January 31, 2000

Recent IP Legislation is Most Sweeping in Years: It Includes Broad Changes To Patent Law As Well As the New Anti-Cybersquatting Statute

The National Law Journal
Steven R. Englund is a partner at Washington, D.C.'s Arnold & Porter. Scott A.M. Chambers and David W. Leary are associates in the firm's intellectual property and technology practice group.
ON NOV. 29, 1999, President Clinton signed the Omnibus Appropriations Act. 1 More than 200 pages of important changes to federal intellectual property statutes are tucked into this massive legislation. Driven by the need to extend the Copyright Act's satellite carrier statutory license, which otherwise would have sunset on Dec. 31, 1999, the bill became a vehicle for the proponents of a wide variety of reforms.
Among others, the legislation makes the broadest changes to U.S. patent law since the Patent Act of 1952, creates new trademark remedies for cybersquatting--the bad-faith registration of Internet domain names--and broadens the retransmission privilege for direct broadcast satellite operators. The patent provisions of the legislation, the American Inventors Protection Act of 1999, make diverse and sweeping changes to patent law.
In the past, U.S. industry has been blindsided by secret patent applications, often referred to as "submarine patents," that have undergone examination for as long as 40 years. In addition to the disruption caused when a patent issues claiming a settled practice, researchers have wasted time and money reinventing and seeking to patent inventions described in these secret patent applications. Other countries have avoided this situation because in most countries, patent applications are published and accessible in the local language 18 months after filing. The act requires that most applications filed in the United States likewise be published 18 months after filing. In return, the act provides a provisional right to a royalty on publication and actual notice to someone who is practicing the claimed invention. 2
Until the U.S. Court of Appeals for the Federal Circuit's State Street decision, 3 most businesses made efforts to keep proprietary methods of doing business secret and made no attempt to patent these business methods. State Street held that business methods are patentable and provoked a flood of new business method patent applications. 4 Many businesses have faced claims from those who filed for patents long after a method was in use by others. The act creates a defense allowing a business that invented and used commercially a method of doing business at least one year before the date someone else files a patent application claiming the method to continue using the method despite the existence of a patent on the method. 5
The defense is potentially broad. It applies to any method of doing or conducting business, including methods used in connection with internal operations as well as those used in connection with the sale or transfer of useful end results, whether in the form of physical products or in the form of services, or some other useful results. 6 Moreover, the defense permits the prior user to "scale up" and to continue to improve the invention as long as the improvements do not infringe additional, specifically claimed subject matter.
For some time, the Patent Act permitted an interested party to request that the U.S. Patent and Trademark Office (PTO) re-examine an issued patent in light of newly provided prior art references. However, re-examination has proceeded on an ex parte basis, affording an interested party little opportunity to make its views known to the PTO. While retaining the old ex parte re-examination procedures, the act adds a new inter partes procedure for those who want to contest a patent without a lawsuit.
Under this optional procedure, an interested party can file written comments with the patent examiner and appeal to the PTO Board of Patent Appeals and Interferences. 7 Although potentially affording relief at a lower price than litigation, the new procedure carries important risks. While a patent owner can appeal an adverse decision of the board to the Federal Circuit, a third-party requester is barred from doing so. Moreover, requesters are barred from raising in a lawsuit any issue they raised or could have raised in re- examination.
The act provides for extension of the patent term beyond the normal expiration date of 20 years after filing if the PTO fails totake certain actions within a specified number of months; if the PTO fails to grant a patent within three years and the applicant did not "fail to engage in reasonable efforts to conclude prosecution"; or if interferences, secrecy orders or appeals cause delays. 8 The act also imposes new rules on invention promoters--those who hold themselves out as finding developers and marketers of products or services that include a customer's invention. Among other things, invention promoters are required to disclose certain information about their past results. 9 Attorneys who advertise, even on their Web sites, that they might be able to assist in developing or marketing an invention should consider whether they are subject to these rules.
The act also reorganizes the PTO to make it more responsive to its users by establishing two new top management positions; giving the PTO more authority in management and administrative matters; and creating public advisory committees on patents and trademarks. 10 One effect of the act that will immediately be visible to all patent practitioners is the change of the title "commissioner of patents and trademarks" to "undersecretary of commerce for intellectual property" and director of the PTO.
Anti-cybersquatting Statute
Disputes over domain names have been a frequent byproduct of the growth of the Internet from an obscure network used by a small number of universities and government contractors to an important medium for commerce.
For a number of years, "cybersquatters" have registered as domain names famous or well-known marks belonging to others. That practice probably has led to more litigation than any other Internet-related activity. Until now, however, it has not been clear that abusive registration of a domain name, without more, is sufficient "commercial use" to create liability for trademark infringement. 11
The Anticybersquatting Consumer Protection Act adds to the Lanham Act a new s 43(d) that creates a cause of action against anyone who, with bad-faith intent to profit from the goodwill of another's trademark or service mark, "registers, traffics in, or uses a domain name that is identical to, confusingly similar to," or in the case of a famous mark, dilutive of, such a mark, without regard to the goods or services of the parties. 12
