Articles Posted in Seventh Circuit News

Chicago, Illinois – The Seventh Circuit affirmed the denial of attorneys’ fees under the Lanham Act by the District Court for the Southern District of Illinois.

Plaintiff William Burford and Defendant Accounting Practice Sales, Inc. (“APS”) were parties to a contract under which Burford had agreed to market and facilitate the purchase and sale of accounting practices on behalf of APS. APS terminated the contract. Shortly thereafter, Burford started a competing business. For this business, Burford chose the name “American Accounting Practice Sales.” Burford also sued APS and Gary Holmes, the owner of APS, for breach of contract.

In response to Burford’s contract-claims lawsuit, APS filed a four-count counterclaim. Included in those counterclaims was an allegation that Burford had misappropriated APS’s trade name in violation of the Lanham Act, 15 U.S.C. § 1051 et seq. by using the business name “American Accounting Practice Sales.”

The district court held for APS on the contract claim, reasoning that the contract between the parties was of indefinite duration and was therefore terminable at will. After this ruling in favor of APS, but before the district court could consider the counterclaim, APS voluntarily dismissed its counterclaim under the Lanham Act with prejudice.

Burford then contended that, as the prevailing party on the Lanham Act claim, he was entitled to attorneys’ fees under 15 U.S.C. § 1117(a), asserting that APS’s pursuit of the Lanham Act claim was meritless and amounted to an abuse of process. The district court refused to grant attorneys’ fees on the theory that APS’s claim under the Lanham Act claim could have been pursued by a rational party seeking to protect its trademark.

Burford appealed. As part of his appeal, he asked the Seventh Circuit to reverse the district court’s denial of his request for attorneys’ fees under the Lanham Act. Circuit Judges William J. Bauer and David F. Hamilton, and District Court Judge Sara L. Ellis, sitting by designation, heard the matter.

The Seventh Circuit first held that the district court had erred in holding that the contract had not been breached. While indefinite-term contracts are by default terminable at will, it noted that the parties had contracted around that general rule by providing that APS could terminate the contract only if Burford violated the terms of the contract. On this issue, the Seventh Circuit reversed the district court.

On the question of attorneys’ fees, the Seventh Circuit affirmed the district court. Under 15 U.S.C. § 1117(a)(3), district courts have the discretion to award attorneys’ fees to those prevailing under the Act in “exceptional cases.” Such an “exceptional case” within the meaning of the Lanham Act can be found in those cases where the district court determines that the decision to bring the claim could be called an abuse of process.

In turn, such an abuse of process can be discerned in cases where, for example, “a rational litigant would pursue [the claim] only because it would impose disproportionate costs on his opponent” or where there was evidence that the party advancing the Lanham Act claim had done so “to obtain an advantage unrelated to obtaining a favorable judgment.”

The Seventh Circuit noted that Burford had failed to persuade the district court that the pursuit of the claim was objectively unreasonable or was intended to harass or to obtain an advantage unrelated to winning a favorable judgment. Consequently, because decision whether to award attorneys’ fees under the Lanham Act is left to the district court’s sound discretion, the lower court’s refusal to grant such fees was affirmed.

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Chicago, Illinois – California attorney Leslie S. Klinger, co-editor of multiple collections of annotated works based on Arthur Conan Doyle‘s Sherlock Holmes fiction sued Conan Doyle Estate, Ltd. under the Declaratory Judgment Act in the Northern District of Illinois seeking a declaratory judgment that he may freely use material from those Sherlock Holmes works for which copyright protection has expired. The district court held that Klinger’s use of material that was no longer subject to copyright was permissible. The Seventh Circuit affirmed.

Arthur Conan Doyle published 56 stories and 4 novels featuring the fictional character Sherlock Holmes. Of these stories, only the final 10, published between 1923 and 1927, are still protected by copyright.

Leslie Klinger, Plaintiff-Appellee, co-edited an anthology called A Study in Sherlock: Stories Inspired by the Sherlock Holmes Canon. Klinger had not sought a license from Doyle’s estate, presuming that one was not necessary, as the copyrights on most of the works in the “canon” had expired. The estate disagreed and demanded that Random House, which had agreed to publish Klinger’s book, pay $5,000 for a copyright license. Random House acquiesced and, in 2011, the anthology was published.

