TRADEMARKS / EU ENFORCEMENT
European Court of Justice Extends Injunction Granted in
One Jurisdiction to Entirety of European Union
by Désirée Fields
Following the Opinion of Advocate General Pedro Cruz Villalón of October 7, 2010, Court of Justice of the European Union (CJEU) has held that an injunction granted by a national court of one member state under proceedings under the Community Trademark Regulation (40/94/EEC, now replaced by 207/2009/EC) has effect, in principle, throughout the EU. DHL Express France SAS v. Chronopost SA, Case C-235/09 (CJEU, Apr. 12, 2011).
Chronopost owns a Community Trademark and French trademark for WEBSHIPPING covering services relating to logistics and data transmission. DHL Express used the word WEBSHIPPING to designate its online-accessible express mail management service. Chronopost issued proceedings in France against DHL for infringement of both its French and Community Trademarks. At first instance, the Tribunal de Grande Instance de Paris (Regional Court, Paris), which heard the case as a Community Trademark Regulation (CTM) court, found that DHL had infringed Chronopost's trademarks and issued an injunction against DHL. It also imposed a financial penalty on DHL should DHL fail to comply with the injunction. The court declined, however, to grant Chronopost's request that the injunction be extended to the entire area of the EU. Instead, the court restricted the injunction to French territory. DHL appealed to the Cour d'appel de Paris (Paris Court of Appeal) and Chronopost appealed on the territorial scope of the injunction. The appeal court made a reference to the CJEU requesting clarification as to the territorial scope of the injunction and the financial penalty imposed by the French court.
The CJEU noted that a CTM has unitary character, providing the owner protection against infringement across the whole of the EU. Further, the objective of Article 98(1) of the 1994 CTM Regulation (which governs the sanctions a CTM court may impose on a finding of infringement or threatened infringement) is the uniform protection, throughout the entire EU, of the right conferred by the CTM against the risk of infringement. Thus, the court explained that in order to ensure that uniform protection, a prohibition against infringement must extend to the entire area of the European Union. If the territorial scope of that prohibition were limited to the territory of a particular member state, an ongoing risk would exist that the defendant would begin to exploit the mark at issue afresh in another member state. This would force the trademark proprietor to bring separate judicial proceedings in each separate member states, which would lead to a risk of inconsistent decisions.
The CJEU acknowledged, however, that the territorial scope of a prohibition might in some circumstances be restricted. The exclusive right of a CTM owner is conferred in order to enable the proprietor to protect his specific interests in the trademark. Accordingly, the exercise of that right is reserved to cases in which a third party's use of the mark affects, or is liable to affect, the functions of the CTM. If a CTM court held that the acts of infringement or threatened infringement are limited to a single or certain member states, for example, if the defendant proves that use of his allegedly infringing mark will not affect the functions of the claimant's mark in other member states on linguistic grounds, then the court must limit the territorial scope of the injunction to exclude those member states.
The CJEU also held that any coercive measures ordered by a CTM court by application of its national law, such as a periodic penalty payment, must extend to the whole of the territory for which the injunction is granted. Where the national law of a member state does not contain a coercive measure similar to that ordered by the CTM court, it must achieve enforcement in accordance with its own national laws.
Practice Note: The decision is significant as a contrary ruling would have meant that CTM owners would have had to pursue infringers in multiple EU member states. However, there is still scope for difficulties concerning coercive measures, not least where a national court does not have the power to order a particular measure but needs to ensure that it is complied with in an equivalent manner.
UNFAIR COMPETITION / FALSE ADVERTISING
False Advertising Injunction Upheld; It's All Good
... And Good for You
by Rose Whelan and Rita Weeks
In a case involving nutritional claims associated with baby formula, the U.S. Court of Appeals for the Fourth Circuit upheld a $13.5 million jury verdict won by a generic baby formula producer and permanent injunction for false advertising against its longtime legal foe, brand name baby formula producer Mead Johnson. PBM Products v. Mead Johnson & Co., Case No. 10-1421 (4th Cir., April 20, 2004) (Davis, J.).
Plaintiff PBM produces store-brand, "generic" baby formula. Defendant Mead Johnson produces various formulations of baby formula under the brand name "Enfamil." Both parties' formulas contain the same level of two key nutrients that are important to an infant's brain and eye development. The defendant refers to these nutrients by their brand name "LIPIL" and the plaintiff uses the generic descriptor "lipids."
In 2008, Mead Johnson distributed an advertising mailer to 1.6 million customers comparing its LIPL version of Enfamil-brand baby formula to store brands. The mailer contained a number of statements indicating that, among other things, only Enfamil LIPIL would result in improved brain and eye development. Consequently, PBM sued Mead Johnson for false advertising in violation of the Lanham Act and commercial disparagement. Mead Johnson counterclaimed against PBM for, among other things, false advertising and defamation.
