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Recent Theft Shows Trade Secrets Highly Valuable

Posted Wednesday, August 26, 2015 by Daniel Mills

Jing Zeng, a former manager at game maker Machine Zone, was arrested at San Francisco Airport on August 20. According to a report from the Wall Street Journal, Zeng, a director of global infrastructure, tried to use the information to negotiate a better severance package after he was told to leave the company. reports that Zeng is accused of stealing over 100 files on player behavior in Game of War. Game of War is an immensely popular online strategy game that features super model Kate Upton in a Super Bowl commercial and ad campaign. After allegedly giving conflicting accounts of how many copies existed and whether the copies were in the US or China, the company called the FBI and agents arrested him while trying to board a plane to China. Zeng now faces a maximum of 10 years in prison and a $250,000 fine.

This case is a great example and answer to the question: What are Trade Secrets? It’s easy to think of the formula for Classic Coke or the KFC recipe as trade secrets, but in today’s world and business environment, customer use data provides is just as important to a company as its secret formula. In fact, you can argue that for a game company, data on how customers interact with the game IS the secret formula. One of the primary elements of a trade secret is that it “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use”

Clearly this information has independent economic value. It had value to Mr. Zeng as he tried to get himself more money from Machine Zone, and the criminal complaint stated that the data could “provide valuable insight and a huge competitive advantage over other online game providers and competitors.”

The other primary element of a trade secret is that the information, “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” In this case, knowledge of Zeng’s downloading was discovered from log files maintained by the company’s tech department. It is reasonable to infer from this that Machine Zone monitors its network very carefully to detect just this type of activity. This is certainly reasonable for a company whose intellectual property is largely contained in digital form

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Trade Dress Trademarks - Secondary Meaning, Inherent Distinctiveness, Packaging v. Design

Posted Thursday, June 4, 2015 by Daniel Mills

The Supreme Court has found if trade dress or a feature of it “is essential to the use or purpose of the article or if it affects the cost or quality of the article,” then it is functional and not eligible for trademark protection. Functionality is merely the first hurdle to clear on the path to registering a trademark for trade dress.

The second hurdle depends on what category of trade dress is in question. In 2000, the Supreme Court divided trade dress in two categories:

  • “Product-Design” trade dress which covers a product’s shape, configuration, or other design features

  • “Product-Packaging” trade dress which looks at the layout, color, graphics, and combination or arrangement thereof on a product’s packaging

In order to protect a product’s design trade dress with a trademark, the design must have acquired secondary meaning even if it is found to be inherently distinctive. Obtaining secondary meaning requires a period of time that is sufficient to create an association in the consumer’s mind between the design and the producer of the goods. Not only does this require time, measured in years, but the party seeking the trademark must show secondary meaning through extensive use, marketing, and promotion. Enough marketing and promotion to demonstrate that a connection exists between the design trade dress and the producer in the mind of the average consumer. As a practical matter, this is the realm of big companies and big advertising budgets.

On the other hand, in order to trademark a product’s packaging, an applicant may show either that the packaging is inherently distinct or has acquired secondary meaning. The bar for inherent distinctiveness is markedly lower than secondary meaning. First, there is no time element required; meaning that packaging trade dress can be found inherently distinct at first use. In addition, the very concept of packaging a product to make it stand out from the competition is fundamental to marketing and packaging and does not require extra expense that is not already spent to create a unique packaging. In other words, any creative packaging may be developed to be inherently distinct for little or no additional cost.

Of course there are legal tests associated with both of these concepts, but I will cover in a subsequent post.

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Broadest Reasonable Interpretation Standard in Post Grant Review Proceedings

Posted Tuesday, May 26, 2015 by Jim Ruttler

When the Patent Office reviews issued patents in the new Post Grant Review Proceedings, they use the Broadest Reasonable Interpretation Standard. This means that they interpret the claim language in its broadest possible light consistent with the way that claims are interpreted during examination. This is a different standard than Courts use when reviewing issued patent claims. The Courts use the Phillips standard, which is essentially interpreting the claims in view of the specification and with a presumption of validity. The Phillips standard therefore is more narrow than the Broadest Reasonable Interpretation Standard. This matters because the broader the claims are interpreted to be, the easier it is to invalidate them with prior art.

