To Cajole to Threaten: How Best to Curb Online Counterfeiting

I. Introduction
The Trump administration, addressing efforts to curb online counterfeiting, has called for heightened collaboration, at times suggesting providing private parties with technological resources to help combat online counterfeiting. At the same time, the administration has bemoaned the lack of accountability among online third-party intermediaries and called for “clean[ing] up this Wild West of counterfeiting and trafficking.”[1]

The president’s Memorandum on Combating Trafficking in Counterfeit and Pirated Goods (“Memo”), issued in April of this year, echoes both these approaches.[2] The Memo has called for an interagency report (“Report”) to be completed by November 2019. In preparation for this Report, the Department of Commerce subsequently issued a Comment Request soliciting feedback from online third-party intermediaries, among others.[3]

II. Blueprint for the Upcoming Report: Both Descriptive and Prescriptive
The Memo calls for a comprehensive analysis of all available data that may shed light on the issue of online counterfeiting. Moreover, it calls for the identification of any market forces that may be facilitating online counterfeiting, as well as an evaluation of foreign strategies—namely those in France and Canada—in combating similar issues.[4]

The prescriptive measures are a bit more amorphous. While one portion of the Memo calls for “enhanced enforcement actions,” other portions call for further collaboration at three levels: among governmental agencies; between the government and third parties; and among third parties themselves. More specifically, the Memo emphasizes “suggestions for increasing the use of effective technologies.”[5] The recently released Comment Request by the Department of Commerce confirms the administration’s interest in utilizing technology to mitigate online counterfeiting in that it specifically solicits further recommendations about how “effective technologies” could be deployed to curb online counterfeiting.[6]

The Comment Request illuminates some of the “best practices” the administration is considering, including an advance vetting of potential sellers/vendors; establishing a “prohibited items” list to bar such goods from being sold in the marketplace; and a number of notification regimes requiring third-party intermediaries to alert customers, and possibly other marketplaces, to any identified counterfeit goods.[7] While some third-party marketplaces have already begun to adopt sophisticated technological systems of their own to curb online counterfeiting, such proposals suggest more burdensome notice requirements, so as to create a solidified front among all online marketplaces.

III. Anticipated Effectiveness of Prospective Policies
Experts in the field note that an ad hoc approach towards online counterfeiting creates room for counterfeiters to evade disciplinary actions by jumping from platform to platform. Thus, proactive collaboration among online platforms appears necessary to ensure counterfeiters have nowhere to go. As Rebecca Mond, vice president of federal government affairs at The Toy Association, testified before Congress, “more must be done to prevent identified illicit sellers that have been taken down from reappearing on marketplaces selling the same products.”[8]

The law is currently in flux with respect to whether online platforms can be held liable for the selling of counterfeit goods on their sites, especially with respect to the question of whether a platform has an obligation to proactively monitor the situation as opposed to merely respond when notified about a counterfeit.[9] Courts have tried to assess the extent to which platforms participate in the selling of these counterfeit goods.[10] If the report calls for executive or congressional action to assist courts in labeling online platforms as active participants, this could subject platforms to trademark infringement liability upon a third-party sale of counterfeit goods.

IV. To Cajole to Threaten
The Report may call for the transformation of optional safeguards into mandatory protocols. Peter Navarro’s comments about the need for accountability suggests a heightened enforcement policy that penalizes online marketplaces for allowing the sale of counterfeit goods.[11] At the same time, the memo’s call for collaboration suggests cooperation. Only time will tell whether the latter actually undermines the former.

