Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • When You Can’t Find the Writing

    The patent, trademark and copyright statutes each provide that an assignment must be in writing. One time I asked a listserv whether that means you have to have the writing in hand. Silly me, it is an evidence question.

    Defendant Denis Bouboulis was an inventor of an allergy treatment device. He became a shareholder, and later interim president, of plaintiff Allergia, Inc., an entity for developing the technology and business. He was asked by his business partners a number of times over the years to assign his patent rights and refused every time. He was ultimately fired from the company. The company had filed two patent applications listing three inventors and Bouboulis filed one as the sole inventor after he was fired.

    There are multiple state law claims, but I’m only writing about the ownership of Bouboulis’ patent application. Allergia had a declaratory judgment claim that it was the owner of the Bouboulis application, despite Bouboulis’ refusal to assign the patent right at least five times. Instead Allergia claimed that Bouboulis signed a consulting agreement before he starting working with Allergia’s predecessor and that the consulting agreement, according to the CEO’s testimony, “had a provision in it that [stated] his consulting work [would be performed] as a work for hire … [and] assigned all rights including intellectual property rights” to the predecessor. [Brackets and ellipses in original.] Allergia didn’t have a copy of it, though. Another person testified he was aware Bouboulis had signed the consulting agreement and that the Bouboulis agreement was the same as an employment agreement signed by one of the co-inventors. So what happens?

    It’s an evidence question, in particular the best evidence rule. The best evidence rule requires that “in proving the terms of a writing, where the terms are material, the original writing must be produced unless it is shown to be unavailable for some reason other than the serious fault of the proponent.” And, where here, “the missing original writing in dispute is the very foundation of the claim … more strictness of proof is required than where the writings are only involved collaterally.”

    Allergia claimed to have tried to locate the documents, with the attorney “reaching out” to various people. Perhaps “reaching out” wasn’t the best choice of words: “As an initial matter, these search efforts appear remarkably insignificant considering that this consulting agreement is ostensibly Plaintiff’s ‘smoking gun’ evidence of a written assignment of patent rights,” with the court noting the plaintiff hadn’t tried “using the ordinary tools of third-party discovery.”

    The was no documentary evidence that there had been an agreement. In particular, during the numerous times that Allergia asked Bouboulis to sign the assignment, it never mentioned that he had already done so in the consulting agreement.

    Based on the evidence, the Court does not find that it is ‘more likely than not’ that the consulting agreement existed at one point but was subsequently lost. Consequently, the Court concludes that Plaintiff’s testimonial evidence is inadmissible to prove the existence, contents, and execution of an alleged consulting agreement containing a patent assignment clause.

    The court mentioned a further problem – what did it say? “Reliance on testimony is particularly inappropriate where, as here, not only is the existence of the document itself in dispute, but also the material terms of the assignment clause within the consulting agreement.” I should say; whether an invention was assigned, or there was merely a duty to assign, can turn on one word, whether the agreement says “will” or “does.” I would say the chances of winning a dispute over whether a patent was assigned without having the writing itself is zero to none.

    The other theories by which Allergia would get Bouboulis’ share of the invention (breach of implied contract, fraud), not surprisingly, failed too. As you might expect when the guy said “no” at least five times.

    Allergia, Inc. v. Bouboulis, No. 14-CV-1566 JLS (RBB) (S.D. Ca. June 13, 2017).

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  • You Be the Judge

    A poll. We have a trademark for a recurring sports event and two parties who each claim to own it. Here are the facts as we know them. They aren’t hypothetical; they are taken from a case and it’s all we have to go on. Work with what you’ve got.

    Plaintiff’s version Defendant’s version
    Revenue Share revenue, costs and profits for events Paid plaintiff 1/2 of the net proceeds (without taking expenses into account)
    Operations [not mentioned] Was “financially responsible” for permits, insurance, costs and losses
    Idea for name Plaintiff Brainstormed by both
    Paid for logo Plaintiff [not mentioned]
    Discussion of ownership [not mentioned] Plaintiff requested ownership and control of brands but defendant denied request
    Event promotion [not mentioned] promoted on website and social media
    Territory jointly run in 2 counties, had 3rd county for himself (ran 19 events in it) authorized plaintiff’s use in 3rd county but didn’t receive any revenue from it

    So dear readers, who owns the trademark—one, the other, or both? But more importantly, why do you think that? Add your comments below.

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  • A Pretty Lousy Test

    By now you should have read John Welch‘s excellent report on the Federal Circuit opinion in Lyons v. The American College of Veterinary Sports Medicine and Rehabilitation; you can also find more background from me on the Board decision here. Despite my fondness for ownership cases, I wish this wasn’t one, or at least I wish it wasn’t one that was appealed.

    It is a case where a co-founder of an organization, Lyons, who later left, claimed that she owned the trademark in the name that the organization was using. After her departure Lyons obtained a registration on the Supplemental Register for the name, relying on a document in which she had used the name before the organization was formed. Her specimen was her own website, not the organization’s. Thus in this case, the registrant wasn’t claiming the organizational use as her own, but rather claimed to have a senior, competing use. It was, in my view, better styled as a likelihood of confusion case. Based on the facts as stated in both opinions, the registration would then have been successfully cancelled for either non-use or abandonment. But the law isn’t derived from how you wish a case had been argued, only how it actually was argued.

