Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • What It Takes to Get Attorneys’ Fees

    This is a bit of a “duh” case from the Federal Circuit, a nonprecedential decision. The only surprising part of it is that the trial court, Judge Sparks in the Western District of Texas, didn’t impose even greater sanctions. It was quite a show of generosity.

    The patent-in-suit has a short chain of title; from the inventor to Wildcat Services, L.P. and from Wildcat Services to MD/Totco, a division of Varco, L.P. The plaintiff is National Oilwell Varco, L.P. (NOV). Varco, L.P. and NOV are sister subsidiaries. NOV claimed that it acquire the patent from Varco, L.P. in an Asset Contribution Agreement (ACA). NOV sued defendant Omron Oilfield & Marine, Inc.

    NOV stated in its interrogatory answers that “Documents sufficient to substantiate these transactions will be produced including asset purchase agreements and assignment documents.” But NOV didn’t produce the ACA and instead produced only an “Assistant Secretary Certificate.” NOV said about the ACA:

    The document is not relevant to any claim or defense this lawsuit. The Secretary’s Certificate shows that all assets of Varco, L.P. were sold to National Oilwell including the ‘142 Patent. The Asset Contribution Agreement would be cumulative and is not needed.

    Omron therefore filed a motion to dismiss, stating that NOV refused to produce the ACA, the Assistant Secretary’s Certificate did not establish standing, and that Varco L.P. claimed to own the patent in prior litigation. In response NOV produced the ACA, unfortunately for us under seal. Omron then re-filed its motion to dismiss, this time on the theory that the ACA did not effect a transfer.

    The ACA said this, as quoted by the court:

    WHEREAS, Contributor desires to contribute all of its physical assets, including but not limited to those assets generally described in Exhibit A (the “Property”), excluding any capital or common stock of subsidiaries or owned companies.

    .…

    1.1 Agreement to Contribute Property and Issue Partnership Interest. For and in consideration of the mutual benefits enjoyed by one another under this Agreement, Contributor agrees to transfer and convey or assign all of Contributor’s right, title, and interest in and to the Property to Partnership, and Partnership agrees to accept the contribution and conveyance of the Property and, in exchange therefore, to issue a limited partnership interest in Partnership to the Contributor, pursuant to the terms and conditions set forth in this Agreement.

    1.2 Conveyance of the Property. Concurrently with the execution of this Agreement, Contributor shall convey, assign, and transfer the Property to Partnership, subject only to the liens, encumbrances, security interests, restrictions, and claims of public record or referenced on Exhibit A. Contributor shall execute and deliver any and all documents or instruments as may be required, or which may be reasonably requested, by Partnership in order to effect and memorialize such conveyance, assignment, and transfer.

    The only reference to patents was in Exhibit A. A line for “Patents” on a page listing various divisions had “0” listed for every division except for ” Varco LP Brandt” (recall the assignment of the patent was to the division MD/Totco), where the entry was “129,647.”

    The Federal Circuit affirmed the district court on the last of the district court’s three theories that the ACA didn’t assign the ‘142 Patent. The affirmed theory was that the ‘142 Patent was plainly not mentioned anywhere in the ACA, “the Exhibit A spreadsheet shows a ‘0’ where the patent row intersects with the MD/Totco column.”

    The district court’s first theory was the toublesome language “agrees to transfer and convey” and “shall convey, assign and transfer.” You should know by now that the Federal Circuit has stated that this is language of future assignment, a promise to assign, not language that effects a present assignment. I find it interesting, though, that the Federal Circuit did not affirm on this basis; in the past Judges Newman and O’Malley have criticized the application of this rule in an asset purchase agreement case when it had only before been applied in employment agreement cases.

    The district court’s second theory was that the ACA expressly transferred only physical assets, not intangible assets, even though they were listed on Exhibit A. Here’s the reasoning:

    NOV asserts the ACA defines “Patents” as physical assets because “Patents appears as an entry on Exhibit A. Following this logic, everything listed in Exhibit A is a physical asset. But this cannot be the case because Exhibit A includes entries which are even more obviously non-physical assets than a patent. For instance, Exhibit A includes “goodwill” as well as items that are not even assets at all, such as amortizations, a long list of liabilities, and taxes. See the ACA, Ex. A. The most coherent reading of the ACA is that Varco, L.P. intended to transfer all of the Property to NOV, and the Property is the physical assets listed in Exhibit A, not everything in Exhibit A or all assets in Exhibit A. The Court agrees with Omron that a patent is not a physical asset.

    While Omron’s sources are not directly on point in that they derive from securities law and public utilities law, respectively, they generally indicate a difference between a physical asset and an intangible, non-physical asset. A patent would fall under the latter definition. Moreover, NOV’s position is untenable and makes no serious attempt to define “physical asset,” instead effectively reading the word “physical” out of the ACA entirely.

    The district court unusually dismissed the case with prejudice, also affirmed by the appeals court (emphasis and brackets mine):

    The district court dismissed this case with prejudice because NOV did not present a consistent picture of ownership of the ’142 Patent throughout (1) the USPTO records, (2) this case, and (3) three separate previous litigations including a case against Pason Systems USA Corp. (the Pason case), a case in Canada (the Canadian case), and a case against Auto-Dril (the Auto-Dril case). In the Pason case and the Canadian case, Varco, L.P. alleged that it owned the ’142 Patent or the Canadian counterpart to the ’142 patent, even after the execution of the ACA, and in the Auto-Dril case, NOV settled when Auto-Dril presented the same lack of standing argument that Omron raises here. We affirm because we find no abuse of discretion in the district court’s analysis.