[1] The quotation is from Peter Navarro, Director of White House National Trade Council. See Deb Riechmann, Trump Signs Memorandum to Stem Counterfeit Goods Trafficking (Apr. 3, 2019), available at https://www.apnews.com/71d9d74bb31a4447b7a34446cf2410be.
[2] Presidential Memorandum on Combating Trafficking in Counterfeit and Pirated Goods, Sec. 2 (April 3, 2019)
[3] Comment Request on the Report on the State of Counterfeit and Pirated Goods Trafficking and Recommendations, 84 Fed. Reg. 132, 32861 (U.S. Dep’t of Commerce, July 10, 2019).
[4] Memo, Sec. 2(b)(ii).
[5] Memo, Sec. 2(b)(vii).
[6] See Comment Request, at 32863.
[7] Comment Request, at 32863.
[8] Testimony of Rebecca Mond, Vice President of Federal Government Affairs at The Toy Association, Before the U.S. House of Representatives, Committee on the Judiciary Subcommittee for Courts, Intellectual Property, and the Internet for the Hearing titled “Counterfeits and Cluttering: Emerging Threats to the Integrity of the Trademark System and the Impact on American Consumers and Businesses” (July 18, 2019).
[9] See Tiffany, Inc. v. eBay Inc., 600 F.3d 93, 103, n. 9 (2d Cir. 2010) (determining that despite having general knowledge about the counterfeit taking place, the online platform would have had to have more specific knowledge to constitute contributory trademark infringement); but see Oberdorf v. Amazon.com Inc, 2019 WL 2849153, at *10 (3d Cir. 2019) (discussing, albeit it in a strict products liability context, how an online market provider can be considered a seller).
[10] See Spy Optic, Inc. v. Alibaba.Com, Inc., 163 F. Supp.3d 755, 765 (C.D. Cal. 2015) (allowing the trier of fact to determine the extent to which an online platform’s use of metadata to group products on its website constitutes participation with the actual sale).
[11] Navarro has been quoted as saying: “Right now these third-party online marketplaces . . . together with the ecosystem that supports them . . . have essentially zero liability when it comes to these counterfeit goods. That simply has to stop.” See Clyde Hughes, Trump Signs Memo to Fight Counterfeit Products Online, United Press International (Apr. 3, 2019), available at https://www.upi.com/Top_News/US/2019/04/03/Trump-signs-memo-to-fight-counterfeit-products-online/7681554305512/.

“Original Patent” vs. Written Description — A New Reissue Gauntlet?

In two opinions issued in the past few weeks, the Federal Circuit has shaken up two requirements of the reissue statute that most practitioners don’t think about much. 35 USC 251(a) authorizes reissue of a patent “for the invention disclosed in the original patent.” 35 USC 251(c) provides that “[t]he provisions of this title relating to applications for patent shall be applicable to applications for reissue of a patent,” which includes the written description requirement of 35 USC 112(a). The “conventional” wisdom up to now has held that these requirements are more or less synonymous (and not considered arduous). Now, we aren’t so sure.

In Forum US, Inc. v. Flow Valve, LLC, ___ F.3d ____ 2019 U.S. App. LEXIS 18055 (Fed. Cir., June 17, 2019), the district court invalidated a reissue patent on summary judgment on the ground that the reissue claims did not comply with the “original patent” requirement of the reissue statute. The Federal Circuit affirmed, agreeing on the basis of long-standing precedent under the pre-1952 reissue statute[1] – which referred to the “same invention” as the original patent – that the broadened scope of the reissue claims was not apparent from the face of the original patent specification. Continue Reading

Exmark’s the Spot for Royalty Rate Apportionment

The language of the patent damages statute, 35 U.S.C. § 284, appears straightforward – “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer” (emphasis added). The common reasonable royalty calculation multiplies a royalty base by a royalty rate to yield a damages award. While the math seems simple, determination of a reasonable royalty in the context of devices that have hundreds, perhaps thousands, of components and functionalities is an endeavor ripe for chicanery. See Grain Processing Corp. v. Am. Maize–Products Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999) (“To prevent the hypothetical from lapsing into pure speculation, [the] court requires sound economic proof of the nature of the market and likely outcomes with infringement factored out of the economic picture.”).

The principle of apportionment is supposed to corral flimflam economic analysis from stampeding past a justified damages award. Garretson v. Clark, 111 U.S. 120 (1884) (requiring the patentee to provide “evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features”).

Continue Reading

China: New Trademark Law Will Come Into Effect on Nov. 1, 2019

On April 23, the Thirteenth Standing Committee of the National People’s Congress passed the fourth amendment to the Trademark Law of China. The new trademark law will come into effect Nov. 1, 2019. The revisions are designed to curb bad faith filings, willful infringements and counterfeit commodities. Businesses with brand interests in China will have stronger grounds to oppose and cancel bad faith applications and registrations under the new law; they will also be able to more effectively enforce their trademark rights in China. The most significant of the new revisions are described here. Continue Reading

New USPTO Rule Will Require Foreign Trademark Owners Be Represented by U.S.-Licensed Attorney

On Aug. 3, a new regulation promulgated by the U.S. Patent and Trademark Office (USPTO) will take effect and require all trademark applicants, registrants and parties to trademark proceedings that are domiciled outside the United States to be represented by an attorney who has a license to practice law in the U.S. Consequently, individuals and entities with a permanent legal address or a principal place of business (i.e., headquarters) located outside the United States or its territories, respectively, will no longer be permitted to file any trademark-related submissions with the USPTO, either without an attorney or through an attorney who is not licensed in good standing in the United States. Moreover, under the new rule, U.S.-licensed attorneys who represent someone in a trademark matter, regardless of where domiciled, will now need to provide their U.S. state bar membership information along with an attestation that they are active members in good standing of the bar. Continue Reading

