Property, intangible

a blog about ownership of intellectual property rights and its licensing

Attention Sharks

I like to watch Shark Tank. If you haven’t seen it, entrepreneurs come pitch a panel of notable business people asking for an investment in their nascent companies. Often the topic of intangible assets—generally patents and trademarks—comes up, which presumably the sharks are taking into account when valuing a company. The entrepreneurs make representations about the assets (“I have a utility patent pending”) and sometimes, but not regularly, the deal is contingent on the shark’s verification of the validity of an asset or some other part of the business. So I’ve always wondered what kind of due diligence goes on before the entrepreneurs appear on the show or the deal is signed.

Lemonis v. A. Stein Meat Products, Inc. wasn’t a Shark Tank pitch, but gives us a little insight into a show called The Profit, where Marcus Lemonis turns around failing companies.

Lemonis did an episode on wholesale meat business A. Stein Meat Products. In addition to the wholesale meat business, A. Stein Meat “trademarked” BROOKLYN BURGER for burgers, which were the official burgers of the Mets, the Nets and the Yankees. After an agreement on partial ownership of the business fell apart, Lemonis instead offered to buy the Brooklyn Burger trademark:

If you can’t see it, there is this exchange:

Mora (co-owner): We need money to make the payroll and for our working capital. That’s very important at this point because we want to be here tomorrow.
Lemonis: How much do you need?
Mora: About $200,000.
Lemonis: You know I can’t just give you the money. I can’t just write you a check and give you a gift, as much as I like you guys. I’m not a consultant. I do things to save jobs and to make money. I don’t just hand money out. And so in order for me to give you that money I’m gonna need to get a return on my money. And the only thing that I can think of is that I buy Brooklyn Burgers from you. And I’ll repackage it and I’ll get it back on its feet.
Mora: We’re willing to do whatever it takes.

They agreed off-camera to $190,000, which Lemonis made in two payments, but the owners reneged on assigning the trademark so Lemonis sued for breach of contract. Lemonis lost for the simple reason that there was no writing, required by both the statute of frauds and to effect the transfer of a registered trademark. The argument that the video recording is a writing didn’t fly:

Contrary to Lemonis’s argument, the videotaped recording does not satisfy the Lanham Act’s writing requirement. An electronic signature to a written agreement will satisfy the Lanham Act’s writing requirement, see 15 U.S.C. § 7001(a); however, this exception for electronic signatures does not negate the underlying requirement that the parties execute a contract “in writing.” Lemonis provided no authority for such an assertion, nor has the Court located any.

Bonus feature from the court—Stein Meat had already given a security interest in the trademark “long before ‘The Profit’ featured A. Stein Meat.” A. Stein Meat had agreed it would not “assign, transfer, encumber, or otherwise dispose” of its Brooklyn Burger trademarks, “or any interest therein,” without the lender’s “prior written consent.” During the lawsuit the lender foreclosed and sold the trademarks to Hercules Food Corporation, a subsidiary of co-defendant King Solomon Foods Inc. The theory against King Solomon was interference with contract, but you can’t interfere if there’s no contract, so the court dismissed King Solomon from the suit.

And a marketing lesson: you need to make sure that when you have an exclusive sponsorship agreement that you really are the exclusive sponsor:

But Lemonis gets a parting shot in the below video, explaining his view on why he only requires a handshake, and, saying over a clip of the A. Stein Meat episode, “But at the end of the day, you ultimately meet people who don’t honor their word—and that’s where I get burned”:

Lemonis v. A. Stein Meat Products Inc., No. 14-CV-3073 (DLI)(RLM) (E.D.N.Y. March 6, 2015).

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