Category Archives: Intellectual Property

Common Terms in Pharmaceutical Trademarks

It is usual that pharmaceutical trademarks contain commonly used terms, so they are formed by the combination of elements such as prefixes, suffixes or commonly used words that evoke somehow an idea about the properties of the product, its active principles, and its therapeutic function. They also may refer to a component of the medicine or the organ for which they are prescribed.

Terms are considered commonly used for two reasons: either for being part of the several marks or for being evocative of the product or any of its features. By common usage anyone is free to include them in a mark, provided that it is not confused with other marks of other owners.

For example, a prefix commonly used in Class 5 is the prefix CORTI that evoke the active substance corticosteroid or the word “cortisone”. The prefix CORTI is present in the formation of numerous registered trademarks owned by different owners, such as: CORTIFLEX, CORTIDERM 10, CORTIMED, CORTICREM, CORTIFENOL[1], etc.

The Court of Justice of the Andean Community has established in a precedent that the prefixes, suffixes, roots or endings commonly used in the marks cannot be subject to monopoly or exclusive use of a single person since they are usual words which its use by the general public can’t be prohibited.

Usually it is argued that because the signs identify products that directly affect health and have consequences on the human body, the consumer will have a higher level of attention and special care when purchasing the pharmaceutical products. This has been recognized in diverse jurisprudence of INDECOPI where stated that “in the case of pharmaceuticals referred to the signs in question, it is reasonable to assume that the consumer, when purchasing such products, would make a close examination based on their needs”[2].

However this is not enough to dismiss the risk of confusion because in the pharmaceutical trademarks that share commonly used terms, whose names could prove to be very similar, the consumers themselves might be induced to confusion, i.e., it may acquire a product in the belief that it is purchasing another, which is known as direct confusion or might think that the product has a distinct commercial origin than the real one, what is called indirect confusion.

The Court of Justice of the Andean Community in the Process 08-IP-2013 has noted that:

“What comes to protecting, by avoiding trademark confusion, is the health of the consumer who for confusion when asking for a product and negligence of the dispatcher, he may receive one with similar phonetic but different composition and purpose. If the requested product is intended for flu treatment and the delivered one is for the amebatic treatment, the consequences for the consumer can be dire.

We must consider that what has been dominating in our countries is the culture of the ‘personal healing’, according to which a large number of patients self-medicate because they have heard about a product in advertisement or received an indication from a third person. It is not considered that every human body has a different reaction to the same drug, and the self-medication can lead to misleading or confusion at the time of acquisition because the similarity between the two signs.”

This approach has been reiterated in several sentences of the Andean Court, such as the Process 30-IP-2000, where is stated:

“This Court is inclined to the thesis that when regarding pharmaceutical trademarks, the examination of confusing similarity should have a more exhaustive study and analysis, avoiding the registration of trademarks whose names has a close similarity to avoid precisely the consumer requests a product instead of another, which in certain circumstances can cause irreparable damage to human health, especially when in many establishments, even drugs of delicate use, are dispended without a prescription and only with just the advice of the pharmacist on duty”.

Also in Process No. 68-IP-2001, the same rigorosity was followed for the comparison between signs in the examination of confusing similarity, concluding that:

“In respect to pharmaceutical products, it is very important determine their nature, since some of them correspond to products of delicate application, which can cause irreparable damage to consumer health. Therefore, the recommendation in these cases is to apply, a rigorous approach in the analysis of the opposing marks that seeks to prevent any confusion in the consuming public because of the nature of the products identified with them.”

These arguments are based on the fact that the average consumer is not usually a specialist in chemicals and pharmaceutical issues and the acquisition and use of these products will usually lack of a permanent professional assistance.

The fact that the Specialized Chamber in Intellectual Property of INDECOPI considers that when dealing with pharmaceutical products, the consumer will take a decision following a careful consideration based on his/her needs, that is, that he or she will pay more attention when purchasing these products, doesn´t mean that there isn´t a possibility of confusion, even more if we put ourselves in the place of an average consumer, who doesn´t necessarily have knowledge of the components or properties of pharmaceutical products offered in the market, so he or she can easily fall into confusion when buying such products, in that sense, the consumer could buy in the drugstore a pharmaceutical product in the belief that he or she is buying another product, certainly because the phonetic similarities between the signs are so strong that lead to confusion and do not allow him/her to differentiate a product from another. In this case, not only the consumer would fall into confusion but also the same pharmacist, who may be confused by dispensing one product for another, precisely because of the phonetic and / or visual similarities between the marks.

An example of this is illustrated by the case of the application of the word mark “CORTIDEX”. This mark was applied by Inversiones Awl S.A.C. to distinguish pharmaceutical and veterinary products; etc. in Class 5 of the International Classification. Against this application, Laboratorios Chile S.A. files an opposition based on the ownership of the mark CORTIPREX that distinguishes products of class 5. In the opposition, Laboratorios Chile S.A. indicates that from the graphic and phonetic point of view, the marks are very similar because they share the word CORTI, and this term will be more easily remembered by the consumer public.

The Commission of Distinctive Signs, by Resolution No. 1085-2009/CSD-INDECOPI, declared unfounded the opposition and consequently granted the registration of the mark applied, stating that from the graphic and phonetic point of view the signs have a different sequence of consonants (C-R-T-D-X / C-R-T-P-R-X), thus they also differ in their final syllables (DEX / PREX), which determines that said signs generate a different pronunciation and a different overall visual impression. It is noted that the fact that the signs share the particle CORTI, this is not decisive to establish some kind of similarity between them, since this particle is part of the conformation of various registered trademarks in class 5.

By Resolution No. 0107-2010/TPI-INDECOPI, the Specialized Chamber in Intellectual Property confirms the first instance decision stating that “the initial particle CORTI present in the signs may refer to the term cortisone, which explains its frequent use in the conformation of registered marks in class 5 of the International Classification, as shown in the background Report. In this sense, it can hardly indicate a particular commercial origin”.

From our point of view the marks CORTIDEX and CORTIPREX themselves are confusingly similar, because in addition to distinguish some of the same products, from a graphic and phonetic point of view, the marks are similar since they share the prefix CORTI, which significantly affects the appearance of the opposing marks, even more taking into account that they share the same ending (EX) and the same sequence of vowels (O-I-E), generating a sound and a visual impact very similar, so this could lead to consumer confusion.

It is therefore very important that pharmaceutical trademarks have additional elements added to the common term, whether figurative or verbal, with sufficient distinctiveness to identify and distinguish the commercial origin of the product to avoid the risk of confusion, as also prevent the sign to become descriptive because that would make it not distinctive and therefore in consideration of the prohibition of registration of the Article 135 subparagraph e) of Decision 486 from the Andean Community which would make impossible their protection, but mainly because we must safeguard the health and life of the consumers, fundamental rights that are superior to any intellectual property registration.

 

[1] Trademarks mentioned in Resolution No. 0107-2010/TPI-INDECOPI dated January 13, 2010.

[2] Resolution  N° 0011-2009/TPI-INDECOPI from file N° 341709-2008

Time to Correct Section 101 Patent-Eligibility Law in the US

The current state of the law on patent-eligibility under 35 U.S.C. § 101 reflects confusion among US courts that is causing harm to patent owners, inventors, and the marketplace.

This confusion has persisted throughout the development of the patent-eligibility jurisprudence since the US Supreme Court’s decision in Bilski v. Kappos, 561 U.S. 593 (2010) and, more recently, since the Supreme Court’s decision in Alice Corp. v. CLS Bank, 134 S. Ct. 2347 (2014), and has resulted in the pervasive invalidation of patents involving computer-implemented inventions.  See, e.g., Kelly Mackin, Federal Circuit Guidance Is Needed Because District Courts Are Misapplying Alice, IP Watchdog (Apr. 7, 2016); Kelly Knaub, Patent Holder Asks Fed. Circ. to Clarify Alice in Netflix Case, Law360 (Dec. 22, 2015, 11:41 PM).

There is an alarming trend among US courts of misapplying Alice in determining what constitutes an “abstract idea” versus what is sufficient to demonstrate that a claim is directed to a practical application of an abstract idea rather than merely the abstract idea itself.

Specifically, it is becoming increasingly common for US courts to err in defining the alleged abstract ideas by:

(1) improperly including “novel” business practices or methods of organizing human activities; and

(2) including detail well beyond the level of detail envisioned by Alice or Bilski.

Precedent of the US Supreme Court has never sanctioned such a broad scope for the judicially-created exception to patent-eligible subject matter under Section 101.

Further, there is a growing and erroneous trend among US courts to misapply step two of the Alice framework by:

(1)    ignoring “inventive” aspects of the claimed invention that are “non-routine” merely because a generic computer was involved; and

(2)    ignoring technological improvements that are effected by the claims as a whole merely because a generic computer was involved.

While Alice made clear that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention,” it is equally clear that the use of a generic computer does not automatically make a claim patent-ineligible.  See Alice, 134 S. Ct. at 2358.  Thus, these inventive and technological elements cannot be ignored merely because they are part of a computer-implemented invention.

Since Alice, more than 100 patents and thousands of claims have been declared invalid under 35 U.S.C. § 101 by US courts using an overly broad interpretation of Alice.  The detrimental effect on software, biotechnology, and other computer-implemented inventions is so severe, that former director of the US Patent and Trademark Office, David Kappos, counsels clients to seek patent protection in countries other than the United States and calls for the abolition of Section 101.  Ryan Davis, Kappos Calls for Abolition of Section 101 of Patent Act, Law 360 (Apr. 14, 2016).

The Historical Law on Patent-Eligibility

The Patent Act defines patent-eligible subject matter as

“any new or useful process, machine, manufacture or composition of matter, or any new or useful improvement thereof.”

35 U.S.C. § 101.  The US Supreme Court has repeatedly recognized that this statutory language is very broad:

“In choosing such expansive terms modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.”

Bilski, 561 U.S. at 601 (quoting Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980)).

Nevertheless, Supreme Court precedent provides three judicially-created exceptions to Section 101’s broad patent-eligibility principles: “laws of nature, physical phenomena, and abstract ideas.”  Bilski, 561 U.S. at 601; Chakrabarty, 447 U.S. at 309; Mayo Collaborative Servs. v. Prometheus Labs., 132 S. Ct. 1289, 1293 (2012); Ass’n for Molecular Pathology v. Myriad Genetics., 133 S. Ct. 2107, 2116 (2013); Alice, 134 S. Ct. at 2354.

Of course, as judicially-created exceptions, the Supreme Court has repeatedly recognized they should be narrowly applied.  Alice expressly made this point:

[W]e tread carefully in construing this exclusionary principle lest it swallow all of patent law.

134 S. Ct. at 2354.  Thus, the Supreme Court has long distinguished between claims directed to an “abstract idea” (or one of the other patent-ineligible fundamental principles) and a practical application of an abstract idea, which is patent-eligible.  As Bilski explained, “an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.”  561 U.S. at 611 (quoting Diamond v. Diehr, 450 U.S. 175, 187 (1981)).

