Property, intangible

a blog about ownership of intellectual property rights and its licensing

It’s a Really Good Idea to Get the Contract Signed

Not signing the agreement wasn’t fatal to the plaintiff’s claim, but it might have avoided the lawsuit altogether.

Dalle-E, "forgetting to sign a contract in brutalist style"
Credit: Dalle-E, “forgetting to sign a contract in brutalist style”

Plaintiff Olson Kundig is an architectural firm whose owner and design principal is Tom Kundig. Defendant 12th Avenue Iron is a custom architectural metalwork fabricator owned by Stephen Marks. In 2009 Kundig and Marks decided to work together on a line of hardware and home furnishings called the Tom Kundig Collection. It started with small-scale steel pieces, such as cabinet hardware and door handles, but eventually expanded to over 125 products, including furniture and lighting. (Link to enjoined Tom Kundig collection here while it lasts.)

There was an agreement defining the terms of the collaboration but it was never signed. It’s not clear from the opinion how much, or whether, it was negotiated. Marks said that he received it but no one followed up on the signature.

The agreement said that Olson Kundig would be the designer and would own all intellectual property rights in the designs and the trademarks, granting a license to 12th Avenue Iron for the manufacturing, marketing and selling of the products. 12th Avenue Iron would be responsible for all costs associated with fabrication, could decide what and what not to sell, could decide on the price, and would be responsible for selling. Olson Kundig would receive a 7% royalty on gross sales. The agreement could be terminated with or without cause with 30 days’ notice or after 15 days on notice of a breach.

The parties performed under the terms of the agreement for a number of years. Then in the fourth quarter of 2020, 12th Avenue Iron stopped making royalty payments and Olson Kundig started receiving complaints that 12th Avenue Iron wasn’t fulfilling orders. Marks said that the COVID pandemic, the loss of a long-time employee, his buy-out of a 12th Avenue Iron’s co-founder, and his serious health issues, “crippled 12th Ave[nue] Iron and caused a backlog of work, missed deadlines, and the temporary inability to fulfil [sic][Tom Kundig] Collection orders.” According to Olson Kundig, it tried to work with 12th Avenue Iron to solve the problems, but on April 28, 2022 it notified 12th Avenue Iron that it was in breach and that the agreement was being terminated for both breach and for convenience. Olson Kundig then sued 12th Avenue Iron for design patent and trademark infringement and sought a preliminary injunction.

Had the agreement been signed there probably wouldn’t have been a lawsuit. But 12th Avenue Iron claimed that the agreement wasn’t enforceable because it wasn’t signed and that, instead, it was not liable for infringement because the parties orally agreed that the Tom Kundig Collection would be a partnership, making 12th Avenue Iron a co-owner of the intellectual property rights. Neither theory worked.1

First, the parties had an enforceable contract under Washington state law.

To establish the existence of an enforceable contract under Washington law, a plaintiff must demonstrate that the parties manifested a mutual intent to be bound on the essential terms of the agreement. Washington follows the “objective manifestation test” to determine the existence of a contract. The unexpressed subjective intent of the parties is irrelevant; mutual assent is instead determined by looking to the parties’ objective acts or outward manifestations. “Manifestation of assent requires either an acknowledgment of a promise or performance under the terms of the agreement.”

The court concluded that, at the preliminary injunction stage, Olson Kundig was likely to succeed in showing that the contract was enforceable. Olson Kundig had notes from the parties’ meetings that showed that the agreement incorporated the essential terms of their agreement. Performing as the unsigned agreement required for almost ten years was a manifestation of their intent to be bound by its essential terms:

For example, the Agreement provides that “Product sales shall initially be carried out through a web site owned and/or controlled by Manufacturer” and “Manufacturer shall be responsible for the performance of any and all marketing activities related to the Products”; “for managing the Product inventory”; “for all costs associated with inventory management and shall bear all responsibility for order fulfillment”; and “for invoicing Customers for Products sold [and] collecting payment.” It is undisputed that 12th Avenue Iron’s website has a section dedicated to the sale of Tom Kundig Collection products and that 12th Avenue Iron was solely responsible for invoicing customers and fulfilling orders.

The responsibilities for the design and fabrication were performed as described in the agreement. There was evidence that 12th Avenue Iron varied the pricing and regularly paid the 7% royalty.

In sum, the parties’ objective conduct over the past decade demonstrates that it is likely that there was a mutual intent to be bound on the material terms of the Agreement. The only source of contradictory evidence 12th Avenue Iron offers to negate Olson Kundig’s evidence of the parties’ objective intent is Mr. Marks’s uncorroborated statements that the parties were instead partners.