    The district court provided several examples of NOV’s behavior evidencing a pattern of highly questionable conduct. We agree with the district court that even if NOV had been confused about the ownership of the ’142 Patent, NOV was put on notice about its potential lack of standing in October 2011, when Auto-Dril filed a motion to dismiss in the Auto-Dril case for lack of standing. In the Auto-Dril case, NOV also initially relied on the Assistant Secretary’s Certificate, and NOV settled with Auto-Dril after Auto-Dril responded with the same lack of standing argument advanced by Omron here. Yet nine months after settling with Auto-Dril, NOV filed this case against Omron, without fixing the problem of a lack of written assignment of the ’142 Patent from Varco, L.P. to NOV. NOV made numerous conflicting representations in this case, including stating that the ACA was not relevant to any claim or defense in this case, or that it was cumulative and not needed, yet NOV now relies on the ACA as the purported assignment document. Even NOV’s Rule 30(b)(6) designee did not know whether Exhibit A to the ACA covered the ’142 Patent. We agree that NOV was aware of the “web of confusion it was weaving” as early as October 2011, more than nine months before it filed this case, yet it failed to “fill[] the void that has now consumed this matter: the absence of a written assignment, as required by law, of the ’142 Patent from Varco, L.P. to NOV.” [Dist. Ct. opinion.] Had NOV been able to fix the standing problem, “it would have done so a long time ago and certainly before August 2012,” and it “at no point … even made an attempt to explain the blatant inconsistencies” in its previous positions on standing. [Id.] We agree and find no abuse of discretion because the district court’s decision to dismiss this case with prejudice was not clearly unreasonable, arbitrary, or fanciful, or based on an erroneous conclusion of law or fact.

    The most surprising part of the case to me was that the district court imposed, and the appeals court affirmed, sanctions only from the date that NOV refused to produce the ACA. Given that NOV was fully aware of its chain of title problem well before it filed its lawsuit, it looks to me like the district court was quite generous. Here is the reason given:

    The Court agrees NOV was on notice of the standing issue prior to filing suit given the Auto-Dril Case. Yet while the Court could speculate as to why NOV declined to correct any standing issues it had, the reality is the Court does not know the extent to which NOV was aware of the deficiencies in the paperwork supposedly evidencing the transfer of the ‘142 Patent from Varco, L.P. to NOV prior to filing this lawsuit. In the Auto-Dril Case, NOV only produced the Assistant Secretary’s Certificate, and the ACA was not produced. The Court does not know why it was not produced nor did the presiding court have an opportunity to rule on Auto-Dril’s motion to dismiss. Giving NOV the benefit of the doubt on this point, the Court can see why it was reasonable for NOV to believe it could file a lawsuit as the owner of the ‘142 Patent considering it settled the lawsuit with Auto-Dril as the owner of the ‘142 Patent.

    .…

    The case, however, became exceptional when, through the course of discovery, NOV intentionally withheld the ACA.… That refusal to produce the ACA was exceptionally unreasonable.

    The distict court’s explanation of why it was so exceptional, pp. 9-11, is recommended reading.

    It looks like even Texas is getting tired of unsupportable lawsuits.

    National Oilwell Varco, L.P. v. Omron Oilfield & Marine, Inc., No. 2015-1406 (Fed. Cir. Jan. 25, 2017).
    National Oilwell Varco, L.P. v. Omron Oilfield & Marine, Inc., No. A-12-CA-773-SS (W.D. Tex. Feb. 17, 2015) (order dismissing case on standing grounds).
    National Oilwell Varco, L.P. v. Omron Oilfield & Marine, Inc., No. A-12-CA-773-SS (W.D. Tex. Aug. 28, 2015) (order on attorney’s fees).

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  • Be Careful What You Wish For

    To “plead yourself out of court” is to state facts in a complaint that mean you have already lost. Something like, in a personal injury case, saying “I rear-ended him because he stopped at a red light” would do it.

    In Reynolds v. Banks it’s not quite exactly that, but pretty darn close. Sandra Banks is the owner of a trademark registration for THE DRAMATICS. The Dramatics is an R&B vocal group formed in Detroit in 1964 (caution, mellow music autostart). Sandra Banks is the widow of band member Ronald Banks, who died on March 4, 2010. Sandra Banks filed the application to register THE DRAMATICS trademark in her own name on April 21, 2010. Co-band member Larry Reynolds filed a petition to cancel her registration on March 27, 2012. He also filed a trademark infringement lawsuit in the Eastern District of Michigan about two weeks later. It’s a tortured litigation history in both venues, but I’ll just stick to the essentials.

    Banks’ counsel filed a Rule 12(b)(7) motion to dismiss for failure to join an indispensible party. The motion alleged that petitioner Reynolds, in his petition to cancel, claimed that the THE DRAMATICS trademark is owned by a Michigan limited liability company of which Reynolds, band member Willie Ford, and the deceased Ronald Banks were members. Banks’ theory in her motion was that the proper party to the lawsuit was the limited liability company, not Reynolds in his individual capacity, also saying that Banks “would refuse to be joined as petitioner against herself.”

