Property, intangible

Another Dirty Co-Existence Agreement

noreply@blogger.com (Pamela Chestek) — Sat, 02 Jun 2012 15:55:00 +0000

I just read a post by my friend Neil Wilkof entitled The Dirty Little (Or Not So Little) Secret Of Trade Mark Law. In it, he talks about co-existence agreements and too often their tolerance of confusion rather than avoidance of it.

And then I ran across a fairly uninteresting and poorly decided case that involved a coexistence agreement. But the agreement had something I've never seen before in one - a term shorter than both parties' use of their respective marks:

And what a term - 25 years. The agreement was dated for 1984 but according to the complaint it was effective on January 18, 1985, meaning that it expired on January 18, 2010.

It all started over 75 years ago when two brothers each opened confectionary stores some distance apart in Wisconsin using their surname "Beerntsen." The businesses were passed down from father to son to son in both cases. In 1984 there was a dispute and the two families entered into the concurrent use agreement with the 25 year term. The agreement set geographic limits for both parties.

Fast forward to 2003 when the defendant family sold its business to Schadrie Chocolates, which changed its name to Beerntsen Confectionary. The plaintiff became unhappy and filed a trademark infringement lawsuit. This is one allegation in the complaint:

If you can't read it, it says "The Concurrent Use Agreement expired on January 18, 2010, yet Beerntsen Confectionary, Inc. continues to advertise and market its products using the Beerntsen name in Wisconsin and other states and continues to use 'Beerntsen's' and 'Beerntsen Candies' trademarks as its own trademarks."

So wow, what interesting stuff. First, we have a plaintiff who is treating the agreement as a license rather than a co-existence or concurrent use agreement, alleging that somehow the defendant's right to use the mark expired with the agreement. Second, assuming that the agreement is not a license but, as Neil points out, an agreement to make certain there is no likelihood of confusion, what is the effect and purpose of a term of 25 years?

As to effect, assuming there has been no breach of the agreement, I think you come out of it with a pretty solid defense. There is either no confusion (after all, both parties agree that there hasn't been any confusion for 25 years and presumably continued consistent behavior would have the same result) or the defendant has an equitable defense based on the harm to to it that would be caused by having to cease use after 25 (or in this case, 75) years.

So what was the purpose of the term? I can't really fathom one for such a long period. A short period, maybe, like five years, as a trial period to see whether the agreed-upon restraints might make sense and avoid a likelihood of confusion. But 25 years? I haven't a clue.

Sad to say, though, we don't find out what the effect of the agreement is. The court held that the plaintiff's BEERNTSEN mark didn't have secondary meaning because the defendant was using BEERNTSEN too, and that there was no likelihood of confusion. I leave it to you to read the reasoning if you care to, but be prepared for a completely wrongheaded analysis. The breach of contract claim was dismissed for lack of supplemental jurisdiction.

Beerntsen v. Beerntsen's Confectionary, Inc., No. 11-C-151 (E.D. Wisc. May 24, 2012). Complaint here.

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

You Really Need It Signed

noreply@blogger.com (Pamela Chestek) — Thu, 31 May 2012 02:39:00 +0000

If you snoozed through biz org class in law school thinking that you weren't going to be a transactional lawyer, perhaps you better go back and brush up on the law of agency. That's what snagged Universal Music Group and its related company, UMG Recordings. That, and the pressure to get the deal done.

Artists Fabolous and Swizz Beatz used plaintiff Luar Music Corp.'s copyrighted work "Dale Don Dale" in a remix that was created as a work made for hire for UMG Recordings. Gustavo Lopez of UMG Recordings sent the remix to Luar's president, Raul Lopez, telling Raul to "listen and call me." Gustavo testified that "upon hearing the remix, Mr. [Raul] Lopez expressly gave me his consent to use and distribute the record."

In house counsel for UMG Recordings, Jeffery Koenig, sent a draft contract to Gustavo and Raul. Koenig then sent a revised version to Luar's attorney, Patricia MacMurray. Koenig asked MacMurray to have Luar's authorized signatory execute five copies of the agreement. MacMurray responded that she had sent it for "Luar's signature," then on a follow-up responded that she had sent the documents to Raul to sign but he was out of the office. Koenig responded with an email saying:

Until we receive the signed paperwork, for the avoidance of doubt, this e-mail shall confirm that Luar Music approved of Universal's re-mix of “Dale Don Dale” and granted Universal the right to exploit this re-mix in the manner described in the re-mixer agreement (and that Universal is proceeding in reliance herein).

MacMurray responded "OK." The contract was never signed but UMG Recordings nevertheless went ahead with distributing the remix as "Reggaeton Latino."

An exclusive license must be in writing and signed by the copyright owner or the copyright owner's "duly authorized agent." 17 U.S.C. § 204(a). Defendant Universal claimed that it had an exclusive license, based on the draft contract and the email. But MacMurray wasn't a "duly authorized agent":

There is no evidence in the record that indicates that MacMurray was ever vested, orally or otherwise, with the authority to grant licenses for copyrighted material owned by Plaintiff. Rather, according to Raul's unsworn statement made under penalty of perjury, Raul who did not sign the Re–Mixer Agreement, the Revised Re–Mixer Agreement or any other relevant document, was Plaintiff's only authorized signatory.

Defendants argue that Plaintiff is estopped from denying that MacMurray was duly authorized to grant licenses because MacMurray held herself out as Plaintiff's agent. However, the record belies this contention. The Court finds that there is no indication that MacMurray held herself out as Plaintiff's authorized agent. To the contrary, the emails exchanged between Koenig and MacMurray show that Koenig was well aware that MacMurray was not Plaintiff's duly authorized agent. Koenig emailed MacMurray the Revised Re–Mixer Agreement and asked MacMurray to have “an authorized signatory of Luar Music sign in the appropriate indicated space.” Further supporting this conclusion is MacMurray's response as she told Koenig that she sent the documents “over for Luar's signature.” A few days later, Koenig asked Macmurray if she “received the signed documents from Raul.” MacMurray responded that Raul has been out of the office and has not been able to sign the Revised Re–Mixer Agreement. This email exchange demonstrates that neither Koenig nor MacMurray considered MacMurray to be Plaintiff's duly authorized agent. Nevertheless, despite not having Raul's signature, Defendants chose to release Reggaeton Latino. Thus, the record indicates that Koenig knew that Raul was the only person capable of granting an exclusive license and as a result Plaintiff is not estopped from denying that MacMurray was its duly authorized agent.

All is not lost yet; the court found that there was a question of fact on whether the plaintiff had granted a nonexclusive license, which can be given orally or implied through conduct.

So you in house lawyers, how many times, in the pressure to get a deal done, have you thought "oh, the email is good enough," or "maybe they aren't an agent, but at least they're an apparent agent"?

There was another distribution in Mexico, so there's also some stuff in the decision about extraterritorial application of the Copyright Act.

Luar Music Corp., v. Universal Music Group, Inc., Civ. No. 09-2263(DRD) (D.P.R May 22, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Don't Get Greedy

noreply@blogger.com (Pamela Chestek) — Mon, 28 May 2012 01:38:00 +0000

Tahir Mahmood believed that he was a co-inventor of a RIM patent. He hadn’t worked for RIM, but it was undisputed that in 1995 he provided information to RIM about his own PageMail technology.

In 1998 RIM filed a patent application for the patent that in 2001 ultimately matured into U.S. Patent No. 6,219,694. In 2004, Mahmood told RIM that he thought he was a co-inventor of the patent and RIM undertook an investigation. This is the court’s description of what RIM did:

RIM's investigation included analysis of a variety of materials including, inter alia, lab notebooks of individuals associated with the '694 patent, interviews with relevant people within RIM and review of the source code associated with the '694 patent. In a series of correspondence exchanged between RIM and plaintiff, RIM repeatedly requested that plaintiff provide it with any information that he had with regard to the merits of his claim of inventorship. On more than one occasion, plaintiff stated that such information would be forthcoming but it never was. In a single fax, plaintiff outlined several general areas that he believed demonstrated that he was an inventor of the '694 patent. [RIM investigator] Pathiyal testified credibly that this fax did not provide RIM with any factual basis upon which to make a determination that plaintiff had any role in the invention of the '694 patent. While plaintiff had repeatedly told RIM that he had additional information, none was forthcoming and RIM had to proceed based on the information available to it at the time.

Mahmood claimed that he wasn’t aware RIM owned the Blackberry brand until 2004, but the court didn’t buy it - there was a screen capture of a 2001 webpage of a company Mahmood owned in which Mahmood touted RIM's use of his technology with its Blackberry device.*

After RIM’s investigation, it decided that Mahmood wasn’t an inventor and Pathiyal testified that RIM committed itself to the technical direction described in the ‘694 patent.

In 2008 Mahmood found evidence supporting his claim of inventorship in his brother’s garage, including the source code for his invention. He hired counsel in late 2009 and counsel contacted RIM in July, 2010. Mahmood filed suit against RIM for correction of inventorship and related state law claims on August 1, 2011.

In a decision on a motion for summary judgment on January 24, 2012, the court found that Mahommod had unreasonably delayed in bringing his claim but that RIM hadn’t shown economic prejudice.

That's when Mahmood got greedy. On February 3, 2012 he filed another lawsuit, this time for a declaration of co-inventorship of five applications and patents that were based on continuing applications from the ‘624 patent: U.S. Patent No. 7,386,588, U.S. Patent No. 6,463,464, U.S. Patent No. 6,389,457, U.S. Patent Application Publication No. 2008/0052365, and U.S. Patent Application Publication No. 2008/0052409.

Whereupon the court allowed RIM to file a new motion for summary judgment on laches. The new suit was stayed pending the outcome of this case.

And RIM was more successful on its second shot. The ‘624 patent is the ultimate parent in a family of over 120 patents worldwide with over 4,000 claims. RIM testified credibly that in 2004, had Mahmood substantiated his claim, RIM would have had a number of options:

[I]it could have provided a financial settlement, it could have designed around the patent, it could have obtained a license to the patent, it could have entered into some sort of business relationship with plaintiff, and/or it could have considered whether plaintiff should have been included as an inventor on the '694 patent.