    The reason I don’t like this as an appeal court-level opinion is that the standard used to determine ownership is a factor test, and a new one at that. I worry about factor tests generally because it becomes so easy to use them as a checklist rather than a guide to structured thinking about an issue. It’s even more troubling for ownership cases because we have not yet established the fundamental policy interests we are trying to protect. To the appeals court’s credit, it limited this test to situations “when there has been a departure from or change of membership in a group and, in the absence of a formal agreement governing ownership of the mark, both the departing member and the remnant group claim ownership of the mark.” But even so, now there is a three-factor test, as I will explain a malformed one, based on an incorrectly-framed dispute, ratified by a court of appeals, for reaching a conclusion on ownership when we don’t even know what interests should be rewarded.

    The Board looked at several sources1 and from them derived three main factors to be considered: (1) the parties’ objective intentions or expectations; (2) who the public associates with the mark; and (3) to whom the public looks to stand behind the quality of goods or services offered under the mark.

    Let’s deconstruct this standard. First, there is a significant, but subtle, departure from the source material. The standard question is not to whom the public looks to stand behind the quality of the goods or services, but who actually controls the quality of the goods or services.2

    As derived by the Board and ratified by the Court of Appeals though, two of the three factors — who the public associates with the mark and to whom the public looks to stand behind the quality of the goods or services — are essentially the same question: what does the public think? The Board’s construction therefore really boils down to a two-factor test, who do the parties think is the owner and who does the public think is the owner?

    This standard works in the identified situation, where there is an existing organization with a departing member. And under this test, where there is no formal agreement, the organization will almost surely win. I’m not saying that’s a bad thing; with departing individual versus organization I would say it should even be a presumption that the organization is the owner. I’ll even go so far as to say when the disputed mark is the name of the entity, it should be owned by the entity conclusively. And there are a lot of ownership cases with this fact pattern, so it might prove to be a highly useful test for reducing litigation. The departing member has some chance though; for example a famous chef might be able to prove that the eating public thinks the chef is responsible for the restaurant, not the corporation, owned by investors, that was formed to operate it.

    However, this standard should only be used where both parties claim the same trademark and appurtenant goodwill as their own. It is not applicable where the claim is to separate marks, as here, because then you are rewarding the more dominant player, a concept that has never controlled the outcome in likelihood of confusion cases. If this was a straight-up case of strangers using the same mark, the public’s familiarity with either plays no role, it is only a question of priority.

    In true ownership cases, the commonly-used test for manufacturer-distributor disputes has factors designed to elicit whether the public has a view on who owns the mark, such as which party’s name appears on packaging and to whom purchasers made complaints. And I have no problem with a legal outcome that whoever the public thinks is the owner should be the owner.

    But as we know, a trademark source can be anonymous, that is, consumers don’t have to associate the trademark with any entity, it simply represents in the consumer’s mind a known quality. I don’t have any view on who stands behind the flour I buy at the grocery store, I just pick up the same brand every time because I know it’s pre-sifted and unbleached. I don’t have a view whether it is the flour mill or the packager who chose the miller who owns the trademark. So what do we do in that case? This three two factor test then doesn’t work, because all we’re left with is what the parties themselves think based on objective evidence – or is that just as good a reason as any to award ownership? But we can’t know the answer because we have not identified the policy bases for deciding disputes of this type.

    This rule is a shortcut, a bastardization of doctrine that is already without any clearly identified policy basis. My hope is that the rule as written by the Board and adopted by the Court of Appeals will be limited to the exact case where there is a departing member of an existing organization. It has insufficient substance to be extended more generally.

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    1. Shameless self-promotion, one of the sources was my article, “Who Owns the Mark? A Single Framework for Resolving Trademark Ownership Disputes” 96 TMR 681 (May-June 2006). ↩
    2. Sengoku Works Ltd. v. RMC International, Ltd., 96 F.3d 1217, 1220 (9th Cir. 1996) (listing who exercises control over the product quality and uniformity as a factor); Premier Dental Prods. Co. v. Darby Dental Supply Co., 794 F.2d 850, 854-55 (3d Cir. 1986)(“Therefore, he who controls the nature and quality of the goods on which the IMPREGUM trademark appears, or whom the public regards as standing behind IMPREGUM, possesses the goodwill in the IMPREGUM trademark”); Bell v. Streetwise Records, Ltd., 640 F. Supp. 575, 581 (D. Mass. 1986) (“[I]n the case of joint endeavors, where prior ownership by one of several claimants cannot be established, the legal task is to determine which party controls or determines the nature and quality of the goods which have been marketed under the mark in question” (internal quotation marks omitted)), after vacated and remanded by 761 F.2d 67 (1st Cir. 1985)); Wrist-Rocket Mfg. Co. v. Saunders, 379 F. Supp. 902, 913 (D. Neb. 1974) (discussing at length what improvements were made to the “Wrist-Rocket” slingshot and who was responsible for them); Wonderbread 5 v. Gilles, 2015 TTAB LEXIS 261, 115 U.S.P.Q.2D (BNA) 1296 (TTAB June 30, 2015)(stating that test is “for what quality or characteristic is the group known and who controls that quality,” citing to McCarthy). ↩
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  • The EULA Working Against You

    GC2 Inc. v. Int’l Game Tech, PLC is a fairly unexciting copyright ownership case. The main argument involves construction of an ambiguous contract. (What other kinds are there?) GC2 provided “video graphics and artwork” for IGT’s gaming machines and conversion kits. The agreement had a license grant and it defined certain devices and fields that were licensed and some that were not. The agreement said that GC2 and IGT would each own their independently-developed “Intellectual Properties,” except that per section 4.2 “ownership of the copyrights in and to the software for the GC2 Projects developed by or on behalf of IGT shall remain the sole and exclusive property of IGT.”

