STATEMENT OF

MICHAEL K. KIRK
EXECUTIVE DIRECTOR

AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

BEFORE THE

SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY

COMMITTEE ON THE JUDICIARY

UNITED STATES HOUSE OF REPRESENTATIVES

ON

H.R. 3891, THE "TRADEMARK ANTICOUNTERFEITING ACT OF 1998"

H.R. 3119, A BILL "TO AMEND THE TRADEMARK ACT OF 1946
WITH RESPECT TO DILUTION OF FAMOUS MARKS"

AND

OVERSIGHT OF PATENT EXTENSION REVIEW

MAY 21, 1998

Mr. Chairman:

    I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on three of the topics scheduled for today's hearing: H.R. 3891, the "Trademark Anticounterfeiting Act of 1998;" H.R. 3119, a bill "to amend the Trademark Act of 1946 with respect to the dilution of famous marks"; and, oversight of patent extension review. We have not yet formulated any views on the remaining topics that will be discussed at today's hearing.

    The AIPLA is a national bar association of nearly 10,000 members engaged in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property.

SUMMARY

    In the short period of time the AIPLA has had to review H.R. 3891, the "Trademark Anticounterfeiting Act of 1998," we are pleased with its thrust. The development of effective remedies to prevent tampering with product labels to protect both consumers and trademark owners is needed. AIPLA members represent both owners and users of intellectual property, including many large and small businesses whose success in the marketplace depends heavily on the ability of the purchasing public to rely upon the quality of their trademarked products. Activities which interfere with this trust and create public health risks must be stopped.

    On the other hand, we oppose H.R. 3119. The one-year bar which H.R. 3119 would establish to an action under the Dilution Act would place owners of famous marks in an untenable position. We also believe that private relief bills such as H.R. 3119 are inappropriate mechanisms to resolve ongoing litigation.

    Finally, while AIPLA does not, at this time, support the suggestion of empowering the Commissioner of Patents and Trademarks to grant patent term extensions, we do believe that a thorough review of the Drug Price Competition and Patent Term Restoration Act of 1984 is needed and long overdue.

H. R. 3891

     H. R. 3891, the "Trademark Anticounterfeiting Act of 1998," would impose criminal and civil sanctions on certain persons who, without authorization of the manufacturer, alter, conceal, or obliterate product identification information affixed to a product by which a manufacturer could identify a particular production lot or to otherwise identify the source of the product. In addition, the Act would prescribe placing product identification information on a product different from that intended by the manufacturer, placing simulated product identification information on a product, and importing, exporting or selling of any product for which the identification information had been altered, concealed, obliterated, or was otherwise improper.

    The sanctions established would apply for tampering with product identification information on products customarily consumed or used by individuals. They would not apply to acts by the manufacturer or by the ultimate consumer, including hotels and restaurants.

    Violators of H.R. 3891 would be subject to fines and imprisonment of from up to one year for initial, low-volume activities to life imprisonment for violations resulting in the death of an individual. Products involved in such violations would be subject to impoundment and forfeiture, with the court empowered to order either their destruction or, in appropriate cases, distribution to eleemosynary institutions. Anyone injured by a violation of H.R. 3891 would have the right to bring a civil action to impound the goods on such terms as the court finds reasonable, together with either actual damages or statutory damages up to $1 million where the violation threatens the health and safety of the public. Successful plaintiffs could also recover full costs and reasonable attorneys' fees. Anyone convicted of a second offense within three years of an earlier conviction for a previous offense under H.R. 3891 would be subject to treble damages.

    The Attorney General and Secretary of the Treasury would be directed to enforce the requirements of H.R. 3891.

    In the short period of time AIPLA has had to review and evaluate the Trademark Anticounterfeiting Act of 1998, we have not been able to develop a definitive position. However, we can state that AIPLA is generally supportive of the thrust of this measure. There are a number of circumstances where both consumers and trademark owners would benefit from the protections contained in the draft bill.

