject to the restriction is not otherwise on notice that the information is considered confidential, the agreement will not be enforced with respect to such information. Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 277 (1980). Conversely, even where information is specified (or specification is not necessary), the existence of the NDA does not end the inquiry. “Such an agreement cannot make secret that which is not secret.” Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d 1, 5 (1st Cir. 1999) (quoting Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 277); Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *7, 8 (D. Mass. Feb. 6, 2009) (Woodlock, J.); see also Wordwave, Inc. v. Owens, 2004 WL 3250472, at *4 (refusing to enforce confidentiality agreement where information sought to be protected was not confidential); Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *2 (Mass. Super. Ct. Nov. 18, 2004) (NDA cannot be used to protect information that is not confidential or a trade secret). To the extent that the information is confidential, an NDA may be used to prevent the use of confidential information to contact and solicit the former employer’s customers. Robert Half Int’l, Inc. v. Buoncontri, 2003 WL 915181, at *4–5 (Mass. Super. Ct. Jan. 28, 2003) (Botsford, J.). However, nondisclosure agreements cannot be interpreted so broadly as to prevent solicitation of customers known to the restricted party, as to do so would effectively transform a nondisclosure agreement into a nonsolicitation agreement, “render[ing] the latter obsolete.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, C.A. No. 041005 (June 30, 2004) (Agnes, J.); Robert Half Int’l, Inc. v. Buoncontri, 2003 WL 915181, at *5; see also BNY Mellon, N.A. v. Schauer, 27 Mass. L. Rptr. 329, 2010 WL 3326965, at *9 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.) (distinguishing between clients known to the employee or publicly available on the one hand and those not on the other hand). A fortiori, nor can such agreements be effectively converted into noncompetition agreements. Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 278 n.32. 3rd Edition 2016

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(g)

Invention Assignment Agreements

An invention assignment agreement is an agreement that requires employees and others to assign to the company any improvements to the company’s intellectual property. Such agreements both protect the company’s investment in its intellectual property and preserve to the company the benefits of new developments that arise as a consequence of work being done for the company. Invention assignment agreements will generally be enforced. See Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 167, 175 (D. Mass. 2001) (Bowler, J.); Baladevon, Inc. v. Abbott Labs., Inc., 871 F. Supp. 89, 95–96 (D. Mass. 1994) (Saris, J.); Feeney v. Transition Automation, Inc., 2008 WL 190766, at *5–8 (D. Mass. Jan. 9, 2008) (Zobel, J.) (agreement assumed enforceable without analysis); Access Cardio Sys., Inc. v. Fincke, 340 B.R. 127, 147 (Bankr. D. Mass. 2006) (Boroff, J.). It bears mention that, even “[i]n the absence of an executed assignment, equitable principles may oblige a named inventor to transfer ownership of his or her rights in a patent or patent application to another entity.” Access Cardio Sys., Inc. v. Fincke, 340 B.R. at 146–47. Such a duty might arise, for example, where “the inventor stands in a fiduciary relation to the company.” Access Cardio Sys., Inc. v. Fincke, 340 B.R. at 147. Although part of a proper invention assignment agreement, a “trailer clause” is a specific provision that requires disclosure and assignment of any inventions by a former employee made within a specific time following termination of the employment relationship. While the First Circuit has tacitly approved reasonable trailer clauses, see Jamesburry Corp. v. Worcester Valve Co., 443 F.2d 205, 213 (1st Cir. 1971), the Supreme Judicial Court has rejected a ten-year trailer clause, United Shoe Mach. Co. v. La Chapelle, 212 Mass. 467, 485–86 (1912).

§ 5.4

ENFORCING AND DEFENDING AGAINST NONCOMPETITION AGREEMENTS

Practice Note This section is written with an eye toward restrictive covenants in the employment context. As such, it covers the issues that arise in connection with restrictive covenants arising in other, less specific contexts as well.

Many considerations must be taken into account when deciding whether—and, if so, how—to enforce or defend against a restrictive covenant. They are discussed in this section. It bears mention, however, that a party’s analysis should 5–54

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not be undertaken in a vacuum. In addition to considering what action to take with respect to the restrictive covenant, both parties should consider what, if any, claims and counterclaims might arise. For example, either party may have a claim for intentional interference with contractual relations or a former employee may have a claim for unpaid wages. (For a discussion of the myriad causes of action that frequently arise in the context of noncompetition litigation, see Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants ch. 5 (MCLE, Inc. 5th ed. 2015).) With regard to the enforcement of restrictive covenants themselves, however, such agreements are typically enforced at the outset of litigation through temporary restraining orders and preliminary injunctions. The reason for this is that if enforcement were delayed until the end of a case, the restricted period would likely have lapsed and the harm sought to be prevented would have already occurred. As a result, as a practical matter, few cases proceed significantly further after the injunction is granted or denied.

§ 5.4.1

Applicable Standards

“A suit in equity to enforce a negative covenant is actually one for specific performance while not so in form.” Edgecomb v. Edmonston, 257 Mass. 12, 18 (1926); New Eng. Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 675 (1977). The proper “form” is a request for preliminary injunctive relief. (The preliminary injunctive relief can be either or both a temporary restraining order (TRO) or a preliminary junction.) The oft-cited standard for preliminary injunctive relief was set forth in Packaging Industry Group, Inc. v. Cheney, 380 Mass. 609, 616–17 (1980) (itself a noncompetition case), as follows: By definition, a preliminary injunction must be granted or denied after an abbreviated presentation of the facts and the law. On the basis of this record, the moving party must show that, without the requested relief, it may suffer a loss of rights that cannot be vindicated should it prevail after a full hearing on the merits. .... [W]hen asked to grant a preliminary injunction, the judge initially evaluates in combination the moving party’s claim of injury and chance of success on the merits. If the judge is convinced that failure to issue 3rd Edition 2016

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the injunction would subject the moving party to a substantial risk of irreparable harm, the judge must then balance this risk against any similar risk of irreparable harm which granting the injunction would create for the opposing party. What matters as to each party is not the raw amount of irreparable harm the party might conceivably suffer, but rather the risk of such harm in light of the party’s chance of success on the merits. Only where the balance between these risks cuts in favor of the moving party may a preliminary injunction properly issue. Packaging Indus. Group, Inc. v. Cheney, 380 Mass. at 616–17 (footnotes omitted); see also Tri-Nel Mgmt., Inc. v. Bd. of Health of Barnstable, 433 Mass. 217, 219 (2001); GTE Prods. Corp. v. Stewart, 414 Mass. 721, 722–23 (1993); Planned Parenthood League of Mass., Inc. v. Operation Rescue, 406 Mass. 701, 710 (1990); Fid. Brokerage Servs. LLC v. Djelassi, No. 2015-2337 BLS1, slip op. at 4 (Mass. Super. Ct. Aug. 11, 2015) (Leibensperger, J.); Velazquez v. Eye Health Assocs., LLC, 2014 WL 7466732, at *3 (Sept. 30, 2014) (Leibensperger, J.); Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *1, *3 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.); Akibia, Inc. v. Hood, No. 12-0294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.); Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *2 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.); Norkom Techs., Inc. v. Davilman, No. 11-1566BLS2, slip op. at 4 (Mass. Super. Ct. May 9, 2011) (Roach, J.); Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406, at *2 (Mass. Super. Ct. Oct. 22, 2012) (Wilson, J.); Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008); Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *4 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.); Oxford Global Res., Inc. v. Cerasoli, 05-4016BLS (Mass. Super. Ct. June 22, 2006); Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *1 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.). In Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.), the court explained that “the likelihood of success on the merits is a spectrum to be considered in the context of the risk and extent of harm established if an injunction does not issue,” noting that some facts that would not independently support a complete defense must nevertheless “be taken into consideration” in determining likelihood of success. Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *8. Further, a party seeking to enforce a noncompete who demonstrates that the agreement is “reasonable in both geographic and temporal scope . . . enjoys an initial presumption of likelihood of 5–56

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success on the merits.” Genzyme Corp. v. Laidlaw, 84 Mass. App. Ct. 1134 (2014) (unpublished decision; text available at 2014 WL 470409, at *2) (The plaintiff’s “likelihood of success also depends to some degree on the relative constraint on economic freedom and well-being each party will experience from an adverse ruling. This test is also recognized as a factor employed to determine the enforceability of covenants not to compete, and so here probability of success dovetails with the analyses of competing and irreparable harms also relevant to injunctive relief.” (citation omitted)). In addition to the foregoing, “[t]he Court must ‘also consider[] whether the relief sought will adversely affect the public.’” L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS (Dec. 2, 2004) (van Gestel, J.) (citations omitted); see also Tri-Nel Mgmt., Inc. v. Bd. of Health of Barnstable, 433 Mass. 217, 219 (2001) (identifying consideration of any adverse effect on public as part of analysis “[w]hen . . . a party seeks to enjoin governmental action”); GTE Prods. Corp. v. Stewart, 414 Mass. at 722–23 (“In an appropriate case, the risk of harm to the public interest also may be considered” (quoting Brookline v. Goldstein, 388 Mass. 443, 447 (1983))); Cynosure, Inc. v. Detter, No. 201500724, slip op. at 9 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.) (“The public interest may also be considered in a case between private parties where the applicable substantive law involves issues that concern public interest.” (internal citations and quotation marks omitted)); Velazquez v. Eye Health Assocs., LLC, 2014 WL 7466732, at *3 (Sept. 30, 2014) (Leibensperger, J.) (“In an appropriate case, the risk of harm to the public interest also may be considered.” (quoting Town of Brookline v. Goldstein, 388 Mass. 443, 447 (1983))); Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (quoting Brookline v. Goldstein, 388 Mass. at 447); Oxford Global Res., Inc. v. Cerasoli, 05-4016BLS (quoting Brookline v. Goldstein, 388 Mass. at 447). The standard for a preliminary injunction in the First Circuit is similar. Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d 1, 3 (1st Cir. 1999). The standard is as follows: A party seeking a preliminary injunction must establish that (1) it is substantially likely to succeed on the merits of its claim; (2) absent the injunction there is a significant risk of irreparable harm; (3) the balance of hardships weighs in its favor; and (4) the injunction will not harm the public interest. Likelihood of success is the main bearing wall of the four-factor framework. The greater the likelihood of success on the merits, the less risk of irreparable harm to the plaintiff must be shown. In addition, because a preliminary injunction is an equitable remedy, a court 3rd Edition 2016

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may properly consider any inequitable conduct by the plaintiff. Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *4 (quotations and citations omitted); see also Francisco Sanchez v. Esso Standard Oil Co., 572 F.3d 1, 14 (1st Cir. 2009) (similar); Corporate Techs., Inc. v. Harnett, 731 F.3d 6, 9 (1st Cir. 2013) (stating the four elements); Upromise, Inc. v. Angus, 2014 WL 212598, at *4 (D. Mass. Jan. 21, 2014) (Casper, J.) (“To obtain a preliminary injunction, the Plaintiffs must show: (1) a substantial likelihood of success on the merits; (2) a significant risk of irreparable harm if the injunction is withheld; (3) a favorable balance of hardships, and (4) a fit (or lack of friction) between the injunction and the public interest.” (internal quotation marks omitted)); Enargy Power Co. v. Xiaolong Wang, No. 13-11348-DJC, 2013 WL 6234625, at *9 (D. Mass. Dec. 3, 2013) (Casper, J.) (same); Rent-A-PC, Inc. v. March, 2013 WL 2394982, at *1 (D. Mass. May 28, 2013) (O’Toole, J.) (“The issuance of a preliminary injunction depends on (1) the likelihood of success on the merits; (2) the potential for irreparable harm if the injunction is denied; (3) the balance of relevant impositions . . . ; and (4) the effect (if any) of the court’s ruling on the public interest.” (internal quotation marks and citations omitted)); Metroplex Pathology Assocs. v. Horn, 2013 WL 22197, at *3 (D. Mass. Jan. 2, 2013) (Zobel, J.) (same); Avaya, Inc. v. Ali, 2012 WL 2888474, at *6 (D. Mass. July 13, 2012) (Casper, J.) (same); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 125 (D. Mass. 2010) (Casper, J.) (same); Iron Mountain Info. Mgmt., Inc. v. Viewpointe Archive Servs., LLC, 707 F. Supp. 2d 92, 104 (D. Mass. 2010) (Collings, J.); IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 128 (D. Mass. 1999); EEOC v. Astra U.S.A., Inc., 94 F.3d 738, 742 (1st Cir. 1996). One significant difference, however, is that “the question (under federal) law [is] whether a preliminary injunction will harm the public interest” whereas under Massachusetts law, the question is “whether enforcement of the covenant at all (i.e., in a suit for damages) will harm the public interest.” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *12. The party seeking the injunctive relief will bear the burden of proof. See, e.g., Cynosure, Inc. v. Detter, No. 2015-00724, slip op. at 8–9 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *3–4 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.); Banc of Am. Corporate Ins. Agency, LLC v. Verille, C.A. No. CV2007-01099, at *3 (Mass. Super. Ct. Aug. 6, 2007) (Connors, J.); Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *1, 3; Lycos, Inc. v. Jackson, 2004 WL 2341335, at *8 (Mass. Super. Ct. Aug. 25, 2004) (Houston, J.); Hit Dog Training Ctr., Inc. v. Rappoli, C.A. No. 04-3176-BLS, at *5 (Mass. Super. Ct. July 23, 2004) (van Gestel, J.); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *3 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.); McFarland v. Schneider, 1998 WL 136133, at 5–58

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*46 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.); Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444, at *3 (Mass. Super. Ct. Nov. 25, 1997) (Burnes, J.); Upromise, Inc. v. Angus, 2014 WL 212598, at *4 (D. Mass. Jan. 21, 2014) (Casper, J.); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 104 (D. Mass. 2012) (Saris, J.) (stating four-part test and explaining that “the party seeking the injunction bears the burden of demonstrating each factor” (citations omitted)); Iron Mountain Info. Mgmt., Inc. v. Viewpointe Archive Servs., LLC, 707 F. Supp. 2d 92, 104 (D. Mass. 2010) (Collings, J.).

§ 5.4.2

Injunctive Relief Is Not an Entitlement

While the standard is easy to articulate, it must be borne in mind that an injunction is an extraordinary remedy. See Cynosure, Inc. v. Detter, No. 2015-00724, slip op. at 8 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.); Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *3 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.); Akibia, Inc. v. Hood, No. 12-0294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.); Life Image, Inc. v. Brown, No. 201103764, 2011 WL 7443924, at *4 (Mass. Super. Ct. Dec. 22, 2011) (McIntyre, J.); Boston Software Sys., Inc. v. Doherty, C.A. No. 07-1059-BLS1, at *3 (Apr. 3, 2007) (van Gestel, J.); Morgan Stanley DW Inc. v. Winer, C.A. No. 064236-BLS1 (Mass. Super. Ct. Oct. 18, 2006) (van Gestel, J.); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *8 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.). As courts have often observed, “[i]njunctive relief either by way of a temporary restraining order or by a preliminary injunction implicates a power of equity which should be exercised delicately. It should not be exercised routinely and the court should refuse to grant such relief unless the circumstances require it.” Boston Software Sys., Inc. v. Doherty, C.A. No. 071059-BLS1 (Apr. 3, 2007) (van Gestel, J.) (citing Nolan & Sartario, Equitable Remedies (31 Massachusetts Practice Series) § 139 (1993)); Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *1 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.) (same); see also Workflow Solutions, LLC v. Murphy, 2008 WL 4514315, at *1 (Mass. Super. Ct. Sept. 11, 2008) (Fremont-Smith, J.) (“a court should exercise its equitable powers to enforce [an employee noncompetition agreement] sparingly”). “With respect to noncompetition agreements in particular, a court should exercise its equitable powers to enforce them sparingly, since such contracts restrict an individual’s ability to work.” Reebok Int’l, Ltd. v. Rattet, C.A. No. 08-0747, at *4 (Mass. Super. Ct. Apr. 29, 2008) (citing Marine Contractors Co. v. Hurley, 365 Mass. 280, 287 (1974)). In this regard, where material issues of law are unresolved, a plaintiff will have limited ability to establish likelihood of success on the merits. See, e.g., Chiswick v. Constas, 2004 WL 1895044, at *2 (Mass. Super. Ct. June 17, 2004) (Kane, J.). 3rd Edition 2016

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“Ultimately, the decision as to whether to use its equitable powers lies within the sound discretion of this Court.” Reebok Int’l, Ltd. v. Rattet, C.A. No. 08-0747, at *4 (citing Tri-Nel Mgmt., Inc. v. Bd. of Health of Barnstable, 433 Mass. 218, 219 (2001)); Tyler Techs., Inc. v. Reidy, 2006 WL 4119598, at *3 (Mass. Super. Ct. Oct. 30, 2006) (van Gestel, J.) (“The granting of a preliminary injunction rests within the sound discretion of the Court.”); see also Flexcon Co. v. McSherry, 123 F. Supp. 2d 42, 43 (D. Mass. 2000) (Gorton, J.) (“a district court enjoys considerable discretion in applying this test”). Accordingly, as an equitable remedy, a preliminary injunction is a flexible tool, and will prevent form prevailing over substance. The following should be used as a guideline: “Our judicial system is not ‘a mere game of skill or chance’ in which the judge is merely an ‘umpire.’ We will not permit the rules to subvert a just result . . . .” L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *13 (Dec. 2, 2004) (van Gestel, J.) (citation omitted; quoting O’Connor v. City Manager of Medford, 7 Mass. App. Ct. 615, 619 (1979)). As an equitable remedy, a preliminary injunction is a flexible tool, and will prevent form prevailing over substance. See, e.g., Insight Global, LLC v. Signature Consultants, LLC, No. 2012-4556-BLS1, slip op. at 13 (Mass. Super. Ct. Mar. 1, 2013) (Kaplan, J); HX in Boston, LLC v. Berggren, No. 08-510-BLS2, 2008 WL 516582, at *2 (Mass. Super. Ct. Feb. 11, 2008) (Neel, J.); Boston Scientific Corp. v. Lee, No. 13-13156-DJC, 2014 WL 1946687, at *6, *7 (D. Mass. May 14, 2014) (Casper, J.); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 243– 44 (D. Mass. 2013) (Woodlock, J.), aff’d, 731 F.3d 6 (1st Cir. 2013). The following should be used as a guideline: “Our judicial system is not ‘a mere game of skill or chance’ in which the judge is merely an ‘umpire.’ We will not permit the rules to subvert a just result . . . .” L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, slip op. at 13 (Dec. 2, 2004) (van Gestel, J.) (citation omitted; quoting O’Connor v. City Manager of Medford, 7 Mass. App. Ct. 615, 619 (1979)). In that vein, “defendants who have willfully attempted to profit through violation of a confidential relationship need not be placed in as good a position as other, honest competitors. The tendency of the law . . . has been in the direction of enforcing increasingly higher standards of fairness or commercial morality in trade.” Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 649 (1976) (citations and internal quotation marks omitted). Thus, not surprisingly, “[w]here an actual threat of irreparable harm exists, and the credibility of the parties to be enjoined is in question, equitable relief is within the discretion of this Court.” Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007-TSH, slip op. at 24 (D. Mass. May 15, 2013) (Hillman, J.).

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§ 5.4.3

§ 5.4

Initial Considerations

It bears highlighting that a motion for preliminary injunctive relief (whether a temporary restraining order or preliminary injunction) in both state court and federal court in Massachusetts is “granted or denied after an abbreviated presentation of the facts and the law,” Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 616 (1980), and therefore, typically based on only affidavits and/or a verified complaint. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 493–94 (1986); see Campbell Soup Co. v. Giles, 47 F.3d 467, 472 (1st Cir. 1995). However, given “[t]he risk that a party will suffer irreparable harm during the time between the hearing on the preliminary injunction and final adjudication on the merits,” a court may minimize that risk “by consolidating the trial on the merits with the preliminary hearing.” Packaging Indus. Group, Inc. v. Cheney, 380 Mass. at 616 (citing Mass. R. Civ. P. 65(b)(2), as well as Fed. R. Civ. P. 65(a)(2), which was “added to the Federal rules to encourage consolidation”); Campbell Soup Co. v. Giles, 47 F.3d at 470. The court may also, rather than consolidate the two, hold an evidentiary hearing on the preliminary injunction motion. W.B. Mason Co. v. Staples, Inc., 2001 WL 227855, at *1 (Mass. Super. Ct. Jan. 18, 2001) (van Gestel, J.). Thus, if a party wishes an evidentiary hearing or consolidation of the hearing with a trial on the merits, it may request such a procedure. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 493; W.B. Mason Co. v. Staples, Inc., 2001 WL 227855, at *1 (Mass. Super. Ct. Jan. 18, 2001) (van Gestel, J.). In the absence of an evidentiary hearing, the evidentiary support that must be provided is somewhat relaxed, as the motion is made prior to any discovery having been conducted, and “[o]ne would not expect [the plaintiff] to possess extensive direct personal knowledge” of the defendant’s conduct. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 494. Nevertheless, in an effort to achieve an appropriate balance between the risks associated with a premature determination and the need for prompt relief, the courts do require sufficiently detailed affirmations that enable the court to evaluate “the source of the information, the reliability of the source, [and] whether the source observed the facts at issue or is relying on hearsay or rumor.” Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008); UBS Paine Webber Inc. v. Dowd, 2001 WL 1772856, at *2–3 (Mass. Super. Ct. Nov. 29, 2001); Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *2 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *8 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.). Moreover, “given the problems of enforcing injunctions,” courts are “justified in requiring the plaintiff to bear a slightly heavier burden” than the defendant. GTE Prods. Corp. v. Stewart, 414 Mass. 721, 724 (1993).

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§ 5.4.4

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Satisfying the Irreparable Harm Requirement

When evaluating irreparable harm, and in particular, “[i]n determining the harm to the plaintiff, the court need consider only the harm that would not be redressed by final relief.” GTE Prods. Corp. v. Stewart, 414 Mass. 721, 724 (1993); see also Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *6 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 104 (D. Mass. 2012) (Saris, J.). Further, “[t]he stronger the case is on the merits, the less is required to be shown in terms of irreparable harm.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, C.A. No. 04-1005 (June 30, 2004) (Agnes, J.) (citing Gately v. Commonwealth, 2 F.3d 1221, 1224– 25 (1st Cir. 1993)). It bears mention that “[e]conomic harm alone . . . will not suffice as irreparable harm unless ‘the loss threatens the very existence of the movant’s business.’ Hull Mun. Lighting Plant v. Mass. Mun. Wholesale Elec. Co., 399 Mass. 640, 643 (1987).” Tri-Nel Mgmt., Inc. v. Bd. of Health of Barnstable, 433 Mass. 217, 227– 28 (2001); Boston Software Sys., Inc. v. Doherty, C.A. No. 07-1059-BLS1 (Apr. 3, 2007) (van Gestel, J.); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *6 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *3 (Mass. Super. Ct. Apr. 29, 2002) (Kern, J.); see also Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *11 (D. Mass. Dec. 3, 2003) (Woodlock, J.); Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *3 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.). However, even risk of irreparable harm will be enough to warrant injunctive relief, if the risk is reasonably likely. Planned Parenthood League of Mass., Inc. v. Operation Rescue, 406 Mass. at 710; Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 616 (1980); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *3 (Mass. Super. Ct. Apr. 29, 2002) (“While plaintiff need not wait until actual harm occurs, it must show that without the requested relief, it may suffer a loss of right that cannot be vindicated should it prevail after a full hearing on the merits.” (citations and quotations omitted)). But see generally, e.g., Lucent Techs., Inc. v. Tymann, 106 F. Supp. 2d 189, 190–91 (D. Mass. 2000) (Harrington, J.) (plaintiff failed to show “that the defendants have caused the plaintiff any actual harm”). Even risk of serious irreparable harm will be enough to warrant injunctive relief, if the risk is reasonably likely. Planned Parenthood League of Mass., Inc. v. Operation Rescue, 406 Mass. at 710; Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 616 (1980); 7-Eleven, Inc. v. Grewal, 60 F. Supp. 3d 272, 283 (D. Mass. Nov. 20, 2014) (Mastroianni, J.); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 242, 247 (D. Mass. 2013) (Woodlock, J.), aff’d, 731 F.3d 6 (1st Cir. 2013). But see generally, e.g., Lucent Techs., Inc. v. Tymann, 106 F. Supp. 2d 189, 190–91 (D. Mass. 2000) (Harrington, J.) (plaintiff failed to 5–62

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show “that the defendants have caused the plaintiff any actual harm”). Further, “[i]rreparable harm is absent if trial on the merits can be conducted before the injury occurs.” A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *14 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.) (quoting Packaging Indus. Group, Inc. v. Cheney, 380 Mass. at 617 n.11). As Judge Roach recently observed, the employee’s “(and his new employer’s) apparent willingness to test the limits of covenants does not inspire confidence that there will not be future efforts to do so. And, . . . successful efforts to comply with safeguards merely reduce potential harm, they do not erase the fact of the breach. This concern is especially acute with confidential information.” EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *7 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.).

§ 5.4.5

Special Considerations

The harm caused by the loss of trade secrets, confidential information, and goodwill are generally viewed as irreparable. See, e.g., Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 50 (1998) (protection of confidential information may support injunctive relief); Norkom Techs., Inc. v. Davilman, No. 11-1566BLS2, slip op. at 10 (Mass. Super. Ct. May 9, 2011) (Roach, J.); Aggreko, LLC v. Koronis, No. 13-13034-TSH, 2013 WL 6835165, at *5 (D. Mass. Dec. 19, 2013) (Hillman, J.); Advanced Micro Devices, Inc. v. Feldstein, No. 13-40007TSH, slip op. at 23 (D. Mass. May 15, 2013) (Hillman, J.); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 108 (D. Mass. 2012) (Saris, J.); Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 129 (D. Mass. 2010) (Casper, J.); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 32 (D. Mass. 2004) (Gorton, J.) (“The loss of a trade secret is generally found to constitute irreparable harm.”). There are nuances, however.

(a)

Loss of Trade Secrets and Confidential Information as Irreparable Harm

As a threshold matter, “trade secrets [are] a property right that would be infringed by a defendant’s disclosure.” Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 49 (1998) (citing “a seminal case on trade secrets,” Peabody v. Norfolk, 98 Mass. 452, 458 (1868)). However, “[o]nce a trade secret enters the public domain, the possessor’s exclusive rights to the secret are lost,” CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985) (quoted in Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 175 (D. Mass. 2001) (Bowler, J.)), and “once . . . lost, it is gone forever.” Boston Scientific Corp. v. Lee, No. 1313156-DJC, 2014 WL 1946687, at *6 (D. Mass. May 14, 2014) (Casper, J.); 3rd Edition 2016

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Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 32 (D. Mass. 2004) (Gorton, J.) (citation omitted). Thus, injunctive relief must be sought early—before it becomes moot. Such timing and the presumption of irreparable harm notwithstanding, however, “injunctive relief is only appropriate where, on the facts before the Court, irreparable harm is threatened.” Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 32 (injunctive relief was appropriate where company’s continued viability was at stake); see Norkom Techs., Inc. v. Davilman, No. 11-1566-BLS2, slip op. at 7–8 (Mass. Super. Ct. May 9, 2011) (Roach, J.) (“unsupported fears and speculation” that information is being misappropriated “cannot be the basis for admissible or reliable evidence for purposes of preliminary relief,” although a substantial risk of future misappropriation “weighs in the balancing of harms”); Cognex Corp. v. Eichler, No. 09-01902, 2009 WL 5408166 (Mass. Super. Ct. June 17, 2009) (MacLeod-Mancuso, J.) (The court refused to enjoin a senior manager who had significant confidential information, where the former employer “failed to meet its burden of showing that [the employee] has [used] or will use this information to harm its legitimate business interests, or even that her new position will allow her to do so. Mere speculation of irreparable harm is simply insufficient to support [the former employer’s] motion for injunctive relief.”); Aggreko, LLC v. Koronis, No. 13-13034-TSH, 2013 WL 6835165, at *5 (D. Mass. Dec. 19, 2013) (Hillman, J.) (where the defendant had not used the information and agreed to return it to his counsel, fear of future use was “[u]nsupported speculation”). The requirement may be satisfied, however, where the employer can show both possession of confidential information and a position at a new employer that might call on him or her to use or disclose that information. See Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *3 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.) (The court found irreparable harm where the “employee’s knowledge of the competing product will inevitably or inadvertently surface during [his] employment . . . . He will make decisions based on information he holds about [the former employer’s product], and even without formal disclosure, thereby benefit [the new employer]. Under these circumstances, a court order not to disclose will not” protect the former employer.); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 240, 242–43 (D. Mass. 2013) (Woodlock, J.) (finding a likelihood of irreparable harm where the former employee’s “territory . . . remained the same, his potential client universe remain[ed] substantially identical,” he was “of necessity, intimately familiar with [the employer’s] confidential information and client confidential information,” and he would inevitably use that information), aff’d, 731 F.3d 6 (1st Cir. 2013); Iron Mountain Info. Mgmt., Inc. v. Viewpointe Archive Servs., LLC, 707 F. Supp. 2d 92, 110–11 (D. Mass. 2010) (Collings, J.) (The court enjoined the use of confidential information where “the plaintiff would undoubtedly suffer harm that cannot be quantified in monetary terms. By its nature, the injury 5–64

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caused would be irreparable.”). But see Cynosure, Inc. v. Detter, No. 201500724, slip op. at 9, 13 (Mass. Super. Ct. Feb. 26, 2015) (Salinger, J.) (Citing Club Aluminum Co. v. Young, 263 Mass. 223, 227–28 (1928), Judge Salinger stated, “In the absence of evidence that a salesman is using confidential information taken from a former employer, . . . a former employer cannot enforce a non-competition agreement with a former salesperson” (based on the protection of trade secrets), though later in the opinion he suggested that the threat of misuse of such information would be sufficient.). As a related matter, where aspects of the injury are compensable through money damages, no injunction will be issued to prevent those damages. Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 33; cf. Atl. Research Mktg. Sys., Inc. v. Troy, No. 07-11576, 2010 WL 1904849, at *9 n.1 (D. Mass. May 11, 2010) (Saris, J.) (injunction not extended where trade secret already reverse engineered and plaintiff recovered damages). It bears noting that the likely (or inevitable) use of trade secrets may be relevant not just for irreparable harm, but for establishing the likelihood of success on the merits. See Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *5–6 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) (analyzing the issue of inevitable disclosure in the context of the likelihood of success on the merits on the employer’s claim of breach of the noncompete); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d at 241 (“The inevitable disclosure is fully grounded here as a proper consideration under the likelihood of success analysis. See, e.g., Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118 (D. Mass. 2010) (Casper, J.) (considering inevitable disclosure under a likelihood of success analysis where some harm had already occurred).”).

(b)

Loss of Goodwill as Irreparable Harm

Ordinarily, the loss of goodwill will constitute irreparable harm. See, e.g., A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *14 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.); Zona Corp. v. McKinnon, No. PLCV 201100247, 2011 WL 1663094, at *2 (Mass. Super. Ct. Mar. 14, 2011) (Cosgrove, J.); BNY Mellon, N.A. v. Schauer, No. 201001344BLS1, 2010 WL 3326965, at *10 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *6 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.); Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444, at *5 (Mass. Super. Ct. Nov. 25, 1997) (Burnes, J.); Harlan Labs., Inc. v. Campbell, 900 F. Supp. 2d 99, 108 (D. Mass. 2012) (Saris, J.). Nevertheless, certain issues may arise when seeking injunctive relief based on the protection of goodwill. As a threshold matter, loss of goodwill—or at least a 3rd Edition 2016

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true risk of loss of goodwill—must be established. Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *5 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.). In contrast, a showing that the defendant has received business from the plaintiff’s clients or referral sources would “suggest loss of good will in fact.” Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. 126, 132 (1975). Even if loss (or risk of loss) of goodwill can be established, in certain circumstances “the loss of customer good will is not necessarily irreparable.” IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 132 (D. Mass. 1999) (Neiman, J.) (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bishop, 839 F. Supp. 68, 72–75 (D. Me. 1993)); see also Banc of Am. Corporate Ins. Agency, LLC v. Verille, C.A. No. CV2007-01099, at *5 (Mass. Super. Ct. Aug. 6, 2007) (Connors, J.) (loss of goodwill could be remedied through damages); Chiswick v. Constas, 2004 WL 1895044, at *3 (Mass. Super. Ct. June 17, 2004) (Kane, J.); 7-Eleven, Inc. v. Grewal, 60 F. Supp. 3d 272, 283 (D. Mass. Nov. 20, 2014) (Mastroianni, J.) (no irreparable harm where potential lost profits were “miniscule” “in proportion to the company’s total annual profit,” the company’s brand would not lose goodwill, and damages would not be impractical to calculate). As the U.S. District Court for the District of Massachusetts explained, “[t]he possible loss of customers through improper solicitation may not constitute irreparable injury when damages for such losses are available.” IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 132 (D. Mass. 1999) (Neiman, J.) (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bishop, 839 F. Supp. 68, 75 (D. Me. 1993)). In Oxford Global Resources, Inc. v. Guerriero, 2003 WL 23112398 (D. Mass. Dec. 3, 2003) (Woodlock, J.), however, the same court observed that money damages “would not fully capture [lost] goodwill, which is not just lost sales, but lost reputation.” Oxford Global Resources, Inc. v. Guerriero, 2003 WL 23112398, at *11 (noting that harm caused by lost reputation “is not easily measured”). More recently, in evaluating irreparable harm caused by the breach of a nonsolicitation agreement, Judge Woodlock expressed similar concerns, focusing on the practical inability to prove damages. Specifically, in Corporate Technologies, Inc. v. Harnett, 943 F. Supp. 2d 233 (D. Mass. 2013), aff’d, 731 F.3d 6 (1st Cir. 2013), he explained that ongoing breaches of a non-solicitation agreement can . . . constitute irreparable harm. See Lawson Prods., Inc. v. Anderson, No. 12-cv-2882, 2013 WL 1345499, *3 (D. Minn. Apr. 2, 2013). As the court noted in Merrill Lynch v. Rodger, 75 F. Supp. 2d 375, 5–66

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381 (M.D. Pa. 1999), “[w]ere defendants permitted by law to exploit the clientele of their former employers, every investment that reasonably flowed from the exploitation should be included in the damages award. How such a figure could be arrived at escapes us.” In this case, [the former employer] sank significant investments of money and resources into its development of goodwill with its clients through [its former employee]. It would be practically impossible to calculate the extent of the damage to [the former employer] if [the former employee] were permitted to poach his former clients in direct breach of his agreed-upon non-solicitation provision. Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d at 243 (“[I]nevitable disclosure of confidential information can constitute irreparable harm, as can loss of goodwill from solicitation in violation of a restrictive covenant.”). In the Business Litigation Session, the Superior Court took a somewhat different, albeit analogous, approach in determining when loss of goodwill would be viewed as irreparable. In that case, involving insurance brokers and agents, Judge Judith Fabricant explained as follows: The harm threatened is . . . the loss of client business. Such loss can be identified, and can be quantified for any particular period of time; [the plaintiff] knows the identity of its clients, and the amount of revenue it earns from each. The problem, however, is the long term. Once a client transfer its business, there is no way to determine how long it would otherwise have stayed with [the plaintiff], particularly in the absence of the individual employee familiar to it. For that reason, the potential long term harm cannot be fully remedied by money damages. Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.). Similarly, in Randstad General Partner (US) LLC v. Cruz, C.A. No. 09-2046-A (Mass. Super Ct. May 28, 2010), a case involving a nonsolicitation agreement, Judge Whitehead explained his rationale as follows: As to whether [the former employer] will suffer irreparable harm if injunctive relief is not granted, it is clear to the Court that if defendant were permitted to 3rd Edition 2016

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solicit clients in contravention of the agreement and actually acquire their business, and [the former employer] were later to succeed on its claims, it would be virtually impossible to determine whether or not those customers would have joined defendant’s new employer without that solicitation or, even more importantly, how long they might remain and how much future business they might direct to the new employer. Thus it would be impossible to develop a measure of damages that would adequately compensate [the former employer] for its losses. Randstad Gen. Partner (US) LLC v. Cruz, C.A. No. 09-2046-A, at 6.

(c)

The Developing Impact of Social Media

An issue that has been percolating in recent years involves the ubiquitous use of social media. For example, the issue has arisen in determining whether a former employee has misappropriated trade secrets of solicited customers through the use of social media accounts previously used by an employee, at least in part, for business, as well as to demonstrate that the information sought to be protected (typically customer information) is available publicly through LinkedIn, Facebook, Twitter, and other sources. Two of the first cases to focus on the issue were outside of Massachusetts: TEKsystems, Inc. v. Hammernick, No. 0:10-cv-0081 (D. Minn. 2010) and Sasqua Group, Inc. v. Courtney, No. CV 10-528(ADS) (AKT), 2010 WL 3613855 (E.D.N.Y. Aug. 2, 2010) (report and recommendation, subsequently adopted by District Court), each involving recruiting companies. As such, the focus was on protection of customer lists/databases as trade secrets. In TEKsystems, the plaintiff alleged, among other things, that one of the former employees used LinkedIn to • connect with the plaintiff’s customers, which the employee was able to do because of her knowledge of the plaintiff’s customer lists, thereby misappropriating trade secrets; and • solicit TEKsystems’ customers in violation of the employee’s noncompete and nonsolicitation agreements. Because of the procedural posture and a recent settlement, the issues never reached the court for determination. Nevertheless, the case is instructive insofar as it is one of the first, if not the first, in the United States to base a claim for 5–68

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misappropriation of trade secrets and breach of restrictive covenants on the use of a social networking site. In Sasqua Group, the plaintiff claimed that the defendant former employee had misappropriated its database of customer information. Unlike in TEKSystems, the use of LinkedIn and other services was the basis for the defense—not the plaintiff’s claim. Also unlike TEKsystems, Sasqua Group did result in a judicial determination. Specifically, the court found that the customer database at issue was not a trade secret for the very reason that the customers were readily ascertainable through LinkedIn, Facebook, and similar services, sometimes in combination with a simple Google search. Sasqua Group, Inc. v. Courtney, 2010 WL 3613855, at *9–15, *22. After taking testimony demonstrating the ease with which the necessary customer information could be obtained, even by someone with no memory of the information in the client list database, the court had this to say: The information in [the employer’s] database concerning the needs of its clients, their preferences, hiring practices, and business strategies, as well as [the employer’s] acquaintance with key decision-makers at those firms may well have been a protectable trade secret in the early years of [the employer’s] existence when greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here. However, for good or bad, the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story. Sasqua Group, Inc. v. Courtney, 2010 WL 3613855, at *22. It bears mention that the court was influenced (apparently significantly) by the absence of restrictive covenants (noncompetes, nonsolicitation agreements, and nondisclosure agreements), suggesting that the result might have been different had the employer had restrictive covenants in place. Following TEKsystems and Sasqua Group, other cases began to emerge around the country, including PhoneDog v. Kravitz, 2011 WL 5415612 (N.D. Cal. Nov. 8, 2011) (involving a claim of misappropriation based on the employee’s postemployment use of a Twitter account); Eagle v. Morgan, 2012 WL 4739436 (E.D. Pa. Oct. 4, 2012) (involving ownership of a LinkedIn account); and Christou v. Beatport LLC, 849 F. Supp. 2d 1055, 1076 (D. Colo. 2012) (court refused 3rd Edition 2016

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to dismiss a claim between two competitors because a MySpace friends list— with all of the corresponding contact information—might have been a trade secret). For example, in Cellular Accessories for Less, Inc. v. Trinitas LLC, 2014 WL 4627090 (C.D. Cal. 2014), the U.S. District Court for the Central District of California refused to grant summary judgment that LinkedIn contacts were not a trade secret. Cellular Accessories for Less, Inc. v. Trinitas LLC, 2014 WL 4627090, at *3. Noting that customer lists can be protectable trade secrets, although they “are not automatically trade secrets, because many customer lists contain no information which is not ‘easily discoverable through public sources,’” the court held that, because it was unclear “whether and to what degree [the] LinkedIn contacts were . . . made public (and whether that was done with [the former employer’s] explicit or implicit permission),” summary judgment was not appropriate with regard to the LinkedIn contacts. Cellular Accessories for Less, Inc. v. Trinitas LLC, 2014 WL 4627090, at *3. Courts in Massachusetts have also recently begun wrestling with the impact of social media on trade secrets and restrictive covenants cases. For example, in Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406 (Mass. Super. Ct. Oct. 22, 2012) (Wilson, J.), a hairstylist was sued by her former employer (a salon) to prevent, among other things, her use of her own Facebook account. The former employer asserted that the employee’s “friending” of clients and her new employer’s posting on her “wall” that she had joined the new employer constituted both solicitation of clients and use of the salon’s confidential client list. The court rejected the salon’s arguments, focusing on the nonsolicitation aspects of the claim rather than the confidentiality aspects. Specifically, the court held that “it does not constitute ‘solicitation’ of [the former employer’s] customers to post a notice on [the employee’s] page that she is joining [the new employer].” Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406, at *5 (noting that “[i]t would be a very different matter if [the employee] had contacted [the customer] to tell her that she was moving to [the new employer]”); see also KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 n.5 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.) (LinkedIn profile disclosing employee’s new employment did not improperly appropriate the former employer’s goodwill where the scope of the employee’s work at the new employer and identified in the LinkedIn profile did not fall within the restricted conduct).

§ 5.4.6 (a)

Enforcing a Noncompetition Agreement Before the Lawsuit Is Even Contemplated

Preparation for a noncompetition lawsuit begins well before the lawsuit is even contemplated, and indeed, before a problem ever arises. Specifically, because 5–70

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noncompetition litigation often involves trade secrets and confidential information and is extremely fast-paced, proper preparation starts with regular trade secret audits. Such audits provide invaluable assistance in limiting the likelihood that an employee, contractor, or other party will be able to steal trade secrets; making it easier to discover a theft if and when one happens; and placing the company in the best position to quickly respond to a misappropriation. See chapter 4 of this book, “Trade Secret Law.” In addition, avoid providing the employee with additional defenses. For example, best practice is to provide the employee a copy of any restrictive covenants with the offer letter—sent in advance of the employee quitting his or her prior job. Similarly, ensure that the employee has signed the restrictive covenant on the day he or she commences work.

(b)

Investigate

The first step in enforcing a noncompetition agreement is to investigate the facts. This includes • ascertaining what, if any, trade secrets and confidential information may be at risk; • reviewing all applicable agreements and policies; • conducting an analysis of all computers and servers through which confidential information and other intellectual property may have been taken and through which the employee’s planning activities may have been undertaken; and • to the extent not included in the foregoing, reviewing and analyzing the former employee’s e-mails—particularly those leading up to the termination of the employment relationship and any others that might reveal patterns of conduct that changed shortly before termination. Such a review will frequently require the assistance of a computer forensics specialist, both for thoroughness and for later evidentiary reasons. Three cautionary notes bear mention. First, the law of privacy is still developing; accordingly, attention should be paid to avoid violating any applicable privacy rights. See Russell Beck, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants § 5.13 (MCLE, Inc. 5th ed. 2015). Second, do not ignore potential weaknesses; anticipate and investigate any potential defenses that the former employee or new employer may assert. Third, the employee’s computer should not be touched other than to mirror the hard drive. 3rd Edition 2016

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From there, the image should be used for all searches. The search should look for, among other things, not only records of personal e-mails and insertion of USB/thumb drives, external disk drives, disc burners, PDAs, and other such media, but all possible FTP transfers and use of P2P file-sharing sites, networking sites (e.g., Facebook, Twitter, LinkedIn), cloud computing and online storage sites (e.g., Dropbox, Box.com, Google Drive, iCloud), and blogs. It may be necessary to obtain information from the former employee or any new employer. If that is the case, courts will consider a request for limited expedited discovery in addition, or as a predicate, to injunctive relief. See, e.g., InVivo Therapeutics Corp. v. PixarBio Corp., No. 14-CV-7481, 2014 WL 7444828, at *2 (Mass. Super. Ct. Dec. 23, 2014) (Curran, J.) (applying a preliminary injunction analysis to a request for expedited discovery and permitting forensic access to a relatively limited scope of information before deciding whether more broadbased access would be permitted).

(c)

Conduct an Exit Interview

When an employment relationship terminates—regardless of who instigated the termination—it is critical to understand the potential implications, including those from the employee’s perspective. Exit interviews provide much of that opportunity. The information garnered from such interviews will inform many of the decisions down the road. For example, even when departing employees refuse to reveal their postemployment plans—or lie about them—the interview is still worthwhile as, among other things, it reminds the employees of their obligations and gives ammunition to the lawyers charged with enforcing the agreement. Accordingly, the interview should, at a minimum, include the following: • inquiring about the new employer and scope of duties, whether contractual or otherwise; • ensuring that the departing employee is cognizant—and has a copy—of any applicable noncompetition agreement and other restrictive covenants; and • determining whether the employee has returned all company property.

(d)

Determine Whom to Sue

In connection with determining whether to pursue the former employee, consideration should be given to whether to include the new employer (assuming there is one). 5–72

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On the one hand, involving the new employer has several salutary effects: • first, it puts the employer on notice of the claim, if it was not already aware of the restrictions imposed on the employee; • second, it potentially creates a strong incentive for the new employer to reconsider its decision to hire the employee; • third, it provides a “deep pocket” to pay damages and, potentially, legal fees; and • finally, it provides greater opportunities for discovery from the new employer. On the other hand, involving the new employer can have several significantly negative effects. First, it may provide the employee with a “war chest” with which to litigate, thereby increasing the odds that the employee (and new employer) will mount an aggressive defense. Second, it may give rise to additional counterclaims against the former employer. See, e.g., Brooks Automation, Inc. v. Blueshift Techs., Inc., 69 Mass. App. Ct. 1107, at *3 (2007) (unpublished opinion) (finding a violation of G.L. c. 93A from the filing of lawsuit with “reckless disregard as to whether there was any reasonable factual support for the allegations it contained, and motivated by the desire to interfere with [plaintiff’s] developing contractual relationship with [its customer]”); see also Synergistics Tech., Inc. vs. Putnam Investments, LLC, 74 Mass. App. Ct. 686, 689–91 (2009) (mere hiring of an employee—even knowing that the employee is restricted by a noncompetition agreement that would prohibit such employment—is not a violation of G.L. c. 93A).

(e)

Send a Cease and Desist Letter

Unless there are countervailing reasons against doing so, a cease and desist letter should be sent to a former employee who is engaged, or plans to engage, in competitive activities. Consideration should also be given to sending a cease and desist (or similar) letter to the new employer—regardless of whether the new employer will in fact be a party to any lawsuit; sending such a letter ensures that the new employer is on notice of the claims against the former employee, and therefore puts the new employer in a position of having to ensure that it has not permitted the employee to improperly use the former employer’s trade secrets, confidential information, and/or goodwill for the benefit of the new employer. Although not a necessary step in the enforcement of restrictive covenants, a cease and desist letter can be sent quickly and frequently serves the purpose of bringing the dispute to a prompt resolution. Moreover, even if litigation is ultimately 3rd Edition 2016

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necessary, the letter not only assists in laying the factual groundwork for the argument that injunctive relief is appropriate, but the work involved in preparing the letter provides a head start on the preparation of the requisite briefs.

(f)

Act Quickly

Delay in seeking injunctive relief to enforce a noncompetition agreement can be the death knell if a court views it as evincing a lack of irreparable harm or unfairly increasing the likelihood of potential harm to the former employee. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 494–95 (1986); Imprivata, Inc. v. Zamore, No. 13-4261-H, slip op. at 2 (Mass. Super. Ct. June 9, 2014) (Gordon, J); Patriot Energy Group, Inc. v. Kiley, No. 13-04177BLS1, 2014 WL 880880, at *11 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.); HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2, at *4–5 (Mass. Super. Ct. Feb. 8, 2008); Comark Communications, LLC v. Anywave, LLC, 2014 WL 2095379, at *1 n.1 (D. Mass. May 19, 2014) (Ponsor, J.); Enargy Power Co. v. Xiaolong Wang, No. 13-11348-DJC, 2013 WL 6234625, at *9 (D. Mass. Dec. 3, 2013) (Casper, J.); Lunt v. Campbell, No. 07-3845-BLS, at *8–9 (Sept. 2007) (Fabricant, J.). As the Supreme Judicial Court explained, If there has been unreasonable delay in asserting claims or if, knowing his rights, a party does not seasonably avail himself of means at hand for their enforcement, but suffers his adversary to incur expense or enter into obligations or otherwise change his position, or in any way by inaction lulls suspicion of his demands to the harm of the other, or if there has been actual or passive acquiescence in the performance of the act complained of, then equity will ordinary refuse her aid for the establishment of an admitted right, especially if an injunction is asked. Stewart v. Finkelstone, 206 Mass. 28, 36 (1910) (quoted in Lunt v. Campbell, No. 07-3845-BLS, at *9); cf. Randstad Gen. Partner (US) LLC v. Cruz, No. 092046-A (Mass. Super. Ct. May 28, 2010) (Whitehead, J.) (delay was not unreasonable where it was caused by defendant’s conduct and inured to defendant’s benefit). Regardless of the particular circumstances, at least one court has indicated that an express contractual provision permitting delay can have the effect of insulating against this defense. EMC Corp. v. Kempel, 01-4631-BLS (Mass. Super. Ct. Nov. 20, 2001) (van Gestel, J.). In that case, the plaintiff delayed commencing

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the action for approximately six weeks. EMC Corp. v. Kempel, 01-4631-BLS, at *12–13. The court first relied on the following contract language: No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. EMC Corp. v. Kempel, 01-4631-BLS, at *3. Nevertheless, the court also held, “even absent the contractual provision excusing any delay, no argument can be made that the request for injunctive relief came too late.” EMC Corp. v. Kempel, 01-4631-BLS, at *13. While justification for the delay may convince a court to ignore the delay, see Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. at 494–95; Randstad Gen. Partner (US) LLC v. Cruz, No. 09-2046-A, slip op. at 6 (Mass. Super. Ct. May 28, 2010) (Whitehead, J.); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *11 (D. Mass. Dec. 3, 2003) (Woodlock, J.), it may also highlight the absence of evidence that would have been expected to be obtained during that time, see Comark Communications, LLC v. Anywave, LLC, 2014 WL 2095379, at *1 n.1 (D. Mass. May 19, 2014) (Ponsor, J.) (expecting to see a forensic analysis or actual injury). In short, justified or not, it is best to avoid the issue—particularly given the other hurdles that must be overcome to obtain preliminary injunctive relief.

(g)

Credible Evidence—Percipient Witnesses, Expert Witnesses, and Expedited Discovery

The more credible the evidence, the easier it will be for a court to evaluate the merits of a party’s position. Therefore, in cases involving complicated, technical issues, for example, the parties may be well advised to retain outside experts. See, e.g., Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2006) (relying on affidavit from creator of Pretty Good Privacy for understanding of nature of certain allegedly confidential information). Similarly, where important facts are not immediately available, expedited discovery might be necessary to ascertain such information. See, e.g., InVivo Therapeutics Corp. v. PixarBio Corp., No. 14-CV-7481, 2014 WL 7444828, at *2 (Mass. Super. Ct. Dec. 23, 2014) (Curran, J.); Randstad Gen. Partner (US) LLC v. Cruz, No. 092046-A, slip op. at 6 (Mass. Super. Ct. May 28, 2010) (Whitehead, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) 3rd Edition 2016

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(“Unlike many cases of this nature, the parties have embarked upon fairly extensive discovery before briefing and arguing the issues and the key facts are well understood.”); see also Workflow Solutions, LLC v. Murphy, 2008 WL 4514315, at *2 (Mass. Super. Ct. Sept. 11, 2008) (Fremont-Smith, J.) (denying requested expedited discovery, but establishing expedited schedule for case). See generally Lucent Techs., Inc. v. Tymann, 106 F. Supp. 2d 189, 191 (D. Mass. 2000) (Harrington, J.) (although expedited discovery was not addressed, the court noted that the plaintiff was free to renew its motion for preliminary injunctive relief if discovery were to reveal “that defendants are actually disclosing proprietary or confidential information”).

(h)

Bond

Although typically overlooked, Rule 65(c) of both the Massachusetts Rules of Civil Procedure and the Federal Rules of Civil Procedure permits a court to require the posting of a bond to address any potential damages caused by the entry of a preliminary injunction. See Randstad Gen. Partner (US) LLC v. Cruz, No. 09-2046-A, slip op. at 7 (Mass. Super. Ct. May 28, 2010) (Whitehead, J.); Smerk Holding Co. Bus. Trust v. Reardon, C.A. No. 07-4206 (Mass. Super. Ct. Sept. 2007) (Fabricant, J.) (although neither party addressed the issue, the court found that a bond did “not seem warranted,” but invited a motion to reconsider); 7-Eleven, Inc. v. Grewal, 60 F. Supp. 3d 272, 287 (D. Mass. Nov. 20, 2014) (Mastroianni, J.) (“While not considered to be a mandatory prerequisite to the issuance of a preliminary injunction in the First Circuit, the court may, in its discretion, require” a bond. (citation omitted)); Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 245 (D. Mass. 2013) (Woodlock, J.) (bond issued “as security against the improvident grant of interlocutory relief [and serves] as a proxy for the economic benefit [the new employer] sought to obtain from [the former employee’s] services”), aff’d, 731 F.3d 6 (1st Cir. 2013). While many courts will not require a bond, some courts will—and it can be substantial. See, e.g., Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 492 n.3 (1986) (imposing a $500,000 bond); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *11 (D. Mass. Dec. 3, 2003) (Woodlock, J.) ($50,000 bond); C.R. Bard, Inc., v. Solano, 1988 WL 92469, at *4 (D. Mass. Aug. 4, 1988) ($100,000 bond); Marcam Corp. v. Orchard, 885 F. Supp. 294, 299 (D. Mass. 1995) (Lindsay, J.) ($200,000 bond). Accordingly, any necessary advance planning should be undertaken promptly to forestall an otherwise avoidable delay in the enforcement of an injunction.

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Defending Against a Noncompetition Agreement Initial Considerations

Preparation of a defense to a potential claim for violation of a restrictive covenant should begin the moment the employee considers leaving his or her current position. Steps should be taken to determine what restrictions and duties may apply, and to understand the scope and implications of the same. From that point on, all conduct should be undertaken with an eye toward how it may subsequently be viewed by a court called upon to enforce the employee’s restrictions and duties. Such careful evaluation should guide both the employee and his or her new employer, whose interests will largely—but not entirely—overlap.

Former Employee’s Initial Steps The employee should ensure that he or she has taken no company information or property—regardless of whether it contains confidential information or trade secrets or how insignificant it may seem. In some situations, the mere fact that an employee has taken documents (even without proof that the information in the documents was used or was intended to be used in the future) may itself raise the question of “why, if they were not going to use the documents, the defendants took them.” Pac. Packaging Prods., Inc. v. Barenboim, No. 09-4320, 2014 WL 2766735, at *6 n.6 (Mass. Super. Ct. Jan. 31, 2014) (Henry, J.). But see A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *10 n.6 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.) (finding “insufficient information” that the thumb drive taken by the defendant contained trade secrets or confidential information, and observing that, regardless, the thumb drive was in the possession of defendant’s counsel). Of course, the fact that the employee took nothing and that he (and his new employer) had undertaken efforts to protect the integrity of any trade secrets he may have recalled does not necessarily mean that an injunction can be avoided. See Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 129–30 (D. Mass. 2010) (Casper, J.) (The undertakings the employee and his new employer took, “while admirable, do not alter the analysis that [the former employer] is likely to succeed on its claim that” the employee breached the noncompete, and although “fully credit[ing] the sincerity of [their] intent and the scrupulousness of their efforts . . . , it is difficult to conceive how all of the information stored in [the employee]’s memory can be set aside as he applies himself to a competitor’s business and its products.” (citation omitted)). In addition, the employee must be prepared for the questions that may be asked at an exit interview and should carefully consider how to respond. Although no duty of candor is owed to the employer in the absence of a contractual requirement, see generally Avallone v. Elizabeth Arden Sales Corp., 344 Mass. 556, 561 3rd Edition 2016

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(1962) (employee lied about intent to leave and compete), candor toward the employer is, in many circumstances, the best approach, although under other circumstances it can prove to be quite harmful. Of particular relevance, issues likely to arise will include acknowledgment of the noncompetition agreement, the identity of the new employer, the nature of the new position, and the implications of the noncompetition agreement and other restrictive covenants. The employee must be sure to avoid simply accepting any legal or factual positions that may be asserted by the employer unless the employee has fully evaluated the potential consequences of such an admission.

New Employer’s Initial Steps Before hiring an employee, the potential new employer should understand the legal implications and risks that may result, and whether those risks can be minimized or avoided altogether. Accordingly, a potential employer should be sure to obtain all possible information from the employee and other sources concerning • the existence of any restrictions on and duties of the employee; • the impact of such restrictions and duties; • the likelihood that the former employer will seek to enforce the agreement and, if so, whether it will pursue litigation; and • the range of, and likely, outcomes. Each of these considerations should inform the decision of whether to hire the employee and, if so, whether the employee will be defended or indemnified in the event of an enforcement action by the former employer. Once those decisions are made, the employer should implement steps to limit its own (as well as the employee’s) potential exposure. Care must be taken when these decisions are being made—as well as during any litigation and negotiations—to avoid conflicts of interest, as the employee’s and new employer’s interests are not necessarily coextensive. Accordingly, most often, it is best to have separate counsel for each party and to have communications between the parties and their counsel subject to a signed joint interest agreement.

Impact of the New Position on the Former Employer Anytime a job is offered to a new employee subject to a preexisting restrictive covenant, the new employer and employee should consider the impact of the new position on the former employer. In many instances, the new position can be 5–78

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scaled back in such a way as to eliminate—or significantly minimize—any potential interference with the former employer’s legitimate business interests. See, e.g., Boston Software Sys., Inc. v. Doherty, C.A. No. 07-1059-BLS1, *6–7 (Apr. 3, 2007) (van Gestel, J.); see also Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.). It should be kept in mind that, even after the issuance of a preliminary injunction, the new employer and employee may be able to establish limitations on the new employment relationship sufficient to overcome the concerns that gave rise to the preliminary injunction in the first place. See, e.g., EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS, at *1–2 (Mass. Super. Ct. May 21, 2009) (Neel, J.) (modifying preliminary injunction to permit defendant to work for his new employer, provided that his activities are restricted in certain specified respects).

Sue or Wait to Be Sued? An early decision for a departing employee and new employer is whether to be proactive and file a preemptive lawsuit, challenging the validity or enforceability of the noncompetition agreement, as opposed to sitting back and seeing whether the former employer enforces the agreement. Both strategies have their advantages and disadvantages, and are extraordinarily fact-dependent. Although in most instances, it is best to wait to be sued (particularly as the lawsuit may never even materialize), in other circumstances, seeking the imprimatur of the court may lead to a more favorable outcome. See, e.g., Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378 (Mass. Super. Ct., Aug. 7, 2007) (Macdonald, J.) (preemptive lawsuit helpful); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1 (Mass. Super. Ct. Sept. 19, 2007) (preemptive lawsuit made no difference); Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2, *8 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (same); W.B. Mason Co. v. Staples, Inc., 2001 WL 227855 (Mass. Super. Ct. Jan. 18, 2001) (van Gestel, J.) (preemptive lawsuit was harmful).

Joint or Individual Representation? Another early decision for departing employees and the new employer is whether to engage separate attorneys or law firms. This issue was highlighted in Pacific Packaging Products, Inc. v. Barenboim, No. 09-4320, 2014 WL 2766735 (Mass. Super. Ct. Jan. 31, 2014) (Henry, J.). In that case, one law firm represented multiple defendants. However, a rift arose among certain of the defendants, and one of the defendants turned on the others and filed an affidavit in support of the former employer. Pac. Packaging Prods., Inc. v. Barenboim, 2014 WL 2766735, at *8. As a consequence, the court disqualified counsel from

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further representation of any of the defendants. Pac. Packaging Prods., Inc. v. Barenboim, 2014 WL 2766735, at *9.

Indemnification of Employee? Often a new employer will pay for the employee’s costs in defending a lawsuit if it arises. Sometimes, the new employer will also pay a portion of the employee’s compensation even if he or she is required to discontinue employment with the new employer during the restricted period. While doing so may have no unintended consequences in a particular case, other times it may. For example, in Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *3 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.), the court rejected the employee’s argument that the noncompete was ambiguous, stating, This provision was clear enough to [the employee] so that he warned [the new employer] before he went to work there. It preemptively fashioned an agreement that would generously protect him if he was ordered not to work for it. No one was confused about the provisions of [the employee’s] Non-compete.

(b)

Possible Defenses

Possible defenses to a noncompetition agreement fall into two main categories: those designed to challenge the basic requirements of the noncompetition agreement (i.e., duration, geographic reach, scope, legitimate business interests to be protected, and reasonableness) and those designed to challenge its enforcement under the particular circumstances. All should be considered and evaluated.

Basic Requirements Because the basic requirements of (and therefore the possible defenses to) a noncompetition agreement are detailed above, they are not analyzed here. Nevertheless, several strategic issues are worth noting. It should be remembered that to prevail, a party seeking to enforce a restrictive covenant is suing for a breach of contract, and to prevail on “a breach of contract claim, [the party seeking enforcement] must demonstrate that the parties reached a valid and binding agreement, [the defending party] breached the terms of the agreement and [the enforcing party] suffered damages as a result of the breach.” Upromise, Inc. v. Angus, 2014 WL 212598, at *6 (D. Mass. Jan. 21, 2014) (Casper, J.). Further, several strategic issues are worth noting.

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Noncompetition agreements are seldom an exclusive restriction. Rather, they are typically accompanied by nonsolicitation and confidentiality agreements, among others. When the restrictions are thus manifold, the former employer may be adequately protected by the lesser restrictions (the nonsolicitation and confidentiality obligations), thereby rendering the noncompete unnecessary. Although such an argument has met with limited success, it may nevertheless bolster an argument that the noncompete is not necessary—or imposes greater restrictions than necessary. Compare Cognex Corp. v. Eichler, 2009 WL 5408166 (Mass. Super. Ct. June 17, 2009) (MacLeod-Mancuso, J.) (refusing to enforce the noncompetition agreement, “the Court notes that the confidentiality and nonsolicitation clauses . . . are sufficient to protect [the former employer’s] goodwill with its clients, as well as its confidential information”), with Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 643 n.12 (2004) (noting the difficulty of enforcing a nondisclosure agreement as opposed to a noncompetition agreement and that the two are not mutually exclusive). When trade secrets or confidential information are involved, it will likely be necessary for the former employer to identify them. See, e.g., Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 267–75 (1980); EMC Corp. v. Breen, No. 12-04477-BLS2, 2013 WL 1907460, at *4 (Mass. Super. Ct. Feb. 25, 2013) (Roach, J.); Workflow Solutions, LLC v. Murphy, 2008 WL 4514315, at *1 (Mass. Super. Ct. Sept. 11, 2008) (Fremont-Smith, J.); Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.); L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *13 (Dec. 2, 2004) (van Gestel, J.); Robert Half Int’l, Inc. v. Buoncontri, 2003 WL 915181, at *5 (Mass. Super. Ct. Jan. 27, 2003) (Botsford, J.); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 28 (D. Mass. 2004) (Gorton, J.). Accordingly, courts will generally not allow a party seeking to protect its trade secrets to do so without disclosing to the opposing party what trade secrets it claims require protection. L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *13 (citations omitted); cf. Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *9 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) (noting in the context of a claim for misappropriation of trade secrets that “a plaintiff ‘who seeks relief for misappropriation of trade secrets must identify the trade secrets and carry the burden of showing that they exist’” (quoting Data Gen. Corp. v. Grumman Sys. Corp., 825 F. Supp. 340, 357 (D. Mass. 1993))). This is not to say, however, that identification is the equivalent of full disclosure. See Anaqua, Inc. v. Bullard, No. 14-1491-BLS1, slip op. at 10 (Mass. Super. Ct. July 24, 2014) (Billings, J.) (“[s]pecificity is a matter of degree . . . and the more specificity employed in a public filing, the less confidentiality survives”).

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In this regard, in instances where there is a question concerning whether the information is in fact a trade secret or simply part of the acquired general knowledge and skill of the restricted party, it bears mention that the plaintiff’s burden will be higher than in other instances. Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 268. Given the foregoing, a request should be made early for the former employer to identify with specificity the trade secrets it seeks to protect. See, e.g., L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *13 (citing Cambridge Internet Solutions v. Avion Group, 10 Mass. L. Rptr. 539, 1999 WL 959673, at *2 (Mass. Super. Ct. Sept. 21, 1999); Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164–65 (9th Cir. 1998); Xerox Corp. v. IBM Corp., 64 F.R.D. 367, 371 (S.D.N.Y. 1974); Englehard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del. Ch. 1986)). Identification of the trade secrets is different from possession of such trade secrets by the former employee and his or her propensity to use them. In Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.), for example, after discussing the nature of the trade secrets at issue, the court found that there was “no evidence” that the former employee had or would use any of the trade secrets. Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2. Nevertheless, the court found that a narrow injunction was appropriate to protect against the employee working in a capacity in which he might use or disclose the former employer’s trade secrets. Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2.

Consideration Like other contracts, noncompetition agreements must be supported by consideration. See, e.g., Marine Contractors Co. v. Hurley, 365 Mass. 280, 284–86 (1974); Interpros, Inc. v. Athy, No. 201300214F, 2013 WL 2181650, at *3 (May 5, 2013) (Curran, J.); Alloy Media, LLC v. Landon, No. 11-4397-BLS, slip op. at 4, 9 (Mass. Super. Ct. Apr. 24, 2012) (Roach, J.); Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *1 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *8–9 (Feb. 12, 2004) (Burnes, J.). In addition, a noncompetition agreement must be “ancillary . . . to an existing employment or contract of employment” or some other “permissible transaction.” Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716–17 (1961); Restatement (Second) of Contracts § 188 (1981). Tying a noncompetition agreement to another transaction “is principally aimed at forestalling the use of covenants which have as their sole purpose the protection of the covenantee from 5–82

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ordinary competition.” Marine Contractors Co. v. Hurley, 365 Mass. at 288 (analyzing Restatement of Contracts § 515(e) (1932)). However, the ancillary agreement typically provides the required consideration. See, e.g., Marine Contractors Co. v. Hurley, 365 Mass. at 285 n.3 (acceleration of payments from trust provided consideration).

At-Will Employment Typically, noncompetition agreements in the employment context are entered into at the inception of the relationship. Under such circumstances, it is well established that the requisite consideration is supplied by the employee’s hiring—even if employment is only on an at-will basis. See, e.g., Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at * 5 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.).

Continued Employment The requirement of consideration does not mean that a noncompetition agreement must be entered into at the inception of an employment relationship; it may instead be entered into at other points in time, provided that consideration of one form or another is furnished. (Restrictive covenants may even be entered into at the termination of an employment relationship. See the subheading entitled “Postemployment Agreement,” below.) In this regard, until recently, it had long been accepted that consideration for a restrictive covenant entered into midemployment was supplied by the prospect of continued employment, provided of course that the agreement satisfied all other requirements for a valid noncompetition agreement. See New Eng. Tree Expert Co. v. Russell, 306 Mass. 504, 506– 07 (1940) (enforcing agreement signed midemployment on threat that “[anyone] who refused to do so ‘could not expect to remain with the plaintiff company’”); Sherman v. Pfefferkorn, 241 Mass. 468, 473 (1922). Recently, however, the continued viability, if not validity, of this principle has been called into some doubt. As discussed in more detail below, although the Supreme Judicial Court has not abandoned its holding that continued employment is sufficient consideration, the circumstances under which the courts will enforce a noncompetition agreement supported only by continued employment under threat of termination may well, as a practical matter, render the entire principle of continued employment virtually nugatory. This issue has its roots in the 1922 Supreme Judicial Court decision of Sherman v. Pfefferkorn, 241 Mass. 468 (1922). In that case, the Supreme Judicial Court made clear that continued employment constitutes sufficient consideration to support a noncompetition agreement. Sherman v. Pfefferkorn, 241 Mass. at 473. There, the employee signed a noncompetition agreement approximately two 3rd Edition 2016

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months after beginning work for the plaintiff. Sherman v. Pfefferkorn, 241 Mass. at 471–72. The court stated, “Reasonably construed, it contained a promise by the plaintiff thereafter to employ the defendant and by the defendant to work for the plaintiff.” Sherman v. Pfefferkorn, 241 Mass. at 473. Thus, the court found that the midemployment agreement was supported by consideration, i.e., the implied promise of continued employment. Sherman v. Pfefferkorn, 241 Mass. at 473. Since that time, the issue has surfaced before the Supreme Judicial Court on only a handful of occasions, and in each instance, the court has provided little, if any, additional guidance. Specifically, the next time the issue arose was in 1935, in Economy Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 552 (1935). In that case, as in the Sherman decision, the court noted that, even though the employment was at will, the midemployment agreement “implied” continued employment. Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. at 552. Although the court thus appeared to approve of continued employment as adequate consideration, it nevertheless added that the agreement was supported by fifteen months of subsequent employment. Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. at 552. Given such additional consideration, the implied promise of continued employment could be viewed as merely an adjunct. The issue has not been directly addressed again with any true analytical rigor by the Supreme Judicial Court since. Rather, to the extent that a midemployment noncompetition agreement has been before the Supreme Judicial Court, the issue of the sufficiency of consideration was either intentionally unaddressed by the court, ignored by the parties, or summarily ruled on without elaboration. For example, in 1940, in New England Tree Expert Co. v. Russell, 306 Mass. 504 (1940), the court simply enforced a midemployment noncompetition agreement without even questioning, much less analyzing, the issue of continued employment as consideration. New Eng. Tree Expert Co. v. Russell, 306 Mass. at 506– 07. Similarly, in 1963, citing Sherman v. Pfefferkorn, the court rejected the employee’s “contention that [a midemployment noncompetition] covenant is invalid for want of mutuality” (i.e., not for want of consideration) on the ground, stated without elaboration, that the issue “has long been resolved to the contrary.” Wrentham Co. v. Cann, 345 Mass. 737, 741 (1963). In 1968, in Slade Gorton & Co. v. O’Neil, 355 Mass. 4 (1968), the court simply “assume[d], without deciding,” that a noncompetition agreement entered into during the term of employment without any clear additional consideration was “made for valid consideration.” Slade Gorton & Co. v. O’Neil, 355 Mass. at 8–9. Instructively, in 1996, in an entirely different context (i.e., in analyzing whether continued employment constituted consideration as would support a contract embedded in an employee manual), the Supreme Judicial Court stated, “An employee remaining with the employer after receiving [the employee] manual provides the consideration necessary to support the contract . . . .” O’Brien v. New Eng. Tel. & Tel. Co., 422 5–84

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Mass. 686, 691 (1996). The case is, however, largely overlooked in the context of restrictive covenants. Starting in 1975, the focus shifted to the Appeals Court, when the court (perhaps unintentionally) began planting the seeds for an argument that continued employment was no longer considered to be sufficient consideration. In that regard, in Middlesex Neurological Associates, Inc. v. Cohen, 3 Mass. App. Ct. 126 (1975), the Massachusetts Appeals Court relied on certain factual findings and the case’s procedural posture to resolve the issues before it, thereby obviating a ruling on the issue of the sufficiency of continued employment as adequate consideration. Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. at 128–29. (The case involved the enforcement of a noncompetition agreement against a physician. Although such noncompetition agreements have since been statutorily banned (see “Physicians” subheading under § 5.2.7(a), above), the Appeals Court’s analysis remains good law.) Specifically, the defendant argued that there was no consideration because the midemployment written agreement (containing the noncompetition agreement) replaced an already binding oral agreement with the same terms, except the noncompetition agreement. Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. at 128–29. Thus, according to the defendant, he was given nothing in exchange for the new additional requirement of a noncompetition agreement. Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. at 128–29. The court rejected that argument not on the ground that continued employment was sufficient consideration, but rather, on the ground that the factual findings did “not support the contention [as] there [were] no findings establishing what the terms of the oral understanding were or whether they constituted a legal contract” and the defendant had not challenged the findings below. Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. at 129. Accordingly, although the court never reached the issue of whether continued employment is sufficient consideration, its decision can be read to imply that the answer would have been “no,” insofar as the court gave factual and procedural reasons for rejecting the defendant’s argument, rather than rejecting the argument as a matter of law, which would have been a “cleaner” way to dispose of the issue. In 1982, the issue was again presented to the Appeals Court in Sentry Insurance v. Firnstein, 14 Mass. App. Ct. 706 (1982)—the last Appeals Court decision on this issue until 2001. Again, however, the court did not directly address the issue. Because the trial court had determined that the defendant had not violated the noncompetition agreement, the Appeals Court’s review focused on the defendant’s conduct, rather than the validity of the agreement. Nevertheless, the court did observe both that the defendant had been required to sign the agreement “on pain of dismissal from Sentry’s employ” and that the trial court had found at least

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a provision of the agreement was “imposed upon the employee under . . . . ‘practical . . . duress.’” Sentry Ins. v. Firnstein, 14 Mass. App. Ct. at 707–09. These findings have since led certain courts to interpret Sentry Insurance as laying the groundwork to preclude midemployment noncompetition agreements that are supported by nothing more than continued employment. In this regard, in 1994, based on his interpretation of Sentry Insurance, Judge Fremont-Smith of the Superior Court denied injunctive relief to enforce a six-month noncompetition agreement in First Eastern Mortgage Corp. v. Gallagher, 1994 WL 879546 (Mass. Super. Ct. July 21, 1994). Noting that the noncompetition agreement had not been “part of [the defendant’s] original employment,” the court drew two determinative inferences from that fact. First E. Mortgage Corp. v. Gallagher, 1994 WL 879546, at *1. First, without elaborating on its rationale other than to point to Sentry as analogous, the court determined that the noncompetition agreement would not protect the plaintiff’s goodwill, but rather, involved the employee’s goodwill, which is not an appropriate basis on which to enforce a noncompetition agreement. First E. Mortgage Corp. v. Gallagher, 1994 WL 879546, at *1. Second, the court determined that “the agreement was imposed upon the employee under what might be found to be ‘practical duress.’” First E. Mortgage Corp. v. Gallagher, 1994 WL 879546, at *1 (quoting Sentry Ins. v. Firnstein, 14 Mass. App. Ct. at 709). These determinations led the court to conclude that the plaintiff had failed to show a likelihood of success on the merits, albeit not based on the unenforceability of the noncompetition agreement as a result of a lack of consideration. First E. Mortgage Corp. v. Gallagher, 1994 WL 879546, at *2. In 1997, in Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444 (Mass. Super. Ct. Nov. 25, 1997) (Burnes, J.), the Superior Court skirted the issue of continued employment as consideration, as the facts did not require its exploration. Specifically, the court found that the employee “signed the [midemployment nonsolicitation] agreement in exchange for [the employer’s] agreement to establish a minimum level of annual compensation.” Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444, at *4. Thus, without stating one way or the other whether additional consideration beyond mere continued employment was required, Judge Burnes simply concluded, “[T]his is a case where the employer provided some clear additional benefit to the employee.” Bowne of Boston, Inc. v. Levine & Merrill Corp., 1997 WL 781444, at *4 (citing Marine Contractors Co. v. Hurley, 365 Mass. 280, 285–86 (1974), which involved an agreement entered into at the end of the employment relationship, and which was supported by consideration—obviously, other than continued employment). In 1999, Magistrate Judge Neiman of the U.S. District Court, referring to Sentry Insurance and First Eastern Mortgage Corp., stated, “In the court’s opinion, 5–86

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. . . later decisions demonstrate that, in order for a restrictive covenant to withstand scrutiny, some additional consideration ought pass to an employee upon the execution of a postemployment agreement.” IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 131 (D. Mass. 1999). Based on its stated review of these later decisions, the court concluded, “At bottom, the courts now appear to refuse to enforce noncompetition and nonsolicitation agreements when the only purported consideration is the employee’s continued employment.” IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d at 131. In 2001, the Appeals Court, in an unpublished opinion, rejected any suggestion that Sentry Insurance should be read to “suggest that imposition of a noncompetition covenant on an already employed at-will employee is unenforceable.” Wilkinson v. QCC, Inc., 2001 WL 164691, at *1 (2001) (Rule 1:28 decision). Rather, the court stated, “Sentry Insurance holds only that the covenant in question, a postemployment constraint drafted by the employer and imposed on the employee as part of a standardized form contract, would be construed strictly against the employer, and that, as so construed, a finding that the employee had not violated it was warranted.” Wilkinson v. QCC, Inc., 2001 WL 164691, at *1. Instructively, the Wilkinson court’s analysis of Sentry Insurance was decided on the issue of whether the restriction violated the covenant of good faith and fair dealing—not whether mere continued employment was sufficient consideration. Wilkinson v. QCC, Inc., 2001 WL 164691, at *1. Nevertheless, the court went out of its way to expressly find that Wilkinson’s continued employment was in fact adequate consideration for the noncompetition agreement at issue in that case. Wilkinson v. QCC, Inc., 2001 WL 164691, at *1. In the face of this apparent tension in the two Appeals Court decisions and the absence of an express decision on the issue from the Supreme Judicial Court since its 1922 decision in Sherman, the Superior Court has begun questioning the sufficiency of continued employment—particularly under threat of termination. (Instructively, despite the question about Sherman’s continued vitality with regard to continued employment as sufficient consideration, it remains authoritative with respect to other noncompetition principles. See, e.g., Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 646 (2004) (citing Sherman for proposition that noncompetition agreements are consonant with the public interest); Cypress Group, Inc. v. Stride & Assocs., Inc., 2004 Mass. Super. LEXIS 69, at *9–10 (Feb. 12, 2004) (Burnes, J.) (citing Sherman for proposition that noncompetition agreements must be “reasonable based on all of the circumstances”).) An example of the Superior Court’s questioning the sufficiency of continued employment is provided by Cypress Group, Inc. v. Stride & Associates, Inc., 2004 Mass. Super. LEXIS 69, at *9–10. In that case, the Superior Court detailed the various noncompetition agreements that the former employees had entered into during their tenure with the company and noted that the company was “unlikely to be 3rd Edition 2016

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able to prove at trial that there was consideration for the agreements.” Thereafter, in Rellstab v. John Hancock Financial Services, Inc., 2004 WL 1050748 (Mass. Super. Ct. Mar. 24, 2004) (McCann, J.), the court relied on Sentry Insurance and IKON Office Solutions for the proposition that continued employment is no longer sufficient consideration for a midemployment noncompetition agreement. Rellstab v. John Hancock Fin. Servs., Inc., 2004 WL 1050748, at *1. Similarly, in Engineering Management Support, Inc. v. Puca, 2005 WL 1476462, at *1 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.), the Superior Court found that a noncompetition agreement signed “a week and one-half after [the employee] began working for [the plaintiff]” was “arguably null and void for want of consideration.” Specifically, the court found that “a jury could easily find that there was no consideration other than keeping her job. Keeping one’s job is insufficient consideration in this case for either the noncompetition or confidentiality agreement.” Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *1 (citing IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d at 131). Instructively, the court found that the same facts “could be found by a jury to have been coercive” insofar as the employee was “tacitly presented . . . with the Hobson’s choice of signing the restrictive covenant or losing her job.” Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *2; see also New Eng. Lumber Specialties, Inc. v. Jarvi, C.A. No. 06382 (Mar. 15, 2006) (Brant, J.) (denying injunctive relief on other grounds without ever reaching analysis of whether there was consideration for agreement). The Engineering Management Support court’s express hostility toward midemployment noncompetition agreements was echoed again in 2006. Specifically, in Zabota Community Center, Inc. v. Frolova, 2006 WL 2089828, at *2 n.3 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.), Judge van Gestel viewed the midemployment imposition of a noncompetition agreement under threat of termination not as consideration, but as a heavy-handed tactic not to be countenanced by the court. As Judge van Gestel explained, while the plaintiff cites its midemployment threat of termination as proof of consideration for the noncompetition agreement, the court “exercising its equitable powers, sees it rather differently.” Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2 n.3. Rather than finding that the agreement failed for want of consideration, the court analyzed the issue as one of duress, perhaps honing a truer fidelity to Sentry Insurance. Specifically, the court stated, Conduct by one party which causes another to enter into a contract “under the influence of such fear as precludes [her] from exercising free will and judgment” constitutes a basis for avoiding the contract. Restatement of Contracts §§ 492, 495; Williston, 5–88

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Contracts (Rev. ed.) § 1603; Carey v. Fitzpatrick, 301 Mass. 525, 529. Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2–3 (quoting Avallone v. Elizabeth Arden Sales Corp., 344 Mass. 556, 561 (1962)). Nevertheless, while focusing on duress as a defense, the court added that the defendant “was given no consideration for signing the agreement other than not being fired on the spot.” Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2–3. Based on that and other facts, the court denied the requested injunctive relief. Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2–3. This approach has been since been echoed in other decisions. See, e.g., Lunt v. Campbell, 2007 Mass. Super. LEXIS 484, at *11 (Sept. 24, 2007) (Fabricant, J.) (continued employment—particularly under threat of termination—“weigh[s] in the Court’s evaluation of equitable factors in deciding whether to enforce by means of the grant of an injunction”); Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, C.A. No. 07-5549-BLS2 (Dec. 31, 2007) (Fabricant, J.) (continued employment may be sufficient consideration, but it “weigh[s] in the Court’s evaluation of equitable factors in deciding whether to enforce by means of the grant of an injunction”). Of course, not all decisions have questioned the sufficiency of continued employment as adequate consideration. See, e.g., Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (ignoring issue of sufficiency of consideration where noncompetition agreement was signed three years after commencement of employment); Lycos, Inc. v. Jackson, 2004 WL 2341335, at *9 (Mass. Super. Ct. Aug. 25, 2004) (Houston, J.) (“Any time a restrictive covenant is signed by an employee, the employer must provide some clear additional benefit.” (citing Marine Contractors Co. v. Hurley, 365 Mass. at 285–86)); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *1, 4 (Mass. Super. Ct. Apr. 29, 2002) (same where noncompetition agreement was signed forty-five days after commencement of employment); IME, Inc. v. Quaranto, 1991 WL 11007754, at *5 (Mass. Super. Ct. Feb. 7, 1991) (Barrett, J.) (noting split of authority in other jurisdictions, but holding, based on Wrentham and Sherman v. Pfefferkorn, that law in Massachusetts is “clear”: “Continued employment constitutes sufficient consideration for employment agreements containing noncompetition and confidentiality provisions”). Most recently, the issue arose again in EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2 (Mass. Super. Ct. May 4, 2009) (Neel, J.). In that case, Judge Neel noted that “[i]t is fair to observe that the state of Massachusetts law is not crystal clear with regard to whether continued employment alone provides sufficient consideration for a non-competition covenant.” EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2, at *11. After reviewing many of the decisions cited 3rd Edition 2016

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above, Judge Neel concluded that the cases “do not abolish the doctrine that continued employment alone may suffice to support such covenants.” EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2, at *11 (but also finding other consideration to support the agreement). In the end, the current status of the law appears to be that continued employment does provide sufficient consideration to support a midemployment noncompetition agreement. However, where the circumstances relating to the agreement’s procurement raise equitable concerns, a court may very well invalidate the agreement based on the totality of those circumstances, rather than simply a lack of consideration.

Duration of Employment Even where an agreement was executed at the inception of employment, the length of the employment, particularly when juxtaposed against the duration of a noncompetition agreement, may raise concerns for a court. Accordingly, “a brief term of employment might appropriately be a factor in determining whether to enforce a restrictive covenant in whole or in part.” All Stainless, Inc. v. Colby, 364 Mass. 773, 779 (1974). As the Supreme Judicial Court has noted, however, “[W]e are aware of no authority which would support the denial of injunctive relief because the contractual term of the employment was short in relation to the duration of the intended noncompetitive restraint.” All Stainless, Inc. v. Colby, 364 Mass. at 779. Nevertheless, in IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125 (D. Mass. 1999) (Neiman, J.), the court denied injunctive relief, noting that “the court does not believe that a two year [restriction] is categorically appropriate here when the time of employ, during which the restrictive covenants were in place, was only slightly greater than one year.” IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d at 129. In contrast, in Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770 (Mass. Super. Ct. June 28, 2004 (Graham, J.), the Superior Court, without any reference to the extraordinarily abbreviated duration of employment of only nine days, enforced a one-year noncompetition agreement, thereby preventing the employee from immediately returning to her prior employer. Given the remarkable facts of the case, however, Boch Toyota may be simply explainable as a reaction to what the court most assuredly viewed as corporate espionage.

Change in Position (the “Material Change Rule”/“Material Change Doctrine”/“Material Change Defense”) It has long been established that a change in position within a company may constitute “a new relationship” necessitating the renewal or replacement of any 5–90

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restrictive covenants entered into in connection with a prior position. Although the issue is described with varied formulations (whether the employment agreement was “mutually abandoned and rescinded,” “abandoned or superseded,” “terminated,” “revoked,” or “deemed void,” or even whether the initial employment relationship itself was “abandoned”), this concept has come to be referenced as the “material change rule,” “material change doctrine,” or “material change defense.” The leading case on this issue is F.A. Bartlett Tree Expert v. Barrington, 353 Mass. 585, 587 (1968). But see Sherman v. Pfefferkorn, 241 Mass. 468, 472 (1922) (ignoring a change in responsibilities following execution of the noncompetition agreement). In F.A. Bartlett Tree Expert, the parties had entered into a noncompetition agreement at the time of hiring. F.A. Bartlett Tree Expert v. Barrington, 353 Mass. at 585–86. The contract addressed five things: pay, territory, position, noncompetition, and termination. F.A. Bartlett Tree Expert v. Barrington, 353 Mass. at 587. Twice during the employee’s tenure with the company, his pay and territory changed, and the second time, his position changed as well. F.A. Bartlett Tree Expert v. Barrington, 353 Mass. at 586–87. Holding that “[s]uch far reaching changes strongly suggest that the parties had abandoned their old arrangement and had entered into a new relationship,” the court also observed that the defendant had been asked, but refused, to sign a new noncompetition agreement at the time of the first change in his employment. F.A. Bartlett Tree Expert v. Barrington, 353 Mass. at 587. Ultimately, the court held that “[t]he conduct of the parties . . . is inconsistent with an intention that the [original] contract be continued in effect.” F.A. Bartlett Tree Expert v. Barrington, 353 Mass. at 588. Thus, the focus of the court’s inquiry was not simply on the change of position, but rather, whether the parties expected that the old restrictive covenant would continue to apply or that a new agreement would be necessary. In another Supreme Judicial Court case decided later that same year, Slade Gorton & Co. v. O’Neil, 355 Mass. 4 (1968), the court again confronted the issue of the continued enforceability of a noncompetition agreement executed before the employee’s duties changed. The court did not, however, fully analyze the issue. Rather, citing F.A. Bartlett Tree Expert, the court simply assumed, without expressly finding, that a new noncompetition agreement was not required. Slade Gorton & Co. v. O’Neil, 355 Mass. at 9. Given the court’s citation to F.A. Bartlett Tree Expert and its stated observation (earlier in the opinion) that the parties had anticipated at the outset that the employee’s duties would change, the court’s assumption was likely based on the parties’ implicit expectation that a new noncompetition agreement would not be necessary in the event of a change in position within the company. Slade Gorton & Co. v. O’Neil, 355 Mass. at 6, 8–10. 3rd Edition 2016

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In 1979, the court was again faced with an employee changing positions with the same employer. Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 142 (1979). Again, the court assumed the existence of an enforceable agreement, without any significant analysis. Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 142 (“We infer that the language of the . . . agreement was in effect during each subsequent year of the plaintiff’s employment, although the . . . agreement is limited to one year and apparently applies only to district managers.”). More recently, however, trial court judges seem to be migrating toward expanding the circumstances in which they are willing to find that the parties somehow indicated an expectation that a new agreement would be necessary. See, e.g., AFC Cable Sys., Inc. v. Clisham, 62 F. Supp. 2d 167, 172–73 (D. Mass. 1999) (Stearns, J.) (noncompetition agreement was not enforceable where employee’s “title changed, his pay structure changed, his authority increased, his unsupervised time on the road increased, . . . the focus of his work changed” and he had been repeatedly requested, but refused, to sign new agreement); Flexcon Co. v. McSherry, 123 F. Supp. 2d 42, 43 (D. Mass. 2000) (Gorton, J.) (refusing to enforce noncompetition agreement entered into before change in position and distinguishing precedent (C.R. Bard v. Intoccia, 1994 WL 601944 (D. Mass. 1994) (Zobel, J.)), on the ground, among others, that, there, the noncompetition agreement “was updated as the defendant’s responsibilities increased”); Lycos, Inc. v. Jackson, 2004 WL 2341335, at *9–10 (Mass. Super. Ct. Aug. 25, 2004) (Houston, J.) (noncompetition agreement voided where employee’s title changed, salary increased, responsibilities grew, and employee was asked to sign new agreement); Reebok Int’l, Ltd. v. Rattet, C.A. No. 08-0747, at *5–6 (Mass. Super. Ct. Apr. 29, 2008) (Sanders, J.) (denying preliminary injunction on basis that plaintiff failed to prove that noncompetition agreement was still operative after internal job changes) (citing AFC Cable Sys., Inc. v. Clisham, 62 F. Supp. 2d at 168). Instructively, the Lycos decision summarized the law as, “[e]ach time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.” Lycos, Inc. v. Jackson, 2004 WL 2341335, at *9. This holding is consistent with the holdings of the cases identified above, albeit it relies on three cases—Marine Contractors Co. v. Hurley, 365 Mass. 280, 285– 86 (1974); F.A. Bartlett Tree Expert v. Barrington, 353 Mass. at 587–88; and AFC Cable Sys., Inc. v. Clisham, 62 F. Supp. 2d at 173—that do not actually go quite that far. Nevertheless, a similar approach was taken by Judge Gants in Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005), in which the court focused on the nature and materiality of the changes to determine whether they were, as argued, “contrary” to the employment agreement 5–92

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and restrictive covenants governing the parties’ relationship. Specifically, the court found that, with one exception, none of the changes—two promotions, “changes in the method of calculating . . . compensation,” “turnover in . . . staff,” “changes in the identity of the superior” to whom the employee reported, and the elimination of a deferred compensation plan—were contrary to the terms of the employment agreement. Getman v. USI Holdings Corp., C.A. No. 05-3286BLS2 (Mass. Super. Ct. Sept. 1, 2005). (The court noted that the change in deferred compensation was addressed through a separate agreement that modified any otherwise inconsistent provisions.) The one exception, however, was that the contract was with the defendant employer’s predecessor, and to enforce it with respect to the “much larger” successor entity would result in a material expansion of the scope of the restrictions. Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005). Accordingly, the court found that the noncompetition provisions could not be enforced. Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005). Instructively, however, the court found that other restrictive covenants—a nonsolicitation provision (see § 5.3.13(c), above) and a nondisclosure agreement (see § 5.3.13(f), above)—could be enforced, as the change in entities did not enlarge the scope of those restrictions. Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005); see also Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *5 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.) (change in salary and commission structure did not require new agreement, as changes were not inconsistent with agreement). As these cases demonstrate (and as more recent cases have sometimes observed), the courts are ultimately attempting to ascertain the intention of the parties, specifically, whether the parties intended that the restrictive covenant would govern their employment relationship regardless of changes that may obtain in the future or whether a new agreement would be required if there were material changes in the employment relationship. See Athenahealth, Inc. v. Cady, No. 131098-BLS1, 2013 WL 4008198, at *8 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) (looking to whether “the parties likely intended a modification not a revocation” of their employment agreement); Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1, 16–17 (1st Cir. 2009); see also Anaqua, Inc. v. Bullard, No. 14-1491BLS1, slip op. at 10 (Mass. Super. Ct. July 24, 2014) (Billings, J.) (The agreement survived the employee’s “promotion and the accompanying changes in his title, duties, and compensation structure, because the parties expressly agreed that it would.”). Nevertheless, on balance, following the Cheney v. Automatic Sprinkler Corp. decision and continuing until about 2009, trial court judges seemed to be relatively willing to find an old agreement inoperative. That said, while many of the decisions were finding that a material change had occurred, not all came out that way. For example, applying a somewhat novel approach, the court in Puleio v. North Coast Sea-Foods Corp., 2009 WL 5788387 (Mass. 3rd Edition 2016

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Super. Ct. May 14, 2009) (Murtagh, J.) found that because an agreement applied to all employees, it did not require reexecution when the former employee’s position changed. See also A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *9 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.) (in rejecting application of the material change doctrine, the court noted as part of its analysis that “[t]he noncompetition agreement was required by ARS from a wide range of employees, including those reporting to a general manager”). In 2009, with the earlier cases as the backdrop, the First Circuit seems to have shifted the tides in the outcomes with its decision in Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1 (1st Cir. 2009). The court focused on whether a new agreement was requested of the employee in connection with a change in employment as the bellwether for establishing the parties’ intent. Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d at 16. Although regularly a part of the facts, the existence or absence of a request for a new agreement had not been an express focus in the cases, even though such an analysis had been articulated as far back as 2000 by Judge Gants in an oft-cited case, Intertek Testing Services NA, Inc. v. Curtis-Strauss LLC, No. 98903-F, 2000 WL 1473126, at *6 (Mass. Super. Ct. Aug. 8, 2000) (in the absence of a request and refusal to sign a new agreement, the case for abandonment of an old agreement is significantly less compelling—though not impossible). See also Iron Mountain Info. Mgmt., Inc. v. Taddeo, 455 F. Supp. 2d 124, 133 (E.D.N.Y. 2006) (Applying Massachusetts law, the court stated, “In determining whether there has been a material change to the employment relationship, courts have considered it extremely significant that the employer sought to have the employee sign a new non-compete agreement.”), cited in Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d at 16; Grace Hunt IT Solutions, LLC v. SIS Software, LLC, No. 201200080BLS1, at *4 (Mass. Super. Ct. Feb. 14, 2012) (Lauriat, J.). Instructively, the Taddeo decision cited in Astro-Med states, “This Court is aware of no case under Massachusetts law where, despite a material change in employment terms coupled with an employee’s refusal to sign a new covenant at employer’s request, a court has nevertheless upheld a restrictive covenant executed prior to the change in employment terms.” Iron Mountain Info. Mgmt., Inc. v. Taddeo, 455 F. Supp. 2d at 134. But see Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *3 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.) (enforcing noncompete where employee was asked to sign a new agreement but avoided doing so “before he jumped ship” by claiming to object to the language, rather than indicating an unwillingness to sign). Following Astro-Med, there has been a recent spate of Superior Court cases considering the material change rule, some focusing on whether a new agreement was requested and signed, some focusing on the materiality of the changes in employment, and some analyzing the circumstances as an issue of 5–94

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material breach. See, e.g., Patriot Energy Group, Inc. v. Kiley, No. 1304177BLS1, 2014 WL 880880, at *7 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (“A non-solicitation agreement or covenant not to compete may be deemed void if there are material changes in the employment relationship between an employee and the employer.”); Interpros, Inc. v. Athy, No. 201300214F, 2013 WL 2181650, at *3–6 (Mass. Super. Ct. May 5, 2013) (Curran, J.) (finding one employee’s noncompete void based on changed title, increased pay, and increased authority, and a second employee’s noncompete void because she was “fired” and later rehired, but no new agreement was required of her, though it had been with her prior rehire); Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) (noncompete remained in place where the parties’ postmodification conduct evinced an expectation that the employee was still bound by the restriction); Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2012 WL 3030268, at *7 (Mass. Super. Ct. July 16, 2012) (Kirpalani, J.) (employee’s compliance with a restrictive covenant was excused by the employer’s material breach where the employer twice changed the employee’s job duties and title, reduced his salary, and eliminated the commission program, which the employee had been tasked with developing); A.R.S. Servs., Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181, at *9 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.) (noncompete was not void because contractual language anticipated potentially substantial changes in employment responsibilities and circumstances); Akibia, Inc. v. Hood, No. 120294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.) (“a non-solicitation agreement or covenant not to compete may be deemed void if there are material changes in the employment relationship between the employee and his or her employer”); Grace Hunt IT Solutions, LLC v. SIS Software, LLC, No. 201200080BLS1, at *4–5 (Mass. Super. Ct. Feb. 14, 2012) (Lauriat, J.) (holding that “it is the existence of a material change in the relationship that voids the prior noncompete agreement, not the nature of that change”; the court found a material change where, although certain of the changes “were hardly far reaching, the change in their compensation plan was more significant,” employees refused to sign new noncompetes, and the fact that “their fringe benefits were better [was] immaterial”); Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *2 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.) (no material change where, midemployment, the employee was temporarily assigned to move to Italy and perform new duties); Invidia, LLC v. DiFonzo, No. 2012-3798-H, 2012 WL 5576406, at *3 (Mass. Super. Ct. Oct. 22, 2012) (Wilson, J.) (“the change to a full-time schedule and the provision of health insurance is not the type of material change in the employee’s duties that [would] result in the voiding of a non-competition agreement”). It bears noting that circumstances similar to those in IONA Technologies—an employee leaving and then rejoining a company without a new agreement— 3rd Edition 2016

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were present more recently in Patriot Energy Group, Inc. v. Kiley, No. 1304177BLS1, 2014 WL 880880 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.). In that case, the court seemed to view the return to the company as a factor that might mitigate the impact of the material change doctrine. Patriot Energy Group, Inc. v. Kiley, 2014 WL 880880, at *8. The cases have, however, at times resulted in seemingly inconsistent rulings. For example, both Akibia, Inc. v. Hood, No. 12-0294F, 2012 WL 10094508 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.) and Athenahealth, Inc. v. Cady, No. 131098-BLS1, 2013 WL 4008198 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.) involved similar types of material changes following the execution of employment agreements with language arguably anticipating possible changes in employment, yet in Akibia, the agreement was determined to have been abandoned, whereas in Athenahealth the agreement was found to continue to apply. In Akibia, Inc. v. Hood, each of three employees (Jeffrey Hood, Ryan Gavigan, and Charles Krueger) began working for Akibia between 2002 and 2006 and signed a restrictive covenant agreement with Akibia when they commenced employment. Akibia, Inc. v. Hood, 2012 WL 10094508, at *1. (Hood and Gavigan had both been employed by an entity acquired by Akibia, and neither had signed a restrictive covenant agreement with that entity. Akibia, Inc. v. Hood, 2012 WL 10094508, at *2, *4.) The agreements signed by each of the employees contained language stating, “I further understand and agree that my obligations under this Agreement . . . will continue regardless of any changes in my title, position, duties, compensation or other terms and conditions of employment.” Akibia, Inc. v. Hood, 2012 WL 10094508, at *2. Each employee’s terms of employment changed on several occasions, and none of the employees signed a new restrictive covenant agreement. Akibia, Inc. v. Hood, 2012 WL 10094508, at *3–5. The changes were as follows: Hood, who had been a sales representative, was promoted in April 2006 to a sales team leader, became responsible for managing seven sales representatives, and had changes to his compensation structure (earning an additional $62,000 from team commissions). In August 2006, Hood was promoted to regional sales manager, a role in which he no longer worked with clients, but instead undertook additional managerial and strategic responsibilities. In April 2008, Hood was promoted to manager of America’s eastern sales, with increased managerial responsibilities and compensation. In November 2009, Hood “was effectively demoted to a regional sales manager.” Akibia was acquired in December 2010, resulting in increased product offerings and an alleged reduction in resources for the products Hood had been selling. Hood’s employment changed one last time in April 2012, when he was “deemed a regional sales director” and his compensation changed. Hood resigned in June 2012. 5–96

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Similarly, Gavigan, initially an inside sales support person earning $50,000, was promoted to an associate sales representative position in 2004 or 2005. In 2006, Gavigan was promoted to junior account manager with additional compensation and territory, though in 2008, Akibia took away a portion of his territory while adding additional products. In 2011, Gavigan was promoted to senior account manager, with an increased territory and larger base salary. In June 2012, Akibia changed Gavigan’s sales commission plan and sales quotas for 2013, reduced his commissions, and eliminated certain bonuses. Gavigan estimated that the result would be an $87,000 (or 40 percent) loss of potential commissions. Gavigan resigned on June 13, 2012. Finally, Krueger was a senior sales representative from 2006 to 2012, though Akibia took away his territory in 2008, leaving him with only the existing accounts and some prospects. In 2010, the products he was to sell changed. In June 2012, he learned that his compensation plan was going to change, resulting in an anticipated $100,000 decrease in his compensation. Krueger resigned in the summer of 2012. The court described the material change rule as follows: [U]nder Massachusetts law, a non-solicitation agreement or covenant not to compete may be deemed void if there are material changes in the employment relationship between the employee and his or her employer. Far reaching changes in an employment relationship, such as changes in rate of compensation or sales area, suggest that the parties have abandoned their old arrangement and entered into a new employment relationship. Thus, each time an employee’s employment relationship with his or her employer changes materially such that the parties have entered into a new employment relationship, the parties must execute a new non-solicitation agreement or covenant not to compete. Akibia, Inc. v. Hood, 2012 WL 10094508, at *7 (citations omitted). The court then found “that there were material changes in the employment relationships between the defendants and Akibia over their multi-year course of employment with the company. Accordingly, these material changes in the employment relationships between the parties probably voided the original [restrictive covenant] agreements that Akibia required the defendants to execute.” Akibia, Inc. v. Hood, 2012 WL 10094508, at *8. The court summarized those changes as follows: “[B]eginning years ago, each defendant saw fundamental 3rd Edition 2016

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changes in his position title, amount of compensation, sales quota, sales territory, and job responsibilities . . . .” Akibia, Inc. v. Hood, 2012 WL 10094508, at *8. The court then found that “[a]fter each change in the employment position, [each employee] received an increase in his compensation and changes in his responsibilities, but . . . never signed a new [restrictive covenant] agreement.” Akibia, Inc. v. Hood, 2012 WL 10094508, at *8. The court also noted that none of the employee defendants was asked to sign a new restrictive covenant agreement even after Akibia was acquired in 2010. Akibia, Inc. v. Hood, 2012 WL 10094508, at *8. (See Employer’s Changes: Successors and Assigns, below.) This, coupled with the fact that, following the acquisition, “Akibia gradually shifted its focus” on its product offerings, “provide[d] further evidence of significant and material changes in the employment relationship between Akibia and each of the defendants.” Akibia, Inc. v. Hood, 2012 WL 10094508, at *8. Based on the foregoing, the court held that “[t]he original [restrictive covenant] agreements that Akibia required the defendants to execute are likely no longer in effect.” Akibia, Inc. v. Hood, 2012 WL 10094508, at *8. In Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.), the employee (Cady) began working for Athenahealth in 2002 as regional vice president of sales for the northeast region, but his position changed over the course of the next decade. Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *1–3. At the time Cady began work for Athenahealth, he signed an employment agreement (containing a noncompetition provision) that “stated that Cady will serve in his present position, or in such other positions as he may be assigned.” It also “contained an integration clause that stated that it could not be modified except by a writing signed by the parties, ‘provided however that compensation levels may be adjusted by assent of the parties’ and the employee’s assent will be established by his ‘acceptance . . . of compensation at such adjusted level.’” Cady’s position changed in March 2007, at which time he became vice president of professional services, “leading teams responsible for assisting customers with the implementation process.” “In this position, Cady was no longer responsible for sales, nor did he have contact with the customers; he also reported to a different person.” “Notably, his compensation was reduced by about twenty-five percent.” Contemporaneously with the change, Cady was provided, and signed, a “one page ‘Offer of Employment’” that “set out his new title and his new compensation and benefits, and confirmed that he was an at-will employee.” “The form made no reference to his employment agreement or to the non-disclosure and noncompetition covenants contained in it.” Later, Cady’s ability to earn most of the options he had previously been granted was eliminated as a consequence of a change in the employer’s stock option plan. In 2013, Cady’s duties changed again. 5–98

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Despite these changes, the court ultimately found “that the parties likely intended a modification not a revocation, as evidenced by Cady’s conduct in discussing his employment agreement, including the non-compete, with CareCloud [the new employer] during his interview process.” Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *8. The court articulated an approach to the issue that had not yet been expressly stated: Were the non-compete otherwise enforceable against Cady, the change in the terms of his employment would not be enough to cause this court to deny preliminary injunctive relief. However, the likelihood of success on the merits is a spectrum to be considered in the context of the risk and extent of harm established if an injunction does not issue, and the change in Cady’s terms of employment . . . is an element to be taken into consideration. Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *8. The difference in these two cases may turn on the fact that in Athenahealth the employee’s postmodification discussions about his restrictive covenant agreement seemed to assume its continued viability. Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *8; cf. Empirix, Inc. v. Ivanov, No. 201101239, 2011 WL 3672038, at *3 (Mass. Super. Ct. May 17, 2011) (McIntyre, J.) (enforcing a noncompete where employee was asked to sign a new agreement but avoided doing do “before he jumped ship” by claiming to object to the language, rather than indicating an unwillingness to sign). An explanation for the recent increase in variation in the decisions applying the material change doctrine likely lies in a combination of the factually intensive nature of the analysis coupled with varying formulations of the legal standard and no recent appellate guidance. As Judge Billings, sitting in the Business Litigation Session of the Superior Court, recently observed: [F.A. Bartlett Tree Expert v. Barrington, 353 Mass. 585, 587 (1968)] did not, as some trial court opinions have since suggested, hold that “‘[e]ach time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.’” Iron Mountain Mgmt., Inc. v. Taddeo, 455 F. Supp. 2d 124, 132–33 (E.D.N.Y. 2005). Bartlett held only that on the facts of this case, “[t]he conduct of the parties from 1960 to the date the 3rd Edition 2016

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defendant terminated his employment relationship with the plaintiff [was] inconsistent with an intention that the 1948 contract be continued in effect.” 353 Mass. at 588. Anaqua, Inc. v. Bullard, No. 14-1491-BLS1, slip op. at 4 & n.4 (Mass. Super. Ct. July 24, 2014) (Noting that “this is not a case in which . . . the employer at the time of the change tendered a new non-competition agreement and the employee expressed his contrary intent by refusing to sign,” the court enforced the agreement, holding that, where the contract stated that it would apply regardless of changes or breaks in employment, “the parties’ intentions were crystal clear and in writing.”). A year before his decision in Anaqua, Judge Billings provided the following additional insight: Interpretation of the Bartlett holding has largely been left, thus far, to the trial courts, whose treatment of it has not been wholly uniform. The broadest restatement of the doctrine is that “[e]ach time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.” Numerous other cases have held that a material change in terms—but especially, a pay cut, demotion or material breach by the employer, and especially if the employee was tendered a new covenant and refused to sign—abrogated the original covenant. KNF & T Staffing, Inc. v. Muller, No. CV201303676-BLS1, 2013 WL 7018645, at *3 n.4 (Mass. Super. Ct. Oct. 24, 2013) (Billings, J.) (quoting Iron Mountain Info. Mgmt., Inc. v. Taddeo, 455 F. Supp. 2d 124, 132–33 (E.D.N.Y. 2005); other citations omitted). The premise of the doctrine has been described as “nothing more than the unremarkable proposition that contracting parties are free to abandon their prior contracts and form new ones, and an intention to do so may be evidenced not only by words or writing but also by the parties’ conduct.” Elizabeth Grady Face First, Inc. v. Escavitch, 321 F. Supp. 2d 420, 424 (D. Conn. 2004), quoted in Astro-Med, Inc., 591 F.3d at 16–17. Further, the doctrine has been characterized as one of equity. Specifically, after rejecting application of the material change doctrine as a matter of law, the court in A.R.S. Services, Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.) noted that “the changes were not ‘material’ to render the Agreement void as a matter of equity.” A.R.S. Servs., Inc. v. Morse, 2013 WL 2152181, at *9. 5–100

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Nevertheless, given the current state of the law on material change, it seems that without new appellate court guidance, a well-reasoned Superior Court decision is likely to be unassailable regardless of which way it decides the issue. In that vein, in upholding the Superior Court’s decision in Akibia, a single justice of the Appeals Court observed that “[t]he questions presented are complex, and no existing appellate case in Massachusetts squarely addresses the contract language and course of conduct presented here.” Akibia, Inc. v. Hood, No. 2012-J0390 (Mass. App. Ct. Nov. 21, 2012) (Sullivan, J., single justice), quoted in A.R.S. Servs., Inc. v. Morse, 2013 WL 2152181, at *9 n.5. It is important to remember, however, that a finding of material change sufficient to eliminate the preexisting agreement does not necessarily end the inquiry. If there was a material change (or a breach by the employer), the employee may nevertheless, but likely will not, be deemed to have acquiesced, and thereby ratified the changed arrangements. For example, in Lantor Inc. v. Ellis, No. 98-01064, 1998 WL 726502 (Mass. Super. Ct. Oct. 2, 1998), Judge Gants explained that when an employer . . . unilaterally breaches an employment agreement by reducing an employee’s compensation, the employee should not be understood to have waived the breach or agreed to a modified, less remunerative employment agreement simply because he does not quit his job. An employee may be employed with a written employment agreement or, like the vast majority of office and managerial employees in this country, without one. The latter are employed at-will, pursuant to the terms and conditions set by the employer, and their obligations are defined either by those terms and conditions or implied in law by the fiduciary duty owed by every employee to his employer. Therefore, when an employee returns to work following his employer’s breach of their written employment agreement, the employee may be accepting his salary, not through a modified formal employment agreement, but simply as an at-will employee working without a contract. I find that this is what [the employee] did. Therefore, it is not reasonable to infer that [the employee’s] decision to continue his employment manifested his waiver of the breach or his agreement to modify the agreement; it simply reflected his willingness to continue to work for a time and be paid what [the employer] would pay him, without a formal contract. In the absence of evi3rd Edition 2016

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dence affirmatively reflecting that [the employee] agreed to more, this is the fairest and most accurate characterization of what he did in the wake of [the employer’s] breach. This conclusion is reinforced by the observation that the contractual term [the employer] chose to breach—the terms of [the employee’s] bonus—had consequence only if [the employee] chose to remain with [the company] until March 15, 1997 (one year beyond the time of the breach), because only then would he be entitled to receive a bonus for 1996. [The employee] took affirmative steps to look for other work long before this and indeed terminated his employment with [the employer] more than two months before this date. His conduct hardly reflected acquiescence in the new bonus scheme; if anything, it reflected the opposite. The practical consequence of this doctrine is that employers, when they unilaterally breach an employment agreement by reducing an employee’s promised compensation, cannot assume that the employment agreement remains intact, as modified, and the employee’s duties under that agreement continue unaffected simply because the employee does not quit and is silent about his mistreatment. At the very least, an employer must obtain an affirmative manifestation that the employee agrees to waive the breach, or to modify the employment agreement, or otherwise commits himself to perform the obligations set forth in the employment agreement. Without such an affirmative manifestation, the employee shall be deemed freed from the special obligations provided in his employment agreement, and shall be required only to comply with those obligations specifically identified by the employer or implied as a matter of law. .... While [the employer] says now that the employment agreement, with its incorporated Non-Disclosure & Non-Compete Agreement, remained in full force after the March 1996 modifications to the bonus scheme, it 5–102

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plainly had doubts about this position because it wanted very much for [the employee] to confirm in writing that the Agreement remained in force at the time of his separation from [the employer] in 1997. Ironically, if [the employer] had paid [the employee] his 1996 bonus, as it had promised, I would have found that the payment of that bonus was fair consideration for [the employee’s] explicit agreement to become re-committed to the Non-Compete Agreement. [The employer], however, refused to pay that bonus. Lantor Inc. v. Ellis, 1998 WL 726502, at *9–11 (distinguishing cited cases on the basis that all involved an “allegedly wronged party [who] received benefits from the allegedly breaching party that were obtainable only under an identifiable contract, not through an at-will arrangement”); see also Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2012 WL 3030268, at *7 (Mass. Super. Ct. July 16, 2012) (Kirpalani, J.) (no ratification where employee says that he left because of the changes in his compensation). This issue may be avoided altogether, however, by language in an agreement addressing it. For example, in Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *1 (Mass. Super. Ct. May 2, 2013) (Kaplan, J.), the agreement “contained an integration clause that stated that it could not be modified except by a writing signed by the parties, ‘provided however that compensation levels may be adjusted by assent of the parties’ and the employee’s assent will be established by his ‘acceptance . . . of compensation at such adjusted level.’” Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198, at *1. Although not expressly stated in the decision, the court appears to have accepted that that language would have kept the restrictive covenant in place, despite the change.