This key principle—that a patent claim may be directed to a practical application of a fundamental principle—was expressly reaffirmed in Mayo, 132 S. Ct. at 1293–94, and Alice, 134 S. Ct. at 2355.  The ultimate inquiry is whether the claim preempts  an abstract idea.  Alice, 134 S. Ct. at 2354 (“We have described the concern that drives this exclusionary principle as one of pre-emption.”) (citing Bilski, 561 U.S. at 611–12).

In reviewing the history of patent-eligibility, Alice recognized that, prior to Bilski, the “abstract idea” exception had only been applied to “mathematical formulas.”  Alice, 134 S. Ct. at 2356.  Thus, prior to Bilski, the three judicial exceptions—laws of nature, natural phenomena, and abstract ideas (i.e., mathematical formulas)—were preexisting fundamental truths that exist in principle apart from any human action.  See Bilski, 561 U.S. at 619–20 (Stevens, J., concurring); cf. Alice, 134 S. Ct. at 2356.  In essence, these fundamental truths were treated the same.

However, Bilski did not rely on the fact that the concept of “hedging risk” could be reduced to a “mathematical formula” in classifying it as an abstract idea.  Instead, Bilski also found the concept of “hedging risk” to be an “abstract idea” because it was “a fundamental economic practice long prevalent in our system of commerce.”  Bilski, 561 U.S. at 611.

Alice explored the bounds of an abstract idea even further.  It found that the abstract idea—“intermediated settlement”—was easily identifiable as a “fundamental economic practice long prevalent in our system of commerce.”  Alice, 134 S. Ct.at 2356.  Alice supported the “fundamental,” “long prevalent,” and “longstanding” nature of the practice of intermediated settlement by, inter alia, citing to publications from 1896 and textbooks to demonstrate how well-known and deep-rooted an economic concept it was.  Id.; see also Bilski, 561 U.S. at 611.  Because intermediated settlement was so similar in kind to the “long prevalent” concept of hedging risk in Bilski, Alice stopped the analysis there, and did not feel a need to “labor to delimit the precise contours of the ‘abstract ideas’ category.”  Id. at 2357.  Thus, the Supreme Court expressly declined to expand the “abstract ideas” category beyond mathematical formulas and “fundamental economic practice[s] long prevalent in our system of commerce.”

Recently, Alice provided the following two-part framework for determining patent-eligible subject matter under Section 101, as first articulated in Mayo:

(1)    Are the claims at issue directed to a patent-ineligible concept?

(2)    If so, what else is there that transforms the abstract idea into a patent-eligible application?

Alice, 134 S. Ct. at 2355 (citing Mayo, 132 S. Ct. at 1289).  The misapplication of this new two-part test has caused much of the confusion permeating the courts.

Step One:  US Courts Are Misidentifying Alleged “Abstract Ideas” and Whether Claims Are Directed To One

  1. Misidentifying “novel” methods as “abstract ideas”

When Alice and Bilski expanded the “abstract idea” exception beyond “preexisting truths,” such as mathematical formulas, the Supreme Court relied on the fact that “hedging risk” and “intermediated settlement” were “fundamental” and “long prevalent in our system of commerce.”  See Alice, 134 S. Ct. at 2356; Bilski, 561 U.S. at 611.  Thus, the Supreme Court has never considered “novel” business practices or methods of organizing human activities to be “abstract ideas.”  Yet, US courts have improperly expanded the holdings in Alice and Bilski to include “just discovered” methods of organizing human activity within the category of the judicially created “abstract idea” exception.

In Versata Dev. Grp. v. SAP Am., 793 F.3d 1306 (Fed. Cir. 2015) (“Versata”), despite the fact that the Federal Circuit had previously recognized in a prior appeal that the commercial embodiment of the patent-in-suit “received praise as a ‘breakthrough’ that was ‘very innovative,’” (Versata Software, v. SAP Am., 717 F.3d 1255, 1259 (Fed. Cir. 2013), cert. denied, 134 S. Ct. 1013 (2014)), it nonetheless held that the novel concept of “[u]sing organizational and product group hierarchies to determine a price is an abstract idea that has no particular concrete or tangible form or application.”  793 F.3d at 1333.

Unfortunately, such an analysis is commonplace throughout the courts.  For example, the one district court in Hawaii relied on the Versata decision to find something akin to “using the same hierarchical ordering based on metadata to facilitate the display and locating of video content”—which the court expressly recognized to be a novel concept— to be directed to an abstract idea by comparing it to, inter alia, “the broad concept of using organizational and product group hierarchies to determine prices for products and customers” found to be an abstract idea in VersataBroadband iTV v. Oceanic Time Warner Cable, 2015 U.S. Dist. LEXIS 131726, at *20 (D. Haw. Sept. 29, 2015) (“BBiTV-TWC”); Broadband iTV v. Hawaiian Telcomm., 2015 U.S. Dist. LEXIS 131729, at *16 (D. Haw. Sept. 29, 2015) (“BBiTV-HT”).  This interpretation of the “abstract idea” category drastically expands the exclusionary principle beyond Supreme Court precedent, rather than “tread[ing] carefully” as directed by Alice.  134 S. Ct. at 2354.

  1. Improperly Defining the “Abstract Idea” Merely Using Abstractions of the Claims

There is also a trend among US courts of improperly including substantially more detail into the alleged “abstract idea” than allowed for by Supreme Court precedent.  By erroneously including the “novel” aspects, instead of merely the “long standing” aspects into the alleged “abstract idea,” the courts remove the aspects of the claim that in step two of the Alice analysis would be properly considered as “something more.”

In Versata, the Federal Circuit erred in adopting overly-detailed abstractions of the claims instead of “fundamental,” “long prevalent” and broadly-phrased “methods of organizing human activity” to which the claims purportedly relate.  In particular, Versata did not simply identify the claims as pertaining to the abstract idea of “determining price,” but instead identified the claims as “directed to the abstract idea of determining a price, using organizational and product group hierarchies.”  793 F.3d at 1333.  While “determining price” may be a “fundamental” and “long prevalent” principle, there is no evidence that “determining price, using organizational and product group hierarchies” was prevalent prior to the invention.  To the contrary, the record reflects that Versata’s software was a “breakthrough” that was “very innovative.”  717 F.3d at 1259 (citing J.A. 1304).

In Netflix, Inc. v. Rovi Corp. (“Netflix”), another case infected by this type of analysis, the district court characterized the alleged abstract idea of the claims of one of the patents-in-suit as “filtering search results using selectable categories.”  114 F. Supp. 3d 927, 941 (N.D. Cal. 2015).  While perhaps “filtering” search results may have been prevalent prior to the invention, by redefining the alleged abstract idea to include “using selectable categories,” the court improperly front-loaded a potential “inventive concept” into the alleged abstract idea.  Accordingly, that detail was then discounted in step two, when a court is supposed to consider the “inventive” aspects that were not “long prevalent” under the Alice framework.  See id. at 943.

Step Two: US Courts Are Over-Discounting Claim Elements and Failing to Recognize “Something More”

US courts have erred in step two of the analysis by erroneously ignoring “inventive” aspects of the claimed invention, that are not “routine or conventional,” and invalidating these patent claims merely because those inventive aspects use a computer.

For example, in addressing step two in Versata, the Federal Circuit considered such inventive aspects of “arranging a hierarchy of organizational and product groups” and “eliminating less restrictive pricing information,” but ultimately determined that the claims lacked “sufficient additional limitations to transform the nature of any claim into a patent-eligible application of an abstract idea.”  793 F.3d at 1334.  This was because “the function performed by the computer at each step is purely conventional.”  Id.  Further, when considered as an ordered combination, the Federal Circuit found the claims did not pass step two since the unconventional “organizational and product group hierarchies” were performed by a generic computer.  Id.  

While Alice does stand for the proposition that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention,” this means that use of a generic computer itself does not confer patentability; however, use of a computer does not destroy patent-eligibility.  See Alice, 134 S. Ct. at 2358.  Alice mandates that the additional elements, even if added by the computer, are relevant and must be considered both separately and as an ordered combination, in step two.  Id. at 2355.  These computer limitations may add the inventive concept required for patent-eligibility.  Cf. id. at 2357–58 (comparing Benson, in which “the computer implementation did not supply the necessary inventive concept,” with Diehr, in which the “additional steps” that included making calculations on a computer did supply the required inventiveness); DDR Holdings v. Hotels.com, 773 F.3d 1245, 1258  (Fed. Cir. 2014) (finding claims-at-issue patent-eligible because they were directed to a novel solution, using a potentially “well-known” concept, to solve a technology-driven problem).

Similarly, in Netflix, after characterizing the ‘709 Patent as being directed to the “novel” “abstract idea of generating viewing recommendations,” the court went on to discount the computer-implemented steps because they purportedly “do not go beyond routine, conventional means of generating viewing recommendations.”  114 F. Supp. 3d at 946–47.  But if “generating viewing recommendations” was indeed novel, then how could the claim be using “routine, conventional means of generating viewing recommendations?”

Relatedly, US courts have failed to follow the Supreme Court’s guidance that all of the additional elements of each claim be considered both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application.  Alice, 134 S. Ct. at 2355.

In Versata, the Federal Circuit barely paid lip service to the claims “as an ordered combination” in applying step two of the analysis.  Rather than analyzing the patent claims “as a whole,” Versata made the conclusory statements that “the components of each claim add nothing that is not already present when the steps are considered separately.  Viewed as a whole, the claims simply recite the concept of price determination by using organizational and product group hierarchies as performed by a generic computer.”  793 F.3d at 1334.  Unlike in Alice and Mayo, Versata simply failed to evaluate all of the additional novel and unconventional elements of each claim “as an ordered combination.”  In doing so, Versata ignored the technical improvements advanced by the claims as a whole.

This error of stripping elements out of the claim in an Alice analysis is far too widespread among US courts.  In BBiTV-TWC and BBiTV-HT, the district court’s failure to even reproduce the detailed claim at any point in the opinion exemplifies the tendency among many courts to neglect to meaningfully consider all of the limitations of the claims.  Instead of including the full claims in the opinions, the court resorted only to “summar[ies],” which the court itself recognized did not “capture all of the precise terms used in the patent itself.”  See 2015 U.S. Dist. LEXIS 131729, at *15–16, n.12; 2015 U.S. Dist. LEXIS 131726, at *19–20, n.15.  Thus, the court could not have considered all of the additional elements of the claim, both separately and as an ordered combination, as dictated by Alice.

Conclusion

The Supreme Court has repeatedly affirmed that a method or process is not unpatentable simply because it contains an abstract idea, law of nature, or a mathematical algorithm.  See Mayo, 132 S. Ct. at 1293–94; Alice, 134 S. Ct. at 2354 (“an invention is not rendered ineligible for patent simply because it involves an abstract concept.”).

Despite these admonitions, many US courts have misread the recent guidance in Alice as de facto eliminating “business method” patents and effectively banning computer-implemented inventions from the patent system. While some courts have heeded the US Supreme Court’s admonition that Alice does not lead to the conclusion that all computer-implemented claims are directed to abstract ideas, unfortunately, many others have not followed this guidance, indiscriminately killing computer-implemented patents by ignoring the computer elements in the claims as irrelevant.  As one district court observed, although “intervening precedent [since Benson and Flook] and Congressional action have demonstrated that software is patentable,” “[t]he aftermath of Alice tells a different but misleading story about software patentability.”  Enfish v. Microsoft, 56 F. Supp. 3d 1167, 1172 (C.D. Cal. 2014).

