IP Blog

Intellectual Property Blog

Supreme Court Update: Warner Chappell Music, Inc. v. Nealy, 2024 U.S. LEXIS 1978 (U.S. May 9, 2024)

In this case, Sherman Nealy, an individual, and Music Specialist, Inc., a Florida Corporation, sought damages and profits for copyright infringement against Warner Chappell Music, Inc. and Artist Publishing Group, LLC, two Delaware corporations. Nealy alleged that he held the copyrights to certain songs and that Warner Chappell’s licensing activities infringed his rights. According to Nealy, the infringement started ten years before he brought the lawsuit. Under the Copyright Act, there is a three-year statute of limitations for filing a copyright infringement lawsuit, which begins at the time the claim accrues. Nealy sought recovery for the entire time frame despite the 3-year statute of limitations in the Copyright Act. Nealy argued that the lawsuit was timely because he discovered Warner Chappell’s infringement less than three years before the lawsuit was filed, and that the statute of limitations only applied to the timeliness of bringing a claim, but not to the time frame for seeking damages if a claim was timely brought.

The District Court agreed with Nealy that the claim was timely brought, but ruled that the earliest date for which he could recover damages or profits for infringements would be three years prior to the filing of the lawsuit. The U.S. Court of Appeals for the Eleventh Circuit reversed that decision, finding the claim to have been timely brought, but rejecting the three-year damages bar on a timely claim that had been imposed by the trial court. The Supreme Court agreed to review the decision and conducted oral argument in the October 2024 Term.

On May 9, 2024, the Supreme Court, in a 6-3 majority decision authored by Justice Kagan, affirmed the Eleventh Circuit’s decision. The Court acknowledged that the issue of whether a discovery rule applies in claims brought under the Copyright Act has not to date been squarely presented to the Court, and left that for determination in a future case. But, because the parties did not tee that issue up for the Supreme Court, the majority did not decide it, explaining that it was constrained by what was argued below. Three Justices joined in a dissenting opinion, taking the position that the appeal was improvidently granted because the Court should first rule on the issue of whether there is in fact a discovery rule that would apply to claims under the Copyright Act (i.e., whether Nealy’s claim was timely brought in the first place). There is another case in the pipeline on that issue, but it remains to be seen whether the Supreme Court will agree to review it.

In the meantime, in the Nealy case, the Court held that the Plaintiff is entitled to monetary relief for all infringements, regardless of when the infringement occurred, if the claim was timely brought within three years of having discovered it.

The Court’s decision can be found here: https://www.supremecourt.gov/opinions/23pdf/22-1078_4gci.pdf

The Global AI Patent Landscape

As AI technologies continue to evolve, so does the landscape of patent filings across the globe. A recent Stanford-based study highlights a significant trend: since 2013, China has consistently outpaced the U.S. in the number of patents related to AI technology granted annually, with a strong focus on computer vision technologies. Meanwhile, the AI-related patents that have been granted in the U.S. are more evenly distributed across various applications of AI technology. While this data confirms China’s substantial investment in AI research, it does not mean China is the leader in overall technological capability within the field as a whole. Rather, the data highlights the fierce global competition in AI innovation and illuminates the focus areas in AI of major tech nations.

New FTC Ban on Most Non-Competes

On April 23, 2024, the Federal Trade Commission (“FTC”) announced a final Non-Compete Clause Rule (the “Rule”) banning non-competition agreements, often referred to as “non-competes.”

The sweeping regulation will nullify and prohibit almost all non-competes for ordinary workers and most upper-management employees.  However, the new Rule permits the continued validity and use of non-competes applicable to shareholders selling a business and to the parties of a franchise agreement.  Additionally, pre-existing non-competes with senior executives, as specifically defined, may remain in effect but may not be renewed.

By way of background, non-compete language is commonplace in countless types of contracts, especially employment agreements and franchise agreements, but also a wide of other contractual relationships. Non-competes typically prevent accepting a new position with a competing company after termination of employment or starting/continuing a competing business after termination of a franchise agreement, usually for a set period of time within a defined geographical area.  The stated motives behind non-compete clauses are usually to protect the investment in the employee or franchisee, as well as the intellectual property and other confidential and proprietary information disclosed during the relationship, but such agreements also discourage departures from an employer or franchise system.

According to the FTC, the non-compete ban aims to “protect[] the fundamental freedom of workers to change jobs, increas[e] innovation, and foster[] new business formation.” Further, the FTC suggests that the Rule will “ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to the market.”  The Rule goes so far as to require employers to inform employees that they are released from their non-competes.

