Under the American Rule “each litigant pays his own expense, win or lose, unless a statute or contract provides otherwise.” But recently the United States Patent and Trademark Office (USPTO) has sought to flip the American Rule by seeking to recover its attorney’s fees even when it loses.

EXPENSES UNDER THE LANHAM ACT AND PATENT ACT

Parties seeking to register a trademark (symbols or words representing a company, product or service) or a patent (exclusive right to use of invention) must register their applications with the USPTO. If the USPTO rejects their applications, the parties can appeal to their local federal district court or the Federal Circuit Court of Appeals. The Lanham Act, which governs trademarks, provides that  “all the expenses of the proceeding shall be paid by the party bringing the case…” 15 U.S.C. 107(b)(3); The Patent Act, which governs patent applications, provides that “[a]ll the expenses of the proceedings shall be paid by the applicant. 35 U.S.C §145.

Historically, the USPTO only sought reimbursement of costs (travel, expert fees, etc.) borne from opposing these trademark or patent appeals, but in 2013, the USPTO began seeking reimbursement of its attorney’s fee as well.

WHEN YOU LOSE, YOU LOSE

In Nankwest, Inc. v. Matal,(E.D. Virginia 2016) 162 F. Supp.3d 540, the applicant challenged the USPTO’s decision rejecting its patent application.  The trial court partially accepted and partially rejected the challenge to the USPTO’s decision. The USPTO sought to recover its attorney’s fees along with its other costs, but the trial court rejected the USPTO’s request, finding that such fees are “authorized only when there is a specific and explicit provision for the allowance of attorney’s fees under the selected statute.” Id. at 543.

The USPTO appealed to the Federal Circuit, which reversed the trial court, Nankwest, Inc. v. Matal  (Fed. Cir. 2017) 860 F.3d. 1352., concluding that “Given the Supreme Court’s construction of ‘expenses,’ the guidance dictionary and treatises provide on the term, and the context in which Congress applied it, we conclude the term ‘expenses’ includes the USPTO’s attorney’s fees under § 145.” Id. at 1358.  Two months later the entire Federal Circuit vacated the panel’s decision and set the matter for en banc review. So stay tuned on the final word from the Federal Circuit.

EVEN WHEN YOU WIN, YOU LOSE

In August of this year, in Booking.com B.V. v. Matal (E.D. Virginia 2017) 2017 WL 3425167 a trademark applicant appealed the USPTO’s refusal to register four trademark applications. The Court granted summary judgement for the applicant for two of the four marks and remanded consideration as to the other two marks back to the USPTO. Despite “losing” the appeal, the USPTO filed a motion for expenses, including its attorney’s fees.  In October, the court granted the USPTO’s attorney’s fees, 2017 WL 4853755. The Court noted that the issue was subject to en banc review by the Federal Circuit, but held that it was bound by Fourth Circuit precedent that “compels the Court to find that [the USPTO’s] attorneys’ fees are recoverable under §1071(b)(3).”

Ultimately it appears the Supreme Court will need to determine whether the statutory term “expenses” includes the USPTO’s attorneys’ fees. Until then, to quote the Grateful Dead, trademark and patent applicants “can’t win for losing.”

Since 1946, when the Lanham Act was enacted, the United States Patent and Trademark Office (USPTO) has denied registration of any trademark that “[c]onsists of … matter which may disparage [any] persons living or dead….” Today, the Supreme Court struck down this “disparagement clause,” finding that it violated the First Amendment.

Oregon Rock Band Blazes New Law

For seventy years, the USPTO relied on the disparagement clause to reject trademarks that were racially or ethnically offensive, but The Slants, a rock band from Portland, Oregon changed the law. The Slants’ lead singer, Simon Tam, sought to trademark the band’s name, seeking to reclaim the term by their “deliberate disarmament of toxic language and symbols.” (See The Slants’ Press Release on Tam Decision.)

The USPTO refused to register “The Slants,” citing the disparagement clause. Tam appealed to the Federal Circuit, which held that Section 2(a) was unconstitutional restraint of free speech under the First Amendment.

The USPTO Strikes Out

The Supreme Court granted certiorari, and today, Justice Alito issued the Court’s opinion holding that the disparagement clause “violates the Free Speech Clause of the First Amendment.”

