SuperGroup: Fashion, Recession and IP

It seems quite a long time ago that this Kat confidently described intellectual property as the most recession-proof area of legal practice and, while he's sure he's right in principle, he can't say hand-on-heart that the facts are always as correct as the theory they're supposed to support.  Anyway, he hasn't been writing as much about IP and the R-word as perhaps he should have, so he's grateful to his respected friend Fredericka Argent for penning the piece below, which reflects on the effect of recession on the balance between original design, investment and playing safe by copying:

SuperGroup: Fashion, Recession and IP 

Times are tough in business, and none more so in the fashion industry. Newspaper pages are filled with tales of woe: high street stores suffering from declining sales, lack of consumer interest and, in a few cases, insolvency. However, some stores are managing to buck the trend. Those that do tend to be either low cost ‘fast fashion’ retailers or, at the other end of the spectrum, luxury designer brands. It is rare to find a mid-range high street store that is truly flourishing in these austere times. And yet, one such retailer can claim to be doing just that – the all-conquering Superdry. 

Superwho? 

Superdry is the casual-wear label du jour. The brand is easily-spottable with its bright colours, contemporary designs and distinctive Japanese characters emblazoned on everything from T-shirts to rucksacks. It was set up in 2003 by the very un-Japanese-sounding Julian Dunkerton and, despite competition from similar style retailers on the market, such as Abercrombie & Fitch, Jack Wills and Uniqlo, to name a few, SuperGroup has recently revealed pre-tax profits of £50.2 million. Yet, even with success in the UK, Europe, the USA and Australia, SuperGroup is not complacent about the need to stand out amongst rivals in the highly competitive market for casual clothing. As such, it has adopted a tough approach to protecting its brand –- essentially, issuing legal notices to all those that seek to “copy” its designs. 

Cunningly disguised as cats,
Superdry bodyguards keep a
watchful eye out for unwanted
visitors

In 2009, The Times ran a story about Superdry’s approach to high street imitations: at a trade fair in Germany, the company employed two bodyguards to prevent unaccredited buyers from entering and photographing its clothing. SuperGroup claims – arguably sensibly – that it is cheaper to employ such methods than enter into legal battles. Overall, they spend around £1 million per year protecting their designs. Says Julian Dunkerton: “we are probably the most copied brand in the UK and these cases are becoming all too frequent... we are determined in protecting our intellectual property.” 

In January 2011, it was reported that SuperGroup was pursuing nearly 100 legal actions for breach of its copyrights or design rights. There have been some obvious infringers, such as ‘Superfly’ and ‘Silverdry’, makers of counterfeit Superdry products. But SuperGroup has been equally forceful about pursuing other, mainstream retailers who they believe have infringed either their copyrights or design rights in individual pieces of clothing. 

Some examples of recent cases: 

·         May 2009: The Guardian ran a piece covering SuperGroup’s allegations against Primark, accused of copying key features of Superdry’s famous leather jacket, ‘Brad’, as worn by David Beckham. A financial settlement for an undisclosed sum was agreed out of court and Primark agreed to stop producing the jacket. 

·         January 2011: The Telegraph reported that SuperGroup was awarded £45,000 in the High Court against a Lancashire fashion group, Rhodi, who it claimed had breached design rights in their range of Lumberjack-style hooded shirts. Rhodi did not file a defence and, following judgment in SuperGroup’s favour, they were ordered to cease and desist from selling the infringing shirts and surrender their stock. 

As recently reported by The Daily Mail, the latest focus of Superdry’s litigious attention is the Arcadia Group, owned by Sir Philip Green. One amongst this group is the store, Burton, which currently sells a ‘Navy Wool 2-in-1 Funnel Coat’ coat (right) that SuperGroup deems to be an infringement in the design rights of its ‘Jermyn Street’ trench coat. SuperGroup has issued a writ through DKH Retail Ltd, its subsidiary, against Arcadia Group, alleging ‘close similarities’ between the two competing coat. It claims that ‘various small and immaterial alterations’ have been made to Burton’s coat in an attempt to ‘avoid a charge of blatant copying’. SuperGroup is seeking damages from Arcadia Group as well as the destruction or delivery-up of the offending goods. 

Protecting the design 

Clothing has always been a tricky area when it comes to intellectual property protection, partly because fashion is so transient that the period of protection may outlive the clothing line itself. Designs in the UK can be protected by copyright and/or a design right. An unregistered design right, like copyright, arises automatically. Alternatively, a design may also be registered under UK or European Community law. 