    A trademark owner is often faced with circumstances under which its trademarked product, which was originally packaged and sold under its authority and control is resold or distributed in ways that are not only destructive of the trademark's goodwill but are deceptive and potentially harmful to consumers. For example, many consumer products have a stated shelf life to prevent consumers from receiving product which is stale, ineffective, or otherwise not up to the trademark owner's quality standards. Trademark owners often attempt to protect and promote this quality standard through various quality control procedures, such as, 1) shipping goods within a given period of time from the date of manufacture; 2) marking shipping cases with the shelf life of the product being shipped; 3) educating customers about the shelf life on a product label; and, 4) monitoring goods in retail outlets for expired shelf life dates (and accepting for credit the return of any products which have passed their shelf life date).

    Such vigilance is necessary because if stale products fall into the wrong hands, they often show up at discount retail stores with the shelf life date altered, concealed, or obliterated. Further, product labels not only contain the date of manufacture, but also the place and lot number of manufacture. Such information is essential in the event a product recall becomes necessary.

    Similar problems can arise with products which are packaged and labeled specifically for institutional or bulk sale. Such products are sometimes repackaged and placed in the retail market, again without the necessary product codes. Also, diversion of consumer products from lower priced foreign markets back into the higher priced US market is also a problem both for consumers and trademark owners. Often the product which is packaged for sale outside of the US is modified to appeal to local tastes or preferences. However, to facilitate mass advertising, such products bear the same trademark as the US product, but with certain differences in the packaging and labeling to indicate the market for which the products are intended. Profiteers will alter the packaging and labeling to make the diverted product look more like the product intended for the US market, i.e., product identification codes may be deleted, obliterated or changed or the country of manufacture on the label, if it is other than the US, may be changed. It must be emphasized that such practices not only injure the trademark owner, they also deceive consumers who think they have purchased a product with known quality, taste or effect only to later find they have been misled.

    In some cases, traditional trademark law and trademark causes of action can be used to stop these unwanted activities, but often it requires some creativity to frame a viable complaint, and courts do not always find these activities to constitute trademark infringement. Compare Warner-Lambert Co. v. Northside Development Corp., 922 F.Supp. 840 (S.D.N.Y.) with the decision on appeal 86 F.3rd 3 (2nd Cir. 1996), rvs'g in part. A bill making tampering a crime or a specific violation of a civil statute would be very helpful to both consumers and trademark owners and the proposed legislation appears to provide such needed remedies for these circumstances. As a technical matter, however, we question whether the Lanham Act is the appropriate home for such provisions. In our view, measures of the type contained in H.R. 3891 are better placed in Chapter 113 of title 18 of the United States Code.

    For all of the above-mentioned reasons, AIPLA supports the creation of an effective remedy to protect consumers and trademark owners from such deceptive and potentially dangerous practices. We would like to work with the Subcommittee as it refines and improves the draft Trademark Anticounterfeiting Act.

H. R. 3119

    H.R. 3119 would amend the "Federal Trademark Dilution Act of 1995," contained in Section 43(c) of the Trademark Act of 1946 (15 USC 1125(c)) to impose a one-year statute of limitations on federal dilution claims against users of marks which have been federally registered. The Federal Trademark Dilution Act created a federal cause of action to protect famous marks from unauthorized users that even in the absence of competition or a likelihood of confusion, would blur or dilute the distinctive quality of such marks. As noted in House Report 104-374, the Act did not pre-empt any of the approximately 25 existing state dilution statutes. In essence, it provided a "floor" for protecting against the dilution of famous trademarks on a national basis, to coexist with state dilution laws in the same manner in which federal trademark infringement law coexists with state trademark infringement laws.

    Under section 43(c ) (3) of the Dilution Act, the ownership of a valid federal trademark registration was made a complete bar to an action brought against the registrant under state dilution law. This recognizes, as has been done in other contexts, that it would be inconsistent with the Lanham Act to permit a state to regulate the use of a federally-registered trademark. However, the ownership of a valid federal trademark registration was not made a bar to an action for dilution under the Dilution Act. The imposition of such a bar against federal dilution actions would require an extensive revision of the Lanham Act. For example, if the owners of famous marks are barred from challenging registrations of potentially-diluting marks in court, consideration would have to be given as to whether the owners of famous marks should be permitted to oppose the registration of marks which they believe would dilute their marks as well as the implications this would have on the Trademark Examining Operation of the Patent and Trademark Office (PTO). In addition, consideration would have to be given as to whether Section 14 providing for cancellation of registrations should be amended to permit a petition for cancellation to be filed on the ground that a registered mark caused dilution of the distinctive quality of a famous mark.

