Insider Threats: The Overlooked Risks of Departing Employees and Sensitive Data Theft
Insider threats continue to present a significant challenge for organizations of all sizes. One particularly concerning scenario involves employees who leave an organization and impermissibly take or download sensitive company data. These situations can severely impact a business, especially when departing employees abscond with confidential business information or trade secrets. Focusing on how the theft of such information could cripple a business’s operations, competitive advantage, etc. is warranted. It is critical not to overlook, however, other legal and regulatory implications stemming from the theft of certain data, including potential data breach notification obligations.
The Importance of Safeguarding Trade Secrets
Trade secrets generally refer to information that has commercial value because it’s kept secret. Examples include formulas, patterns, programs, devices, methods, and other valuable business data. Such data are often the lifeblood of a company’s competitive edge. These secrets must be safeguarded to retain their value and legal protections under the Uniform Trade Secrets Act (UTSA) which has been adopted by most states. Businesses will need to demonstrate that they took reasonable measures to protect their trade secrets.
Reasonable safeguards under the UTSA can include:
Implementing access controls to restrict employees’ ability to download or share sensitive information.
Requiring employees to sign confidentiality agreements and restrictive covenants.
Regularly training employees on the importance of data security and confidentiality.
Using monitoring tools to detect unusual access or downloads of sensitive data.
Failing to adopt such safeguards can jeopardize a company’s ability to claim protection for trade secrets and pursue legal remedies if those secrets are stolen. Companies should consult with trusted IT and legal advisors to ensure they have adequate safeguards.
Beyond Trade Secrets: Data Breach Concerns
While the theft of confidential business and trade secret information rightly garners attention, focusing exclusively on this aspect may cause companies to miss another critical risk: the theft of personal information. As part of their efforts to remove company information, departing employees may inadvertently or intentionally take personal information, such as employee or customer data, which could trigger significant legal obligations, particularly if accessed or acquired without authorization.
Contrary to common assumptions, data breach notification laws do not solely apply to stolen Social Security numbers. Most state data breach laws define “personal information” broadly to include elements such as:
Financial account information, including debit or credit card numbers.
Driver’s license or state identification numbers.
Health insurance and medical information.
Dates of birth.
Online account credentials, such as usernames and passwords.
Biometric data, such as fingerprints or facial recognition profiles.
The unauthorized access or acquisition of these data elements together with the individual’s name can constitute a data breach, requiring timely notification to affected individuals and, in some cases, regulatory authorities.
Broader Regulatory and Contractual Implications
In addition to state breach notification laws that seek to protect personal information, companies must consider other regulatory and contractual obligations when sensitive data is stolen. For example:
Publicly traded companies: Theft of critical business information by a departing employee may require disclosure under U.S. Securities and Exchange Commission (SEC) regulations if the theft is deemed material. If a company determines the materiality threshold has been reached, it has four days to report to the public.
Critical infrastructure businesses: Companies providing services in regulated industries, such as energy or healthcare, may have reporting obligations to regulatory authorities if sensitive confidential business data is compromised.
Contractual obligations: Many businesses enter into agreements with business customers that require notification if confidential business information or personal data is compromised.
Ignoring these obligations could expose organizations to fines, lawsuits, and reputational harm, compounding the difficulties already created by the theft of an organization’s confidential business information.
Taking a Comprehensive Approach to Data Theft
The theft of confidential business information by a departing employee can be devastating for a business. However, focusing solely on restrictive covenants, trade secrets, or business information risks overlooking the full scope of legal and regulatory obligations. To effectively respond to such incidents, companies should:
Identify the nature of the stolen data: Assess whether the data includes personal information, trade secrets, or other sensitive information that could trigger specific legal obligations.
Evaluate legal and regulatory obligations: Determine whether notification is required under state breach laws, SEC or other regulations (if applicable), industry-specific rules, or contractual agreements.
Leverage restrictive covenant agreements: Assess appropriate legal or contractual remedies, including under restrictive covenant, confidentiality, and other agreements, as part of a broader strategy to address the theft.
Implement safeguards: Strengthen data protection measures to mitigate the risk of future incidents, including employee training, enhanced monitoring, and robust exit procedures.
While dealing with insider threats is undoubtedly challenging, taking a comprehensive and proactive approach can help businesses protect their interests and minimize legal exposure. In today’s interconnected and highly regulated world, understanding the full scope of risks and obligations tied to data theft is essential for any business.
The Federal Circuit Affirms Deterrence Sanctions
The Federal Circuit affirmed a district court’s award of sanctions for bad faith against a plaintiff’s conduct based on the meritless nature of several lawsuits filed in incorrect venues.
