Archive for the 'Intellectual Property' Category

Holding Equifax Accountable: Lawsuits and Actions Against Equifax

The Equifax breach has, rightly so, been a heat magnet for the credit reporting giant in the media. It’s also been a lawsuit magnet as the company has faced a tremendous number of suits against it in the last several weeks.

A few days ago, we discussed the common causes of action that may be available to you for holding Equifax legally accountable if you’ve been affected by the recent hacks stealing a tremendous amount of private consumer information–everything from social security numbers to credit card numbers and more. It would hardly be surprising if you can count yourself among this unfortunate number as the hack impacted nearly half the population of the United States.

With this many affected, it’s no surprise that there have been a veritable landslide of lawsuits and actions brought against Equifax recently. From class actions to more specific cases to government action against the credit behemoth–let’s look at the many ways people are trying to hold Equifax accountable for this breach.

equifaxWhat is a Class Action Lawsuit?

Class action lawsuits are common when many would-be plaintiffs have damages which are individually too small to justify the costs of a lawsuit. They are not always easy to bring, having several requirements such as similarly situated plaintiffs before they can be approved. However, with half the nation affected by Equifax’s breach there are a heck of a lot of people with smaller claims. This has led to over 50 different class action lawsuits being leveled against Equifax, some of these lawsuits seek as much as $70B.

These lawsuits primarily deal with the two causes of action we discussed earlier this week–Federal Credit Reporting Act (FCRA) violations and negligence. This is because these can take the individually small claims–especially when it comes to FCRA violations–and combine to make a lawsuit that can support its costs.

However, not all of these class actions deal with FCRA and negligence issues. For instance, one of the lawsuits seeking to be certified as a class action is made up entirely of banks and financial institutions. The lawsuit argues that the breach is forcing these banks to pay for canceling and reissuing credit cards and costing them profits as customers are prevented from or become wary of using credit cards after Equifax’s breach.

What about Private Lawsuits Against Equifax?

Lawsuits brought against Equifax by individuals have covered even more types of legal claims than their class action counterparts.

A lawsuit out of San Jose has targeted Equifax’s offer of a year of free credit monitoring, arguing that the move is designed to transition into paid services. Another lawsuit out of Atlanta is accusing Equifax of securities fraud for knowingly misleading shareholders as to their ability to protect the privacy of consumer data.

Carson Block–best known for alleging fraudulent activity on the part of companies then profiting off short-selling that company as their stock collapses–was himself a victim of the Equifax breach. With his data and social security number stolen, he has sued for $500,000 over negligence and the “stress, nuisance, and annoyance” of dealing with his lost data.

Private persons are not alone in their actions against Equifax. Lawsuits have been brought over the breach by the city of San Francisco and the State of Massachusetts.  These lawsuits seek millions of dollars in civil penalties and restitution for consumers out of the city and state.

The FTC, SEC, and More Taking Official Action

While Massachusetts and San Francisco are bringing lawsuits against Equifax, the Federal Trade Commission (FTC), the Securities and Exchange Commission, the FBI, Congress, the Consumer Federal Protection Bureau, and the Attorney Generals for over 40 states have begun investigations into Equifax and the Equifax breach.

Obviously, each of these investigations will take their own path and most are remaining tight lipped about the actual investigations. For instance, the FTC mentioned that–while it usually does not comment on ongoing investigations whatsoever–it would confirm the existence of an investigation considering the sheer number of people in the U.S. that were impacted by the breach. The FTC investigation will be focusing on Equifax’s security measures and their handling of customer service once the breach was announced.

How Will This Resolve?

With so many lawsuits with so many different fact patterns, it’s obviously extremely hard to predict results. However, at least for class action lawsuits on this sort of issue, there is an unfortunate trend of settling for extremely small individual payouts for members of a class action lawsuit–often settling for free credit monitoring services and nothing more.

