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In This Issue
In February, the Supreme Court of Virginia upheld by a 4-3 vote the conviction of Jeremy Jaynes for violating the anti-spam provision of the Virginia Computer Crimes Act, ("VCCA"), Va. Code Ann. § 18.2-152.3:1 (2004). The court’s decision, Jaynes v. Commonwealth, 275 Va. 341, 657 S.E.2d 478 (2008), affirmed the first felony conviction in the United States for illegal spamming, or the bulk distribution of unsolicited e-mail. Jaynes, a resident of Raleigh, North Carolina, was considered one of the top 10 spammers in the world before being convicted in 2004 in the Circuit Court of Loudon County, Virginia, and sentenced to nine years in prison. From July 16 to July 19, 2003, he sent to AOL subscribers 55,473 e-mails with falsified header information and sender domain names. The e-mail advertised a FedEx refund claims product, a penny-stock picker, and a "history eraser" product. Such e-mail advertisements had apparently made Jaynes wealthy; prosecutors said Jaynes claimed a net worth of $24 million and an annual income of over $1 million. Searches of Jaynes’s home revealed CDs containing over 176 million e-mail addresses. An AOL manager testified at Jaynes’s trial that the defendant’s CDs contained proprietary information about "pretty near all" of AOL’s customers. Another AOL employee also testified that the company received "7 to 10 million complaints per day" about spam and that sometimes such e-mails kept non-spam e-mail from being delivered to full inboxes. Jaynes claimed four grounds for appeal: lack of personal jurisdiction over him, abridgement of his First Amendment right to free speech, unconstitutional vagueness in the VCCA, and violation by the VCCA of the Commerce Clause of the U.S. Constitution. All seven Virginia Supreme Court justices disagreed with Jaynes’s claims that Virginia lacked personal jurisdiction, that the VCCA is unconstitutionally vague, and that the VCCA violates the Commerce Clause. The court said that Virginia had personal jurisdiction because Jaynes intended for his e-mails to pass through AOL’s servers--all of which were based in Virginia--and because the use of those servers was an immediate, not incidental, result of his acts. The court held that Jaynes had no standing to challenge the VCCA on grounds of vagueness because, regardless of its alleged vagueness as applied to the conduct of others, the statute clearly applied to him. The court also held that the VCCA does not violate the Commerce Clause because Virginia has a legitimate interest in preventing spam and because "the effects of this statute on interstate commerce are incidental and do not impose an undue burden." The court examined at some length Jaynes’s claim that because the VCCA could conceivably chill political, religious, or other protected speech in the form of unsolicited bulk e-mail, the statute violated his First Amendment right to free speech. The majority held that because Jaynes had engaged in "misleading" and therefore unprotected commercial speech, the court should not give him "an unrestricted invitation to apply for a 'Get Out of Jail Free' card by merely pleading a hypothetical First Amendment infringement upon a hypothetical person not charged with a crime." The minority, however, took the view that the court’s "correct policy," as expressed in its prior opinions on the subject, is to allow "litigants under very limited circumstances to raise constitutional challenges to raise to statutes alleged to unconstitutionally burden the First Amendment right of free speech of third parties." The minority also said that the majority’s ruling would force into federal court all litigants who wanted to raise an "overbreadth challenge" to a Virginia statute. Thus, the minority said, the VCCA is "unconstitutionally overbroad on its face because it prohibits the anonymous transmission of all unsolicited bulk e-mails including those containing political, religious or other speech protected by the First Amendment." Intellectual Property Litigation In The Rocket Docket The United States District Court for the Eastern District of Virginia provides a unique and advantageous forum for bringing an intellectual property case. Unlike most courts throughout the country that take several years to bring a case to trial, in the Eastern District a trial usually is scheduled to start approximately eight months from the filing of the Complaint. The court almost never continues the trial date. Even in complex commercial cases involving difficult intellectual property issues, the court insists that all discovery be completed in a three to five month window. Because of its speed, attorneys and judges refer to the Eastern District as the "Rocket Docket." The Rocket Docket provides two very substantial advantages to an intellectual property plaintiff. First, defendants find it far more difficult to conduct an expensive scorched earth defense. The cost of discovery on a per month basis is far higher, but because the number of months is far shorter, the total costs are less. Only so many depositions can be taken and so many hearings held in an abbreviated discovery window. For an intellectual property plaintiff on a budget, this is a rare advantage. Second, an intellectual property plaintiff has the ability to stop an infringing use far quicker. When a competitor is unfairly using one’s intellectual property in the marketplace, every month or year that the problem is not corrected can be quite expensive due to lost sales. In many cases, if the case prolongs for years, the unfair competitive advantage obtained by the defendant may become irreversible, even if the plaintiff eventually wins. The technology field presents an extreme example of this. An infringer who obtains a first-mover or second-mover advantage may permanently alter the market. It is very dangerous to allow an infringing use to continue over substantial periods of time. By forcing a trial within eight months of filing a Complaint, an intellectual property plaintiff can reduce or eliminate such an advantage. Because of the benefits of reduced costs and a quicker trial, the Eastern District of Virginia also fosters quicker settlements. When a defendant knows that it will not be able to outspend an intellectual property plaintiff, and knows that within eight months it will be forced to defend its actions in front of a judge or jury, it becomes a much more rational business decision to negotiate a reasonable settlement immediately. This alters the dynamics of the settlement negotiation. As a result, a plaintiff may be able to obtain a more reasonable