Without access to the court documents, it is not possible to know the scope of protection around the Jermyn Street trench coat. It seems likely that as an international company, SuperGroup would choose protection as a registered design under the Community Design Regulation 6/2002. A design will be protected under this regime if it is ‘new’ and has ‘individual character’ (Article 4(1)). Registered design protection lasts for up to 25 years and would give SuperGroup the exclusive right to exploit their design and prevent unauthorised copying. 

Comments on the legal battle 

I am in two minds about SuperGroup’s case against Arcadia. On the one hand, I look at the two items in question and see a fairly generic men’s woollen coat, which could have been designed by any one of the many mainstream high street stores. I also wonder how ‘creative’ a designer can really be when designing a coat that has to look simple, serve a functional purpose and fit the average man. 

On the other hand, perhaps the reason why I, as a consumer, think that the coat is generic is because of the abundance of copycat men’s winter coats on the market. This would point to a fundamental lack of creativity in the retail industry at the moment and widespread and open counterfeiting. Certainly, this is something that Dids McDonald, CEO of ACID (Anti-Counterfeiting In Design) seems to think. Regarding the Superdry v Primark battle, Dids had this to say: 

“The investment incentive is not there for some retailers do the design, research and development; instead retailers look at what’s selling – and it tends to be design-led companies that bring out the hottest stuff – take it, change it a bit and hope that’s OK.  To bring a product to market takes time, investment and creative skills.  There are a lot of companies out there that are free-riding on another’s designs as a fast track to market. It has to stop!” 

It is sad to think that this may be the case. The fashion industry contributes some £21 billion to the UK economy and this year’s London Fashion Week has shown how the UK breeds some world-class designing talent. For all designers – be it creators of high fashion clothing or those creating everyday wear for the big retail chains, intellectual property is one of their most important and valuable assets. Where this asset is threatened by rivals perhaps they should be encouraged to robustly defend their rights. 

However, it is important not to confuse counterfeiting with healthy competition which, from a consumer’s point of view, leads to choice in the market. A balance must be struck in the protection of design rights: counterfeiting – be it blatant or subtle – is unacceptable. It is with regret that I read reports, such as that by the UK’s IP Crime Group detailing the high levels of counterfeiting in clothing in the United Kingdom. But, equally, I would question whether all of SuperGroup’s claims against its rivals can be strictly justified. Are Burton’s designers lazily free-riding on the success of a popular Superdry coat, or is this simply a case of two designers creating similar but independent articles of clothing in response to consumer demands? Only time will tell how (or indeed, if) this question is answered. In the meantime, I’d be interested to hear readers’ thoughts on this matter.

Letter from AmeriKat: 8,000,000, 3, 1970s, 1, $3,340, #24 - US IP News in Numbers

For international travellers coming from the U.S., you will usually find yourself in one of the many Hudson News stores doting our nation's airports pacing the magazine rack for a selection of entertaining flight-fillers. The AmeriKat's favorite staples that are crammed into her already overstuffed Coach carryall, are The Economist, US Weekly (so bad, its good), National Geographic, Psychology Today, Rolling Stone and, front-seat pocket favorites - Time and Newsweek. These are usually the first magazines the AmeriKat starts devouring even before take-off and by the time the plane is taxing to the runway, she has made it to her favorite page - the page with that week's news expressed in numbers. Sadly the AmeriKat is busily stranded in London so the joy of airplane literature have escaped her this summer, but in a tribute to her favorite travel reading she has taken a glossy page out of US news magazines and has put this week's US IP news in figures. (picture, left - the AmeriKat snuggling under her airplane reading)

When IP news is a f(x) of n.....

8,000,000 - The number of patents issued by the USPTO on 16 August 2011 when it granted a patent to Second Sight Medical Products for a product called Argus II - a visual prosthesis apparatus that enhances visual perception for people who have become blind due to outer retinal degeneration. Argus II uses electrical retina stimulation to produce the visual perception of patterns of light. The Argus II is starting its clinical trials in the US and has obtained marketing approval in Europe. President and CEO of Second Sight, Robert Greenberg, stated that "This patent protection and significant federal support for innovation have already played key roles in creating nearly 100 US jobs at our company. Once the Argus II has FDA approval in the United States, we expect to create hundreds of more jobs over the next several years..." IP innovation and protection = economic stimulus, is plainly the message from the USPTO.