The trouble began when Klinger and his co-editor decided to create a sequel, “In the Company of Sherlock Holmes” and entered into negotiations with Pegasus Books, a publisher. The Doyle estate again demanded a fee for a copyright license and threatened to interfere with distribution of the book if that copyright license fee was not paid, telling Pegasus, “If you proceed instead to bring out Study in Sherlock II [the original title of “In the Company of Sherlock Holmes”] unlicensed, do not expect to see it offered for sale by Amazon, Barnes & Noble, and similar retailers. We work with those compan[ies] routinely to weed out unlicensed uses of Sherlock Holmes from their offerings, and will not hesitate to do so with your book as well.” No threat of a lawsuit for copyright infringement was explicitly made. Pegasus subsequently refused to publish the book unless and until Klinger obtained a copyright license from the Doyle estate.

Instead of purchasing a license, Klinger sued the estate seeking a declaratory judgment that he could freely use any material from the Sherlock Holmes works for which the period of copyright protection had expired.

The district court held in Klinger’s favor. The estate appealed to the Seventh Circuit on two alternative grounds. The estate first contended that the district court lacked subject matter jurisdiction under the Declaratory Judgment Act because there was no “actual case or controversy.” Second, it asserted that a copyright on a “complex” character, whose full complexity is not revealed until a later story, remains protected under copyright law until the later story falls into the public domain.

Circuit Judge Posner, writing for the court, rejected both arguments. The “case or controversy,” necessary for federal jurisdiction was demonstrated by the estate’s “twin threats” of blocking the distribution of the book and the implied threat of a copyright lawsuit against the publisher, Klinger and the book’s co-editor for copyright infringement if the book were published without a license. That such a case or controversy existed was also demonstrated by the fact that Klinger could have sued on a claim of tortious interference with advantageous business relations as a result of the estate’s intimidation of his publisher.

The court then considered the question of “whether copyright protection of a fictional character can be extended beyond the expiration of the copyright on it because the author altered the character in a subsequent work.” The estate urged the court to grant additional copyright protection in its case, arguing that characters such as Sherlock Holmes were “round” and/or “complex” and thus deserving of greater shelter under copyright law than fictional characters that were “flat” and/or “simple.”

The court could find no basis in statute or case law to support the extension of a copyright beyond its expiration. Thus, it affirmed the uncontested matter of copyright protection for the later works – namely, a right to recover for copyright infringement still existed for some portions of the Sherlock Holmes works for which the copyrights had not yet expired. However, that protection was limited to only those elements of the later Sherlock Holmes works that included “incremental additions of originality.” The remainder, the court opined, had passed into the public domain, regardless of the dimensions of the characters portrayed.

Practice Tip: The court was also unpersuaded by the Doyle estate’s argument to extend copyright law on the grounds that failure to do so would diminish authors’ incentives to create. After noting that Arthur Conan Doyle had died 84 years prior, thus rendering the argument inapplicable in the current litigation, the court noted that “extending copyright protection is a two-edged sword from the standpoint of inducing creativity, as it would reduce the incentive of subsequent authors to create derivative works (such as new versions of popular fictional characters like Holmes and Watson) by shrinking the public domain.”

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Chicago, Illinois – Indiana trademark attorney Paul B. Overhauser, on behalf of K.T. Tran andRAP4Photo.JPG Real Action Paintball, Inc., a California corporation (collectively “RAP4”), argued before the United States Court of Appeals for the Seventh Circuit that the trademark infringement suit brought in the Northern District of Indiana by Advanced Tactical Ordnance Systems, LLC, an Indiana corporation (“ATO”), was not properly before the Indiana court, as it lacked personal jurisdiction over RAP4. The Seventh Circuit agreed and instructed the district court to dismiss the complaint.

RAP4 and ATO are competitors in the “irritant projectile” market. Unlike the more familiar game of paintball, in which a paint-filled sphere is shot at opponents as part of a war game, these irritant projectiles are used by the police and military to intervene in hostile situations where lethal force is unnecessary. While paintballs are filled with paint, irritant projectiles use capsaicin, the active ingredient in pepper spray. Irritant projectiles, thus, allow law enforcement personnel to use less-than-lethal force from a distance.