Some have predicted that this case will be a bit different. Judges have become more hesitant to sign off on settlements that only provide free credit monitoring–especially since there is a trend for the free credit monitoring provided to transition into proposals for paid services. What’s more, as mentioned in the article earlier this week there has been a move towards courts recognizing a breach itself as a recognizable harm as opposed to requiring that breach to result in actual financial damages. This opens the doors to a sea of new potential plaintiffs.

This is all true, however, we will likely be waiting at least a few years before we see any actual resolution on these cases–especially the class actions. These class action cases need to go through a lot of initial steps which will substantially slow the process. What’s more, given the sheer number of people effected, it will take a truly monumental payout for individual members of a class action to see a substantial recovery. With half the U.S. affected, if Equifax settled for $5B the average harmed consumer could expect to see around $35 if everybody took their share.

Regardless of the end results, it is crucial that we hold companies such as Equifax–companies who hold information capable of ruining somebody financially–accountable for their data security. This can be done by lawsuits targeting their pocket book. However, it needs to also be done at a regulatory level in Congress. Congress actions just days ago, shooting down laws making it harder for companies to insulate against class action lawsuits, have not fit this bill. For now, we can only hope more regulations will be put forward and this time Congress will be more receptive.

Narcos: Pablo Escobar’s Brother Threatening to Sue Netflix for $1B

The brother of infamous drug kingpin Pablo Escobar–the 71-year-old Roberto de Jesus Escobar–has been in an ongoing legal battle with Netflix for almost a year now. Roberto Escobar took issue with Netflix’s semi-biographical show about his brother’s operations Narcos and claimed unspecified intellectual property violations to the tune of an incredible $1B. What’s more, Mr. Escobar demanded that Netflix allow him to review all future episodes of Narcos for accuracy and give a yes or no on the episode. Since the initial demands, Mr. Escobar’s claims have been refined a bit to mostly cover copyright and trademark issues.

This dispute has been catapulted back into the public eye in the last few weeks for two reasons. First, the lawyers for Narcos Productions, LLC–part of Netflix in charge of the show–have challenged a number of trademarks filed by Mr. Escobar on both “Narcos” and “Cartel Wars.” These challenges aren’t particularly surprising given the success of the show and the spin-off mobile game “Cartel Wars;” as well as how weak Mr. Escobar’s claims are. Second, the murder of a location scout for Narcos while in Mexico a few weeks back.

Escobar has been extremely critical of the Narcos show, saying that the show is apparently riddled with inaccuracies and lies. He expressed extreme anger over the show, saying “They are playing me without paying. I am not a monkey in a circus, I don’t work for pennies.” Since the murder of the Narco’s location scout Carlos Portal, Escobar has been coy about the topic. He described filming without authorization of Escobar, Inc. as “very dangerous…especially without our blessing. This is my country.” He has also said that he will “close their little show” if Netflix does not pay him the money he asked for. However, despite these veiled threats, when Escobar’s attorneys were asked about the situation they only said that they had no comment except “Escobar Inc. cooperates with all law enforcement.”

While Escobar’s approach to the situation might be a bit intimidating, it has not cause lawyers for Narcos Productions, LLC to back down much at all. After his initial $1B demands, Escobar went out and applied for trademarks on “Narcos” and “Cartel Wars” on a laundry list of goods and services. Downloadable ringtones, sunglasses, temporary tattoos, sheet music, sunglasses, yoyos, websites, video games (online and offline), board games, Christmas tree ornaments, snow globes, protective pads for skateboarding, basically everything under the sun. This list just scratches the surface of the immense list of uses Escobar claims to have made on the phrases “Narcos” and “Cartel Wars” prior to the show coming out. Netflix has responded in a letter and they are not impressed.

narcosA few months back, Netflix sent a letter to Escobar demanding that he cease use of and abandon his trademark applications for “Narcos” and “Cartel Wars.” This letter has been more recently accompanied by filing an objection to Escobar’s trademark applications a few weeks back, part of an official process of opposing trademark applications going through the U.S. Patent and Trademark Office. While the opposition is not currently readily available to read, one must imagine that it mirrors at least some of the objections they raised in their original letter to Escobar–primarily fraud. With so many goods and services claimed Netflix argues that many of them are simply untrue, fabrications by Escobar. For example, Escobar claims that he first began operating Narcos websites and offering online game services on January 31st of 1986–before the internet was readily available for consumer use and long before online gaming existed in any shape or form. The letter also points out that the specimen used in Escobar’s registration (a word used for the example of the mark provided with a trademark application) is nearly identical to the logo Netflix uses for its show–so much so as to imply copying.