Ultimately, the jury returned a verdict in favor of PBM, finding the defendant had engaged in false advertising in violation of the Lanham Act and awarding PBM $13.5 million in damages. The court also issued a permanent injunction enjoining all four advertising claims at issue. Mead Johnson appealed, arguing that the district court erred by admitting expert consumer surveys and evidence of prior false advertising litigation between the parties. The defendant also contested the issuance and scope of the injunction.
The 4th Circuit affirmed, concluding that the district court did not abuse its discretion by admitting consumer surveys conducted by the plaintiff's experts that supported claims that the defendant's advertising attempted to deceive or mislead a substantial portion of its intended audience. Recognizing that plaintiff's surveys may contain some deficiencies in methodology, the court explained that such flaws generally go to weight rather than admissibility. The 4th Circuit also held that the district court did not err in allowing evidence of prior false advertising litigation between the parties involving other baby formula advertisements. The court explained that such evidence was relevant because it speaks to Mead Johnson's intent in making its misleading claims. Further, any unfair prejudice was limited by the district court's exclusion of specific evidence regarding the settlements in the prior litigation.
After determining that the district court did not abuse its discretion in the contested evidentiary rulings, the 4th Circuit considered the propriety and scope of the permanent injunction granted by the district court. The 4th Circuit upheld the injunction, finding that PBM had satisfied the injunction standard announced by the Supreme Court in eBay, Inc. v. MercExchange (2006), (see IP Update, Vol. 9, No. 5). Notably, the court found that the plaintiff had established irreparable harm because the defendant's advertising had misled consumers. Further, PBM had also established that it had an inadequate remedy at law and that the balance of hardships favored it. Noting the litigation history between the parties, the court concluded that an injunction was warranted to prevent Mead Johnson from making similar claims in the future. Finally, the 4th Circuit held that public interest favors the prevention of false and misleading advertisements and that the scope of the injunction was proper.
COPYRIGHT / PREEMPTION
Idea Submission Case Involving "Ghost Hunters"
Television Series Not Preempted by Copyright Law
by Rita Weeks and Gene Folgo
In a 7-4 decision, the U.S. Court of Appeals for the Ninth Circuit held, en banc, that a writer sufficiently stated an implied contract claim, not preempted by copyright law, where a plaintiff alleged a bilateral expectation that the plaintiff would be compensated by defendant for use of plaintiff's idea. Montz v. Pilgrim Films & Television, Inc., Case No. 08-56954, (9th Cir., May 4, 2011) (Schroeder, J.) (O'Scannlain, J. and Gould, J., dissenting).
In 1981, plaintiff Larry Montz, a parapsychologist, conceived of an idea for a television show that would follow a team of paranormal investigators throughout the United States, filming them as they were investigating paranormal activity. From 1996 through 2003, Montz pitched the idea to numerous television studios, including defendants NBC and the Sci-Fi Channel. To pitch the idea, Montz and Daena Smoller, a publicist and producer, showed the defendants television screenplay treatments, video and other production materials. After participating in several meetings with the plaintiffs, the defendants indicated that they were not interested in pursuing Montz's idea. A few years later, the defendants launched the Sci-Fi Channel television series Ghost Hunters. Subsequently, the plaintiffs filed a complaint against the defendants, alleging that the television series was based on the plaintiffs' materials. Specifically, the plaintiffs alleged copyright infringement, breach of implied contract, breach of confidence and related causes of action.
The defendants moved to dismiss the complaint. The district court found that the plaintiffs' complaint alleged facts sufficient to state a federal copyright claim, but that federal copyright law preempted the plaintiffs' state-law claims. The plaintiffs later stipulated to the dismissal of their copyright claim. With no remaining claims to adjudicate, the district court entered judgment in favor of the defendants. The plaintiffs then appealed the dismissal of their breach of implied contract and breach of confidence claims. A three-judge panel of the 9th Circuit affirmed the district court's dismissal of the plaintiffs' state law claims as preempted by federal copyright law. The 9th Circuit subsequently ordered a rehearing of the case en banc.
The federal Copyright Act expressly preempts state law claims if the plaintiff's work "comes within the subject matter of copyright" and the state law grants "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright." Accordingly, to survive preemption, a state cause of action must assert rights that are "qualitatively different" from those protected by copyright. In 1956, the California Supreme Court recognized that an implied contractual right to compensation exists when a writer submits material to a producer with the understanding that the writer will be paid if the producer uses the concept (Desny v. Wilder). In 2004, the 9th Circuit applied that California law to hold that a so-called "Desny claim" (implied contractual claim) is not preempted by federal copyright law (Grosso v. Miramax Film Corp.).
