10 August 2014

Rainbow Loom Patents Under Attack in Australia

Rainbow LoomUnless you have been living under a rock, or you literally know no tween-age children (or their parents), you have probably encountered the loom band craze in some form or another.  The brightly coloured rubber bands, which are woven into wearable items such as bracelets using a small plastic loom, have reportedly become one of the top ten toys of all time, and earned their Malaysian-born and US-based inventor, Cheong Choon Ng, well in excess of $100 million.

The original loom band products are marketed by Ng's company under the brand name RAINBOW LOOM.  However, there is no shortage of imitators hoping to cash in on the loom band craze.  Late last year Ng sued Zenacon LLC, makers of FUNLOOM, LaRose Industries LLC, makers of CRA-Z-LOOM and Toys 'R' Us, distributors of CRA-Z-LOOM, alleging (among other things) that the rival products infringe his US Patent No. 8,485,565, which was granted on 16 July 2013.

In Australia, however, it appears that Ng may have a battle on his hands even to secure enforceable patent rights.  Ng's primary patent application is no. 2011324026, which is derived from international PCT application no. PCT/US2011/041553 originally filed on 23 June 2011.  And while this application is encountering some resistance from the Australian patent examiner, Ng has (so far) filed no fewer than five associated divisional innovation patents!

However, all of the innovation patents are currently under attack by various parties who have filed prior art information and corresponding submissions under the provisions of section 28 of the Patents Act 1990.  One of the five (no. 2014100245) has already even been the subject of an application to the Federal Court of Australia, following what appears to have been a rather unfortunate error on the part of the Patent Office (more on that later).

Certainly, there is big money in small coloured rubber bands, and it is unlikely that either Ng, or any of the copycat competitors, are going to give in without a fight.

Notices of Invalidity

Subsection 28(1) of the Patents Act 1990 provides that ‘[a] person may notify the Commissioner that the person asserts, for reasons stated in the notice, that an innovation patent is invalid because the invention concerned does not comply with paragraph 18(1A)(b)’, i e. that due to the existence of relevant prior art information, the patent claims are not novel and/or do not involve an innovative step.

Subsection 28(2), in combination with the relevant regulations, defines the time period within which such notification must be provided.  Essentially, this period runs from the time the patent is registered, and published, up until a decision is made to certify the patent following substantive examination.  This makes sense, because the public cannot be aware of the scope of the patent claims until they have been published, and the purpose of a section 28 notification is to provide information for consideration during examination.

Examination and Enforcement

Of course, the patentee is under no obligation to have an innovation patent examined and certified (unless a third party files a request for examination), however it cannot be enforced, or even used as the basis of an enforcement threat, unless this is done.

In this case, examination of Ng's innovation patents would have been predicted by anyone watching for the new filings, since the US litigation strongly suggests that the purpose of filing the applications was for enforcement in Australia.  This is a common strategic use of innovation patents employed by many companies, including Apple.  The parties that had most reason to be concerned about the patents, given the ongoing litigation in the US, were Headstart International Pty Ltd, distributors of the CRA-Z-LOOM product in Australia, and Moose Enterprise Pty Ltd, which sells the FUNLOOM product.

The Dangers of Alerting the Competition

It appears that in or around March 2014, Funtastic Limited, which has been appointed the exclusive distributor of RAINBOW LOOM products in Australia, sent letters placing the distributors of the CRA-Z-LOOM and FUNLOOM products on notice of Ng’s pending patent rights.  In particular, a letter from Funtastic to Headstart dated 7 March 2014, which is included within Headstart’s section 28 submissions, contains the following paragraphs:

Headstart

(Whether or not this letter may constitute an unjustified threat of patent infringement proceedings, actionable under section 128 of the Patents Act, is something that could yet become an issue if the dispute escalates.)

In any event, it seems that putting the competitors on notice in this way may have backfired.  Substantial quantities of prior art information have been filed by Headstart and Moose Enterprise in relation to all five innovation patents. 

Submissions have also been made casting doubt over whether the innovation patents are entitled to divisional status – it appears that the claims may have been drafted specifically to cover the allegedly infringing products, which raises a real issue of whether such claims are adequately supported in the original specification under the new (i.e. post-Raising the Bar) standards requiring that the invention be disclosed ‘in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art’, and that the claims be ‘supported by matter disclosed in the specification’.  While these are not issues that can generally be raised under section 28, in this case they are relevant to determining the priority date of the claims, and thus the scope and content of the prior art.

Strange Things Afoot…

As I noted above, innovation patent no. 2014100245 has already resulted in an application to the Federal Court of Australia.  It appears that the Patent Office made a mistake in this case, and certified the patent immediately upon grant!

There are all sorts of reasons why this should not be possible, not least of which being the provision of a meaningful period between the patent being published following grant, and certification, to enable third parties to submit relevant information under section 28.  Additionally, regulation 9A.2 provides that ‘the Commissioner may examine a complete specification relating to an innovation patent only if the patent has been granted.’  In my experience, the usual period between filing a request for examination, and the examination actually commencing, is around four-to-six weeks.  An examination request can be filed along with the patent application, but in view of regulation 9A.2 it is not processed until the patent has been granted.

Clearly both Headstart and Moose Enterprise had been watching progress of the applications closely, because both parties almost immediately shot off letters to the Patent Office protesting the certification!  Both requested that certification be revoked, pursuant to section 101EA of the Patents Act.  A delegate of the Commissioner responded by pointing out that the regulation 22.22 applies to the exercise of a discretionary power, and that the patentee would therefore have to be given an opportunity to be heard before the certificate could be revoked (seemingly a fine application of the principle that ‘two wrongs do not make a right’).

On the Monday following certification of the patent, both Headstart and Moose Enterprise filed applications with the Federal Court, and obtained interlocutory orders suspending the operation of Commissioner’s decision to certify the patent, and barring the patentee from commencing infringement litigation.  A month later, the court issued orders (bt consent) for the certificate to be revoked, and setting down a timetable for the submission of information under section 28.

Conclusion – Tough Times Ahead for Ng?

It is unlikely that the troubles of Ng and Funtastic will be over even if they are able to secure certified innovation patent claims.  Once certified, an innovation patent is subject to opposition.  Meanwhile, even if a standard patent application is accepted, it is practically certain that Headstart and/or Moose Enterprise will challenge it through pre-grant opposition proceedings.

There may be a lesson in all of this about the pros and cons of putting a prospective infringer on notice of the existence of pending patent rights.  The benefit is that once a patent is in force, it may be possible to claim damages at least back to the date at which the infringer was notified.  A further benefit is that, in some cases, the potential infringer may decide that facing a possible patent dispute is more trouble than it is worth, and voluntarily cease the accused activities.

On the other hand, there are a number of mechanisms by which a third party may intervene in the processes of examination and grant of patents in Australia.  The outcome of challenges using these mechanisms may be a narrowing of scope, the loss of all rights or, at the very list, the addition of significant costs and delays to the entire process of securing enforceable rights.  It is always worth considering whether discretion may be the better part of valour before firing off ‘notice’ letters.

Image: © AngryJulieMonday – Flickr,  Licensed under CC BY 2.0.

No comments:

Post a Comment