Postemployment Agreement Although uncommon, noncompetition agreements arising from an employment relationship but entered into as or after employment ends are enforceable just like any other noncompetition agreement provided that there is an appropriate ancillary transaction of which they are a part. See Marine Contractors Co. v. Hurley, 365 Mass. 280, 288 (1974) (“Marine’s interest in protecting its accrued good will from possible incursions by Hurley is not weakened by the fact that it negotiated the agreement not to compete at the end of Hurley’s employment rather than at some earlier time.”); Richmond Bros. v. Westinghouse Broad. Co., 357 Mass. 106, 110–11 (1970) (noncompetition agreement signed near conclusion of employment was deemed void not as result of its timing, but, rather, on 3rd Edition 2016

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other grounds); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716–17 (1961) (settlement of embezzlement claim); Majilite Corp. v. Abbott, MICV2008-00222-L2 (Mass. Super. Ct. June 5, 2008) (settlement of breach of fiduciary duty and other claims).

Contracts Under Seal Although rarely implicated, contracts under seal raise unique issues regarding consideration. In Marine Contractors Co. v. Hurley, 365 Mass. 280 (1974), the court held that the fact that the agreement was sealed meant that consideration was not necessary as it is “conclusively presumed.” Marine Contractors Co. v. Hurley, 365 Mass. at 285. Despite this holding, the court nevertheless proceeded to find that the contract was in fact supported by consideration—specifically, the acceleration of payments from a trust established for full-time employees. Marine Contractors Co. v. Hurley, 365 Mass. at 285. Instructively, the court also observed in a footnote that “[w]e should not be taken to imply that the seal would of itself render a purely gratuitous promise specifically enforceable.” Marine Contractors Co. v. Hurley, 365 Mass. at 285 n.3. More recently, in EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2 (Mass. Super. Ct. May 4, 2009) (Neel, J.), the Superior Court addressed the question of whether a seal is sufficient to provide consideration to support a noncompetition agreement. In that case, while noting that “Massachusetts law regarding the consideration required to support covenants not to compete is not free from doubt,” the court held that a seal does in fact provide adequate consideration to support a noncompetition agreement. EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2, at *12–13. The court reasoned as follows: While the Supreme Judicial Court has since abandoned the doctrine that a seal imports consideration sufficient, without more, with regard to option contracts and contracts executed on behalf of an undisclosed principal, see Knott v. Raciot, 442 Mass. 314, 319–320 (2004), it has not yet done so with regard to non-competition agreements. EMC Corp. v. Donatelli, C.A. No. 09-1727-BLS2, at *12.

Lack of Irreparable Injury Irreparable injury is an essential element of the preliminary injunction standard, and, as such, the burden will be on the company to prove that it will be irreparably injured. See § 5.4.1, Applicable Standards, above. Accordingly, there is always 5–104

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the question of whether the employee can harm the employer. Marcam Corp. v. Orchard, 885 F. Supp. 294, 298 (D. Mass. 1995) (Lindsay, J.). In a case involving trade secrets, it will be incumbent upon the plaintiff to prove that the information sought to be protected will qualify as a trade secret or confidential information, the loss of which could therefore constitute irreparable harm. Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 274 (1980); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *3 (Mass. Super. Ct. Apr. 29, 2002) (claim of irreparable injury belied by plaintiff’s decision to allow former employee to remain employed at plaintiff company for two weeks after resignation). Moreover, even if the employee does possess the employer’s trade secret information, the employer will still need to prove that such information is translatable to the competitive venture. See Marcam Corp. v. Orchard, 885 F. Supp. at 297 (finding argument of irreparable harm unpersuasive in light of facts of case). In a case involving goodwill, it will be incumbent on the plaintiff to prove that the former employee possessed goodwill “of a type which would be adversely affected if [the employee] were to work for a competitor.” Slade Gorton & Co. v. O’Neil, 355 Mass. 4, 9 (1968); Marcam Corp. v. Orchard, 885 F. Supp. at 298 (finding that former employee’s “association with the competing product would be enough to raise doubts in the eyes of [the former employer’s] customers as to the relative value of [its products]”). As a related matter, where the defendant, even if a competitor, is not a true threat, the potential injury may not be sufficient to warrant injunctive relief. See, e.g., Banc of Am. Corporate Ins. Agency, LLC v. Verille, C.A. No. CV2007-01099, at *5 (Mass. Super. Ct. Aug. 6, 2007) (Connors, J.) (former employer unlikely to be irreparably harmed by employee); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *7 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.) (denying injunctive relief, but leaving open the possibility of injunctive relief if circumstances were to change). But see Slade Gorton & Co. v. O’Neil, 355 Mass. at 8 (although products at issue did not represent substantial percentage of either company’s business, noncompetition agreement was nevertheless enforceable).

Balancing of Harms Where the potential harm to the restricted party outweighs the potential harm to the party seeking enforcement, courts may decide not to enforce the noncompetition agreement. See, e.g., Banc of Am. Corporate Ins. Agency, LLC v. Verille, C.A. No. CV2007-01099, at *5 (Mass. Super. Ct. Aug. 6, 2007) (Connors, J.) (harm to employee outweighed potential harm to “a major corporation with a significant client base”); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *7 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.) (defendant’s business was not 3rd Edition 2016

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sufficient threat to plaintiff to warrant harm to defendant of closing it down); Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *3 (D. Mass. Aug. 19, 1987) (risk of harm to former employer was “far less” than harm caused to former employee). In this regard, an employee’s “interest in earning a living and supporting his family far outweighs [a former employer’s] speculative interest in protecting its investment in its employees, or its monetary interest in stifling adverse competition.” Banner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. Ct. Feb. 23, 2003) (Agnes, J.) (“[T]he public and the individual have an interest in every person carrying on his trade or occupation freely . . . . [I]nterference with individual liberty of trade . . . is contrary to public policy.” (citing Woolley’s Laundry v. Silva, 304 Mass. 383, 387 (1939))); see also Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *2 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.) (loss of employment outweighed putative harm to former employer); Chiswick v. Constas, 2004 WL 1895044, at *3–4 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (employee’s interest in “twenty-three years of established business relationships and goodwill” and inability to work in his field of expertise—where he is the “primary provider for his family”—outweighed former employer’s undemonstrated interest in protecting its goodwill); Lucent Techs., Inc. v. Tymann, 106 F. Supp. 2d 189, 191 (D. Mass. 2000) (Harrington, J.) (“[P]laintiff’s interest in enforcing specific performance of its employment contracts at this time [when it has failed to show that the former employees’ work threatens trade secrets] does not outweigh the defendants’ interests in pursuing and obtaining gainful employment up to their full earning capacity.”). While the harmful impact of enforcing a noncompetition agreement can sometimes be ameliorated by providing for the payment of compensation during the period of enforcement (see § 5.3.13(a), Garden Leave Clause/Notice Requirement, above), see C.R. Bard, Inc. v. Solano, 1988 WL 92469, at *3 (Aug. 14, 1988) (“to the extent that the agreement provides payment of [the former employee’s] salary for the entire year, he is protected from serious economic harm”), other times the harm will extend beyond simply the need to earn a living. Bear, Stearns & Co. v. Sharon, 550 F. Supp. 2d 174, 178 (D. Mass. 2008) (Gorton, J.) (where defendant was highly compensated, irreparable harm was caused by “loss of professional standing and the inability to advise his clients in times of economic turmoil”); Getman v. USI Holdings Corp., C.A. No. 05-3286BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (noting “significant burden” on former employee’s clients). But see Marcam Solutions, Inc. v. Sweeney, 1988 WL 128184, at *2 (Mass. Super. Ct. Mar. 25, 1998) (compensation during restricted period addresses negative consequences on employee’s “employability . . . from a year’s absence”).

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Competitors and Competition Noncompetition agreements, by their very nature, are designed to protect against unfair competition, the sine qua non of which is actual competition. See generally Cognex Corp. v. Eichler, 2009 WL 5408166 (Mass. Super. Ct. June 17, 2009) (MacLeod-Mancuso, J.); Payson’s Trucking, Inc. v. Yeskevicz, C.A. No. 20060155B, at *1 (Mass. Super. Ct. Mar. 27, 2006) (Anges, J.). Accordingly, an issue that frequently arises is whether the entity to which the former employee went or against which the noncompetition agreement is sought to be enforced is in fact a competitor. See, e.g., Cognex Corp. v. Eichler, 2009 WL 5408166 (Mass. Super. Ct. June 17, 2009) (MacLeod-Mancuso, J.); Scully Signal Co. v. Guay, 2007 WL 1977714, at *2 (Mass. Super. Ct. June 7, 2007) (Brant, J.); Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2006); Sentient Jet, Inc. v. Lambert, 2002 WL 31957009, at *6 (Mass. Super. Ct. Nov. 18, 2002) (van Gestel, J.). The starting point for this analysis is to ascertain the parties’ understanding of who the competitors are. This should be specified by the express terms of the noncompetition agreement—although the competitors need not be identified by name. They should, however, at a minimum, be identified by describing the activities that are viewed as competitive. For example, in EMC Corp. v. Kempel, 01-4631-BLS (Mass. Super. Ct. Nov. 20, 2001) (van Gestel, J.), the court was called upon to determine whether a company that was in the process of developing potentially competitive products was a competitor, even though neither company had yet to begin selling the products when the employee terminated his employment with EMC Corporation (EMC). The court reasoned as follows: The Agreement’s plain language becomes critical. Here, the Court observes that the word “compete” is broadly defined by the directly following words: “including but not limited to directly or indirectly developing, producing, marketing, soliciting or selling products or services competitive with products or services being developed, produced[,] marketed or sold by [EMC] at the time of your termination.” (Emphasis added.) With the inclusion of the word “developing,” it is not necessary for EMC to show that [the alleged competitor] has a product that competes with those of its own or that those of its own are in a state beyond “being developed.” Rather, the fact that [the alleged competitor] is developing a product that competes with one being developed by EMC is enough to ensnare [the employee]. 3rd Edition 2016

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EMC Corp. v. Kempel, 01-4631-BLS, at *8. Based on that rationale, the court determined that the two companies were in fact competitors. EMC Corp. v. Kempel, 01-4631-BLS, at *8. In the absence of a precise description of what constitutes a competitor or a competitive product or service (regardless of whether the reason is that the language is vague or the technology is complicated), the courts are left to make the determination on a limited, and frequently complicated and nuanced, record. See Lombard Med. Techs., Inc. v. Johannessen, 2010 WL 2682449, *6 (D. Mass. July 2, 2010) (Gertner, J.); see also Life Image, Inc. v. Brown, No. 201103764, 2011 WL 7443924, at *4 (Mass. Super. Ct. Dec. 22, 2011) (McIntyre, J.) (similar analysis in the medical imaging business, where the new employer offered “a generically similar product”). Whether a company constitutes a competitor, however, will generally be liberally viewed. See, e.g., Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2006); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *4 (Mass. Super. Ct. Apr. 29, 2002) (“using an analysis focused on the customer and to whom the product is marketed in determining the meaning of ‘direct competition,’” the court noted in dicta that companies were competitors even though such competition was only at margins and “in a very small portion of [the plaintiff’s] product lines”). Even companies that are not competitors can present difficulties, if they are viewed as indirect competitors. See, e.g., Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *1, 2 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.).

Scope of Restriction Noncompetition agreements will be enforced only to the extent that the conduct of the restricted party falls within the intended reach of the agreement. In EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001), for example, in what the court described as “a glaring loophole in the restriction,” the court found that the restriction did not reach the consulting services in which the former employee was engaged. EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001). An express prohibition on every possible permutation of a restricted party’s conduct, however, is not necessary. Where a noncompetition agreement is reasonably read to prohibit the particular conduct, it will be so enforced. For example, in Loranger Construction Co. v. C. Franklin Corp., 355 Mass. 727, 729–30 (1969), the Supreme Judicial Court found that an agreement prohibiting competition by an independent contractor could reasonably be read to preclude acceptance of an “invitation . . . for open bids.” Similarly, in All Stainless, Inc. v. Colby, 364 Mass. 773, 781 (1974), the Supreme Judicial Court stated, 5–108

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Our cases have generally not limited the enforcement of a former salesman’s restrictive covenant so as only to bar sales (a) to persons formerly solicited by the salesman within a geographical area or (b) to those to whom sales were in fact made in that geographical area through the salesman. All Stainless, Inc. v. Colby, 364 Mass. at 781. The court explained that such a limitation would create practical difficulties (both with respect to enforcement and for the new employer) “far greater” than a straight geographical limitation. All Stainless, Inc. v. Colby, 364 Mass. at 781 n.3.

Delay/Mootness As indicated above, the failure of an employer to move quickly may have multiple implications. See § 5.4.6, above. It may evince a lack of irreparable harm. See § 5.4 generally, above. It may also have unfairly lulled the former employee to believe that it was safe to invest in the conduct subsequently claimed to violate the noncompetition agreement. See § 5.4 generally, above. Accordingly, an employer’s delay may be a basis on which a court will deny injunctive relief.

Equity and Fairness In considering whether to enforce a noncompetition agreement, courts consider whether “equitable factors . . . militate against enforcement.” Marcam Solutions, Inc. v. Sweeney, 1988 WL 128184, at *2 (Mass. Super. Ct. Mar. 25, 1998); Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 641 (2004) (“no factors . . . indicate that the [party subject to the noncompetition agreement] was treated unfairly”); New Eng. Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 674 (1977); Slade Gorton & Co. v. O’Neil, 355 Mass. 4, 8–9 (1968) (assuming without deciding that particular employment agreement “was not inherently unfair”). Thus, courts will ask, “Is the restraint unduly harsh or oppressive?” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 313, 318 (1982). Other facts will affect the level of scrutiny, including, for example, whether the contract was negotiated, whether the restricted party was represented by counsel, and the relative sophistication of the parties. Loranger Constr. Co. v. C. Franklin Corp., 355 Mass. 727, 729–30 (1969) (noting that restricted party was represented by counsel); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS, at *6 (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (sophistication); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *3, 6 (Mass. Super. Ct. July 19, 2001) (van Gestel, J.) (sophistication).

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There are myriad other circumstances that will likely lead a court to find enforcement of the noncompetition agreement inappropriate. See, e.g., Boulanger v. Dunkin’ Donuts Inc., 442 Mass. at 641 (franchisee “received . . . protection from competition . . . under the terms of the very same covenant not to compete he now challenges”); New Eng. Lumber Specialties, Inc. v. Jarvi, C.A. No. 06382, at *1–2 (Mar. 15, 2006) (Brant, J.) (injunction denied where former employer assisted its former employee in locating a new job, but after their relationship deteriorated, the former employer sought to enforce the noncompetition agreement against the former employee).

Circumstances at Signing The circumstances extant at the time of signing can render unenforceable an otherwise reasonable noncompetition agreement. See, e.g., Loranger Constr. Co. v. C. Franklin Corp., 355 Mass. 727, 729–30 (1969) (noting absence of compulsion to enter into noncompetition agreement); Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 707–09 (1982) (agreement imposed under “practical duress”); Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *1 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.) (“The circumstances of the signing of such restrictive covenants, whether supported by adequate consideration or whether [signed] under duress, are part of the circumstances to be considered.”); New Boston Sys., Inc. v. Joffee, 1993 WL 818570, at *2 (Mass. Super Ct. Nov. 28, 1993) (Volterra, J.) (strong argument that “contract should be void for reasons of duress and detrimental reliance” where employee was not told of agreement in advance and relocated from out of state for job); Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (D. Mass. Aug. 19, 1987) (identifying, as examples, low rank and lack of bargaining power). Although rarely an issue, “[c]onduct by one party which causes another to enter into a contract ‘under the influence of such fear as precludes [her] from exercising free will and judgment’ constitutes a basis for avoiding the contract. Restatement: Contracts, §§ 492, 495; Williston, Contracts (Rev. ed.) § 1603; Carey v. Fitzpatrick, 301 Mass. 525, 529.” Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2–3 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.); see also Avallone v. Elizabeth Arden Sales Corp., 344 Mass. 556, 561 (1962); Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *1–2 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.) (Hobson’s choice of accepting a noncompetition agreement or losing one’s job could be coercive); First E. Mortgage Corp. v. Gallagher, 1994 WL 879546, at *1 (Mass. Super. Ct. July 21, 1994) (midemployment noncompetition agreement signed under practical duress). Such was the case, for example, in Zabota Community Center, Inc. v. Frolova. In that case, the defendant was described by the court as follows: 5–110

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Frolova, at the time, was a low level employee, earning about $10 per hour. She was, and is, a Russian citizen, living and working legally in this country since 2001. She grew up and was educated wholly in Russia and Russian is her first language. In fact, she is said to have a very limited command of English. For this reason, among others, she avers that she did not understand what she was signing. Still further, her son still lives in Russia, with Frolova’s elderly parents, and Frolova sends most of her earnings to Russia for their support. She claims not to have understood the agreement and to have signed it out of fear of losing her job. She was given no consideration for signing the agreement other than not being fired on the spot. Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2–3. To support the enforceability of the agreement, the plaintiff “touted” that “after about one year’s employment, at-will and without any agreement, [Frolova] was told, forcefully, by . . . the President of [the company], that unless she signed the [noncompetition] agreement she would be fired the next day.” Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2. The court viewed that conduct in light of the defendant’s circumstance as raising doubts about the defendant’s exercise of free will and judgment, thereby creating a possible basis for the defendant to avoid the contract. Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *3.

Stealth Agreements An issue that occasionally arises is that a restrictive covenant was “buried” in other agreements or otherwise not called to the attention of the person to be bound thereby. As recent trial court decisions make clear, noncompetition agreements must be in an agreement executed by the employee in which the employee is fairly told of the restrictions and knowingly accepts them. Such agreements will not be enforced when they are buried in the Terms and Conditions of a deferred compensation plan, especially when the employee is not asked to sign those Terms and Conditions and may not have ever seen them. Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (refusing to enforce “stealth restrictive covenants”). Accordingly, 3rd Edition 2016

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the court in Flexcon Co. v. McSherry, 123 F. Supp. 2d 42, 44 (D. Mass. 2000) (Gorton, J.), rejected a noncompetition agreement that was (among other things) “presented to [the employee] as routine paperwork” and not mentioned in or a condition of his offer letter or subsequent promotions. Flexcon Co. v. McSherry, 123 F. Supp. 2d at 44; see also Eng’g Mgmt. Support, Inc. v. Puca, 2005 WL 1476462, at *1 (Mass. Super. Ct. Apr. 11, 2005) (Smith, J.) (noting that noncompetition and nondisclosure agreements were “buried among other papers that she was told to sign,” but not directly tying that to court’s decision to deny injunctive relief).

Circumstances of Termination Ordinarily, “[t]ermination of the employment relationship at the initiative of the employer does not itself render a noncompetition provision invalid.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 320 (1982); see also Wrentham Co. v. Cann, 345 Mass. 737, 740 (1963) (“agreement to sever the relationship”); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716–17 (1961) (employee terminated for cause; noncompetition agreement entered as part of settlement agreement). Where “the discharge is inequitable, an otherwise reasonable restraint may not be enforced.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 320; see also Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (D. Mass. Aug. 19, 1987); Ward v. Am. Mut. Liab. Ins. Co., 15 Mass. App. Ct. 98, 100 (1983) (“bad faith” discharge may be used to preclude enforcement of noncompetition agreement). As the Supreme Judicial Court explained, An employer may act so arbitrarily and unreasonably in exercising his right of termination that a court of equity will refuse aid in enforcing for his benefit other parts of the contract. Wark v. Ervin Press Corp., 48 Fed. Rep. (2d) 152, 156. Granger v. Craven, 159 Minn. 296, 304. Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 552 (1935). As noted by the Supreme Judicial Court in All Stainless, Inc. v. Colby, 364 Mass. 773, 781 n.2 (1973), the ultimate decision not to enforce the noncompetition agreement in Economy Grocery Stores is a reflection of the economic conditions prevailing at the time. However, while application of the law may have been more lenient, the legal principles are nevertheless valid, well-settled principles. (See § 5.2.1, above, for a discussion of the impact of the economy on the enforceability of restrictive covenants.)

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Even in the absence of a bad faith termination, however, the fact that “the parties’ expectations had been substantially altered from those which underlay the agreement” may provide a sufficient basis to consider the circumstances of the termination of the employment relationship. Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 320 (Stop & Shop “abandoned the purpose” of the golden handcuffs agreements when it fired Kroeger, and therefore “it seems inequitable that it should exact the full penalty devised to make the glue between the company and its employee stick.”). See generally Ward v. Am. Mut. Liab. Ins. Co., 15 Mass. App. Ct. at 100–01 (discharge of employee prior to expiration of term of employment vitiated employee’s noncompetition agreement obligations); Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (refusing to enforce revised noncompetition agreement where, among other things, employee signed agreement only days before she was terminated). Courts are also willing to consider the circumstances of termination, even when it occurs at the employee’s initiative. For example, when the termination of employment is instigated by the employee for personal (family-related) reasons and is not “on a sour note” or even to purposely move to a competitor, full enforcement of the noncompetition agreement may not be necessary to protect the employer’s legitimate business interests. See Advanced Cable Ties, Inc. v. Hewes, 2006 WL 3292810, at *2 (Mass. Super. Ct. Oct. 19, 2006) (Locke, J.) (employee’s “departure was precipitated by a need to work close to his elderly and ill parent”).

Extraordinary Hardship The Supreme Judicial Court has indicated that “extraordinary hardship” (as distinguished from mere “undue hardship”) that might be caused by enforcement of a noncompetition agreement may be sufficient to warrant refusing to enforce the noncompetition agreement. Marine Contractors Co. v. Hurley, 365 Mass. 280, 289 (1974); cf. EMC Corp. v. Allen, 1997 WL 1366836, at *4 (Mass. Super. Ct. Dec. 15, 1997) (Kottmyer, J.)) (“If [the typical] personal hardship . . . . constituted irreparable harm overcoming the employer’s legitimate business interests, the protection afforded by covenants not to compete would be meaningless.”). In Marine Contractors, however, the court noted that “there is no evidence of any subsequent change in circumstances which might cause him unanticipated hardship.” Marine Contractors Co. v. Hurley, 365 Mass. at 289. Zabota Community Center, Inc. v. Frolova, 2006 WL 2089828 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.), may be viewed as a case involving an extraordinary hardship. In that case, the defendant was an employee earning $10 per hour, had signed the noncompetition agreement a year into her employment under threat of immediate termination, spoke limited English, and sent most of her earnings 3rd Edition 2016

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to Russia to support her family. Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at 2–3. Given those facts, the court refused to enjoin the defendant’s conduct. Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at 3. Similarly, in Lunt v. Campbell, No. 07-3845-BLS (Fabricant, J., Sept. 2007), Superior Court Judge Fabricant observed that the defendant “was fired abruptly, without notice, and has no means to support herself other than the income she earns from servicing her longtime clients.” Lunt v. Campbell, No. 07-3845-BLS, at 9. Thus the court found, “[a]n injunction pending trial would deprive her of her only means of support at least until such time as she could obtain employment outside [the restricted area], or in another field of work. The record now before the Court does not justify imposing that hardship.” Lunt v. Campbell, No. 07-3845-BLS, at 9.

Selective/Inconsistent Enforcement A party’s inconsistent conduct and positions with respect to its enforcement of noncompetition agreements “is a matter of concern” to be evaluated by the courts. EMC Corp. v. Allen, 1997 WL 1366836, at *5 (Mass. Super. Ct. Dec. 15, 1997) (Kottmyer, J.) (finding that company’s different positions were justifiable); see also Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *4 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.) (noting selective enforcement, but not expressly factored into decision). But see Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 642–43 (2004) (although franchisees, but not all employees, were required to sign confidentiality agreements, company could “reasonably decide which persons pose the greatest risk of using its confidential information competitively”).

Compensation/Low-Level Employee An “employee’s low rank in the company . . . may make an otherwise reasonable restraint unreasonable.” Neeco, Inc. v. Computer Factory, Inc., 1987 WL 16161, at *2 (D. Mass. Aug. 19, 1987) (salesperson in a “relatively lowly position”); see also Zabota Cmty. Ctr., Inc. v. Frolova, 2006 WL 2089828, at *2 (Mass. Super. Ct. May 18, 2006) (van Gestel, J.) (denying injunctive relief against employee earning $10 per hour); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (noting that defendant’s position was “sufficiently high” to qualify for enforcement of noncompetition agreement, although restriction was determined not to be applicable). As a related matter, the employee’s rank may shed light on the need for postemployment restraints. See EMC Corp. v. Kempel, 01-4631-BLS, at *7 (Mass. Super. Ct. Nov. 20, 2001) (employee’s “position . . . was sufficiently high that [company] had a justifiable interest

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beyond that of just ordinary competition in seeking to enforce the noncompetition and other covenants”).

Unclean Hands The conduct of each party is relevant to the enforcement of a noncompetition agreement, as the court is being asked to employ its equitable powers in favor of the requesting party: A suit in equity . . . to enforce a negative covenant made by the defendant is in reality a petition for specific performance. Specific performance is not a matter of strict and absolute right. A petition of that nature is addressed to the sound discretion of the court. It will not be granted if the conduct of the plaintiff is savored with injustice touching the transaction, even though there is no sufficient ground for the rescission of the contract. “A court of equity does not lend its aid to parties who themselves resort to unjust and unfair conduct.” Econ. Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 552 (1935). Alternatively stated, “he who comes into equity must come with clean hands.” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *13 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945)); see also Morgan Stanley DW, Inc. v. Clayson, 2005 WL 1009651, at *1, 5 (Mass. Super. Ct. Mar. 14, 2005) (citing “the ‘maxim of equity with the dignity of antiquity . . . that one who seeks equity must do equity’” (citation omitted)); New Boston Sys., Inc. v. Joffee, 1993 WL 818570, at *3 (Mass. Super Ct. Nov. 28, 1993) (Volterra, J.) (“[I]t is a maxim of equity that ‘[H]e who seeks equity must do equity.’ In other words, the moving party must come before the court with clean hands.” (citation omitted)). As an equitable doctrine, the unclean hands doctrine is also a flexible one, “not one of absolutes.” New Boston Sys., Inc. v. Joffee, 1993 WL 818570, at *3. It “is to be applied to accomplish the purpose[, which] is to prevent a party from benefitting by his dishonesty.” New Boston Sys., Inc. v. Joffee, 1993 WL 818570, at *3 (quoting Fisher v. Fisher, 349 Mass. 675, 677 (1965)). Accordingly, “an isolated misstep need not bar all relief to the movant.” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *13. “Furthermore, the unclean hands doctrine is a double-edged sword: the party that asserts the defense cannot itself have materially soiled hands.” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *13. 3rd Edition 2016

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When a court finds that a party has acted with unclean hands, that fact will no doubt influence the outcome. See UBS Paine Webber Inc. v. Dowd, 2001 WL 1772856, at *1 (Mass. Super. Ct. Nov. 29, 2001) (denying injunctive relief where “shamelessly, the brokers ignore the limitations in their nonsolicitation agreements” and “the brokerage houses often lure the brokers away” in violation of their nonsolicitation agreements); see also Morgan Stanley DW, Inc. v. Clayson, C.A. No. 04-2981-BLS, at *1–2 n.2 (recounting that of twenty-nine cases brought by brokerage firms against departing employees in Business Litigation Session since its establishment on October 2, 2000, most of cases involved same parties hiring different employees back and forth, from one to the other); EMC Corp. v. Allen, 1997 WL 1366836, at *5 (Mass. Super. Ct. Dec. 15, 1997) (Kottmyer, J.) (“The Court does not hereby adopt EMC’s argument that, as a matter of law, its conduct vis-à-vis employees of its competitors covered by covenants not to compete is not relevant to the question whether it is entitled to seek relief from a court of equity when its own covenants are violated.”).

Contracts of Adhesion “Commonly it is a fault of postemployment restraints that they have aspects of a contract of adhesion: the employee, anxious for the job, is ready to mortgage the future, and, in any event, is in a poor position to argue about the terms of the employment contract.” Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 318 (1982); see also Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 147 (1979) (“[t]he employer normally presents the terms on a ‘take it or leave it’ basis”); IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125, 131 (D. Mass. 1999). The same can be true for noncompetition agreements arising in other contexts (i.e., outside of the employer-employee relationship) as well. See, e.g., Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 063319-BLS1, at *2, 8 (Mass. Super. Ct. Aug. 16, 2006) (van Gestel, J.) (franchise agreement containing, among other requirements, a noncompetition provision was contract of adhesion). Even if a noncompetition agreement constitutes a contract of adhesion, however, that alone does not render it unconscionable and therefore unenforceable. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 646 n.16 (2004) (although assumed to be contract of adhesion, noncompetition agreement was “not unfair in the circumstances,” and therefore was deemed enforceable); Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. at 318 (what might otherwise be contract of adhesion “may be more reasonable in the case of a key employee”); Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 06-3319-BLS1, at *8 (“Adhesion contracts are . . . generally enforceable unless they are unconscionable, offend public policy, or are shown to be unfair in the particular circumstances.”); IKON Office Solutions v. Belanger, 59 F. Supp. 2d at 131 (“adhesion 5–116

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contracts are not unenforceable per se”). Rather, as a result, contracts of adhesion are susceptible to modification. Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. at 147 (“reject[ing] the suggestion that an employee in a case such as this has made an agreement to which he must be held in all circumstances”). Moreover, such contracts “are . . . construed against the drafter.” Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 06-3319-BLS1, at *8–9 (citing Lechmere Tire & Sales Co. v. Burwick, 360 Mass. 718, 720–21 (1972); Chase Commercial Corp. v. Owen, 32 Mass. App. Ct. 248, 253 (1992)). “Consequently, such contracts, and the circumstances surrounding them, must be carefully scrutinized before they become the battering ram for an injunction . . . .” Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., C.A. No. 06-3319BLS1, at *9; see also IKON Office Solutions v. Belanger, 59 F. Supp. 2d at 131 (“the court must necessarily scrutinize such contracts more closely to determine whether they are unconscionable, offend public policy, or are unfair under the circumstances”).

Employer’s Breach “It is well established that a material breach by one party excuses the other party from further performance as a matter of law . . . .” Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2010 WL 3030268, at *7 (Mass. Super. Ct. July 16, 2012) (Kirpalani, J.) (quoting HRPT Advisers, Inc. v. MacDonald, Levine, Jenkins & Co., 43 Mass. App. Ct. 613, 626 n.16 (1997) (citing Hastings Assocs., Inc. v. Local 369 Bldg. Fund, Inc., 42 Mass. App. Ct. 162, 171 (1997)); see also Coutinho-Boisse Funeral Home, LLC v. Hamel, Wickens & Troupe Funeral Home, Inc., 2008 WL 4739524, at *7 (Sept. 17, 2008) (Kane, J.) (quoting Ward v. Am. Mut. Liab. Ins. Co., 15 Mass. App. Ct. 98, 100 (1983)); see also McFarland v. Schneider, 1998 WL 136133, at *46 (Mass. Super. Ct. Feb. 17, 1998) (McHugh, J.) (“A material breach by one party excuses the other party from performance as a matter of law.” (quoting Hastings Assocs., Inc. v. Local 369 Bldg. Fund, Inc., 42 Mass. App. Ct. 162, 171 (1997))). Thus, “[a] party who first commits a material breach cannot enforce the contract.” Coutinho-Boisse Funeral Home, LLC v. Hamel, Wickens & Troupe Funeral Home, Inc., 2008 WL 4739524, at *7 (quoting 23 S. Williston, Contracts § 63.3 at 443 (4th ed. 2002)); McFarland v. Schneider, 1998 WL 136133, at *46. “That principle follows from the principle that a material breach entitles the nonbreaching party to treat the contract as having ended.” McFarland v. Schneider, 1998 WL 136133, at *46. As a consequence, [w]hen one seeks specific performance of a contract, . . . one seeks to treat the contract not as terminated 3rd Edition 2016

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but as a living document that governs the relationship between the parties to it. As a general rule, therefore, one who seeks specific performance of an agreement must perform his or her obligations under the same agreement. McFarland v. Schneider, 1998 WL 136133, at *43–44. While “actual performance” is not in fact required, a “court may refuse specific performance if a substantial part of the performance to be compelled is as yet unperformed and its concurrent or future performance is not well secured to the satisfaction of the court.” McFarland v. Schneider, 1998 WL 136133, at 46–47 & n.79 (citing Morad v. Silva, 331 Mass. 94, 99 (1954) (quoting Restatement of Contracts § 373) and Restatement (Second) of Contracts § 363). Applying this principle, a breach by the former employer of the terms of the agreement of which the noncompetition agreement is a part may make enforcement of the noncompetition agreement inappropriate. New Eng. Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 676 (1977) (“a finding of material breach [by the employer] . . . would serve as a basis to deny injunctive relief”); Slade Gorton & Co. v. O’Neil, 355 Mass. 4, 8–9 (1968) (raising, but not deciding, the issue); Ward v. Am. Mut. Liab. Ins. Co., 15 Mass. App. Ct. 98, 100–01 (1983) (termination of employees prior to contractual termination date excused performance by employees of noncompetition agreement obligations); Middlesex Neurological Assocs., Inc. v. Cohen, 3 Mass. App. Ct. 126, 129 (1975). See generally Marcam Corp. v. Orchard, 885 F. Supp. 294, 298 (D. Mass. 1995) (Lindsay, J.) (rejecting employee’s argument that former employee breached its obligations under noncompetition agreement).

Employer’s Changes: Successors and Assigns No appellate level court has directly addressed the issue of whether a successor in interest or assignee of a noncompetition agreement may enforce the agreement in the absence of express consent from the restricted party (in the noncompetition agreement or otherwise). See Chiswick, Inc. v. Constas, 2004 WL 1895044, at *2 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (finding no likelihood of success on the merits because issue is unresolved). There are, however, several trial court decisions suggesting that consent is in fact required. Next Generation Vending v. Bruno, C.A. No. 08-0365-G, at *5 (May 20, 2008) (Quinlan, J.) (“noncompete clauses are not assignable unless specifically assented to by the employee”); Getman & Cleary Schultz Ins., LLC v. USI Holdings Corp., 2005 WL 2183159, at *2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (refusing to enforce noncompetition agreement—albeit enforcing other restrictive covenants— where employer merged into larger company and employee’s noncompetition 5–118

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agreement could not be viewed as contemplating restrictions that would inhere with respect to much larger company); Securitas Sec. Servs. USA, Inc. v. Jenkins, 2003 WL 21781385, at *5 (Mass. Super. Ct. July 18, 2003) (van Gestel, J.) (noncompetition agreement is not assignable without express consent). But see Banc of Am. Corporate Ins. Agency, LLC v. Verille, C.A. No. CV2007-01099, at *5 (Mass. Super. Ct. Aug. 6, 2007) (Connors, J.) (ignoring issue, except to question to whom any goodwill belonged, predecessor company or employee). Consistent with these decisions, in Middlesex Neurological Associates, Inc. v. Cohen, 3 Mass. App. Ct. 126, 127–28 (1975), the Appeals Court observed that the defendant had not argued that he did not consent to the assignment, thus implying that consent is in fact required. Even if an agreement states that it will apply to a successor entity, courts will review the nature of the transactions involved to determine whether, in fact, the new employer fits within the strict construction of “successor,” as defined in the agreement. If the noncompetition agreement is with a parent company, for example, and the subsidiary—through which the employee worked—is sold, the noncompetition agreement might not apply after the sale. See, e.g., L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *11 (Dec. 2, 2004) (van Gestel, J.) (court narrowly construed agreement to find that agreement did not cover postsale employment). The reason for the courts’ resistance to permitting unbridled assignment of noncompetition agreements was explained by Judge van Gestel in Securitas Security Services USA as follows: “[E]very one has a right to select and determine with whom he will contract, and cannot have another person thrust upon him without his consent.” New England Cabinet Works v. Morris, 226 Mass. 246, 250 (1917). .... [W]hen rights arising out of a contract are coupled with obligations to be performed by the contractor, and involve such relation of personal confidence that it must have been intended that the rights should be exercised and the obligations performed by him alone, the contract, including both his rights and his obligations, cannot be assigned without the consent of the other party to the contract. Id. 3rd Edition 2016

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.... Yet another, and possibly quite significant, reason for not permitting assignments of these kinds of agreements without assent is the fact that [the employee], knowing the character and personality of [the employer], might be ready and willing to safeguard the trust which it imposed in him by granting restrictive covenant against leaving his employment. This does not mean, however, that [the employee] would have been willing to suffer this same restraint for the benefit of a stranger to the original undertaking. Certainly [the employee] could not assign his contract with [the employer] . . . without [the employer’s] consent. For similar reasons [the employer] could not assign [the employee’s] employment agreement to another corporate entity with [the employee’s] assent. Securitas Sec. Servs. USA, Inc. v. Jenkins, 2003 WL 21781385, at *5.

Ambiguity “The interpretation of an unambiguous agreement is an issue of law for the Court.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.); see also Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d 1, 4 (1st Cir. 1999). “Contract language must be construed in its usual and ordinary sense.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (citing 116 Commonwealth Condo. Trust v. Aetna Cas. & Surety Co., 433 Mass. 373, 376 (2001) and Citation Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998)); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *9 (Mass. Super. Ct. Sept. 19, 2007) (van Gestel, J.) (same). Nevertheless, “[c]ontracts drafted by employers to limit the employment prospects of former employees—even those at a very high level—must be construed narrowly against the employer. EMC Corp. v. Kempel, 01-4631-BLS (Mass. Super. Ct. Nov. 20, 2001) (van Gestel, J.); see also Sentry Ins. Co. v. Firnstein, 14 Mass. App. Ct. 706, 707 (1982) (“Two reasons existed to construe the contract . . . strictly against [the employer]: First, it was drafted by [the employer]. Second, it was a postemployment restraint imposed by the employer’s standardized form contract.” (citations omitted)); Tyler Techs., Inc. v. Reidy, 2006 WL 4119598, at *3–4 (Mass. Super. Ct. Oct. 30, 2006) (van Gestel, J.) (strictly construing language against employer who drafted it).

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Further, “[t]he Court must be careful not to impose its own views on the contracting parties or to let matters outside the four corners of the instrument that are specifically anticipated and addressed therein overwhelm or change the document itself.” Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *8 (“It is not the role of the court to alter the parties’ agreement. Nor is it a time for the Court to attempt to be smarter than the parties.” (citations and internal quotations omitted)); Tyler Techs., Inc. v. Reidy, 2006 WL 4119598, at *4 (same); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *5 (Mass. Super. Ct. June 27, 2002) (Billings, J.). “A contract provision is ambiguous ‘only if it is susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (quoting Citation Ins. Co. v. Gomez, 426 Mass. at 381); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *9 (same); see also Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d at 4 (“Under Massachusetts law, a contract term is ambiguous when its language is ‘reasonably prone to different interpretations’ or ‘susceptible to differing, but nonetheless plausible, constructions.’” (quoting Alison H. v. Byard, 163 F.3d 2, 6 (1st Cir. 1998))). “The mere fact that parties disagree on the proper construction of contractual language, however, does not necessarily establish ambiguity. EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (citing Lumbermans Mut. Cas. Co. v. Offices Unlimited, Inc., 419 Mass. 462, 466 (1995)); Carr v. Entercom Boston LLC, C.A. No. 07-2935BLS1, at *9 (same). If ambiguity exists in the contractual language, “the Court considers the entire instrument and the general scheme it reveals to determine the significance and meaning of the ambiguous terms.” EMC Corp. v. Gresham, C.A. No. 01-2084BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (citing MacDonald v. Gough, 326 Mass. 93, 96 (1950)); see also Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d at 3 (“The resolution of the ambiguity turns on the parties’ intent, as discerned by the factfinder from the circumstances surrounding the ambiguity and from such reasonable inferences as may be available.” (citations and internal quotations omitted)). “The object of the court is to construe the contract as a whole, in a reasonable and practical way, consistent with its language, background and purpose.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (quoting USM Corp. v. Arthur D. Little Sys., Inc., 28 Mass. App. Ct. 108, 116 (1989)); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *9 (same). “The Court must act in a way to give effect to the agreement as a rational business instrument in order to carry out the intent of the parties.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, 3rd Edition 2016

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J.) (citing Starr v. Fordham, 420 Mass. 178, 192 (1990)); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *9 (same). “Even in the case of an ambiguous agreement, interpretation is a matter of law for the Court except insofar as it may turn on facts in genuine dispute.” EMC Corp. v. Gresham, C.A. No. 012084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (citing Gross v. Prudential Ins. Co. of Am., Inc., 48 Mass. App. Ct. 115, 119 (1999)); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *9 (same). But see Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d at 4 (in federal courts in First Circuit, meaning of contractual language is question of fact). “Justice, common sense and the probable intention of the parties upon consideration of the words in question are guides to the construction of a written contract.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (citing City of Haverhill v. George Brox, Inc., 47 Mass. App. Ct 717, 720 (1999)); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *9–10 (same); cf. Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d at 4 & n.3 (“Extrinsic evidence is admissible to assist the factfinder in resolving the ambiguity, including evidence of, in descending order of importance: (1) the parties’ negotiations concerning the contract at issue; (2) their course of performance; and (3) trade usage in the relevant industry.” (citing, among others, Keating v. Stadium Mgmt. Corp., 24 Mass. App. Ct. 246 (1987) and noting “prior course of dealing” as a fourth category)). As a general rule, noncompetition agreements—even those for employees at very high levels—“must be construed narrowly against the employer.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (citing Sentry Ins. Co. v. Firnstein, 14 Mass. App. Ct. at 707); Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 144 (1979) (“If the agreement presented an ambiguity, we would construe it in favor of the plaintiff because it tends indirectly to restrain employment.”); Wilkinson v. QCC, Inc., 53 Mass. App. Ct. 1109, 2001 WL 164691, at *1 (2001) (unpublished opinion explaining Sentry Ins. Co. v. Firnstein as requiring that noncompetition agreements are to be construed against employer); Lanier Prof’l Servs., Inc. v. Ricci, 192 F.3d at 5 (citing Sentry Ins. Co. v. Firnstein). As a corollary, a sophisticated employer, “perhaps more than in other situations, . . . is entitled to and should be held to the contractual language it chose.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.); Carr v. Entercom Boston LLC, C.A. No. 07-2935-BLS1, at *8 (“Where knowledgeable and fully represented parties choose to embody their relationship in a carefully crafted document . . . they are entitled to and should be held to the language they chose.” (quoting Cabot Corp. v. AVX Corp., 448 Mass. 629, 638 (2007))). Thus, even in the face of a “glaring loophole . . . , the language chosen dictates the result.” EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.). 5–122

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Accordingly, where a noncompetition agreement is ambiguous and/or poorly drafted, courts will be less likely to enforce the agreement against the employee. See, e.g., Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4–5 (Mass. Super. Ct. June 27, 2002) (Billings, J.); Flexcon Co. v. McSherry, 123 F. Supp. 2d 42, 44 (D. Mass. 2000) (Gorton, J.) (ambiguity and poor draftsmanship were among factors identified by court in finding lack of likelihood of success on merits). But see Acordia N.E., Inc. v. Academic Risk Res. & Ins., LLC, 2005 WL 704870, at *3–4 & n.5 (Mass. Super. Ct. Jan. 5, 2005) (Botsford, J.) (enforcing nonsolicitation agreements with “dramatically challenged sentence structures” because the court was able to “understand the gist of the agreements”). For example, the court in Hurwitz Group found the contract too indefinite to be enforceable: The contract makes too many references to “indirect” activity and undefined forms of “business contact”; too much is left up to what [the employer] may “deem” the facts to be; and too much depends on what [the employer] may or may not be “contemplat[ing]” for its future, to reasonably advise [the employee] of what he may and may not do, or to reasonably apprise an enforcing Court whether the clause, or an injunction enforcing it, has or has not been violated. Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *4 (“This is, speaking plainly, legal draftsmanship run amok.”). As the court explained, While blue-penciling is permissible within reason, . . . there is a point beyond which it is unreasonable to expect the parties to submit themselves to the posthoc judgment of a court of equity, as a substitute for their own bargain. A contract should inform the parties with reasonable clarity of their rights and obligations. Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *5 (the court should not be engaged in “judicial re-definition” of the parties’ obligations). (Notwithstanding the court’s reference to “blue-penciling,” Massachusetts is a reformation state, not a blue-pencil state. See § 5.2.1(b), above.)

Waiver, Amendment, and Other Mitigating Conduct The conduct of an employer may in some circumstances constitute a waiver of its right to enforce a restrictive covenant, or otherwise lead the court to conclude that it should refrain from exercising its injunctive powers. For example, in Athenahealth, Inc. v. Cady, No. 13-1098-BLS1, 2013 WL 4008198 (Mass. Super.

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Ct. May 2, 2013) (Kaplan, J.), the employer’s chief executive officer stated the following at a company-wide meeting: [W]e are not going to do anything about anyone who leaves, anybody else who wants to go, you know, you’re allowed. There’s no team . . . the . . . legal team will not be after you to sue you. You have noncompetes . . . . You have a non-compete, you can’t take your sales prospects list that we spent $500,000 collecting and then go over and give it to the other team. Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *2 (footnote omitted). In refusing to grant injunctive relief in part based on the foregoing statements, the court stated, “While [the CEO’s] comments may not constitute an amendment to [the employee’s] employment agreement, they must certainly be taken into consideration in determining whether the court should order extraordinary equitable relief depriving [the employee] of his employment.” Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *7. Similarly, in A.R.S. Services, Inc. v. Morse, No. MICV 201300910, 2013 WL 2152181 (Mass. Super. Ct. Apr. 5, 2013) (Leibensperger, J.), although finding that the parties’ noncompete had not in fact been amended by an oral agreement, the court noted that parties can orally modify such agreements and provided some insight into the quantum of proof necessary to establish such an amendment. Athenahealth, Inc. v. Cady, 2013 WL 4008198, at *12–13.

Novation A contract governing the terms of employment that purports to supersede the parties’ prior agreements may be viewed as having discharged any prior noncompetition agreement obligations—even if the new agreement contains no postemployment restrictions on competition. L-3 Communications Corp. v. Reveal Imaging Techs., Inc., No. 035810-BLS, at *11 (Dec. 2, 2004) (van Gestel, J.) (citing Poskus v. Braemoor Nursing Home, Inc., 6 Mass. App. Ct. 896, 897 (1978); Puretest Ice Cream, Inc. v. Kraft, Inc., 806 F.2d 323, 325 (1st Cir. 1986); Adams v. Herbert, 345 Mass. 588, 590–591 (1963); Tuttle v. Metz, 229 Mass. 272, 275 (1918); 6 Corbin, Contracts, § 1293 (1962)).

Antitrust One of the concerns raised early in connection with the enforcement of noncompetition agreements is their potential tendency to create a monopoly. Alger v. 5–124

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Thacher, 36 Mass. 51, 53–54 (1837). Although this issue rarely arises, it does surface on occasion. As a threshold matter, “the assertion in bad faith of trade secret claims, that is with the knowledge that no trade secrets exist, for the purpose of restraining competition does not further the policies of either the antitrust or the trade secret laws.” CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850–51 (1st Cir. 1985). “Thus, . . . the assertion of a trade secret claim in bad faith, in an attempt to monopolize, can be a violation of the antitrust laws.” CVD, Inc. v. Raytheon Co., 769 F.2d at 850–51 (requiring proof by clear and convincing evidence). Even in the absence of a bad faith claim, however, antitrust issues may still arise. For example, in Marine Contractors Co. v. Hurley, 365 Mass. 280 (1974), the Supreme Judicial Court recognized that noncompetition agreements that tended to create a monopoly might be invalid as an unlawful restraint of trade. Marine Contractors Co. v. Hurley, 365 Mass. at 288–89. In that case, however, the Supreme Judicial Court rejected the antitrust argument on the ground that the plaintiff was “one of one or two companies performing its type of specialized marine repair work in the Boston area, and . . . received competition from shipyards in the area.” Marine Contractors Co. v. Hurley, 365 Mass. at 288–89; see also Wells v. Wells, 9 Mass. App. Ct. 321, 325 (1980) (rejecting antitrust argument because particular noncompetition agreement did not result in monopoly).

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EXHIBIT 5A—Web Logs Addressing Trade Secrets and Noncompetes Fair Competition Law, Russell Beck: http://faircompetitionlaw.com The Trade Secret Litigator, John Marsh: http://tradesecretlitigator.com Legal Developments in Non-Competition Agreements, Kenneth J. Vanko: http://www.non-competes.com Non-Compete and Trade Secrets Report, Jackson Lewis: http://noncompetereport.com Non-Compete and Trade Secrets, Fisher & Phillips LLP: http://www.noncompetenews.com Georgia Non-Compete, Berman Fink Van Horn PC: http://www.bfvlaw.com/category/ganoncompete Trading Secrets, Seyfarth Shaw: http://www.tradesecretslaw.com Non-Compete Trade Secrets Law, Burr & Forman: http://www.noncompetetradesecretslaw.com The Trade Secret & Employee Raiding Law Blog, Weintraub Tobin: http://www.tradesecretemployeeraiding.com/tag/business-andprofessions-code-section-16600 Trade Secrets Watch, Orrick: http://blogs.orrick.com/trade-secrets-watch Trade Secrets Trends, Crowell & Moring: https://www.crowelltradesecretstrends.com

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CHAPTER 6

Trademarks: Law, Practice, and Current Issues Sara Yevics Beccia, Esq. Burns & Levinson LLP, Boston

Renee Inomata, Esq. Burns & Levinson LLP, Boston

Deborah J. Peckham, Esq. Burns & Levinson LLP, Boston

Mark Schonfeld, Esq. Burns & Levinson LLP, Boston § 6.1

Introduction .......................................................................... 6–1

§ 6.2

Why Should Clients Consider Protecting Trademarks?... 6–2

§ 6.3

Basic Principles of Trademark Law ................................... 6–3 § 6.3.1

What Is a Trademark? ........................................... 6–3

§ 6.3.2

Goals of Trademark Protection ............................. 6–3

§ 6.3.3

Legal Bases for Trademark Rights (Statutory and Common Law) ............................... 6–3

§ 6.3.4

Acquisition of Rights ............................................ 6–4

§ 6.3.5

Fundamental Concepts of Trademark Law ........... 6–5 (a)

Distinctiveness of Marks and Acquisition of Secondary Meaning ................................. 6–5

(b)

Likelihood of Confusion .............................. 6–7

(c)

Fame and Principles of Dilution .................. 6–9

§ 6.3.6

Trademark Rights Can Be Abandoned .................6–11

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§ 6.4

§ 6.5

§ 6.3.7

Joint Ownership of Trademarks Can Create Issues ........................................................ 6–12

§ 6.3.8

Trademarks Conceived by Employees or Partners ............................................................ 6–12

§ 6.3.9

Trademarks Used by Third Parties, Distributors .......................................................... 6–13

Trademark Clearance Search and Analysis ..................... 6–13 § 6.4.1

Avoiding Likelihood of Confusion ...................... 6–15

§ 6.4.2

Assessing a Mark’s Distinctiveness ..................... 6–16

§ 6.4.3

Trademark and Trade Name Searching ................ 6–17 (a)

A Word of Caution About Searches ............ 6–18

(b)

Is There Ever a Time When Searching Is Unnecessary? .......................................... 6–18

Trademark Registration Practice ...................................... 6–19 § 6.5.1

Federal Registration Practice ............................... 6–19

§ 6.5.2

Federal Trademark Applications .......................... 6–20

§ 6.5.3

§ 6.5.4

(a)

Obtaining a Filing Date............................... 6–21

(b)

Completing the Application and Getting to Registration ............................................. 6–24

Types of Federal Applications.............................. 6–27 (a)

Use-Based Applications and Use in Commerce ............................................... 6–27

(b)

Intent-to-Use Applications .......................... 6–28

(c)

Sections 44 and 66 Applications ................. 6–29

Examination of Applications—Bases for Refusal............................................................ 6–29 (a)

Lack of Distinctiveness ............................... 6–31

(b)

Likelihood of Confusion ............................. 6–32

§ 6.5.5

Responding to Office Actions .............................. 6–34

§ 6.5.6

Postexamination Issues ........................................ 6–35 (a)

6–ii

Publication .................................................. 6–35 3rd Edition 2016

TRADEMARKS: LAW, PRACTICE, AND CURRENT ISSUES

§ 6.6

§ 6.7

(b)

Notice of Allowance and Statement of Use ..........................................................6–35

(c)

Declaration of Use ......................................6–36

(d)

Specimens ...................................................6–37

(e)

Registration Timeline ..................................6–38

Trademark Registration Maintenance ..............................6–38 § 6.6.1

Section 9 Renewal ................................................6–39

§ 6.6.2

Section 8 Affidavit of Use ....................................6–39

§ 6.6.3

Section 15 Incontestability ...................................6–40

Trademark Enforcement and Defenses .............................6–40 § 6.7.1

Proper Trademark Usage ......................................6–40 (a)

Trademarks Are Adjectives .........................6–41

(b)

Forms of Notice ..........................................6–41

§ 6.7.2

Policing Trademark Rights Through Watch Services .....................................................6–42

§ 6.7.3

Taking Action Against Potential Infringers ..........6–42

§ 6.7.4

3rd Edition 2016

(a)

Demands to Cease and Desist .....................6–42

(b)

Trademark Trial and Appeal Board Proceedings .................................................6–43

(c)

Civil Action .................................................6–43

Bringing a Trademark Claim in Federal Court....................................................6–44 (a)

Note on Internet Presence and Jurisdiction ...........................................6–45

(b)

Trademark Infringement Claims .................6–46

(c)

False Advertising/Designation of Origin ......................................................6–49

(d)

Dilution .......................................................6–50

(e)

Counterfeiting .............................................6–51

(f)

Counterfeiting—Criminal Enforcement......6–52 6–iii

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§ 6.7.5

§ 6.7.6

§ 6.8

6–iv

Counterfeiting—Criminal Penalties............ 6–53

(h)

Customs and Border Patrol—Seizures........ 6–54

(i)

International Trade Commission ................. 6–54

(j)

Counterfeiting—Civil Enforcement............ 6–54

(k)

Other State Law Civil Claims ..................... 6–56

Defenses to Trademark Infringement or Related Claims................................................. 6–56 (a)

Laches ......................................................... 6–56

(b)

Acquiescence .............................................. 6–56

(c)

Unclean Hands ............................................ 6–57

(d)

Fair Use ....................................................... 6–57

(e)

License ........................................................ 6–57

Relief .................................................................... 6–57 (a)

Injunctions .................................................. 6–57

(b)

Destruction and Seizure Orders .................. 6–58

(c)

Monetary Damages ..................................... 6–58

TTAB Opposition and Cancellation Proceedings............. 6–59 § 6.8.1

Applicable Procedure and Governing Law .......... 6–59

§ 6.8.2

Standing to Bring a TTAB Action........................ 6–59

§ 6.8.3

Opposition Proceedings ....................................... 6–59

§ 6.8.4

Cancellation Proceedings ..................................... 6–60

§ 6.8.5

Matters Specific to TTAB Proceedings ................ 6–60

§ 6.8.6 § 6.9

(g)

(a)

Form of Complaint...................................... 6–60

(b)

Answer ........................................................ 6–60

(c)

Defenses ...................................................... 6–60

Issue Preclusion and the Impact of TTAB Proceedings on Subsequent Litigation ................. 6–61

Trade Dress .......................................................................... 6–63

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§ 6.9.1 § 6.10

Packaging Versus Configuration: Two Standards ......................................................6–64

Trademarks in Transactions...............................................6–64 § 6.10.1 Licensing and Franchise Agreements...................6–65 § 6.10.2 Trademark Assignments .......................................6–66

§ 6.11

(a)

Valid Trademark Assignments Versus Assignments in Gross..................................6–66

(b)

Recording a Trademark Assignment ...........6–67

(c)

Trademarks and Security Interests ..............6–68

Special Issues Relating to Trademarks: The Internet, New Technologies, and Developments in the Intersection of the Lanham Act, Product Labeling, and Deceptive Advertising ...........................................................................6–68 § 6.11.1 Domain Names .....................................................6–69 (a)

The Anticybersquatting Consumer Protection Act..............................................6–70

(b)

Domain Name Dispute Resolution Proceedings .................................................6–70

§ 6.11.2 New Generic Top-Level Domains and New Domain Name Rights Enforcement Mechanisms..........................................................6–71 (a)

Sunrise Registration Period .........................6–74

(b)

Trademark Claims Service ..........................6–74

(c)

Uniform Rapid Suspension System ............6–75

§ 6.11.3 Keywords, Online Advertising, and Search Engine Optimization ............................................6–77 § 6.11.4 Social Networking and Media ..............................6–80 § 6.11.5 3D Printing and Trademarks ................................6–80

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§ 6.11.6 The Lanham Act, Unfair Competition, and Intersections with Product Labeling and Promotion After the Supreme Court’s 2014 Term ............................................................ 6–81 § 6.12

International Trademark Protection ................................. 6–84 § 6.12.1 The Paris Convention and“Convention Priority” ............................................................... 6–84 § 6.12.2 Madrid Protocol and Madrid Agreement ............. 6–85 (a)

Advantages.................................................. 6–85

(b)

Disadvantages ............................................. 6–86

§ 6.12.3 Community Trade Mark ....................................... 6–86 (a)

Advantages.................................................. 6–86

(b)

Disadvantages ............................................. 6–87

EXHIBIT 6A—Glossary of Trademark-Related Concepts ........... 6–89 EXHIBIT 6B—Trademark-Related Resources .............................. 6–93 EXHIBIT 6C—Trademark Request Form (Internal/Corporate) ......................................................................... 6–95 EXHIBIT 6D—New Trademark Application Filing Checklist ..... 6–97

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CHAPTER 6

Trademarks: Law, Practice, and Current Issues Sara Yevics Beccia, Esq. Burns & Levinson LLP, Boston

Renee Inomata, Esq. Burns & Levinson LLP, Boston

Deborah J. Peckham, Esq. Burns & Levinson LLP, Boston

Mark Schonfeld, Esq. Burns & Levinson LLP, Boston

Scope Note This chapter provides an overview of the law of trademarks, including acquisition and enforcement of rights, as well as practical guidance on filing, prosecution, and maintenance of U.S. federal registrations. Additional topics addressed include special issues raised by technology and the Internet, including domain name issues, search engine optimization marketing, and 3D printing.

§ 6.1

INTRODUCTION

Trademarks have a lengthy past. Indeed, manufacturers of clay pottery were among the first to brand their wares to identify that they came from particular artisans. We believe that fifth-century-BC potters proclaimed on their pots that “so and so made me”—not merely to call attention to the potter’s personal talents, but also to ensure that owners recognized the worthiness of their possessions, and could show them off—much in the same way that women may proudly show their latest Gucci® bag or Marc Jacobs® cocktail dress. In this way, trademarks are the original “sound bites,” and the traditional “instant messages,” that communicate to consumers and clients some shred of fundamental information about a product or its manufacturer. The message is intended to lure further interest or commitment to a particular source of goods. 3rd Edition 2016

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Trademarks serve two essential functions. First, they help distinguish sources from one another, and in so doing, foster competition. Secondly, trademarks serve a consumer protection role, inasmuch as they help consumers identify genuine and high-value sources and distinguish them from other producers. Despite their core and enduring purposes, trademarks are sometimes forgotten or given lesser emphasis by new companies, CEOs, and even lawyers, who may sometimes see choosing a name as less important than acquiring patents or core technology. The purpose of this chapter is to provide a basic grounding in trademark law and practice for the nontrademark practitioner, with an eye toward emphasizing the relative value of trademark assets and the value obtained by attention to their acquisition and maintenance. In working your way through this chapter, having a grounding in some basic definitions and concepts may be helpful. A glossary of trademark-related concepts is included as Exhibit 6A to provide some definitions and basic concepts to which the reader may wish to refer from time to time. Additionally, for future reference, practitioners may wish to consult the list of resources on trademark practice and procedure and other topics touched upon in this chapter that is included as Exhibit 6B.

§ 6.2

WHY SHOULD CLIENTS CONSIDER PROTECTING TRADEMARKS?

Trademark law practitioners often are pressed by clients to define the value of pursuing a trademark portfolio and to justify the costs of doing so. “Trademarks,” it is often said, are mere words and names—and these can be changed at any time at the whim of the company if problems are encountered. The truth is, if it is the case that a company can, on a dime, simply change a product name or its business name without incurring substantial cost or loss of investment, then spending time investing in a trademark portfolio indeed probably is not worth the cost and expense. However, such changes in name are rarely as simple as clients initially imagine. Usually, investments are made in marketing and promotion, which, if even marginally successful, result in customers who begin to recognize the name and associate it with the product producer or service provider. Having made those investments and seen those returns, changing the name is rarely without material cost. Investment in trademarks is often compared to the company’s concomitant investment in patents and technology development. If patent protection and patent law provide protection for the core technology of the company, then trademarks provide the outward face of the company. And this “face” is very often just as 6–2

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important—as it represents the “goodwill” of the company and renders the core technology accessible to customers. In summary, clients may frequently make the mistake of assuming that marks are less valuable and simpler assets to acquire, protect, and enforce—but in reality, trademark law and the acquisition and protection of brands is only deceptively simple and failure to exercise thought and planning in developing a meaningful portfolio of brands can lead to disaster.

§ 6.3

BASIC PRINCIPLES OF TRADEMARK LAW

§ 6.3.1

What Is a Trademark?

Under the Lanham Act, just about anything can be a trademark, provided that it functions as an indicator of source. Any word, name, symbol, sound, smell, or combination of the foregoing, including moving images, can be accorded trademark protection. There are certain categories of marks that cannot be protected, however. Purported marks that are merely “generic” as applied to the goods, marks that consist merely of descriptive or misdescriptive words or phrases, geographically descriptive or misdescriptive names, and “scandalous and offensive words” cannot be trademarks. See 15 U.S.C. § 1052.

§ 6.3.2

Goals of Trademark Protection

Trademark protection ultimately redounds to benefit consumers, whose primary interest is in obtaining items of value that they trust. The trademark serves to identify that a particular branded good comes from a unique and certifiable source of quality. Secondarily, trademark protection provides boundaries for competitors who seek to cordon off their investments in goodwill from upstart companies who may seek to confuse the public. The relationship between trademark protection and unfair competition more generally comes from this secondary goal—to ensure that competitors behave honorably in the marketplace and to protect the investments made by the first user of marks.

§ 6.3.3

Legal Bases for Trademark Rights (Statutory and Common Law)

It is often said that in the United States we have a layered system of trademark protection, made up of common law, state trademark laws and statutes, and federal law. 3rd Edition 2016

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Under common law, commentators and academics like to point to the ancient tort of “deceit” as the root basis for all trademark-related enforcement activities. Deceit and its progeny by and large gave rise to more modern conceptions of “unfair competition.” Professor McCarthy has pointed out that this term captures a number of evils, including infringement, dilution of the goodwill of marks, use and confusingly similar names, marks and personas, simulation of container and product configuration, infringement of publicity rights, false advertising, theft of trade secrets, and other similar incursions. McCarthy on Trademarks §§ 1.9, 1.10 (2015). While full treatment of all of these related torts is beyond the scope of this chapter, it is important to point out that the Lanham Act (15 U.S.C. § 1051 et seq.) is the primary source for statutory protection of trademark rights at the federal level and Congressional authority to legislate derives from the commerce clause of the U.S. Constitution. In addition to the Lanham Act, many states maintain their own trademark statutes (and common law). In many cases, such state laws are concerned with the protection, registration, and enforcement of rights only at the state level (and so their value will only be to those mark holders who have, for example, registered their rights under state law). Massachusetts is an example in that it requires a state registration to obtain relief under the statute. G.L. c. 110H.

§ 6.3.4

Acquisition of Rights

Generally, under U.S. law, the owner of a trademark is the individual or entity that first uses the trademark in connection with particular goods or services in the regular course of trade, or “in commerce.” That is, as a general matter, rights in a trademark arise through use—for instance, by being the first to actually sell products or render services under a trademark in a particular geographic territory. In such cases, the person or entity that first makes such use of the mark acquires “common law” rights in the purported mark. Trademark rights may also be registered federally, at the U.S. Patent and Trademark Office (PTO), or at the state level. Of course, owners of marks often will seek to register those rights, and registration does confer various benefits. See § 6.5, Trademark Registration Practice, below. Federal trademark applications can be based on actual use or on an intent to use a mark. See § 6.5.3(b), below, for a discussion of intent-to-use applications. An applicant who files an intent-to-use application benefits from constructive notice of the applicant’s rights in the mark to users who commence use after the filing date of the intent-to-use application. Intent-to-use rights, however, are contingent on use commencing at a later date.

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§ 6.3

Fundamental Concepts of Trademark Law

As with any area of the law, trademark law is riven with complexity, nuance, exceptions, and esoterica. Practitioners should be mindful that few generalizations will adequately respond to the multitude of issues that can arise when developing and implementing a trademark strategy. Still, mastery of a few basic concepts, including distinctiveness of marks, likelihood of confusion, and dilution, will provide a reasonably good grounding in the topic.

(a)

Distinctiveness of Marks and Acquisition of Secondary Meaning

In order to obtain trademark status and be eligible for registration or protection under common law, a word must be adequately distinctive so that it is understood by the public as having significance beyond any standard meaning ascribed to the word. Consumers must understand the word or mark as an indicator of source rather than a descriptive word or phrase. Words, phrases, symbols, or designs that are not adequately distinctive are generally not eligible for registration or protection. 15 U.S.C. § 1052(e). The best way to illustrate the difference between a merely descriptive mark and one that is adequately distinctive is with an example. We all know that Clorox is a brand for bleach. Indeed, for many people of a certain generation (or older), the two terms are synonymous. If we see a bottle of generic “bleach” at the grocery store, we know that the contents of that bottle are probably identical to what is in the Clorox brand bottle, but we have “expectations” of the Clorox brand— and we tend to associate it with a single source that we assume gives the bleach in the Clorox brand bottle a better or more wholesome quality. The mark is acting as a source indicator for the purchaser, while the generic bottle that says “bleach” is merely telling us the contents of the bottle. Accordingly, we understand that Clorox is distinctive of the goods and services. Marks may not start out as distinctive enough to act as source indicators or trademarks. Sometimes they must “acquire distinctiveness” through use and the consumer’s sole association of the mark as a brand identifying specific goods. The name “Auto Trader” used on a magazine is understood to identify advertising for used automobiles that are for sale (or trade). Such a name may not be protectable until the public understands that the proprietor of the magazine is the sole source of the publication that bears that name. Hence, initially, the alleged mark “Auto Trader” may not have been protectable by its owner—but in time, as the circulation and notoriety of the publication increased, the public began to understand that the words “Auto Trader” specifically referred to the syndicated publication we pick up at the grocery store. “Acquired distinctiveness” is also 3rd Edition 2016

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associated with and may be referred to as “secondary meaning.” As words or phrases acquire distinctiveness, consumers associate a secondary meaning with those words—that is, the words come to mean something other than or in addition to their standard English connotation. Commentators also refer to this association as an association with the goodwill of a particular mark or brand. In trademark law, we often talk about the “spectrum of distinctiveness.” The spectrum, which is illustrated below, is a way of analyzing and measuring the strength of a particular mark. Generally, the stronger the mark, the more distinctive it is. Spectrum of Distinctiveness Strength of Mark

Type of Mark

Weak -------------------------------------------------------- Strong

Generic

Descriptive

Arbitrary

Fanciful

Under this scale or spectrum, “generic” words or phrases are those that merely refer to the genus of the product or service to which they are applied. In the earlier example, “bleach” would be the generic term for what comes in the Clorox brand bottle. One can never protect generic words as trademarks and such words can never acquire secondary meaning. Next on the spectrum of distinctiveness are descriptive words—words or phrases that describe a feature, function, or characteristic of the goods or services with which they are used as marks. Such marks are protectable as trademarks, but only after they have acquired secondary meaning through use. Higher on the spectrum are so-called arbitrary marks, which are those that are common English words or phrases that have nothing whatsoever to do with the goods or services to which they are applied. Good examples of arbitrary mark usage include “Apple” for records or “Camel” for cigarettes. After arbitrary marks are the so-called fanciful marks, which generally are comprised of coined or made-up words or phrases. Examples of fanciful marks include “Sony” for computers, “Clorox” for bleach, and “Xerox” for copiers. Not surprisingly, there are exceptions and caveats to the spectrum that need further thought. For instance, where on the spectrum do surnames and geographic names land? Are they arbitrary—because they have nothing to do with the goods

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or services? Are they descriptive? The answers will vary according to the circumstances of each mark. Furthermore, a mark’s placement on the spectrum does not always guarantee its future protectability. Marks can and frequently do fall down on the spectrum when they are misused or overused by the public. Famous examples of this effect can be seen in words such as aspirin, escalator, trampoline, and thermos. All of these words were once trademarks because of their fanciful connotations. But each became the generic English word for the goods to which they are affixed because the public overassociated the brand with the item (and because the owner of each brand did less than was necessary to maintain the brand). Recent examples of this effect can be seen in the word “Google,” which is quickly becoming a verb to the browsing public that means to use a search engine. Xerox Corporation has fought this battle for years by exhorting consumers, for example, that one does not make “Xeroxes,” but instead creates “Xerox copies.”

(b)

Likelihood of Confusion

Sections 32 and 43 of the Lanham Act provide the statutory backdrop for the lion’s share of trademark enforcement activities. 15 U.S.C. §§ 1114, 1125. And so one must be familiar conceptually with “likely confusion” in order to successfully coach a client on proper selection and enforcement of its marks. In the Federal Circuit Court of Appeals, the standard for determining likelihood of confusion is detailed in In re E.I. duPont de Nemours & Co., 476 F.2d 1357, 1361 (1973) (duPont). Commonly referred to as “the duPont factors,” these criteria are considered by the U.S. Patent and Trademark Office (PTO) as the primary specifications to consider when determining whether two similar marks may coexist on the register: • the similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation, and commercial impression; • the similarity or dissimilarity and nature of the goods or services as described in an application or registration or in connection with which a prior mark is in use; • the similarity or dissimilarity of established, likely-tocontinue trade channels; • the conditions under which and buyers to whom sales are made, i.e., “impulse” versus careful, sophisticated purchasing;

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• the fame of the prior mark (sales, advertising, and length of use); • the number and nature of similar marks in use on similar goods; • the nature and extent of any actual confusion; • the length of time during and conditions under which there has been concurrent use without evidence of actual confusion; • the variety of goods on which a mark is or is not used (house mark, “family” mark, or product mark); • the market interface between the applicant and the owner of a prior mark; • the extent to which the applicant has a right to exclude others from use of its mark on its goods; • the extent of potential confusion, i.e., whether de minimis or substantial; and • any other established fact probative of the effect of use. Importantly, each federal circuit court has set out its own version of the duPont factors. Each circuit’s factors are similar, however. Despite decades of development of the case law around likely confusion, the assessment of a trademark’s ability to coexist or whether it truly is causing (or is likely to cause) confusion is rarely a black-and-white appraisal. The leading cases in each circuit struggle to lay down bright-line rules. Furthermore, the inception of new technologies, such as search engines and attendant search engine optimization techniques (such as keywords) have become the basis for interesting “side” arguments around whether (for instance) keyword marketing represents “use” of a mark in commerce, and whether being temporarily confused by landing on a website (so-called initial interest confusion) amounts to actionable confusion under the Lanham Act. See MultiTime Mach. Inc. v Amazon.com, Inc. ___ F.3d ___ (9th Cir. 2015). Suffice it to say that practitioners are best-served to know the leading cases in each circuit on likelihood of confusion, including the following: • First Circuit: Pignons S.A. de Mecanique v. Polaroid Corp., 657 F.3d 482 (1st Cir. 1981); Boston Athletic Ass’n v. Sullivan, 867 F.2d 22 (1st Cir. 1989); 6–8

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• Second Circuit: Sports Auth., Inc. v. Prime Hospitality Corp., 89 F.3d 955 (2d Cir. 1996); • Third Circuit: A&H Sportwswear v. Victoria’s Secret Stores, 237 F.3d 198 (3d Cir. 2000); • Fourth Circuit: Pizzeria Uno Corp. v. Temple, 747 F.3d 1522 (4th Cir. 1984); Lone Star Steakhouse & Saloon, Inv. v. Alpha of Va., Inc., 43 F.3d 922 (4th Cir. 2009); • Fifth Circuit: Westchester Media Co., L.P. v. PRL USA Holdings, Inc., 214 F.3d 658 (5th Cir. 2000); Roto Rooter Corp. v. O’Neal, 513 F.2d 44 (5th Cir. 1975); Bd. of Supervisors for La., State Univ. Agric & Mech. Coll. v. Smack Apparel Co., 550 F.3d 465 (5th Cir. 2008); • Sixth Circuit: Champions Golf Club, Inc. v. Champions Gold Club, Inc., 78 F.3d 1111 (6th Cir. 1996); • Seventh Circuit: Ty, Inc. v. Jones Group, 237 F.3d 891 (7th Cir. 2001); • Eighth Circuit: SquirtCo. v. Seven-Up Co., 628 F.2d 1086 (8th Cir. 1980); • Ninth Circuit: AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979); • Tenth Circuit: Heartsprings, Inc. v. Heartspring, Inc., 143 F.3d 550 (10th Cir. 2010); • Eleventh Circuit: Frehling v. Int’l Select Group, 192 F.3d 1330 (11th Cir. 1999); and • Federal Circuit: In re E.I. DuPont de Nemours & Co., 476 F.2d 1357 (CCPA 1973).

(c)

Fame and Principles of Dilution

In addition to likely confusion, trademark practitioners and owners should be familiar with the concept of trademark dilution. Trademark dilution refers to the weakening of a famous mark’s ability to identify or distinguish goods and services regardless of whether the dilution is caused by use of a similar mark by a competitor. See 15 U.S.C. § 1134(c). That is, some marks are so famous or 3rd Edition 2016

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distinctive that the law effectively bypasses the likelihood of confusion test and simply asks “is this use of a similar mark undercutting the value of this ultrafamous mark?”

Definition of “Fame” The Lanham Act further explains that “fame” occurs when “a mark is . . . widely recognized by the general consuming public . . . as a designation of source of the goods or services of the mark’s owner.” 15 U.S.C. § 1125(c)(2)(A). In determining whether a mark is famous, courts are directed to consider • the duration, extent, and geographic reach of the advertising and publicity of the mark; • the amount, volume, and geographic extent of sales of goods or services offered under the mark; • the extent of actual recognition of the mark; and • whether the mark is registered. 15 U.S.C. § 1125(c)(2)(A).

Dilution by Tarnishment or Blurring In the United States we generally recognize two categories of dilution— “tarnishment” and “blurring.” Tarnishment refers to the degradation of a trademark caused by its association with unsatisfactory or unsavory brands. The Lanham Act refers to this type of dilution as harmful to the reputation of the protected mark. 15 U.S.C. § 1125(c)(2)(C). Use of “Coca-Cola” on a product hawking illicit drug use would arguably be a tarnishing use of the Coca-Cola brand. Blurring occurs when there is an inappropriate association of the famous brand with a junior brand in such a way as to impair the distinctiveness of the famous mark. 15 U.S.C. § 1125(c)(2)(B). Not surprisingly, dilution has had a checkered history in the United States. Because the theory is meant to apply only to very famous brands, most brand users are unable to benefit from its provisions. Furthermore, the U.S. law seemed to support a suggestion that in order to prevail in a dilution claim under the Lanham Act, the following test must be met.

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Test for Dilution by Blurring The Lanham Act sets forth the tests for dilution by blurring as follows: • the degree of similarity between the mark or trade name and the famous mark; • the degree of inherent or acquired distinctiveness of the famous mark; • the extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark; • the degree of recognition of the famous mark; • whether the user of the mark or trade name intended to create an association with the famous mark; • any actual association between the mark or trade name and the famous mark. 15 U.S.C. § 1125(c)(2)(B).

§ 6.3.6

Trademark Rights Can Be Abandoned

Because trademark rights in the United States are based on use of a mark, the failure of an owner to use its mark, or to use its mark properly, can result in abandonment of trademark rights. However, because abandonment is a forfeiture of rights, courts are reluctant to find abandonment unless it is clear that • the mark is no longer in use and there is no intent to resume use in the foreseeable future or • the owner has acted in such a way that the mark loses its significance as a trademark. The first type of abandonment for nonuse most often arises in the context of a challenge to the owner’s rights by a third party. In such challenges, if a trademark is not used for a period of three years, there is a presumption of abandonment that must be rebutted by the trademark owner to protect or retain rights in the mark. The presumption can be rebutted either by a showing of actual use or by proving an intent to resume bona fide use of the mark. The second type of abandonment, which may be characterized as a forfeiture of rights, occurs when a trademark owner’s rights in a mark are lost because of a failure to use the mark 3rd Edition 2016

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properly. Two common scenarios in which marks may deemed abandoned are in cases of naked licensing, discussed below in § 6.10.1, and in situations where an owner fails to police or enforce its rights, discussed below in § 6.7.3.

§ 6.3.7

Joint Ownership of Trademarks Can Create Issues

Trademarks should identify a single source for any particular goods or services; otherwise, they lose their ability to serve as source identifiers (the core function of trademarks) altogether. Joint ownership of legally recognized rights in a single trademark, therefore, contradicts the basic definition of a trademark and, generally, is frowned on in the United States. Indeed, when more than one person claims ownership of the same trademark for the same goods or services sold in the same territory, problems arise, including the possible loss of trademark rights or litigation to determine the true, single owner. Nevertheless, joint ownership of trademarks remains possible in certain cases, provided that each joint owner is equally responsible for maintaining the quality of the products or services provided under the mark. For example, the individual members of a musical band may jointly own the band’s trademark. In other cases, two or more individuals of a new business may decide early in the process to own the new company’s trademark jointly, rather than first forming a company and giving ownership of the company’s trademark to the company. Whenever ownership of a trademark is split among the former partners in such situations, however, there is a very real danger that the value of the trademark will be destroyed in the process. If, for example, more than one former member of the defunct band continues to use the band’s name, consumer confusion and deception are likely, as are objections from the other former band members. Generally, therefore, a trademark should be treated as an indivisible asset to be awarded only to one of the former owners. To preserve the identity of a trademark, the parties to a joint enterprise (e.g., partnership or joint venture) should agree in a contract that only one of the participants will receive the trademark and associated goodwill upon dissolution of the enterprise.

§ 6.3.8

Trademarks Conceived by Employees or Partners

Questions regarding proper ownership also arise in the employer-employee context or when unincorporated or other business entities develop new brands. If an employee is the primary developer of a company’s brands, does the employee enjoy any “rights” in the trademark? The answer to this question is generally 6–12

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“no” where the employee creates the brand in the course of performing his or her employment duties. Further, the first to conceive of a trademark is not necessarily the proper owner, under well-settled law. Rather, as stated previously, only “use in commerce” creates a trademark right. Since an employee is generally using a trademark in commerce on behalf of the company and to indicate that the company is the source of the goods or services associated with the trademark, the use is normally the purview of the employer/company and the trademark “right” inures to the benefit of the employer. On the other hand, because “use in commerce” is the hallmark of a trademark, employers/companies should ensure that the employer/company is using the trademark in commerce to indicate that the employer/company is the source of the goods or services associated with such trademark—and not the employee on a rogue mission to misappropriate the employer’s/company’s assets. Practice Note For design logos, beware the intersection of trademark and copyright law. If an employee designs a graphic mark for the company as part of his or her duties, the company is deemed the author of the graphic and therefore the owner of the copyrights. In contrast, if the graphic is designed by an independent consultant, the consultant is deemed the author and “owner” of the rights, and an assignment to the company is necessary to transfer copyright ownership in the graphic to the company.

§ 6.3.9

Trademarks Used by Third Parties, Distributors

While U.S. rights in marks are predicated on use of the mark, this does not mean that only “users” can obtain rights. In fact, the use of a mark can inure to the benefit of the mark owner, even if the owner does not, itself, use the mark. This scenario is common where use is made by distributors, licensees, and franchisees. In such cases, the original mark holder and manufacturer is the “owner” of the mark. The owner must police all authorized use in order to maintain its exclusive rights, however. See § 6.7.3, below.

§ 6.4

TRADEMARK CLEARANCE SEARCH AND ANALYSIS

Often, companies leave decisions on a new company name or the name of a new product for “another day,” believing that finding the right name is just a matter of internal consensus building or exercising a relatively minor amount of creative thought. But choosing a new name, either for your company or a developing product or service, can be a time-consuming, emotionally draining, and 3rd Edition 2016

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resource-intensive task that is rarely accomplished in short order. Trademark lawyers often find that their services consist of one part guidance counselor, one part social worker, one part teacher, and one part lawyer in helping clients work through clearing a new brand. Part of the complication with choosing entity names and trademarks for products/ services derives from internal company issues. Choosing names involves understanding the mission and marketing plans of the company. Often, these criteria are ill-defined or not agreed on among corporate stakeholders. Alternatively, the task of naming the company or its future products or services is given to a business unit that works independently of, or external to, other management-level employees. This leads to the clearance and selection of names that another business unit or manager may dislike or refuse to accept. Hence, one fundamental key to success in choosing names and trademarks is putting in place an internal process that involves agreement on who will be involved and how new product and service marks will be selected. In particular, if at all possible, company personnel should decide what the new name or mark is intended to communicate to consumers and how that message fits within the company’s overall marketing plan and/or the corporate mission. Branding consultants are sometimes used to help manage and inform this process, but are not essential. Having a process for new brand identification and clearance can help ensure success of the new mark. That process should include consideration of key questions about the proposed name or mark. How will the mark or name be used? For example, will it appear on all company materials, directly on the product, only on letterhead, or just on coffee mugs or swag? Is the mark proposed to be used for a long period of time or just for a season or at a single trade show? How geographically expansive is the proposed exposure—worldwide, nationwide, or just local? Knowing the answers or possible answers to these questions in advance of initiating clearance will help ensure a smooth, more efficient process. Below is a checklist of questions that might help corporate counsel or internal stakeholders obtain valuable information about proposed new marks before beginning a comprehensive clearance process. • What is the proposed mark? Are there any alternative marks, alternative spellings, or acronyms? • Is there a logo, design, or stylized font associated with the mark? • What goods and/or services will be offered under the mark? • What meaning, if any, does the mark have in the industry?

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• Will the mark be used in connection with a house mark or other company brand? • Through what channels will the goods/services offered under the mark be marketed? Will there be Internet usage? • How long will the mark be used? • In what countries will the goods/services be offered? In what countries will they be marketed? • Does the mark have unfortunate connotations in the English language or in U.S. culture or in other languages/cultures of countries of interest? Once a mark is identified as a possible candidate, it should be legally cleared for adoption. The level, scope, and sophistication of any clearance will depend, in part, on the answers to the questions above. For instance, if a mark is only slated for one-time use at a trade show, that likely will inform the level of searching to be done. On the other hand, if the mark will be used on a new product rollout that is scheduled for global promotion, then it will be appropriate to consider comprehensive U.S. and scaled global clearance. Part of clearance obviously involves determining whether anyone else already is using your proposed new trademark. Avoiding copying someone else’s brand is important in order to avoid liability for trademark infringement. But avoidance of infringement is only part of the legal battle. In addition, the company will need to decide how protectable or enforceable it wants its mark or marks to become. In general, the more distinctive a brand is, the more protectable and enforceable it will be against others. The reverse also is generally true. If the mark is highly descriptive or indistinctive, it will be less protectable from infringement. Hence, deciding at the outset whether the name or mark will be highly communicative (e.g., “Home Depot”) or highly distinctive (e.g., “Exxon”) is important. The former may be the easier target of competitors and copyists than the latter and the latter may require much more investment or promotion to achieve its communicative purpose.

§ 6.4.1

Avoiding Likelihood of Confusion

The first element to consider when clearing a new mark is ensuring that the proposed mark does not conflict with earlier rights holders. As summarized previously, in the United States, the legal test for infringement is “likelihood of confusion.” In general, this refers to any confusion as to source or between products, 3rd Edition 2016

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as well as confusion as to endorsement, sponsorship, or any other connection with the trademark owner. In general, whether marks are confusingly similar is analyzed under a multiple-factor test involving similarity and sophistication of consumers, similarity of channels of trade, and similarity of advertising, as well as similarity of the marks and the products and services sold under the marks. Importantly, each federal circuit court has set out its own version of the duPont factors. Each circuit’s factors are similar, however. In trademark clearance practice, as a practical matter, it really is the first three or four criteria noted above that are the most critical. Specifically, • How close is the proposed mark to a prior mark in sound, meaning, and overall commercial impression? • How much overlap is there in the goods and services to be provided under the new mark and those provided under the senior mark? • How much overlap is there between the likely consumers or purchasers of the goods to be sold under the proposed mark and those consumers who purchase goods trading under the senior mark? While the other factors can be significant in analyzing search results (depending on the circumstances), the above three factors tend to predominate the analysis.

§ 6.4.2

Assessing a Mark’s Distinctiveness

In addition, while clearance is meant primarily to determine whether the new proposed mark will expose its adopter to potential infringement claims, clearance also is important in determining the relative distinctiveness of the new mark. This analysis can be important for a number of reasons. First, a mark that is not infringing, but is nonetheless relatively weak or indistinctive, will likely be difficult to enforce against others. For example, if the client is looking to protect the mark “Super Computing” for use in connection with a new computer application, a clearance search might tend to show that the mark is available and not in use as a brand. However, such a brand would likely be considered descriptive of computer products generally. Whatever rights a company might obtain in such a mark would likely only be enforceable against someone using the identical mark on identical goods. A company could spend thousands of dollars pursuing registration of such a mark only to find that its investment did not result in broad enforcement powers against third parties. Accordingly, if the search and

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its analysis tend to support weakness of a proposed brand, it is important that counsel point that out in his or her analysis. Furthermore, analysis of a mark’s relative distinctiveness will also inform how registrable the mark is both in the United States and internationally. Search results that tend to show that a proposed mark (or marks similar to the proposed mark) has been difficult to register should inform the decision making around whether that mark is a good candidate for further investment.

§ 6.4.3

Trademark and Trade Name Searching

After the company has determined its process for name selection, the next step is to undertake a comprehensive search of the mark and analyze the results in the context of the client’s business objectives. Typically, a search may involve several levels of granularity, depending on the strategy for the mark. All searching begins with a preliminary, or “knockout” search. The purpose of this level of searching is just to “knock out” those candidates that obviously conflict with earlier rights holders. A knockout search can be performed relatively inexpensively by using commonly available online resources—a search engine and an identical search using the U.S. PTO’s Trademark Electronic Search System (TESS). See http://tess2.uspto.gov/. In addition to TESS, counsel or clients may also subscribe to various search providers, each of whom may offer similar preliminary search functionality for a reasonable cost, or at no cost. Practitioners might also call on the client as an additional resource during the preliminary stage by asking marketing or sales employees whether they have encountered similar marks at trade shows or other industry events. In fact, as a practical matter, it is wise to ask clients how proposed marks were derived, as it is not uncommon for competitor marks to “inspire” the creative juices of in-house marketing teams. Knockout searches, as indicated above, generally are used only to see whether, using the standard likely confusion analysis, there is an obvious conflict with an earlier mark. Simply put, the researcher need only compare the results of the searches to the proposed mark to determine if there is an obvious conflict. Finally, a thorough preliminary search might include consulting foreign intellectual property office databases to determine whether the mark, while apparently available in the United States, may nonetheless be taken in a jurisdiction of obvious importance to the client. However, foreign counsel should be engaged to conduct likelihood of confusion and distinctiveness analyses under relevant law, appropriate to the level of searching being conducted. 3rd Edition 2016

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Of course, sometimes whether a mark is “knocked out” is not entirely obvious. A preliminary search that identifies an identical mark (or a phonetically identical mark) used in a different industry probably is not a direct conflict. On the other hand, even a dissimilar usage that turns up in the search might knock out a proposed new mark if the marks have some common elements and are used on identical or related goods. Once a knockout search is analyzed, a more comprehensive trademark search (or trade name) search should be performed. This search can be ordered through any number of search vendors, including Thomson CompuMark, Corporation Service Company, CoreSearch, and others. The value of this broader search will be its ability to pick up phonetically similar marks, common law uses, and geographically expanded content. A good comprehensive search will also look at all of the state trademark databases, as well as corporate, Dun & Bradstreet (and similar) business records, and a variety of online commercial databases for potential conflicts.

(a)

A Word of Caution About Searches

Of course, no search is infallible. Even a comprehensive search, while a good indicator of trademark availability, does not extend to every available database that may contain references to conflicting marks. Further, search firms such as Thomson CompuMark can only search records deposited with the Patent and Trademark office up through a particular cutoff date, usually several weeks prior to the date the search was performed. Therefore, there is always the possibility that someone has applied for your proposed mark (or commenced using it) too recently to appear in the search results. Moreover, some marks may not be found at all using these traditional search methods. Thus, searching is merely a means to increase knowledge and reduce risk. It can never serve as insurance against all possible risk.

(b)

Is There Ever a Time When Searching Is Unnecessary?

There is no bright-line rule as to whether searching must occur before a company adopts and uses a new mark. That said, courts have frowned on users who fail to search, particularly if even a cursory search would have turned up an obvious conflict. Accordingly, if a client is thinking of a new brand and intends a quick rollout (before a registration can be obtained), obtaining a full search and analysis of its results probably is the correct minimum standard of searching. On the other hand, if the client is in the early stages of development, and use is not likely to commence for some significant period, then it is not uncommon to stop searching at the “knockout” phase and simply file an “intent-to-use” 6–18

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application (see § 6.98766848.2058840698(ttttt), below). Examination and publication of the application will help ferret out possible conflicts that were not uncovered in less comprehensive searching. Of course, the client needs to be prepared for the possibility that a serious challenge may arise during prosecution or upon publication of the mark for opposition—and that such a challenge may not be surmountable. Assuming the client is willing to live with this risk, then forgoing the expense and time of the search may be worthwhile. Finally, if a company has been using a mark notoriously for a significant period of time without any challenge, then performing a full search may not be necessary. First, chances are reasonable, depending on the quality and nature of the use, that likely challengers to the client’s use would already have come forward. In such a case, a user considering filing an application probably would not benefit from undertaking a comprehensive search. Second, after many years of open use in commerce, most clients who have invested those years will not be turned away by comprehensive search results that may turn up conflicts. After years of use, the investment in a brand is generally too deep and significant to decide a change is required unless there is an actual challenge to the use. Conducting a comprehensive search when the client would generally be unwilling to make a change in the face of a particular conflict rarely makes sense. Although there are circumstances under which comprehensive searching may not be necessary, it is important to point out that most trademark searching is woefully deficient even when a comprehensive U.S. search is completed. In the Internet age, with rare exceptions, most clients are willing and interested in selling in international markets, yet many companies are reluctant to perform international searches. Wise counsel will prod clients to consider international exposure when deciding the scope of their clearance strategies. Exhibit 6C shows one example of an internal trademark request form. The purpose of this form is to assist business groups in identifying and requesting clearance of new marks.

§ 6.5

TRADEMARK REGISTRATION PRACTICE

§ 6.5.1

Federal Registration Practice

Once a mark is selected and cleared, it is wise to consider applying for registration of that mark. While registration is not necessary to protect or enforce a mark, federal registration confers a number of benefits on the trademark owner, including the following:

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• a presumption of validity of the registration, ownership of the mark, and exclusive use of the mark in commerce; • a presumption of continuous use of the mark since the filing date of the application; • incontestability of the mark five years after registration (prevents contests based on descriptiveness and prior use of the same mark); • constructive notice of the registrant’s claim of ownership of the mark; • nationwide rights; and • the right to bring suit in federal court. In addition to federal registration, most of the individual states offer the possibility to register marks at the state level. The value of a state registration varies. In some states, registration is a prerequisite to instituting an action under the relevant state trademark statute. Such statutes may have damages provisions that are helpful to mark owners. A thoughtful trademark strategy will consider applicable state law to determine whether registration at the state level is desirable or necessary. That said, as a practical matter, most brand owners seek federal registration if they are eligible for it, and the vast majority do not seek parallel state rights—although, as indicated, state trademark registrations can be valuable under certain circumstances.

§ 6.5.2

Federal Trademark Applications

Federal registration is accomplished by filing an application with the U.S. Patent and Trademark Office (PTO or Office). This can be done either electronically or on paper, though the Office prefers that applicants use the electronic filing whenever possible. Before filing, the applicant (or its attorney/correspondent) must gather information necessary to complete the application, including the basic information necessary to obtain a filing date from the Office, as well as information about the proposed mark, its current usage (if any), and date of first use. A “model” client checklist appears in Exhibit 6D. This checklist will assist in gathering the information necessary to file a new trademark application.

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(a)

§ 6.5

Obtaining a Filing Date

Applications may be filed on paper or electronically through the Office’s electronic application filing system (eTeas). The Office prefers electronic filing and offers incentives, including faster processing and lower filing fees, if applicants use eTeas. Regardless of whether the application is filed electronically or on paper, the requirements for receiving a filing date are the same. Specifically, to receive a filing date, the application must include at least the items listed below. If these items are not included with the initial filing, the application will be rejected before receiving a filing date: • the name of the applicant, • a name and address for correspondence, • a clear drawing of the mark, • a listing of the goods or services, and • the filing fee for at least one class of goods or services. 37 C.F.R. § 2.21. Each of these basic filing requirements is elaborated on below.

Name of Applicant It is imperative that the correct owner be identified at the outset. Although certain corrections can be made to the applicant’s identity, mistakes in identifying the correct owner can be fatal. Typically, the owner of the trademark or the entity or individual with the intent to use the mark in U.S. commerce should be identified as the applicant. Licensees, franchisees, or authorized third-party users should not be identified as the applicant. In the case of a start-up entity, it is usually preferable to create the ownership entity before filing the application (and thereby identify the ownership entity as the applicant, rather than, for example, an individual founder). This is because assigning an application from a founder to an entity later can cause complications. (This is particularly so if the original application is an intent-to-use application. See § 6.98766848.2058840698(ttttt), below.).

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Correspondent Address This is simply the name and address of whomever will be corresponding with the Office regarding the application. The correspondent can be the applicant itself or its appointed U.S. counsel.

Clear Drawing of the Mark The applicant must include with the application a clear rendering of the proposed mark. If the mark is a word or phrase, the online form will provide a space where the applicant may type the mark in a plain font. If the mark consists of a design, stylized font, and/or any combination of the foregoing, then the applicant must provide a clear image of the design with the application. If the applicant is using the online filing system, there is a place where the applicant can upload a jpeg image of the design. Practice Note When preparing jpeg images of a design, the PTO recommends that applicants using the online filing system submit mark images that have a length and width of no less than 250 pixels and no more than 944 pixels. Also, be sure that the image submitted as a drawing ™ ® does not include a or symbol.

Listing of Goods and Services with Which the Mark Will Be Used The applicant must provide a list of the goods and/or services with which the mark will be used. The Office has adopted the International Classification System as set out in the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks. As a result, the Office currently classifies all goods and services into forty-six separate classes, the purpose of which is to gather and collate items that are similar to one another into distinct classes. As a general proposition, items classified in the same class generally will be more similar to one another than those classified in different classes. In addition to classification, the Office has adopted form methods of describing goods and services and has published the Acceptable Identification of Goods and Services Manual (the ID Manual). Consulting the ID Manual is helpful in devising descriptions of goods and services because it is the source that Office examining attorneys consult when determining whether the description and classification chosen by the applicant is acceptable. The Office describes the relationship between the ID Manual and the processing of applications as follows:

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The ID Manual lists identifications of goods and services and their respective classifications that the USPTO examining attorneys will accept without further inquiry if the specimens of record support the identification and classification. The listing is not exhaustive, but is intended to serve as a guide to both examining attorneys in acting on applications and to filers in preparing applications. Using language directly from the ID Manual helps avoid objections by examining attorneys concerning “indefinite” identifications of goods or services; however, applicants must assert actual use in commerce or a bona fide intent to use the mark in commerce for the goods or services specified. Therefore, even with definite identification, examining attorneys may inquire as to whether the identification chosen accurately identifies the applicant’s goods or services. See http://www.uspto.gov/trademarks/resources/index.jsp. Practice Note The description of goods and services should be limited to those goods or services with which the applicant actually intends to use the mark in the United States. Practitioners should avoid the impulse to insert multiple items into a description or to insert all the goods or services in a particular class unless there is actual intent to use the marks with all such items.

Practice Note If appropriate and accurate, by using identifications of goods and services from the ID Manual (and meeting other minimum requirements), applicants can use the TEAS Plus filing system, which has slightly lower application fees than the standard TEAS online filing process. To suggest the PTO adopt a description of goods or services for the ID Manual, e-mail the PTO at TMIDSUGGEST@uspto .gov. This could potentially save an applicant money for future filings made through TEAS Plus if an identical description is commonly used and relatively straightforward.