The Court rejected three USPTO arguments: “(1) that trademarks are government speech, not private speech, (2) that trademarks are a form of government subsidy, and (3) that the constitutionality of the disparagement clause should be tested under a new ‘government-program’ doctrine.”

Because “[t]he Federal Government does not dream up these marks, and it does not edit marks submitted for registration” “it is far-fetched to suggest that the content of a registered mark is government speech.”

Next the Court rejected the USPTO’s argument regarding the “constitutionality of governmental programs that subsidize speech expressing a particular viewpoint.” The Court distinguished those cases because they “involved cash subsidies or their equivalent.”

The Court rejected the USPTO’s position that the trademark registration program “creates a limited public forum for private speech” because even in such cases “viewpoint discrimination is forbidden.”

Finally, the Court found that the disparagement clause fails even the relaxed First Amendment scrutiny applied to commercial speech. Citing the government interests of “encouraging racial tolerance” and “protecting the orderly flow of commerce,” the Court found that disparagement clause was not narrowly drawn and was therefore unconstitutional.

But What About the Washington Redskins?

The USPTO had deregistered the Washington Redskins’ trademark based on the disparagement clause. The team had appealed the USPTO’s decision, and the appeal is pending in the 4^th Circuit.  Today’s Tam decision will knock the legs out from the USPTO’s decision and should pave the way for the team to reclaim its trademark.

What About Section 2(a)’S Other Prohibitions?

Section 2(a) also precludes registration of any trademark that “consists or comprises immoral, deceptive or scandalous matter….” Presumably, the Court’s Tam decision will also preclude the USPTO from denying registration to marks that are immoral or scandalous. However, one would assume the prohibition on deceptive marks would survive, since it is consistent with other provisions in the Lanham Act precluding “deceptively misdescriptive” marks and marks that are “likely …to deceive.”

I previously wrote about a Supreme Court case pitting the United States Patent and Trademark Office (“USPTO”) and Section 2(a) of the Lanham Act against the First Amendment, the Federal Circuit, the Slants and, lurking in the wings, the Washington Redskins.

The USPTO filed its 92 page opening brief this week, repeating many of the same arguments rejected by the Federal Circuit.

Argument 1: Trademark Registration is a Privilege, Not a Right

The USPTO argues that “Section 1052(a) does not prohibit any speech but simply defines the criteria for participation in the government’s voluntary trademark program.” Citing the government’s right not to fund certain types of art or to disallow certain symbols on license plates, the USPTO argues “[t]he First Amendment does not require the federal government to assist those, who wish to sell products or services using racial slurs, religious insults or other disparaging marks.”

Argument 2: Banning Disparaging Marks Does Not Restrict Speech

The USPTO describes the history of the Lanham Act and the common-law rights a trademark owner holds even if he or she lacks federal trademark registration. The USPTO argues that “Section 1052(a) limits the marks that may be federally registered, but it does not restrict the mark holder’s ability to use its mark or to engage in any other speech.”

Argument 3: Section 1052(a)’s Ban On Disparaging Marks is Consistent with Other Constitutional Restrictions

Citing the government’s right not to participate where “government assistance will closely associate the government with offensive terminology,” the USPTO analogized to artists who have been denied federal arts funding, or proponents of specialty state license plates including the confederate flag.  “Registration of THE SLANTS would cause the mark to be published on the Principal Register; would cause a certificate  for the mark to be issued ‘in the name of the United States’ (which may be transmitted to foreign countries); and would entitle respondent to use the ® symbol to convey to the public that the mark has official status.”

Where Did the Washington Redskins Go?

The Washington Redskins asked the Supreme Court to join The Slants in opposing the USPTO, but the Supreme Court refused. The team’s case before the Fourth Circuit is stayed pending the outcome of the USPTO-The Slants decision.

What’s Next

The Slants will be filing their brief, along with a likely flood of amicus curiae briefs on either side, and then the matter will be heard by eight justices, unless a ninth supreme court justice is confirmed before oral argument.

Today the Supreme Court agreed to decide an ongoing conflict, pitting a trademark registrant’s First Amendment rights against longstanding law precluding trademark registration of “disparaging” marks.