Background
The case[1] involves PS Products Inc. and Billy Pennington (collectively “PSP”) as plaintiffs-appellants against Panther Trading Co. Inc. (“Panther”) as the defendant-appellee. The appeal is from a decision by the United States District Court for the Eastern District of Arkansas, which granted Panther’s motion for sanctions against PSP.
PSP owns U.S. Design Patent No. D680,188, related to a stun device, and alleged Panther infringed this patent. Panther argued the infringement claim was frivolous, as the patented design and the accused product were dissimilar, and the venue was improper. Panther filed a motion to dismiss the case, and after discovering prior art similar to the patented design, demanded PSP dismiss the lawsuit. PSP moved to voluntarily dismiss the case with prejudice, but Panther sought attorney fees and sanctions. The district court deemed the case exceptional under 35 U.S.C. § 285, awarding Panther $43,344.88 in attorney fees and costs, and imposed $25,000 in deterrence sanctions on PSP and their attorney, Chris Stewart.
PSP appealed the $25,000 sanctions, arguing the district court lacked authority to impose them after awarding attorney fees and costs, and claimed the court applied the wrong legal standard.
Issue(s)
Does a district court have inherent authority to award deterrence sanctions after awarding attorney fees and costs?
Holding(s)
Yes, it is not an abuse of discretion to award deterrence sanctions. The district court did not apply an incorrect legal standard because district courts have inherent power to impose sanctions for bad faith conduct.
Reasoning
The Federal Circuit discussed the proper venue for patent cases, referencing Valeant Pharmaceuticals North America LLC v. Mylan Pharmaceuticals Inc. and In re Cray Inc., emphasizing that venue is proper where the defendant resides or has a regular and established place of business. PS Products Inc. (PSP) had a history of filing numerous patent infringement lawsuits in the Eastern District of Arkansas, often using the incorrect general venue statute, 28 U.S.C. § 1391, instead of the patent-specific statute, 28 U.S.C. § 1400. The district court inferred bad faith from PSP’s pattern of filing meritless lawsuits in incorrect venues. The court found PSP’s conduct warranted sanctions under its inherent power, as Rule 11 sanctions were unavailable due to PSP dismissing the case before Panther could file a motion.
The Federal Circuit declined Panther’s request for additional attorney fees for the appeal, determining that while PSP’s appeal was without merit, it was not frivolous as they had not been previously decided by the court.
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FOOTNOTES
[1] PS Products, Inc. v. Panther Trading Co., Inc., No. 23-1665 (Fed. Cir. 2024)
USPTO Takes First Steps Following New WIPO Treaty
Last May, the World Intellectual Property Organization (WIPO) adopted a new treaty related genetic resources and traditional knowledge thereof (the “Treaty”). The Treaty will impose new disclosure requirements on patent applicants to disclose the country of origin or source of genetic resources used in a claimed invention. Further, where applications are based on traditional knowledge associated with said genetic resources, such as from Indigenous Peoples or local communities, those sources must be disclosed too. Our previous discussion of the Treaty can be found here.
As of writing this, 38 WIPO member states are signatories to the Treaty, and on December 5, Malawi became the first ratifying nation. Once fourteen more member states follow suit, the Treaty will take effect.
The United States has yet to sign the Treaty but did previously seek public commentary on the issues of genetic resources and associated traditional knowledge, including on a draft version of the text. Now six months since the passage of the Treaty, the United States Patent and Trademark Office (USPTO) has taken its first steps in addressing it.
On January 17, the USPTO issued two notices on the Federal Register (the “Notices”), the first of which is a request for comments and notice of hearing, and the second of which is a notice of tribal consultation and request for written comments. The input sought by the USPTO in each is largely similar, mainly (1) should the United States sign and become a party to the Treaty, (2) is the Treaty consistent or inconsistent with existing U.S. patent law, tribal law, and international obligations, and (3) what are the impacts of implementing – or not implementing – the Treaty on US and tribal innovation and economies.
Per the Notices, the Treaty is open for signature until May 23, 2024 (12 months after adoption). Should the United States sign and then ratify the Treaty, it will enter into force three months after ratification by fifteen member states.
For those interested, written comments for the must be submitted by March 18 and April 28, 2025 for the first and second notices, respectively. Webinars for various tribal communities will occur on March 18-19 (Tribal Nations), March 27 (Native Hawaiian Communities and Pacific Islanders), and March 28, 2025 (State and non-recognized Tribes and Tribal organizations). The final hearing on all comments will then take place on April 29, 2025.
