State of Texas adopts the Texas Uniform Trade Secret Act

by Jayme Partridge, Brett McKean and Paul Dyson

On May 2, 2013, Texas adopted the Texas Uniform Trade Secret Act (“TUTSA”). The TUTSA takes effect on September 1, 2013, and applies to the misappropriation of trade secrets occurring on or after that date. The law provides trade secret owners more certainty about what information is a trade secret and how to protect that information. Prior to the TUTSA, Texas trade secret law was based solely on an amorphous common law. While the TUTSA in large part codifies Texas’ common law, several notable changes should provide additional protection and certainty for trade secret owners.

Attorneys’ Fees.

Perhaps the most important change from the common law is that a prevailing party may now recover attorneys’ fees in certain cases. Prior to the TUTSA, there was no basis for recovery of attorneys’ fees in Texas for the misappropriation of trade secrets unless it was based upon a separate cause of action such as breach of a confidentiality agreement or violation of the Texas Theft Liability Act. The TUTSA allows for the recovery of attorneys' fees in certain cases, including bad faith claims and for willful and malicious misappropriation. The possibility of attorneys’ fees for the prevailing party may make it more practical for a trade secret owner to seek an injunction, often the most powerful and effective way for a trade secret owner to protect its information.

“Trade Secret” Defined.

The TUTSA also provides a slightly different definition of trade secret. Prior to the TUTSA, Texas common law defined a trade secret as “any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.” See, e.g., Computer Associates Int’l v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996). The TUTSA clarifies the common law definition of trade secrets, as well as expands the uniform act’s definition, by expressly including “financial data” and customer lists as trade secrets. Prior to the TUTSA, Texas courts did not necessarily exclude these types of information, but rather evaluated them on a case-by-case basis. Beyond the types of information that may be considered a trade secret, the TUTSA continues the common law requirement that a trade secret “derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons” and be the “subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Reverse Engineering.

The TUTSA also maintains the common law view that reverse engineering is “proper” so long as the product was “acquired lawfully or from a person having the legal right to convey it.”

Stronger Injunctive Relief Under the TUTSA.

Courts may enjoin any actual or threatened misappropriation, which was previously allowed under the common law. However, the TUTSA offers substantial additional protection by empowering courts in “appropriate circumstances” to compel “affirmative acts to protect a trade secret,” as opposed to simply preserving the status quo under common law. Moreover, under the common law, an injunction terminated when the trade secret ceased to exist, but the TUTSA provides that an injunction may be “continued for an additional reasonable period of time to eliminate a commercial advantage that otherwise would be derived from the misappropriation.”

Inevitable Disclosure Revisited?

Finally, although not expressly addressed in the TUTSA, it will be interesting to see if Texas courts will revisit the “inevitable disclosure” doctrine, which was rejected under the common law.

---

This article was prepared by Jayme Partridge (jpartridge@fulbright.com or 713 651 5438), Brett McKean (bmckean@fulbright.com or 713 651 5417) and Paul Dyson (pdyson@fulbright.com or 713 651 5391) from Fulbright’s Intellectual Property Practice.

Fulbright’s Intellectual Property Practice
Ranked by industry leaders as one of the leading intellectual property firms, Fulbright's Intellectual Property Practice focuses on providing comprehensive, multi-disciplinary intellectual property services designed to help clients obtain the greatest business advantages in the following areas: Patents, Trademarks, Copyrights, Trade Secrets and IP Transactions. To learn more about our Intellectual Property practice, please go to www.fulbright.com/ip.

Fulbright’s Employment and Labor Practice
Our employment and labor team has a strong class action team which assists clients in its efforts to avoid litigation. By drawing on knowledge gained across a broad spectrum of clients and industries, we are able to act as an advocate to the clients it represents. Chances are that we have dealt with the issues facing your company. Our lawyers have the perspective of the end result, are focused on your objective, and can advise your company of the best path or action to take moving forward or before facing litigation. To learn more about our Employment and Labor practice, please go to www.fulbright.com/labor. In June 2013, Norton Rose and Fulbright & Jaworski L.L.P. will join forces, offering significant depth of experience across the US, Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.

Are infringements of IP rights on the horizon with the advent of 3D printers?

by Sue Ross

When web sites first started to proliferate, owners of intellectual property like music, photos, films, and other visual arts became concerned with the ease of copying their IP. A similar situation is starting to arise for patent, copyright, and trademark owners with the advent of three-dimensional printing (“3D printing”).

For those who think 3D printing is something for holiday cards, that’s correct, but the technology has expanded far beyond that realm. Users have made toys, lamps, chairs, individualized masks for burn victims, and thousands of other objects – including guns.[1] See Network World Slide Show of 3D objects; see also Network World Mar. 21, 2013 Article on 3D guns.