Pathiyal provided support for these alternatives. For instance, in terms of design around, Pathiyal testified that this was a realistic option in 2001 or 2004. There was, in fact, more than one way to achieve certain of the features of the '694 patent. Pathiyal explained that the '694 patent has claims relating to a single mailbox and Microsoft has itself invented a technology that has a single mailbox that is not on the same “technological path” as the '694 patent. Moreover, Pathiyal presented a number of patents that listed non-RIM employees as inventors with RIM employees to support his assertion that RIM would have considered, as one option, listing plaintiff as a co-inventor if merited.

The court found that RIM had been economically prejudiced by the delay and that there was a nexus between the delay and its actions. “Equity does not condone, and this Court will not allow, a plaintiff to make unsupported allegations of ownership, disappear for years while a company builds a successful business strategy around the very invention in which he asserts an interest, and then allow him to bring an untimely lawsuit.” The case was dismissed on the basis of laches.

*This image is from an affidavit provided by the Internet Archive to authenticate the Wayback Machine document. It’s a good read for an explanation of the timestamping and what part of a page is archived by the Wayback Machine (trademark lawyers take particular note of the second point - images, like logos, that are displayed may not be from the date shown).

Mahmood v. Research in Motion Ltd., No. 11 Civ 5345(KBF) (S.D.N.Y. Jan. 24, 2012)

Mahmood v. Research in Motion Ltd., No. 11 Civ 5345(KBF) (S.D.N.Y. May 16, 2012)

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Way Too Many Co-owners

noreply@blogger.com (Pamela Chestek) — Wed, 23 May 2012 01:18:00 +0000

International Importers v. International Spirits & Wines, LLC is, at bottom, a manufacturer-distributor dispute. It's also a lesson in how not to handle trademark ownership.

Fernbrew Pty. Ltd. Corp., an Australian company, is the owner of trademark registrations for WALLABY CREEK for wine in Australia, New Zealand, the EU, and Canada, but the U.S. trademark application was filed by A.V. Imports, Inc. A.V. Imports was the first distributor of WALLABY CREEK wine in the United States. This is the transactional history for the registration:

– May 4, 2004: Maple Leaf Distillers, Inc. assigns a 25% interest to Fernbrew Pty Ltd. The assignment says:

If you can't read the text, it says “Further to our discussions, Maple Leaf Distillers Inc. hereby confirm that we understand the Wallaby Creek trademark is … owned by Fernbrew Pty. Limited Corporation of Australia (50%) and A.V. Imports of the United States (50%).

“Following the agreement with New World Brands Inc. to distribute the product in the United States and our discussed agreement is in place, it is understood and agreed that trademark will be shared in the United States as follows:

“Fernbrew Pty. Limited Corporation 25%

“Maple Leaf Distillers Inc. 25%

“New World Brands Inc. 50%”

Note that this assignment was recorded by litigation counsel for Fernbrew after suit was filed. Thus, International Importers might not have been aware of Fernbrew's claim of partial ownership at the time it filed the complaint.

– February 8, 2005: A.V. Imports, Inc. assigned the entire interest to Maple Leaf Distillers Inc.

– March 9, 2005: Maple Leaf Distillers Inc. assigns a 50% interest to New World Brands, Inc. According to Rex D'Aquino, a director of Fernbrew, these two 2005 assignments were in furtherance of the 2004 letter and a distribution agreement of the same date.

– May 16, 2008: New World Brands Inc. assigns its entire interest to plaintiff International Importers, Inc. Fernbrew had appointed International Importers as the importer (p. 6) in 2005, so presumably this assignment was made because of the change of relationship, albeit well after the change.

The dates are a bit out of order and the 2004 letter assignment (if it can be given such a formal status) is ambiguous, but it looks like it goes this way: Fernbrew and A.V. Imports were each half owners of the trademark but A.V. Imports was the only record owner of the registration. A.V. Imports then assigns the entire interest to Maple Leaf Distillers upon the instructions of, or at least with the knowledge of, Fernbrew. Shortly thereafter the assignment of the 50% interest to New World Brands is formally recorded, but not the 25% interest of Fernbrew that is acknowledged in the same letter. In 2008 Fernbrew engages a new distributor, plaintiff International Importers, and New World Brands assigns its 50% interest to it. So after all the assignments, International Importers has 50%, Maple Leaf has 25%, and Fernbrew has 25%.

But there's more. There was a condition on the 2004 assignment:

It says “In the event that any one of the companies mentioned above becomes insolvent or unable to fulfill our agreement (ie. sales and marketing of the products), the trademark will revert to Fernbrew Pty Limited Corporation ownership.” And Maple Leaf Distillers did become insolvent, so the defendants claimed that Fernbrew was now 50% owner of the mark. Plaintiff International Importers disagrees, claiming that Maple Leaf Distillers' 25% interest didn't revert to Fernbrew under Canadian bankruptcy law and instead was owned by the purchaser of Maple Leaf Distillers' assets out of bankruptcy, Angostura Canada, Inc.

With that as background (phew!), International Importers sued International Spirits & Wines, LLC and “D'Aquino Group of Companies,” a non-existent legal entity, for infringement of the mark WALLABY CREEK based on the defendants' importation and sale of the wine. Most notably, Fernbrew is one of the “D'Aquino Group of Companies.” So at the end of the day we have what is a common situation – the former distributor of a product claiming ownership of the trademark and bringing a trademark infringement claim against the manufacturer and the new distributor. But because of the joint ownership of the mark, what happens next is far from typical.

Rather than sorting out the ownership under the usual manufacturer-distributor framework (alert - recursive link), the defendants challenged International Importers' standing under Fed. R. Civ. P. 12(b)(1), on the theory that all co-owners must be joined, and under Fed. R. Civ. P. 12(b)(7) for failure to join a necessary and indispensable party under Rule 19, namely, the other owners of the trademark.

So does one owner have standing without joining the other owners? The magistrate deferred, but the district court in adopting the report and recommendation did not:

International Spirits and D’Aquino Group cast the absence of the trademark co-owners as a standing issue. According to International Spirits and D’Aquino Group, in patent cases, failure to bring suit alongside a co-inventor of a patent raises prudential-standing concerns. By analogy, the argument continues, the same principle applies in trademark cases. I disagree.

To be sure, in patent cases, for prudential reasons, a co-inventor of a patent must sue with all her co-inventors or else she lacks standing to sue for infringement. International Spirits and D’Aquino Group have not linked the concerns found in patent law to concerns found in trademark law. Any prudential concerns, moreover, are allayed by Rule 12(b)(7), which allows dismissal for failure to join a party under Rule 19. And, in fact, where an owner of a trademark is not involved in a case, courts have dismissed under Rule 19, not the prudential-standing doctrine. Accordingly, I reject the standing argument.

But the defendants were much more successful with the failure to join an indispensable party. Here's the standard:

A party is “required” if “in [the] person’s absence, the court cannot accord complete relief among existing parties.” FED. R. CIV. P. 19(a)(1)(A). A party is also “required” if the party has an interest in the action and resolution of the action may either “as a practical matter impair or impede the person’s ability to protect the interest” or “leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.” FED. R. CIV. P. 19(a)(1)(B).

International Importers' first effort to dodge Rule 19 was a claim to be the sole owner, despite the recorded documents. It claimed that Fernbrew and Angostura, the other potential co-owners, abandoned the mark because they didn't use it. Relying on one 2006 district court case from New York, Mears v. Montgomery, No. 02 Civ. 0407 (MHD), 2006 WL 1084347 (S.D. N.Y. Apr. 24, 2006), the magistrate held, however, that one owner's use would be imputed to the other co-owners. Quoting Mears:

The purpose of the “use” requirement is to “maintain the public's identification of the mark with the proprietor. Therefore, as long as [the challenging co-owner] was actively using the name … , there was no danger of improper identification of the owner of the Mark by the public, and [the challenged co-owner] had no reason to take additional steps to use or protect the Mark.

Having decided that there were co-owners, the court didn't go on to decide whether Maple Leaf Distillers still had its 25% interest or whether Fernbrew or Angostura succeeded to it. It didn't matter; all that mattered was that International Importers was not the sole owner.

The magistrate then held that any co-owners were necessary and indispensable parties under the above standard: if absent the co-owners would be deprived of the opportunity to protect their interest in the validity of the trademark registration so thus had an interest in the action, and the defendants would be at risk of multiple obligations since any judgment would only be binding on International Importers, not any other co-owners.

Even if the co-owners couldn't be joined the court might proceed if the co-owners' interests would be adequately protected in their absence. The court, in admirable understatement, didn't think they would be: “The ease with which the plaintiff seeks to divest its co-owner(s) of their interests in the mark suggests to the undersigned that the co-owner(s)' interests would not be adequately protected in the instant case.” It therefore gave International Importers leave to amend the complaint to add the other co-owners – Fernbrew and/or Angostura – as plaintiffs. “D'Aquino Group of Companies” was dismissed for failure to properly serve it (which you can't do when it doesn't exist).

International Importers was then unable to join the co-owners as plaintiffs. In what I suppose it thought might be a colorable end run, International Importers added Fernbrew as a party defendant, but didn't amend the complaint to state that there were other co-owners of the trademark. The court was not amused and granted the defendants motion to dismiss, albeit with leave to replead.

So Fernbrew found itself in a world of hurt because of a misguided decision, made long ago, to allow for joint ownership of its U.S. trademark. I don't know to what end the parties thought that a joint ownership of the trademark was an appropriate arrangement. The 2004 assignment uses an odd turn of a phrase, to “share” a trademark. According to Rex D'Aquino, the trademark was assigned by A.V. Imports to reflect Fernbrew's “equitable interest” in the registration and “how the rights in the Registration were to be apportioned as of the time that New World Brands, Inc. was appointed as the U.S. distributor for our 'WALLABY CREEK' wine.” But rather than devising a legal relationship that more accurately reflected the various roles and stakes of the parties, such as granting a security interest in the mark, the parties divvied up the ownership of the mark itself. Perhaps under Australian law the arrangement would have worked out fine, but under U.S. law, by allowing the distributor to have a claim of legal ownership, Fernbrew finds itself in a position where another company can start labeling goon “Wallaby Creek.”

As clever as the defense ploy was, I'm not sure where it goes now and how Fernbrew can regain ownership of its trademark. It looks like a stand-off, at least one based on a trademark infringement cause of action. There are at least two co-owners, neither of which can bring a trademark infringement case against the other. Breach of contract? Interference with contractual relations? Often a lot of money goes a long way ….

Thanks to counsel for the defense Joe Lewis for sending me this fascinating case.

