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The 2021 Appropriations Act: Fundamental changes to trademark and copyright law and the implications for IP owners

United States Publication December 28, 2020

In an 11th-hour-effort to avoid a government shutdown, on December 21, 2020, the US Congress passed the Consolidated Appropriations Act, 2021 (the "Act"). Surprisingly, and without much notice, input, or deliberation, Congress included provisions in the Act that could significantly change American trademark and copyright laws.

Trademark and copyright owners should review and understand these changes, which provide both significant benefits—that require rethinking enforcement strategies—but also hazards to plan for and address.

Within the Act, Congress expands trademark cancelation procedures, creates a rebuttable presumption of irreparable harm when requesting an injunction for trademark infringement matters, criminalizes companies facilitating digital downloading, and establishes a new administrative copyright infringement tribunal—all of which benefit trademark and copyright owners. However, these changes may also expose companies to more costs and nuisance suits.

President Trump signed these changes into law on December 27, 2020. We will continue to track and report on developments, but provide this overview of the proposed changes, along with our initial assessment of potential impacts and things to consider.

The Act's impact on trademarks

Called the "Trademark Modernization Act of 2020" ("2020 Trademark Act"), the proposed 2020 Trademark Act provides (1) important clarification (and resolution of the current circuit split) that "irreparable harm" is presumed for purposes of entering an injunction if a likelihood of confusion is shown, making it easier for trademark owners to obtain injunctions in US federal courts; and (2) new options for preventing applications from being approved and also for seeking to cancel existing registrations.

For trademark owners, the 2020 Trademark Act establishes that a plaintiff seeking an injunction is entitled to a rebuttable presumption of irreparable harm. (See 15 U.S.C. § 1116(a)). This codified presumption resolves a current circuit split resulting from the Supreme Court's decision in eBay v. Mercexchange, a patent case.1

For applicants, the Act potentially increases prosecution costs by requiring fees to extend the period of time to respond to Office Actions. (See 15 U.S.C. § 1062(b)). The 2020 Trademark Act permits the PTO to change the time for an Office Action response from six months to 60 days. But, the applicant—after paying a fee—may request up to four additional months, or up to a total of six months, to respond. No fee previously existed in the event the applicant responded anytime within the six-month window.

Finally, the Act provides, for the first time, the ability for third-parties to submit evidence to be included in the record during examination. (See 15 U.S.C. § 1051). Previously, a third party could submit a Letter of Protest during examination of an application, which could include evidence, but that evidence would not necessarily become part of the file or record. The Letter of Protest is limited in scope, should not be argumentative, and is not binding on the examiner. This essentially required third parties to spend a lot more time, effort, and cost on providing evidence in the context of an opposition (rather than providing the evidence to the examiner who could then reject the application and avoid an opposition).

With the new law, the director will determine whether third-party evidence should be included in the record and therefore require the examiner to review the evidence. If successful, the third-party submission will likely decrease a competitor's ability to obtain approval of the application for publication (and therefore preventing registration without the need for an opposition).

Significantly, the Act also creates two powerful mechanisms to seek cancellation of existing registered marks: ex parte expungements and ex parte reexaminations. These petitions provide an opportunity for challengers to avoid having to invest substantial time and effort in pursuing expensive cancellation proceedings.

First, "any person" may petition to "expunge" a registered mark in the event the mark has never been used in commerce on or in connection with some or all of the goods or services identified in the registration. A petitioner can file such petition for any mark within three years of the Act's enactment or within three and 10 years of a mark's registration date.

Second, the Act provides for ex parte reexamination of marks not used in commerce on or in connection with the goods or services recited in the mark's registration. To trigger this provision, the challengers must show that the mark was not used in connection with the recited goods or services before initial filing or any subsequent amendment. An ex parte reexamination petition must be filed no later than five years after the date of registration. Notably, this does not provide a window for retroactive application to all marks, unlike ex parte expungement.

A petition under either proceeding, significantly, must include a verified statement describing how the petitioner investigated that the mark has not been used in commerce. If the petitioner presents a prima facie showing, the director shall institute a reasonable investigation. Then, if successful, the director will order cancellation of the registration.