The 3D printing process works by printing layer upon layer of plastic, according to a design that the printer follows. The design can either reside in a library maintained by the printer manufacturer or can be a design that the user creates. Currently, one of the manufacturers with a large market share, MakerBot, offers a desktop 3D printer with a build space approximately the size of a loaf of bread (410 cubic inches).

Research firm Gartner, Inc. found that 3D printing “is already established in industries ranging from automotive manufacturing to consumer goods to the military, as well as the medical and pharmaceutical industries.” See Gartner Press Mar. 26, 2013 Release. In addition, Gartner estimates that “enterprise-class” 3D printers will be available for less than $3,000 by 2016.

Biomedical companies are reportedly using 3D printers for such diverse objects as personalized hearing aids to dental restorations to orthodontic braces. See Smithsonian Magazine May 2013 Article. In fact, in March 2013, following FDA review, a medical patient had 75% of his skull replaced with a plastic implant created with 3D printing. Id. The ability to print skin, tissue and organs could affect health care by decreasing the risk of rejection of transplanted organs, eliminating organ traffickers, and assisting prescription drug companies in testing new drugs on the created organs or tissue. Id.

There have not yet been any cases involving copyright or trademark claims against 3D printing [2], but brand owners may wish to consider adding – even if they are not legally required – proprietary rights notices on their goods. Although they may not be required, proprietary rights notices can serve as a warning to users that replicas may not be authorized. In addition, brand owners may wish to review the design libraries that the 3D printer manufacturers or others may make available on web sites, and, with respect to goods covered by a registered copyright, consider a DMCA “takedown” notice for those designs that potentially infringe the owner’s copyright.

Sources: Michael Cooney, “Wicked Cool 3D Printer Creations,” NetworkWorld, Mar. 8, 2013; Gartner Inc. Press Release, “Gartner Says Early Adopters of 3D Printing Technology Could Gain an Innovation Advantage Over Rivals,” Mar. 26, 2013; Elizabeth Royte, “What Lies Ahead for 3-D Printing?,” Smithsonian , May 2013; Ritani, LLC vs. Harout Aghjayan, et al., Case No. 11-civ-8928 (S.D. N.Y.); Forbes; Defense Distributed.

---

This article was prepared by Sue Ross (sross@fulbright.com / 212 318 3280) of Privacy, Competition and Data Protection Practice.

[1] “Defense Distributed, the pro-gun nonprofit working to make 3D-printable gun designs freely available to everyone on the Internet, recently inched one step closer toward achieving that goal. The Austin, Texas-based group was recently granted a federal firearms license from the federal Bureau of Alcohol, Tobacco, Firearms and Explosives.” Zach Miners, “Would a 3D Printed Gun Really Be Legal,” NetworkWorld, March 21, 2013. The pro-gun nonprofit’s site has been taken down following a letter from the State Department raising questions about compliance with the International Traffic in Arms Regulations (ITARs). Andy Greenberg, ”State Department Demands Takedown Of 3D-Printable Gun Files For Possible Export Control Violations,” Forbes, May 9, 2013.

[2] A plaintiff that designed and manufactures high-end jewelry alleged that one defendant used a 3D printer to create a wax model of jewelry that plaintiff protected with both copyright and trademark registrations, in a complex case involving multiple claims, including infringement, false advertising, breach of contract, and breach of fiduciary duty. See Ritani, LLC v. Aghjayan, 880 F. Supp. 2d 425 (S.D.N.Y. 2012).

"Humane” producers of foie gras unable to duck false advertising claims

by Kathy Grant and Saul Perloff

Last month, the United States District Court for the Northern District of California refused to dismiss federal Lanham Act claims, as well as claims based on California’s unfair-competition and false-advertising laws, against Hudson Valley Foie Gras (“HVFG”), a New York producer of foie gras and other duck products. See Apr. 12, 2013 Order.

Foie gras is produced from the livers of specially fattened ducks or geese. The delicacy is typically made by force-feeding the water fowl through a “gavage” (a long feeding tube) causing their livers to become greatly enlarged. In 2004, California enacted a law banning force-feeding of birds for the purpose of producing an enlarged liver, as well as banning the sale in California of any products resulting from force-feeding. Cal. Health & Safety Code § 225980. This law does not, however, prohibit out-of-state foie gras producers from marketing and shipping their products to California.