The time is now for the US Courts and/or Congress to rectify these grave errors.

European Union: Reforms to trade mark legislation

On 23 and 24 December 2015, the EU Council approved a package of reforms to the laws governing trade marks within the European Union. The reforms are anticipated to have wide-reaching consequences for holders of and applicants for trade mark rights within the EU.  Many significant changes have already taken effect as from 23 March 2016, with particular impact upon the system for unitary EU-wide registration of trade marks.

Background

Trade mark law within the EU is governed by both European Union law and the national laws of EU member states. These laws underpin the two main systems for obtaining trade mark protection in the EU, i.e. that most recently known as the “Community” trade mark system (through which protection can be obtained throughout the whole EU through a single application) and the national registration systems of EU member states which have continued to exist in parallel with the unitary EU-wide registration system.

The package of reforms approved by the EU Council at the end of last year consists of a new EU Trade Mark Directive (EU) 2015/2436, along with a series of amendments to the existing Community Trade Mark Regulation by means of Regulation (EU) No 2015/2424. These will affect both unitary EU-wide and national trade mark rights.

New EU Trade Mark Directive

Although national trade mark laws of individual EU member states have for many years had their roots in an older “harmonisation” Directive (Council Directive No. 89/104/EEC), there remains some divergence. The new EU Trade Mark Directive has been introduced with a view to better harmonising the trade mark laws of member states.

Some of the important provisions within the new Directive are as follows:

  • Graphical representation: The requirement for a mark to be capable of “graphical representation” will be removed, potentially paving the way for an increased uptake in the filing of non-traditional types of trade mark – such as smells and holograms. However, applicants will still need to present their marks in a manner which is deemed, inter alia, to be clear and precise. It therefore remains to be seen whether more non-traditional marks will be accepted for registration under the new Directive.
  • Administrative procedures: The national trade mark offices of EU member states will be required to introduce opposition, revocation and invalidity procedures, if they do not already offer them. In some member states it is currently only possible to bring such actions at Court, which can result in longer and more expensive proceedings.
  • Own name defence: Companies will no longer be able to cite honest use of their own name as a defence to infringement of another party’s trade mark. The ‘own name defence’ will only be available to natural persons (i.e. individuals) who use their personal names.
  • Non-use of registered marks: Owners of trade marks that are more than five years old will only be able to enforce their rights to the extent that they are in use. The Directive will introduce a mechanism for respondents to request proof of use of such earlier rights enforced against them.
  • New anti-counterfeiting measures: holders of EU trade marks will be able to seize counterfeit goods in transit through the EU, even if the goods are not targeted at EU consumers. Rights holders will also have means to prevent others from affixing trade marks to packaging, labels, security or authenticity features and from selling, stocking or importing such packaging, labels, tags, security tags, if this is without authorisation. The entitlement of an EU trade mark holder to prevent transit of goods through the EU would lapse, however, if the party responsible for the goods is able to prove that the EU trade mark holder would not be entitled to prohibit use of the trade mark in the country of final destination.

It will be some time before the changes prompted by the Directive filter through to the national level; for most of the provisions, member states have at least three years to implement them into their local laws.

Amendments to existing Community Trade Mark Regulation

The package also consists of a number of amendments to the existing Community Trade Mark Regulation, which governs Community trade marks (the unitary right that affords holders trade mark protection throughout all EU member states – until recently known as the CTM).

The amended Regulation came into force on 23 March 2016, and so the changes associated with it may be more acutely noticed by trade mark applicants and right holders in the EU.

The following are perhaps the most significant changes of which to be aware:

  • Terminology: the Community Trade Mark (CTM) has been renamed the European Union Trade Mark (EUTM). This reflects the geographical scope of this right in a more meaningful way.

On 23 March 2016, all Community Trade Marks automatically became European Union Trade Marks; holders of existing CTM applications and registrations have not needed to take any action to effect this change.

The EUTM is now administered by the European Union Intellectual Property Office (EUIPO) – formerly known as The Office for Harmonisation in the Internal Market (“OHIM”) or the Community Trade Marks Office.  Again, this is a more accurate description as the EUIPO does have responsibility for protection of other intellectual property rights than trade marks, namely, designs.

  • Application and renewal fee changes: under the amended Regulation, application fees for EUTMs will in some cases rise, but renewal fees will fall across the board.

Previously, the basic fee for a Community trade mark application was EUR 900, which included three classes of goods and services. Each subsequent class added EUR 150 to the basic fee.

The amended Regulation has introduced a lower basic application fee of EUR 850, which only covers one class of goods and services. The cost of filing in two classes is EUR 900, and each class included thereafter will add EUR 150 in fees. It is therefore more expensive to file in three or more classes under the amended Regulation.

The above change should prompt the filing of EUTM applications for better focussed specifications of goods and/or services than has previously been the case.  Historically, Community trade mark applicants would often include more classes than needed due to the ability to include up to three classes for one fee.  This caused issues later on, due to the inability to prove, if challenged on non-use grounds, genuine use of the registered mark upon all goods or services registered.  It also led to uncertainty for third parties looking to clear their own marks for use and registration, when the true goods and services of interest to an existing Community trade mark owner were difficult to ascertain.  Also, these earlier trade marks would continue to pose a registered trade mark infringement risk for all goods and services covered until sufficiently mature for challenge on non-use grounds.

Renewal fees, however, have fallen, regardless of the number of classes covered by a registration. The fees set out above for new applications will also apply to renewals, whereas previously renewal fees always exceeded the equivalent cost of a new application.

  • Interpretation of class headings: the amended Regulation clarifies the Office’s established position that trade mark specifications are to be given a literal interpretation.

Under the Nice classification system, goods and services of trade mark specifications are grouped into 45 administrative ‘classes’. Each class is assigned a general description of the goods and services that fall within it, known as a ‘class heading’. For instance, the heading of class 15 is musical instruments.

In the past, applicants may have filed for the class heading to secure protection in relation to all goods or services that were deemed to fall within that class. However, the amended Regulation will confirm the Office’s position that protection for a class heading only extends to the specific terms named in that heading, or that fall within its scope.

For example, under the amended Regulation, a specification consisting of the class 15 heading musical instruments will be deemed not to extend to other class 15 goods such as music stands and tuning forks, as they fall outside the literal interpretation of the heading. If and when a registration covering such goods is more than 5 years old, and absent genuine use of the mark on the registered goods or proper reasons for non-use, the registration could be cancelled in its entirety.

Right holders beware: The restricted interpretation of specifications applies to Community trade mark applications and registrations filed before the amended Regulation came into force, as well as to any EUTM applications filed thereafter.

Holders of EUTM registrations that were filed before 22 June 2012, and which are registered in respect of the entire heading of a Nice class, have the opportunity to file a declaration clarifying the goods and services that they intended for the heading to cover. Such declarations will need to be filed by 24 September 2016 according to the wording of the Regulation; but many are taking the 6 month window for declarations to close on 23 September 2016, and it would be prudent to address any required specification amendments in good time prior to either date.  After the September deadline, class heading terms will be given their literal meaning, with the associated risks detailed above.

Other provisions for the EUTM system include potential for registration of “Certification” trade marks, as already available in certain EU member states, and the offering of mediation services.

For International Trade Mark Registrations designating the EU for protection, the three month period for third party opposition following publication will commence one month after publication rather than six months.   This too should be a welcome change in the long run, as it will shorten the long period it was previously necessary to wait for an EU designation to be able to proceed to full protection.  However, those interested in lodging oppositions to an EU designation will need to be mindful of the change to calculation of opposition deadlines.

Looking ahead

Whilst some of these changes will take time to implement, others, particularly those associated with the amended Regulation, are already in force.  Changes to address the scope of specifications of goods or services of a registration will ultimately lead to more legal certainty but in the short term will require close attention of existing rights holders to ensure that the scope of protection of their registrations is exactly what they need.

The Community/unitary EU-wide trade mark registration system has been an enormous success since its creation around two decades ago.  This has placed the newly named EUIPO in an excellent position to assist other member states with improvement of their systems and towards true harmonisation of trade mark law and practice within the jurisdiction.

What will the next decade bring?

The changing landscape of the Community Trade Mark application – EU trade mark reforms

The unitary Community Trade Mark (CTM) was introduced in 1996. Since then there have been no major changes to the system. However, the IP landscape and business environment have changed dramatically leaving Europe’s trade mark system behind.

To review and remedy this problem, the European Commission carried out a comprehensive evaluation of the overall functioning of the CTM in 2008, finding that many aspects of the system continue to meet business needs and expectations, but that the system needs modernising to bring it up to speed with the internet era and to ensure it functions more effectively, efficiently and consistently as a whole. For these reasons, the European Counsel called on the Commission to present proposals for the revision of the European trade mark system.

The Commission has recently published draft legislation in relation to the proposed reforms of the European trade mark system. These are the key reforms which will overhaul existing CTM law:

  • Terminology
    The term “Community Trade Mark” will be replaced with “European Union Trade Mark” and the OHIM is to be replaced with “European Union Intellectual Property Office” or “Agency”.
  • Harmonisation
    National laws and practices will be further harmonised and brought in line with the EU trade mark system to create equal conditions for the registration and protection of trade marks throughout the Union. A more streamlined approach will lead to faster and less burdensome procedures especially for SMEs that conduct business in multiple member states and seek protection and enforcement assistance in multiple EU jurisdictions.
  • Graphic representation
    At present, the EU trade mark system requires a sign to be represented graphically in order to be protectable as a trade mark. This requirement has made it virtually impossible for proprietors to register non-conventional trade marks such as sounds, smells and tastes, which cannot be represented graphically in a way that is clear, precise, self-contained, easily accessible, intelligible, durable and objective – criteria set by the European Court of Justice and known as the Sieckmann criteria.
    The Commission has now abolished the graphic representation requirement from the definition of an EU trade mark. Instead, “any appropriate form” is allowed as long as it fulfils the Sieckmann criteria. This may open the flood gates for the registration of non-conventional trade marks such as sounds and smells, particularly as the definition of a trade mark has been expanded to include “sounds” and “colours”.
  • Use of general terms
    In the landmark IP Translator decision, the Court of Justice of the European Union decided that the use of general terms in a specification should be interpreted as including all goods and services covered by the literal meaning of the term, and that specifications must meet the requisite standard of clarity and precision.

    To ensure all trade marks comply with this, the Commission is giving proprietors of European Union trade marks applied for before 22 June 2012 registered in respect of the entire class heading, an opportunity to amend their specification. Proprietors can do this by filing a declaration at the Office within six months of the entry into force of the new Regulation, confirming that their intention on the date of filing had been to seek protection in respect of goods or services beyond those covered by the literal meaning of the class heading with an indication of those goods or services. Where no declaration is filed, the trade mark will be deemed to cover only the goods or services covered by the literal meaning.

    It is strongly recommend that owners of CTM marks that were filed prior to 22 June 2012 review the coverage of their registrations and contact us immediately should they have concerns.