    H.R. 3119 would establish such a bar without any apparent consideration given to the effect this would have on the owners of famous marks. Under H.R. 3119, a federal trademark registration would be a complete bar to an action under the Dilution Act if brought after the later of 365 days from the date of registration or 365 days from the date of first use of the mark in commerce. This would place the owners of famous trademarks in an untenable situation. They would be forced to closely monitor the publication of marks for opposition by the PTO and to promptly bring an action against the continued commercial use of any potentially diluting mark in order to avoid such a one-year bar. But even this would not fully protect the interests of the owners of famous marks.

    For example, consider the situation where a company has a mark for footwear that is extensively used and is famous in the eastern United States. Another firm files to register the same mark for office supplies based on use in Alaska and Hawaii. Under current law and precedents, the owner of a famous mark cannot oppose or petition to cancel a registration of the trademark on the basis that its use would dilute the distinctive quality of its famous mark. Moreover, because a court could very well hold that the use of the mark for office supplies in Alaska and Hawaii would not dilute the distinctive quality of the famous mark for footwear on the east coast, the owner of the famous mark would not be able to stop the use of the mark under the Dilution Act. Eventually, if the owner of the mark for office supplies expanded its market to the east coast more than a year after obtaining its federal trademark registration, H.R. 3119 would leave the owner of the famous mark without the remedy for dilution which was the very purpose of the Dilution Act.

    Similarly, if the company selling office supplies had a registration in Japan, it could obtain a U.S. registration without use of its mark in the United States under section 44(e). Then, if the company began to use the mark in a remote part of the United States where it would not necessarily come to the attention of the owner of the famous mark, H.R. 3119 would deny the owner of the famous mark any remedy after one year of such use.

    We are aware of on-going litigation in the 8th Circuit, Viacom Inc. v. Ingram Enterprises, Inc., 43 USPQ2d 1148 (W.D. Mo 1997), ___ F.2d ___ (8th Cir. 1998), rvs'g and rem'g, which might be affected by H.R. 3119. In this controversy, Viacom, which owns Blockbuster Entertainment Corp., filed federal and state dilution actions in the District Court for the Western District of Missouri against Ingram's use of its trademark "Blockbuster" for fireworks. Ingram is defending in part on the basis of its federal registration for the trademark "Blockbuster" which it obtained two years before the suit was filed.

    AIPLA believes that the one-year statute of limitations which H.R. 3119 would establish against federal dilution claims against federally-registered marks is both undesirable and ill-conceived. We also believe that private relief bills are inappropriate mechanisms to resolve ongoing litigation. In the event, however, the Subcommittee concludes that a federal trademark registration should provide some degree of protection from a federal dilution action, we would strongly urge that full consideration be given to the impact which such a rule might have on all aspects of the federal trademark registration system, including whether the owners of famous marks should be permitted to oppose or cancel registrations of diluting marks in the Patent and Trademark Office.

Patent Term Extension

    Another of the questions presented by this hearing is that of conferring upon the Commissioner of Patents and Trademarks or a special master the authority to consider and, in appropriate circumstances, grant extensions of patent terms. This is a recurring issue that Congress is asked to address in practically every session, usually in the form of a private relief bill. Presumably, a consideration underlying this proposal is the thought that Congress is ill-equipped to investigate such requests and that entrusting this to some expert body would result in objective decisions, free of political pressures, permitting Congress to focus on its legislative responsibilities.

