Property, intangible

a blog about ownership of intellectual property rights and its licensing

A Covenant Not to Sue Is Not An Exclusive License

I am quite puzzled by this decision. It is designated by the court as “not for publication,” which may explain why the reasoning is so unclear.

In March 1989, John Z. DeLorean, creator of the DeLorean car, entered into a license agreement with Universal Pictures, licensing the use of the car in “Back to the Future” II and III:

The agreement gave Universal a royalty-bearing license to use the appearance of the DeLorean automobile, the name “DeLorean” and the logo “DMC” as it appears on the radiator grille of the DeLorean automobile. DeLorean granted Universal the exclusive right “forever” in connection with “time machines” and any and all merchandising and commercial tie-ups, such as toys, games, gadgets, novelties, books, apparel, food and beverages and services using or based upon the material.

Fast forward to 2014. John DeLorean had passed away and Sally DeLorean is administratrix of his estate. The estate sued DeLorean Motor Company for “illegally appropriat[ing] for its own use Mr. DeLorean’s legacy, including the DeLorean Identity, together with the intellectual property such as the DMC Marks and DMC 12 [automobile] Trade Dress.” This lawsuit is where the estate learned about the Universal license agreement.

The estate and the DeLorean Motor Co. reached a settlement. In it, the DeLorean Motor Co. agreed to pay the estate “in full satisfaction of any and all claims against it in the [2014 Action]” in exchange for the estate releasing and discharging any and all claims “that were sought, or could have been sought, in the [2014 Action].” The Settlement Agreement stated:

The Estate acknowledges DMC Texas’ trademark and rights to use the DeLorean automobile brand, and associated products and services, further, the Estate covenants and agrees that … it will not willingly participate in any legal proceeding against DMC Texas in the future in connection with (i) the use by DMC Texas of (a) the name “DeLorean Motor Company”, or (b) the trademark registered to DMC Texas of the DMC logo, or (ii) the use by DMC Texas of the trademark registered to DMC Texas of the stylized word “delorean; (“DeLorean Marks”) (“any of which are used in conjunction with the automobile industry and associated business ventures, including those associated with the DeLorean automobile, or other automotive products and services, and related brand merchandising and licensing associated or related to the business of the DeLorean Motor Company, DMC Texas and its associated brand.

The Estate retains all right in (i) any other use of the name DeLorean, (ii) any aspect of the personal life of John Z. DeLorean, or (iii) any depiction of the likeness of John Z. DeLorean that is not public property or purchased from those legitimately holding publishing rights thereto.

Sally DeLorean, Individually and as Administratrix of the Estate of John DeLorean, hereby acknowledges the worldwide rights of DMC Texas to use, register, and enforce any of DeLorean Marks for any and all goods and services, relating to automobile dealerships, automobiles, automobile parts and accessories, clothing, and promotional items.

(Punctuation as in original.) Fast forward again, this time to 2018, when the DeLorean estate contacted Universal for non-payment of royalties. It didn’t go well. Universal informed the estate that the DeLorean Motor Co. claimed it owned the rights to the Universal license agreement pursuant to the 2014 Settlement Agreement, and, based on that representation, Universal paid the DeLorean Motor Co. the royalty payments owed under the Universal Agreement. After that, the estate received a letter from the DeLorean Motor Co. threatening to bring an action against the estate for tortious interference. The estate therefore brought another action against the DeLorean Motor Co., this time for declaratory judgment that the settlement agreement didn’t give DeLorean Motor Co. any rights to the Universal license agreement, and for unjust enrichment for the money that Universal paid to the DeLorean Motor Co.

So how does this come out? Mystifyingly to me, the court agreed with the DeLorean Motor Co. It stated the claim thusly:

The main issue before this Court is whether the materials licensed in the Universal Agreement were included in the Settlement Agreement, thereby barring Plaintiff from asserting a claim under the Universal Agreement as a matter of law.

The court concluded “yes”:

Though the terms “Universal Agreement” or “royalty payments” are not mentioned in the Settlement Agreement, the Court nonetheless finds that the subject matter of the Universal Agreement is covered by the Settlement Agreement. The Court reaches this conclusion based on the overlap of the clear terms in both agreements. In the Settlement Agreement, Plaintiff’s covenant not to sue Defendant pertained to the latter’s use of the following words and trademarks: (i) “the name ‘DeLorean Motor Company,’ ” (ii) “the DMC logo,” and (iii) “the stylized word ‘delorean.’ ” In the Universal Agreement, Universal was given the right to use (i) “[t]he appearance of the DeLorean automobile,” (ii) “[t]he name ‘DeLorean,’ : and (iii) “[t]he logo ‘DMC’ as it appears on the radiator grille of the DeLorean automobile.” As shown by this language, the agreements share the same or similar terms, such as the use of the word DeLorean and the DMC logo.

But I don’t see how the fact that the two agreements cover similar subject matter means that the the car company suddenly acquired the overlapping rights. I don’t read the language in the settlement agreement cited by the court as having that effect. The settlement agreement was simple, a release for past infringement and a covenant not to sue for the DeLorean Motor Co.’s future use in specified ways. There is no suggestion that the DeLorean Motor Co. acquired any exclusive rights, it simply won’t get sued. The estate also covenanted that it would not participate in a legal proceeding against the DeLorean Motor Co., but a proceeding against Universal is not that. The estate released all claims that could have been brought in 2014, but there is no reason to think on the facts given that the Universal claim had anything to do with the claims against the DeLorean Motor Co. in 2014.

The estate’s argument that the license agreement wasn’t assigned was only footnoted:

Even if Plaintiff is correct that Defendant was not “assigned” the Universal Agreement and Plaintiff retained some rights in same, the Court agrees with Defendant that Plaintiff’s attempt to enforce the Universal Agreement would violate the Settlement Agreement, because the subject matter of the Universal Agreement is covered and barred by the Settlement Agreement. Based on this conclusion, Mr. DeLorean’s Estate is no longer the “the sole owner of the rights in the Material granted or agreed to be granted to [Universal] hereunder,” as Mr. DeLorean initially warranted in the Universal Agreement.

I can’t really make head or tails of that footnote, or of the decision altogether.

DeLorean v. DeLorean Motor Co., No. 18-8212 (JLL) (D.N.J. Oct. 12, 2018).

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