International Importers, Inc. v. Int'l Spirits & Wines, LLC, Civ. No. 10-61856-CIV-Jordan/O'Sullivan (July 26, 2011) (Report and Recommendation).
International Importers, Inc. v. Int'l Spirits & Wines, LLC, Civ. No. 10-61856-CIV-Jordan/O'Sullivan (Sep. 26, 2011) (Order Adopting Report and Recommendation).
International Importers, Inc. v. Int'l Spirits & Wines, LLC, Civ. No. 10-61856-CIV-Jordan/O'Sullivan (May 9, 2012) (Order Granting Motion to Dismiss).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Salba United

noreply@blogger.com (Pamela Chestek) — Sat, 19 May 2012 13:26:00 +0000

I previously blogged about a case, Salba Corp. v. Ralston, where there were two different owners of SALBA-formative marks. Salba Corp. owned the trademark SALBA (a varietal of chia seed) and the Ralstons then assigned their SALBASMART and SALBA BALANCE marks to Salba Corp. with a license back and a reversion if Salba Corp. breached certain terms of the assignment, which naturally Salba Corp. did. As a result, the Ralstons regained ownership of their SALBASMART and SALBA BALANCE marks.

Now Salba Corp. and the Ralstons have teamed up, suing another company using the SALBA mark. I say "mark" instead of "word" because the website is using SALBA® (that is, with the circled "R" symbol).

The case caught my attention for two reasons: first, I expected that, as between Salba Corp. and the Ralstons, there would ultimately be a single entity that could claim rights to all the SALBA-formative marks because the existing registrations - SALBA, SALBASMART and SALBA BALANCE - are too close to co-exist without confusion. Instead, they now have a cooperative relationship, described this way in the complaint: "Plaintiff Salba Corp. is in the business of licensing the distribution of seed and food products that are sold under the SALBA trademark. Plaintiff SSNP [Salba Smart Natural Products, owned by the Ralstons] has the sole license to distribute and sell the SALBA seed and food products containing the SALBA seed under the 'SALBA' trademark throughout the United States." It's a fairly unusual situation where the various trademarks in a family of marks would be owned by different entities in the chain of distribution, but apparently it's how they worked it out. I wonder what happens if there's another falling out.

Second is the egregiousness of the infringement by the defendant, which makes me wonder whether it's an infringement at all. Salba Corp. formerly had licensees who lost their licenses as a consequence of the reversion back to the Ralstons in the original suit. I wonder if this is one of them.

Salba Corp. N.A. v. X Factor Holdings, LLC, Civ. No. 1:12-cv-01306-REB (complaint filed May 18, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Trademark Troll Extraordinaire

noreply@blogger.com (Pamela Chestek) — Wed, 16 May 2012 04:42:00 +0000

We occasionally hear about trademark trolling, but Premier Pool Management Corp. v. Lusk takes it to a whole new level.

Plaintiff Premier Pool Management Corp. (“PPMC”) offers swimming pool and spa construction services through licensees doing business as Premier Pool & Spas. It first used the PREMIER POOL & SPAS mark in 1989 and was using it in interstate commerce at least by 2001. PPMC filed an application to register its trademark, but was refused registration because of a pre-existing registration for the mark Premier Pools Construction, Inc. owned by a company of that name (“PPCI”). PPCI's registration claimed a first use date of 1993. PPMC tried to negotiate a consent to the registration of its application with PPCI, but was unsuccessful and abandoned its application. PPCI later filed another application, which matured to registration, and let the older one lapse (it looks like a chain of title problem).

In August or September 2011, PPMC hired defendants Dean and Jason Lusk, d/b/a SmartPro for SEO, to assist with search engine optimization (SEO).

At about the same time, PPCI contacted PPMC asking whether PPMC was still interested in the registration, offering to sell it. The reason given by the president of PPCI was that he wanted to wind down the business, was only doing a couple of pools a year, and only worked in central Florida. PPMC agreed to pay $5,000 for the registration and PPCI asked PPMC to draw up the paperwork, which PPMC did. PPMC then received a call from a lawyer for PPCI, claiming that there was a bidding war for the registration and asking PPMC to up its bid. PPMC declined, based on its belief that the two companies already had a deal for the registration. PPMC also told the lawyer that the registration was invalid because the mark had not been used in interstate commerce.

So who was on the other side of this bidding war? None other than the Lusks. In the course of their work for PPMC, they discovered the PPCI registration. They were aware of PPMC's previous efforts to purchase the registration and figured that, with the registration, they could “turn the lights out” on, yes, their client, PPMC. A partner in crime named Hamilton Leonard proceeded to buy the registration from PPCI for something around $140,000 and had it assigned to Dean Lusk.

Dean Lusk and Hamilton then went to PPMC in furtherance of their scheme. They offered PPMC three options: (1) SmartPro would enforce the trademark against the PPMC licensees and demand $7,000 to $10,000 per year from them; (2) SmartPro would assign the registration to PPMC in exchange for PPMC's enforcement of the trademark against unlicensed “Premier Pools” (as you can imagine, there were more than a few) and $6,000 to $10,000 per month; or (3) pay an “astronomical sum” to buy the trademark. PPMC declined the ~~extortion~~ offer.

Since it was unsuccessful with PPMC, Lusk proceeded to send a cease and desist letter (see Exhibit A) to Rackspace, PPMC's hosting provider. PPMC tried to appease Rackspace, but ultimately PPMC had to find a new hosting provider. PPMC also found the Lusks advertising on YouTube for “Premier Pools & Spas,” PPMC's mark. And so PPMC sued the Lusks for trademark infringement and for cancellation of the PPCI registration.

The Lusks defaulted, so the outcome is predictable. PPMC had standing because of the Lusks' offering of pool services on YouTube under the same mark. The complaint stated a claim under Section 43(a) of the Lanham Act and therefore also for unfair business practices under California Business & Professional Code Section 17200. The PPCI registration is to be cancelled because PPCI had not used the mark in interstate commerce. Finally, there was intentional interference with contractual relations because of the shenanigans with Rackspace.

Certainly the most shocking part of this story is the outright perfidy of the Lusks,* but apparently the best that could be made of that was the interference with contract claim. PPMC lucked out, in a way, because PPCI wasn't a party to the suit. PPCI may have been able to show that it had used the mark in interstate commerce, which would mean that the Lusks newly-discovered propensity for pool construction could tack to PPCI's prior use. Indeed PPMC had an earlier first use date, but PPMC's rights would be limited geographically under Section 33(b)(5) of the Lanham Act.** Luckily also for PPMC, the Lusks admitted that they knew about PPMC's efforts to buy the registration from PPCI, so at least the Lusks didn't have a bona fide purchaser in good faith defense. But you can see where, with a better registration, the scheme would have worked, with a measly interference with contract claim for leverage.

*There are two sides to every story and since it was a default, the Lusks side of the story wasn't told. But they apparently didn't have one good enough to make it worthwhile to respond.

**Quiz for advanced trademark practitioners – what is the relevant constructive use date for the PPCI mark under Section 33(b)(5)?

Premier Pool Management Corp. v. Lusk, No. CIV S-11-2896 GEB CKD (E.D. Calif. May 4, 2012). Premier Pool declarations here and here.

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

A Successful Termination of Copyright

noreply@blogger.com (Pamela Chestek) — Sun, 13 May 2012 02:25:00 +0000

The first decision on a termination of a copyright grant under Section 203 of the Copyright Act is out of the gate. It's a bit of a no-brainer though; in fact, the case was decided on a motion to dismiss.

Victor Willis was one of the “Village People,” but more importantly he was one of the owners of the copyrights to the Village People works. In its declaratory judgment complaint, plaintiff Scorpio Music, S.A. claims that he had been hired, by way of an “Adaptation Agreement,” to “translate the lyrics of and/or create new lyrics for certain musical compositions which were owned and published in France by Scorpio.” These works included “Y.M.C.A.,” “I'm a Cruiser,” “Hot Cop,” “Ups and Downs,” “My Roomate,” (sic) and “The Woman.” (Why do I feel like I was just typing the names of gay porno flicks?) In January, 2011, Willis served a “Notice of Termination” on Scorpio, et al., terminating the Adaptation Agreement. In July, 2011 Scorpio filed the DJ, claiming that Willis didn't have the right to terminate.

Scorpio's theory was a stretch. Willis was only a joint owner of the copyrights, along with two other authors, so Scorpio's theory was that a majority of the authors who transferred their interest must join in the termination. Section 203 says this about who may terminate:

(1) In the case of a grant executed by one author, termination of the grant may be effected by that author …. In the case of a grant executed by two or more authors of a joint work, termination of the grant may be effected by a majority of the authors who executed it ….

Scorpio's fundamental flaw? While there were joint owners of the copyright, in this case each executed separate grants of their rights, and the language of 203 contemplated that possibility:

When referring to a grant executed by two or more authors of a joint work, section 203(a)(1) refers to a “grant” in the singular, not “grants.” Thus, under the plain meaning of the statute, if two or more joint authors join in a grant of their copyright interests, a majority of the authors is necessary to terminate the grant. If, however, a single joint author enters into a grant of his copyright interest, that author alone can terminate his grant.

The court pointed out it wouldn't make sense to treat multiple grants as one, because then there would be multiple dates of execution so the date for termination wouldn't be known.

The case isn't over, though; the court is allowing Scorpio to amend its complaint to ask the court to determine what Willis' share of the copyright is. And query what Willis can do with his regained ownership interest. The complaint says the termination is only for the copyright to lyrics, not to either the musical composition or the sound recordings of the songs. Willis says that he will be a “different kind of rightsholder,” but his aren't the only rights needed to use the works.

Scorpio Music S.A. v. Willis, Case No. 11cv1557 BTM(RBB), (S.D. Calif. May 7, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

There Aren't Regular Work Hours Anymore

noreply@blogger.com (Pamela Chestek) — Sun, 29 Apr 2012 16:45:00 +0000

I haven't seen a lot of material to blog about, so I've resorted to writing about a fairly ho-hum case, albeit a court of appeals decision, albeit an unpublished one. Unless you have a compulsion to read all work-made-for-hire decisions, or at least those involving software development, you can probably just move on. I think what is somewhat noteworthy about this case is that it is undisputed that the plaintiff wrote the software on his own time and at home – but ultimately that wasn't enough to avoid a conclusion that his employer owned the work. In my opinion, the workplace is getting so flexible that it isn't going to matter anymore what time of day a work was created.