licensing fee or better terms for discontinuance of the infringement. While the Rocket Docket can give an intellectual property plaintiff a more even playing field, it is important to remember that speed can cut both ways. A plaintiff who files a case before being prepared or with counsel unfamiliar with the rules of the court, may find itself at a disadvantage. We strongly recommend to anyone looking to file a Complaint in the Eastern District of Virginia to think through the case well in advance, identify what discovery and experts will be necessary before filing, and have a game plan tailored to the schedule that will result. When ready, file the Complaint and get ready to ride the Rocket. Court Permanently Enjoins PTO from Enforcing New Rules In a much-awaited decision, the United States District Court for the Eastern District of Virginia ruled in Tafas v. Dudas that the new patent rules promulgated by the U.S. Patent and Trademark Office (USPTO) are unlawful, and permanently enjoined the USPTO from enforcing them. Last year, the USPTO enacted a new set of rules that would have dramatically changed the way patents are prosecuted in the United States. The new rules limited applicants to two continuation applications and one request for continued examination, or RCE (the "2+1 Rule") and limited the number of claims permitted in each application to 5 independent claims and 25 dependent claims (the "5/25 Rule") unless the applicant submitted a comprehensive patentability analysis called an Examination Support Document (ESD). The rules were to have gone into effect on November 1, 2007. However, the court issued a temporary injunction while it considered claims by two plaintiffs that the rules violated U.S. patent law and administrative procedural requirements. The parties submitted briefs, and the court heard oral arguments on February 8. The court issued its written opinion on April 1. The court first determined that the USPTO was not authorized to enact substantive rules (which the court defined as any rule that "affect[s] individual rights and obligations"), but was limited by the Patent Act to enacting procedural rules governing "conduct of proceedings" before it. Turning to the proposed rule changes, the court found the proposed changes to be substantive: The 2+1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims, and the ESD requirement, which shifts the examination burden onto applicants, constitute a drastic departure from the terms of the Patent Act as they are presently understood. By so departing, the Final Rules effect changes in [plaintiff’s] existing rights and obligations. The court took particular issue with the ESD requirement, stating: [T]he ESD requirement changes existing law and alters the rights of applicants under the current statutory scheme by shifting the examination burden away from the USPTO and onto applicants. . . . [T]he Federal Circuit has stated that applicants have "no duty to conduct a prior art search" and "no duty to disclose art of which an applicant could have been aware. . . . It is only after the USPTO makes a demonstration of unpatentability that the burden shifts to the applicant to rebut that showing. . . ." Thus, by requiring applicants . . . to perform prior art searches and by shifting the examination burden away from the USPTO, the ESD requirement manifestly changes existing law and alters applicants’ rights under [the Patent Act]." The court, having determined that the USPTO had no authority to enact substantive rules, and finding that the new rules were substantive, permanently enjoined the USPTO from enforcing them. Although the court’s ruling is a setback for the USPTO, it may not be the end of these rules changes. The USPTO may still be able to implement its new rules upon appeal. Congress is also considering sweeping changes to the Patent Act, and at least one of the proposed bills gives the USPTO the ability to enact substantive rules such as the ones the court rejected in this case. L'Oreal Case Reveals Danger of Relying Exclusively on PTO to Protect Marks U.S. owners of arguably famous trademarks cannot rely exclusively on the U.S. Patent and Trademark Office ("PTO") to protect their marks from similar marks used for unrelated goods or services. In the recent case of In re Marcon, Serial No. 76/596736 (March 6, 2008), the PTO’s Trademark Trial and Appeal Board reversed an examining attorney’s refusal to register L’OREAL PARIS as a trademark for "aloe vera drinks" after the examiner concluded that the mark would likely cause confusion with the well-known L’OREAL marks used with cosmetics. The L’OREAL marks are owned by the French cosmetics company L’Oreal, S.A. The applicant for the L’OREAL PARIS mark is a Canadian individual with no connection to L’Oreal, S.A. The TTAB held that the examiner had failed to prove the French company "is of sufficient fame or reputation to consumers in the United States" to entitle its marks to protection from similar marks used with unrelated goods. The TTAB stated that the examining attorney’s evidence--mostly Wikipedia entries and pages from L’Oreal’s web site--were of little probative value in determining whether the L’OREAL marks qualify as famous in the United States. The TTAB did note, however, that the PTO has "limited facilities for acquiring evidence" of a mark’s fame. Accordingly, the TTAB suggested that the result might be different upon its review of a more complete record, as would be the case with an opposition proceeding against an application or a petition to cancel a registration. It is quite possible, of course, that L’Oreal will oppose the registration of L’OREAL PARIS if the application for that mark is published for opposition. Indeed, L’Oreal has already opposed a similar application in Canada. The L’OREAL case highlights the fact that the PTO may permit the registration of marks similar to arguably famous marks even if the applicants’ marks are likely to cause confusion in the marketplace. One reason is that the PTO is limited to comparing marks and the goods or services they identify only as set forth in the relevant applications or registrations. Another reason is that the PTO has finite resources for obtaining and presenting evidence of the actual use of marks it registers. The TTAB’s decision shows that trademark owners are well advised to monitor, through trademark "watching" services or other means, the activities of their competitors. Then owners will be in a position to intervene when necessary to prevent the registration of marks confusingly similar to their own valuable marks.
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