The act provides important protection for owners of marks, but it balances that protection with other interests in ways that leave the act with potential loopholes. The act lists nine factors to guide a court's determination of whether a domain name was registered with the requisite bad-faith intent. The factors include consideration of the person's intent to divert consumers from the mark owner's Web site; the person's offer to transfer the domain name to the mark owner or a third party; the person's provision of false contact information when applying for the registration; the person's registration of multiple domain names with the knowledge that the names are confusingly similar to the marks of others; and the extent to which the mark used in the domain name is distinctive or famous. 13
One factor permits a court to consider the person's bona fide noncommercial or fair use of the mark in a site accessible under the domain name. 14 The legislative history indicates that this factor is not dispositive. It is also not intended to affect the decision in a leading case that found trademark dilution when the site having a domain name corresponding to a famous trademark offered content that was unobjectionable. 15 A further, overlapping provision, however, mandates that a court shall not find bad-faith intent if it determines that the person reasonably believed that use of the domain name was a fair use or otherwise lawful. 16 It remains to be seen how the courts ultimately will distinguish permissible fair uses from the abusive registration practices the act was intended to prohibit.
In addition to protecting the owners of marks, the act also creates liability for registration of another's name without consent with the specific intent of profiting from the name by selling it. An important exception under this provision applies when the registrant registers an individual's name and that name is "used in, affiliated with, or related to a work of authorship ... including a work made for hire...." 17 Damages are not available under this provision, but a court may award injunctive relief, such as forfeiture, cancellation or transfer of the domain-name registration, costs and attorney fees.
The act recognizes the difficulty of haling into court domain-name registrants who provide false registration information in obtaining domain names. Codifying a procedure that had been tried in a handful of cases, the act permits a plaintiff to obtain in rem jurisdiction by filing an action against a domain name itself, but only when the domain name owner cannot be located or when in personam jurisdiction is unavailable. To establish that the registrant cannot be located, the plaintiff must try to send notice of intent to bring suit via both postal and electronic mail.
The act makes both dilution and violation of new s 43(d) subject to the same financial remedies as infringement and violation of s 43(a). It also provides statutory damages of $1,000 to $100,000 per domain name for violations of s 43(d). 18 The act limits the liability of domain-name registries that comply with a court order or act pursuant to a reasonable policy implemented in an attempt to prohibit cybersquatting. 19 The act applies regardless of when a domain name was registered but does not allow for damages for activities before enactment of the act. 20
Satellite Retransmissions
Some of the most complex, yet most targeted, provisions of the legislation constitute the Satellite Home Viewer Improvement Act, which extends and overhauls the Copyright Act's statutory license provisions for satellite retransmissions. Most important, the act gives direct broadcast satellite (DBS) operators the means to compete more effectively with the cable industry by allowing DBS operators to beam local television station signals to customers in the same local market. 21 The act creates a permanent, royalty-free statutory license in a new s 122 of the Copyright Act.
Before enactment of this legislation, DBS operators were generally prohibited from retransmitting network stations in their local markets. The statutory license under s 119 continues to permit the transmission of distant signals, and its expiration is extended by five years. 22 The act also reduces applicable royalty rates 23 and changes the conditions of eligibility for the s 119 statutory license.
This legislation makes significant changes scattered throughout all of the primary federal intellectual property statutes and truly provides something for everyone. Like much recent intellectual property legislation, it is the highly complex result of discussions involving many of the affected interests. Identifying and mastering all of these changes is a daunting prospect but necessary to avoid its many traps for the unwary.
1 H.R. 3194, Pub. L. No. 106-113.
2 H.R. 3194, 106th Cong. s 4502; 145 Cong. Rec. S14718 (daily ed. Nov. 17, 1999) (statement of Sen. Lott).
3 State Street Bank & Trust Co. v. Signature Fin. Group Inc., 149 F. 3d 1368, 1374-75 (Fed. Cir. 1998), cert. denied, 119 S. Ct. 851 (1999).
4 Applications for business process patents have soared since the State Street decision, increasing nearly 75% in the first nine months after the decision. Mike France, "Why We Don't Need Patent Reform--Yet," Business Week, Dec. 20, 1999, at 54.
5 H.R. 3194, 106th Cong. s 4302.
6 145 Cong. Rec. S14717 (daily ed. Nov. 17, 1999) (statement of Sen. Lott).
7 H.R. 3194, 106th Cong. s 4604-07.
8 H.R. 3194, 106th Cong. s 4402.
9 H.R. 3194, 106th Cong. s 4102.
10 H.R. 3194, 106th Cong. s 4711-14.
11 See 15 U.S.C. 1114(1).
12 H.R. 3194, 106th Cong. s 3002.
13 H.R. 3194, 106th Cong. s 3002(a).
14 H.R. 3194, 106th Cong. s 3002(a).
15 145 Cong. Rec. S14,708-13 (1999); see Panavision Int'l v. Toeppen, 145 F.3d 1316 (6th Cir. 1998).
16 H.R. 3194, 106th Cong. s 3002(a).
17 Id. To clarify that sound recordings qualify for this exception, the act amends the Copyright Act to add sound recordings to the list of categories of works eligible to be treated as works made for hire when created by independent contractors. H.R. 3194, 106th Cong. s 1011(d).
18 H.R. 3194, 106th Cong. s 3003.
19 H.R. 3194, 106th Cong. s 3004.
20 H.R. 3194, 106th Cong. s 3010.
21 H.R. 3194, 106th Cong. s 1001.
22 H.R. 3194, 106th Cong. s 1003.
23 H.R. 3194, 106th Cong. s 1004.
1/31/00 NLJ C18, (col. 2)

The National Law Journal
Volume 22, Number 23
Copyright 2000 by The New York Law Publishing Company
The National Law Journal
Monday, January 31, 2000
In Focus: Intellectual Property
Focus on All Rights
Subscribe Link

Email Disclaimer