The factual summary is from the district court opinion – since the court of appeals decision is unpublished, it's not very detailed. Plaintiff Le T. Le, of Vietnamese descent, worked in the Network Division for the City of Wilmington (Delaware). He wrote a software program for the City's Department of Licenses and Inspections (“L & I”) that would allow the department to keep track of citations electronically rather than on paper. Le testified that his immediate supervisor told him not to work on the software while at work. He therefore wrote the program on his own time at home. He thought if the program was successful he could provide it to the City and market it to other municipalities. He ultimately installed a prototype of the program on the City's computer for testing.

The City then decided to outsource the Network Division's function. It informed the staff in January, 2007, but had to wait to make the change until after the City Council approved it. Le (and at least one other member of the department) believed that the change was racially motivated. Three days after the City Council's approval on May 18, 2007, Le filed an application to register the copyright to the software in his own name, having changed the copyright notice in the files from the "City of Wilmington, Department of Information Technology" to his own name. After the employees were formally notified of their termination Le removed the software from the City's computers, although his supervisor told him he was not allowed to remove it. Removing the software meant that the City could not issue tickets. Le was then suspended, told to reinstall the software, and threatened with prosecution if he didn't comply. He reinstalled the software and was then fired. Le sued for copyright infringement and for discrimination-based claims.

The City claimed that the program was a work-made-for-hire. Le responded that it was not in the scope of his duties, but even if it was, the City had ceded ownership back to him under 17 U.S.C. § 201(a) through a sequence of letters between his lawyer and the City Solicitor's office.

The district court held, and the appeals court affirmed, that the work was indeed a work made for hire. Although Le worked on it at home:

There is no dispute that he developed the Work for the purpose of helping the L & I division reduce its workload and reliance on paper ticketing. Additionally, the evidence suggests that Le used sample paper tickets and other resources from Wilmington (such as feedback from the L & I division) in developing the program and its source code. As the District Court noted, Le admitted to reusing and modifying code from files he had created for other Wilmington owned programs in creating the source code for the Instant Ticketing program. Finally, Le testified that the three year gap between the completion of the source code and the copyright registration was based on the implementation of the program which involved testing by the L & I, layout changes and other modifications. For these reasons, we will affirm the District Court's finding that the Instant Ticketing program was created within the scope of Le's employment, for the benefit and use of his employer.

The exchange of letters between lawyers was clearly not disclaimer of the City's ownership in the program, but rather simply expressed that the City did not want to spend money arguing about it (according to the letters, because the software was “an amateur work product”):

To the contrary, the letters clearly express an unwillingness to acknowledge Le's ownership of the copyright. Additionally, Wilmington's disinterest in spending money to contest Le's claims does not qualify as a manifestation of its intent to transfer the copyright itself, thereby extinguishing its own rights in whole or in part.

The City also raised estoppel and license defenses, both successful in the district court also. The court of appeals didn't mention the estoppel defense, but agreed, in dicta, on the license defense.

Le lost on the discrimination claims too.

Le v. City of Wilmington, No. 08-615-LPS (Sep. 7, 2010).

Le v. City of Wilmington, No. 11-1770 (3d Cir. April 24, 2012) (unpublished).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

I Learned What "Dubitante" Means

noreply@blogger.com (Pamela Chestek) — Sat, 21 Apr 2012 16:08:00 +0000

For purposes of patent standing, there are generally three categories of ownership described: patent owner, exclusive licensee, and non-exclusive licensee. The first has the right to sue, an exclusive licensee must join the assignee in any patent infringement suit, and the non-exclusive licensee has no standing at all.

But the first category can be subdivided. It includes situations where the patent owner has not transferred legal title but nevertheless has assigned all substantial rights under the patent. Prima Tek II, L.L.C. v. A–Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000). The recipient of the rights is a “virtual assignee,” “de facto owner” or “effective patentee.” When does one fit into this category instead of being an exclusive licensee?

The difference is whether the assignor/licensor retained any rights in the patent. The purpose of the rule is to avoid multiplicity of suit. Take, for example, a situation where a patent owner grants an exclusive license to manufacture green widgets and the defendant is making turquoise widgets. The defendant might be infringing the exclusive licensee's right, depending on how green the widgets are, or it might be infringing the original patent owner's, if not so green. So both must participate in the suit so that the defendant does not get sued multiple times for the same infringement.

But wait, it's even more complicated than that. If the assignor/licensor granted all rights within a specific territory rather than a field of use, then the assignee/licensee has standing without joining the assignor/licensor. This is so because the Patent Act says one may assign patent rights for less than all of the United States:

The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

35 U.S.C. § 261. If, however, the assignor/licensor granted all rights within a field of use rather than a territory, then the assignee/licensee is not the “virtual owner” and must join the owner of the patent in the lawsuit. International Gamco, Inc. v. Multimedia Games, Inc., 504 F.3d 1273 (Fed. Cir. 2007) (interpreting a license with both a field-of-use restriction and a territorial restriction). In a dubitante opinion, Friedman, C.J., opined that the statute didn't actually mean to distinguish field-of-use and territorial restrictions that way, but it is the current rule.

But one more thing – an exclusive licensee who, in general, may not sue without joining the patent owner as plaintiff, may do so if it is the patent owner who is the infringer. In other words, if the patent owner granted rights excluding even itself, and then infringes, the licensee would have a claim for patent infringement as well as breach of contract.

And how do I know all this? Because of a very thorough opinion that explains all of this and more. Trendx Enterprises, Inc. v. All-luminum Products, Inc., No. 11-2512 (D.N.J. April 18, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

The Missing Inventor

noreply@blogger.com (Pamela Chestek) — Sun, 15 Apr 2012 16:25:00 +0000

I love cases where the defendant goes back and finds another potential inventor. Stemcells, Inc. v. Neuralstem, Inc. shows some of the ways this can play out - in this case, standing, and the rarely-invoked bona fide purchaser in good faith defense.

The patents in dispute are 7,115,418 entitled “Methods of proliferating undifferentiated neural cells” and 7,361,505 entitled “Multipotent neural stem cell compositions,” both of which claim priority in part to the same application filed on July 8, 1991. Accused infringer Neuralstem found a 1991 document (“1991 Memo”) with the subject line “Technique for Proliferation of Nerve Cells for Transplantation” which states the following:

This letter is to indicate the allotment of interest to the inventors of the above invention.

45% - Dr. Samuel Weiss, Dept. of Pathology

45% - Mr. Brent Allan Reynolds, Dept. of Pathology

10% - Dr. Wolfram Tetzlaff, Dept. of Anatomy

….

The inventors are in agreement with this assignment which relates to 50% of any profits derived from the invention, the other 50% being assigned to the University of Calgary … per the current policy related to Intellectual Property.

The last individual, Tetzlaff, is not listed as an inventor on either patent. On February 14, 2011, two weeks before the various motions were filed, Tetzlaff granted Neuralstem a “fully paid-up, retroactive, non-royalty-bearing, nonexclusive, worldwide, nonterminable and irrevocable license to the invention embodied in U.S. Patent Application Serial No. 07/726,812 [the original 1991 application to which both patents-in-suit claim priority], as well as all patent applications claiming priority to U.S. Patent Application Serial No. 07/726,812 ….” There isn't a dispute, at least at this stage, that the memo describes the patents-in-suit.

One more nuance – StemCells was not the owner of the patents but rather an exclusive licensee. The patents are owned by a company called Neurospheres Holdings, Ltd., of which Weiss and Reynolds are 49% owners.

Neuralstem mounted an attack (both a motion to dismiss and a motion for summary judgment) based on the 1991 Memo, i.e., StemCells was not an exclusive licensee because of Tetzleff's ownership interest, and therefore didn't have standing.* StemCells retorted that the bona fide purchaser defense insulated it from the claim. Both parties filed motions to supplement the record with additional evidence: Neuralstem has evidence that StemCells was on notice of Tetzleff's interest in the patent and StemCells has evidence that Tetzleff implicitly represented in a 1994 agreement with Neurospheres that he had no ownership interest in the patents, because he did not list them on a schedule.

Starting with standing, what interest does Dr. Tetzlaff have in the patent? In Neuralstem's opinion the memo says that Dr. Tetzlaff is an inventor; in StemCells' opinion the memo says only that Dr. Tetzlaff is entitled to a part of the profits from the patents. The court says the memo is ambiguous and could mean either. Extrinsic evidence, namely the IP policy that the 1991 Memo references, the testimony of co-inventors Weiss and Reynolds, and the absence of testimony from Tetzlaff, fails to clear up the ambiguity and neither party is granted its motion for summary judgment on standing.

Nevertheless, even assuming Tetzlaff has an ownership interest, StemCells maintains that it is a bona fide purchaser in good faith and Tetzlaff's potential ownership interest is therefore void. Section 261 of the Patent Act states that “An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.” There is one major flaw with this argument – the bona fide purchaser in good faith provision is a shield, not a sword:

In this case, StemCells attempts to make impermissible offensive use of § 261. StemCells is the plaintiff and has sued Neuralstem for, inter alia, patent infringement. As plaintiff, StemCells bears the burden of proving standing. Therefore, in asserting the bona fide purchaser defense to Neuralstem's standing challenge, StemCells effectively endeavors to use the bona fide purchaser defense to establish an essential element of its case. It well-established [sic], however, that the bona fide purchaser defense is only “a shield by which the purchaser of a legal title may protect himself against the holder of an equity, not a sword by which the owner of an equity may overcome the holder of both the legal title and an equity.” … StemCells has identified no authority proposing that a plaintiff may use § 261 to establish its constitutional capacity to sue ….

Further, if § 261 could be applied as StemCells claimed, summary judgment would still be denied because there is a question of fact about whether the 1991 Memo means that Tetzlaff is a co-inventor, in which case § 261 wouldn't apply, or instead an assignment, the type of transaction to which § 261 applies.

Given that the court doesn't know whether StemCells has standing, it declined to rule on an also-pending motion for a reconsideration of a claim construction and instead ordered the parties to propose a joint scheduling order for additional discovery on standing.