A party can appeal the director's determination from an instituted proceeding to the Trademark Trial and Appeal Board ("TTAB") (see 5 U.S.C. § 1070) and then to the Federal Circuit (see 15 U.S.C. § 1071).

The practical impacts of the 2020 Trademark Act and what companies should consider to prepare for the changes

For companies, the 2020 Trademark Act:

  • Improves the ability and consistency for obtaining injunctions against infringers by restoring and codifying the rebuttable presumption of irreparable harm where a likelihood of confusion is shown;
  • Makes it potentially easier and less expensive to stop junior third-parties from obtaining publication of confusingly similar marks, by submitting evidence during the application's prosecution, thereby avoiding time-consuming and costly oppositions (however, to be able to do so, mark owners will to need watch the register and be prepared to file evidence earlier); and
  • Facilitates potentially faster and less expensive registration of applications by creating the ability to clear "dead wood" that may be blocking an application as a result of the institution of ex parte expungement or ex parte reexamination, thereby avoiding costly and time consuming cancellation proceedings.

However, the 2020 Trademark Act also:

  • Potentially reduces flexibility and forces applicants to change their current portfolio management practices to respond to Office Actions much more quickly or incur additional cost through fees associated with extending response time from 60 days to 6 months; and
  • Requires trademark owners to actively use their marks in connection with all the goods and services of the application prior to applying for or amending registration—or face ex parte reexamination—and use the mark after registration in connection with all of the goods and services in the application—or face ex parte expungement—and risk cancellation.

A competitor seeking to cancel a mark must be diligent:

  • For an ex parte expungement, the competitor has a seven-year window to file a petition for any mark registered after the Act's enactment. For any mark registered prior to enactment, a competitor has three years to file a petition. If the competitor does not timely file the petition, the competitor loses the opportunity to petition to cancel the mark.
  • For an ex parte reexamination, the competitor has a five-year window to file a petition. If the competitor does not file the petition within five years of registration or an amendment alleging use, the competitor loses the opportunity to petition to cancel the mark.

The Act's impact on copyrights

Called the "Copyright Alternative in Small-Claims Enforcement Act of 2020" ("2020 Copyright Act"), the 2020 Copyright Act creates two important opportunities for copyright owners: it (1) criminalizes the act of companies providing platforms for illegal downloads, thereby targeting the underlying infrastructure that facilitates infringement, and (2) creates a small-claims court.

These changes are beneficial to copyright owners, making it easier and less expensive for enforcement but could also result in more nuisance suits against companies.

Part I of the 2020 Copyright Act: No more commercializing of illegal downloading

Although the Digital Millennium Copyright Act criminalized illegally downloading copyrighted material, the 2020 Copyright Act further expands protections to copyright owners.

Now, illegal activity includes offering, providing, or marketing a digital transmission service that transfers copyrighted material without the copyright owner's authority. As a result, running or even marketing a company that permits illegal downloading is illegal regardless of whether that company downloads materials. Penalties include fines and imprisonment up to 10 years.

Part II of the 2020 Copyright Act: The Copyright Claims Board ("CCB")

The 2020 Copyright Act establishes a new administrative forum, the CCB, which is a small claims court focused solely on resolving copyright infringement disputes up to a certain amount.

The CCB is established within the Copyright Office. Three Copyright Claims officers, recommended by the Register of Copyrights and appointed by the Librarian of Congress, will sit on the CCB.

This alternative forum allows an owner to seek independent determination of copyright infringement and, by extension, infringement damages. The CCB's determination, though subject to further judicial review, is legally binding.

A party can voluntarily bring a claim in the CCB for:

  • Infringement;
  • Declaration of noninfringement of an exclusive right in a copyright; or
  • Misrepresentation in connection with a notification of claimed infringement.

However, the CCB cannot hear a claim:

  • That has been adjudicated by or is pending before a court of competent jurisdiction;
  • Against a federal or state entity;
  • Against a person or entity residing outside the United States; or
  • Not expressly enumerated in the Act.

If successful, the CCB's remedies include actual damages and profits or statutory damages (however, damages are limited to US$30,000). The CCB can also enter an injunction ordering infringing activity or the sending of takedown notices, as applicable, to stop. Finally, the CCB can also grant attorney's fees to a prevailing party.