75 years - the number of years that it took the USPTO to reach 1 million granted patents in August 1911 when it issued to Francis H. Holton of Akron, Ohio a patent for his improvement in vehicle tires to make them more durable and puncture resistant.

6 years - the number of years that it took the USPTO to go from 7 million patents granted to 8 million patents. The 7 millionth patent was issued to John P. O'Brien for a strong, biodegradable polysaccharide fibers he invented for use in textile applications.

1 - The number of Abercrombie & Fitch articles of clothing the AmeriKat owns - which is far less than the cast of Jersey Shore. IPKat readers may have caught a glance at last week's story that frat-boy favorite apparel retailer, Abercrombie & Fitch, was reported to have offered to pay Michael "The Situation" Sorrentino of MTV reality show Jersey Shore to never where its clothes on air (see A&F press release here) as the "association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans." Many are calling the press release a publicity stunt for a "slow day in August" right before the back-to-school buying begins. However, its interesting to note that a press release about an allegedly detrimental impact on brand reputation was created to increase just that - brand reputation....ahhh, the fickle world of brands!

$3,340 - The cost of the genetic test for breast cancer risk that was subject of Myriad Genetic's recent success in the US Court of Appeals for the Federal Circuit when the court upheld the company's patents on two human genes - BRCA1 and BRCA2 (picture, right - pink ribbon, (c) Science 2002). The sequencing of the genes tests for mutations that increase the risk of a woman getting breast and ovarian cancer. A recent New York Times article reports that despite its recent legal success some commentators are suggesting that the test has been surpassed by newer DNA sequencing techniques which are faster and cheaper. This, the article reports, may be a sign of trouble to come, notwithstanding that Myriad's main patents do not start expiring until 2014. However, Myriad has stated that the company has time to start adapting to the new technology before its patents expire and in the future will be relying more on trade secret protection than on patents. Myriad's CEO Peter D. Meldrum in January stated, in reply to a question about whether Myriad would begin enforcing their European patents, including for BCRA1 and BCRA2, against companies using the genes in tests, that "[i]f I had my druthers, I would not want to go into a new market in a heavy-handed fashion, trying to enforce patents." Instead, the company is reported to begin relying more on its "vastly superior information."

The patent system is premised on requiring public disclosure of inventions - you get to enjoy your monopoly, as long as the rest of us can see and build upon your scientific step for the betterment of society (as long as the use is non-infringing during the limited time you are enjoying your monopoly). Trade secrets, however, are all about keeping information out of the public domain for an indefinite time. Should information, such as the information Myriad has about which of the thousands of mutations in the two genes raise the risk of getting cancer, be kept out of the public domain? If companies with valuable medical information are relying on trade secrets rather than patents, this could have serious impact on the progress of science (Copyright Clause) and in this case, medical research. If this begins to be a trend, are we to blame failings in our patent systems and protections or the desire of companies to maintain a monopoly on proprietary information and technology for as long as possible? Or is this just the same question? Are there public policy arguments for demanding that such information be disclosed, and if so, how does that square with the Anglo-American philosophy of commoditizing property (and IP)for financial gain? Is it only right that a company should use whatever legal means it has to protect its investment and research, regardless of any public policy or ethical considerations? Similiar questions are posed by the New York Times article and by Dan Vorhaus in his blog the Genomics Law Report.

$353 million - the amount of money reported to have been generated by the breast cancer test which accounted for Myriad's $402 million revenue in the year ending June 2011.

3 - The number of grape growers that have successfully claimed that the US government can be joined to a patent invalidity claim. The three Californian grape growers have claimed that a California trade group, The California Table Grape Commission, licensed invalid patents from the US Department of Agriculture(USDA). The USDA owned three patents issued under the Plant Variety Protection Act for grapevines that produce table grapes - Sweet Scarlet, Scarlet Royal and Autumn King. The USDA licensed its rights in the three patents to the California Table Grape Commission, a California state agency. The Commission was established to promote the state's table-grape industry and is funded by a tax levied on each box of table grapes produced in California. The Commission sublicences the patents and under the licences is entitled to retain 60% of the royalties with the remaining 40% going to the USDA. The Commission authorized three nurseries to serve as the exclusive distributors of the patented varieties. The ultimate growers of the grapes have to sign a "Domestic Grower License Agreement" which requires the growers to pay a royalty, prohibits the growers from propagating the plants, and permits the Commission to order the destruction of the purchased plants if the Commission believes the growers are violating the license.