Among the many issues in this lawsuit, including assertions by ATO of trade-dress infringement, unfair competition and misappropriation of trade secrets, were allegations that RAP4 had infringed the trademarked term “PEPPERBALL,” to which ATO claimed ownership. That trademark, Registration No. 2716025, was issued in 1999 by the U.S. Trademark Office to a non-party to this suit.

The trouble began when another company, non-party PepperBall Technologies, Inc. (“PTI”), began to have financial problems. PTI had also been a competitor in the irritant-projectile market. To address its difficulties, PTI held a foreclosure sale, the validity of which was hotly contested. ATO claimed that it had purchased PTI’s trademarks – including “PEPPERBALL” – and other property during this foreclosure sale.

During the time that PTI ceased its operations and was attempting to convey its assets, RAP4 was contacted by an executive of non-party APON, a company which had manufactured some of PTI’s irritant projectiles. He asked if RAP4 was interested in acquiring irritant projectiles from APON.

RAP4 agreed to purchase irritant projectiles from APON. After having negotiated this access to APON’s machinery, recipes, and materials – which had had at one time been used by PepperBall Technologies Inc. – RAP4 announced this fact to the people on its e-mail list. Specifically, it stated in its e-mail that it had acquired access to, “machinery, recipes, and materials once used by PepperBall Technologies Inc.” It was this language to which ATO, which claimed to be the successor in interest to PTI, particularly objected.

ATO sent a cease-and-desist letter to RAP4. In response, RAP4 added a disclaimer that it was not affiliated with PTI. ATO then sued in the Northern District of Indiana. It claimed several different theories of recovery, including intentional violations of the Lanham Act, 15 U.S.C. § 1111 et seq., common law trademark infringement and unfair competition, trade dress infringement, and misappropriation of trade secrets.

Of particular interest to the Seventh Circuit in addressing this Indiana trademark litigation was the issue of personal jurisdiction over RAP4 in the Northern District of Indiana. RAP4 contested that such jurisdiction over it was lacking. ATO countered that RAP4 had sufficient contacts, including a “blast e-mail” announcement from RAP4 that would suffice for jurisdiction in Indiana, stating that “many [RAP4 customers] are located here in the state of Illinois. I mean, state of Indiana.” It also contended that RAP4 regularly e-mailed customers or potential customers from all over the United States, including Indiana, and that RAP4 had made at least one sale to an Indiana resident.

ATO conceded that it lacked general jurisdiction. Thus, the Seventh Circuit turned to an analysis of specific jurisdiction. “For a State to exercise jurisdiction consistent with due process, the defendant’s suit-related conduct must create a substantial connection with the forum State,” noted the appellate court. Moreover, the relation between the defendant and the forum “must arise out of contacts that the ‘defendant himself’ creates with the forum.”

In determining that personal jurisdiction existed, the Indiana district court had relied on several facts: “first, [RAP4] fulfilled several orders of the allegedly infringing projectiles for purchasers in Indiana; second, it knew that Advanced Tactical was an Indiana company and could foresee that the misleading emails and sales would harm Advanced Tactical in Indiana; third, it sent at least two misleading email blasts to a list that included Indiana residents; fourth, it had an interactive website available to residents of Indiana; and finally, it put customers on its email list when they made a purchase, thereby giving the company some economic advantage.”

The Seventh Circuit held that these facts were insufficient to support specific jurisdiction. The only Indiana sales that would have been relevant were those that related to RAP4’s allegedly unlawful activity. ATO failed to meet its burden of proof of any such Indiana sales. Similarly, the court held that any effects that were purportedly felt in Indiana by ATO did not support specific jurisdiction. Instead, the relation between RAP4 and the Indiana forum “must arise out of contacts that the defendant himself creates with the forum State.”

Further, neither RAP4’s e-mail communications nor its website were held to create specific jurisdiction. If such contacts were sufficient, the court held, there would be no limiting principle on personal jurisdiction and a plaintiff could sue almost any defendant with an Internet presence or which utilized e-mail in almost any forum in the United States or the world. To find jurisdiction on such vanishingly small contacts would offend the long-held and traditional “notions of fair play and substantial justice.”

The Seventh Circuit remanded the case to the Indiana district court with instructions to vacate the judgment and dismiss the complaint for lack of personal jurisdiction.