    As day follow night, IGT used the GC2 works beyond the scope of the license grant, licensing the CG2 works to end users and to other companies for further distribution. GC2 sued everyone.

    IGT claimed that, based on section 4.2, it owned the artwork. The court held, on a motion to dismiss, that CG2 unambiguously owned the works: artwork is not software, and if there had been an assignment the contract wouldn’t have needed a license grant.

    But what I thought worth writing about was the court’s discussion of the vicarious copyright infringement theory. IGT had licensed the GC2 artwork to defendants Masque and WD Encore, whose customers downloaded the IGT games from their websites or from Amazon, or purchased them on CD/DVD. GC2 alleged that the end users of the games were infringers and thus Masque and WD Encore vicarious infringers.

    End users who bought the games from Masque or WD Encore had to agree to a EULA before being given access to the games. The EULA’s, as they always do, said things like

    • “The Software is licensed, not sold. By installing, copying, downloading, accessing or otherwise using the Software, You agree to be bound by the terms of this SOFTWARE LICENSE.”
    • “Masque Publishing, Inc. [] grants to you a nontransferable, right to use the copy of the software program being installed[.] You may not copy the Software or any accompanying materials [], except that you may make one copy for backup purposes. You may not place the Software on a computer that would allow multiple users to access it. You may not reverse engineer, disassemble, decompile, modify, adapt, translate, or create derivative works of the Software or Documentation. MASQUE retains all rights, title, and ownership in the Software. MASQUE may terminate this license immediately if you fail to comply with its terms.” (Brackets in original.)
    • “This Agreement will terminate automatically without notice from Encore if You fail to comply with any provision of this Agreement.”

    One will be a vicarious infringer where there is a right and ability to supervise the infringing conduct and a direct financial interest in the infringing activity. Masque and WD Encore argue that they did not have the ability to control the end users. And that’s where “it’s a license, not a sale” cuts against the interest of the software licensor. Software companies have successfully avoided having to tolerate the transfer of copies under the first sale doctrine, or even the creation of a copy of the software in RAM, by claiming that the work is only licensed and therefore there is no transfer of title that is a necessary predicate to the defenses. Here, though, because the companies defined the relationship as a licensing one, and in particular gave themselves the authority to terminate the licenses, they had the ability to control the end user. And of course the companies had a financial benefit; they earned income selling the games. The vicarious infringement theory therefore survives.

    Bonus material: A trademark can be content management information.

    CG2 Inc. v. Int’l Game Tech, PLC, No. 16 C 08794 (N.D. Ill. June 5, 2017).
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  • The Naked Registration

    Riverbend Dusk 21Mch2014 TCG The Camellia Grill

    I’ve written before about the trademark dispute over the Camellia Grill restaurant in New Orleans. The restaurant closed after Hurricane Katrina, after which the original owner, Shwartz, disposed of the business in various transactions with Khodr.1 The ultimate ownership of the CAMILLIA GRILL trademark is what I’ve been writing about.

    To briefly summarize the several state and federal lawsuits, as it stands now the law of the case is that Shwartz sold the trademark for the original location on Carrollton Avenue to Khodr, but the transaction also included a license agreement. Khodr describes the transaction as the purchase of the Carrollton location as a fully functioning unit and a license agreement governing the use of the mark at any future location. By now, a state court has held that the license was terminated for breach. Khodr had opened another Camillia Grill restaurant in the French Quarter, which according to my Google skills is now renamed “The Grill,” and one in Destin, Florida, which has closed. Therefore, the only restaurant currently operating as “Camillia Grill” is the original location, for which Khodr owns the common law trademark rights.

    In its first opinion the district court held that Shwartz didn’t retain any trademark rights at all. The appeals court partially reversed, holding that the relief went beyond that requested by Khodr, which was limited to the Carrollton Avenue location. Shwartz now moves for summary judgment that he owns the trademark except for the Carrollton Avenue location. The court denies the motion, noting that there were no other locations:

    “A federal registration does not create the trademark; the trademark is acquired by use.” [Shwartz]’s pre-Bill of Sale rights were acquired through its use of the marks at Carrollton Avenue, and those rights were, without reservation, transferred to [Khodr’s] Uptown Grill. The parties have not shown that there was any use of Camellia Grill trademark rights by any Shwartz entity at any other location; accordingly, they cannot have acquired trademark rights associated with any other location. The Court finds no basis to rule that the Shwartz parties have any remaining protectable interest under trademark law, and therefore denies their request to find that they are the owner of the Camellia Grill trademarks beyond Carrollton Avenue.

