In Mission Product Holdings, Inc. v Tempnology, LLC (Supreme Court 2019), the Supreme Court addressed whether a rejection by a licensor in a bankruptcy proceeding “terminates rights of the licensee that would survive the licensor’s breach under applicable nonbankruptcy law.” The Supreme Court answered no to this question, holding that a rejection breaches a contract but does not rescind it.
Tempnology entered into an agreement with Mission that granted Mission a non-exclusive license to use Tempnology’s Coolcore trademarks. Before the expiration of this agreement, Tempnology filed for Chapter 11 bankruptcy and asked the Bankruptcy Court to allow it to reject this agreement.
The Bankruptcy Court approved the rejection, which meant that Tempnology could stop performing under the agreement and that Mission could assert a claim for damages resulting from Tempnology’s nonperformance. The Bankruptcy Court also agreed with Tempnology’s assertion that under a traditional view of Section 365 of the Bankruptcy Code, this rejection also terminated the rights it had granted Mission to use the Coolcore trademarks.
The Bankruptcy Appellate Panel reversed this holding based on a prior decision by the Court of Appeals for the Seventh Circuit that held that rejection of a contract “constitutes a breach” of that contract. The Appellate Panel explained that outside of bankruptcy, the breach of an agreement does not eliminate those rights that the agreement had already conferred on the non-breaching party.
The Court of Appeals for the First Circuit rejected the Appellate Panel’s decision and reinstated the Bankruptcy Court’s decision terminating Mission’s trademark license. The Court of Appeals reasoned that special features of trademark law required that the trademark license be terminated. Specifically, the majority reasoned that if a licensee can keep using a mark after an agreement’s rejection, the licensor will need to carry on its monitoring activities which would frustrate the principal aim of a rejection — namely, to release the debtor’s estate from burdensome obligations.
The Supreme Court rejected the Court of Appeals reasoning holding that a rejection breaches a contract but does not rescind it. The Supreme Court noted that according to the plain language of Section 365, a rejection “constitutes a breach of a contract,” deemed to have occurred “immediately before the date of the filing of the petition.”
The Supreme Court further noted that Section 365 reflects a general bankruptcy rule that the estate cannot possess anything more than the debtor itself did outside bankruptcy. This rule prevents a debtor in bankruptcy from recapturing interests it had given up, namely the rights to the trademark license.
Tempnology’s main argument rested on the negative inference drawn from the fact that Section 365(n) provides that licensees of some intellectual property rights retain contractual rights after rejection. The specific intellectual property rights including patents but do not trademarks. In response, the Supreme Court noted that in enacting Section 365(n), Congress did nothing to alter the natural reading of Section 365 that rejection and breach have the same result.
Tempnology also argued that a trademark licensor’s duty to monitor and “exercise quality control over the goods and services sold” required that rejection of the agreement also revoke the trademark license. The Supreme Court noted that in allowing rejection of an agreement, Section 365 does not grant the debtor an exemption from all the burdens that generally applicable law, including contracts and trademarks, imposes on property owners.
This ruling changes the traditional view of bankruptcy and emphasizes the need to clearly define in the trademark license agreement what happens to trademark license rights under various circumstances, including bankruptcy.
Amazon is testing a new program to handle infringement complaints brought by patent owners against third-party retailers.
The program is called the “Utility Patent Neutral Evaluation.” The patent owner must provide a $4,000 deposit with a patent infringement complaint. The third-party retailer must provide another $4,000 deposit if they wish to respond to the complaint. Once the third-party retailer has responded, the patent owner can respond one last time.
A third-party attorney holds both deposits and performs a neutral review of the infringement complaint based on the submitted complaint and responses. Each submission cannot exceed fifteen (15) pages.
The third-party response cannot include invalidity arguments unless the USPTO or a court has already addressed this argument.
A decision is issued within a few months. If the patent owner wins, the infringing listing is removed, and the patent owner gets their deposit back. If the third-party retailer wins, the listing is maintained, and the third-party retailer gets their deposit back. If the third-party retailer decides not to participate, the listing is removed.
One limitation is that the program cannot be used for products made and offered by Amazon. Rather, the program is limited to allegations against third-party retailers selling their products through Amazon.
The 2018 Farm Bill amended the Agricultural Marketing Act of 1946 (AMA) to remove “hemp” from the Controlled Substances Act’s (CSA) definition of marijuana.
“Hemp” itself is defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.”
The newly issued Examination Guidance clarifies that the United States Patent and Trademark Office (USPTO) will refuse to register marks with goods that show a clear violation of federal law, regardless of the legality of those same goods under state law.
For applications filed on or after December 20, 2018, the Farm Bill removes the CSA as a ground for refusing registration if the associated goods are derived from “hemp” and the identification of goods specifies that they contain less than 0.3% THC.
For applications filed before December 20, 2018, the application may be amended to change the filing date to December 20, 2018, and to establish a valid filing basis. Specifically, if the original filing basis was use based, the application may be amended to change the filing basis to intent-to-use. Also, the original identification of the goods must be amended to specify that any identified CBD or cannabis products contain less than 0.3% THC.
Instead of amending the original application, the applicant may abandon the application or submit evidence and arguments against a pending refusal.
For applications that recite services involving the cultivation or production of cannabis that is “hemp,” the examining attorney will also issue inquiries concerning the applicant’s authorization to produce hemp.
In the case of In re Morinville, the Court of Appeals for the Federal Circuit (“Court”) affirmed on appeal the decision of the Patent Trial and Appeal Board (“PTAB”) to reject all the claims of U.S. Patent Application No. 11/003,557 (“Application”).
As shown below, independent claim 1 of the Application recites a method of reorganizing a business hierarchy into a more centralized functional hierarchy.
- A method implemented in a computer for dynamically generating a hierarchal functional structure from a hierarchal operational structure, comprising the steps:
providing a hierarchal operational structure of unique positions within an organization;
associating one of a plurality of roles with each of the positions, wherein each of the roles has a corresponding major function, and wherein at least a subset of the roles is non-unique;
identifying a first one of the positions;
identifying positions in the hierarchal operational structure that are subordinate to the first one of the positions and that have roles which have at least one functional level in common with the role of the first one of the positions; and
generating a hierarchal functional structure of the identified positions; and
controlling user access to business processes based on the hierarchal functional structure;
wherein each of the steps is automatically implemented in the computer.
Under the first step of the Alice framework, the Court affirmed that claim 1 is directed to an abstract idea. Specifically, the abstract idea of creating a functional organizational structure from a hierarchal operational structure and controlling access to business processes based on the created functional structure.
Concerning the use of a computer to implement the rules that define the implementation of the abstract idea, the Court noted that computer-based efficiency does not save an otherwise abstract idea.
Moreover, concerning the defined rules themselves, the Court noted that rules implemented on a computer that were previously available to be implemented without the assistance of a computer also could not save an otherwise abstract idea.
Under the second step of the Alice framework, the Court affirmed that the recitation of the generic computer does not provide the requisite inventive concept and, as such, is insufficient to transform the method recited in claim 1 into a patent-eligible invention.
Concerning the inventive concept, the Court noted that such features must be more than “well-understood, routine, conventional activity.”
Comments: While software can be patent eligible in the U.S., the recited steps of the claimed software method must be defined with specificity and not as a black box.
In drafting these specific software steps, the recited functionality should not describe functions that can be reasonably performed by a human without the assistance of a computer.
Moreover, the claimed software steps should not describe only functionality that is regularly provided by an operating system implemented on the computer.