StemCells, Inc. v. Neuralstem, Inc., Civ. Nos. 8:06–cv–01877–AW, 8:08–cv–02664–AW, 8:08–cv–01173–AW, 2012 WL 1184545 (D. Md. Apr. 5, 2012). The decision is not currently available on PACER – in the court's April 6 order the court sealed it and gave the parties 14 days to oppose lifting the seal. But it's on Westlaw.

*Neurostem took a license from Tetzlaff for the patents, but that wasn't needed for the instant motions because the challenge is the absence of exclusivity of ownership. The role of an assignment/license is a defense against subsequent suits, to prevent the plaintiff from recapturing the rights from the heretofore missing inventor and suing again, or, in this case, at least to get a license to them for a license defense.

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

No Infringement for Claim Conditioned on Rescission

noreply@blogger.com (Pamela Chestek) — Wed, 04 Apr 2012 00:01:00 +0000

Lufkin Industries sued Ken Nolen, Sim Gibbs and other former employees in Texas state court for trade secret misappropriation. Nolen and Gibbs counterclaimed alleging they were fraudulently induced to assign some patents to Lufkin and sought a declaration that they are the rightful owners of the patents. The counterclaim was severed and removed to federal court by Lufkin, alleging that there was federal jurisdiction because of the patent-related claims. Nolen and Gibbs amended the complaint to include counts for patent infringement, prefaced this way:

119. Nolen seeks a rescission and/or cancellation of the assignment of the ' 890 patent to Lufkin. Thereupon such relief being granted, Nolen will again be the sole and exclusive owner of the '890 Patent and entitled to plead, prove and recover upon the following causes of action.

The federal district court dismissed the patent infringement claims on the basis that Nolen and Gibbs didn't have standing because their ownership of the patents required judicial intervention. The federal court also decided some other federal claims and some state law claims, declined to exercise supplemental jurisdiction over the remaining state law claims, and enjoined the plaintiffs from litigating the remaining claims in state court. (The decision doesn't provide any insight into why the plaintiffs were enjoined; perhaps the reason relates to the state law claims in the original Lufkin complaint.) The parties appealed to the Court of Appeals for the Federal Circuit.

But the Federal Circuit doesn't have jurisdiction. The Federal Circuit has jurisdiction over "an appeal from a final decision of a district court of the United States ... if the jurisdiction of that court was based, in whole or in part, on 28 U.S.C. § 1338 …." 28 U.SC. § 1295 (2010). Section 1338 provides jurisdiction “only to those cases in which a well-pleaded complaint establishes either [1] that federal patent law creates the cause of action or [2] that the plaintiffs right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.” But a claim for patent infringement does not arise under the patent laws when it requires judicial action to vest title in the party alleging infringement. Therefore the plaintiffs' conditioning of their patent infringement claims on first having to obtain a rescission of the contract assigning the patents to Lufkin means that there is no live patent infringement claim and thus no Federal Circuit jurisdiction. The Federal Circuit transferred the case to the Fifth Circuit.

Nolen v. Lufkin Indus., Inc., Nos. 2011–1251, 2011–1265, 2011–1278, 2011–1279, 2011–1499, 2011–1500, 2011–1522, 2011–1523 (Fed. Cir. Feb. 1, 2012) (nonprecedential).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

I Don't See This Going Very Far

noreply@blogger.com (Pamela Chestek) — Sun, 01 Apr 2012 21:53:00 +0000

Ray Charles was either an employee and wrote and performed music in the scope of his employment, or exercised his termination right to his songs in 1980 in settlement of a suit against his publisher, or alternatively the settlement was an assignment of the songs. Shortly before his death in 2004, he granted his 12 children irrevocable trusts of $500,000 each on the condition that they relinquish and waive any further claim to his estate, which they all did. Seven of the children now are trying to terminate the copyrights in Ray Charles' works. The Ray Charles Foundation filed a declaratory judgment action against the seven children on the basis that there is no termination available to them, either because works-made-for-hire can't be terminated or Ray Charles already had his one bite at the apple, or the termination rights for songs assigned in 1980 aren't ripe yet. It's the kind of claim that you hope can go away quickly (like on a motion to dismiss), but copyright termination is so convoluted I wouldn't be surprised if it doesn't. I'm rooting for the Ray Charles Foundation, though.

Complaint below.

Ray Charles Found v Robinson

Ray Charles Foundation v. Robinson, No. CV12-02725 ABC (FFNx) (C.D. Cal.) filed March 29, 2012.

HT to Aaron Silverstein.

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Be Careful What You Wish For

noreply@blogger.com (Pamela Chestek) — Sun, 18 Mar 2012 15:49:00 +0000

In the past I reported on a dispute between Pinnacle Pizza, franchisee, and Little Caesar Enterprises (LCE), franchisor of Little Caesars pizza shops. Pinnacle Pizza invented the tagline “Hot 'N Ready” for a particular promotional program, which was then adopted by the franchise chain. Pinnacle Pizza sued LCE, claiming that it, not LCE, owned the tagline. The court of appeals ultimately affirmed the trial court on LCE's ownership and also held that Pinnacle Pizza breached the franchise agreement by challenging the validity of LCE's trademark rights in “Hot 'N Ready.”

Fast forward to the renewal time for the franchise agreement. LCE refused to renew the franchise agreement with Pinnacle Pizza (now Sioux Falls Pizza Company, Inc.). If you guessed that LCE was none too pleased with Pinnacle Pizza's previous lawsuit, so displeased that it refused to renew, you'd be right. The decision involves whether LCE had the latitude to refuse to renew, made a bit more complicated by a change to the franchise agreement as the result of a class action suit against LCE that Pinnacle Pizza didn't bring but also didn't opt out of. The trial court held that LCE has the right to terminate the franchise agreement because of the prior breach and Sioux Falls Pizza has 35 days from the date of the order to terminate its operations.

Sioux Falls Pizza Co., Inc. v. Little Caesar Enterprises, Inc., No. CIV 11–4047–RAL (D.S.D. March 14, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Who Owns a Domain Name?

noreply@blogger.com (Pamela Chestek) — Wed, 14 Mar 2012 01:59:00 +0000

If you say the person listed as the “registrant” in the domain name record owns the domain name, the court in Fraserside IP L.L.C. v. Kovalchuk might disagree with you. The question before the court was personal jurisdiction over Igor Kovalchuk, the person listed as the registrant of the website www-dot-DrTuber-dot-com (web site definitely not safe for work). Kovalchuk is a citizen and resident of Russia and has never visited or conducted business in Iowa, the state where the lawsuit was brought. He says that the website is owned by ERA Technologies, Ltd. and he just manages the technology for ERA. For purposes of personal jurisdiction, the court agreed that the plaintiff had not met its burden of proving Kovalchuk's ownership:

Because domain names may be sold, leased, or licensed, it does not necessarily follow that being the registrant of a domain name equates with operational control over the website using that domain name. Here, Kovalchuk specifically disputes his ownership and operation of www.DrTuber.com and has explained that ERA is the website's actual owner while he merely manages ERA's technology. Fraserside has not countered Kovalchuk's sworn affidavit with affidavits or other evidence. Thus, after looking at the facts in the light most favorable to Fraserside, and resolving all factual conflicts in favor of it, Fraserside has not established that Kovalchuk owns and operates www.DrTuber.com. Thus, ownership and operation of the website www.DrTuber.com cannot constitute a basis for personal jurisdiction over Kovalchuk.

The court did not have general or specific jurisdiction over Kovalchuk and the motion to dismiss was granted.

Fraserside IP L.L.C. v. Kovalchuk, No. C11-3040-MWB (N.D. Iowa March 5, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

The Danger of Overreaching

noreply@blogger.com (Pamela Chestek) — Sun, 11 Mar 2012 13:34:00 +0000

drawing and specimen for plaintiff's trade dress registration

Plaintiff Lauren Brenner started Pure Power Boot Camp, a military-style exercise facility. She hired the defendants and they decided to start a competing business called Warrior Fitness Boot Camp. The defendants behaved despicably; while still her employees they had one's client/girlfriend promote Warrior Fitness to Pure Power customers (the “dating a client” part also against company rules), they stole documents from Brenner's private office and personal computer, including business plans and customer lists, they stole and destroyed their own employment agreements with Pure Power, they disparaged Brenner to Pure Power clients, and, the coup de grâce, one of them successfully lobbied for the firing of a co-worker, then provoked a fight with Brenner leading to his own firing, leaving her in the lurch with only one trainer for two facilities and freeing him to go work at Warrior Fitness.*

With all that, though, Pure Power was less successful in its kitchen sink of claims than one might think. The two defendants who were former employees had employment agreements (well, one denied signing it, but since they were destroyed I guess we'll never know). The Employment Agreement was broadly written, which ultimately meant that it failed to serve the plaintiffs' needs because most of its restrictions were found unenforceable. This included the non-compete provision (10 years and no geographic limitation was unreasonable in scope), the non-solicitation provision (same), and the “best efforts” provision (no objective criteria for “best efforts”). There was a breach of the non-disclosure provision, but for zero damages because there was no proof that Warrior Fitness's success was based on gaining the confidential information.

The agreement's “intellectual property” provision also failed because it overreached. This provision stated that, as an employee of Pure Power:

You acknowledge that [Pure Power's] obstacle-confidence courses and related environments, and the marketing thereof, embody and/or reflect inventions, discoveries, concepts, ideas, developments, improvements, methods, processes, know-how, trade secrets, designs, trademarks, ... trade dress, textual and graphic material, and a distinctive overall look and feel (collectively, “Intellectual Property”). You agree that all such Intellectual Property, regardless of whether or not it is capable of patent, trademark, trade dress, trade secret or copyright protection, is exclusively owned by [Pure Power]. You shall not, during the course of your employment or any time thereafter, challenge [Pure Power's] ownership of any Intellectual Property or the validity or enforceability thereof, nor shall you use any Intellectual Property in any competing business, or in any other way without [Pure Power's] express written permission, during or after your employment with [Pure Power].

The problem is that under New York law, the terms of an agreement have to be “definite and explicit” but this provision was “impermissible vague, indefinite, and overbroad.” There were no durational limits, which meant that even if Pure Power went out of business the employees would be excluded from using the “Intellectual Property.” Further, the employees were not just prohibited from challenging the validity or enforceability of any intellectual property, but “cannot use any Intellectual Property … in any other way”: “It is impossible for the Court to uphold this provision without imposing its own conception of what exactly is meant by the vague and indefinite phrase: 'in any other way.'”