Escobar himself seems to believe that he will still come out on top in his fight with Netflix. His attorneys have indicated that Netflix may be able to reach some settlement and Escobar himself has said that this means that they accept that he rightfully owns the trademarks he has filed for. This is simply not the case, settlements can come for any number of reasons, including simply avoiding the costs of challenging Escobar’s marks. This is especially true because almost no case in law is a guaranteed slam dunk victory. Let’s take a look at how copyright and trademark law would apply to Mr. Escobar’s claims and see just what kind of case he is likely to have against Netflix

Understanding Escobar’s Copyright and Trademark Cases

To start with, let’s look at the copyright claims here because they are by far the weaker of two weak cases. In order to be valid, a would-be copyright must be original and fixed in a tangible medium.  Originality is fairly low standard, requiring only minimum creativity.  For example, a creative arrangement of phone numbers in a telephone book would be enough to qualify. Fixation only requires you to store your work in a medium that can be perceived, reproduced, or otherwise communicated.

Today, copyright protection attaches as soon as you place an original work in a fixed medium—allowing you to stop people from using your work without permission and sue them for actual lost profits based on their actions. Registration provides you with a presumption of validity for your copyright and the ability to sue for statutory damages—which nearly always exceed your actual loss.  However, there is no copyright available for facts. This is for the obvious reason that it would be an absolute mess if one party could own the rights to publish the truth.

With this in mind, Escobar has very nearly no claim for copyright. Not only has he presented absolutely no work which Narcos might have infringed. Narcos is ostensibly a biopic based on the factual life of Pablo Escobar.

Escobar’s trademark claims have slightly more potential. Trademark law is designed to protect the public from confusion as to the source of a good by providing a protected indicator of the source of a good. While trademarking the name of a show with only a few seasons based only on the show is often not available, you better believe merchandise and paraphernalia can be protected by trademark. Generally, trademark protection is gained through registration. However, if somebody used a mark in commerce before you registered your mark, they’ll still have superior rights to yours in the geographic locations they can prove they used their mark prior to you. This will also be limited to the types of goods and services they actually used in commerce prior to your registration. Damages in a trademark infringement case can include profits attributable to infringement (in particularly bad cases of infringement), actual loss of sales or goodwill due to the infringement, and the reasonable rate for a license to the plaintiffs trademark (calculated via the value of the mark when infringement began and presuming both parties agreed the defendant was infringing). These damages can be tripled in cases of willful infringement-situations where the infringer knew of the mark and still violated it.

It’s unlikely Escobar has really used the phrase in all the ways he says he has. However, if he has used them and can establish that use he will have some rights as a prior user–rights he could assert against Netflix.

What are Escobar’s Chances?

Is Escobar going to get a billion dollars from Netflix? No, he’s not, that’s silly. Frankly the number seems pulled from the air and has essentially no basis besides being a nice round number. However, a settlement is far from out of the question. It’s very common for companies to cheaply settle a lawsuit that has even a small chance of success instead of dealing with the risk and expense of pursuing the suit to its completion. However, it might be a little early to expect a settlement at this point.

While Escobar’s trademark applications are still live for now, Netflix is still in the process of an initial challenge to the marks. The opposition itself is quite recent and is unlikely to be resolved for a month or two at the least and a year or more at the most. Until this gets resolved, it seems unlikely there will be a settlement unless it is quite favorable to Netflix. Any copyright claim from Escobar is essentially D.O.A. and even his trademark applications, while not completely without potential, seem riddled with issues that would prevent his registration.