    But there’s one one fatal flaw – if true, it also meant that Banks wasn’t the proper owner of the trademark registration. In an earlier opinion the Board issued Banks an Order to Show Cause:

    Respondent is allowed until October 20, 2016 to show cause why judgment should not be entered against Respondent based on her apparent lack of exclusive rights in the mark THE DRAMATICS, failing which judgment will be entered against Respondent. Specifically, Respondent must state whether she alleges that she is the sole and exclusive owner of the rights in the mark THE DRAMATICS. To the extent Respondent maintains that she is not the sole and exclusive owner of the rights in the mark THE DRAMATICS, Respondent must provide the Board with her basis for maintaining that she is entitled to a registration for the mark THE DRAMATICS.

    At this point Banks was acting pro se and her response was to provide a settlement proposal that didn’t mention the trademark rights. So it was over:

    According to Respondent’s own allegations, she is, at most, a co-owner of the mark THE DRAMATICS with Petitioner. As such, she is not entitled to the registration at issue and her application was void ab initio. Inasmuch as Respondent failed to respond substantively to the Board’s September 30, 2016 order to show cause, and inasmuch as Respondent has acknowledged that she is not the exclusive owner of the rights in the subject registered mark THE DRAMATICS, judgment is hereby entered against Respondent. The petition to cancel is accordingly GRANTED.

    I did wonder about it procedurally though – if Banks’ allegation that it was an LLC that owned the trademark was true, would it also be true that Reynolds didn’t have standing to file the petition and therefore the TTAB no authority to cancel the registration, valid or not? There was no discussion of standing in the new opinion, but I found it in an earlier opinion:

    By way of its May 31, 2012, motion to dismiss, Respondent also moved to dismiss these proceedings on the ground that Petitioner failed to join indispensable parties, namely, Willie Ford and the Estate of Ronald Banks.[fn5]

    “[T]he fact that two or more parties may have an interest in a mark to be pleaded in a notice of opposition, or a petition for cancellation does not mean that each such party must be joined as opposer, or petitioner.” TBMP § 303.06 (2016). While joint filing is permissible, it is not required. See id.; Avia Group International Inc. v. Faraut, 25 USPQ2d 1625, 1627 (TTAB 1992) (denying motion to join petitioner’s parent as real party in interest because proceeding involved “what rights petitioner has in its pleadeed marks vis-à-vis the defendant, not what right anyone else may have in it and denying motion to dismiss for failure to disclose parent company.”). In fact, the Board has held on at least one occasion that a requirement that all parties with an interest in a trademark be joined would be “contrary to the specific provisions of Sections 13 and 14 of the [Trademark Act] which provide that ‘any person’ who believes that he is or would be damaged by the registration of a mark is a proper party to file an opposition or a petition to cancel.” Sun Valley Company Inc. v. Sun Valley Mf’g Co., 167 USPQ 304, 309 (TTAB 1970). Here, Petitioner has alleged that he is and will be damaged by Respondent’s registration. It is not necessary that all ot her parties that may have an interest in the mark be joined as petitioners. Accordingly, Respondent’s motion to dismiss for failure to join indispensable parties is DENIED.

    [fn5] It is unclear if Respondent contends that Willie Ford and the Estate of Ronald Banks, as individuals, are indispensable parties, or if The Dramatics, LLC is an indispensable party, of which Willie Ford and the Estate of Ronald Banks are members. It is also unclear if Respondent contends that the Estate of Ronald Banks should be joined as a separate person or if Respondent herself is now the appropriate party following the disposition of the estate.

    So, a defense that failed on so many levels – not only was it rejected flat-out, but it also then handed the petitioner his case without any further ado. Not pleading yourself out of court, but defending yourself out of court.

    HT to John Welch for the case.

    Reynolds v. Banks, Cancellation No. 92055379 (TTAB Jan. 19, 2017).

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  • The Family Name

    This case is not just a trademark suit with a domestic relations background; it is a domestic relations dispute over the ownership of marital property, which happens to be a trademark.

    It is a marital settlement that makes any trademark attorney’s heart sink. While they were married, exes Randy Zweifel and Linda Smith held equal ownership interest in the business Lawn Managers, Inc. As part of the divorce Linda assigned her shares of Lawn Managers stock to Randy and the decree stated that he was to “retain the corporate name of Lawn Managers, Inc.” Linda was to start a new company called “Progressive Lawn Managers, Inc. doing business as Lawn Managers.” She could use “Lawn Managers” for two years after that, but then had to “discontinue using the name Lawn Managers.”

    No trademark lawyer would have thought this was a good idea even under the best of circumstances, with good-faith parties who truly don’t want confusion between each others’ businesses and so are motivated to avoid it. To think this is ever going to work between divorcing parties is insanity.

    Of course Linda didn’t stop using “Lawn Managers” when she was supposed to, even after an agreed-to extension. The parties have had “a number of contempt motions in the state court based on alleged breaches of the divorce agreement, as well as motions to modify the divorce agreement,” which are still ongoing.

    Randy registered the LAWN MANAGERS trademark in word and design form:

    While the state court post-divorce proceedings were ongoing he also sued his ex-wife’s company in federal court for trademark infringement. The court described the claim this way:

    In February 2016, Lawn Managers brought the instant federal trademark infringement suit against Progressive Lawn Managers under the Lanham Act, 15 U.S.C. § 1114, alleging that defendant’s logo was too similar to its own and confusing consumers because the phrase “Lawn Managers” was the largest text of the logo.

     

     

    In the opinion, the court sua sponte evaluated whether it had subject matter jurisdiction (hence the opening quote) or whether it should abstain. It decided that it should abstain, under both the Younger and Colorado River abstention doctrines. Part of the reasoning was

    [T]he present action seeks to modify the divorce decree: while Linda was awarded the right to use the name “Progressive Lawn Managers” in that decree, this suit seeks not merely to enforce the divorce decree’s time limitation on her use of the name “Lawn Managers” alone, but seeks to prohibit her use of the phrase “lawn managers” in any form. Federal courts may enforce final judgments related to divorce or alimony, but they do not have authority to hear and decide suits seeking the granting or modification of a divorce or alimony decree.

