Property, intangible

a blog about ownership of intellectual property rights and its licensing

Numb Nuts, Part II

Former licensee’s current web page

I previously reported on a bit of a bone-headed dispute between Orange County Choppers (OCC), of “American Chopper” television fame, and a company that designed T-shirts for it, Olaes Enterprises, Inc. d/b/a ODM (ODM). OCC made the mistake of suing ODM for royalties and ODM counterclaimed against 25 companies that were licensed by OCC to sell the ODM designs. ODM claimed that it, not OCC, was the owner of the copyright in the designs and therefore OCC had no right to license them.

OCC indemnified its licensees until OCC it realized it was going to come out on the losing end of the copyright ownership argument. OCC then settled with ODM and threw its licensees under the bus, deciding at that point that it no longer was obliged to indemnify the licensees. The licensees filed a motion for summary judgment that OCC was required to indemnify as a result of the OCC-ODM settlement, because in the settlement OCC admitted to not owning the copyrights in the design. In the August, 2010 decision the court didn’t agree with the licensees’ theory, but suggested that they might have an equitable estoppel argument. 

The licensees all ultimately settled with ODM, then took the court’s suggestion and renewed their motion for indemnification.  OCC apparently realized it was a lost cause; it didn’t even respond to the motion.  The court granted the motion:

On the undisputed facts set forth in the Licensees’ Rule 56.1 Statement, the Licensees have made out every one of the six elements [of equitable estoppel]. The undisputed facts show that OCC knew of its original arrangement with ODM, but did not disclose that arrangement, or suggest that anyone other than itself might have any reason to claim ownership in the licensed designs. They show that OCC, by providing the actual designs and making its representation and warranty of ownership without disclosing ODM’s involvement in creating the designs, conveyed the impression that OCC alone could permit the Licensees to emblazon their products with the licensed designs. They show that OCC expected–indeed, wanted–the Licensees to place the licensed designs on their products and introduce those products into the marketplace, so that OCC would receive royalties under the License Agreements. They show that the Licensees did not have a clue about ODM’s existence or its relationship to the matters covered by the License Agreements. They show that the Licensees relied on OCC’s conduct and warranties and representations in entering into the agreements and in producing what apparently was infringing merchandise. And they show that the Licensees acted to their detriment by producing the merchandise contemplated by the Licensing Agreement and putting it into commerce.

Furthermore, OCC’s conduct in connection with this litigation up until the time Judge Conner refused to dismiss the lawsuit (and opined that OCC might well lose as between it and ODM/Olaes) demonstrates that OCC itself understood its obligation to indemnify the Licensees in this action.

In short, regardless of whether ODM/Olaes has any rights in what OCC has come to call the “ODM Property,” OCC is stopped to deny any contractual obligation to indemnify the Licensees in connection with this lawsuit.

Olaes Enter., Inc. v. A.D. Sutton & Sons, Inc., No. 09 Civ. 8680 (CM) (PED) (S.D.N.Y. June 20, 2011)

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