  • Bad faith
    Previously, bad faith could only be raised as a ground for invalidation, but the reforms have now introduced bad faith as a ground for opposition making it possible for a third party to oppose a registered trade mark on the grounds that the proprietor was acting in bad faith when they applied to register their mark.
  • Acquired distinctiveness
    A mark that is non-distinctive, descriptive or generic shall not be refused registration if the applicant can show that the mark has acquired a distinctive character through use before the application date. Under the new system, the same has been adopted with regard to trade marks that are subject to invalidation proceedings: a mark will not be declared invalid if the proprietor can show that the mark has acquired distinctiveness before the date of the application for invalidity.
  • Counterfeit goods
    One of the stated aims of the reforms was to improve the means to fight against counterfeit goods within the EU. Under the new system, rights holders can prevent goods from entering the EU when those goods are likely to infringe their registered trade mark rights regardless of whether the goods are released for free circulation within the EU. The new provisions are aimed at preventing third parties from importing counterfeit goods for commercial activity from outside the EU into the EU and at discouraging the ordering and sale of counterfeit goods over the Internet to EU consumers.
  • Filing and fees
    The filing of CTMs at national offices will be abolished: EU trade marks may only be filed at the EU Trade Mark Office.

    Currently filing fees are payable within one month after filing. This enables applicants to file ‘test applications’ to see whether their mark encounters objections during examination and if it does, they can avoid paying the filing fees by not responding to the examination report. To prevent this, filing fees will now be due immediately upon filing.

    To help balance the budget of the Office the fees payable directly to the Office have been reconsidered. The most significant change is class coverage. Under the current system it is the same price to register a CTM in three classes as it is in one class. Under the new system, a European Union trade mark will only cover one class and the cost to cover a second class and subsequent classes has been reduced from EUR 150 to EUR 50. The new fee structure discourages broad filings and encourages smaller businesses to seek protection, with the European Commission claiming that the changes will lead to savings of up to 37 per cent for businesses that seek protection of their EU trade marks beyond an initial period of 10 years.

    Many of the other fees payable directly to the Office have been reduced.

  • Mediation Centre
    In order to “facilitate amicable, expeditions and efficient dispute resolution” the Commission has given the Office an opportunity to establish a Mediation Centre. The Mediation Centre may be used by any person wishing to achieve friendly settlement of disputes arising from EU trade marks and Community designs on a voluntary basis. Parties wishing to use the services must file a joint request to mediate along with payment of the corresponding charge at the Office. Where the parties are involved in proceedings before the Office, ie opposition / revocation / invalidation proceedings, the request for mediation can be filed at any time from lodging the proceedings to filing a notice of appeal and the corresponding proceedings will be suspended. If the parties are able to reach a settlement agreement, one of the parties wishes to end mediation or the mediator believes the parties are unable to reach a settlement, the mediator will inform the Office the mediation proceedings are closed and the suspended proceedings will resume or be concluded.
  • Surplus funds
    The Commission’s reforms also address the Office’s growing budget. It said that the accumulation of significant budgetary surpluses should be avoided and that the Office should maintain a financial reserve covering one year of its operational expenditure to ensure it can continue its operations as specified in the Regulation. Part of the reforms place an obligation on the Office to prepare a biannual report to the European Parliament, the Council and the Commission on its financial situation so that the Commission can review the financial situation of the Office and make changes to the budget as necessary.

On 15 December 2015 the European Parliament adopted the EU trade mark reform package.  The final text of the draft legislation has now been published in the Official Journal of the European Union.  The draft legislation consists of the EU Trade Mark Directive, which was published on 23 December 2015 and entered into force on 13 January 2016 and, the EU Trade Mark Regulation, which was published on 24 December 2015 and enters into force on 23 March 2016.

Overall the changes cater for a more modern and streamlined system of trade mark protection ensuring the system is brought into the internet era. While some commentators believe the proposed changes may not represent a major overhaul of the existing system, the new legislation includes some important changes that will modernise trade mark law and impact brand owners, in particular those regarding use of general terms.

Protecting a Brand Name or Logo in the European Community – What You Need to Know

Introduction

If you run a business and have a brand, then the chances are you will want to protect your brand in order to stop others from copying it and potentially stealing your customers. Your brand could be a word, a logo or perhaps a combination of the two. Whatever it is, the best form of protection is through trade mark registration.

The trade mark registration process is jurisdictional. That is to say, you should register your trade mark on a territorial basis relevant to where your products or services are being marketed.

Until 1st April 1996, if you wanted to protect your brand across the European Community the only way to do this was to register your mark in each Member State on a country-by-country basis. Whilst this was technically possible, it was a very expensive and time-consuming way of achieving pan-EU protection since separate applications had to be made directly through each of the national Member State government offices responsible for registering intellectual property rights in their own country.

Why a European Community system?

A system for registering a trade mark across the entire European Community by virtue of a single application was first implemented under Council Regulation (EC) No 40/94 of 20 December 1993. Under this system, a registration enables an owner to protect their trade mark across all the Member States at once and with the same legal effect as they would have with separate national trade mark rights in each Member State. Accordingly, a brand owner can enforce its rights against other parties infringing a trade mark in any of the Member States throughout the European Community. The Community registration system is intended to co-exist with the national registration systems and offer a cheaper and more efficient alternative, but not to replace them.

The first European Community trade mark applications were filed on 1st April 1996. The office responsible for the processing and management of the system (the “Office for the Harmonization on the Internal Market” or “OHIM” for short) is based in the city of Alicante in Spain.

How has it changed?

Ever since the inaugural trade mark applications were filed in 1996 the European Community trade mark system has had to evolve and adapt according to a number of factors and challenges, not least because of the sometimes disparate nature of interpretation of its “harmonised” European laws by the national Member State government offices and courts over the years, as well as the changes that have taken place in Europe geographically and an expanded European Community membership.  Moreover, the way in which most people work has changed considerably over the last 20 years following the advent of the internet and vast amounts of information that have become freely and easily accessible online.

What has been done?

In order to maintain pace with these changes Council Regulation (EC) No 40/94 has been amended several times. The most recent Regulation on Community trade marks (No 207/2009) dates back to 2009.

In 2008 however, it was decided that a radical overhaul was needed.  The European Commission commenced a programme of examining the European Community and national Member State trade mark systems and how they interacted with each other. Following the European Commission’s report it took a further seven years for the Commission, the European Parliament and the European Council to confirm that they had reached agreement for implementing the most extensive changes to European Community trade mark law since 2009. On 8th June 2015 the European Council published its proposals which were aimed at addressing the generally-acknowledged flaws in the current system such as higher than desirable costs, slow trade mark prosecution progress, a less than ideal level of legal certainty concerning the effects of registered trade mark rights and, in general, a low level of predictability for applicants and practitioners alike.

The result of this programme led to the implementation of Regulation (EU) 2015/2424 of the European Parliament and of the Council of 16 December 2015.  This new Regulation, which comes into force on 23rd March 2016, brings about several key changes in the European Community trade mark system.

What are the key changes?

  1. Terminology:The word “Community” is banished from the trade mark terminology. A Community trade mark becomes known as a “European Union trade mark” and the word “Community” becomes the “Union” or “European Union”.  The OHIM will now be called the “European Union Intellectual Property Office” or otherwise the “EUIPO”.
  1. Costs:One of the key changes promised was a reduction in the costs required to register a trade mark application in the EU and to renew the resulting registration. In reality, the costs are not changing substantively at all.  Official application fees will be marginally cheaper if a trade mark application is to cover only one class of goods or services. Bigger savings can be made on renewal costs, however. An EU trade mark registration must be renewed every ten years to keep it in force and official fees must be paid in respect of this. These official fees have been reduced appreciably.
  1. Goods in transit:This is a significant change in the law which gives increased protection for brand owners against counterfeiters who transport goods from one part of the world to another via the EU. Under the current law, products bearing a mark identical to or similar to an unauthorised trade mark are only deemed to infringe an EU registration if those products are in any way offered for sale in the EU market. In other words, products that are simply being transported through Europe and nothing more would not be held to be “infringing” goods.Under the new law, this loophole will be closed. In the case of any product entering the EU (even if only for the purpose of being shipped elsewhere) and where that product bears another party’s registered trade mark (or a mark that cannot be distinguished in its essential aspects from that trade mark) then it will be deemed to be an infringing product. This will put an end to unauthorised products being stored temporarily or warehoused in the EU as well as those contained within trans-shipments. An importer’s only defence is if they can show that the rightful brand owner has neither a registered EU trade mark nor a registration in the territory of the product’s ultimate destination. The importance of having your key brands registered as EU trade marks therefore speaks for itself.
  1. “Preparations” to infringe:More bad news for counterfeiters is the change in the law which now means products being prepared for sale may also be subject to a trade mark infringement claim. This applies when an unauthorised trade mark is placed on product packaging, labelling, tags etc. in readiness for actual sale. Until now, the products had to be on actual sale in the market before a trade mark right owner could take appropriate action, or at least advertised as available for purchase.
  1. Classification of goods:A trade mark registration is protected for products and services by means of a classification system. In order to set out what is covered by a registration, products and services are assigned classification numbers which relate to general headings. For example, “watches” fall under Class 14 and this class is headed and defined as “Precious metals and their alloys and goods in precious metals or coated therewith, not included in other classes; jewellery, precious stones; horological and chronometric instruments”.Following the decision of the Court of Justice of the European Union (CJEU) in Case C-307/10 Chartered Institute of Patent Attorneys v Registrar of Trade Marks (“IP TRANSLATOR”) it was held that where a trade mark is registered simply for the wording of the class heading or a specification of goods or services that incorporates the class heading, the protection of the mark is inferred as being limited only to the literal meaning of the class heading and not all the goods or services that fall within that class. In other words, the class heading is to be viewed as a broadly descriptive reference to the goods or services covered by that class and does not necessarily include all the goods or services of that class within its definition.

    The effect of the IP TRANSLATOR case is that if your registration has a filing date before 22nd June 2012 and covers a specification of goods or services that is entirely, or incorporates, the class heading, then there will be a six-month window of opportunity to address this by filing a declaration which sets out and itemises the precise goods or services which are meant to be covered under the registration. Without doing this, the class heading description could be construed to have a narrower meaning and the registered trade mark scope could be less than originally intended. It is therefore essential for all brand owners to review their European trade mark protection to determine whether they need to address this. The window of opportunity falls between 23rd March 2016 – 24th September 2016.

  1. Removal of “graphical representation” requirement:Until now, a prerequisite for registration has been that a trade mark must be capable of being represented graphically. This has hitherto made it impossible to register other signs such as distinctive smells, which has long been a problem for the fragrance industry in preventing copycat “smell-a-like” perfumes and aftershaves frequently seen on market stalls. Such products do not pretend to be the actual brands but merely cheaper alternatives, often comparing themselves openly to the big brands by making direct reference to them. The change is that the graphical representation requirement will no longer apply, meaning it will technically be possible to register a smell as a property right. From a practical point of view that may still be difficult. It remains to be seen how such registrations can be achieved once this change is introduced in October 2017.