HVFG is the largest producer of foie gras in the United States. On its website and its Facebook page, HVFG markets its foie gras as “The Humane Choice.” Like other producers, HVFG apparently feeds its ducks with a gavage. The “humane” slogan is based on the cage-free environment in which HVFG ducks are raised and the company’s claim that its “trained caretakers spend four times as much caring [sic] for each animal as is the case in other foie gras farms.”

On November 13, 2012 the Animal Legal Defense Fund and Regal Vegan filed suit against HVFG alleging that the “humane choice” slogan is false and misleading. Regal Vegan – which produces a non-meat, spreadable product it calls “Faux Gras” – also claimed the allegedly deceptive slogan harms sales of Faux Gras. See Complaint.

HVFG moved to dismiss these claims arguing that Regal Vegan lacked standing to bring a Lanham Act claim because it was not a direct competitor in the foie gras market. Order at 9. The Court disregarded this argument, noting that a plaintiff need not be a direct competitor of the defendant to have Lanham Act Standing. Id. at 10. The Court held: “When one product is marketed to compete with another product whose advertisements may mislead consumers, then the first product’s maker may be harmed” and standing will be conferred. Id. The Court noted that in this case, the market for which the parties competed could be described as “spreadable pâtés for consumers interested in animal welfare.” Id. Accepting as true the allegation that HVFG’s ducks were not treated humanely, the Court concluded Regal Vegan had plead facts sufficient to provide Lanham Act Standing. Id.

HVFG also argued that its “humane choice” slogan was not actionable because it was not a “specific and measurable claim, capable of being proved false or of being reasonably interpreted as a statement of objective fact.” Id. Instead, HVFG characterized its slogan as a statement of opinion, i.e., puffery. Id.

The Court rejected this argument as well. While acknowledging that the “meaning and import of the word ‘humane’ are hard to pin down,” the Court noted that Congress had previously defined “humane” twice, both times in reference to the killing of animals. Id. at 11. Although neither definition was applicable in the present case, the Court found that both definitions had a theme of “pain,” i.e., that the animals be killed in a way to minimize the pain caused. Id. The Court therefore noted that “humane” is a term susceptible of definition, and therefore, a claim that a product is “the humane choice” might constitute a statement that could be proved false or “reasonably interpreted as a statement of objective fact.” Id.

While Regal Vegan’s false advertising claims again HVFG will proceed, the Court did dismiss the claims of the Animal Legal Defense Fund for lack of standing, concluding the non-profit group could not be considered business competitors. Id. at 8.

Source: Animal Legal Defense Fund et al v. HVFG, L.L.C. et al, Case No. 3:12-cv-05809-WHA (N.D. Cal.)

---

This article was prepared by Kathy Grant (kgrant@fulbright.com / 210 270 7182) and Saul Perloff (sperloff@fulbright.com / 210 270 7166) of Fulbright’s False Advertising Practice.

"As clear and as manifest as the nose in a man’s face"

---

By Sue Ross

---

So said Robert Burton almost 400 years ago, and the Federal Trade Commission (FTC) staff recently made similar comments with respect to online advertising disclosures. On March 12, 2013, the FTC staff issued “.com Disclosures: How to Make Effective Disclosures in Digital Advertising” updated guidelines relating to disclosures made by mobile and other online advertisers. Brand owners should note that although these are guidelines, rather than enforceable regulations, the guidelines indicate ways that the FTC staff believe online advertisements can make effective disclosures under the FTC Act requirements.

Some advertisements require disclosures in order to provide readers with complete information. The recently issued guidelines provide descriptions of how advertisement disclosures can meet the FTC’s standard of “clear and conspicuous,” which can be particularly tricky in the online world given the variety of media and devices that consumers can use. The FTC staff provided 20 pages of text and 22 examples illustrating both compliant and non-compliant disclosures. The staff emphasized that the determination of whether a disclosure is clear and conspicuous is fact-specific and depends on the “overall net impression of the ad.” A banner ad on a web site can differ from an ad on Twitter, which can be different from a product description on a seller’s mobile app, and consequently the FTC’s analysis will vary for each.

The factors that the FTC staff recommend for evaluating whether online advertising disclosures are clear and conspicuous can be thought of as the “8 Ps”:

1. Placement of the disclosure in the advertisement. Does the disclosure appear on the same screen as the advertisement, even if the user has a mobile device? 
2. Proximity of the disclosure to the claim it is qualifying. The staff prefers disclosures next to the product or service to which they relate, but hyperlinks may be necessary “if the disclosure is lengthy or if it needs to be repeated.” Nevertheless, “required disclosures about serious health and safety issues are unlikely to be effective when accessible only through a hyperlink.” 
3. Prominence of the disclosure. Elements such as type size, color and graphics can all make a disclosure more noticeable to consumers. 
4. Can a user proceed without seeing the disclosure, or is it unavoidable? Demonstrating how the factors can be varied, the FTC staff states: “If scrolling is necessary to view a disclosure [proximity is decreased], then, ideally, the disclosure should be unavoidable—consumers should not be able to proceed further with a transaction, e.g., click forward, without scrolling through the disclosure.” 
5. Do parts of the advertisement distract a user’s attention from the disclosure? The staff is concerned that “flashing images or animated graphics may reduce the prominence of a disclosure.” 
6. Different paths to the site may require the disclosure to be repeated so that consumers can see it regardless of how they get to the site. The staff pointed out that “consumers may access a site through its home page, but others might enter in the middle, perhaps by linking to that page from a search engine or another website.” 
7. Pace, volume and cadence of audio messages, and duration of visual disclosures. The format of the disclosure should match the format of the claim. For example, audio claims should have audio disclosures with a volume and cadence “sufficient for a reasonable consumer to hear and understand it.” With respect to written claims, disclosures should also be written, and not solely audio or video: “Consumers who do not have speakers, appropriate software, or devices with audio capabilities or who have their sound turned off will not hear an audio disclosure.” 
8. Phrasing of disclosures so that they are understandable to the intended audience. Not only should disclosures “avoid legalese or technical jargon,” the FTC staff cautioned: “Icons and abbreviations are not adequate to prevent a claim from being misleading if a significant minority of consumers do not understand their meaning.” 

Note that if “it is not possible to make the disclosure clearly and conspicuously, then that ad should not be disseminated.”

Source: Federal Trade Commission, “Dot Com Disclosures” Guidance Updated to Address Current Online and Mobile Advertising Environment (Mar. 12, 2013).

---

This article was prepared by Sue Ross (sross@fulbright.com / 212 318 3280) of Privacy, Competition and Data Protection Practice.

Nutrition content claims and health claims

By Kate Sherburn of Norton Rose Australia

The Australia New Zealand Food Standards Code sets out standards for food (“Standards”) that are legislative instruments under the Legislative Instruments Act 2003. A new Standard to regulate nutrition content claims and health claims on food labels and in advertisements became law on 18 January 2013 -- Standard 1.2.7 - Nutrition, Health and Related Claims. The new Standard sets out conditions for making such claims.

Under the new Standard, health claims can only be made if they are based on food-health relationships that have been substantiated according to the Standard. There are more than 200 pre-approved food-health relationships set out in the Standard that can be used for general level health claims. Businesses may also self-substantiate a food-health relationship by notifying Food Standards Australia New Zealand of the relationship before making the health claim. Businesses are not able to rely on a food-health relationship that has been self-substantiated by another business, they will still need to undertake their own review. There will be a public record of food businesses that have self-substantiated a food-health relationship.

Foods carrying health claims must also meet certain compositional requirements that are set out in the Standard, including the nutrient profiling scoring criterion (NPSC). This means that before making a health claim, food businesses will need to ensure that the food meets a certain nutrient profiling score.

From 18 January 2013, Australian and New Zealand food businesses have three years to meet the requirements of the new Standard 1.2.7 - Nutrition, Health and Related Claims. Review the new Standard.

---

This article was prepared by Kate Sherburn (kate.sherburn@nortonrose.com / 61 3 8686 6716) of Norton Rose Australia.

Obama administration approves FDA survey of doctors about drug advertising

by Megan Fanale Engel

On April 18, the Obama administration approved the Food and Drug Administration’s (“FDA”) survey project, which will allow regulators to survey physicians, nurse practitioners, and physician assistants about the advertising and marketing practices of drug companies. The purpose of this survey is to ask clinicians their opinions about how pharmaceutical companies promote drugs to consumers and healthcare professionals. It is expected to cost approximately $365,000 over two years.

The FDA initially asked the White House to conduct this survey in January. The request was posted in the Federal Register and five comments were received. The last time the FDA undertook such a survey about the impacts of direct-to-consumer advertising was more than 10 years ago. In the new study, the FDA plans to survey approximately 2,000 healthcare professionals, and the agency is particularly focused on how perceptions regarding direct-to-consumer advertising has changed since the 2002 survey. In 2002, physicians were divided whether drug advertising had a negative, positive, or negligible effect on their practices. Now, however, drug company advertising has significantly increased, and the FDA is interested in how social media and online marketing has affected physicians’ opinions.

---

This article was prepared by Megan Fanale Engel (mengel@fulbright.com / 202 662 4733) of Fulbright’s Health Care practice.