Three grape growers, who purchased the grapevines covered by the patents signed the licence agreement and paid the licensing fee. They then brought a claim for declaratory judgment challenging the patents for invalidity for lack of novelty and that the Sweet Scarlet (picture, left) patent is unenforceable because of alleged inequitable conduct during prosecution at the USPTO. The US Court of Appeals for the Federal Circuit issued a decision last Wednesday that the Administrative Procedures Act ("APA")enables the 3 grape growers to "pursue equitable relief against the USDA on its patent law claims." The 3-judge panel ruled that the USDA could be joined as a party to the claim because the licensing agreement between the USDA and the Commission did no transfer all the rights in the patents, as such the USDA was a necessary and proper party to the grape grower's patents claims. Judge William Bryson, giving the opinion of the Court, held that an amendment to section 702 of the APA "recognizes a right of judicial review for 'agency action'" in that it waives "sovereign immunity for actions seeking relief other than money damages against federal agencies, officers, or employees" - such as the equitable relief sought by the grape growers in their dedicatory judgment for patent invalidity. As such, the grape growers could join the USDA in their action. Allegedly invalid patents are also curse for the US government it seems....

#24 - The ranking given to Girl Talk's album, Feed the Animals, by Rolling Stone in 2008. Girl Talk, the one man band of Gregg Gillis, a former biomedical engineer turned musician, is known for weaving hundreds of samples of recorded music and sounds into frenetic tracks which he releases for free or a la Radiohead model. A recent article in the Huffington Post this week explains why Gillis uses this model when he releases his work under the Illegal Art label. Also this week, EMI won a partial victory in a copyright lawsuit against online music storage site MP3tunes who was found liable for contributory infringement when it failed to remove unauthorized songs from its website after being put on notice. District Judge William Pauley however refused to rule on whether MP3tunes employees were liable for copyright infringement in downloading 171 songs.

1970s - The decade when late sportscaster Myron Cope coined the term "The Terrible Towel" (watch the story here). The Terrible Towel, a yellow and black cloth which is swung about in the air by the Pittsburgh Steeler's (an American football team) fans is the subject of a trade mark infringement suit. The lawsuit brought by the Steelers and Allegheny Valley School (who owns the trade mark and is where Cope's autistic son lived) against Eugene Berry Enterprise alleges that that company filed a trade mark application in May for THE TERRIBLE TOWEL and has been selling shirts with the mark. Eugene Berry Enterprise has been asked to withdraw its application.

Letter from Amerikat: Happy Bunny Day!

The AmeriKat has been enjoying the warmth of the sunbeams that have danced across her numerous files, spreadsheets and bundles this past week. The warmer weather brings out the summer clothes and English smiles, but also insects. Almost this time last year the AmeriKat was in the throws of a biblical scale warfare with swarms, floods, and drought inflicting her house. She had hoped that the spring and summer of 2010 was a blip in the calendar of insect infestations she would have to deal with, but alas, with the warmer weather the ants are back. She has now found the gap in her floorboards were the pesky insects have been arriving from, but like plugging a hole in a leaky boat, the water will always find somewhere else to spill in from. So instead of lounging out in the sun, dying eggs, eating chocolate and drinking lemonade on Easter Sunday, she is instead attacking any small six-legged body racing across her floor. (picture, left- the AmeriKat inspecting an alleged Easter bunny) Happy Easter from the AmeriKat!

Bratz Beats Barbie with $89 million jury-award

From pesky six-legged insects, to perky two-legged dolls. Last week a Californian federal jury issued their verdict in favor of Bratz (picture, right) in the now-famous copyright and trade secret battle between Barbie and Bratz (see previous reports here). Barbie's maker, Mattel, had alleged that the maker of the Bratz doll - MGA Entertainment- stole the idea for the Bratz doll by entering into a deal with the designer of the doll, Carter Bryant, who had previously worked for Mattel. Mattel subsequently filed a lawsuit for copyright infringement and trade secret violations, while MGA alleged unfair competition and also trade secret theft. This case was heard by first by Judge Larson who ruled in favor of Mattel, but that $100 million verdict was overturned on appeal. The Court of Appeals for the Ninth Circuit held that the federal court judge had erred in ruling that Mattel automatically owned the designer's sketch of the doll under the terms of the 'Employee Confidential and Inventions Agreement' between Mattel and the designer and remanded the case back to the federal court.