This article gives a brief overview of the Community trade mark system (soon to be the European Union trade mark system) and the changes that are coming into force. Whether the system will be cheaper, increase legal certainty and be more efficient and predictable then we must wait and see. It has taken seven years to get to this position and many will argue that the changes do not go far enough, while others can make a reasonable claim that by the time these changes come into force we will have already moved on and the current provisions have quickly become out of date. Regardless of this, the Community trade mark system has benefited enormously many thousands of businesses across the EU over the last twenty years and it has been a resounding success. If you consider that the system is an attempt to harmonise the laws of the (currently) twenty-eight Member States covering a multitude of different languages, then it is something of a triumph that we have a Community trade mark system at all.

Protecting Investment in Intellectual Property

It is often quoted that as much as 80% of UK business value is now held in intangible assets, such as patents, designs and trade marks. This is a complete reversal from 30 years ago, when company valuations where largely based on the amount of tangible assets owned.

It is clear that in this modern global economy, intellectual property is crucial for businesses to maintain a competitive advantage both at home and abroad. Whether companies are selling services, developing software or inventing new products, they will be underpinned by valuable IP, which is crucial to protect.

However, as the value of these intangible assets grows so does the risk of being caught up in expensive litigation. Whether competitors or licensees copy rights and steal market share or so called patent trolls claim infringement of their rights, the risk to business can be significant, both in terms of legal fees and lost revenue.

As a result, there is a real concern that a large number of SMEs in the UK are beginning to turn their back on capturing and registering their IP. A belief is growing that there is little point in spending money on a portfolio of rights, if funds aren’t available to enforce it.

In this article I shall explore the causes of these concerns and how innovative insurance products provide a solution.

IP Litigation is on the rise.

Court figures confirm that right holders are facing a huge increase in the amount of IP litigation, both in the UK and around the world. In the UK High Court alone, the number of IP cases issued almost doubled between 2010 and 2014. This is a worrying statistic but hardly surprising when put into context.

At present the UK is experiencing an entrepreneurial boom. Last year 580,000 new businesses were incorporated. Of these, all will be trading under a new name, most will be selling a product or service, and many will be innovating, whether creating online content, designing new products or building brands. That is a significant amount of new IP being created each year. This inevitably will lead to more and more companies coming into conflict with each other, whether intentionally or otherwise.

In the US, the amount of litigation brought by so-called ‘patent trolls’ is on the rise and the risk of being caught in litigation is high. Between 2010 and 2014 the amount of patent litigation in the US has doubled.

This trend is unlikely to be reversed, so companies with successful IP have to anticipate being involved in IP litigation at some point. This applies to businesses of all sizes. Only a few months ago the Federation of Small Businesses surveyed their members and found that of those who own IP, 25% had experienced legal issues relating to it.

Litigation Cost

In the UK, significant steps have been taken to reduce the cost of IP litigation. Case management in the Patents County Court, now known as the Intellectual Property Enterprise Court (IPEC) was streamlined in 2010 to make it a viable forum for SMEs to enforce their IP. It has been a huge success. Over the last 5 years hundreds of companies have chosen to litigate in IPEC over the High Court, where cases take longer and are far more expensive.

Legal costs, however, remain stubbornly high. The costs of a patent action are still likely to be in excess of £100k, a substantial amount for any business. Costs in the High Court can often run into the millions.

The reasons for this are clear. IP litigation is highly specialised and labour intensive so legal fees reflect this. Court fees have also risen dramatically this year. So while steps have been taken to try to ease the cost burden on right holders, the inevitable truth is that IP litigation will always be expensive.

Added to this is the lack of availability of alternative funding options for litigants. Prior to the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘LASPO’), claimants could enter into Conditional Fee Agreements with their solicitors where, in return for a discounted hourly rate a success fee became payable if the case was won. The good news for the Claimants was that this fee was paid by the losing party. However, post LASPO, any success fee must be met by the claimant. Similarly, claimants could purchase after the event insurance, where, if the premium became payable, it would be met by the losing party. Today, if a company purchases after the event insurance it must pay the premium itself. Given the size of the premiums, this is a very expensive option.

The result is that if a business finds itself in IP litigation, the legal costs will inevitably be a significant burden.

The Solution

To protect against this risk, before the event IP insurance policies are becoming an increasingly popular, especially amongst SMEs

The market has developed rapidly over the last few years with a number of ‘A rated insurers’ now offering a variety of policies.

These policies, which are purchased annually, predominantly cover the legal costs of enforcing rights or defending IP claims. They also cover a range of other IP related exposures such as:

  1. Those arising under IP warranties and indemnities;
  2. Damages awarded against the insured if it is found to infringe a third party’s rights;
  3. The costs of recalling infringing products from the market;
  4. The loss of revenue following a right being found invalid.

As each IP portfolio is unique, policies are bespoke and tailored specifically to the client’s requirements. A specialist IP insurance broker can advise on where exposures might lie.

Until the underwriters have undertaken an assessment of the risk it is always difficult to advise on how much a policy might cost. As a rough guide, I advise that premiums are likely to be between 1%-3% of the level of cover being purchased.

The client can purchase anywhere between £100k and £50million+ of cover and can choose which countries it needs protection for.

Once the client has decided the scope of cover information relating to the client’s business must be sent to the underwriter. Amongst other things, the underwriter will need details of the rights and products to be protected, the client’s turnover, litigation history along with what systems, if any, it has in place to manage its IP risks.

At this stage, the insurer will undertake a high level risk assessment and provide the client with an indication of cost. It may also request further information. If the terms are within the client’s expectation, a fuller review will be undertaken and a formal quote issued. The whole process can take a matter of days.

IP insurance can add real value to IP rich businesses. Firstly, it allows decisive action to be taken if IP litigation arises, even if a company’s financial position might not otherwise allow it. An IP portfolio protected by insurance is worth considerably more than one that isn’t, given the right holders ability to enforce its rights regardless of its financial position. Secondly, if litigation does arise, having insurance in place can certainly encourage early settlement, or even act a deterrent all together.

These are important considerations for any business that is entering into licensing agreements, launching new products or expanding into new territories. For these businesses and those that are concerned about IP risk generally, IP insurance Is becoming increasingly important option when considering their IP strategy.

The Prohibition of Registration of Descriptive Marks As Trademark in Peru

  1. Legal basis

The prohibition of registration of descriptive marks as trademark is stated in Article 135, paragraph e) of Decision 486, Industrial Property Common Regime.

Article 135 of Decision 486 establishes “that may not be registered as trademarks those marks which:
Paragraph e) consist exclusively of a sign or statement that may serve in commerce to describe the quality, quantity, purpose, value, geographic origin, time of production or other data, characteristics or information concerning the goods or services for which the sign or indication is to be used, including laudatory expressions for those goods or services.

  1. Ground

The ground for the prohibition of registration of descriptive marks as trademark is double. On the one hand, it finds support in the lack of distinctive character of the descriptive marks because far from indicating the business origin of the products or services, the descriptive marks provide the public with information of the property and characteristics of the pertinent goods or services. On the other hand, it finds support in the need of keeping freely available the descriptive marks so that they can be used by all entrepreneurs that operate in the corresponding market sector. [1]

  1. What a descriptive mark is

The descriptive denomination informs directly of the characteristics of the good or service. [2]

Now, in the cases in which it is discussed if a mark is descriptive for directly informing about the characteristics of the good or service it intends to cover, it must be taken into account that a mark can be considered descriptive only if it informs directly about the essential characteristic of the good or service to be covered.

The aforementioned has been interpreted in that way by scholarly writings and case-law of the Andean Court of Justice of the Andean Community.

Scholarly writings have indeed stated the following:

In order to be “descriptive” in a trademark sense so as to prevent its registration, a trademark must designate a primary and essential quality of the product it intends to distinguish. By pointing it out its essence and not only any peripheral element, it is the product itself which is indirectly designated, and this deprives the trademark of any exclusivity right.” [3]

Likewise, the case-law of the Andean Court of Justice of the Andean Community has stated that descriptive marks are those which designate the essential or fundamental quality of a good or service. [4]

We believe that this interpretation has not been considered neither by the Trademark Office nor by the Tribunal of the Trademark Office in the following resolutions:

– Resolution Nº 8048-2011/DSD-INDECOPI dated May 26, 2011 and Resolution N° 2465-2012/TPI-INDECOPI of November 29, 2012, which denied registration of trademark SMART LED LIGHTING, in classes 7 and 11.

– Resolution Nº 019049-2012/DSD-INDECOPI dated December 3, 2012, which denied registration of trademark BUILDING BETTER INSIGHTS, in class 36.

– Resolution Nº 002826-2013/DSD-INDECOPI dated February 26, 2013 and Resolution N° 3931-2013/TPI-INDECOPI of November 22, 2013, which denied registration of trademark MINERAL THERAPY, in class 3.

– Resolution Nº 006728-2013/DSD-INDECOPI dated May 7, 2013, which denied registration of trademark NEUTRO BALANCE, in class 3.

– Resolution N° 3553-2013/DSD-INDECOPI dated March 4, 2014, which denied registration of trademark VIRTUAL CAR, in class 36.

  1. Descriptive marks of a geographical origin

As provided for in Article 135, paragraph e), of Decision 486, descriptive marks may serve in commerce to designate, in respect of the goods or services for which they are to be used, several details, characteristics or information.

Said details, characteristics or information include the geographical origin of the relevant goods or services.

The Tribunal of the Trademark Office’s case-law has established the criteria to be borne in mind, that is, that a sign will be deemed to be a sign which describes the geographical origin of the products or services for which it is to be used if it directly indicates the geographical origin of such products or services.

A sign will directly indicate the geographical origin of such products or services if it exclusively consists of the name of a geographical area which is typical or usual for the manufacture of the products or provision of the services.

These criteria have been embraced by the Tribunal of the Trademark Office in the following resolutions, inter alia:

– Resolution N° 1355-2012/TPI-INDECOPI dated August 3, 2012, which denied registration of the TAIWAN PLUS trademark in class 12, given that it was considered that said trademark was descriptive of the geographical origin and of a characteristic of the “motorcycles” and “scooters” it purported to distinguish, because TAIWAN is the name of a country known for its manufacturing industry of high-technology goods and PLUS makes reference to something to which something else has been added.

– Resolution N° 4464-2014/TPI-INDECOPI dated December 2, 2014, which denied registration of the ICA GOLD GRAPES trademark in class 31, due to it was considered that such trademark was descriptive of the geographical origin and the quality of the “grapes” it purported to distinguish, since ICA is the name of a geographical zone in Peru known for its manufacture of grapes and the expression GOLD GRAPES would be understood as its Spanish translation, “UVAS DE ORO”, by Peruvian consumers.

  1. Self-laudatory terms as descriptive marks

According to the provisions set forth in Article 135, paragraph e), of Decision 486, descriptive marks include self-laudatory terms.

The Tribunal of the Trademark Office has actually issued resolutions where it has concluded that the trademarks subject matter of registration applications are actually self-laudatory terms. For instance in the following cases:

– Resolution N° 0944-2009/TPI-INDECOPI dated April 22, 2009, which denied registration of the SUPER FOAM trademark in class 20.