But the partnership theory didn’t fly either.

In Washington, a partnership is “an association of two or more persons to carry on as co-owners a business for profit.” “A partnership agreement must contemplate a common venture, a sharing of profits and losses, and a joint right of control.” … Where, as here, there is no express contract that identifies Olson Kundig and 12th Avenue Iron as partners, “the existence of a partnership depends on the intention of the parties.” “That intention must be ascertained from all of the facts and circumstances and the actions and conduct of the parties.” “Facts gleaned from the parties’ conduct are preferred over anything the parties have said.” For instance, evidence that the parties share profits and losses as well as a common partnership fund or shared account supports the existence of a partnership, notwithstanding the absence of an express partnership agreement.

Needless to say, “While Mr. Marks claims that Olson Kundig and 12th Avenue Iron agreed to form a partnership with respect to the Tom Kundig Collection, there is little indicia of a partnership beyond his statement.” The record lacked a plausible profit-sharing structure; Olson Kundig only received the 7% royalties and the court agreed with Olson Kundig that “[h]ad there been a partnership, it would be unreasonable and extremely unfair for Olson Kundig to only receive a 7% royalty from the gross amount received from the sale of Tom Kundig Collection products, as opposed to receiving 50% profit.” There were no shared losses and no evidence of a partnerhsip fund or joint account. Marks also said that Olson Kundig had control over who would be allowed to fabricate his designs. The court concluded

Where, as here, there is no express partnership agreement, circumstantial evidence tends prove the existence of a partnership only if “[the evidence] is inconsistent with any other theory.” At this stage, the court concludes that the circumstantial evidence in the record is inconsistent with 12th Avenue Iron’s partnership theory and is instead consistent with Olson Kundig’s theory that the parties were bound by the Agreement.

With that settled, the likelihood of success on the infringement claims is easily proven. 12th Avenue Iron continued to market and sell the products, so the design patents were infringed. The only speed bump for Olson Kundig was the unregistered Tom Kundig Collection mark, which was developed during the course of the relationship. But since the agreement was likely enforceable, and in the agreement Olson Kundig owned all intellectual property, this mark was infringed too under the holdover licensee standard.

Olson Kundig had a better-than-average claim for irreparable harm. Although not citing to the statutory presumption of irreparable harm in trademark cases, it had evidence of misattribution and dissatisfied customers from 12th Avenue Iron’s failure to deliver ordered goods.

The balance of the equities also favored Olson Kundig. Although 12th Avenue Iron would, it claimed, be forced to shut down,

12th Avenue Iron was aware that it would no longer have a license to use Olson Kundig’s Marks and Design Patents after the termination of the Agreement. Nevertheless, 12th Avenue Iron continued to use the Marks and Design Patents to manufacture, market, and sell Tom Kundig Collection products after the termination became effective, despite its clear obligations under the Agreement to cease such activities.

I don’t think this is right though. The court is suggesting that the true harm to 12th Avenue Iron was its own fault for delaying. But if 12th Avenue Iron had ceased selling the Tom Kundig Collection when the contract was terminated the harm to it was likely the same, and end to its business. It was also two years before Olson Kundig sued, suggesting that it was sincerely trying to help 12th Avenue Iron survive. I would weigh this in 12th Avenue Iron’s favor, although I don’t think it would have been enough to change the outcome.

There is public interest in protecting the public from consumer confusion or deception, also favoring the grant of the injunction.

Get those contracts signed!

Olson Kundig, Inc. v. 12th Avenue Iron, Inc., Case No. C22-0825JLR (W.D. Wash. Sept. 12, 2022)
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  1. The court pointed out that, even if there was a partnership, it didn’t save the day. Tom Kundig was the inventor of the designs, Olson Kundig the assignee of the design patents, and Olson Kundig the owner of the Olson Kundig trademark, none of which was disputed. 12th Avenue Iron produced no evidence, such as a license or assignment, showing that any supposed partnership received an assignment or license to the intellectual property. “[T]he court agrees with Olson Kundig that ‘the only scenario that could make 12th Avenue Iron’s continued usage of Olson Kundig’s [Design Patents] permissible is if 12th Avenue Iron met its burden to establish the existence of an oral partnership agreement and evidence that the partnership owned the intellectual property through an assignment or license from Olson Kundig to the partnership (presumably another oral agreement) and from the partnership to 12th Avenue Iron (presumably yet another different oral agreement).’” 
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