    So it appears Randy has come to realize how inadvised the original intended co-existence was and is trying to strike a new deal. Indeed a matter for the divorce court, not federal court.

    However the court only stayed the federal lawsuit until after final adjudication of the state court on the trademark issue, should there be any remaining issues of federal law after that.

    Lawn Managers, Inc. v. Progressive Lawn Managers, Inc., No. 4:16 CV 144 DDN (E.D. Mo. Jan. 9, 2017).
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  • Who Do You Associate “BorderFest” With?

    There’s an interesting trademark ownership fact pattern as described by a Texas state appeals court in Vera v. City of Hidalgo. I find it interesting in two ways. First, there is no mention of the statutory or common law basis for the claim. It’s characterized as ownership of a cultural festival name, but the court does not mention the Lanham Act or any Texas statutory or common law. I find it curious to read an opinion where the standard of law for the underlying claim plays virtually no role.

    The opinion is a review of cross-motions for a temporary injunction. The standard of review is described thus (citations omitted):

    A temporary injunction’s purpose is to preserve the status quo of the litigation’s subject matter pending a trial on the merits. A temporary injunction is an extraordinary remedy and does not issue as a matter of right. To obtain a temporary injunction, the applicant must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. An injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard. Whether to grant or deny a temporary injunction is within the trial court’s sound discretion.

    Second, the facts themselves are an interesting conundrum. The dispute is about who owns the mark “BorderFest” for an event held in the town of Hidalgo, Texas beginning sometime in the 1980s. Three months before the 2016 event, media outlets reported that the event would be in the neighboring town of McAllen instead. Plaintiff Joe Vera had been the city manager of Hidalgo but, lo and behold, had become the assistant city manager of McAllen. The interesting wrinkle was that the trademark had been federally registered in 2006 by “BorderFest Association,” an “unicorporated nonprofit association.” This incontestable registration, conclusive evidence of the Association’s ownership, played no role in the decision.

    Trademarks associated with a locale, like a restaurant, are vexing, fact-specific ownership problems. Add to the mix the fact that it is an event, where many volunteers from many different entities pitch in to make it happen. Add here, add in that Joe Vera had been the executive director of the BorderFest Association while also the Hidalgo city manager. It’s quite the puzzle.

    The testimony on the side of Hidalgo was that the city picked up a substantial part of the cost of hosting the event, including advertising expenses, sound and lighting expenses, and equipment rentals. The Association gave the city some money to defray expenses but not all of the cost. The city also provided support in the way of city workers during the festival. The city’s IT director said he helped create and design the website but Vera decided what information would be on the website. City employees built floats, built and manned food booths (under Vera’s direction), prepared the grounds, and erected perimeter fencing.

    The former mayor of Hidalgo testified for the BorderFest Association, relating that BorderFest was brought about by the Association and that the city contributed cash and in-kind donations in exchange for the “fame.” Vera confirmed the same with his testimony. Vera also testified that the city demanded that it be named the owner of BorderFest after the 2015 event, after which the Association looked for a new city. The Association then learned that the city formed “Texas BorderFest LLC” and thereafter the Association contracted with McAllen for the festival.

    The full analysis by the appeals court is this:

    With regard to the trial court’s ruling granting Hidalgo’s temporary injunction, the record shows that Hidalgo sought a declaratory action seeking numerous declarations, including a judgment that it is the exclusive owner of BorderFest due to the actions of Vera. In the alternative, Hidalgo seeks judgment for “recovery of all additional personal property purchased with Hidalgo taxpayer money” which was misappropriated by Vera and the Association. Hidalgo also put forth evidence that it had expended a sizable amount of taxpayer money, manpower, and other efforts in planning and preparation for the 40th anniversary of BorderFest, which was eventually held shortly after the trial court’s temporary injunction order. The preliminary record further shows that BorderFest has been held exclusively in Hidalgo for the previous thirty-nine years and has brought the city “fame” over these years. The record further shows that the 40th anniversary of the festival being held in Hidalgo was threatened by the actions of the Association agreeing to hold the BorderFest festival in McAllen. Based on these facts, we hold that the trial court was within its discretion to grant Hidalgo’s temporary injunction application because Hidalgo plead and proved that it had (1) a cause of action against Vera and the Association; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim.

    The court also affirmed the denial of the Association’s motion for temporary injunction, but we don’t have any insight into the trial court’s reasoning:

    With regard to the Association’s separate application for temporary injunction, we note that the trial court found that the Association had “one or more causes of action” against the city, but also found that the Association “did not use the BorderFest registered trademark designation” and had “no assumed name certification” on file with Hidalgo County. While these findings are not as robust as we would prefer when engaging in this type of review, we nevertheless hold that the trial court could have reasonably—and within its discretion—concluded that the Association would not suffer “a probable, imminent, and irreparable injury” while its case remained pending for a trial on the merits and the 40th anniversary of BorderFest proceeded as originally scheduled in Hidalgo.

    Maintaining the status quo established over the prior 39 years until there has been a full legal review is a rational outcome on a preliminary injunction. But to get to the heart of who actually owns the trademark we need more detail on the facts. From the court’s description, it’s hard to tell what the city did as part of its function as a municipality, performing tasks it would perform for any outdoor event, like fencing off the grounds, and what it did as a owner of the event. Did the city build a number of floats to be used by others, or did it just build floats for its own city departments?