Risks and Rewards of Digital Therapeutics in Treating Mental Disorders – Part III

Legislative Exclusions of Software (21st Century Cures Act)

The 21st Century Cures Act (Cures Act), signed into law on Dec. 13, 2016, was designed to accelerate medical product development and bring new innovations faster and more efficiently to patients who need them. Interesting aspects of the Cures Act include that it

  • streamlines FDA procedures to prioritize Breakthrough Devices;
  • reduces or eliminates review of medical devices deemed to be low risk; and
  • removes five categories of software from FDA review.

Under the Cures Act, the categories of software excluded from FDA review include:

  • Category A: Software for administrative support of healthcare facilities, e.g., processing and maintaining financial records, claims and billing information, appointment schedules.
  • Category B: “Healthy lifestyle” software that provides no diagnostic, prevention or treatment function.
  • Category C: Electronic patient records, but not intended to interpret or analyze patient records.
  • Category D: Software for transferring, storing, converting formats, or displaying test data lab tests or med device data, but not intended to interpret or analyze patient records.
  • Category E: Clinical Decision Support Software (CDSS), i.e., software that provides recommendations based on medical information (e.g., peer review). The software must enable independent review of the basis of the recommendations and does not include medical imaging or in vitro testing.

It should be noted that the FDA is authorized to bring Categories C, D and E back under regulation with a showing of likelihood and severity of patient harm, the extent to which the software function is intended to support clinical judgment, a reasonable opportunity for a healthcare professional to review the basis of the information, and the intended user and use environment.

Mobile Apps

The FDA website includes a page concerning Mobile Medical Applications and notes that mobile apps can help people manage their own health and wellness, promote healthy living, and gain access to useful information when and where they need it. The FDA issued the Mobile Medical Applications Guidance for Industry and Food and Drug Administration Staff on Sept. 25, 2013, which explains the agency’s oversight of mobile medical apps. The FDA defines three broad categories that are regulated:

  1. App controls a medical device – FDA considers it an accessory. Example: Software that controls an insulin pump.
  2. App that transforms the mobile device into a regulated device. May include attachment for standard mobile device. App may be labeled for medical-specific uses. Example: App that allows for control of attached transducer that converts a smartphone into a glucose meter.
  3. App that performs patient-specific analysis and provides patient-specific diagnosis or treatment recommendations. Example: App that calculates dosage or creates a dosage plan for radiation therapy.

The above discussion is intended to be a useful guide helping entrepreneurs and investors understand whether a given digital therapeutic approach is likely to require FDA review and approval. For obvious reasons, legal counsel should be consulted when needed.

Intellectual Property Protection

In the United States, a medical device invention (including a software-based medical device) can be protected by patent, provided the invention is novel and non-obvious (the conditions for patentability) and does not fall within an excluded category of subject matter. The excluded categories include natural phenomena and abstract ideas. A full discussion of the topic of patent eligibility is beyond the scope of this paper. For our purposes, it suffices to say that software-based inventions that simply diagnose but do not treat a patient are more difficult to patent. On the other hand, devices that include a treatment function are more clearly eligible for protection. The interested reader is invited to review the articles cited in the notes below.[1]

Reasons to Invest in Digital Therapeutics

The mental healthcare market is huge, and growing. It’s not an exaggeration to say that the market is proportional to the human population worldwide. Moreover, in the United States and other developed countries, it is becoming more common for mental health treatments to be reimbursed through employer-based health plans. At the same time, there is significant friction in the market, making it overly difficult and expensive for individuals to get the help they need. And the stigma associated with mental health issues acts as a further barrier to treatment.

Digital therapeutic approaches offer the promise to overcome all these problems in a highly scalable and profitable way. In addition, the FDA regulatory hurdles are relatively low compared to other medical device and pharmaceutical-based therapies. In today’s highly mobile society, digital therapies are more efficient than in-person or telephone counseling, and they offer opportunities for therapists to efficiently manage patients and gain insights from big data analytics and AI. The authors can envision a future (in the next five to 10 years) where hundreds of millions of users worldwide will have ready access to effective mental health therapies wherever and whenever they need them, through their smartphones.