    Nevertheless, as a matter of contract, i.e., the now-terminated license agreement, Kodhr could not use the trademark at any location but Carrollton Avenue.2

    But what we really have is a bifurcation of the underlying common law rights and the trademark registration based on those rights. Even if one assigns the common law rights that were used as the predicate to a trademark registration, might someone with a valid registration still be able to exert some degree of exclusivity?

    The court thinks not. In saying “A federal registration does not create the trademark; the trademark is acquired by use,” the court assumed that the registration has no remaining effect. That is an error in logic. One cannot obtain a registration without having common law rights, but there nothing in the statute that says the registration remains dependent on them: “Any registration … of a mark registered on the principal register provided by this chapter and owned by a party to an action shall be admissible in evidence and shall be prima facie evidence of the validity of the registered mark and of the registration of the mark, of the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the registration.” Lanham Act § 33, 15 U.S.C. § 1115 (2012). We also know from Dawn Donut and What-a-Burger that there is a concept of inchoate rights, only exercisable when the two uses reach a stage where there is a possibility of confusion.

    The decision in Lee v. Tam may help answer the question. Brief for Respondents at 19-21 (“ ‘Registration is significant. The Lanham Act confers important legal rights and benefits on trademark owners who register their marks.’ B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1300 (2015).”) The registrant will have to worry about defending a charge of abandonment, but intent not to resume use is a hard thing to prove. The registrant will also have to maintain the registration, which may be difficult to do without use,3 but perhaps it could file a Declaration of Excusable Nonuse. It is entirely possible to maintain a valid registration when the underlying rights no longer exist, so they must mean something. Why couldn’t a registrant, for example, ask the court for an injunction to prevent the opening of another restaurant that would negatively impact its ability to do so itself? Shwartz’s request for a declaration of ownership was not just theoretical; he is planning to open a location in Orleans county.4 It was a valid legal question properly before the court.

    Appeal, here we come again.

    Uptown Grill v. Shwartz, No. 13-6560 (E.D. La. May 26, 2017).

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    1. This actually all happened between various companies that Shwartz and Khodr owned, but for simplicity I will just refer to the individuals. ↩
    2. This is an important distinction to keep in mind. It is often assumed that use of a trademark after a license termination is a per se trademark infringement. In this case that is not true, it is a breach of contract only and the only damages available are for breach of contract. ↩
    3. Shwartz faces this hurdle soon. The renewal of the CAMILLIA GRILL word mark is due July 7, 2017 and two others are due in January, 2018. A registration for an image of the building is in the grace period for renewal. ↩
    4. Khodr stipulated that he would not contest Shwartz’s ownership outside of the Carrollton location, but did not agree that meant Shwartz could open a restaurant close to the Carrollton location. Although the court couldn’t reconcile the two statements it is a quite sensible position; Khodr only wanted full enjoyment of the rights he purchased, to use “Camellia Grill” without confusion where ever the reputation of the original Camellia Grill extends. ↩
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  • The Successful Gambit

    There’s nothing like a good procedural end run. Some people think it’s not sporting, but they are often very efficient.

    In re Hansen is a bankruptcy case with a history. Karl Hansen owned some US and foreign patents that he licensed to PixArt Imaging Inc. in 2008. Karl and Lisa Hansen filed for Chapter 7 bankruptcy on June 11, 2012. The PixArt license terminated on September 20, 2012. The bankruptcy case was closed on January 2, 2013 after the section 341 meeting, with no dividend to creditors and all assets abandoned back to the debtor. Karl Hansen then formed SyncPoint Imaging LLC and assigned the patents to it. On February 20, 2015 SyncPoint sued PixArt, Nintendo and some retailers for infringement of one of the patents. On September 3, 2015 the bankruptcy case was reopened. The motion by the United States Trustee said “Debtors’ counsel, Attorney Dahar, has recently brought to [the Chapter 7 trustee’s] attention that the Debtors may have rights to pursue patent infringement litigation against a third party, for actions that took place prior to the Debtors’ chapter 7 filing.”

    The Chapter 7 trustee indeed had a bit of a problem with the fact that a supposedly bankrupt party with no assets was now claiming that he had a breach of contract/patent infringement case worth, by the debtor’s estimate, $28 million.1 The debtor had a problem with the trustee trying to sell the patents to PixArt. (There’s no mention in the case, but one sees the hand of Nintendo or PixArt behind all of this. To their credit, SyncPoint and/or Hansen are the ones who raised the issue with both the U.S. Trustee and the court hearing the patent infringement case.) As a result, Hansen and the trustee entered into a stipulation. It essentially boiled down to an agreement that the Chapter 7 trustee could decide which of two choices was in the best interest of the estate: sell the patents to PixArt for $150,000, which meant that the Hansen creditors would be fully repaid, or allow SynPoint to continue its patent infringement suit and the Hansen creditors would get paid if the suit was successful. The trustee chose the bird-in-hand option, that the court should accept PixArt’s offer, which meant the end of the patent infringement lawsuit.