    San Antonio Express-News
    San Antonio Express-News

    Were the food booths that were manned by city employees sponsored by the city or was it city-paid labor for the benefit of others? When the IT director “helped create and design” the website, did he do the work or did he provide oversight to an outside contractor? Who hosted the website?

    Also palpable but never a directly discussed were Vera’s conflict of interest while working for Hidalgo (and McAllen, for that matter), his self-serving testimony, and the extent to which he might have engineered what Hidalgo later claimed were its contributions to the event. Just a mess.

    Vera v. City of Hidalgo, No. 13-16-00088-CV (Tx. App. Ct. Jan. 5, 2017).

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  • There Is Just No Way Around the Absent Patent Owner

    I’m writing about an inventorship case mostly because I have to bone up before I speak at the AIPLA Mid-Winter Institute in a talk rivetingly titled “The Backlash from Mismanagement of Inventorship in Multi-Party Deals.” If you’re attending, consider Speedfit LLC v. Woodway USA, Inc. your homework assignment.

    The plaintiffs are an inventor, Aurel Astilean, and his company, Speedfit. Astilean was the inventor on two patents, the ‘619 and ‘016 patents for manually-powered treadmills.


     
    The patents were amended to add another inventor, Daniel Bostan, during the lawsuit, but Bostan is not a party to the suit.

    Defendant Woodway manufactures manually-powered treadmills, the suit mentioning the “Curve” treadmill. The backstory, not in this opinion (but you can read it here) is that Astilean hired Woodway to make a prototype of the treadmill. The complaint alleges that there was a non-disclosure agreement stating that Speedfit was to own “every right of every kind in and to its designs and any other information supplied to Woodway, and to any prototypes that Woodway builds as a result thereof,” as well as later documents confirming Speedfit’s ownership. Nevertheless, Woodway also filed patent applications for the treadmill, the ‘627 patent, the ‘169 patent, and the ‘276 patent. The legal theories have morphed throughout the case,1 starting with a complaint for declaratory judgment of non-infringement of the Woodway patents but now currently a claim for infringement of the Speedfit patents combined with a claim for correction of inventorship of the Woodway patents.

    So first up is whether the plaintiffs have standing to claim infringement of the Speedfit patents in the absence of Bostan as a plaintiff. You will note that the lawsuit was filed before Bostan was identified as an inventor, so there was no reason that he would have been a party in the original suit. During the suit both Astilien and Bostan assigned their patent rights to Speedplay, but, as attendees will learn in the AIPLA session in which I’m speaking, the answer is a quick “no.”2 Of course, all patent owners must be joined in a patent infringement lawsuit and Bostan’s assignment after the suit was filed didn’t cure the problem for several reasons: one cannot cure a standing problem at the inception of a suit with a nunc pro tunc assignment, nor did they even manage to have Bostan assign the accrued patent infringement claim. Nor, as a general rule, can one join a reluctant inventor using Fed. R. Civ. P. 19, also black-letter law:

    The Federal Circuit has addressed the question of whether there is a rule of patent law that precludes application of Rule 19, in light of the rule that “an action for infringement must join as plaintiffs all co-owners.” Ethicon, 135 F.3d at 1467 (citing Waterman, 138 U.S. at 255). In considering this question, the Federal Circuit has held that “[r]ules of procedure, such as Rule 19(a), must give way to substantive patent rights.” STC.UNM, 754 F.3d at 946 (citing 28 U.S.C. § 2072 (2012)). The Federal Circuit has defined such “substantive patent rights” to include “the right of a patent co-owner to impede an infringement suit brought by another co-owner,” noting that this substantive right “trumps the procedural rule for involuntary joinder under Rule 19(a).” STC.UNM, 754 F.3d at 946 (finding that one co-owner’s consistent expression of a desire not to join a lawsuit left the other co-owner without standing to bring the suit); see also DDB Technologies, L.L.C. v. MLB Advanced Media L.P., 517 F.3d 1284, 1289 n.2 (Fed. Cir. 2008) (“[W]e have explicitly held that Rule 19 does not permit the involuntary joinder of a patent co-owner in an infringement suit brought by another co-owner.”). Thus, controlling precedent is clear that a co-owner must voluntarily join an infringement suit, and absent the specific exceptions discussed above — which do not apply here — a court cannot rely on Rule 19 to join an unwilling co-inventor involuntarily as a plaintiff.

    There was a valiant effort to claim that an exception to the general rule applied here, which is where a co-owner has waived its right to refuse to join suit.3 A stretch, it was based on a 2009 agreement between Astilien and Bostan. The language Speedfit thought helpful to its cause was this:

    If you can’t read it, it says:

    [Astilean and Bostan] will promote and market the New Design in such a way to obtain the most beneficial rewards, both financial and honorary, for their role as innovators and catalysts for the implementation of the new generation of green treadmills.

    Not surprisingly, there was no waiver there:

    The court finds that the 2009 Agreement did not constitute a waiver by Bostan of his right to refuse to join an infringement suit. First, there is no mention in the 2009 Agreement of participation in future lawsuits and Bostan’s willingness to do so. Second, years after the 2009 Agreement was executed, Bostan expressed his desire not to participate in this suit in the emails and deposition testimony cited by the parties — thereby asserting his right to refuse to join the lawsuit – without any mention of the 2009 Agreement. Plaintiffs point to Bostan’s deposition testimony, in which he stated that he “was giving all the rights to Speedfit over the applications, patents and so on” and that his “understanding was that Speedfit now will continue their lawsuit against Woodway […] and I will not have to be party of that.” The court finds this statement to be ambiguous at best with respect to Bostan’s intention to waive his right to refuse to join the lawsuit.