[1] See, e.g., The Federal Circuit Deals Another Blow to Diagnostic Method Patents (April 11, 2019); Federal Circuit Holds That Claims Directed to Methods of Treating Pain in a Renally Impaired Patient Are Patent-Eligible Under Section 101 (March 29, 2019); The Federal Circuit Opens the Door Wider for the Subject Matter Eligibility of Methods of Treatment, Compositions and Methods of Manufacturing (March 18, 2019); Federal Circuit holds that claims directed to diagnosing neurotransmission or developmental disorders are invalid for failing to recite patent eligible subject matter (February 11, 2019); and, last but not least, The ‘Integrated Into a Practical Application’ Test of the 2019 Revised Patent Subject Matter Eligibility Guidance (January 7, 2019).

CAFC: Patents Enjoy a Presumption of Subject Matter Eligibility

Co-authored by: Phillip Wolfe

In Cellspin Soft, Inc. v. Fitbit, Inc.,[1] the Court of Appeals for the Federal Circuit (CAFC) rendered an important decision declaring that the presumption of validity under § 282 includes the presumption that claims are patent eligible under § 101.

Claimed Invention and Procedural Posture

Cellspin sued several companies for infringing various claims of four different patents related to connecting a data capture device, e.g., a digital camera, to a mobile device so that a user can automatically publish content from the data capture device to a website.[2] The accused infringers moved to dismiss, arguing that the patents were ineligible under § 101. The district court granted these motions and subsequently awarded attorneys’ fees under § 285. In this case, the Federal Circuit vacated both the district court’s dismissal and its subsequent award of attorneys’ fees, and remanded the case to the district court. Continue Reading

Canada: New Trademark Laws Go Into Effect

On June 17, Canada implemented long-awaited changes to its trademark laws. These updates are designed to modernize Canadian trademark practice and bring Canada more in line with international practice. Businesses with brand interests in Canada will want to be aware of these important changes, the most significant of which are described here.

Madrid Protocol: Canada has now acceded to the International Registration system, known as the Madrid Protocol, joining 100+ member countries around the world. The Madrid Protocol can simplify trademark filings and save money, allowing your U.S. attorney to initiate applications in multiple jurisdictions worldwide by filing one international application through the World Intellectual Property Organization (WIPO). Businesses that use a Madrid filing strategy will no longer need to file an independent national registration for protection in Canada. Continue Reading

Risks and Rewards of Digital Therapeutics in Treating Mental Disorders – Part II

The Promise of Digital Therapeutics

According to Wikipedia, digital therapeutics can be defined as a treatment or therapy that utilizes digital health technologies to spur changes in patient behavior. The first mention of the term in a peer-reviewed research publication was in 2015, in which Dr. Sepah et al. defined “digital therapeutics” as “evidence-based behavioral treatments delivered online that can increase accessibility and effectiveness of health care.” See Long-Term Outcomes of a Web-Based Diabetes Prevention Program: 2-Year Results of a Single-Arm Longitudinal Study, J Med Internet Res 2015 | vol. 17 | iss. 4 | e92.

The methods employed by digital therapeutics can be used as a stand-alone therapy or in conjunction with more conventional treatments, such as pharmacological or in-person therapy. Such methods use various digital devices (e.g., smartphones, apps, sensors, computers) to help manage, monitor and prevent illnesses in at-risk patients. These devices are used to collect data from different sources. Such data may include personalized physiological parameters; behavior, social and geographical patterns; and even data indicative of the user’s mood or feelings.

In the mental health area, we believe that digital therapeutic approaches can overcome three of the biggest problems with conventional therapies: lack of access, lack of affordability and stigma. The problems with access and affordability are mainly caused by the relative scarcity of trained counselors as compared to the number of people in need of counseling. Stigma, on the other hand, is a psychological impediment to seeking help based on a person’s feeling of shame about his or her mental afflictions. The field of digital therapeutics offers the promise of delivering behavior therapies safely and effectively via a digital device, and thereby largely overcome the problems of access, affordability and stigma. For this reason, we believe that now is a good time to invest in the digital therapeutics space. Continue Reading

Protected and Unfiltered. Supreme Court Strikes Down the Lanham Act’s Scandalous and Immoral Restrictions.

In April at oral argument, the bench grappled with the issue of viewpoint discrimination based on the literal meaning of the statute and the genuine concern that without regulation, profane and obscene language and images will be imprinted with the ®.

Ultimately, in a unanimous decision, the court held that the statutory language restricting scandalous and immoral speech as drafted and currently interpreted was unconstitutional. The practical implications of the ruling were not considered. Several members of the court considered that there was a possible fix in a limited construction that could satisfy constitutional challenge. However, the majority of the court held that the statute as worded is facially unconstitutional viewpoint discrimination, and that there was no “fix.” Continue Reading

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