Filing Fees The application must be accompanied by sufficient fees payable to the Office. In particular, the applicant must pay the fees for at least one class of goods or 3rd Edition 2016

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services. The fee per class varies based on whether the application is filed electronically or on paper and whether the applicant uses an accepted description of goods and services taken directly from the ID Manual.

(b)

Completing the Application and Getting to Registration

In addition to the basic criteria mentioned above, every application must include all of the additional information identified below before it can be accepted for registration: • a verified statement signed by a person properly authorized to sign on behalf of the applicant (15 U.S.C. §§ 1051(a)(3), (b)(3); 37 C.F.R. § 2.33; TMEP § 804 et seq.). This can be an officer of the company or someone with actual knowledge of the facts set forth in the underlying application; Practice Note The regulations allow for applications and other verified statements to be signed by counsel of record. However, counsel should carefully consider the implications of signing on behalf of a client, taking into consideration the possibility that the application and registration may someday need to be enforced and the signatory’s statements no doubt will be scrutinized to see if the registration or its viability is vulnerable to attack.

• the date on which the application was signed; Practice Note If the application is submitted through eTeas, the system will fill in the signature date automatically. Signed verifications may also be submitted after the initial filing date. In such cases, counsel should ensure that the verification is signed on or later than the actual application filing date.

• the applicant’s legal entity (TMEP § 803.03 et seq.); • the country of which the applicant is a citizen, or the state or country of incorporation or organization of a juristic applicant (15 U.S.C. §§ 1051(a)(2), (b)(2); 37 C.F.R. §§ 2.32(a)(3)(i), (ii); TMEP § 803.04); • if the applicant is a domestic partnership or domestic joint venture, the names and citizenship (or state or country of incorporation or organization) of the general partners or active 6–24

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members of the joint venture (37 C.F.R. § 2.32(a)(3)(iii), (iv); TMEP §§ 803.03(b), 803.04); Practice Note For individual applicants, the application requires the identification of citizenship as well as residence of the applicant. For corporate applicants (corporations and LLCs), the application requires identification of the domicile (state of incorporation). Partnerships must identify the state in which the partnership is legally organized and the name and citizenship of the partners. Applicants that are nonU.S. business entities must identify the type of entity and the entity’s home country.

• the applicant’s domicile and post office address (15 U.S.C. §§ 1051(a)(2), (b)(2); 37 C.F.R. § 2.32(a)(4); TMEP § 803.05); • a statement that the applicant is using the mark in commerce, or has a bona fide intent to use the mark in commerce (see § 6.98766848.2058840698(ttttt), below) (15 U.S.C. §§ 1051(a)(3)(C), 1051(b)(3)(B), 1126(d)(2), 1126(e); 37 C.F.R. §§ 2.33(b)(1), (2)); • the dates when the mark was first used and first used in commerce with the goods/services in each class, in an application unless registration is sought based on a foreign application/registration (see § 6.5.3, below) (15 U.S.C. § 1051(a)(2); 37 C.F.R. § 2.34(a)(1)(ii), (iii); TMEP § 903 et seq.); • a basis for filing (37 C.F.R. §§ 2.32(a)(5), 2.34; TMEP § 806 et seq.); Practice Note The following are relevant bases: use in U.S. commerce, intent to use in U.S. commerce; and foreign registration under Sections 44 or 66.

• an averment by the person making the verification that he or she believes the applicant to be the owner of the mark sought to be registered in an application under Section 1(a), or to be entitled to use the mark in commerce in a Section 1(b) or Section 44 application (15 U.S.C. §§ 1051(a)(3)(A),

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1051(b)(3)(A); § 804.02);

37

C.F.R.

§§ 2.33(b)(1),

(2);

TMEP

• for all applications except those filed only under a Section 44 or Section 66 basis (foreign or international registration), an averment that the mark is in use in commerce (37 C.F.R. §§ 2.33(b)(1), 2.34(a)(1)(i); TMEP § 901); • an averment that, to the best of the verifier’s knowledge and belief, no other person, firm, corporation, or association has the right to use such mark in commerce either in the identical form or in such near resemblance as to be likely, when used on or in connection with the goods of the other person, to cause confusion, or to cause mistake, or to deceive (15 U.S.C. §§ 1051(a)(3)(D), (b)(3)(D); 37 C.F.R. §§ 2.33(b)(1), (2); TMEP § 804.02); • a description of the mark, if the mark is not in standard characters (37 C.F.R. §§ 2.37, 2.52(b)(5); TMEP § 808 et seq.); • if the mark includes color, a color claim naming the colors that are a feature of the mark, and a separate statement describing where the color(s) appear on the mark (37 C.F.R. § 2.52(b)(1); TMEP §§ 807.07(a) et seq.); • a translation of non-English wording and transliteration of non-Latin characters in the mark, if any (TMEP § 809 et seq.); • a statement that identifies any living individual whose name or likeness the mark comprises and indicates that his or her consent is of record, or a statement that the name or portrait does not identify a living individual, if appropriate (15 U.S.C. § 1052(c); TMEP § 813.01 et seq.); • a claim of ownership of earlier registrations (if applicable)— the applicant’s ownership of prior U.S. registrations of the same or similar marks, if any (37 C.F.R. § 2.36; TMEP § 812); • a standard character claim (if applicable)—if the applicant seeks to register the mark in standard characters, a statement that “The mark consists of standard characters without claim to any particular font style, size, or color” (TMEP § 807.03(a)); 6–26

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• a copy of any underlying foreign registration (if applicable)—in applications based on Section 44 (foreign registration basis), a true copy, photocopy, certification, or certified copy of the registration in the applicant’s country of origin, and a translation of the foreign registration if it is not in English (15 U.S.C. § 1126(e); 37 C.F.R. § 2.34(a)(3)(ii); TMEP § 1004.01 et seq.); and • a “specimen” demonstrating use of the mark in each class—in applications based on use (or intent to use) the mark in the United States (15 U.S.C. § 1051(a)(1); 37 C.F.R. §§ 2.34(a)(1)(iv), 2.56(a), 2.86(a)(3); TMEP § 904 et seq.). Practice Note Obviously, from the list above, there is a great deal of complexity to the basic U.S. application, and most of the steps and fulfilling the basic requirements are less intuitive than they may seem on their face. Careful attention to detail and consultation with seasoned trademark practitioners is usually necessary to obtain the best results.

Exhibit 6D is a checklist that a practitioner may use when collecting information from a client prior to filing.

§ 6.5.3

Types of Federal Applications

Applicants may file U.S. applications based on actual use of the mark in question or based on the applicant’s “bona fide” intent to use the mark at a later time. The filing basis for an application is often referred to by the section of the Trademark Act under which the filing basis is created. The most common types of applications are Section 1(a) use-based applications and Section 1(b) intentto-use applications. Registration might also be appropriate under Section 44(e) if the mark is the subject of a previously filed international registration. See 15 U.S.C. § 1126.

(a)

Use-Based Applications and Use in Commerce

If the application is a use-based application, then the applicant must supply a date of first use of the mark “anywhere” and “in commerce.” In addition, the applicant must supply a suitable example or “specimen” demonstrating the applicant’s use of the mark in each class of goods or services claimed in the application. The technicalities of “use in commerce” and “specimens” create common pitfalls for applicants, so they deserve further attention by applicants and their lawyers. See § 6.5.6(d), below, for further discussion regarding specimens of use.

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Use in Commerce Under U.S. federal law, an applicant is not entitled to a trademark registration until the mark has been used “in commerce.” Under the Lanham Act, “commerce” is defined as “all commerce which may lawfully be regulated by Congress.” 15 U.S.C. § 1127. Historically, this definition has been understood to mean all interstate commerce (as compared with intrastate commerce), with the effect that any sales or shipments across state lines or between the United States and a foreign country would be deemed to be “use in commerce” for federal registration purposes. Determining whether a client’s use of a mark is “in commerce” is not always a simple matter, however. In particular, clients who truly operate on a statewide basis (such as local, independent restaurants or other service providers) may not have bona fide interstate use on which to predicate a federal trademark registration. Practitioners need to investigate use of a proposed mark carefully to ensure that bona fide use in commerce has occurred. Practice Note The Trademark Manual of Examining Procedure (TMEP) contains excellent guidance on determining whether use in commerce has commenced. See TMEP § 901.

(b)

Intent-to-Use Applications

If a mark is not yet in use in commerce, an application can be filed based on a bona fide intent to use the mark in commerce. An intent-to-use application allows the applicant to claim priority rights in a mark, contingent on actual use of the mark in commerce at a later date. Subsequent users are imputed with constructive notice of the contingent nationwide priority right granted by an intentto-use application, and, as such, the filer will enjoy priority over a user who begins use after the filing date of the intent-to-use application, even if the filer does not commence actual use until later in time than the junior user. To support an intent-to-use application, the applicant must submit a signed declaration stating the applicant’s bona fide intent to use the mark with all of the goods and/or services identified in the application. Before an intent-to-use application can mature into a registration, the applicant must file either an amendment to allege use or a statement of use following a notice of allowance (discussed below in § 6.5.6(b)).

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(c)

§ 6.5

Sections 44 and 66 Applications

Under Section 44(e) of the Lanham Act, a foreign national is entitled to file an application in the United States and claim a preexisting foreign registration as the sole basis for registration in the United States, provided that said applicant also has a bona fide intent to use the registered mark in the United States. In this way, foreign registrants have a bit of an apparent advantage over U.S. citizens, inasmuch as registration can be granted in the United States without actually demonstrating use, provided the applicant has at least an intent to use the mark in the United States. A similar right is granted to non-U.S. applicants who designate the United States under an international registration as a country for trademark protection. 15 U.S.C. § 1141f. Importantly, even though foreign nationals may obtain registrations under these systems without demonstrating actual use in the United States, the U.S. law is clear that such registrations are vulnerable to attack if use in the United States is not made or when the bona fides of the asserted intent can be shown as illegitimate. See Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500 (9th Cir. 1991); Saddlesprings Inc. v. Mad Croc Brands, Inc., 104 U.S.P.Q.2d 1948 (T.T.A.B. 2012).

§ 6.5.4

Examination of Applications—Bases for Refusal

Applications are examined both for informal/procedural issues, such as the completeness of the application, and for statutory registrability. While the two most fundamental reasons for refusal include lack of distinctiveness (or “descriptiveness”) and the mark’s similarity to a previously registered or applied for mark (“likelihood of confusion”), refusals can be based on multiple grounds, as summarized below. Specifically, registration may be refused on the ground that • the applicant is not the owner of the mark (15 U.S.C. § 1051; TMEP § 1201); • the subject matter for which registration is sought does not function as a mark (15 U.S.C. §§ 1051, 1052, 1053, 1127) because, for example, the proposed mark –

is used solely as a trade name (TMEP § 1202.01);

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–

is functional, i.e., consists of a utilitarian design feature of the goods or their packaging (15 U.S.C. § 1052(e)(5); TMEP § 1202.02(a) et seq.);

–

is a nondistinctive configuration of the goods or their packaging (TMEP § 1202.02(b) et seq.);

–

is mere ornamentation (TMEP § 1202.03 et seq.);

–

is the generic name for the goods or services (TMEP § 1209.01(c) et seq.); or

–

is the title of a single creative work or the name of an author or performing artist (TMEP § 1202.08 et seq., § 1202.09 et seq.); • the proposed mark comprises immoral or scandalous matter (15 U.S.C. § 1052(a); TMEP § 1203.01); • the proposed mark is deceptive (15 U.S.C. § 1052(a); TMEP § 1203.02 et seq.); • the proposed mark comprises matter that may disparage or falsely suggest a connection with persons, institutions, beliefs, or national symbols, or bring them into contempt or disrepute (15 U.S.C. § 1052(a); TMEP § 1203.03 et seq.); • the proposed mark comprises the flag, coat of arms, or other insignia of the United States or any state, municipality, or foreign nation (15 U.S.C. § 1052(b); TMEP § 1204 et seq.); • the applicant’s use of the mark is or would be unlawful because it is prohibited by statute (TMEP § 1205 et seq.); • the proposed mark comprises a name, portrait, or signature identifying a particular living individual without the individual’s written consent, or the name, portrait, or signature of a deceased president of the United States during his widow’s life, without written consent of the widow (15 U.S.C. § 1052(c); TMEP § 1206 et seq.); • the proposed mark so resembles a previously registered mark as to be likely, when used with the applicant’s goods and/or services, to cause confusion or mistake, or to deceive (15 U.S.C. § 1052(d); TMEP § 1207 et seq.);

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• the proposed mark is merely descriptive or deceptively misdescriptive of the applicant’s goods and/or services (15 U.S.C. § 1052(e)(1); TMEP § 1209 et seq.); • the proposed mark is primarily geographically descriptive of the applicant’s goods and/or services (15 U.S.C. § 1052(e)(2); TMEP § 1210.01(a)); • the proposed mark is primarily geographically deceptively misdescriptive of the applicant’s goods and/or services (15 U.S.C. § 1052(e)(3); TMEP § 1210.01(b)); or • the proposed mark is primarily merely a surname (15 U.S.C. § 1052(e)(4); TMEP § 1211 et seq.). As indicated, the two most common bases for refusal are the proposed mark’s lack of distinctiveness or its confusing similarity with a prior mark. These two issues are summarized in greater detail below.

(a)

Lack of Distinctiveness

A common basis for refusal is the mark’s asserted lack of distinctiveness. See § 6.3.5(a), above. There is no simple fix for overcoming these refusals, and the best methods will vary depending on the mark and its circumstances. In summary, however, the following lines of attack are commonly used by trademark counsel to overcome a distinctiveness rejection. • The mark is not descriptive, but, at a minimum, suggestive of the goods and services. Under this theory, the mark may communicate some aspect of the goods or services, but the message is nuanced or lacks directness. Because a consumer must exercise some thought before appreciating the connection between the mark and the nature of the goods and services, the mark is indeed distinctive and deserving of protection. • The mark is not in use by competitors who do not need it to compete in the applicant’s field. • The mark has multiple meanings or is a “double entendre.” These multiple potential meanings, again, require the consumer to engage in a multistep process to determine the appropriate message as applied to the goods. 3rd Edition 2016

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• If the mark is allegedly geographically descriptive, the most common attack is to claim either that the geographic indicator itself has multiple or alternate meanings or connotations other than its geographic significance or that there is no association in the relevant consumer’s mind between the geographic location and the goods. Practice Note The Office has issued myriad resources for practitioners seeking assistance in overcoming refusals, and practitioners commonly refer to useful treatises on the subject, including McCarthy on Trademarks and Unfair Competition by J. Thomas McCarthy; Likelihood of Con® fusion in Trademark Law by Richard L. Kirkpatrick; TTABLOG at thettablog.blogspot.com, authored by John L. Welch; and Kane on Trademark Law: A Practitioners Guide by Siegrun D. Kane.

(b)

Likelihood of Confusion

A second common basis for refusal is the assertion that the applied-for mark is likely to be confused with an earlier-filed or previously registered mark. (See § 6.3.5(b), above, for a discussion of “likely confusion.”) The Office will compare the applied-for mark to earlier registrations and applications to determine whether the applicant’s mark is likely to be confused with any earlier mark on the U.S. register. There are two important points about this part of the examination that practitioners should bear in mind. First, the examiner’s review is based solely on what exists at the U.S. Trademark Office. The examiner does not investigate state trademark registrations, nor common law use. As explained above in § 6.4, the existence of earlier rights bears on the applicant’s ability to use its mark with impunity even if the earlier rights holder has applied to register its mark. However, the PTO does not have jurisdiction to look beyond the register during the examination phase. Second, the examination looks only at who applied or registered first. The examiner will not inquire as to which of the competing applicants may have used the mark first in the United States even though such use may well give a later filer earlier in time rights. (An applicant who uses first but files second may have redress before the Trademark Trial and Appeal Board (TTAB) to challenge the registration of the earlier filer. See § 6.7, below.) In determining whether confusion is likely, the examiner uses the test for confusion set out by the Court of Customs and Patent Appeals, the precursor to the Federal Circuit Court of Appeals, in In re E. I. duPont de Nemours & Co., 476 F.2d 1357 (C.C.P.A. 1973). See § 6.4.1, above. DuPont set out a multipart legal 6–32

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test that measures whether consumers will mistakenly believe that goods or services from two different parties come from the same source or are likely to be associated with one another. While mastering the interstices of the entirety of the test is necessary in order to effectively counsel clients about mark selection and registrability, in general, the most important aspects of the test can be synthesized to three major factors. These include how close the marks are, the degree of overlap in the likely consumers of the products and services offered by both mark holders, and the degree of similarity between the goods and services offered by each. In general, the more overlap there is in these three major indicia of “likely confusion,” the more likely the Office, or a judge or jury, will find likely confusion under the law. Obviously, other aspects of the duPont test are relevant and may be critical to understanding and responding to an objection from the Office based on likely confusion. In particular, the relative strength of the mark(s) and the degree of actual consumer confusion (or lack thereof) can be very persuasive elements to the examiner. Nevertheless, these three central points are usually key to overcoming an objection.

Overcoming Likelihood of Confusion Refusals The challenge for practitioners will be to analyze the cited marks to determine whether the perception of the examiner is misplaced. The following arguments, if applicable, can be quite helpful to the process. • The marks are distinguishable in spelling, sound, meaning, and overall commercial impression. Assuming there are distinctive features of each mark, the practitioner must emphasize these differences, carefully explaining why they are more significant than the similarities. This argument will be most effective if there is a discernible and valid alternate commercial impression or meaning offered by one mark that is very different from the other mark. • The goods and services offered by the parties are demonstrably different. This argument is effective especially if the applicant’s goods or services were not very well defined in the original application. In this case, the practitioner can use the response to further explain the applicant’s goods of interest and carefully point out each and every difference between the goods and services of the applicant and those of the earlier rights holder.

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Practice Note As a general matter, it is not a sufficient distinction that the products and services are not identical. What is critical is whether consumers of the various goods and services would assume, because of their nature or likely trade channels, that they emanate from the same source. Examiners will normally recite boilerplate in office actions concerning the “relatedness” of goods and services, so the savvy practitioner will have to explain not just how the goods and services differ, but why they are not related in such a way that consumers will not make the errant assumption that the sources of each are the same.

• The likely consumers of the goods and services are different. Again, the practitioner must carefully explicate the differences between the likely consumers. This argument can be effective if the demographics of the applicant and registrant are very definable. For example, if the applicant’s goods are meant for medical doctors but the registrant sells its goods to end consumers, this difference will be significant to the examination and a determination on potential confusion.

§ 6.5.5

Responding to Office Actions

Although refusals based on lack of distinctiveness or the possibility of confusion are quite common, the examination usually yields a number of other formal and informal issues that must be addressed before the application can be finally approved for publication and registration. See § 6.4.2, above. Accordingly, the practitioner must carefully review each issue before assembling a response. Once an office action issues, the applicant has six months to respond to all outstanding issues raised in the action. Responses can be filed on paper or by eTeas, though the Office strongly prefers eTeas. eTeas also offers the advantage of the “Response Wizard,” which reminds the responder about all the issues that may have been raised in the original action and generates the correct form for the response. After receiving a response, the examining attorney will determine whether it resolved all outstanding issues raised in the original office action. If not, the examining attorney will issue a final office action. The applicant will then have six months to either comply with the examining attorney’s requirements or request reconsideration by the examining attorney and/or file a notice of appeal with the Trademark Trial and Appeal Board (TTAB).

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If a request for reconsideration is filed in addition to a notice of appeal, the TTAB will allow the applicant to request suspension of the appeal and remand of the matter to the examining attorney for reconsideration.

§ 6.5.6 (a)

Postexamination Issues Publication

Once the mark has been examined, if the Office finds that the mark is eligible for registration, it will be scheduled for publication in the Official Gazette for Trademarks. The Official Gazette for Trademarks (OG) is published each Tuesday, and contains, among other things, information concerning marks approved by the Office. Practice Note The OG is available in electronic form (.PDF format). The most recent fifty-two issues are available at the PTO’s website (www.uspto .gov). Information about each mark may also be found in the comprehensive, searchable trademark database (TESS), which is updated daily and accessible directly from the home page of the PTO website.

By regulation, third parties may object to registration of published marks, and have thirty days from publication either to file a notice of opposition or request an extension of time to oppose. 37 C.F.R. § 2.102(c). (For a discussion of oppositions and TTAB practice, see § 6.8, below). Further extensions of time, not to exceed 180 days total from the date of publication, may be granted upon a showing of special circumstances. See TBMP § 207.01; 37 C.F.R. § 2.102(c).

(b)

Notice of Allowance and Statement of Use

Assuming no oppositions are filed, if the application is use-based, it will be queued for registration. If the application was based on intent-to-use (ITU), then it will be “allowed.” Once an ITU application is allowed, the applicant will have six months from the mailing date of the notice of allowance to file a statement of use and proof of use or request a six-month extension of time within which to file the statement and “specimens.” 15 U.S.C. § 1051(d); 37 C.F.R. § 2.89. Applicants may request up to five extensions of the original six-month period of time, for an aggregate period of three years postallowance to file a statement of use and specimens. 15 U.S.C. § 1051(d); 37 C.F.R. § 2.89.

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The filing of the statement of use may appear to be a relatively straightforward exercise. However, the process of marshalling evidence of use, and ensuring that the statements made in the declaration accompanying the statement are accurate, can be time-consuming and somewhat perilous. The savvy practitioner must take his or her time to ensure that the statement is correct.

(c)

Declaration of Use

The statement of use must include a statement that the mark is in use in commerce with all of the goods and/or services in the application, and identify the date the mark was first used in commerce with the applied-for goods and/or services. (See above discussion of “Use in Commerce” under § 6.5.3(a).) The applicant may also state the date the mark was first used in another form or first used anywhere (i.e., not in interstate commerce). If the mark is in use with some, but not all of the goods and/or services in the application, the applicant may • file a request to divide the goods/services that are not in use from those that are in use and then file a statement of use with respect to those goods/services in use and extend the time to file a statement of use for the remaining goods/services; or • file a request to extend the time for filing a statement of use for all goods/services. Occasionally, it might be the case that the mark is used with some of the goods or services within a class on one date, but with other goods/services in that class on another. If this is the case, the applicant should identify the earliest date of first use and specify the goods or services to which the earliest date of first use applies. TMEP § 903.08. For example, if an application includes “hats, t-shirts, and gym shorts” in International Class 25 and the mark was first used on hats on December 1, 2010 and first used on the remaining goods on January 1, 2011, the application would claim a date of first use for December 1, 2010 and include a statement that the date of first use applies to hats. Note that only the earliest date will appear in the Official Gazette and on the registration certificate, without specification as to which of the goods/services the date applies. This situation will arise only if the staggered date goods/services are in different classes, as the statement of use requires that the date of first use be listed by class. Practice Note Practitioners should take great care to ensure that the claimed date of first use is accurate. If the actual first use date is later than the

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date claimed, the entire registration is vulnerable to cancellation for fraud on the PTO. Importantly, the statement of use claims that the mark was used “at least as early as” the first use date, so the fraud concern only arises when the first use date is later (not earlier) than the claimed date. As such, it is wise to err on the side of caution when determining the date of first use and, if there is any doubt, go with a date on which you and the applicant can definitively say there was use of the mark, with all of the goods and services in the application.

(d)

Specimens

The statement of use must also include a specimen of use for each class of goods or services in the application. The selection of specimens can be a treacherous exercise and requires some thought. The specimen must show the mark exactly as shown in the drawing submitted with the application and must show use of the mark on or in connection with each class of goods and/or services identified in the application. Acceptable specimens for goods include • tags or labels affixed to the goods or the container for the goods, • stampings on the goods or on a container, • instruction sheets packaged with the goods, and • screen captures showing the mark displayed with the goods (such as a movie or computer program). See TMEP § 904.03. For downloadable software, the applicant can submit a website specimen only if it is clear that the software can be downloaded from the website. TMEP § 904.03(e). Unacceptable specimens for goods include advertising, invoices, price lists, and business letterhead. See TMEP § 905.05. Acceptable specimens for services must show the mark and describe the services offered under the mark. Examples of acceptable specimens include newspaper and magazine advertisements, brochures, billboards, handbills, direct-mail leaflets, and menus (for restaurants). TMEP § 1301.04. Business documents such as letterhead and invoices may be acceptable if they bear the mark and refer to the applied-for services. TMEP § 1301(4)(c). Note that blank letterhead or invoices are not 3rd Edition 2016

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acceptable. For example, for orthodontic services, the applicant could submit as a specimen a letter on letterhead bearing the mark and describing a consultation and recommended orthodontic procedures (but not simply blank letterhead). Unacceptable specimens for services include business cards bearing only the mark and company name, proofs for advertisements, press releases to news media, or printed articles resulting from such releases. TMEP § 1301(4). Practice Note An applicant of an intent-to-use–based application need not wait until a mark is allowed to claim use of the mark. If use commences before the mark is published for opposition, consider filing an amendment to allege use, which requires a statement of first use and specimen, like a statement of use. This will convert the application to a usebased application and will avoid the need for the allowance stage, setting the application up to proceed to registration in a shorter period of time.

(e)

Registration Timeline

The time from application to registration is often lengthy. Even applications encountering little or no objection from the PTO generally take up to a year to reach registration. It can take two to three times as long if the application encounters substantive problems, such as a rejection based on likelihood of confusion. Practice Note To check the status of an application, use the PTO’s Trademark Applications and Registrations Retrieval (TARR) database, accessible at http://tarr.uspto.gov/. Also, the PTO, on its website at http://www.uspto .gov/trademarks/process/tm_timeline.jsp, makes available timelines depicting the typical registration process and timing for various types of applications.

§ 6.6

TRADEMARK REGISTRATION MAINTENANCE

Because trademark rights in the United States are based on use, maintenance of U.S. trademark registrations requires periodic filings of affidavit of use (or excusable nonuse) in addition to maintenance fees and renewals. Failure to file the required affidavits will result in the cancellation of the registration.

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§ 6.6

Section 9 Renewal

The term for a U.S. trademark registration is ten years. To renew a registration, the registrant must file a Section 9 renewal and pay the requisite fee every ten years. The period for filing a renewal opens one year before the renewal date (i.e., the ninth anniversary of registration, the nineteenth anniversary of registration, and so on). The period ends on the tenth anniversary of registration; however, a six-month grace period is allowed, within which the registrant can file the renewal with payment of an additional fee. To renew a mark, the registrant must also comply with the requirements of Section 8, discussed below.

§ 6.6.2

Section 8 Affidavit of Use

The registrant is required to file an affidavit regarding use of the mark between the fifth and sixth year after a mark’s registration and at the time of a Section 9 renewal. A Section 8 affidavit must include a statement that the mark is in use in commerce (see above discussion of use in commerce requirements in § 6.5.3(a)) and a specimen of use for each class of goods or services in the registration (see § 6.5.6(d), above, for a discussion of appropriate specimens). The registrant may also, under special circumstances, include a statement that a mark is not in use but that the registration should not be cancelled because nonuse is due to special circumstances excusing such nonuse. See 15 U.S.C. § 1058(b). As with the deadline for filing a Section 9 renewal, there is a six-month grace period within which a registrant can file a Section 8 affidavit after the expiration of the relevant time period with payment of an additional fee. If the grace period expires without filing of the Section 8 affidavit, the registration will be cancelled. Practice Note The filing of the Section 8 affidavit of use is another time when a practitioner should be vigilant to ensure accuracy regarding any statements relating to use of the mark. Over the years, the mark and the offerings under the mark might change or adapt with the times. If a registrant files an affidavit claiming use with goods/services that are not in use, the entire registration is vulnerable to cancellation based on fraud on the PTO. Be sure to confirm that all of the goods/services included in the registration are in use. If some are not, delete these goods/services from the registration when filing the Section 8 affidavit. If the mark itself has changed in appearance or design, consider whether the mark can be amended (only nonmaterial changes are allowed) to maintain the registration. See 15 U.S.C. § 1057(e). If not, file a new application for the redesigned mark.

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§ 6.6.3

Section 15 Incontestability

After the fifth year of registration, the registrant also has the opportunity to file an affidavit of incontestability (referred to as a Section 15 affidavit), which confers “incontestable” status on a registration. The benefits of an incontestable registration are • conclusive evidence of the registrant’s ownership and exclusive right to use the mark, • immunity from attack by a third party on the basis of prior use, and • immunity from attack by a third party on the basis of descriptiveness. Practice Note Because a generic mark can never be protected as a trademark, no registration, even one with incontestable status, is ever immune from a challenge claiming that a mark is or has become generic.

The schedule of maintenance filings for a U.S. trademark registration is as follows: Timing

Event

Between 5th and 6th anniversary of registration

File Section 8 affidavit of use (can be combined with Section 15)

After 5th anniversary of registration

File Section 15 affidavit of incontestability (if appropriate)

Between 9th and 10th anniversary of registration

File Section 9 renewal and Section 8 affidavit of use

§ 6.7

TRADEMARK ENFORCEMENT AND DEFENSES

§ 6.7.1

Proper Trademark Usage

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and that the mark remains strong and can be protected against unlawful thirdparty use. The best way to do this is to follow certain guidelines, including those discussed below, that implement consistent and proper use of a mark.

(a)

Trademarks Are Adjectives

In general, keep in mind that a trademark is an adjective, not a noun or verb. In addition, because it is an adjective and not a noun, a trademark should not be used in the plural or the possessive. Using the mark as a noun or verb and/or pluralizing it risks turning it into a common term of art or descriptive word. For example, one should refer to “Reebok® athletic shoes,” not “Reeboks,” and “Xerox® photocopies,” not “Xeroxes.” Use of the word “brand” after the mark also is helpful in ensuring that the mark does not become generic, e.g., “Scotch® brand tape.”

(b)

Forms of Notice

Once registered, the company should use one of the following forms of notice in connection with each use of the registered trademark that relates to the types of goods or services described in the certificate of registration: • ®, • Reg. U.S. Pat. & Tm. Off., or • Registered in U.S. Patent and Trademark Office. It is usually sufficient if the trademark notice appears with one prominent use of the mark in any single advertisement or label, although the mark itself may appear several times. You should bear in mind that the notice should not be used with unregistered trademarks, nor with the trademark when used in connection with goods or services other than those described in the certificate of registration. If the trademark is used with additional types of goods or services, one should consider registering the mark with respect to the additional types of goods or services. Without federal registration of your mark, one may claim the exclusive right to use a particular mark by placing the symbol TM next to the mark. The TM symbol merely acts as a warning that exclusive rights are claimed; it does not mean that such rights actually exist, or that they are enforceable.

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§ 6.7.2

INTELLECTUAL PROPERTY PRACTICE

Policing Trademark Rights Through Watch Services

To adequately protect marks, particularly house marks and trade names, trademark owners should consider instituting “watch services.” These services, whose charges range from approximately $100 to $1,000 per year, depending on comprehensiveness and geographic scope, will automatically track trademark filings and trademark publications, as well as “common law” (i.e., unregistered) sources of trademark use and alert watch subscribers to any potential conflicts. Watch services also may be used to track the trademark activities of competitors.

§ 6.7.3

Taking Action Against Potential Infringers

When a potentially infringing use is identified, the owner of a mark has a number of different options for dealing with the potential infringer. The astute practitioner will be aware of the various options available to a mark owner. The decision regarding which option to pursue might include a consideration of the following factors: • the importance of the mark to the owner, • the potential disruption caused by the potentially infringing use, • the resources available to the trademark owner, • the resources and likely reactions of the potential infringer, and • the possible public relations and media attention that might be paid to a dispute. Owners and practitioners also must be aware that rights holders have an obligation to police for infringing uses. An owner who makes no effort to police and enforce its mark risks losing or inhibiting its ability to enforce rights against infringers. While not every potentially infringing use may warrant action, the trademark owner must take reasonable steps to ensure that its mark remains strong.

(a)

Demands to Cease and Desist

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demand that it stop its infringing use. The tone and form of communication will vary widely depending on the facts of a given matter. In general, a typical demand letter includes an assertion of the trademark owner’s rights, alerts the recipient as to the infringement, details the harm suffered, and requests a cessation of activity and acknowledgment of compliance. Often, successful demands lead to a prompt, economical, and favorable solution of infringement matters. However, a demand letter might also be met with no response or a refusal to change the potentially infringing behavior. Practice Note Occasionally, the recipient of the cease and desist letter may post the letter on the Internet in order to ridicule the trademark owner. It is important, therefore, to ensure that the cease and desist letter is written in a reasonable manner.

(b)

Trademark Trial and Appeal Board Proceedings

When a trademark owner encounters a potentially infringing mark pending registration with the U.S. Patent and Trademark Office (PTO), it can file a formal opposition with the PTO’s Trademark Trial and Appeal Board (TTAB) to prevent registration from occurring. Similarly, when a trademark owner with senior rights finds a potentially infringing mark already registered with the PTO, it can bring a petition to cancel registration of the offending mark. Cancellation and opposition proceedings before the PTO are discussed more fully below.

(c)

Civil Action

While the two options discussed above are often the least costly and disruptive strategies to mark owners, these two options also have their limitations. Of course, the effectiveness of demand letters depends on the voluntary action of the potential infringer. Importantly, TTAB proceedings can only resolve issues with applications or registrations for confusingly similar marks. Therefore, success in a TTAB proceeding does not necessarily mean that a potential infringer will change its behavior in the marketplace. Often, the only recourse to stop use of an infringing mark is to bring a civil action against the infringer. Bringing a civil action allows a trademark owner to seek an injunction, seizure orders, monetary damages, or other relief, including a directive to the PTO to cancel a registration. Trademark infringement actions can be brought in federal or state court and are discussed more fully below.

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Practice Note Often, filing a civil action is an escalation of a dispute from another enforcement action, such as the filing of a TTAB opposition or cancellation. If a trademark owner files both a proceeding with the TTAB and a civil action, the civil action will not automatically stay a prior pending action before the TTAB. However, upon motion, the TTAB generally stays actions pending before it if the issues to be determined will resolve the TTAB matter. Conversely, the federal courts tend to deny stays pending decisions of the TTAB. PHC, Inc. v. Pioneer Healthcare, Inc., 75 F.3d 75, 80 (1st Cir. 1996).

§ 6.7.4

Bringing a Trademark Claim in Federal Court

The Lanham Act is the federal statute governing trademark rights, registration, and enforcement. 15 U.S.C. § 1051 et. seq. Both federal and state courts have concurrent jurisdiction to hear trademark claims brought under the Lanham Act. When a trademark owner determines to bring suit against an alleged infringer, however, such actions are typically brought in federal court or removed to federal court by the defendants, if possible. Before proceeding to file a complaint in any forum, potential plaintiffs must determine the proper procedural requisites. Preliminary questions should be answered prior to entertaining a trademark lawsuit. First, determine whether the potential plaintiff has standing to enforce the trademark at hand. For trademarks, the issue of standing depends on the legal status of the trademark involved, as well as the relationship of the party to the trademark. The standing requirement varies for registered marks and for rights in a mark under common law: • For marks registered on the Principal or Supplemental Register of the U.S. Patent and Trademark Office, a civil action can be brought by the current registrant of the federally registered mark. Lanham Act § 32(1)(a); 15 U.S.C.A. § 1114(a). • For marks at common law, the law provides a broader range of standing. Under the Lanham Act, “[a]ny person who believes that he is or is likely to be damaged” by a violation of the act can bring suit to enforce a trademark at common law. Lanham Act § 43(a)(1); 15 U.S.C.A. § 1125(a)(1). In addition, plaintiffs may be able to bring suit for common law trademark infringement and unfair competition under state law.

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Second, determine what judicial forum is proper given the jurisdictional requirements and law involved. Plaintiffs can file suit for violations of the Lanham Act in state or federal court. As a matter of practice, litigants typically bring trademark infringement claims under the Lanham Act in federal court, whether for procedural or substantive perceived advantages. Claims brought in state court for violations of the Lanham Act are removable to federal court and are routinely removed by defendants in trademark actions. Notwithstanding federal registration, plaintiffs also can bring suit in state court. In addition, plaintiffs can assert common law claims of breach of contract, violation of trade secrets, unfair competition, and trademark infringement and bring those suits in state court, regardless and independent of the existence or lack of federal trademark registration. Personal jurisdiction is obtained by establishing the defendant’s connection with the forum, either through its general dealings or through specific instances, including its contacts with the forum and harm to the plaintiff caused within the forum. Federal courts will look to the law of the state in which the court is sitting to determine questions of personal jurisdiction. In Massachusetts, the Long-Arm Statute (G.L. c. 223A) and the due process clause of the Constitution comprise the criteria for establishing personal jurisdiction over a nonresident defendant. Depending on the facts of each case, jurisdiction can be obtained over a resident outside of the Commonwealth by a showing of any one or a combination of several enumerated activities involving the Commonwealth, so long as the due process clause is also satisfied. These activities include transacting business in Massachusetts, entering into contracts for services or things in Massachusetts, and either causing tortious injury in Massachusetts or causing tortious injury outside of Massachusetts if the defendant regularly does or solicits business, engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in Massachusetts.

(a)

Note on Internet Presence and Jurisdiction

In general, Massachusetts federal courts confer jurisdiction over nonresident defendants in trademark infringement actions as long the defendant has a website that is interactive and accessible in Massachusetts and the trademark owner is resident in Massachusetts. The rationale supporting jurisdiction in such cases is that the harm occurs where the trademark owner is located and that the defendant has made the infringing website continuously accessible to Massachusetts residents. Venture Tape Corp. v. McGillis Glass Warehouse, 540 F.3d 56, 60 (1st Cir. 2008) (citing Hasbro, Inc. v. Clue Computing, Inc., 994 F. Supp. 34, 39 (D. Mass. 1997) and Digital Equip. Corp. v. Altavista Tech., Inc., 960 F. Supp. 456, 466–67 (D. Mass. 1997)). 3rd Edition 2016

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Trademark disputes arising under the Lanham Act can involve a number of claims. In addition to traditional infringement, the Lanham Act also prohibits other conduct relevant to brand owners, including false advertising and false designation of origin, dilution of trademarks, and counterfeiting. The different types of Lanham Act claims are discussed below.

(b)

Trademark Infringement Claims

To successfully plead a cause of action under the Lanham Act § 32(1)(a); 15 U.S.C.A. § 1114(1)(a), the plaintiff must establish that it is the owner of a federally registered mark, and must also plead that the defendant’s use of the infringing mark is likely to cause confusion. Similarly, unregistered marks are subject to federal protection under the Lanham Act § 43(a). The pleading requirements vary slightly in that the plaintiff must show it is harmed by the defendant’s actions. The requirement of pleading likelihood of confusion is the same as for registered marks. In trademark infringement cases, the touchstone for establishing liability is establishing that there is a likelihood of confusion caused by use of the junior mark. A likelihood of confusion exists when there is a confusion, mistake, or deceit as to the affiliation, connection, or association of a person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities. Likelihood of confusion is centered around several core factors; however, each jurisdiction has its own test and applicable case law. A proper analysis touches on each factor cited in the relevant jurisdiction, and assigns no single factor dispositive weight. At the First Circuit, the applicable test is cited in Pignons S.A. de Mecanique de Precision v. Polaroid Corp., 657 F.2d 482, 487 (1st Cir. 1981) (the “Pignon factors”). The Pignon factors are as follows: • the similarity of the marks, • the similarity of the goods, • the relationship between the parties’ channels of trade, • the relationship between the parties’ advertising, • the classes of prospective purchasers, • evidence of actual confusion, 6–46

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• the defendant’s intent in adopting its mark, and • the strength of the plaintiff’s mark. In the Federal Circuit Court of Appeals, the standard is detailed in In re E.I. duPont de Nemours & Co., 476 F.2d 1357, 1361 (1973) (the “duPont factors”). See § 6.4.1, above, for a list and brief discussion of the duPont factors in the context of trademark clearance. In analyzing a potential trademark infringement claim, practitioners should consider how each of the likelihood of confusion factors is likely to impact the claim. A brief discussion of each of the factors appears below.

Similarity of Marks The first factor in all jurisdictions generally concerns the similarity of the marks themselves. If the marks are not similar, then no confusion can exist. Although the marks do not have to be the same, the more similar the marks, the more likely this factor will be met. Similarity of marks is analyzed from the perspective of the relevant consuming public. To ascertain similarity of marks, three factors are considered to determine the overall commercial impression of the mark. Each factor must be balanced and given appropriate weight depending on the relevant facts.

Sound Marks that sound similar may be deemed to create a likelihood of confusion. The sound of the mark can be significant if the mark is typically spoken instead of read. Analysis of sound includes rhymes, alliterations, mispronunciations, and accents given the relevant purchasing public.

Appearance Appearance of marks may be confusingly similar. Things such as typeface, size, placement, predominance of features, and color are relevant factors in a mark’s overall appearance.

Meaning Marks that have the same or a similar meaning need not look or sound the same, but instead create the same mental impression in the minds of consumers. Words and pictures regarding the same thing can be confusingly similar in meaning.

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Similarity of Goods or Services Almost as important as a comparison of the marks is an analysis of whether the relevant goods and services are confusingly similar. If the goods and services of each party are so related that consumers are likely to believe they emanate from the same source, confusion will be found as to this prong. Even identical marks can coexist where the relevant goods and services are not related, so long as other factors do not weigh heavily against coexistence. When the goods and services are in direct competition or are somehow related, however, confusion may be found.

Channels of Trade Channels of trade are how the given products are sold and where they are distributed. Channels of trade must be viewed from the beginning of the chain through the end user, and must include how the product appears at each relevant stage. Types of channels of trade include Internet, point of purchase, mail order, direct solicitation, off-the-shelf, or custom-made.

Advertising Similarity of advertising and the type of media used to advertise can lead to a likelihood of confusion. Merely because two products are advertised generally on television or through the Internet is often not enough to determine whether confusion exists. Instead, this prong hinges on whether the forms of advertising itself overlap such that the same consumers are likely to encounter the advertising and thus lead to a likelihood of confusion.

Class of Purchasers The relevant consumer in a likelihood of confusion analysis is the consumer likely to purchase or encounter the given products and services. Relevant consumers range from highly discrete and specific segments of the population to the consuming public at large. Relevant consumers may be specialized in the given field, have specific education or training, or have particular knowledge in the given industry. In addition, this prong involves an analysis of whether the ordinary prudent purchaser within that group is likely to be confused given the relevant circumstances.

Actual Confusion in Marketplace Although the existence of actual, documented customer confusion is not required, this evidence receives great weight in a likelihood of confusion analysis. 6–48

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Because the goal of trademark protection is to avoid a likelihood of confusion, instances of actual confusion weigh heavily in any analysis. Actual confusion may be proven by survey evidence offered by an expert or through direct evidence of instances of actual confusion.

Bad Intent of Defendant In general, the question of the defendant’s subjective intent is irrelevant in a determination of likelihood of confusion because the test hinges on the perception of the relevant public. However, whether the defendant acted with bad intent to divert consumers is a significant factor in balancing the equities, as well as for damages.

Strength of Mark Strength of the mark itself weighs in the likelihood of confusion analysis. The inherently stronger the mark, the more weight this factor is given. If a mark is weak due to descriptiveness or genericness, this factor may weigh against a likelihood of confusion determination.

(c)

False Advertising/Designation of Origin

The Lanham Act also prohibits any advertising or promotion that misrepresents the nature, characteristics, qualities, or geographic origin of goods, services, or commercial activities. Lanham Act § 43(a)(1)(B); 15 U.S.C.A. § 1125(a)(1)(B). These types of claims might overlap with or supplement trademark infringement claims. A brand owner might consider a false advertising claim if its mark is used in promotional materials that present either the defendant’s or the brand owner’s goods or services in a false light. To succeed on a false advertising claim, plaintiff must show that the defendant • used a false or misleading description or representation of fact; • in interstate commerce; • in connection with goods or services in commercial advertising or promotion; • that misrepresents the nature of the defendant’s or another’s goods or services; and • causes harm to the plaintiff. 3rd Edition 2016

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(d)

INTELLECTUAL PROPERTY PRACTICE

Dilution

As summarized in § 6.3.5(c), above, the Federal Trademark Dilution Act (FTDA) provides an additional potential cause of action against “dilution” of marks that are considered “famous.” A famous mark is one that is “widely recognized by the general consuming public of the United States as a designation of the source of the goods or services of the mark’s owner.” 15 U.S.C. § 1125(c)(2)(A). A number of factors may be considered to determine whether a mark is famous, including • the duration of use, • the extent of advertising and publicity, • the geographic reach of advertising and/or publicity, • the amount and geographic extent of sales under the mark, • the extent of actual recognition of the mark, and • whether the mark is a registered trademark. 15 U.S.C. § 1125(c)(2)(A). Dilution of a mark occurs when a famous mark is tarnished or blurred by the use of a similar junior mark. 15 U.S.C. § 1125(c). See § 6.3.5(c), above. Dilution under the FTDA can take two forms: dilution by blurring, which occurs when use of the junior mark impairs the distinctiveness of the famous mark, and dilution by tarnishment, by which use of the junior mark harms the reputation of the famous mark. 15 U.S.C. § 1125(c). Federal court interpretation of the FTDA has evolved in such a way that several generalizations can be made that are or can be critical to a practitioner’s choice of strategy. • The mark must be truly famous as measured by general familiarity with a brand. So-called niche fame (fame within a particular industry or industry segment) will not sustain a claim. Coach Servs. v. Triumph Learning LLC, 668 F.3d 1356 (Fed. Cir. 2012). • The allegedly dilutive mark does not need to be identical to the purported famous mark in order to demonstrate blurring. Rather, the plaintiff need only apply the factors set out in 15 U.S.C. § 1125(c)(2)(B). Levi Strauss & Co. v. Abercrombie & Fitch Trading Co., 633 F.3d 1158 (9th Cir. 2011). 6–50

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• Dilution can be a successful basis for challenging registration of a famous mark at the Trademark Office. Chanel, Inc. v. Jerzy Makarczyk, 110 U.S.P.Q.2d (T.T.A.B. 2013).

State Antidilution Provisions Several states have adopted antidilution provisions into their statutory and common law. In general, state dilution claims require only that a mark be highly distinctive, as opposed to the federal requirement that the mark meet the heightened status of being “famous.” However, some states do require that the mark be registered under state law to bring a state dilution claim. Practitioners should consult state law in the relevant jurisdictions to determine whether a dilution claim can or should be brought.

(e)

Counterfeiting

Counterfeiting, from a trademark perspective, is generally defined as the unauthorized reproduction, use and/or selling, offering for sale, and trafficking in goods or services bearing a registered trademark or a duplicate thereof. The federal statute defines a counterfeit trademark as “a spurious mark which is identical to, or substantially indistinguishable from, a registered mark.” 15 U.S.C. §§ 116(d)(B)(I), 1127. Counterfeiting is a growing problem in the United States and accounts for up to $250 billion in losses to U.S. businesses alone. Fueled primarily by consumer demand and the relative ease with which fakes can be distributed, the problem of counterfeiting has been the subject of increased Congressional activity in recent years with the passage of the Trademark Counterfeiting Act of 1984, the Anti-Counterfeiting Consumer Protection Act of 1996, the Stop Counterfeiting in Manufactured Goods Act of 2006, and the Prioritizing Resources and Organization of Intellectual Property Act of 2007. In combination, these amendments to the Lanham Act effect important changes to enforcement opportunities open to brand holders. Counterfeiting and its enforcement can be the subject of criminal proceedings initiated by state or federal authorities. 18 U.S.C. § 2320; G.L. c. 266, § 147. However, there are also increased civil penalties available to plaintiffs under the Lanham Act. 15 U.S.C. § 1117(c).

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(f)

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Counterfeiting—Criminal Enforcement

Federal Criminal Law To establish a criminal offense under 18 U.S.C. § 2320, the government must prove that • the defendant intentionally trafficked or attempted to traffic in goods or services or labels, documentation, or packaging for goods or services; • the defendant used a counterfeit mark on or in connection with those goods or services, or a counterfeit mark was applied to labels, documentation, or packaging for those goods or services and –

the counterfeit mark was not genuine or authentic;

–

the counterfeit mark was identical to or indistinguishable from a genuine mark owned by another;

–

the genuine mark was registered on the principal register in the U.S. Patent and Trademark Office;

–

the genuine mark had been in use by the markholder or its licensee;

–

the counterfeit mark was used “on or in connection with” the defendant’s goods or services or was applied to or used in connection with the goods or services or was applied to or consisted of labels, documentation, or packaging;

–

the counterfeit mark was used “in connection with” the type of goods and services for which the protected mark was registered or the counterfeit labels, documentation, or packaging were designed, marketed, or otherwise intended to be used on or in connection with the goods or services for which the mark was registered; or

–

the counterfeit mark was used in a manner likely to cause confusion, to cause mistake, or to deceive; and • the defendant knowingly used the mark and knew that the mark was counterfeit.

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State Criminal Law Massachusetts has a state law that criminalizes trademark counterfeiting. General Laws Chapter 266, § 147 provides that whoever willfully manufactures, uses, displays, advertises, distributes, offers for sale, sells, or possesses with intent to sell or distribute any item or services bearing or identified by a counterfeit mark is guilty of a criminal offense. The degree of punishment is geared to the number of items that are involved. Moreover, a person in possession of more than twenty-five items is presumed to possess the items with the intent to sell or distribute. G.L. c. 266, § 147(d). It should be noted that Massachusetts is not alone in criminalizing trademark counterfeiting. About forty other states have similar laws.

Defenses to Criminal Counterfeiting Defendants typically attempt to defend counterfeiting claims by using one of the following defenses: • the goods are genuine and/or the goods were manufactured/ produced with authorization of the manufacturer and/or the goods are “gray market”—meaning their sale was authorized in another territory; • the defendant did not know that the goods were counterfeit and, therefore, the government cannot prove the necessary mens rea; • the goods are genuine but merely “repackaged” in a nondeceptive manner; or • defenses available under the Lanham Act, such as fraud, abandonment, validity, and other affirmative defenses such as laches, estoppel, and acquiescence. 15 U.S.C. § 1115(b). The defense of lack of willfulness is frequently raised, and can be overcome by a showing of “willful blindness.” Louis Vuitton SA v. Lee, 875 F.2d 584 (7th Cir. 1989).

(g)

Counterfeiting—Criminal Penalties

Defendants can be subject to maximum penalties of $2 million (individual) for a first offense and $5 million for subsequent convictions (or two times the monetary loss or gain of the complainant). Business entities convicted of counterfeiting 3rd Edition 2016

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can be fined up to $5 million for a first offense and up to $15 million for each subsequent conviction (or, again, up to two times the monetary gain or loss). 18 U.S.C. § 2320(a). Offenders may spend up to twenty years in prison. Complainants are also entitled to restitution. 18 U.S.C. § 3663A(c).

(h)

Customs and Border Patrol—Seizures

Customs and Border Patrol (CBP) has jurisdiction to seize counterfeit goods entering the United States. Accordingly, U.S. trademark holders are well advised to record registered marks with CBP and to provide the agency with information concerning its marks and how to identify fakes that might be crossing U.S. borders.

(i)

International Trade Commission

Relatedly, brand owners may also initiate proceedings seeking seizure or impoundment of counterfeit articles by requesting a Section 337 investigation of suspected infringing or counterfeit goods. If the International Trade Commission finds in favor of the complainant, it will issue an exclusion order against specific shipments and products. 19 U.S.C. § 1337. In general, U.S. companies must fulfill three requirements in order to assert claims under Section 337. First, there must be an importation or a sale for, sale after, or potential future importation of the infringing product into the United States. Second, an unfair act of competition relating to the imported good must occur, i.e., an infringement of a valid U.S. trademark. Third, a domestic company must be engaged in sufficient domestic activity, such as employment of labor and capital or investing in U.S. facilities related to the imported product in question.

(j)

Counterfeiting—Civil Enforcement

In addition to criminal sanctions, plaintiffs may pursue civil remedies against counterfeiters under the Lanham Act. These include statutory damages from $1,000 to $2 million, as well as recovery of attorney fees. 15 U.S.C. § 1117(c). Complainants can also pursue ex parte seizure orders under 15 U.S.C. § 1116(d)(1)(A). Practice Note A party seeking a civil seizure should be careful to follow all the requirements set forth in 15 U.S.C. § 1116(d). Federal courts may not

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allow the civil seizure order to issue unless all the conditions of the statute have been met. These conditions include · the submission of a detailed affidavit or verified complaint sufficient to support the court’s findings of fact and conclusions of law required for the order of seizure; · the court’s order should be prepared in advance by plaintiff’s counsel and must include · findings of fact and conclusions of law; · a description of the matter to be seized and a description of each place at which such matter is to be seized; · the time period, which shall end not later than seven days after the date on which such order is issued, during which the seizure is to be made; · the amount of the security (i.e., bond) required to be provided at the hearing on the order of seizure; and · the date for the hearing on the order of seizure; and Note: It is common in the District of Massachusetts (and in other jurisdictions) that the presiding judge, in granting the order of seizure, will make handwritten changes to the proposed order. · the court must find that it clearly appears from the specific facts that · an order other than an ex parte seizure order is not adequate to achieve the purposes of 15 U.S.C. § 1114; · the applicant has not publicized the requested seizure; · the applicant is likely to succeed in showing that the person against whom seizure would be ordered used a counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services; · an immediate and irreparable injury will occur if such seizure is not ordered; · the matter to be seized will be located at the place identified in the application; · the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered in granting such application; and · the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person.

Importantly, in order to pursue any counterfeiting claims under the Lanham Act, the mark in question must be registered federally. Counterfeiting of unregistered 3rd Edition 2016

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(common law) marks may only be pursued through standard trademark infringement claims under 15 U.S.C. § 1125. Furthermore, and importantly, the definition of counterfeiting under the Lanham Act expressly excludes use of marks on goods authorized outside the territory. Accordingly, so-called gray market or parallel import goods may not be pursued under the anticounterfeiting provisions of the Lanham Act. See 15 U.S.C. § 1116(d)(1)(B)(i).

(k)

Other State Law Civil Claims

In addition to various federal causes of action, a plaintiff should consider other claims available in Massachusetts and elsewhere, such as state trademark infringement, state trademark dilution, common law unfair competition, fraud, breach of contract, violation of G.L. c. 93A, and common law and statutory rights of publicity, including G.L. c. 214, § 3A.

§ 6.7.5

Defenses to Trademark Infringement or Related Claims

The defenses available in trademark infringement cases are similar to those applicable in other civil actions (statute of limitations, failure to state a claim, and various affirmative defenses). Some of the common defenses raised in trademark cases are discussed below.

(a)

Laches

Laches is a delay in filing suit. Typically, preliminary injunctions will be denied on the grounds of laches, where the plaintiff has waited too long to assert its claim. Because preliminary relief is meant to curtail irreparable injury and indicates a sense of urgency, the longer the plaintiff waits to bring an action, the less likely a court will find that the injury suffered is irreparable and would be aided by injunctive relief.

(b)

Acquiescence

Acquiescence is a defense in which a trademark owner gives express or implied consent to another for use of its trademark. A plaintiff will be prevented from claiming infringement when it assents to the use of its mark by another, such that the delay caused by the consent causes the junior user prejudice.

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(c)

§ 6.7

Unclean Hands

Unclean hands implies that the plaintiff must bring its action in good faith and without wrongdoing. The equitable defense of unclean hands arises in instances, for example, where the plaintiff has used false advertising, conveyed misleading information, committed breach of contract, made misrepresentations before the Trademark Office, or lied under oath.

(d)

Fair Use

The fair use defense, Lanham Act § 33(b)(4), applies when the mark or term at issue is not used as a trademark, but, in good faith, is used to describe the defendant’s goods or services. The fair use defense is not an equitable defense, is only available in court proceedings, and cannot be used as a defense before the TTAB. Fair use is an affirmative defense, which will typically be waived if not affirmatively pled. If the defendant intended to use the mark to trade upon or dilute the plaintiff’s goodwill, good faith is lacking.

(e)

License

Another defense to infringement is that the owner licensed the mark to the defendant. A license can be either express or implied by the parties’ conduct.

§ 6.7.6

Relief

The Lanham Act provides for injunctive relief. 15 U.S.C. § 1114 et seq. For registered marks, the Lanham Act also provides for monetary damages, including the potential for profits, damages, costs, treble damages, and attorney fees.

(a)

Injunctions

Trademark owners may seek an injunction against a defendant to prevent further infringing use of its mark. To be afforded this relief, the plaintiff must show a likelihood of success on the merits of its claims and irreparable harm, as balanced against any hardships against the defendant and the public interest involved.

Likelihood of Success on the Merits Success on the merits involves a showing by preponderance of the evidence that the mark itself is valid and entitled to trademark protection, that the mark is 3rd Edition 2016

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inherently distinctive or has acquired distinctiveness, and that the defendant’s use of the mark is likely to cause confusion.

Irreparable Harm Irreparable harm to the plaintiff is generally established if the plaintiff can show a likelihood of confusion such that purchasers of the product may continue to be misled in the future absent relief. Irreparable harm includes the continued loss of reputation, trade, or goodwill.

Balancing Harm to Defendant Although defendants are not protected as infringers under the Lanham Act, any injunction ordered should not cause greater harm to the defendant than is necessary to remedy the plaintiff’s injury.

Public Interest The public interest in ordering an injunction is primarily to be protected from actual or likely confusion. Where likelihood of confusion exists, the public may be harmed by being deceived or confused. An injunction will help eliminate or alleviate this harm.

(b)

Destruction and Seizure Orders

As relief in a trademark action, plaintiffs can seek a court order requiring the infringer to destroy all infringing products and materials. In addition, the brand owner can request a seizure of infringing materials. For a discussion of seizure orders in connection with counterfeiting claims, see § 6.7.4(j), above.

(c)

Monetary Damages

The Lanham Act provides for monetary relief for trademark infringement for registered trademark owners. 15 U.S.C. § 1117. This section permits up to three times the amount of damages as compensation if the amount of profits is inadequate. Statutory damages and attorney fees are also available. An award of damages is generally either in the form of a showing of the plaintiff’s loss of profits or the defendant’s profits as a form of unjust enrichment. In addition, the Lanham Act provides for monetary relief against false designation of origin, false advertising, and dilution, regardless of federal registration. 15 U.S.C. § 1125(a).

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§ 6.8

§ 6.8

TTAB OPPOSITION AND CANCELLATION PROCEEDINGS

The Trademark Trial and Appeal Board (TTAB) is the governing body for hearing and determining trademark disputes at the U.S. Patent and Trademark Office. The TTAB’s jurisdiction is to provide adjudication as to the registrability of trademarks. The TTAB cannot determine infringement, unfair competition, or provide injunctive relief or damages. The TTAB can sanction cancellation of registered marks, or prohibit registration of pending applications.

§ 6.8.1

Applicable Procedure and Governing Law

Proceedings before the TTAB are governed by the Lanham Act and the Trademark Rules of Practice, which can be found in various parts of 37 C.F.R. Additionally, the Trademark Trial and Appeal Board Manual of Practice and Procedure (TBMP) is a fundamental resource. Proceedings at the TTAB are also governed by and in many ways mirror the Federal Rules of Civil Procedure, except as otherwise stated. The applicable law in TTAB proceedings consists of precedential TTAB decisions, as well as the Court of Appeals for the Federal Circuit, and other decisions as appearing in the U.S. Patent Quarterly (USPQ).

§ 6.8.2

Standing to Bring a TTAB Action

Any entity that believes it will suffer damage by a registration may seek to oppose or cancel a mark. The general public does not have standing to bring an action before the TTAB. Instead, the plaintiff must plead and prove a real interest in the outcome of the matter. In general, this will be the existence of a prior right in a mark but may also include a competitor’s interest in cancelling or inhibiting registration of a descriptive or generic mark.

§ 6.8.3

Opposition Proceedings

Opposition proceedings are those where the plaintiff, referred to as an “opposer,” seeks to prevent registration of a mark on the Principal Register. An opposition must be filed within thirty days after the subject mark has been published in the U.S. Patent and Trademark Office’s Official Gazette. An opposer can request extensions of time within which to oppose but cannot exceed 180 days from the date of publication.

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§ 6.8.4

INTELLECTUAL PROPERTY PRACTICE

Cancellation Proceedings

Cancellation proceedings are those where the plaintiff, or “petitioner,” seeks to cancel an existing trademark registration. A cancellation proceeding can occur at any time after registration. Within the first five years of registration, a cancellation can be brought for any reason. After five years of registration on the Principal Register, a mark is considered “incontestable,” and certain aspects of registration cannot be challenged. For instance, the validity of the mark, the registration of the mark, the ownership of the mark, and the owner’s exclusive rights to use the mark with the given goods or services cannot be contested. Incontestable registrations are still subject to cancellation, for example, on the grounds of fraud, genericness, functionality, and abandonment.

§ 6.8.5 (a)

Matters Specific to TTAB Proceedings Form of Complaint

A complaint in an inter partes proceeding before the TTAB mirrors that in a civil action in federal court. At the TTAB, it is either styled as a notice of opposition (in the case of a pending application) or a petition to cancel (in the case of an existing registration). Either way, the pleading must set forth identifying information concerning the application or registration involved, along with a short and plain statement why the plaintiff would be harmed. Common grounds for opposition and cancellation include priority of use and likelihood of confusion, descriptiveness, or abandonment.

(b)

Answer

After service on the defendant, a proper answer includes an admission or denial of each allegation, along with any defenses, as is the case in a civil action in federal court. A defendant in a TTAB proceeding has forty days to provide an answer, submitted to the TTAB.

(c)

Defenses

The equitable defenses mentioned above are similarly available as defenses in cancellation and opposition proceedings. The Lanham Act provides for these defenses. Lanham Act § 19, 15 U.S.C.A. § 1069. Typically, laches will be unavailable as a defense in an opposition proceeding because the time for establishing laches only begins to accrue after publication for opposition.

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§ 6.8.6

§ 6.8

Issue Preclusion and the Impact of TTAB Proceedings on Subsequent Litigation

The question is often raised whether there is a preclusive impact of an inter partes proceeding before the TTAB and, if so, whether that potential should inform strategy around enforcing rights against third parties. For instance, an aggrieved trademark owner who believes that it has an earlier right in a mark that conflicts with the rights of a junior adopter to register the junior mark has a choice. He or she may pursue proceedings before the TTAB and/or proceed in federal District Court. 15 U.S.C. §§ 1114(1)(a), 1125(a)(1)(A). As a practical matter, complainants making this choice often opt to pursue proceedings before the TTAB, since they generally are less expensive and faster than pursuing a litigation strategy. However, if a proceeding is pursued before the board and the complainant loses, will the complainant be foreclosed from a trial on the merits before a federal District Court? Importantly, an aggrieved party is always entitled to a de novo review of a TTAB decision. 15 U.S.C. § 1071(b). Furthermore, a party may forgo the appeal and initiate a new proceeding. In such case, would the TTAB decision on (for example) likelihood of confusion be preclusive of further commentary by the District Court? The general rule of issue preclusion dictates that “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to that judgment, the determination is conclusive in a subsequent action between the parties.” Restatement (Second) of Judgments § 27 (1980). Under this generalization, there are some obvious bases to argue that the issues presented in an infringement proceeding pending before a district court are demonstrably different from those that might be considered by the TTAB in an opposition proceeding. For example, an opposition proceeding may consider only the “use” of the mark described in the registration certificate when attempting to determine the degree of overlap between the parties’ goods and services. A District Court, on the other hand, would consider the issue of likely confusion in the “real world” of actual use in the marketplace, regardless of what the complainant’s registration certificate might say. Furthermore, it has been argued that the law applied at the TTAB level of adjudication is a different standard from the standard for determining likelihood of confusion at the District Court level. The U.S. Supreme Court recently stepped into the fray in the case of B&B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015). In B&B, Hargis and B&B both made fasteners, each directed to a different application and industry. B&B had registered its mark SEALTIGHT that it used with said 3rd Edition 2016

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fasteners and Hargis sought to register the mark SEALTITE for use with its fasteners several years later. B&B opposed the registration and the TTAB sustained that opposition, finding a likelihood of confusion under the duPont factors. B&B also filed a complaint against Hargis alleging infringement and, once the TTAB decided that there was a likelihood of confusion, argued that said determination was preclusive of the same issue in the District Court litigation. The District Court disagreed and held that the issue of likelihood of confusion was not necessarily precluded from further debate during the litigation. B&B appealed that determination to the Eighth Circuit, which affirmed the District Court’s ruling on the theory that the TTAB and the court used different factors to evaluate likelihood of confusion. In addition, according to the Eighth Circuit’s understanding of issue preclusion, the TTAB’s determination was in error because it had placed too much emphasis on one particular factor of the test and because Hargis bore the burden of persuasion before the board, while B&B bore it before the District Court. Upon review, the U.S. Supreme Court agreed that the TTAB’s decision did not necessarily preclude review by a District Court but clarified that so long as the other ordinary elements of issue preclusion are met, when the usages adjudicated by the TTAB are materially the same as those before a District Court, issue preclusion should apply. B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. at 1310. The Hargis decision is potentially significant because it clarifies a couple of points that trademark practitioners need to consider when drawing up a strategy of enforcement. First, the Supreme Court clarified that it is not enough that the TTAB and a particular District Court might use a different version of the likelihood of confusion factors when making determinations. Minimal differences in the legal test do not create separate issues that warrant relitigating those issues in a second proceeding. Consequently, practitioners can no longer assume that the application of a separate legal test will be enough to gain them a toehold in District Court. Secondly, and paradoxically, it is now clear that TTAB proceedings are not necessarily preclusive in a subsequent proceeding—so there are avenues, after B&B Hardware, to argue that a new determination is warranted if a party can demonstrate that the new proceeding raises new and different issues of fact and law. From a strategy prospective, B&B Hardware may affect the way parties to a TTAB proceeding frame claims and introduce evidence. Parties who feel that their case before the TTAB is strong may choose to introduce more “real world” evidence than they would in a normal proceeding as a way of increasing the chances that a favorable TTAB decision would preclude relitigation of the same issues later. On the other hand, parties who wish to leave the door open for 6–62

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further litigation may wish to narrowly focus the issues in a TTAB proceeding to those relevant to registration of the subject mark and limit evidence of marketplace factors.

§ 6.9

TRADE DRESS

Trade dress encompasses the overall “look and feel” created by combination(s) of brand(s), color(s), and/or design(s), used consistently in connection with goods or services. In general, trade dress is only protectable (under trademark theories) if it is inherently distinctive, or when it has been used for an appreciable period of time so that consumers begin to associate the style of the trade dress with a particular source. Generally, there are two categories of trade dress: product configuration or appearance; and product packaging or labeling. Product configuration consists of the overall design, shape, and appearance of a product. Examples of product configuration might include the Coca-Cola® bottle or the shape of the original Weber® grill. Product packaging, in contrast, is the combination of elements that make up the labeling or packaging of a product or service. Examples of product packaging might include the entire outside wrapper of a candy bar, or the original, nonfunctional elements of a restaurant décor such as McDonald’s. Significantly, functional features of product style, configuration, or packaging are not protectable—even when the public associates those features with a specific source of goods. Accordingly, features or combinations of features for otherwise utilitarian objects may not be protectable even if the combination appears to be unique. Determining whether a feature is functional is not always simple. In essence, if the feature is essential to the purpose of the product, it is probably functional and not protectable. If, on the other hand, there are available alternative configurations that are equally functional (but distinguishable), this may be evidence that the design at issue is not functional and protectable. See Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982). The evaluation of trade dress and its protectability may overlap with other rights, including patent rights. The existence of a utility patent covering a product configuration for which trade dress protection is sought is generally considered strong evidence that the trade dress is functional and not protectable. See Fuji Kogyo Co. v. Pac. Bay Int’l, Inc., 461 F.3d 675 (6th Cir. 2006). On the other hand, if the trade dress is covered in whole or in part by a design patent, this may be an indication that the trade dress is nonfunctional and protectable. See Sunbeam Prods., Inc. v. West Bend Co., 39 U.S.P.Q.2d 1545 (S.D. Miss. 1996), 3rd Edition 2016

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aff’d, 123 F.3d 246 (5th Cir. 1997); J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 7.91 (Thomson Reuters/West 4th ed. 2010). Related to the concept of “functionality” is the concept of “aesthetic functionality.” Over the years, courts have struggled with whether features of product configuration or packaging that were merely “visually pleasing” are the proper subject for trade dress protection, or whether these features are merely functional aspects of the trade dress that are ineligible for protection. See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 7.80 (Thomson Reuters/West 4th ed. 2010). While a simple synthesis is beyond the scope of this chapter, suffice it to say that the general rule of thumb is that if the aesthetically pleasing features possess secondary meaning, then they, at least arguably, are the proper subject of trade dress protection in most of the circuits. See W.T. Rogers Co. v. Keene, 778 F.2d 334 (7th Cir. 1985).

§ 6.9.1

Packaging Versus Configuration: Two Standards

Importantly, the law regarding the protectability of trade dress has evolved in such a way that protecting product configuration is appreciably more difficult than protecting product packaging. In 2000, the U.S. Supreme Court handed down its decision in Wal-Mart Stores, Inc. v. Samara Bros., in which it determined, among other holdings, that product design is not inherently distinctive. Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. 205, 212 (2000). According to the Court, while packaging normally includes a combination of symbols and design that consumers view as associated with a source, a product’s design is usually something useful or pleasing—aspects that are not necessarily associated with the source. Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. at 212. Accordingly, since the Wal-Mart decision, parties asserting trade dress or trademark rights in a product configuration must demonstrate that the design possesses secondary meaning before protection will be granted or rights enforced. The absolute requirement of secondary meaning is not associated with claims of trade dress rights in packaging design. However, product packaging must be inherently distinctive to qualify for protection. If the features of the claimed product packaging are not inherently distinctive, then the claimant will still be required to prove secondary meaning to qualify for protection.

§ 6.10

TRADEMARKS IN TRANSACTIONS

In addition to protecting and enforcing trademark rights, practitioners should be aware of the possible implications and complications related to trademarks in the context of transactional or corporate law. 6–64

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§ 6.10.1 Licensing and Franchise Agreements Perhaps the most common transactions in which trademarks play a prominent role are licensing agreements. Often, the owner of a mark (the “licensor”) wishes to authorize use of the mark to a third party (or multiple third parties) (the “licensee(s)”) without relinquishing ownership rights in the mark and related goodwill. In these circumstances, the parties may decide to enter into a trademark license agreement. Like most license agreements, trademark license agreements can be, among other things: • express or implied, • exclusive or nonexclusive, • perpetual or fixed-term, • royalty-bearing or royalty-free, or • assignable or nontransferable. These types of terms and their implications (and any other terms that may be unique to the parties’ marks, offerings, or relationship) should all be considered and discussed by the licensor and the licensee. Practice Note Although trademark license agreements can be implied and unwritten, given the complexities of these agreements and the possible consequences of improperly constructed or missing license terms, it is always prudent to reduce trademark license agreements to writing. This is true even in cases where the licensor and licensee are in the same corporate family (for example, parent companies and subsidiaries or when rights are held by an IP holding company but used by another entity within a company’s corporate umbrella).

The most important thing to remember when dealing with trademark license agreements is that, because of the unique function of trademarks as indicators of source and of the quality of goods/services, trademark license agreements must satisfy certain conditions to ensure that the mark’s function and the licensor’s ownership rights in the mark are not jeopardized. Specifically, the parties (especially the trademark owner/licensor) must be careful to avoid “naked licensing.” “Naked licensing” is a term used to describe trademark license agreements under which the trademark owner/licensor fails to exhibit proper control over the use of its mark by the licensee and, as a result, the mark fails to service as an indicator of source or of the quality of goods and services offered under the mark. The 3rd Edition 2016

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effect of “naked licensing” of a trademark is that the trademark owner/licensor is deemed to have abandoned rights in the mark—a dire and unexpected consequence for most licensors. To avoid a naked license, the license agreement should include, at a minimum, provisions setting forth the standards under which the mark will be used and provisions designed to ensure the goods or services offered under the mark will be of a certain quality. Often, quality control provisions allow for periodic review of the licensee’s use of the mark by the licensor. While quality control provisions are necessary to avoid a naked license issue, practitioners and licensing parties must also be careful to avoid a circumstance under which the licensor exerts too much control over the licensee (for example, requiring the licensee to follow the licensor’s business plans or operating procedures). In these cases, the purported license agreement may unintentionally create a franchise relationship, which may be subject to state regulations and reporting requirements. If the provisions of a trademark license agreement address more than use of the mark or marketing of the goods and services under the mark, and instead focus on operational or other business aspects of the parties’ relationship, it is best to consult federal and state franchise law to ensure that the trademark license does not become an unintentional franchise agreement. Where it is intended to enter into a franchise agreement, especially an agreement with a large number of franchisees, the trademark license component is critical. In particular, special attention is needed to ensure purging of the franchisees’ usage after the expiration or termination of the agreement.

§ 6.10.2 Trademark Assignments (a)

Valid Trademark Assignments Versus Assignments in Gross

Often, over the course of the lifetime of a brand, trademarks will change ownership from one party to another. This may occur in the context of an acquisition or other sale of company assets. Importantly, trademark assignments are not as simple as they might first seem because, unlike other property, a trademark cannot be transferred apart from the business with which the mark is associated. In practice, this means that trademarks must travel with tangible assets in order to be assigned.

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Because trademarks serve as indicators of source and quality, an integral part of the nature and function of a trademark is its association with a particular owner’s goodwill. Therefore, to properly assign a trademark, the assignment must include a transfer of the goodwill associated with the source of the mark. In the United States, the transfer of goodwill cannot be accomplished merely by including language in an assignment purporting to transfer goodwill. Instead, a proper assignment must also include transfer of the business as a going concern (i.e., transfer of the tangible assets needed to continue operation of the business). Assignments that do not transfer the requisite goodwill along with a mark are referred to as “assignments in gross.” An assignment in gross breaks the continuity of use of the mark and, as a result, the priority date and validity of the owner’s rights in a mark may be in jeopardy. That said, a proper assignee of a trademark and related goodwill is free to change the quality standards and otherwise control brand image. Because trademark assignments must accompany the transfer of goodwill, the question arises of how to handle the transfer of rights in an intent-to-use trademark application. If a mark is not yet in use, can it have goodwill to transfer? The answer is that, yes, intent-to-use applications can be assigned, provided that they are assigned as part of an ongoing and existing business (i.e., one company acquires another, including all product research and development in progress at the acquired company) and that the goodwill of that business is also transferred to the assignee.

(b)

Recording a Trademark Assignment

For federally registered marks, parties can and should record trademark assignments of trademark registrations or applications. While the recording of an assignment is not required, doing so will allow the new owner of the mark to take action with the PTO with respect to the transferred registrations or applications. Once an assignment is recorded, the PTO will update the owner of record for the mark and the assignee will be able to maintain the registration by filing the required maintenance documents discussed above in § 6.6 or prosecute the application by responding to office actions or filing affidavits of use as necessary. An assignment can be recorded electronically with the PTO’s assignment branch through the Electronic Trademark Assignment System (ETAS), accessible at http://etas.uspto.gov/. One assignment can be executed and recorded for more than one mark. Practice Note For convenience, if trademarks are assigned as part of a bigger corporate transaction, as is most often the case, it is prudent to create a

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separately recordable instrument (for example, an annex or ancillary agreement to a full asset purchase agreement) to be recorded with the PTO to avoid filing cumbersome deal documents.

(c)

Trademarks and Security Interests

As property, trademarks also can serve as collateral for a debt and creditors can take and record a security interest in a trademark. However, as with all trademark assignments, the assignment of a security interest must include the transfer of the goodwill associated with the mark to be valid. Therefore, it is important to structure the security interest assignment such that, in the event of default, the mark, its registration, and the goodwill associated with the business as a going concern transfer to the creditor. The interest should be recorded in appropriate state registries under the Uniform Commercial Code. Although it is not required, the assignment of a security interest can also be recorded with the PTO through ETAS. In such cases, the name of the owner of record will not be updated but the security interest will be listed in the “assign” status window of the PTO’s database. Practice Note If granting a security interest, it is wise to simultaneously draft a discharge of the same interest to be held in escrow so it is sure to be available for recording when the underlying secured debt is paid.

§ 6.11

SPECIAL ISSUES RELATING TO TRADEMARKS: THE INTERNET, NEW TECHNOLOGIES, AND DEVELOPMENTS IN THE INTERSECTION OF THE LANHAM ACT, PRODUCT LABELING, AND DECEPTIVE ADVERTISING

Brand owners, legislators, and the consuming public have all encountered new advantages, and new challenges, as the Internet has grown to be such a significant part of the consumer marketplace. As brand owners try to find new ways to reach consumers and protect their brands from infringement, dilution, or harm to reputation, legislators and the judiciary try to keep up with regulating everchanging technology and marketplace behavior. Meanwhile, consumers can use the vast resources at their fingertips to gain valuable knowledge regarding products and services prior to purchasing and comparison shop between brands. However, consumers are also encountering brands in new contexts and settings that may make it difficult to determine whether certain uses of brands on the

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Internet are true indicators of source, fair use of another’s mark, or unlawful use that may deceive or confuse consumers.

§ 6.11.1 Domain Names As the Internet became ever more prevalent in the lives of consumers, brand owners quickly realized that domain names that are identical or may be associated with one’s trademark were valuable commodities and an effective way of reaching Internet users looking for the brand owner’s offerings. Unfortunately, the value was also recognized by third-party “cybersquatters” who seized the opportunity to register domain names related to the brands of others. Cybersquatters might use the domains for one or more of the following purposes: • to divert traffic to their own website that is unrelated to the offerings of the brand owner; • to offer the domain name for sale to the brand owner at an inflated price; • to create a “parked” website containing links to third-party websites, often competitors of the brand owner; and • to generate “click-through” fees when Internet users click a link on the squatter’s page. A brand owner whose mark has been misappropriated in such a way has several options to recover the domain name, including a civil action under the Lanham Act and an arbitration proceeding conducted under a uniform set of rules developed by the Internet Corporation for Assigned Names (ICANN), the organization responsible for creating and overseeing the domain name system. Practice Note To determine the identity of the registrant of a domain name, a practitioner or rights holder can refer to the domain name’s “whois” record, which lists, among other things, the owner of the domain name and the registrar with whom the domain name resides. The whois record can be obtained at the registrar’s website (for example, http:// www.godaddy.com or http://www.networksolutions.com) or can be obtained from third-party websites such as http://www.domaintools .com.

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Occasionally, registrants will use privacy protection services that register domain names on an individual’s behalf to avoid personal identifying information from being listed in the whois. In such cases, the practitioner or rights holder will need to work with the privacy protection provider to communicate with or identify the domain name registrant.

(a)

The Anticybersquatting Consumer Protection Act

Because cybersquatting involves use of a mark in a way that may ultimately confuse consumers but may not satisfy the traditional infringement test of likelihood of confusion, legislators developed a legal framework under the Lanham Act to specifically address the practice of cybersquatting. The Anticybersquatting Consumer Protection Act (ACPA) provides a cause of action against a person who • registers, trafficks in, or uses a domain name • that is identical or confusingly similar to a mark that is distinctive at the time of the domain name registration or, in the case of a famous mark that is identical, confusingly similar to or dilutive of the famous mark • with a bad-faith intent to profit from that mark. 15 U.S.C. § 1125(d)(1)(A). Relief for ACPA claims may include court-ordered cancellation of the domain name, injunctive relief, and monetary damages in the amount of the defendant’s profits and actual damages or, in the alternative, statutory damages ranging from $1,000 to $100,000 per domain name. 15 U.S.C. §§ 1116, 1117(d).

(b)

Domain Name Dispute Resolution Proceedings

As an alternative to pursuing a claim in court for a domain name, which many rights holders may be reluctant to do given the cost and resources that litigation requires, ICANN has develop a dispute resolution process for domain names that registrants of domain names must agree to follow to register a domain. ICANN’s “Uniform Domain Name Dispute Resolution Policy” (UDRP) provides for administrative proceedings to resolve disputes between trademark owners and domain name registrants. The UDRP can be found at: http://www.icann.org/en/ udrp/udrp.htm.

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UDRP proceedings are conducted before a dispute resolution service provider approved by ICANN. A list of providers is accessible at ICANN’s website at http://www.icann.org/en/dndr/udrp/approved-providers.htm. A trademark owner can file a complaint using model forms available at the provider’s website. During the proceeding, the trademark owner will be referred to as the “complainant” and the domain name holder will be referred to as the “respondent.” To succeed in a UDRP proceeding, the complainant must prove • that the domain name is identical or confusingly similar to a trademark or service mark in which the complainant has rights, • that the domain name holder has no rights or legitimate interest with respect to the domain name, and • that the domain name has been registered and is being used in bad faith. The administrative proceedings are conducted through written submissions. While there are rules and procedures that must be followed, there is no discovery process nor are there restrictions on evidence. The complainant must pay a filing fee that varies depending on the number of domain names, the provider, and the number of arbitrators, but typically ranges between $1,000 and $5,000. In UDRP proceedings, relief is limited to one of the following three outcomes: • the domain name is transferred from the respondent to the complainant; • the domain name remains with the respondent; or • the domain name is cancelled altogether.

§ 6.11.2 New Generic Top-Level Domains and New Domain Name Rights Enforcement Mechanisms For years, the Internet was focused mainly on .com. The .com top-level domain was the most desirable for brand owners to obtain, the most frequent target for cybersquatters, and the extension most likely to fetch a high price at auction for “prime” second-level domains. For example, the domain name VacationRentals.com reportedly sold in 2007 for $35 million. Popular .com domains regularly sell for magnitudes more than the normal registration cost (which can be less than $100), whether purchased directly from a registrar, bought at a third-party auction, or “ransomed” from a cybersquatter. As online offerings, 3rd Edition 2016

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transactions, and marketing increasingly became a primary (and in some cases exclusive) way of doing business, to some, the Internet and the choices for domain name extensions began to feel a little too small. Rather than let .com and the handful of other top-level domains continue to enjoy all the traffic (and revenue), ICANN set out to change the way the Internet operated. Beginning in 2013, ICANN began rolling out new generic top-level domains (gTLDs). In doing so, ICANN announced its plans to increase the number of top-level domains from roughly a dozen to over 1,000. According to ICANN, the new gTLD program was developed to increase competition and choice in the domain name space. From a brand owner’s perspective, the new gTLDs present opportunities as well as risks. On one hand, brand owners could offer their consumers a new Internet experience by operating a new gTLD that corresponds to their brand (i.e., “.apple”) or by registering second-level domains under generic extensions relating to their product offerings (i.e., “apple.computer”). On the other hand, as these extensions expand the ever-growing online marketplace, infringers and cybersquatters can take advantage of the increased opportunities to register toplevel domains within a gTLD that corresponds to established brands (such as hasbro.toys)—much to the dismay of brand owners who already spend significant time and resources policing the “original” TLDs. In addition, brand owners must also face the implications of their brands being registered in new gTLDs with which they might prefer not to be associated (for example, .sex or .sucks). For brand owners interested in operating a new gTLD, ICANN developed an application process for all new gTLDs. To be considered as the sole operator for a new gTLD, applicants were required to pay $185,000 in application fees; applications then undergo an extensive review by ICANN to ensure that the applicant is able to meet the financial, technical, and operational requirements of acting as a gTLD registry. The application period was open during the first half of 2012 and applications continue to be reviewed by ICANN on a rolling basis. Because of the substantial cost of both applying and then operating a gTLD, the pool of brand owners that have applied to operate registries is relatively small. In addition, some of those that applied encountered potential issues or objections because their brands consisted of terms that may have more than one meaning. For example, Amazon EU S.a.r.l. applied to operate .amazon (in English as well as Japanese and Chinese characters), but its application was rejected by ICANN after community objections from the Amazon region. These issues illustrate the potential problems brand owners may face in the expansive new world of gTLDs, even sophisticated brand owners with substantial resources to dedicate to intellectual property and Internet-related matters.

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For brand owners without the resources or inclination to apply to operate a new gTLD, new launches still have the potential to significantly affect brand owners’ online and domain name management strategy. Not only are there new potential domains that may be of interest to brand owners for business purposes, there is also an entire new world of potential domains that could be used to harm a brand or disrupt a brand owners’ business. Under the original gTLD regime, brand owners could rely on the UDRP as a recourse against infringing domain names. But with potentially thousands of new domains to monitor, police, and enforce against, brand owners faced a daunting task in preparing for the new gTLD launch. In response to brand owners’ concerns, in addition to the existing UDRP dispute mechanism, ICANN introduced new rights protection mechanisms (RPMs) that apply to all new gTLDs, including a “sunrise” registration period that occurs prior to general availability of the domain names for each new gTLD and a trademarks claims service that occurs for a ninety-day period after the new gTLD is launched. To take advantage of these RPMs, brand owners must first register their trademarks with the Trademark Clearinghouse, which serves as a single database of verified trademark information. The Trademark Clearinghouse accepts only three types of marks for registration: • registered trademarks that are nationally or multinationally registered on the principal or primary register in that jurisdiction; • unregistered marks, only if they have been validated by a court of law or other judicial proceeding; and • marks protected by statute or treaty in effect at the time the mark was registered with the Trademark Clearinghouse, including, but not limited to, geographical indications or designations of origins. The owner of the mark, a licensee, or an assignee of the mark can apply for a Trademark Clearinghouse registration. To register, the applicant must provide evidence relating to the trademark record/registration and proof of use of the mark. Brand owners who register with the Trademark Clearinghouse choose a duration (one year, three years, or five years) for each mark they register and at the end of the initial registered period, the brand owner may have the option to renew the record.

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Practice Note The Trademark Clearinghouse allows brand owners to apply on their own behalf (as “trademark holders”) or through a recognized agent (a “trademark agent”). It generally does not permit practitioners to apply on behalf of a brand owner (unless the practitioner is also an official trademark agent). As such, while outside counsel may be instrumental in advising clients who are developing a new gTLD management plan and/or registering with the Trademark Clearinghouse, third-party vendors or the client will likely be involved in the registration process.

Once a trademark has been verified by the Trademark Clearinghouse, and for as long as the record remains valid, the brand owner can take advantage of the following rights protection mechanisms.

(a)

Sunrise Registration Period

Each new gTLD operator must offer a “sunrise” period lasting at least thirty days prior to release of the domains for general registration. During the sunrise period, brand owners who have registered with the Trademark Clearinghouse have the first opportunity to register domain names that correspond with their verified trademark. By giving brand owners the first bite at the apple, rights holders can keep domains from falling into the wrong hands. However, this RPM forces brand owners to defensively register domain names—some of which they would have little or no business interest in registering or using. Furthermore, while the cost of an individual domain name might not be prohibitive, multiplying that cost across hundreds of new gTLDs may be more than most brand owners can or are willing to invest in defensive registration.

(b)

Trademark Claims Service

The Trademark Claims Service is a notification service that warns both domain name registrants and trademark holders of possible infringements in new gTLD extensions. Specifically, a potential domain name registrant receives a warning notice when attempting to register a domain name that matches a verified trademark from the Trademark Clearinghouse. If the registrant receives the notice and registers the domain name anyway, the trademark holder receives a notification of the domain name registration so it can take appropriate action, if necessary. In practice, the notification/warning to the potential registrant will likely have little deterrent effect, especially for career cybersquatters. Because of this, the Trademark Claims Service simply becomes another way for brand owners to watch and monitor new, potentially infringing uses of their brands. Brand owners 6–74

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must still pursue one of the two available dispute proceedings (UDRP or URS, discussed below) or bring action in court to prevent a potentially infringing registration.

(c)

Uniform Rapid Suspension System

In addition to the RPMs that allow brand owners to defensively register domains or receive notice of potentially infringing registration, new gTLDs are also subject to a new streamlined arbitration proceeding—the Uniform Rapid Suspension System (URS). The URS shares some characteristics of the UDRP proceedings discussed above, but is designed to be a quicker, lower-cost alternative to the UDRP for the most clear-cut cases of infringement. Unlike the RPMs discussed above, pursuing a URS does not require a Trademark Clearinghouse registration (although that registration can be used to satisfy a required element of the URS). Importantly, as the name suggests, a favorable URS decision suspends the subject domain name for a period of time, taking the domain name out of the hands of the registrant (whereas a UDRP proceeding transfers the subject domain name to the complaining party). The suspension period lasts for the registration period sought by the registration, after which it is then rereleased into circulation for registration. The fees are substantially less than a UDRP (ranging from $300 to $400 for one domain in a URS, as opposed to $1,000 to $1,500 for a UDRP). The URS standard is similar to the UDRP, and requires that the complainant show that • the domain name is identical to or confusingly similar to a registered mark owned by the complainant that is in current use; (The requirement to show current use to satisfy the first element can be satisfied through a Trademark Clearinghouse verified mark or by filing independent evidence of registration and current use of a mark.) • the registrant has no legitimate right or interest to the domain name; and • the domain was registered and is being used in bad faith. The “bad faith” use and registration requirement can be demonstrated by showing circumstances similar to those under the UDRP, including that the domain name was registered 3rd Edition 2016

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primarily for the purpose of selling, renting, etc., to the complainant; that it was registered to prevent the trademark holder from registering it; that the registrant has registered the domain name primarily for the purpose of disrupting the business of a competitor; and that the registrant has intentionally attempted to attract users by creating a likelihood of confusion with the complainant’s mark. Currently, only two providers are accredited by ICANN to administer the URS—National Arbitration Forum (NAF) and Asian Domain Name Dispute Resolution Centre (ADNDRC). The most current list of providers can be found on ICANN’s website at http://newgtlds.icann.org/en/announcements-and-media/ announcement-2-19apr13-en. A URS complaint must be submitted in the form provided by the URS provider and there is little opportunity to stray beyond the enumerated elements of the claim. The rules provide that the complaint can include only 500 words of explanatory text. After a URS complaint passes administrative review, which must occur within two days of submission of the complaint, notice will be given to the registrar, who must lock the domain. After the domain is locked, the URS provider will provide a notice of complaint to the registrant, who must respond within fourteen days. The response, which is limited to 2,500 words, should include • confirmation of registrant data, • specific admission or denial of each of the grounds upon which the complaint is based, • any defense that contradicts the complainant’s claims, and • a statement that the contents are true and accurate. The URS provider must issue a determination within five days after a response is filed. If the examiner finds in favor of the complainant, the domain name is suspended for the balance of the registration period. During the suspension, the domain name will resolve to an informational page provided by the URS provider about the URS; the whois details will continue to reflect the original registrant’s information, with a note included that the domain cannot be transferred, deleted, or modified for the life of the registration. If the determination is in favor of the registrant, the domain name will be unlocked and full control of the domain returns to the registrant.

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Practice Note New gTLDs are subject to both the UDRP and the URS policy, so brand owners should carefully consider the pros and cons of each before pursuing one or the other. In some cases (for example, when the domain name resolves to a blank or “parked” page, or is registered in an extension that is not of general interest to the brand owner), suspension of the offending domain is sufficient and a URS may be the best option. In other cases (such as egregious infringements or cases in which the brand owner would like to control and use the domain name extension itself), a UDRP may be a better choice. It is also important to remember that URS proceedings are not available for the “original” TLDs (such as .com, .info, .net) or country code domains (such as .us, .uk, .de, etc.)—they are only available for newly launched ones. For original TLDs, the only arbitration proceeding available is the UDRP. For country code domains, arbitration proceedings vary and practitioners should refer to the local rules for the particular country code to determine the available options.

§ 6.11.3 Keywords, Online Advertising, and Search Engine Optimization Another use of trademarks on the Internet that has garnered a great deal of attention from brand owners and advertisers is the use of trademarks in keywords or metatags or in online advertising. Once a hotly discussed issue for trademark lawyers, over the past five years the law surrounding use of trademarked terms as keywords has settled down somewhat, with most recent cases resolving unceremoniously against the trademark owner and in favor of the keyword user/ seller. Keywords can be extremely beneficial to Internet users, advertisers, and search providers alike for indexing and retrieving information regarding websites on the Internet. For example, a website for a shoe company using the brand SHOOZ might use the terms “shoe,” “sneakers,” “heels,” and the company’s trademark “shooz” as a keyword trigger or metatag. An Internet user contemplating a shoe purchase might enter the trademarked term SHOOZ into an Internet search engine to locate and access SHOOZ’s company website. Before long, competitors and online advertisers realized the potential value in competing shoe company BOOTZ selecting its competitor’s trademark “shooz” as a keyword or metatag for the BOOTZ company website. Then, when an Internet user typed SHOOZ into a search bar, BOOTZ’s website would be among those sites populated in the search results or in the sponsored advertisements displayed by the search 3rd Edition 2016

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provider. But is this type of use of another’s trademark unlawful? Unfortunately, the answer may not be clear. The origins of the legal landscape for trademark owners and Internet search issues such as these focused on resolving the threshold question of whether such use amounts to “use in commerce” that is covered by the Lanham Act. Early cases addressing the issue resulted in a circuit split, with the Second Circuit holding such use was not a use in commerce, and for the most part, other circuits holding that it was. The split was finally resolved in 2009, when the Second Circuit came into line with the reasoning of other jurisdictions on the issue in Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009), holding that use of a trademark in connection with keywords and online advertising text was a use in commerce governed by the Lanham Act. After the threshold issue of use in commerce resolved, the focus in keyword litigation shifted to whether such use of a trademark is likely to cause confusion and is thus prohibited under the Lanham Act. This question, and the unique application of the likelihood of confusion analysis in an Internet world, spawned a new legal theory of “initial interest confusion” that gained some traction in keyword cases for several years. However, the doctrine seems to be falling out of favor with courts, and more recent cases have favored a return to the traditional likelihood of confusion factors. The initial interest confusion doctrine asserts that the traditional likelihood of confusion requirement for trademark infringement can be satisfied by a type of presale, temporary confusion about the source of goods or services that a purchaser is considering, even if that confusion may be resolved before the actual moment of sale. The doctrine developed to accommodate for the very different purchasing conditions of online shopping, as opposed to a brick-and-mortar shopping experience. The initial interest doctrine considers a scenario such as the following: an Internet user may type a search term into an Internet search engine, such as the hypothetical SHOOZ trademark mentioned above. The list of results or sponsored ads might include a link for BOOTZ’s website. While the user may be temporarily confused as to whether the BOOTZ offerings may be the same or affiliated with the source of SHOOZ goods (since presumably the user expects to see SHOOZ products in response to a search for SHOOZ), by the time the user clicks through to the website, browses the shoes on the website, and makes a purchase, the user is no longer under the mistaken belief that the BOOTZ high heels purchased actually come from SHOOZ Shoe Company. The First Circuit has yet to develop significant case law regarding the use of keywords as the basis for trademark infringement claims or the acceptance or rejection of the initial interest doctrine. The current leading case in Massachusetts, and a good guide to the original landscape of keyword case law, is a 6–78

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District of Massachusetts case, Hearts on Fire Co., LLC v. Blue Nile, Inc., 603 F. Supp. 2d 274 (D. Mass. 2009). In Hearts on Fire, the court considered whether Blue Nile’s purchase of its competitor’s “Hearts on Fire” trademark as a search keyword, and the use of the “Hearts on Fire” trademark in ad text and as a search term on Blue Nile’s own website, could form the basis of a claim for trademark infringement. The court decided that it could and set forth an “Internet-specific” analysis to determine whether there is a likelihood of confusion in these types of scenarios, in a decision denying Blue Nile’s motion to dismiss. Specifically, the court found that “likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context.” Factors relevant to this context include the following: • the overall mechanics of Web browsing and Internet navigation, in which a consumer can easily reverse course; • the mechanics of the specific consumer search at issue; • the content of the search results Web page that was displayed, including the content of the sponsored link itself; • downstream content on the defendant’s linked website likely to compound any confusion; • the Web savvy and sophistication of the plaintiff’s potential customers; • the specific context of a consumer who has deliberately searched for the trademark’s products only to find a sponsored link to a different party than the trademark owner; and, in light of the foregoing factors, • the duration of any resulting confusion. Hearts on Fire is still good law in Massachusetts and the First Circuit has yet to take on the issues of keywords and trademark infringement. However, the trend in cases that followed Hearts on Fire, both in Massachusetts and elsewhere, suggests that plaintiffs bringing claims of trademark infringement based on keyword use have a heavy burden to succeed in showing likely confusion. Specifically, the Ninth Circuit Court of Appeals in Network Automation, Inc. v. Advanced System Concepts, 638 F.3d 1137 (9th Cir. 2011) issued a forceful blow to both the initial interest doctrine and infringement claims based solely on keyword advertising. The Ninth Circuit emphasized the importance of returning to a full analysis of likelihood of confusion factors (and not a truncated or nuanced 3rd Edition 2016

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version crafted specifically for keywords) and reminding litigants that “mere diversion” is not enough to meet that burden. Other courts have followed suit, casting doubt on the viability of the initial interest doctrine as a way to show likely confusion in many jurisdictions. See 1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229 (10th Cir. 2013); Moving and Storage, Inc. v. Panayotov, Civ. Action No. 12-12262, 2014 U.S. Dist. LEXIS 31546 (D. Mass. Mar. 12, 2014); Dywer Instruments, Inc. v. Sensocon, Inc., 103 U.S.P.Q.2D 1444 (N.D. Ind. 2012). While brand owners continue to bring trademark claims that involve the use of trademarked terms in keyword advertising and metatags, the increasing trend is that these types of claims are unlikely to succeed.

§ 6.11.4 Social Networking and Media Another area of growing importance to brand owners is the world of social media, including networking services like Facebook, MySpace, and Twitter. As social networking providers that thrive on user-generated content and others grow, so do the potential challenges facing trademark owners in maintaining control over their brand. Mark owners may wish to promote their brand through a company social networking page and will also want to limit potentially infringing uses or misuses of its marks in the social media realm. The types of uses brand owners might object to include use of a trademarked term as a user name, use in applications or group pages, and use of a mark in social media that might disparage or dilute the mark. There is very little case law addressing the misuse of trademarks in social media. For the most part, disputes regarding user names and page content are handled according to the social media provider’s terms of use and complaint policies. If a mark owner encounters misuse of its mark on a social networking site, review the networking provider’s policies to determine the most efficient and effective way to resolve the potential issue with the provider. If that fails, consider whether the use may constitute trademark infringement, dilution, or false advertising and consider sending a demand letter or taking other steps to enforce the owner’s rights against the user.

§ 6.11.5 3D Printing and Trademarks The advent of 3D printing may soon revolutionize the manufacturing process. How will the law respond when anyone can make anything anywhere? Although 3D printing is still in its infancy, it is sure to gain wider popularity. About 56,000 3D printers priced less than $100,000 each were sold in 2013. President Obama 6–80

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embraced this technology, stating that 3D printing has the ability “to revolutionize the way we make almost everything.” Trademark owners are concerned that 3D printing will enable infringers to create exact copies of their products in an unregulated environment. Pirates can use 3D scanners to create a digital blueprint of the product’s design and then use a 3D printer to create the actual product. 3D printing has already become the subject of legal action by intellectual property owners. In a case now pending before the Federal Circuit, Clear Correct v. International Trade Commission, Dkt. No. 2014-1527 (Fed. Cir. 2015), the court will decide whether digital designs for orthodontic products made by a 3D printer are “articles” that are subject to the exclusion order by the International Trade Commission. The Federal Circuit’s decision may signal whether courts will interpret current law to stop pirates who misuse 3D printing in order to copy patented, trademarked, and copyrighted articles.

§ 6.11.6 The Lanham Act, Unfair Competition, and Intersections with Product Labeling and Promotion After the Supreme Court’s 2014 Term As summarized in § 6.7.4(c), above, the Lanham Act can give rise to actions for false or misleading advertising, false description, and false designation of origin or quality. Thus, Section 43(a) is a leading statute under which to consider whether product names, marks, and/or attendant labeling or promotion misleads consumers in material or damaging ways. In this way, Lanham Act considerations frequently overlap into related fields of concern, including Food and Drug Administration (FDA) regulatory review, as well as pharmaceutical labeling regulation and Federal Trade Commission oversight of promotions that may be “unfair” or “deceptive.” This circumstance of competing regulatory and statutory schemes for determining labeling requirements leads to the question of whether compliance with a regulatory framework (such as the FDA’s labeling guidelines) would inoculate manufacturers from unfair or deceptive advertising claims under the Lanham Act. In 2014, the U.S. Supreme Court answered this query, at least as it applied to product labeling in Pom Wonderful v. Coca-Cola, 134 S. Ct. 2228 (2014) (“Pom”). In the Pom case, the plaintiff contended that Coca-Cola’s competing juice product bore labeling that was deceptive and falsely advertised the contents of the product as consisting predominantly of pomegranate juice when, in reality, the majority of the juice was grape and apple with only a small percentage of 3rd Edition 2016

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pomegranate mixed in. Since there was virtually no pomegranate juice present in the Coca-Cola product, the plaintiff contended that Coca-Cola’s labeling constituted an act of unfair competition under Section 43(a) of the Lanham Act. Coca-Cola countered, however, by arguing that FDA and Food, Drug, and Cosmetic Act (FDCA) labeling regulations, which they had complied with, did not require any further specification. Since Coca-Cola had complied with all labeling requirements under federal law, Coca-Cola argued, the plaintiff was precluded from bringing Lanham Act claims of unfair competition based on the same labeling. The U.S. Supreme Court ultimately sided with Pom, suggesting that compliance with FDA and FDCA regulations (or other regulatory schemes that address product labeling) would not preclude claims under the Lanham Act. In reaching its conclusion, the Supreme Court (and Justice Kennedy) emphasized the complementary nature of the regulatory schemes and the Lanham Act and the importance of congressional design and intent in implementing both schemes: When two statutes complement each other, it would show disregard for the congressional design to hold that Congress nonetheless intended one federal statute to preclude the operation of the other. . . . [I]f Lanham Act claims were to be precluded then commercial interests—and indirectly the public at large— could be left with less effective protection in the food and beverage labeling realm than in many other, less regulated industries. Pom Wonderful v. Coca-Cola, 134 S. Ct. at 2238–39. Accordingly, after the Pom case, it is clear that producers of food, beverage, drug, and other consumables will need to carefully consider potential Lanham Act violations even if labeling meets other regulatory standards and approvals. Most commentators review the impact of the Pom case in the context of the Supreme Court’s earlier decision in Lexmark International v. Static Control Components, Inc., 134 S. Ct. 1377 (2014). In that case, the Supreme Court had to determine whether a party could bring false advertising claims under the Lanham Act against a business in a complementary industry that was not a direct competitor. Lexmark Int’l v. Static Control Components, Inc., 134 S. Ct. at 1384. In summary, Lexmark is a leading manufacturer of printers and printer cartridges. Lexmark Int’l v. Static Control Components, Inc., 134 S. Ct. at 1384. It initiated copyright infringement claims against Static Control Components (Static Control) on the basis that Static Control had illicitly disabled Lexmark’s microchip technology—which technology inhibited the refill or refurbishment of the 6–82

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cartridges by anyone other than Lexmark. In response, Static Control filed counterclaims against Lexmark under Section 43(a) of the Lanham Act, claiming that Lexmark’s advertising and related activities falsely misled consumers into thinking they were legally bound to seek refills or replacement cartridges from Lexmark. Static Control also averred that such activity had harmed Static Control’s reputation and that it had damaged sales of Static Control’s products. Lexmark contended that Static Control lacked standing to bring such claims since the parties were not direct competitors under 15 U.S.C. § 1125(a)(1)(B). Lexmark Int’l v. Static Control Components, Inc., 134 S. Ct. at 1384. The Supreme Court disagreed with Lexmark and held that any aggrieved party that could plead and prove injury to commercial interests “proximately caused by the defendant’s misrepresentations” could bring an action for unfair competition under the Lanham Act even if the plaintiff was not a direct competitor of the defendant. Lexmark Int’l v. Static Control Components, Inc., 134 S. Ct. at 1395. Prior to Lexmark, settled law suggested that only a “direct competitor” could initiate a claim under the Lanham Act. Accordingly, the Lexmark case suggests that the window for considering claims under the Lanham Act has been broadened, potentially allowing businesses in complementary (though not necessarily competitive) fields to challenge each other’s advertising, promotion, and commercial activities. Practice Note Taken together, the Pom and Lexmark decisions strongly suggest that commercial enterprises need to be more vigilant about self-policing promotional activities, including all labeling and advertising content. Previously, it was defensible to take the position that, provided the labeling was approved by appropriate regulatory bodies, the contents of labels likely would stand up to scrutiny under the Lanham Act. Practitioners could overlook minor areas of vagueness as forms of harmless puffery. However, in the wake of the 2014 pronouncements by the Supreme Court, consumer facing companies will certainly want labeling to be reviewed for potential deceptive content. Furthermore, because the Lexmark decision suggests that third parties who are not direct competitors may have standing to sue, the list of potential complainants has definitely grown, requiring a heightened level of vigilance. This heightened attention applies whether the products are food, drugs, toys, or other consumer products.