    The procedural posture is important here; the bankruptcy court only reviews whether the trustee’s decision is reasonable. Consider that the patent was in reexamination and all the claims were found invalid, the infringement case had to decide whether the same CMOS chips that PixArt sold to Nintendo before, during and after the license were covered by the patent when it never came up during the term of the license, a number of colorable defenses (including whether SyncPoint actually owned the patent and had standing), and that the damages claim would have to be arbitrated. The court approved the trustee’s decision:

    Given the Trustee’s many years of experience, and her and her counsel’s professional competence, the Court will defer to the Trustee’s business judgment that it is in the best interests of the parties to effectively settle the Patent Case by selling the Patent Assets to PixArt in order to provide a certain and immediate recovery to the Debtors’ creditors. The Court agrees that the settlement of the Patent Case reasonably reflects the value of resolving any claim SyncPoint has for royalties and securing funds to pay creditors without the time, cost, and risk of further litigating the Patent Case. The Court also finds that the Jeffrey factors weigh in favor of approving the Trustee’s settlement. While the Debtor’s possibility of receiving a surplus will be lost, in the Court’s view, SyncPoint’s possibility of recovery in the Patent Case is slim. The Court is certain that the SyncPoint Offer and the Patent Case do not provide a recovery to unsecured creditors that exceeds what they will recover from the PixArt Offer in just seven days. For those reasons, the Court shall enter a separate order authorizing the Trustee to sell the Patent Assets to PixArt pursuant to the terms of the PixArt Offer. This opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

    An elegant escape to a patent infringement lawsuit.

    In re Hansen, Bk. No. 12-11907-JMD (Bankr. D.N.H. April 25, 2017).

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    1. If you’re wondering how the trustee missed the patents the first time around, Hansen had not listed the patents under the “Patents, copyrights, and other intellectual property” category in Schedule B. Instead, under the “Stock and interest in incorporated and unincorporated businesses” category he listed his “100% Stock Ownership in Brilliant Consulting Service; Service oriented business. Has 3 U.S. Patents but subject to fees/costs/expenses of use in France, Great Britain, Germany, Canada, Japan, and Australia” and he listed the value as zero. He did not list his interest in the then-existing PixArt license agreement on Schedule B nor any claims against PixArt, Nintendo, or others. ↩

  • What Is the Goal?

    Super Sabre Society v. Frazier is an opposition to the registration of a logo, filed in both black and white and color, for association services:

    Applicant Frazier had been a founder, the first CEO and a board member of the Super Sabre Society, an organization for those who flew the F-100 Super Sabre. No one disputed that the organization was his idea. The specimens for the applications were the opposer’s web page. Opposer is a Utah corporation that the applicant formed.

    After dealing with evidentiary objections (tip: the person administering oaths has to be physically present with the witness unless the parties have agreed otherwise – they hadn’t), the Board reached the sole question, who owns the trademark.

    With these facts alone you may suspect that this is not going to go well for the applicant, and there are none that improve his case. Frazier claims to have designed the mark and paid for digital versions. He was the person who originally contacted pilots who had been stationed with him and the effort ballooned, so he enlisted the help of those he referred to as co-founders of the organization. He appointed a treasurer, president and secretary and incorporated the opposer within two months, maybe even just one, of having the digital version of the logo created.

    Since the corporation was the one using the trademark, Frazier’s theory could only be that the corporation was his licensee. There was, of course, no written license and the Board wasn’t buying an oral license:

    However, the speedy trajectory of the association from an idea conceived by Applicant to an incorporated entity providing services to hundreds of members, perhaps within the space of only two months, is not consistent with Applicant’s implicit suggestion that he operates a sole proprietorship that merely licenses the marks at issue to Opposer. If association services of the type identified in the applications were provided prior to Opposer’s incorporation (and that is not clear on this record), it appears that they would have been the result of a group endeavor. From the earliest days, Applicant relied upon the assistance (and finances) of other individuals interested in forming an association, including individuals designated as president, treasurer and secretary of the organization. The fact that the group so quickly undertook to create a corporation indicates that the members of the group did not perceive themselves as investing their money and efforts in a sole proprietorship of Applicant.

    The Board also noted that there was no evidence the applicant controlled the quality of the services offered by the corporation. I suspect it’s an easy conclusion for all of us that Frazier doesn’t own the trademark and indeed the opposition was sustained.1

    But by what rationale did the Board reach this seemingly obvious conclusion? The analysis portion of the opinion begins with:

    It is a fundamental principle that “[a] trademark has no existence separate from the good will of the product or service it symbolizes. Good will and its tangible symbol, a trademark, are inseparable.” 1 McCarthy on Trademarks and Unfair Competition § 2:15 (4th ed.). As the Supreme Court stated in a seminal case, “There is no such thing as property in a trade-mark except as a right appurtenant to an established business or trade in connection with which the mark is employed. … [I]t is not the subject of property except in connection with an existing business.” United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97 (1918). Applicant’s intention to depart from Opposer’s association and take the marks with him is essentially an attempt to separate the marks from the good will that they symbolize. Applicant has acknowledged that a potential member looking at Opposer’s website would “expect to see the logo” there, in essence admitting that the marks symbolize Opposer’s good will. But when the marks are separated from the business that they symbolize, they are no longer trademarks, but merely graphic designs.…

    This description of the law to be applied is a dodge. The cited law is not about who owns a trademark, but whether there is a trademark. In ownership cases, the latter is necessarily true (or at least we can assume so for purposes of the case). But it is well-settled (and statutory2) that a source can be anonymous. So the standard for deciding whether there is a trademark does not help us decide who owns it. Suggesting that the owner is the one using the mark means that no licensor-licensee relationship could be valid.