USPTO Announces New Effort to Promote AI and Emerging Technologies
The U.S. Patent and Trademark Office (USPTO) recently announced an official Artificial Intelligence Strategy that outlines how the Office plans to address the promise and challenges of artificial intelligence (AI) in its internal operations as well as in the development of intellectual property (IP) policy. According to information provided in the newly released document, annual filings of AI-related patent applications have increased more than two-fold since 2002 and are up 33% since 2018. Additionally, AI has permeated a wide range of technology sectors with AI-related patent applications appearing in 60% of all the technology subclasses used by the USPTO in 2023.
The initiative outlined in the AI Strategy document seeks to support responsible and inclusive AI innovation, implement AI in furtherance of the USPTO’s mission, and maintain the U.S.’s competitive edge in global innovation. At the same time, USPTO officials say the new AI Strategy mitigates risks and fosters responsible use of artificial intelligence.
Specifically, the AI Strategy document provides a roadmap designed to enhance the agency’s efforts in promoting AI innovation within its operations and the broader intellectual property sector, through five key focus areas:
(1) Advance the development of IP policies that promote inclusive AI innovation and creativity. (2) Build best-in-class AI capabilities by investing in computational infrastructure, data resources, and business-driven product development.(3) Promote the responsible use of AI within the USPTO and across the broader innovation ecosystem. (4) Develop AI expertise within the USPTO’s workforce.(5) Collaborate with other U.S. government agencies, international partners, and the public on shared AI priorities.
With respect to the first focus area, the Strategy document states that:
“As appropriate, the USPTO will advocate for the development of balanced and sound judicial precedents and legislation that promote both AI innovation and respect for IP rights, while not unnecessarily constraining future AI innovation. For example, the USPTO would advocate for judicial positions, consistent with existing legal precedent, that would encourage innovation with respect to issues including AI-generated prior art and AI-assisted inventions.”
The USPTO Strategy document also notes that the rapid advancement of AI technologies could not only impact patent-related policy, including inventorship, subject-matter eligibility, obviousness, enablement, and written description, but also affect “the volume and character of submitted applications.” Some of these topics, as noted below, have been addressed via guidance released by the USPTO this past year.
AI has the potential to not only transform the tools used by Examiners to examine patent applications, but also to redefine the inventive process itself as well as the framework by which inventions are evaluated. For patent holders and attorneys, the release of this strategy signals the USPTO’s commitment to fostering an ecosystem where AI advancements can thrive responsibly, driving innovation and protecting intellectual property.
This announcement caps an active 12-month period for the Office with respect to AI policy and guidance. On February 13, 2024, the Office published inventorship guidance for AI-assisted inventions followed by updated patent eligibility guidance for AI inventions on July 17, 2024. The release of the USPTO’s official AI Strategy plan, along with the prior guidance, is responsive to and in alignment with the Biden-Harris Administration’s October 2023 Executive Order 14110 on the safe and secure development and use of AI. Given that the AI Strategy plan was released during the final week of the Biden-Harris Administration, the degree to which it is implemented will depend on the Trump-Vance Administration. Expect further notices and guidance regarding these topics as this transition occurs.
Federal Circuit Says Proper Orange Book-Listed Patent Must Claim Active Ingredient
In Teva Branded Pharmaceutical Products R&D, Inc. v. Amneal Pharmaceuticals of New York, LLC, the Federal Circuit jumped on the bandwagon of scrutinizing the types of patents that can be listed in the Food & Drug Administration (FDA) Orange Book (Approved Drug Products with Therapeutic Equivalence Evaluations), and decided that the “device” patents at issue were not properly listable. The decision follows recent action in this space by the Federal Trade Commission (FTC), including a general policy statement issued in late 2023, and challenges to more than 100 specific patent listings related to inhaler devices, multidose eyedrop bottles, and autoinjectors.
The Patents at Issue
The patents at issue were five patents Teva had listed in the Orange Book for its ProAir® HFA (albuterol sulfate) Inhalation Aerosol. The patents are described in the Federal Circuit opinion as relating to “improvements in the device parts of inhalers—specifically, the dose counter.” According to the Federal Circuit opinion, “None of the claims … explicitly require the presence of an active drug” as an element of the claimed product.
The ANDA Proceedings and Delisting Counterclaim
Amneal filed an Abbreviated New Drug Application (ANDA) seeking approval for a generic version of Teva’s ProAir® HFA product. Amneal’s ANDA included a paragraph IV certification against the Orange Book-listed patents at issue. After Teva sued for infringement, Amneal filed a counterclaim seeking delisting of the patents at issue. The district court agreed that the patents should not be listed in the Orange Book, but its delisting order was stayed pending Teva’s appeal to the Federal Circuit.
The Federal Circuit Opinion
The Federal Circuit opinion was authored by Judge Prost and joined by Judges Taranto and Hughes.