Bryant's employment agreement had assigned all rights, titles and interests in any such inventions, patents and copyrights to Mattel. The contract defined "inventions" as including, but not limited to, discoveries, improvements, processes, designs and know-how. The district court had held that this agreement assigned Bryant's ideas to Mattel despite 'ideas" not being included on the list or mentioned anywhere else. Mattel argued that the list of examples in the contract were illustrative not exclusive, but the Court held that "ideas" are "markedly different from the list of examples including discoveries, improvements and designs" (People ex rel Lungren v superior Court (1996)). (picture, left - no amount of law school could prepare Lawyer Barbie for the cruelty of a jury verdict) The Court of Appeals stated that the contract was arguable capable of either including or not including ideas, but that the trial court did not recognize this ambiguity and thus did not examine the extrinsic evidence before it on this issue.The Appeals Court concluded that the agreement could be interpreted to cover ideas, but that the text of the agreement did not compel that reading and thus remanded the issue back to the district court. They stated that:

"Designs, processes, computer programs and formulae are concrete, unlike ideas which are ephemeral and often reflect bursts of inspiration that exist only in the mind."

At the end of last year, Mattel and MGA applied for summary judgment on the issue of copyright infringement for the first and second generation Bratz dolls. Judge Carter granted summary judgment in MGA's favor in respect of the second generation Bratz dolls, but the remaining issues, including breach of copyright for the first generation of Bratz dolls and the breach of confidence/trade secret claims, remained for trial. The court was tasked with determining whether the Inventions Agreement entitled Mattel to Bryant's ideas for names like "Bratz" together with sketches that he created outside working hours. Also, ripe for ruling was MGA's trade secret claim against Mattel through a campaign of corporate espionage, whereby MGA alleged that Mattel's employees gained access to regulated private MGA toy showrooms by deceptive means.

On Thursday, a federal court jury in Santa Anna, California, found in favor of MGA and following the Court of Appeals opinion held that Mattel did not own the sketches or ideas for the Bratz dolls. The jury verdict also held in favor of MGA's counterclaim that Mattel had willfully misappropriated trade secrets and slammed Mattel with a $88.5 million damages price tag. A slight saving grace, albeit an insulting one, was that the federal jury also found that MGA had interfered with Bryant's contract with Mattel and issued Mattel a $10,000 award for the interference.

Although the battle may not be over with reports that Mattel will file a motion for a retrial within two weeks and will reserve the right to appeal, the case does remind everyone of the importance of carefully drafted employee contracts, as well as taking the business decision to litigate over seven or so years even if it costs your shareholders $400 million (see MSN money report here). However, if Mattel's intention was to quash the rival dollmaker, the litigation may have just done that. MGA's CEO, Isaac Larian is reported as saying that the Bratz brand "will never be the same level it was before."

The IPKat will keep you posted on any further developments in the case.

Tony Duquette seeing Spots with J.Crew sweater

Tony Duquette, Inc, the proprietor of the various IP rights associated from the late namesake artist and designer filed a trade mark infringement suit against clothing retailer and AmeriKat favorite, J.Crew in a New York federal court last week. For those not in the know, the late Tony Duquette was a Tony award-winning designer and artist who counted Elizabeth Arden and the Duke and Duchess of Windsor as clients. Tony Duquette allege that J.Crew has infringed the DUQUETTE name and trade mark by producing and selling a sweater with the style name the "J.Crew Duquette Factory Leopard Print". The complaint alleges that J.Crew knowingly and willfully used the DUQUETTE trade mark in connection with their leopard print sweater because of Duquette's alleged unique association with leopard prints, in particular with woven and printed textiles including carpets and tapestries. (picture, left - a fabric design by Duquette) The AmeriKat is seeing more and more product descriptions that use trade marked words become the subject of trade mark disputes. In the UK, one can always invoke the fun game of whether the product description is being used as a function (of many, many functions) of a trade mark. In the U.S., the case is arguably little more straightforward.