    Today, there are only two statutory avenues for patentees to obtain extensions of their patent terms. The first in time was established by the Drug Price Competition and Patent Term Restoration Act, P.L. 98-417, which was enacted in 1984. The purpose of this act was twofold: 1) to make available low cost generic drugs by establishing a shortened drug approval procedure for pioneer drugs approved after 1962, and, 2) to create a new incentive for increased expenditures for research and development of certain products subject to premarket regulatory review and approval. More recently, protection against the possible loss of patent term due to procedural delays by the Patent and Trademark Office in issuing patents was included as part of the Uruguay Round Agreements Act (URAA) approved by Congress in 1994. Under the URAA, patentees can have up to 5 years added to their patent terms for delays in patent issuance caused by secrecy orders, successful appeals and contests to determine which of rival inventors was the first to make an invention.

    The proponents of the concept of empowering the Commissioner or a special master to consider and grant patent term extensions must believe either that there are additional situations not covered by existing law in which patent terms should be extended or that the existing provisions are deficient. AIPLA is generally chary regarding proposals to extend patents and especially to extend patents on an ad hoc basis. We note that no criteria have been set forth against which such requests for patent extension would be evaluated. The absence of appropriate criteria by which requests for term extension might be evaluated has proven to be one of the thornier problems in the consideration of patent term extensions in the past. Because the reasons advanced are far more varied than processing delays in the Patent and Trademark Office or marketing delays caused by federal premarket regulatory review, the criteria against which such requests have been measured in previous PTO reviews tend to be rather general. This creates a climate for unpredictable decisions with resulting uncertainty for competitors, not to mention fertile ground for political pressures. Even if such a proposition were enacted, patentees who failed to obtain an extension from the Commissioner or a special master would rush to their Representative's office seeking relief. Accordingly, while AIPLA would not rule out a proposal such as that raised by the materials distributed for this hearing, we are not convinced of the wisdom of such a course of action at this time.

    On the other hand, we do believe that the two existing statutory schemes for patent term extensions are in need of improvements. The rules for extending patent terms to compensate for delays experienced by patent applicants in various PTO procedures were extensively debated in the consideration of H.R. 400, both in this Subcommittee and on the House floor. AIPLA believes that any deficiencies which may have prevented diligent patent applicants from receiving an adequate patent term under the URAA are now fully addressed in H.R. 400 and its Senate counterpart, S. 507.

    Unfortunately, the same cannot be said about the provisions of the Drug Price Competition and Patent Term Restoration Act. Even when originally crafted, the Act failed to adequately compensate patent holders for marketing delays due to federal regulatory review processes. While patentees in unregulated markets enjoyed seventeen years of market exclusivity, the Act capped the length of term that would be restored to patentees in regulated markets. Notwithstanding persuasive evidence that led the PTO to recommend that losses of up to seven years be restored, the Act capped the period which could be restored to five years. Moreover, even where a five-year restoration would otherwise be appropriate, the Act provides that no restored term can exceed fourteen years. On top of these overly restrictive limits, a number of conditions were included in the Act which undercut the stated purpose of providing an incentive to invest in research and development of new products to alleviate pain and suffering and save lives.

    In the fourteen years since the passage of the Act, the circumstances of creating and marketing new pharmaceutical products have changed substantially. In a study entitled Sustaining Innovations in U.S. Pharmaceuticals (1996), conducted by the Boston Consulting Group, it was found that fully capitalized costs of the R&D process appear to have risen from approximately $350 million for drugs introduced in the 1981-83 time period to over $500 million for drugs introduced in 1990. The time required to obtain approval to market a new product was found in a 1993 study by the Congress' Office of Technology Assessment to be up to twelve years. (Pharmaceutical R&D: Costs, Risks and Rewards, February, 1993). Clearly, the realities of the regulatory review process and increased R&D costs for pharmaceutical products, food and color additives, medical devices and other regulated products strongly argues for a thorough review and adjustment of the Drug Price Competition and Patent Term Restoration Act. Moreover, such a review should not be limited to the length and conditions for term extensions. The period of exclusivity for data submitted during the approval process should also be revisited, particularly in light of the more protective systems in Europe and Japan.

    While there is not sufficient time to accomplish this in the 105th Congress, AIPLA would urge the Subcommittee to undertake this task promptly in the 106th Congress. The quality of health care for American citizens and fundamental fairness to those who create and market regulated products demand this.