– Resolution N° 1071-2009/TPI-INDECOPI dated May 4, 2009, which denied registration of the UTILÍSIMO trademark (VERY USEFUL trademark) in class 08.

– Resolution N° 2143-2011/TPI-INDECOPI dated October 3, 2011, which denied registration of the SIMPLEMENTE UNICO trademark (SIMPLY EXTRAORDINARY trademark) in class 16.

  1. Misspelling of descriptive terms

According to the criteria embraced in the Tribunal of the Trademark Office’s case-law, phonetic or graphic misspeling of descriptive terms are also included in the prohibition of registration of descriptive marks.

These criteria have been embraced in the following resolutions issued by the Tribunal of the Trademark Office, inter alia:
– Resolution N° 0326-2012/TPI-INDECOPI dated February 23, 2015, which denied registration of the BIOENZYME trademark in class 1, given that it was considered that said trademark was the misspelling of the word BIOENZIMA which is the Spanish translation of BIOENZYME.
– Resolution N° 4680-2014/TPI-INDECOPI dated December 16, 2014, which denied registration of the DIABT trademark in class 3, due to it was considered that such trademark was the misspelling of the word DIABETES.

  1. Descriptive words in a foreign language

The Tribunal of the Trademark Office’s case-law has concluded that a word in a foreign language will be considered to be a descriptive word in the following cases:

  1. i) If the word is being used in Peru’s common language to describe any given product, service or activity. For example: “light”, “premium”, “small”, “medium”, “large”, “extra large”, “delivery”, and “fashion”.
  2. ii) If the word is not being used in Peru’s common language, but its meaning is understood by the relevant sector of Peruvian consumers. For example: “magnificent”, “brilliant”, “ceramic”, “energy”, and “select”.

iii) If the word is descriptive in its country of origin and there is a quiet frequent trade between Peru and said country of origin, and as a result, products using said descriptive word are being brought to Peru. For example: “singles”.

These criteria have been embraced by the Tribunal of the Trademark Office in the following resolutions, inter alia:

– Resolution N° 0009-2015/TPI-INDECOPI dated January 5, 2015, which denied registration of the COMPLETE CNG trademark in class 7, given that it was considered that said trademark was descriptive of a characteristic of “compressed natural gas systems” it purported to distinguish because its meaning “COMPLETE COMPRESSED NATURAL GAS” would be understood as its Spanish translation, “GAS NATURAL COMPRIMIDO COMPLETO”, by Peruvian consumers.

– Resolution N° 2097-2015/TPI-INDECOPI dated May 21, 2015, which denied registration of the EASY trademark in class 35, due to it was considered that such trademark was descriptive of a characteristic of the services it purported to distinguish since its meaning would be understood by Peruvian consumers.

In addition, the Tribunal of the Trademark Office’s case-law has established that the same criteria applicable to misspelling of descriptive terms in the Spanish language will be applicable to misspelling of descriptive terms in a foreign language.

  1. Secondary Meaning for descriptive marks

The last paragraph of Article 135 of Decision 486 provides that “notwithstanding the provisions set forth in paragraphs (…), e) – prohibition to register descriptive marks as trademark-, (…), a sign can be registered as a trademark where its continued use in a Member Country by applicant or decedent has endowed it with distinctiveness in respect of the products or services to which it is applied.

The last paragraph of Article 135 of Decision 486 has incorporated the Secondary Meaning (Acquired or Distinctiveness) by establishing that it is possible to obtain registration of descriptive marks as trademark where its continued use in the Member Country of the Andean Community in which its registration has been applied for, by applicant or decedent, has endowed it, by reason of its continued use, with distinctiveness in respect of the products or services it purports to distinguish.

In Peru, according to the criteria established in the Tribunal of the Trademark Office’s case-law, in order for a mark which lacks distinctiveness – as a descriptive mark – to acquire Secondary Meaning, the following conditions must be met:

  1. i) Continued use of the mark in the market must be proved;
  2. ii) Consumers must regard said use as a trademark use; and

iii) The mark the use of which has been proved must be categorically identified with only one business origin (in this case, the business origin of whoever alleges Secondary Meaning).[5]

Moreover, said Tribunal resolutions have stated that the use in the market of a descriptive mark can be proved by providing evidence, like market surveys or massive and extensive advertising[6], and said evidence must be dated prior to the date of the trademark application. [7]

In some case-law, the Tribunal of the Trademark Office has resolved that a descriptive mark has proved Secondary Meaning. For instance, in Resolution Nº 3084-2013/TPI-INDECOPI dated September 9, 2013[8], the Tribunal of the Trademark Office resolved that the expression INSTITUTO CULTURAL PERUANO NORTEAMERICANO (NORTHAMERICAN PERUVIAN CULTURAL INSTITUTE), used in relation to educational services and cultural activities, was descriptive because it directly informed consumers that said services and activities were provided by an entity jointly organized by Peruvian and U.S. individuals and that, in spite of it, it had acquired a Secondary Meaning.

  1. Comment

We believe that it is advisable to bear in mind the criteria referred to above, contained in scholarly writings and case-law, at the time of filing a trademark application, even though sometimes in our view case-law does not apply properly the foregoing criteria.

[1] FERNÁNDEZ-NOVOA, Carlos. Tratado sobre Derecho de Marcas. Madrid: Marcial Pons, 2001. Pag.131

[2] Ibid, pag.132

[3] BENTATA, Víctor. Reconstrucción del Derecho Marcario. Caracas: Jurídica Venezolana,1994. Pag.166

[4] Judicial Interpretation of April 17, 1998 issued in connection with Proceeding Nº 10-IP-96. At http://comunidadandina.org.

[5] Resolution Nº 411-2014/TPI-INDECOPI dated April 10, 2014, issued in connection with File Nº 468997-2011, application for registration of the AS SEEN ON TV & LOGOTYPO trademark in class 28. At www.indecopi.gob.pe

[6] Resolution Nº 2572-2015/TPI-INDECOPI dated June 19, 2015 issued in connection with File Nº 510487-2012, application for registration of the FERIA DEL HOGAR trademark in class 35. At www.indecopi.gob.pe

[7] Resolution Nº 0986-2013/TPI-INDECOPI dated March 22, 2013 issued in connection with File Nº 443698-2013, application for registration of the PIEZA UNICA trademark in class 14. At www.indecopi.gob.pe

[8] Issued in connection with File Nº 368419-2008, application for the registration of the INSTITUTO CULTURAL PERUANO NORTEAMERICANO CHICLAYO & DESIGN trademark in class 41. At www.indecopi.gob.pe

 

Patenting Software in China

Similar as in many other jurisdictions, China does not allow computer programs as such to be patented, but does not rule out patentability for inventions related to computer programs.[1]

A number of exceptions to patentability are set out by Article 25(2) of the Chinese Patent Law, one of which relates to rules and methods for performing mental activities. This is the exception that is often cited by Chinese Examiners to raise non-patentable subject matter objections against inventions related to computer programs.

Claims essentially relating to one of the following, even if presented in the form of a solution to a problem, are normally regarded by Chinese Examiners as defining rules and methods for performing mental activities:

  • methods of calculation or rules of mathematical calculation;
  • computer programs as such or computer programs recorded on computer-readable media; and
  • rules and methods for playing games[2].

However, if a claim recites technical features apart from content relating to methods for performing mental activities, patentability cannot be ruled out for the claimed subject matter under Article 25(2) of the Chinese Patent Law.

Software patent applications may also be rejected under Article 2.2 of the Chinese Patent Law for lack of a technical solution[3]. A 3-step test is normally applied to decide whether an Article 2.2 objection should be raised:

  • whether the claimed subject matter involves execution of computer programs in order to solve a technical problem;
  • whether the computer programs are executed by a computer so as to control or process internal or external objects of the computer in accordance with the laws of nature;
  • whether any technical effect is achieved in accordance with the laws of nature by execution of the computer programs.

Failing any one of the three steps, the claimed subject matter will not be regarded as a technical solution in the sense of Article 2.2 of the Chinese Patent Law.

In order to obtain appropriate patent protection for software inventions, certain rules need to be respected when drafting applications for such inventions.

A claim drafted as a process for resolving a technical problem and reciting specific steps performed by way of executing computer programs to perform specific functions can normally meet the requirement of Article 2.2 and does not fall within the exception of Article 25(2).

A product claim normally needs to be drafted in a way that it spells out not only each specific component of an apparatus but also connections between the components and describes how each function of the computer program is performed by a corresponding component or group of components.

If it is not practicable to define the components by their physical structures, it is not necessary to do so. The components can then be defined in means-plus-function language. If means-plus-function language is used for a product claim, it is important to ensure strict one-to-one correspondence between recited means and steps recited in the corresponding method claim. Although the Guidelines allow means-plus-function language to be used for product claims, in practice, it is not uncommon for Chinese Examiners to raise objections against means-plus-function claims on grounds of lack of support by the description.

The Chinese practice still does not allow certain types of claims. For example, claims to data structures are not patentable, but such claims can be amended to methods for generating the relevant data structures which are potentially allowable. Claims to computer-readable medium storing instructions and computer program products are not allowable either. Therefore, terms such as “data structure”, “signal”, “computer-readable medium”, “computer program product” etc. should not be used as definition of inventions in claims if fast grant is desired. However, for Chinese patent applications based on earlier foreign applications (e.g., Chinese national phase entry of PCT applications, or direct Chinese filing and claiming priority from earlier foreign applications), it is advisable to keep such claims at the time of entry/filing in the event that the Chinese practice changes later to allow such types of claims. Often, amendments or new claims (e.g., in divisional applications) based on originally filed claims are more likely to be accepted by Chinese Examiners than those made based on the description.

Description of Chinese patent applications also needs to be carefully crafted to support amendments to the claims. Chinese examiners are often reluctant to allow claim amendments unless there is almost verbatim support in the specification. This is particularly relevant if the patent applications originate from jurisdictions which adopt less strict policies on added matter issues than China.

Apart from describing the solution as a whole, the description needs to clearly and completely describe the design and technical features involved in the computer programs that are necessary for achieve desired technical effects. It is advisable to include in the description technical problems that the prior art fails to solve and how the invention solves such problems specifically. Where appropriate, it is also advisable to include some description of technical effects achieved by each technical feature or group of technical features. The Chinese Examiners tend to be more prepared to accept that the invention is technical if they see such description. Arguments for technical effect not based on the description, even if presented with supporting evidence, often are not accepted by the Chinese Examiners.

Normally at least a main flow chart needs to be included in the description of a software invention. Where specific functions or branches of a computer program involve multiple steps, it is advisable to also include flow charts corresponding to the specific functions or branches. The description needs to clearly and completely describe each and every step shown in the flow charts. If particular steps are not essential, it is important that the description explicitly says so. Otherwise, the Applicant may be forced to include corresponding steps and means in the independent claims.

Where execution of computer programs involves changes to the hardware of a computer, a diagram showing the structure of the computer should be included, and the description should describe the relevant hardware components and connections therebetween in a way clear and sufficient for a skilled reader to implement the invention.

