June 2017

1. Patents

PCT

Changes to PCT Regulations Enter Into Force
Effective from 1st July 2017 the following changes to the PCT Regulations apply:

• Designated or elected offices entered after that date will be required to send the IB the following national phase data within 2-months of occurring – national phase entry date; application number; publication date and number; registration date and number.
• Receiving Offices will be required to forward details of search or classification results from earlier applications to the relevant International Searching Authority (ISA). A number of countries opted out of this, namely Australia, Japan, Singapore, the United States of America and various European states.
• The period for requesting a supplementary international search will increase from 19-months to 22-months after the priority date (provided the 19-month deadline has not already expired before 1st July 2017).

United States of America

Supreme Court Finds Patent Rights Exhausted by both Local and Foreign Sales
In Impression Products Inc v Lexmark International Inc the Supreme Court overturned the previously reported Court of Appeal (CAFC) decision and further clarified the relationship between patent exhaustion and contract law.

Lexmark gave buyers of its patented printer toner cartridges two purchase options: either buy the cartridges at a higher price and have unrestricted rights or buy at a lower price on the condition that the used cartridges would be returned to Lexmark. Impression obtained the used cartridges (both domestically and from abroad) and refilled and then resold them in the United States. Lexmark sued Impression for patent infringement, to which Impression counterclaimed that Lexmark’s patent rights had been exhausted.

The CAFC majority decision found for Lexmark, holding in line with its own precedent that exceptions to patent exhaustion are created either where a US seller places contractual conditions on sale or by foreign sales. Provided such conditions are lawful and clearly communicated to the purchaser, the sale does not give the buyer, or downstream buyers, the resale or reuse authority that has been expressly denied. The CAFC held that such conditions are exceptions to the patent exhaustion doctrine, with the consequence that contraveners are liable for patent infringement.

However, the Supreme Court over-ruled on both counts. In respect of the conditions imposed on domestic buyers who opted for the use and return option the Supreme Court held that the sale still resulted in patent exhaustion as the loss of patent rights through authorised sale is a fundamental principle that cannot be contracted out of. On the Supreme Court’s construction contracting provisions are independent of patent exhaustion rather than being an exception thereto. As such Lexmark could not sue Impression for patent infringement, but could still sue its own customers for breach of contract.

In elaborating on the application of patent exhaustion the Supreme Court criticised the CAFC’s argument that if patentee’s can sue licensee’s who contravene licence terms for patent infringement, then patentee’s should also be able to sue those who contravene contractual terms for patent infringement. 

Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace. But a license is not about passing title to a product, it is about changing the contours of the patentee’s monopoly: The patentee agrees not to exclude a licensee from making or selling the patented invention, expanding the club of authorized producers and sellers. ... Because the patentee is exchanging rights, not goods, it is free to relinquish only a portion of its bundle of patent protections.

Even where a patentee requires the licensee to impose a restriction on purchasers, the licensee’s sale nonetheless exhausts all patent rights in the item sold. If some purchasers do not comply with the restriction the licensee can only find a remedy through contract law, just as if the patentee itself sold the item with a restriction. By contrast, where a licensee makes a sale in contravention of a licence agreement the patentee can sue for patent infringement as the sale does not exhaust the patentee’s rights since the patentee has not given authority to the licensee to make the sale. In such a situation the patentee can also sue the purchaser for patent infringement.

By majority, the Supreme Court also held that Lexmark’s foreign sales of printer toner cartridges exhausted their patent rights. Contrary to the CAFC, the Supreme Court held that its earlier precedential decision on international exhaustion of copyright by first sale likewise applies in the patent context. In Kirtsaeng v John Wiley & Sons Inc the Supreme Court held that 17 USC §109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder, even when they are made and sold abroad. The Supreme Court found the basis for this right in the borderless common law principle that refuses to permit restraints on the alienation of chattels and held that it equally applies in the patent context. Holding otherwise was considered to make little theoretical or practical sense since patent exhaustion and copyright’s first sale doctrine share strong similarities and can apply to the same products.

Lexmark had argued that foreign sales do not exhaust US patent rights as the US patentee gets no premium from the US patent in the foreign sale. However, the Supreme Court held that the location of the sale makes no difference to the exhaustion principle. One of the Supreme Court Judges dissented in respect of foreign sales being able to exhaust US patent rights. The Judge emphasised that patent law is territorial and argued that if a competitor’s sale of an equivalent product in a foreign market does not affect the US patent rights, then the patentee’s foreign sale should also not affect the US patent rights.

2. Trade Marks

Europe

EUIPO Clarifies Temporal Application of Introduced Grounds for Refusal
The EUIPO has provided clarification of when the grounds for refusal introduced into the regulations last year apply from.