The Federal Circuit opinion includes a lengthy background section that touches on the origins of the Hatch-Waxman Act, basic principles of the ANDA framework, and statutory and regulatory provisions governing the listing of patents in the Orange Book. For those not familiar with Orange Book listings, it is important to understand that New Drug Application (NDA) holders are required to list certain patents in the Orange Book, but the FDA does not substantively review whether a patent submitted for listing meets the statutory and regulatory listing requirements. In effect, the listing process operates on an honor system, although ANDA filers can challenge Orange Book listings in a counterclaim in paragraph IV litigation as Amneal did here.
Prior to 2021, NDA holders were required to list “any patent which claims the drug for which the applicant submitted the application or which claims a method of using such drug and with respect to which a claim of patent infringement could reasonably be asserted if a person not licensed by the owner engaged in the manufacture, use, or sale of the drug.” In 2021, the Orange Book Transparency Act (OBTA) was enacted to clarify the types of patents that could be listed and codify existing FDA guidance. As amended by the OBTA, an NDA holder must list:
… each patent for which a claim of patent infringement could reasonably be asserted if a person not licensed by the owner of the patent engaged in the manufacture, use, or sale of the drug, and that—
(I) claims the drug for which the applicant submitted the application and is a drug substance (active ingredient) patent or a drug product (formulation or composition) patent; or
(II) claims a method of using such drug for which approval is sought or has been granted in the application.
The Federal Circuit opinion walks through a lengthy analysis to conclude that the patents at issue are not listable because they do not “claim[] the drug for which the applicant submitted the application,” which the court determined was the active ingredient (albuterol sulfate). At the end of its opinion, the court acknowledges but does not “adopt or reject” Amneal’s additional arguments that the patents are not listable because they are not “drug substance” or “drug product” patents under the OBTA.
The Federal Circuit rejected Teva’s arguments that a patent “claims the drug” if the NDA product infringes the claims, explaining in a nine-page analysis that “claiming” and “infringing” have distinct meanings. The court also rejected Teva’s arguments that a patent “claims the drug” if it claims any part of the NDA product, concluding after an eight-page analysis that just because a drug-device combination product was “approved with an NDA” does not mean every part of the product is a “drug.” Rather, according to the Federal Circuit, for drug-device combination products, “the drug for which the application was submitted and approved” is only “the part of the drug-device combination that made it regulatable as a drug in the first place,” i.e., “the active ingredient.”
Using the Definiteness Requirement as a Touchstone For Listability
The definiteness requirement of 35 USC § 112 requires the claims of a patent to “particularly point[] out and distinctly claim[] the subject matter which the inventor … regards as the invention.” Throughout its analysis, the Federal Circuit opinion invokes this definiteness requirement when interpreting the Orange Book listing requirement that the patent “claims the drug for which the applicant submitted the application.” For example, the court emphasizes:
[A] patent claims the drug when it particularly points out and distinctly claims the drug as the invention.
In rejecting Teva’s arguments that the patents would be listable if its claims were construed as requiring the presence of “an active drug,” the court reasoned:
[T]o claim something, a patent must particularly point out and distinctly claim what it purports to be the invention. See 35 U.S.C. § 112(b). And to qualify for listing, a patent must claim at least the active ingredient in the application and the approved drug product. …
In language that may open the door to Orange Book-listing scrutiny of generic claims, the court stated:
A claim requiring the presence of “an active drug” is far too broad to particularly point out and distinctly claim the drug approved in Teva’s NDA. Teva’s construction permits the presence of any active ingredient in any form. As a matter of law, Teva’s construction does not particularly point out and distinctly claim what was approved—the ProAir® HFA with albuterol sulfate as the active ingredient.
Taking Care With Orange Book Listings
In its policy statement, the FTC characterized improper Orange Book listings as potentially anti-competitive behavior, and “put market participants on notice that the FTC intends to scrutinize improper Orange Book listings to determine whether these constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act.” As noted in the Federal Circuit opinion, Amneal also filed antitrust counterclaims, alleging that the improper listings delayed FDA approval of its generic product. Thus, even though Judge Prost opined that “[t]he attractiveness of the thirty-month stay might arguably provide an NDA holder significant incentives to improperly list patents in the Orange Book,” there are good reasons for taking care with Orange Book Listings.
China’s Huawei is #5 in U.S. Patent Grants in 2024, Up 44%
According to a recently released list of the top patentees in 2024 from Harrity LLP, Samsung and LG were the top two patentees in 2024 in the U.S with 9,304 and 5,156 U.S. patents respectively. The top mainland China patentee was Huawei at #5 with 3,285 U.S. patent, up 44% from 2023. Other top Chinese patentees include BOE Technologies at #14 with 1,993 patents, up 18%.; TCL Corp at #30 with 1,132 patents, and Tencent with 1,109 patents. The top 10 mainland Chinese patentees saw significant growth year-on-year with almost all showing double or triple digit growth.