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§ 6.12

INTERNATIONAL TRADEMARK PROTECTION

By their nature, trademark rights are geographic in scope. A U.S. registration will not protect the client’s interests outside of U.S. borders. In fact, outside of the United States and a handful of Commonwealth countries, there is little or no recognition of common law rights or rights based on mere use of a mark. Accordingly, it behooves owners and their counsel to consider carefully the exposure of their brands outside of the United States and to pursue protections extraterritorially. In fact, as a practical matter, the only time clients should ignore pursuit of international protection and registration of marks is if there are no sales or interest in pursuit of sales in other countries. Practice Note Pursuing registration of rights outside the United States generally will involve filing in each country on a national basis. However, as summarized below, there are a variety of filing options available. To file in every country, for most businesses, is cost-prohibitive and, absent extraordinary circumstances, is generally not necessary. However, strategic filing should be undertaken in countries where the business has or intends to market goods or services, even if those efforts are potentially many years away.

§ 6.12.1 The Paris Convention and “Convention Priority” Practitioners seeking to guide clients in the protection of marks outside the United States should have some facility with the various treaties and registration systems that enable pursuit of such rights by U.S. citizens. These are the Paris Convention of 1883, the Madrid Agreement and Protocol, and the Community Trade Mark system. For purposes of international protection, the Paris Convention created the concept of “national treatment,” which provides that, with respect to intellectual property rights, a national of any signatory country to the treaty is accorded the same protections in other signatory countries as it might enjoy in the national’s home country. The most often used aspect of this cross protection scheme is the concept of “convention priority”—which allows applicants in one signatory country to file the identical mark in other signatory countries, and receive the home country filing date for that application, provided that the foreign applications are filed within six months of the home country filing.

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As a practical matter, claiming “convention priority” is relatively easy. Normally, evidence of the underlying application in the way of mark, serial number, and filing date should be given to foreign counsel prosecuting convention applications. Typically, certified copies of the application must be provided to local offices. Practice Note The Convention Priority filings are only valid if the underlying application is the first filed application for the applied-for goods and services that has not been abandoned or withdrawn before publication. You cannot claim convention priority on a subsequent or duplicate filing if there is an earlier filing that passed publication. (Paris Convention, art. 4).

§ 6.12.2 Madrid Protocol and Madrid Agreement The World Intellectual Property Organization administers the “Madrid System” for the international protection of trademarks. The Madrid System consists of two registration systems, the “Madrid Agreement” and the “Madrid Protocol.” Each of the Agreement and the Protocol are adhered to by signatory countries. Many countries are signatories to both the Agreement and the Protocol. The United States is a signatory to the Protocol only, so U.S. citizens may only take advantage of the Protocol. Under the Madrid Protocol, an application for international registration can be based on a pending trademark application filed in a “country of origin.”

(a)

Advantages

Heralded as a great time and resource saver, the system allows applicants to file a single application and designate member countries in which protection is sought. An international mark registration acquired through the system is equivalent to an application or a registration of the same mark effected directly in each of the countries designated by the applicant. If the trademark office of a designated country does not refuse protection within a specified period, the protection of the mark is the same as if it had been registered by the home country office. A registration through the Madrid System also simplifies the maintenance of the mark, since it is possible to record subsequent changes or to renew the registration through a single procedural step. Another advantage of using the Madrid System is that a failure of the application in any designated country does not “harm” the remaining designations. 3rd Edition 2016

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Disadvantages

For U.S. brand owners, there can be disadvantages to using the Madrid System. In particular, it is important to understand that the scope of any filings obtained through Madrid will be identical to the scope of the underlying U.S. case. Because U.S. law requires that an owner prove that the mark is in use before a registration can issue, this usually requires that the U.S. specification be narrowly tailored. Accordingly, if the U.S. application and registration are the basis for the Madrid filing, the same narrow scope will be carried over into the applicant’s international portfolio. In contrast, national filings outside the United States that are not done through Madrid will not be tied to the U.S. specification and can be broadened to ensure that the client obtains the broadest possible protection. This can be especially useful in gaining or maintaining competitive advantage with other brand holders across the world (who are not tied to the rigidity of the U.S. system). Another disadvantage of the Madrid System for U.S. mark owners comes when using the system to obtain convention priority (as described above). Importantly, under Madrid, if the home country application fails for any reason, then the applications in each of the designated countries also will fail. Hence, if there is a possibility that the U.S. case will be refused, or for whatever reason, never mature to registration, then using the Madrid System to obtain priority filings can be a dangerous and expensive enterprise when the follow-on filings fail. This is because typically, at the time you file your priority filings, the U.S. case has not been fully examined. Applicants may not know whether the application will survive.

§ 6.12.3 Community Trade Mark The Community Trade Mark (CTM) is a product of the Office of Harmonization for the Internal Market (OHIM) based in Alicante, Spain. It is the office that registers trademarks enforceable throughout the European Community. To take advantage of the system, the applicant need only file a single application and obtain a single registration. The registration is enforceable in each jurisdiction throughout the European Union (EU), and the rights will expand as the EU expands. The registration is good for ten years but is subject to challenge if, five years after registration, the mark is not used in at least one EU jurisdiction.

(a)

Advantages

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filing individual, national applications. Furthermore, the maintenance of the registration is simple and less expensive, since there is only one registration to maintain. Finally, unlike under the Madrid System, there is no risk imposed by basing the application on an underlying application that may fail and thereby cause the CTM to fail. Furthermore, a U.S. brand owner might file a CTM application and make a claim of convention priority under the Paris Convention and maintain that basis even if the U.S. application ultimately fails.

(b)

Disadvantages

The disadvantages of the Community Trade Mark are that if the application is subject to a successful opposition from a national of any EU member state, then the entire registration fails in all countries and the applicant must start over with national filings. However, if the applicant pursues those national filings within a prescribed time period after refusal of the CTM, then the applicant can maintain its original filing date.

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EXHIBIT 6A—Glossary of Trademark-Related Concepts The Fundamental Terms Trademark: According to the Lanham Act, a trademark is any word, term, name, symbol, or device, or any combination thereof that, when used on or in connection with the goods or services of a person, identifies a unique source of said goods. 15 U.S.C. § 1127. The above definition, which comes from the U.S. Federal Law of trademarks, the Lanham Act, is a good functional definition of the word regardless of whether the analysis is undertaken under U.S. federal law or not. Colors, combinations thereof, sounds, scents, and moving images may all function as trademarks. Sometimes it is helpful to define terms by what they are not. Trademarks are not trade names or business names, although these rights can overlap (see below). So too, trademarks are distinguished from copyrights, which generally protect original, creative expression. Trademarks serve the unique purpose of identifying for consumers the source of a product or service. Service Mark: A service mark is merely a form or subset of trademark that is used to identify services (as opposed to goods). Certification Mark: In U.S. federal trademark practice, a certification mark is a word, name, symbol, or device, or any combination thereof used by a person other than its owner to certify regional or other place of origin, material, mode of manufacture, quality, accuracy, or other characteristics of such person’s goods or services or that the work or labor on the goods or services was performed by members of a union or other organization. Importantly, Certification Marks differ from trademarks in two very significant ways. First, they cannot be used by their owners themselves, but, strictly speaking, are the subject of licenses from the “certification” owner (such as, for example, Underwriters Laboratories). Secondly, unlike traditional trademarks, certification marks do not identify a single source of goods and services, but instead a single quality of origin. Certification marks can be registered with the U.S. Patent and Trademark Office, but a great deal of care should be exercised in pursuing such rights since the strictures on quality and use only by third parties are very demanding. Trademark owners often misapprehend a certification mark registration as something that a manufacturer should acquire to use when it “certifies” (for example) that third-party products are compatible with its products. However, while such certification is certainly cognizable by the definition above, clients often are surprised 3rd Edition 2016

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to learn that they themselves are not permitted to use the mark (perhaps other than to promote the certification program that comes from them). Furthermore, clients often are not prepared to maintain strict standards over the course of years. In fact, “certification marks” generally are the purview of standards organizations such as Underwriters Laboratories or Good Housekeeping, which companies make it their business to generate standards for third-party usage. Collective Membership Mark: A Collective Membership Mark is a form of trademark or service mark that simply identifies that the user is part of a discreet group of users or part of a cognizable group. Similar to a Certification Mark, which certifies the quality of a specific item to which it is applied, a Collective Membership mark communicates that the user is part of a specific, identified group. Trade Name: A trade name or business name is simply the name under which a company trades, signs checks, and enters contracts. That name may or may not be similar or identical to one of the company’s trademarks or service marks. The difference between the rights associated with a trade name and a trademark can be significant, however. Rights in trademarks, as will be elaborated on below, are predicated on their use publicly, in commerce associated with products or services. Business names or trade names that appear on contracts, letterhead, and invoices may or may not reach the hallmark of “use” sufficient to provide trademark rights. This lack of trademark significance can become important in the context of priority disputes in the event one party only can produce evidence of trade name usage, while the second party may have be able to proffer evidence of trademark use. However, certain protections do inure to trade names under state law (business name registration regulations and statutes). In addition, most businesses use their trade names as trademarks. Hence, when used as trademarks, they are protectable as such. Trade Dress: The overall “look and feel” created by combination(s) of brand(s), color(s), and/or design(s), used consistently in connection with goods or services, or a unique product configuration. In general, trade dress is only protectable (under trademark theories) if it is inherently distinctive, or when it has been used for an appreciable period of time so that consumers begin to associate the style of the trade dress with a particular source. Examples of protectable trade dress include the Coca Cola bottle shape and the outside décor of McDonald’s restaurants.

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Spain. A CTM registration provides the owner with exclusive rights in the countries of the European Union. Cybersquatter: One who registers (and/or uses) a second-level domain name that is identical to, or confusingly similar to the trademark of another in “bad faith” (e.g., without having any legitimate basis for ownership of the domain name and/or with an intent to sell the domain name to the trademark owner). Domain Name: Strings of letters used to name organizations and computers and addresses on the Internet. Generally, domain names consist of “top-level” and second-level” domains. Intent-to-Use (ITU) Trademark Application: Application filed with the Patent and Trademark Office claiming a bona fide intent to use the mark identified in the application. This type of application is filed when use has not commenced, but is intended. Keyword: An index term, subject term, or descriptor, which, when used with an Internet search engine, can be used to identify subject matter linked to said descriptor (or keyword). The Google® AdWords program is one form of Internet keyword indexing and retrieval that allows advertisers to purchase or bid on keywords (or “AdWords”) in order to boost search engine results. Principal Register: The primary trademark register of the U.S. Patent and Trademark Office. When a mark has been registered on the Principal Register, the mark is entitled to all the rights provided by the Trademark Act. Only distinctive marks are granted registration on the Principal Register. Second-Level Domain: In a URL, everything between the first and second period or dot (moving from right to left). E.g., Lionking.DISNEY.com (DISNEY is the second-level domain). Secondary Meaning: With respect to trademarks, the ability of a mark to connote to the consumer the source of goods and services rather than a feature or function of the product itself. Marks that are otherwise “merely descriptive” of the nature of the goods or services may acquire “secondary meaning” over time, with extensive use and advertising. Examples of marks that have acquired secondary meaning are “Bed and Bath,” “eToys,” and “Home Depot.” Specification: A portion of a patent or patent application that describes and exemplifies the subject invention. Typically, it contains a background section, summary of the invention, detailed description, examples, and drawings (when appropriate). U.S. patent law requires that the specification provide sufficient

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description and detail to support patent claims. Often, the originally filed specification and claims are deemed the “disclosure.” Supplemental Register: The secondary trademark register for the PTO. It allows for registration of certain marks that are not eligible for registration on the Principal Register (due to inherent distinctiveness issues), but are capable of distinguishing an applicant’s goods or services. Marks registered on the Supplemental Register receive protection from conflicting marks and other protections, but are excluded from receiving the advantages of certain sections of the Trademark Act of 1946. Top-Level Domain (TLD): Everything to the right of the last period or “dot,” e.g., com, net, org, edu, biz, info, pro, etc. URL—Universal Resource Locator: The entire “Internet address” of specific content available on the Web. Consists of the entire Web address (not merely the domain name). For example, in the address http://www.lionking.disney.com/ index.htm, “http” is the protocol, “lionking” is the subdomain, “disney.com” is the domain name, and “/index.htm” is the folder/file.

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EXHIBIT 6B—Trademark-Related Resources General Trademark Books and Treatises Kane on Trademark Law: A Practitioner’s Guide, 5th ed., Siegrun D. Kane, Practising Law Institute, 2010. McCarthy on Trademarks and Unfair Competition, 4th ed., J. Thomas McCarthy, Thomson Reuters/West, 2010. Practitioner’s Trademark Manual of Examining Procedure, 2011, 1st ed., James E. Hawes & Amanda V. Dwight, Thomson Reuters/West, 2010. Trademark Registration Practice, James E. Hawes & Amanda V. Dwight, Thomson Reuters/West, 2010.

Internet Law-Related Topics, Including Domain Names Internet Law: A Field Guide, 6th ed., Jonathan D. Hart, BNA Books, 2008. Law of the Internet, 3rd ed., George B. Delta & Jeffrey H. Matsuura, Aspen Publishers, 2011. McGrady on Domain Names: A Global Guide to Disputes, Registration and Maintenance, Paul D. McGrady, Jr., Mathew Bender, 2007.

Other Treatises Intellectual Property Due Diligence in Corporate Transactions: Investment, Risk Assessment and Management, Lisa M. Brownlee, Thomson Reuters/West, 2010.

Associations American Intellectual Property Law Association: http://www.aipla.org/Pages/default.aspx International AntiCounterfeiting Coalition: http://www.iacc.org/ International Trademark Association: http://www.inta.org/Pages/Home.aspx 3rd Edition 2016

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Web Sites/Blogs Eric Goldman, Technology & Marketing Law Blog: http://blog.ericgoldman.org/ TTAB Blog, by John L. Welch: http://thettablog.blogspot.com/ The Trademark Blog, by Martin Schwimmer: http://www.schwimmerlegal.com/ The U.S. PTO website: http://www.uspto.gov/trademarks/index.jsp

Trademark Research Services Thomson CompuMark: http://compumark.thomson.com/ Corporation Service Company: https://www.cscglobal.com/global/web/csc/trademark-searching.html CT Corsearch: https://www.corsearch.com/#HM

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EXHIBIT 6C—Trademark Request Form (Internal/Corporate) Proposed New Mark:

(If a stylized version, please attach jpeg version in both black/white and color (if available) Used on or intended for use with: (provide general description of product or service with which the mark will be used; if use will be on existing product [as an added feature, for example], please identify product and describe functionality)

New mark appears, or will be used on the following items, collateral (check all that apply): ___Product packaging (this could include in product user manuals, even if only electronic) ___On company external website in connection with product promotion ___On company external website in connection with product download ___At trade show/conference or seminar (list name of conference and date)

___Other advertising (magazine, trade pub, newspaper, on other company websites including affiliates, partners or in web advertising) (list where and when it will start, if known):

___Other Marketing Collateral: (check all that apply and note any others now known) ___T-Shirts Binders/Pads Bags/totes ___Stickers Pens/Pencils Food/candy ___Mugs/Glasses Thumb/Jump Drives Coasters/bar ware 3rd Edition 2016

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___Mouse pads Other: If you have done any research on the availability of the mark, please describe (e.g., Internet, USPTO website), etc.

What potentially conflicting marks, URLs or other citations are you already aware of:

Please list any known competitors or competitive products:

Identify how proposed mark was thought of (e.g., brainstorming session; outside consultant; etc.)

Identify scope of search to be done: (e.g., U.S; global, etc. Leave blank if you are unsure)

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EXHIBIT 6D—New Trademark Application Filing Checklist Applicant Name Mark Words/Literal Element Design description Claim to color or stylized form Disclaimer? Applicant Address Applicant type of business entity, if any (or individual?) Applicant business state of incorporation or organization, if any (if individual—country of citizenship) Partners (name/citizenship) (if applicable) Description of Goods/Services (by class, if known) Filing basis If in use, date of first use of the mark anywhere for listed goods/services If in use, date of first use of the mark in commerce for listed goods/services Meaning in Foreign Language Signatory Name and Position

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Signature Type (signature by client/by attorney or file unsigned) Comments/Special Instructions

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CHAPTER 7

Copyright Law William S. Strong, Esq. Kotin, Crabtree & Strong LLP, Boston § 7.1

Introduction: Overview of Copyright Law ........................ 7–1 § 7.1.1

Copyright Protection ............................................. 7–1

§ 7.1.2

The Copyright Owner ........................................... 7–2

§ 7.1.3

When Does Copyright Protection Begin? ............. 7–2

§ 7.1.4

When Does Copyright Protection End? ................ 7–2

§ 7.1.5

Rights of a Copyright Owner ................................ 7–2

§ 7.1.6

What May Be Copyrighted?.................................. 7–3

§ 7.1.7

The Purpose of Copyright Law ............................. 7–3

§ 7.1.8

Sources of Copyright Law..................................... 7–4

§ 7.1.9

Federal Preemption of State Law .......................... 7–4 (a)

“Equivalent” Rights and the “Extra Element” in Preemption Cases ..................... 7–4

§ 7.1.10 International Copyright Treaties............................ 7–5 (a) § 7.2

National Treatment....................................... 7–5

Copyrightable Versus Noncopyrightable Subject Matter ................................................................................... 7–6 § 7.2.1

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What Is Copyrightable?......................................... 7–6 (a)

Originality: A Low Threshold ...................... 7–6

(b)

Fixation ........................................................ 7–7

(c)

Which Types of Works Are Entitled to Copyright Protection? .............................. 7–8

(d)

Compilation and Collective Works .............. 7–9

(e)

Derivative Works .........................................7–10 7–i

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§ 7.2.2

§ 7.3

Names, Titles, Slogans, and Short Phrases ........................................ 7–11

(b)

Useful Articles ............................................ 7–11

(c)

Systems and Methods of Operation ............ 7–12

(d)

Facts ............................................................ 7–14

§ 7.3.1

General Rule: The Creative Party Owns the Copyright ....................................................... 7–15

§ 7.3.2

Works Made for Hire ........................................... 7–16

§ 7.3.4

(a)

Who Is an “Employee”? ............................. 7–16

(b)

Commissioned Works ................................. 7–17

(c)

The Relevance of Classifying a Work as Made for Hire ......................................... 7–18

Joint Authors ........................................................ 7–18 (a)

Key Factors for a Joint Work ...................... 7–18

(b)

All Joint Authors Share Equally ................. 7–19

(c)

Limitations on Joint Authors....................... 7–19

Government-Authored Works .............................. 7–19

Duration of Copyright ........................................................ 7–20 § 7.4.1

Works Created on or After January 1, 1978 ......... 7–20

§ 7.4.2

Works Made for Hire ........................................... 7–20

§ 7.4.3

Anonymous or Pseudonymous Works ................. 7–20

§ 7.4.4

Works Created Before January 1, 1978................ 7–21

§ 7.4.5

7–ii

(a)

Who Owns the Copyright? ................................................. 7–15

§ 7.3.3

§ 7.4

What Is Not Copyrightable? ................................ 7–11

(a)

Works Created Before 1978 But Published in 1978 or Later .......................... 7–21

(b)

Works Created and Published Before 1978 ................................................ 7–21

December 31 Rule................................................ 7–22

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§ 7.5

§ 7.4.6

Public Domain at Expiration of Copyright Period ...................................................................7–22

§ 7.4.7

Exception for Foreign Works ...............................7–22

§ 7.4.8

Summary of Above...............................................7–23

Obtaining a Copyright; Registration and Notice .............7–24 § 7.5.1

Copyright Is Automatic ........................................7–24

§ 7.5.2

The Advantages of Federal Registration ..............7–25

§ 7.5.3

Mechanics of Registration....................................7–26 (a)

§ 7.5.4

Mandatory Deposit ...............................................7–27

§ 7.5.5

Copyright Notice ..................................................7–27 (a)

§ 7.5.6

§ 7.6

Effective Date of Registration .....................7–27

Notice Still Advisable .................................7–27

Form of Notice .....................................................7–27 (a)

Notice on Phonorecords ..............................7–28

(b)

Where Should the Notice Be Placed? .........7–28

Rights of a Copyright Owner .............................................7–29 § 7.6.1

Exclusive Rights and Their Limitations ...............7–29

§ 7.6.2

Reproduction Right ..............................................7–30 (a)

Limitations on the Reproduction Right .......7–30

§ 7.6.3

Derivative Work Right ..........................................7–33

§ 7.6.4

Distribution Right.................................................7–33

§ 7.6.5

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(a)

Right to Distribute or Not Distribute...........7–33

(b)

Preventing Importation................................7–34

(c)

Limitations on the Distribution Right: The “First Sale” Doctrine ............................7–34

Public Performance Right ....................................7–35 (a)

Exclusive Right Relates to Public Performances Only......................................7–35

(b)

Limitations on the Owner’s Performance Right ......................................7–36 7–iii

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§ 7.6.6

§ 7.6.7

§ 7.7

7–iv

Public Display Right ............................................ 7–37 (a)

Framing and Inline Linking Are Not Infringing Public Displays .......................... 7–37

(b)

Limitations on the Public Display Right .............................................. 7–38

“Moral Rights” for Works of Visual Art............... 7–38 (a)

Moral Rights Are Noneconomic Rights...... 7–38

(b)

The Visual Artists Rights Act ...................... 7–39

Transferring a Copyright and Terminating the Transfer ......................................................................... 7–40 § 7.7.1

Rights Transferable in Whole or in Part ............... 7–40

§ 7.7.2

What Is a Transfer? .............................................. 7–41

§ 7.7.3

How May Copyrights Be Transferred? ................ 7–41 (a)

No Writing Necessary for Nonexclusive Licenses ...................................................... 7–41

(b)

Contributions to Collective Works Such as Periodicals ..................................... 7–42

(c)

Does the Written Instrument Transferring Copyright Need to Meet Any Specific Requirements? ............................................ 7–42

(d)

Can Cashing a Check from the Proposed Assignee Constitute a Valid Assignment? ... 7–43

(e)

Duration ...................................................... 7–43

(f)

Should Copyright Transfers Be Recorded in the Copyright Office?.............................. 7–43

(g)

Mechanics for Recording a Copyright Transfer ....................................................... 7–44

(h)

Conflicts Between Transferees ................... 7–44

(i)

New Media .................................................. 7–44

(j)

Assignments and Licenses of Copyright May Be Terminated as a Matter of Law, Regardless of Contract ................................ 7–46 3rd Edition 2016

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§ 7.8

Litigation of Copyright Infringement and Claims Under Other Laws...............................................................7–47 § 7.8.1

Where to Sue? Subject Matter Jurisdiction ..........7–47 (a)

Federal Courts . . . Usually..........................7–47

(b)

Diversity Jurisdiction ..................................7–48

§ 7.8.2

Federal Jurisdiction: Copyright Infringement ......7–48

§ 7.8.3

Federal Jurisdiction: Interpretation of the Copyright Act .............................................7–49

§ 7.8.4

Personal Jurisdiction ............................................7–49

§ 7.8.5

Venue ....................................................................7–49

§ 7.8.6

Suits Against the Government ..............................7–49

§ 7.8.7

State Government Immunity from Suit ................7–50

§ 7.8.8

International Issues...............................................7–50

§ 7.8.9

(a)

Governing Law............................................7–50

(b)

The Yellow Submarine Case: Authorization to Infringe Overseas Not a Violation of the U.S. Copyright Act............................7–50

Who May Sue? .....................................................7–51 (a)

Copyright Owner and Exclusive Licensee ..7–51

(b)

Assignment and Prior Infringement Claims .........................................................7–51

§ 7.8.10 Statute of Limitations ...........................................7–51 (a)

When Does the Claim Accrue? ...................7–51

(b)

Each Infringement Is a Distinct Injury ........7–52

§ 7.8.11 Civil Copyright Infringement Complaint .............7–52 § 7.9

Civil Copyright Infringement: Direct, Contributory, and Vicarious Infringers .....................................................7–53 § 7.9.1

Who Is Liable? .....................................................7–53

§ 7.9.2

Direct Infringers ...................................................7–53

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§ 7.9.3

Liability for the Infringement of Others— Vicarious Infringement and Contributory Infringement......................................................... 7–54

§ 7.9.4

Elements of Contributory Infringement ............... 7–54

§ 7.9.5

§ 7.9.6

§ 7.10

(a)

Knowledge: Actual or Constructive ............ 7–54

(b)

Material Contribution to the Infringement...................................... 7–55

Limit on Contributory Infringement: The “Staple Article of Commerce” Theory ................. 7–56 (a)

The Betamax Case ...................................... 7–56

(b)

Requirement of Direct Infringement........... 7–57

Elements of Vicarious Infringement .................... 7–58 (a)

Supervision ................................................. 7–58

(b)

Financial Interest......................................... 7–59

(c)

Personal Liability of Corporate Officers ..... 7–59

What Is Copyright Infringement? ..................................... 7–60 § 7.10.1 Elements of an Infringement Claim ..................... 7–60 (a)

Plagiarism Is Not the Same as Infringement ........................................... 7–60

§ 7.10.2 Ownership: The First Element of Infringement .................................................... 7–60 § 7.10.3 Copying: The Second Element of Infringement .................................................... 7–61

§ 7.11

(a)

How Does a Plaintiff Show Copying? ........ 7–61

(b)

First Element of Copying: Opportunity to Access Plaintiff’s Work........................... 7–61

(c)

Second Element: Copying of Copyrightable Elements ......................... 7–63

(d)

Substantial Similarity.................................. 7–64

Defenses to Copyright Infringement ................................. 7–69 § 7.11.1 Fair Use ................................................................ 7–69

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(a)

History of Fair Use ......................................7–70

(b)

Purpose of the Doctrine...............................7–70

(c)

Fair Use as Codified ....................................7–70

(d)

Fair Use Factors Not Exclusive . . . Supposedly ..................................................7–71

(e)

No Single Fair Use Factor Is Decisive ........7–71

(f)

Fair Use Is an Affirmative Defense .............7–72

(g)

Case-by-Case ..............................................7–73

(h)

The First Fair Use Factor: The Purpose and Character of the Use .............................7–73

(i)

The Second Fair Use Factor: Nature of the Copyrighted Work .............................7–80

(j)

Third Fair Use Factor: Amount and Substantiality of the Portion Used ..............7–81

(k)

The Fourth Fair Use Factor: Effect on the Potential Market for, or the Value of the Copyrighted Work .............................7–82

§ 7.11.2 Copyright Misuse .................................................7–84 (a)

Misuse Is Not Limited to Antitrust Violations ....................................................7–84

(b)

Examples of Copyright Misuse ...................7–85

§ 7.11.3 Fraud on the Copyright Office .............................7–86 § 7.12

Plaintiff’s Remedies for Infringement ...............................7–86 § 7.12.1 Monetary Damages ..............................................7–86 (a)

No Double Counting ...................................7–87

(b)

Statutory Damages ......................................7–87

(c)

Increase for Willfulness...............................7–88

(d)

Decrease for Innocent Infringement............7–88

(e)

Statutory Damages Only Permitted for Timely Registered Works ......................7–89

§ 7.12.2 Injunctions ............................................................7–89 3rd Edition 2016

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(a)

Permanent Injunctions ................................ 7–90

(b)

Relief in Claims Against Federal Entities ... 7–90

§ 7.12.3 Impoundment, Recall Orders, and Destruction .... 7–90 (a)

Impoundment .............................................. 7–90

(b)

Recall Orders .............................................. 7–90

(c)

Destruction or Other Disposition of Infringing Articles and Means of Production .............................................. 7–90

§ 7.12.4 Attorney Fees ....................................................... 7–91 § 7.13

Protecting Copyright Management Systems: Anticircumvention .............................................................. 7–91 § 7.13.1 Summary of Anticircumvention Provisions ......... 7–91 § 7.13.2 What Are Technological Measures?..................... 7–92 (a)

Example of Encryption ............................... 7–92

(b)

The Streambox “Secret Handshake” Case: Example of Equipment that Facilitates Circumvention ........................... 7–93

§ 7.13.3 Permitted Circumvention ..................................... 7–93 § 7.13.4 Classes of Exempted Works ................................. 7–93 § 7.13.5 Copyright Management Information ................... 7–95 § 7.14

Liability for Online Copyright Infringement ................... 7–95 § 7.14.1 Background .......................................................... 7–95 § 7.14.2 Summary of Section 512 Safe Harbor ................. 7–95 (a)

Who Is an ISP? ........................................... 7–96

(b)

What Steps Must an ISP Take to Benefit from the Safe Harbor?................................. 7–96

(c)

Safe Harbor for Linking to Infringing Sites............................................................. 7–99

§ 7.14.3 Special Consideration for Nonprofit Universities .......................................................... 7–99 § 7.15 7–viii

Criminal Copyright Infringement ..................................... 7–99 3rd Edition 2016

COPYRIGHT LAW

§ 7.15.1 Elements of Criminal Copyright Infringement ....7–99 § 7.15.2 Willfulness .........................................................7–100 § 7.15.3 Only Two Exclusive Rights May Form Basis of Felony ............................................................7–100 § 7.15.4 Tampering with Copyright Notices ....................7–101 (a) § 7.16

Penalties ....................................................7–101

Building a Copyright Protection Plan .............................7–101

EXHIBIT 7A—Online Resources for Copyright Law .................7–103 EXHIBIT 7B—U.S. Copyright Office Information Circulars and Form Letters .............................................................................7–107 EXHIBIT 7C—Assignment of Copyrights ....................................7–113

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CHAPTER 7

Copyright Law* William S. Strong, Esq. Kotin, Crabtree & Strong LLP, Boston

Scope Note This chapter provides basic, practical information regarding copyright law. Beginning with an overview, the chapter then addresses what is copyrightable, as well as ownership considerations. It provides insight into copyright transfer, protection, and enforcement.

§ 7.1

INTRODUCTION: OVERVIEW OF COPYRIGHT LAW

§ 7.1.1

Copyright Protection

Copyright protects literary, musical, dramatic, choreographic, pictorial, graphic and sculptural works, motion pictures and other audiovisual works, sound recordings, and architectural works. All such works are protected exclusively by federal law, with the exception that sound recordings of U.S. origin that were fixed before February 15, 1972, continue to be protected by any applicable state copyright laws and not by federal law. 17 U.S.C. § 301(c). Federal copyright gives authors the rights listed in § 7.1.5, below.

*

This chapter began life as A Practical Guide to Copyright Law in the Digital Age (MCLE, Inc. 2002) by David Mirchin. It was revised by Mr. Mirchin in 2004 for use as a chapter in Intellectual Property Practice. For the 2011 and 2016 Editions of Intellectual Property Practice, it has been substantially “recast, transformed, and adapted,” and updated, by Mr. Strong. Revision © 2015 William S. Strong. All rights reserved.

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§ 7.1

INTELLECTUAL PROPERTY PRACTICE

§ 7.1.2

The Copyright Owner

The author or authors of a work are the original copyright owners of that work. 17 U.S.C. § 201(a). See § 7.3, Who Owns the Copyright?, below. If an employee creates the work within the scope of his or her employment, the employer is considered the “author” and the work is called a “work made for hire.” 17 U.S.C. § 201(b). See § 7.3.2, below. The author of a copyrighted work may transfer his or her copyright. 17 U.S.C. § 201(d). See § 7.7, Transferring a Copyright and Terminating the Transfer, below. The author may transfer all of his or her rights, or may transfer only some of these rights. 17 U.S.C. § 201(d)(1).

§ 7.1.3

When Does Copyright Protection Begin?

Copyright exists in a work from the time of its creation. 17 U.S.C. § 302(a). A work is created when it is “fixed” in a tangible medium by which it can be seen or heard, either directly or with the aid of a machine or device. See § 7.2.1(b), Fixation, below, for the “fixation” requirement. Notice—meaning the familiar “© [Date][Name]”—is not required, see § 7.5.5, Copyright Notice, below, nor is registration with the U.S. Copyright Office. In other words, copyright is automatic and does not depend on compliance with any statutory procedures. This was not always so. Prior to January 1, 1978, common law copyright under state law protected unpublished works; upon publication, a work became subject to federal copyright by registration or by publication with proper notice (e.g., © 1970 John Q. Smith) or it lost its copyright for failure to comply with these formalities.

§ 7.1.4

When Does Copyright Protection End?

The benchmark copyright term is the life of the author plus seventy years. 17 U.S.C. § 302. However, there are many variants depending on the identity of the author. See § 7.4, Duration of Copyright, below.

§ 7.1.5

Rights of a Copyright Owner

Subject to certain limitations (such as the user’s privilege to make “fair use” of a work), the owner of a copyright has the exclusive right to do or authorize the following: • reproduce the work, 7–2

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§ 7.1

• make derivative works, • distribute copies of the work, • perform the work publicly, and • display the work publicly. 17 U.S.C. § 106.

§ 7.1.6

What May Be Copyrighted?

To be eligible for copyright protection, the work must be • original and • fixed in a tangible medium of expression. 17 U.S.C. § 102(a). See § 7.2, Copyrightable Versus Noncopyrightable Subject Matter, below. An important maxim is that “copyright law does not protect ideas, but only the expression of those ideas in a tangible form.” See § 7.2.1(c), Which Types of Works Are Entitled to Copyright Protection?, below.

§ 7.1.7

The Purpose of Copyright Law

The purpose of copyright law is to benefit the public. This is accomplished, according to the framers of the Constitution, by providing limited protections to authors, so as to “promote the progress of science and the useful arts.” U.S. Const., art. I, § 8, cl. 8. What the law protects are original works of authorship only. 17 U.S.C. § 102(a). To this end, copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work. Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 556–57 (1985). Copyright law is not intended to protect authors for their own sake. It is premised on the idea that by protecting creations of authors, the public benefits. If there were no benefits for authors, there would be fewer works of authorship. Copyright law, therefore, is a balance. It protects certain rights of authors and only for a certain amount of time. The public also has certain privileges, however. The most prominent privilege is the ability to make “fair use” of a work. See

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§ 7.1

INTELLECTUAL PROPERTY PRACTICE

§ 7.11.1, Fair Use, below. In addition, after a certain amount of time, works no longer have copyright protection and become part of the public domain.

§ 7.1.8

Sources of Copyright Law

The protection of original works of authorship finds its roots in the U.S. Constitution, which states: “The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S. Const., art. I, § 8, cl. 8. This Copyright Clause in the Constitution authorizes Congress to enact copyright legislation. The first statute to provide copyright protection, enacted in 1790, protected only maps, charts, and books. The Copyright Act of 1909 broadened available copyright protection. This act was replaced by the Copyright Act of 1976, which took effect on January 1, 1978, and (as amended since) is the current copyright law. This law can be found in Title 17 of the United States Code. 17 U.S.C. §§ 101–1332. Exhibit 7A lists some useful Internet sites for copyright information, including the U.S. Copyright Office website, which links to the Copyright Act at http://www.copyright.gov/ title17. Exhibit 7B lists the information circulars published by the U.S. Copyright Office. Note that all references throughout this chapter to a certain section of the Copyright Act are in Title 17.

§ 7.1.9

Federal Preemption of State Law

One of the most important aspects of the Copyright Act of 1976 is that it established federal preemption over state law. 17 U.S.C. § 301. In practice, all U.S. copyright law is now federal (except, as noted above, for pre-1972 sound recordings). The Copyright Act states that “all legal or equitable rights that are equivalent to any of the exclusive rights” are governed exclusively by the Copyright Act. 17 U.S.C. § 301(a). Courts look to whether the state law comes within “the subject matter of copyright.” 17 U.S.C. § 301.

(a)

“Equivalent” Rights and the “Extra Element” in Preemption Cases

The key question in preemption cases is whether the state rights are “equivalent” to the federal copyright rights, and are therefore preempted. In order to avoid preemption, a state law cause of action must include an “extra element” in addition to the wrong that comes from unauthorized reproduction, distribution, etc., of the plaintiff’s work. For example, a claim of trade secret infringement will not be preempted even though the wrong may include unauthorized 7–4

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§ 7.1

copying or distribution of copyrighted material; the violation of the express or implied contract of confidentiality is an “extra element” that avoids preemption. See, e.g., Tingley Sys., Inc. v. CSC Consulting, Inc., 152 F. Supp. 2d 95, 104 (D. Mass. 2001); RBM Techs., Inc. v. Lash, Civ. A. No. 04-10062-GAO, 2004 U.S. Dist. LEXIS 15963, at *3–4 (D. Mass. Aug. 13, 2004). Contract claims are also generally not preempted. In ProCD, Inc. v. Zeidenberg (Pro CD II), 86 F.3d 1447 (7th Cir. 1996), Judge Easterbrook proclaimed sweepingly that contract rights are not equivalent to any of the exclusive copyright rights. He distinguished copyrights, which are “rights against the world” and contracts, “which generally affect only their parties; strangers may do as they please, so contracts do not create ‘exclusive rights.’” Thus, contracts may impose restrictions that go beyond what the copyright law by itself might permit. Bowers v. Baystate Techs., Inc., 320 F.3d 1317 (Fed. Cir. 2003). Note that only state law claims are subject to preemption. A federal law claim may overlap with copyright but remain valid.

§ 7.1.10 International Copyright Treaties There is no centralized authority or uniform procedure for securing copyright protection throughout the world. Several international treaties, however, do allow for protection of works created by authors of member countries. The most important of these is the Berne Convention. All leading economic powers are now members of the Berne Convention. As of June 30, 2010, 164 countries had signed the Berne Convention. The Convention has been amended a number of times, most recently in 1971. The text is available at http://www.law.cornell.edu/ treaties/berne/overview.html.

(a)

National Treatment

A key concept of the Berne Convention is that it provides for “national treatment.” This means that authors of one member country have at least the same rights in the other member country as provided by that other country’s laws. Berne Convention for Protection of Literary and Artistic Works art. 5, ¶ 1, 1971, 1161 U.N.T.S. 29. In other words, a country may not discriminate against nonnationals. Thus, American authors receive at least the same protection in any other Berne Convention country that that country’s laws provide for its own nationals, and vice versa. Furthermore, protection cannot be conditioned on compliance with any formalities such as notice or registration. For general information regarding international copyright protection, see U.S. Copyright Office Publication 38a, “International Copyright Relations of the 3rd Edition 2016

7–5

§ 7.1

INTELLECTUAL PROPERTY PRACTICE

United States,” and U.S. Copyright Office Publication 38b, “Highlights of Copyright Amendments Contained in the Uruguay Round Agreements Act (URAA).” Both are available at http://www.copyright.gov/circs.

§ 7.2

COPYRIGHTABLE VERSUS NONCOPYRIGHTABLE SUBJECT MATTER

In general, copyright protects “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). The two key requirements for copyright protection are “originality” and “fixation.”

§ 7.2.1 (a)

What Is Copyrightable? Originality: A Low Threshold

What Is Original? A work is “original” for copyright purposes if: • it was created by the author, rather than copied from other works and • it possesses at least some minimal degree of creativity. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 345 (1991). The originality requirement is not difficult to meet. “The vast majority of works make the grade quite easily, as they possess some creative spark, ‘no matter how crude, humble or obvious’ it might be.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. at 345 (quoting Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 1.08(C)(1) [hereinafter Nimmer]). Thus, while Feist held that copyright does not protect telephone white pages, other cases have held that telephone yellow pages may be protected where they indicate some level of selective judgment. See, e.g., Key Publ’ns, Inc. v. Chinatown Today Publ’g Enters., Inc., 945 F.2d 509, 513–14 (2d Cir. 1991); BUC Int’l Corp. v. Int’l Yacht Council Ltd., 489 F.3d 1129 (11th Cir. 2007). Originality in a compilation of data, or a collective work comprising separately copyrightable elements (e.g., an anthology), lies in the “selection, coordination, or arrangement” of the preexisting material. Key Publ’ns, Inc. v. Chinatown Today Publ’g Enters., Inc., 945 F.2d 509 (2d Cir. N.Y. 1991). A compilation that is comprehensive is not copyrightable 7–6

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§ 7.2

because it exhibits no selection, Warren Publ’g, Inc. v. Microdos Data Corp., 115 F.3d 1509, 1518 (11th Cir. 1997), although of course it might be protectable if the comprehensive data are arranged in a way that exhibited some individual judgment. See also Am. Dental Ass’n v. Delta Dental Plans Ass’n, 126 F.3d 977 (7th Cir. 1997) (holding the ADA’s “taxonomy,” essentially an organized and numbered list of all potentially billable dental procedures, to be copyrightable). As these cases suggest, artistic merit is not a requirement for copyrightability.

(b)

Fixation

What Is Fixation? A work is “fixed” for copyright purposes if it is in a tangible medium that is “sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” 17 U.S.C. § 101. It may be perceived, reproduced, or communicated directly by a person or with the aid of a machine, such as a computer. 17 U.S.C. § 102(a). Thus, a work of music that is created spontaneously while being performed is not protected by copyright unless it is recorded with the performer’s permission. Fritz v. Arthur D. Little, Inc., 944 F. Supp. 95, 99 (D. Mass. 1996). On the other hand, a work of “installation art” is protected by copyright so long as it remains installed for a decent period of time, even though once it is taken down proving what it was may be a difficult task. A given tangible object may serve to fix more than one work. Thus, an MP3 file of a musical performance embodies the musical work performed, but also the “sound recording,” which has a separate copyright.

Copyright Law Protects Expression, But Does Not Protect Ideas A fundamental principle of copyright is that it does not protect ideas, but only the author’s expression of those ideas. This is commonly referred to as the “idea/expression dichotomy.” Distinguishing between the two is not, however, always as easy as it may sound, and is often the battleground in copyright lawsuits. By permitting the free expression and discussion of ideas while protecting an author’s expression, copyright law balances the First Amendment goals of free expression with Copyright Clause goals of advancing the useful arts and sciences. Eldred v. Ashcroft, 537 U.S. 186, 219 (2003); Eldred v. Reno, 239 F.3d 372, 375 (D.C. Cir. 2001).

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§ 7.2

(c)

INTELLECTUAL PROPERTY PRACTICE

Which Types of Works Are Entitled to Copyright Protection?

The following types of works are entitled to copyright protection under Section 102: • literary works; • musical works, including any accompanying lyrics; • dramatic works, including any accompanying music; • pantomimes and choreographic works; • pictorial, graphic, and sculptural works; • motion pictures and other audiovisual works; • sound recordings; and • architectural works. 17 U.S.C. § 102(a)(1)–(8). Note that an architectural work consists of the design of a building, and has a separate existence from the copyright that lies in the architect’s drawings as a work of visual art.

Importance of the Right Copyright Pigeonhole The category in which a copyrighted work is classified may be relevant to the rights associated with it, since not every category of copyrighted work has identical rights. For example, is a musical work dramatic or nondramatic? If it is nondramatic, then users have extra rights to perform the work (including by electronic transmission) in certain situations. See § 7.6.5, Public Performance Right, below. If it is a dramatic musical work, they do not.

Literary Works “Literary works” include books, magazines, manuscripts, and anything else expressed in words or numbers. Computer software programs are considered literary works. Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 702 (2d Cir. 1992).

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Pictorial, Graphic, and Sculptural Works The category “pictorial, graphic, and sculptural works” includes photographs, prints and art reproductions, maps, globes, charts, diagrams, models, and technical drawings, including architectural plans. Where such things are embodied in “useful articles,” the pictorial, graphic, or sculptural features must be able to be identified separately from, and capable of existing independently of, the utilitarian aspects of the article. See § 7.2.2(b), Useful Articles, below.

Photographic Expression Photographs are entitled to copyright protection as pictorial works so long as they show some minimal originality. This standard was established by an interesting line of cases on photographs, the first of which was an 1884 U.S. Supreme Court case. In Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53 (1884), the question was whether a photograph of Oscar Wilde was copyrightable. The defendant argued that the photograph was “merely mechanical” and involved no “novelty, invention or originality.” Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. at 59. The Court disagreed. It held that the photograph was sufficiently original to be copyrightable since the photographer posed Wilde in front of the camera, “selecting and arranging the costume, draperies, and other various accessories in said photograph, arranging the subject so as to present graceful outlines, arranging and disposing the light and shade, suggesting and evoking the desired expression.” Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. at 60. Myriad cases have extended this ruling to cover the most humble photographs of the most humble subjects. For a long time, in fact, it was assumed that any photograph at all would be protected, even straight-on photos of public domain artworks. As to the latter, however, a corrective opinion was finally issued in Bridgeman Art Library v. Corel Corp., 25 F. Supp. 2d 421, 424 (S.D.N.Y. 1998), aff’d on reh’g, 36 F. Supp. 2d 191 (S.D.N.Y. 1999), to the effect that photographs that duplicate exactly the images of the underlying works are not copyrightable. See also Oriental Art Printing, Inc. v. Goldstar Printing Corp., 175 F. Supp. 2d 542, 546 (S.D.N.Y. 2001) (simple photographs of Chinese food not copyrightable).

(d)

Compilation and Collective Works

A “compilation” is a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. 17 U.S.C. § 101. The focus is on the author’s “selection, coordination or arrangement.” For 3rd Edition 2016

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example, in Kregos v. Associated Press, 937 F.2d 700 (2d Cir. 1991), the Second Circuit found a selection of baseball pitching statistics copyrightable because the author had exercised judgment, albeit fairly minimal judgment, in the selection of the statistics to be included. See also cases discussed above in § 7.2.1(a), Originality: A Low Threshold. The diligent assembly of information used to be protected, without more, under a “sweat of the brow” theory. See, e.g., Hutchinson Tel. Co. v. Frontier Directory Co. of Minn., Inc., 770 F.2d 128 (8th Cir. 1985). Since Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991), however, it is clear that some element of individual judgment must be brought to bear. An issue of a periodical, an encyclopedia, and an anthology of poetry are examples of “collective works.” 17 U.S.C. § 101. Collective works are a subset of the larger category of works called compilations.

Extent of Compilation Protection A compilation copyright protects only the selection, coordination, or arrangement contributed by the author and does not grant the author any exclusive rights in the underlying materials. 17 U.S.C. § 103(a)–(b).

(e)

Derivative Works

Another special type of work protected by copyright is what are called “derivative works.” A derivative work is defined as “a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, condensation, or any other form in which a work may be recast, transformed or adapted.” 17 U.S.C. § 101. Thus, the second edition of a textbook, a film made from a novel, a doll based on a cartoon character, and a recording of a musical work are all typical examples of derivative works. A work is not derivative unless it has copied at least some expression from a prior work. If it merely takes the ideas from a prior work, and not the expression of those ideas, then it is not a “derivative work” even though it may have derived from the original work in a general sense.

Original Work and Derivative Work Have Separate Copyrights Copyright claims in the derivative work and the original work are separate. The owner of a derivative work has copyright only in the new elements that he or she added, not the original. The author of a derivative work that is not lawfully made—either with permission of the copyright owner in the original, or under 7–10

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the doctrine of fair use, or because the original is in the public domain—will have no rights in any portion of the derivative work in which the original is used. See Gamma Audio & Video, Inc. v. Ean-Chea, 11 F.3d 1106, 1112 (1st Cir. 1993). For example, an artist may go to the Boston Museum of Fine Arts and sketch a copy of Claude Monet’s “Field of Poppies Near Giverny,” since Monet’s painting is in the public domain; the artist may claim copyright in her sketch. If, however, she went to the Albright-Knox Art Gallery in Buffalo and sketched Henry Moore’s 1975 sculpture of “Reclining Figures,” since this sculpture is still protected by copyright, unless she had permission from the copyright owner in the original, she would not be entitled to copyright her sketch.

§ 7.2.2 (a)

What Is Not Copyrightable? Names, Titles, Slogans, and Short Phrases

Titles and other short phrases may not be copyrighted. CMM Cable Rep. Inc. v. Ocean Coast Props., Inc., 97 F.3d 1504, 1520 (1st Cir. 1996) (works “not subject to copyright” include “[w]ords and short phrases such as names, titles, and slogans”) (quoting 37 C.F.R. § 202.1(a)); see also Ticketmaster Corp. v. Tickets.com, Inc., No. CV99-7654-HLH(VBKx), 2003 U.S. Dist. LEXIS 6483, at *5 (C.D. Cal. Mar. 6, 2003) (URLs not copyrightable).

(b)

Useful Articles

Articles having an “‘intrinsic utilitarian function’ are “useful articles,” and not copyrightable except to the extent that • the design incorporates pictorial, graphic, or sculptural works and • the pictorial, graphic, or sculptural works can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article. 17 U.S.C. § 101. The key is to identify the expressive element, and then to decide whether it is separable, either physically or conceptually, from the utilitarian element. The line between the expressive aspect of an article, which is copyrightable, and the utilitarian aspect, which is not copyrightable, is often not clear. An early, and in hindsight an easy, case in this area was Mazer v. Stein, 347 U.S. 201 (1954), in which the Supreme Court held that statuettes in the shape of 3rd Edition 2016

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Balinese dancers were copyrightable even though they were sold in the form of lamp bases. Their expressive aspect, but not their utilitarian function of holding up a lightbulb, was entitled to copyright protection. More recent cases have created a contradictory and murky body of law, as courts have struggled in vain to formulate rules that would permit consistent decisions in this area. Even the question of what is a “useful” article has been fraught with peril: masks have been assumed to be copyrightable, see Pasillas v. McDonald’s Corp., 927 F.2d 440, 442 n.1 (9th Cir. 1991), but the courts are divided on whether masquerade costumes are “useful.” Compare Nat’l Theme Prods., Inc. v. Jerry B. Beck, Inc., 696 F. Supp. 1348 (S.D. Cal. 1988) with Chosun Int’l v. Chrisha Creations, Ltd., 413 F.3d 324 (2d Cir. 2005). Mannequins of human torsos used to display clothing in store windows have been held to be useful articles, Carol Barnhart, Inc. v. Econ. Cover Corp., 773 F.2d 411, 418 (2d Cir. 1985), yet animal mannequins, on which skins are displayed, have been held to be sculptural works. Superior Form Builders v. Dan Chase Taxidermy Supply Co., 74 F.3d 488, 494–95 (4th Cir. 1996). Decorative elements on cheerleading costumes, such as stripes and chevrons, are conceptually separable and therefore copyrightable. Brands, Inc. v. Star Athletica, LLC, No. 14-5237, 2015 U.S. App. LEXIS 14522 (6th Cir. Aug. 19, 2015). Anyone wishing a guide through this morass should consult William F. Patry, Patry on Copyright (2010), at §§ 3:135–3:154. Note that typefaces and fonts are not copyrightable, no matter how original they may be, because they are considered utilitarian articles. See Monotype Corp. PLC v. Int’l Typeface Corp., 43 F.3d 443, 446 (9th Cir. 1994); Eltra Corp. v. Ringer, 579 F.2d 294, 298 (4th Cir. 1978); H.R. Rep. No. 94-1476 at 55 (1976).

(c)

Systems and Methods of Operation

Section 102(b) of the Copyright Act states that copyright protection does not extend to any “procedure, process, system, method of operation” regardless of its originality. Baker v. Selden, 101 U.S. 99 (1879).

Lotus: Massachusetts Software Case The First Circuit has considered this exclusion from copyright in the computer software context. The late 1980s and 1990s saw a large number of cases brought by Cambridge-based Lotus Development Corporation to protect its fabulously successful spreadsheet product, Lotus 1-2-3. In one case, Lotus sued Borland for copying Lotus’s menu command hierarchy in its Quattro Pro spreadsheet program. A menu command is the way that a user controls the program, such as by using “copy,” “print,” and “quit.” Lotus 1-2-3 had 469 commands arranged into 7–12

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more than fifty menus and submenus. Borland copied those commands and menu tree, but it did not copy the underlying computer code. In Lotus Development Corp. v. Borland International, Inc., 49 F.3d 807, 809 (1st Cir. 1995), aff’d without opinion by an equally divided court, 516 U.S. 233 (1966), the First Circuit held that these elements were not copyrightable under Section 102(b) of the Copyright Act because they were “methods of operation,” the means by which users control and operate Lotus 1-2-3. Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d at 815. The court analogized the Lotus menu command hierarchy to the buttons used to control a videocassette recorder. The “record,” “reverse,” “play,” “fast forward,” and “pause” buttons are methods of operating a VCR.

Contrast with Altai Analysis The court explicitly stated that its analysis was different from that in Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992), which has become the most-followed case in this field. In Altai, the first inquiry would be whether the Lotus menu command hierarchy incorporates “expression.” (See discussion of Abstraction-Filtration-Comparison in Software Cases in § 7.10.3(d), below.) Here, the Lotus court said that it does not matter whether it is expression; if it is a “method of operation,” it is not copyrightable. Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d 807, 816 (1st Cir. 1995). Other circuits have not followed Lotus’s lead. See Oracle Am., Inc. v. Google, Inc., 750 F.3d 1339 (Fed. Cir. 2014).

Interoperability Is a Favored Public Policy The court emphasized the importance of interoperability of computer programs. This is a recurrent theme in computer-related copyright cases. If a defendant can convincingly argue that interoperability would be harmed if the plaintiff succeeds in its copyright claims, the defendant will often prevail in the case. See Sony Computer Entm’t, Inc. v. Connectix Corp., 203 F.3d 596, 603 (9th Cir. 2000), discussed in § 7.11.1(i), The Second Fair Use Factor: Nature of the Copyrighted Work, below.

Systems Are Not Protectable In the case of Baker v. Selden, cited above, the Supreme Court denied copyright to the accounting forms included in a book that described a new system of accounting, on the grounds that copyright in them would effectively give the author copyright in the system itself. Baker v. Selden has often been cited in cases dealing with the “merger doctrine,” discussed below, in which copyright has been denied where it would effectively grant a monopoly in the underlying ideas.

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In Warren Publishing, Inc. v. Microdos Data Corp., 115 F.3d 1509 (11th Cir. 1997), the Eleventh Circuit denied copyright to a compilation of information on the 8,000 cable systems throughout the United States. The District Court had found that Warren’s system for selecting communities was original in the industry, and that its selection process represented a copyrightable part of the format of the compilation. The circuit court reversed, holding that Warren’s selection of communities was not copyrightable precisely because it was a “system.”

(d)

Facts

Facts are not copyrightable. Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 547 (1985). Occasionally, courts have shown a willingness to protect “hot news” for a limited time against copying for competitive purposes, under a common law theory of misappropriation. The first such case was International News Service v. Associated Press, 248 U.S. 215 (1918). In that case, one wire service, AP, wrote articles on World War I battles. INS, a competitor, read AP’s articles in the East Coast newspapers and on bulletin boards. They took the key facts in the articles, rewrote them, and posted them on the INS wire. Several West Coast newspapers picked up these INS stories. Although the news was not copyrightable, the court held that INS misappropriated AP’s news stories, which were “quasi property” as between them. Although AP might not have any rights against the public, AP did have rights against a competitor that misappropriated the news stories. The court emphasized that the value of the news was “its novelty and freshness.” Int’l News Serv. v. Associated Press, 248 U.S. at 238. International News Service v. Associated Press continues to be good law, although plaintiffs who invoke it rarely win. In National Basketball Ass’n v. Sports Team Analysis & Tracking System, 939 F. Supp. 1071 (S.D.N.Y. 1996), unfair competition claim rev’d, 105 F.3d 841 (2d Cir. 1997). Motorola produced handheld pagers marketed under the name “SportsTrax.” Defendant STATS supplied game information for those pagers. Obsessed sports fans wore these pagers on their wrists and received score updates on NBA games in progress every few minutes, with more frequent updates near the end of the first half and the end of the game. The NBA sued Motorola. The circuit court held that the Copyright Act preempted most state law misappropriation claims since, under Section 301 of the Copyright Act, they sought to vindicate “legal or equitable rights that are equivalent” to one of the bundle of exclusive rights protected by the Copyright Act. Nevertheless, the circuit court held that a plaintiff may still make a misappropriation claim for “hot news” (and that this is not preempted by the Copyright Act) where 7–14

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• a plaintiff generates or gathers information at a cost, • the information is time-sensitive, • a defendant’s use of the information constitutes free-riding on the plaintiff’s efforts, • the defendant is in direct competition with a product or service offered by the plaintiff, and • the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened. Nat’l Basketball Ass’n v. Sports Team Analysis & Tracking Sys., 105 F.3d at 845. The Second Circuit’s analysis of its own precedent is also worth reading, in Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 891–93 (2d Cir. 2011). See also S.W. Airlines Co. v. Farechase, Inc., 318 F. Supp. 2d 435 (N.D. Tex. 2004) (allowing Texas misappropriation claim after finding airline fare, route, and scheduling information not copyrightable). The concept of what is a “fact,” and hence not copyrightable, is sometimes stretched quite far. Courts have had to deal with strange situations, but perhaps none stranger than determining who is the author, for copyright purposes, of revelations from otherworldly celestial beings. Were the individuals who wrote down these revelations the “author” for copyright purposes, or was the author the celestial being (and, ahem, not subject to American copyright law)? You may be surprised to discover that the court essentially held that the author may well have been the celestial being and the revelations were just “facts.” Nevertheless, individuals who select and arrange these revelations have exhibited enough originality to claim a compilation copyright. Urantia Found. v. Maaherra, 114 F.3d 955, 959 (9th Cir. 1997).

§ 7.3

WHO OWNS THE COPYRIGHT?

§ 7.3.1

General Rule: The Creative Party Owns the Copyright

Under Section 201(a), copyright ownership “vests initially with the author or authors of the work.” 17 U.S.C. § 201(a). In the case of a compilation or collective work, that means the person who selected and arranged the component 3rd Edition 2016

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parts. In the case of a derivative work, the author is the person who created the new material; the author of the underlying original material has no claim to the new matter. Beyond these seemingly simply rules, though, deciding who is the author can be difficult and contentious.

§ 7.3.2

Works Made for Hire

The creator of the work is not the author as a matter of law if the work is a “work made for hire.” A “work made for hire” is defined as (1) “a work prepared by an employee within the scope of his or her employment;” or (2) any of nine specified types of work specially ordered or commissioned, “if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.” 17 U.S.C. § 101. Note: Under pre-1978 law, with few exceptions a work prepared at a party’s “instance and expense” was more or less presumed to belong to that party, rather than to the creative party, absent agreement to the contrary. Current law reverses this presumption. If you are dealing with a commissioned work created prior to 1978 you should evaluate ownership under the case law of the time.

(a)

Who Is an “Employee”?

Under the first prong of the current definition of “work made for hire,” the work of an “employee” belongs to the “employer” if created within the scope of the employment. However, that term “employee” does not mean only persons who are employees in the classic sense of the word. The Supreme Court has held that anyone who is acting as the “agent” of a party in creating a work is an “employee” for purposes of the Copyright Act. Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). Referring to the Restatement (Second) of Agency, § 220(2), the Court noted that the following factors, among others, should be considered: • who supplies the materials, • the location of the work, • the duration of the relationship, 7–16

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• whether the hiring party can assign additional projects to the hired party, and • the hired party’s role in hiring and paying assistants. Cmty. for Creative Non-Violence v. Reid, 490 U.S. at 751–52.

(b)

Commissioned Works

Section 101 sets out nine specific categories of commissioned works that may be prepared by nonemployees and that will be considered to be “works made for hire” if there is a written agreement explicitly providing it is a work for hire. 17 U.S.C. § 101. The nine categories are the following: • a contribution to a collective work, • a part of a motion picture or other audiovisual work as a sound recording, • a translation, • a supplementary work, • a compilation, • an instructional text, • a test, • answer material for a test, or • an atlas. See 17 U.S.C. § 101. Bear in mind that to qualify as a work made for hire in any of these nine categories, the parties must have agreed in writing to this effect. The agreement should, if at all possible, stipulate that the hired party’s work will be “work made for hire,” using that exact phrase. (Typically, such an agreement will also contain a “plan B” backup clause, saying that “If for any reason [the contractor’s] work product is not eligible for work made for hire status, [the Contractor] hereby assigns to [the hiring party] all right, title and interest in and to [the work product] throughout the world for all terms of protection.”) Although there is some dispute on the issue, this agreement can probably be signed retroactively so long as it does not attempt to undo intervening events. See the discussion of cases in 3rd Edition 2016

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Looney Ricks Kiss Architects, Inc. v. Bryan, No. 07-572, 2010 U.S. Dist. LEXIS 110100 (W.D. La. Oct. 14, 2010), rev’d on other grounds, 677 F.3d 250 (5th Cir. 2012).

(c)

The Relevance of Classifying a Work as Made for Hire

Does it matter to an employer whether a work is a “work made for hire,” and originally vests in the employer, or whether the creator of the work agrees to assign it to the employer? For most works, the difference is negligible. However, works made for hire are not subject to the Copyright Act provision that permits authors to terminate their transfers or licenses. The employer retains ownership forever of a work made for hire, and the creator may not terminate that transfer or license. 17 U.S.C. § 203(a). See more on termination of transfers in § 7.7.3(j), Assignments and Licenses of Copyright May Be Terminated as a Matter of Law, Regardless of Contract, below.

§ 7.3.3

Joint Authors

A “joint work” is a work “prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.” 17 U.S.C. § 101. The authors of a joint work are each co-owners in the entire copyright of the joint work, just as tenants in common are the owners of the entire fee simple in real estate. For example, if three consultants collaborate on a report, they are joint authors of that product. If, however, each of them separately creates a report in his or her own field of specialty, each of which is capable of standing on its own, and they are compiled after the fact into a single volume, the resulting volume does not qualify as a joint work.

(a)

Key Factors for a Joint Work

The key factors in determining whether a joint work is created are as follows: • the parties must intend to create a single, merged work; • at the time the work is created; and • each joint author’s contribution must be copyrightable in nature; contributing ideas will not suffice. On this last point, it is not clear whether the quantum of material contributed needs to be such as would support a separate copyright, or simply that each joint

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author’s contribution must be of expression rather than merely ideas or facts. See 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 255–56 (2d Cir. 2015). The requirement of intent does not mean that the authors needed to agree up front before either of them started working. In fact, they do not even need to know one another; one of the joint authors might not even have been selected when the other(s) begin work. The key is that when each author contributes to the work, they intend that it be part of a work to which others will contribute. The courts are divided on the question of whether the contributors must also intend the legal result of joint ownership. See Janky v. Lake County Convention & Visitors Bureau, 576 F.3d 356, 361 (7th Cir. 2009); Aalmuhammed v. Lee, 202 F.3d 1227, 1236 (9th Cir. 2000).

(b)

All Joint Authors Share Equally

All joint authors share equally in the ownership of the work. They each have all the rights of a copyright owner, subject to certain limitations and with the important caveat that no one of them has any exclusive right. They have equal rights even if their contributions are not equal. They may of course agree otherwise by contract. Each joint owner has an obligation to the other joint owners to account for and to share the profits equally—again, unless they contract to waive “all rights of mutual accounting,” or words to that effect.

(c)

Limitations on Joint Authors

A joint author cannot transfer the copyright or any part of the copyright in the work to a third party, and may not grant any exclusive license, without the consent of the other owners. The most a joint author can grant on his or her own is a nonexclusive license.

§ 7.3.4

Government-Authored Works

The federal government cannot obtain copyright for works created by its employees acting within the scope of their employment, from the president down to the lowest civil servant. 17 U.S.C. § 105. However, the federal government can acquire copyright from private parties by contract. Works created by government contractors are presumptively copyrightable, although often subject to expansive licenses to the government under federal acquisition regulations. Also, if a work is eligible for “work made for hire” status and the government requires such

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treatment by contract, then the work would be a U.S. government work and excluded from copyright. There is no similar prohibition against copyright in works created by state governments. However, as a matter of public policy, courts deny copyright to statecreated materials such as laws and regulations. Even privately developed building codes and the like may lose copyright protection, at least in states where they are adopted. See Veeck v. S. Bldg. Code Congress Int’l, Inc., 293 F.3d 791 (5th Cir. 2002); Bldg. Officials & Code Adm. v. Code Tech., Inc., 628 F.2d 730, 736 (1st Cir. 1980). Compare County of Suffolk, N.Y. v. First Am. Real Estate Solutions, 261 F.3d 179 (2d Cir. 2001) with Ocean Atl. Woodland Corp. v. DRH Cambridge Homes, Inc., No. 2 C 2523, 2003 WL 1720073 (N.D. Ill. Mar. 31, 2003) and Microdecisions, Inc. v. Skinner, 889 So. 2d 871 (Fla. 2d Dist. Ct. App. 2004).

§ 7.4

DURATION OF COPYRIGHT

§ 7.4.1

Works Created on or After January 1, 1978

The basic term of copyright under current law is life of the author plus seventy years. In the case of a joint work, this term is measured from the death of the last joint author to die. However, there are a number of exceptions to this rule.

§ 7.4.2

Works Made for Hire

For works made for hire, the copyright term is ninety-five years from the year of first publication, or 120 years from the year of creation, whichever comes first. 17 U.S.C. § 302(c). For example, the copyright in an issue of The New York Times—a classic work made for hire, created by the thousands of Times employees—expires at the end of the ninety-fifth year following its publication.

§ 7.4.3

Anonymous or Pseudonymous Works

As with works made for hire, copyright in works published anonymously or under a pseudonym lasts for ninety-five years from the date of first publication, or 120 years from the date of creation, whichever comes first. 17 U.S.C. § 302(c). However, if the identity of the author is recorded in the Copyright Office during that period the term of copyright will be converted to what it would be for a work whose author was publicly acknowledged.

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§ 7.4.4 (a)

§ 7.4

Works Created Before January 1, 1978 Works Created Before 1978 but Published in 1978 or Later

Works that were created before 1978 but neither published, nor registered with the U.S. Copyright Office, before 1978, have the same term as those created in 1978 or later, except that if they were published on or before December 31, 2002, their copyright would last at least through the end of 2047 regardless of when the author(s) died.

(b)

Works Created and Published Before 1978

For a copyrighted work created and published (or registered with the Copyright Office) before 1978, copyright lasted for an initial twenty-eight-year term, and would expire unless a claim for renewal was filed in the Copyright Office during the final year of the initial term. For works published or registered between 1964 and 1978, renewal is automatic. However, there are certain advantages to proactive renewal, and anyone with a renewable pre-1978 copyright should seriously consider filing for renewal. 17 U.S.C. § 304. The rules regarding renewal, including who could apply for renewal and in whom the renewal copyright would vest, are complicated and should be carefully reviewed by anyone needing to file the renewal. Any work published in 1923 or later, and properly renewed (or automatically renewed), has a copyright term of ninety-five years from first publication. Bear in mind that if a U.S. work was published before 1978 without proper copyright notice, it would go immediately into the public domain. Publication with proper notice was what triggered the initial twenty-eight-year term of federal copyright protection. See Data Cash Sys., Inc. v. JS&A Group, Inc., 628 F.2d 1038, 1043 (7th Cir. 1980). If a work was published without proper copyright notice between January 1, 1978, the effective date of the 1976 Act, and March 1, 1989, the effective date of U.S. accession to the Berne Convention, copyright would be forfeited unless the owner cured the problem by • registering the copyright within five years before or after publication without notice and • making a reasonable effort to add notice to all copies or phonorecords that are distributed to the public in the United States after the omission has been discovered.

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17 U.S.C. § 405(a)(2). In practice, hardly any works published after 1978 have been allowed to go into the public domain; courts have interpreted these cure provisions generously. Note: a “phonorecord” is anything in which sound is fixed, including but not limited to LPs (for the nostalgic among us), CD-ROMs, and MP3 files.

§ 7.4.5

December 31 Rule

Copyright lasts until December 31 of the year in which it would expire.

§ 7.4.6

Public Domain at Expiration of Copyright Period

At the expiration of the copyright period, a work becomes part of the public domain and may be used by anyone for any purpose. Works may also enter the public domain if the copyright owner makes an overt act to abandon the copyright in the work, or to dedicate it to the public as some software developers do.

§ 7.4.7

Exception for Foreign Works

For many decades U.S. copyright law protected foreign works within the United States. However, that was generally conditioned on compliance with U.S. rules. Until 1996, many non-U.S. works were considered to be in the public domain in the United States for failure to comply with the copyright notice requirements or failure to file for renewal in the twenty-eighth year of U.S. copyright. However, effective in 1996, a new provision of the Copyright Act came into effect, in essence resurrecting the copyright of such works and extending it for the maximum time period that would be permitted were the works to have been properly copyrighted in the United States. 17 U.S.C. § 104A. In general, any foreign work is now entitled to the full term of U.S. copyright protection regardless of past compliance with U.S. formalities, if • it was first published in a country that is a member of the World Trade Organization (WTO), a country that is member of the Berne Convention, or a country for which the president of the United States has issued a proclamation to restore protection; • it was not simultaneously published in the United States; and • it is still protected in its source country. 7–22

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If a foreign work meets these three requirements, its copyright protection was restored automatically on January 1, 1996. No action is required by the copyright owner to restore protection to the copyrighted work. Note that federal copyright now extends to foreign pre-February 15, 1972 sound recordings provided they meet the above requirements. Presumably, such works are no longer covered by the various state laws that still apply to U.S. sound recordings of that vintage. See § 7.1.1, above. The owner of a restored copyright may enforce it against U.S. infringers with one exception. This exception applies to a party who began exploiting a restored work in the United States prior to January 1, 1996, and continues exploiting that work in the United States after that date, or to a party who made or acquired one or more copies or phonorecords of a restored work prior to January 1, 1996. This party is called a “reliance party.” When a reliance party exists, an owner of a restored work cannot enforce the copyright in the restored work until twelve months after the reliance party receives notice that the owner of the restored work intends to enforce its restored copyright. Notice can be served by either providing a notice directly to the reliance party or by filing a notice of intent to enforce the copyright with the U.S. Copyright Office. The regulations regarding these notices, 37 C.F.R. §§ 201.31, 201.33, and 202.12, are available at http://www.copyright.gov/title37.

§ 7.4.8

Summary of Above

Date of Creation/ Publication

U.S. or NonU.S. Work

Type of Authorship

Term of Protection

Created after 1977

Either

Single author— individual

Life plus 70 years

"

"

Two or more individual authors

Life of last to die plus 70 years

"

"

Work made for hire

95 years from first publication, or 120 years from creation, whichever expires first.

"

"

Pseudonymous

95 years from first publication, or 120 years from creation, unless identity filed with Copyright Office

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Date of Creation/ Publication

U.S. or NonU.S. Work

Type of Authorship

Term of Protection

"

"

Anonymous

95 years from first publication, or 120 years from creation, unless identity filed with Copyright Office

Created before 1978 but first published after 1977 and before 2003

"

Same as any of above Same as corresponding term above, or until 12/31/47, whichever is later

Published or registered between 1/1/64 and 12/31/77

"

Same as any of above 95 years from first publication

Published or registered between 1/1/1923 and 12/31/1963

U.S.

Same as any of above 95 years from first publication, if copyright was renewed in 28th year, otherwise now in public domain

Published between 1/1/1923 and 12/31/1963

Non-U.S.

Same as any of above 95 years from first publication

Published before 1923

Either

Same as any of above Public domain

§ 7.5

OBTAINING A COPYRIGHT; REGISTRATION AND NOTICE

§ 7.5.1

Copyright Is Automatic

Copyright arises automatically upon the creation of a work. 17 U.S.C. § 302. No notice need be placed on the work, and no registration is required. 17 U.S.C. § 408(a). Practice Note Contrast with patents. This is different from a patent, which only exists if the inventor applies for a patent.

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§ 7.5

The Advantages of Federal Registration

Although registration with the Copyright Office (a branch of the Library of Congress) is not required to obtain copyright protection, it is a prerequisite to filing an infringement action unless the work infringed is a non-U.S. work. 17 U.S.C. § 408(a). Furthermore, registration prior to infringement is necessary in order to obtain attorney fees and statutory damages, 17 U.S.C. § 412; this applies to nonU.S. as well as to U.S. works. Practice Note Should your client register? Consider whether your client would be meaningfully harmed if its copyrighted works were infringed. If so, then registration makes sense. Since actual damages are often difficult to prove, statutory damages are an essential remedy to a copyright owner. Moreover, since attorney fees can often exceed the damages at stake, the availability of attorney fees to a prevailing plaintiff is a significant factor in both parties’ calculations of the pros and cons of litigation.

There is a three-month grace period for registration, following publication of the copyrightable work. Registration within three months of publication makes statutory damages and attorney fees available if the infringement occurs after publication but prior to registration. 17 U.S.C. § 412(2). Practice Note Courts are divided in whether filing a complete registration application is sufficient to satisfy the statutory prerequisite of registration before filing suit for infringement. See, e.g., Cosmetic Ideas, Inc. v. IAC/InteractiveCorp., 606 F.3d 612, 621–22 (9th Cir. 2010); Doyle Homes, Inc. v. Signature Group of Livingston, Inc., 69 F. Supp. 3d 674, 677 (E.D. Mich. 2014) (collecting cases from five circuits). The First Circuit has not ruled on this issue. The looser standard is far more practical, since the Copyright Office is terribly backlogged in processing registration applications—95 percent of which get approved in any event—and the only alternative would be to file for “special handling” at an additional cost of hundreds of dollars.

Practice Note The Copyright Office now permits “preregistration” of certain types of works that are most in danger of infringement prior to publication: motion pictures, musical works, sound recordings, books, computer programs (including video games), and advertising and marketing photographs. This secures all the benefits of registration even though

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the work is not complete, so long as registration is ultimately carried out within three months following publication. For the regulations regarding preregistration, see 37 C.F.R. § 202.16.

Another benefit of registering a work promptly is that registration within five years of publication creates a presumption of validity of the copyright and the facts set forth in the registration certificate. 17 U.S.C. § 410(c); Saenger Org., Inc. v. Nationwide Ins. Licensing Assoc., Inc., 119 F.3d 55, 59 (1st Cir. 1997).

§ 7.5.3

Mechanics of Registration

Obtaining a copyright registration is easy and inexpensive. One must file an application, pay a fee, and submit a “deposit” evidencing the work. The application can be done using paper forms, but in almost all circumstances it is better to use the Copyright Office’s new online application procedure, available at http://www .copyright.gov/eco/. Taking the tutorial available at that webpage is highly recommended. The filing fee is currently $35 when using the online registration system if the author and copyright claimant are the same, and the work is not made for hire. It is $55 otherwise; if you register using paper forms, the fee is $85. (Current fees are posted at http://www.copyright.gov/docs/fees.html.) Deposit can in some cases also be done online; in other cases it can be done by mail using a barcoded document produced by the online registration system that ties the deposit to your registration. If you are registering an unpublished literary work, one copy will suffice for deposit. For published literary works, the Copyright Office generally requires two copies of the “best edition” of the work. 17 U.S.C. § 408(b)(2); 37 C.F.R. § 202.19. For computer programs, deposit the first and last twenty-five pages of source code in visually perceptible form. See 37 C.F.R. § 202.20(c)(2)(vii)(A)–(D). But see 37 C.F.R. § 202.20(c)(xix)(A)–(B) for software published in CD-ROM form. For motion pictures, deposit one complete copy of the motion picture and a written description of the contents. See 37 C.F.R. § 202.20(c)(2)(ii). For phonorecords, deposit one complete phonorecord. See 37 C.F.R. § 202.20(c)(2)(i)(H). However, there are numerous exceptions and special rules for certain types of works, and the detailed regulations for deposit are at 37 C.F.R. § 202.20(c). For a more detailed discussion of the mechanics of registration, see Strong, The Copyright Book: A Practical Guide ch. 5 (MIT Press 6th ed. 2014). The Compendium of U.S. Copyright Office Practices, Third Edition, available at http://copyright.gov/comp3/, may also be of help.

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(a)

§ 7.5

Effective Date of Registration

The effective date of registration of a copyright is the date the Copyright Office receives an application acceptable in form, the requisite fee, and an appropriate deposit of the work. 37 C.F.R. § 202.4. Once a registration issues it will be retroactively effective.

§ 7.5.4

Mandatory Deposit

Most works published in the United States are subject to a requirement of deposit with the Library of Congress, whether or not federal copyright protection is sought. 17 U.S.C. § 407. Deposit for Library of Congress purposes can usually be combined with deposit for registration purposes, using the same deposit copies. However, to be candid, many copyright owners do not proactively deposit with the Library of Congress, and instead deposit only when they receive a demand from the Library.

§ 7.5.5 (a)

Copyright Notice Notice Still Advisable

Even though a copyright notice is no longer required, it is still good practice to include one. This puts others on notice that the material is copyrighted and proprietary. The main benefit is to make it less likely that an infringer may argue that damages should be reduced because it innocently infringed or did not infringe willfully. 17 U.S.C. §§ 401(d), 402(d), 504(c)(2). A notice is particularly useful where a work is compiled with material contributed by others, because it marks off the boundaries of the various contributors’ copyrights.

§ 7.5.6

Form of Notice

The copyright notice should include three elements: (1) the symbol ©, the word “Copyright,” or the abbreviation, “Copr.”; (2) the year of first publication; and (3) the name of the copyright owner. 17 U.S.C. § 401(b)(1)–(3). 3rd Edition 2016

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What year of publication should you use for collective works, such as an anthology of poetry, where the individual poems have different years of publication? Use the year of publication of the anthology, not the year of the individual works. See 17 U.S.C. § 401(b)(2). Each contribution can also carry separate notice with its own respective publication year. The year date was not required, and was and is generally omitted, on pictorial, graphic, or sculptural works reproduced on “greeting cards, postcards, stationery, jewelry, dolls, toys, or any useful articles.” 17 U.S.C. § 401(b)(2).

(a)

Notice on Phonorecords

Phonorecords require a different notice. The required notice is: (1) the symbol (P) (the letter P in a circle); (2) the year of first publication of the sound recording; and (3) the name of the owner of copyright in the sound recording. 17 U.S.C. § 402(b)(1)–(3). However, since under the 1976 Act (contrary to prior law), release of a phonorecord publishes the underlying work, it is advisable to include notice relevant to the underlying musical or literary work as well.

(b)

Where Should the Notice Be Placed?

The copyright notice must be placed in a “manner and location” that gives “reasonable notice of the claim of copyright.” 17 U.S.C. § 401(c). The Register of Copyrights has promulgated regulations that specify what notice will be deemed to be reasonable. See 37 C.F.R. § 201.20. For software, one may use: • a notice embodied in the copies in such a manner that on visually perceptible printouts it appears either with or near the title, or at the end of the work; • a notice that is displayed at the user’s terminal at sign on; • a notice that is continuously on terminal display; or

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• a legible notice reproduced durably, so as to withstand normal use, on a gummed or other label securely affixed to the software or to the permanent container used for the software. 37 C.F.R. § 201.20(g)(1)–(4). Practice Note For websites, users should indicate copyright on the home page. For more information on notices, see U.S. Copyright Office, Circular 3: Copyright Notice (2013). This publication is available at http://www .copyright.gov/circs/circ03.pdf.

§ 7.6

RIGHTS OF A COPYRIGHT OWNER

§ 7.6.1

Exclusive Rights and Their Limitations

Section 106 of the Copyright Act sets forth the exclusive rights of the copyright owner. Sections 107 to 121 of the Copyright Act set forth limitations on these exclusive rights. Section 106 gives copyright owners the following rights: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based on the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission. In addition, the author (even if he or she is no longer the copyright owner) of a work of visual art (narrowly defined) has the rights of attribution and integrity. 3rd Edition 2016

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17 U.S.C. § 106A. This right belongs only to the author and is not assignable by the author with the copyright. This section will highlight some of the ambiguous issues involved in each one of these rights, and the limitations on the copyright owner’s ability to exercise these “exclusive rights.”

§ 7.6.2

Reproduction Right

The “reproduction right” gives the copyright owner the exclusive right to make copies or phonorecords of his or her work in all media. Sometimes, rendering a work in a new medium does not merely reproduce the original; it creates a derivative work, if some creative skill is required to adapt the image to the new medium. See L.A. News Serv. v. Tullo, 973 F.2d 791, 794 (9th Cir. 1992); see also Time, Inc. v. Bernard Geis Assocs., 293 F. Supp. 130, 144 (S.D.N.Y. 1968). This is particularly relevant to works of art. By contrast, transferring a literary work from one medium to another, say, from print to digital format, exercises merely the reproduction right rather than the derivative work right.

(a)

Limitations on the Reproduction Right

The following are some limitations on a copyright owner’s reproduction right.

Libraries and Archives Section 108 of the Copyright Act gives libraries and their employees the right to make copies under certain conditions, on the grounds that it fosters research and scholarship, or preserves works not readily available on the market. Caution The library exemption does not create a “Copyright Free Zone” in which John Q. Public can walk in off the street and use the library’s photocopy machine to violate copyright. It protects only libraries and their employees.

The rules in Section 108 are complex and their scope is debated between copyright owners and librarians. A few points of general interest and general agreement are set forth below. • The library must be open to the public to qualify for the exemption. 17 U.S.C. § 108(a)(2). • The library exemption applies only to literary works. 7–30

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• The paradigm is that the library is fulfilling sporadic requests for single copies. Engaging in systematic reproduction to fill the shelves of another library is not permitted. 17 U.S.C. §§ 108(a), (g). • The rules permit limited but reasonable copying for archived purposes and preservation. • The rules permit interlibrary loan within certain parameters. • For works that are not published (such as a private diary), the library can make up to three copies for preservation purposes or for deposit in another research library. 17 U.S.C. § 108(b). • For published works, the library can make up to three copies if the original is damaged, lost, or stolen, or if the format is obsolete (for example, software on a 5¼ inch floppy disk), but only if the library cannot obtain a replacement at a fair price. 17 U.S.C. § 108(c)(1). • Where copies of unpublished and published works are permitted as described above, the library cannot make them available outside the physical premises of the library. 17 U.S.C. § 108(b)(2), (c)(2). • For copying done by or for patrons on site, libraries must display a notice that making a copy can violate the copyright law. 17 U.S.C. § 108(f)(1).

Musical Works: “Mechanical” Compulsory License Nondramatic musical works are subject to a compulsory license, under which anyone wishing to make (and distribute) phonorecords of the work may do so upon payment of a set fee. 17 U.S.C. § 115(a). A license to make a phonorecord of a nondramatic musical work is generally referred to as a “mechanical” license. The compulsory license does not apply until a work has been published in phonorecord form; in effect, the music copyright owner has the right to control initial release, at which point anyone can create a competing recording. Practice Note Most people do not use the cumbersome statutory procedure to obtain a mechanical license, but instead go through the Harry Fox Agency in New York City.

It is important to bear in mind that a sound recording usually reproduces two works at the same time: the underlying musical work (or literary work, as in the 3rd Edition 2016

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case of a recorded poetry reading) and the sound recording, which is a derivative work of the underlying work. The compulsory license under Section 115 does not permit anyone to reproduce someone else’s sound recording of a work. On the other hand, one does not infringe the reproduction right in a sound recording by creating a recording that sounds like the original. Only an actual duplication of the original recording is an infringement. See 17 U.S.C. § 114(b). In this respect, copyright protection for sound recordings is significantly narrower than for other types of works.

Certain Software Copying Permitted To use a software program efficiently often entails making a copy of it, such as downloading a program from the cloud to one’s computer hard drive. This is permitted under Section 117(a), which permits “the owner of a copy of a computer program to make or authorize the making of another copy . . . of that computer program” when the copying is • “an essential step in the utilization of the computer program in conjunction with a machine” or • for archival purposes. 17 U.S.C. § 117(a). Note, though, that this statutory exemption does not extend to persons who possess a copy of software under license, but do not own it. In practice, however, software copyright owners have not challenged licensees who have made similar uses.

Software Copying for Computer Repair or Maintenance There is a “hardware repair” exception to the reproduction right. 17 U.S.C. § 117(c); Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting, Inc., 421 F.3d 1307, 1317 (Fed. Cir. 2005). Owners or lessees of computers may authorize third parties to maintain or repair their computers, even if that involves making a copy of software when turning on the computer. (Turning on a computer will automatically copy the operating system software into RAM.) This limits the Ninth Circuit’s ruling in MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993), to situations where the express license terms prohibit such activation.

Broadcasters’ Ephemeral Recordings Broadcasters have a right to make “ephemeral recordings” under Section 112 to facilitate lawful transmission of works. 7–32

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Organizations Serving Blind and Disabled Nonprofit organizations that have “a primary purpose” of serving the blind or disabled may make copies of literary works in formats especially for the use of visually impaired persons, such as Braille and certain specialized computer formats. 17 U.S.C. § 121. Originally this was designed to cover a very narrow niche of organizations for the blind, but recent case law has expanded it dramatically. See Authors Guild, Inc. v. HathiTrust, 755 F.3d 87 (2d Cir. 2014).

§ 7.6.3

Derivative Work Right

A copyright owner has the exclusive right to make so-called derivative works based on the copyrighted work. That term includes as “a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted.” 17 U.S.C. § 101 (definition of “derivative work”). This list may create the impression that a derivative work must evince a high level of creative input. That is not the case. The standard for copyright in a derivative work is in the end no different from the standard for any other purpose. It need only be the product of quite minor creativity in order to qualify. A translation of a technical manual from German to English will make the cut. A work consisting of “editorial revisions, annotations, elaborations, or other modifications, which, as a whole, represent an original work of authorship,” qualifies as a derivative work. 17 U.S.C. § 101. Nor is there any magic percentage or rule of thumb as to the quantum of new material. So long as there is “sufficient nontrivial expressive variation in the derivative work to make it distinguishable from the underlying work in some meaningful way,” the derivative work will be copyrightable. Schrock v. Learning Curve Int’l, Inc., 586 F.3d 513, 521 (7th Cir. 2009). One limitation of this right is in connection with architectural works. The owner of a building that embodies an architectural work may alter the building, even though a third party might not be permitted to do so since the result is a derivative work. 17 U.S.C. § 120(b).

§ 7.6.4 (a)

Distribution Right Right to Distribute or Not Distribute

The copyright owner has the exclusive right to sell or give away his or her work to the public or to rent, lease, or lend his or her work. 17 U.S.C. § 106(3). This

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control over distribution means that the copyright owner can decide whether or not he or she wishes to make the work public in the first place.

(b)

Preventing Importation

An important aspect of the distribution right is that, under Section 602(a), copyright owners may prevent importation into the United States of unauthorized copies of their works manufactured outside the United States. Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1360 (2013). An additional route to consider would be an action at the International Trade Commission under Section 337 of the Tariff Act of 1930. The ITC can issue an order forbidding importation of infringing goods.

(c)

Limitations on the Distribution Right: The “First Sale” Doctrine

“First sale” is an important copyright concept. Once the copyright owner or his agent or licensee transfers ownership of a material object embodying the copyright owner’s work (that is, makes a “first sale”), the copyright owner cannot restrict the further transfer of that material object. Section 109(a) permits the owner of a copy to sell or dispose of that copy without violating the copyright owner’s distribution right. Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135, 142–44 (1998). Section 109(a) provides: “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 U.S.C. § 109(a) (emphasis added). • The “first sale” doctrine is sometimes referred to as “exhaustion of rights.” The idea is that the copyright owner, by putting a copy of a work into the stream of commerce, has exhausted his or her control over distribution of that particular copy. • The first sale doctrine only applies to the distribution right, not to other exclusive rights. • The first sale right only applies to the lawful “owner” of a copy. It does not apply to someone who is in possession of a copy illegally or on a loan or license basis.

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• A copy “lawfully made under this title” includes copies made abroad under authority of the copyright owner. Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1360 (2013). • Software developers may structure their transactions as licenses rather than sales, so that the licensee owns the CD-ROM or digital file on which the software is copied but does not “own” the software itself. The first sale doctrine is not applicable. Where a true license relationship exists, the first sale doctrine does not apply. A software transaction is a license, not a sale, if the software agreement “(1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” Vernor v. Autodesk, Inc., 621 F.3d 1102, 1111 (9th Cir. 2010).

First Sale Right Does Not Permit Rental of Phonorecords and Computer Programs The rightful owner of a copy of computer software, or of a “phonorecord” (which, as the reader will recall, includes CDs and MP3 files), does not have the right under the first sale doctrine to rent or lease it for “commercial advantage.” 17 U.S.C. § 109(b)(1)(A).

§ 7.6.5 (a)

Public Performance Right Exclusive Right Relates to Public Performances Only

Section 106(4) of the Copyright Act provides that the copyright owner of a literary, musical, dramatic, choreographic, or audiovisual work has the exclusive right to perform the work publicly. 17 U.S.C. § 106(4).

Public Defined Public performance is performance that occurs in “a place open to the public or a place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.” 17 U.S.C. § 101. Performance over the Web, whether “on demand” or via Webcast, is a public performance because it is open to members of the general public, regardless of how many of them may actually perceive it at any given moment.

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Performing Rights Societies Performing rights societies, such as ASCAP (American Society of Composers, Authors and Publishers), BMI (Broadcast Music, Inc.), and SESAC, Inc. (Society of European Stage Authors and Composers), play an important role in policing the exclusive performance right. They collect royalties for the performance of musical works, and distribute those royalties to the copyright owners. Restaurants, nightclubs, and television broadcasters are typical licensees who pay royalties to these performing rights societies for the right to perform musical works. The performing rights societies are active in bringing infringement suits against restaurants, nightclubs, and other establishments that do not pay royalties. Performing rights societies license what are called, in the musical field, “small performance rights”: the right to perform where the performance is, at least theoretically, secondary in importance (e.g., in a hotel, bar, or nightclub), or in TV or radio broadcasts. So-called grand performance rights—the right to perform music in a live theatrical setting (e.g., musicals) or in concert halls—are generally licensed directly from the copyright owner, generally from the “music publisher.”

(b)

Limitations on the Owner’s Performance Right

The statute contains several specific carveouts from the copyright owner’s exclusive performance right. These are detailed in 17 U.S.C. § 110. Some of the more generally applicable exemptions are discussed below.

Face-to-Face Instruction Section 110(1) permits performance by instructors in “face-to-face teaching activities” of a nonprofit educational institution.

Transmissions to Classrooms and Limited Distance Education Section 110(2) permits transmission of the performance of nondramatic literary or musical works, reasonable portions of any other type of work, or the display of certain portions of a work, in the context of distance learning. The qualifications built into this exemption are complicated and should be studied carefully. See also 17 U.S.C. § 112(f) (permitting the making of certain recordings for the purposes of distance learning).

Religious Services Section 110(3) permits performance of works in religious services.

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Nonprofit Performances Section 110(4) permits performances that are not for any direct or indirect commercial advantage, if the performers, promoters, and organizers are not paid, and if either • there is no direct or indirect admission charge or • all proceeds after recouping the reasonable costs of producing the performance are used exclusively for educational, religious, or charitable purposes. This exclusion is not absolute, however; the copyright owner has the right to object and prevent the performance. The rules for lodging an objection are complex and must be followed to the letter.

Sound Recordings Sound recordings have no public performance rights in the analog world. They are given certain rights where digital performance is concerned. See 17 U.S.C. § 106(6); Bonneville Int’l Corp. v. Peters, 347 F.3d 485, 488–89 (3d Cir. 2003).

§ 7.6.6

Public Display Right

Copyright owners have the exclusive right to display their works publicly. “Display” means “to show a copy of [the work], either directly or by means of a film, slide television image, or any other device or process or, in the case of a motion picture or other audiovisual work, to show individual images nonsequentially.” 17 U.S.C. § 101.

(a)

Framing and Inline Linking Are Not Infringing Public Displays

Framing is a technique whereby the current website includes its own banner ads and other content as a “frame” around images or text from a third-party site. An “inline link” works in the same way, in that the code tells the site to go to another site and display the image from that third-party site. The website does not copy the image or text from the third-party site, but rather has code that tells the site to go to another URL (uniform resource locator) and display that image. A user may be unaware that the image or text is from a different website. The Ninth Circuit, in Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1160– 61 (9th Cir. 2007) (consolidated appeal), held that this is not a public display of the 3rd Edition 2016

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linked or framed image (“Google does not, however, display a copy of full-size infringing photographic images for purposes of the Copyright Act when Google frames in-line linked images that appear on a user’s computer screen.”). Perfect 10 argued that Google’s display gave the impression that it was showing the image within a single Google Webpage. The court said, “While in-line linking and framing may cause some computer users to believe they are viewing a single Google Webpage, the Copyright Act, unlike the Trademark Act, does not protect a copyright holder against acts that cause consumer confusion.”

(b)

Limitations on the Public Display Right

Viewers in the Same Place The owner of a copy of work may display that work publicly to “viewers present in the place where the copy is located.” 17 U.S.C. § 109(c). This is similar to the first sale doctrine, by which the owner of a copy has the right to distribute that copy.

Similar Limitations to Public Performance Right Many of the limitations on the copyright owner’s exclusive public performance right—such as the classroom exemption and the religious service exemption— are applicable to the public display right. 17 U.S.C. § 110.

§ 7.6.7 (a)

“Moral Rights” for Works of Visual Art Moral Rights Are Noneconomic Rights

The Visual Artists Rights Act of 1990 gave a type of protection to artists that is different than other rights in the Copyright Act. 17 U.S.C. § 106A. French copyright law has long provided for droit moral, or so-called moral rights—the rights of attribution and integrity. The idea is that an artist’s personality is invested in his or her creation and the artist has the right to prevent the distortion or mutilation of his or her work, and to proper credit as the author of the work. At the federal level, U.S. law protects moral rights only for a very narrow subcategory of works of visual art. 17 U.S.C. § 106A. Various states have moral rights laws but they are rarely invoked. Following the 1976 case of Gilliam v. American Broadcasting Cos., 538 F.2d 14 (2d Cir. 1976), for some years there was a broader federal common law right to prevent being credited for a derivative work that had been altered in a way that the author found offensive. However, 7–38

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the Supreme Court has since ruled that Section 43(a) of the Lanham Act does not create a right of attribution in copyrighted works. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003).

(b)

The Visual Artists Rights Act

Section 106A creates rights for an author of a “work of visual art.” These rights apply to any work created on or after June 1, 1991, and any work created before that date which as of that date was still owned by the artist. 17 U.S.C. § 106A(d).

What Is a “Work of Visual Art”? This is very narrowly defined: a painting, drawing, print, sculpture, or photograph in a single copy or in a limited, consecutively signed edition of 200 or fewer copies. See 17 U.S.C. § 101. The photograph must be “produced for exhibition purposes only,” so the typical snapshot is not protected by this section. No matter how artistic, anything that does not precisely fit in one of these categories is not a “work of visual art” under this section. Furthermore, a work made for hire is not subject to moral rights even if it otherwise falls within the definition.

Three Rights of Attribution The author of a work of visual art has three rights of “attribution”: • to claim authorship of the work; • to prevent the use of his or her name as being the author of any work he or she did not create; and • to prevent the use of his or her name as the author of any work that is distorted, mutilated, or modified in a way so as to be prejudicial to his or her honor or reputation. 17 U.S.C. § 106A(a).

Right of Integrity In addition to the rights of attribution, the author has a right of “integrity”: to prevent distortion, mutilation, or modification of the work that would be prejudicial to his or her honor or reputation. For a somewhat bizarre application of this right, see Massachusetts Museum of Contemporary Art Foundation, Inc. v. Buchel, 3rd Edition 2016

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593 F.3d 38, 61 (1st Cir. 2010). Works of “recognized stature” are also protected from destruction, whether intentional or grossly negligent. Where a work is incorporated in, or is part of, a building, this protection against destruction does not apply so long as the building owner gives the artist the opportunity to remove the work, if removal is feasible. If removal is not feasible, the owner is bound by a more complex set of rules. The details of rights in these situations are set out in 17 U.S.C. § 113(d).

Rights of Attribution and Integrity Are Separate from Copyright Rights The artist’s rights are distinct from the copyright, and exist even if the copyright owner no longer owns or has any economic interest in the work. 17 U.S.C. § 106A(a), (e)(2).

Rights Are Personal and Not Transferable Since the rights of the artist protected by this section are personal, the artist’s rights are not transferable and they terminate upon the artist’s death. 17 U.S.C. § 106A(d), (e)(1).

Rights Waivable The artist can, however, waive his or her rights if he or she signs a written instrument specifically identifying the work and the uses of that work to which the waiver applies. 17 U.S.C. § 106A(e)(1).

§ 7.7

TRANSFERRING A COPYRIGHT AND TERMINATING THE TRANSFER

§ 7.7.1

Rights Transferable in Whole or in Part

Copyright rights are divisible. A copyright owner of any part of any exclusive right—which includes an exclusive licensee—is entitled to all the rights of a copyright owner with respect to that right. 17 U.S.C. § 201(d)(2). A copyright owner may transfer all or any subset of the exclusive rights in the work. 17 U.S.C. § 201(d)(1).

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§ 7.7

What Is a Transfer?

A transfer of copyright ownership is defined as “an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.” 17 U.S.C. § 101. Example: Edith grants an exclusive license to Charles to distribute a book in the United States for five years. Even though the license is geographically restricted and limited in duration, it is considered a transfer of copyright and vests in Charles the control of that right for the five-year period—including the right to sue for infringement. A license gives the licensee the right to exercise the particular designated right or rights, without relinquishing the actual ownership of the copyright. However, a license can last for the entire duration of copyright.

§ 7.7.3

How May Copyrights Be Transferred?

To be valid, a copyright transfer must be • by a written instrument • signed by the transferor or the transferor’s agent. 17 U.S.C. § 204(a). This writing requirement is similar to a statute of frauds. In addition, copyrights may be transferred by operation of law, such as in a bankruptcy proceeding, or by a will or the laws of descent. 17 U.S.C. § 204(a). The leading cases on the intersection between community property and copyright are In re Marriage of Worth, 195 Cal. App. 3d 768 (1987) and Rodrigue v. Rodrigue, 218 F.3d 432 (5th Cir. 2000). An example of a simple assignment of copyrights is attached as Exhibit 7C.

(a)

No Writing Necessary for Nonexclusive Licenses

Nonexclusive licenses do not need to be in writing. They may be oral or implied, since they are not transfers of copyright ownership. Practice Note Nonexclusive licensees. A nonexclusive licensee should still attempt to obtain his or her license in writing. This is because if there is a

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conflict between a transfer of ownership of the copyright (whether by an assignment of the copyright or the granting of an exclusive license) and a nonexclusive licensee, the nonexclusive transferee will prevail if

• the nonexclusive license was signed before the copyright was transferred to the other party or

• the nonexclusive license was signed before the other transfer was recorded in the Copyright Office (see below) and the nonexclusive licensee did not have notice of the other transfer, but only if the nonexclusive license is in writing. 17 U.S.C. § 205(e).

(b)

Contributions to Collective Works Such as Periodicals

Unless the parties agree otherwise, the copyright owner of a periodical or other collective work is presumed to have only a nonexclusive license to reproduce and distribute the individual contributions “as part of that particular collective work, any revision of that collective work, and any later collective work in the same series.” 17 U.S.C. § 201(c); N.Y. Times Co. v. Tasini, 533 U.S. 483, 488 (2001).

(c)

Does the Written Instrument Transferring Copyright Need to Meet Any Specific Requirements?

No. The written instrument transferring a copyright does not need to be lengthy, and it does not even need to be a formal contract. As the Ninth Circuit stated, the written assignment of copyright interests “doesn’t have to be the Magna Carta; a one-line pro forma statement will do.” Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990). Even if “moviemakers do lunch, not contracts,” they need to put something in writing. Effects Assocs., Inc. v. Cohen, 908 F.2d at 556. Be careful, though, to specify whether a transfer carries with it the right to sue for infringements predating the transfer. Unless the instrument so provides, the right to sue is presumed to remain with the prior owner. Silvers v. Sony Pictures Entm’t, Inc., 402 F.3d 881, 884 (9th Cir. 2005); ABKCO Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 971, 980–81 (2d Cir. 1991). Be careful also, if the transfer is a license rather than an assignment, to specify whether the licensee may sublicense. A nonexclusive licensee has no right to sublicense without the licensor’s approval. It is generally believed that an exclusive licensee has the implied right to sublicense, but a controversial Ninth Circuit 7–42

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case has reversed this presumption at least in that circuit. Gardner v. Nike, Inc., 279 F.3d 774, 780 (9th Cir. 2002).

(d)

Can Cashing a Check from the Proposed Assignee Constitute a Valid Assignment?

Yes, as long as it is clear that cashing the check meant agreement to assignment of the copyright. See Dean v. Burrows, 732 F. Supp. 816, 823 (E.D. Tenn. 1989); Franklin Mint Corp. v. Nat’l Wildlife Art Exch., Inc., 195 U.S.P.Q. 31, 36 (E.D. Pa. 1977).

(e)

Duration

What happens if the copyright transfer does not state the duration of the transfer? The best interpretation is that it is effective for the duration of the copyright. P.C. Films Corp. v. MGM/UA Home Video Inc., 138 F.3d 453, 458 (2d Cir. 1998). What happens if the copyright ends in 2010, and the license requires royalties to be paid until 2020? Analogizing to the law of patent abuse, where it is impermissible to charge royalties past the patent expiration, Aronson v. Quick Point Pencil Co., 440 U.S. 257, 265 (1979), it is probably copyright misuse to require royalty payments once the term of the copyright has expired. See Shoptalk, Ltd. v. Concorde-New Horizons Corp., 168 F.3d 586, 589 (2d Cir. 1999); April Prods. Inc. v. G. Schirmer, Inc., 126 N.E.2d 283, 289 (N.Y. 1955).

(f)

Should Copyright Transfers Be Recorded in the Copyright Office?

Yes. Although it is not a requirement to record a transfer in the Copyright Office, it is highly beneficial to do so. A properly recorded transfer in the Copyright Office gives constructive notice of the transfer. 17 U.S.C. § 205(c). See 37 C.F.R. § 201.4 and http://www.copyright.gov/document.html for a discussion of recordation of transfers and other documents. A security interest in a registered copyright can be created only if the mortgage or other document creating the interest is recorded in the Copyright Office. In re Peregrine Entm’t, Ltd., 116 B.R. 194 (C.D. Cal. 1990). However, security interests in unregistered copyrights can be created under normal UCC rules. In re World Auxiliary Power Co., 303 F.3d 1120, 1126 (9th Cir. 2002).

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To maintain the privacy of contracts that include a copyright transfer, parties often use a so-called short form transfer that is a bald recital of the transfer but refers to the longer instrument.

(g)

Mechanics for Recording a Copyright Transfer

A copyright transfer is properly recorded with the register of copyrights if the copyright is registered and the document specifically identifies the work to which it pertains so that a reasonable search would reveal the title or registration number of the work. 17 U.S.C. § 205(c). The mechanics of recordation are complicated, and are set out at http://www.copyright.gov/document.html. Sadly, in contrast to recordation of transfers of trademarks and patents, recordation of a copyright transfer must be done on paper.

(h)

Conflicts Between Transferees

If there is a conflict between a prior transferee of a copyright and a subsequent transferee, the prior transferee will always prevail if the prior transferee properly records the copyright • within one month after the transfer is executed in the United States; • within two months after the transfer is executed outside the United States; or • prior to the recording of the later transfer. 17 U.S.C. § 205(d). The reverse is not necessarily true. The subsequent transferee does not necessarily win if he or she records and registers the copyright before the prior transferee does. The subsequent transferee must also not have notice of the prior transfer, and must have paid valuable consideration or promised to pay royalties.

(i)

New Media

Much litigation has arisen over copyright transfers that did not explicitly anticipate later-invented media. For example, should a license to publish a work in “book form” be construed to include e-books? In 2000 and 2001, Rosetta Books contracted with several well-known authors to publish certain of their works in digital format over the Internet. The works included The Confessions of Nat Turner and Sophie’s Choice by William Styron, 7–44

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and Cat’s Cradle and Slaughterhouse-Five by Kurt Vonnegut. Random House sought to enjoin Rosetta Books from selling these works on the grounds that the authors had previously granted to Random House—not Rosetta Books—the right to “print, publish and sell the work[s] in book form.” Rosetta Books claimed that it was not infringing because the license agreements between the publisher and author did not include a grant of digital or electronic rights. Was this an infringement? No. The court stated, Relying on the language of the contracts and basic principles of contract interpretation, this Court finds that the right to “print, publish and sell the work[s] in book form” . . . does not include the right to publish the works in the format that has come to be known as the “ebook.” Random House, Inc. v. Rosetta Books LLC, 150 F. Supp. 2d 613, 614 (S.D.N.Y. 2001) (denying a motion for a preliminary injunction), aff’d, 283 F.3d 490 (2d Cir. 2002). The Second Circuit, in affirming the result, was more open to the contrary argument but felt the matter should be decided by the trier of fact on a full record. This case was settled, leaving us with no further guidance on the point. In Massachusetts, the leading case in this area of unanticipated media is Rey v. Lafferty, 990 F.2d 1379 (1st Cir. 1993), which involved a license to create motion pictures based on the Curious George stories for “television viewing,” the contract having been written at a time when video technology did not exist. The question was, which party controlled videocassette rights? The court declined to follow the lead of some courts that had placed the whole burden of anticipating new uses on the licensee; instead, it said, that burden should be borne equally by both parties, and the way to do that is to construe a license by, in effect, analogy. Because videocassettes could be viewed using machines other than television, the court found them not to be within the scope of the license. An assignment of “all right, title and interest” does not present an issue, nor does a transfer that covers “all media now known or hereafter discovered.” Such language, however, may not be acceptable to the licensor, who may seek to reserve “all rights not expressly granted herein.” This is a common focus of negotiation; caveat emptor and vendor.