    Based on the foregoing, and because a waiver must be clear and unambiguous, the testimony cited by plaintiffs cannot be viewed as a waiver of Bostan’s right, particularly to the extent that it can be construed as an expression of Bostan’s desire not to be a party to the lawsuit against Woodway.

    (Citations omitted; ellipses in original.) The court therefore dismissed the patent infringement claim.

    But there was still the matter of inventorship of the Woodway patents. Woodway argued that Speedfit didn’t have standing to correct inventorship to add Bostan. Not so:

    Although this court finds that Bostan must be joined as a plaintiff in order for plaintiffs to have standing to bring a patent infringement claim, the court finds that Bostan need not be joined for plaintiffs’ correction of inventorship claims to stand.

    The Federal Circuit has advised that 35 U.S.C. § 256 should be “interpreted broadly as a ‘savings provision’ to prevent patent rights from being extinguished simply because the inventors are not correctly listed.” Here, as discussed above, Bostan assigned his interests in the ‘016 and ‘619 Patents to Speedfit as of June 1, 2015, through the Assignment Agreement. The Assignment Agreement assigned Bostan’s “entire and exclusive right, title, and interest” in the ‘619 and ‘016 Patents to Speedfit, including the right to protect its own interests in these patents as of June 1, 2015. The court disagrees with defendant’s reliance on the fact that the Assignment Agreement “say[s] nothing about Mr. Bostan assigning any alleged inventorship rights in the Woodway Patents” to Speedfit, and finds that Speedfit’s ability to assert such claims derives from its assigned interest in the ‘619 and ‘016 Patents, which concern the same underlying subject matter as the Woodway Patents.4

    The court finds that as an assignee of Bostan, Speedfit may assert a clear ownership interest in the subject matter at issue in the Woodway Patents and therefore has standing to bring claims for correction of inventorship seeking to add Bostan as an inventor. Moreover, the court notes that in light of the Assignment Agreement, Bostan no longer has an ownership interest in the ‘016 and ‘619 Patents, and would likely be found to lack standing if he sought to bring a correction of inventorship claim on his own behalf at this time.

    (Footnote added; citations omitted.)

    The plaintiffs also had a conversion claim, “based on the allegation that ‘Woodway has wrongfully exercised dominion over the property of Plaintiffs by refusing to name Astilean and Bostan as either inventors or joint inventors […] of the [Woodway Patents].’” Uh, no.

    In addressing matters of preemption, the Federal Circuit has explained that “although federal patent law plainly does not provide for explicit preemption […] a state may not offer patent-like protection to intellectual creations that would otherwise remain unprotected as a matter of federal law.” Further, the Federal Circuit has held that “the field of federal patent law preempts any state law that purports to define rights based on inventorship.” Thus, according to controlling precedent, a state law claim that either seeks “patent-like” protections not provided by federal patent law, or turns on a determination of inventorship, is preempted by federal patent law.

    Here, plaintiffs’ conversion claim is both “patent-like” in nature, and also turns on a determination of inventorship regarding the manually-powered treadmill design at issue. First, plaintiffs’ assertion of ownership over the subject matter of the Woodway Patents, which underlies their claim of conversion, clearly turns on a determination of inventorship. Second, the damages that plaintiffs assert, in particular the “loss of value of the Patents-in-Suit and the revenues derived from licenses to that property,” essentially restate the infringement claim for which patent law would provide a remedy if warranted. The court therefore finds that plaintiffs’ conversion claim is preempted by federal patent law and must be dismissed.

    So inventorship, and I believe a breach of contract claim, are still alive. The case has been pending for 3 1/2 years and is heavily litigated. I wonder how much money there is in non-motorized treadmills.

    Speedfit LLC v. Woodway USA, LLC, No. 130CV-1276 (KAM) (E.D.N.Y. Dec. 28, 2016).
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    1. Talk about convoluted, from an earlier decision:

      On March 11, 2013, plaintiffs filed an action for, inter alia, breach of contract and declaratory judgment invalidating defendants Woodway and Douglas G. Bayerlein’s patent for a manually-powered treadmill. (See generally ECF No. 1, Complaint.) Plaintiffs amended their complaint against defendants on June 17, 2013 to abandon their declaratory judgment claim and instead allege infringement of plaintiffs’ own patents for components of a manually-powered treadmill, U.S. Patent Nos. 8,308,619 (the “‘619 Patent”) and 8,342,016 (the “‘016 Patent”) (collectively, the “Speedfit Patents”.) (See generally ECF No. 18, Amended Complaint.)

      On November 9, 2013, Woodway filed a motion to (1) dismiss or transfer plaintiffs’ claims based on a later-filed action in the United States District Court for the Eastern District of Wisconsin, and (2) dismiss plaintiffs’ state law claims for failure to state a claim for which relief could be granted. (ECF No. 34, Motion to Dismiss.) The court denied Woodway’s motion except as to plaintiffs’ breach of fiduciary duty claim, which was dismissed for failure to state a claim. (ECF No. 59, Mem. and Order, dated October 10, 2014.)

