Property, intangible

a blog about ownership of intellectual property rights and its licensing

And the Answer Is . . . .

I recently posed the question “Who owns the ‘Walter Mercado’ mark, Mercado or Bart Enterprises?” Did you say “Mercado”?  That’s the right answer, according to two different courts, despite the several references to “irrevocable.”

In the first suit, Bart Enterprises and others brought the usual complement of state law claims when parties have a falling out, including trademark and copyright infringement claims against Mercado for his resumed use of the assigned copyrighted materials and trademark. The court distills it this way:

The Agreement defines the “Term” as “in perpetuity . . . subject to the provisions of paragraph 12 hereinafter.”  Paragraph 12 of the Agreement gives both Bart and Mercado the right to terminate the Agreement under certain circumstances and using certain procedures. Plaintiffs assert that the right to termination under paragraph 12 would not terminate the assignments and transfers because paragraph 13 states that “[s]ubject to the terms of this agreement, all grants granted or assigned by this agreement shall be irrevocable under all or any circumstances, and shall not be subject to rescission, termination or injunction.” (emphasis added).  Despite Plaintiffs’ assertions otherwise, this clause, through the phrase “subject to the terms of this agreement,” does make the grants and assignments revocable under certain circumstances, namely a party’s exercise of his rights under paragraph 12.  Thus, based on the plain language of the Agreement, the Term of the Agreement ends if Bart or Mercado exercise their rights to terminate the Agreement under paragraph 12. Upon termination by either Bart or Mercado, the assignment of materials, transfer of rights in the materials, and the assignment of the trademark would revert back to Mercado because the Term would end.

So does “irrevocable” actually accomplish anything?  I think it does – it means that the only way to undo the assignment of the trademark is to terminate the agreement, which can only be done in narrow circumstances. In fact, the termination provision was so difficult that after two tries and two lawsuits, Mercado has been unsuccessful and Bart still owns the mark.

In the first suit, Walter International Productions, Inc. v. Mercado Salinas, Marcado claimed that Bart had failed to pay fees and tried to formally terminate the agreement by letter.  Bart said that it was not in arrears and that Mercado breached the agreement by failing to appear for scheduled appearances.  A jury held that the contract had not been terminated and the court therefore entered judgment that Bart still owned the copyrights and trademarks. The decision is on appeal.

Mercado then demanded payment of $675,000 within fifteen days, which Marcado claimed was the amount due under Paragraph 6 of the agreement. Fifty-seven days later, after Bart didn’t pay, Marcado declared his intent to terminate the agreement as provided by Paragraph 12 of the agreement and sued Bart Enterprises three days later.  Here are the relevant terms of the agreement:

6.  Mercado’s Services.

* * *

(c) Compensation.

Bart agrees to pay Mercado, in consideration of all services rendered by Mercado and the use of the results thereof and all rights granted by Mercado to Bart, the following compensation . . . .

12.  Termination.

(a) Right to termination.

(i) Bart shall have the right to terminate this Agreement immediately (A) in the event of a material breach by Mercado which remains uncured for a period of ten (10) days following written notice thereof; (B) if judicial proceedings are filed or instituted against Mercado, which Bart reasonably believes may impact upon the reputation or integrity of Mercado, or have an impact upon Mercado’s ability to perform its duties hereunder.

(ii) Mercado shall have the right to terminate this Agreement immediately (A) in the event of a material breach by Bart which remains uncured for a period of ten (10) days following written notice thereof; (B) if judicial proceedings are filed or instituted against Bart, which Mercado reasonably believes may impact upon the reputation or integrity of Bart, or have an impact upon Bart’s ability to perform its duties hereunder.

(iii) Notwithstanding anything herein to the contrary, if Bart fails to make any of the above mentioned payments, in paragraph 6(c), within sixty (60) days from the due date, then Mercado shall have the option to declare this contract null and void and all payments already made on the part of Bart shall be retained by Mercado, provided Mercado gives Bart written notice at least fifteen (15) days prior to such date of termination and Bart fails to cure the non-payment within such time period or otherwise can justify its failure to make such payment.

There was no dispute that since November, 2006 both parties had failed to perform under the terms of the agreement.  On trademark ownership, the second court agreed with the first, both on the basis of issue preclusion and independent analysis that the trademark rights would revert to Marcado upon termination of the agreement.  So what was the problem this time?  Paragraph 6 conditions payment on Mercado performing services, which he had ceased doing.  Bart was therefore excused from payment and the agreement was not “null and void” under the termination provisions of paragraph 12(a)(iii):

Because Mercado has rendered no services to Bart under the Agreement since November 2006, Defendants need not tender payment to Mercado. Bereft of a proper basis for termination under paragraph 12, Mercado has once again failed to nullify the Agreement. Accordingly, it appears to the court that Mercado’s assignment of rights to Bart remains in effect and that Defendants, not Plaintiffs, hold rights in the Mark.

Rather than preliminary injunction ordering Bart not to use the “Walter Mercado” mark, Mercado is enjoined on a cross-motion. 

I believe the decisions are correct. The agreement clearly made it difficult to terminate; there was no fixed term and no termination for convenience.  That’s pretty basic stuff and I would assume that the omission was deliberate. The trademark would only revert to Mercado – effectively prohibiting him from using his name except under the auspices of Bart – if the agreement was terminated.  It would appear Mercado and Bart carefully made the agreement pretty bullet-proof and it worked.

Walter Int’l Prods, Inc. v. Mercado Salinas, No. 07-20136-CIV-Seitz/O’Sullivan (S.D. Fla. Nov. 24, 2008).
Mercado-Salinas v Bart Enter. Int’l, Ltd., No. 09-1509 (D.P.R. Sept. 27, 2009).

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