The FTC’s Rule defines a “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”

However, this definition specifically relates to a “worker,” not to shareholders selling a business or to franchisees as part of a franchise system. The final Rule defines a “worker” as “a natural person who works or who previously worked, whether paid or unpaid, . . . whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a service to a person.” As such, non-competes cannot be imposed on the ordinary employees of a company, but may apply to shareholders selling their ownership interest in a company, as is common in asset purchase agreements.  Regarding franchisees, the Rule states expressly that “the term ‘worker’ includes a natural person who works for a franchisee or franchisor, but does not include a franchisee in the context of a franchisee-franchisor relationship.” Accordingly, the Rule should not interfere with the continued use of appropriate non-compete provisions in franchise agreements, provided that the terms do not extend to the ordinary employees of the franchised business.

Significantly, the Rule does not reach confidentiality/non-disclosure agreements and intellectual property ownership agreements.  Employers are expected to rely more heavily on such agreements, but the FTC does warn that even these agreements may not be enforced in a manner that results in the equivalent of a non-compete.

The Rule will take effect 120 days after publication in the Federal Register. Litigation challenging the Rule has been filed already and court rulings are expected in the coming months.  The text of the Rule is accessible here.

USPTO Issues New Guidance on the Use of AI by Patent Practitioners

On April 11, 2024, the United States Patent and Trademark Office (“USPTO”) issued new guidance on the use of artificial intelligence (“AI”) by patent practitioners prosecuting matters before the USPTO. The guidelines were released due to the growing use of AI in the intellectual property community, giving rise to various legal and ethical considerations.

Emphasizing the duty of candor and good faith owed to the USPTO by each individual associated with a patent or trademark proceeding, the new guidelines state that “those involved in patent proceedings have a duty to disclose all information – including on the use of AI tools by inventors, parties, and practitioners – that is material to patentability.” Moreover, the guidelines discuss the potential for practitioners to inadvertently divulge confidential or client-sensitive information by inputting such information into AI systems when, for example, performing a prior art search or drafting a patent application.

For the avoidance of doubt, the guidance issued by the USPTO does not constitute substantive rulemaking and does not have any effect on existing law. The text of the new guidelines can be accessed here.

FAST Act Raises California Minimum Wage to $20 per Hour for National Food and Beverage Franchises

Franchise operators with California locations should take note that Assembly Bill (“AB”) 1228, state legislation known as the “FAST Act,” went into effect as of April 1, 2024. The FAST Act mandates a minimum wage increase to $20 per hour for so-called “national fast food chains” with over sixty (60) locations nationwide. Importantly, the FAST Act’s definition of a “national fast food restaurant” is much broader than one might expect, with many food and/or beverage establishments potentially falling within its scope.

More specifically, the FAST Act defines a “national fast food chain” as a “set of limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for décor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off the premises where patrons generally order or select items and pay before consuming, with limited or no table service.”

The state of California confirmed in March that this definition goes far beyond famous American burger franchises, for example, and indicated that shops featuring “ice cream, coffee, boba tea, pretzels, or donuts” may be a “national fast food chain” within the meaning of the Act. In other words, the type of food or beverage sold by an establishment is not relevant to the law’s application.

The FAST Act also established the Fast Food Council, which has the authority to increase California’s “national fast food chain” minimum wage in the future and adopt other state minimum employment standards for fast food restaurants.

Firm Associate Kelly Malloy Presents on INTA Panel

Associate Attorney Kelly Malloy recently represented the Firm on the International Trademark Association (“INTA”) Career Panel at Nova Southeastern University Shepard Broad College of Law by speaking to students about her experience as a Registered Patent Attorney, Intellectual Property Associate, and Franchise Attorney.

The USPTO Updates Guidelines on Patent Application Obviousness Rejections

The United States Patent and Trademark Office (USPTO) recently updated its guidance on the determination of obviousness, a key factor in patent prosecution that directly impacts inventors, businesses, and the broader innovation ecosystem. This new guidance revisits the flexible approach mandated by the Supreme Court’s decision in KSR Int’l Co. v. Teleflex Inc. (KSR), emphasizing the necessity for a reasoned explanation when determining whether a claimed invention should be refused a patent on the basis of obviousness. It aims to provide clarity on applying the Supreme Court’s directives by focusing on post-KSR cases from the United States Court of Appeals for the Federal Circuit.

In a more technical vein, the guidance underscores the importance of the “Graham inquiries” in controlling obviousness determinations post-KSR, reinforcing the Supreme Court’s call for flexibility in understanding the scope of prior art and providing reasons for modifying or combining prior art references to assess the obviousness of a claimed invention. This includes acknowledging the role of common sense and ordinary creativity in interpreting prior art, moving further beyond a rigid or narrow interpretation that fails to consider the broader implications and potential combinations suggested by the prior art.

Moreover, the guidance highlights the importance of articulating a clear rationale when Examiners combine references or call for modifications to prior art, ensuring that such decisions are grounded in a logical and evidentiary bases. This approach demands a detailed explanation of why a person of ordinary skill in the art would have been motivated to make the proposed modification or combination, taking into account the knowledge and creativity typical of those skilled in the field. This requirement for a well-reasoned explanation underscores the USPTO’s commitment to maintaining a high standard of patent prosecution quality by recommending that obviousness rejections are based on a thorough and thoughtful analysis of the prior art as it relates to the claimed invention.