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(j)

INTELLECTUAL PROPERTY PRACTICE

Assignments and Licenses of Copyright May Be Terminated as a Matter of Law, Regardless of Contract

Section 203(a)(3) provides that authors may terminate an assignment, exclusive license, or nonexclusive license between thirty-five and forty years from the grant date. Whether justifiably or not, Congress has taken the policy position that authors need special protection. They need protection against entering into bad deals. In particular, Congress believed this “because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s prior value until it has been exploited.” H.R. Rep. No. 94-1476, at 124 (1976).

What About Derivative Works Prior to Termination? Licensees who have created derivative works prior to the termination may continue to utilize those works, but may not make new derivative works after the termination. 17 U.S.C. § 203(b)(1).

Formalities of Termination Notice To be effective, a termination notice must meet strict formalities. The notice must • be in writing, • be signed by the author or his or her successors, • specify the date of termination, • be served on the grantee between two and ten years prior to the date of termination, and • be recorded in the Copyright Office prior to the date of termination. The devil of termination lies in the details. See 17 U.S.C. § 203(a)(1), (a)(4)(A); see Ray Charles Found. v. Robinson, 795 F.3d 1109 (9th Cir. 2015), and cases cited therein.

Can a Licensor Waive the Right to Terminate? No. Section 203(a)(5) provides that an author can terminate a grant, even if the author has agreed in writing to the contrary.

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Works Made for Hire Are Not Subject to the Termination Right If a work is made for hire, the employer owns the work. The employee cannot terminate this transfer. 17 U.S.C. § 203(a).

Effect of Termination Upon termination, the copyright vests in the author or the author’s heirs as stipulated by statute, regardless of the author’s testamentary intentions. See 17 U.S.C. 203(a)(2), Stewart v. Abend, 495 U.S. 207 (1990), and Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373 (1960) for details.

§ 7.8

LITIGATION OF COPYRIGHT INFRINGEMENT AND CLAIMS UNDER OTHER LAWS

If someone violates one of its copyright owner’s exclusive rights, the owner has a claim for copyright infringement. 17 U.S.C. § 501. This section covers various procedural issues of infringement litigation. The substantive issues of what constitutes infringement are discussed in § 7.10, What Is Copyright Infringement?, below. The defenses to an infringement action, including the most important and hard-to-pin-down defense, “fair use,” are discussed in § 7.11, Defenses to Copyright Infringement, below.

§ 7.8.1 (a)

Where to Sue? Subject Matter Jurisdiction Federal Courts . . . Usually

Federal courts have exclusive jurisdiction over claims “arising under” the Copyright Act. Section 1338(a) of Title 28 of the U.S. Code provides that federal District Courts have original and exclusive jurisdiction over “any civil action arising under any Act of Congress relating to” copyrights. Despite this seemingly unequivocal statement, however, federal courts do not have jurisdiction over all disputes involving copyrights. This is because state courts usually have jurisdiction in contract disputes, and copyright disputes often involve contract interpretation. See, e.g., Jasper v. Boniva Music, Inc., 314 F.3d 42, 46 (2d Cir. 2002) (“[I]f the case concerns a dispute as to ownership of a copyright and the issue of ownership turns on the interpretation of a contract, the case presents only a state law issue, and, unless the complaint asserts a remedy 3rd Edition 2016

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expressly granted by the Copyright Act, federal jurisdiction is lacking, in the absence of diversity jurisdiction.”) In T.B. Harms Co. v. Eliscu, 339 F.2d 823, 826 (2d Cir. 1964), Judge Friendly adopted a test for federal jurisdiction that is still the touchstone for such analysis. Stating that it was clear that not every dispute that refers to the Copyright Act “arises under” that act for jurisdictional purposes, Judge Friendly stated that an action “arises under” the Copyright Act if and only if [1] the complaint is for a remedy expressly granted by the Act, e.g., a suit for infringement or for the statutory royalties for record reproduction . . . or [2] asserts a claim requiring construction of the Act, . . . or [3] at the very least and perhaps more doubtfully, presents a case where a distinctive policy of the Act requires that federal principles control the disposition of the claim. T.B. Harms Co. v. Eliscu, 339 F.2d at 828.

(b)

Diversity Jurisdiction

Apart from federal question jurisdiction as discussed above, federal courts can also have jurisdiction in cases involving copyrights, which might otherwise be limited to state court, if the parties are from diverse states and the amount in controversy (currently $75,000) threshold is met. 28 U.S.C. § 1332.

§ 7.8.2

Federal Jurisdiction: Copyright Infringement

Federal courts have exclusive jurisdiction over any claim of copyright infringement. This is the first part of Judge Friendly’s test. The remedies for infringement are set forth in Chapter 5 of the Copyright Act. Even if there is a contract between the parties, there will be exclusive federal jurisdiction if the only disagreement between the parties is whether the defendant’s conduct • is permissible under the contract or • is disallowed under the contract. Nimmer § 12.01[A][1][a].

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§ 7.8

Federal Jurisdiction: Interpretation of the Copyright Act

If the crux of the dispute requires interpretation of the Copyright Act, then federal courts often take jurisdiction. This is so even if there is no infringement. This is the second part of Judge Friendly’s test. Thus, in Merchant v. Levy, 92 F.3d 51 (2d Cir. 1996), federal jurisdiction lay over a claim of co-ownership of a copyright, because the rights of the parties arose solely from the Copyright Act and not any private contract.

§ 7.8.4

Personal Jurisdiction

The Copyright Act has no particular in personam jurisdiction rules. The plaintiff needs to meet the usual rules for obtaining personal jurisdiction over the defendant. Unlike subject matter jurisdiction, which the parties may not confer on a court by agreement, a defendant can waive objections to personal jurisdiction.

§ 7.8.5

Venue

A plaintiff may sue a defendant for infringement in the district in which the defendant or his or her agent resides or may be found. 28 U.S.C. § 1400(a). Essentially, this means that venue lies wherever the defendant is subject to personal jurisdiction. In the case of a corporation, proper venue may be established under Section 1400(a) in any jurisdiction where personal jurisdiction might be obtained over it. Battle Creek Equip. Co. v. Roberts Mfg. Co., 460 F. Supp. 18, 21– 22 (W.D. Mich. 1978). State long-arm statutes may also be used to establish venue. Droke House Publishers, Inc. v. Aladdin Distrib. Corp., 352 F. Supp. 1062, 1065 (N.D. Ga., 1972). Venue standards in 28 U.S.C. § 1400(a) should be applied liberally. Droke House Publishers, Inc. v. Aladdin Distrib. Corp., 352 F. Supp. at 1065.

§ 7.8.6

Suits Against the Government

A plaintiff wishing to sue the following entities for copyright infringement must sue in the U.S. Court of Federal Claims: • the U.S. government, • a corporation owned or controlled by the federal government, or • a contractor or any person acting for the federal government. 28 U.S.C. § 1498(b). 3rd Edition 2016

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§ 7.8.7

INTELLECTUAL PROPERTY PRACTICE

State Government Immunity from Suit

A plaintiff who wishes to sue a state government or state agency, such as a state university, for copyright infringement may sue a state for damages in federal court only if the state consents to the suit. Chavez v. Arte Publico Press, 204 F.3d 601, 603–05 (5th Cir. 2000); Rodriguez v. Tex. Comm’n on the Arts, 199 F.3d 279, 281 (5th Cir. 2000). It is generally believed that state officers can still be sued for injunctive relief. Sofamor Danek Group v. Brown, 124 F.3d 1179, 1184 (9th Cir. 1997).

§ 7.8.8

International Issues

Although most countries are members of the Berne Convention, which standardizes many aspects of copyright law, copyright is still fundamentally a creature of national law. This has several important ramifications.

(a)

Governing Law

Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d 82 (2d Cir. 1998) concerned a Russian language weekly newspaper published in New York by the defendant. The Russian plaintiffs sued the defendant for copying approximately 500 articles that first appeared in the plaintiffs’ publications or were distributed by Itar-Tass. The defendants did not dispute the copying or that, with one exception, they had not obtained permission to reproduce the articles in the Kurier. One question before the court was whether the copyright law of Russia or of the United States would apply in determining the “ownership and essential nature” of the copyrights alleged to have been infringed. Another question was which country’s law would apply in determining whether the copyright had been infringed and, if so, which remedies were available. The court ultimately held that the issue of copyright ownership would be determined by Russian law because the works at issue had been created by Russian nationals and first published in Russia. Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d at 90–91. Because the tort of infringement occurred in the United States and because the defendant was an American company, the court held that the issue of infringement would be determined by U.S. law. Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d at 91.

(b)

The Yellow Submarine Case: Authorization to Infringe Overseas Not a Violation of the U.S. Copyright Act

In 1966, the Beatles made a movie, Yellow Submarine. Hearst, the movie’s producer, authorized United Artists to distribute the movie worldwide. In the 1980s, 7–50

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when the home video market opened up, MGM/United Artists (the successor to United Artists) decided to distribute the movie on video. It “authorized” the distribution overseas by license agreements signed in the United States. Hearst claimed that MGM/United Artists did not have the right to distribute the movie on video and sued for infringement. Did the overseas distribution violate the U.S. Copyright Act? No. The Ninth Circuit, sitting en banc, said that “authorizing” the act in the United States (entering into the licensing agreements) cannot be a violation of the U.S. Copyright Act since the resulting act (distribution overseas) is not a violation of the U.S. Copyright Act. Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1096–98 (9th Cir. 1994).

§ 7.8.9 (a)

Who May Sue? Copyright Owner and Exclusive Licensee

The legal owner, beneficial owner, or exclusive licensee of one or more copyright rights may sue for infringement for that particular right. 17 U.S.C. § 501(b).

(b)

Assignment and Prior Infringement Claims

Can an assignee sue for any infringement? No. An assignee or exclusive licensee of copyright only obtains the right to sue for infringements that occur after the assignment. When you are representing an assignee and you wish to have the right to sue for infringement that occurred prior to the date of assignment, you need to specify that the assignment includes “an assignment of all accrued or existing causes of action.”

§ 7.8.10 Statute of Limitations The statute of limitations for civil copyright actions is three years “after the claim accrued.” 17 U.S.C. § 507(b). The statute of limitations for criminal actions is five years. 17 U.S.C. § 507(a).

(a)

When Does the Claim Accrue?

The claim accrues when the plaintiff “knows or had reason to know of the injury upon which the claim is premised.” Stone v. Williams, 970 F.2d 1043, 1048 (2d Cir. 1992). If the dispute is essentially over ownership, the claim accrues when the plaintiff first learns that the defendant expressly repudiates the plaintiff’s 3rd Edition 2016

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alleged ownership of the right in question. Santa-Rosa v. Combo Records, 471 F.3d 224 (1st Cir. 2006).

(b)

Each Infringement Is a Distinct Injury

Each infringement gives rise to its own claim for relief. Stone v. Williams, 970 F.2d 1043, 1049 (2d Cir. 1992). Since (for example) each distribution of an infringing work is a separate infringement, the copyright holder may sue the distributor for selling unauthorized translations during the three years immediately preceding the date of filing of the action, but not for sales occurring prior to that date. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1969 (2014).

§ 7.8.11 Civil Copyright Infringement Complaint A good copyright complaint should, like any good complaint, tell a coherent and compelling story. It should also contain at least the following information: • the basis for jurisdiction (28 U.S.C. § 1338(a)) and venue (28 U.S.C. § 1400(a)); • the identity of the copyright owner; • the identity of the author (if that person is different from the copyright owner, state how the copyright owner acquired the rights sued on); • the identity of each defendant; • where two or more defendants are responsible for a given infringement, a statement that defendants are jointly and severally liable; • the basis of liability of each defendant. If a particular defendant is not directly liable for the infringement, state whether the liability of that defendant is vicarious or contributory, and on what basis (e.g., that he or she had a financial interest in, and a right to control the infringing conduct, or that he or she contributed to the infringement by providing funding); • a description of the work that has been infringed; • the registration number of the copyright (if available, a copy of the registration certificate should be attached as an exhibit); 7–52

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• what the defendants did that constituted infringement, and when and where; • what rights under Section 106 of the Copyright Act were infringed; • how the infringement damaged the plaintiff and/or enriched the defendants; • the relief sought (see § 7.12, Plaintiff’s Remedies for Infringement, below, for the various types of relief available); and • the various forms of financial relief, which should usually be stated as alternatives. The following is a fairly typical way of dealing with this: –

A. Award plaintiff its damages in an amount to be determined;

–

B. Award plaintiff an accounting of defendants’ profits to the extent not taken into account in the calculation of damages;

–

C. In lieu of damages and profits, at plaintiff’s election, award plaintiff statutory damages under 17 U.S.C. § 504(c), in an amount to be determined.

§ 7.9

CIVIL COPYRIGHT INFRINGEMENT: DIRECT, CONTRIBUTORY, AND VICARIOUS INFRINGERS

§ 7.9.1

Who Is Liable?

A copyright owner may sue the party or parties who directly infringed, as well as any party or parties who helped the direct infringer or induced the infringement. These secondary parties are classified as either contributory infringers or vicarious infringers. This section will discuss these three categories of infringers.

§ 7.9.2

Direct Infringers

Section 501(a) provides: “Anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 121 . . . is an infringer of the copyright . . . .” 17 U.S.C. § 501(a).

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§ 7.9.3

Liability for the Infringement of Others— Vicarious Infringement and Contributory Infringement

A plaintiff may also sue parties who have not themselves engaged directly in infringement, but who have contributed to, or failed to exercise a right to prevent, someone else’s infringement, on the grounds of contributory infringement or vicarious infringement. Neither of these doctrines is set forth in the Copyright Act, but courts have long applied these doctrines.

§ 7.9.4

Elements of Contributory Infringement

A defendant is liable for contributory infringement if the defendant • had knowledge of the infringing activity and • induced, caused, or materially contributed to the other party’s infringement. See, e.g., Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996); Gershwin Publ’g Corp. v. Columbia Arts Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005). Liability exists if the defendant engages in “personal conduct that encourages or assists the infringement.” Matthew Bender & Co. v. West Publ’g Co., 158 F.3d 693, 706 (2d Cir. 1998). The Supreme Court has found parties liable for infringement if they “induced” the infringement. MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. at 941.

(a)

Knowledge: Actual or Constructive

The defendant must “know or have reason to know” of a direct infringement. Sega Enters., Ltd. v. Maphia, 948 F. Supp. 923, 933 (N.D. Cal. 1996); see MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 936–37 (2005) (holding that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties). That is, the defendant must have actual knowledge or constructive knowledge of the infringement. It is not necessary that the defendant knew of the specific act of infringement, only that he or she knew or should have known that infringement would occur.

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In the well-known Napster case, the court found that Napster had both actual knowledge and constructive knowledge that its users were engaging in direct infringement. Napster’s actual knowledge was based on • an e-mail written by Napster cofounder Sean Parker noting the need to remain ignorant of users’ real names and Internet Protocol addresses “since they are exchanging pirated music”; and • the Recording Industry Association of America informing Napster of more than 12,000 infringing MP3 files on its system. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1020 n.5 (9th Cir. 2001) (citing A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 918 (N.D. Cal. 2000); see also In re Aimster Copyright Litig., 334 F.3d 643 (7th Cir. 2003). It did not help that an e-mail disclosed in discovery talked about Napster’s strategy, noting that “we are not just making pirated music available but also pushing demand.” A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d at 918. Napster’s constructive knowledge of infringement was based on the following four factors: • Napster executives had recording industry experience; • Napster executives had enforced intellectual property rights in other instances; • Napster executives had themselves downloaded copyrighted songs from the Napster system; and • Napster executives had promoted the website with screen shots listing infringing files. A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d at 919. While constructive knowledge is not always easy to define, courts believe they know it when they see it.

(b)

Material Contribution to the Infringement

Defendants can materially contribute to the infringement either by • personal conduct that forms part of the infringement or furthers the infringement, or

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• contribution of machinery or goods that provides the means to infringe. Nimmer § 12.04[A][2]. Many cases involve both personal involvement and providing the means to infringe. Napster provided a database or directory of MP3 files, which were available for downloading by users at any particular time. This database was dynamic; it was composed of all MP3 files that Napster users connected to the system at that moment wished to make available to other Napster users. In addition, Napster’s server software and search functions routed the computer of the user requesting an MP3 file to the computer of the user providing that file. The court found that these support services permitted Napster users to find and download the music they wanted. Napster provided the site and the facilities for the infringement, thus materially contributing to the infringement. A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 919–20 (N.D. Cal. 2000).

§ 7.9.5

Limit on Contributory Infringement: The “Staple Article of Commerce” Theory

The fact that someone contributes products that could be used for infringing purposes does not mean that they will be liable for copyright infringement. For example, a producer of photocopy machines is not liable for contributory copyright infringement even though users obviously can use its products to engage in infringing activities.

(a)

The Betamax Case

If a product is an article of commerce and is “capable of substantial noninfringing uses,” its sale will not constitute contributory infringement. Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 442 (1984). In Sony, the Court addressed a case in which strong commercial interests were pitted against each other. Plaintiffs Disney and Universal Studios, as producers of television programs, sued Sony, the manufacturer and seller of the Betamax home videocassette recorders. The plaintiffs claimed that Sony was liable for contributory infringement since it sold the VCRs knowing that users would copy television programs with the devices. Nevertheless, the Court found that “timeshifting,” that is, the private home-viewing of taped programs, was a fair use. In so doing, the Court also found that Sony’s providing the VCR did not constitute 7–56

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contributory infringement since “the product is widely used for legitimate, unobjectionable purposes.” Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. at 442. In a famous line, the Court continued, “Indeed, it need merely be capable of substantial noninfringing uses.” Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. at 442. It is clear from Sony that the noninfringing use need only be substantial, and not the most significant use. Furthermore, if copyright owners are likely to vary in their views of the technology, liability will probably not be found. The plaintiff must prove that he or she speaks for “virtually all” copyright owners who might be impacted by the use of that product. Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. at 446.

Inducement Liability Under Grokster On the other hand, the fact that a technology is capable of some noninfringing use does not exonerate a defendant who distributes the technology with the intent to induce infringing uses of it. This was the holding in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 923–24 (2005). The Court stated, “The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement.” MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. at 923–24. Further, the Court noted, While there is doubtless some demand for free Shakespeare, the evidence shows that substantive volume is a function of free access to copyrighted work. Users seeking Top 40 songs, for example, or the latest release by Modest Mouse, are certain to be far more numerous than those seeking a free Decameron, and Grokster and StreamCast translated that demand into dollars. MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. at 926.

(b)

Requirement of Direct Infringement

There must be direct infringement in order for a defendant to be liable for contributory infringement. Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1371 (N.D. Cal. 1995); see also MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930–31 (2005).

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§ 7.9.6

Elements of Vicarious Infringement

Vicarious infringement is an outgrowth of the agency principles of respondeat superior. Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 261–62 (9th Cir. 1996). A defendant is liable for vicarious infringement if he or she has • the right and ability to supervise the infringing activity and • direct financial interest in the infringing activity. Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); Polygram Int’l Publ’g, Inc. v. Nevada/TIG, Inc., 855 F. Supp. 1314, 1325–26 (D. Mass. 1994).

(a)

Supervision

Does the defendant have the right to supervise the infringing activity? Under the “landlord-tenant cases,” a landlord does not have the right to supervise the activities of his or her tenants, and is therefore not liable for vicarious infringement. See, e.g., Deutsch v. Arnold, 98 F.2d 686, 688 (2d Cir. 1938). (It should also be noted that a landlord’s revenue from the property is often not dependent on the infringing activity of the tenant.) For a somewhat extreme example of this, see Vernon Music Corp. v. First Development Corp., No. 83-0645-MA, 1984 U.S. Dist. LEXIS 15776 (D. Mass. June 19, 1984) (granting a landlordcorporation’s motion to dismiss even though its president was personally responsible for the infringement). On the other side, there are the “dance hall cases,” in which the operator of an entertainment venue, such as a dance hall or a bar, is liable for infringing performances. See Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 308 (2d Cir. 1963). Under this doctrine, the owner of the Bay State Raceway in Foxboro, Massachusetts, was held vicariously liable for copyright violations by a company hired to supply music over its public address system. Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Ass’n, 554 F.2d 1213, 1215 (1st Cir. 1977), aff’d, 554 F.2d 1213 (1st Cir. 1977); see also UMG Recordings, Inc. v. Sinnott, 300 F. Supp. 2d 993, 1001–02 (E.D. Cal. 2004) (operator of a flea market was liable because he had the right to terminate vendors for any reason and actively patrolled the premises). Indeed, as an alternative holding, the Napster court found the defendant liable because it had the right to control its users, based on its own terms of use. It could terminate users in its discretion. It also had the 7–58

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ability to supervise its users to the extent of the architecture of its system. This architecture permitted searching by file name, but not by the content of its files. Accordingly, its ability to patrol was perhaps not as widespread as that of Fonovisa, but it did meet the supervision test. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1012, 1021–22 (9th Cir. 2001).

(b)

Financial Interest

This is generally not a difficult test to meet. In some earlier cases, the court found that the defendant liable for vicarious infringement actually needed to receive a percentage commission of sales of counterfeited goods. Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir. 1963). This requirement has loosened considerably over time. The Fonovisa court said it was enough that “the sale of pirated recordings at the Cherry Auction swap meet is a ‘draw’ for customers, as was the performance of pirated music in the dance hall cases.” Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 263–64 (9th Cir. 1996). Similarly, even though Napster did not originally charge for its service, the court found that it did benefit financially. Its business model was dependent on increases in its user base, and more users registered as the quality and quantity of music increased. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1023 (9th Cir. 2001).

(c)

Personal Liability of Corporate Officers

A variant of vicarious liability applies to corporate officers. They may be held liable for infringements committed by their companies if (1) the officer personally participated in the actual infringement, or (2) the officer derived financial benefit from the infringing activities either as a major shareholder in the corporation, or through some other means such as receiving a percentage of the revenues from the activity giving rise to the infringement, or (3) the officer used the corporation as an instrument to carry out a deliberate infringement of copyright, or (4) the officer was the dominant influence in the corporation, and determined the policies which resulted in the infringement, or (5) on the basis of some combination of the above criteria.

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Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Ass’n, 423 F. Supp. 341, 344 (D. Mass. 1976), aff’d, 554 F.2d 1213 (1st Cir. 1977) (citations omitted).

§ 7.10

WHAT IS COPYRIGHT INFRINGEMENT?

§ 7.10.1 Elements of an Infringement Claim To prevail, a plaintiff must prove two elements in an infringement claim: • ownership of a valid copyright and • copying of elements of the work that are original. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991); Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d 807, 813 (1st Cir. 1995). Intent to copy is not required. Indeed, infringement may be entirely unintentional; it is a strict liability tort. ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 998–99 (2d Cir. 1983).

(a)

Plagiarism Is Not the Same as Infringement

While many people use the terms interchangeably, plagiarism is not the same as infringement, although sometimes the same act may commit both offenses. Plagiarism is the failure to credit another author as the source of one’s words— even, depending on the circumstances, as the source of one’s ideas. Plagiarism may exist even though the amount used might not be enough to constitute copyright infringement. Conversely, an author may be liable for copyright infringement but not plagiarism. For example, if A copies whole pages from B’s book but acknowledges the source, this would probably not be plagiarism but almost certainly would be copyright infringement.

§ 7.10.2 Ownership: The First Element of Infringement A plaintiff owns a valid copyright if • the work is copyrightable and original with the author and • the plaintiff is the author of the work, or is the assignee, exclusive licensee, or beneficial owner of one or more of the exclusive rights granted by the Copyright Act. 7–60

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If copyright in the work was registered within five years of first publication, the registration constitutes prima facie evidence of copyrightability and of the facts stated in the registration, such as the identity of the author and copyright claimant. 17 U.S.C. § 410(c).

§ 7.10.3 Copying: The Second Element of Infringement (a)

How Does a Plaintiff Show Copying?

Although the courts speak of “copying,” the actual test is violation of one of the plaintiff’s six exclusive rights. In some cases, the defendant’s use is open and acknowledged, and the dispute centers on whether the use was permitted by contract or by law. Most cases, though, involve works that look like, or sound like, the plaintiff’s, where the defendant denies making use of the plaintiff’s work. Plaintiffs rarely can produce direct evidence of copying, such as a witness who testifies that he or she saw the defendant copying the plaintiff’s work. Ellis v. Diffie, 177 F.3d 503, 506 (6th Cir. 1999). So unless the defendant openly acknowledges use of the plaintiff’s material, copying must be known by inference. To establish copying, a plaintiff must show that • the defendant had access to the plaintiff’s work prior to the defendant’s creation and • the infringing material is “substantially similar” to the copyrightable elements in the plaintiff’s work. Grubb v. KMS Patriots, L.P., 88 F.3d 1, 3 (1st Cir. 1996).

(b)

First Element of Copying: Opportunity to Access Plaintiff’s Work

Access is critical, because independent creation is a complete defense to an infringement claim. In contrast to patent law, copyright demands only subjective originality, not objective novelty. Just as it is difficult for a plaintiff to produce direct evidence that the defendant copied, it is likewise difficult for a plaintiff to produce direct evidence that the defendant had access to the plaintiff’s work. Therefore, it is better to think of this element as the “opportunity to see” the plaintiff’s work.

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A plaintiff must prove that the defendant had a “reasonable opportunity to copy his or her work.” Grubb v. KMS Patriots, L.P., 88 F.3d 1, 3 (1st Cir. 1996). Evidence that indicates that there was only a “bare possibility” of copying is not sufficient. Grubb v. KMS Patriots, L.P., 88 F.3d at 3. If a plaintiff cannot show access, then the work was presumably independently created and not infringing. A plaintiff can establish access either by demonstrating that • the infringed work has been widely disseminated in a market where the defendant would have had a reasonable opportunity to encounter it, ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 998 (2d Cir. 1983) or • a particular chain of events exists by which the alleged infringer might have gained access to the copyrighted work, Repp v. Webber, 892 F. Supp. 552, 556–57 (S.D.N.Y. 1995).

Example of Successful Wide Dissemination Argument Playboy Enterprises sued Starware Publishing for infringing its copyrights in photographs contained in its publications. Starware distributed the photographs in digitized format on a CD-ROM. The court concluded that Playboy sufficiently proved that the defendant had access, stating: “Virtually every adult in this country has had ‘access’ to the copyrighted photographs published in Playboy® Magazines.” Playboy Enters., Inc. v. Starware Publ’g Corp., 900 F. Supp. 433, 437 (S.D. Fla. 1995); cf. Repp v. Webber, 947 F. Supp 105, 114–15 (S.D.N.Y. 1996).

What if the Work Is Not Widely Disseminated? If a work is not widely disseminated, a plaintiff needs to show some proof that a chain of events led the defendant to have access. For example, in Santrayll v. Burrell, No. 91 Civ. 3166 (PKL), 1998 U.S. Dist. LEXIS 586 (S.D.N.Y. Jan. 22, 1998), the plaintiff rap music group claimed that the defendant rapper M.C. Hammer infringed its song, “In Full Effect” with his 1990 song, “Here Comes the Hammer” by copying the distinctive syncopated “Uh-Oh” chorus. M.C. Hammer moved for summary judgment. The plaintiff contended that Hammer had access to the plaintiff’s song through mutual acquaintances. These acquaintances heard the plaintiff’s song and had a reasonable opportunity to copy the “Uh-Oh” chorus. The court refused to dismiss the complaint because a reasonable juror could find these links, although attenuated, which gave Hammer “access” to the plaintiff’s song. Santrayll v. Burrell, 1998 U.S. Dist. LEXIS 586 (S.D.N.Y. Jan. 22, 1998). 7–62

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Striking Similarity Even where there are no events or circumstances that support an inference of access, access may be found if the works are so “strikingly similar”—a higher standard than “substantially similar”—that there is no reasonable explanation for the similarity other than access. In effect, the level of similarity makes the defendant’s claim of independent creation implausible. Repp v. Webber, 132 F.3d 882, 890 (2d Cir. 1997); Arnstein v. Porter, 154 F.2d 464, 468 (2d Cir. 1946); Playboy Enters., Inc. v. Starware Publ’g Corp., 900 F. Supp. at 437.

(c)

Second Element: Copying of Copyrightable Elements

Courts in the First Circuit engage in a “dissection” analysis to determine which features in a work are copyrightable. CMM Cable Rep, Inc. v. Ocean Coast Props., Inc., 97 F.3d 1504, 1514–15 (1st Cir. 1996); Green v. Albon, 794 F.3d 133, 150 n.15 (1st Cir. 2015). It is important to bear in mind that the copying must be of copyrightable elements of the prior work. Skinder-Strauss Assocs. v. Mass. Continuing Legal Educ., 914 F. Supp. 665, 670–71 (D. Mass. 1995); Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991).

Merger Doctrine and “Scenes a Faire” Two important doctrines remove from the plaintiff’s claim things that should not or cannot be protected. These doctrines are “merger” and “scenes a faire.”

Merger Doctrine: Limitation on Copyrightable Elements Some ideas can only be expressed in a limited number of ways. The merger doctrine holds that an expression is not protected in those instances where there is only one way to express an idea, or so few ways of expressing an idea that protection of the expression would effectively accord protection to the idea itself. In other words, when there are only a few ways of expressing an idea, the expression merges with the idea, making the expression noncopyrightable. Morrissey v. Procter & Gamble Co., 379 F.2d 675, 678–79 (1st Cir. 1967). This doctrine is one way in which copyright law ensures that ideas are not monopolized. The fewer the ways in which an idea may be expressed, the higher the level of identical expression that must exist for a plaintiff to win a copyright infringement claim.

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Massachusetts Merger Doctrine Case Yankee Candle sued Bridgewater Candle for infringing its copyright on its candle labels. These candle labels included photographs of fruits and flowers— eucalyptus, cranberry, gardenia, mulberry, peach, and raspberry. There is only one way to express the idea of these fruits or flowers: by depicting their likeness. This can be done only by a photograph or a drawing. Because the court found that the idea merged almost completely with the expression, a plaintiff has to show a much higher level of similarity—“nearly identical”—in order to prevail in its copyright infringement claim. Yankee Candle Co. v. Bridgewater Candle Co., LLC, 99 F. Supp. 2d 140, 145 (D. Mass. 2000).

Scenes a Faire: Limitation on Copyrightable Elements The scenes a faire doctrine—as the French words suggest—originally evolved to filter out scenes in fictional works that are totally commonplace—after all, for example, any movie set in a desert is going to include shots of camels. The doctrine has been expanded and now applies where “certain ideas are conventionally expressed in ways that reflect similarities in settings that necessarily flow from a common theme.” Yankee Candle Co. v. Bridgewater Candle Co., LLC, 99 F. Supp. 2d 140, 145 (D. Mass. 2000). Such similarities must be disregarded in the infringement analysis. In the Yankee Candle case, both candle companies used an ice cream cone to indicate the scent of French vanilla. The court stated that both parties’ use of the cone constituted a scene a faire; it concluded that “no one person . . . can have a protectable copyright on the expression of an ice cream cone to clarify or elucidate the idea of vanilla. A cone is a logical accoutrement to the idea of vanilla.” Yankee Candle Co. v. Bridgewater Candle Co., LLC, 99 F. Supp. 2d at 146.

(d)

Substantial Similarity

A work is infringed if the copy is “substantially similar” to the original work. In determining substantial similarity, the key is whether a substantial portion of the plaintiff’s work was taken, not whether a substantial portion of the defendant’s work was derived from the plaintiff’s work. Worth v. Selchow & Righter Co., 827 F.2d 569, 570 (9th Cir. 1987). For example, reproducing a seven- to twelvesecond segment of a twenty-eight-minute film can constitute copyright infringement, especially where the segment is of importance in the work infringed. Iowa State Univ. Research Found., Inc. v. Am. Broad. Cos., 463 F. Supp. 902, 905 (S.D.N.Y. 1978), aff’d, 621 F.2d 57 (2d Cir. 1980). Taking 300 words of a full-length book may be infringement, especially where the portion taken is the 7–64

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“heart” of the book. Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 565 (1985). When are two works similar enough that a court will determine that they are “substantially similar?” As Judge Learned Hand stated, this line “wherever it is drawn will seem arbitrary” and “[t]he test for infringement of a copyright is of necessity vague.” Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960); Nichols v. Universal Pictures Corp., 45 F.2d 119, 122 (2d Cir. 1930). In order to infringe, the accused work need not be identical to the plaintiff’s work. As Judge Learned Hand stated in Peter Pan Fabrics, a case involving copyright infringement of a fabric design, “No one disputes that the copyright extends beyond a photographic reproduction of the design, but one cannot say how far an imitator must depart from an undeviating reproduction to escape infringement.” Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d at 489. Such determinations are ultimately ad hoc, based on the facts of a particular case. At the other end of the spectrum, if the works are only similar in trivial ways or the violation is only technical, that will not suffice to cause infringement. In between those extremes lies “substantial similarity.” Some difficult applications of the substantially similar test are discussed below.

Copying the Overall Pattern of a Work Two works may be substantially similar even though there is no verbatim copying, if the essence, structure, and overall pattern of the works are similar. Nimmer calls this “comprehensive nonliteral similarity.” Nimmer § 13.03[A]; see, e.g., Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 346 (1991); Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49 (2d Cir. 1936).

Computer Context Many computer software cases involve the issue of whether one computer program copied nonliteral expression from another program’s code. An important case to address this issue is Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992), which held that software programs were infringed by nonliteral copying.

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Copying Individual Segments of a Work On the other hand, works can be “substantially similar” if the overall pattern is not copied, but individual segments are copied. Nimmer calls this “fragmented literal similarity” because fragments are copied exactly—that is, literally. Nimmer § 13.03[A][2].

The Ordinary Observer Test How do you determine whether there is substantial similarity? By the so-called ordinary observer test. Judge Learned Hand stated the test as follows: “two works are substantially similar if the ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them, and regard their aesthetic appeal as the same.” Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960); see also Concrete Mach. Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 607 (1st Cir. 1988) (As the phrase “aesthetic appeal” suggests, this formula may be of more value in visual work cases than in cases involving factual works or computer software.). Said another way, the key element of the ordinary observer test is the overall similarity of the works, rather than the minute differences that may exist between the works. Concrete Mach. Co. v. Classic Lawn Ornaments, Inc., 843 F.2d at 608.

“Audience Test” The ordinary observer test is also called the “audience test” because the audience should be able to detect infringement spontaneously and immediately, “without any aid or suggestion or critical analysis by others.” Harold Lloyd Corp. v. Witmer, 65 F.2d 1, 18 (9th Cir. 1933). The problem with the audience test is that it does not delineate between protectable, copyrightable elements and noncopyrightable elements. In many cases it is necessary to filter out the noncopyrightable elements before comparing the works—the opposite of a “spontaneous” assessment. Sometimes, also, it is necessary to assess similarity not from the point of view of the ordinary observer but rather from the point of view of someone in the target audience of the works involved. Dawson v. Hinshaw Music, Inc., 905 F.2d 731, 734 (1990). Furthermore, expert testimony is acceptable prior to the actual comparison, in order to remove from the analysis material that a lay jury might mistakenly include when assessing similarity. See, e.g., F. Johnson Co. v. Uniden

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Corp. of Am., 623 F. Supp. 1485, 1493 (D. Minn. 1985); Williams v. Arndt, 626 F. Supp. 571, 580–81 (D. Mass. 1985).

Total Concept and Feel Some cases assess works by comparing their “total concept and feel.” See, e.g., Williams v. Crichton, 860 F. Supp. 158 (S.D.N.Y. 1994). The test had its origins in a nineteenth century case involving a dramatic work, and was picked up in the 1950s for works of visual art. William F. Patry, Patry on Copyright § 9:140, esp. n.3 (Thomson West 2008) [hereinafter Patry]. The “total concept and feel” test for infringement has been severely criticized by another leading commentator. See Nimmer § 13.03[A][1][c]. Patry, while supporting the test for many purposes, observes that it is “particularly appropriate” for visual works “since the originality of those works consists in their overall appearance,” and that it is “problematic” where factual, as opposed to artistic, works are concerned. Patry, op. cit., §§ 9:162 (pp. 9-389), 9:72.

Abstraction-Filtration-Comparison in Software Cases In the field of computer software, the leading copyright circuit has adopted a three-part test designed to focus the infringement analysis on what is really copyrightable in the plaintiff’s work: first, abstraction of the plaintiff’s program; second, filtration from the case of noncopyrightable elements; and third, comparison of the copyrightable elements. This abstraction-filtration-comparison test was adopted in the important Second Circuit case of Altai. See Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 707 (2d Cir. 1992). This test has to date not been adopted, however, in the First Circuit, although it informs the analysis in various cases. See Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d 807, 816 n.12 (1st Cir. 1995); Real View, LLC v. 20-20 Techs., Inc., 683 F. Supp. 2d 147, 154 (D. Mass. 2010); see also Ilog, Inc. v. Bell Logic, 181 F. Supp. 2d 3, 7–8 (D. Mass. 2002). However, it has been adopted by most circuits, and is clearly the dominant doctrine on this issue. See Oracle Am., Inc. v. Google, Inc., 750 F.3d 1339 (Fed. Cir. 2014) (surveying case law in this field).

First Step: Abstraction This step requires separating out the ideas of the software program from the expression of those ideas. It is only the expression that is protected.

Second Step: Filtration This step requires the court to filter out the noncopyrightable elements. These include 3rd Edition 2016

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• elements that are included due to logic or efficiency and • elements that are dictated by considerations external to the software code in question.

Elements Included Due to Logic or Efficiency These elements, or routines, would be filtered out under the merger doctrine, which denies copyright protection for expression if this is the only way to express a particular idea, or the scenes a faire doctrine, which denies copyright protection for standard expressions of ideas. For example, if one software routine is usually used to create a linked list because it takes up much less processing time, then this routine would be filtered out by a court. In Apple Computer’s lawsuit against Microsoft for copyright infringement of its graphical user interface (GUI), the court denied Apple copyright protection to its desktop icons on the basis of the merger doctrine: “the idea of an icon in a desktop metaphor representing a document stored in a computer program can only be expressed in so many ways. An iconic image shaped like a page is an obvious choice.” Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1444 (9th Cir. 1994). Similarly, the Ninth Circuit rejected Apple’s copyright infringement claim against Microsoft for use of overlapping windows on the basis of the scenes a faire doctrine: use of overlapping windows inheres in the idea of windows. A programmer has only two options for displaying more than one window at a time: either a tiled system, or an overlapping system. As demonstrated by Microsoft’s scenes a faire video, overlapping windows have been the clear preference in graphic interfaces. Accordingly, protectable substantial similarity cannot be based on the mere use of overlapping windows. Apple Computer, Inc. v. Microsoft Corp., 35 F.3d at 1444.

Elements Dictated by Considerations External to the Software Code in Question Such elements include

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• hardware standards—a computer manufacturer may suggest that programs be written with particular standards; and • software standards—for example, all applications accessing the Windows 98 operating system may need to be written with certain routines. This element should be filtered out in the substantial similarity analysis.

Third Step: Comparison Once the ideas are abstracted and the noncopyrightable elements are filtered out, a court compares the plaintiff’s remaining program with the defendant’s program. If the defendant has taken important protectable elements of the plaintiff’s program, then the court must conclude that the programs are substantially similar. Nimmer § 13.03[F][5]. Although the Abstraction-Filtration-Comparison Test sounds very scientific, at the end of the day, there is still a judgment call whether the similarity between the copyrightable elements are substantially similar, so there is no way to avoid that discretionary determination. That determination, however, should, as in all legal matters, include as much expert testimony as would be helpful to resolve the matter.

§ 7.11

DEFENSES TO COPYRIGHT INFRINGEMENT

Copyright infringement cases are subject to all the usual legal and equitable defenses—laches, estoppel, etc. Note, though, that laches is not an available defense to a suit brought within the three-year statute of limitations. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014). Defendants in copyright cases may also raise defenses based on the legal arguments discussed above: lack of originality, independent creation by the defendant, etc. Furthermore, there are certain “affirmative defenses” unique to copyright. Most important of these by far is the defense of “fair use.”

§ 7.11.1 Fair Use This is the most important defense to infringement. The defendant is admitting that he or she copied or used the work without the copyright holder’s consent, but argues that this use was reasonable in light of the purposes of copyright law.

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History of Fair Use

Fair use was a judge-made common law doctrine until it was codified in the 1976 Copyright Act. This codification was not intended to expand or contract the application of the fair use defense. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994) (quoting H.R. Rep. No. 94-1476, at 66 (1976) and S. Rep. No. 94-473, at 62 (1975)).

(b)

Purpose of the Doctrine

Fair use serves an essential function in a democracy. It makes sure that copyright law does not become overly protective at the expense of the public. The fair use doctrine “permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, such application would stifle the very creativity which that law is designed to foster.” Stewart v. Abend, 495 U.S. 207, 236 (1990).

(c)

Fair Use as Codified

Section 107 of the Copyright Act is the fair use section. Because of its importance, the entire section is set forth below. Limitations on exclusive rights: Fair use Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include— (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work;

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(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors. 17 U.S.C. § 107. As detailed as this appears to be, it probably conveys less about fair use than Justice Story’s famous formulation Folsom v. Marsh, 9 F. Cas. 342, 348 (No. 4,901) (CCD Mass. 1841). As the Supreme Court said in Campbell v. Acuff-Rose Music, 510 U.S. 569, 576 (U.S. 1994): Justice Story distilled the essence of law and methodology from the earlier cases: “look to the nature and objects of the selections made, the quantity and value of the materials used, and the degree in which the use may prejudice the sale, or diminish the profits, or supersede the objects, of the original work.” In his majority opinion in Campbell, Justice Souter relied heavily on Story’s formulation in implementing the modern Section 107.

(d)

Fair Use Factors Not Exclusive . . . Supposedly

The Copyright Act lists four fair use factors. It states the factors to be considered “shall include” the four enumerated factors and that purposes “such as” news reporting are fair use. These factors are only illustrative and not the exhaustive list. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994); Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985). Although these factors are not supposed to be exclusive, courts almost invariably discuss only these four factors, and do not set forth other factors.

(e)

No Single Fair Use Factor Is Decisive

There has been a dramatic shift on this issue. The two Supreme Court fair use cases from the 1980s state that “the likelihood of commercial harm” was the most important factor. Now the Court emphasizes that all four factors must be considered and weighed together.

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The Supreme Court has written at length on fair use in three cases since the 1976 Copyright Act came into effect in 1978: • Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984) (the “Betamax case”); • Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539 (1985) (concerning Gerald Ford’s biography); and • Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994) (concerning 2 Live Crew/“Oh, Pretty Woman”). In Sony, the Court’s fair use analysis focused on whether the Betamax VCR commercially harmed the copyrighted programs of the television broadcasters. In holding that “time-shifting”—that is, taping television programs at home to view them at a later time—was a fair use, the Court stated that the plaintiffs “were unable to prove that the practice has impaired the commercial value of their copyrights or has created any likelihood of future harm.” Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. at 421 (emphasis added). In Harper & Row, the Supreme Court said that the fourth factor (the effect of the use on the potential market for the copyrighted work) was “undoubtedly the single most important element of fair use.” Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. at 566. But just when it seemed that nothing could be clearer, the Supreme Court, in the “Oh Pretty Woman” case, reduced the conclusive importance of the market harm factor. The majority quoted extensively from the dissent in Harper & Row and conspicuously stated that “[a]ll [four statutory factors] are to be explored, and the results weighed together, in light of the purposes of copyright.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. at 578. Lower courts have since interpreted the Supreme Court as “[a]pparently abandoning the idea that any factor enjoys primacy.” Am. Geophysical Union v. Texaco, Inc., 60 F.3d 913, 926 (2d Cir. 1994).

(f)

Fair Use Is an Affirmative Defense

Sometimes people speak colloquially of their “fair use” rights, and some courts have shown sympathy for this view. A Fifth Circuit judge has said, “I believe that fair use should be considered an affirmative right under the 1976 Act, rather than merely an affirmative defense, as it is defined in the Act as a use that is not a violation of copyright.” SunTrust Bank v. Houghton Mifflin Co., 268 F.3d 1257, 1260 n.3 (11th Cir. 2001); see also Bateman v. Mnemonics, Inc., 79 F.3d 1532, 7–72

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1542 n.22 (11th Cir. 1996). Most recently, the Ninth Circuit has stated that fair use should be viewed as a use permitted by law, a limitation or exception to the scope of a copyright. Lenz v. Universal Music Corp., Nos. 13-16106, 13-16017, 2015 U.S. App. LEXIS 16308 (9th Cir. 2015). Procedurally, though, fair use is not a right, but an affirmative defense to a claim of infringement. This is not just a theoretical distinction, as it impacts who has the burden of proof. And since certain proof issues are difficult—such as the market impact of a particular issue—this can be critical to which party prevails.

The Oh Pretty Woman Case: Example of Defendant Bearing the Burden of Proof In Campbell v. Acuff-Rose, the Supreme Court found there could be fair use for the 2 Live Crew parody, but remanded the case since the defendant, 2 Live Crew, did not produce evidence on the impact of its rap parody on the market for nonparody rap derivatives of the original song, “Oh, Pretty Woman.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 593–94 (1994). It is not clear how 2 Live Crew would be able to produce evidence on remand as to the market for a nonparody rap version of “Oh, Pretty Woman.” It should be noted, though, that subsequent lower court cases seem to have disregarded the burden of proof allocation made by the Supreme Court.

(g)

Case-by-Case

Whether something is fair use depends heavily on the facts in any particular case. There are no “bright-line rules.” The Supreme Court has said that fair use “calls for case-by-case analysis.” Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 560 (1985); Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 448 n.31 (1984). “Context is everything,” as the Supreme Court said in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 589 (1994). The cases cited here, therefore, cannot be viewed as anything more than illustrative. They are cited to suggest approaches to fair use, but not to define its boundaries.

(h)

The First Fair Use Factor: The Purpose and Character of the Use

This factor has two subparts: the “purpose” of the use and the “character” of the use. The spectrum is from “commercial” use to “not-for-profit education” use. If the use is “commercial,” courts are less likely to find no fair use. However, the distinction between the venal “commercial,” on the one hand, and the virtuous “not-for-profit education,” on the other hand, is in most cases not terribly helpful 3rd Edition 2016

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in determining fair use. As courts have repeatedly noted, so many nonprofit organizations engage in “commercial” activities (such as publishing scholarly textbooks) that if “for profit” activities are excluded from fair use, it would tend to exclude the vast majority of uses of copyrighted material. In short, the fact that a use is commercial does not conclusively mean that its use is not fair. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994). It is, however, one factor against fair use. Courts are more likely to find the use fair if the public benefits from the use, rather than only a private commercial interest. Thus, for example, use for purposes of comparative advertising, though purely commercial, can be a fair use because [c]omparative advertising, when truthful and nondeceptive, is a source of important information to consumers and assists them in making rational purchase decisions. Comparative advertising encourages product improvement and innovation, and can lead to lower prices in the marketplace. Sony Computer Entm’t Am., Inc. v. Bleem, LLC, 214 F.3d 1022, 1027 (9th Cir. 2000) (quoting 16 C.F.R. § 14.15(c)). On the other hand, in American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 921–22 (2d Cir. 1995), Texaco, Inc., argued that because its in-house chemical engineers were engaged in research, unauthorized copies of journal articles made by or for them were fair use, but the court disagreed. It noted that Texaco as a company was a for-profit enterprise and the research was directed to generating profits for the company.

“Good Faith” Is Relevant to the Character of Use If the user acts in an unethical manner, a court is more likely to find no fair use.

The Gerald Ford Biography Case: Example of Bad Faith In 1979, The Nation scooped a 300- to 400-word excerpt of President Ford’s unpublished memoirs—the passage concerning the pardon of President Nixon— and published it in an article in its magazine. Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 542 (1985). Moreover, The Nation knew that it had received a purloined copy of President Ford’s memoirs, an excerpt of which was just about to be published by Time magazine. This counted against The Nation’s fair use. Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. at 542, 562–63; see also Atari Games Corp. v. Nintendo of Am., Inc., 975 F.2d 832 (Fed. Cir. 1992). 7–74

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The Naked Miss Puerto Rico Universe Case: Example of Good Faith Plaintiff Sixto Nuñéz was a professional photographer who took several photographs of Miss Puerto Rico Universe 1997 for use in her modeling portfolio. Nuñéz distributed the photos to the modeling community, and a huge controversy arose about the propriety of these photographs, since they showed Miss Puerto Rico naked or nearly naked. A local television station displayed the photographs and two local television stations interviewed Miss Puerto Rico about her fitness to retain the Miss Universe Puerto Rico crown. The defendant newspaper, El Vocero, then published the photographs and news articles about the controversy. Nuñéz sued for copyright infringement for unauthorized publication of the photographs. El Vocero claimed it made fair use of the photographs. The First Circuit found that El Vocero had made fair use. One important factor was the court finding that El Vocero had acted in good faith by • attributing the photographs to Nuñéz; • obtaining the photographs lawfully; • not using the photographs to compete with Nuñéz; • not co-opting Nuñéz’s first publication right, as the photographs had already been distributed; and • asserting that it believed in good faith that the photographs were available for general circulation. Nuñéz v. Caribbean Int’l News Corp., 235 F.3d 18, 21, 23 (1st Cir. 2000). The newsworthiness of the use also counted toward its fairness, although the court was careful to note that there is no general “newsworthiness” exception to copyright infringement. Other cases have likewise held verbatim copying to be permissible where the purpose was political commentary on the original. See, e.g., Belmore v. City Pages, Inc., 880 F. Supp. 673 (D. Minn. 1995); Falwell v. Penthouse Int’l Ltd., 521 F. Supp. 1204 (W.D. Va. 1981).

“Transformative” Use In an influential article in the Harvard Law Review, Judge Pierre Leval, then of the Southern District of New York and now of the Second Circuit Court of Appeals, argued that a key factor in fair use analysis was, or should be, whether the use was ‘transformative.” Pierre N. Leval, “Toward a Fair Use Standard,” 103 3rd Edition 2016

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Harv. L. Rev. 1105 (Mar. 1990). The Supreme Court adopted this terminology in the 2 Live Crew parody case, stating that if a use is “transformative,” it is more likely to be fair use. A transformative use is one that “adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994). The Court stated that the defendants’ parody of “Oh, Pretty Woman” was a transformative use since it commented on and criticized the white-bread nature of the original, naïve song. The term “transformative” is somewhat misleading, because there is no requirement that the work itself be transformed. Rather, the question is whether the use is for a purpose that, so to speak, is transformed from the use that the author had in mind. Very recently, Judge Leval has remarked that “[t]he word ‘transformative’ cannot be taken too literally as a sufficient key to understanding the elements of fair use. It is rather a suggestive symbol for a complex thought.” Authors Guild v. Google, Inc., 2015 U.S. App. LEXIS 17988, at *24–25 (2d Cir. N.Y. Oct. 16, 2015). The Authors Guild v. Google case is but the latest to find socially useful purposes “transformative” and fair use. In that case, Google, for commercial purposes, had created verbatim digital copies of millions of books without permission, but the court found the use fair because any one user of Google’s service could only search the aggregate text for the appearance of words and phrases, and read short “snippets” in which those words and phrases appear. There was thus no harm to the normal market for the copyrighted works, and set against this was the utility to scholars and others in being able to search through such a vast cultural archive.

Transformative Use of Images Arriba Soft’s search engine returned search results in the form of “thumbnail” reproductions of pictures from the relevant sites. (A thumbnail picture is a small, low-resolution copy of the original picture. If users try to enlarge the photographs, the photographs lack clarity.) Leslie Kelly, a professional photographer, placed his photographs of the American West on his website. Arriba’s search engine included thumbnail copies of the photographs without Kelly’s permission, and Kelly sued for copyright infringement. The court held this to be a transformative fair use. The thumbnails served an entirely different function than the original images. Kelly’s images were for artistic purposes, whereas Arriba’s use was unrelated to esthetics. Rather, the search engine was a tool to help index and improve access to images on the Internet. The court further held that it was important that a user was not able to 7–76

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enlarge the images to achieve the same esthetic purpose that Kelly intended. Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003). But was it a fair use to frame a full-size image of the photograph, or to provide links to the full-size images? The Ninth Circuit held that these were not transformative uses, but later withdrew its opinion, leaving the issue wide open. Since then, no case has ruled on either point. Another perhaps even more significant case involving transformative use of images was Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d 605 (2006). In that case, the Second Circuit gave its blessing to the use of numerous images of Grateful Dead posters in the context of a book that sought to provide a full history of the iconic band. The court held as follows: In some instances, it is readily apparent that DK’s image display enhances the reader’s understanding of the biographical text. In other instances, the link between image and text is less obvious; nevertheless, the images still serve as historical artifacts graphically representing the fact of significant Grateful Dead concert events selected by the Illustrated Trip’s author for inclusion in the book’s timeline. We conclude that both types of uses fulfill DK’s transformative purpose of enhancing the biographical information in Illustrated Trip, a purpose separate and distinct from the original artistic and promotional purpose for which the images were created. Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d at 609–10. Another significant case of fair use in visual arts is Cariou v. Prince, 714 F.3d 694 (2d Cir. 2013), in which the Second Circuit upheld as fair use the works of an “appropriation artist” who took originals or copies of a photographer’s work and superimposed his own painted images on them. The use that matters, it should be added, is use by the infringer itself, not the ultimate use to which copies are put by consumers. Thus, in Princeton University Press v. Michigan Document Services, Inc., 99 F.3d 1381 (6th Cir. 1996), the Sixth Circuit refused to condone commercial copying of scholarly publications for college “coursepacks” even though the use to which these coursepacks were ultimately put by students was educational.

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“Incidental Use”? In Italian Book Corp. v. American Broadcasting Co., 458 F. Supp. 65, 68 (S.D.N.Y. 1978), for example, the court held that a news broadcast did not infringe copyright in musical works whose performance was included in the broadcast’s coverage of a local festival. By contrast, in Ringgold v. Black Entertainment Television, Inc., 126 F.3d 70 (2d Cir. 1997), the court held that camera shots of a set that included a poster reproduction of a copyrighted quilt by plaintiff Ringgold infringed copyright in the quilt—even though the shots did not emphasize the quilt or show it up close in high resolution. Can these cases be reconciled? Perhaps the Italian Book Corp. case represents a true incidental use, over which the news station had no control if it wished to cover the festival, whereas in Ringgold the defendant sought to improve its set by adding the poster concerned? Perhaps. Still, one cannot help wondering if the result in Ringgold has not had a chilling effect on stage design—which, after all, should be free to create different sorts of realistic milieu. The set was supposed to be the household of a middle-class black family, and the poster was one from the High Museum of Art in Atlanta, depicting a work that would have been popular with exactly the sort of people the set was designed to evoke.

Classroom Use . . . Brevity and Spontaneity As part of the 1976 Copyright Act, organizations representing educational institutions, publishers, and authors reached an agreement on the “minimum and not the maximum” standards of fair use of copies in not-for-profit educational institutions in the classroom. The Ad Hoc Committee of Educational Institutions and Organizations on Copyright Law Revision, the Authors League of America, Inc., and the Association of American Publishers, Inc. agreed that teachers could make certain copies from books and periodicals of chapters and articles as long as they met certain “brevity” standards (e.g., for example, an article of 2,500 words or less) and “spontaneity” standards (“The inspiration and decision to use the work and the moment of its use for maximum teaching effectiveness are so close in time that it would be unreasonable to expect a timely reply to a request for permission.”). H.R. Rep. No. 94-1476 at 68–71 (1976). The Second Circuit has characterized the guidelines as “persuasive authority.” See Am. Geophysical Union v. Texaco, Inc., 60 F.3d 913, 919 n.5 (2d Cir. 1995); see also Princeton Univ. Press v. Mich. Document Servs., Inc., 99 F.3d 1381 (6th Cir. 1996) (fourth fair use factor). Given that permission can now be obtained online interactively through Copyright Clearance Center, at www.copyright.com, the window of “spontaneity” may have shrunk severely. However, in Cambridge University Press v. Patton, 769 F.3d 1232 (11th Cir. 2014), the Eleventh Circuit gave the back of its hand to the guidelines discussed 7–78

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above, and showed a pronounced leaning in favor of copying for educational use in the context of so-called e-reserves, while remanding the case to the trial court for various errors, including failure to give sufficient weight to the loss of income suffered by the copyright owners.

Reverse Engineering Decompiling software code is also called “reverse engineering.” Reverse engineering, particularly to develop interoperable works, is often considered fair use. In Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), the Ninth Circuit stated as follows: [W]here disassembly [of software; i.e., “reverse engineering”] is the only way to gain access to the ideas and functional elements embodied in a copyrighted program and where there is a legitimate reason for seeking such access, disassembly is a fair use of the copyrighted work, as a matter of law. Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d at 1527–28. Reverse engineering is considered to be a fair use exception to copyright infringement. Atari Games Corp v. Nintendo of Am., Inc., 975 F.2d 832, 843 (Fed. Cir. 1992). Practice Note Reverse engineering may be prohibited by license terms. In Bowers v. Baystate Technologies, Inc., 320 F.3d 1317 (Fed. Cir. 2003), the Federal Circuit, applying First Circuit law, stated that a software licensor may provide in its shrinkwrap license agreement that reverse engineering is prohibited. This is an enforceable term. At the same time, the majority opinion stated that it agreed with Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832 (Fed. Cir. 1992) that reverse engineering continues to be a fair use.

“Temporary” and “Intermediate” Use The Ticketmaster Case Ticketmaster and Tickets.com are competitors in selling tickets to events such as plays, concerts, and sporting events. From 1998 to 2001, Tickets.com used a computer “spider” to “crawl” the Ticketmaster website and obtain factual information on certain events. In spidering the website, Tickets.com copied for a brief 3rd Edition 2016

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time copyrightable information, such as the Ticketmaster logo and Ticketmaster advertisements. Tickets.com then discarded this copyrighted information and included the factual information on its website. The court said that the temporary copying of the copyrighted information to obtain nonprotected facts was fair use. Ticketmaster v. Tickets.com, No. CV99-7654-HLH(VBKx), 2003 U.S. Dist. LEXIS 6483 (C.D. Cal. Mar. 6, 2003).

(i)

The Second Fair Use Factor: Nature of the Copyrighted Work

There are two major questions here: • How creative is the work? • Is the work published or unpublished? Courts tend to recite that factual or utilitarian works are more subject to fair use than creative works. See, e.g., Stewart v. Abend, 495 U.S. 207, 237 (1990) (“In general, fair use is more likely to be found in factual works than in fictional works.”).

Fair Use of Unpublished Works In Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 555 (1985), the Supreme Court gave considerable weight to the right of a copyright owner to determine when and how his or her work will be made public. “The obvious benefit to author and public alike of assuring authors the leisure to develop their ideas free from fear of expropriation outweighs any short-term ‘news value’ to be gained from premature publication of the author’s expression.” Following Harper & Row, several cases in the late 1980s gave enormous deference to whether a work was unpublished. If a work was unpublished, it was difficult to prevail on fair use. In particular, the court in Salinger v. Random House, Inc., 811 F.2d 90 (2d Cir. 1987) found that a biographer did not have a fair use defense when he quoted from the unpublished letters of J.D. Salinger, the reclusive author of The Catcher in the Rye. Deciding that this doctrine had gone too far, Congress clarified that there was no hard-and-fast rule against fair use of unpublished material by adding the following sentence to Section 107: “The fact that the work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.” 17 U.S.C. § 107.

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Third Fair Use Factor: Amount and Substantiality of the Portion Used

The more has been taken, the harder it is to justify as fair use; fair use should as a rule take no more than is necessary to achieve the legitimate aims of the user. Bear in mind that a use can be small quantitatively, but very important qualitatively.

Gerald Ford Biography: Important Qualitative Taking The Nation took only a 300- to 400-word excerpt from Gerald Ford’s 200,000 word autobiography, A Time to Heal. Yet it took the short passage in which Ford discussed his decision to pardon Nixon, which was still, at the time, a question of enormous national interest. Because the Nation took “what was essentially the heart of the book,” Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 564–65 (1985), this weighed heavily against its fair use defense. On the other hand, at least in the context of parody, taking such crucial elements may be permissible. In the 2 Live Crew case, the Supreme Court tempered Harper & Row by stating that because a parody needs to make a recognizable allusion to the original to conjure up enough of the original work to make its critical comment recognizable, it may well take the original’s “most distinctive and memorable features.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 588 (1994). Therefore, it was permissible that 2 Live Crew’s parody took the opening riff and first line—the “heart”—of the original.

The Importance of the Material Used to the Defendant’s Work May Also Be Relevant In Monster Communications, Inc. v. Turner Broadcasting System, Inc., 935 F. Supp. 490 (S.D.N.Y. 1996), the plaintiff produced a film, When We Were Kings, about the 1974 heavyweight title fight between Muhammad Ali and George Foreman in Zaire. (This fight was referred to as the “rumble in the jungle.”) The defendant produced a documentary film, Ali—The Whole Story, about Ali’s life. The defendant took between nine and fourteen film clips of the plaintiff which, in the aggregate, amounted to between forty-one seconds and two minutes. The defendant argued that this was fair use and the court agreed. Analyzing the taking quantitatively, the court stated that the infringing film clips constituted no more than 2 percent of the film. However, the court also stated that the allegedly infringing film clips were not the focus of the defendant’s film. The two films are quite different: one focuses on the fight in Zaire; the other is

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the story of Ali’s whole life. Monster Communications, Inc. v. Turner Broad. Sys., Inc., 935 F. Supp. at 495.

(k)

The Fourth Fair Use Factor: Effect on the Potential Market for, or the Value of the Copyrighted Work

Does the use reduce the money the copyright holder has received for the work or is likely to receive from the work? If so, there is less likely to be fair use.

Example of Use’s Negative Impact on Market for the Original Time and Harper & Row had entered into a contract that permitted Time to renegotiate its $12,500 payment to Harper & Row if any material from certain chapters of Ford’s memoirs were published prior to Time’s publication. The Nation got hold of a leaked copy of the book and published the excerpt concerning the Nixon pardon. Time thereupon cancelled its payment to Harper & Row of $12,500. The District Court held that this use reduced the actual market for Harper & Row’s exclusive right to prepublication excerpts, known as “first serial rights,” and that this weighed heavily against a fair use finding. The Supreme Court agreed. Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 567 (1985).

2 Live Crew Case: Example of Need to Assess Market for Derivative Works “Oh, Pretty Woman” was a rock ballad. A rap version of that song would be a derivative work. Although the Supreme Court reversed the circuit court’s finding of no fair use in the 2 Live Crew parody of “Oh, Pretty Woman,” the Court stated that the defendant needed to produce evidence that its rap parody did not negatively impact the market for a nonparody rap derivative work of the original. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 593 (1994). How the defendant was supposed to prove such a negative, the Court did not explain. This is the one troubling aspect of an otherwise landmark fair use opinion, and fortunately it has been largely overlooked. For example, in ruling that The Wind Done Gone (which painted an inverted picture of the Old South of Gone with the Wind, using characters obviously taken from the Margaret Mitchell original) was a fair use, the Eleventh Circuit did not force the defendants to prove that The Wind Done Gone left undisturbed the market for true sequels to Gone with the Wind. SunTrust Bank v. Houghton Mifflin Co., 268 F.3d 1257 (11th Cir. 2001). In stark contrast, the copyright owners of Gone with the Wind prevailed against the producers of a play entitled Scarlett 7–82

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Fever. The defendants claimed the play was a parody. (The defendants certainly disguised the identity of their characters tremendously by using names such as Charlotte O’Mara, Brett Studler, and Melody Hampton.) The court determined that Scarlett Fever was actually a musical adaptation primarily of the movie and not a parody in that it did not critically comment on Gone with the Wind. Even if it were a parody, the court decided that it was not entitled to a fair use defense. On the “potential market” factor, the court decided that the function of the original and the adaptation was the same: entertainment, and that it therefore usurped the natural derivative market of the original. Metro-Goldwyn-Mayer, Inc. v. Showcase Atlanta Co-op. Prods., Inc., 479 F. Supp. 351, 361 (N.D. Ga. 1979). Determining the potential market for a copyrighted work can sometimes lead to a circularity: if a court says that the use must be licensed, then by definition there is a market; if not, there is not. In general, though, courts look to markets that are traditional, reasonable, or likely to be developed. Am. Geophysical Union v. Texaco, Inc., 60 F.3d 913, 930 (2d Cir. 1994). This determination may change with time. In Texaco, the Second Circuit made much of the fact that the Copyright Clearance Center had recently made it possible for defendants in Texaco’s position to license the use of journal articles in a corporate setting quickly and easily. Am. Geophysical Union v. Texaco, Inc., 60 F.3d at 930–31.

The Market Test Is Focused on the Particular Work The appropriate inquiry for this fourth fair use factor is on the impact that a particular use had on the value for the particular work, rather than the impact on the overall business of the copyright holder. In Nuñéz v. Caribbean International News Corp., 235 F.3d 18, 24 (1st Cir. 2000), the First Circuit said: The district court . . . examined “whether [the plaintiff’s] business as a photographer could be hurt,” rather than “the market for the pictures,” and concluded that no evidence of damage to Nuñéz’s overall business had been adduced. We cannot agree with this approach. The statute explicitly points to the “potential market for or value of the copyrighted work.” 17 U.S.C. § 107(4) (emphasis added).

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But Not Necessarily on the Particular Use In determining the market impact of a use, courts look beyond the use before them and consider what might result if everyone were free to engage in the same use. The Supreme Court said in Campbell v. Acuff-Rose: [This fourth fair use factor] requires courts to consider not only the extent of market harm caused by the particular actions of the alleged infringer, but also “whether unrestricted and widespread conduct of the sort engaged in by the defendant . . . would result in a substantially adverse impact on the potential market” for the original. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590 (1994). If so, fair use is less likely.

§ 7.11.2 Copyright Misuse A defendant may claim that a plaintiff misused his or her copyright so as to violate public policy, and therefore should be barred from succeeding on an otherwise valid infringement claim. The public policy that is most frequently implicated in copyright misuse cases is one favoring competition, innovation, and the creation of new works. A defendant may prove copyright misuse by either proving a violation of the antitrust laws, or that the copyright owner illegally extended the monopoly that the copyright laws grant or otherwise violated the public policies underlying the copyright laws. Broad. Music, Inc. v. Hampton Beach Casino Ballroom, Inc., No. 94-248-B, 1995 U.S. Dist. LEXIS 13103 (D.N.H. Aug. 30, 1995).

(a)

Misuse Is Not Limited to Antitrust Violations

Although copyright misuse is usually associated with antitrust laws, it is not necessary that a defendant prove an antitrust violation to succeed on a copyright misuse defense. Assessment Techs. of WI, LLC v. Wiredata, Inc., 350 F.3d 640, 647 (7th Cir. 2003) (citing cases); Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990).

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Examples of Copyright Misuse

Defendants have raised successful copyright misuse defenses in the following instances.

Plaintiff’s Software License Forbids Development of Potentially Competing Products In Lasercomb America, Inc. v. Reynolds, 911 F.2d 970, 973 (4th Cir. 1990), the plaintiff and the defendant were competitors in the CAD/CAM software market. The plaintiff licensed software to the defendant. The license provided as follows: Licensee agrees during the term of this Agreement that it will not permit or suffer its directors, officers and employees, directly or indirectly, to write, develop, produce or sell computer assisted die making software . . . Licensee agrees during the term of this Agreement and for one (1) year after the termination of this Agreement, that it will not write, develop, produce or sell or assist others in the writing, developing, producing or selling computer assisted die making software, directly or indirectly without Lasercomb’s prior written consent. Any such activity undertaken without Lasercomb’s written consent shall nullify any warranties or agreements of Lasercomb set forth herein. . . . The “term of this Agreement” referred to in these clauses is ninety-nine years. The court held this was copyright misuse because the agreement forbade the licensee to develop or assist in developing any kind of computer-assisted software. This illegally extended Lasercomb’s copyright in its software (that is, its particular expression) to an area outside the copyright, the idea of computerassisted die manufacture. In so doing, Lasercomb was withdrawing creative abilities from the public, thereby attempting to use its copyright in a manner adverse to public policy embodied in copyright law. Lasercomb Am., Inc. v. Reynolds, 911 F.2d at 978–79.

Plaintiff’s License Implicitly Forbids Development of Products That Compete with the Copyrighted Product DSC Communications manufactured telephone switching systems. Its license forbade any copying of its software. DGI Technologies produced microprocessor cards, which it wished to market in competition with DSC. In order to ensure 3rd Edition 2016

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that its card was compatible with DSC’s switch, it needed to test the card on the plaintiff’s software. In so doing, it copied DSC’s software. DSC sued. The court said that the defendant might well prevail on its copyright misuse defense since the plaintiff was attempting to extend its software copyright to microprocessor cards. DSC Communications Corp. v. DGI Techs., Inc., 81 F.3d 597, 601 (5th Cir. 1996).

Plaintiff Prevents Customer from Using a Competing Product The American Medical Association developed a code to enable physicians to identify particular medical procedures with precision. The AMA copyrighted this code, and licensed it to the Health Care Financing Administration (HCFA). The license prevented the HCFA from using any other system of procedural nomenclature for reporting physicians’ services. The court held that this was copyright misuse because it prohibited the use of a competitor’s product. Practice Mgmt. Info. Corp. v. Am. Med. Ass’n, 121 F.3d 516, 520–21 (9th Cir. 1997).

§ 7.11.3 Fraud on the Copyright Office In Russ Berrie & Co. v. Jerry Elsner Co., 482 F. Supp. 980 (S.D.N.Y. 1980), a copyright holder had intentionally failed to inform the Copyright Office that his stuffed gorilla was copied from a preexisting Japanese gorilla. The court held that “the knowing failure to advise the Copyright Office of facts which might have occasioned a rejection of the application constitutes reason for holding the registration invalid and thus incapable of supporting an infringement claim.” Russ Berrie & Co. v. Jerry Elsner Co., 482 F. Supp. at 988; see also Vogue Ring Creations, Inc. v. Hardman, 410 F. Supp. 609, 616 (D.R.I. 1976) (omission of preexisting work and misleading conduct made copyright unenforceable); Ross Prods., Inc. v. N.Y. Merch. Co., 242 F. Supp. 878, 879–80 (S.D.N.Y. 1965) (failure to indicate prior publication of other work invalidates copyright).

§ 7.12

PLAINTIFF’S REMEDIES FOR INFRINGEMENT

Remedies for infringement include monetary damages, an accounting of profits, statutory damages in lieu of damages and profits, injunctive relief, impoundment and destruction of the infringing goods, and attorney fees.

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• its actual damages, plus the infringer’s profits to the extent those do not duplicate changes; or • statutory damages, in lieu of actual damages and the infringer’s profits. 17 U.S.C. § 504(a). Practice Note The plaintiff may make this choice between actual or statutory damages any time before final judgment is rendered. 17 U.S.C. § 504(c). In a jury trial, this probably means that the election must be made before the case is sent to the jury. Nimmer § 14.04[A].

(a)

No Double Counting

An award of profits may include only those profits that are not taken into account in computing the plaintiff’s damages. 17 U.S.C. § 504(b). For example, the defendant A infringes B’s copyright in a house design. A makes $100,000 in profit by use of this design for a client. B loses $100,000 in business with C, which she would have received absent the infringement. B’s damages are $100,000, since all of her losses are A’s profits. If A’s profits from use of this design included another $100,000 for a second client, B’s damages would be $200,000. Abeshouse v. Ultragraphics, Inc., 754 F.2d 467, 471–72 (2d Cir. 1985). A plaintiff need only prove the defendant’s gross revenues resulting from the infringement. The defendant must then prove which costs are deductible in order to arrive at its “net profit.” The defendant also bears the burden of proving that any share of profits is attributable to factors other than the unauthorized use of the plaintiff’s work. Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49 (2d Cir. 1936).

(b)

Statutory Damages

A plaintiff will usually seek statutory damages where the actual damages are small or difficult to prove. For each work infringed, a court may award statutory damages between $750 and $30,000, “as the court considers just.” 17 U.S.C. § 504(c)(1). This is an issue for the jury if either party has requested a jury trial, unless the plaintiff seeks only minimum statutory damages. See Soc’y of the Holy Transfiguration Monastery v. Gregory, 754 F. Supp. 2d 219, 229–30 (D. Mass. 2010), aff’d, 689 F.3d 29 (1st Cir. 2012).

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For example, A writes a book that infringes B’s copyrights by copying parts of three separate books written by B. B may receive three awards of between $750 and $30,000 in statutory damages, based on the fact that three separate copyrights were infringed. On the other hand, if B owns copyright in all the contents of a magazine issue, and A infringes three separate articles in that issue, only one award of statutory damages may be made because the issue as a whole is treated as a single work. (The result would be different if the various contents of the issue were owned separately.) See, e.g., Venegas-Hernandez v. Sonolux Records, 370 F.3d 183, 194 (1st Cir. 2004) (“Under § 504(c) the total number of ‘awards’ of statutory damages that a plaintiff may recover in any given action against a single defendant depends on the number of works that are infringed . . . and is unaffected by the number of infringements of those works”). It is important to bear in mind that statutory damages are not available except where the work infringed was registered in a timely manner. See § 7.12.1(d), below.

(c)

Increase for Willfulness

If the plaintiff proves that the defendant infringed “willfully,” the court may increase statutory damages to $150,000. 17 U.S.C. § 504(c)(2). To prove willfulness, the infringer must either have actual knowledge that it is infringing the owner’s copyrights or act in reckless disregard of those rights. Wash. Shoe Co. v. A-Z Sporting Goods, Inc., 704 F.3d 668, 674 (9th Cir. 2012); Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 263 (2d Cir. 2005). The determination hinges on the alleged infringer’s state of mind—whether the infringer knew that its particular use violated the owner’s copyrights or willfully ignored the possibility.

(d)

Decrease for Innocent Infringement

If the infringer proves that it was not aware and had no reason to believe its acts constituted infringement, the court may reduce statutory damages to $200. 17 U.S.C. § 504(c)(2). Practice Note Use of a proper copyright notice on a work will in some cases defeat a defendant’s claim that its infringement was innocent.

The court may eliminate statutory damages entirely if the infringer believes, and had reasonable grounds for believing, that his or her use was fair use, and either

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• the infringer was an employee or agent of a nonprofit educational institution, library, or archives, and the infringement involved copying; or • the infringer was an employee or agent of a public broadcaster, and the infringement involved performing a nondramatic literary work, or copying a transmission program embodying a performance of such a work. 17 U.S.C. § 504(c)(2).

(e)

Statutory Damages Only Permitted for Timely Registered Works

In order to recover statutory damages, a plaintiff has to have registered the copyright prior to the infringement, if the work is unpublished, or within three months of first publication if the infringement occurs after publication. 17 U.S.C. § 412. Practice Note Business considerations for registering a copyright. Should you register your copyright? The cost of registration is quite low, and the potential benefits of early registration (if the work ends up being infringed) are quite high, comprising both the right to elect statutory damages and, even more important, eligibility to recover attorney fees from the infringer. See § 7.12.4, below.

§ 7.12.2 Injunctions In considering an application for a preliminary injunction, the court must weigh the same four factors as it weighs in any other case: • the likelihood of success on the merits; • the potential for irreparable harm if the injunction is denied; • the balance of relevant impositions, i.e., the hardship to the nonmovant if enjoined as contrasted with the hardship to the movant if no injunction issues; and • the effect (if any) of the court’s ruling on the public interest. eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006); see also CoxCom, Inc. v. Chaffee, 536 F.3d 101, 111–12 (1st Cir. 2008) (applying the four-part test to a copyright claim). 3rd Edition 2016

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Permanent Injunctions

When a plaintiff succeeds in a trial on the merits of its infringement claim, courts can also issue a permanent injunction, subject to the same four-factor analysis. 17 U.S.C. § 502(a); see, e.g., Green v. Ablon, No. 09-10937, 2013 WL 471344 (D. Mass. Aug. 23, 2013) aff’d, 794 F.3d 133 (1st Cir. 2015).

(b)

Relief in Claims Against Federal Entities

A copyright owner cannot obtain injunctive relief against the federal government, but may obtain damages, including minimum statutory damages, by filing suit in the Court of Federal Claims. 17 U.S.C. § 502(a); 28 U.S.C. § 1498(b), see Gaylord v. United States, 678 F.3d 1339, 1343 (Fed. Cir. 2012).

§ 7.12.3 Impoundment, Recall Orders, and Destruction These steps are analogous to the preliminary injunction and permanent injunction phase.

(a)

Impoundment

A plaintiff may obtain a court order impounding the allegedly infringing copies, as well as instruments used to make the copies. 17 U.S.C. § 503(a). In general, courts will order copies impounded only when a preliminary injunction has been issued. Impounding copies in the defendant’s possession is a reasonable means to prevent further harm to a plaintiff.

(b)

Recall Orders

Courts also have discretion to issue a recall order, which requires a defendant to obtain copies in circulation.

(c)

Destruction or Other Disposition of Infringing Articles and Means of Production

If a plaintiff succeeds, a court can either order the infringing articles to be destroyed or can fashion some other remedy. See, for example, Universal City Studios, Inc. v. Ahmed, No. 93-3266, 1994 U.S. Dist. LEXIS 6251 (E.D. Pa. May 13, 1994). In that case, the plaintiffs prevailed in their infringement claim that the defendants were making counterfeit t-shirts and infringing videotapes of the plaintiff’s movie, Jurassic Park. The court ordered that the TV/VCR units, 7–90

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which the defendants used to make the infringing videotapes, be donated to a charity.

§ 7.12.4 Attorney Fees A prevailing party is able to get attorney fees in the court’s discretion. To be eligible for an award of fees, a successful plaintiff must have registered the copyright prior to the infringement (if the work is unpublished), or within three months of first publication if the infringement occurs after publication. 17 U.S.C. § 412. A prevailing defendant is eligible for fees regardless of registration. Some of the important cases setting out the standards for fee awards in the First Circuit are InvesSys, Inc. v. McGraw-Hill Cos., 369 F.3d 16, 19–25 (1st Cir. 2004) (discussing fee award for computer-assisted legal research, apportionment of fee award for work associated with copyright claim, apportionment of liability for fees among defendants, and standard of review of District Court’s fee award); Green v. Ablon, No. 09-10937-DJC, 2013 WL 4714344 (D. Mass. Aug. 28, 2013) (analyzing when fee awards to prevailing parties are appropriate); Amador v. McDonald’s Corp., 601 F. Supp. 2d 403, 411 (D.P.R. 2009) (plaintiff not entitled to attorney fees where he did not satisfy prompt registration requirement); Williams v. Arndt, 626 F. Supp. 571, 582 (D. Mass. 1985) (District Court judge exercised discretion not to award attorney fees where defendant acted on advice of counsel and plaintiff’s manual was not marked with copyright notice).

§ 7.13

PROTECTING COPYRIGHT MANAGEMENT SYSTEMS: ANTICIRCUMVENTION

§ 7.13.1 Summary of Anticircumvention Provisions The Digital Millennium Copyright Act of 1998 (DMCA) added various measures that seek to control not the act of infringing, but rather conduct of a technological nature that may facilitate infringement. Specifically, the DMCA prohibits • circumventing (a technological measure that controls access to copyrighted works), 17 U.S.C. § 1201(a)(1)(A); • manufacturing, importing, or trafficking in products, technology, or services that are primarily produced or marketed to circumvent 3rd Edition 2016

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a technological copyright protection measure, or have limited use other than to circumvent such a copyright protection measure, 17 U.S.C. § 1201(a)(2); and • removing or altering copyright management information, 17 U.S.C. § 1202(b). Practice Note Important distinction. If you legally own a copy of the work, then you can circumvent technological protections to make copies for such purposes as fair use.

Violation entails liability for statutory damages of up to $2,500 per act of circumvention, device, etc. 17 U.S.C. § 1203(c)(3(A).

§ 7.13.2 What Are Technological Measures? Content owners, such as electronic database providers, software companies, and movie studios, often protect their property from access by use of technological means. The following are some examples of locks—technological control measures—that 17 U.S.C. § 1201(a)(1)(A) encompasses: • passwords, • encryption, • signal scrambling, and • digital signatures and other authentication methods. These so-called copyright management systems permit content owners to distribute their products on the Internet and through other electronic means, with greater assurance that their products will not be pirated.

(a)

Example of Encryption

A movie studio distributes its films to consumers on DVDs. The films are protected from unauthorized access by encryption technology called CSS. It is illegal to circumvent this encryption technology in order to get access to these DVDs. See Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 346 (S.D.N.Y. 2000), aff’d sub nom., Universal Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001).

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The Streambox “Secret Handshake” Case: Example of Equipment that Facilitates Circumvention

At issue in CoxCom, Inc. v. Chaffee, 536 F.3d 101 (1st Cir. 2008), was a filter that would enable cable subscribers to watch pay-per-view programming for free. Normally, after a subscriber purchased and viewed a pay-per-view program, the cable box would relay billing information about the program to the cable company’s central computer at a low frequency. The filter at issue blocked all low-frequency cable signals, enabling users to watch the programming without being billed for it. The First Circuit affirmed the District Court’s ruling that the filter violated the DMCA, as it was designed to bypass the cable company’s technological measure of scrambling pay-per-view signals until a subscriber purchased the program. CoxCom, Inc. v. Chaffee, 536 F.3d 101 (1st Cir. 2008).

§ 7.13.3 Permitted Circumvention Section 1201 lists several acts of circumvention that are permissible: • access by nonprofit libraries, archives, or educational institutions in order to determine whether to acquire the work; • law enforcement activity; • reverse engineering for interoperability; • encryption research; • disabling the collection of personally identifiable information; and • security testing. 17 U.S.C. § 1201(d)–(g), (j).

§ 7.13.4 Classes of Exempted Works Because there was concern that the anticircumvention provisions would limit the public’s continued ability to engage in noninfringing uses of copyrighted works, such as fair use, Congress mandated that the Copyright Office should, every three years, determine whether to exempt particular classes of works from the anticircumvention provisions where users would be adversely affected in their ability to make noninfringing uses. 3rd Edition 2016

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The Register of Copyrights has most recently determined to exempt certain uses of certain classes of works from the prohibitions on anticircumvention (and related technology) for the period ending October 27, 2018: • motion pictures for certain documentary, noncommercial, analytical, and educational uses, as well as for criticism or comment; • literary works distributed in electronic format for purposes of enabling functions that make the book accessible to the visually impaired; • computer programs that allow wireless devices authorized access to wireless telecommunications networks; • computer programs that allow wireless devices to execute lawfully obtained software applications for the purpose of enabling interoperability or removing software from the device; • computer programs that control the functioning of motorized vehicles, when used to diagnose, repair, or lawfully modify vehicle function; • computer programs on certain devices, if the program is used for good-faith security research; • video games, when the copyright owner has ceased to provide an external computer server necessary to facilitate an authentication process necessary for local gameplay, for the purpose of restoring access to the game for personal gameplay or archival preservation; • computer programs that operate 3D printers, for the purpose of using alternative feedstock; and • compilations of data generated by implantable medical devices. The details of these classes of works are important and should be reviewed carefully by anyone interested in taking advantage of the exemptions. Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, 80 Fed. Reg. 65944-01 (Oct. 28, 2015) (to be codified at 37 C.F.R. § 201.40).

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§ 7.13.5 Copyright Management Information Section 1202 makes it illegal to remove or alter copyright management information with intent to conceal infringement. Copyright management information includes the title, author, and copyright owner of the work. 17 U.S.C. § 1202(c). In addition, however, “terms and conditions for use of the work” is also considered copyright management information. This implies that if a copyright owner includes a license with the work setting forth terms for its use, this would need to be maintained with the work. The remedies for violation include statutory damages of between $2,500 and $25,000. 17 U.S.C. § 1203(c)(3)(B).

§ 7.14

LIABILITY FOR ONLINE COPYRIGHT INFRINGEMENT

§ 7.14.1 Background As its title suggests, the Digital Millennium Copyright Act, enacted in 1998, sought to update copyright law for the Internet era. One of the most contentious issues was whether online service providers would be liable for copyright infringement by the users of their services. There was intensive lobbying on this issue from the content owners, on the one hand, who wanted to make sure that their entire business—their intellectual property—was not undermined by being posted on the Internet for free, and from online service providers—ranging from Yahoo! to AT&T—who wanted to ensure that they were not held liable simply because some of their millions of users engaged in nefarious activity. The result was Section 512 to the Copyright Act. This complex statute does a good job of addressing both sets of interests. In so doing, it seeks to make sure that the Internet is not hampered in its development by liability for copyright infringement by the many organizations that comprise the Internet’s infrastructure and backbone.

§ 7.14.2 Summary of Section 512 Safe Harbor Section 512 establishes a “notice-and-take-down” mechanism that gives a strong incentive for Internet service providers (ISPs) to cooperate in combating online copyright infringement by granting cooperative ISPs a safe harbor exemption from liability.

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Who Is an ISP?

Most obviously, ISPs are the common carriers that provide online access, as well as companies that exist to allow users to exchange information, such as YouTube, Facebook, and the like. However, many other Internet commerce companies attempt to characterize themselves as ISPs in order to take advantage of Section 512’s safe harbor.

(b)

What Steps Must an ISP Take to Benefit from the Safe Harbor?

To benefit from the safe harbor, an ISP must do the following: • adopt a policy providing for termination of subscribers who repeatedly infringe copyright; • implement the policy; • inform subscribers of the policy; • not interfere with technical measures to identify and protect copyrighted works. • file a “designation of agent” with the Copyright Office. Congress hoped these technical measures would be developed “pursuant to a broad consensus of copyright owners and service providers in an open, fair, voluntary, multi-industry standards process.” See 17 U.S.C. § 512(i). That has not yet happened. Furthermore, with respect to any particular infringement, an ISP is exempt from liability for infringing material residing on its network that is posted by a third party if • it does not have actual knowledge that the material is infringing; • it is not aware of facts and circumstances from which infringing activity is apparent (the so-called red flag test); or • upon obtaining knowledge or awareness, it –

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–

does not receive a direct financial benefit from the infringement; and

–

upon receiving a proper notice of alleged infringement, it promptly removes, or disables access to the infringing material or the infringing activity.

17 U.S.C. § 512(c); Viacom Int’l, Inc. v. YouTube, Inc., 696 F.3d 19 (2d Cir. 2012). This is the notice-and-take-down provision. It stems from the obvious point that an ISP cannot possibly police all material on its site. The ISP must, however, respond to complaints that material on its site infringes someone else’s copyright.

What Kind of Notice Must the Copyright Owner Give? In order to benefit, the content owner must give “substantially” the following notice to the ISP: • written notice; • to the designated agent of the ISP; • signed, physically or electronically, by the content owner’s agent identifying the infringed work; • providing information to permit the ISP to locate the work on its site (such as a URL); • contact information for the content owner; • a statement that it is the content owner’s good faith belief that the use of the content is not authorized; and • a statement that the information is accurate and, under penalty of perjury, that the complaining party is authorized to act on behalf of the copyright owner in enforcing its exclusive right. 17 U.S.C. § 512(c). The Ninth Circuit has very recently held that the copyright owner’s good-faith belief that the use is not authorized must include consideration of fair use. Lenz v. Universal Music Corp., Nos. 13-16106, 13-16017, 2015 U.S. App. LEXIS 16308 (9th Cir. Sept. 14, 2015).

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If a copyright owner does not, in the court’s judgment, substantially meet the statutory notice requirements, the court can dismiss a copyright infringement complaint against the ISP. See Hendrickson v. eBay, Inc., 165 F. Supp. 2d 1082, 1095 (C.D. Cal. 2001).

What Must an ISP Do When It Receives a Notice of Alleged Infringement? An ISP must take down the material, or disable access to it, after receiving notice from the copyright owner or its agent. 17 U.S.C. § 512(g). The ISP must then play the part of a net in a ping-pong game. It must first promptly notify the subscriber that it has removed his or her material. If the subscriber sends a counter-notice denying infringement, the ISP must send a copy of the counternotice to the copyright owner, and restore the subscriber’s removed material no less than ten days and no more than fourteen days after it receives the subscriber’s counter-notice. At this point, if the complainant still believes infringement has occurred, it must seek redress in court.

A Party Sending a Takedown Notice Must Act in Good Faith and Consider Fair Use If the copyright owner knowingly makes a misrepresentation that material is infringing, it can be liable for damages, costs, and attorney fees. 17 U.S.C. § 512(f). (These same penalties apply to knowing misrepresentations in a subscriber’s counternotification.) This may extend to willful oversight of a valid fair use defense. See Online Policy Group v. Diebold, 337 F. Supp. 2d 1195, 1204 (N.D. Cal. 2004) (finding a violation of Section 512(f) where “Diebold knowingly materially misrepresented that Plaintiffs infringed Diebold’s copyright interest, at least with respect to the portions of the e-mail archive clearly subject to the fair use exception,” and ordering additional briefing on the appropriateness of monetary relief).

ISPs Must Register Their Copyright Compliance Agents with the Copyright Office In order to benefit from this safe harbor, the ISP must register its designated agent with the Copyright Office. The recommended (but not required) format for the notification to the Copyright Office of an ISP’s designated agent is available at http://copyright.gov/onlinesp/agenta.pdf. Furnishing the information requested is voluntary, but failure to furnish all information may deprive the ISP of the benefit of the limitations on liability set forth in section 512(c). The Copyright Office maintains its register of agents at http://www.copyright.gov/onlinesp/list/ index.html. 7–98

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Safe Harbor for Linking to Infringing Sites

If a website links to another site that contains infringing material, will it be liable for indirect infringement? No, provided it meets the same requirements under the third exemption: lack of actual or constructive knowledge, prompt action to disable links, and no direct financial benefit. 17 U.S.C. § 512(d).

§ 7.14.3 Special Consideration for Nonprofit Universities In order to facilitate academic freedom, universities get a special benefit under the DMCA. If their teaching and research faculty members host infringing material or link to infringing material, the university is not liable if it educates its users about the copyright laws, and it does not have more than two notifications during the prior three years that the faculty member has engaged in infringing activity. 17 U.S.C. § 512(e).

§ 7.15

CRIMINAL COPYRIGHT INFRINGEMENT

The sections above all deal with civil copyright infringement. This section deals with criminal copyright infringement.

§ 7.15.1 Elements of Criminal Copyright Infringement Currently, copyright infringement is a crime if done willfully and either • it is done for purposes of commercial advantage or private financial gain, or • it involves the reproduction or distribution, including by electronic means, during any 180-day period, of one or more copies of one or more copyrighted works that have a total retail value of more than $1,000. 17 U.S.C. § 506(a). All of the elements of civil copyright infringement must be present in order for infringement to be a crime; there can be no criminal infringement unless there would also have been civil infringement.

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§ 7.15.2 Willfulness The critical element in a criminal copyright case is whether it was done “willfully.” The Copyright Act does not define the term in the criminal context, but the standard has often been expressed as a “voluntary, intentional violation of a known legal duty.” United States v. Moran, 757 F. Supp. 1046, 1049 (D. Neb. 1991). In the course of debating the No Electronic Theft Act, Senator Orrin Hatch, then-chairman of the Senate Judiciary Committee, cited this definition with approval. 143 Cong. Rec. S12689 (1997). Other courts have said that it is not “willful” if it was done by mistake, accident, or good faith. United States v. Cross, 816 F.2d 297, 300 (7th Cir. 1987); see also United States v. Liu, 731 F.3d 982, 989–91 (9th Cir. 2013). Evidence of the following types of activities have been held to prove willfulness: • evidence that the defendant had in the past manufactured and distributed pirated tapes, United States v. Whetzel, 589 F.2d 707, 712 (D.C. Cir. 1978); • evidence that the FBI had informed the defendant that his own actions were illegal, United States v. Cross, 816 F.2d 297 (7th Cir. 1987); and • evidence that the defendant knew his conduct was illegal. In United States v. Manzer, 69 F.3d 222 (8th Cir. 1995), the defendant stated in interviews that he knew that selling copyrighted computer chips was illegal. See Computer Crime and Intellectual Property Section (CCIPS), U.S. Dep’t of Justice, www.cybercrime.gov (last visited Nov. 24, 2015).

§ 7.15.3 Only Two Exclusive Rights May Form Basis of Felony A felony penalty for criminal copyright infringement only exists if the defendant violates either • the “reproduction right” or • the “distribution right.” 18 U.S.C. § 2319(b)(1); see also Department of Justice, Prosecuting Intellectual Property Crimes 6 (4th ed. 2013), available at http://www.justice.gov/sites/

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§ 7.15

default/files/criminal-ccips/legacy/2015/03/26/prosecuting_ip_crimes_manual_ 2013.pdf. Violation of the display, performance, or derivative works rights cannot form the basis for a felony conviction. The government can charge a defendant with criminal infringement if the defendant reproduced or distributed at least one copy of one or more copyrighted works with a total retail value of $1,000 within a 180-day period. 17 U.S.C. § 506(a); 18 U.S.C. § 2319. There are also special penalties (aimed at preventing bootlegging of motion pictures, etc.) for making unauthorized recordings of live musical performances, unauthorized recordings of motion pictures in movie theaters, and unauthorized distributions of works via computer networks prior to their commercial release. 17 U.S.C. § 506(a)(1)(C); 18 U.S.C. § 2319A; 18 U.S.C. § 2319B.

§ 7.15.4 Tampering with Copyright Notices It is also illegal to place a knowingly false copyright notice on a work, with fraudulent intent, or to remove a copyright notice with fraudulent intent. 17 U.S.C. § 503(c), (d). These actions undermine the effective workings of the copyright system, even though copyright notices are no longer a prerequisite to obtaining copyright protection.

(a)

Penalties

Defendants convicted of a felony face up to three years imprisonment and a $250,000 fine. If the government proves that the defendant acted for commercial advantage or private financial gain, the maximum sentence can be increased to five years. 18 U.S.C. §§ 2319, 3571. Repeat felony offenders can be imprisoned for six years and ten years, respectively, depending on whether the crime is committed for financial gain. The maximum penalty for misdemeanor convictions is a one-year imprisonment and a $100,000 fine.

§ 7.16

BUILDING A COPYRIGHT PROTECTION PLAN

Hopefully, this chapter has given some sense of the importance of copyright protection for the works of your companies or clients. In addition to the various 3rd Edition 2016

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practice pointers discussed in this chapter, consider the following issues when developing a plan to protect your client’s intellectual property portfolio: • What type of intellectual property does your client possess? The intellectual property may be protected by more than one intellectual property right. For example, a software program may be protected by copyright, trademark, patent, and trade secret. Specific registrations and applications may be required to obtain maximum copyright, trademark, and patent protection, and specific procedures may need to be put in place to maintain trade secret protection. • Have registrations ever been filed for the work? • Is the work updated regularly? If so, consider whether it makes sense to register the copyright for all amendments and derivatives in order to protect the new as well as the older version of the work. • Was the work created in-house? If not, does your client have proper assignment or licenses of rights from the creative party, or work-for-hire agreements if applicable? • Is the work licensed or sold to third parties? If so, who retains rights in the original and rights to any derivative work?

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EXHIBIT 7A—Online Resources for Copyright Law The U.S. Copyright Office Website The U.S. Copyright Office website, http://www.loc.gov/copyright, is the single best site for copyright information. It includes links to the Copyright Act and other existing legislation, Copyright Office regulations, proposed legislation, and informational brochures called “Circulars” on how to register a copyright, how to register as an online service provider agent, and many other topics.

Copyright Treaties Circular 38a of the Copyright Office lists, as of August 2014, the copyright relationships that other countries have with the United States. Circular 38a is available at http://www.loc.gov/copyright/circs/index.html#fl100. In addition, the World Intellectual Property Organization site, http://www.wipo.int, is a rich source of information on copyright and other intellectual property issues, including detailed information on copyright, trademark, and patent treaties.

Berne Convention The text of the Berne Convention for the Protection of Literary and Artistic Works is available at http://www.law.cornell.edu/treaties/berne/overview.html and http://www.wipo.int/treaties/en/ip/berne.

The Copyright Act The Copyright Act is available on the Copyright Office website at http://www .copyright.gov/title17, and also at http://www.law.cornell.edu/uscode/17/.

Copyright Act Regulations Copyright Office regulations codified in the Code of Federal Regulations (C.F.R.) are available at http://www.copyright.gov/title37. Federal Register notices are available at http://www.copyright.gov/fedreg. The Compendium of U.S. Copyright Office Practices, Third Edition, available at http://copyright.gov/ comp3/, provides exhaustive detail on registration, recordation, and other areas of Copyright Office procedure.

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Criminal Copyright Issues The website of the Computer Crime and Intellectual Property Section of the Criminal Division of the U.S. Department of Justice is http://www .cybercrime.gov.

Freedom of Speech on the Internet The Electronic Frontier Foundation (EFF) is a not-for-profit that works for freedom of speech on the Internet. In so doing, it opposes the anticircumvention provisions of the Copyright Act, as well as other copyright protections sought by content owners, such as the Secure Digital Music Initiative. The EFF website is http://www.eff.org.

Governmental Agencies Combating Piracy The United States Trade Representative (USTR) is charged with monitoring and enforcing sanctions against countries that do not adequately protect intellectual property rights. It issues annual “Special 301 reports” on international IP issues, which are available at http://www.ustr.gov. The Executive Branch also has an intellectual property enforcement coordinator charged with overseeing government efforts to protect U.S. copyright interests; the website for this office is www.whitehouse.gov/omb/intellectualproperty.

Music: The Harry Fox Agency A “mechanical right” is the right to record and distribute (without visual images) a song on a phonorecord for private use. Mechanical rights or a mechanical license must be obtained in order to lawfully make and distribute records, CDs, and tapes. Recording rights for most music publishers can be obtained from The Harry Fox Agency, 711 Third Avenue, New York, NY 10017; (212) 370-5330; http://www.harryfox.com.

ASCAP and BMI The American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) are membership associations representing hundreds of thousands of U.S. composers, songwriters, and publishers of every kind of music, and licensing between them nearly twenty million musical works for nondramatic public performance. Their websites, http://www.ascap.com and

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http://www.bmi.com, have information on licensing use of music in various settings.

Industry Associations Various industry associations have information on their websites stating their views on copyright and their efforts to protect it. For example, go to http://www .bsa.org to learn what the business software industry is doing to combat piracy; or go to http://publishers.org or http://www.stm-assoc.org for the publishing industry’s take on numerous copyright issues.

The Author’s Guild The Author’s Guild is a large American association of authors that lobbies for legislation on behalf of authors and actively litigates for authors’ rights. Its website, http://www.authorsguild.org, includes legal and legislative issues on copyrights and the Guild’s model book publishing contract.

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EXHIBIT 7B—U.S. Copyright Office Information Circulars and Form Letters The U.S. Copyright Office’s Copyright Information Circulars and Factsheets are available at http://www.copyright.gov/circs/. All of the Copyright Office information circulars are available in Adobe Acrobat PDF format, and some are also available in HTML text versions. The following four circulars, which are particularly useful, are reproduced at the end of this exhibit: Circular 12—Recordations of Transfers and Other Documents, Circular 22—How to Investigate the Copyright Status of a Work, Circular 55—Copyright Registration for Multimedia Works, and Circular 61—Copyright Registration for Computer Programs.

Circulars 1

Copyright Basics (Spanish version: Fundamentos Basicos Del Derecho De Autor)

1a

United States Copyright Office: A Brief History Introduction

1b

Limitations on the Information Furnished by the Copyright Office

1c

Make Sure Your Application Will Be Acceptable

2

Publications on Copyright

3

Copyright Notice

4

Copyright Office Fees

5

How to Open and Maintain a Copyright Office Deposit Account

6

Obtaining Access to and Copies of Copyright Records and Deposits

7b

Best Edition of Published Copyrighted Works for the Collections of the Library of Congress

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7c

The Effects of Not Sending a Timely Reply to Copyright Office Correspondence

7d

Mandatory Deposit of Copies or Phonorecords for the Library of Congress

8

Supplementary Copyright Registration

9

Work Made For Hire Under the 1976 Copyright Act

10

Special Handling

12

Recordations of Transfers and Other Documents

14

Copyright Registration for Derivative Works

15

Renewal of Copyright

15a

Duration of Copyright

15t

Extension of Copyright Terms

21

Reproductions of Copyrighted Works by Educators and Librarians

22

How to Investigate the Copyright Status of a Work

23

The Copyright Card Catalog and the Online Files of the Copyright Office

31

Ideas, Methods, or Systems

32

Blank Forms and Other Works Not Protected by Copyright

33

Computing and Measuring Devices

34

Copyright Protection Not Available for Names, Titles, or Short Phrases

38a

International Copyright Relations of the United States

38b

Copyright Restoration Under the URAA

40

Copyright Registration for Pictoral, Graphic, and Sculptural Works

40a

Deposit Requirements for Registration of Claims to Copyright in Visual Arts Material

41

Copyright Claims in Architectural Works

44

Cartoons and Comic Strips

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45

Copyright Registration for Motion Pictures Including Video Recordings

50

Copyright Registration for Musical Compositions

55

Copyright Registration for Multimedia Works

56

Copyright Registration for Sound Recordings

56a

Copyright Registration of Musical Compositions and Sound Recordings

61

Copyright Registration for Computer Programs

62

Copyright Registration for Single Serial Issues

62a

Group Registration of Newspapers and Newsletters on Form G/DN

62b

Copyright Registration for Group of Serial Issues

64

Copyright Registration for Secure Tests

65

Copyright Registration for Automated Databases

66

Copyright Registration for Online Works

73

Compulsory License for Making and Distributing Phonorecords

74a

How to Make Statutory License Royalty EFT Payments via Wire

74b

How to Make Statutory License Royalty EFT Payments via ACH Credit

74c

How to Make Statutory License Royalty EFT Payments Using Pay.gov

75

The Licensing Division of the Copyright Office

92

Copyright Law of the United States

100

Federal Statutory Protection for Mask Works

Factsheets (SLS and Form Letters) SL 4

Copyright Office Fees

SL 4a

Reconsideration of a Refusal to Register a Copyright, Mask Work, or Vessel Hull Claim

SL 4d

Calculating Fees for Recording Documents in the Copyright Office

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SL 4de

Cálculo de cargos por Archivo de Documentos y Avisos de Terminación de Contratos

SL 4e

Cargos por Servicios Prestados en la Oficina del Derecho de Autor

SL 4l

Copyright Office Licensing Division Service Fees

SL 4s

Have a Question About the Single Application?

SL 6a

Placing an Order with the Records Research and Certification Section

SL 7

Short Forms Available from the Copyright Office

SL 8

Fill-In Forms on the Copyright Office Website

SL 9

Have a Question About Copyright Registration?