    The opinion continues though:

    On this record, we are persuaded that Applicant does not own the involved marks. Applicant’s conduct in the short period between his initial efforts to organize an association of pilots and Opposer’s incorporation indicates his intention to create an organization, separate from himself, to provide association services; and this intention appears to have been shared by those other persons who cooperated with Applicant in forming the association and incorporating it. The evidence shows that the incorporated association (i.e., Opposer) proceeded to provide its association services to the member pilots under the marks; and there is no evidence to indicate that Applicant controlled the incorporated association or the identified services. In short, he did not control the nature and quality of the association services offered. Although Applicant designed the marks and conceived the idea of an association of pilots, the evidence does not show that he, individually, offered association services at any time, much less under the involved marks.

    I wrote an article some time back to suggest a legal framework for analyzing ownership cases. It’s as good a way as I’ve seen to go about answering the question, but it is still unsatisfying. My proposal, and the well-developed distributor-manufacturer law on which it is based, look at objective evidence but fail to define the fundamental interests that we are trying to protect.

    As mentioned in this decision, the ownership question often is simplified to a matter of who controls the quality of the goods and services. But this can’t be the fundamental question for ownership disputes because it is circular: these cases arise because one party is trying to establish that it is the one with the legal right to control the quality. Who has controlled it in the past and who has the right to control it going forward aren’t necessarily the same, especially in cases where there is a written agreement.

    Both parties, especially in a manufacturer-distributor relationship, will have put substantial effort into building the value of the trademark asset, so might it be simply who deserves it most because they put the most effort into it? But then what about consumers – although a source can be anonymous, if consumers do associate the trademark with a known entity should that entity dispositively be the owner? And in this decision we have yet another aspect, the parties’ intent, not something that any decisional framework takes into account. A lot of ownership cases arise in hindsight, where it is being used as leverage. Should the parties’ intent at the time the relationship was established be the fundamental question that has to be answered? Of course in many situations the disputing parties have entirely different intent, so trying to identify a common intent may only create more confusion.

    I believe that all of these rationales have been the unstated policy bases in various decisions, although I don’t know if they should be. But the law will better serve us if we figure out the answer to that question.

    Super Sabre Society v. Frazier, Opp. No. 91223853 (TTAB May 5, 2017).

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    1. My favorite part of the opinion is the applicant’s testimony “They’ve recently removed this—the—the logo from the website. I don’t think that is a step in the right direction. You go to our website and you expect to see the logo and it’s not there.” Indeed it’s not at this writing. What did he expect? ↩
    2. 15 U.S.C. § 1127 (“The term ‘trademark’ includes any word, name, symbol, or device or any combination thereof adopted and used by a manufacturer or merchant to identify and distinguish his goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.“) ↩
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  • Third Circuit Adopts the Standard Test

    The Court of Appeals for the Third Circuit, took an opportunity to clarify the doctrine to be used when deciding, as between a manufacturer and distributor, who owns the trademark. The decision is a wee bit puzzling only because it makes much of what didn’t look like much at the trial court level. The court expressly adopted what it called the “McCarthy test” for deciding ownership, versus the “First Use test.” The “McCarthy test” is quite standard (the court listing all the circuits that have adopted it):

    As Professor McCarthy explains, where initial ownership between a manufacturer and its exclusive distributor is at issue and no contract exists, the manufacturer is the presumptive trademark owner unless the distributor rebuts that presumption using a multi-factor balancing test designed to examine the distribution agreement in effect between the parties. The six factors that should be considered are: (1) “[w]hich party invented or created the mark”; (2) “[w]hich party first affixed the mark to goods sold”; (3) “[w]hich party’s name appeared on packaging and promotional materials in conjunction with the mark”; (4) “[w]hich party exercised control over the nature and quality of goods on which the mark appeared”; (5) “[t]o which party did customers look as standing behind the goods, e.g., which party received complaints for defects and made appropriate replacement or refund”; and (6) “[w]hich party paid for advertising and promotion of the trademarked product.”

    I suspect the opinion was designed simply to distinguish one of the court’s earlier decisions, Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F3d 812 (3d Cir. 2006), although the two cases aren’t inconsistent. In Doebler, there were different companies formed at different times but all within the control of the same family. The trial court held that one of the companies was successor to the DOEBLER trademark, even though there was no assignment and the original company that first adopted the “Doebler” name still existed, although in different legal form. The Court of Appeals rejected the concept, an outcome occasionally possible under the “McCarthy test,” that a different company might become the owner of the mark without any transfer. As explained:

    To presume that in every case where ownership is not decided in advance, a distributor who makes the initial public sale thereby assumes the mark and the manufacturer cedes any claim to initial ownership would defy logic and common sense. Thus, it cannot be that, in the absence of a contractual arrangement, the first use test automatically fills that gap. Instead, a different test accounting for the realities of the manufacturer-distributor relationship must control.