Top 10 U.S. Patentees
Rank
Organization
2024 U.S. Patents
YoY Change
1
SAMSUNG ELECTRONICS CO., LTD.
9304
3%
2
LG CORPORATION
5156
25%
3
TAIWAN SEMICONDUCTOR MFG. CO. LTD.
4010
8%
4
QUALCOMM
3489
-10%
5
HUAWEI TECHNOLOGIES CO., LTD.
3285
44%
6
APPLE INC.
3115
22%
7
INTERNATIONAL BUSINESS MACHINES CORPORATION
2774
-30%
8
ALPHABET INC.
2698
6%
9
CANON K.K.
2654
-17%
10
TOYOTA JIDOSHA K.K.
2428
-10%
Top 10 U.S. Patentees from Mainland China
Rank
Organization
2024 U.S. Patents
YoY Change
5
HUAWEI TECHNOLOGIES CO., LTD.
3285
44%
14
BOE TECHNOLOGY GROUP CO., LTD.
1993
18%
30
TCL CORPORATION
1132
119%
34
TENCENT HOLDINGS LTD
1109
58%
52
RUILI INTEGRATED CIRCUIT CO., LTD
732
196%
59
OPPO MOBILE TELECOMMUNICATIONS CORPORATION
675
30%
67
ZTE CORPORATION
634
80%
74
LENOVO GROUP LIMITED
586
10%
92
XIAOMI INC.
502
9%
93
CONTEMPORARY AMPEREX TECHNOLOGY CO. LIMITED
484
82%
China’s National Intellectual Property Administration Launches Belt and Road Patent Accelerated Examination Pilot Program
On January 17, 2025, China’s National Intellectual Property Administration (CNIPA) released the “Guidelines for the Belt and Road Accelerated Examination Pilot Program” (“一带一路”专利加快审查试点项目指南), effective January 20, 2025. The Belt and Road initiative is a global infrastructure program launched by China to invest in land and sea corridors to connect China to the world. The Pilot Program, which is somewhat analogous to the Patent Prosecution Highway (PPH), allows for accelerated patent examination in China when a Belt and Road country’s patent office indicates at least one claim in corresponding family member is allowable.
While the Pilot Program envisions including all Belt and Road countries (perhaps including more than 150 countries that signed a Memorandum of Understanding with China per Fudan University), it appears that Türkiye may be the only participating country at this time.
The period of the Pilot Program will commence on January 20, 2025 and end on January 19, 2027. Under the Pilot Program, the total number of applications to be accepted by CNIPA will be limited to 1000 per year, the maximum number of applications from each participating office will be limited to 100 per year. After the expiration of this two-year period, an evaluation will be conducted to determine whether the pilot program should be extended.
Requirements to participate include:
(a) The CNIPA application shall have at least one corresponding application in the participating office, which has determined that one or more claims of the corresponding application is/are patentable/allowable.
(b) All claims in the CNIPA application must sufficiently correspond to one or more of those claims determined to be patentable/allowable in the corresponding application.
(c) The CNIPA application must have been published.
(d) The CNIPA application must have entered into substantive examination stage. Note that as an exception, the applicant may file a request for accelerated examination simultaneously with the Request for Substantive Examination.
(e) The CNIPA has not begun examination of the application at the time of filing the request for accelerated examination.
(f) The CNIPA application must be electronic patent application.
More information can be found here (Chinese and English).
The Loper Loophole: Will Loper Bright Chip Away at Federal Circuit Rule 36 Summary Affirmances?
Criticism of the U.S. Court of Appeals for the Federal Circuit’s practice of issuing summary affirmances without written opinions in federal appeals and, in particular, Patent Trial and Appeal Board (PTAB) decisions, under Federal Circuit Rule 36 has reached a fever pitch. Recent briefs to the U.S. Supreme Court and rehearing petitions to the Federal Circuit advocate for change. Does the U.S. Supreme Court’s momentous 2024 decision casting aside the Chevron doctrine in Loper Bright Enterprises v. Raimondo now offer a path for PTAB appellants to circumvent Rule 36 altogether?
Rule 36 of the Federal Circuit’s Rules of Appellate Procedure permits the court to affirm on appeal without an opinion when the court determines that one of five criteria are met. The Federal Circuit has explained that a summary affirmance neither rejects nor endorses the underlying reasoning from the tribunal below, and therefore does not carry precedential weight. Nevertheless, a Rule 36 affirmance constitutes a final judgment for the litigants before the court and may be relied on for purposes of claim preclusion, issue preclusion, judicial estoppel, and law of the case.