SL 9a

Call the Copyright Office Toll Free 1-877-476-0778

SL 10

Get It Quick Over the Net

SL 10a

Subscribe to NewNet

SL 30a

Changing Your Address with the Copyright Office

SL 35

Registering a Copyright with the U.S. Copyright Office

SL 37

Privacy: Copyright Public Records

SL 39

Electronic Registration of Groups of Published Photographs

FL 100

International Copyright (English and Spanish)

FL 101

Pseudonyms

FL 103

Useful Articles

FL 104

Contribution to Collective Work

FL 106

Copyright Registration of Poetry

FL 107

Copyright Registration of Photographs

FL 108

Copyright Registration of Games

FL 109

Copyright Registration of Books, Manuscripts, and Speeches

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FL 119

Dramatic Works: Choreography, Pantomimes, and Scripts

FL 124

Group Registration of Published Photographs

M 10

How to Obtain Permission

M 295

How to Respond to a Mandatory Deposit Notice if You Elect to Register Your Work

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EXHIBIT 7C—Assignment of Copyrights For good and valuable consideration, receipt of which is hereby acknowledged, John Smith, an individual residing at __________ (“Assignor”) hereby sells, transfers and assigns to ABC Corp., a Massachusetts Corporation with a principal address at __________ (“Assignee”), all right, title, and interest, including but not limited to copyright throughout the world for all terms of protection, in and to [title of Work], U.S. copyright registration number __________ (the “Work”). This assignment includes all rights of action, if any, that Assignor may have against third parties for infringement of the foregoing rights occurring prior to the date hereof. Assignor hereby warrants and represents that he is the sole author of the work and sole proprietor of all of the rights transferred herein, that he has full and complete title to the Work free of all liens and encumbrances whatsoever, that the Work does not infringe the personal or proprietary rights of any third party, and that to the best of his knowledge no third party has as of the date hereof asserted any claim contrary to the foregoing. Assignor hereby agrees that, for no additional compensation, he will upon request execute any and all documents that may be necessary to perfect Assignee’s rights in and to the Work. Signed:

Date: John Smith

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CHAPTER 8

FDA Approval and Licensing as Intellectual Property John C. Serio, Esq. Burns & Levinson LLP, Boston

John A. Hamilton, Esq. Burns & Levinson LLP, Boston § 8.1

Biosimilars ............................................................................ 8–1 § 8.1.1

Affordable Care Act .............................................. 8–1

§ 8.1.2

Biosimilar Approval .............................................. 8–3

§ 8.1.3

Why Are Biosimilars Important? .......................... 8–3

§ 8.1.4

How Biosimilars Differ ......................................... 8–4

§ 8.1.5

Biosimilars Landscape .......................................... 8–5

§ 8.1.6

Data Exclusivity .................................................... 8–6

§ 8.1.7

Actual Approval of Biosimilars (Zarxio) .............. 8–7

§ 8.1.8

Additional FDA Guidance Documents ............... 8–10

§ 8.1.9 § 8.2

(a)

FDA Draft Guidance for Clinical Evaluations ................................................. 8–10

(b)

Comparative Safety and Effectiveness Data ............................................................ 8–10

(c)

FDA Draft Guidance for Patient Population .................................................. 8–10

(d)

Extrapolation .............................................. 8–10

(e)

FDA Draft Guidance for Industry .............. 8–11

Patent Issues ........................................................ 8–11

Hatch-Waxman ................................................................... 8–12

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§ 8.2.1

Drug Price Competition and Patent Term Restoration Act..................................................... 8–12

§ 8.2.2

Branded Drug Approval ....................................... 8–13

§ 8.2.3

Generic Drug Approval ........................................ 8–13

§ 8.2.4

Types of Applications........................................... 8–13

§ 8.2.5

(a)

ANDA ......................................................... 8–14

(b)

Paper NDA Section 505(b)(2) Application ................................................. 8–14

New Drug Exclusivity .......................................... 8–15 (a)

§ 8.2.6

Patent Exclusivity and the Orange Book ............. 8–17

§ 8.2.7

Challenging Patent Exclusivity ............................ 8–17 (a)

8–ii

Patent Certification ..................................... 8–17

§ 8.2.8

Paragraph IV Certification ................................... 8–18

§ 8.2.9

ANDA Exclusivity ............................................... 8–18 (a)

§ 8.3

Nonpatent Exclusivities .............................. 8–15

Exclusivity Forfeiture ................................. 8–19

§ 8.2.10

Patent Term Extension ......................................... 8–20

§ 8.2.11

Commencing Litigation and Approval Stays ....... 8–20

§ 8.2.12

Potential Litigation Claims and Defenses ............ 8–21

§ 8.2.13

Proof of Infringement .......................................... 8–21

§ 8.2.14

Safe Harbor .......................................................... 8–22

§ 8.2.15

Final Remedies..................................................... 8–23

§ 8.2.16

Settlement and Unfair Competition Challenges ............................................................ 8–23

§ 8.2.17

Periods of Exclusivity in Foreign Countries ........ 8–24

§ 8.2.18

Conclusion ........................................................... 8–24

U.S. Medical Device Law .................................................... 8–25 § 8.3.1

Premarket Notification/510(k) ............................. 8–29

§ 8.3.2

Premarket Approval ............................................. 8–30

§ 8.3.3

Investigational Device Exemptions ...................... 8–31 3rd Edition 2016

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§ 8.4

Information Collected by FDA and Access Thereto ........ 8–31

§ 8.5

Protecting the Investment/FDA Compliance ................... 8–35 § 8.5.1

Relationships Between Manufacturers and Researchers ................................................... 8–35

§ 8.5.2

Postmarketing Requirements............................... 8–39

§ 8.6

Tensions Between U.S. Device and Patent Law ............... 8–44

§ 8.7

Hatch-Waxman for Medical Devices ................................ 8–46

§ 8.8

§ 8.7.1

Patent Term Extension for Medical Devices ....... 8–46

§ 8.7.2

Research Exemptions for Medical Devices ......... 8–47

Transfers of 510(k)s and PMAs......................................... 8–48

EXHIBIT 8A—8+2(+1) Exclusivity Formula ................................ 8–51

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CHAPTER 8

FDA Approval and Licensing as Intellectual Property John C. Serio, Esq. Burns & Levinson LLP, Boston

John A. Hamilton, Esq. Burns & Levinson LLP, Boston

Scope Note In this chapter, the authors offer a discussion of topics illustrating the interplay of U.S. patent law with drug and medical device law. Approximately half of the chapter is devoted to biosimilars and Hatch-Waxman Act pharmaceutical issues. The remainder of the chapter focuses on medical device law, its tensions with patent law, the relationships between FDAregulated product manufacturers and nonprofit researchers, and the current, evolving state of law related to off-label promotion and advertising of FDA-regulated products.

§ 8.1

BIOSIMILARS

§ 8.1.1

Affordable Care Act

The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created an abbreviated licensing pathway for biosimilars of U.S.-licensed reference biologics (Section 351(k) of the Public Health Service Act). The BPCIA was originally sponsored and introduced on June 26, 2007, by the late Senator Edward Kennedy (D-MA). It was formally passed under the Patient Protection and Affordable Care Act (PPACA), signed into law by President Barack Obama on March 23, 2010. The BPCIA was an amendment to the Public Health Service Act (PHSA) to create an abbreviated approval pathway for biological products that are demonstrated to be highly similar (biosimilar) to a Food and Drug Administration (FDA) approved biological product. Under the BPCIA, a biological product may be demonstrated to be “biosimilar” if data shows that, among other things, the product is “highly similar” to an already approved biological product. 3rd Edition 2016

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Section 351(k) of the PHSA (42 U.S.C. § 262(k)), added by the BPCIA, sets forth the requirements for an application for a proposed biosimilar product and an application for a supplement for a proposed interchangeable product. Section 351(i) defines biosimilarity to mean “that the biological product is highly similar to the reference product notwithstanding differences in clinically inactive components” and that “there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product.” See PHSA § 351(i)(2). A 351(k) application must contain, among other things, information demonstrating that the biological product is biosimilar to a reference product based on data derived from analytical studies, animal studies, and a clinical study or studies, unless the FDA determines, in its discretion, that certain studies are unnecessary. See PHSA § 351(k)(2). To meet the additional standard of “interchangeability,” an applicant must provide sufficient information to demonstrate biosimilarity and also to demonstrate that the biological product can be expected to produce the same clinical result as the reference product in any given patient and, if the biological product is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch. See PHSA § 351(k)(4). Interchangeable products may be substituted for the reference product without the intervention of the prescribing healthcare provider. See PHSA § 351(i)(3). The BPCIA is similar, conceptually, to the Drug Price Competition and Patent Term Restoration Act of 1984 (also referred to as the Hatch-Waxman Act), which created small molecule drug approval through the federal Food, Drug, and Cosmetics Act (FDCA). See FDCA §§ 505(b)(2), 505(j) (21 U.S.C. §§ 355(b)(2), 355(j)). The BPCIA aligns with the FDA’s longstanding policy of permitting appropriate reliance on what is already known about a drug, thereby saving time and resources and avoiding unnecessary duplication of human or animal testing. The FDA has released a total of four draft guidelines related to biosimilar or follow-on biologics development. A biosimilar product is a biological product that is approved based on a showing that it is highly similar to an FDA-approved biological product, known as a reference product, and has no clinically meaningful differences in terms of safety and effectiveness from the reference product. Only minor differences in clinically inactive components are allowable in biosimilar products. Unlike generic chemical medicines where the active ingredients are identical, biosimilars by definition are not likely to be identical to the originator biologic. They are highly similar but not the same. 8–2

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§ 8.1

Because of the inherent nature of biological products, biosimilars made by different manufacturers differ from the original product and from each other. Biosimilars are not expected to be direct copies of originator biologics and are therefore not the same as generic drugs. Due to the complex structure of biologic medicines and the processes involved in methods of manufacture, biosimilars must be shown on the basis of analytical, nonclinical, and clinical data to be similar to an original biologic in terms of structural characteristics, safety, and efficacy. Minor differences from the active ingredient are expected and permitted so long as any such differences in inactive components are demonstrated not to be clinically meaningful. As patents of a growing number of biologic medicines have already expired or are due to expire, the BPCIA has led to an increased interest in the development of biosimilars.

§ 8.1.2

Biosimilar Approval

For any potential biosimilar drug to be approved for use, it must undergo rigorous testing to demonstrate that it meets specific quality parameters. Regulatory guidelines for approval of biosimilars are already in place in the European Union, Canada, and Australia. Important in these regulatory guidelines is the recognition by regulatory agencies of the following scientific principles: o biologic medicines are produced from living organisms using commercial biotechnology methods. Their molecular structures are far larger and more complex than traditional small-molecule, chemically synthesized pharmaceuticals; o biosimilars are highly complex molecules and, like their reference biologics, are subject to a natural and expected degree of variability; o unlike “generic” versions of small-molecule pharmaceuticals, biosimilars cannot be considered identical to their reference biologics; and o the amino acid sequence, secondary structure, and biologic function of a biosimilar are designed to be highly similar to those of its reference biologic.

§ 8.1.3

Why Are Biosimilars Important?

While biosimilars are not generic drugs, they offer potential cost-effective therapeutic alternatives. Because of lower costs, biosimilars can provide additional choices to patients, doctors, and pharmacists, and hopefully, the potential for increased access and reduced cost in health care. 3rd Edition 2016

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§ 8.1

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Countries around the world face a growing, aging population and an increase in chronic disease, which have caused health care expenditures to outpace governmental budgets. Modern therapeutic approaches to chronic disease (such as oncology treatments) are increasingly biological-based therapies. With expanding demand for good-quality health care caused by increasingly educated health care consumers comes the challenge of controlling health care expenditures. The safe and regulated introduction of biosimilars into the market has been forecasted to increase access to much-needed biologic medicines and reduce costs. A study from the European Commission looking at Europe’s strong regulatory and commercial foundation for biosimilars found that biosimilars are helping improve competition and are thus increasing access to biologic medicines for patients.

§ 8.1.4

How Biosimilars Differ

The active ingredient of a biosimilar is expected to substantially resemble that of the original biologic. Unlike generic chemical medicines where the active ingredient is required to be identical, the manufacturing process through which a biologic is produced cannot be exactly duplicated by another manufacturer due to naturally occurring differences between an originator and a biosimilar medicine, which are set out below. o Biologic medicines are not made using a set of standard materials, as is the case in chemical medicines, but are developed using unique biological systems and living cells. As a result, the active ingredient in a biological product is impossible to recreate exactly and the selected cell lines from which the biologic medicine originates are unique to each manufacturer. EuropaBio, Guide to Biological Medicines—A Focus on Biosimilar Medicines (Oct. 26, 2011), http://www.europabio.org/guide-biologicalmedicines-focus-biosimilar-medicines. o The manufacturing process for biologic medicines is typically more complex than manufacturing processes for most chemical drugs. Unlike small molecules, biologic medicines are produced in genetically engineered living cells that are sustained in a highly controlled environment. The recombinant protein produced by the living cells will be influenced by individual cell characteristics as well as the environment and nutrients provided. o Each manufacturer may have different manufacturing processes that may create distinctive characteristics in the product that will often be specific to the manufacturer. Usually, these manufacturing 8–4

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§ 8.1

processes are protected by manufacturing patents. This creates a unique relationship between a biologic’s manufacturing process and the final characterized product approved by regulatory agencies. H. Mellstedt et al., “The challenge of biosimilars,” 19 Annals of Oncology 411–19 (Mar. 2008). Variability is a natural property of all biologics, including biosimilars. Due to these natural variations as well as manufacturing variations, biosimilars and biologics often comprise a mixture of protein isoforms. Variability in biologic proteins is natural. The manufacturing process also can cause variations. Lifecycle variations of biologic medicines are not only common, they are well recognized by regulatory agencies worldwide. The FDA has guidelines and protocols to ensure that these variations would not result in clinically meaningful differences. Variations may include –

cell expansion,

–

production in bioreactors,

–

protein recovery,

–

protein purification, and

–

characterization and stability.

H. Mellstedt et al. “The challenge of biosimilars,” 19 Annals of Oncology 411– 19 (Mar. 2008).

§ 8.1.5

Biosimilars Landscape

In the European Union, biosimilar products have been approved since 2006 under an abbreviated pathway that leverages their similarity to an existing reference biological product. The products approved to date are based on recombinant versions of endogenous proteins with well-understood characterized structures and pharmacology but complicated safety and immunogenicity profiles. Over the next several years, under the new regulatory pathways within the BPCIA and those of other developed countries under similar regulatory models, new and advanced biosimilars will be developed for complex reference products, including medicines used in the treatment of cancer and autoimmune diseases that will likely be characterized by the development of complex products, global harmonization of standards, and the increasing demand for long-term monitoring of pharmaceuticals.

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§ 8.1

INTELLECTUAL PROPERTY PRACTICE

Before marketing authorization is granted by regulators such as the FDA or the European Medicines Agency (EMA)/European Commission (EC), originator companies and biosimilar manufacturers must submit robust data to demonstrate a product’s efficacy and safety profile. Extensive analytical chemistry, manufacturing, and control (CMC), as well as nonclinical and clinical evidence, are required for the relevant therapeutic area. The approval pathway for a biosimilar medicine as a result of the BPCIA and other comparable foreign pathways is shortened in comparison to the originator product. Where there are approval pathways, in order to gain approval as a biosimilar, the manufacturer must provide substantial data to show that its product is sufficiently similar to the original product. Specifically, the biosimilar must demonstrate that it has no significant clinical differences or no substantial therapeutic effect in regard to the reference product, but some limited variation is permitted. This is because biosimilar approval is based on a demonstration of similarity to a previously approved originator product rather than a de novo demonstration of safety and effectiveness.

§ 8.1.6

Data Exclusivity

Data exclusivity is an important piece of the amendment in the Patient Protection and Affordable Care Act for biosimilars, as it is also in the Hatch-Waxman Act. Recently it became one of the major points of contention in the TransPacific Partnership agreement. Jonathan Weisman, “Talks for Pacific Trade Deal Stumbles,” N.Y. Times, July 31, 2015, http://www.nytimes.com/2015/08/01/ business/tpp-trade-talks-us-pacific-nations.html. It is the period of time between FDA approval and an abbreviated filing for a biosimilar on the original producer’s data. Data exclusivity in the BPCIA and Hatch-Waxman Act are designed to preserve innovation and recognize the long, costly, and risky process involved while the innovator waits to gain FDA approval. The time allowed for data exclusivity is critical for the future of biologics. A number of provisions for data exclusivity in recent legislative proposals ranged up to fourteen years, however, the passing of the PPACA guarantees a twelve-year time period from the time of FDA approval. In recent negotiations regarding the Trans-Pacific Partnership agreement, the United States sought to guarantee a period of twelve years, but reportedly was only able to convince its proposed trade partners to agree to a minimum period of five years with no maximum period of data exclusivity. This period of time is thought to compensate for perceived shortcomings in patent protection for biologics. Data exclusivity extends from the date of product approval, and this protection period runs concurrently with any remaining patent term protection for the biologic. That is to say, data exclusivity provides additional protection to the innovator when the remaining patent length is shorter than the data exclusivity period at the time of approval (which can occur due to 8–6

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lengthy preclinical and clinical research required to obtain FDA approval), or to the extent that the patent term is circumvented by a biosimilar prior to its expiry. The BPCIA also includes, among other provisions, the following: o a twelve-year exclusivity period from the date of first licensure of the reference product, during which approval of a 351(k) application referencing the product may not be made effective (see PHSA § 351(k)(7)); o a four-year exclusivity period from the date of first licensure of the reference product, during which a 351(k) application referencing the product may not be submitted (see PHSA § 351(k)(7)); o an exclusivity period for the first biological product determined to be interchangeable with the reference product for any condition of use, during which a second or subsequent biological product may not be determined interchangeable with that reference product (see PHSA § 351(k)(6)); o an exclusivity period for certain biological products for which pediatric studies are conducted in accordance with a written request (see PHSA § 351(m)); o a transition provision for biological products that have been or will be approved under Section 505 of the FDCA (21 U.S.C. § 355) before March 23, 2020 (see PPACA § 7002(e)); and o a provision stating that a 351(k) application for a biosimilar product contains a “new active ingredient” for purposes of the Pediatric Research Equity Act (PREA) (see FDCA § 505B(n)).

§ 8.1.7

Actual Approval of Biosimilars (Zarxio)

Five years after enactment of the BPCIA and following its first biosimilar approval, the U.S. Food and Drug Administration finalized its initial guidances describing the scientific and regulatory expectations for biosimilar approval under the 351(k) pathway. Recently, the FDA approved the first biosimilar product, Zarxio (filgrastim-sndz). Since the positive vote of the FDA’s Oncologic Drugs Advisory Committee, approval of Sandoz’s biosimilar to Amgen’s Neupogen for all five Neupogen indications was anticipated. This landmark event comes almost exactly five years after passage of the Biologics Price Competition and Innovation Act and demonstrates that the pathway created by Congress can be

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used to get biosimilars to the U.S. market and to patients with the FDA’s full confidence in the underlying science for the safety and efficacy of biosimilars. However, the Zarxio approval leaves key FDA regulatory questions about the pathway unanswered. o Although Zarxio was approved with the nonproprietary name filgrastim-sndz, the FDA was quick to point out that this was a “placeholder” name and that the agency has not yet decided on its policy for the naming of biologics and biosimilars, though it plans to issue guidance “in the near future.” o Contrary to the FDA’s own policy, there is no statement in the Zarxio labeling that identifies the product as a biosimilar, a biosimilar to Neupogen, or not interchangeable with Neupogen. Further, Zarxio’s labeling follows a “generic drug” model; the labeling includes only data derived from studies with Neupogen and none of the data generated with Zarxio in support of its approval. Because the FDA has not yet issued detailed labeling guidance, any policy reasons behind the Zarxio labeling have not been articulated. o The FDA had earlier suggested that extrapolation of indications could be acceptable; the Zarxio approval provides the sense that the “scientific justification” for extrapolation requires a relatively low threshold when there is a common molecular mechanism of action even across different disease states. Sandoz provided clinical noninferiority data to Neupogen in treatment of neutropenia in breast cancer patients receiving chemotherapy; Zarxio was approved for four indications related to neutropenia and one indication related to mobilization of cd34 cells. In the Oncologic Drugs Advisory Committee (ODAC) meeting materials, the FDA discussed the common mechanism of action at the cellular level. o The FDA appears flexible in its use of a non-U.S. reference product with the appropriate “scientific bridge” between the three products—biosimilar, U.S. reference product, and non-U.S. reference product. The bulk of the nonclinical and clinical data were generated in comparison to the European version of Neupogen; only two of the twelve referenced studies compared Zarxio to the U.S.-approved Neupogen. o Sandoz did not request an interchangeability designation for Zarxio, so this first biosimilar does not provide any additional insight on expectations for interchangeability of biologics and biosimilars. 8–8

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The Centers for Medicare and Medicaid Services (CMS) appeared to have been ready for the event, issuing three policy statements on reimbursement for biosimilars on the heels of the approval. Although not the final word on biosimilar reimbursement, these releases on Medicaid and Medicare Parts B and D establish the initial CMS policies. In a Federal Register notice, the FDA announced its draft guidance entitled “Nonproprietary Naming of Biological Products,” in which the agency articulates the need “for biological products licensed under the Public Health Service Act (PHSA) to bear a nonproprietary name that includes an FDA-designated suffix.” http://www.fda.gov/downloads/drugs/guidancecomplianceregulatoryinformation/ guidances/ucm459987.pdf. Described in an accompanying proposed rule, the FDA proposes that the proper names of all biologics include a core name and a designated suffix. For originator products, the core name would be the name adopted by the U.S. Adopted Name (USAN) Council for the drug substance when available. Related, biosimilar, or interchangeable products would include the core name of the relevant, previously licensed product and a designated four-letter suffix attached by a hyphen. Essentially, the FDA is proposing a unique nonproprietary naming policy for all biologics approved under PHSA § 351(a) or § 351(k). The guidance seeks extensive input from stakeholders regarding the application of a four-letter suffix to distinguish all biologics and biosimilars from one another and whether interchangeable biologics should similarly have unique suffixes or share the same four-letter suffix. The FDA summarized its intention with the following policy: By differentiating biological products from one another that have not been determined by the FDA to be interchangeable, this naming convention is intended to help minimize inadvertent substitution. Inadvertent substitution may lead to unintended alternating or switching of biological products that have not been determined by FDA to be interchangeable. A naming convention that differentiates among biological products also could help facilitate pharmacovigilance for all biological products. By applying this naming convention to all biological products, this approach is intended to: (1) Encourage routine use of designated suffixes in ordering, prescribing, dispensing, and recordkeeping practices and (2) avoid inaccurate perceptions of the safety and effectiveness of biological products based on their licensure pathways.

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http://www.fda.gov/downloads/drugs/guidancecomplianceregulatoryinformation/ guidances/ucm459987.pdf. In the accompanying proposed rule, the FDA provides additional details on its proposed naming policy and the application of this policy to six products. Each of the six products is either a reference product for an approved or publicly disclosed biosimilar product application or a biological product that is either biosimilar to or related to one of these reference products.

§ 8.1.8 (a)

Additional FDA Guidance Documents FDA Draft Guidance for Clinical Evaluations

The scope and magnitude of clinical studies will depend on the extent of residual uncertainty about the biosimilarity of the two products after conducting structural and functional characterization and possible animal studies. FDA Guidance for Industry—Clinical Pharmacology Data to Support a Demonstration of Biosimilarity to a Reference Product (May 2014).

(b)

Comparative Safety and Effectiveness Data

Comparative safety and effectiveness data will be necessary if there are residual uncertainties about the biosimilarity of the two products based on structural and functional characterization, animal testing, human pharmacokinetic (PK) and pharmacodynamic (PD) data, and clinical immunogenicity assessment. http://www .fda.gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandapproved/ approvalapplications/therapeuticbiologicapplications/biosimilars/ucm428730.htm.

(c)

FDA Draft Guidance for Patient Population

The sponsor should consider whether the tested condition is the most sensitive in detecting clinically meaningful differences in safety (including immunogenicity) and effectiveness, particularly when subsequent extrapolation of data will be considered for other indications. http://www.fda.gov/downloads/drugs/guidance complianceregulatoryinformation/guidances/ucm444661.pdf.

(d)

Extrapolation

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population for ethical reasons while improving the efficiency of the development program. http://www.fda.gov/downloads/drugs/developmentapprovalprocess/how drugsaredevelopedandapproved/approvalapplications/therapeuticbiologic applications/biosimilars/ucm428732.pdf.

(e)

FDA Draft Guidance for Industry

This guidance states that extrapolation of indications for a biosimilar is possible given robust evidence and scientific justification. Scientific justification is expected to address many issues, including the mechanism of action in each condition of use, pharmacokinetics and biodistribution, expected toxicities, and any other factors required for each indication seeking extrapolation. Moreover, extrapolation will be considered only for a biosimilar that has been approved for use in a condition for which the reference product also is approved.

§ 8.1.9

Patent Issues

The BPCIA provides for the following notice of commercial marketing and preliminary injunction: (A) NOTICE OF COMMERCIAL MARKETING. A subsection (k) applicant shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k). (B) PRELIMINARY INJUNCTION. After receiving the notice under subparagraph (A) and before such date of the first commercial marketing of such biological product, the reference product sponsor may seek a preliminary injunction prohibiting the subsection (k) applicant from engaging in the commercial manufacture or sale of such biological product until the court decides the issue of patent validity, enforcement, and infringement with respect to any patent that is— (i) included in the list provided by the reference product sponsor under paragraph (3)(A) or in the list provided by the subsection (k) applicant under paragraph (3)(B); and (ii) not included, as applicable, on— 3rd Edition 2016

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(I) the list of patents described in paragraph (4); or (II) the lists of patents described in paragraph (5)(B). 42 U.S.C. § 262(l).

§ 8.2

HATCH-WAXMAN

§ 8.2.1

Drug Price Competition and Patent Term Restoration Act

The Drug Price Competition and Patent Term Restoration Act (Pub. L. No. 98417), most commonly known as the Hatch-Waxman Act, has been amended several times since its enactment. Hatch-Waxman amended the federal Food, Drug, and Cosmetics Act. Section 505(j) of the act, codified as 21 U.S.C. § 355(j), outlines the process for pharmaceutical manufacturers to file an abbreviated new drug application (ANDA) for approval of a generic drug by the Food and Drug Administration (FDA). Section 505(j)(2)(A)(vii)(IV), often referred to as a paragraph IV filing, gives the first company to file an ANDA for a particular drug 180 days of exclusive rights to market the drug as a generic alternative to the branded pioneer drug. The 180 days begins on the first day of marketing the drug under the ANDA if the paragraph IV filing and certification is not challenged by the pioneer manufacturer. If the paragraph IV certification is challenged by the pioneer manufacturer, the 180 days begins on the date a court finds that, as required under paragraph IV, the patent of the pioneer manufacturer was not valid, enforceable, or infringed. Upon the challenge by the pioneer manufacturer, the courts will issue a thirtymonth stay regarding any marketing of a generic substitute. The act enables a generic pharmaceutical manufacturer to develop a copy of a patented innovator drug without duplicating the clinical and nonclinical studies to prove the safety and efficacy of the generic drug. The generic manufacturer must only demonstrate bioequivalence to the innovator. The basic structure of the Hatch-Waxman system is as follows: o an expedited FDA approval process for generic drug applications; o certain market and patent exclusivity periods for both branded and generic drug companies; o patent term extension to adjust for delays caused by the FDA approval process; and 8–12

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o a unique patent litigation process triggered by a generic drug company’s submission of an application for FDA approval.

§ 8.2.2

Branded Drug Approval

A branded drug company seeking FDA approval to market a new drug must submit a new drug application (NDA) to the FDA. The information provided in the NDA allows the FDA to determine whether the new drug is both safe and effective and certain other regulatory requirements are met, such as those concerning labeling and good manufacturing processes. 21 U.S.C. § 355(d) (2006), available at https://www.law.cornell.edu/uscode/text/21/355. Obtaining and submitting this information frequently is a time-consuming and expensive process requiring the branded drug company to conduct many extensive and expensive clinical trials. Branded drug companies must conduct these trials even though there may be a significant risk that the new drug could fail the clinical trial.

§ 8.2.3

Generic Drug Approval

The FDA reviews generic drug applications for compliance with the appropriate scientific and regulatory criteria, primarily the drug’s bioequivalence in comparison to the pioneer manufacturer’s drug, more commonly referred to as the reference listed drug (RLD). If an application meets these criteria, the FDA may grant either o tentative approval, which means that the application meets the scientific, labeling, and other approval criteria but some unexpired exclusivity prevents final approval, 21 U.S.C. § 355(j)(5)(B)(iv)(II)(dd); or o final approval, which is full clearance to enter the market, allowing the applicant to begin selling the generic drug immediately.

§ 8.2.4

Types of Applications

Under the Hatch-Waxman Act, generic drug companies can typically file one of two different kinds of abbreviated applications for approval of a generic drug— an ANDA or a paper NDA.

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(a)

INTELLECTUAL PROPERTY PRACTICE

ANDA

Under an ANDA, a generic drug company must establish that the generic drug is effectively a substantial copy of the branded, NDA drug or RLD. Specifically, the generic drug company must show that the proposed generic drug o has the same active ingredient, route of administration, dosage form, strength, and intended use as the RLD. It also must have the same labeling, except that the generic drug company sometimes may remove information related to a patented method or use subject to exclusivity from its label. However, the generic drug is not required to have the same inactive ingredients as the RLD, 21 U.S.C. § 355(j)(2)(A); and o is bioequivalent with the RLD, so that it performs in the same manner as the RLD in the body. Generally, a drug is bioequivalent when it delivers the same amount of active ingredient in a patient’s bloodstream over the same amount of time as the RLD. Different but analogous rules apply to drugs that are not delivered in the bloodstream, for example, those administered by topical application. 21 U.S.C. § 355(j)(8).

(b)

Paper NDA Section 505(b)(2) Application

This type of application is often called a paper NDA. 21 U.S.C. § 355(b)(2). A proposed generic drug, while having the same active pharmaceutical ingredient (API), may differ in significant ways from the RLD, such as having a different o route of administration, o dosage form, o strength, or o dosage regimen. Under these circumstances, the proposed generic drug must be approved through the Section 505(b)(2) paper NDA application process, which is a hybrid of a full NDA and an ANDA. This application includes less data than an NDA but more data than an ANDA, typically in the form of bridging toxicity studies and limited clinical trials. Drugs approved under a Section 505(b)(2) application rely on studies both that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. 8–14

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§ 8.2.5

§ 8.2

New Drug Exclusivity

The Hatch-Waxman Act provides for certain market exclusivity periods for new drug applicants based on both nonpatent and patent-based factors. The HatchWaxman Act periods of exclusivity are clearly at the intersection of patent law and what is referred to in the drug industry as “data exclusivity.”

(a)

Nonpatent Exclusivities

The Hatch-Waxman Act, among other legislation, such as the recently enacted BPCIA for biosimilars, allows new drug applicants to obtain certain nonpatent exclusivities, including the following: o orphan drug exclusivity, which is granted to drugs that treat a disease or condition that affects less than 200,000 people in the United States, or for which it is thought that U.S. sales of the drug may not recoup its development costs. This exclusivity period is seven years, but only applies to use in treating the specific rare disease or condition. 21 U.S.C. §§ 360aa–360ee; o new chemical entity (NCE) exclusivity, which is granted if the FDA has not previously approved the active drug moiety (API), which is the molecule’s active portion and not its variations such as salts or esters. NCE exclusivity bars a generic drug company from filing an application for approval of a generic drug five years from the first approval of the relevant NDA. However, a generic drug company may file an ANDA with a paragraph IV certification four years after the first NDA approval. 21 U.S.C. §§ 355(c)(3)(E)(ii), 355(j)(5)(F)(ii). To be a novel active ingredient, neither the active ingredient nor any salt or ester form of the active ingredient may have been approved in any prior application. 21 U.S.C. § 355(c)(3)(E)(ii). According to the FDA’s regulations, the focus in judging novelty is on the active moiety (“the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt . . ., or other noncovalent derivative . . . of the molecule, responsible for the physiological or pharmacological action of the drug substance”). 21 C.F.R. § 314.108(a). Drugs that do not qualify as NCEs may still qualify for a threeyear data exclusivity period based on, inter alia, a new indication for a previously approved drug or a new dosage form for that drug. 21 U.S.C. § 355(j)(5)(F)(iii)–(iv). If a drug qualifies for a 3rd Edition 2016

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period of data exclusivity, the FDA cannot approve an ANDA directed to that indication or dosage form during the exclusivity period. 21 U.S.C. § 355(j)(5)(F)(iii)–(iv). Unlike the NCE exclusivity, however, applicants may submit ANDAs, which the FDA can approve immediately upon the termination of the exclusivity period. A disadvantage for new use indications, however, is that ANDA applicants can “carve out” of their applications those uses subject to patent rights or exclusivity by omitting the exclusive use from the product label. 21 C.F.R. § 314.94(a)(8)(iv). While a carveout satisfies the FDA and may avoid patent infringement, physicians remain free to substitute the generic products even for those carved out uses. The other two exclusivities of note are the “orphan drug” exclusivity, which prohibits the FDA from approving another application for seven years from the date on which the FDA approves an NDA for the “orphan drug” (i.e., a drug that treats a rare disease or condition), 21 U.S.C. § 360cc(a)(2), and the pediatric exclusivity, which prohibits the FDA from approving an application for six months for all drug products and dosage forms of the same active moiety. FDA Guidance, Qualifying for Pediatric Exclusivity Under Section 505a of the Federal Food, Drug, and Cosmetic Act, § X.A. (Sept. 1999). Pediatric exclusivity can result in extending the period of another exclusivity by six months, resulting in fiveand-a-half-year exclusivity for NCEs, three-and-a-half-year exclusivity for OSCs, and seven-and-a-half-year exclusivity for “orphan” drugs. 21 U.S.C. § 355a(b)(1)(A)(i)–(ii). A pharmaceutical company qualifies for pediatric exclusivity when the FDA requests and subsequently accepts the manufacturer’s studies of pediatric use of the drug product; and o new clinical study exclusivity, which applies when new clinical studies lead to new or changed formulations, dosing regimens, or patient population. The applicant is entitled to this exclusivity if an application or supplement contains reports of new clinical investigations conducted or sponsored by the applicant that were essential for approval. This exclusivity, sometimes called data exclusivity, prohibits the FDA from approving a generic drug application for the new dosage form or use for three years after the first NDA approval. However, it does not otherwise bar approval of generic drug applications. 21 U.S.C. § 355(c)(3)(E).

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§ 8.2.6

§ 8.2

Patent Exclusivity and the Orange Book

Branded drug companies typically obtain patent protection for their approved drugs so they have a period of exclusivity that prevents unlicensed third parties from making, using, offering for sale, selling, or importing the patented invention. An NDA holder must provide the FDA with the patent number and expiration date of any patent that claims either the drug, including the active ingredient and the formulation for the active ingredient (composition patents), or a method of using the drug. The Orange Book patents, however, are not directed to other inventions such as metabolites, synthetic intermediates, or, importantly, methods of making the drug. In its Orange Book filings, the NDA holder must also identify whether the relevant patents claim the drug substance, a polymorph, or a method of using the drug. When the FDA approves the NDA, it publishes the patent information in its Approved Drug Products with Therapeutic Equivalence Determinations publication (also called the Orange Book). 21 U.S.C. §§ 355(b)(1)(G), 355(j)(5). The Orange Book also lists any nonpatent exclusivity concerning the RLD. It is publicly available on the FDA’s website.

§ 8.2.7

Challenging Patent Exclusivity

The Hatch-Waxman Act by Congressional design provides generic drug companies with certain procedures for challenging a new drug company’s patent exclusivity for the RLD. Commonly, the generic drug company can file a paragraph IV certification or a Section VIII statement in connection with the RLD. A Section VIII statement, in contrast to a paragraph IV filing, ordinarily is not a trigger for patent litigation. Typically, the generic drug applicant attempts to remove from its label, or carveout, anything related to the patented method in the RLD’s label. As a result, there is no certification or notice requirement. Generic drug companies may use the same procedure to avoid the three-year new clinical study by carving out the information that relates to the clinical trials and relevant approval for a Section 505(b)(2) application. The FDA will approve these socalled skinny labels if it does not make the proposed drug less safe or effective than the listed drug for all remaining nonprotected conditions of use. 21 C.F.R. § 314.127.

(a)

Patent Certification

A generic drug company submitting either an ANDA or a Section 505(b)(2) application must make one of the following four certifications as to each patent listed in the Orange Book for an RLD: 3rd Edition 2016

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o paragraph I certification that no relevant patent is listed in the Orange Book; o paragraph II certification that the listed patent has expired; o paragraph III certification that the listed patent, plus any other exclusivity, will expire before the requested approval; or o paragraph IV certification that the listed patent is invalid or will not be infringed by the commercialization of the generic drug. 21 U.S.C. § 355(j)(2)(A)(vii)(I)–(IV).

§ 8.2.8

Paragraph IV Certification

A paragraph IV certification is a trigger for Hatch-Waxman Act patent litigation because the filing of an application with this certification is a statutory act of patent infringement. 35 U.S.C. § 271(e)(2). Specifically, by statute, it is an act of patent infringement to submit an application with the FDA “[f]or a drug claimed in a patent or the use of which is claimed in a patent . . . if the purpose of such submission is to obtain approval . . . to engage in the commercial manufacture, use, or sale of the drug . . . before the expiration of such patent.” 35 U.S.C. § 271(e)(2). A paragraph IV certification meets this definition because it means that the generic drug company intends to engage in the commercial manufacture, use, or sale of the generic drug before the RLD’s exclusivity expires, upon the filing and approval of an ANDA application. A generic drug applicant making a paragraph IV certification must provide a notice letter to the NDA holder and the patentee, FDCA § 505(j)(2)(B), commonly referred to as a 505j letter, if different from the NDA holder, setting out the existence of the ANDA and a detailed statement of its basis for believing that the listed patents are invalid or not infringed. The generic drug company must provide the notice letter within twenty days after the FDA accepts the ANDA for filing.

§ 8.2.9

ANDA Exclusivity

The first filer of an ANDA with a paragraph IV certification concerning an RLD is potentially entitled to a 180-day period during which the FDA will not approve any other ANDA having a paragraph IV certification for a generic version of the RLD. This provision allows a significant period of exclusivity that the generic applicant receives in exchange for challenging patents of a pioneer drug company. This period of exclusivity is quite valuable, as no other generic 8–18

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company can market a generic version for a period of six months. However, first-filer exclusivity does not apply against an applicant who has filed a Section VIII statement, because it is not a paragraph IV certification. For example, if one applicant holds first-filer exclusivity concerning a method patent and another applicant filed a Section VIII statement concerning the same method patent, the first-filer exclusivity does not prevent the other applicant from commercially launching its product on the same day as the first-filer exclusivity holder. Purepac Pharm. Co. v. Thompson, 354 F.3d 877 (D.C. Cir. 2004). A Section 505(b)(2) applicant is not entitled to this 180-day exclusivity, however; based on the 505(b)(2) filing for a different dosage form, delivery system, etc., the applicant may have its own patents on the new formulations and the possibility of a three-year period of exclusivity based on “data exclusivity.” Depending on the circumstances, however, a Section 505(b)(2) applicant still may also be entitled to NCE, a new chemical study, or orphan drug and pediatric exclusivity.

(a)

Exclusivity Forfeiture

A generic drug company may forfeit ANDA exclusivity if it fails to market the generic drug by the later of seventy-five days after o final FDA approval of the ANDA or thirty months after the ANDA filing, whichever is earlier; or o one of the following occurs for the first ANDA filer or any other ANDA filer with tentative approval for each patent where the ANDA filer qualifies as a first ANDA filer: –

the court enters a final decision, from which no appeal has been or can be taken, that the patent is invalid or not infringed;

–

the court signs a settlement order or consent decree that enters final judgment that the patent is invalid or not infringed;

–

the first filer amends or withdraws the paragraph IV certification that qualified it for exclusivity; or

–

the NDA holder withdraws the patent information.

21 U.S.C. §§ 355(j)(5)(D), 355(q)(1)(G). In addition, a first filer forfeits its exclusivity if it fails to obtain tentative FDA approval within thirty months of the filing of its application, unless either its 3rd Edition 2016

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failure to obtain approval was caused by a change or review of approval requirements imposed after the application’s filing or approval was delayed by a citizen petition.

§ 8.2.10 Patent Term Extension U.S. patents have a twenty-year term measured from the original priority application’s filing date; however, this term can be extended by the U.S. Patent and Trademark Office (PTO) for delays in prosecution caused by the PTO. Since the application process for most patents typically takes about three years, a patent’s effective life is usually about seventeen years from its issuance. This term is subject to patent term adjustment for PTO delays during patent prosecution that shrink the effective life below seventeen years. 35 U.S.C. § 154(b). While most RLDs are covered by one or more patents, the useful term for patents covering an RLD is typically much shorter than seventeen years because the time-consuming FDA approval process typically occurs during part of the patent term. As branded drug companies do not enjoy the full benefit of the patent until the FDA approval, the Hatch-Waxman Act, by congressional design, provides a patent term extension for patents covering certain products and methods, including human drug products that are subject to FDA approval. The patent’s term can be extended by a maximum of five years or fourteen years of effective patent life, whichever is less. Specifically, the patentee is entitled to a credit for the time the FDA was reviewing the first drug application. Only one extension can be granted in connection with a particular product, and it must be for a patent that claims either a drug product, which means the active ingredient and any approved drug using that active ingredient; a method of using a drug product; or a method of manufacturing a drug product.

§ 8.2.11 Commencing Litigation and Approval Stays Branded drug companies have the right to sue a generic drug applicant immediately on receipt of a 505j notice letter. FDCA § 505(j)(2)(B). However, the generic drug applicant cannot file a declaratory judgment action against the NDA holder for forty-five days after the date of the notice letter (forty-five-day period). 21 U.S.C. §§ 355(c)(3)(D)(i)(aa), 355(j)(5)(C)(i)(I)(aa); 35 U.S.C. § 271(e)(5). If the patentee sues within the forty-five-day period, the FDA may not grant final approval of the generic application for thirty months from the NDA holder and patentee’s receipt of the notice letter. However, if the RLD has NCE exclusivity, the thirty-month stay does not begin to run until the NCE exclusivity expiration. This thirty-month stay is intended to provide certainty for 8–20

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the branded drug company because the generic drug company cannot launch the generic drug during this period while there is ongoing litigation. The court may shorten or lengthen the thirty-month stay period in a pending patent case if either party fails to reasonably cooperate in expediting the case. The thirty-month stay terminates if a court issues a final order determining that the patent is invalid, unenforceable, or not infringed. 21 U.S.C. §§ 355(c)(3)(C), 355(j)(5)(B)(iii).

§ 8.2.12 Potential Litigation Claims and Defenses Once Hatch-Waxman Act patent litigation begins, it proceeds substantially the same as typical patent litigation, except perhaps for the effects on litigation by the thirty-month stay. Similar to most patent litigations, key issues in HatchWaxman Act patent litigation include proving infringement (although the mere filing of an application is the basis of infringement in a Hatch-Waxman case) and the usual patent litigation defenses that are raised in any patent litigation. The court may also consider specific Hatch-Waxman Act–related counterclaims, such as a delisting counterclaim. If sued, the generic drug company may bring a counterclaim alleging that a patent was wrongly listed in the Orange Book because it does not claim the RLD or a method of using the RLD. However, the only relief available for a delisting counterclaim is a court order requiring the FDA to remove or correct the Orange Book listing, including correction of the use code. 21 U.S.C. § 355(j)(5)(C)(ii)(I). Monetary damages are prohibited (see 21 U.S.C. § 355(j)(5)(C)(iii)).

§ 8.2.13 Proof of Infringement Proof of infringement is slightly different in a Hatch-Waxman Act case than in a usual patent case. In a typical patent case, the patentee has the burden to prove infringement by a preponderance of the evidence regarding the offending sale of a product. In a Hatch-Waxman case, however, the generic drug company has not actually marketed a product by the time the case has reached trial and therefore infringement is statutorily based on the ANDA application itself. As a result, infringement is based on the product that the generic drug company is likely to market if the FDA approves the generic drug application. Usually, the ANDA by itself defines the generic drug in a way that mandates a finding of infringement. If the ANDA is not determinative, the court determines infringement just as in any other patent litigation. Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562 (Fed. Cir. 1997); Bayer AG v. Elan Pharm. Research Corp., 212 F.3d 1241 (Fed. Cir. 2000).

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§ 8.2.14 Safe Harbor The Hatch-Waxman Act includes specific safe harbor provision that allows a generic company to conduct certain activities to develop its product without significant risk of patent infringement liability. A provision of the Hatch-Waxman Act crafted to favor generic manufacturers is the statutory exemption from infringement for activities related to FDA submissions. Specifically, 35 U.S.C. § 271(e)(1) states as follows: It shall not be an act of infringement to make, use, offer to sell or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use or sale of drugs or veterinary biological products. This provision, as mentioned above, was in part crafted as a response to the Federal Circuit’s decision in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F.2d 858 (Fed. Cir. 1984). In Roche Products, the Federal Circuit held that the manufacture, use, or sale of a patented invention would constitute an act of infringement even if the infringer had no commercial product and was merely developing information necessary to obtain regulatory approval. Roche Prods., Inc. v. Bolar Pharm. Co., 733 F.2d at 865. The exemption provides the opportunity for generic manufacturers to develop and test their generic drug products free from liability for patent infringement. Additionally, the exemption eliminated an additional period of exclusivity following patent expiration that branded manufacturers would have enjoyed during the time generic manufacturers were conducting the testing required by the FDA. By exempting that testing from infringement, the Hatch-Waxman Act enables generic manufacturers to enter the market immediately upon patent expiration. Despite the court’s holding in Bolar, the precise scope of the safe harbor is often at issue. Some court decisions give it an expansive interpretation, holding for example that it immunizes certain postapproval activities required by the FDA. Momenta Pharms., Inc. v. Amphastar Pharms., Inc., 686 F.3d 1348 (Fed. Cir. 2012). Other decisions give it a narrower interpretation, holding for example that it does not cover information routinely reported to the FDA after marketing approval. Classen Immunotherapies, Inc. v. Biogen IDEC, 659 F.3d 1057 (Fed. Cir. 2011). Generally, the exemption “extends to all uses of patented inventions that are reasonably related to the development and submission of any information under the [FFDCA],” including “preclinical studies of patented compounds that are appropriate for submission to the FDA in the regulatory process.” Merck 8–22

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KGaA v. Integra Lifesciences I, Ltd. (Merck II), 545 U.S. 193, 202 (2005). Therefore, Section 271(e)(1) exempts such activities “as long as there is a reasonable basis for believing that the experiments will produce the types of information that are relevant to an IND or NDA.” Merck KGaA v. Integra Lifesciences I, Ltd. (Merck II), 545 U.S. at 208.

§ 8.2.15 Final Remedies For the pioneer drug company having a branded drug product, the primary reward for winning a Hatch-Waxman Act patent litigation is continued enjoyment of any patent exclusivity. The typical remedies for a prevailing patentee are an order directing the FDA not to approve the ANDA before the expiration of the relevant patents and any other exclusivity and an injunction against future infringement during the period of patent protection. Money damages also may be available if the ANDA filer made actual sales, after having “launched at risk” during the expiration of any court-mandated stays. If a generic drug company commercially launches its product before the patent infringement and validity issues are fully resolved, known as a “launch at risk,” the case becomes a patent infringement case decided under Section 271(a) of the Patent Act with actual damages at issue. Actual damages create a jury trial right in patent cases, including those under the Hatch-Waxman Act. Sepracor, Inc. v. Dey L.P., No. 06-113-JJF, 2010 WL 2802611 (D. Del. 2010). For generic drug companies, the primary reward for a successful paragraph IV filing is the ability to enter the market before patent expiration without patent infringement liability. A first filer also enjoys its 180 days of exclusivity against other paragraph IV-certifying generic drug companies. A prevailing generic drug company that has tentative approval usually can immediately gain final approval and enter the market. If not, the prevailing generic drug company can enter the market once any other exclusivity has expired. This is typically the 180 days of exclusivity held by a first filer.

§ 8.2.16 Settlement and Unfair Competition Challenges Settling Hatch-Waxman Act litigation can have unique challenges. Any settlement agreement must be submitted to the Federal Trade Commission (FTC), although preclearance is not required. 117 Stat. 2461-2464, Pub. L. No. 108-173, §§ 1112–1117. The FTC opposes settlements involving a reverse payment from the branded drug company to the generic drug company, viewing them as anticompetitive. A reverse payment in its most extreme form is a payment from the branded drug company to the generic drug company in exchange for the generic drug company’s agreement to stay off the market for some period of time. 3rd Edition 2016

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Finally, there are other antitrust issues that may arise in Hatch-Waxman Act patent litigation that also arise in typical patent litigation. For example, occasionally, a generic drug company will include an unfair competition counterclaim when it is sued for infringement, usually based on a claim that the patent was procured by inequitable conduct. Additionally, if a patentee loses in HatchWaxman Act patent litigation, health insurance companies and others may subsequently bring private antitrust actions alleging that the patent was procured by fraud or that the underlying patent litigation was a sham, particularly if the patent was found unenforceable for inequitable conduct during the procurement of the patent.

§ 8.2.17 Periods of Exclusivity in Foreign Countries While foreign jurisdictions have different regulatory schemes regarding generic drugs, many jurisdictions mirror the “data exclusivity” offered by the FDA, which is five years for NCE. While some countries offer no periods of exclusivity other than patent-based exclusivity, some jurisdictions, such as Europe, offer even greater periods of “data exclusivity.” For marketing authorization applications made from November 2005 onwards, the period of “data exclusivity” in Europe has been harmonized as eight years from the date of first authorization in Europe. There is an additional period of two years of “market exclusivity.” The potential combined period of exclusivity is ten years, which does not start until approval of the relevant therapeutic. During this period of time, a generic company may not market an equivalent generic version of the originator’s pharmaceutical product (although their application for authorization may be processed during the two-year period of market exclusivity, such that they are in a position to market their product on the expiration of this ten-year period). An additional one year of exclusivity may be obtained in a number of likely circumstances, such as where the innovator company is granted a marketing authorization for a significant new indication for the relevant medicinal product. In such a situation, the generic company can only market its product after eleven years from the grant of the innovator company’s marketing authorization. The exclusivity graphic included as Exhibit 8A clearly shows the commercial advantage of data exclusivity for branded drugs in Europe.

§ 8.2.18 Conclusion Although the Hatch-Waxman Act has received its fair share of criticism, the Congressional purposes to which its provisions are directed do appear to have been met. The act and the mechanisms it provides offer a reasonable means of vetting patent rights to prevent extended monopolies on drugs, while preserving 8–24

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branded companies’ rights to genuine drug discovery balanced against efforts to allow access to needed drug therapies.

§ 8.3

U.S. MEDICAL DEVICE LAW

The federal Food, Drug, and Cosmetics Act, 21 U.S.C. § 334 (1994), as amended by the Medical Device Amendments of 1976, Pub. L. No. 94-295 (May 28, 1976); the Safe Medical Devices Act of 1990, Pub. L. No. 101-629, 104 U.S. Stat. 4511 (1990); the Medical Device Amendments of 1992, Pub. L. No. 102-300, 106 U.S. Stat. 238 (1992); and the FDA Modernization Act of 1997, Pub. L. No. 105-115, 111 U.S. Stat. 2296 (1997), has established the modern framework for medical device regulation. The Center for Devices and Radiological Health (CDRH) and the local field offices and resident posts are responsible for implementation of these laws, through promulgation of regulations and guidance documents, establishment and bioresearch monitoring inspections, and product testing. A medical device is defined as any o instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory that is –

recognized in the official National Formulary, or the U.S. Pharmacopoeia, or any supplement to them;

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intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease in humans or other animals; or

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intended to affect the structure or any function of the body of humans or other animals, and does not achieve any of its primary intended purposes through chemical action within or on the body of humans or other animals and is not dependent on being metabolized for the achievement of any of its primary intended purposes.

FDCA § 201(h); 21 U.S.C. § 321(h). According to the definition, any product that is intended for a medical use that is not a drug may be considered a medical device. The intended use of a product determines whether it will be regulated as a drug, device, or other regulated product. “Combination products” are products that constitute a combination of a 3rd Edition 2016

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drug, device, or biological product. The FDA’s determination of the primary mode of action of a combination product determines which center at the FDA will have primary jurisdiction over the product. FDCA § 503(g). The FDA summarized its position regarding the determination of intended use in a recent proposed rule: In determining a product’s intended use, the Agency may look to “any . . . relevant source,” including but not limited to the product’s labeling, promotional claims, and advertising (see, e.g., Action on Smoking and Health v. Harris, 655 F.2d 236, 239 (D.C. Cir. 1980); United States v. Storage Spaces Designated Nos. “8” and “49,” 777 F.2d 1363, 1366 (9th Cir. 1985); Hanson v. United States, 417 F. Supp. 30, 35 (D. Minn.), aff’d, 540 F.2d 947 (8th Cir. 1976)). For example, FDA may take into account any claim or statement made by or on behalf of a manufacturer that explicitly or implicitly promotes a product for a particular use. To establish a product’s intended use, FDA is not bound by the manufacturer or distributor’s subjective claims of intent, but rather can consider objective evidence, which may include a variety of direct and circumstantial evidence. Thus, FDA may also take into account any circumstances surrounding the distribution of the product or the context in which it is sold (see id.; see also U.S. v. Travia, 180 F.Supp.2d 115, 119 (D.D.C. 2001)). In the context of medical products, generally, circumstantial evidence often ensures that FDA is able to hold accountable firms that attempt to evade FDA medical product regulation by avoiding making express claims about their products. Clarification of When Products Made or Derived from Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding ‘‘Intended Uses,’’ 80 Fed. Reg. 57,756 (Sept. 25, 2015). The previously noted proposed regulation change, which is concerned primarily with tobacco regulation, also proposes changes to existing drug and device regulations in order to conform them to current FDA practice for applying the intended use regulations to such products. Clarification of When Products Made or Derived from Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding ‘‘Intended Uses,’’ 80 Fed. Reg. 8–26

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57,756 (Sept. 25, 2015). Specifically, the proposed definition changes would codify the FDA’s interpretation and application of the FDCA that a firm’s knowledge that its product was being prescribed or used by doctors for an unapproved new use does not ascribe intent to that firm to market for an unapproved new use. With respect to medical devices, intended use is defined currently in the regulations as follows: The words intended uses or words of similar import . . . refer to the objective intent of the persons legally responsible for the labeling of devices. The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. It may be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised. The intended uses of an article may change after it has been introduced into interstate commerce by its manufacturer. If, for example, a packer, distributor, or seller intends an article for different uses than those intended by the person from whom he received the devices, such packer, distributor, or seller is required to supply adequate labeling in accordance with the new intended uses. But if a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put. 21 C.F.R. § 801.4. A medical device’s determined intended use guides its classification, and also gives rise to the concept of off-label use or promotion. Medical devices are classified into Class I, II, and III. Regulatory control increases with the risk of the types of medical devices, from Class I to Class III. The device classification regulation (21 C.F.R. pt. 800) defines the regulatory requirements for general devices 3rd Edition 2016

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and sets forth definitions for most medical devices and their associated classifications. 21 C.F.R. §§ 862–892. Most Class I devices are exempt from premarket notification 510(k); most Class II devices require premarket notification 510(k); and most Class III devices require premarket approval. The basic requirements with which U.S. medical device manufacturers must comply include the following: o establishment registration and product listing, 21 C.F.R. § 807: Manufacturers (both domestic and foreign) and initial distributors (importers) of medical devices must register their establishments with the FDA. In addition to registration, devices must be listed. The listing requirement applies to manufacturers, distributors, repackagers and relabelers, specification developers, reprocessors of single-use devices, remanufacturers of accessories and components sold directly to the end user, and U.S. manufacturers of “export only” devices; o premarket notification 510(k), 21 C.F.R. § 807 subpt. E; o premarket approval (PMA), 21 C.F.R. § 814; o investigational device exemption (IDE) for clinical studies, 21 C.F.R. § 812. An IDE permits the device to be used in clinical studies in order to collect safety and effectiveness data required to support a premarket approval (PMA) application or a premarket notification 510(k) submission to the FDA. Clinical studies with devices of significant risk must be approved by the FDA and by an institutional review board (IRB) before the study can begin. Studies with devices of nonsignificant risk must be approved by the IRB only before the study can begin. http://www.fda.gov/ MedicalDevices/DeviceRegulationandGuidance/Overview/; o quality system (QS) regulation/good manufacturing practices (GMP): this set of regulations specifies procedures and controls for designing, purchasing, manufacturing, packaging, labeling, storing, installing, and servicing medical devices. 21 C.F.R. § 820. Manufacturing facilities undergo FDA inspections to assure compliance with the QS requirements. The regulations are specified generally and some guidance documents have been published, but largely the regulations leave it to each manufacturer to determine how to comply with the intent of the regulations in its own business;

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o labeling requirements, including labeling on devices as well as descriptive and informational literature that accompanies the devices, 21 C.F.R. § 801; and o medical device reporting (MDR), 21 C.F.R. § 803. Incidents in which a device may have caused or contributed to a death or serious injury must be reported to the FDA under the MDR program. In addition, certain malfunctions must also be reported. The MDR regulation is a mechanism for the FDA and manufacturers to identify and monitor significant adverse events involving medical devices. The goals of the regulation are to detect and correct problems in a timely manner. http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/ PostmarketRequirements/ReportingAdverseEvents/default.htm.

§ 8.3.1

Premarket Notification/510(k)

Moderate risk devices for which general controls or special controls (e.g., FDA device-specific guidance, performance standards, and postmarket surveillance requirements) are insufficient to ensure safety and efficacy fall into Class II. Most Class II devices require the submission of a premarket notification 510(k), unless the device type is one previously exempted from 510(k) requirements by the FDA and does not exceed the limitations of exemptions of the device classification regulation chapters. 21 C.F.R. §§ 862.9, 864.9. Before marketing a device, each submitter must receive an order, in the form of a letter, from the FDA that finds the device to be substantially equivalent (SE) and states that the device can be marketed in the United States. This order is considered a “clearance” for the device for commercial distribution. FDA Guidance, The 510(k) Program: Evaluating Substantial Equivalence in Premarket Notifications [510(k)] (July 28, 2014). A 510(k) is a premarket submission made to the FDA to demonstrate that the device to be marketed is at least as safe and effective, that is, substantially equivalent, to a legally marketed “predicate device.” 21 C.F.R. § 807.92(a)(3). Submitters must compare their device to one or more predicate devices with substantial equivalency (SE) claims. Predicate devices are devices for which a PMA is not required, or which have previously been found SE to another legally marketed device. The criteria for determining SE in a 510(k) review by the CDRH’s Office of Device Evaluation is set forth in the statute:

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(i)(1)(A) For purposes of determinations of substantial equivalence under subsection (f) and section 520(l), the term “substantially equivalent” or “substantial equivalence” means, with respect to a device being compared to a predicate device, that the device has the same intended use as the predicate device and that the Secretary by order has found that the device (i) has the same technological characteristics as the predicate device, or (ii)(I) has different technological characteristics and the information submitted that the device is substantially equivalent to the predicate device contains information, including appropriate clinical or scientific data if deemed necessary by the Secretary or a person accredited under section 523, that demonstrates that the device is as safe and effective as a legally marketed device, and (II) does not raise different questions of safety and effectiveness than the predicate device. (B) For purposes of subparagraph (A), the term “different technological characteristics” means, with respect to a device being compared to a predicate device, that there is a significant change in the materials, design, energy source, or other features of the device from those of the predicate device. FDCA § 360(c); 21 U.S.C. § 360(c)(i).

§ 8.3.2

Premarket Approval

Devices not qualifying for 510(k) clearance, usually the highest-risk types of devices, are placed in Class III. Class III devices include life-sustaining, life supporting, and implantable devices, for which premarket approval (PMA) is required to ensure safety and efficacy for the device’s intended uses. 21 C.F.R. § 814. The PMA process is the most rigorous review process required by the FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. An approved PMA is, in effect, a private license granting the applicant (or owner) permission to market the device. The PMA owner, however, can authorize use of its data by another.

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§ 8.3

Investigational Device Exemptions

Investigational device exemptions (IDEs) permit devices to be used in clinical trials performed for the purpose of gathering safety and effectiveness data. 21 C.F.R. § 812. A small percentage of 510(k)s require clinical data to support the application. Certain modifications or new intended uses of legally marketed devices may prompt the need for clinical studies. Clinical evaluation of devices that have not been cleared for marketing requires o an investigational plan approved by an institutional review board (IRB). If the study involves a significant risk device, the IDE must also be approved by the FDA; o informed consent from all patients; o labeling stating that the device is for investigational use only; o monitoring of the study; o required records and reports; and o some medical devices must be registered with https://clinicaltrials .gov, an online registry established by the Food and Drug Administration Modernization Act of 1997 and expanded under the Food and Drug Administration Amendments Act of 2007. The IDE permits a device to be shipped lawfully for investigation of the device without requiring that the manufacturer comply with other requirements of the FDCA, such as registration and listing. Manufacturers of devices with IDEs are also exempt from the quality systems regulations, except for the requirements of design control.

§ 8.4

INFORMATION COLLECTED BY FDA AND ACCESS THERETO

In addition to regulatory submissions directly related to product approval, clearance, or licensing, there are several other ways that potentially proprietary information is gathered by the FDA. The FDA may acquire documentary, photographic, and/or other information in the course of conducting inspections. The FDA is authorized, under Sections 703 and 704 of the FDCA, to access most records of a facility that manufactures, ships, or holds for introduction into interstate commerce foods, drugs, 3rd Edition 2016

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devices, or cosmetics. 21 U.S.C. §§ 373, 374. Such inspections are typically performed without a warrant, under an exception to the requirements of the Fourth Amendment of the U.S. Constitution for “pervasively regulated businesses,” as generally set forth by the U.S. Supreme Court in Colonnade Catering Corp. v. United States, 397 U.S. 72 (1970) and United States v. Biswell, 406 U.S. 311. The Eight Circuit clarified that the Colonnade-Biswell exception applied to inspections under the FDCA in United States v. Jamieson-McKames Pharmaceuticals, Inc., 651 F.2d 532 (1981). Refusals (to permit entry to the facility, provide access to records, or comply with sampling requests) typically result in the FDA obtaining an inspectional warrant and enlisting the assistance of the U.S. Marshals Service in enforcing the warrant, and often prompt the FDA into further enforcement action. FDA personnel perform inspections in accordance with the FDA’s Investigations Operations Manual (IOM), which is the primary source regarding agency policy and procedures for field investigators and inspectors. FDA Investigations Operations Manual (2015). Inspections can be performed for numerous purposes (routine surveillance, preapproval, for-cause complaint, adverse event report, or recall related). Supplementing the IOM are product- and program-specific guidance manuals, including Compliance Policy Guides, FDA Compliance Policy Guidance Manual (2015); Compliance Program Guidance Manual, FDA Compliance Program Guidance Manual (2015); and the Regulatory Procedures Manual, FDA Regulatory Procedures Manual (2015). In addition to collecting documentary evidence and product samples, FDA inspectors and investigators may attempt to take photographs. The legal authority to do so has been an area of much debate. The IOM instructs its personnel not to seek permission from management to take photographs. IOM § 5.3.4.1 instructs investigators to cite two decisions in support of the FDA’s rights: Dow Chemical v. United States, 476 U.S. 227 (1986) and United States v. Acri Wholesale Grocery Co., A Corporation, and Joseph D. Acri and Anthony Acri, Individuals, 409 F. Supp. 529 (S.D. Iowa Feb. 24, 1976). The IOM states This Supreme Court Decision dealt with aerial photographs by EPA, but the Court’s language seems to address the right to take photographs by any regulatory agency. The decision reads in part, ‘When Congress invests an agency with enforcement and investigatory authority, it is not necessary to identify explicitly each and every technique that may be used in the course of executing the statutory mission. Recent draft guidance explicitly asserts the right of FDA personnel to take pictures. Circumstances that Constitute Delaying, Denying, Limiting, or Refusing a 8–32

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Drug Inspection (Oct. 2014). This often conflicts with manufacturing companies’ written policies for facility visitors that seek to protect trade secrets and confidential information, and the proposition that the cases upon which the FDA relies to support its position are far from universally accepted. FDCA § 704 precludes collection of certain types of confidential information (e.g., product pricing, sales data, and personnel records unrelated to compliancerelated training), but there may be a significant amount of confidential information contained in documents permitted to be collected. That information, or an investigator’s interpretation of that information, may become part of an establishment inspection report prepared by the investigator following the inspection. The medical device reporting (MDR) regulation contains mandatory requirements for manufacturers, importers, and device user facilities to report certain device-related adverse events and product problems to the FDA. 21 C.F.R. § 803. Manufacturers are required to report to the FDA when they learn that any of their devices may have caused or contributed to a death or serious injury, and when they become aware that their device has malfunctioned and would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. Importers and “user facilities” are required to report to the FDA and the manufacturer when they learn that one of their devices may have caused or contributed to a death or serious injury, and suspected medical device–related serious injury to the manufacturer, or to the FDA if the medical device manufacturer is unknown. A “device user facility” is a hospital, ambulatory surgical facility, nursing home, outpatient diagnostic facility, or outpatient treatment facility that is not a physician’s office. Similar reporting requirements exist for regulated drugs. The FDA believes that the provisions of the FDCA, 21 U.S.C. § 331(j); the Freedom of Information Act (FOIA), 5 U.S.C. § 552; the Trade Secrets Act, 18 U.S.C. § 1905; and the FDA’s own information disclosure regulations, 21 C.F.R. pts. 20 and 21, provide adequate protection against the disclosure of confidential information and photographs collected during inspections, or pursuant regulatory product submissions and/or postmarket surveillance reporting. In keeping with the spirit of the FOIA, the FDA responds to FOIA requests with redacted versions of information it gathers from industry, including inspectional reports, MDRs, and regulatory filings. It also publishes automatically all of its correspondence to industry, including its 510(k) decisions and 510(k) summaries. Substantial supporting information from the 510(k) submission is available via FOIA request. Companies often obtain the FDA’s agreement to expunge the confidential information from records released under FOIA; however, the FDA’s position is that responsibility for redacting confidential information from the MDR report resides with it alone. Pub. L. No. 89-487, 80 Stat. 250 (1996). 3rd Edition 2016

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Per the FDA’s website, six of the nine FOIA exemptions that most often form the basis for the withholding of information by the FDA are the following: o Exemption 2: protects certain records related solely to the FDA’s internal rules and practices; o Exemption 3: protects information that is prohibited from disclosure by other laws; o Exemption 4: protects trade secrets and confidential commercial or financial information; o Exemption 5: protects certain interagency and intra-agency communications; o Exemption 6: protects information about individuals in personnel, medical, and similar files when disclosure would constitute a clearly unwarranted invasion of privacy; and o Exemption 7: protects records or information compiled for law enforcement purposes when disclosure

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could reasonably be expected to interfere with enforcement proceedings;

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would deprive a person of a right to a fair trial or an impartial adjudication;

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could reasonably be expected to constitute an unwarranted invasion of personal privacy;

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could reasonably be expected to disclose the identity of a confidential source;

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would disclose techniques and procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions, if such disclosure could reasonably be expected to risk circumvention of the law; or

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could reasonably be expected to endanger the life or physical safety of an individual.

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§ 8.5

PROTECTING THE INVESTMENT/FDA COMPLIANCE

§ 8.5.1

Relationships Between Manufacturers and Researchers

§ 8.5

The processes of researching, developing, obtaining FDA approval/clearance for, and marketing and selling of FDA-regulated products, particularly products representing higher patient risk, often involve significant interaction between corporations and institutional players (universities, physicians, and hospitals). The types of agreements chosen to govern these relationships include o license agreements, which, in an FDA-regulated product context, often involve payments by a business entity to a nonprofit institution in return for a right to conduct further research and otherwise commercially exploit a new technology; o sponsored research agreements (SRAs), which are most often between a funding business entity that desires ownership or exclusive rights in the results of the sponsored work and a nonprofit institution, such as a university or hospital; o cooperative research and development agreements (CRADA), under which government agencies (e.g., the National Institutes of Health for life sciences) sponsor collaborative research; and o clinical trial agreements (CTAs) for research to be conducted under the control of a principal investigator (PI), such as a PI at a teaching hospital, where the research is paid for by a corporate sponsor. Negotiations of such agreements are likely to be primarily between the sponsor and the PI’s nonprofit employer. Chapter 2 of this book describes the key provisions typically found in a license agreement. A number of additional important provisions may often be found in license agreements and sponsored research agreements related to FDA-regulated technologies. Among these are the following: o fields of use—critical to any license or SRA, the respective parties’ rights in and ownership of the intellectual property developed under the agreement should be carefully specified. Provisions for research use and commercial exploitation of each party’s solely owned IP and the jointly owned IP should be included;

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o a commercial development plan, which defines the minimum efforts the licensee (e.g., sponsor) will undertake to commercially exploit the licensed IP, in order to maintain its licensed rights under the agreement; o control over, and reimbursement for, patent prosecution. It is common for a research institution to seek reimbursement for patent prosecution costs from its licensee or licensees on a pro rata basis. An exclusive corporate licensee may insist on control over the direction of patent prosecution, arguing that it knows better what patent claims will be of the greatest value, but some institutions insist on maintaining that power. In such cases, sponsors seek the right to provide suggestions regarding prosecution strategies and an option to assume the prosecution if the institution decides it no longer wishes to maintain a patent application; o regulatory compliance—the sponsor and investigators are required to ensure that clinical trials are conducted according to the FDA’s good clinical practices (GCPs) (for medical devices, 21 C.F.R. §§ 812.21, 50, 54, 56 and 21 C.F.R. § 820 subpt. C). Institutional review boards (IRBs) are groups of professionals, either affiliated with a research institution or independent (commercial IRBs), that review and monitor human clinical trials. A sponsor will likely seek to ensure that the research institution (including its IRB) and principal investigator (PI) will comply with GCPs, and permit and cooperate with FDA bioresearch monitoring inspections and FDA submission preparations. Each party typically represents that it is not excluded, debarred, suspended, or otherwise ineligible to participate in federal programs, and that in performing its respective obligations under the agreement, it will not knowingly employ or contract with any individual or entity currently listed by a federal agency as excluded, debarred, suspended, or otherwise ineligible to participate in federal programs; o definitions—critical to any agreement, the definitions section of a life sciences sponsored research agreement should carefully design the work product, including clarification of possible improvements and/or derivatives to the subject technology, as well as the resulting inventions, studies, observations, and/or other information emerging from the research; o ownership of and rights in research results—most research institutions insist on ownership of any inventions conceived of or reduced to practice using the institution’s resources, even if the 8–36

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inventions arise from sponsored research. It is therefore common for sponsors to seek –

a royalty-free license;

–

an exclusive royalty-bearing license; or

–

a right of first refusal to acquire a license to the IP rights arising from the research, in negotiated fields of use.

Time periods for evaluating research results for exercising license options are often measured from the date that they were disclosed by the PI or institution to the sponsor; o project management—a plan should be defined for determining the direction of the research, which could be (in a significant research project) managed through a joint steering committee, whose composition, responsibilities, and process for dispute resolution should be spelled out; o principal investigator responsibilities; succession plan—the PI, and the responsibilities thereof, should be identified, as well as a process to be followed if/when the PI is no longer interested or able to continue the research. Often, the institution will want the right to select the replacement PI (subject to approval of the sponsor), and the sponsor will desire the option to discontinue the research at the institution. The frequency, prompt disclosure, and content of reports of the research results to the sponsor are typically specified. A good understanding of the PI’s funding sources is critical for the sponsor to avoid ownership and licensing conflicts between or among multiple sponsors funding a PI’s laboratory; o project funding—a budget is often explicitly described, including personnel and costs of equipment and supplies. Contingencies should be negotiated and addressed, such as the need for additional research funding: the sponsor may wish to be under no obligation to provide any additional financial support, and may permit the PI to seek alternative sources, subject to notice provisions (to the sponsor and alternative funders), provided that there would be no diminution of the sponsor’s rights in licensed or optioned IP; o publications—the research institution will likely reserve the right to make or permit to be made scholarly disclosures of the results of the project. The sponsor will likely seek prompt notice and 3rd Edition 2016

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copies ahead of such disclosures, with sufficient lead time to consider the patentability of any inventions represented in the disclosure, and may push for support acknowledgment and/or editorial input to prevent disclosure of concepts not yet ripe for patenting; o the Bayh-Dole provision, clarifying that, in the event the institution receives any U.S government funding, the sponsor understands that its rights under the agreement may be subject to a required grant by the institution to the U.S. government a worldwide, nonexclusive, royalty-free license for such invention covered by any patents resulting from the project. Pub. L. Nos. 96517, 98-620; 35 U.S.C. §§ 200–211, and various implementing regulations, including those codified at 37 C.F.R. pt. 401; o a research materials provision, governing the protection of research materials (e.g., biological materials), the institution’s right to disseminate materials solely for research purposes to other notfor-profit entities, and/or possibly to other commercial research entities but subject to the sponsor’s rights; o publicity—a provision precluding or permitting the use of each entity’s name by the other for any purpose; o a right of access provision granting both the sponsor and the institution access to the research for uses consistent with the agreement; and o a clinical development plan that specifies phases of research, estimated target dates for study completions and regulatory submissions (which may trigger milestone payments from the sponsor), and respective responsibilities for such events. The plan may also specify diligence criteria in terms of patient enrollment. The typical pharmaceutical development steps defined in a drug clinical development plan mirror the path toward approval:

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–

identification of a drug candidate,

–

IND filing,

–

Phase I completion of clinical trials,

–

Phase II completion of clinical trials,

–

Phase III completion of clinical trials,

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NDA filing, and

–

NDA approval.

§ 8.5

Human CTAs often contain provisions required by the research institution at which the clinical trials are to be performed. A template CTA satisfactory to each of the hospitals may be preferable where multiple trial sites are being utilized. A CTA may similarly address regulatory compliance, project management, PI responsibilities, publications, and research materials as noted above. A sponsor may wish to reemphasize the diligence requirement for patient enrollment, the PI’s continued compliance with the hospital’s clinical practice and IRB guidelines, access to results (e.g., patient case reports, study data), and the nondisclosure to third parties of data the sponsor needs for a PMA or NDA filing. The PI may wish to ensure continued supply from the sponsor of required research materials (e.g., biologic or pharma) and that the sponsor is maintaining insurance supporting an indemnification provided by the sponsor to the PI and research institution from all loss or damage incurred as a result of undertaking the clinical study, except for negligent or reckless acts of the PI.

§ 8.5.2

Postmarketing Requirements

There are certain continuing obligations that a manufacturer and its distributors must adhere to in order to avoid jeopardizing the ability to exploit an FDA approval or clearance or the limited license one of the mechanisms (i.e., IDE, PMA, or investigational new drugs) provides in terms of allowing a device or drug to be used. The product must be labeled in accordance with FDA requirements and any promotion and advertising must be consistent with the product’s labeling. The device must be manufactured in accordance with GMPs and QS regulations. If a product is being used in a clinical trial, it may not be commercialized beyond the clinical trial protocol. The federal antikickback statute (AKS) is a criminal statute that prohibits the exchange (or offer to exchange) of anything of value in an effort to induce (or reward) the referral of federal health-care program business. 42 U.S.C. § 1320a7b. The AKS encompasses any type of referral, including drug prescriptions under Medicare, and applies even if the payment to a health care provider was primarily a legitimate compensation for professional services rendered. See also the Patient Protection and Affordable Care Act (the Sunshine Act), Pub. L. No. 111-148, § 6002 (2010), which requires manufacturers who make payments to physicians and teaching hospitals to annually report such payments to the Centers for Medicare and Medicaid Services (CMS) for publication on the “Open Payments” database, publicly accessible at https://openpaymentsdata.cms.gov.

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The AKS sets forth the following “safe harbors” in which drug and device manufacturers must be well versed: o personal services—physicians may be paid by a manufacturer for personal services (e.g., presentations, clinical trial participation), provided the written services agreement includes only fair market value (FMV) compensation, covers a period of a year or more, and is devoid of any term construable as being for the use of the manufacturer’s product or for patient referral for treatment with the product; o equipment leases—a medical device may be leased at the FMV rate, set in advance for a period of at least a year, and not connected to the number of patients treated with the device; o discounts—a discount may qualify for safe harbor only if –

the discount is made in advance of the transaction,

–

it is fully disclosed on all sales contracts and invoices, and

–

the buyer reports the discount to the government; and

o warranties—a product buyer seeking reimbursement from the Department of Health and Human Services or a state agency must disclose any price reduction received in connection with a product warranty. This safe harbor is concerned with a manufacturer offering, under the guise of a warranty, to induce a buyer to trade in another manufacturer’s product being held in inventory and buy the first manufacturer’s product. The Stark law (I and II) prohibits a physician from making referrals for Medicarecovered designated health services (DHS) to an entity with which the physician or an immediate family member has a “financial relationship.” 42 U.S.C.S. § 1395nn (Social Security Act § 1877). Additionally, the regulations are at 42 C.F.R. § 411.350 through § 411.389. Payment to a physician for writing a prescription for a company’s product would likely violate the Stark law. The government has made pronouncements that a drug or device company would not be considered an entity subject to Stark prosecution, reinforcing the view that the statute has limited application to drug and device manufacturers, as the Medicare reimbursement typically is paid to physicians that provided the product to patients. Regardless, drug and device manufacturers should carefully scrutinize their relationships with physicians to avoid liability under the AKS and/or other statutes applied against drug manufacturers by federal prosecutors, or the False 8–40

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Claims Act (FCA), 31 U.S.C. §§ 3729–3733, which holds liable for fraud any person who knowingly submits or causes another to submit a false claim to the government, knowingly makes a false record or statement to get a false claim paid, or engages in a conspiracy of such conduct. See also The Sunshine Act, which amended the FCA to encourage qui tam whistle-blowers to pursue FCA lawsuits, and the Prescription Drug Marketing Act of 1987, 21 U.S.C. § 353(c)(1) (2012), which prohibits the sale of drug samples, which is punishable by sanctions. This section will generally highlight some of the principal issues related to the promotion and advertising of FDA-regulated products, where running afoul of FDA requirements might interfere with commercial exploitation of an FDA approval or clearance, rather than attempt to describe the intricacies of this dynamically evolving area of law. Distinctions may be drawn among off-label use, information dissemination, and promotion and advertising of regulated products. Off-label prescribing by physicians has been held to be “an accepted and necessary corollary of FDA’s mission to regulate in this area without directly interfering with the practice of medicine.” Buckman Co. v. Plaintiffs’ Legal Comm’n, 531 U.S. 341, 350 (2001). An off-label treatment, for some medical conditions, is more than acceptable medicine—it represents the professional standard of care. United States v. Caronia, 703 F.3d 149, 153 (2d Cir. 2012). Physicians may learn of possible off-label uses from a variety of sources: continuing medical education (CME), medical literature, meetings, and conventions. The source of information with which the FDA has most concerned itself is manufacturers’ own promotion of their products for off-label uses. The FDA opposes such promotion and has taken civil actions in numerous such cases. Hamm v. Rhone-Poulenc Rorer Pharms., Inc., 187 F.3d 941 (8th Cir. 1999); Mylan Pharms., Inc. v. Procter & Gamble Co., 443 F. Supp. 2d 435 (S.D.N.Y. 2006). Challenges to the FDA’s authority to regulate off-label promotion by manufacturers heated up in the 1990s, based on claims that such exercise of authority represented an unconstitutional infringement on commercial free speech. Washington Legal Found. v. Friedman, 13 F. Supp. 2d 51 (D.D.C. 1998), amended by 36 F. Supp. 2d 16 (D.D.C. 1999), vacated in part, 202 F.3d 332 (D.C. Cir. 2000); Washington Legal Found. v. Henney, 128 F. Supp. 2d 11 (D.D.C. 2000). In a less than entirely successful attempt to clarify its enforcement discretion intentions and to balance competing policy objectives, the FDA has issued several guidance documents that propose rules for medical and scientific information dissemination by manufacturers that essentially would create a “safe harbor” from FDA enforcement (i.e., from imputing an intent of promoting for unapproved 3rd Edition 2016

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uses) for reprints and texts distributed in accordance with the guidance. FDA Guidance for Industry on Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices (Jan. 2009); FDA Draft Guidance for Industry—Responding to Unsolicited Requests for Off-label Information About Prescription Drugs and Medical Devices (Dec. 2011). Key provisions of the guidance documents include characteristics for permissible journal articles, such as the following: o publication by an organization with an independent, expert editorial board and a publicly stated policy on conflicts of interest; o peer review; o lack of false or misleading information; o not posing a significant health risk if recommendations are adhered to; o not comprising a special supplement funded by the manufacturer, letters to the editor, abstracts, or reports of Phase 1 studies in healthy subjects; o a prominent disclosure statement that the uses described have not been FDA approved or cleared, and disclosing the manufacturer’s interest in the product discussed, and any author’s known financial interest in the product or manufacturer, including the amount of that interest; o limiting reports to only adequate and well-controlled studies, including historically controlled studies, pharmacokinetic studies, pharmacodynamic studies, and meta-analyses; and o accompanied by all known instances of reports of contrary study results. The limits of the FDA’s authority to regulate off-label promotion by manufacturers has not been precisely defined by the U.S. Supreme Court, but the Court has opined that “the First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.” Thompson v. W. States Med. Ctr., 353 U.S. 357, 375 (2002) (holding unconstitutional FDA’s enforcement against pharmacists advertising drug compounds, citing the test whether government restrictions on commercial speech offended constitutional protections of free speech as set forth in Cent. Hudson Gas & Elec. Corp., 447 U.S. 557 (1980)).The Court has also found the 8–42

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State of Vermont’s attempt to prohibit data miners from compiling prescriber data in order to target sales calls as a content-based and speaker-based constraint on speech, subject to heightened judicial scrutiny that required invalidation of the law as an unconstitutional restraint on free speech. Sorrell v. IMS Health Inc., 131 S. Ct. 2653 (2011). The FCA has served as a basis for numerous qui tam actions involving off-label promotion allegations against drug and device manufacturers, with several highprofile settlements, United States v. Endo Pharms., No. 14-CR-66 (N.D.N.Y. Feb. 21, 2014), and an off-label drug promotion settlement, USDOJ Press Release, “Warner-Lambert to Pay $430 Million to Resolve Criminal and Civil health Care Liability Relating to Off-Label Promotion” (May 13, 2004), but a few cases in federal lower courts possibly portend an erosion of the FDA’s authority in this area, United States v. Caronia, 703 F.3d 149 (2d Cir. 2012) (vacating a sales representative’s criminal conviction); United States v. Caputo, 517 F.3d 935 (7th Cir. 2008) (dicta in a constitutionality-based appeal of criminal conviction of two medical device officers indicating lack of sympathy toward the FDA’s position); see also Amarin Pharm., Inc. v. FDA, No. 15-3588 (S.D.N.Y. May 7, 2015) (granting preliminary injunction motion against FDA prosecution for off-label drug promotion as violative of First Amendment commercial speech protections and rejecting FDA’s narrow interpretation of Caronia: “[w]here the speech at issue consists of truthful and non-misleading speech promoting the off-label use of an FDA-approved drug, such speech, under Caronia, cannot be the act upon which an action for misbranding is based.” Amarin Pharm., Inc. v. FDA, No. 15-3588, at 49)), or at least may provide other manufacturers grounds for similarly challenging the FDA’s authority to regulate such promotional material dissemination. See the complaint in Pacira Pharms., Inc. v. FDA, No. 157055 (S.D.N.Y. Sept. 8, 2015) arguing that Pacira’s distribution of promotional materials suggesting uses of its approved analgesic drug Exparel beyond the specific uses (in specific surgical situations) for which the drug has been studied and approved comprises truthful and not misleading speech, citing Caronia and Amarin in support of Pacira’s argument that the First Amendment protects as commercial speech such information dissemination “even if it constituted an offlabel use.” Pacira also maintains that its promotional claims are not actually “off label,” in that its labeling was approved for “general” use. Thus, while the FDA remains committed to enforcement actions against offlabel promotional activities, challenges on constitutional grounds appear to be finding some footing in the courts.

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§ 8.6

§ 8.6

INTELLECTUAL PROPERTY PRACTICE

TENSIONS BETWEEN U.S. DEVICE AND PATENT LAW

As noted above, a 510(k) applicant may compare the subject medical device to multiple predicate devices in order to establish safety and effectiveness through a substantial equivalence (SE) assertion. Obviousness, under U.S. patent law, often involves combining the teachings of various references to derive an invention, but a “motivation to combine” may be lacking. A 510(k) application may inadvertently provide that motivation, which could prove harmful to patentability and/or patent validity. The Federal Circuit ruled that a substantial equivalence assertion made to the FDA may be used to support an inequitable conduct finding under certain circumstances. In Bruno Independent Living Aids Inc. v. Acorn Mobility Services Ltd., 394 F.3d 1348 (2005), petitioner Bruno argued that its SE claim was relevant only to securing FDA approval and did not prove that Bruno knew that the Cheney stair lift was material to patentability. The court found this argument to be disingenuous, when considering that Bruno’s director of engineering prepared the FDA submission and was also involved in the patent prosecution, and concluded that if he knew enough about the Cheney stair lift to determine substantial equivalence, he should have known enough to recognize its patent materiality. SE assertions may also comprise potential fodder for infringement claims. Generally, courts have found that 510(k) SE claims may not be considered admissions of patent infringement. See John’s Hopkins v. Datascope Corp., 543 F.3d 1342, 1349 (Fed. Cir. 2008); Ethicon Endo-Surgery Inc. v. Hologic Inc., 689 F. Supp. 2d 929, 935–36 (S.D. Ohio 2010); Abbott Point of Care Inc. v. Epocal Inc., 2012 U.S. Dist. LEXIS 54435 (N.D. Ala. Apr. 18, 2012); Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 599 F.3d 1377, 1382 (Fed. Cir. 2010). Though Innovative Therapies and Datascope seem to preclude the admissibility of evidence derived from 510(k) filings, especially as an admission of infringement, earlier district court cases considering such evidence in specific circumstances, and for specific purposes, arguably still offer guidance as to how 510(k) submissions may be considered, for example, Sunrise Medical HHG Inc. v. AirSep Corp., 95 F. Supp. 2d 348, 405–06 (W.D. Pa. 2000) and United States Surgical Corp. v. Hospital Products International Pty., 701 F. Supp. 314, 347 (D. Conn. 1988). And even if not considered admissions of infringement, 510(k) statements have been used to establish DOE “function/way/result” and “insubstantial differences” prongs. Abbott v. Sandoz, 566 F.3d 1282, 1298 (Fed. Cir. 2009); Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572 (1996). An invalidating “printed publication” problem under 35 U.S.C. § 102 potentially exists where a device manufacturer delays filing a patent application while seeking device clearance or approval, relying on the experimental use exception during 8–44

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clinical testing. If an adverse event occurs, the user facility is required to submit an MDR report to the FDA regarding the device and the circumstances leading to the adverse event. If the user facility discloses patentable features of the invention in the MDR report and that report in turn is published unredacted by the FDA, patentability in the United States and abroad could be jeopardized. An FDA-authorized clinical trial also has been found in at least one case to represent an invalidating “public use.” Dey, L.P. v. Sunovion Pharms., Inc., No. 121428 (Fed. Cir. May 20, 2013). Despite the continued availability of the experimental use exception, it is clearly preferable to avoid court determinations of whether a clinical trial constituted an invalidating public use of the invention. As would be expected, clinical testing that is unauthorized by the FDA does not preserve or resurrect patentability under an experimental use exception. Clinical testing is not required before a sale can bar patent rights. Nor can subsequent clinical testing excuse a prior sale, if what was offered for sale was the claimed invention. Clinical testing is merely one possible policy reason why a particular sale might be excused from the bar. Since Radiplast did not contemplate sales to Engstrom for testing purposes, the possibility of subsequent clinical testing is of no moment. Likewise, FDA approval is not required before a sale can bar patent rights. Even an illegal sale of the claimed invention before the critical date can bar patent rights. Nor is a domestic distributor relevant to the on sale bar inquiry; a sale by a foreign distributor, from a foreign country to the United States can bar patent rights. See, e.g., In re Caveney, 761 F.2d 671, 676–77, 226 USPQ 1, 4 (Fed. Cir. 1985). C.R. Bard v. M3 Sys., Inc., 157 F.3d 1340, 1376 (Fed. Cir. 1998). Patent law considerations when filing FDA applications include the following: o If possible, file the patent application before submitting any FDA regulatory filing. FDA publication could destroy foreign patent rights. o Limit 510(k) SE assertions to one predicate device and consider performing a freedom to operate investigation well in advance of clinical investigation in order to select an appropriate predicate device. 3rd Edition 2016

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o Avoid overbroad claims of equivalence in the 510(k) filing. o Disclose only what is necessary for establishing safety and effectiveness equivalency. o Consider patentability and infringement when describing in detail the technological characteristics of the medical device to be covered by the 510(k) application. Such descriptions may be used to develop or refute infringement cases and to establish knowledge of the predicate device for willfulness purposes. See United States Surgical Corp. v. Hosp. Prods. Int’l Pty., 701 F. Supp. 314 (D. Conn. 1988) (involving surgical stapling instruments; the District Court looked to statements made in support of a 510(k) filing, finding that these statements could be “construed as admissions of infringement); see also Univ. of Fla. Research Found., Inc. v. Orthovita, Inc., 1998 U.S. Dist. LEXIS 22648 (D. Fla. 1998), aff’d, 217 F.3d 854 (Fed. Cir. 1999). o Consider omitting descriptions of patentable features unless they are related to safety and efficacy, while being conscious of distinct duties of candor to both the FDA (pursuant to 21 U.S.C. § 502) and the PTO (under 37 C.F.R. § 1.56). o Explicitly disclaim that “substantial equivalence” as the term is used in the 510(k) application is limited to the definition of 21 C.F.R. § 807.87, rather than as defined under Title 35 of the U.S. Code.

§ 8.7

HATCH-WAXMAN FOR MEDICAL DEVICES

§ 8.7.1

Patent Term Extension for Medical Devices

As a partial remedy for the effective patent term shrinkage resulting from FDA approval delays, the Hatch-Waxman Act provides a term extension for patents covering certain products and methods that are subject to FDA approval. See 35 U.S.C. § 156; Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661 (1990). The patent’s term can be extended by a maximum of five years or fourteen years of effective patent life, whichever is less. Specifically, the patentee is entitled to a credit for the time the FDA spent reviewing the application. For devices subject to premarket approval, the “regulatory review period” includes testing and review phases. The former period begins with clinical investigation on humans and ends with the submission of the PMA, which commences the 8–46

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review phase. Half of the period of the testing phase and all of the review phase are included in the extension calculation, subject to reduction by patent applicant prosecution delays. 35 U.S.C. § 156(g)(3)(B). Patent term extensions, however, are not available to 510(k)-cleared devices, because clearance of a 510(k) application has been found not to meet the statute’s “approval” definition. Administrative appeals of the FDA’s calculations of patent term extensions have often been denied by the PTO. Such appeals are more frequently filed in relation to drugs than medical devices, likely owing in part to the shorter approval times associated with PMAs compared to those of drugs, and the typically larger revenue that every day of sales represents for pharmaceutical products. The FDA estimates that less than 10 percent of patent term extension requests relate to PMA devices.

§ 8.7.2

Research Exemptions for Medical Devices

The Hatch-Waxman Act safe harbor provision reads as follows: It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products. The Supreme Court concluded in Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661 (1990) that “a patented invention” under 35 U.S.C. § 271(e) includes all inventions subject to an FDA approval process. Extension of the holding to Class I and II devices was not clear, since the devices at issue in the case were Class III. However, the Federal Circuit concluded in Abtox v. Exitron, 122 F.3d 1019 (Fed. Cir. 1997) that the safe harbor applies to all medical devices, regardless of FDA classification. See also Merck KGaA v. Integra Lifesciences I, Ltd. (Merck II), 545 U.S. 193 (2005) (wherein the court declared that the safe harbor covers “all uses of patented inventions that are reasonably related to the . . . submission of any information under the FDCA,” including clinical and preclinical studies). In recent years, however, the Federal Circuit has issued seemingly contradictory interpretations on the scope of the safe harbor. In Proveris Scientific Corp. v. InnovaSystems, Inc., 536 F.3d 1256 (Fed. Cir. 2008), the Federal Circuit refused to apply the safe harbor to the sale of “research tools,” as such products are not themselves subject to the regulatory approval process. Classen Immunotherapies Inc. v. Biogen IDEC, 659 F.3d 1057 (Fed. Cir. 2011), denied certiorari by the Supreme 3rd Edition 2016

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Court, excluded from the safe harbor exemption post-FDA approval testing that used patented methods for evaluating long-term side effects of vaccines. A year later, the Federal Circuit distinguished the infringing testing in Classen as not required under federal law, and thus voluntary, when it held postapproval testing at issue in Momenta Pharmaceuticals Inc. v. Amphastar Pharmaceuticals Inc., 686 F.3d 1348 (Fed. Cir. 2012) (Supreme Court cert. denied, protected by the “safe harbor” provision. 35 U.S.C. § 271(e)(1)). Patentee Momenta has reportedly recently urged the Federal Circuit to revive patent suits against Amphastar and Teva Pharmaceuticals on the basis that the safe harbor protections are limited to use of a patented method “solely” for development and submission for FDA approval. Practice Note Practice tips for application of the “safe harbor” to medical devices include the following: · Consider whether the device is a “patented invention” within the definition of the statute. · Bolster positions that research activities are solely for uses “reasonably related” to the preparation or submission of information to the FDA in order to obtain marketing approval. · If significant risk of infringement liability is perceived, perhaps consider early licensing.

§ 8.8

TRANSFERS OF 510(k)s AND PMAs

PMAs and 510(k)s, like other intellectual property rights, can be bought, sold, and licensed. Transfers of 510(k) clearances are permissible, per the FDA’s historical perspective and most recent guidance document, provided any manufacturing site change does not significantly affect the safety or effectiveness of the device. See FDA Guidance, Transfer of a Premarket Notification (510(k)) Clearance—Questions and Answers (Dec. 2014). Transferees may wish to confirm that the design of the device has not crept too far away from the specifications cleared in the 510(k), potentially requiring a new clearance. The transfer should be exclusive, as only one party may manufacture a medical device under a single 510(k). The transferee may also seek confirmation that the transferor is ceasing manufacturing. A transferee should obtain from the transferor warranties of ownership and no previous transfers, as the FDA has not historically recorded 510(k) transfers in a manner analogous to the PTO’s Assignment Branch. The Guidance proposes a mechanism attempting better tracking of transfers in ownership and pursuant to which the current holder of a 510(k) may be determined from the CDRH’s 8–48

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§ 8.8

510(k) database. Owners and operators of medical device establishments that market 510(k)-cleared devices must supply the FDA-assigned premarket submission number of the cleared 510(k) when they list their devices in compliance with annual device establishment registration and listing requirements. Transfers of PMA ownership require FDA notification, with either an indication that the transfer will not result in a change to the device or its manufacture or a submission of a PMA supplement. The FDA’s “PMA Frequently Asked Questions” (available on the FDA website) state the following: If the PMA has been approved, the new owner need only report that the transfer of PMA ownership will not result in a change or modification that would require a submission of a PMA supplement (§ 814.39) or affect the conditions of approval applicable to the PMA. If changes are made that require a PMA supplement (§ 814.39) or affect the conditions of approval, the new owner must submit an appropriate PMA supplement and obtain written FDA approval before marketing the device. The above amendment or supplement should also include: o the effective date of the ownership transfer; o a statement of the new owner’s commitment to comply with all the conditions of approval applicable to the PMA; and o either a statement that the new owner has a complete copy of the PMA including all amendments, supplements, and reports or a request for a copy from the FDA files. FDA will provide a copy of the PMA under the Freedom of Information fee schedule. [21 C.F.R. 10.42] Since a PMA application made pursuant to 21 C.F.R. § 814.20 typically includes a detailed description of the device’s validated manufacturing processes, changes of manufacturing location could easily require a supplement to be filed by the transferee. If a PMA supplement is required, the device may not be marketed under the new conditions of manufacture until written approval of the supplement is received from the FDA. 3rd Edition 2016

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Rights to manufacture and/or distribute a device approved through the PMA process may be licensed under a PMA supplement or under a separate PMA filed by the licensee and (with the original PMA owner’s authorization) referencing or including all relevant information from the original PMA. Using the former approach preserves control of the PMA for the licensor.

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CHAPTER 9

Ethics Issues in Intellectual Property Jerry Cohen, Esq. Burns & Levinson LLP, Boston § 9.1

Introduction .......................................................................... 9–1

§ 9.2

Admission to Practice and Governing Rules ..................... 9–5

§ 9.3

Candor................................................................................. 9–11

§ 9.4

Competence......................................................................... 9–17

§ 9.5

Conflict ................................................................................ 9–18

§ 9.6

Privilege and Confidentiality............................................. 9–21

§ 9.7

Decorum and Proper Advocacy ........................................ 9–24

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9–ii

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CHAPTER 9

Ethics Issues in Intellectual Property Jerry Cohen, Esq. Burns & Levinson LLP, Boston

Scope Note This chapter addresses unique ethics issues commonly confronted by intellectual property counsel, such as specific requirements for patent lawyers and expectations regarding candor, competence, avoidance of conflicts, privileges, decorum, and advocacy.

§ 9.1

INTRODUCTION

Special case ethical requirements grow out of unique features of intellectual property (IP) practice in the following areas: • admission to practice, • candor, • conflict, • privilege, and • decorum and proper advocacy. Additionally, the interstate and international dimensions of intellectual property practice underscore the need to accommodate multiple (sometimes inconsistent) standards of ethical practice. The following examples illustrate important issues in ethical practice: • A District of Columbia law firm specializing in patent prosecution allegedly failed, through oversight, to timely file a U.S. patent application while effectively filing for foreign protection. In a later 3rd Edition 2016

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malpractice action, an $8-million jury verdict was rendered against it and, pending resolution of posttrial motions and appeal, the trial judge imposed severe limits on partner draws in the firm to prevent a dissipation of assets that would frustrate collection if judgment were entered per the verdict and affirmed. All IP lawyers shudder at this and other recent developments—a chilling reminder of the legal ethics rules of competence and diligence. See “Antonelli Owes $15M for Botched Patent Filing, Tech Co. Says” (Sept. 24, 2014), at http://www.law360.com/articles/ 580694-antonelli-owes-15m-for-botched-patent-filing-tech-says; “Judge Lets Stand Award Against IP Firm over Abandoned Patent,” N.Y.L.J., June 10, 2015; “Judge’s Remarks Led to LegalMal Settlement,” New England In-House, Aug. 25, 2014. • A lawyer at a prominent Boston law firm assisting many biotech ventures allegedly copied large sections of the specification of a patent application he had prepared for one client into the patent application specification for an unrelated client, causing misstatement of the second invention and delay in perfecting the patent rights and loss of license revenues for the second client. After extended pretrial court proceedings, the case settled for an undisclosed amount. See “Ropes & Gray Settles Malpractice Case Filed by New York Laboratory,” Boston Bus. J., June 10, 2014; “Ropes & Gray Settles Malpractice Suit Over Patent Delay,” Law360, June 2, 2014; “Cold Spring Harbor Laboratory Announces Settlement in Patent Malpractice Case Against Ropes & Gray” (June 2, 2014), at http://www.cshl.edu/1169-cold-springharbor-announces-settlement-in-patent-malpractice-case-againstropes-and-gray.html. The legal ethics duties covering confidentiality, conflicts, protection of client property, competence, and diligence are implicated. • A patent lawyer set up a patent database search company without disclosing to his law partners or his clients that he was the owner. He approved more than $700,000 in invoices from the company, which were paid by his firm and billed to clients. He submitted his resignation from the bar while disciplinary charges were pending, and the resignation was accepted as a disciplinary sanction. See In re Vincent, 25 Mass. Att’y Disc. R. 609 (2009). • A lawyer prosecuting patent applications for two unrelated clients realized that the first client’s work may have been prior art as to the later patent application of the second client but, honoring confidentiality for the first client, was found to have committed inequitable 9–2

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conduct in prosecution for the second client’s patent application after it came under scrutiny in litigation, resulting in difficulty for both clients and the lawyer. See Molins PLC v. Textron, Inc., 48 F.3d 1172 (Fed. Cir. 1995). The case also included other issues and evidence of inequitable conduct, resulting in unenforceability of the patent and “exceptional case” sanctions at the trial level. On appeal, a two-to-one panel of the U.S. Court of Appeals for the Federal Circuit reversed part of the trial court’s sweeping rulings of inequitable conduct and exceptional case but affirmed enough to make it a bad day. • A chief patent counsel of an industrial company left to work for a patent assertion entity (PAE). The entity acquired patents in her old company’s field and sued her old company. The old company sued her for breach of duties of loyalty and legal ethics violations. The lawyer denied all and filed an anti-SLAPP motion to dismiss. The trial judge threw out all of the company’s complaint counts except for breach of contract and awarded the lawyer and her new employer (the PAE) attorney fees. See http://www.fr.com/fishlitigation/slippery-slope-schlumberger-v-rutherford-implicationsfuture-abuse-texas-anti-slapp-statute-trade-secret-litigation. But after further evidence was submitted, the district court disqualified the lawyer who had changed companies, along with the plaintiff’s outside counsel, with whom she was presumed to have shared the defendant’s confidential information, and dismissed the case without prejudice. Dynamic 3D Geosolutions, LLC v. Schlumberger Ltd., No. A-14-CV-112-LY, 2015 WL 4578681 (W.D. Tex. Mar. 31, 2015); see also Advanced Messaging Techs., Inc. v. EasyLink Servs. Int’l Corp., 913 F. Supp. 2d 900 (C.D. Cal. 2012) (disqualification of company’s outside counsel and in-house counsel). • The Reed Smith law firm reported fifteen audits of its security by corporate clients in the last year. Both Reed Smith and Vinson Elkins reported adding new security staff positions. 2014 Am Law Tech Survey. One recalls the movie, The Firm (based on the John Grisham book), with a sinister “security director” of a fictitious (hopefully so) Memphis-based evil law firm. • Several studies of corporate information security generally, and cybersecurity in particular, identify law firms as the soft underbelly of security for their corporate clients. See, e.g., “Banks Demand That Law Firms Harden Cyberattack Defenses: Background Checks, Systems Audits Are Used to Close Potential Backdoor Breaches,” Wall St. J., Oct. 24, 2014; Luis A. Aguilar, “Boards of 3rd Edition 2016

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Directors, Corporate Governance and Cyber-Risks: Sharpening the Focus” (June 10, 2014), at http://www.sec.gov/News/Speech/ Detail/Speech/1370542057946 (speech by SEC commissioner for the New York Stock Exchange “Cyber Risks and the Boardroom” conference, with a discussion of SEC actions in this area and a review of horror cases, including attacks on Adobe, Target, Snapchat, and several banks); “Cybersecurity Guidance,” in U.S. Securities and Exchange Commission, Division of Investment Management, IM Guidance Update, Apr. 2015 (newsletter for registered investment companies and investment advisors). Practice Note In Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, 2015 LEXIS 898 (Mass. Dec. 23, 2015), the Supreme Judicial Court affirmed a Superior Court’s Rule 12(b)(6) dismissal of a damages action based on an alleged lawyers’/law firm’s breach of a legal ethics standard where the Boston office of the Finnegan firm prepared and prosecuted to allowance applications for patent for Mr. Maling’s inventions in screwless eyeglass frames while the D.C. office of the firm prosecuted to allowance a patent application for an invention in screwless eyeglass frames for a competitor of Mr. Maling’s company. The Supreme Judicial Court found no violation of the general conflict-of-interest ethics rule 1.7 (noting similarity of the versions of the rule in Massachusetts before and after Massachusetts’ adoption of several American Bar Association 20/20 ethics rule changes as of July 1, 2015 and no material difference from the corresponding U.S. Patent & Trademark Office ethics rule). There was no adversity of different legal interests as opposed to business interests (no occasion under pre- and post–America Invents Act priority standards by way of interference or derivation proceedings and no stinting of scope of efforts—i.e., no claim shaving). A further complaint assertion of the firm’s refusal to give Mr. Maling a legal opinion favoring his inventions over the competitor’s was also rejected since the firm did not undertake such an obligation as part of its engagement. The ruling is important to intellectual property lawyers in Massachusetts and elsewhere, but must be considered with regard to certain limitations of its precedential value. First, there was an inadequate pleading with conclusory allegations discarded by the trial and appeals courts as to a legal conflict or as to the alleged adverse representation limiting the firm’s Boston office zeal and best efforts in carrying out its engagement or as to transferred information between offices—all being types of case-specific circumstances insufficiently pleaded. Second, the Supreme Judicial Court did not excuse the

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firm on account of geographically separated offices involved; firms’ and partners’ responsibility for diverse branch offices remains intact. Third, subject matter conflict checks as well as client/client-related and opponent/opponent-related name conflict checks should remain part of best practices (or “robust conflict check” practices in the Supreme Judicial Court’s coinage).