    For that reason, when we first considered the manufacturer-distributor domain in Doebler, we cited approvingly the ownership test expounded by Professor J. Thomas McCarthy in his seminal treatise on trademark law. Doebler, 442 F.3d at 826 (quoting 2 McCarthy on Trademarks § 16:48). But we had no need in Doebler to expressly adopt that test because, in that case, initial ownership as between the manufacturer and distributor was clearly established. Id. at 826-27. Today, the issue is squarely presented to us, and we find the McCarthy test has much to recommend it.

    So the Third Circuit expressly joins everyone else.

    *Covertech Fabricating, Inc. v. TVM Bldg. Prods., No. 15-3893 (3rd Cir. April 18, 2017)
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  • Getting Back on the Rails

    I have written extensively in the past about what I consider a misapplication of the anti-trafficking provision of Section 10 of the Lanham Act. Section 10 has a special provision that limits when one can assign an intent-to-use trademark application. After the 1989 amendment to the Lanham Act, companies could file trademark applications before actually using the trademark. But there was a fear that it would create a market for trademark applications unassociated with any business, so as a general rule the law prohibited assignment of the intent-to-use application. However, there was a carve-out for transfers of businesses. The exact wording is important:

    [N]o application to register a mark under section 1051(b) of this title shall be assignable prior to the filing [the Statement of Use or an Amendment to Allege Use], except for an assignment to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.

    So one can assign an intent-to-use application if there is an assignment of the business (or portion of it) if the business is ongoing and existing. The plain words, and their meaning, are pretty simple and should be easy to apply. Of course there are edge cases, for example, if your entire business is simply in licensing trademarks it might be hard to know whether and when a business apart from the marks was transferred. But it is generally a pretty clear statement.

    Nevertheless some courts have misconstrued Section 10 to essentially mean that the trademark has to be in use before it can be transferred. This misdirection started with a TTAB opinion in Railrunner N.A., Inc. v. New Mexico Department of Transportation. The opinion reached the correct conclusion but used some unfortunate language in getting there.

    I am pleased to see that it looks like there might be a course correction. In Vacation Rental Partners, LLC v. Vacaystay Connect, LLC, a company called Gameday Housing, LLC had a business booking vacation and rental properties near college campuses on weekends where there were sporting events and decided to expand its business. In February, 2014 it filed a trademark application for VAYSTAYS. A month later, the owners of Gameday formed plaintiff Vacation Rental Partners, LLC. Effective May 6, 2016, although executed in September, Gameday assigned the intent-to-use application to Vacation Rental. Effective the next day, the owners of Gameday exchanged their ownership interest in Gameday for ownership in Vacation Rental and Gameday was dissolved shortly thereafter. Vacation Rental kept Gameday’s business location and employees. Vacation Rental filed the Statement of Use in October, 2014 and the trademark registered.

    I don’t know how anyone could look at this and think that this wasn’t the assignment of the application “to the successor of the business of the applicant” and that the business was “existing and ongoing.” Nevertheless, because of the problematic jurisprudence, there was an opportunity for the defendant to make the collateral attack on the validity of the registration. And I am pleased to say it failed.

    Based on the undisputed record, Vacation Rental is a successor to the entire business of Gameday, which was ongoing and existing at the time of the assignment. The entirety of Gameday’s business was rolled into Vacation Rental—its owners, assets, business location, and employees. Although VacayStay quibbles that the assignment does not mention the transfer of other assets or goodwill, VacayStay does not identify any authority requiring the transfer of assets or goodwill in the assignment agreement itself—instead, cases look to the overall facts and circumstances of the assignment. Here, although executed several months later, the assignment was backdated to coincide with Gameday’s rollover into to Vacation Rental, after which Gameday was dissolved.

    VacayStay also argues that the assignment was invalid because Gameday was not an “ongoing and existing” business at the time of transfer. VacayStay interprets “ongoing and existing” business to mean that the business used the mark in commerce. Some courts have interpreted § 1060(a)(1) this strictly. See Greene v. Ab Coaster Holdings, Inc.; Sebastian Brown. In Railrunner N.A., Inc. v. New Mexico Department of Transportation, the Trademark Trial and Appeal Board voided an intent-to-use application that was assigned before a statement of use was filed. The Board’s decision rested on the applicant’s failure to provide any explanation of the facts and circumstances of the assignment to show transfer of any assets other than the application itself. But the Board also mentioned in passing that because § 1060(a)(1) requires intent-to-use applications to be transferred (if prior to a statement of use) with at least that part of the applicant’s business to which the mark pertains, such a transfer “is only permissible if the applicant actually has such a business, i.e., if the applicant is already providing the goods or services recited in the application.”

    However, only a few months after deciding Railrunner, the Board clarified in Exel Oyj v. D’Ascoli that requiring an intent-to-use applicant to be using the mark in at the time of the assignment would be reading § 1060(a)(1) “in a manner that would be inconsistent with the intent behind” allowing trademark applications based on an intent-to-use.