The scrutiny of Rule 36 affirmances has been especially acute in connection with recent PTAB decisions. For example, amicus briefs were filed over the past few months in support of a petition submitted by patent holder ParkerVision, Inc., which contrasted the comments of former Federal Circuit judges conveying that the court should provide an opinion in every case, with the reality that the Federal Circuit issued Rule 36 summary affirmances in 43 percent of PTAB appeals between 2011 and 2024. This practice, ParkerVision urged, runs afoul of the requirement of 35 U.S.C. § 144 that a court provide the reason for its decision.
But the Loper Bright decision, which overturned the Chevron doctrine requiring courts to defer to agency interpretation of statutes, may sometimes require the Federal Circuit to exercise “independent judgment in determining the meaning of a statutory provision.”
In Loper Bright, the Supreme Court held that when confronted with a statutory ambiguity, a court must not defer to an agency’s interpretation but instead should do its “ordinary job of interpreting statutes, with due respect for the views of the Executive Branch.” While prior PTAB appeals to the Federal Circuit would have been affirmed when the court agreed that the agency’s interpretation of an ambiguous statute was reasonable, such deference is no longer permitted. Framing a PTAB appeal through the lens of a “statutory ambiguity” may increase the likelihood that the Federal Circuit will be unable to rubber-stamp the statutory interpretation and associated findings of the PTAB using Rule 36.
In October 2024, appellant-patent owner Converter Manufacturing made this very argument when it petitioned the Federal Circuit to rehear its appeal en banc after receiving a Rule 36 affirmance of an adverse PTAB decision in Converter Manufacturing, LLC v. Tekni-Plex, Inc. Converter Manufacturing claimed the Supreme Court’s decision in Loper Bright barred the Federal Circuit from deferring to the U.S. Patent and Trademark Office’s (USPTO) interpretation of patent law under 35 U.S.C. §§ 102 and 103, and argued that the Federal Circuit panel had substituted the USPTO’s interpretation for its own by issuing the summary affirmance.
Although the petition was ultimately denied, it raises new questions about the limits of Federal Circuit affirmances under Rule 36 in light of Loper Bright. Perhaps the Supreme Court’s shift away from deference offers a new opportunity for appellants to position their appeal to avoid the dreaded two-word decision: “summarily affirmed.”
Department of Education Warns NCAA Schools That NIL Deals May Implicate Title IX Obligations
The U.S. Department of Education warned National Collegiate Athletic Association (NCAA) schools that payments to athletes for the use of their names, images, and likenesses (NIL) implicate the gender equal opportunity requirements of Title IX of the Education Amendments, even if from outside sources.
Quick Hits
The U.S. Department of Education released a fact sheet that provides guidance on educational institutions’ Title IX obligations with NIL compensation for college athletes.
The guidance confirms the Department of Education’s view that NIL compensation from schools constitutes “athletic financial assistance” covered by Title IX’s equal opportunity requirements.
The guidance comes amid a changing landscape in college sports with NIL compensation and the prospect of potential revenue-sharing between schools and college athletes.
On January 16, 2024, the Department of Education’s Office for Civil Rights (OCR) released a nine-page fact sheet, titled, “Ensuring Equal Opportunity Based on Sex in School Athletic Programs in the Context of Name, Image, and Likeness (NIL) Activities,” providing long-awaited guidance on schools’ obligations with respect to Title IX in the context of NIL.
The fact sheet confirms that the department views NIL compensation provided by a school as “athletic financial assistance,” which Title IX requires to be distributed in a nondiscriminatory manner under Title IX.
The guidance comes years after the NCAA lifted restrictions on college athletes’ ability to earn compensation for their NIL. This has led to the formation of so-called NIL collectives, organizations typically comprised of boosters, fans, alumni, and businesses, to facilitate NIL deals for athletes.
Further, the NCAA and major conferences have reached a proposed settlement in litigation that will pay nearly $2.8 billion in back pay to former athletes over the next ten years and establish a revenue-sharing framework in which schools will be allowed to share more than $20 million annually with their athletes.
Title IX regulations require schools to provide equal athletic opportunity, regardless of sex, including with “athletic financial assistance” that schools award to college athletes.
According to the OCR fact sheet, the Department of Education “does not view compensation provided by a third party (rather than a school) to a student-athlete for the use of their NIL as constituting athletic financial assistance awarded by the school.” However, the fact sheet warns that the OCR has “long recognized that a school has Title IX obligations when funding from private sources, including private donations and funds raised by booster clubs, creates disparities based on sex in a school’s athletic program or a program component.”