The updated guidance can be found here: https://www.federalregister.gov/documents/2024/02/27/2024-03967/updated-guidance-for-making-a-proper-determination-of-obviousness.

Expansion of the Doctrine of Foreign Equivalents in Trademark Applications

New trademark applications are compared against prior registrations and prior-pending trademark applications, of course, to determine whether there is a likelihood of confusion that would result in refusal pursuant to §2(d) of the Lanham Act.  Among other factors, that analysis usually involves consideration of the marks’ similarities in sight, sound, and meaning. However, as a general rule under the so-called “doctrine of foreign equivalents,” the U.S. Patent and Trademark Office (“USPTO”) deems a foreign-language equivalent to an English-language mark to be identical for purposes of comparison, regardless of differences in appearance and pronunciation.  As such, and as a representative example, an application for the Spanish-language mark “TORO ROJO” likely will be evaluated by a USPTO Examining Attorney as essentially identical to and, thus, in conflict with a prior registration for “RED BULL” (other factors, such as the similarity of the goods and/or services offered under each mark, could affect the analysis).

In some recent decisions, the USPTO’s Trademark Trial and Appeal Board (“TTAB”) has determined that the doctrine of foreign equivalents can be applied in comparisons where neither mark consists of an English-language term.  Specifically, equivalents of two foreign-language marks – in one case, the Spanish truncation “L’MAR” and the French term “LE MER,” both meaning “the sea” – have been found to be confusingly similar. See In re Giraldo, 2023 TTAB LEXIS 394 (TTAB 2023). In so doing, the TTAB confirmed “that the doctrine of foreign equivalents is not barred from application where… the respective marks consist of terms from different foreign languages.” This re-affirmation of the expansion of the doctrine injects a much wider range of foreign translations into the USPTO examination process.  Moreover, because TTAB case law is highly persuasive in the U.S. Courts, this broader view of the doctrine very likely will extend to trademark infringement litigation, which is adjudicated outside of the USPTO.

The BIRDIE Act: A Proposed Expansion of Copyright Protection to Golf Courses

On February 5, 2024, the Bolstering Intellectual Rights against Digital Infringement Enhancement Act (H.R. 7228), known as the BIRDIE Act, was introduced in the House of Representatives. The BIRDIE Act proposes an expansion of Title 17 of the United States Code to extend the copyright protection provided to architectural works to golf courses.

An “architectural work” is presently defined in 17 U.S.C. 101 as “the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings. The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features.” The BIRDIE Act proposes amending the definition of “architectural work” by striking “drawings” and inserting “drawings, and the design of a course on which golf is played (except for any course on which mini golf, or other similar game is played) as embodied in any tangible medium of expression, including an architectural plan or drawing.” Moreover, the BIRDIE Act also proposes expanding the term “features” to include landscaping, an irrigation system, a path, a golf green, a tee, a facility in which golf is practiced, a bunker, a lake, and/or a topographic feature.

The BIRDIE Act would apply to works created on or after December 1, 1990 and works that were unconstructed and embodied in unpublished plans or drawings on December 1, 1990. For the avoidance of doubt, the BIRDIE Act is a bill and not yet law.

The text of H.R. 7228 can be accessed here.

Appellate Reversals of §2(d) Refusals by USPTO Trademark Examining Attorneys: 15%

Recent statistics from the U.S. Patent and Trademark Office (“USPTO”) for 2023 indicate an 85% affirmance rate of §2(d) refusals of  trademark applications on appeal to the Trademark Trial and Appeal Board (“TTAB”).  This in generally in line with historic rates.

A trademark application is reviewed by a USPTO Trademark Examining Attorney on a variety of grounds, but most notably on whether there is a conflict with a prior-registered mark.  A §2(d) refusal – so named because of the applicable section of the Lanham Act – is a determination that the applied-for mark may not be registered because it “so resembles a mark [previously] registered” that it is “likely to cause confusion, or to cause mistake, or to deceive.”  That decision, however, is based on many subjective factors, including the similarity of the marks in appearance, sound, connotation, and commercial impression, the similarity (or relatedness) of the goods or services under the marks, the similarity of the channels of trade, the strength of the prior-registered mark, and many others.  If refused, a trademark applicant may appeal to the TTAB, but these most recent statistics suggest a 15% chance of reversing the §2(d) refusal.

Given the tremendous deference that the TTAB gives to the mostly-subjective opinion of an individual USPTO Examining Attorney in issuing a §2(d) refusal, trademark searching prior to filing a trademark application continues to be extremely valuable, often providing an experienced trademark attorney with valuable information about how best to tailor a trademark application to be more likely to avoid this type of refusal in the first place.