Albeit having not read the complaint, the AmeriKat's gut instinct is that there is not enough here to satisfy the test of trade mark infringement. i.e., namely where is the confusion and whether Duquette has enough reputation in his name associated with leopard print textiles to claim dilution? Further live trade mark registration for DUQUETTE the AmeriKat found on USPTO is for tapestries of textiles, carpets and rugs - not apparel (Reg No. 3863326). The AmeriKat perused J.Crew's website today and found one leopard print sweater which is called the "Wild spots cardigan" - a very un-J.Crew product name - so her guess is that J.Crew has already taken steps to change the name of the contentious product. The Amerikat predicts this lawsuit to die a quickish death, just like the animal print trend of last season.

Apple v Samsung v Apple v Samsung v Apple....

Last year the AmeriKat was constantly up-to-date reporting on the latest of the patent mobile phone wars. She has now officially lost track, except for the latest of the battles now between Samsung and Apple. Apple sued Samsung two weeks ago in California federal court for trade dress, design patent, trade mark and patent infringement against Samsung's Galaxy line of smartphones and tablets. Apple allege that Samsung's products are copies of the iPhone and iPad designs including the "icons with the rounded corners."

The incestuous ties of the smartphone and tablet manufacturers and retailers are felt in this case. In 2010 Samsung earned a reported $5.7 billion revenue from Apple by way of their purchase of Samsung semidconductors. Tim Cook, Apple's CEO, told the Wall Street Journal that Apple is

"Samsung's largest customer, and Samsung is a very valued component supplier to us, and I expect the strong relationship will continue. Separately from this, we felt the mobile communication division of Samsung had crossed the line, and after trying for some time to work the issue, we decided we needed to rely on the courts."

The litigator in the AmeriKat sensed a nice little bargaining chip for Apple in this suit, however not to be uncharacteristic in this type of litigation Samsung then "countersued" Apple last week, but not in the U.S. Samsung filed patent infringement lawsuits against Apple in Korea, Japan and Germany alleging violations of patents filed in each of those jurisdictions. The allegedly infringed patents involve "transmission optimization and reduction of power usage during data transmission, 3G technology for reducing data-transmission errors and a method of tethering a mobile phone to a PC to enable the PC to utilize the phone's wireless data connection." The speed in which these lawsuits were filed indicate that Samsung may have been preparing itself for this counter-attack for sometime.

This latest chapter in the mobile patent war saga again demonstrates that when it comes to litigation surrounding smartphone technology, the best defence that is repeatedly being employed by parties is that of pursuing offensive litigation strategies on a global level. Whether or not that will prompt the parties to settle sooner is not a certainty, but the more complicated and more jurisdictions in which a company has to battle, the more attractive it becomes to resolve the dispute before litigation costs rocket and stated commercial relationships are massively affected.

Letter from AmeriKat: The Rite of Spring

Gone are the evenings when the AmeriKat had to activate her whiskers and night vision to illuminate the darkened journey from her office home. The days are getting longer, the afternoon sun is gliding through her Venetian blinds, and her outer garment of choice is a mere raincoat to guard against the unexpected shower. It is true, Spring may have finally graced London with her presence. However, with Spring has come the formidable western wind - Favonius (or Zephyrus)- that last week wreaked havoc on many a groomed fur coat (picture, left) and once-casually floating skirts -the winds of change have come. The winds of patent reform, first reported by the AmeriKat two years ago, have been the biggest news of the past few weeks, but the winds have also blown off the dust of some old issues and revealed some new issues.

i4i files Supreme Court argument, US Government agrees

The i4i v Microsoft battle is definitely an old IP story dating back to 2007, but only three weeks ago i4i filed their reply to Microsoft's appeal in the U.S. Supreme Court. The filing signals one of the final steps in the litigation before the Supreme Court rule on the issue of what evidential standard is required to prove patent invalidity– that of a higher “clear and convincing” standard or a “preponderance of evidence” standard. The “clear and convincing” standard has been part of US patent law for almost 30 years and supports the presumption that patents, when granted by the USPTO, are assumed to be valid; therefore a higher standard of proof is required to invalidate the patent.