[1] Computer programs are defined in the Guidelines for Patent Examination of the Chinese Patent Office (Guidelines) as “coded instruction sequences executable by an information processing device, e.g., a computer, to obtain certain results”, or “symbolized instruction sequences or symbolized statement sequences that can be automatically transformed into coded instruction sequences”; a software invention is defined as “a solution to an identified problem, which is wholly or partly based on processes of computer programs, for controlling or processing external or internal objects of a computer via execution of the computer programs by a computer”.

[2] Computer games that involve performance improvements for the computer running the games or technical changes to the structure or function of the computer running the games may potentially be patentable.

[3] A “technical solution” is defined in the Guidelines as “aggregation of technical means applying the laws of nature to solve a technical problem”.

Interpretation of Product by Process Claims in Japan

  1. Introduction

A product by process claim (hereinafter referred to as “PBP claim”) relates to an invention of a product, of which claim includes a manufacturing method of the product.

In Japan, the drafting practice of identifying a product by the manufacturing method of the product conventionally has been regarded as allowable when identifying the structure of the product to be the subject matter directly from physical properties or the like without referring to the manufacturing method thereof is impossible, difficult, or inappropriate in some terms[1].

In Japan, two issues had been pointed out primarily regarding the PBP claim. The first is the issue of interpreting the PBP claim, and second is the issue of clarity.

The first issue relates to whether the product recited in the form of the product by process is narrowly interpreted as a product manufactured by the manufacturing method (so-called Manufacturing Process Limitation Theory), or would not be interpreted narrowly as aforementioned (so-called Product Identity Theory).

Furthermore, the second issue relates to the scope of the invention becoming less clear due to product identification based on a process compared to a case where identification is based on structures and properties.

In regard to these issues, the Supreme Court established a new standard unique to Japanese practice in its ruling of June 5, 2015, on the Second Petty Bench of Supreme Court, for the Pravastatin Na case.

 

  1. Overview of Case

In the present case, Teva Pharmaceutical Industries Ltd. (hereinafter, Teva), the owner of the patent right (Japanese Patent No. 3737801) related to “Pravastatin sodium substantially free of pravastatin lactone and EPI-pravastatin, and compositions containing same,” insisted that a pharmaceutical product manufactured and sold by Kyowa Hakko Kirin Co., Ltd. (hereinafter, Kyowa Hakko Kirin) infringed the patent right, and demanded an injunction and disposal of stock therefor.

In connection with determination the technical scope of the PBP claim, the Tokyo District Court (March 31, 2010; Heisei 19 (Wa) 35324) ruled that it should be interpreted by limiting the scope to the product manufactured by the manufacturing method, unless other special circumstances apply. In addition, the demand by Teva was dismissed in the present case because the pharmaceutical product of Kyowa Hakko Kirin is not dependent on the process recited in the technical scope of the patent of the present case.

The Grand Panel of the IP High Court, which is the appeal court of the trial in the Tokyo District Court, (January 27, 2012; Heisei 22 (ne) 10043) had set the presence or absence of a situation in which it would have been either impossible or difficult to have directly identified the product from its structure or property at the time of filing as judgment criteria (hereinafter, “impossibility/difficulty criteria”), and made classification in which the PBP claim is genuine when such a situation is present, and is pseudo when such a situation is not present. Furthermore, as to the interpretation of the PBP claim, it ruled that the genuine PBP claim is to be interpreted based on Product Identity Theory and the pseudo PBP claim is to be interpreted based on Manufacturing Process Limitation Theory, in both the case of determination the technical scope of the patented invention and the case of identifying the gist of the invention. On this premise, a determination was made as being a pseudo PBP claim because the claim did not satisfy impossibility/difficulty criteria in the present case, and the pharmaceutical product of Kyowa Hakko Kirin is not dependent on the process described in the technical scope of the patent, thus the appeal by Teva was dismissed.

 

  1. Supreme Court Ruling

The Supreme Court reversed the ruling of the Grand Panel of the IP High Court.

It ruled that the technical scope of the patented invention and the gist of the invention regarding the product invention described in the form of PBP claim are determined as a product having the same structure, property, and the like as a product manufactured by the manufacturing method. That is, it was clarified that the interpretation of the PBP claim is based on Product Identity Theory.

Furthermore, the Supreme Court ruled that “a limitation is made to cases where a situation is present at the time of filing, in which it is either impossible to directly identify the product from its structure or property, or such is not at all practical” for the description in the PBP claim format to satisfy the clarity requirement of Article 36(6)(ii), and in the event such a situation is not present, the clarity requirement would thereby be violated. That is, the Supreme Court presented new criteria on “the presence of the situation at the time of filing, in which it is either impossible to directly identify the product from its structure or property, or such is not at all practical” (hereinafter, “impossibility/impracticality criteria”) as criteria as to whether the PBP claim satisfies the clarity requirement.

Furthermore, the present case was referred back to the IP High Court so that a thorough trial discussion on whether or not the description of the claims of the present case satisfies the clarity requirement could be conducted.

 

  1. Consideration

(1) 1994 Patent Law Revision and Current Examination Guideline

The 1994 Patent Law Revision revised the requirements of Article 36(5), and moderated the description requirement on the claims. As a result, it was clarified that what is to be described in the claims is wholly up to the patent applicant’s free selection. Therefore, claims have been allowed to describe so-called functional claims and PBP claims.

In response to this legal revision, the current examination guideline defines that descriptions identifying the product itself by the manufacturing method of the product are allowable when identification of the structure of the product to be the subject matter directly from physical properties or the like without referring to the manufacturing method thereof is impossible, difficult, or inappropriate in some terms (hereinafter referred to as “impossible/difficult/inappropriate situation.”[2][3]

 

(2) Problem of Clarity Requirement for PBP Claims

The criteria of the impossible/difficult/inappropriate situation as employed by the current examination guideline allows the description of the PBP format also in fields such as machines, in which the need to identify a product by a process is generally not recognized.

As a result, in the examination on the clarity requirement of the invention described in the PBP claim, the presence and absence of the impossible/difficult/inappropriate situation are not substantially determined. Accordingly, it can be said that the clarity requirement for PBP claims had been moderate then.

However, it seems that the Supreme Court regards that PBP claims are admitted as exceptions, and consideration on whether or not the situation under which the PBP claims should be admitted should be made strictly. The Supreme Court had now newly set forth impossibility/impracticality criteria for testing the presence and absence of the clarity of PBP claims.

It is not necessarily clear as of now what these impossibility/impracticality criteria are, and we must wait for an accumulation of prospective rulings. However, according to the supplemental opinion of Judge Katsumi Chiba, “impossible” refers to a case where analysis and identification of the product to be the subject matter according to its structure and property (property herein refers to a property that is appropriate and meaningful in terms of indicating that the invention is different from other inventions, upon a determination on the novelty and inventive step of the invention) at the time of filing is impossible for a person skilled in the art primarily from a technical viewpoint. Furthermore, “not at all practical” anticipates a case where identification work cannot be conducted practically in terms of cost rather than the technical aspects thereof, at the time of filing for a person skilled in the art, where time and cost are burdensome, and the requirement for such identification work would be excessively severe in patent-obtaining circumstances that are under the rapid technological development and harsh international competition.

Nonetheless, in the prospective practices, when the PBP claim is determined not to comply with impossibility/impracticality criteria, it would be treated as violating the clarity requirement. As a result, it can be said that the possibility of descriptions in the PBP claim format being rejected or invalidated has been increased.

 

(3) Problem of Interpreting PBP Claims

(i) In regard to the interpretation of PBP claims, Manufacturing Process Limitation Theory, which insists that interpretation should be limited to a product manufactured by the process described in the claim, and Product Identity Theory, which insists that the process is described for identifying the product, and coverage of the claim encompasses products that are identical to the product manufactured by the method, had long been causing controversy. Furthermore, rulings by the courts had also been split by these theories.

On the one hand, in the current examination guideline, if the invention of a product is identified and described in the PBP claim format, that description is normally understood as meaning the produced product itself that is obtained as a final product, and the gist of the invention is identified based on Product Identity Theory. This also applies similarly to a number of court trials against JPO Appeal Decisions.

In the present case, the Supreme Court ruled that the interpretation of the PBP claims would be made under the Product Identity Theory, assuming that the product has structure, property, and the like that are identical to those of the product manufactured by the manufacturing method, either in the event of determination the technical scope or of identifying the gist of invention.

(ii) The reason why the Supreme Court has unified the interpretation of the PBP claims in both events is as follows. That is, the 2004 Patent Law revision has enabled the accused infringer to refute by insisting on the invalidity of patent in infringement trials (Patent Law Article 104ter). As a result, in an infringement trial, upon determining the presence and absence of infringement, the aspect of determination the technical scope of the patented invention and the aspect of identifying the gist of the invention in allowing refutation based on the invalidity of the patent are taken into consideration at the same time. Under such circumstances, it would be unreasonable to employ different interpretations depending on the aspects, based on either Product Identity Theory or Manufacturing Process Limitation Theory, in the interpretation of PBP claims. Thus, the court decided to integrally refer to the interpretation of PBP claims in both aspects, thus it has employed Product Identity Theory.

Furthermore, by the present Supreme Court ruling, a conclusion has been presented that the gist of an invention should be identified based on Product Identity Theory. This point complies with the current examination guideline, and it seems that its impact in practice is small.

However, as described in 3. above, the Supreme Court has newly employed the impossibility/impracticality criteria, and presented its judgment that any PBP claims that do not satisfy these criteria should be rejected under the clarity requirement. As a result, in the event of identifying the invention of a product in a PBP claim format, the applicant must be even more careful. Especially in the fields of chemistry and biotechnology, identifying the invention of a product in the PBP claim format based merely on a snap judgment requires greater care.

(iii) Furthermore, in the present Supreme Court ruling, it has been clarified that a determination based on Product Identity Theory is to be made even in the aspect of determination the technical scope of a patented invention.

According to the foregoing academic theories, the claims serve the function of publicly announcing the scope of a patent right, and there had been some indications that an interpretation based on the PBP claims grounded on Product Identity Theory would make the scope of the patent right obscure[4]. Furthermore, because PBP claims do not have a broader meaning than identifying a product by process, there have been some indications of a risk that the technical scope of a patented invention is interpreted too broadly[5].

The present Supreme Court ruling seems to suggest there are more advantages for the patentee because Product Identity Theory has been employed also in the aspect of determination the technical scope of the patented invention. However, at the same time, PBP claims need to satisfy the clarity requirement based on impossibility/impracticality criteria. As a result, even if the invention of a product that had been allowed to directly identify itself from its properties and the like is patented in the PBP claim format, it may be invalidated as above; thus, it is considered that, at least for such an invention, the right would be prevented thereby from being exercised under the over-broadly interpreted technical range.

 

  1. Tips on Filing Japanese Applications

In regard to the interpretation of PBP claims, the United States makes judgments based on Product Identity Theory for identifying the gist of an invention, and makes judgments based on Manufacturing Process Limitation Theory for determination the technical scope of a patented invention. Furthermore, in the European Patent Convention (EPC) as well, a determination is made at the prosecution stage based on Product Identity Theory[6]. However, interpretation of PBP claims upon the exercise of right is determined uniquely in each country.