But I think this is the most significant point:

Moreover, it is not simply the case that, in signing the Employment Agreement, Defendants agreed not to challenge the validity of an existing trademark or patent. Here, the provision applies to Pure Power's alleged “Intellectual Property,” even if the alleged intellectual property is not “capable of patent, trademark, trade dress, trade secret, or copyright protection,” or even of definitions. This intellectual property provision, however, is vague and indefinite and cannot be said to promote predictable contractual relationships. Permanently barring an employee from challenging an employer's alleged intellectual property—however vaguely defined—runs contrary to the important interest in permitting full and free competition in the use of ideas which are in reality a part of public domain. Plaintiffs have failed to explain what legitimate business interest they are seeking to protect or promote, through contract, beyond that already covered by state and federal intellectual property law, or why they are entitled to an additional layer of protection substantially restricting Defendants' freedom to use and incorporate ideas and concepts relating to the United States military—ideas and concepts to which Brenner, of course has no special claim.

Thus, the agreement was written broadly to try to capture something greater than what we would traditionally consider "intellectual property," but what that might encompass was too vague to be enforceable. That's not to say that an employment agreement can't prohibit behavior that might otherwise be perfectly permitted under the law, but it must do so in a way that is definite and is based on a legitimate business interest.

Although the employment contract was no help, the plaintiff was successful on a breach of the duty of loyalty under New York state law's “faithless servant” doctrine. This resulted in a disgorgement of the former employees' earnings while employed at Pure Power, starting at the time they first stole documents. There were also punitive damages for the willful conduct, for a total of about $250,000.

There was also a claim for infringement of the registered trade dress (plaintiffs' facility pictured at top and defendants' facility immediately above), which you can see had to go nowhere. Although the décor was considered inherently distinctive and nonfunctional, the plaintiff was actually trying to protect her ideas, concepts, and innovations with her infringement claim. But distilled down to just the “look and feel,” the defendants' facility looked different and there was no likelihood of confusion.

Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, No. 08 Civ 4810 (THK) (S.D.N.Y. Sep. 12, 2011).

*IIRC, in New York if one is fired any non-compete becomes unenforceable. Hmmmm.

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Treating Patents More Like Property

noreply@blogger.com (Pamela Chestek) — Wed, 07 Mar 2012 02:27:00 +0000

The Patently-O blog has a thoughtful post on patent ownership and licensing, advocating for a stricter recording requirement:

Because of an inadequate system for recordation, prospective purchasers, licensees, lenders, and even defendants in a lawsuit may have to take it on faith that the seller, licensor, borrower, or plaintiff truly owns, and has not previously encumbered, these patent rights.

But more than just identifying the problem, the author also has some practical suggestions for a legislative fix.

Patently-O: It's Time for a Reliable System to Determine Who Owns a U.S. Patent

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

BODY UP Going to the District Court

noreply@blogger.com (Pamela Chestek) — Tue, 06 Mar 2012 02:18:00 +0000

The BODY UP decision at the Trademark Trial and Appeal Board has been appealed to the District Court for the District of Columbia.
Body Up Dist. Ct. Complaint

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

North Carolina IP Section Annual Meeting

noreply@blogger.com (Pamela Chestek) — Thu, 01 Mar 2012 00:51:00 +0000

I am pleased to be speaking at the 2012 North Carolina Bar Association Intellectual Property Law Section Annual Meeting on March 23, 2012. My session is titled "Who Owns the Intellectual Property?" I'll be covering developing law surrounding the ownership of patent, copyright and trademark rights (what else?).

Details here. Hope to see you there.

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

No Do-Overs

noreply@blogger.com (Pamela Chestek) — Sun, 26 Feb 2012 15:26:00 +0000

Scanner Technologies Corp., the defendant in the declaratory judgment action, was the owner of 13 patents in the same family. There were multiple suits between it and declaratory judgment plaintiff ICOS Vision Systems, Inc. over “ball grid inspection devices,” which inspect the electrical connections between a microchip and circuit board.

In 2008, ICOS filed a declaratory judgment action against Scanner Technologies for noninfringement and invalidity of eight patents in the family. To try to escape the suit, Scanner Technologies gave a covenant not to sue on the patents. It didn't work though; the court didn't dismiss the declaratory judgment action because the CNS didn't cover future product; therefore ICOS was still in apprehension of suit on improvements to its existing products. That suit is still pending and now consolidated with the present dispute about the last patent in the family, the '237 Patent.

The '237 Patent issued after Scanner Technologies gave the CNS, so ICOS filed another declaratory judgment suit. The '237 Patent is broader than the eight patents in the CNS, thus practicing the eight other patents would still infringe the '237 Patent unless the infringement was excused by a license. ICOS tried to get Scanner Technologies to agree to give it a CNS for the '237 Patent, but, not only was it unsuccessful, Scanner Technologies revoked the earlier CNS, stating in an email:

Nevertheless if we are unable to achieve a satisfactory resolution, Scanner is reserving all its rights permitted by law on the entire portfolio. To that effect, Scanner has revoked the CNS agreements previously executed as per the attached revocations. Since Transcore, the authority upon which you are relying makes it clear that a CNS is a license, in the absence of a related settlement agreement as per Trancore with terms to the contrary, the CNS is a revocable license. Since Scanner was unable to defeat ICOS and NVIDIA's claim of jurisidiction [sic], there is no benefit to Scanner to continue the license and thus has revoked them as per the attached revocations.

ICOS thereafter filed a motion for summary judgment claiming a licensee estoppel defense.

The court described four ways that an implied license can arise: by acquiescence, by conduct, by equitable estoppel, or by legal estoppel. It was the last, legal estoppel, that the court considered.

The court agreed with Scanner Technologies that a legal estoppel defense arises only where there has been consideration for the license granted. The court also agreed that there was no consideration given for the covenant not to sue. But promissory estoppel can serve as a substitute for consideration, which is what happened here:

In reliance on the CNS, ICOS has expand its sales worldwide and has indemnified its customers against future suit. NVIDIA, in turn, has relied on the CNS for assurance that as ICOS's customer, it is entitled to continue using ICOS's ball grid array inspection devices that existed as of March 10, 2009 without risk that Scanner will bring suit against NVIDIA for infringement of the CNS Patents. Scanner presents no facts that show a genuine issue of material fact as to whether ICOS and its customers relied on the CNS. Accordingly, ICOS has demonstrated promissory estoppel and satisfies the element of consideration for the CNS. ICOS has therefore established that the CNS constitutes a valid license.

So the CNS was valid but there was one more hurdle: the '237 Patent wasn't part of the CNS. However, Scanner Technologies had threatened ICOS with the '237 Patent and enforcing the '237 Patent would derogate ICOS's right to practice the claims of the patents included in the CNS because the '237 Patent was broader. ICOS therefore must have the benefit of its bargain and be allowed to fully practice the eight patents in the CNS. To the extent it required a license to the '237 Patent to do so, ICOS has an implied license.

Further, because the '237 Patent was a continuation patent and, by definition, a continuation patent cannot claim a new invention not already supported in the earlier patents, the license to the eight patents in the CNS was also an implied license to the '237 Patent. The case was dismissed.

ICOS Vision Sys. Corp. v. Scanner Tech. Corp., No. 10 Civ. 0604 (PAC) (S.D.N.Y. Feb. 15, 2012).

ICOS Vision Sys. Corp. v. Scanner Tech. Corp., No. 08 Civ. 8102 (DC) (S.D.N.Y. March 29, 2010).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

When the Law Fails

noreply@blogger.com (Pamela Chestek) — Wed, 22 Feb 2012 00:48:00 +0000

Sometimes I find great dissonance between the application of trademark law and the marketplace realities. The parties line all their legal ducks up in a nice straight row, but there's just such an inconsistency between what the legal outcome is and what consumers' understanding of the situation might be.

E & J Gallo v. Proximo Spirits, Inc. is that kind of case. Plaintiff Gallo contracted with Tequila Supremo, a tequila supplier in Mexico, to produce a tequila that would be sold under the brand name "Familia Camarena." Tequila Supremo filed three trademark applications that contained the word "Camarena" in them, CAMARENA, FAMILIA CAMARENA and FAMILIA CAMARENA 1761. Gallo, however, filed trademark applications for the shape of the bottle that would be used for the tequila:

USPTO record

The ownership rights were defined in an agreement between Gallo and Tequila Supremo; Tequila Supremo was to own the CAMARENA name (it was the name of the owners of the company) and Gallo was to own the bottle design and packaging. Gallo is licensed to use the CAMARENA trademark and Tequila Supremo is licensed to use the Gallo bottle. (It's not clear where Tequila Supremo would use it. Gallo is the exclusive distributor of FAMILIA CAMARENA tequila in the United States, so presumably no one else could be using the bottle design in the United States, at least for FAMILIA CAMARENA tequila. Query whether Tequila Supremo may use the bottle for other types of alcohol in the United States, a highly relevant question to distinctiveness.)

Both Gallo and Proximo Spirits moved for summary judgment on a counterclaim that the Gallo and Tequila Supremo trademark applications and registrations were void for fraud. The theory is this: because Gallo is merely a distributor of the tequila and Tequila Supremo insures the quality of the tequila, Gallo cannot be the owner the bottle marks. The theory against Tequila Supremo is - well, since defendant Proximo Spirits repeatedly said that Tequila Supremo controlled the quality of the tequila there wasn't a theory, so the court denied the counterclaim as to Tequila Supremo.

Proximo Spirits argued that the fraud was based on a false statement in the declaration, which was that Gallo was the sole source of the tequila, manufactures the tequila, or controls the quality. But there are no statements like that in the application, rather one only avers that it is the owner of the applied-for mark. As a consequence,

Accordingly, Counterclaimants fail to carry their heavy burden to establish that Gallo expressly misrepresented in its applications that it was the sole source of Camarena Tequila.

....

Counterclaimants' "sole source" theory appears to be based on outdated trademark law. Although a trademark originally indicated the source of the related product, trademark law has shifted to recognize various valid premises upon which a person or entity may own a trademark, including the control of a product's quality:

The historical conception of trade-mark as a strict emblem or source of the product to which it attaches has largely been abandoned. The burgeoning business of franchising has made trade-mark licensing a widespread commercial practice and has resulted in the development of a new rationale for trade-marks as representations for product quality.