As previously noted there were significant amendments to the European Union Trade Mark Regulations (previously the Community Trade Mark Regulations) which entered into force on 23rd March 2016. This included the introduction of an additional six absolute grounds and one relative ground for refusal that were not in the Community Trade Mark Regulations. However, there were no transitory provisions specifying when the new grounds apply from, and in particular whether any of the grounds applied before the entry into force of the amending regulations.

It has now been clarified that the following introduced absolute grounds for refusal effectively applied before 23rd March 2016 on account of being contained in other EU regulations that were already in force. Hence, they can be raised in oppositions to or requests for invalidity in respect of applications filed before 23rd March 2016, by reference to the relevant pre-existing legal provisions.

• Article 7(1)(k): conflicts with earlier EU traditional terms for wines;
• Article 7(1)(l): conflicts with earlier EU traditional specialties guaranteed;
• Article 7(1)(m): conflict with earlier EU plant variety denominations.

However, the following absolute grounds for refusal can only be raised in oppositions to or requests for invalidity in respect of applications filed on or after 23rd March 2016.

• Article 7(1)(e): examination of ‘other characteristics’ of functional trade marks (apart from their shape);
• Article 7(1)(j): conflicts with an earlier geographical indications or designations of origin protected at national level;
• Article 7(1)(m): conflicts with earlier national plant variety denominations.

Regarding the introduced relative ground for refusal it has been clarified that it only applies in respect of oppositions or requests for invalidity filed on or after 23rd March 2016, irrespective of the filing or priority date of the contested mark. Article 8(6) is a specific ground available for geographical indications that are already protected under EU legislation or the law of a Member State. While such earlier geographical indications could also form the basis of an opposition or request for invalidity filed prior to 23rd March 2016, it could be harder to prove compared to the requirements under Article 8(6).

Madrid Protocol

International Bureau Required to Examine Classification of Disclaimers
From the 1st July 2017 amendments to the Common Regulations will enter into force and require the International Bureau (IB) to examine disclaimers to ensure that the goods or services mentioned therein are correctly classified. Applicants will have 3-months to remedy any such irregularity.

New Zealand

Geographical Indication Regulations Issue
The Geographical Indications (Wine and Spirits) Registration Regulations 2017 and the Geographical Indications (Wine and Spirits) Registration Act Commencement Order 2017 have now issued. Both the Act and the Regulations commence on 27th July 2017. Both New Zealand and International wine or spirits geographical indications can be registered under the Act. Significant aspects of the legislation are as follows:

• to be registered, a geographical indication must indicate that a wine or spirit originates from a defined area and that the quality, reputation, or other characteristic of the wine or spirit is essentially attributable to that geographical origin;
• common or generic terms will not be registered (e.g., spirits named “brandy”);
• a foreign geographical indication that is not, or has ceased to be, protected in its country of origin or that has fallen into disuse in that country will not be registered;
• the Registrar must not register a geographical indication if the Registrar considers its use or registration is likely to be offensive to a significant section of the community;
• use of a registered geographical indication is not limited to the registrant, but users have to satisfy the criteria given in both the registration and legislation, with breaches of the legislative criteria for use being treated as breaches of section 9 of the Fair Trading Act 1986;
• exceptions to the restrictions on use of registered geographical indications include prior continuous use, prior trade marks, use of own name and use of address where the wine or spirits were produced or bottled;
• an identical geographical indication in respect of the same or a similar geographical origin cannot be registered in relation to the same good;
• interested persons can apply to oppose an accepted application or to remove or alter a registered geographical indication, or the conditions or boundaries relating thereto;
• the Registrar can obtain advice from third parties in determining compliance with the Act, including the advisory committee established under the Trade Marks Act 2002 who can advise on whether the use or registration of a geographical indication is or is likely to be offensive to Maori;
• apart from 3 enduring geographical indications geographical indications are subject to an initial 5-year term from the application date and indefinitely renewable for further 10-year terms;
• a 12-month right of restoration of an expired geographical indication (subject to payment of fee).

Geographical indications for other goods and non-registered geographical indications for wine and spirits will continue to be protected through the Fair Trading Act 1986 and the tort of passing off. Precedence between geographical indications and registered and unregistered trade marks is generally determined by the “first-in-time, first-in-right” principle. However, the rights in prior trade marks extend to the same or similar marks covering the same or similar goods, whereas registered or unregistered geographical indications generally only prevent the registration of the same mark (or translations thereof) for the same goods. In limited circumstances, the Act allows for later-filed geographical indications to be registered despite pre-existing trade marks having priority. Determination of such precedence takes into consideration:

• The history of use and recognition as a geographical indication in New Zealand;
• The legitimate interests of the owner of the trade mark and of third parties; and
• Other relevant factors, which may include international considerations.