While it hasn’t been brought up by either side, if brought in the right place a right of publicity claim may have some traction for Mr. Escobar if brought on behalf of his brother’s estate. Right of publicity is the right to your own name and image. However, it would have to be the right place because almost everywhere except for California offers no right of publicity after death.

No matter the cause of action, Escobar’s claims here are very thin despite his threats and bravado. While Netflix may yet settle, it won’t be because Escobar has a strong chance of winning any lawsuit against them.

Uber Pulls Rider Tracking Feature After Settling FTC Privacy Violations

Over the last couple years, Uber has become virtually synonymous with legal troubles. They’ve faced case after case on everything from employment law to trade secret issues to sexual harassment lawsuits to simple failure to comply with DMV registration requirements. However, their most recent legal hot water has dealt with privacy law, the Federal Trade Commission (FTC), and false representations. Just a few weeks ago, these issues culminated in an FTC settlement agreeing to-among other things-20 years of FTC oversight.

As part of the settlement, Uber has agreed to overhaul their privacy policies and the implementation of those policies. One of the first of these changes has involved the removal of a much criticized rider tracking feature. For a while included a much criticized default feature that tracked user location for five to ten minutes after they got out of the car. You can already see how this might be abused. However, the feature was made even more of an issue by the fact that users had to jump through in-app hoops each time they looked for a ride if they wanted to not be tracked. The feature was apparently meant as a security measure for riders. However, the combination of Uber never really explaining the purpose of the feature to users and-as you’ll see as we discuss the settlement-Uber’s less than stellar track record when it comes to securing user data made pulling the rider tracking a near necessity.

This is likely the first step of many Uber will take in response to the FTC oversight it will face for the next couple decades. Let’s take a look at the problems that got them in this situation in the first place-the charges brought against them by the FTC, exactly what the settlement does, and how you can avoid Uber’s mistakes.

uberThe FTC Charges

The FTC is an agency, created by the Federal Trade Commission Act, with the goal of eliminating unfair competition and promoting consumer protection. They do this in a number of way but primarily by bringing charges against companies that either deceive or treat consumers unfairly. This includes things like false advertising, false business claims, breach of contract, scams, product defects, and more.

In Uber’s case, the charges brought by the FTC dealt with privacy issues. However, privacy at a federal level is a tricky concept. There’s no real guaranteed rights to privacy beyond the expectation of privacy which limits how the government may search and seize you and your property. When it comes to private companies, privacy protections exist but mainly as a web of federal statutes which apply piecemeal to specific situations such as credit reporting, finances, health information, etc. This being said, an enormous number of companies in this day and age have privacy policies which dictate their own stance on how they will behave regarding customers private information. This usually deals with the handling of personally identifiable information-things which can tell people who you are or where you are-rather than more general metadata. However, when a company represents that they will treat private information in a certain way then doesn’t follow its own privacy policies this creates a false representation situation. This was the gist of the FTC’s charges.

First, the FTC charged Uber with misrepresenting the extent to which it monitored its employees’ access to personal information about users and drivers. Second, they said that Uber represented the things they did to protect that information-no surprise given that Uber had an enormous 100,000 user data breach back in 2014.

Uber has said, both through its privacy policy and statements to the press, that they have a strict policy of prohibiting their employees from accessing rider or driver data. This general rule is subject to an exception of legitimate business purposes. However, despite having the policy in place, Uber didn’t take all the steps you would expect to follow through on this promise. They didn’t even have a system in place at all to see if employees viewed personal data until after the privacy policy was published. Even after the system was in place, it was nowhere near large enough or well-staffed enough to keep track of all the employees in such an enormous company. Then, in 2015, it stopped using the system altogether for months on end. This obviously wasn’t in line with what their policy represented, even if they had a system in place the FTC treated their policy promises as false because their infrastructure was nowhere near enough to reasonably follow through on their policy position.