Siegel v. Chicken Delight, Inc., 448 F.2d 43, 48–49 (9th Cir.1971). Because of this changing rationale and growth in the practice of trademark licensing and franchising, a trademark is not necessarily an indicator of source. Indeed, a trademark may denote source, control of quality, and good will, among other things. Moreover, it is not uncommon to see marks of more than one company appearing on or denominating a single product or service. The marks of different companies may appear on a single product where they serve separate functions such as "manufacturer/distributor" or "licensor/licensee." Accordingly, and contrary to Counterclaimants' arguments, a trademark does not necessarily designate the source of the goods or services with which it is associated.

Viewed under this legal perspective, Counterclaimants' "sole source" misrepresentation theory fails legally and factually.

The court also assessed defendant's theory that Gallo was not the owner of the mark because it was only a distributor and therefore didn't control the quality of the tequila goods. Gallo successfully deflected the theory on the basis that distributors may, indeed, own trademarks, that the agreement with Tequila Supremo allowed it to own the trademark in the bottle shape, and that it also participated in quality control by inspecting the tequila.

This is all an utterly correct statement of law, but completely misses the point. There are lots of ways that two trademarks can be used on the same goods. There can be a house brand used with a product brand, like a well-recognized Apple logo with the "iPod" word mark:

The court characterized the relationship between Gallo and Tequila Supremo as "co-branding," but that's wrong. In a co-branding relationship, the different owners' use of their respective marks represents different types of relationship with the goods or services. When we see Edy's Nestlé Butterfinger ice cream we know that Edy's makes the ice cream and the Butterfinger is a component of the ice cream. When we see "Mercedes Benz Fashion Week," we don't think that Mercedes Benz has gone into the fashion or the trade show business, but rather that it paid to a lot of money to have high exposure for its brand so it could ultimately sell more cars.

Where this case went off the rails is that the court didn't examine whether the use of the marks was consistent with what a consumer might think about the message conveyed by that use. As consumers, we think that the label on the bottle and the bottle itself are from the same source, that is, that both trademarks, the label and the bottle, are conveying the same relationship-type information. So something is fundamentally wrong if you can say that two trademarks providing the same information - in this case "I am the source" - can be owned by two different entities.

As proof, imagine the label and bottle shape are disconnected. In that case, because a product packaging or configuration mark is very weak, we will soon assume that the bottle shape is not an indicator of source. Imagine if the Coke bottle was licensed for use for a coffee drink by a different company - how long would it take before we don't think of it as standing for "Coke" anymore? If Gallo had established the bottle as its trademark by its exclusive use across a number of its products, so we had learned that the bottle shape means "Gallo" regardless of the liquid inside - the house mark/product mark relationship - the outcome might be different. But that's wasn't this case.

I think the defendant had the correct view of what consumers would think, i.e., no consumer would think that the shape of the bottle and the name of the brand on the label are indicators of different source. But the defendant could find no hook in the law that supported that theory. I'm hoping for an appeal.

E & J Gallo v. Proximo Spirits, Inc., No. CV-F-10-411 LJO JLT (E.D. Cal. Jan. 30, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Inventing a Chemical Compound

noreply@blogger.com (Pamela Chestek) — Sat, 18 Feb 2012 15:28:00 +0000

Plaintiff Olusegun Falana was hired to work on synthesizing chemical compounds for use in liquid crystal display screens. The compounds had to perform over a range of temperatures. Falana developed a protocol for synthesizing compounds and, using the protocol, synthesized "Compound 7." Compound 7 had a much improved temperature range, but it still wasn't adequate. Falana then left the project and his boss synthesized "Compound 9" using Falana's protocol, which had all the characteristics they were looking for. A patent was filed that described the synthesizing protocol in the specification, however the patent didn't claim the protocol, it only claimed compounds. Falana was not named as an inventor, so he filed suit for correction of inventorship.

The Federal Circuit relied on the principle that conception of an invention for a chemical compound requires knowledge of both the specific chemical structure of the compound and an operative method of making it, and concluded:

Accordingly, this court holds that a putative inventor who envisioned the structure of a novel genus of chemical compounds and contributes the method of making that genus contributes to the conception of that genus. This holding does not mean that such an inventor necessarily has a right to claim inventorship of all species within that genus which are discovered in the future. Once the method of making the novel genus of compounds becomes public knowledge, it is then assimilated into the storehouse of knowledge that comprises ordinary skill in the art. Additionally, joint inventorship arises only “when collaboration or concerted effort occurs—that is, when the inventors have some open line of communication during or in temporal proximity to their inventive efforts.” Eli Lilly & Co. v. Aradigm Corp., 376 F.3d 1352, 1359 (Fed. Cir. 2004).

The Patent and Trademark Office must issue a certificate of correction correcting inventorship.

Falana v. Kent State Univ., No. 2011-1198 (Fed. Cir. Jan. 23, 2012) (nonprecedential).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Sketchy Standing Decision

noreply@blogger.com (Pamela Chestek) — Sun, 12 Feb 2012 15:05:00 +0000

The only good thing about the latest Federal Circuit standing decision is that it's nonprecedential. This is the sequence of events, taken from both the majority's and dissent's statement of them:

In 2002, The Dow Chemical Company ("Dow") assigned patents to a holding company, Dow Global Technologies, Inc. ("DGTI"). The dissent described the assignment as of "essentially [Dow's] entire patent portfolio" as part of a tax strategy. This was the grant:

2.01 Transfer of Patent Rights and Technology. Effective on the Transfer date, [Dow] hereby conveys, transfers, assigns and delivers to DGTI, and DGTI hereby accepts from [Dow] as an additional contribution to DGTI's capital, all of [Dow's] right and title to and interest in the Patent Rights, Technology and Work Processes, which rights are owned or controlled by [Dow] on the Transfer Date or thereafter.

The language defining "Patent Rights" is the crux of the problem:

1.07 “Patent Rights” means any and all patents and applications for patents of any kind, filed with and/or granted by a governmental body of the United States or any other country ... which are owned solely or controlled by [Dow] on the Transfer Date or thereafter, that [Dow] is able to assign to DGTI without the consent of or accounting to a Third Patty or Affiliated Company, without diminishing the royalties paid or payable by or otherwise materially affecting the obligations of such Third Party or Affiliated Company with respect to such Patent Rights, and without resulting in a loss of rights. The parties shall provide a schedule of Patent Rights as Schedule A to this Agreement, within ninety (90) days of the Effective Date, and shall provide subsequent supplements thereto from time to time during the Term.

The agreement also said this about the schedules to the agreement:

9.07 Schedules. Each of the schedules referenced within this Agreement, prospectively including any updates or amendments thereto, is deemed incorporated herein by reference. While care shall be taken in the provision of the schedules, it is recognized that inadvertent errors may occur. Accordingly, inclusion of an item on one or more schedules shall not give rise to rights or an implication that DGTI has rights greater than those expressly provided for in this Agreement. Likewise, omission of an item from one or more schedules shall not give rise to an implication that DGTI has rights less than those otherwise provided for in this Agreement. Upon their mutual recognition of an error in one or more schedules, the parties will amend the erroneous item(s) on the affected schedule(s).

In 2005, Dow sued defendant Nova Chemicals Corp. for patent infringement.

Five months after discovery closed Dow first produced a Schedule A that said "this Schedule includes all Patent Rights of [Dow] ... excluding Excluded Patent Rights set forth in Schedule 'D'" and a Schedule D that indeed listed the patents-in-suit, although the patents had been added to Schedule D years after suit was filed and right before it was produced. Dow also produced a "Quitclaim Deed," dated four days before it was produced, assigning "all of DGTI's right, title, and interest to the Patents[-in-suit], if any."

Defendant Nova pressed for further disclosure. Dow then produced a 2002 version of Exhibit D that did not list the patents-in-suit and a Schedule A dated September 15, 2005 that, unlike the broad language in the earlier-produced Schedule A, listed a number of patents by number but not the patents-in-suit.

To recap, the definition of assigned patents had three exclusions: (1) the transfer would require "the consent of or accounting to a Third Party or Affiliated Company"; (2) the transfer would "diminish[ ] the royalties paid or payable by or otherwise materially affecting the obligations of such Third Party or Affiliated Company with respect to such Patent Rights"; or (3) the transfer would result in "a loss of rights."

Everyone agreed that the first two exclusions didn't apply, leaving the question whether transferring the patents-in-suit would have resulted in a "loss of rights." Nova argued that the language was intended only for those patents in litigation pending at the time of transfer, designed so that there would be no loss of standing in those cases. At the time the assignment was being drafted, Dow's Managing Patent Counsel sent a question by email:

"Did transfer of all patents into this new company have any provisions on how to handle pending litigations under Dow patents.... It is a question of who had standing and who is the real party in interest in these litigations."

The response was:

"Thank you for the feedback. I've addressed this issue in the contribution agreement by excluding patents that can't be transferred to DGTI without a loss of rights (previously, it excluded patents that can't be transferred to DGTI without a loss of patent protection). As an overall safety net, there is a schedule of excluded intangible assets, just in case there may be other instances in which we determine that there would be some disadvantage in transferring the assets to DGTI."

Dow's argument was that, in addition to patents in pending litigation, the language was meant to preserve the ability to recoup lost profits in future litigation.

(I don't follow Dow's theory. Does it mean that Dow somehow was prescient in knowing that these patents would be litigated in the future and therefore didn't assign them? Or that the patents flow back and forth without any further action by Dow or DGTI as litigation comes and goes? Was it the Schrödinger's cat of assignments, any given patent was both assigned and not assigned depending on whether it was a tax situation or a patent infringement situation?)

But the majority punted on the language. It held that, while it didn't know what the "loss of rights" language was supposed to mean, it didn't matter because Schedule A was the definitive list of what was assigned, the patents-in-suit weren't on it, ergo, they weren't assigned and Dow had standing to bring suit.

The dissent disagreed with the majority's conclusion about Schedule A's role:

Section 1.07 defines the transferred Patent Rights as "any and all patents" owned by Dow that Dow can assign without implicating one of three exceptions, none of which reference Schedule A. Nowhere in the Contribution Agreement is the transfer predicated or dependent upon whether patents are listed on Schedule A. Indeed, Section 9.07 makes clear that the contents of the schedules are not controlling. Moreover, Section 2.01 provides that Dow "hereby" transfers the patents, which strongly indicates an immediately effective transfer, while Schedule A was not even required to be completed until after the Contribution Agreement was executed.