Accordingly, as to the interpretation of PBP claims upon identifying the gist of an invention, Japan takes the same approach as the United States and EPC. However, in the present Supreme Court ruling, Japan employed impossibility/impracticality criteria, as a result of which the clarity requirement for PBP claims is to be judged more strictly than before. As a result, when filing Japanese applications that contain PBP claims, attention should be given to whether or not those PBP claims satisfy impossibility/impracticality criteria. Furthermore, for those that have already been patented, it should be noted that the possibility of their invalidation or cancellation has been increased.

Furthermore, similar to the case of identifying the gist of an invention, the Supreme Court ruling employed Product Identity Theory likewise for determination the technical scope of the patented invention at the right-exercising stage. As a result, attention should be paid hereto as well because Japan has now come to employ an interpretation method that differs at least from that of the United States.

Notably, in response to the current Supreme Court ruling, JPO announced that it would employ impossibility/impracticality criteria in examinations from July 6, 2015. Furthermore, adaptation of impossibility/impracticality criteria will not be limited to those filed hereafter, but will also be applied to those already filed. Moreover, it also plans to revise the examination guideline sometime around October 2015.

 

[1] JPO Examination Guideline, Part I, Chapter 1, 2.2.2.4(2)①(i)

[2] JPO Examination Guideline, Part I, Chapter 1, 2.2.2.4(2)①(i)

[3] Tokyo High Court, ruling of June 11, 2002; Heisei 11 (gyo-ke) 437

[4] Ryuichi Shitara and Yugo Ishigami, “Interpretation on Product By Process Claims,” Top 100 Patent Rulings [Ver. 4], page 131

[5] Shitara, as afore-noted

[6] Guidelines for Examination in the EPO Part F, Chapter IV, 4.12

Doing Business in Puerto Rico

Introduction

The Commonwealth of Puerto Rico (“PR”) is a self-governing territory of the United States of America (“US”) with approximately 3,750,000 inhabitants. Located between the Atlantic Ocean and the Caribbean Sea, PR governs its internal affairs in a manner similar to that of the other 50 states of the US. The US has jurisdiction over foreign relations and commerce, customs, immigration, nationality and citizenship, postal service, currency and military matters, among others. Generally, US federal trade and economic treaties, laws and regulations apply in PR. The US is PR’s main trading partner. The official languages of PR are Spanish and English.

Business Entities

Domestic Corporations. The PR General Corporations Act is modeled after the Delaware General Corporations Law. Any natural or juridical person, acting singly or jointly with others, can incorporate or organize a corporation by filing a certificate of incorporation at the PR State Department. Generally, this certificate grants the corporation legal existence as soon as it is filed with the PR Secretary of State.

Foreign Corporations. Foreign corporations (including US corporations) desiring to operate in PR must request a certificate of authorization to do business in PR by filing an application at the PR State Department. The application to conduct business in PR must be accompanied by a certificate of corporate existence (or any other similar document) issued by the Secretary of State or other official having custody of the corporate register in the jurisdiction where the foreign corporation was incorporated. If such certificate of corporate existence is in a foreign language, a translation must be attached, together with a sworn certificate of the translator.

Limited Liability Companies. Limited liability companies or LLCs are fast becoming the preferred method of doing business in PR. LLCs offer their owners the same limited liability protection granted by law to corporations and the flexibility to manage their internal affairs as a partnership, a corporation or a combination of both in accordance with their Operating Agreement. LLCs are organized by filing a certificate of formation at the PR State Department.

Foreign Limited Liability Companies. Foreign limited liability companies desiring to operate in PR must request a certificate of authorization to do business by filing an application at the PR State Department. The application to conduct business in PR must be accompanied by a certificate of existence (or any other similar document) issued by the Secretary of State or other official having custody of the company register in the jurisdiction where the foreign corporation was incorporated.

Other Entities. Both the PR Civil Code and the PR Commercial Code allow for the creation and/or authorization to do business of other types of business entities such as civil and commercial partnerships and limited partnerships. A commercial partnership must be registered in the Mercantile Registry of the Registry of Property where its property is located. In order to have access to the PR Registry of Property, the partnership agreement must be constituted in Public Deed.

Taxes

For tax purposes, PR is a separate tax jurisdiction from the US.

Income Taxes. PR’s Internal Revenue Code of 2011, as amended, is modeled generally after the US Internal Revenue Code. All corporations, whether domestic or foreign which are engaged in trade or business in PR are taxed on their net income. Domestic corporations are taxed on their net income from all sources and foreign corporations are taxed on the income that is effectively connected with the conduct of a trade or business in PR. The maximum tax rate is 39%. Foreign corporations not engaged in trade or business in PR are subject to a flat withholding income tax rate of 29% on certain items of gross income received from sources within PR.

Municipal License Taxes. The Municipal License Tax Act imposes a license tax on the volume of business (gross income) on every person engaged in any business, including the sale of goods, the performance of services and any financial business, in any municipality in PR. The municipal license tax rate applicable to non-financial business businesses ranges from .27% to .5%. For financial businesses, the rate is usually 1.5%. Each municipality establishes its own rates.

Personal Property Taxes. Unless specifically exempted, every natural or juridical person engaged in a trade or business in PR is subject to the imposition of personal property taxes ranging from 4.33% to 6.58%, of the net book value of the taxable property. Taxable property includes cash on hand, inventories, materials and supplies, furniture and fixtures, and machinery and equipment used in a trade or business.

Real Property Taxes.   Real property tax rates vary for each municipality and generally are 2% higher than the personal property tax rate. For tax purposes, real property means the land, the subsoil, the structures, objects, machinery, or implements attached to the building or fixed on the ground in a manner showing permanence.

Sales and Use Taxes. Every merchant engaged in the sale of taxable items, or which provides a service not specifically exempted, has the obligation to collect a sales and use tax (“SUT”) as a withholding agent. The SUT rate on the sales and use of goods is generally 11.5%. Although originally exempted, services provided to businesses generally will be taxed at a rate of 4% commencing on October 1, 2015 and 10.5% commencing on April 1, 2016. There is a possibility that the SUT will be replaced by a VAT in 2016.

Tax Incentives. PR is focused in promoting foreign investment primarily on manufacture, biotechnology, communications, information technology, tourism and export services. To achieve this goal, PR offers tax incentives and exemptions for qualifying companies and individuals. Some of the tax incentive programs available in PR are:

  1. Economic Incentives for the Development of PR Act, as amended (“Act 73”). Act 73 provides a fixed income tax rate of 4% with a withholding tax on royalty payments of 12%. There is an optional fixed income rate of 8% with a withholding tax on royalty payments of 2%. There is a fixed income tax rate of 1%, or of 0% for pioneer products (as such term is define in Act 73). Distributions of earnings or profits and liquidations are tax free. The taxable gain realized on sales of stock and/or of substantially all of the assets of the exempt business are subject to an income tax rate of 4%. Act 73 also provides a 90% exemption from property taxes and a 60% tax exemption from municipal license taxes. Act 73 provides tax credits for purchases of products manufactured in PR, job creation, investments in research and development and technology transfers, among others. Some credits are transferrable.
  2. The PR Export Services Act, as amended (“Act 20”). Act 20 provides a 4% fixed income tax rate on the net income generated from the operation of an eligible export service activity which may be reduced to 3% if more than 90% of the income generated by the entity is generated from qualified export services activities and the services are considered strategic services. Accumulated earnings and profits derived from the export service activity are 100% exempted from income tax upon distribution. Act 20 also provides a 90% exemption from real and personal property taxes if the qualified eligible business is engaged in management headquarters services, call centers, and shared services center. The businesses engaged in any of these three services will enjoy a 100% exemption from all property taxes during the first five (5) years. The Act also provides a 60% exemption from municipal license taxes. These benefits would be provided for a 20 year period, and may be extended for 10 additional years.
  3. Act to Promote the Transfer of Individual Investors, as amended (“Act 22”). Act 22 provides a 100% income tax exemption on interest income, dividend income, and short and long term capital gain, derived from any source, which is generated by an individual investor that becomes a resident of PR or transfers his residency to PR. The income must be generated between the date in which the foreign individual is considered a resident in PR (i.e. 183 days test) and before January 1, 2036. In general, a special tax rate of 5% applies to capital gains accrued prior to the individual becoming a resident of PR which are recognized within 10 years after the residency in PR is established.
  4. The Tourism Incentives Act of 1993. The Tourism Incentives Act provides eligible tourism activities with partial exemptions from income, property, and municipal license taxes for a period of up to ten years. Qualifying investments in tourism activities may receive tax credits.

Labor Legislation

Both federal and local laws apply to employers in PR. The Fair Labor Standards Act (FLSA) applies to employers in PR engaged in interstate commerce. The federal minimum wage applies automatically in PR to employees who work in companies covered by the FLSA. Companies not covered by the FLSA must pay a minimum wage equivalent to 70% of the prevailing minimum wage.

In PR, a regular work day consists of 8 hours of work and a regular work week consists of 40 hours. Employers covered by the FSLA must pay overtime at a rate of not less than 1 ½ times their regular rates of pay, after 8 hour of work per day and after 40 hours of work in a workweek.

The meal period must be no less than 1 hour, unless a shorter period is agreed to by the employer and the employee. The meal period may be reduced for certain types of employees. Work performed during the meal period, or any part thereof, must be compensated at twice the regular hourly rate.

An employer is also required to pay a Christmas Bonus to each employee who has worked 700 hours or more between October 1 of the previous year and September 30 of the current year.

In PR, employees are entitled to compensation and medical treatment for work-related accidents or illnesses. The employer is not liable to the employee for damages arising out of an occupational accident in those cases where the employer is fully insured through the State Insurance Fund. There is also a short term disability insurance to cover non-occupational disabilities. This plan covers the risks of sickness, total and permanent physical disability, or death. Both, the employers and employees, are required to make payments to this plan. PR and US unemployment acts provide for a coordinated US/PR Plan designed to provide economic security for employees during temporary periods of unemployment.

There are several statutes, both local and federal, that prohibit discrimination in hiring, promotions, discipline or otherwise treating differently in employment persons on account of age, race, color, national origin, religious or political beliefs or sex, among others. There is also legislation protecting qualified individuals who are disabled veterans, veterans of the Vietnam era, or individuals with disabilities. Sexual harassment is forbidden in the workplace. The law provides for strict liability for the employer for the actions of its agents and supervisors.

Employees employed for an indefinite period and discharged from employment without just cause, as defined in PR Act 80, are entitled to a severance payment based on years of service and the highest salary earned in the last 3 years of employment.

Other US laws such as COBRA, WARN, OSHA, Title VII, ADEA, ADA and IRCA apply to PR.

Intellectual (Industrial) Property

US federal protection, laws and regulations regarding Trademarks, Patents and Copyrights apply to PR. The PR Trademarks Act provides ample protection for the rights of the owners of locally registered trademarks, such as granting the prevailing registrant the right to always recover the costs, fees and expenses of an infringement lawsuit. It also allows the issuance of an ex-parte temporary restraining order to cease and desist of the use of the mark and the seizure of the articles on which the mark was affixed.