In This Corner: Trademark Law & the USPTO

Section 2(a) of the Lanham Act, precludes trademark registration of marks that are: immoral, deceptive or scandalous matter; or matter which may disparage …or bring them into contempt or disrepute….” Since World War II, the United States Patent and Trademark Office (USPTO) has relied on Section 2(a) to deny registration to such marks, but in December 2015, for the first time, the legality of Section 2(a) was called into question.

In This Corner: The First Amendment & The Slants

An Asian-American rock band, The Slants, sought to register its name, but the USPTO rejected the name as disparaging. The Slants appealed to a federal district court, which affirmed the USPTO’s decision, but when The Slants appealed to the Federal Circuit, the majority found that Section 2(a) was unconstitutional restraint of free speech under the First Amendment.

The Slants asked the Federal Circuit to order the USPTO to register its trademark, but the court declined. The USPTO issued guidelines, advising trademark applicants that any applications with potentially disparaging marks would be held in limbo until the issue was resolved.  Then the USPTO asked the Supreme Court to decide the issue.

In This Other Corner: The Washington Redskins

Meanwhile in June 2014 the USPTO deregistered the Washington Redskins’ trademark under Section 2(a). The Washington football team appealed, lost in federal district court and appealed to the Fourth Circuit. While that appeal is currently pending, the Washington team has asked the Supreme Court to intercede.

The Judges’ Score Card: Key Issues

The Slants, the Washington team and the Federal Circuit majority basically argue that trademarks equal free speech. They contend that Section 2(a) amounts to viewpoint discrimination and is subject to strict scrutiny  review, Section 2(a) fails to withstand “strict scrutiny” and is therefore unconstitutional. “Strict scrutiny” requires the USPTO to prove that Section 2(a) serves a compelling government interest, that it is narrowly tailored to achieve that interest, and that it is the least restrictive means for achieving that interest.

The USPTO, the two federal district courts, and the Federal Circuit’s dissenting opinion argue that trademarks do not equal free speech, and Section 2(a) is not subject to “strict scrutiny.” They contend that Section 2(a) does not prohibit any speech but instead denies the benefits of registration to private disparaging speech. In short, The Slants and the Washington team are entirely free to call themselves whatever they want, to publicize their names and use their names in commerce, but they are not entitled to the extra benefits conferred by federal trademark registration.

TKO or 12 Rounds?

While today’s grant of certiorari is only the beginning of the first round, recent Court decisions upholding hateful speech in other situations would tend to indicate that USPTO may be punching above its weight class and Section 2(a) might hit the canvas.

Nobody knows, and that’s why the United States Patent and Trademark Office (USPTO) just filed a petition asking Supreme Court to settle its turf battle with the Federal Circuit Court.

Ancient History: No Disparaging Trademarks

From WWII until March of this year, the USPTO routinely refused to issue trademarks that it considered to be disparaging under Section 2(a) of the Lanham Act.  So it wasn’t big news in 2011 when the USPTO summarily rejected Simon Shiao-Tam’s trademark registration for his rock band, “The Slants.” Mr. Tam appealed the USPTO’s decision to the Federal Circuit, which initially upheld the USPTO’s decision, but later agreed to rehear the appeal en banc.

Quantum Leap: First Amendment Trumps Lanham Act’s Prohibition of Disparaging Trademarks 

But, as we previously reported, it was huge news last December when the Federal Circuit reversed its earlier opinion and the USPTO’s decision and held that Section 2(a) violated the First Amendment, effectively stripping the USPTO of its power to deny trademarks that it deemed disparaging.   Presumably the court’s decision also strikes down Section 2(a)’s prohibition of marks that are immoral or scandalous.

Early last month, the USPTO reacted to the court’s decision, issuing guidelines that trademark applications with Section 2(a) issues would be held in limbo “while the constitutionality of these provisions remains in question…”  Shortly thereafter, Mr. Tam filed a writ of mandamus asking the Federal Circuit to force the USPTO to register The Slants trademark.

Breaking News: The Suspense was Killing the USPTO

The Federal Circuit denied the writ, but today the USPTO petitioned the Supreme Court to resolve:

Whether the disparagement provision in 15 U.S.C. 1052(a) is facially invalid under the Free Speech Clause of the First Amendment.