“The fact that funds are provided by a private source does not relieve a school of its responsibility to treat all of its student-athletes in a nondiscriminatory manner,” the Department of Education said in the fact sheet. “It is possible that NIL agreements between student-athletes and third parties will create similar disparities and therefore trigger a school’s Title IX obligations.”
The department noted the variety and evolving nature of NIL agreements in college athletics and specified that the application of Title IX “is a fact-specific inquiry.” Further, and in recognition of the continued evolution of college athletics, the department noted that “Title IX regulations assume that the receipt of financial assistance does not transform students, including student-athletes, into employees,” and the fact sheet, thus, operates under the same assumption. The Department of Education stated that it would “reevaluate” this position should the legal landscape around that issue change.
Next Steps
The fact sheet comes just days before the presidential administration changeover, which is anticipated to impact the federal government’s response to NIL pay and make systemic changes to college sports, including regarding the question of employee status. Still, the fact sheet indicates that schools may face risks under Title IX with the distribution of NIL compensation even if third parties are providing that money.
Make Protecting Your UK and EU Product Packaging and Labels Your New Year’s IP Resolution. Part 1: Protect Unique Packaging in the EU
New developments in Europe make a filing strategy for registered designs and trade marks even more essential for the modern consumer business. Read on to find out more.
On 19 December 2024, the EU’s new Packaging Regulation was signed and will come into force 18 months after the date of publication, still to be announced. This repeals the old packaging directive and makes significant changes to the regime. These changes include introducing stringent requirements on sustainability, recyclability and limiting single-use plastics for products sold in the EU. However, the regulation will also provide certainty for brands as the regulation will harmonise the rules across all EU member states, which will stop brands having to contend with varying, sometimes conflicting, packaging rules in different markets.
Packaging Minimisation in the EU
This new regulation will have a large effect on many industries including fast moving consumer goods, cosmetics and fashion, but we want to draw your attention to one new requirement in particular, the requirement for packaging minimisation (Article 10). This requires packaging to be designed so as to minimise its volume and weight, and to enable recyclability.
There will therefore be a ban on “superfluous” packaging such as double walls and false bottoms, but also packaging that is not necessary for “packaging function”. Together these could limit a brand’s ability to use inventive and creative packaging to stand out in the market. For instance, a product packaging in an unusual shape that is not strictly necessary to its function could be banned.
There is a (somewhat limited) exception to this rule for packaging that is protected under EU or national design or trademark laws or applicable international agreements. This exception applies provided that packaging changes would affect “the shape of the packaging in such a way that the trademark can no longer distinguish the trademarked good from goods of another undertaking, and the design can no longer keep its new and individual characteristics”. Importantly, UK designs and trademarks will not count, and companies will need EU-based registrations to qualify for this exception.
However, the exception only applies to trademark and design rights protected before the date of entry into force of the new regulation. This means that the clock will start to tick very shortly with an 18-month window to ensure designs and trademarks are properly filed.
Key Takeaways for Brands
The key takeaways are:
Review trade mark and design portfolios to check protection status today;
File trade marks for any hero products and packaging to protect their shape, look and feel (multiple marks may be necessary depending on the complexity of the packaging); and
File registered designs for new products as soon as possible.
Look out for Part 2 of this series on combating product imitations (known as ‘dupes’) in the UK, coming soon.
Ceramtec GMBH v. Coorstek Biocermanics LLC
This case examines the application of trademark functionality doctrine in the medical device industry, specifically addressing whether the pink color of ceramic hip components can be protected as a trademark. The case provides important guidance on how courts evaluate functionality claims and the intersection between patent and trademark protection for product features.
Background
Ceramtec manufactures artificial hip components using zirconia-toughened alumina (“ZTA”) ceramic material containing chromium oxide (chromia). The chromia gives their products, marketed under the name “Biolox Delta,” a distinctive pink color. Prior to seeking trademark protection, Ceramtec held U.S. Patent 5,830,816 covering their ceramic composition, which expired in January 2013.
In January 2012, Ceramtec applied for two trademarks claiming protection for the color pink used in ceramic hip components. The marks were registered on the Supplemental Register in April 2013, covering both a “hip joint ball” and an “acetabular shell or fossa.”
Coorstek, a competitor in the medical implant market, manufactures two different ZTA ceramic materials: CeraSurf-p, which contains chromia and is pink, and CeraSurf-w, which does not contain chromia and is white. On March 3, 2014, Coorstek filed both a lawsuit in the District of Colorado and a cancellation petition with the Trademark Trial and Appeal Board (TTAB), arguing that the pink color was functional and therefore ineligible for trademark protection.