Additional provisions include:

  • The copyright at issue must be registered (with limited exceptions);
  • In the event of conflicting legal precedent that should be applied as the law of the case, the proceedings must follow the law of the federal jurisdiction where the action most likely would have been brought;
  • There are no formal rules of evidence;
  • A party can challenge determinations in federal district court; and
  • Filing for a determination will stay district court proceedings.

The practical impacts of the 2020 Copyright Act and what companies should consider to prepare for the changes

At a high-level, the 2020 Copyright Act provides significant opportunities for copyright owners to proactively enforce their rights against a class of defendants (e.g., those companies that create platforms that permit illegal downloading). The expanded prosecution of illegally transmitting copyrighted material provides a key advantage: owners no longer have to wait—or find and develop proof of actual infringement by the ultimate infringer—to take action against a platform that contributes to the infringement.

The 2020 Copyright Act targets offering, providing, or marketing a service to illegally transmit works, not actually transmitting the works. This means an owner can stop a bad actor before the ultimate bad actor actually transmits or downloads works. As a result, the 2020 Copyright Act provides the opportunity to stop illegal dissemination before it occurs. However, these changes may also make it easier for parties to bring claims against legitimate companies that create platforms unwittingly used for illegal downloads.

By creating the CCB, the 2020 Copyright Act also provides another powerful mechanism to stop infringement and makes it simpler and less expensive to take action against "smaller" infringements.

The 2020 Copyright Act explicitly states that the CCB "may" limit the number of cases a person can bring in a single year. Nonetheless, upon enactment, copyright owners may file a significant number of claims in the CCB (or small infringers may file claims for non-infringement), in the hope of obtaining quick settlements without much effort. The penalties set forth in the Act for doing so likely will not sway initial efforts.

Therefore, by lowering the barrier for bringing and pursuing claims, the CCB may increase the number of legitimate claims—and also exposure to nuisance suits—for all companies.

Nevertheless, if companies pursue active enforcement of their copyrights—and robust defenses against nuisance suits—the new CCB may provide beneficial opportunities to protect valuable intellectual property rights (and limit exposure) while simultaneously decreasing enforcement/defense costs and efforts.

Conclusion and initial recommendations

We will monitor and provide updates regarding implementation of the 2020 Trademark Act and 2020 Copyright Act through Norton Rose Fulbright's Brand Protection Blog.

The Act's changes to trademark and copyright law provide different and additional tools and mechanisms for enforcement that may save time, effort, and money on one hand but potentially require adjusting approaches to save money to better position your company for defensive strategies.

In the meantime, we preliminarily recommend:

  • Trademark and copyright owners give some thought to their current processes, procedures, and budgets, and preliminarily determine whether, where, and how these legal changes may impact your company's strategies;
  • Consider making some "low cost" first investment steps to position your company to benefit from these changes, namely:
    • Register important copyrighted works so your company can avail itself of the CCB;
    • Review, insure that your company's marks are being used, and keep evidence of such use in connection with all goods and services before filing, during prosecution (if use based), and after registration as to avoid ex parte expungements or ex parte reexaminations as well as continuing to educate your business team about why this is so important;
    • Institute additional trademark watches to identify and investigate third-party uses and applications/registrations to consider pursuing ex parte expungements or ex parte reexaminations; and
    • Gather evidence about important marks to better position your company for pursuing early injunctions and/or submitting evidence during third party applications.

Footnotes

1   Before eBay v. Mercexchange, all Circuits held that if infringement was found to be likely, than irreparable harm was presumed in trademark cases. This is due to the unique nature of trademarks (namely, that "goodwill" is the essence of trademarks and if infringement violated a company's goodwill and confused relevant purchasers, irreparable harm was the natural consequence and must be prevented by an injunction). The policy behind this traditional rule was that merely awarding damages could not "fix" the harm done by the loss of goodwill. This trademark policy is different from the considerations for protecting patents, where, ultimately, the benefit of having a patent is being able to practice and profit from that patent. In eBay, the Supreme Court held that a court should not presume irreparable harm after a finding of patent infringement, thereby requiring proof of irreparable harm to obtain an injunction. Some courts applied this holding to trademark infringement cases, thereby resulting in a circuit split (and forum shopping), making it more expensive and difficult for trademark owners to obtain an injunction and thereby undermining the policy behind trademarks.



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