The Broadest Reasonable Interpretation makes sense during examination because Applicants have the ability to amend the claims to clarify any potential ambiguity. The intent of examination is to produce clear and unambiguous claims and so examining them with a broad view assists in satisfying this goal.

The Phillips standard for issued patents also makes sense. Patents are presumed valid once issued and there is limited opportunity to amend the claims once a patent has issued. Furthermore, it is undesirable for a patent to cover more than what has been invented, so having claims interpreted narrowly in view of the specification furthers these goals.

Now, with respect to the Post Grant Review proceedings, it makes absolutely no sense to interpret the claims under the Broadest Reasonable Interpretation Standard. First, examination has been completed and patents are supposed to enjoy a presumption of validity. Second, there is no (very limited) opportunity for amendments to the claims. Third, the Courts are using a completely different standard when potentially simultaneously reviewing the same patent claims.

Using this broad standard, the Patent Office has been invalidating claims and an astonishingly high percentage. Yes, the same Patent Office that is granting patents is turning around and invalidating the same patents. All hope is not lost, however, as it appears that the chorus for change is growing louder and louder with more large patent owners realizing the significance of the problem.

Until such time that the standard changes, it is wise to employ a defensive strategy such as pursuing multiple patents, drafting narrow dependent claims, and maintaining pending applications.

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PTAB Denies Request to Stay Pending Applications

Posted Wednesday, May 13, 2015 by Jim Ruttler

The Patent Trial and Appeals Board issued an order in an Inter Partes Review proceeding this past week that provides a clue on how to defend against attacks on existing patents. The IPR system was set up in the America Invents Act and has been widely criticized by patent holders because it has made it easier for infringers to challenge issued patents. Once an IPR is initiated by the Patent Office it results in invalidation most of the time. So, much discussion has centered on how to appropriately defend against such patent challenges. As I said, the Board has now provided a good clue: make sure to keep an application pending at the Patent Office once your patent issues.

In IPR2014-01240, the Petitioner successfully initiated an IPR challenge against the patent owner. However, the patent owner also had another set of applications pending at the Patent Office. The Petitioner got the idea to petition the Board to stay examination of the pending patent applications to prevent them from issuing. To which the Board responded that those pending applications were outside the jurisdiction of the Board and untouchable until after they issued.

This order means that the patent owner can see how the IPR plays out before taking an allowance in the pending patent applications. Should the IPR invalidate the patent owner’s claims, amendments can be made to the pending patent applications to avoid the same outcome.

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Pending Patent Reform Bills

Posted Friday, May 8, 2015 by Jim Ruttler

A number of patent reform bills are pending in congress. Here is a brief summary of each. The INNOVATION ACT includes fee-shifting provisions where the loser of a patent infringement suit pays for the opposing side’s legal fees. Also included is a provision for courts to stay litigation against a customer if a lawsuit is better directed at a manufacturer. This Act is still in committee.

The TROL ACT requires that patent demand letters not be in bad faith and not include false or misleading statements. This act would also authorize states to bring actions and would preempt existing state laws relating to assertion of patent rights. This Act has been approved by committee and is now before the full House of Representatives.

The INNOVATION PROTECTION ACT would allow the Patent Office to keep its collected fees and end fee-diversion to other parts of the government.

The STRONG PATENTS ACT would make some changes to the new post-grant review proceedings at the Patent Office. It would require that issued patents be presumed valid. The Act would also end Patent Office fee diversion and curtail fraudulent/misleading demand letters.

The PATENT ACT would provide for higher pleading standards, allow for customers to stay litigation in favor of manufacturers, and direct the Patent Office to provide information on patent ownership about patents involved in disputes.

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