    …

    Section 1060(a)(1) was designed to allow assignment of intent-to-use applications before actual use—the provision prohibits assignments unless the application is “assigned with the business associated with the intended use of the mark.” S. Rep. No. 100-515, at 25 (1988) (emphasis added). As explained in Exel, the point of the statute was to allow for the transfer of an intent-to-use application claiming a bona fide intention to use the mark for goods which are not yet in production or which may be in the planning stage, and which may represent an extension of an applicant’s business. Prior to filing a statement of use, an applicant may not have actually used the mark in commerce yet, but it may have goodwill or existing business tied to the mark (e.g., relationships based on planned use of the mark)—that is enough to ensure that a trademark has no existence separate from the product or service it symbolizes. Vacation Rental has shown that there is no genuine dispute of material fact that, as of the assignment, it was the successor to Gameday’s ongoing and existing business pertaining to the VAYSTAYS mark. By that point in time, Gameday had registered www.vaystays.com, had hired several employees (including a web developer and salespeople to market the VAYSTAYS brand), and was attempting to get property listings to market as vacation rentals.

    VacayStay also argues that “ongoing and existing” business requires not only that Gameday—the applicant—had some business, but that Vacation Rental itself was an ongoing and existing business prior to the assignment. This argument misreads § 1060(a)(1) and its associated case law, which make clear that the ongoing and existing business must pertain to the mark and be transferred with the application because it is the manifestation of the goodwill associated with the intended use of the mark. It is irrelevant that Vacation Rental was not formed until the mark was transferred, as long as it received the existing business to which the mark pertained. Also, the testimony VacayStay cites to show that Vacation Rental was not yet in business indicates merely that, in May 2014, Vacation Rental did not yet have an actual customer booking for a vacation rental property. But actual use in commerce is not required under § 1060(a)(1).

    VacayStay has not shown a genuine issue of material fact to rebut the presumption that Vacation Rental’s VAYSTAYS mark is validly registered and therefore protectable.

    Vacation Rental Partners, LLC v. Vacaystay Connect, LLC, No. 15 CV 10656 (N.D. Ill. March 28, 2017).
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  • “Incontestability” and Cancellation

    I previously reported on a case that managed to find a non-statutory basis for cancelling an “incontestable” trademark registration, specifically that the application for the registration was void ab initio. The plaintiff and trademark owner was NetJets, with a registered trademark for a software program INTELLIJET. The defendant was a company named Intellijet Group. Both companies provided services related to private jets.

    Intellijet Group’s initially successful counterclaim for cancellation of the NetJets registration took a bit of legal jujitsu. Lanham Act § 14, 15 U.S.C. § 1064 says that a trademark registration can be cancelled for any reason within five years of its registration, but after five years there are only limited grounds for a cancellation. The Southern District of Ohio held, however, that the requirements of incontestability as described in § 15, 15 U.S.C. § 1065, had to be met before the limitations on the challenge to a trademark registration in § 14 apply. Those requirements include continuous use for the five years preceding the filing of the Declaration of Incontestability. But, NetJets didn’t have sales to external customers for five years, so the conditions of incontestability weren’t satisfied. And, according to the district court, since the registration wasn’t incontestable, the registration could therefore be challenged on the basis that it was void ab initio and sure enough it was invalid, since the software was not being sold at the time the use-based application was filed.

    In a non-published decision, the Court of Appeals for the Sixth Circuit has reversed. Its reason was the absence of “void ab initio” from Section 14:

    The district court did not address the limits of § 1064 in its opinion, but simply moved from the conclusion that NetJets’s mark was not incontestable to its conclusion that it was void ab initio because it was not used in commerce at the time of registration. This determination is incompatible with § 1064.

    The defendant’s various theories why a “void ab initio” challenge was nevertheless available didn’t get any traction with the appeals court.

    But the appeals court didn’t explain where the district court erred with it’s two-step theory, saying inscrutibly

    Under the statutory requirements of § 1065, the district court determined that NetJets’s INTELLIJET mark was not incontestable because internal use of the software did not constitute use in commerce sufficient to satisfy the Lanham Act, and as a result, the registration was only prima facie evidence of the mark’s validity. The court held that because the mark did not satisfy § 1065’s requirements for inconstestability, IntelliJet Group ws not limited to challenges in § 1115(b) seeking cancellation of the mark. Because we find that § 1064 bars IntelliJet Group from bringing its challenge to the mark as void ab initio, we decline to examine whether the mark is incontestable under § 1065 and whether the limitations of § 1115(b) apply.

    Not the best explanation, but I expect what they were trying to say is a drum that John Welch has been beating for awhile. John points out that “incontestability” has no role in a cancellation, which is clear from a careful reading of the statute. Section 15 says only that an incontestable registration is conclusive evidence of the validity of the trademark. The appeals court also alluded to § 33, 15 U.S.C. §1115(b), but that section identifies some defenses to infringement, not bases for cancellation.

    Whether the trademark is “incontestable” has nothing to do with the bases available for a cancellation; it is only the passage of time that limits the grounds for cancellation. Enough time passed and therefore NetJets’ INTELLIJET registration was not susceptible to cancellation on the basis that it was void ab initio.

    NetJets Inc. v. IntelliJet Group, LLC, No. 15-4230 (6th Cir. Feb. 3, 2017).

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