Usually issues percolate up slowly over the course of years before they reach the Supreme Court, but with the Federal Circuit insisting that Section 2(a) is unconstitutional and the USPTO refusing to cede its authority to reject disparaging trademarks there’s really no place else to take the issue.  And until the issue is ultimately resolved, trademarks that the USPTO considers disparaging will continue to sit in limbo.  Four of the justices will need to vote to hear the USPTO’s petition and, absent the extremely rare issuance of an extraordinary writ (allowing accelerated briefing and oral argument), even if the Supreme Court grants certiorari the matter won’t be decided for some time.

We recently wrote about In re Tam, the Federal Circuit Court’s decision invalidating Section 2(a) of the Lanham Act.  The Court held that Section 2(a), which precludes trademark registration of immoral, deceptive, scandalous or disparaging trademarks, violates the First Amendment.  The Court ruled for The Slants, a Portland-based band comprised of Asian Americans who had sought to trademark their name, but whose trademark application had been rejected by the U.S. Patent and Trademark Office (USPTO)  as “disparaging.”

The Court’s decision could have wider implications, especially with regards to the Washington Redskins’ appeal to regain their trademark, which is pending before the Fourth Circuit, a “sister” court to the Federal District Court. In December, Simon “Young” Tam (the Tam in In re Tam) wrote this blog post sharing his views about media coverage of the case, including the desire of the media (and attorneys) to compare the case to the Redskins’ case and issues surrounding identity politics. It’s definitely worth a read!

The USPTO Strikes Back, Sort of

In response to the In re Tam decision, last week the USPTO decided that it would put trademark applications with Section 2(a) issues in limbo.  The USPTO issued  Examination Guidance 01-16, which advised that “while the constitutionality of these provisions remains in question and subject to potential Supreme Court review” the USPTO will handle trademark applications with section 2(a) problems by issuing an “advisory refusal and suspend action on the application.”

The Slants’ Full Court Press

But The Slants aren’t willing to wait. Yesterday The Slants filed a writ of mandamus petition asking the Federal Circuit Court to order the USPTO to immediately process The Slants’ trademark registration.

The $64,000 question is whether the Federal Circuit Court will grant The Slants’ petition, rather than wait for the issue to percolate up to the Supreme Court. One Court observer  has noted that in recent years the Federal Circuit Court has become more aggressive about issuing such extraordinary relief.

Blog note: Photo updated 3/16/2016

On December 22, 2015, in a potentially far-reaching decision, the Federal Circuit Court of Appeals held that Section 2(a) of the Lanham Act, which prohibits registration of disparaging trademarks, is unconstitutional under the First Amendment’s guarantee of free speech. While perhaps the most publicized “disparaging trademark” controversy this year centered around the Washington Redskins, whose trademark registrations were cancelled earlier this year in a decision upheld by a federal district court (the case is currently on appeal to the Fourth Circuit), this case before the Federal Circuit involved Simon Shiao-Tam, who applied to register the name of his band, “The Slants,”  for trademark protection.

Though the Portland-based band is comprised of Asian American musicians who had previously stated that the name’s intent was to reclaim the word, the U.S. Patent and Trademark Office (USPTO) refused to register the mark based on Section 2(a)’s prohibition against registration of trademarks that consist of “immoral, deceptive, or scandalous matter; or matter which may disparage…persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” This decision was affirmed by the USPTO’s Trademark Trial and Appeals Board.

Ironically, in the initial appeal of the matter to the Federal Court, neither Tam nor the government focused on the First Amendment argument. At oral argument in the initial appeal in January 2015, Judge Kimberly Ann Moore (who is also a Washington Redskins fan) invited the government’s attorney to discuss the First Amendment issue, which the attorney declined to do.  Writing for the majority, Judge Moore affirmed the USPTO’s refusal to register the mark, finding that there was substantial evidence supporting the USPTO’s finding that the term “The Slants” was disparaging and also rejecting Tam’s backup argument that Section 2(a) was a violation of the First Amendment. The Federal Circuit stated that it was bound by precedent, namely a prior 1981 case (In re McGinley) that had held the government’s refusal to register a disparaging mark does not prevent a party from using it (and therefore, there was no First Amendment violation). See the April 2015 opinion In re Tam.