      On February 17, 2015, with the consent of remaining defendant Woodway, plaintiffs filed a Second Amended Complaint that, inter alia, amended their cause of action for breach of contract to compel Woodway to assign all right, title, and interest in two Woodway patent applications connected to the manually-powered treadmill: U.S. Patent Application No. 13/235,065 (the “‘065 Patent Application”) and U.S. Provisional Patent Application No. 61/161,027 (the “‘027 Provisional Patent Application”). (Second Am. Compl. ¶ 54.) Plaintiffs asserted that the information Woodway used to develop the patent applications “was taken directly from Plaintiff’s design” and “improperly failed to identify Astilean as the inventor of the [manually-powered treadmill].” (Id. ¶ 35.) Woodway answered the Second Amended Complaint on March 6, 2015 and included counterclaims against plaintiffs for a declaratory judgment that the Speedfit Patents are invalid and a claim to correct inventorship of the Speedfit Patents to include “relevant Woodway personnel” as sole or joint inventors. (See generally ECF No. 93, Defendant’s Answer and Counterclaims to Second Amended Complaint.)

      ↩

    2. The court seemed to know that going in, too. An unnumbered docket entry on November 25, 2015 says “The court again advised plaintiffs that pursuant to Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359 (Fed. Cir. 2010) it appears the court lacks subject matter jurisdiction over plaintiffs’ patent infringement claims. Plaintiffs acknowledged the Abraxis case but asked the court for leave to submit supplemental briefing in opposition to defendant’s letter motion to dismiss. Accordingly, the court set the following schedule for supplemental briefing to address whether the court has subject matter jurisdiction over plaintiffs’ patent infringement claims: …” ↩
    3. I’m a bit confused by how this issue is treated in the opinion. The section is captioned “Bostan’s Right Not to be Involuntarily Joined in a Lawsuit.” The court states “Plaintiffs argue in the alternative, that even if Bostan would ordinarily be required to join as a plaintiff under the general rule for standing, an exception applies in the present case because Bostan waived his right not to be involuntarily joined in this lawsuit. (See Pl. Supp. Op. at 1.) The Federal Circuit has recognized this exception to the general requirement that all co-owners must be joined as plaintiffs in an infringement suit. See, e.g., Ethicon, 135 F.3d at 1468 n.9 (“If, by agreement, a co-owner waives his right to refuse to join suit, his co-owners may subsequently force him to join in a suit against infringers.”); see also STC.UNM v. Intel Corp., 754 F.3d 940, 946 (Fed. Cir. 2014) (same).” As I understand the quote, it means a co-owner can be involuntarily joined (which will be as an involuntary defendant), not that the reluctant co-owner doesn’t have to be a party at all. However, the court seemed to treat it as a theory that Bostan didn’t have to be a party. Nevertheless, the result is the same here either way. ↩
    4. I wouldn’t have minded a bit of elaboration on that point. The assignment agreement is specifically for two pending applications, the two issued patents, all applications “associated therewith, based on, or claiming priority therefrom” and the right to claim priority to the assiged patents and applications. There was no assignment of inventions related to manual treadmills generally. The Speedfit patents are cited as prior art in the Woodway patents, but does that mean the Woodway patents are “associated therewith or based on” the patents Bostan assigned to Speedfit? ↩
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  • What’s a “Trolley Pub,” You Ask?

    I’m SO glad you did, because I can tell you all about the Trolley Pub® transport services – note the care with which I’ve used the term as a trademark, although I will dispense with any effort to use it in adjective-noun form from now on.

    The Trolley Pub is a pedal-powered street trolley for hire. “Pub” because you can bring alcoholic beverages on the trolley. It has a driver, presumably not drinking, who steers, brakes and encourages more pedaling when necessary for propulsion (sometimes they’re too occupied with drinking and forget). The Trolley Pub takes you wherever through town you would like to go. I suppose the Trolley Pub could drive you from museum to museum if that was your desire, but I’m guessing that it is generally used to go from bar to bar.1

    Trolley Pub Raleigh

    How do I know so much about the Trolley Pub? Because the Trolley Pub’s departure point is about two blocks from where I live. I’m on an intersection of two busy streets, so I see the Trolley Pub many times a day in the warmer weather. One of the streets is a one-way downhill grade, which apparently means it is obligatory to yell “wheeeeeeee!” as you go down it (I suppose because of the intoxicated joy in being relieved of your pedaling duties). My favorite passengers were some fans of show tunes, singing Phantom of the Opera lustily (when not “wheeeeeeee”-ing) and doing a very enthusiastic Bohemian Rhapsody, which, while not technically a show tune, in my opinion is as good as any show tune for an amateur sing-a-long. Maybe better.

    And so with that for background we reach the case, about a failed claim for partial ownership of the Trolley Pub business and intellectual property. Honestly it’s not all that interesting and you can stop reading now, I’m just writing about the case because it’s about the micro-regionally famous Trolley Pub (everyone in Raleigh knows Trolley Pub, and probably has been stuck behind its slow progress in traffic, except on downhills). So we’re getting to the boring part now.

    Trolley Pub started, according to the trademark registration, in 2011. Andrew Cole and Kai Kappro own Kaapro & Cole Ventures, which presumably was the original owner of the Trolley Pub business. On February 29, 2012 Kaapro & Cole Ventures joined with Jeff Munson to form Trolley Pub of North Carolina, LLC (TPNC). Munson contributed $40,000 in return for 27.78% ownership and Kaapro & Cole Ventures contributed the Trolley Pub logo, the Trolley Pub trademark, the Trolley Pub image and branding, know-how, marketing plans, technical information, supplier lists and information, financial plans, contractor and builder information, business plans, management commitment, software, and design work for the remaining 72.22% ownership.