Readers will recall that this case involves an epic battle between the two companies involving i4i’s US Patent No 5.787, 449 (“449 Patent”) which related to markup languages and Extensible Markup Language (“XML”) used in electronic documents. In 2007, i4i filed a patent infringement action against Microsoft in the Eastern District of Texas. Microsoft claimed that the '449 patent was invalid because an earlier version of i4i’s software had anticipated the claim. However, this earlier software, S4, had been destroyed ten years prior to the case so the USPTO Patent Examiners never had the opportunity to examine the i4i’s patent application in light of this alleged prior art. Because the S4 data had been destroyed, Microsoft argued that they never had an opportunity to provide “clear and convincing evidence” of invalidity. The trial jury found in i4i’s favor, Microsoft appealed to the Circuit Court of Appeals who upheld the lower court’s finding and then appealed to the US Court of Appeals for the Federal Circuit. The US Court of Appeals upheld the Circuit Court’s ruling and so Microsoft appealed to the Supreme Court. The Supreme Court granted certiorari in the case November 2010.

As reported by the Amerikat, Microsoft is arguing that the evidential standard to invalidate a patent should be one of a “preponderance” and not of a “clear and convincing” standard (see previous posts here for Microsoft’s argument). The AmeriKat has worked her way through the i4i’s brief for a full two-parter AmeriKat post out this week, but i4i's main argument boils down to the suggestion that Section 282, the section that deals with the burden of establishing invalidity, is not silent on the burden of proof requirement. It uses language that has a settled meaning of a “clear and convincing” standard which is itself settled by Federal Circuit and Supreme Court case law history, i.e., section 282 codified the existing evidential standard. In addition, this heightened standard of proof has specifically been used in cases dealing with prior-use claims of invalidity, such as the case here. Most of i4i's argument is devoted to the stronger underlying public policy argument of maintaining the heighted evidential standard, i.e., promoting strong and stable patent rights to protect the incentives for innovation and investment. A weaker standard, such as the preponderance standard, would arguably have the counter-effect as well as weakening the powers and judgment of the USPTO.

Appealing to the USPTO's powers definitely had the right effect and the US Government came galloping to i4i's defence. A week after i4i's filing, the US government joined 21 other amici curiae briefs in support of i4i, including General Electric, Procter & Gamble, and Johnson & Johnson. The main thrust of their support can boil down to that of the USTPO's judgment:

"By allowing a law jury to second-guess the PTO's judgment even in close cases, the preponderance standard would diminish the expected value of patents and would reduce future inventors' incentives to innovate and to disclose their inventions to the public."

In particular, the US Government contended that when invalidity is challenged in infringement proceedings where the prior art was not and could not be before the USPTO during examination, although the standard of proof is arguably more difficult to determine, it should nevertheless be the clear-and-convincing evidence standard. This is because this standard should be applied uniformly and because it

"reflects the better reading of Section 282 in light of that provision’s text, history, and purposes. Most importantly, the text of Section 282 does not suggest that the standard of proof governing questions of patent validity varies depending on the nature of the evidence that a challenger introduces. Such a variable-proof regime, moreover, would reflect a substantial departure from the way in which evidentiary burdens typically operate. Although juries routinely give different weight to different types of evidence, petitioner identifies no statute under which the standard of proof governing a particular determination depends on the type of evidence that the parties introduce. The Federal Circuit’s longstanding approach to the question presented here, under which evidence that was not before the PTO “may carry more weight and go further toward sustaining the attacker’s unchanging burden” ..."

However, if the worry from the USPTO is that a lower-evidential standard may threaten the value of granted patents, then the AmeriKat wonders what they have to say about the concerns about post-grant reviews that is set out in the America Invents Act (reported last week here). Post-grant reviews are argued by some to increase costs to patent holders and would enable a higher frequency of repeated merit-less challenges, which would decrease the certainty of valid and enforceable patents, and thus the value of the patents. Interestingly, Microsoft's deputy general counsel, Horacio Gutierrez, stated two years ago that post-grant reviews are "essential to maintaining high-quality patents because it allows the validity of questionable patents to be tested."

The AmeriKat will be back later this week with a more detailed report of i4i’s brief.

More Unrest in US Patent Reform and AIA

The winds of change are not shifting the AmeriKat's post from patent issues today. Last week the AmeriKat reported on the America Invents Act (AIA) and the controversy surrounding some of the House's version of the Senate bill S.23. Last week, American Innovators for Patent Reform (AIPR) along with eight other national organizations including the Institute for Electrical and Electronic Engineers (IEEE) and National Association of Patent Practitioners (NAPP) sent a letter to the members of the House of Representatives and the staff of the House Judiciary Committee detailing their many objections to the AIA, including the increasing cost in securing and defending a patent (see post-grant review above), reducing access to the patent system for inventors and small businesses (see post-grant review above), and increase the current 700,000 patent application backlog (see first-to-file scare last week).