However, in that same decision, in a lengthy section entitled “additional views,” Judge Moore urged the Court to revisit In re McGinley and to reexamine the First Amendment issue. Thereafter, the Court of Appeals decided on its own, and without the request of the government or Mr. Tam, to review the decision en banc before a full panel of judges and ordered briefing on the First Amendment question, leading to this latest decision.  Although not binding on the Fourth Circuit Court of Appeals, which will be hearing the Washington Redskins’ appeal next year, the Fourth Circuit could be persuaded to reverse the USPTO’s cancellation of the Redskins’ trademark registrations.

A full copy of the Federal Circuit’s en banc opinion can be accessed here.

If a competitor circulates false advertising about your products you can sue under federal law, but what do you do when the person making the false claim is not a competitor? Sue them anyhow.

What’s False Advertising?

Under the typical case, a company sues its competitor for making a false claim about either the competitor’s products or its own products. Remember the viral (and false) rumor that Taco Bell’s beef contained sawdust? If Del Taco ads repeated that rumor, Taco Bell could sue under federal law. Likewise, if Puma falsely claimed its running shoes included tufts of cheetah fur that made you run faster, Nike could sue Puma for false advertising.

Supreme Court Expands Standing

The Supreme Court’s recent decision expands the reach of false advertising claims to advertisers who do not compete with the victim. The Court clarified and expanded the standing requirement for filing such claims for products or services in interstate commerce under the Lanham Act (15 U.S.C. § 1125(a)). This is important because a plaintiff without standing (the right to sue) quickly finds himself knocked out of court.

Anything That’s Fit to Print?

The Court’s decision involved toner cartridges for printers, the ones you always need to replace when you are finally printing something for work, instead of Game of Thrones maps, pictures of kittens or directions to the bowling alley. Defendant Lexmark sells printers and replacement cartridges and sought to control the replacement cartridge market for its printers. Plaintiff Static Control reverse-engineered Lexmark’s microchips, creating functional equivalents without copying/infringing Lexmark’s intellectual property, that effectively replaced the chips on Lexmark cartridges. But Static Control didn’t actually manufacture replacement cartridges. However, Static Control’s chips enabled other companies (Lexmark competitors) to sell generic cartridges, which liberated consumers from purchasing Lexmark’s more expensive replacement cartridges. Unhappy about lost market share, Lexmark sent notices to most of the replacement cartridge manufactures, alleging that using Static Control’s chips was illegal. Static Control sued Lexmark claiming false advertising under the Lanham Act, the trial court dismissed the lawsuit, the Sixth Circuit reinstated the lawsuit and the Supreme Court affirmed, allowing Static Control to continue to prosecute its claims against Lexmark.

New Standing Standard

Prior to this decision, the thirteen federal circuit courts (12 plus the Federal Circuit) had applied a smorgasbord of standing requirements, which generally limited standing to direct competitors. But the Court reviewed the circuits’ standing requirements and unanimously voted “none of the above.” Instead, the Court held that a plaintiff has standing if: (A) it suffers an injury to its commercial interest in reputation or sales, and (B) the injury flows directly from the deception caused by the defendant’s advertising:, which occurs when the deception causes consumers to withhold trade from the plaintiff. In the Lexmark case, Static Control had standing because Lexmark’s (allegedly) false statements influenced Static Control’s customers (Lexmark’s competitors) to stop purchasing Static Control’s chips. The Court reinstated Static Control’s lawsuit, even though Lexmark does not directly compete with Static Control. If Static Control ultimately prevails, the court could force Lexmark to stop making false statements, issue “corrective” advertising and pay damages and attorneys’ fees.

What’s Next?

So, advertisers and other commercial “speakers” beware. If you make false claims that injure companies selling products or services interstate, even if those companies are not your competitors, you’re exposing yourself to liability under the Lanham Act. And if a company makes false claims that impact your business, feel free to make a federal case out of it. Of course, you can also make a state case out of it, as many states have their own false advertising/competition laws, like California’s which begins at Business and Professions Code section 17200.