Uber’s privacy policy also included statements about the security measures they provided to their users-encryption, firewalls, and the like. They promised that information would be stored safely and used only for authorized purposes. They promised the most up to date, industry standard, data security measures. They further promised that all personal information was kept secure to the “highest security standards available.” However, in the wake of the Uber data breach, their security measures came across a little lacking compared to their promises. They didn’t use all the security tools available, allowed engineers easy access to data with a single access code, didn’t store any information in an encrypted format until March 2015. Then there was the way the breach itself actually occurred-an Uber engineer posted the single code required for total access to all the information on Git Hub. The FTC felt that, while Uber did take some steps to protect information, they didn’t take reasonably priced security steps that could have prevented the breach-or simply allowed them to live up to their promises. Thus, the FTC brought this as another charge of false representation.

Avoiding Uber’s Mistakes

To make these charges go away, Uber agreed to a settlement with the FTC which forbids them from misrepresenting their privacy positions and security measures, implement a comprehensive privacy policy addressing the security risks they created, and submit to 20 years of FTC audits. If this sounds like a serious blow for a business to take, you’re quite correct. This is just one of the many shakeups Uber is facing, having just recently replaced its original CEO Travis Kalanick with Dara Khosrowshahi. However, they have publically stated a new commitment to improving their privacy policies. What’s more, their mistakes can be instructive for protecting your own business.

First and foremost, if you have a privacy policy follow your own policies. This doesn’t mean just following the letter of your promises. You will be expected to take reasonable steps to implement programs to ensure the protection of private information. This will usually be enough to comply with the basic level of privacy requirements placed on a private business. However, in this age of tech and internet it’s often worth consulting with a privacy professional. What’s more, if you are in a privacy sensitive field such as banking, credit reporting, health care and several other fields, there may be more laws that apply to your business. Uber has been committing an enormous number of resources to ensuring that it doesn’t run afoul of privacy law or the FTC again. Ultimately, this sort of situation is one where an ounce of prevention can be worth more than a pound of cure–protect your company by ensuring you have well drafted policies that you carefully follow.

Trademark Lawsuit for Juicy Fruit e-Cigarette

Juicy Fruit may not be the gum with the longest lasting flavor but, say what you will, their yellow packaging is immediately recognizable. The same is true of the green packaging on Doublemint, it’s just as easy to pick out in the checkout line in the grocery store. This is the product of around 100 years of marketing on the part of Wrigley Gum. Thus, when Chi-Town Vapors (a company dedicated to creating flavored e-cigarette fluid) decided to make e-cigarette flavors titled “Juicy Fruit” and “Doublemint” Wrigley decided to slap them with a lawsuit that Chi-Town is going to have a heck of a time wriggling out of.

Just last week, Wrigley brought a lawsuit alleging federal claims of trademark infringement, trademark dilution, and unfair competition, as well as an Illinois state law claim of deceptive trade practices, and a common law claim of unfair competition. Wrigley’s claims are strong in this case, mostly because of how Chi-Town Vapors has conducted their marketing and the nature of Chi-Town Vapor’s business. Especially strong are the claims of trademark infringement and trademark dilution. Chi-Town’s missteps are a good lesson for burgeoning businesses, especially when your product can-like Chi-Town’s-be especially vulnerable to dilution claims. In order to help keep your business’ safe, let’s take a look at this case, how it’s likely to shake out, and how trademark infringement and trademark dilution work.

trademark lawsuitChewing Over the Facts of the Case

Wrigley is an old company. A very old company. They’ve been selling Doublemint and Juicy Fruit gum for over a century. They’ve had a number of trademarks on “Juicy Fruit” and its associated logos for ages. Some registered as long ago as 1915, others issued a mere 60 years ago in 1953. It has similar trademark and trade dress (protection on the appearance of the packaging or building design consistently used by a company) on their Doublemint gum.

With all these age old registrations, you have to know it was a bad idea for Chi-Town Vapors to outright name the flavored e-cigarette liquid they sell “Juicy Fruit” and “Doublemint.” Chi-Town didn’t stop there, and their legal problems may not stop with Wrigley. They named flavors “Skittles,” “Hawaiian Punch”, “Kahlua,” “Mountain Dew,” “Red Bull,” and “Nutella.” All of these are registered marks and, no, Chi-Town didn’t get permission to use any of them. In a prime example of digging your own legal grave, Chi-Town Vapors’ marketing materials even included pictures of the products the flavors are based on or have their own name on incredibly close approximations of  the packaging of products such as Doublemint gum.

