Over the weekend, Congress passed a 6000 page budget bill that included a new relief package to help businesses affected by the pandemic. This bill also included new dispute resolution procedures for copyright and trademark matters. Specifically, it introduced a small claims court for copyright matters, and the ability to protest trademark applications for non-use. Here are the highlights:
Copyright Small Claims Actions
The bill creates a small claims regulatory court to hear limited copyright claims (infringement, non-infringement and abuses of the notice and takedown process). The procedure is voluntary, and respondents are provided a 60 day period to opt-out from the date the complaint is filed. In addition to limiting the types of claims, the amount of recovery is capped at $30,000 and no individual claim of infringement may exceed $15,000. The process cannot be used to sue a state or federal government entity or foreign infringer. Perhaps the most important aspect of the procedure is that attorney fees will not be awarded unless it relates to bad faith litigation. Even if bad faith is shown, the fee recovery is limited to $5000. The bill also authorizes the Copyright Register to establish further procedures for even smaller claims.
In terms of saving costs, the small claims procedure limits discovery by removing the possibility of depositions without a showing of good cause. While this avoids the cost of depositions, it does not eliminate the significant cost of reviewing document production. Presumably, the lack of depositions will help move the litigation forward at a faster pace, but there is no promise of an expedited ruling or timeline for a decision within the bill.
The cost of copyright matters and the fact that the attorney fees often exceed the amount of recovery in these cases certainly justified a small claims process. However, I believe that the procedure created in the bill misses the mark, and dangerously upsets the balance in copyright cases by removing the ability to recover attorney fees. Copyright cases that go to trial routinely cost more than $250,000 in attorney fees. Therefore, if the potential recovery is limited to $30,000, there is no financial incentive to choose this alternative dispute action. As a result, I believe that the new procedure is a dangerous proposition for a copyright plaintiff. On the other hand, a defendant hoping to avoid the risk of attorney fees will benefit by seeking a declaration of non-infringement under these rules.
Trademark Modernization
Congress added a number of provisions to "modernize" the trademark act. Most of these appear to be related to allowing third party challenges to registrations, but the bill also adds a statutory presumption of irreparable harm in trademark infringement cases and giving the trademark Director authority to reconsider or set aside Trademark Trial and Appeal Board decisions.
This last provision appears to be the most concerning in that it vests supreme authority over TTAB decisions in one person. Setting that aside, the presumption of irreparable harm is a welcome addition as it removes the doubt created by the Supreme Court's decision in eBay which held that there was no presumption of irreparable harm in patent cases.
The procedures allowing additional third party challenges are unwelcome additions in my opinion, and seem to fall into the if it is not broke, don't fix it category. The bill adds a provision that allows a third party to submit evidence during trademark examination; a request to expunge a registration; and a reexamination procedure for registered trademarks. Procedurally, the current trademark regulations provide third parties the same opportunities under the letter of protest procedure and cancellation proceedings.
With respect to the submission of evidence, the current trademark regulations permit a third party to file a letter of protest, which is automatically entered into the record. In addition to adding certain required statements from the party submitting evidence, the new rule contrasts with the existing procedure in that it provides a gate-keeping function to the Director. Within two months of a submission, the director must decide whether the submitted evidence will be included in the record.
The request for expungement and reexamination provisions both apply to registered marks and are directed at non-use. Under the current system, a third party may raise non-use in a cancellation proceeding if the mark has not been used for at least three years or has been abandoned.
Both provisions allow attack on individual goods within the description. This allows a third party to go beyond the proof of use for a class of goods and dissect individual goods within a description. For example, an examiner might allow registration of a mark that identifies class 25 articles of clothing, namely, shirts, hats, gloves and socks based on a specimen that shows the mark used only on a hat. The hat is acceptable evidence of use for the entire class of goods because it is an article of clothing in class 25.
If the mark was never in use with shirts, gloves and socks, it would be subject to expungement or reexamination under the new rules. Noticeably absent when compared to current cancellation practice is the requirement that the third party demonstrate that it will be harmed by the registration. This raises a question of whether the new procedures are subject to Constitutional standing requirements. Without the requirement of harm, presumably any party may raise these grounds opening the door for a dearth of disinterested party attacks on U.S. trademark registrations.
Some relief may be found in the estoppel provisions that apply to these actions. These prevent other parties from filing additional challenges while an expungement/reexamination proceeding is pending. They also provide that if the trademark survives a non-use challenge other parties are estopped from raising the same challenge.
These provisions appear to be an outgrowth of the trademark office's pilot program for expedited cancellation based on non-use. As with the copyright small claims court, I believe Congress's heart was in the right place, but it has failed in the execution. It seems that Congress's solution to improving examination quality is to promote third party challenges and foster further litigation. It would appear that the pilot program took a better tack in that it streamlined proceedings where the only issue was non-use and worked within the proven framework of a cancellation proceeding. It will be interesting to see how these new procedures hold up to the inevitable constitutional challenges, and the practical effect of opening additional doors to challenging trademark registrations.
Overall, the proposed bill offers a number of shiny new toys for intellectual property litigators just in time for Christmas. It also vests considerable authority in the trademark office Director to institute non-use proceedings and to overrule TTAB decisions. We will certainly be watching how these new provisions play out with keen interest in 2021.