To find that no patents were transferred unless and until listed on the Schedule A ignores Section 9.07, nullifies the transfer set forth in Section 2.01, renders superfluous the detailed and specific definition of Patent Rights in Section 1.07, and rearranges the fundamental purpose of the tax and business scheme intended under the agreement as a whole. Such a reading would cause most of the Contribution Agreement to be "meaningless or illusory." The reference to Schedule A in the Contribution Agreement shows that the parties desired to make and maintain a listing of the patents that were transferred to DGTI as a matter of convenience, not as a prerequisite to a valid transfer.

The dissent also didn't buy Dow's argument that somehow these patents fit into the "loss of rights" exclusion, reciting all the extrinsic evidence (which, under Delaware law, should have been considered because the language was ambiguous) that the intention was only to exclude those patents in litigation at the time of the assignment. As well as the language of the agreement and the emails described above, the dissent also described all the ways that the company treated the patents as assigned for tax purposes.

I agree with the dissent; I don't see how you would draft an agreement intending to assign only scheduled properties but also have an extensive, but apparently non-binding, description of what should be on the list - you don't need both. But I will be taking a closer look at the language of grant clauses and schedules in the future after having read this case.

Perhaps the whole thing was just a matter of bad timing. The district court sat on the motion on standing for nine months and heard it the day after the jury returned a verdict for Dow on the infringement trial. Maybe the majority just didn't have the stomach for a do-over with the right party-in-interest.

Dow Chem. Co. v. Nova Chems. Corp. (Canada), No. 2010–1526 (Fed. Cir. Jan. 24, 2012) (nonprecedential).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

The Yankees Still Own Their Logo

noreply@blogger.com (Pamela Chestek) — Wed, 01 Feb 2012 02:34:00 +0000

Last April there was an interesting complaint filed (blogged here) by a woman who claimed that her uncle, Kenneth Timur, now deceased, had designed the New York Yankees logo in 1936 but hadn't been compensated for it. The plaintiff's proof of authorship was the fact that her uncle, when he revised the logo in 1952, put "1P089" instead of "1908" on the top of the logo, thus:

As you might have guessed, the complaint was kicked six ways to Sunday. First, there was no diversity jurisdiction and no federal subject matter jurisdiction because the complaint alleged infringement of a common law copyright, which is a claim under state law, not federal.

But the court, after formally dismissing the case on jurisdictional grounds, had just gotten started:

Moreover, if the Court were to have jurisdiction over this matter, it would find that Plaintiff's First Amended Complaint utterly fails to state a claim upon which relief may be granted. All of Plaintiff's non-copyright claims have been barred by the applicable statutes of limitation for over half a century. Plaintiff's argument that equitable estoppel applies to toll the statutes of limitation because the Yankees somehow concealed the Logo's provenance from the Logo's own creator is laughable.

Ouch. But the court didn't stop there, also finding that section 301 of the Copyright Act of 1976 expressly preempts any common law copyright claim. Next up, in 1936 there was only a common law copyright for unpublished works (published works would have fallen under the Copyright Act of 1909), but a theory that the work was unpublished was inconsistent with the statements in the complaint that the Yankees commissioned the logo, Timur transferred the logo to the Yankees, and the Yankees published the logo as part of the Yankees uniform.

The court didn't even stop there, opining on the outcome of the plaintiff's claim for infringement of a published work that wasn't made. Any infringement claim fails here too; if the work had been published under the Copyright Act of 1909, even if registered and renewed (it wasn't), the copyright would have expired in 1992.

All that in nine pages in Courier New, double-spaced (okay, a one-sentence carryover and signature on the tenth page). About six solid bases for dismissal but hope springs eternal; the plaintiff has appealed.

Buday v. New York Yankees Partnership, No. 1:11-cv-02628-DAB (S.D.N.Y. Oct. 20, 2011).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Defining Terms (Especially the "Agreement")

noreply@blogger.com (Pamela Chestek) — Sun, 29 Jan 2012 14:01:00 +0000

Sometimes you read a decision and don't know what the arguments really are until you read the dissent. Abbott Point of Care, Inc. v. Epocal, Inc. is one of those cases. Out of the Federal Circuit, it's a question about whether a former employee's duty to assign inventions survived various changes in the relationship and various agreements between the inventor and his employer.

Dr. Imants Lauks, the inventor and founder of defendant Epocal, Inc., had been employed by Integrated Ionics, a predecessor to the plaintiff Abbott Point of Care, Inc. There were ultimately three agreements in play. First, in 1984 Lauks executed an agreement that covered confidentiality, non-competition, non-solicitation, disclosure and assignment provisions. There didn't appear to be any dispute that, had Lauks invented something while this agreement was operative, Integrated Ionics would own it.

Integrated Ionics became i-STAT and in 1994 Lauks executed an employment agreement with i-STAT that covered employment duties, compensation, benefits, termination and severance payment. In 1999 Lauks resigned from i-STAT and instead entered into an eighteen-month consulting relationship that expired on March 1, 2001. The consulting agreement defined Lauks consulting services and also said, in a section entitled "Continuation of Employee Confidentiality, Non-Solicitation and Non-Competition Covenants" that:

The existing agreement between Lauks and [i-STAT] regarding confidentiality, non-solicitation and non-competition (the 'Existing Confidentiality Agreement') shall remain in place as if Lauks remained employed by [i-STAT], except that the covenants regarding non-competition shall run 18 months after the execution of the Consulting Agreement.

Lauks filed the applications on the patents-in-suit on June 4 and 8, 2001, three months after his consulting relationship ended, and assigned the resulting patents to Epocal. Abbott acquired i-STAT and now claims that the 1984 agreement, including the assignment provision, was operative until March, 2001. It claims that Lauks conceived of the inventions before then and therefore Abbott owns the patents.

The appeals court held that the 1999 Consulting Agreement didn't continue the assignment provision of the 1984 agreement, but only the confidentiality, non-solicitation and non-competition provisions. The court considered the above language unambiguous.

The dissent saw it differently. The dissent informs us that the 1984 agreement was untitled, but that the 1992 employment agreement referred to the 1984 agreement in its entirety as "The Confidentiality and Non-Competition Agreement," and that Lauks and Epocal also referred to it (although it's not clear where) as the "certain letter agreement . . . concerning employee confidentiality and non-competition." These instances of using a shorthand reference to the entire agreement makes it less clear what the use of the term "Existing Confidentiality Agreement" in the 1999 Consulting Agreement means - whether it was to the "confidentiality, non-solicitation and non-competition" provisions of the agreement only or the agreement as a whole.

There is more, though. The 1999 Consulting Agreement also recognized that

[t]he Consulting Agreement does not extend to work on new products, whether or not based on [i-STAT's] core technology and whether or not for point-of-care blood analysis applications.

These provisions would be inconsistent with a duty on Lauk's part to assign inventions on all his work. The dissent doesn't address this, but then it also only disagreed about granting the motion to dismiss rather than remanding for additional factfinding.

Lawyers are generally anal about defining terms, and this case demonstrates why it's good practice. Had the dissent carried the day and the contract been interpreted differently, Lauks might have lost his entire business because of ambiguity about whether he succeeded in retaining his invention for his new company.

Abbott Point of Care, Inc. v. Epocal, Inc., No. 2011-1024 (Fed. Cir. Jan. 13, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

The Danger of Terms of Art

noreply@blogger.com (Pamela Chestek) — Tue, 24 Jan 2012 03:48:00 +0000

Sherman & Associates, Inc. v. Oxford Instruments, PLC discusses the fairly commonplace question of whether plaintiff Sherman & Associates, who was only a patent licensee, has standing to sue. The answer hinged on interpretation of the contract between it and the patent owner, ASM America, Inc. Sherman & Associates was originally the owner of the patent-in-suit, but it had transferred title to ASM several years earlier. In exchange, Sherman & Associates received a "non-assignable, nontransferable worldwide exclusive right to grant sublicenses under the Sherman Patents in fields of use other than the field of Microelectronic Applications" from ASM. The question was whether this right to sublicense also included the right to sue for infringement.

The first notable part of the case was the position of patent owner ASM - it was named by Sherman & Associates as a defendant in the Amended Complaint, with this statement: "ASM has an interest in the outcome of this litigation, and is a proper party to this action as a plaintiff, defendant, defendant patent owner, or involuntary plaintiff, whichever designation is deemed appropriate by this Court." Sherman & Associates had named ASM in its Certificate of Interested Entities when it filed suit and two months later filed the Amended Complaint adding ASM, so there was presumably some communication about the issue. And presumably any communication with ASM didn't turn out well because, not only did Sherman & Associates name ASM as a defendant, ASM was the one who filed the Motion to Dismiss under FRCP 12(b)(1), not the accused infringer Oxford Instruments.

But the eyebrow-raising part of the decision is the court's interpretation of this language, fairly standard in any licensing agreement:

Sherman agrees to cooperate and assist ASM in any litigation involving the Sherman Patents on reasonable terms and conditions to be agreed upon. Sherman also agrees to assist ASM in patent prosecution relating to the Sherman Patents at no cost to ASM. ASM will pay all prosecution costs and will reimburse Sherman for any out of pocket costs.

What did the court do with this?

[T]he contract says nothing about Sherman’s right to litigate. The only language in the contract about litigation anticipates that ASM will be litigating, and does not limit such litigation to the field of microelectronics. See Bunsow Decl. Ex. A ¶ 1(g) ("Sherman also agrees to assist ASM in patent prosecution relating to the Sherman Patents at no cost to ASM."). Sherman argues that the paragraph about litigation contains no reciprocal language because he is the inventor of the patent and would not need any assistance from ASM in prosecuting a patent. That is plausible, but it is no more plausible than ASM’s suggestion that the parties did not intend for Sherman to do any litigating.

What!? The court thinks that the language about "prosecuting" patents is further elaboration on the preceding sentence about litigating patents?

It's easy to understand how this happens. When I talk about "prosecuting" patents to anyone but a patent lawyer, I follow up with an explanation of what that means. Apparently no one helped the judge out with that part of it here. Nevertheless, the court otherwise had adequate reason to find that Sherman & Associate's didn't have the right to sue and dismissed the case.

Sherman & Associates, Inc. v. Oxford Instruments, PLC, No. C 11-8827 CRB (N.D. Cal. Jan. 10, 2012).

The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.