Reversing the district court and the initial three-judge 9th Circuit panel, the en banc 9th Circuit panel held that copyright law did not preempt the plaintiffs' claims for breach of implied contract and breach of confidence. First, the court determined that the plaintiffs' claims fell within the scope of the subject matter of the Copyright Act. Although the plaintiffs' ideas were not protected by copyright, the case fell within the scope of the Copyright Act because the plaintiffs' ideas had been fixed in a "tangible medium of expression" through the plaintiff's teleplays, videos and other pitch materials. Second, the 9th Circuit determined that the plaintiffs' claims for breach of implied contract and breach of confidence were not preempted, because each involved a necessary "extra element" to survive preemption. With respect to the plaintiffs' breach of implied contract claim, the "bilateral expectation" of compensation between the parties provided the necessary extra element. Contracts provide for personal rights between only the contracting parties, the court explained, while copyright confers a "right against the world." Thus, "the rights protected under federal copyright law are not the same as the rights asserted in a Desney claim." With respect to the plaintiffs' breach of confidence claim, the Court explained that "[t]he claim protects the duty of trust or confidential relationship between the parties," which is "an extra element that makes it qualitatively different from a copyright claim."
The dissenting opinion sought to distinguish between writers who seek payment for the idea submission and those who seek an ownership interest in the production and a contractual agreement governing "the terms of the defendant's use."
TRADE SECRETS / COMPUTER FRAUD AND ABUSE ACT
Expanded Protection Against Employee Computer Data Theft
Under Computer Fraud and Abuse Act
by Michael F. Martin
In a decision of first impression, the U.S. Court of Appeals for the Ninth Circuit held that an employee "exceeds authorized access" under the federal Computer Fraud and Abuse Act (CFAA) when the employee obtains information from an employer's computer system and uses that information for a purpose that violates the employer's restrictions on the use of that information. United States v. Nosal, Case No. 10-10038 (9th Cir., Apr. 28, 2011) (Trott, J.) (Campbell, J. dissenting).
The CFAA imposes both civil and criminal liability for accessing a computer "without authorization" or "exceeding authorized access" and then taking certain forbidden actions, ranging from obtaining information to damaging a computer or computer data. Defendant David Nosal is a former employee of executive search agency Korn/Ferry International. In breach of several formal agreements with Korn/Ferry, after leaving the firm Nosal asked three employees to help him in starting a competing business. These employees obtained trade secrets—including source lists, names and contact information—from a proprietary database of executives and companies maintained under tight security by Korn/Ferry. Subsequently, the government filed a 21-count indictment against Nosal and one of his accomplices for, among other things, violation of the section of the CFAA prohibiting unauthorized access to a protected computer with intent to defraud. Nosal filed a motion to dismiss the indictment, arguing that the Korn/Ferry employees could not have acted "without authorization" nor could they have "exceeded authorized access" to violate the CFAA because they possessed permission to access the computer and its information under certain circumstances. The district court rejected Nosal's argument and denied his motion to dismiss, finding that a person's accessing a computer "knowingly and with intent to defraud ... renders the access unauthorized or in excess of authorization."
After the district court denied Nosal's motion to dismiss, the 9th Circuit decided LVRC Holdings v. Brekka, which considered the construction of the phrase "without authorization" contained in the CFAA. In Brekka, the 9th Circuit held that an employee cannot access "without authorization" under § 1030(a)(4) of the CFAA unless the employee has no authority to access the information under any circumstances. Nosal then filed a motion to reconsider. In light of Brekka, the district court partially granted Nosal's motion as to the counts against defendants stemming from alleged access to the former employer's computer system during their employment. Because Nosal's conspirators possessed the authority to obtain information from Korn/Ferry's database for legitimate business purposes, the district court determined that they did not exceed their authorized access by doing so, even if they acted with a fraudulent intent. The government appealed.
On appeal, the 9th Circuit considered whether the defendant conspirators could have exceeded their authorized access to the Korn/Ferry computer system—and thus violated the CFAA—by accessing information that they were entitled to access under limited circumstances. Section 1030(a)(4) prohibits both access "without authorization" and access "exceed[ing] authoriz[ation]." Agreeing with the government that interpreting the two phrases the same way would render superfluous the statutory language, the 9th Circuit held that the phrase "exceeds authorized access" includes access violating the employer's access restrictions, which may include restrictions on the employee's use of the computer or of the information contained in that computer. Accordingly, the 9th Circuit reversed the district court's decision and remanded with instructions to reinstate the criminal counts in the superseding indictment.
The dissent expressed concern that they key phrase of the CFAA relied upon by the majority, "exceeds authorized access," possesses a much broader meaning in other parts of the statute, notably, in those without an intent requirement. Thus, extension of the majority's interpretation of the phrase to other sections of the statute may subject persons to criminal liability for obtaining information from an employer's computer in violation of the employer's computer use restrictions, despite a lack of intent.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