If geographical indications are homonymous (identical, but originate from different geographical areas), the Act allows the registration of both geographical indications, subject to conditions on their use to ensure that it does not lead to consumer confusion. As the registration of geographical indications is not compulsory, the Act recognizes the right of the relevant public to use an unregistered geographical indication that is homonymous with a registered geographical indication.

Assistant Commissioner Pulls Stumps on Extended Innings of Rogue Registration
In Brown v New Zealand Cricket (Inc) an Assistant Commissioner found Brown’s registration for the word CRICKET in relation to various clothing articles to be invalid.

Despite filing an opposition, New Zealand Cricket had to resort to invalidation proceedings on account of an administrative error by IPONZ. Upon receiving the opposition IPONZ should have sent the International Bureau a notice of irregularity within the specified time frame. However their failure to do so meant the Madrid Protocol application would proceed to registration in New Zealand as the International Bureau would not recognise subsequent opposition proceedings.

The Assistant Commissioner held that most consumers would understand the word CRICKET on Mr Brown’s clothing products to indicate that they are to be worn for playing or in connection with cricket. Consequently, the mark was held to be descriptive and incapable of fulfilling the essential trade mark function of distinguishing, unless the public was first educated that the mark is a trade mark.

3. Copyright

New Zealand

Review of Copyright Act 1994 Initiated
Following on from its December 2016 report on Copyright and the Creative Sector (summarized here) the Ministry of Business, Innovation and Employment (MBIE) has now initiated a review of the Copyright Act 1994.

The terms of reference of the review note that New Zealand’s copyright regime has the following objectives:

• providing incentives for the creation and dissemination of works, where copyright is the most efficient mechanism to do so,
• permitting reasonable access to works for use, adaption and consumption, where exceptions to exclusive rights are likely to have net benefits for New Zealand,
• ensuring that the copyright system is effective and efficient, including providing clarity and certainty, facilitating competitive markets, minimising transaction costs, and maintaining integrity and respect for the law,
• meeting New Zealand’s international obligations.

The review seeks to assess how well the current Act is meeting those objectives; identify any barriers thereto and how they affect creators, publishers, distributors, users and consumers; and put together a plan to address such issues. This is expected to result in the release of an Issues Paper in early 2018.

Court of Appeal Clarifies Ownership and Eligibility of Foreign Owners
In 2017 NZCA 217 ESR Group v Burden the Court of Appeal overturned the trial Judge’s findings in respect of ownership, holding that while Burden was a joint author of technical drawings he was not the owner of copyright in the drawings.

As a result of a copyright notice that Burden had lodged with NZ Customs ESR had furniture items seized and detained in 2014. The copyright notice is in Burden’s name, but the technical drawings for the furniture that Burden sells were produced by staff at companies that Burden is a director of – PGT International (registered in the British Virgin Islands) and PGT Vietnam (registered in Vietnam). These companies were joined as second and third plaintiffs before the High Court and as second and third respondents before the Court of Appeal. Burden claimed that the technical drawings were based on his preliminary sketches and subsequent input. The trial Judge accepted this and held that Burden’s creative input into the production of the technical drawings qualified him as a joint author and joint owner thereof, and found ESR liable as a secondary infringer of Burden’s copyright.

On appeal Burden conceded that the unavailability of the preliminary sketches meant there was insufficient evidence to support a finding of copyright existing in the preliminary sketches, but nonetheless maintained that the technical drawings were original works in which copyright subsisted. It was also accepted on appeal that the evidence showed Burden to be an employee of PGT International, with the consequence that copyright in the technical drawings variously belonged to PGT International and PGT Vietnam.

On account of Vietnam not being a convention country at the relevant time it was alleged that PGT Vietnam’s copyright could not be recognised in New Zealand. PGT International’s copyright would be recognised on account of the United Kingdom being responsible for the international relations of the British Virgin Islands. Nonetheless, given that Burden was found to be a joint author, the technical drawings were held to qualify for protection in New Zealand under section 18(3) on account of Burden being a citizen of Australia, which is a prescribed foreign country. The Court of Appeal found that the owners of the copyright, including PGT Vietnam, could still sue for infringement on account of the works qualifying for protection under section 18.

A point of contention in establishing secondary infringement was the date at which ESR knew or had reason to believe that the imported goods were infringing copies. While Burden’s copyright notice predated all importations, this was held not to be sufficient for ESR to know or have reason to believe. The Court of Appeal held that a period of 2-3 weeks after being informed by Burden’s solicitors of the alleged infringement was sufficient for ESR to investigate and take legal advice. Consequently, ESR was held to be a secondary infringer in respect of the second and subsequent importations.