§ 9.2

ADMISSION TO PRACTICE AND GOVERNING RULES

Intellectual property practice in Massachusetts includes diverse branches with differing registration standards. First, there are “patent lawyers” and “trademark lawyers” who are registered to practice before the U.S. Patent & Trademark Office (PTO) to prosecute patent and trademark applications. Most, but not all, are members of the Massachusetts bar. Many intellectual property lawyers working in Massachusetts, including corporate and government agency employees, are members of other state bars. They are joined by a few patent agents who are not members of any bar, such as engineers and scientists registered to practice before the PTO. The U.S. Court of Appeals for the Federal Circuit has exclusive jurisdiction over patent appeals and all appeals from PTO refusal to grant a patent or trademark registration. All decisions of the federal district courts, the International Trade Commission, and the U.S. Court of Federal Claims go to the Federal Circuit. It is not well-known that all lawyers are eligible to practice before the PTO in trademark registration matters. A member of any state bar can represent a party before the PTO in trademark registration proceedings and before the Copyright Office in copyright registration proceedings (including registration of semiconductor mask works). Litigators and business lawyers, many of whom are not registered at the PTO for activity there, devote much of their practice time to counseling and advocacy as to rights and responsibilities under the patent, copyright, trade secret, trademark, and related bodies of law (for example, the Semiconductor Chip Protection Act; the Plant Variety Protection Act (PVPA); the Orphan Drug Act; the Food, Drug, and Cosmetics Act (FDCA) and the Hatch-Waxman Act; the Biologics Price Competition and Innovation Act (BPCIA); the Telecommunications Act; and the Computer Fraud and Abuse Act (CFAA)) and regarding ownership and license agreements made under the ambit of such laws, including the following: • technology licenses; • multimedia licenses;

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• telecommunications (such as the Internet); • Food and Drug Administration practice for marketing approvals of pharmaceuticals, biologics, and medical devices; • research and development contracts and grants; • franchise arrangements; • music broadcast; • film distribution; • book rights; • software production and distribution; • consulting and employment; • joint ventures; and • dispute resolution. Warranty issues involving technology standards and full disclosure of IP infringement risks, data security, and strengths and weaknesses of an acquired company’s IP portfolio also claim much attention. Security interests in intellectual property and consequences of bankruptcy analyses provide a foundation for financing technology-based enterprises. Business lawyers concerned with intellectual property also work on the corporate, securities, and tax issues unique to companies whose profitability and market valuation are dependent on intellectual property strengths. All these additional practices can proceed without special registration at the PTO but may be regulated by other federal agencies, such as the Federal Trade Commission, the Food and Drug Administration, the Securities and Exchange Commission, the Federal Communications Commission, the Bureau of Industries and Security, the Office of Foreign Assets Control, Customs and Border Protection, the Environmental Protection Agency, the Department of Agriculture, the Internal Revenue Service, the Copyright Office, the International Trade Commission, and the U.S. Trade Representative. Intellectual property practice is marked by a liberal crossing of state and federal judicial district boundary lines. Admission pro hac vice is liberally granted to out-of-state practitioners in Massachusetts and elsewhere. PTO-registered attorneys and agents may carry on PTO patent practice anywhere in the country without local bar admission as a matter of constitutional right. Sperry v. Fla. ex rel. Fla. Bar, 373 U.S. 379 (1963). Changes in the rules governing 9–6

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multijurisdictional practice (MJP) under Model Rule 5.5 originated in the ABA 20/20 reform process and were adopted in Massachusetts in July 2011 and continued in the July 1, 2015, revision of the Massachusetts Rules of Professional Conduct. There are also proposals long floated in the bar to certify paralegals and legal specialists to practice and accept clients independently of law firms. Proposals for nonlawyer partial ownership as equity investors have been adopted in some foreign countries and in the District of Columbia. Despite the relaxation of MJP rules, local counsel in business transactions and litigation matters still play an important independent role in litigation and alternative dispute resolution (ADR) across state lines and federal district lines. The days of local trial counsel being “mailmen” are long gone. Rule 11 of the Federal Rules of Civil Procedure has played a role in encouraging independent fact and law review. In some complex intellectual property matters, it is a challenge to enable such independent review at minimal cost. The challenge is met by careful planning among out-of-state lead counsel, local counsel, and the client. The interstate (and, indeed, international) aspects of intellectual property practice bring counsel under the authority of the following: • the states have adopted differing versions of the American Bar Association (ABA) Model Rules of Professional Conduct; • court and administrative agency rules of practice and representation (discussed below) overlapping with ethics rules; • arbitration or ADR rules; • the Foreign Corrupt Practices Act; • legislation and rules regarding lobbying at state and federal levels (particularly on behalf of foreign interests) in the United States; • similar rules abroad; • U.S. and foreign privacy laws; • foreign secrecy laws; and • the U.S. military security and goods-and-data export control laws and regulations and related transaction controls, including International Traffic in Arms Regulations (ITAR) administered by the U.S. Department of State Directorate of Defense Trade & Controls (DDTC); Export Administration Regulations (EAR); Office of Foreign Asset Controls (OFAC) regulations, and, uniquely, the 3rd Edition 2016

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Patent Secrecy Act (35 U.S.C. § 181 et seq.) regarding licensure of U.S. patent applications for filing of corresponding foreign applications. Attorneys were suspended from PTO practice through Office of Enrollment and Discipline (OED) proceedings in Weiffenbach v. Klempay, No. D93-01, 1993 WL 604411 (Dept. Comm. A.J.L. May 25, 1993); In re Barndt, No. D92-3, 1992 WL 524318 (Comm’r Patents & Trademarks Sept. 10, 1992); and In re Borenstein, No. DP 91-13, 1991 WL 326596 (Dept. Comm. A.J.L. Aug. 14, 1991). A request for confidentiality of the order of suspension was denied in Barndt. In more-familiar state-law attorney discipline terms, the gist of the offense included • participation in preparation of evidence known to be false; • conduct involving dishonesty, deceit, or misrepresentation; • knowingly giving false or misleading information; and • conduct reflecting adversely on fitness to practice law. In re Barndt, No. D92-3, 1992 WL 524318 (Comm’r Patents & Trademarks Sept. 10, 1992). In Lipman v. Dickinson, 174 F.3d 1363 (Fed. Cir. 1998), defense counsel (himself a patent attorney) for a respondent patent attorney in OED proceedings was held to have violated candor obligations in presentation of defense affidavits of the respondent’s good character. Some of the affiants (four out of seventeen) had repudiated their affidavits, but the affidavits were nevertheless used by the defense counsel (to the extent of not changing his assertion in brief from seventeen to thirteen; he did not use content from the repudiated affidavits and he conducted an extensive inquiry before accepting and otherwise acting on the repudiation). Judge Newman, dissenting, quoted affidavits supporting defense counsel’s conduct in the circumstances from former commissioners of Patents & Trademarks and experts on legal ethics nationally and in the District of Columbia. Lipman v. Dickinson, 174 F.3d at 1372. The sanction for defense counsel was a public reprimand only, but the stigma appears unwarranted in his case. The case is worth reading as a cautionary tale of the dilemmas of trial counsel in all cases, but not limited to, cases of PTO disciplinary enforcement. (See also the PTO OED decision D2013-17 and a related case, Intellect Wireless Corp. v. HTC Corp., 732 F.3d 1339 (Fed. Cir. 2013). In USPTO D2013-17, there was an inadequate correction of a prior Rule 131 declaration in the wake of Intellect Wireless Corp. v. HTC Corp. The case itself yielded a sanction award of $4 million versus the plaintiff and its law firm for exceptional case bad conduct under 35 U.S.C. § 285.) 9–8

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Alteration of documents, negligence, and lack of candor to a client were grounds, with remorse and other mitigation allowed, for a net suspension of six months in Weiffenbach v. Logan, No. D91-11, 1993 WL 356752 (Comm’r Patents & Trademarks Jan. 19, 1993). Courts give substantial deference to OED decisions. In Bender v. Dudas, 490 F.3d 1361 (Fed. Cir. 2007) the U.S. Court of Appeals for the Federal Circuit affirmed the OED’s exclusion of a patent attorney from practice before the PTO due to his extensive participation in an invention developer’s scam practices. Note that discipline by state and federal courts or the administrative bar discipline authority, such as the Massachusetts Board of Bar Overseers, leads to presumptive reciprocal discipline in other states, federal courts, and administrative agencies where the lawyer is admitted. Consider as well the court’s contempt powers, the potential imposition of statutory fees, and whether the American Rule, pursuant to which each party pays its own attorney fees and costs, may come into play. Suits to compel admission to practice before the PTO were brushed aside in Franchi v. Manbeck, 972 F.2d 1283 (Fed. Cir. 1992) (affirming District of Connecticut dismissal because District Court for District of Columbia has exclusive jurisdiction for mandamus against commissioner of Patents & Trademarks); In re Doe, 1992 WL 469803 (Comm’r Patents & Trademarks Dec. 4, 1992) (inadequate technical education to qualify to take PTO attorneys and agents registration examination); In re Boe, 1993 WL 216460 (Office Enroll. & Discipl. Feb. 5, 1993) (former patent examiner was barred from admission to practice before the PTO because of a bad work record, including lack of candor, and his failure to show adequate rehabilitation). The governing standards applicable to patent and trademark practitioners are illustrated in an article by Thomas Ward and Karin Peterka, “Top Ten IP Ethics Violations Resulting in Discipline by the USPTO,” available at http://www.fdml .com/pdfs/Top_10_Ethics_04302010%20v3_TAW_9-2010.pdf. See also A. Samuel Oddi, “Patent-Attorney-Malpractice: An Oxymoron No More,” 2004 U. Ill. J.L. Tech. & Pol’y 1072 (2004); Sara Anne Hugh, “Ethical Issues in IP Law Practice,” AIPLA Spring Meeting 2011. The standards include neglect, reciprocal discipline, misappropriation of client funds, deceit, aiding in unauthorized practice of law, conflicts, failing to inquire before signing and/or filing documents at the PTO, inadequate preparation, gross misconduct, and failure to disclose information material to patentability (i.e., “inequitable conduct”). In 2013, the PTO adopted a major change to its legal ethics regulations. 78 Fed. Reg. 20,180 (Apr. 3, 2013). This amounted to a major overhaul of ethics rules, changing from the model of the 1970 version of the ABA Code of Professional 3rd Edition 2016

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Responsibility to the ABA’s 1984 Model Rules of Professional Conduct (with subsequent revisions), which are now adopted in all U.S. jurisdictions (as proposed by the ABA or with limited variations) except California and the District of Columbia. There are still some rules unique to intellectual property practice, but on the whole practitioners will find a greater alignment of the legal ethics rules of the PTO and their state’s legal ethics rules. Some of the features that stand out are the absence of annual registration fees to maintain status, the absence of mandatory CLE requirements, and special rules of candor in certain customaryto-PTO-practice ex parte proceedings complementing the duty of candor in the PTO rules of practice (37 C.F.R. § 1.56), discussed in § 9.3, below. The PTO has also published rules (in 37 C.F.R. § 42) effecting revised forms of practice under the statutory (35 U.S.C.) changes made by the America Invents Act (Pub. L. No. 12-29) enacted on September 16, 2011, with portions coming into effect at various times over the following eighteen-month period. The rules for inter partes proceedings became effective on September 16, 2012. The rules within 37 C.F.R. § 42 are more stringent than the general legal ethics rules applicable to PTO practice. In the inter partes proceedings, lead counsel must be a PTO-registered practitioner. Pro hac vice admissions are contemplated. All attorneys of record in a proceeding, whether registered or not, will be subject to the applicable PTO legal ethics rules. Sanctionable offenses in an inter partes proceeding include failure to comply with an order or a rule, frivolous claims, misrepresentation, dilatory tactics, abuse of discovery or of the adjudicative process generally, and other improper actions under 37 C.F.R. § 42.12. The sanctions include estoppels, expungement of filings, issue preclusion, limits on discovery rights, exclusions of evidence, money penalties, and/or adverse judgment, plus reporting to the PTO Office of Enrollment and Discipline in egregious cases. Finally it must be noted that malpractice claims, often based on alleged conduct violating ethics rules, are to be tried in state courts under state law, not in federal courts (with appeal to the Federal Circuit) unless issues of federal patent law are raised. Gunn v. Minton, 133 S. Ct. 1059 (2013). However, regional federal district courts and courts of appeal could take the malpractice originally or as removed, in case of diversity of citizenship, 28 U.S.C. § 1332, or adjunct jurisdiction, 128 U.S.C. §§ 1338(a), 1367. The newest frontier of malpractice avoidance/loss prevention and of ethical and effective practice for business clients is a take on the maxim “Physician, heal thyself.” Lawyers and law firms must improve protection of information entrusted to them and assist company clients in improving security, doing so in conformity with lawyers’ ethical duties to practice competently, avoid conflicts of interest, preserve confidentiality, and, last but not least, protect client property. 9–10

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§ 9.3

§ 9.3

CANDOR

The duty of candor in connection with (sometimes in contrast to) the duty of zealous representation under the law (Mass. R. Prof. C. 3.3) has special application in patent law. Patent application processing is subject to the much-litigated requirements of PTO Rule 56, 37 C.F.R. § 1.56, for disclosure to the PTO of information material to the examination of a patent application. The duty rests on the attorney, as well as on the inventors and certain other personnel of the employer-owner of the invention. The attorney carries not only his or her own burden of compliance but also an obligation to assist the inventor and the owner in meeting their obligations. There is an optional, but strongly encouraged, stylized procedure (as to format and timing) for presentation of such material information under 37 C.F.R. §§ 1.97–.98. There are also limited procedures for postgrant supplementary examination and reissue proceedings initiated by a patentee and various forms of reexamination of issued patents, usually initiated by an opposing party and sometimes (but rarely) sua sponte by the PTO, including citations of patents and/or ex parte reexamination under 35 U.S.C. §§ 251, 301– 307, which provide a vehicle for getting material information considered; inter partes review under 35 U.S.C. §§ 321–329; and a special transitional program for review of covered business methods that began September 16, 2012, and will sunset September 16, 2020, as to new proceedings, unless renewed. Additional requirements of candor are imposed under the PTO rules of practice adopted in April 2013 (see § 9.2, above). In litigation to enforce patents, it had become a commonplace defense to urge invalidity and unenforceability of the patent because of an alleged breach of the PTO Rule 56 disclosure duty—so much so that the U.S. Court of Appeals for the Federal Circuit has characterized the defense as a “plague.” Burlington Indus. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988). Nevertheless, the circuit has enforced the disclosure requirements rigorously while cutting back on the scope of materiality and the scienter thresholds. See, e.g., Fox Indus., Inc. v. Structural Pres. Sys., Inc., 922 F.2d 801 (Fed. Cir. 1990) (inequitable conduct affecting the patent grant only indirectly can lead to invalidation); In re Harita, 847 F.2d 801 (Fed. Cir. 1988) (the adoption of PTO Rule 56 effectively made patent applicants and their attorneys partners with the PTO Examining Corps in producing prior art for examination). However, heightened standards of pleading and proving intent to deceive have ameliorated the problems. See, e.g., Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1328 (Fed. Cir. 2009) (heightened pleading standard); Ferguson Beauregard/Logic Controls v. Mega Sys., 350 F.3d 1327, 1343 (Fed. Cir. 2003) (same); Tol-O-Matic, Inc. v. Proma Produkt Und Mktg., 945 F.2d 1546 (Fed. Cir. 1991) (each element of inequitable conduct to be shown by clear and convincing proof); Hewlett-Packard Co. v. Bausch & Lomb Inc., 909 F.2d 1464 (Fed. Cir. 1990) (exploring the limit of equating recklessness 3rd Edition 2016

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with intent to defraud under the Kingsdown standard); Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc) (gross negligence alone does not establish the requisite intent to defraud); see also Dickson Indus., Inc. v. Patent Enforcement Team, LLC, 333 Fed. Appx. 514 (Fed. Cir. 2009) (nonprecedential); Larson Mfg. Co. v. Aluminart Prods. Ltd., 559 F.3d 1317 (Fed. Cir. 2009). But see Ormco Corp. v. Align Tech., Inc., No. CV 03-16 CAS (Anx), 2009 WL 466070 (C.D. Cal. Feb. 23, 2009); Rothman v. Target Corp., 556 F.3d 1310 (Fed. Cir. 2009); Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357 (Fed. Cir. 2008); Nilssen v. Osram Sylvania, 528 F.3d 1352 (Fed. Cir. 2008). The charge of fraud on the PTO (or the modern euphemistic substitute, “inequitable conduct”) stigmatizes the patent prosecuting attorney even if the charge is rejected at trial. Also, it can lead to disciplinary proceedings against the attorney at the PTO and before his or her state bar. If the patent prosecuting attorney is also the patent litigating attorney, the charge can lead to disqualification from the latter role because of a potential witness role of the lawyer to rebut the charge. Fines can be imposed. See Sanders Assocs., Inc. v. Summagraphics Corp., 2 F.3d 394 (Fed. Cir. 1993) (appeal of fine allowed by sanctioned attorney). Counsel for accused patent infringers are troubled by a mirror image of the problems faced by a patent owner’s counsel. The fundamental duty of zealous representation under DR 7-101 is balanced against the strictures of Massachusetts and Federal Rules of Civil Procedure Rule 11 and state rules of professional conduct, as well as a natural sympathy for patent prosecuting counsel. Tactical considerations also enter into the calculus of deciding to present or drop an inequitable conduct charge—a high burden of proof, sanctions for an improvident charge, and complicating the prospect of settlement are among such considerations. Occasionally, a fully informed and well-counseled defense client elects to win or lose solely on the merits of substantive patent issues without reliance on the additional inequitable conduct defense. The patent inequitable conduct defense, and the related general sensibility of full disclosure, has migrated to trademark and copyright practice to a limited degree and amid much controversy. San Juan Prods., Inc. v. San Juan Pools of Kan., 849 F.2d 468 (10th Cir. 1988); Whimsicality, Inc. v. Rubie’s Costume Co., 891 F.2d 452 (2d Cir. 1989); qad Inc. v. ALN Assocs., Inc., 781 F. Supp. 561 (N.D. Ill. 1992); Ashton-Tate v. Fox Software, Inc., 760 F. Supp. 831 (C.D. Cal. 1990); Medinol v. NeuroVasc. Inc., 67 U.S.P.Q.2d 1205, 1209 (Trademark Tr. & App. Bd. 2003); see In re Bose Corp., 91 U.S.P.Q.2d 1938, 1942 (Fed. Cir. 2009) (negligence in revival declaration insufficient to establish fraud requiring registration cancellation absent an intent to deceive). It may be only a matter of time before this defense appears in other areas of intellectual property. Imagine, for example, a motion in a trade secret case for a 9–12

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sanction of dismissal or vacating an enforcement judgment because the trade secret owner’s counsel allegedly failed to disclose fully and fairly infirmities of the owner’s trade secret position in the course of litigation or contract negotiations. The owner’s counsel might also face bar discipline on one side and the owner’s malpractice suit on the other side. The danger is exacerbated by the circumstance that state courts have primary jurisdiction in the area of trade secrets but less familiarity with modern counsel-disclosure standards compared to federal court and agency experience with such matters in tax, securities, and false claims to the government and patent cases. In Molins PLC v. Textron, Inc., 821 F. Supp. 1551 (D. Del. 1992), aff’d in part, rev’d in part, 48 F.3d 1172 (Fed. Cir. 1995), an attorney who prosecuted two related patent applications with conflicting theories of operation for two different clients, without cross-referencing them, was found guilty of misconduct in the trial court. The two patents resulting from the applications were held unenforceable on account of such inequitable conduct. The Federal Circuit reversed as to this issue, but affirmed other inequitable conduct findings. Judge Nies dissented, saying that all the conduct was inequitable. Judge Newman argued in the other direction that disclosure would be a violation of ethical duty. An affidavit averment of a patent attorney to the PTO that he had made a thorough search of prior art (eventually found noncredible by a jury) was the basis of a holding of inequitable conduct in patent application prosecution and unenforceability of the resultant patent in General Electro Music Corp. v. Samick Music, 19 F.3d 1405 (Fed. Cir. 1994). Other failures to disclose by inventors and their assignees (apparently, but not clearly, including errors of omission or commission by attorney) were fatal to patents in Paragon Podiatry Laboratory, Inc. v. KLM Laboratories, Inc., 984 F.2d 1182 (Fed. Cir. 1993) (summary judgment of inequitable conduct affirmed); Buehler AG v. Ocrim AIS, 836 F. Supp. 1291 (N.D. Tex. 1992); SGS-Thompson Microelectronics, Inc. v. International Rectifier Corp., No. CV 92-2202 R, 1993 WL 738575 (C.D. Cal. Mar. 10, 1993); and Golden Valley Microwave Foods, Inc. v. Weaver Popcorn Co., 837 F. Supp. 1444 (N.D. Ind. 1992). Attorney fees were awarded to a prevailing defendant in Shatterproof Glass Corp. v. PPG Industries, Inc., No. 88-CV-73312DT, 1994 WL 446036 (E.D. Mich. Mar. 28, 1994), because of gross negligence and inequitable conduct. See also the PTO OED decision D2013-17 and the related case, Intellect Wireless Corp. v. HTC Corp., 732 F.3d 1339 (Fed. Cir. 2013), discussed in § 9.2, above. However, inequitable conduct charges failed in Braun Inc. v. Dynamics Corp. of America, 975 F.2d 815 (Fed. Cir. 1992); Glaxo, Inc. v. Novopharm, Ltd., 830 F. Supp. 871 (E.D.N.C. 1993); Genentech, Inc. v. Wellcome Found., 798 F. Supp. 213 (D. Del. 1992); and Code-Alarm, Inc. v. Electromotive Techs. Corp., No. 87CV-74022-DT, 1992 WL 494716 (E.D. Mich. July 28, 1992). The strict scrutiny 3rd Edition 2016

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given to charges of inequitable conduct in the nature of fraud served to screen out such a charge in Chiron Corp. v. Abbott Laboratory, 156 F.R.D. 219 (N.D. Cal. 1994) (failure to plead fraud with sufficient particularity justified Fed. R. Civ. P. 9, 12 dismissal, but without prejudice). See also Simpson v. Stand 21 S.A., No. IP 93 428 C, 1994 WL 735936 (S.D. Ind. Sept. 1, 1994). Rare instances of patent attorney misbehavior in the course of litigation occurred and was punished in TRW Financial Systems, Inc. v. Unisys Corp., No. 90-CV71252-DT, 1995 WL 545023 (E.D. Mich. Feb. 6, 1995) and Intellect Wireless Corp. v. HTC, 732 F.3d 1339 (Fed. Cir. 2015). But the advent of e-discovery warfare (disputes over production of electronically stored information (ESI)) may expand the range of attacks on parties and counsels in IP disputes and do so at a frequency approaching that of inequitable conduct charges. See, e.g., Qualcomm, Inc. v. Broadcom Corp., 548 F.3d 1004 (Fed. Cir. 2008). The materiality prong of the two-part test of inequitable conduct (intent and materiality) is usually measured objectively rather than through subjective testimony of a patent examiner. Rule 56 defines the withheld information as material if it is not cumulative to information of record and • it establishes, by itself or in combination with other information, a prima facie case of unpatentability or • it refutes or is inconsistent with a position taken in opposing a PTO argument of unpatentability or in asserting a position of patentability. See Critikon, Inv. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1257 (Fed. Cir. 1997). The broader alternate, and less helpful, assertion of the objective materiality test is that information is material “if a reasonable examiner would have considered it important to the patentability of the claim.” Regents of the Univ. of Cal. v. Eli Lilly & Co., 119 F.3d 1559, 1574 (Fed. Cir. 1997). In Semiconductor Energy Laboratory Co. v. Samsung Electronics Co., 4 F. Supp.2d 477 (E.D. Va. 1998), inequitable conduct served as a basis to dismiss a patent infringement action where one withheld reference contained more of the combined elements of the patented information than any prior reference of record and another was contrary to technical arguments of the patent applicant. Another of the shortcomings of the patent solicitation process was the submission of a partial translation of a Japanese-language reference where the untranslated portion was also material. It was also significant as to materiality and intent that the inventor was challenged as to the omissions by several licensees and, rather than going through a patent reissuance or reexamination process to purge the misconduct, made an end run around the problems by applying for a separate new

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§ 9.3

patent freed of such infirmities through a more complete presentation. The District Court found that [t]he evidence demonstrates a sophisticated, subtle, and consistent effort to hide the ball from the PTO in a manner plainly at odds with an applicant’s duty of candor, good faith, and honesty. The record, as a whole, simply contains too many instances of information withheld, and references mischaracterized, to reach any conclusion other than that the withholding and mischaracterizations were part of an intentional, not accidental or inadvertent, plan to mislead the PTO. Semiconductor Energy Lab. Co. v. Samsung Elecs. Co., 4 F. Supp.2d at 496; see also Synthon IP, Inc. v. Pfizer Inc., 472 F. Supp.2d 760 (E.D. Va. 2007) (discussing candor and inequitable conduct). A swing of the Federal Circuit inequitable conduct pendulum back to more rigorous enforcement of Rule 56 is shown in Baxter International, Inc. v. McGaw, Inc., 149 F.3d 1321 (Fed. Cir. 1998). However, even in that case the court allowed enforceability of an untainted divisional application based on the offending application, Baxter Int’l, Inc. v. McGaw, 149 F.3d at 1332, thereby limiting the doctrine of the prior cases Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d at 874, and J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1561 (Fed. Cir. 1984), that inequitable conduct as to any claim of a patent renders that claim and all other claims of the patent unenforceable. It should also be noted that it is not inequitable conduct to fail to resubmit prior art in a divisional application that was submitted in the parent case. PTO Manual of Patent Examination Procedure (MPEP) § 609; see also ATD Corp. v. Lyndall Inc., 159 F.3d 534 (Fed. Cir. 1998). However such resubmission, voluntarily made, can be good practice in several instances. Although inequitable conduct issues involve fact-intensive inquiries, such issues were resolved via summary judgment in the ATD case. See also KangaROOS U.S.A., Inc. v. Caldor, Inc., 778 F.2d 1571, 1577 (Fed. Cir. 1985). The burden of establishing invalidity of a patent is on the defendant (accused infringer), who must carry such burden by clear and convincing evidence. 35 U.S.C. § 282; Microsoft Corp. v. i4i L.P., 131 S. Ct. 2238 (2011). Similarly, inequitable conduct warranting a ruling of unenforceability also must be shown by clear and convincing evidence. C.R. Bard v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1998). However, the combination of use of circumstantial evidence to infer intent and a use of high materiality to lower the necessary showing of intent

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softens the clear and convincing barrier. Elle Corp. of Dallas v. GAF Bldg. Materials Corp., 168 F.3d 28 (Fed. Cir. 1999). While inequitable conduct is not a jury issue, the U.S. Constitution’s Seventh Amendment guaranty of a jury trial in appropriate civil cases requires that the jury determine facts common to jury triable issues (e.g., patent validity elements, infringement) and issues not so triable (inequitable conduct). In Herman v. William Brooks Shoe Co., No. 95 CIV. 1324 (PKL), 1998 WL 832609 (S.D.N.Y. Dec. 1, 1998), the jury was allowed to determine materiality of an allegedly misleading affidavit submitted in PTO prosecution. The District Court went a step further and also gave the jury the task of an advisory ruling on the intent-todeceive issue. This is clearly not jury triable, but the court had discretion to ask for such an advisory ruling. This balancing of judicial economy versus the possibility (read, likelihood) of prejudice as to performance of the jury’s primary task presents an interesting question of abuse of discretion by the District Court. A firm swing back to protection of IP proprietors and their counsel is found in a 2009 decision of the U.S. Court of Appeals for the Federal Circuit in In re Bose Corp., 580 F.3d 1240 (Fed. Cir. 2009), where concerns over inequitable conduct charges against trademark proprietors and their counsel were abated. In the en banc decision in Therasense v. Beckton-Dickinson Inc., 649 F.3d 1276 (Fed. Cir. 2011), the Federal Circuit recalibrated the test for inequitable conduct of patent applicants, holding that (1) there must be a materiality showing at a but-for level and (2) the omissions or misstatement must have been made with objectively determined intent to deceive. See also 1st Media LLC v. Electronic Arts, Inc., 694 F.3d 1367 (Fed. Cir. 2012), which applied the new Therasense test to reverse a case dismissal for inequitable conduct. On the other hand, in Aventis Pharma S.A. v. Hospina, Inc., 675 F.3d 1324 (Fed. Cir. 2012), an inequitable conduct ruling was affirmed where it was supported by evidence of manipulation of information disclosure, including a deliberate decision to withhold a material reference. Note, too, that a provision of the America Invents Act, effective September 16, 2012, allows a patentee to request supplemental examination to in effect purge questions of inequitable conduct. These decisions and the Congressional action focus on protecting client patent owners from risk of loss of IP rights and certainty of cost in their defense against inequitable conduct charges, but the attorneys are often targets of such charges and face the prospect of collateral consequences of loss of reputation, bar discipline, and malpractice charges.

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§ 9.4

§ 9.4

COMPETENCE

Malpractice claims are less frequent in intellectual property cases than in most other areas of practice. When they do occur, however, they often result in abnormally high awards—so much so that malpractice insurers penalize intellectual property practitioners with higher premiums. To the extent that patent application prosecution appears (as opposed to counseling, licensing, and even litigation work) the premium is raised even more. Several general business law firms have developed capable intellectual property practice groups, including, in some cases, registered patent attorneys, which, on the whole, has worked out well for all concerned. Conversely, once highly specialized (limited practice) firms are starting to move beyond their former self-imposed boundaries of areas of practice. Rules 5.1–5.7 of the Model Rules of Professional Conduct contain provisions for greater responsibility of lawyers for their partners, associates, paralegals, and other staff that resonate with intellectual property attorneys who are responsible for the actions of their organizations’ docket clerks, nonlawyer patent agents, technical specialists, cocounsel, and correspondent U.S. and foreign counsels and agents outside the organization, all in an environment of high-volume workload with multiple critical deadlines occurring over an extended period of managing multiple cases for multiple clients. Reports of discipline activities by the OED include the following: • When an application became abandoned for failure to pay an issue fee and the attorney had impaired vision, he was found to be incompetent to handle legal matters due to the impairment. He also failed to associate himself with someone competent to handle the legal matters. In re Bard, 20 U.S.P.Q.2d 1708 (Comm’r Patents 1991). • An attorney was excluded by a state bar where, inter alia, he did not complete work to provide a patentability opinion, and he did not respond to the client’s request for information. Overseers of the Bar v. Gould, No. BAR-95-3 (Me. May 10, 1995). • An attorney was disbarred when, inter alia, though paid to write and file a patent application, and after writing a rough draft in three months, he neglected for ten months to prepare or file a final writeup of the patent application. In re Cook, 526 N.E.2d 703 (Ind. 1988). Intellectual property attorneys often practice in solo or virtually solo environments (e.g., space-sharing arrangements, professional associations, dispersed 3rd Edition 2016

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corporate legal departments each having a single in-house counsel). In such instances, death or disability of the practitioner can cause great injury to clients because of the great number of complex files and often unwaivable or unextendable deadlines characteristic of U.S. and foreign intellectual property practice. It is important for practitioners to make advance backup arrangements with colleagues consistent with considerations of client consent, confidentiality, privilege, and nonconflict.

§ 9.5

CONFLICT

The unhappy prospect of disqualification from litigation because of appearance as a witness has been noted above. In such cases, there is also reason to question whether the attorney’s interests differ in some degree from the client’s in selecting litigation strategies, settlement appraisals, etc. Other areas of conflict for the intellectual property attorney arise in close corporation and joint venture situations, under licensing agreements, and in employment and other multiple-partyin-interest situations. Good preventive medicine includes counseling all concerned as to the prospect of separate representation or at least second opinion review. Clients object, naturally, to extra legal costs, but the imposition can be minimized by cooperation of all counsel. One lawyer who formerly worked for Client A on matter x can be disqualified at a later date from representing Client B in matter y, a suit against A, or other transaction adverse to A not involving matter x at all. This is a prospect of higher probability in intellectual property than in most other areas of practice because of the intellectual property lawyer’s actual or constructive exposure to the secret technology or other intellectual property assets and related business plans of client A. It takes a higher degree of persuasion to enable the attorney (or, at least, his or her firm with the particular attorney screened out) to continue representation of B once A seeks disqualification. Some of the recent cases are Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332 (Fed. Cir. 1988) (applying Second Circuit law); Atasi Corp. v. Seagate Technology, 847 F.2d 826 (Fed. Cir. 1988) (applying Ninth Circuit law); and Teradyne, Inc. v. Hewlett-Packard Co., No. C-91-0344 MHP ENE, 1991 WL 239940 (N.D. Cal. June 6, 1991). The Mass. R. Prof. C. 1.10(d)–(e) screening provisions provide helpful guidance in avoiding imputed disqualification of a law firm when it hires a conflicted lawyer. See Inverness Med. Switzerland GmbH v. Acon Labs., Inc., No. 03-11323-PBS, 2005 WL 1491233 (D. Mass. June 23, 2005). In the area of business transactions with clients covered by Rules 1.7 and 1.8 of the Massachusetts Rules of Professional Conduct, particular cautions apply to the lawyer’s acquisition of partial ownership interests in patents, copyrights, and other intellectual property interests or shares of underlying business enterprises 9–18

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or royalty streams from related business transactions. The difficulties of separating the attorney’s roles as counselor and co-owner may be insurmountable under many practical circumstances. Service as a business organization director or partner also should be avoided. These cautions, generally known to business lawyers, have special force in intellectual property because of the complexity of the subject matter, the prospect that new facts may come to light later to upset original assumptions, and other factors militating against fully informed client consent and leading to inconsistent interests of counsel. However, the PTO ethical rules permit a patent attorney to take an interest in the patent applications, the prosecution, and eventual patent proceeds. The contingent fee in patent litigation and increasing availability of fee awards are also major compensation factors for law firms. Attorneys were disqualified from trial representation in Lemelson v. Apple Computer, Inc., No. CV-N-92-655-HDM (PHA), 1993 WL 556452 (D. Nev. Jun. 3, 1993) (patent attorneys for plaintiff disqualified where one of their tax partners worked sporadically for a defendant on tax abatements wholly unrelated to patent subject matter in suit, and plaintiffs’ firm tried to terminate residual relationship with defendant). See also In re Hyundai Motor Am., 185 Fed. Appx. 940 (Fed. Cir. 2006) (nonprecedential) (law firm had pitched to patent owner to assert his patent and later appeared for a defendant sued on the same patent; disqualified); Unisys Corp. v. Hynix Semiconductor Corp., No. 3:06-CV-2915 (N.D. Cal. Dec. 18, 2008); Amen Inc. v. Elanes Pharms., 160 F.R.D. 134 (E.D. Mich. 1994); Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 809 F. Supp. 1383 (N.D. Cal. 1992) (plaintiff’s counsel had given advice a year earlier to the now defendant regarding the patent now in suit and did a variety of other work for that defendant; presumption of imputed knowledge applied irrefutably; whole firm barred). However, disqualification was avoided by timely institution of screening measures in Carbo Ceramics, Inc. v. Norton-Alcoa Proppants, 155 F.R.D. 158 (N.D. Tex. 1994). In Mikohn Gaming Corp. v. Acres Gaming Inc., No. CV-S-97-1383-HDM(LRL), 1998 WL 1059557 (D. Nev. Apr. 15, 1998), access to confidential technical information was denied to a law firm that was serving the defendant both as litigation counsel and patent prosecution counsel. The District Court applied a balancing test that included consideration of opportunities for inadvertent misuse of discovery materials, even assuming good faith. See Brown Bag Software v. Symnate Corp., 960 F.2d 1465, 1470 (9th Cir. 1992). In Mikohn, the defendant had an additional patent trial counsel who was not tainted with dual roles of trial and prosecution counsel, and the District Court concluded that the additional counsel could replace the first counsel as trial counsel and receive the discovery materials.

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§ 9.5

INTELLECTUAL PROPERTY PRACTICE

Considerations of Rules 4.2 and 4.3 of the Massachusetts Rules of Professional Conduct regarding communications with persons represented by separate counsel and persons not represented at all can have special import in intellectual property practice. The paradigm of a trade secret case is that employee E leaves company A to work for company B, A sues E and/or B, alleging trade secret misappropriation, and counsel for E and/or B try to interview various present or former employees of A privately (fearing that notice to A’s counsel will produce amnesia in the potential witnesses). Counsel for A have to determine how and when to press the Rule 4.2–4.3 issues (if at all). Both sides should consider alternatives to the ex parte interviews and ways of limiting the fact or appearance of improper control of the witnesses’ statements and their cooperation generally by counsel for A. Similar issues can arise in patent, trademark, and copyright cases. Counsel for E and/or B face the prospect of disciplinary enforcement and/or exclusion of such evidence as is developed through the ex parte contacts. The practice varies among federal and state jurisdictions, but a first bright line emerged circa 2000 in the Massachusetts federal district, which was a virtual embargo on present employees and substantially unlimited access to former employees. A second, more-important bright line was provided by the Supreme Judicial Court in Messing, Rudavsky & Weliky, P.C. v. President & Fellows of Harvard College, 436 Mass. 347 (2002) and its subsequent rewriting of Comment [4] to Rule 4.2 to provide that, regarding an opposing organization, contact is barred only with agents or employees of the organization who exercise managerial responsibility in the matter in issue, personally committed or allegedly committed the alleged wrongful acts in issue, or have authority within the organization to make decisions about the course of litigation. It is also implicit in this framework that such persons cannot make admissions binding the organization nor otherwise have speaking authority for the organization as to the matter in issue. Massachusetts IP lawyers often practice nationwide and/or internationally and must also consider rules of such jurisdictions that may differ from the Massachusetts standard, but it can be said generally that most U.S. state and federal courts have aligned with the Messing formulation or in some cases (such as in New York) preceded Massachusetts in establishing such a formulation. Another area of discomfort, if not outright conflict, arises out of the fact that intellectual property practitioners work for companies but interact with engineering personnel who come to regard the lawyer as colleague, friend, and confidant. The lawyer should remind such persons from time to time that the lawyer’s loyalty is necessarily with the company client. As for the prospect of a client suit for damages on account of alleged conflict of interest, see, e.g., § 9.1, above, for a description of the recent Maling case (Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, 2015 LEXIS 898 (Mass. Dec. 23, 2015) together with qualifications stated there. 9–20

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§ 9.6

§ 9.6

PRIVILEGE AND CONFIDENTIALITY

Attorney-client privilege is compromised in several unique ways in intellectual property representation. Double or treble damages and attorney fees can be awarded for reckless or willful infringement of intellectual property rights. An obvious mode of defense is for the losing defendant to show its prior good-faith reliance on careful consideration and advice of counsel before undertaking the retrospectively determined infringement. This opens counsel’s analysis and source materials to discovery by the opposing party. Intellectual property case defendants often seek (and are rarely granted) bifurcation of liability and damages determinations or of single versus multiple damages phases of litigation to postpone such discovery. One case that did bifurcate liability and damages (for other reasons), Polaroid Corp. v. Eastman Kodak Co., No. 76-1634-MA, 1990 WL 324105 (D. Mass. Oct. 12, 1990), modified, 17 U.S.P.Q.2d 1711 (D. Mass. 1991), established that infringement of seven valid patents was undertaken with such good-faith reliance on counsel’s prior review (the same counsel was trial counsel in the liability phase, but not the damages phase, of the infringement suit). That ruling saved Kodak over a billion dollars. The test is that reliance on counsel’s opinion must be reasonable under the circumstances. Datascope Corp. v. SMEC, Inc., 879 F.2d 820 (Fed. Cir. 1989), and that opens a wide range of attorney-client communication to discovery. See Saint-Gobain/Norton Indus. Ceramics Corp. v. Gen. Elec. Co., 884 F. Supp. 31 (D. Mass. 1995). Other assertions of fact, not infrequent in intellectual property cases, can sacrifice privilege. For example, in Mellon v. Beecham Group PLC, No. 86-2179 (HAR), 1991 WL 16494 (D.N.J. Jan. 3, 1991), an assertion of laches opened the way for inquiry into state of mind (reliance) of the defendant making the assertion, including attorney-client communications leading to alleged reliance on the plaintiff’s inactivity. Work product privilege can also be jeopardized. See Frazier Indus. Co. v. Advance Storage Prods., No. 92-0303-AWT (EEx), 1994 WL 761247 (C.D. Cal. Nov. 1, 1994) (and cases cited therein). Similarly, a charge of fraud on the PTO (inequitable conduct) creates the prospect of discovery and trial evidence exploring critical attorney-client communications of the plaintiff–patent owner. Even if the opposing party making the charge fails to justify intrusive discovery, the accused party may be obliged to waive privilege in order to assert, affirmatively, evidence that will dissipate inferences arising from the opponent’s presentation of external circumstances. However, in In re Seagate Technologies, 497 F.3d 1360 (Fed. Cir. 2007), the U.S. Court of Appeals for the Federal Circuit determined that the failure to obtain an opinion of counsel or obtaining it but not offering it to negate infringement will not lead to an 3rd Edition 2016

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inference of willfulness. This was codified at 35 U.S.C. § 298 via the America Invents Act of 2011, Pub. L. No. 12-29, § 17(a). In patent and/or trade secret litigation there is a tradition of writing into discoveryrelated protective orders a so-called patent prosecution bar. That is, information classified as “confidential” or “highly confidential” or “attorneys’ eyes only” can be viewed by counsel for the requesting party (and experts working for counsel), but employees of parties represented by such counsel are excluded, which also excludes members of the counsel team who do patent application filing and prosecution for the requesting party or otherwise make technology decisions or contributions for that party. Access to the protected information by such persons presents the fact and/or appearance of abuse of the fruits of discovery. See generally U.S. Steel Corp. v. United States, 730 F.2d 1468 (Fed. Cir. 1985). Over the years the analysis has become more nuanced. See, e.g., Smart-Signal Corp. v. Expert Microsys., Inc., 2006 WL 1343647 (N.D. Ill. 2006) (patent prosecution counsel is presumed to follow protective order); see also James Suo & David Pittman, “A Prosecution Bar in Patent Litigation Should Be the Exception Rather than the Rule,” 15 Va. J.L. & Tech. 43 (Spring 2010). A nonlawyer patent agent’s communications with a client are rarely covered by attorney-client privilege. Lawyer communications to and from clients and cocounsel in the United States and abroad (outside the United States, patent and trademark prosecution is handled by nonlawyer agents more often than by lawyers or solicitors) are also subjected to strict scrutiny as to whether the U.S. lawyer is rendering (or preparing to render) legal advice or merely carrying out a nonlawyer function as a convenience to the client. In the latter situation, privilege will not apply. The analysis is complicated by the special duty of full disclosure, discussed in § 9.3, Candor, above. Communications with U.S. nonlawyer patent agents (and in some instances foreign patent agents) were held privileged in Stryker Corp. v. Intermedics Orthopedics, Inc., 145 F.R.D. 298 (E.D.N.Y. 1992). But a substantially contrary result was reached in Burroughs Wellcome Co. v. Barr Labs. Inc., 143 F.R.D. 611 (E.D.N.C. 1992). In Farmaceutisk Laboratorium Ferring A/S v. Reid Rowell, 864 F. Supp. 1273 (N.D. Ga. 1994), communications to and from foreign patent agents were not privileged except to the extent that they served as part of the communication channel of the client company getting advice from its U.S. attorneys. Broad application of privilege and work product for patent attorneys was enforced in Conner Peripherals, Inc. v. Western Digital Corp., No. C93-20117 RMW/EAI, 1993 WL 726815 (N.D. Cal. June 8, 1993), which also provides a good review of the law on this subject. See generally Mercek et al., “The AttorneyClient Privilege and U.S. Patent Agents: A Workable Rule for Protecting Communications,” 76 JPTOS 591 (Aug. 1994). 9–22

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Inventors in a patent reissue application who referred to their interactions with a patent attorney to explain failure to make certain claims in the original patent (an explanation of the oversight being a necessary part of reissue practice) waived attorney-client privilege where their assertion invoked their own (mis)understanding of law. Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer Inc., No. 95 CIV. 8833(RPP), 1998 WL 51847 (S.D.N.Y. Feb. 9, 1998); cf. Sax v. Sax, 136 F.R.D. 542, 544 (D. Mass. 1991). In Ami/Rec-Pro Inc. v. Illinois Tool Works Inc., No. 97 C 5409, 1998 WL 70607 (N.D. Ill. Feb. 11, 1998), an attorney’s notes to file not communicated to the client inventor were not privileged because the notes merely represented technical data and further were not protected as work product because they were not prepared in anticipation of litigation. Cf. Dunhall Pharms., Inc. v. Discus Dental, Inc., 994 F. Supp. 1202 (C.D. Cal. 1998) (limited “waiver” of work product in willful infringement case; limitation to presuit materials). The extent of invasion of trade secret assets of U.S. companies (including U.S. branches of foreign companies) by domestic and foreign private and government predators was well stated by others at the AIPLA Trade Secret Summit held in Santa Clara, California, on December 3 and 4, 2014, and has been asserted as the reason to strengthen legal rights, remedies, and procedures in U.S. federal and state law and international accords. Studies of the problem show special vulnerability of corporations for data delivered to or made accessible for their law firms. It is necessary only to compare your law firm’s system to cybersecurity state-of-the-art protection to see how weak your firm’s system is relative to those of your clients. In-house legal departments and large law firms have the benefit of in-house or reliable outsourced IT departments, information security teams, and several layers of compliance specialists for protecting trade secrets (including technological and business information and privacy, as applicable) of a company or firm and its vendors, customers, licensors and licensees, and joint venture partners; safeguarding the privacy of employees and customers; and ensuring compliance with regulations on the scope and timing of disclosures, export controls, and contract limitations. Many companies are or soon will be certified by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) as to the quality of protective systems, including measures to prevent unauthorized intrusion; to monitor, detect, and report to affected customers any intrusions that occur; and to implement damage control and fixes to prevent recurrence. See ISO/IEC standard 27001 et seq., including new standard 27018 regarding cloud storage providers, and note, for example, the October 2014 white paper by the Ponemon Institute, “Breaking Bad: The Risk of Unsecure File Sharing,” available at https://www .intralinks.com/resources/whitepapers/breaking-bad-risk-unsecure-file-sharing.

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§ 9.6

INTELLECTUAL PROPERTY PRACTICE

Lawyers and law firms have legal, ethical, and moral obligations (and good marketing and representation imperatives), as part of their reasonable efforts, to participate in integrating these client controls or running parallel strong controls, including careful vetting, educating, and monitoring of employees and outsource providers. Lip-service assurances, ethical rules, motivational speeches, and contract boilerplate provisions can be helpful but, standing alone, are inadequate fulfillments of these obligations and imperatives. Law firms are also subject to privacy regulations, noted above, that are applicable to businesses generally. State legislatures and privacy regulatory agencies have been unmoved by bar associations’ claims that lawyers’ ethical obligations of confidentiality and legal privilege for communication and work product immunity will suffice. Therefore, law firms have duly adopted protection plans for the firms (and their outsource vendors from janitorial to e-discovery) to protect information of clients and law firm personnel. This forced compliance plus the immersion in massive document (paper and electronic) reviews in litigation, regulatory investigation, and due diligence for mergers and acquisitions and like transactions provide foundational components that can be used in building protection systems as strong as those of clients, sometimes even better. See generally ABA Cybersecurity Legal Task Force, The ABA Cybersecurity Handbook (Am. Bar Ass’n 2013). But for all that has been said about cybersecurity, human factors still present the greatest threats of loss. The mobile associate or partner carries away more than his or her skill in memory, papers, thumb-drive downloads, and data streamed to the individual’s home or his or her own cloud server subscription. Also, people misaddress papers and electronic communications, and at times pleadings and motions inadvertently say too much. Offices are left open at lunchtime and other breaks. Desks are unlocked or files are laid out on top. Computers are left on or dutifully closed but with Post-it® tabs on the monitor to remind the user of passwords. Paper and electronic documents are not properly deleted or shredded. Passwords are weak and/or go too long without change (not always, but too often). Although business clients are now mandated or cajoled to correct these gaps of protection in their operations, law firms have been slower to act, and they must rethink the scope of their reasonable efforts obligations.

§ 9.7

DECORUM AND PROPER ADVOCACY

The term “decorum” is used here to encompass a variety of ethical and professionalism imperatives of cooperation between opposing counsel and between counsel and tribunal, respectful and courteous transaction of business, advertising or solicitation restraints, and collegiality. The range of an attorney’s decorum responsibilities overlap with standards of proper advocacy. 9–24

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§ 9.7

Intellectual property practice is blessed with a friendly ambience of cooperation and a good balance of counsel’s responsibilities to clients, tribunals, and the bar. This is true despite the appearance in patent cases of the inequitable conduct charge discussed above. The practice is also marked by restraint in advertising and solicitation, a reputation of its practitioners for thorough preparation for appearances before all tribunals, and punctilious compliance with procedural rules and advocacy standards. But there are exceptions. Intellectual property practice also comprises a quaint language of advocacy, particularly in PTO proceedings, including the features of passive voice and objective case. This century-old tradition anticipated modern recognition throughout the bar and the judiciary that an advocate should not express a personal opinion. See, e.g., Mass. R. Prof. C. 3.4(e) (CPR DR 7-106(C)(4)). Intellectual property lawyers are accommodating to a high degree as to time extensions, stipulations, discovery, and settlement. The elevated duty of candor under the PTO rules carries over to the lawyers’ other activities. Yet, these lawyers do encounter other standards from time to time, within and outside the ranks of U.S. and foreign intellectual property lawyers. When rough-and-ready tactics sink to the level of a code violation, intellectual property lawyers have avoided reporting the offense to bar discipline authorities, and SJC Rule 3:07 formerly allowed such tolerance. Rule 8.4 of the Massachusetts Rules of Professional Conduct, the so-called snitch rule, imposes mandatory reporting of serious offenses, but it is not likely to produce massive reporting of offenders. In contested cases, a tribunal may provide case-specific relief under civil procedure rules, including Rule 11. The Federal Circuit has taken particular pains to warn, and eventually sanction, counsel for improper means of advocating a client’s position. See, e.g., State Indus., Inc. v. Mor-Flo Indus., Inc., 948 F.2d 1573 (Fed. Cir. 1991) (applying Fed. R. App. P. 38 and 35 U.S.C. § 285 to sanction appeal of District Court ruling on a matter committed to discretion of the trial court); Laitram Corp. v. Cambridge Wire Cloth Co., 919 F.2d 1579 (Fed. Cir. 1990) (counsel for both sides fined for advancing appellate positions not supported in the record and generally vexatious); Laitram Corp. v. Cambridge Wire Cloth Co., 905 F.2d 386 (Fed. Cir. 1990) (prior proceeding wherein appellate briefs were rejected). Rule 11 of the Federal Rules of Civil Procedure has a role in intellectual property proceedings, along with specific patent law provisions (35 U.S.C. § 285; 15 U.S.C. § 1117(a); 17 U.S.C. § 911(f)) for awarding attorney fees to the prevailing party in “exceptional cases.” A case can be made “exceptional” in several ways, including through attorney misconduct. Trademark and copyright cases generally involve attorney fee awards to prevailing parties regardless of attorney conduct.

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§ 9.7

INTELLECTUAL PROPERTY PRACTICE

Sanctions were applied for inadequate prefiling investigation as to pleadings in View Engineering, Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981 (Fed. Cir. 2000); Judin v. United States, 110 F.3d 780 (Fed. Cir. 1997); and Refac International v. Hitachi, 921 F.2d 1247 (Fed. Cir. 1990). In In re Hayes Microcomputer Products, Inc. Patent Litigation, 982 F.2d 1527 (Fed. Cir. 1992), sanctions were not granted even though the defendants’ allegations of inequitable conduct were determined to be “unfounded.” The trial court, upheld on appeal, found that the defendants’ conduct did not rise to the level of a Rule 11 violation. In addition, with respect to the alleged harm—a patent attorney being required to attend the trial to help rebut the unfounded allegations—the court noted that the patent attorney in question was “an integral part of [the plaintiff’s] ‘trial team,’ testifying on many aspects of patent law, interpretation, and procedure far removed from simply rebutting an inequitable conduct claim.” In re Hayes Microcomputer Prods., Inc. Patent Litig., 982 F.2d at 1545–46; see also Hoffman-LaRoche Inc. v. Invamed, Inc., 213 F.3d 1359 (Fed. Cir. 2000) (sanctions not awarded where good prefiling investigation was made). Some other actions that might result in sanctions include the following: • persistently late filings and excessive extension requests, Julien v. Zeringue, 864 F.2d 1572 (Fed. Cir. 1989); • distortion of the record, Amstar Corp. v. Envirotech Corp., 730 F.2d 1476 (Fed. Cir. 1984); • selectively misleading presentation, Datascope Corp. v. SMEC, Inc., 879 F.2d 820 (Fed. Cir. 1989); and • frivolous appeals, Munoz v. Strahm Farms, 69 F.3d 501 (Fed. Cir. 1995); Finch v. Hughes Aircraft, 926 F.2d 1574 (Fed. Cir. 1991). But there is some recognition of the special dilemmas of intellectual property practice. For example, in Hoffman-LaRoche Inc. v. Invamed Inc., 213 F.3d 1359 (Fed. Cir. 2000), the patent owner’s attorney avoided Rule 11 sanctions for a patent infringement action filed “on information and belief” where it was not possible to investigate the accused product fully prior to suit and discovery. But see View Eng’g Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981 (Fed. Cir. 2000) (similar excuse rejected and $98,000 Rule 11 fee award made against plaintiff’s lawyers). All modern litigation includes vexing problems of discovery options, particularly as to electronically stored information and of cooperation between counsel for opposing parties. The problems are illustrated in Qualcomm v. Broadcom Corp., 539 F. Supp. 1214 (S.D. Cal. 2007), aff’d in part and rev’d in part, 548 F.3d 9–26

3rd Edition 2016

ETHICS ISSUES IN INTELLECTUAL PROPERTY

§ 9.7

1004 (Fed. Cir. 2008). In this case, Qualcomm was suing to enforce patents that covered a technical standard and resisted a defense that asserted that Qualcomm, as a participant in setting the standard, was obliged to license its patents. Qualcomm said it had no part of setting the standard. Qualcomm and its lawyers withheld information showing it had participated in standard-setting activity. Persistent activity of Broadcom’s counsel and an outraged trial judge were necessary to get to the truth of the case and the related concealment. The story is well told in an article by Professor William T. Gallagher of Golden Gate University School of Law. See William T. Gallagher, “IP Legal Ethics in the Everyday Practice of Law: An Empirical Perspective of Patent Litigators,” 10 J. Marshall Rev. Intell. Prop. L. 309 (2011). The article describes an extensive survey of patent litigators’ reaction to the Qualcomm case and the challenges faced by patent litigators generally. Fee shifting may be available in “exceptional” patent cases. 35 U.S.C. § 285. Otherwise the American Rule (each party paying its own lawyer fees) applies. An exceptional case can be based on trial misconduct, inequitable conduct in obtaining or enforcing the patent, discovery abuse, and presentation of an objectively baseless claim or defense. Octane Fitness LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014); Highmark, Inc. v. Allcare Health Mgmt. Inc., 134 S. Ct. 1744 (2011); Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 670 F.3d 1171 (Fed. Cir. 2012); Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221 (Fed. Cir. 2011). In Bard, the Federal Circuit held it to be a matter of law in determining the objectively baseless prong of the exceptional case test. A significant increase in motions for attorney fees and in grants has occurred in lower courts since the Octane and Highmark decisions, and pending patent reform legislation would codify the rulings of those cases. Yet the “exceptional case” language of 35 U.S.C. § 285 was not truly explained beyond the Supreme Court’s saying that the Federal Circuit’s tests of “material inappropriate conduct,” “subjective bad faith” in bringing (or defending) a suit, or “objectively baseless” were too limiting to the trial court. Rather, the trial court can and should consider whether party and/or counsel conduct was out of the expected range of rules and ethics compliance, including evaluation of whether frivolous claims or defenses were asserted or maintained unduly. It should be noted, however, that “willful infringement” per se produces enhanced damages and 35 U.S.C. § 284 will automatically produce a fee award under 35 U.S.C. § 285. Proper advocacy also includes knowledge of and strict compliance with general law practice rules of courts and administrative agency rules of practice as to forms of pleadings and motions, timeliness, and evidence presentation. Prominent among these are significant revisions to the discovery provisions of the Federal Rules of Civil Procedure effective December 1, 2015, including rules about proportionality (Rule 1 and Rule 26(b)(1)–(2)); allocation of discovery 3rd Edition 2016

9–27

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INTELLECTUAL PROPERTY PRACTICE

expenses (Rule 26(c)(1)(B)); early Rule 34 requests (Rule 26(d)(2)); and presentation of discovery responses (Rule 26(b)(1), (f)(3)(C); Rule 34(b)(2)(A)–(C); and Rule 37(e)). Additionally, in several federal districts and for several specific judges there are local rules and other protocols for pretrial management of patent cases. See, for example, Local Rule 16.6 of the U.S. District Court for the District of Massachusetts, which governs scheduling and procedures in patent cases. Several other districts have similar local rules.

9–28

3rd Edition 2016

Table of Cases References are to section numbers of this book, unless otherwise indicated.

A A.R.S. Servs., Inc. v. Morse, 5.2, 5.2.1(a), 5.2.3, 5.2.5(a), 5.3.6, 5.4.4, 5.4.5(b), 5.4.7(a), 5.4.7(b) Aalmuhammed v. Lee, 7.3.3(a) Abbott v. Sandoz, 8.6 Abbott Point of Care Inc. v. Epocal Inc., 8.6 Abeshouse v. Ultragraphics, Inc., 7.12.1(a) ABKCO Music, Inc. v. Harrisongs Music, Ltd., 7.7.3(c), 7.10.1, 7.10.3(b) Abraxis Bioscience, Inc. v. Navinta LLC, 3.7.4 Abtox v. Exitron, 8.7.2 Access Cardio Sys., Inc. v. Fincke, 5.3.13(g) A-Copy, Inc. v. Michaelson, 5.3.5 Acordia N.E., Inc. v. Academic Risk Res. & Ins., LLC, 5.2.1(b), 5.3.9, 5.3.13(c), 5.4.7(b) Acri Wholesale Grocery Co., A Corp., and Joseph D. Acri and Anthony Acri, Individuals, United States v., 8.4 Action on Smoking and Health v. Harris, 8.3 Adam Assocs. Int’l, Inc. v. William A. Berry & Son, Inc., 5.2.1(a), 5.2.2, 5.3.9, 5.3.12 Adams v. Herbert, 5.4.7(b) Advanced Cable Ties, Inc. v. Hewes, 5.2.2, 5.2.3, 5.2.4, 5.4.7(b)

3rd Edition 2016

Advanced Messaging Techs., Inc. v. EasyLink Servs. Int’l Corp., 9.1 Advanced Micro Devices, Inc. v. Feldstein, 4.2.1(b), 4.2.1(e), 4.2.2(b), 4.3.2(b), 5.2.5(a), 5.3.13(d), 5.4.2, 5.4.5 AFC Cable Sys., Inc. v. Clisham, 5.4.7(b) Affinity Partners, Inc. v. Drees, 4.2.1(e), 5.2.1(a) Aggreko, LLC v. Koronis, 4.2.1(e), 4.3.2(b), 5.2.6, 5.4.5, 5.4.5(a) A&H Sportswear v. Victoria’s Secret Stores, 6.3.5(b) Aimster Copyright Litig., In re, 7.9.4(a) Akamai v. Limelight, 1.4, 1.4 n.13 Akibia, Inc. v. Hood, 5.2, 5.2.5, 5.2.5(a), 5.2.5(b), 5.4.1, 5.4.2, 5.4.7(b) Alexander & Alexander, Inc. v. Danahy, 5.2.1(a), 5.2.2, 5.2.4, 5.2.5(a), 5.3.5, 5.3.13(c), 5.3.13(e), 5.4.3, 5.4.6(f), 5.4.6(h) Aleynikov, United States v., 4.2.2(a) Alger v. Thacher, 5.4.7(b) Alice Corp. Pty Ltd. v. CLS Bank Int’l, 1.4, 3.4.2(c) Alison H. v. Byard, 5.4.7(b) All Stainless, Inc. v. Colby, 5.2.1(a), 5.2.1(b), 5.2.2, 5.2.3, 5.2.4, 5.2.5(a), 5.2.5(b), 5.2.6, 5.4.7(b) AllianceBernstein L.P. v. Atha, 4.3.3(a) C–1

INTELLECTUAL PROPERTY PRACTICE

Allied Tube & Conduit Corp. v. Indian Head, Inc., 2.1.3 Alloy Media, LLC v. Landon, 5.2.1(a), 5.4.7(b) ALW Mktg. Corp. v. Hill, 5.3.5 A&M Records, Inc. v. Napster, Inc., 7.9.4(a), 7.9.4(b), 7.9.6(a), 7.9.6(b) Amador v. McDonald’s Corp., 7.12.4 Amarin Pharm., Inc. v. FDA, 8.5.2 Amazon.com, Inc. v. Barnesandnoble.com, Inc., 3.7.5 Amen Inc. v. Elanes Pharms., 9.5 American Dental Ass’n v. Delta Dental Plans Ass’n, 7.2.1(a) American Express Fin. Advisors, Inc. v. Walker, 5.2.1(a), 5.2.2, 5.3.13(c) American Geophysical Union v. Texaco, Inc., 7.11.1(e), 7.11.1(h), 7.11.1(k) American Window Cleaning Co. v. Cohen, 4.2.1(e) AMF, Inc. v. Sleekcraft Boats, 6.3.5(b) Ami/Rec-Pro Inc. v. Illinois Tool Works, Inc., 9.6 Amstar Corp. v. Envirotech Corp., 9.7 Analogic Corp. v. Data Translation, Inc., 4.2.1(e), 5.2.2, 5.4.2 Anaqua, Inc. v. Bullard, 4.2.1(e), 5.2.1(a), 5.3.12, 5.4.7(b) Anchor Elec. Co. v. Hawkes, 5.2.3 Anderson v. Cryovac, Inc., 4.3.2(a) Anthony’s Pier Four, Inc. v. HBC Assocs., 5.3.4 Apple Computer, Inc. v. Microsoft Corp., 7.10.3(d) April Prods. Inc. v. G. Schirmer, Inc., 7.7.3(e) Architext, Inc. v. Kikuchi, 4.2.1(e) C–2

Arnstein v. Porter, 7.10.3(b) Aronson v. Quick Point Pencil Co., 7.7.3(e) Ashcroft v. Iqbal, 1.3.4, 1.3.4 n.2 Ashton-Tate v. Fox Software, Inc., 9.3 Aspect Software, Inc. v. Barnett, 4.2.1(e), 5.2, 5.2.6, 5.3.6, 5.3.12, 5.4.1, 5.4.5, 5.4.5(a), 5.4.7(a) Assessment Techs. of WI, LLC v. Wiredata, Inc., 7.11.2(a) Association for Molecular Pathology v. Myriad Genetics, Inc., 1.4, 3.4.2(c) Astro-Med, Inc. v. Nihon Kohden Am., Inc., 5.4.7(b) Atari Games Corp. v. Nintendo of Am., Inc., 7.11.1(h) Atasi Corp. v. Seagate Tech., 9.5 ATD Corp. v. Lyndall Inc., 9.3 AthenaHealth, Inc. v. Cady, 4.2.1(e), 5.2, 5.2.5, 5.2.5(a), 5.4.1, 5.4.2, 5.4.5(a), 5.4.7(b) Atlantic Marine Constr. Co. v. United States Dist. Court for the W. Dist. of Tex., 5.3.12 Atlantic Research Mktg. Sys., Inc. v. Troy, 4.2.1(e), 5.2.2, 5.3.9, 5.4.5(a) Atlas Box & Crating Co. v. Valerus, 4.2.1(a) Augat, Inc. v. Aegis, Inc., 4.2.1(e), 4.2.1(f), 5.3.4 Authors Guild, Inc. v. Google, Inc., 7.11.1(h) Authors Guild, Inc. v. HathiTrust, 7.6.2(a) Automed Techs., Inc. v. Eller, 4.3.2(a) Avallone v. Elizabeth Arden Sales Corp., 5.4.7(a), 5.4.7(b) Avaya, Inc. v. Ali, 5.4.1 3rd Edition 2016

TABLE OF CASES

Aventis Pharma S.A. v. Hospina, Inc., 9.3 Avtec Sys., Inc. v. Peiffer, 4.3.3(d) Aware, Inc. v. Ramirez-Mireles, 5.3.12

B Baker v. Liggett Group, Inc., 4.3.2(a) Baker v. Selden, 7.2.2(c) Baladevon, Inc. v. Abbott Labs., Inc., 5.3.13(g) Banc of Am. Corporate Ins. Agency, LLC v. Verille, 5.3.13(c), 5.4.1, 5.4.5(b), 5.4.7(b) Banner Indus. v. Bilodeau, 4.2.1(e), 5.2.5(a), 5.2.5(b), 5.2.6, 5.4.7(b) Barclays Capital Inc. v. Theflyonthewall.com, Inc., 7.2.2(d) Bard, In re, 9.4 Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 9.7 Barndt, In re, 9.2 Bateman v. Mnemonics, Inc., 7.11.1(f) Battle Creek Equip. Co. v. Roberts Mfg. Co., 7.8.5 Baxter, Inc. v. Landry, 5.3.4 Baxter Int’l, Inc. v. McGaw, Inc., 9.3 Bayer AG v. Elan Pharm. Research Corp., 8.2.13 B&B Hardware, Inc. v. Hargis Indus., Inc., 1.4, 6.8.6 BDO Seidman Fin. Servs. v. Gorman, 5.3.12 Bear Stearns & Co. v. McCarron, 4.2.1(e), 5.2.1(a), 5.2.6, 5.3.1, 5.3.9, 5.3.13(a), 5.4.1, 5.4.3, 5.4.7(b) Bear Stearns & Co. v. Sharon, 5.2.1(a), 5.2.6, 5.3.12, 5.3.13(a)

3rd Edition 2016

Bell Atl. Corp. v. Twombly, 1.3.4, 1.3.4 n.2 Belmore v. City Pages, Inc., 7.11.1(h) Bender v. Dudas, 9.2 Bill Graham Archives v. Dorling Kindersley Ltd., 7.11.1(h) Biswell, United States v., 8.4 Blackwell v. E.M. Helides, Jr., Inc., 5.2.1, 5.2.1(b), 5.2.2, 5.2.3 Blake v. Professional Coin Grading Serv., 4.2.1(e) BNY Mellon, N.A. v. Schauer, 4.2.1(e), 5.2.1(a), 5.2.2, 5.2.5(a), 5.3.6, 5.3.13(c), 5.3.13(f), 5.4.5(b) Board of Supervisors for La., State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 6.3.5(b) Boch Toyota, Inc. v. Klimoski, 4.2.1(e), 5.2.1(a), 5.4.7(b) Boe, In re, 9.2 Bonneau v. Meaney, 5.2.1(a), 5.2.2 Bonneville Int’l Corp. v. Peters, 7.6.5(b) Borenstein, In re, 9.2 Bose Corp., In re, 9.3 Boston Partners Asset Mgmt., L.P. v. Archambo, 4.2.1(e), 5.2.1(a), 5.2.5(a), 5.3.13(a), 5.4.2, 5.4.3, 5.4.5(b), 5.4.7(b) Boston Scientific Corp. v. Lee, 4.2.1(b), 4.2.1(e), 4.3.2(b), 5.2.6, 5.4.2, 5.4.5(a) Boston Software Sys., Inc. v. Doherty, 5.2.5(a), 5.4.2, 5.4.4, 5.4.7(a) Boulanger v. Dunkin’ Donuts, Inc., 4.2.1(e), 5.2, 5.2.1, 5.2.1(a), 5.2.3, 5.2.5, 5.2.5(a), 5.2.5(b), 5.3.13(f), 5.4.7(b) Bowers v. Baystate Techs., Inc., 7.1.9(a) C–3

INTELLECTUAL PROPERTY PRACTICE

Bowman, United States v., 4.2.2(c) Bowne of Boston, Inc. v. Levine & Merrill Corp., 5.2.2, 5.2.5(a), 5.2.6, 5.4.1, 5.4.5(b), 5.4.7(b) Brands, Inc. v. Star Athletica, LLC, 7.2.2(b) Braun Inc. v. Dynamics Corp. of Am., 9.3 Brenner v. Manson, 3.4.2(b) Bridgeman Art Library v. Corel Corp., 7.2.1(c) Bristol-Myers Squibb Co. v. RhonePoulenc Rorer Inc., 9.6 Broadcast Music, Inc. v. Hampton Beach Casino Ballroom, Inc., 7.11.2 Brookline, Town of v. Goldstein, 5.4.1 Brooks Automation, Inc. v. Blueshift Techs., Inc., 5.3.4, 5.4.6(d) Brostron v. Warmann, 4.3.2(a) Brown Bag Software v. Symnate Corp., 9.5 Brulotte v. Thys, 1.4, 2.1.3 Bruno Indep. Living Aids Inc. v. Acorn Mobility Servs. Ltd., 8.6 BUC Int’l Corp. v. International Yacht Council Ltd., 7.2.1(a) Buckman Co. v. Plaintiffs’ Legal Comm’n, 8.5.2 Buehler AG v. Ocrim AIS, 9.3 Building Officials & Code Admin. v. Code Tech., Inc., 7.3.4 Burlington Indus. v. Dayco Corp., 9.3 Burroughs Wellcome Co. v. Barr Labs. Inc., 9.6 Burrow-Giles Lithographic Co. v. Sarony, 7.2.1(c) Burten v. Milton Bradley Co., 4.2.1(e)

C–4

C C.R. Bard, Inc. v. Intoccia, 4.2.1(e), 5.4.7(b), 9.3 C.R. Bard, Inc. v. M3 Sys., Inc., 8.6 C.R. Bard, Inc. v. Solano, 5.3.13(a), 5.4.6(h), 5.4.7(b) Cabot Corp. v. AVX Corp., 5.4.7(b) Cabot Money Mgmt., Inc. v. Femia, 4.2.1(e), 5.3.13(c) Cambridge Internet Solutions v. Avion Group, 5.4.7(b) Cambridge Univ. Press v. Patton, 7.11.1(h) Campbell v. Acuff-Rose Music, Inc., 7.11.1(a), 7.11.1(c), 7.11.1(d), 7.11.1(e), 7.11.1(f), 7.11.1(g), 7.11.1(h), 7.11.1(j), 7.11.1(k) Campbell Soup Co. v. Giles, 4.2.1(e), 5.4.3 Caputo, United States v., 8.5.2 Carbo Ceramics, Inc. v. NortonAlcoa Proppants, 9.5 Carey v. Fitzpatrick, 5.4.7(b) Cariou v. Prince, 7.11.1(h) Carol Barnhart, Inc. v. Economy Cover Corp., 7.2.2(b) Caronia, United States v., 8.5.2 Carr v. Entercom Boston LLC, 5.2.7(a), 5.4.7(a), 5.4.7(b) Casual Male Retail Group, Inc. v. Yarbrough, 4.2.1(a) Catania v. Hallisey, 5.2.1(b), 5.2.2 Cavanaugh v. McKenna, 5.2.1(a), 5.2.2 Cellular Accessories for Less, Inc. v. Trinitas LLC, 5.4.5(c) Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 8.5.2 Central Soya Co. v. Geo. A. Hormel & Co., 3.7.5 Champions Golf Club, Inc. v. Champions Gold Club, Inc., 6.3.5(b) 3rd Edition 2016

TABLE OF CASES

Chanel, Inc. v. Jerzy Makarczyk, 6.7.4(d) Chase Commercial Corp. v. Owen, 5.4.7(b) Chavez v. Arte Publico Press, 7.8.7 Cheney v. Automatic Sprinkler Corp. of Am., 5.2.1, 5.2.1(b), 5.3, 5.3.13(b), 5.4.7(b) Childs v. Sherman, 5.2.2 Chiron Corp. v. Abbott Lab., 9.3 Chiswick, Inc. v. Constas, 4.2.1(e), 5.3.13(c), 5.4.2, 5.4.7(b) Chomerics, Inc. v. Ehrreich, 4.2.1(e) Chosun Int’l v. Chrisha Creations, Ltd., 7.2.2(b) Christou v. Beatport LLC, 5.4.5(c) Citation Ins. Co. v. Gomez, 5.4.7(b) Civil Investigative Demand Addressed to Yankee Milk, Inc., In re, 4.2.1(e) Classen Immunotherapies, Inc. v. Biogen IDEC, 8.2.14, 8.7.2 Clear Correct v. International Trade Commission, 6.11.5 Club Aluminum Co. v. Young, 5.2.5(a), 5.2.6, 5.4.5(a) CMM Cable Rep., Inc. v. Ocean Coast Props., Inc., 7.2.2(a), 7.10.3(c) Coach Servs. v. Triumph Learning LLC, 6.7.4(d) Cochrane v. Deener, 3.4.2 Code-Alarm, Inc. v. Electromotive Techs. Corp., 9.3 Cognex Corp. v. Eichler, 5.2.1(a), 5.4.5(a), 5.4.7(b) Colonnade Catering Corp. v. United States, 8.4 Comark Communications, LLC v. Anywave, LLC, 4.2.1(e), 5.4.6(f) Community for Creative NonViolence v. Reid, 7.3.2(a) 3rd Edition 2016

Compass Bank v. Hartley, 5.2.1(b) Computer Assocs. Int’l, Inc. v. Altai, Inc., 7.2.1(c), 7.2.2(c), 7.10.3(d) Concrete Mach. Co. v. Classic Lawn Ornaments, Inc., 7.10.3(d) Conner Peripherals, Inc. v. Western Digital Corp., 9.6 Cook, In re, 9.4 Cordis Corp. v. Medtronic, Inc., 3.7.5 Corporate Techs., Inc. v. Harnett, 4.2.1(e), 5.2.6, 5.3.5, 5.3.13(c), 5.4.1, 5.4.2, 5.4.4, 5.4.5(a), 5.4.5(b), 5.4.6(h) Cosmetic Ideas, Inc. v. IAC/Interactive Corp., 7.5.2 County of Suffolk, N.Y. v. First Am. Real Estate Solutions, 7.3.4 Coutinho-Boisse Funeral Home, LLC v. Hamel, Wickens & Troupe Funeral Home, Inc., 5.4.7(b) CoxCom, Inc. v. Chaffee, 7.12.2, 7.13.2(b) Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 9.3 Cross, United States v., 7.15.2 Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 4.2.1(e) Curves Int’l, Inc. v. Fox, 5.2, 5.2.5(a), 5.3.6 CVD, Inc. v. Raytheon Co., 4.2.1(e), 4.3.2(b), 5.4.5(a), 5.4.7(b) CyberSource Corp. v. Retail Decisions, Inc., 3.4.2(c) Cynosure, Inc. v. Detter, 5.2, 5.2.4, 5.2.5, 5.2.5(a), 5.2.5(b), 5.4.1, 5.4.2, 5.4.5(a) Cypress Group, Inc. v. Stride & Assocs., Inc., 5.2, 5.2.1(b), 5.2.3, 5.2.5(a), 5.2.6, 5.4.7(b)

C–5

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D Dalzell v. Dueber Watch Case Mfg. Co., 2.2 Dastar Corp. v. Twentieth Century Fox Film Corp., 7.6.7(a) Data Cash Sys., Inc. v. JS&A Group, Inc., 7.4.4(b) Data Gen. Corp. v. Grumman Sys. Support Corp., 4.2.1(e), 4.3.3(d), 5.4.7(b) Datascope Corp. v. SMEC, Inc., 9.6, 9.7 Dawson v. Hinshaw Music, Inc., 7.10.3(d) Dean v. Burrows, 7.7.3(d) Del Monte Fresh Produce Co. v. Dole Food Co., 4.3.2(a) Delgado-Garcia, United States v., 4.2.2(c) DeLong Corp. v. Lucas, 5.3.4 DeRubeis v. Witten Techs., Inc., 4.3.2(a) Deutsch v. Arnold, 7.9.6(a) Dey, L.P. v. Sunovion Pharms., Inc., 8.6 Diamond v. Chakrabarty, 3.4.2(a) Diamond v. Diehr, 3.4.2(a), 3.4.2(c) Dickson Indus., Inc. v. Patent Enforcement Team, 9.3 Digital Equip. Corp. v. Altavista Tech., Inc., 6.7.4(a) Doe, In re (1992), 9.2 Doyle Homes, Inc. v. Signature Group of Livingston, Inc., 7.5.2 Droke House Publishers, Inc. v. Aladdin Distrib. Corp., 7.8.5 DSC Communications Corp. v. DGI Techs., Inc., 7.11.2(b) Dunhall Pharms., Inc. v. Discus Dental, Inc., 9.6 Dura Global Techs., Inc. v. Magna Donnelly Corp., 4.3.2(a)

C–6

Dynamic 3D Geosolutions, LLC v. Schlumberger Ltd., 9.1 Dynamics Research Corp. v. Analytic Scis. Corp., 4.2.1(e), 5.2.2, 5.2.5(b), 5.3.13(f), 5.4.7(b) Dywer Instruments, Inc. v. Sensocon, Inc., 6.11.3

E E.I. du Pont de Nemours & Co., In re, 6.3.5(b), 6.4.1, 6.5.4(b), 6.7.4(b) E.I. du Pont de Nemours Powder Co. v. Masland, 4.3.2(a) Eagle v. Morgan, 5.4.5(c) Eastern Bag & Paper Co. v. Ross, 5.2.6, 5.3.6 Eastern Marble Prods. Corp. v. Roman Marble, Inc., 4.2.1(e), 5.2.2 eBay, Inc. v. MercExchange, LLC, 1.3.4, 3.7.5, 7.12.2 EchoMail, Inc. v. American Express Co., 4.3.2(b) Economy Grocery Stores Corp. v. McMenamy, 5.2.1, 5.2.1(a), 5.2.6, 5.4.7(b) Edgecomb v. Edmonston, 5.2.1(b), 5.4.1 Education Testing Servs. v. Katzman, 7.10.3(d) Edwards v. Athena Capital Advisors, Inc., 4.2.1(e), 5.2.1, 5.2.1(a), 5.2.1(b), 5.2.2, 5.2.4, 5.2.5, 5.2.5(a), 5.2.5(b), 5.2.6, 5.3, 5.4.1, 5.4.7(a), 5.4.7(b) EEOC v. Arabian Am. Oil Co., 4.2.2(c) EEOC v. Astra U.S.A., Inc., 5.4.1 EF Cultural Travel BV v. Explorica, Inc., 4.2.2(b) Effects Assocs., Inc. v. Cohen, 7.7.3(c) 3rd Edition 2016

TABLE OF CASES

Egbert v. Lippmann, 3.4.5 Eisenstein v. Conlin, 5.3.13(b) Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 9.5 Eldred v. Ashcroft, 7.2.1(b) Eldred v. Reno, 7.2.1(b) Eli Lilly & Co. v. Medtronic, Inc., 8.7.1, 8.7.2 Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., 1.4 n.13 Elizabeth Grady Face First, Inc. v. Escavitch, 5.4.7(b) Elle Corp. of Dallas v. GAF Bldg. Materials Corp., 9.3 Ellis v. Diffie, 7.10.3(a) Eltra Corp. v. Ringer, 7.2.2(b) EMC Corp. v. Allen, 5.2.1(a), 5.2.3, 5.4.7(b) EMC Corp. v. Arturi, 5.3.5 EMC Corp. v. Breen, 4.2.1(e), 5.2, 5.2.1, 5.4.1, 5.4.4, 5.4.7(b) EMC Corp. v. Donatelli, 5.3.12, 5.4.7(a), 5.4.7(b) EMC Corp. v. Gresham, 4.2.1(e), 5.2.1(a), 5.2.2, 5.2.4, 5.2.5, 5.2.5(a), 5.2.5(b), 5.4.1, 5.4.6(g), 5.4.7(b) EMC Corp. v. Kempel, 5.4.6(f), 5.4.7(b) Empire Steam Laundry v. Lozier, 4.2.1(e) Empirix, Inc. v. Ivanov, 4.2.1(e), 5.2.3, 5.4.1, 5.4.5(a), 5.4.7(a), 5.4.7(b) Enargy Power Co. v. Xiaolong Wang, 4.2.1(e), 4.2.2(b), 5.2.6, 5.4.1, 5.4.6(f) Endo Pharms., United States v., 8.5.2 Engelhard Corp. v. Savin Corp., 4.3.2(a) Engineering Mgmt. Support, Inc. v. Puca, 5.4.3, 5.4.7(b)

3rd Edition 2016

Englehard Corp. v. Savin Corp., 5.4.7(b) Envisn, Inc. v. Davis, 4.2.1, 4.2.1(e), 4.2.1(f) Ethicon v. United States Surgical Corp., 2.2 Ethicon Endo-Surgery Inc. v. Hologic Inc., 8.6 Exergen Corp. v. Wal-Mart Stores, Inc., 9.3

F F. Johnson Co. v. Uniden Corp. of Am., 7.10.3(d) F.A. Bartlett Tree Expert v. Barrington, 5.4.7(b) Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 5.1, 5.2.1(a), 5.2.7(a), 5.3.13(b) Falwell v. Penthouse Int’l Ltd., 7.11.1(h) Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Ass’n, 7.9.6(a), 7.9.6(c) Farmaceutisk Laboratorium Ferring A/S v. Reid Rowell, 9.6 Federal Open Mkt. Comm. of Fed. Reserve Sys. v. Merrill, 4.3.2(a) Feeney v. Transition Automation, Inc., 5.3.13(g) Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 7.2.1(a), 7.2.1(d), 7.10.1, 7.10.3(c), 7.10.3(d) Felix A. Marino Co. v. Anderson, 5.2.2, 5.2.5(b) Ferguson, In re, 3.4.2(a) Ferguson Beauregard/Logic Controls v. Mega Sys., 9.3 Festo Corp. v. Shoketzu Kinzoku Kogyo Kabushiki Co., 3.3.1, 3.7.4

C–7

INTELLECTUAL PROPERTY PRACTICE

Fidelity Brokerage Servs. LLC v. Djelassi, 4.2.1(e), 5.2.6, 5.3.13(c), 5.4.1 Fidelity Brokerage Servs. LLC v. Wilder, 4.2.1(e), 5.3.13(c) Filmore & Stern, Inc. v. Frankel, 5.3.13(d) Finch v. Hughes Aircraft, 9.7 First E. Mortgage Corp. v. Gallagher, 5.4.7(b) 1st Media LLC v. Electronic Arts, Inc., 9.3 Fisher v. Fisher, 5.4.7(b) Fisher, In re, 3.4.2(b) Flexcon Co. v. McSherry, 5.2.5(a), 5.3.13(f), 5.4.2, 5.4.7(b) FMC Corp. v. Manitowoc Co., 3.7.4 FMR, LLC v. Swanson, 4.2.1(e), 5.2.1(a), 5.3.13(b) Folsom v. Marsh, 7.11.1(c) Folsom Funeral Servs., Inc. v. Rodgers, 5.2.5(a) Fonovisa, Inc. v. Cherry Auction, Inc., 7.9.4, 7.9.6, 7.9.6(a), 7.9.6(b) Forman, Itzkowitz, Berenson & LaGreca, P.C. v. Tankel, Rosenberg & Co., 4.2.1(e) Forti v. Grand Circle Travel, 5.2 Fox Indus., Inc. v. Structural Pres. Sys., Inc., 9.3 Franchi v. Manbeck, 9.2 Francisco Sanchez v. Esso Standard Oil Co., 5.4.1 Franklin Mint Corp. v. National Wildlife Art Exchange, Inc., 7.7.3(d) Frazier Indus. Co. v. Advance Storage Prods., 9.6 Frehling v. International Select Group, 6.3.5(b) Fritz v. Arthur D. Little, Inc., 7.2.1(b)

C–8

Fuji Kogyo Co. v. Pacific Bay Int’l, Inc., 6.9

G Gamma Audio & Video, Inc. v. EanChea, 7.2.1(e) Gardner v. Nike, Inc., 7.7.3(c) Gately v. Commonwealth, 5.4.4 Gaylord v. United States, 7.12.2(b) Genentech, Inc. v. Wellcome Found., 9.3 General Elec. Co. v. Joiner, 1.3.4 n.3 General Electro Music Corp. v. Samick Music, 9.3 Genuine Parts Co. v. Autoparts Int’l, Inc., 5.3.6 Genzyme Corp. v. Laidlaw, 5.2, 5.2.1(a), 5.4.1 Gershwin Publ’g Corp. v. Columbia Arts Mgmt., Inc., 7.9.4, 7.9.6 Getman & Cleary Schultz Ins., LLC v. USI Holdings Corp., 4.2.1(e), 5.2, 5.2.5, 5.2.5(a), 5.3.13(c), 5.4.7(a), 5.4.7(b) Gianocostas v. Interface GroupMass., Inc., 5.3.12 Gilliam v. American Broad. Cos., 7.6.7(a) Glaxo, Inc. v. Novopharm, Ltd., 8.2.13, 9.3 Golden Valley Microwave Foods, Inc. v. Weaver Popcorn Co., 9.3 Gottschalk v. Benson, 3.4.2(a), 3.4.2(c) Grace Hunt IT Solutions, LLC v. SIS Software, LLC, 5.2, 5.2.5(a), 5.4.7(b) Graham v. John Deere Co., 3.4.10 Granger v. Craven, 5.4.7(b) Green v. Ablon, 7.10.3(c), 7.12.2(a), 7.12.4 Gross v. Prudential Ins. Co. of Am., Inc., 5.4.7(b) 3rd Edition 2016

TABLE OF CASES

Grubb v. KMS Patriots, L.P., 7.10.3(a), 7.10.3(b) GTE Prods. Corp. v. Stewart, 5.4.1, 5.4.3, 5.4.4 Guest-Tek Interactive Entm’t Inc. v. Pullen, 4.2.2(b) Gunn v. Minton, 9.2

H Hall v. MacNeale, 3.4.5 Hamer Holding Group, Inc. v. Elmore, 4.2.1(e) Hamm v. Rhone-Poulenc Rorer Pharms., Inc., 8.5.2 Hamrick v. Kelly, 5.2.1(b) Hanson v. United States, 8.3 Harbor Software, Inc. v. Applied Sys., Inc., 4.2.1(e) Harita, In re, 9.3 Harlan Labs., Inc. v. Campbell, 4.2.1(e), 5.2.1, 5.2.4, 5.2.6, 5.4.1, 5.4.4, 5.4.5, 5.4.5(b) Harold Lloyd Corp. v. Witmer, 7.10.3(d) Harper & Row, Publishers, Inc. v. Nation Enters., 7.1.7, 7.2.2(d), 7.10.3(d), 7.11.1(d), 7.11.1(e), 7.11.1(g), 7.11.1(h), 7.11.1(i), 7.11.1(j), 7.11.1(k) Harvard Apparatus, Inc. v. Cowen, 4.2.1(b), 4.2.1(e), 4.3.2(b), 5.3.13(f), 5.3.13(g) Harville v. Gunter, 5.2.1(b) Hasbro, Inc. v. Clue Computing, Inc., 6.7.4(a) Hastings Assocs., Inc. v. Local 369 Bldg. Fund, Inc., 5.4.7(b) Haverhill v. George Brox, Inc., 5.4.7(b) Hayes Microcomputer Prods., Inc. Patent Litig., In re, 9.7 Hearts on Fire Co., LLC v. Blue Nile, Inc., 6.11.3 3rd Edition 2016

Heartsprings, Inc. v. Heartspring, Inc., 6.3.5(b) Hendrickson v. eBay, Inc., 7.14.2(b) Herman v. William Brooks Shoe Co., 9.3 Hewlett-Packard Co. v. Acceleron LLC, 2.1.3, 3.7.1, 3.7.6(c) Hewlett-Packard Co. v. Bausch & Lomb Inc., 9.3 Highmark, Inc. v. Allcare Health Mgmt. Inc., 9.7 Hilb Rogal & Hobbs of Mass., LLC v. Sheppard, 5.2, 5.2.1(a), 5.2.5(a), 5.3.13(c), 5.4.5(b), 5.4.7(a), 5.4.7(b) Hit Dog Training Ctr., Inc. v. Rappoli, 4.2.1(e), 5.4.1 Hoffman-LaRoche Inc. v. Invamed, Inc., 9.7 Hottel Corp. v. Seaman Corp., 3.7.6(a) HRPT Advisers, Inc. v. MacDonald, Levine, Jenkins & Co., 5.4.7(b) Hull Mun. Lighting Plant v. Massachusetts Mun. Wholesale Elec. Co., 5.4.4 Hurwitz Group, Inc. v. Ptak, 4.2.1(e), 5.2, 5.2.1(a), 5.2.1(b), 5.2.3, 5.2.4, 5.2.5(a), 5.2.5(b), 5.3.5, 5.3.13(e), 5.4.7(b) Hutchinson Tel. Co. v. Frontier Directory Co. of Minn., Inc., 7.2.1(d) HX in Boston, LLC v. Berggren, 4.2.1(e), 5.4.2, 5.4.6(f) Hyundai Motor Am., In re, 9.5

I i4i Ltd. P’ship v. Microsoft Corp., 1.4 Ikon Office Solutions, Inc. v. Belanger, 5.2, 5.2.5(a), 5.4.1, 5.4.5(b), 5.4.7(b)

C–9

INTELLECTUAL PROPERTY PRACTICE

Ikon Office Solutions, Inc. v. Konica Minolta Bus. Solutions, 4.3.2(a) Ilog, Inc. v. Bell Logic, 7.10.3(d) Imax Corp. v. Cinema Techs., Inc., 5.4.7(b) IME, Inc. v. Quaranto, 4.2.1(e), 5.2.1(a), 5.2.3, 5.2.5(a), 5.4.7(b) Imprivata, Inc. v. Zamore, 5.4.6(f) In re, see name of party Incase, Inc. v. Timex Corp., 4.2.1(e), 4.2.1(f) Informix, Inc. v. Rennell, 4.2.1(f) Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 8.6 Insight Global, LLC v. Signature Consultants, LLC, 5.2.5(a), 5.4.2 Integral Dev. Corp. v. Tolat, 4.3.3(a) Intellect Wireless Corp. v. HTC Corp., 9.2, 9.3 International Airport Ctrs., LLC v. Citrin, 4.2.2(b) International Equity Invs., Inc. v. Opportunity Equity Partners, Ltd., 4.3.2(a) International News Serv. v. Associated Press, 7.2.2(d) Interpros, Inc. v. Athy, 5.2, 5.4.7(b) Intertek Testing Servs. NA, Inc. v. Curtis-Strauss LLC, 4.2.1(f), 5.4.7(b) Inverness Med. Switzerland GmbH v. Acon Labs., Inc., 9.5 InvesSys, Inc. v. McGraw-Hill Cos., 7.12.4 Invidia, LLC v. DiFonzo, 5.2.1(a), 5.3.13(c), 5.4.1, 5.4.5(c), 5.4.7(b) InVivo Therapeutics Corp. v. PixarBio Corp., 5.4.6(b), 5.4.6(g) Inwood Labs., Inc. v. Ives Labs., Inc., 6.9 C–10

IONA Techs., Inc. v. Walmsley, 4.2.1(e), 5.4.4, 5.4.7(b) Iowa State Univ. Research Found., Inc. v. American Broad. Cos., 7.10.3(d) Iron Mountain Info. Mgmt., Inc. v. Taddeo, 5.4.7(b) Iron Mountain Info. Mgmt., Inc. v. Viewpointe Archive Servs., LLC, 5.3.13(c), 5.4.1, 5.4.5(a) Island Software & Computer Serv., Inc. v. Microsoft Corp., 7.12.1(c) Italian Book Corp. v. American Broad. Co., 7.11.1(h) Itar-Tass Russian News Agency v. Russian Kurier, Inc., 7.8.8(a)

J J.P. Stevens & Co. v. Lex Tex Ltd., 9.3 J.T. Healy & Son v. James A. Murphy & Son, 4.2.1(e) Jamesburry Corp. v. Worcester Valve Co., 5.3.13(g) Jamieson-McKames Pharms., Inc., United States v., 8.4 Janky v. Lake County Convention & Visitors Bureau, 7.3.3(a) Jasper v. Boniva Music, Inc., 7.8.1(a) Jazz Photo Corp. v. ITC, 1.4 Jet Spray Cooler, Inc. v. Crampton, 4.2.1(b), 4.2.1(e), 4.2.1(f) Jillian’s Billiard Club of Am., Inc. v. Beloff Billiards, Inc., 4.2.1(e) John, United States v., 4.2.2(b) Johns Hopkins v. Datascope Corp., 8.6 Judin v. United States, 9.7 Julien v. Zeringue, 9.7 Junker v. Plummer, 5.2.5(b)

3rd Edition 2016

TABLE OF CASES

K Kabloom Flowers Franchising, LLC v. Power of Pink, Inc., 5.2.1(a), 5.2.5(a), 5.3.13(a), 5.4.7(b) KangaROOS U.S.A., Inc. v. Caldor, Inc., 9.3 Keating v. Stadium Mgmt. Corp., 5.4.7(b) Kelly v. Arriba Soft Corp., 7.11.1(h) Keohring Co. v. E.D. Etnyre & Co., 5.2.5(b) Kewanee Oil Co. v. Bicron Corp., 4.1, 4.3.3(d) Key Publ’ns, Inc. v. Chinatown Today Publ’g Enters., Inc., 7.2.1(a) Kimble v. Marvel Entm’t, LLC, 1.4, 2.1.3 Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 9.3 Kirtsaeng v. John Wiley & Sons, Inc., 1.4, 7.6.4(b), 7.6.4(c) Klein v. President & Fellows of Harvard Univ., 5.3.1 KNF&T Staffing, Inc. v. Muller, 4.2.1(e), 5.2, 5.2.1(a), 5.2.4, 5.2.5, 5.2.5(a), 5.2.5(b), 5.3.13(c), 5.3.13(d), 5.4.5(c), 5.4.7(b) Knott v. Raciot, 5.4.7(b) Kregos v. Associated Press, 7.2.1(d) Kroeger v. Stop & Shop Cos., 4.2.1(e), 5.2.1(a), 5.2.1(b), 5.2.3, 5.2.5(a), 5.3.9, 5.3.13(b), 5.4.7(b) KSR v. Teleflex, 3.4.10 Kumho Tire Co. v. Carmichael, 1.3.4, 1.3.4 n.3

L Laffitte v. Bridgestone Corp., 4.3.2(a) Laitram Corp. v. Cambridge Wire Cloth Co., 9.7 3rd Edition 2016

Lanier Prof’l Servs., Inc. v. Ricci, 5.3.13(f), 5.4.1, 5.4.7(b) Lantor Inc. v. Ellis, 4.2.1(a), 5.4.7(b) Larson Mfg. Co. v. Aluminart Prods. Ltd., 9.3 Lasco Foods, Inc. v. Hall & Shaw Sales, Mktg. & Consulting, LLC, 4.2.2(b) Lasercomb Am., Inc. v. Reynolds, 7.11.2(a), 7.11.2(b) Lawson Prods., Inc. v. Anderson, 5.4.5(b) Lechmere Tire & Sales Co. v. Burwick, 5.4.7(b) Lemelson v. Apple Computer, Inc., 9.5 Lenz v. Universal Music Corp., 7.11.1(f), 7.14.2(b) Levi Strauss & Co. v. Abercrombie & Fitch Trading Co., 6.7.4(d) Lexmark Int’l v. Impression Prods. Inc., 1.4 Lexmark Int’l v. Static Control Components, Inc., 6.11.6 Life Image, Inc. v. Brown, 4.2.1(e), 5.4.2, 5.4.7(b) LightLab Imaging, Inc. v. Axsun Techs., Inc., 4.2.1(e) Line Material Co., United States v., 2.1.3 Linkage Corp. v. Trustees of Boston Univ., 5.3.13(e) Lipman v. Dickinson, 9.2 Liu, United States v., 7.15.2 Lombard Med. Techs., Inc. v. Johannessen, 4.2.1(e), 5.2.3, 5.2.5(a), 5.4.7(b) Lone Star Steakhouse & Saloon, Inv. v. Alpha of Va., Inc., 6.3.5(b) Looney Ricks Kiss Architects, Inc. v. Bryan, 7.3.2(b)

C–11

INTELLECTUAL PROPERTY PRACTICE

Loranger Constr. Co. v. C. Franklin Corp., 5.2.1, 5.2.2, 5.2.3, 5.4.7(b) Los Angeles News Serv. v. Tullo, 7.6.2 Lotus Dev. Corp. v. Borland Int’l, Inc., 7.2.2(c), 7.10.1, 7.10.3(d) Louis Vuitton SA v. Lee, 6.7.4(f) L-3 Communications Corp. v. Reveal Imaging Techs., Inc., 5.2.6, 5.4.1, 5.4.2, 5.4.7(b) Lucent Techs., Inc. v. Tymann, 5.4.4, 5.4.6(g), 5.4.7(b) Lufkin’s Real Estate, Inc. v. Aseph, 5.3.9 Lumberman’s Mut. Cas. Co. v. Offices Unlimited, Inc., 5.4.7(b) Lunt v. Campbell, 4.2.1(e), 5.2, 5.2.3, 5.2.5(a), 5.4.6(f), 5.4.7(b) LVRC Holdings LLC v. Brekka, 4.2.2(b) Lycos, Inc. v. Jackson, 5.4.1, 5.4.7(b)

M MacDonald v. Gough, 5.4.7(b) Mahoney v. DeNuzzio, 4.2.2(b) Mahurkar v. C.R. Bard, Inc., 8.6 MAI Sys. Corp. v. Peak Computer, Inc., 7.6.2(a) Majilite Corp. v. Abbott, 5.2.1(a), 5.4.7(b) Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, 9.1, 9.5 Mallinckrodt, Inc. v. Medipart, Inc., 2.1.3 Manning v. Zuckerman, 4.2.1(f) Manzer, United States v., 7.15.2 Marcam Corp. v. Orchard, 4.2.1(e), 5.2, 5.2.2, 5.2.3, 5.2.5(a), 5.2.5(b), 5.3.13(a), 5.4.6(h), 5.4.7(b)

C–12

Marcam Solutions, Inc. v. Sweeney, 5.2.1(a), 5.3.13(a), 5.4.7(b) Marine Contractors Co. v. Hurley, 5.2, 5.2.1, 5.2.1(a), 5.2.2, 5.2.3, 5.2.5, 5.2.5(a), 5.2.5(b), 5.4.2, 5.4.7(b) Markman v. Westview Instruments, Inc., 3.7.6(b), 3.7.8 Massachusetts Museum of Contemporary Art Found., Inc. v. Buchel, 7.6.7(b) Matthew Bender & Co. v. West Publ’g Co., 7.9.4 Mayo Collaborative Servs. v. Prometheus Labs., Inc., 1.4, 3.4.2(c) Mazer v. Stein, 7.2.2(b) McFarland v. Schneider, 5.2.1(a), 5.2.2, 5.2.5(a), 5.2.7(b), 5.3.4, 5.3.13(c), 5.4.1, 5.4.7(b) MedImmune v. Genentech, 2.1.3, 3.7.1, 3.7.6(c) Medinol v. NeuroVasc, Inc., 9.3 Medtech Prods. v. Ranir, 4.3.2(a) Meehan v. Shaughnessy, 5.3.4 Mellon v. Beecham Group PLC, 9.6 Merchant v. Levy, 7.8.3 Merck KGaA v. Integra Lifesciences I, Ltd. (Merck II), 8.2.14, 8.7.2 Merrell Dow Pharms. v. Daubert, 1.3.4 n.3 Merrill Lynch v. Rodger, 5.4.5(b) Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bishop, 5.4.5(b) Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, 4.2.1(e), 5.3.13(f), 5.4.4 Messing, Rudavsky & Weliky, P.C. v. President & Fellows of Harvard Coll., 9.5 Metro-Goldwyn-Mayer, Inc. v. Grokster, Ltd., 7.9.4, 7.9.4(a), 7.9.5(b) 3rd Edition 2016

TABLE OF CASES

Metro-Goldwyn-Mayer, Inc. v. Showcase Atlanta Co-op. Prods., Inc., 7.11.1(k) Metroplex Pathology Assocs. v. Horn, 5.2.7(a), 5.4.1 Microdecisions, Inc. v. Skinner, 7.3.4 Microsoft Corp. v. i4i, 3.6.1, 9.3 Middlesex Neurological Assocs., Inc. v. Cohen, 4.2.1(e), 5.3.5, 5.4.5(b), 5.4.7(b) Mikohn Gaming Corp. v. Acres Gaming Inc., 9.5 Miller, In re, 3.4.2(a) Miller Music Corp. v. Charles N. Daniels, Inc., 7.7.3(j) Mitchell John Coiffures, Inc. v. Jordan & Co., 4.2.1(e), 5.2.5(a) Moca Sys., Inc. v. Bernier, 4.2.2(b) Modis, Inc. v. Revolution Group, Ltd., 4.2.1(e), 5.3.13(d), 5.3.13(e) Molins PLC v. Textron, Inc., 9.1, 9.3 Momenta Pharms., Inc. v. Amphastar Pharms., Inc., 8.2.14, 8.7.2 Monotype Corp. PLC v. International Typeface Corp., 7.2.2(b) Monster Communications, Inc. v. Turner Broad. Sys., Inc., 7.11.1(j) Morad v. Silva, 5.4.7(b) Moran, United States v., 7.15.2 Morgan Stanley DW Inc. v. Clayson, 5.3.12, 5.4.7(b) Morgan Stanley DW Inc. v. Winer, 4.2.1(e), 5.3.12, 5.4.2 Morrison v. National Austl. Bank Ltd., 4.2.2(c) Morrissey v. Procter & Gamble Co., 7.10.3(c) Moving & Storage, Inc. v. Panayotov, 6.11.3 MultiTime Mach. Inc. v. Amazon.com, Inc., 6.3.5(b) 3rd Edition 2016

Munoz v. Strahm Farms, 9.7 My Bread v. Jesi, 5.3.9 Mylan Pharms., Inc. v. Procter & Gamble Co., 8.5.2

N National Basketball Ass’n v. Sports Team Analysis & Tracking Sys., 7.2.2(d) National Econ. Research Assocs., Inc. v. Evans, 5.3.4 National Hearing Aid Ctrs., Inc. v. Avers, 4.2.1(e), 5.2.5(a), 5.3.6 National Theme Prods., Inc. v. Jerry B. Beck, Inc., 7.2.2(b) Nautilus, Inc. v. Biosig Instruments, Inc., 1.4, 3.5.2 Neeco, Inc. v. Computer Factory, Inc., 5.2.1(a), 5.3.13(c), 5.4.7(b) Netscape Communications Corp. v. Konrad, 3.4.7 Network Automation, Inc. v. Advanced Sys. Concepts, 6.11.3 Network Sys. Architects Corp. v. Dimitruk, 4.2.1(e) New Boston Sys., Inc. v. Joffee, 5.4.7(b) New Eng. Cabinet Works v. Morris, 5.4.7(b) New Eng. Canteen Serv., Inc. v. Ashley, 5.2.5(a), 5.4.1, 5.4.7(b) New Eng. Lumber Specialties, Inc. v. Jarvi, 5.4.7(b) New Eng. Overall Co. v. Woltmann, 4.2.1(e) New Eng. Tree Expert Co. v. Russell, 5.2.1, 5.2.1(b), 5.2.2, 5.2.3, 5.2.6, 5.4.7(b) New York Times Co. v. Tasini, 7.7.3(b) Newberry v. James, 4.1

C–13

INTELLECTUAL PROPERTY PRACTICE

Next Generation Vending v. Bruno, 4.2.1(e), 5.3.12, 5.4.7(b) Nichols v. Universal Pictures Corp., 7.10.3(d) Nilssen v. Osram Sylvania, 9.3 Nitro-Lift Techs., LLC v. Howard, 5.3.12 Norkom Techs., Inc. v. Davilman, 4.2.1(e), 5.2.1(a), 5.2.3, 5.2.5(a), 5.3.6, 5.4.1, 5.4.5, 5.4.5(a) North Am. Expositions Co. Ltd. P’ship v. Corcoran, 5.2.5(a) Nosal, United States v., 4.2.2(b) Novelty Bias Binding Co. v. Shevrin, 5.2.1, 5.2.1(a), 5.2.1(b), 5.2.2, 5.2.3, 5.2.5, 5.3.9, 5.4.7(b) Nuijten, In re, 3.4.2(a) Nuñéz v. Caribbean Int’l News Corp., 7.11.1(h), 7.11.1(k)