The TTAB ruled in favor of Coorstek, finding that the pink color was functional and cancelling Ceramtec’s trademark registrations. The Board based its decision on evidence from Ceramtec’s expired patent and their technical publications showing that chromia provided material benefits to the ceramic components. Ceramtec appealed this decision to the Federal Circuit, challenging both the Board’s functionality finding and its handling of the unclean hands defense.
Issue(s)
Whether the pink color of Ceramtec’s ceramic hip components is functional and thus ineligible for trademark protection.
Holding
The Federal Circuit affirmed the TTAB’s decision canceling Ceramtec’s trademarks, finding that the pink color was functional and therefore not eligible for trademark protection.
Reasoning
The Federal Circuit’s analysis centered on the Morton-Norwich factors, a four-part test established in In re Morton-Norwich Products, Inc. that courts use to determine whether a product feature is functional. These factors examine: (1) the existence of a utility patent disclosing the utilitarian advantages of the design; (2) advertising materials in which the originator of the design touts its utilitarian advantages; (3) the availability to competitors of functionally equivalent designs; and (4) facts indicating the design results in a comparatively simple or cheap method of manufacturing.
Applying these factors to Ceramtec’s case:
The court found that Ceramtec’s expired patent disclosing the use of chromia in ZTA ceramics provided strong evidence that the pink color was functional, as it resulted from a feature that provided material benefits.
The court considered Ceramtec’s advertising materials and public communications, which disclosed that chromia provides material benefits to the ZTA ceramics, further supporting functionality.
Regarding the availability to competitors, the court found no evidence that alternative designs would work as well, making this factor neutral in the analysis.
The court determined that evidence about manufacturing costs and methods was inconclusive and treated this factor as neutral.
Particularly significant was the relationship between Ceramtec’s expired patent and their trademark claims. The court emphasized that features previously protected by a patent cannot later be protected through trademark law if they are functional, as this would effectively extend patent protection indefinitely.
The court also rejected Ceramtec’s argument that the Board improperly applied the “unclean hands” doctrine, finding that the Board properly considered the public interest in removing registrations for functional marks from the trademark register.
Through this decision, the Federal Circuit reinforced the principle that functional product features, even if they create a distinctive appearance, cannot be protected as trademarks when they serve a utilitarian purpose essential to the product’s use or manufacture.
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Tickled Pink No More
Federal Circuit Affirms Cancellation of CeramTec’s Trademarks for Pink Ceramic Hip Implants
January 16, 2025
Color trademarks have traditionally been difficult to obtain. Of the over 4 million trademark registrations, there were less than 1000 color trademarks as of 2019.[1] To be eligible for trademark registration, a color must have acquired distinctiveness and must not be functional. Recently, the Federal Circuit examined the functional component of the analysis and explained why it presents such a hurdle to registration—particularly when a party also obtains patent protection.
On January 3, 2025, the U.S. Court of Appeals for the Federal Circuit upheld the Trademark Trial and Appeal Board (TTAB) decision canceling trademarks claiming protection for the pink color of ceramic hip components.
CeramTec, a manufacturer of ceramic components for artificial hip implants, developed zirconia toughened alumina (ZTA) containing chromia, which imparts pink color and increased hardness. This material was protected under CeramTec’s U.S. Patent No. 5,830,816, which expired in January 2013. In 2012, CeramTec sought trademark protection for the pink color of its ceramic components. CoorsTek, a competitor, successfully petitioned the TTAB to cancel the trademarks, arguing that the pink color was functional.
On appeal, the Federal Circuit affirmed the TTAB decision, emphasizing that trademarks are not registrable or enforceable if the design is functional. The court analyzed the TTAB’s application of the Morton–Norwich factors to determine functionality:
the existence of a utility patent disclosing the utilitarian advantages of the design;
advertising materials in which the originator of the design touts the design’s utilitarian advantages;
the availability to competitors of functionally equivalent designs; and
facts indicating that the design results in a comparatively simple or cheap method of manufacturing the product.
CeramTec GmbH v. Coorstek Bioceramics LLC, No. 2023-1502, 2025 WL 29252 (Fed. Cir. Jan. 3, 2025).
The court also considered TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23 (2001), which establishes that utility patents are strong evidence of functionality. The Federal Circuit noted that the functionality doctrine ensures the public is free to use innovations after a patent expires.
Based on these findings, the court affirmed that CeramTec’s pink trademarks are functional and therefore ineligible for protection.
If you have any questions about the impact of these changes, please contact your Miller Canfield attorney or the authors of this alert.
[1] Wang, Xiaoren, Should We Worry about Color Depletion? An Empirical Study of USPTO Single-color Trademark Registrations (January 18, 2022). Available at SSRN: https://ssrn.com/abstract=4011677 or http://dx.doi.org/10.2139/ssrn.4011677