Practice Tip #1: RAP4’s references to “Pepperball Technologies, Inc.” could not as a matter of law constitute trademark infringement, counterfeiting or false advertising. Instead, RAP4’s use of its competitor’s name is a merely a wholly permissible nominative use of that mark. As a matter of law, a “nominative use of a mark – where the only word reasonably available to describe a particular thing is pressed into service – lies outside the strictures of trademark law.”

Practice Tip #2: Personal jurisdiction is an essential element of federal court jurisdiction, without which the court is powerless to adjudicate the matter before it. However, a defendant’s argument that personal jurisdiction does not exist can easily be waived inadvertently by the incautious litigant. In this case, an evidentiary hearing regarding personal jurisdiction was conducted in December 2012. It was only by careful preservation of this argument by trademark counsel for RAP4 while litigating in the district court that the appellate court was able to hear RAP4’s claim and reverse the district court.

Practice Tip #3: This case was successfully argued before the Seventh Circuit by Paul B. Overhauser, Managing Partner of Overhauser Law Offices.

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Washington, D.C. — The U.S. Patent Office (“USPTO”) and federal courts may be affected by a government shutdown, which will begin tomorrow if Congress does not enact a continuing resolution to fund government operations today. 

The federal court system will not be affected immediately.  During the first 10 business days of a lapse in appropriations, the judiciary will use available fee and no-year balances to pay judges and court employees, and to maintain court operations.  Courts will continue to operate, but court personnel have been instructed to conserve funding as much as possible by delaying or deferring expenses that are not critical to the performance of their constitutional responsibilities.

After the 10-day period, if there is still no appropriation, the judiciary will operate under the terms of the Anti-Deficiency Act, which allows “essential work” to continue during a lapse in appropriations. Among the definitions of “essential work” are powers exercised under the Constitution, which include activities to support the exercise of Article III judicial powers, specifically the resolution of cases.

Chicago, Illinois – The United States Court of Appeals for the Seventh Circuit has affirmed the judgment of the Northern District of Illinois, Eastern Division.   Copyright lawyers for Guy Hobbs of the United Kingdom had sued alleging copyright infringement by Elton John and Bernie Taupin of the United Kingdom of Hobbs’ copyrighted work “Natasha” which has been registered in the United Kingdom.  The district court dismissed the complaint and the appellate court affirmed.

While working on a Russian cruise ship, Hobbs composed a song entitled “Natasha” that was inspired by a brief love affair he had with a Russian waitress.  He tried to publish his song, but was unsuccessful.  A few years later, John and Taupin released a song entitled “Nikita” through a publishing company to which Hobbs had sent a copy of “Natasha.”  Believing that “Nikita” was based upon “Natasha,” Hobbs eventually demanded compensation from John and Taupin.  He ultimately filed suit asserting a copyright infringement claim and two related state-law claims.  The Defendants asked the district court to dismiss Hobbs’ complaint for failure to state a claim. 

In supporting his claim for copyright infringement in the district court, Hobbs asserted both traditional copyright infringement of individual elements of “Natasha” and also copyright infringement based upon “Natasha” as a combination of similar elements that would be unprotectable individually. 

After considering Hobbs’ first argument of copyright infringement, the district court concluded that the elements identified were not entitled to copyright protection when considered alone.  

Hobbs’ second legal theory to support a claim of copyright infringement was that the unique selection, arrangement, and combination of individually unprotectable elements in a song could be entitled to copyright protection.  The district court also rejected Hobbs’ “unique combination” argument because it interpreted the law, as stated in Peters v. West, 692 F.3d 629, 632 (7th Cir. 2012), to preclude Hobbs’ copyright infringement claim based upon a combination of similar elements that are unprotectable individually.  Despite rejecting Hobbs’ “unique combination” argument in this set of circumstances as an impermissible application of copyright law, the district court nevertheless considered the facts under this theory. 

In defending his “unique combination” theory, Hobbs identified a number of allegedly similar elements between the two songs.  He argued that his selection and combination of those elements in “Natasha” constituted a unique expression entitled to copyright protection, and that the Defendants’ similar use of those elements in “Nikita” supported a claim for copyright infringement.  Hobbs identified the following allegedly similar elements that are found in both songs:

·         A theme of impossible love between a Western man and a Communist woman during the Cold War;

·         References to events that never happened;

·         Descriptions of the beloved’s light eyes;

·         References to written correspondence to the beloved;

·         Repetition of the beloved’s name, the word “never,” the phrase “to hold you,” the phrase “I need you,” and some form of the phrase “you will never know”; and

·         A title which is a one-word, phonetically-similar title consisting of a three-syllable female Russian name, both beginning with the letter “N” and ending with the letter “A.”