O O’Brien v. New Eng. Tel. & Tel. Co., 5.4.7(b) Ocean Atl. Woodland Corp. v. DRH Cambridge Homes, Inc., 7.3.4 Ocean Garden, Inc. v. Marktrade Co., 6.5.3(c) O’Connor v. City Manager of Medford, 5.4.2 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 1.4, 3.7.1, 9.7 116 Commonwealth Condo. Trust v. Aetna Cas. & Surety Co., 5.4.7(b) 1-800 Contacts, Inc. v. Lens.com, Inc., 6.11.3 Online Policy Group v. Diebold, 7.14.2(b) Optos, Inc. v. Topcon Med. Sys., Inc., 4.2.1(b), 4.2.1(e) Oracle Am., Inc. v. Google, Inc., 7.2.2(c), 7.10.3(d) C–14

Oriental Art Printing, Inc. v. Goldstar Printing Corp., 7.2.1(c) Ormco Corp. v. Align Tech., Inc., 9.3 Ounce Labs, Inc. v. Harwood, 4.2.1(e), 5.2, 5.2.4, 5.2.5(a), 5.4.6(g), 5.4.7(b) Overseers of the Bar v. Gould, 9.4 Oxford Global Res., Inc. v. Cerasoli, 5.2.2, 5.2.4, 5.3.5, 5.4.1 Oxford Global Res., Inc. v. Consolo, 5.1, 5.3.5, 5.3.13(c) Oxford Global Res., Inc. v. Guerriero, 4.2.1(e), 5.2.3, 5.2.5(a), 5.2.5(b), 5.2.6, 5.3.9, 5.3.12, 5.4.1, 5.4.4, 5.4.5(b), 5.4.6(f), 5.4.6(h), 5.4.7(b)

P P.C. Films Corp. v. MGM/UA Home Video Inc., 7.7.3(e) Pacific Packaging Prods., Inc. v. Barenboim, 5.4.7(a) Packaging Indus. Group, Inc. v. Cheney, 5.4.1, 5.4.3, 5.4.4 Palladium Group, Inc. v. MacGillivray, 5.3.13(c) Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 3.7.5 Pappas v. Frank Azar & Assocs., P.C., 4.3.2(a) Paragon Podiatry Lab., Inc. v. KLM Labs., Inc., 9.3 Paramount Pictures, Inc., United States v., 7.11.2(b) Pasillas v. McDonald’s Corp., 7.2.2(b) Pasquantino v. United States, 4.2.2(c) Patriot Energy Group, Inc. v. Kiley, 4.2.1(e), 5.2.5(a), 5.2.5(b), 5.4.6(f), 5.4.7(b) Payson’s Trucking, Inc. v. Yeskevicz, 5.2.1(b), 5.4.7(b) Peabody v. Norfolk, 4.1, 5.4.5(a) 3rd Edition 2016

TABLE OF CASES

Peggy Lawton Kitchens, Inc. v. Hogan, 4.2.1(e), 4.2.1(f) Penders v. Carvajal, 5.2.5(a), 5.3.9 People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 4.2.1(b), 4.2.1(e), 5.3.9 Pepsico, Inc. v. Redmond, 4.2.1(e) Peregrine Entm’t, Ltd., In re, 7.7.3(f) Perfect 10, Inc. v. Amazon.com, Inc., 7.6.6(a) Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 7.10.3(d) Petrella v. Metro-Goldwyn-Mayer, Inc., 1.4, 7.8.10(b), 7.11 Pettingell v. Morrison, Mahoney & Miller, 5.2.7(a), 5.2.7(b), 5.3.13(b) Pfaff v. Wells Elecs. Inc., 3.4.6, 3.4.7 PHC, Inc. v. Pioneer Healthcare, Inc., 6.7.3(c) PhoneDog v. Kravitz, 5.4.5(c) Picker Int’l Corp. v. Imaging Equip. Servs., Inc., 4.2.1(e) Pierce v. Morrison Mahoney LLP, 5.2.7(b) Pignons S.A. de Mecanique de Precision v. Polaroid Corp., 6.3.5(b), 6.7.4(b) Pine Envtl. Servs., LLC v. Carson, 4.2.2(b) Pizzeria Uno Corp. v. Temple, 6.3.5(b) Planned Parenthood League of Mass., Inc. v. Operation Rescue, 5.4.1, 5.4.4 Playboy Enters., Inc. v. Starware Publ’g Corp., 7.10.3(b) Polaroid Corp. v. Eastman Kodak Co., 9.6 Polygram Int’l Publ’g, Inc. v. Nevada/TIG, Inc., 7.9.6 Pom Wonderful v. Coca-Cola, 6.11.6

3rd Edition 2016

Poskus v. Braemoor Nursing Home, Inc., 5.4.7(b) Powder River Basin Res. Council v. Wyoming Oil & Gas Conservation Comm’n, 4.3.3(c) Powell v. Home Depot U.S.A., Inc., 9.7 Practice Mgmt. Info. Corp. v. American Med. Ass’n, 2.1.3, 7.11.2(b) Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co., 5.4.7(b) Princeton Univ. Press v. Michigan Document Servs., Inc., 7.11.1(h) ProCD, Inc. v. Zeidenberg, 7.1.9(a) Products Action Int’l v. Mero, 5.3.5 Professional Staffing Group, Inc. v. Champigny, 4.2.1(e), 4.2.1(f), 5.3.13(f) Protégé Software Servs., Inc. v. Colameta, 4.2.1(e), 5.4.7(b) Proveris Scientific Corp. v. InnovaSystems, Inc., 8.7.2 Puleio v. North Coast Sea-Foods Corp., 5.4.7(b) Purepac Pharm. Co. v. Thompson, 8.2.9 Puretest Ice Cream, Inc. v. Kraft, Inc., 5.4.7(b)

Q qad Inc. v. ALN Assocs., Inc., 9.3 Quaboag Transfer, Inc. v. Halpin, 5.2.2, 5.3.13(c), 5.3.13(d) Qualcomm, Inc. v. Broadcom Corp., 9.3, 9.7 Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 7.6.4(c)

C–15

INTELLECTUAL PROPERTY PRACTICE

R R.M. Sedrose, Inc. v. Mazmanian, 5.2.1(a), 5.2.2 R.S. Servs., Inc. v. Morse, 5.2.4 Random House, Inc. v. Rosetta Books LLC, 7.7.3(i) Randstad Gen. Partner (US) LLC v. Cruz, 5.2.5(a), 5.3.9, 5.3.13(c), 5.4.5(b), 5.4.6(f), 5.4.6(g), 5.4.6(h) Ray Charles Found. v. Robinson, 7.7.3(j) RBM Techs., Inc. v. Lash, 7.1.9(a) Real View, LLC v. 20-20 Techs., Inc., 7.10.3(d) Reebok Int’l, Ltd. v. Rattet, 5.3.13(a), 5.4.2, 5.4.7(b) Refac Int’l v. Hitachi, 9.7 Regents of the Univ. of Cal. v. Eli Lilly & Co., 9.3 Religious Tech. Ctr. v. Netcom OnLine Communication Servs., Inc., 7.9.5(b) Rellstab v. John Hancock Fin. Servs., Inc., 5.4.7(b) RE/MAX of New Eng., Inc. v. Prestige Real Estate, Inc., 5.2.5(a) Rent-A-PC, Inc. v. March, 5.4.1 Repp v. Webber, 7.10.3(b) Republic Servs., Inc. v. Liberty Mut. Ins. Cos., 4.3.2(a) Rescuecom Corp. v. Google Inc., 6.11.3 Rey v. Lafferty, 7.7.3(i) Richmond Bros. v. Westinghouse Broad. Co., 5.2.1(a), 5.4.7(b) Ringgold v. Black Entm’t Television, Inc., 7.11.1(h) Robert Half Int’l, Inc. v. Buoncontri, 5.3.13(f), 5.4.7(b) Roche Prods., Inc. v. Bolar Pharm. Co., 8.2.14 C–16

Rodrigue v. Rodrigue, 7.7.3 Rodriguez v. Texas Comm’n on the Arts, 7.8.7 Rodriguez, United States v., 4.2.2(b) Ross Prods., Inc. v. New York Merch. Co., 7.11.3 Rothman v. Target Corp., 9.3 Roto Rooter Corp. v. O’Neal, 6.3.5(b) Routhier Placement Specialists v. Brown, 4.2.1(e), 5.2.5(a) Russ Berrie & Co. v. Jerry Elsner Co., 7.11.3

S Saddlesprings Inc. v. Mad Croc Brands, Inc., 6.5.3(c) Saenger Org., Inc. v. Nationwide Ins. Licensing Assoc., Inc., 7.5.2 Saint-Gobain/Norton Indus. Ceramics Corp. v. General Elec. Co., 9.6 Salinger v. Random House, Inc., 7.11.1(i) Salomon Smith Barney, Inc. v. Barcomb, 4.3.2(b), 5.2.7(b), 5.3.12 San Juan Prods., Inc. v. San Juan Pools of Kan., 9.3 Sanders Assocs., Inc. v. Summagraphics Corp., 9.3 SanDisk Corp. v. STMicroelectronics, Inc., 2.1.3, 3.7.1 Santa-Rosa v. Combo Records, 7.8.10(a) Santrayll v. Burrell, 7.10.3(b) Sasqua Group, Inc. v. Courtney, 5.4.5(c) Sax v. Sax, 9.6 SCA Hygiene Prods. v. First Quality Baby Prods., LLC, 1.4 Schrock v. Learning Curve Int’l, Inc., 7.6.3 3rd Edition 2016

TABLE OF CASES

Scully Signal Co. v. Guay, 5.2, 5.2.5(a), 5.4.7(b) Seagate Techs., In re, 9.6 Seattle Times Co. v. Rhinehart, 4.3.2(a) Securitas Sec. Servs. USA, Inc. v. Jenkins, 5.3.13(b), 5.4.7(b) Sega Enters., Ltd. v. Accolade, Inc., 7.11.1(h) Sega Enters., Ltd. v. Maphia, 7.9.4(a) Semiconductor Energy Lab. Co. v. Samsung Elecs. Co., 9.3 Seng-Tiong Ho v. Taflove, 4.3.3(d) Sentient Jet, Inc. v. Lambert, 5.2.1(a), 5.2.2, 5.2.3, 5.4.4, 5.4.7(b) Sentry Ins. v. Firnstein, 5.2.1(a), 5.2.5(a), 5.3.9, 5.4.7(b) Sepracor, Inc. v. Dey L.P., 8.2.15 7-Eleven, Inc. v. Grewal, 5.4.4, 5.4.5(b), 5.4.6(h) SGS-Thompson Microelectronics, Inc. v. International Rectifier Corp., 9.3 Shapiro, Bernstein & Co. v. H.L. Green Co., 7.9.6(a), 7.9.6(b) Shatterproof Glass Corp. v. PPG Indus., Inc., 9.3 Sheldon v. Metro-Goldwyn Pictures Corp., 7.10.3(d), 7.12.1(a) Sherman v. Pfefferkorn, 4.2.1(e), 5.2.1(a), 5.2.4, 5.4.7(b) Shoptalk, Ltd. v. Concorde-New Horizons Corp., 7.7.3(e) Silvers v. Sony Pictures Entm’t, Inc., 7.7.3(c) Simpson v. Stand 21 S.A., 9.3 16 Casa Duse, LLC v. Merkin, 7.3.3(a) Skinder-Strauss Assocs. v. Mass. Continuing Legal Educ., 7.10.3(c)

3rd Edition 2016

Slade Gorton & Co. v. O’Neil, 4.2.1(e), 5.3.8, 5.4.7(b) Slate Co. v. Bikash, 5.2.5(a) Small v. United States, 4.2.2(c) Smart-Signal Corp. v. Expert Microsys., Inc., 9.6 Smerk Holding Co. Bus. Trust v. Reardon, 5.4.6(h) Smith v. United States, 4.2.2(c) Smith Barney Div. of Citigroup Global Mkts. Inc. v. Griffin, 5.2.5(a), 5.3.13(c) Society of the Holy Transfiguration Monastery v. Gregory, 7.12.1(b) Sofamor Danek Group v. Brown, 7.8.7 Sony Computer Entm’t Am., Inc. v. Bleem, 7.11.1(h) Sony Computer Entm’t Am., Inc. v. Connectix Corp., 7.2.2(c), 7.11.1(h) Sony Corp. of Am. v. Universal City Studios, Inc., 7.9.5(a), 7.11.1(e), 7.11.1(g) Sorrell v. IMS Health Inc., 8.5.2 Spear Mktg., Inc. v. BancorpSouth Bank, 4.3.3(d) Specialized Tech. Res., Inc. v. JPS Elastomerics Corp., 4.2.1(f) Sperry v. Florida ex rel. Fla. Bar, 9.2 Sports Auth., Inc. v. Prime Hospitality Corp., 6.3.5(b) SquirtCo. v. Seven-Up Co., 6.3.5(b) Stanford v. Roche, 2.2 Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 9.3 Starr v. Fordham, 5.4.7(b) State Indus., Inc. v. Mor-Flo Indus., Inc., 3.7.5, 9.7 Steelcraft, Inc. v. Mobi Med., LLC, 4.2.1(e), 5.2.1(b), 5.2.2, 5.2.3, 5.3.1 Steranko v. Inforex, Inc., 5.3.12 C–17

INTELLECTUAL PROPERTY PRACTICE

Stewart v. Abend, 7.7.3(j), 7.11.1(b), 7.11.1(i) Stewart v. Finkelstone, 5.4.6(f) Stone v. Williams, 7.8.10(a), 7.8.10(b) Stone Legal Res. Group, Inc. v. Glebus, 4.2.1(e), 5.2.1(a), 5.2.2, 5.2.3, 5.3.13(f), 5.4.1, 5.4.4, 5.4.5(b), 5.4.7(b) Storage Spaces Designated Nos. “8” and “49,” United States v., 8.3 Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting, Inc., 7.6.2(a) Stryker Corp. v. Intermedics Orthopedics, Inc., 9.6 Subafilms, Ltd. v. MGM-Pathe Communications Co., 7.8.8(b) Sunbeam Prods., Inc. v. West Bend Co., 6.9 Sunrise Med. HHG Inc. v. AirSep Corp., 8.6 SunTrust Bank v. Houghton Mifflin Co., 7.11.1(f), 7.11.1(k) Superior Form Builders v. Dan Chase Taxidermy Supply Co., 7.2.2(b) Suprema, Inc. v. International Trade Comm’n, 1.4 n.17 Sutra, Inc. v. Iceland Express, 4.2.1(e) Switch Communications Group v. Ballard, 4.3.2(a) Synergistics Tech., Inc. v. Putnam Invs., LLC, 5.2, 5.2.3, 5.4.6(d) Synthon IP, Inc. v. Pfizer Inc., 9.3

T T.B. Harms Co. v. Eliscu, 7.8.1(a) Take It Away, Inc. v. Home Depot, Inc., 4.2.1(e), 4.2.1(f), 5.3.13(f) TalentBurst, Inc. v. Collabera, Inc., 4.2.1(f), 5.2 Taylor v. Blanchard, 4.1 C–18

Technicon Med. Info. Sys., Inc. v. Green Bay Packaging, Inc., 4.3.3(d) TEKsystems, Inc. v. Hammernick, 5.4.5(c) Telectronics Proprietary, Ltd. v. Medtronic, Inc., 9.5 Teradyne, Inc. v. Hewlett-Packard Co., 9.5 Teva Pharms. v. Sandoz, 1.3.4 n.4, 1.4 Therasense v. Becton-Dickinson & Co., 9.3 Thompson v. Western States Med. Ctr., 8.5.2 TianRui Corp. v. International Trade Comm’n, 1.4, 4.2.2(c) Ticketmaster Corp. v. Tickets.com, Inc., 7.2.2(a), 7.11.1(h) Time, Inc. v. Bernard Geis Assocs., 7.6.2 Tingley Sys., Inc. v. CSC Consulting, Inc., 4.3.3(d), 7.1.9(a) TKO, Inc. v. Gentle, 5.2.1(a) Tobin v. Cody, 5.2.1(a), 5.2.2 Tol-O-Matic, Inc. v. Proma Produkt und Mktg., 9.3 Touchpoint Solutions, Inc. v. Eastman Kodak Co., 4.2.1(e), 4.3.2(b), 5.4.5, 5.4.5(a), 5.4.7(b) Town of Brookline v. Goldstein, 5.4.1 Transkaryotic Therapies, Inc. v. Bain & Co., 4.2.1(e) Travia, United States v., 8.3 Tri-Nel Mgmt., Inc. v. Board of Health of Barnstable, 5.4.1, 5.4.2, 5.4.4 Tronzo v. Biomet, Inc., 3.5.6 TRW Fin. Sys., Inc. v. Unisys Corp., 9.3 Tuttle v. Metz, 5.4.7(b) 3rd Edition 2016

TABLE OF CASES

Ty, Inc. v. Jones Group, 6.3.5(b) Tyler Techs., Inc. v. Reidy, 5.3.13(c), 5.4.2, 5.4.7(b)

U U.S. Elec. Servs., Inc. v. Schmidt, 4.2.1(e) U.S. Philips Corp. v. International Trade Comm’n, 2.1.3 U.S. Steel Corp. v. United States, 9.6 UBS Paine Webber Inc. v. Dowd, 5.3.13(c), 5.4.3, 5.4.7(b) UMG Recordings, Inc. v. Sinnott, 7.9.6(a) Unisys Corp. v. Hynix Semiconductor Corp., 9.5 United Shoe Mach. Co. v. La Chapelle, 5.3.13(g) United States Surgical Corp. v. Hospital Prods. Int’l Pty., 8.6 United States v., see name of party Universal City Studios, Inc. v. Ahmed, 7.12.3(c) Universal City Studios, Inc. v. Corley, 7.13.2(a) Universal City Studios, Inc. v. Reimerdes, 7.13.2(a) University of Fla. Research Found., Inc. v. Orthovita, Inc., 8.6 Upromise, Inc. v. Angus, 5.4.1, 5.4.7(b) Urantia Found. v. Maaherra, 7.2.2(d) USM Corp. v. Arthur D. Little Sys., Inc., 5.4.7(b) USM Corp. v. Marson Fastener Corp., 4.2.1(e), 5.3.13(f)

V Veeck v. Souther Bldg. Code Congress Int’l, Inc., 7.3.4 Velazquez v. Eye Health Assocs., LLC, 5.2.7(a), 5.4.1 Velo-Bind, Inc. v. Scheck, 4.2.1(e) 3rd Edition 2016

Venegas-Hernandez v. Sonolux Records, 7.12.1(b) Venture Tape Corp. v. McGillis Glass Warehouse, 6.7.4(a) Verdrager v. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, 4.2.2(b) Vernon Music Corp. v. First Dev. Corp., 7.9.6(a) Vernor v. Autodesk, Inc., 7.6.4(c) Viacom Int’l, Inc. v. YouTube, Inc., 7.14.2(b) Vibromatic Co. v. Expert Automation Sys. Corp., 4.3.2(a) Vickery v. Welch, 4.1 View Eng’g, Inc. v. Robotic Vision Sys., Inc., 9.7 Villanueva, United States v., 4.2.2(c) Vincent, In re, 9.1 Vogue Ring Creations, Inc. v. Hardman, 7.11.3

W W.B. Mason Co. v. Staples, Inc., 5.4.3, 5.4.7(a) W.T. Rogers Co. v. Keene, 6.9 Wal-Mart Stores, Inc. v. Samara Bros. Inc., 6.9.1 Ward v. American Mut. Liab. Ins. Co., 5.4.7(b) Wark v. Ervin Press Corp., 5.4.7(b) Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 3.7.4 Warner-Lambert Co. v. Execuquest Corp., 4.2.1(e), 4.3.2(b), 5.3.9, 5.4.5, 5.4.5(a) Warren Publ’g, Inc. v. Microdos Data Corp., 7.2.1(a), 7.2.2(c) Washington Legal Found. v. Friedman, 8.5.2 Washington Legal Found. v. Henney, 8.5.2

C–19

INTELLECTUAL PROPERTY PRACTICE

Washington Shoe Co. v. A-Z Sporting Goods, Inc., 7.12.1(c) WEC Carolina Energy Solutions LLC v. Miller, 4.2.2(b) Weiffenbach v. Klempay, 9.2 Weiffenbach v. Logan, 9.2 Wells v. Wells, 5.2.1(a), 5.2.2, 5.3.5, 5.4.7(b) Westchester Media Co., L.P. v. PRL USA Holdings, Inc., 6.3.5(b) Whetzel, United States v., 7.15.2 Whimsicality, Inc. v. Rubie’s Costume Co., 9.3 Whiting Milk Cos. v. O’Connell, 5.2.1(a), 5.2.4 Whitinsville Plaza, Inc. v. Kotseas, 5.2.1(a), 5.2.5(a) Wilkinson v. QCC, Inc., 5.4.7(b) Williams v. Arndt, 7.10.3(d), 7.12.4 Williams v. Crichton, 7.10.3(d) Wiltberger, United States v., 4.2.2(b) Woolley’s Laundry, Inc. v. Silva, 4.2.1(e), 5.2.6, 5.4.7(b) Wordwave, Inc. v. Owens, 4.2.1(e), 5.2.1(a), 5.2.1(b), 5.2.2, 5.2.4, 5.2.5(a), 5.3.6, 5.3.13(c), 5.3.13(f)

C–20

Workflow Solutions, LLC v. Murphy, 5.2.1(a), 5.2.5(a), 5.4.2, 5.4.6(g), 5.4.7(b) World Auxiliary Power Co., In re, 7.7.3(f) Worth v. Selchow & Righter Co., 7.10.3(d) Worth, In re Marriage of, 7.7.3 Wrentham Co. v. Cann, 4.2.1(e), 5.4.7(b)

X Xerox Corp. v. International Bus. Machs. Corp., 4.3.2(a), 5.4.7(b)

Y Yankee Candle Co. v. Bridgewater Candle Co., LLC, 7.10.3(c) Yovatt v. Winyard, 4.1

Z Zabota Cmty. Ctr., Inc. v. Frolova, 5.2.1(a), 5.2.2, 5.2.5, 5.2.5(a), 5.4.1, 5.4.2, 5.4.4, 5.4.7(b) Zamora v. Rodriguez, 5.2.1(a) Zenith v. Haseltine, 2.1.3 Ziplink, LLC v. Pencom Sys., Inc., 5.2.5(a) Zona Corp. v. McKinnon, 5.4.5(b)

3rd Edition 2016

Table of Statutes, Rules, and References References are to section numbers of this book, unless otherwise indicated.

FEDERAL AFFORDABLE CARE ACT, 1.2.5, 8.1.1, 8.1.6, 8.5.2 AMERICA INVENTS ACT, 1.4, 3.4.1, 3.4.2(a), 3.4.4, 3.4.10, 3.6.2(a), 3.6.2(b), 3.7.2, 4.3.3(d), 9.2, 9.6 AMERICAN INVENTOR’S PROTECTION ACT, 3.6.1 ATOMIC ENERGY ACT, 4.2.2(b) BIOLOGICS PRICE COMPETITION AND INNOVATION ACT (BPCIA), 1.2.5, 8.1.1, 8.1.5, 8.1.6, 8.1.7, 8.1.9, 8.2.5(a), 9.2 CODE OF FEDERAL REGULATIONS (C.F.R.) 21 C.F.R. § 314.94(a)(8)(iv), 8.2.5(a) § 314.108(a), 8.2.5(a) § 314.127, 8.2.7 § 801, 8.3 § 801.4, 8.3 § 803, 8.3, 8.4 § 807, 8.3 § 807.87, 8.6 § 807.92(a)(3), 8.3.1 § 812, 8.3, 8.3.3 § 812.21, 8.5.1 § 812.50, 8.5.1 § 812.54, 8.5.1 3rd Edition 2016

§ 812.56, 8.5.1 § 814, 8.3, 8.3.2 § 814.20, 8.8 § 820, 8.3 subpt. C, 8.5.1 § 862.9, 8.3 §§ 862–892, 8.3 § 864.9, 8.3 pt. 20, 8.4 pt. 21, 8.4 pt. 800, 8.3 37 C.F.R., 6.8.1, Exhibit 7A § 1.16, 3.5.4 §§ 1.17–1.21, 3.5.4 § 1.18, 3.6.1 § 1.20, 3.6.1 § 1.47, 3.5.3 § 1.56, 3.7.2, 3.7.4, 8.6, 9.2, 9.3 § 1.56(a), 3.6.1 § 1.63, 3.5.3 § 1.91, 3.4.2(b) §§ 1.97–1.99, 9.3 § 1.102, 3.6.1 § 1.291, 3.6.2(b) § 2.21, 6.5.2(a) § 2.32(a)(1)(ii), 6.5.2(b) § 2.32(a)(1)(iii), 6.5.2(b) § 2.32(a)(3)(i), 6.5.2(b) § 2.32(a)(3)(ii), 6.5.2(b) § 2.32(a)(3)(iii), 6.5.2(b) § 2.32(a)(3)(iv), 6.5.2(b) § 2.32(a)(4), 6.5.2(b) § 2.32(a)(5), 6.5.2(b) § 2.33, 6.5.2(b) S–1

INTELLECTUAL PROPERTY PRACTICE

CODE OF FEDERAL REGULATIONS (C.F.R.) 37 C.F.R. (cont’d) § 2.33(b)(1), 6.5.2(b) § 2.33(b)(2), 6.5.2(b) § 2.34(a)(1)(i), 6.5.2(b) § 2.34(a)(1)(iv), 6.5.2(b) § 2.34(a)(3)(ii), 6.5.2(b) § 2.36, 6.5.2(b) § 2.37, 6.5.2(b) § 2.52(b)(1), 6.5.2(b) § 2.52(b)(5), 6.5.2(b) § 2.56(a), 6.5.2(b) § 2.86(a)(3), 6.5.2(b) § 2.89, 6.5.6(b) § 2.102(c), 6.5.6(a) § 42, 9.2 § 42.12, 9.2 § 201.4, 7.7.3(f) § 201.20, 7.5.6(b) § 201.20(g), 7.5.6(b) § 201.31, 7.4.7 § 201.33, 7.4.7 § 201.40, 7.13.4 § 202.1(a), 7.2.2(a) § 202.4, 7.5.3(a) § 202.12, 7.4.7 § 202.16, 7.5.2 § 202.19, 7.5.3 § 202.20(c), 7.5.3 § 202.20(c)(2)(i)(H), 7.5.3 § 202.20(c)(2)(ii), 7.5.3 § 202.20(c)(2)(vii), 7.5.3 § 202.20(c)(2)(xix), 7.5.3 pt. 401, 8.5.1 42 C.F.R., §§ 411.350–411.389, 8.5.2 COMPUTER FRAUD AND ABUSE ACT (CFAA), 1.2.2, 1.4, 4.2.2, 4.2.2(b), 9.2 CONSUMER PROTECTION ACT, 1.2.3

S–2

COPYRIGHT ACT, 4.3.3(d), 7.1.9, 7.11.1(e), Exhibit 7A § 301, 7.2.2(d) Chapter 5, 7.8.2 DIGITAL AUDIO RECORDING ACT, 1.2.4 DIGITAL MILLENNIUM COPYRIGHT ACT, 1.2.4, 7.14.1 DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT (HATCHWAXMAN ACT), 8.1.1, 8.2.1, 8.2.5, 8.2.5(a), 8.2.7, 8.2.10, 8.2.12, 8.2.14, 8.2.15, 8.2.16, 8.2.18, 8.7.2, 9.2 ECONOMIC ESPIONAGE ACT, 1.2.2, 1.3.2, 1.4, 4.2.2, 4.2.2(a) FAIR CREDIT REPORTING ACT, 4.2.2(b) FALSE CLAIMS ACT, 8.5.2 FDA MODERNIZATION ACT OF 1997, 8.3, 8.3.3 FEDERAL REGISTER (FED. REG.) 78 Fed. Reg. 20,180, 9.2 80 Fed. Reg. 57,756, 8.3 FEDERAL RULES OF APPELLATE PROCEDURE (FED. R. APP. P.) Rule 38, 9.7 FEDERAL RULES OF CIVIL PROCEDURE (FED. R. CIV. P.) Rule 1, 9.7 Rule 9, 9.3 Rule 11, 5.3.9, 9.3, 9.7 Rule 12(b), 1.3.4, 9.3 Rule 26(b), 9.7 Rule 26(c), 4.3.2(a), 9.7 Rule 26(d), 9.7 3rd Edition 2016

TABLE OF STATUTES, RULES, AND REFERENCES

FEDERAL RULES OF CIVIL PROCEDURE (FED. R. CIV. P.) (cont’d) Rule 26(f), 9.7 Rule 52(a), 1.3.4 n.4 Rule 65, 4.3.2(b) Rule 65(a)(2), 5.4.3 Rule 65(c), 5.4.6(h)

PATENT AND TRADEMARK OFFICE RULES OF PRACTICE, 9.3 Rule 56, 9.3

FEDERAL TRADE COMMISSION ACT, 4.2.2(c)

PEDIATRIC RESEARCH EQUITY ACT, 8.1.6

FEDERAL TRADEMARK DILUTION ACT, 6.7.4(d)

PLANT VARIETY PROTECTION ACT, 9.2

FOOD, DRUG, AND COSMETIC ACT, 1.2.5, 8.3, 9.2 § 201(h), 8.3 § 360(c), 8.3.1 § 503(g), 8.3 § 505, 8.1.6 § 505(b)(2), 8.1.1, 8.2.4(b), 8.2.7, 8.2.7(a), 8.2.9 § 505B(n), 8.1.6 § 505(j), 8.1.1, 8.2.1, 8.2.11 § 510(k), 8.3, 8.3.1, 8.3.3, 8.4, 8.6, 8.7.1, 8.8 § 523, 8.3.1 § 703, 8.4 § 704, 8.4

PRESCRIPTION DRUG MARKETING ACT, 8.5.2

FOREIGN AND ECONOMIC ESPIONAGE PENALTY ENHANCEMENT ACT, 4.2.2(a) FOREIGN CORRUPT PRACTICES ACT, 9.2 FREEDOM OF INFORMATION ACT (FOIA), 1.2.2, 4.3.3(c), 8.4 MEDICAL DEVICE AMENDMENTS, 8.3 ORPHAN DRUG ACT, 9.2 PATENT ACT OF 1952, 3.6.2, 3.6.2(a), 3.6.2(b) 3rd Edition 2016

PATENT MISUSES REFORM ACT, 2.1.3 PATENT SECRECY ACT, 9.2

PROTECTION OF ORIGINAL DESIGNS ACT, 1.2.4 PUBLIC HEALTH SERVICE ACT § 351(a), 8.1.7 § 351(i), 8.1.1 § 351(k), 8.1.1, 8.1.6, 8.1.7 § 351(m), 8.1.6 PUBLIC LAWS (PUB. L.) Pub. L. No. 12-29, 9.2, 9.6 Pub. L. No. 63-203, 4.2.2(c) Pub. L. No. 89-487, 8.4 Pub. L. No. 96-517, 8.5.1 Pub. L. No. 98-417, 8.2.1 Pub. L. No. 98-620, 8.5.1 Pub. L. No. 101-269, 8.3 Pub. L. No. 102-300, 8.3 Pub. L. No. 105-115, 8.3 Pub. L. No. 108-173, 8.2.16 Pub. L. No. 111-148, 8.5.2 Pub. L. No. 112-29, 3.4.1, 4.3.3(d) SAFE MEDICAL DEVICES ACT, 8.3 SEMICONDUCTOR CHIP PROTECTION ACT, 1.2.4, 9.2 S–3

INTELLECTUAL PROPERTY PRACTICE

SOCIAL SECURITY ACT § 1877, 8.5.2 SONNY BONO COPYRIGHT TERM EXTENSION ACT, 1.3.1 SOUND RECORDING AND VIDEO ACT, 1.2.4 STORED COMMUNICATIONS ACT, 4.2.2 TARIFF ACT OF 1930, 4.2.2(c) § 337, 7.6.4(b) THEFT OF TRADE SECRETS CLARIFICATION ACT, 4.2.2(a) TRADE SECRETS ACT, 8.4 TRADEMARK MANUAL OF EXAMINING PROCEDURE (TMEP) § 901, 6.5.3(a) § 904.03, 6.5.6(d) § 905.05, 6.5.6(d) § 1301(4), 6.5.6(d) § 1301.04, 6.5.6(d) UNIFORM DISPUTE RESOLUTION PROCEDURE (UDRP), 1.2.3 UNIFORM RAPID SUSPENSION PROCEDURE (URS), 1.2.3 UNIFORM TRADE SECRETS ACT (UTSA), 1.1.1(a), 1.3.2, 1.3.4, 4.2.1, 4.2.1(b), 4.2.1(c), 4.2.1(d), 4.2.2(c), 4.3.2(a), 4.3.2(b), 4.3.3(d) § 5, 4.3.2(b) § 7(a), 4.3.3(d) § 7(b), 4.3.3(d) UNITED STATES CODE (U.S.C.) 5 U.S.C., § 552, 8.4 8 U.S.C. § 1101(f)(6), 4.2.2(c) § 1182(a), 4.2.2(c) S–4

15 U.S.C. § 45, 4.2.2(c) § 116(d)(B)(I), 6.7.4(e) § 1051, 6.5.4 § 1051 et seq., 6.3.3, 6.7.4 § 1051(a)(1), 6.5.2(b) § 1051(a)(2), 6.5.2(b) § 1051(a)(3), 6.5.2(b) § 1051(a)(3)(A), 6.5.2(b) § 1051(a)(3)(C), 6.5.2(b) § 1051(a)(3)(D), 6.5.2(b) § 1051(b)(2), 6.5.2(b) § 1051(b)(3), 6.5.2(b) § 1051(b)(3)(A), 6.5.2(b) § 1051(b)(3)(B), 6.5.2(b) § 1051(b)(3)(D), 6.5.2(b) § 1051(d), 6.5.6(b) § 1052, 6.3.1, 6.5.4 § 1052(a), 6.5.4 § 1052(b), 6.5.4 § 1052(c), 6.5.2(b), 6.5.4 § 1052(d), 6.5.4 § 1052(e), 6.3.5(a) § 1052(e)(1), 6.5.4 § 1052(e)(2), 6.5.4 § 1052(e)(3), 6.5.4 § 1052(e)(4), 6.5.4 § 1052(e)(5), 6.5.4 § 1053, 6.5.4 § 1057(e), 6.6.2 § 1058(b), 6.6.2 § 1069, 6.8.5(c) § 1071(b), 6.8.6 § 1114, 6.3.5(b), 6.7.4(j) § 1114 et seq., 6.7.6 § 1114(1)(a), 6.8.6 § 1114(a), 6.7.4, 6.7.4(b) § 1115(b), 6.7.4(f) § 1116, 6.11.1(a) § 1116(d), 6.7.4(j) § 1116(d)(1)(A), 6.7.4(j) § 1116(d)(1)(B)(i), 6.7.4(j) § 1117, 6.7.6(c) 3rd Edition 2016

TABLE OF STATUTES, RULES, AND REFERENCES

UNITED STATES CODE (U.S.C.) 15 U.S.C. (cont’d) § 1117(a), 9.7 § 1117(c), 6.7.4(e), 6.7.4(j) § 1117(d), 6.11.1(a) § 1125, 6.3.5(b), 6.7.4(j) § 1125(a), 6.7.6(c) § 1125(a)(1), 6.7.4 § 1125(a)(1)(A), 6.8.6 § 1125(a)(1)(B), 6.7.4(c) § 1125(c), 6.7.4(d) § 1125(c)(2)(A), 6.3.5(c), 6.7.4(d) § 1125(c)(2)(B), 6.3.5(c), 6.7.4(d) § 1125(c)(2)(C), 6.3.5(c) § 1125(d)(1)(A), 6.11.1(a) § 1126, 6.5.3 § 1126(d)(2), 6.5.2(b) § 1126(e), 6.5.2(b) § 1127, 6.5.3(a), 6.5.4, 6.7.4(e), Exhibit 6A § 1134(c), 6.3.5(c) § 1141f, 6.5.3(c) § 1602(n), 4.2.2(b) § 1681 et seq., 4.2.2(b) 17 U.S.C., 1.2.4 § 101, 7.2.1(b), 7.2.1(d), 7.2.1(e), 7.2.2(b), 7.3.2, 7.3.2(b), 7.3.3, 7.6.3, 7.6.5(a), 7.6.6, 7.6.7(b), 7.7.2 §§ 101–1332, 4.3.3(d), 7.1.8 § 102(a), 4.3.3(d), 7.1.6, 7.1.7, 7.2, 7.2.1(b), 7.2.1(c) § 102(b), 1.3.2, 4.3.3(d), 7.2.2(c) § 103(a), 7.2.1(d) § 103(b), 7.2.1(d) § 104A, 7.4.7 § 105, 7.3.4 § 106, 7.1.5, 7.6.1 § 106(3), 7.6.4(a) § 106(4), 7.6.5(a), 7.6.5(b) § 106–121, 7.9.2 § 106A, 7.6.1, 7.6.7(a), 7.6.7(b), 7.11.1(c) 3rd Edition 2016

§ 106A(a), 7.6.7(b) § 106A(d), 7.6.7(b) § 106A(e)(1), 7.6.7(b) § 106A(e)(2), 7.6.7(b) § 107, 7.11.1(c), 7.11.1(i) § 107(4), 7.11.1(k) §§ 107–121, 7.6.1 § 108, 7.6.2(a) § 108(a), 7.6.2(a) § 108(a)(2), 7.6.2(a) § 108(b), 7.6.2(a) § 108(b)(2), 7.6.2(a) § 108(c)(1), 7.6.2(a) § 108(c)(2), 7.6.2(a) § 108(f)(1), 7.6.2(a) § 108(g), 7.6.2(a) § 109(a), 7.6.4(c) § 109(b)(1)(A), 7.6.4(c) § 109(c), 7.6.6(b) § 110, 7.6.5(b), 7.6.6(b) § 110(1), 7.6.5(b) § 110(2), 7.6.5(b) § 110(3), 7.6.5(b) § 110(4), 7.6.5(b) § 112(f), 7.6.5(b) § 113(d), 7.6.7(b) § 114(b), 7.6.2(a) § 115, 7.6.2(a) § 115(a), 7.6.2(a) § 117(a), 7.6.2(a) § 117(c), 7.2.1(b), 7.6.2(a) § 120(b), 7.6.3 § 121, 7.6.2(a) § 201(a), 7.1.2, 7.3.1 § 201(b), 7.1.2 § 201(c), 7.7.3(b) § 201(d), 7.1.2 § 201(d)(1), 7.1.2, 7.7.1 § 201(d)(2), 7.7.1 § 203(a), 7.3.2(c), 7.7.3(j) § 203(a)(1), 7.7.3(j) § 203(a)(2), 7.7.3(j) § 203(a)(3), 7.7.3(j) S–5

INTELLECTUAL PROPERTY PRACTICE

UNITED STATES CODE (U.S.C.) 17 U.S.C. (cont’d) § 203(a)(4)(A), 7.7.3(j) § 203(a)(5), 7.7.3(j) § 203(b)(1), 7.7.3(j) § 204(a), 7.7.3 § 205(c), 7.7.3(f), 7.7.3(g) § 205(d), 7.7.3(h) § 205(e), 7.7.3(a) § 301, 1.3.2, 4.3.3(d), 7.1.9 § 301(a), 4.3.3(d), 7.1.9 § 301(c), 7.1.1 § 302, 7.1.4, 7.5.1 § 302(a), 7.1.3 § 302(c), 7.4.2, 7.4.3 § 304, 7.4.4(b) § 401(b), 7.5.6, 7.5.6(a) § 401(b)(2), 7.5.6 § 401(c), 7.5.6(b) § 401(d), 7.5.5(a) § 402(d), 7.5.5(a) § 405(a)(2), 7.4.4(b) § 407, 7.5.4 § 408(a), 7.5.1, 7.5.2 § 408(b)(2), 7.5.3 § 410(c), 7.5.2, 7.10.2 § 412, 7.5.2, 7.12.1(e), 7.12.4 § 412(2), 7.5.2 § 501, 7.8 § 501(a), 7.9.2 § 501(b), 7.8.9(a) § 502(a), 7.12.2(a), 7.12.2(b) § 503(a), 7.12.3(a) § 503(c), 7.15.4 § 503(d), 7.15.4 § 504(a), 7.12.1 § 504(b), 7.12.1(a) § 504(c), 7.8.11, 7.12.1 § 504(c)(1), 7.12.1(b) § 504(c)(2), 7.5.5(a), 7.12.1(c), 7.12.1(d) § 506(a), 7.15.1 § 506(a)(1)(C), 7.15.3 S–6

§ 507(a), 7.8.10 § 507(b), 7.8.10 § 512, 7.14.1, 7.14.2, 7.14.2(a) § 512(c), 7.14.2(b) § 512(d), 7.14.2(c) § 512(e), 7.14.3 § 512(f), 7.14.2(b) § 512(g), 7.14.2(b) § 512(i), 7.14.2(b) § 602(a), 7.6.4(b) § 911(f), 9.7 § 1201, 7.13.3 § 1201(a)(1)(A), 7.13.1, 7.13.2 § 1201(a)(2), 7.13.1, 7.13.2(b) § 1201(c)(3)(A), 7.13.1 § 1201(d)–(g), 7.13.3 § 1201(j), 7.13.3 § 1202(b), 7.13.1 § 1202(c), 7.13.5 § 1203(c)(3)(B), 7.13.5 18 U.S.C. § 1030, 4.2.2(b) § 1030(a), 4.2.2(b) § 1030(a)(2), 4.2.2(b) § 1030(a)(4), 4.2.2(b) § 1030(c), 4.2.2(b) § 1030(e)(2)(A)–(B), 4.2.2(b) § 1030(e)(2)(B), 4.2.2(b) § 1030(e)(6), 4.2.2(b) § 1030(g), 4.2.2(b) § 1831, 4.2.2(a) §§ 1831–1832, 4.2.2(a) §§ 1831–1839, 4.2.2(a) § 1832, 4.2.2(a) § 1834, 4.2.2(a) § 1836, 4.2.2(a) § 1905, 8.4 §§ 2318–2319B, 1.2.4 § 2319, 7.15.3, 7.15.4(a) § 2319A, 7.15.3 § 2319B, 7.15.3 § 2319(b)(1), 7.15.3 § 2320, 6.7.4(e), 6.7.4(f) 3rd Edition 2016

TABLE OF STATUTES, RULES, AND REFERENCES

UNITED STATES CODE (U.S.C.) 18 U.S.C. (cont’d) § 2320(a), 6.7.4(g) § 3517, 7.15.4(a) § 3663A(c), 6.7.4(g) 19 U.S.C. § 1337, 1.4 n.17, 4.2.2(c), 6.7.4(i) 21 U.S.C. § 321(h), 8.3 § 331(j), 8.4 § 334, 8.3 § 353(c)(1), 8.5.2 § 355, 8.1.6 § 355a, 8.2.5(a) § 355(b), 8.2.4(b), 8.2.6 § 355(b)(2), 8.1.1 § 355(c), 8.2.5(a), 8.2.11 § 355(d), 8.2.2 § 355(j), 8.1.1, 8.2.1, 8.2.3, 8.2.4(a), 8.2.5(a), 8.2.6, 8.2.7(a), 8.2.8, 8.2.9, 8.2.11, 8.2.12 § 355(q), 8.2.9 §§ 360aa–360ee, 8.2.5(a) § 360cc, 8.2.5(a) § 360(c)(i), 8.3.1 § 373, 8.4 § 374, 8.4 § 502, 8.6 28 U.S.C. § 1332, 7.8.1(b), 9.2 § 1338, 2.2, Exhibit 3B § 1338(a), 1.3.2, 7.8.1(a), 7.8.11 § 1400(a), 7.8.5, 7.8.11 § 1498(b), 7.8.6, 7.12.2(b) § 2201, 3.7.1, Exhibit 3C § 2202, 3.7.1 31 U.S.C., §§ 3729–3733, 8.5.2 35 U.S.C., 3.1.1, 3.4.1, Exhibit 3C, 9.2 § 100, 1.3.2 § 101, 3.4.2, 3.4.2(a), 3.4.2(c), 3.6.1 3rd Edition 2016

§ 102, 3.4.4, 3.4.8, 3.6.1, 3.7.2, 8.6 § 102(a), 3.4.4 § 102(b), 3.4.4, 3.7.4 § 102(d), 3.7.4 § 102(e), 3.4.4 § 102(f), 3.4.4, 3.7.4 § 102(g), 3.4.4, 3.6.2(b) § 103, 3.4.2, 3.4.4, 3.4.10, 3.6.1, 3.7.2 § 103(c), 3.4.4 § 112, 3.5.1(a), 3.5.5, 3.7.2 § 112(a), 3.6.1, 3.7.4 § 112(b), 3.5.2, 3.6.1 § 113, 3.5.1 § 114, 3.4.2(b) § 115, 3.5.3 § 116, 3.5.3 § 122, 3.6.1 § 122(b), 3.4.4 § 122(e), 3.6.2(b) § 151, 3.4.4 § 154, 3.6.1 § 154(b), 3.3.1, 8.2.10 § 156, 3.3.1, 8.7.1 § 156(g), 8.7.1 § 161, 3.4.3 § 171, 3.4.3 § 181 et seq., 9.2 §§ 200–211, 8.5.1 § 202, Exhibit 2A § 251, 3.6.2(a), 3.7.4, 9.3 § 252, 3.4.9, 3.6.2(a) § 253, 3.6.2(a) §§ 254–256, 3.6.2(a) § 257, 3.6.2(a) § 261, 2.2 § 262, 2.2 § 271(a), 1.1.2, 1.4 n.13 § 271(b), 1.1.2 § 271(c), 1.1.2 § 271(d)(5), 2.1.3 § 271(e), 8.7.2 § 271(e)(1), 8.2.14 S–7

INTELLECTUAL PROPERTY PRACTICE

UNITED STATES CODE (U.S.C.) 35 U.S.C. (cont’d) § 271(e)(2), 8.2.8 § 271(e)(5), 8.2.11 § 271(f), 1.1.2 § 273, 3.4.9 § 282, 3.3.1, 3.6.1, 3.7.4, 9.3 § 284, 1.4 n.10, 3.7.5, 9.7 § 285, 1.4 n.10, 3.7.5, 9.2, 9.7, Exhibits 3B, 3C § 287, 3.7.2, 3.7.6(c) § 287(a), 3.7.5 § 287(c), 3.4.2(c) § 291, 3.6.2(b) § 292, 3.7.2 § 298, 9.6 § 301 et seq., 3.7.4 §§ 301–307, 9.3 § 302, 3.6.2(b) § 303(a), 3.6.2(b) § 321, 3.6.2(b) §§ 321–329, 9.3 42 U.S.C. § 262(k), 8.1.1 § 262(l), 8.1.9 § 1320a-7b, 8.5.2 § 1395nn, 8.5.2 128 U.S.C. § 1338(a), 9.2 § 1367, 9.2 UNITED STATES CONSTITUTION Art. I, § 8, cl. 8, 3.1.1, 7.1.7, 7.1.8 Art. I, § 8(e), 1.4 Fourth Amendment, 8.4 UNITED STATES TRADEMARK ACT OF 1946 (LANHAM ACT), 1.3.2, 6.3.3, 6.3.5(b), 6.7.4(j), 6.7.6, 6.11.6, Exhibit 6A See also 15 U.S.C. § 33(b)(4), 6.7.5(d) § 43(a), 6.11.6 S–8

§ 44(e), 6.5.3(c) U.S. DISTRICT COURT LOCAL RULES Rule 16.6, 9.7 VISUAL ARTISTS RIGHTS ACT, 7.6.7(a), 7.6.7(b) WIRETAP ACT, 4.2.2

MASSACHUSETTS CODE OF MASSACHUSETTS REGULATIONS (C.M.R.) 201 C.M.R. pt. 17, 4.3.2 MASSACHUSETTS GENERAL LAWS (G.L. c.) c. 93, 4.2.1, 4.2.1(a) § 42, 4.2.1, 4.2.1(a) § 42A, 4.2.1, 4.2.1(a) c. 93A, 1.3.2, 4.2.1, 4.2.1(e), 4.2.1(f), 5.4.6(d), 6.7.4(k) § 11, 5.3.4 c. 93H, 4.3.2 c. 106, § 2-201, 5.3.1 c. 112 § 12X, 5.2.7(a) § 74D, 5.2.7(a) § 129B, 5.2.7(a) § 135C, 5.2.7(a) c. 149, § 186, 5.2.7(a) c. 214, § 3A, 6.7.4(k) c. 223A, 6.7.4 c. 231, § 6F, 5.3.9 c. 259, §§ 1–7, 5.3.1 c. 266, 4.2.1(a) § 30, 4.2.1, 4.2.1(a), 4.2.1(e) § 60A, 4.2.1, 4.2.1(a) § 147, 6.7.4(e), 6.7.4(f) § 147(d), 6.7.4(f)

3rd Edition 2016

TABLE OF STATUTES, RULES, AND REFERENCES

MASSACHUSETTS RULES OF CIVIL PROCEDURE (MASS. R. CIV. P.) Rule 11, 5.3.9, 9.3 Rule 65, 4.3.2(b) Rule 65(b)(2), 5.4.3 Rule 65(c), 5.4.6(h) MASSACHUSETTS RULES OF PROFESSIONAL CONDUCT (MASS. R. PROF. C.) Rule 1.7, 9.1, 9.5 Rule 1.8, 9.5 Rule 3.3, 9.3 Rule 4.2, 9.5 Rule 4.3, 9.5 Rule 5.6, 5.2.7(b) SUPERIOR COURT RULES Rule 12(b)(6), 9.1

OTHER STATES IOWA CODE § 550, 4.3.3(d)

ADDITIONAL REFERENCES AND RESOURCES ABA Cybersecurity Legal Task Force, The ABA Cybersecurity Handbook (Am. Bar Ass’n 2013), 9.6 Advisory Committee’s Notes on Fed. Rule R. Civ. Proc. 26, 28 U.S.C. App. p. 444, 4.3.2(a) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 1.1.2, 4.2.2(c), 4.2.3

3rd Edition 2016

Aguilar, Luis A., “Banks Demand That Law Firms Harden Cyberattack Defenses: Background Checks, Systems Audits Are Used to Close Potential Backdoor Breaches,” Wall St. J., Oct. 24, 2014, 9.1 American Bar Association Model Rules of Professional Conduct, 9.2 Rules 5.1–5.7, 9.4 Rule 5.5, 9.2 “Antonelli Owes $15M for Botched Patent Filing, Tech Co. Says” (Sept. 24, 2014), Law360, 9.1 Approved Drug Products with Therapeutic Equivalence Determinations (Orange Book) (FDA), 8.2.6, 8.2.7(a) Beck, Negotiating, Drafting & Enforcing Noncompetition Agreements & Related Restrictive Covenants (MCLE, Inc. 5th ed. 2015), 4.2.1(e), 4.2.1(f), 5.1, 5.2.5(a), 5.2.7, 5.4, 5.4.6(b) Berne Convention for Protection of Literary and Artistic Works, 7.1.10, 7.1.10(a), 7.4.4(b), 7.4.7, 7.8.8, Exhibit 7A Black’s Law Dictionary (6th ed. 1990), 5.1 “Boards of Directors, Corporate Governance and Cyber-Risks: Sharpening the Focus” (June 10, 2014) (speech by SEC commissioner for the New York Stock Exchange), 9.1 “Breaking Bad: The Risk of Unsecure File Sharing,” Ponemon Institute, October 2014, 9.6

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Cohen, J., “Federal Issues in Trade Secret Law,” 2 J. High Tech. L. (2003), 4.3.3(b), 4.3.3(c) “Cold Spring Harbor Laboratory Announces Settlement in Patent Malpractice Case Against Ropes & Gray” (June 2, 2014), 9.1 Compendium of U.S. Copyright Office Practices, Third Edition, 7.5.3, Exhibit 7A “Cybersecurity Guidance,” U.S. Securities and Exchange Commission, Division of Investment Management, IM Guidance Update, Apr. 2015, 9.1 Delta & Matsuura, Law of the Internet (Aspen Publishers, 3rd ed. 2011), Exhibit 6B Epstein & Politano, ed., Drafting License Agreements (Wolters Kluwer 4th ed. 2010), 2.1.3 EuropaBio, Guide to Biological Medicines—A Focus on Biosimilar Medicines, 8.1.4 European Patent Convention (EPC), 1.3.3(b) FDA, Investigations Operations Manual (2015), 8.4 FDA Guidance Compliance Policy Guidance Manual (2015), 8.4 Compliance Program Guidance Manual (2015), 8.4 Draft Guidance for Industry— Responding to Unsolicited Requests for Off-label Information About Prescription Drugs and Medical Devices (Dec. 2011), 8.5.2

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Qualifying for Pediatric Exclusivity Under Section 505a of the Federal Food, Drug, and Cosmetic Act, § X.A. (Sept. 1999), 8.2.5(a) The 510(k) Program: Evaluating Substantial Equivalence in Premarket Notifications [510(k)] (July 28, 2014), 8.3.1 Transfer of a Premarket Notification (510(k)) Clearance-Questions and Answers (Dec. 2014), 8.8 Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices (Jan. 2009), 8.5.2 Clinical Pharmacology Data to Support a Demonstration of Biosimilarity to a Reference Product (May 2014), 8.1.8(a) FDA Regulatory Procedures Manual (2015), 8.4 Gallagher, William T., “IP Legal Ethics in the Everyday Practice of Law: An Empirical Perspective of Patent Litigators,” 10 J. Marshall Rev. Intell. Prop. L. 309 (2011), 9.7 General Agreement on Trade and Tariffs (GATT) of 1994, 1.1.2 Goldstein on Copyright, 1.2.4

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TABLE OF STATUTES, RULES, AND REFERENCES

Graves, Charles Tait & Brian D. Range, “Identification of Trade Secret Claims in Litigation: Solutions for a Ubiquitous Dispute,” 5 Nw. J. Tech. & Intell. Prop. 68, 69 (2006), 4.2.1(e) Hart, Internet Law: A Field Guide (BNA Books, 6th ed. 2008), Exhibit 6B Hawes & Dwight, Practitioner’s Trademark Manual of Examining Procedure (Thomson Reuters/West, 1st ed. 2010), Exhibit 6B Hugh, Sara Anne, “Ethical Issues in IP Law Practice,” AIPLA Spring Meeting 2011, 9.2 “The Inside Story of MIT and Aaron Swartz,” Boston Globe, Mar. 30, 2014, 4.2.2(b) Jager, Melvin F., Trade Secrets Law, 4.3.3(d) “Judge Lets Stand Award against IP Firm over Abandoned Patent,” N.Y.L.J., June 10, 2015, 9.1 “Judge’s Remarks Led to Legal-Mal Settlement,” New England InHouse, Aug. 25, 2014, 9.1 Kane, Siegrun D., Kane on Trademark Law: A Practitioners Guide (Practising Law Institute, 5th ed. 2010), 6.5.4(a), Exhibit 6B Kirkpatrick, Richard L., Likelihood of Confusion in Trademark Law, 6.5.4(a) Leach, Sid, “Anything but Uniform: A State-By-State Comparison of the Key Differences of the Uniform Trade Secrets Act,” 4.3.3(d)

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Lemley, Mark A., “The Surprising Virtues of Treating Trade Secrets as IP Rights,” 61 Stan. L. Rev. 311, 315 n.8 (2008), 4.1 Les Nouvelles (Licensing Executives Society), 2.1.3 Leval, Pierre N., “Toward a Fair Use Standard,” 103 Harv. L. Rev. 1105 (Mar. 1990), 7.11.1(h) Madrid Agreement, 1.1.2, 6.12.1, 6.12.2 Manual of Patent Examining Procedure (MPEP) § 708.02, 3.6.1 Manzo, E. D., “The Impact of the America Invents Act on Trade Secrets,” 13 J. Marshall Rev. Intell. Prop. L. 497, 518–22 (2014), 4.3.3(d) McCarthy, McCarthy on Trademarks (2015), 6.3.3 McCarthy, McCarthy on Trademarks and Unfair Competition (Thomson Reuters/West 4th ed. 2010), 1.2.3, 6.5.4(a), 6.9, Exhibit 6B Mellstedt, H., et al., “The Challenge of Biosimilars,” 19 Annals of Oncology 411–19 (Mar. 2008), 8.1.4 Melville, Forms and Agreements on Intellectual Property and International Licensing (Sweet & Maxwell 3d ed. 2015), 2.1.3 Mercek et al., “The Attorney-Client Privilege and U.S. Patent Agents: A Workable Rule for Protecting Communications,” 76 JPTOS 591 (Aug. 1994), 9.6 Milgrim, Trade Secrets § 14.02, 4.3.2(a)

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Nimmer & Nimmer, Nimmer on Copyright, 1.2.4, 4.3.3(d), 7.2.1(a), 7.8.2, 7.9.4(b), 7.10.3(c), 7.12.1 Oddi, A. Samuel, “Patent-AttorneyMalpractice: An Oxymoron No More,” 2004 U. Ill. J.L. Tech. & Pol’y 1072 (2004), 9.2 Official Gazette for Trademarks (OG), 6.5.6(a) Paris Convention (1967), 4.2.3 Paris Treaty of 1883, 1.1.2, 6.12.1, 6.12.3(a) Patent Licensing Transactions (Matthew Bender), 2.1.3 Patry, Patry on Copyright (2010), 7.2.2(b), 7.10.3(c) PTO Manual of Patent Examination Procedure (MPEP) § 609, 9.3 Reece III, L.H., “Employee Noncompetition Agreements and Related Restrictive Covenants: A Review and Analysis of Massachusetts Law,” 76 Mass. L. Rev. 2 (1991), 5.3.13(b), 5.3.13(d) Reece III, L.H., “Trade Secret Misappropriation: A Review and Analysis of Massachusetts Law,” 71 Mass. L. Rev. 171 (1986), 4.2.1(b), 4.2.1(e) Restatement (First) of Contracts, 5.4.7(b) Restatement (First) of Torts, 4.2.1, 4.2.1(b), 4.2.1(d), 4.2.1(e) Restatement (Second) of Agency, 7.3.2(a) Restatement (Second) of Contracts, 5.2, 5.4.7(b) Restatement (Second) of Judgments § 27 (1980), 6.8.6 Restatement (Second) of Torts, 4.2.1(d) S–12

Restatement (Third) of Unfair Competition, 4.2.1, 4.2.1(b), 4.2.1(d), 4.2.1(e), 4.2.2(c) Ritchey & McCallum, Enforcement of Trade Secret Rights and Noncompetition Agreements, at 23–32 (American Bar Association 2002), 4.2.1(e) “Ropes & Gray Settles Malpractice Case Filed by New York Laboratory,” Boston Bus. J., June 10, 2014, 9.1 “Ropes & Gray Settles Malpractice Suit Over Patent Delay,” Law360, June 2, 2014, 9.1 Schiller, A. Arthur, An American Experience in Roman Law 1 (Vandenhoeck & Ruprecht 1971), 4.1 Serwin, Andrew, Information Security and Privacy: A Practical Guide to Federal, State, and International Law ch. 3 (2d ed. West 2008), 4.2.2(a), 4.2.2(b) Strong, The Copyright Book: A Practical Guide ch. 5 (MIT Press 6th ed. 2014), 7.5.3 Sunstein, Bruce D. “How Prometheus Has Upended Patent Eligibility: An Anatomy of Alice Corporation Proprietary Limited v. CLS Bank International,” 49 New Eng. L. Rev. 1 (2015), 3.4.2(c) Suo, James & David Pittman, “A Prosecution Bar in Patent Litigation Should Be the Exception Rather than the Rule,” 15 Va. J.L. & Tech. 43 (Spring 2010), 9.6

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TABLE OF STATUTES, RULES, AND REFERENCES

“Trade Secrets and the Roman Law: The Actio Servi Corrupti,” 30 Colum. L. Rev. 837 (1930), 4.1 Trans-Pacific Partnership (TPP) Agreement, 1.1.2, 1.4 2014 Am Law Tech Survey, 9.1 U.S. Copyright Office, Circular 3: Copyright Notice (2013), 7.5.6(b) U.S. Copyright Office Factsheets, Exhibit 7B U.S. Copyright Office Form Letters, Exhibit 7B U.S. Copyright Office Information Circulars, Exhibit 7B

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Ward, Thomas & Karin Peterka, “Top Ten IP Ethics Violations Resulting in Discipline by the USPTO,” 9.2 Watson, Alan, “Trade Secrets and Roman Law: The Myth Exploded,” 11 Tul. Eur. & Civ. L.F. 19, 19 (1996), 4.1 Weisman, Jonathan, “Talks for Pacific Trade Deal Stumbles,” N.Y. Times, July 31, 2015, 8.1.6 Wigmore, J., Evidence § 2212, pp. 156–57 (McNaughton rev. 1961), 4.3.2(a)

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Index References are to section numbers of this book, unless otherwise indicated.

A ACQUIESCENCE Trademark infringement, 6.7.5(b)

Valid assignment compared to assignments in gross, 6.10.2(a)

ADMISSION TO PRACTICE, 9.2

ATTORNEY FEES Copyright infringement, 7.12.4

ADVERTISING, ONLINE Trademarks, 6.11.3, 6.11.6

B

AGREEMENT ON TRADERELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS), 4.2.3 AMERICA INVENTS ACT, 3.4.1 ANSWERS Patent infringement, Exhibit 3C TTAB proceedings, 6.8.5(b) ANTICYBERSQUATTING CONSUMER PROTECTION ACT, 6.11.1(a) ANTIPIRACY AGREEMENTS, 5.3.13(d) ASSIGNMENTS Copyrights See COPYRIGHTS Invention assignment agreements, 5.3.13(g) Noncompetition agreements, 5.3.7 Patents, Exhibit 2D Applications, accompanying, Exhibit 2G Trademarks, 6.10.2 Recording of, 6.10.2(b) Security interests and, 6.10.2(c)

3rd Edition 2016

BIOSIMILAR DRUGS Affordable Care Act, 8.1.1 Applications for approval, 8.1.1 Approval Applications, 8.1.1 Data exclusivity, 8.1.6 Example, 8.1.7 Exclusivity of data, 8.1.6 Pathway for, 8.1.5 Regulatory guidelines, 8.1.2 Scientific principles, 8.1.2 Zarxio, approval of, 8.1.7 Conventional drugs compared, 8.1.4 Data exclusivity, 8.1.6 Defined, 8.1.1 Exclusivity of data, 8.1.6 FDA guidance documents Clinical evaluations, draft guidance for, 8.1.8(a) Comparative safety and effectiveness data, 8.1.8(b) Extrapolation, 8.1.8(d) Industry, draft guidance for, 8.1.8(e) Patient population, draft guidance for, 8.1.8(c) Federal laws, 8.1.1 Importance of, 8.1.3 Manufacturing processes, 8.1.4 Patent issues, 8.1.9 I–1

INTELLECTUAL PROPERTY PRACTICE

C CANDOR, 9.3 CLEARANCE SEARCH AND ANALYSIS, 6.4 Cautionary guidance, 6.4.3(a) Distinctiveness, assessing, 6.4.2 Likelihood of confusion, avoiding, 6.4.1 Necessity of search, 6.4.3(b) COMMUNITY TRADEMARKS Advantages of, 6.12.3(a) Disadvantages of, 6.12.3(b) COMPENSATION-FORCOMPETITION CLAUSES, 5.3.13(b) COMPETENCE, 9.4 COMPLAINTS Copyright infringement, 7.8.11 Patent infringement, Exhibit 3B TTAB proceedings, 6.8.5(a) COMPUTER FRAUD AND ABUSE ACT, 4.2.2(b) CONFIDENTIAL INFORMATION Noncompetition agreements, irreparable harm requirement, 5.4.5(b) Nondisclosure agreements (NDAs), 5.3.13(f) Patents Employee agreements, Exhibit 2J Third-party disclosure agreement, Exhibit 2C Two-way exchange agreement, Exhibit 2F CONFLICTS OF INTEREST, 9.5

I–2

CONTRIBUTORY COPYRIGHT INFRINGEMENT Actual or constructive knowledge, 7.9.4(a) Elements of, 7.9.4 Material contribution, 7.9.4(b) Overview, 7.9.3 Staple article of commerce theory, 7.9.5 Betamax case, 7.9.5(a) Direct infringement requirement, 7.9.5(b) COPYRIGHT ACT Fair use defense, 7.11.1(c) Jurisdiction, 7.8.3 COPYRIGHT OFFICE Fraud on, 7.11.3 Information circulars and form letters, Exhibit 7B COPYRIGHTS Anticircumvention, 7.13 Copyright management information, 7.13.5 Encryption, 7.13.2(a) Exempted works, 7.13.4 Overview, 7.13.1 Permitted circumvention, 7.13.3 “Secret Handshake” example, 7.13.2(b) Technological measures, 7.13.2 Assignments, 7.7, 7.8.9(b), Exhibit 7C Cashing check as valid assignment, 7.7.3(d) Collective works, contributions to, 7.7.3(b) Conflicts, 7.7.3(h) Defined, 7.7.2 Duration of, 7.7.3(e) New media, 7.7.3(i) No writing requirement, 7.7.3(a) Procedures, 7.7.3 3rd Edition 2016

INDEX

COPYRIGHTS Assignments (cont’d) Recording of Necessity of, 7.7.3(f) Procedures, 7.7.3(g) Termination of, 7.7.3(j) In whole or in part, 7.7.1 Written instruments, 7.7.3(c) Attorney fees, 7.12.4 Automatic copyright, 7.5.1 Civil infringement, 7.9 Commencement of protection, 7.1.3 Complaints, 7.8.11 Contributory infringement Actual or constructive knowledge, 7.9.4(a) Elements of, 7.9.4 Material contribution, 7.9.4(b) Overview, 7.9.3 Staple article of commerce theory, 7.9.5 Betamax case, 7.9.5(a) Direct infringement requirement, 7.9.5(b) Criminal infringement, 7.15 Elements of, 7.15.1 Tampering with notices, 7.15.4 Penalties, 7.15.4(a) Two exclusive rights, 7.15.3 Willfulness, 7.15.2 Damages, 7.12.1 Double counting, 7.12.1(a) Innocent infringement, 7.12.1(d) Statutory damages, 7.12.1(b) Timely registered works, 7.12.1(e) Willfulness, 7.12.1(c) Defenses, 7.11 Fair use, 7.11.1 Fraud on Copyright Office, 7.11.3 Misuse, 7.11.2 Antitrust violations, not limited to, 7.11.2(a) Examples, 7.11.2(b) 3rd Edition 2016

Deposit requirement, 7.5.4 Derivative work right, 7.6.3 Destruction orders, 7.12.3(c) Distribution right, 7.6.4 First sale doctrine, 7.6.4(c) Preventing importation, 7.6.4(b) Right to distribute or not to distribute, 7.6.4(a) Duration of, 1.3.1, 7.4 Anonymous or pseudonymous works, 7.4.3 December 31 rule, 7.4.5 Foreign work exception, 7.4.7 Overview, 7.4.8 Public domain at expiration of copyright period, 7.4.6 Works created before 1/1/1978 Created and published before 1978, 7.4.4(b) Created before 1978 but published in 1978 or later, 7.4.4(a) Works created on or after 1/1/1978, 7.4.1 Works made for hire, 7.4.2 Exclusive licensees as plaintiffs, 7.8.9(a) Exclusive rights, 7.6.1 Fair use defense, 7.11.1 Affirmative defense, as, 7.11.1(f) Amount and substantiality of portion used, 7.11.1(j) Case-by-case analysis, 7.11.1(g) Codified provisions, 7.11.1(c) Copyright Act, 7.11.1(c) Effect on potential market or value of work, 7.11.1(k) Factors not exclusive, 7.11.1(d) Historical background, 7.11.1(a) Market for work, effect on potential, 7.11.1(k) Nature of copyrighted work, 7.11.1(i) I–3

INTELLECTUAL PROPERTY PRACTICE

COPYRIGHTS Fair use defense (cont’d) No single factor decisive, 7.11.1(e) Purpose and character of use, 7.11.1(h) Purpose of, 7.11.1(b) Value of work, effect on potential, 7.11.1(k) Federal preemption Equivalent rights, 7.1.9(a) Extra element, 7.1.9(a) Government, actions against, 7.8.6 State government immunity, 7.8.7 Government-authored works, 7.3.4 Impoundment, 7.12.3(a) Infringement Civil infringement, 7.9 Contributory infringement, 7.9.4, 7.9.5 Copying element, 7.10.3 Copyrightable elements, 7.10.3(c) Opportunity to access work, 7.10.3(b) Proving, 7.10.3(a) Substantial similarity, 7.10.3(d) Criminal infringement, 7.15 Defenses, 7.11 Direct infringers, 7.9.2 Elements of claims, 7.10.1 Jurisdiction, 7.8.2 Liability, 7.9.1 Online infringement, 7.14 Ownership element, 7.10.2 Plagiarism distinguished, 7.10.1(a) Prior infringement claims, 7.8.9(b) Remedies, 7.12 Vicarious infringement, 7.9.6 Injunctions, 7.12.2 Federal entities, claims against, 7.12.2(b) Permanent injunctions, 7.12.2(a) I–4

International jurisdiction, 7.8.8 Governing law, 7.8.8(a) “Yellow Submarine” case, 7.8.8(b) Joint authors, 7.3.3 Equally shared, 7.3.3(b) Key factors, 7.3.3(a) Limitations, 7.3.3(c) Jurisdiction Copyright Act, 7.8.3 Diversity jurisdiction, 7.8.1(b) Federal courts, 7.8.1(a) Federal jurisdiction, 7.8.3 Infringement, 7.8.2 International jurisdiction, 7.8.8 Governing law, 7.8.8(a) “Yellow Submarine” case, 7.8.8(b) Personal jurisdiction, 7.8.4 Subject matter jurisdiction, 7.8.1 Licenses Agreements, termination of, 7.7.3(j) Exclusive licensees as plaintiffs, 7.8.9(a) Linking Infringing sites, to, 7.14.2(c) Public display right, 7.6.6(a) Litigation, 7.8 Misuse defense, 7.11.2 Antitrust violations, not limited to, 7.11.2(a) Examples, 7.11.2(b) Moral rights Noneconomic rights, as, 7.6.7(a) Visual Artists Rights Act, 7.6.7(b) Notice, 7.5.5 Advisability, 7.5.5(a) Form of, 7.5.6 Phonorecords, 7.5.6(a) Placement of, 7.5.6(b) Online copyright infringement, 7.14 Nonprofit universities, 7.14.3 Overview, 7.14.1 3rd Edition 2016

INDEX

COPYRIGHTS Online copyright infringement (cont’d) Section 512 safe harbor Infringing information residing on network, 7.14.2(b) Linking to infringing sites, 7.14.2(c) OSPs, 7.14.2(a) Prerequisites, 7.14.2(b) Overview, 7.1.1 Ownership of, 7.3 Authors, 7.3.1 Creative parties, 7.3.1 Government-authored works, 7.3.4 Joint authors, 7.3.3 Equally shared, 7.3.3(b) Key factors, 7.3.3(a) Limitations, 7.3.3(c) Overview, 7.1.2 Owners as plaintiffs, 7.8.9(a) Rights, 7.1.5 Works made for hire, 7.3.2 Commissioned works, 7.3.2(b) Employee defined, 7.3.2(a) Relevance of classification, 7.3.2(c) Protection plans, 7.16 Public display right, 7.6.6 Framing, 7.6.6(a) Limitations, 7.6.6(b) Linking, 7.6.6(a) Public performance right Exclusive right, 7.6.5(a) Limitations, 7.6.5(b) Purpose of, 7.1.7 Recall orders, 7.12.3(b) Registration Advantages of, 7.5.2 Effective date, 7.5.3(a) Procedures, 7.5.3 Reproduction right, 7.6.2 Limitations, 7.6.2(a) 3rd Edition 2016

Resources, Exhibit 7A Resources on, 1.2.4 Sources of law, 7.1.8 Statutes of limitations Accrual of claims, 7.8.10(a) Distinct infringements, 7.8.10(b) Subject matter, 7.2 Collective works, 7.2.1(d) Compilations, 7.2.1(d) Derivative works, 7.2.1(e) Facts, 7.2.2(d) Fixation, 7.2.1(b) Names, 7.2.2(a) Originality requirement, 7.2.1(a) Overview, 7.1.6 Short phrases, 7.2.2(a) Slogans, 7.2.2(a) Systems and methods of operation, 7.2.2(c) Titles, 7.2.2(a) Types of works, 7.2.1(c) Useful articles, 7.2.2(b) Termination of protection, 7.1.4 Trade secret laws, preemption of, 4.3.3(d) Treaties, 7.1.10 National treatment, 7.1.10(a) Venue, 7.8.5 Vicarious infringement, 7.9.6 Financial interest requirement, 7.9.6(b) Overview, 7.9.3 Personal liability of corporate officers, 7.9.6(c) Supervision requirement, 7.9.6(a) Works made for hire, 7.3.2 Commissioned works, 7.3.2(b) Duration of, 7.4.2 Employee defined, 7.3.2(a) Relevance of classification, 7.3.2(c) COUNTERCLAIMS Patent infringement, Exhibit 3C I–5

INTELLECTUAL PROPERTY PRACTICE

COUNTERFEITING Trademarks, 6.7.4(e) Civil enforcement, 6.7.4(j) Criminal enforcement, 6.7.4(f) Criminal penalties, 6.7.4(g)

Fair use, 6.7.5(d) Laches, 6.7.5(a) License, 6.7.5(e) Unclean hands, 6.7.5(c) TTAB proceedings, 6.8.5(c)

CRIMINAL COPYRIGHT INFRINGEMENT, 7.15 Elements of, 7.15.1 Tampering with notices, 7.15.4 Penalties, 7.15.4(a) Two exclusive rights, 7.15.3 Willfulness, 7.15.2

DESTRUCTION ORDERS Copyright infringement, 7.12.3(c) Means of production, 7.12.3(c) Trademark infringement, 6.7.6(b)

CUSTOMS AND BORDER PATROL Trademark enforcement, 6.7.4(h)

D DAMAGES Copyright infringement, 7.12.1 Double counting, 7.12.1(a) Innocent infringement, 7.12.1(d) Statutory damages, 7.12.1(b) Timely registered works, 7.12.1(e) Willfulness, 7.12.1(c) Patent infringement, 3.7.5 Trademark infringement, 6.7.6(c) DECEPTIVE LABELING, 6.11.6 DECORUM, 9.7 DEFENSE OF RIGHTS, 1.3.4 See also specific topics DEFENSES Copyright infringement See COPYRIGHTS Noncompetition agreements Initial considerations, 5.4.7(a) Possible available defenses, 5.4.7(b) Patent infringement, 3.7.1 Trademark infringement, 6.7.5 Acquiescence, 6.7.5(b) I–6

DISCOVERY Noncompetition agreements, 5.4.6(g) DOMAIN NAMES Generic top-level domains, 6.11.2 Sunrise registration period, 6.11.2(a) Trademark Claims Service, 6.11.2(b) Uniform Rapid Suspension System, 6.11.2(c) Trademarks, 6.11.1 Anticybersquatting Consumer Protection Act, 6.11.1(a) Dispute resolution, 6.11.1(b) Generic top-level domains, 6.11.2 Sunrise registration period, 6.11.2(a) Trademark Claims Service, 6.11.2(b) Uniform Rapid Suspension System, 6.11.2(c) Trademark Claims Service, 6.11.2(b) Uniform Rapid Suspension System, 6.11.2(c) Uniform Rapid Suspension System, 6.11.2(c) DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT Abbreviated new drug applications Exclusivity, 8.2.9 3rd Edition 2016

INDEX

DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT Abbreviated new drug applications (cont’d) Forfeiture of, 8.2.9(a) Forfeiture of exclusivity, 8.2.9(a) Generic drugs, 8.2.1, 8.2.4(a) Branded drug approval, 8.2.2 Certification of patents Orange Book patents, 8.2.7(a) Paragraph IV certification, 8.2.8, 8.2.9 Exclusivity for new drugs, 8.2.5 Abbreviated new drug applications, 8.2.9, 8.2.9(a) Forfeiture of, 8.2.9(a) New chemical entity exclusivity, 8.2.5(a), 8.2.17 Nonpatent exclusivity, 8.2.5(a) Patent exclusivity Certification of patents, 8.2.7(a) Challenges to, 8.2.7 Orange Book patents, 8.2.6, 8.2.7(a) Exclusivity of data 8+2 (+1) exclusivity formula, Exhibit 8A European regulations, 8.2.17 Foreign countries, 8.2.17 Formula, Exhibit 8A Extension of patent terms, 8.2.10 Generic drugs Abbreviated new drug applications, 8.2.1, 8.2.4(a) Branded drug companies, suits from, 8.2.11 New drug applications, paper, 8.2.4(b) Patentees, suits from, 8.2.11 Process for approval, 8.2.3 Safe harbor for patent infringement liability, 8.2.14 3rd Edition 2016

Infringement on patent Proof of, 8.2.13 Safe harbor, 8.2.14 New drug applications Abbreviated new drug applications Exclusivity, 8.2.9, 8.2.9(a) Forfeiture of exclusivity, 8.2.9(a) Generic drugs, 8.2.1, 8.2.4(a) Branded drugs, for, 8.2.2 Generic drugs, for Abbreviated new drug applications, 8.2.1, 8.2.4(a) Paper applications, 8.2.4(b) Paper applications, 8.2.4(b) Patent litigation Claims, potential, 8.2.12 Counterclaims, potential, 8.2.12 Defenses, potential, 8.2.12 Final remedies, 8.2.15 Generic drug makers, suits against, 8.2.11 Infringement, proof of, 8.2.13 Proof of infringement, 8.2.13 Remedies, 8.2.15 Settlements, 8.2.16 Unfair competition challenges, 8.2.16 DRUGS See FOOD AND DRUG ADMINISTRATION (FDA); PHARMACEUTICALS DURATION OF RIGHTS, 1.3.1 See also specific topics

E ECONOMIC ESPIONAGE ACT, 4.2.2(a) ENFORCEMENT OF RIGHTS, 1.3.4 See also specific topics I–7

INTELLECTUAL PROPERTY PRACTICE

ETHICAL ISSUES Admission to practice, 9.2 Candor, 9.3 Competence, 9.4 Conflicts of interest, 9.5 Decorum, 9.7 Examples, 9.1 Overview, 9.1 Privilege, 9.6 Proper advocacy, 9.7 Resources on, 1.2.6

FAIR USE Copyright infringement See COPYRIGHTS Trademark infringement, 6.7.5(d)

See DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT Manufacturers and researchers, relationship between, 8.5.1 Postmarketing requirements, 8.5.2 Researchers and manufacturers, relationship between, 8.5.1 Biosimilar drugs, approval of See BIOSIMILAR DRUGS Manufacturers and researchers, relationship between, 8.5.1 Medical devices, regulation of See MEDICAL DEVICES Off-label promotion, regulation of, 8.5.2 Postmarketing requirements, 8.5.2 Researchers and manufacturers, relationship between, 8.5.1 Trademark law, intersection of regulations with, 6.11.6

FDA PRACTICE See FOOD AND DRUG ADMINISTRATION (FDA)

FORFEITURE-FORCOMPETITION CLAUSES, 5.3.13(b)

FEDERAL PREEMPTION Copyright infringement Equivalent rights, 7.1.9(a) Extra element, 7.1.9(a)

G

EXPERT WITNESSES Noncompetition agreements, 5.4.6(g) EXPLOITATION OF RIGHTS, 1.3.5

F

FOOD AND DRUG ADMINISTRATION (FDA), 1.2.5 Antikickback statute, 8.5.2 Approval of drugs Biosimilar drugs See BIOSIMILAR DRUGS Clinical trial agreements, 8.5.1 Drug Price Competition and Patent Term Restoration Act

I–8

GARDEN LEAVE CLAUSES, 5.3.13(a) GOODWILL Noncompetition agreements, irreparable harm requirement, 5.4.5(b)

H HATCH-WAXMAN ACT See DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT

3rd Edition 2016

INDEX

I IMPOUNDMENT Copyright infringement, 7.12.3(a) INFRINGEMENT Patents Answers, Exhibit 3C Assertion of infringement claims, 3.7.6(c) Complaints, Exhibit 3B Counterclaims, Exhibit 3C Demand letters, Exhibit 3E Prevention of infringement, 3.2.1 Replies to counterclaims, Exhibit 3D Trademarks, 6.7.3 Cease and desist demands, 6.7.3(a) Civil actions, 6.7.3(c) Federal court claims, 6.7.4(b) TTAB proceedings, 6.7.3(b) INJUNCTIONS Copyright infringement, 7.12.2 Federal entities, claims against, 7.12.2(b) Permanent injunctions, 7.12.2(a) Noncompetition agreements, 5.4.2 Patent infringement, 3.7.5 Trademark infringement, 6.7.6(a) INTELLECTUAL PROPERTY LAW Careers, 1.5 Federal court decisions, 1.4 Forms of intellectual property, 1.1.1(a) Laws, applicable, 1.4 See also specific topics Supreme Court decisions, 1.4 INTERNATIONAL LAW Trade secrets, 4.2.3

3rd Edition 2016

INTERNATIONAL PROPERTY RIGHTS Generally, 1.1.2 Perfection of, 1.3.3(b) INTERNATIONAL TRADE COMMISSION (ITC) Trade secrets, 4.2.2(c) Trademark enforcement, 6.7.4(i) INTERNET Online advertising, trademarks, 6.11.3, 6.11.6 Online copyright infringement See COPYRIGHTS INVENTION ASSIGNMENT AGREEMENTS, 5.3.13(g)

J JOINT AUTHORS Copyrights, 7.3.3 Equally shared, 7.3.3(b) Key factors, 7.3.3(a) Limitations, 7.3.3(c) JURISDICTION Copyright infringement See COPYRIGHTS International Trade Commission, jurisdiction of, 4.2.2(c) Trade secrets, jurisdiction of International Trade Commission over, 4.2.2(c) Trademarks, Internet presence of, 6.7.4(a)

K KEYWORDS Trademarks, 6.11.3

L LACHES Trademark infringement, 6.7.5(a) I–9

INTELLECTUAL PROPERTY PRACTICE

LICENSES Agreements Copyright license agreements, termination of, 7.7.3(j) Patents license agreements, sample, Exhibits 2A, 2B Trademarks, 6.10.1 Copyrights Agreements, termination of, 7.7.3(j) Exclusive licensees as plaintiffs, 7.8.9(a) Patents Agreements, sample, Exhibits 2A, 2B Value, realization of, 2.1.2(a) Trademarks Agreements, 6.10.1 Defense, license as, 6.7.5(e)

M MADRID PROTOCOL AND MADRID AGREEMENT Trademarks, 6.12.2(a), 6.12.2(b) MEDICAL DEVICES Defined, 8.3 Drug Price Competition and Patent Term Restoration Act Patent term, extension of, 8.7.1 Research exemptions, 8.7.2 FDA, proprietary information collected by, 8.4 510(k) premarket submission, 8.3.1 Transfers of rights, 8.8 Information collected by FDA, 8.4 Intended use, 8.3 Investigational device exemptions, 8.3.3 Patents Considerations for filing applications, 8.6

I–10

Substantial equivalence claims, 8.6 Tensions between medical device law and patent law, 8.6 Term, extension of, 8.7.1 Predicate devices, 8.3.1 Premarket approval, 8.3.1 Transfers of rights, 8.8 Premarket notification, 8.3.1 Regulatory framework, 8.3 Reporting regulations, 8.4 Requirements for manufacturers, 8.3 Research exemptions, 8.7.2 Substantial equivalency claims, 8.3.1 MISUSE DEFENSE, 7.11.2 Antitrust violations, not limited to, 7.11.2(a) Examples, 7.11.2(b) Patents, 2.1.3 MORAL RIGHTS Noneconomic rights, as, 7.6.7(a) Visual Artists Rights Act, 7.6.7(b)

N NDAs See NONDISCLOSURE AGREEMENTS (NDAs) NO-HIRE AGREEMENTS, 5.3.13(e) NONCOMPETITION AGREEMENTS Acknowledgments, 5.3.6 Applicable standards, 5.4.1 Assignments, 5.3.7 Change of position or responsibilities, 5.3.8 Defenses Initial considerations, 5.4.7(a) Possible available defenses, 5.4.7(b) Disclosures, 5.3.10 3rd Edition 2016

INDEX

NONCOMPETITION AGREEMENTS (cont’d) Duration of Extension, 5.3.5 Overview, 5.2.2, 5.3.2 Scaling back, 5.3.5 Enforcement of, 5.4.6 Bonds, 5.4.6(h) Cease and desist letters, 5.4.6(e) Determining whom to sue, 5.4.6(d) Discovery, 5.4.6(g) Evidentiary considerations, 5.4.6(g) Exit interviews, 5.4.6(c) Expert witnesses, 5.4.6(g) Investigations, 5.4.6(b) Massachusetts, enforceability in, 5.2 Prior to litigation, 5.4.6(a) Quick action, 5.4.6(f) Exemptions, 5.2.7 Rule-based, 5.2.7(b) Statutory, 5.2.7(a) Geographic reach, 5.2.3, 5.3.2 Independent contractors, 5.2.1(a) Initial considerations, 5.4.3 Injunctions, 5.4.2 Internet resources on, Exhibit 5A Irreparable harm requirement, 5.4.4 Acknowledgments, 5.3.6 Confidential information, 5.4.5(a) Goodwill, 5.4.5(b) Social media, 5.4.5(c) Trade secrets, 5.4.5(a) Legitimate business interests, 5.2.5 Acknowledgments, 5.3.6 Identification of, 5.3.3 Not recognized, 5.2.5(b) Recognized, 5.2.5(a) Other terms, 5.3.12 Overview, 5.1 Patents, Exhibits 2E, 2J 3rd Edition 2016

Preparation to compete, 5.3.4 Proscribed activities, scope of, 5.2.4, 5.3.2 Public policy considerations, 5.2.6 Reasonableness, 5.2.1 Independent contractor arrangements, 5.2.1(a) Modification of restrictions, 5.2.1(b) Reformation, 5.2.1(b) Test, 5.2.1(a) Remedies, specification of, 5.3.9 Required elements, 5.3.2 Return of property and information, 5.3.11 Successors in interest, 5.3.7 Writing requirement, 5.3.1 NONDISCLOSURE AGREEMENTS (NDAs), 5.3.13(f) NONSOLICITATION AGREEMENTS, 5.3.13(c) NO-POACH AGREEMENTS, 5.3.13(e) NO-RAID AGREEMENTS, 5.3.13(d)

O ONLINE ADVERTISING Trademarks, 6.11.3, 6.11.6 ONLINE COPYRIGHT INFRINGEMENT See COPYRIGHTS

P PARIS CONVENTION Trademarks, 6.12.1 PATENTS Advantages of, 3.3.1 America Invents Act, 3.4.1 Anticipatory prior art, 3.4.4 I–11

INTELLECTUAL PROPERTY PRACTICE

PATENTS (cont’d) Applications for, 3.5 Assignment accompanying, Exhibit 2G Claims, 3.5.2 Continuation-in-part applications, 3.5.6 Disclosure, 3.5.1 Fees, 3.5.4 Oaths, 3.5.3 Provisional applications, 3.5.5 Assets, as, 2.1 Assignments, Exhibit 2D Applications, accompanying, Exhibit 2G Biosimilar drugs, 8.1.9 Categories, statutory, 3.4.2(a) Client’s considerations, 3.2 Commercialization, assuring, 2.1.3 Confidential information Employee agreements, Exhibit 2J Third-party disclosure agreement, Exhibit 2C Two-way exchange agreement, Exhibit 2F Continuation-in-part applications, 3.5.6 Correction of issued patent, procedures for, 3.6.2(a) Costs of protection, Exhibit 3A Damages, 3.7.5 Defenses, 3.7.1 Defined, 3.1.1 Design patents, 3.4.3 Disadvantages of, 3.3.1 Enforcement of, 3.6 Correction of issued patent, procedures for, 3.6.2(a) Examinations, 3.6.1 Ownership of claimed subject matter, adversarial procedures to determine, 3.6.2(b) I–12

Postissuance procedures, 3.6.2 Correction of issued patent, 3.6.2(a) Ownership of claimed subject matter, determining, 3.6.2(b) Preissuance procedures, 3.6.2 Third-party proceedings to correct scope of claims, 3.6.2(b) Prosecution, 3.6.1 Third-party proceedings to correct scope of claims, 3.6.2(b) Examinations, 3.6.1 Experimental use exception, 3.4.7 Fees for applications, 3.5.4 Ineligible subject matter, 3.4.2(a) Infringement Answers, Exhibit 3C Assertion of infringement claims, 3.7.6(c) Complaints, Exhibit 3B Counterclaims, Exhibit 3C Demand letters, Exhibit 3E Prevention of infringement, 3.2.1 Replies to counterclaims, Exhibit 3D Injunctions, 3.7.5 Judicial exceptions to eligibility, 3.4.2(c) Licenses Agreements, sample, Exhibits 2A, 2B Value, realization of, 2.1.2(a) Litigation, 3.7 Assertion of infringement claims, 3.7.6(c) Clearance opinions, 3.7.3 Damages, 3.7.5 Defenses, 3.7.1 Drug Price Competition and Patent Term Restoration Act

3rd Edition 2016

INDEX

PATENTS Litigation (cont’d) See DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT Enforcement, 3.7.1 Injunctions, 3.7.5 Interpretation of claims, 3.7.7 Major issues, 3.7.2 Markman hearing, 3.7.8 Multiple defendants, 3.7.6(a) Pharmaceuticals See DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT Precomplaint considerations, 3.7.4 Staffing, 3.7.6(b) Medical devices See MEDICAL DEVICES Misuse, 2.1.3 Noncompetition agreement, Exhibits 2E, 2J Novelty of invention, 3.4.4 Obviousness, 3.4.10 Offers for sale, 3.4.6 Other types of intellectual property compared, 3.3 Overview, 3.1 Ownership of, 2.2 Adversarial procedures to determine, 3.6.2(b) Patent Cooperation Treaties, applications filed under, 2.1.1 Pharmaceuticals Biosimilar drugs, 8.1.9 Drug Price Competition and Patent Term Restoration Act See DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT 3rd Edition 2016

Plant patents, 3.4.3 Portfolio, development of, 2.1.1 Postissuance procedures, 3.6.2 Preissuance procedures, 3.6.2 Prior art, 3.4.4, 3.4.9 Prosecution, 3.6.1 Provisional applications, 3.5.5 Public use, 3.4.5 Publication, 3.4.8 Resources on, 1.2.1 Risks, 3.2.1 Sales, 3.4.6 Secret prior art, 3.4.9 Securing unique advantage in market, 3.2.2 Statutory bars, 3.4.4 Statutory categories, 3.4.2(a) Subject matter considerations, 3.4.2 Categories, statutory, 3.4.2(a) Ineligible subject matter, 3.4.2(a), 3.4.2(c) Judicial exceptions to eligibility, 3.4.2(c) Statutory categories, 3.4.2(a) Third-party proceedings to correct scope of claims, 3.6.2(b) Timing considerations, Exhibit 3A Trade secret laws, preemption of, 4.3.3(d) Transfer agreements Biological material, Exhibit 2H UBMTA form, Exhibit 2I Unique advantage in market, securing, 3.2.2 Utility considerations, 3.4.2(b) Value, realization of, 2.1.2 Field, 2.1.2(d) Licensed products or licensed processes, 2.1.2(a) Net sales, 2.1.2(f) Patent rights, 2.1.2(b) Technology, 2.1.2(c) Territory, 2.1.2(e) I–13

INTELLECTUAL PROPERTY PRACTICE

PERFECTION OF RIGHTS International rights, 1.3.3(b) United States, within, 1.3.3(a)

REPRODUCTION RIGHT Limitations, 7.6.2(a) Overview, 7.6.2

PHARMACEUTICALS Biosimilar drugs See BIOSIMILAR DRUGS Data exclusivity Biosimilar drugs, 8.1.6 8+2 (+1) exclusivity formula, Exhibit 8A European regulations, 8.2.17 Foreign countries, 8.2.17 Formula, Exhibit 8A Drug Price Competition and Patent Term Restoration Act See DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT Food and Drug Administration practice and procedures See FOOD AND DRUG ADMINISTRATION (FDA)

RESTRICTIVE COVENANTS Antipiracy agreements, 5.3.13(d) Compensation-for-competition clauses, 5.3.13(b) Forfeiture-for-competition clauses, 5.3.13(b) Garden leave clauses, 5.3.13(a) Invention assignment agreements, 5.3.13(g) No-hire agreements, 5.3.13(e) Noncompetition agreements See NONCOMPETITION AGREEMENTS Nondisclosure agreements (NDAs), 5.3.13(f) Nonsolicitation agreements, 5.3.13(c) No-poach agreements, 5.3.13(e) No-raid agreements, 5.3.13(d)

S

PHONORECORDS Copyrights, notice of, 7.5.6(a)

SCOPE OF RIGHTS Applicable laws, 1.3.2

PRIVILEGE, 9.6 PROPER ADVOCACY, 9.7

SEARCH ENGINE OPTIMIZATION Trademarks, 6.11.3

PUBLIC DISPLAY RIGHT, 7.6.6 Framing, 7.6.6(a) Limitations, 7.6.6(b) Linking, 7.6.6(a)

SEIZURES Trademarks, 6.7.6(b) Customs and Border Patrol, 6.7.4(h)

PUBLIC PERFORMANCE RIGHT Exclusive right, 7.6.5(a) Limitations, 7.6.5(b)

SOCIAL NETWORKING AND MEDIA Noncompetition agreements, irreparable harm requirement, 5.4.5(c) Trademarks, 6.11.4

R RECALL ORDERS Copyright infringement, 7.12.3(b)

I–14

STATUTES OF LIMITATIONS Copyright infringement 3rd Edition 2016

INDEX

STATUTES OF LIMITATIONS Copyright infringement (cont’d) Accrual of claims, 7.8.10(a) Distinct infringements, 7.8.10(b) SUPREME COURT Decisions regarding intellectual property, 1.4

T TRADE DRESS Overview, 6.9 Packaging compared to configuration, 6.9.1 TRADE SECRETS Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 4.2.3 Applicable laws, 1.2.2 Audits, 4.3.1 Analysis, 4.3.1(c) Cataloging, 4.3.1(a) Review, 4.3.1(b) Cause of action, 4.2.1(e) Common law, 4.2.1, 4.2.1(e) Computer Fraud and Abuse Act, 4.2.2(b) Confidential information distinguished, 4.2.1(e) Copyright laws, preemption by, 4.3.3(d) Defined, 4.2.1(e) Disclosure, 4.3.2(a) Duration of rights, 1.3.1 Economic Espionage Act, private right of action under, 4.2.2(a) Elements, 4.2.1(e) Federal law, 4.2.2 Computer Fraud and Abuse Act, 4.2.2(b) Economic Espionage Act, private right of action under, 4.2.2(a) Foreign trade secrets 3rd Edition 2016

International law, 4.2.3 International Trade Commission, jurisdiction of, 4.2.2(c) Government procurement, 4.3.3(b) Historical background, 4.1 Identification, 4.3.2(a) Inevitable disclosure doctrine, 4.2.1(e) Injunctive relief, 4.3.2(b) International Law, 4.2.3 International Trade Commission, jurisdiction of, 4.2.2(c) Internet resources on, Exhibit 5A Irreparable harm requirements for noncompetition agreements, 5.4.5(b) Misappropriation claims, 4.2.1(e), 4.2.1(f) Mobile devices, employees’ use of, 4.3.3(a) Nonsolicitation agreements, 5.4.5(b) Overview, 4.1 Patent laws, preemption by, 4.3.3(d) Preemption issues, 4.3.3(d) Protection programs, 4.3.2 Disclosure of secrets, 4.3.2(a) Identification of secrets, 4.3.2(a) Regulatory submissions, 4.3.3(c) Remedies, 4.2.1(e) Restatement (First) of Torts, 4.2.1(b) Restatement (Third) of Unfair Competition, 4.2.1(d) State law, 4.2.1 Common law, 4.2.1, 4.2.1(e) Related claims, 4.2.1(f) Statutory basis, 4.2.1(a) Uniform Trade Secrets Act, preemption by, 4.3.3(d) Uniform Trade Secrets Act, 4.2.1, 4.2.1(c), 4.3.3(d) TRADEMARK TRIAL AND APPEAL BOARD (TTAB) Answers, 6.8.5(b) I–15

INTELLECTUAL PROPERTY PRACTICE

TRADEMARK TRIAL AND APPEAL BOARD (TTAB) (cont’d) Cancellation proceedings, 6.8.4 Complaints, 6.8.5(a) Defenses, 6.8.5(c) Governing law, 6.8.1 Infringement proceedings, 6.7.3(b) Opposition proceedings, 6.8.3 Procedures, 6.8.1 Standing to bring action before, 6.8.2 TRADEMARKS Abandonment of, 6.3.6 Acquisition of rights, 6.3.4 Anticybersquatting Consumer Protection Act, 6.11.1(a) Applications for Checklist, Exhibit 6D Completion of, 6.5.2(b) Filing date, 6.5.2(a) Foreign nationals, by, 6.5.3(c) Intent-to-use applications, 6.5.3(b) Types of, 6.5.3 Use in commerce, 6.5.3(a) Use-based applications, 6.5.3(a) Assignments, 6.10.2 Recording of, 6.10.2(b) Security interests and, 6.10.2(c) Valid assignment compared to assignments in gross, 6.10.2(a) Blurring of marks, 6.3.5(c) Cancellation proceedings, 6.8.4 Civil enforcement, 6.7.3(c), 6.7.4(j), 6.7.4(k) Clearance search and analysis, 6.4, 6.4.3 Cautionary guidance, 6.4.3(a) Distinctiveness, assessing, 6.4.2 Likelihood of confusion, avoiding, 6.4.1 Necessity of search, 6.4.3(b) Client’s considerations, 6.2 I–16

Common law, bases for rights under, 6.3.3 Community trademarks Advantages of, 6.12.3(a) Disadvantages of, 6.12.3(b) Confusion, likelihood of, 6.3.5(b) Clearance search and analysis, 6.4.1 Refusal of registration for, 6.5.4(b) Counterfeiting, 6.7.4(e) Civil enforcement, 6.7.4(j), 6.7.4(k) Criminal enforcement, 6.7.4(f) Criminal penalties, 6.7.4(g) Criminal enforcement of counterfeiting, 6.7.4(f) Criminal penalties for counterfeiting, 6.7.4(g) Customs and Border Patrol enforcement, 6.7.4(h) Damages, 6.7.6(c) Deceptive labeling, 6.11.6 Declaration of use, 6.5.6(c) Defenses, 6.7.5 Acquiescence, 6.7.5(b) Fair use, 6.7.5(d) Laches, 6.7.5(a) License, 6.7.5(e) Unclean hands, 6.7.5(c) Defined, 6.3.1 Destruction orders, 6.7.6(b) Dilution, 6.3.5(c), 6.7.4(d) Distinctiveness, 6.3.5(a) Assessing, 6.4.2 Refusal of registration for lack of, 6.5.4(a) Distributors, use by, 6.3.9 Domain names, 6.11.1 Anticybersquatting Consumer Protection Act, 6.11.1(a) Dispute resolution, 6.11.1(b) Generic top-level domains, 6.11.2

3rd Edition 2016

INDEX

TRADEMARKS Domain names Generic top-level domains (cont’d) Sunrise registration period, 6.11.2(a) Trademark Claims Service, 6.11.2(b) Uniform Rapid Suspension System, 6.11.2(c) Trademark Claims Service, 6.11.2(b) Uniform Rapid Suspension System, 6.11.2(c) Duration of rights, 1.3.1 Employees, conceived by, 6.3.8 Enforcement of, 6.7 Examination of applications Distinctiveness, refusal for lack of, 6.5.4(a) Likelihood of confusion, refusal for, 6.5.4(b) False advertising, 6.7.4(c) Famous marks, 6.3.5(c) FDA regulations, intersection of trademark law with, 6.11.6 Federal court claims, 6.7.4 Foreign nationals, applications by, 6.5.3(c) Franchise agreements, 6.10.1 Glossary, Exhibit 6A Goals of trademark protection, 6.3.2 Infringement, 6.7.3 Cease and desist demands, 6.7.3(a) Civil actions, 6.7.3(c) Federal court claims, 6.7.4(b) TTAB proceedings, 6.7.3(b) Injunctions, 6.7.6(a) Intent-to-use applications, 6.5.3(b) International trademark protection, 6.12 Internet presence and jurisdiction, 6.7.4(a) 3rd Edition 2016

ITC enforcement, 6.7.4(i) Joint ownership of, 6.3.7 Keywords, 6.11.3 Legal bases for rights, 6.3.3 Licenses Agreements, 6.10.1 Defense, license as, 6.7.5(e) Madrid Protocol and Madrid Agreement, 6.12.2(a), 6.12.2(b) Notice of allowance, 6.5.6(b) Office actions, responding to, 6.5.5 Online advertising, 6.11.3, 6.11.6 Opposition proceedings, 6.8.3 Overview, 6.1 Paris Convention, 6.12.1 Partners, conceived by, 6.3.8 Proper usage Notice, 6.7.1(b) Trademarks as adjectives, 6.7.1(a) Publication, 6.5.6(a) Refusal of registration Bases for, 6.5.4 Distinctiveness, lack of, 6.5.4(a) Likelihood of confusion, for, 6.5.4(b) Registration, 6.5 Affidavit of use, 6.6.2 Declaration of use, 6.5.6(c) Distinctiveness, refusal for lack of, 6.5.4(a) Federal practice, 6.5.1 Incontestability, 6.6.3 Likelihood of confusion, refusal for, 6.5.4(b) Maintenance, 6.6 Notice of allowance, 6.5.6(b) Publication, 6.5.6(a) Renewal, 6.6.1 Specimens, 6.5.6(d) Statement of use, 6.5.6(b) Time line, 6.5.6(e) Request form, Exhibit 6C Resources, 1.2.3, Exhibit 6B I–17

INTELLECTUAL PROPERTY PRACTICE

TRADEMARKS (cont’d) Rights under, 6.3.3 Search engine optimization, 6.11.3 Secondary meaning, acquisition of, 6.3.5(a) Seizure orders, 6.7.6(b) Social networking and media, 6.11.4 Specimens, 6.5.6(d) Statement of use, 6.5.6(b) Statutory law, bases for rights under, 6.3.3 Tarnishment of marks, 6.3.5(c) Third parties, use by, 6.3.9 3D printing, 6.11.5 Trade dress, 6.9 Packaging compared to configuration, 6.9.1 TTAB proceedings Answers, 6.8.5(b) Cancellation proceedings, 6.8.4 Complaints, 6.8.5(a) Defenses, 6.8.5(c) Governing law, 6.8.1 Infringement, 6.7.3(b) Issue preclusion, 6.8.6 Opposition proceedings, 6.8.3 Precluded issues, 6.8.6 Procedures, 6.8.1 Standing, 6.8.2 Subsequent litigation, impact on, 6.8.6 Unfair competition, 6.11.6 Use-based applications, 6.5.3(a) Watch services, 6.7.2 TREATIES Applicable treaties, 1.1.2 Copyrights, 7.1.10

I–18

National treatment, 7.1.10(a) Patent Cooperation Treaties, applications filed under, 2.1.1 TTAB See TRADEMARK TRIAL AND APPEAL BOARD (TTAB)

U UNCLEAN HANDS Trademark infringement, 6.7.5(c) UNIFORM TRADE SECRETS ACT, 4.2.1, 4.2.1(c), 4.3.3(d)

V VENUE Copyright infringement, 7.8.5 VICARIOUS COPYRIGHT INFRINGEMENT, 7.9.6 Financial interest requirement, 7.9.6(b) Overview, 7.9.3 Personal liability of corporate officers, 7.9.6(c) Supervision requirement, 7.9.6(a) VISUAL ARTISTS RIGHTS ACT, 7.6.7(b)

W WATCH SERVICES, 6.7.2 WORKS MADE FOR HIRE, 7.3.2 Commissioned works, 7.3.2(b) Duration of, 7.4.2 Employee defined, 7.3.2(a) Relevance of classification, 7.3.2(c)

3rd Edition 2016