Selling Applications Presents a Problem In Branding For Apple, Microsoft and Amazon

by Bob Rouder and Saul Perloff

In July 2008, Apple began selling applications (colloquially, “Apps”) for its mobile devices through its APPSTORE. Contemporaneously, Apple applied to register the APP STORE mark with the U.S. Patent and Trademark Office. Two years later, in July 2010, Microsoft challenged the registration because, among other things, they claimed the proposed mark was a generic term. That challenge was brought to the Trademark Trials and Appeals Board (“TTAB”) for adjudication. Notice of Opp’n (Jul. 4, 2010).

In September 2010, Amazon began soliciting developers to submit offerings for Android applications to be sold through its yet-to-be-launched Amazon Appstore. On March 18, 2011, Apple filed suit against Amazon for trademark infringement and dilution under the Lanham Act and for unfair competition under California’s Business & Professions Code § 17200. Apple Original Complaint (Mar. 18, 2011) (N.D. Cal.).

Three days later, Amazon went live with its “Amazon Appstore for Android.”

The Preliminary Injunction

Soon after filing its suit against Amazon, Apple moved for a preliminary injunction arguing that it was likely to prevail upon the merits of its trademark infringement and dilution counts and would suffer irreparable harm if an injunction did not issue. Apple Motion for Prelim. Inj.

United States District Judge, Phyllis J. Hamilton, disagreed that Apple was likely to prevail on either its infringement or dilution claims. The Court “assume[d] without deciding” that “APP STORE” is not a purely generic name as Amazon claimed but also that the name was not suggestive as Apple claimed. Rather, the Court said that “APP STORE” was descriptive and that the term arguably acquired a secondary meaning rendering it protectable. Order Denying Motion for Prelim. Inj. 

The Court found that Apple had not established a likelihood of success as to its infringement claim because of Apple ’s inability to show there was a likelihood of consumer confusion. The test for confusion is “whether

a reasonably prudent consumer in the marketplace is likely to be confused as to the origin of the good or service bearing the mark.” Insofar as the offerings at the APP STORE are exclusively for Apple devices and the offerings at the Amazon site exclusively for Android users, Amazon persuaded the court that most of the so-called Sleekcraft factors used to determine whether a “’likelihood of confusion’ exists” fell in its favor.

Similarly, the court determined that Apple's dilution claim was not likely to succeed. First, the court found that Apple failed to show that the “APP STORE” mark is famous. Second, Apple could not demonstrate that blurring occurred as a function of Amazon ’s use of the term “Appstore.” Although the terms are similar, the use of either by many companies to describe a place to obtain software applications for mobile devices reduces the liability of Amazon, which the court found “did not intend to create an association between its Android apps and Apple’s apps….” Finally, the court found inadequate evidence of tarnishment as Apple did not offer testimony that Amazon used “App Store” in a disparaging or degrading context. See generally Order on Motion For Preliminary Injunction. 

The False Advertising Claim

In November 2011, Apple amended its Complaint to include a claim alleging false advertising under the Lanham Act. Second Amended Complaint. The following month, at Microsoft’s request, the TTAB issued an order suspending Microsoft’s challenge pending the outcome of the Apple suit against Amazon. Amazon then moved for partial summary judgment on the false advertising claim. In January 2013, the court granted Amazon’s motion. Order on Summary Judgment.

Apple alleged that by using the phrase “Appstore,” Amazon was equating its “store” with Apple when in fact the two are different in nature and breadth of offerings. Amazon argued that it had made no false statement and that the false advertising claim was a trademark infringement allegation in disguise.

Apple conceded that it had no evidence that Amazon made any affirmative or overt false claim. Rather, it argued that a false statement could be “’implied’ because the Lanham Act’s false advertising prong embraces innuendo, indirect intimations and ambiguous suggestions” and would be actionable when the consuming public misapprehends an advertisement. However, Apple did not introduce a market study or consumer survey in support of the idea that the term “app store” includes “specific qualities or characteristics or attributes of the Apple APP STORE, or that customers were misled by Amazon’s use of the term.” The Court concluded that absent such evidence, Apple could not establish that Amazon was liable for false advertising and dismissed the claim.

The Brand Protection Blog will continue to cover this matter.

Sources: Apple Inc. vs. Amazon.Com Inc., Case No. 4:11-cv-01327-PJH (N.D. Cal.) (Docket Nos. 1, 18, 52, 56 and 102); Trademark Trials and Appeals Board Opposition No. 91195582.

---

This article was prepared by Bob Rouder (rrouder@fulbright.com / 512 536 2491) of Fulbright’s False Advertising and Saul Perloff (sperloff@fulbright.com / 210 270 7166) of Fulbright’s Intellectual Property and Technology Practice.