A more nuanced objection has also been raised - that of grace periods (picture, right - the AmeriKat's favorite painter, Botticelli's Primavera picturing the Three Graces). There is an arguable tension in switching to a first-to-file system and the issue of grace periods. The letter argues that that with the introduction of the first-to-file standard, the current year "grace period" currently afforded to inventors before filing an application will be shortened. The AIA provides that the grace period will only apply in circumstances where the inventor publishes a disclosure (unhelpfully undefined in the AIA) of the invention, however it is argued that small businesses and startups do not routinely publicly disclose their invention soon after it is made. The worry is that the AIA will return patent law to a system that effectively does not provide for a grace period where there is non-disclosing public-use and on-sale activity, not just disclosure. The Bill's proposed section 102(a)

"includes public-use and on-sale bars which have no counterpart exception for grace in proposed 102(b). This is a bad system part of which has been tried in the U.S. and was abandoned in the Patent Act of 1839, which established a grace period of such activity."

Although, adversaries of the Bill abound, the House promptly picked up the AIA this week where the Senate left off. USPTO Director David Kappos, who will be visiting the AmeriKat's alma mater tomorrow appeared before a subcommittee hearing on the bill on last week saying that AIA's measures would "reduce legal costs, improve fairness, objectivity and transparency, and support US innovators." Director Kappos's written statement can be read here. Broad language like this, says the AmeriKat, is exactly what has inflicted the AIA and created such discord with a section of the US inventor community. The AmeriKat has another - if the purpose of AIA is to reduce backlog, surely the new post-grant review procedures are going to create more strain on the USPTO's staff and resources and further increase the backlog?

Proenza Schouler target Target's Mossimo bag

Now something a bit closer to the AmeriKat's heart - and she realizes she now has a reputation about writing about fashion and shopping so she does not wish to disappoint. Proenza Schouler, the New York based luxury womenswear line headed by designers Jack McCollough and Lazaro Hernandez have spoken out about the similarity between their PS1 bag and Target's Mossimo Messanger bag. The PS1 bag (picture, left) retails for $1,595 and is made of genuine leather. The Mossimo bag retails for $34.99, is currently out of stock on-line (the AmeriKat just checked) and is made of fake leather. Although the placement of the straps and closure are different, the other design features including the shape and weight of the bag are quite similar, suggests Hernandez. As reported by the New York Times he stated that

"Our whole aesthetical idea with this bag was to take the hardware off. And the attitude, the slouch of the bag - they got the weight really right."

The numerous fashion blogs that look out for cheaper versions of the more desirable luxury products heralded Target's bag (picture, right - from the New York Times article) as the perfect affordable version of the much-coveted item. McCollough stated that although he can understand this thinking, such products are detrimental for small companies like Proenza. He stated "Yeah, why save up and buy ours when you can buy theirs right away?"

However, the biggest issue is what the AmeriKat originally thought this piece was about. Target has collaborated with several famous luxury fashion labels and desingers, including Mulberry, Liberty and Isaac Mizrahi. Proenza also previously collaborated with Target a few years ago, designing 65 garments for sale in Target stores and has recently reissued some of those pieces in Target this spring. The Massimo bag is thus appearing in the same store that Proenza's authorized designs are also appearing.

The AmeriKat's day-to-day work focuses on the fashion industry and in recent years she has seen how many luxury brands create bespoke lines and license some of their designs and IP out to hight street and mass retailers such as to H&M and Target (picture, left - 2010's Jimmy Choo and H&M collaboration). Although, arguably, these collaborations represent a new revenue stream to luxury brands and notionally act as getting into the stores before the knock-offs and infringement start there are dangers that can often be ignored. Not only can these types of licensing agreements, if used too often and too frequently, be in danger of diluting the attractive power of a luxury brand (products, prices and exclusivity) but it can also potentially dilute the power of any later infringement actions they wish to take. Knock-offs are usually of poorer quality than the originals, but often so are the designs located on the racks at H&M and Target which are authorized by the luxury designer. What happens to the brand and legal reputation of a luxury brand in these circumstances? Also, when brands licence their IP for lines in high-street and mass retail shops, what are the assurances that the hand that feeds these retailers won't be bitten by the appearances of a later knock-off or infringing item, such as what has allegedly happened in the Proenza case? Is this a matter to be dealt with in the contract between the two? What do readers think?