In 1982, Nike began selling the Air Force 1 with its signature ?swoosh? design. Almost 30 years later, it sued a small sneaker maker in New York federal district court for trademark infringement. During the litigation, Nike promised not to sue for old designs, mostly because its competitor?s shoes were no longer being widely sold and litigation costs had escalated. It was too late. The scrappy newcomer already had counterclaimed, challenging the validity of Nike?s trademark registration. A battle over the extent of that promise, under the guise of procedure, ensues.
A decade ago, the case might have been an obscure dispute involving a less-than-urgent constitutional question. But last month, the Supreme Court heard oral arguments in a? suit that could change the way trademark and possibly patent registration is practiced in the fast-moving, entrepreneur-flooded digital economy.
The case is remarkable for the court?s increased willingness to intercede in questions with far-reaching effects on not only innovation but also big business. After all, it is one of four such disputes to be resolved this term. These matters will take up 8 percent of oral arguments, compared to 6 percent and 5 percent in 2010 and 2011 and just 2 percent 20 years ago, reports SCOTUSblog. The relatively high number of cases underscores the court?s robust entry into copyright, trademark and patent law that was created before the digital era.
The court?s timing is no coincidence. This area of law increasingly is a bulwark for companies who are under competitive siege in an economy that has fewer regulated monopolies, places a bigger value on information, boasts cheaper raw materials and has a lower bar for starting a new business. When an entity can be disrupted with a few clicks, it is significant how intellectual property disputes are resolved and whether holders of certain protections have unfair competitive advantages. The court is well aware that the way these disputes play out affects which ideas make it into the marketplace.
Take the sneaker case. During oral arguments, the bench was not terribly sympathetic to the plight of Nike?s adversary, Already. Justices Anthony Kennedy, Stephen Breyer and John Roberts seemed wary of a company seeking to squelch trademark protection with no evidence of specific plans in place for a new shoe, even if the mark chills business relationships with investors or retailers.
The case essentially addresses whether trademarks are applied so broadly that they curb innovation. If a trademark holder makes itself vulnerable to a suit that questions a mark?s validity, a corporation such as Nike might hesitate about suing would-be infringers, potentially to the detriment of its own market share. If Nike wins, its adversary will have to spend precious few resources ensuring new designs do not infringe a mark, which might result in fewer sneaker choices.
The court is tackling copyright, too, in a case that could bottleneck the second-hand goods market and even was mocked by Stephen Colbert. Publisher John Wiley & Sons sued PhD student Supap Kirstaeng, who sold Wiley textbooks on eBay, for violating the first-sale doctrine that prohibits the resale of copyrighted works made outside the United States. It won a $600,000 judgment. Kirstaeng appealed. If Wiley wins, resales of not just books but used iPods or other items made outside the United States could be banned and subject to the copyright holder?s control. As Colbert put it, ?I?m sorry, I don?t buy this ?First Sale? argument ? and if I did buy it, I would not resell it because I don?t have the right!?
More surprisingly, the court is weighing in on an entrepreneur?s claim involving misbehaving attorneys, even though state courts handle legal malpractice. In Gunn v. Minton, inventor Vernon Minton developed trading software that was licensed to NASDAQ before the patent was approved. Minton filed a patent infringement suit that was thrown out and then sued his attorneys. The case landed at the Texas Supreme Court, which ruled that federal jurisdiction exists in the case. Minton?s ex-attorneys appealed. It?s a win for would-be aggrieved innovators that the Supreme Court is even considering whether a state court is ill-equipped to handle a complicated patent malpractice suit.
For all the talk of the bench?s divisiveness, this court is remarkably united on intellectual property. Last year, it was unanimous on all three patent cases it heard. The rulings, for the most part, were widely perceived as pro-innovation. In Caraco v. Novo, the court ruled that Novo Nordisk was not permitted to file a new, more broadly worded patent that would have made a generic version of the drug manufactured by Caraco illegal. In Kappos v. Hyatt, the court ruled that a patent applicant can file new supporting evidence even after the United States Patent and Trademark Office rejects an applicant. The case that might create the most roadblocks for innovators was Mayo Collaborative Services v. Prometheus Laboratories, which made it harder to patent a natural phenomenon such as a blood test that before software-driven methods had been relatively easy to patent. This case might affect whether other biotechnology processes will be protected in the marketplace.
The court?s friendliness to innovation is not terribly surprising. The Roberts court is generally viewed as being pro-business and, often, the interests of big business and innovation are aligned to protect marketplace competition. According to a 2011 report by the left-leaning Constitutional Accountability Center, the pro-business United States Chamber of Commerce prevailed in 65 percent of its cases before the Roberts court. The chamber?s success rate in the Rehnquist court was 56 percent and just 43 percent in the Burger court. Chief Justice Roberts and Justice Samuel Alito voted with the Chamber of Commerce 87 percent and 95 percent, respectively. During last year?s term, the Roberts court ruled in the chamber?s favor for every case in which it participated except the Affordable Care Act suit. After the Citizens United and Walmart decisions (the latter resulted in the plaintiffs? failure to get certified as a class), the Roberts court was described as a shill for corporate America. Indeed, the court has given companies more protected speech rights and has made them less vulnerable to lawsuits.
But Roberts and his ilk have been refreshingly nonpartisan on innovation. They understand that sneaker designs created on a white board or napkin are as much a part of American business as Nike?s tactics to exercise dominance in a market for 30 years. When the court hears a case that questions whether a complicated patent malpractice suit belongs in state court, it signals to aggrieved innovators that traditional methods for resolving complex disputes involving misbehaving attorneys might be inadequate. Finally, the court?s consideration of Monsanto?s effort to prevent an Indiana farmer from growing soybeans that happened to be mixed with the giant?s patented seeds might even indicate the court?s unease with early entrants who try to hold onto competitive advantages in the form of rights they either have exhausted, that were carved in a different era or are being overprotected.
The court has not been shy on its stance. Describing patent protection as a ?two-edged sword,? Justice Breyer, whose first academic article was on copyright, wrote in the Mayo opinion that ?the promise of exclusive rights provides monetary incentives that lead to creation, invention, and discovery ? [but] that very exclusivity can impede the flow of information that might permit, indeed spur, invention?? He even hinted at the legislative branch?s inability to tackle, say, patent reform, by adding that ?we must recognize the role of Congress in crafting more finely tailored rules where necessary.?
There can be little doubt that the Roberts court will step in muddy waters if they witness a quashing of Adam Smith?s free market. In the case of Citizens United, this resulted in even more corporate money being funneled into the political process in the name of free speech. But in the case of intellectual property, the result might be a more spirited marketplace of ideas.
PHOTO: Chief Justice of the United States Supreme Court John Roberts is pictured on the front plaza of the Supreme Court in Washington in this October 1, 2010 file photograph.? REUTERS/Larry Downing/Files
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