They must have caught wise to the fact that this wasn’t the best idea because, in January 2017, they took down these pictures and changed the names to things like “Joosy Froot;” still using the recognizable packaging of the candy as part of their marketing materials. Unfortunately for them, this is still extremely unlikely to be enough to get them off the hook.

Bursting Chi-Town’s Bubble: Trademark Infringement and Dilution

Trademark infringement mostly deals with the likelihood that the use of your registered trademark by another may confuse consumers as to the source or sponsorship of goods or services. For instance, if you have a trademark on Widget brand milk, and the guy across the street starts selling Widget brand almond milk, that would be a pretty clear-cut case of trademark infringement. This is especially true due to how close the other store is and how similar their product is.

Chi-Town used the exact name and packaging of both Juicy Fruit and Doublemint on a product designed to taste as identical to each respective gum as possible. There is serious potential that a customer would look at those flavors and think they were sponsored by Wrigley-thus why Chi-Town is in so much trouble.

However, as rough as the case may be for trademark infringement. Chi-Town Vapors has it worse when it comes to dilution. Dilution doesn’t need to show any confusion from consumers or even competition between the owner of the famous mark and the accused party’s product. Instead the owner simply needs to show blurring (that there is a likelihood of dilution in the consumer’s mind between the mark and their product) or tarnishment (a likelihood that association with the accused person’s use of the mark would damage the reputation of the owner’s mark). In order to receive this incredibly powerful protection, you need to be especially famous. However, with factors including how well known and how long the mark has been used as part of that analysis the 100-year-old and near universally recognizable Wrigley brands should qualify fairly easily.

It is the second half of dilution-tarnishment-which is the real trouble for an e-cigarette fluid distributor. Even in Wrigley’s complaint, it’s clear that they are leaning heavily on this argument to establish their dilution case. Not surprisingly, Wrigley has something to say about the practice of selling candy-flavored cigarettes. They point to studies out of the FDA, the Senate, and more which argue that flavoring e-cigarette materials like candy “harmfully targets children under 18 years of age.” To say that selling cigarettes to children has the potential to tarnish Wrigley’s brand is an understatement.

What Can You do to Avoid Chi-Town Vapor’s Sticky Situation?

As bad as the situation is for Chi-Town Vapors, and it does look bad, no case is a guaranteed slam-dunk. However, the best litigation strategy a company can take is to never face litigation at all. This isn’t always possible, but you can take steps in your branding to avoid Chi-Town Vapor’s situation.

First and foremost, don’t use famous brand names on your products without permission. This is obvious, but it bears repeating. If your business deals with something that might harm the reputation of a brand, liquor or tobacco for example, you have to be especially careful. This goes double when a famous brand targets children as customers. Another important step to take is to hire an attorney to do a trademark search for any logos or marketing slogans you want to use. This is generally fairly cheap and goes a long way towards avoiding a trademark infringement lawsuit. Your business is too important to risk a lawsuit or the expense of having to entirely change your branding after working to build it up-take the steps to make sure you don’t end up in Chi-Town Vapor’s situation.

Supreme Court Limits Patent Rights

One of the hallmarks of a successful business is protections on an invention which provide a barrier to competition beyond just money–a patent. Whether you’re an inventor or an entrepreneur, intellectual property protection is close to the heart of your livelihood. Keeping track of what these protections offer is crucial, and these last couple weeks has been enormous for patent law rulings out of the US Supreme Court. First, they limited jurisdictions for patent infringement cases substantially-making patent law much more defendant friendly. Even more recently, and more importantly for patent rights, they limited patent’s exclusive rights by applying the first sale doctrine to patent law at home and abroad with more force than ever before.

What is the First Sale Doctrine?