The district court held that the similar elements, even when considered under the “unique combination” theory, still could not support a claim for copyright infringement.  It also concluded that the Copyright Act preempted Hobbs’ state-law claims.

The sole issue for appeal was Hobbs’ “unique combination” theory.  The Seventh Circuit held that Hobbs failed to state a claim for copyright infringement because, even when the allegedly similar elements between the songs were considered in combination, “Natasha” and “Nikita” did not share enough unique features to give rise to a breach of the duty not to copy another’s work.  It held that, although both songs contained the idea of an impossible love affair due to a conflict, each song expressed this general idea differently.  That is, “Natasha” and “Nikita” tell different stories about impossible romances during the Cold War.  Thus, as a matter of law, they were not substantially similar and the dismissal of Hobbs’ claim for copyright infringement was affirmed.

Practice Tip #1:

The Seventh Circuit declined to decide whether Hobbs was correct when he argued that a unique selection, arrangement, and combination of individually unprotectable elements in a song can support a copyright infringement claim.   Instead, careful review of both songs’ lyrics reveals that Hobbs’ first four allegedly similar elements are expressed differently in “Natasha” and “Nikita.”  The remaining similar elements were standard fare in popular love songs and, thus, could not serve to serve as evidence that infringement had occurred.

Practice Tip #2:

The Copyright Act does not protect general ideas, but only the particular expression of an idea.  Additionally, even at the level of particular expression, the Copyright Act does not protect incidents, characters or settings which are as a practical matter indispensable, or at least standard, in the treatment of a given topic.

However, there is a wealth of authority recognizing that, in certain situations, a unique arrangement of individually unprotectable elements can form an original expression entitled to copyright protection. See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 362 (1991) (“The question that remains is whether [the plaintiff] selected, coordinated, or arranged these uncopyrightable facts in an original way.”); JCW Invs., Inc. v. Novelty, Inc., 482 F.3d 910, 917 (7th Cir. 2007) (“[T]he very combination of these [unprotectable] elements as well as the expression that is [the work itself] are creative.”); Bucklew v. Hawkins, Ash, Baptie & Co., 329 F.3d 923, 929 (7th Cir. 2003) (“[I]t is the combination of [unprotectable] elements, or particular novel twists given to them, that supply the minimal originality required for copyright protection.”); Roulo v. Russ Berrie & Co., 886 F.2d 931, 939 (7th Cir. 1989) (“While it is true that these elements are not individually capable of protection, just as individual words do not deserve copyright protection, it is the unique combination of these common elements which form the copyrighted material.”); see also Stava v. Lowry, 323 F.3d 805, 811 (9th Cir. 2003) (“It is true, of course, that a combination of unprotectable elements may qualify for copyright protection.”); Knitwaves, Inc. v. Lollytogs Ltd., 71 F.3d 996, 1003-04 (2d Cir. 1995) (“As the Supreme Court’s decision in [Feist] makes clear, a work may be copyrightable even though it is entirely a compilation of unprotectible elements.”).

Practice Tip #3:

Although Hobbs brought his action twenty-seven years after “Nikita” was authored and eleven years after Hobbs allegedly first encountered “Nikita,” the Defendants did not raise the three-year statute of limitations, see 17 U.S.C. § 507(b), as a defense in their motion to dismiss.

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Chicago, Ill. – The Seventh Circuit Court of Appeals has instituted a circuit rule change that Thumbnail image for Thumbnail image for Thumbnail image for 7th circuit.jpgnow requires all documents to be filed and served electronically. The rule does not apply to unrepresented parties, unless the party is an attorney representing herself. It also allows a party to request an exception from this requirement.

The court also added Rule 27, which provides procedures to be used for emergency filings outside of normal business hours. The rule notes “Counsel should not expect that electronic filings will be read and acted on outside business hours, unless arrangements for the emergency filing have been made in advance.”

The changes went into effect on May 1, 2011 and are available here.

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