The first sale doctrine is a concept, also known as exhaustion, that is found as part of the statutory law behind copyright law. The rule is fairly simple but requires a bit of an understanding of the rights intellectual property grants you. Owning a copyright in a work gives you the exclusive right to sell (or really distribute in any way), display, make copies of, or make directive works from that work. Out of all of these, the first sale doctrine exclusively impacts the distribution rights. Once you’ve sold something, or even intentionally given it away, you have “exhausted your distribution rights in that particular work. This means that whoever owns the object or work now is free to sell it, put it on display, blow it up with dynamite-basically distribute or dispose of it as they wish. They can’t make copies, you keep that right, but the distribution right is gone after first sale-thus the first sale doctrine. In Impression Products v. Lexmark, the Supreme Court took this concept from copyright law and decided how it should apply in patent.

Laser Printer Losers-The Case Itself

Lexmark makes laser printers and, more importantly for this case, toner cartridges for those printers. These cartridges, once used up, can be much more cheaply refilled than replaced. This left Lexmark with a bit of a problem-an entire market dedicated to underselling their products by refilling and reselling cartridges. These businesses buy up used cartridges from US purchasers and purchasers abroad to resell them after a refill. With these competitors in mind Lexmark offered their product in two ways, at full price with no stipulations or at a lower price along with a promise to return the cartridges to Lexmark. In order to enforce this, Lexmark included microchips in their cartridges to prevent reuse-a measure the refillers promptly learned how to circumvent.

After failing to curb the businesses of these competitors, Lexmark decided to sue all the companies refilling and selling their used cartridges. They had a big problem though, the contract to not resell the cartridges wasn’t with the refillers it was with the clients who sold to the refillers. Thus, with no contract to assert, Lexmark said that these refillers were infringing on their patent rights.

A patent gives its owners the right to exclude others from making, using, selling, or importing the invention. Lexmark said that because they prohibited reuse and resale in their contracts, the refillers were violating their distribution rights. By the time the case reached the Supreme  Court, there were two serious questions to be addressed. First, whether the contract term could be enforced against the refillers through a patent infringement lawsuit. Second, whethand for patent rights abroad, the answers were no and yes respectively.

What the Decision Does

Case law has long established that exhaustion can apply in patent similar to how it does in copyright law. With this and some recent Supreme Court rulings in mind, the outlook was never particularly good for Lexmark.

As enforceable as their no sale agreements were under contract law, the Supreme Court wasn’t buying it under patent law. The argument, and Lexmark’s hope, was that by selling something with a restriction against further sale they had preserved their first sale rights. This isn’t the case according to the Supreme Court, you can’t contract around the first sale doctrine. Once you sell something

Exhaustion abroad is something the Supreme Court has already addressed for copyright law-and they didn’t go the way Lexmark would want in that case. So it’s no surprise that they followed their own previous ruling in applying exhaustion to patent. From now on selling something outside the US officially counts as a sale under the first sale doctrine and exhausts your distribution right.

These rulings mean that patent rights have been limited, more strictly applying the first sale doctrine to your patents than ever before. However, for those following intellectual property law, this ruling has been more a matter of when than if. The Supreme Court was simply consistent with how it’s handled copyright law in the past.

It’s worth noting that a license is not a sale and that exhaustion applies only to the item actually sold.  This will limit this ruling for many common items such as software or iTunes songs as you more often license these products than actually purchase them.

What’s more, the ruling skirts around the edges of a few other areas of law. Anti-circumvention makes it illegal to, as the name implies, circumvent effective security measures such as the microchips Lexmark installed in their cartridges. Repair and reconstruction is a distinction within patent law. You are allowed to repair an object with a patent on it, but full reconstruction can cross into the territory of patent infringement. While both of these might have applied in this case, neither were considered by the Supreme Court whatsoever.

This ruling will mean that you and your business need to be more careful about how you handle sales if you want to protect your distribution rights in something. There are ways to maintain your rights, depending on how you distribute your product. After this ruling, it’s more important than ever to consider how you’re going to handle your rights and your product.