    In late 2012 and early 2013 plaintiff Thomas Lapham, Kaapro and Cole discussed expanding the business to Virginia, Maryland, DC and Delaware. Lapham claims that the conversations were that he would get 50% ownership interest in that region, which he would operate, and TPNC would contribute the trademarks and other intangible property. On February 4, 2013 they executed a Memorandum of Terms for a Proposed Business Partnership Agreement. The agreement described the contributions:

    Contributions

    If you can’t read it, Lapham was to contribute $60,000 for half of the business and TPNC was to contribute the intellectual property. But, the agreement continued:

    License

    If you can’t read this, it says

    Intellectual Property developed in the course of the Venture is the property of the Venture. The Company’s [TPNC’s] Intellectual Property that is contributed to the Venture is licensed to the Venture and may only be used in conjunction with the course of business of the Venture. Licensed Intellectual Property is nonassignable. The Company shall contribute the following Intellectual Property and Trade Secrets to the Venture:

    going on to list a number of intangibles, including the trademarks. So while saying that there would be a “contribution” of intellectual property was an unfortunately worded general description, it was clear that the contribution was a license to the rights, not ownership.

    The parties never agreed on an operating agreement for Trolley Pub of Virginia,2 for reasons not explained. Lapham nevertheless claims to have invested $400,000 in the business. In May or June, 2014 there were also discussions for a holding company, including a draft agreement, where Lapham would contribution $400,000 and Kaapro & Cole Ventures would contribute the intellectual property, but that also never came to fruition. On December 2, 2015, Kaapro & Cole Ventures and TPNC executed an Intellectual Property Assignment and License Back Agreement, where TPNC assigned the intangibles back to Kaapro & Cole Ventures in exchange for a license-back for exclusive use in North Carolina, South Carolina and Georgia and non-exclusive rights elsewhere. A few days later they told Lapham that they were not going to contribute the intellectual property.

    Lapham sued TPNC, Kaapro & Cole Ventures, Kaapro, and Cole for fraud, fraud in the inducement, breach of contract, and anticipatory breach of contract. This decision is about Lapham’s second try at stating a claim – he didn’t.

    I will interject a personal view at this point – to me, $60,000 to run a Trolley Pub franchise in four states sounds right, but Lapham’s theory that he would own half of the rights in Trolley Pub intangibles nationwide for $60,000 was laughable. Trolley Pub in Raleigh was at that point in time an exceptionally successful and fast-growing business. On my recollection, it had grown from one vehicle when it started to probably three by the time of the supposed assignment. The intangibles were also valued at about $160,000 a year earlier, when they were contributed by Kaapro & Cole Ventures to TPNC. This theory doesn’t pass the smell test. $400,000 though, maybe now we’re talking.

    On the fraud and constructive fraud claims, fraud must be pleaded with particularity but wasn’t:

    All of Lapham’s fraud claims fail at the first element because the Complaint does not allege any facts that constitute a false representation. Throughout his pleading, Lapham asserts:

    At the time that the … promises were made, Kaapro and Cole had no intention to perform those promises …. Instead, Kaapro and Cole intended to maintain ownership and control of the Trolley Pub Intangible Property and grant rights in such property to a competing entity or entities in which Lapham had no ownership interest but that would be authorized to operate the Trolley Pub Business in those states….

    Lapham repeats some form of this language for each of the alleged promises Kaapro and/or Cole made to him in February 2013, March 2013, and June 2016. Thus, the Complaint argues that Defendants’ professed intent to perform the promises was never genuine, and was therefore false. Without any facts to support this legal conclusion, however, the claims must fail.

    In support of his argument, Lapham conflates the “intent to mislead” and “false representation” elements of fraud. Essentially, he argues that Defendants “intended to mislead” him, and therefore they made a “false representation.” This argument overlooks the fact that the elements of fraud are separate and distinct …. Aside from Lapham’s conclusory allegations, there is nothing in the Complaint to suggest that Defendants did not intend to follow through on their promises. There is no allegation of side dealings with other companies, conspiracies, embezzlement, misstatements of bank records, misrepresentations of profitability, improper auditing procedures, or any of the other telltale signs of fraud. To the contrary, the Complaint suggests that all parties intended for this business relationship to endure.…

    Accepting Lapham’s theory of fraud would transform every breach of contract case into a fraud case. Plaintiff essentially alleges that “Defendants had no intention of fulfilling their side of the bargain when they entered into it, and therefore they misstated a material fact.” Without support for these alleged misrepresentations of intent, this is an assertion that every businessman could claim if his deal went awry. For example, if a merchant failed to deliver goods as required by contract, the buyer could claim that the seller did not deliver the merchandise, “and never had an intention to do so.” This result would undercut the reasoning behind 9(b), which seeks to protect defendants from harm to their reputations as well as from frivolous lawsuits. … As such, if Defendants did not fulfill their promises in a bargained-for exchange, the law of contracts, rather than the tort of fraud, will provide Plaintiff his relief.

    But the law of contracts provided no relief either. The only signed agreement was the Memorandum, which was quite clear on what intangibles TPNC would contribute, a license. Lapham did not successfully allege any oral contract because he could not state any critical terms with particularity. There had also been written drafts subsequent to oral conversations, suggesting the conversations were negotiation, not agreement:

    With regard to the oral contract from early 2013, it appears those discussions were memorialized and given effect on February 4, 2013, when the parties executed the Partnership Agreement. With regard to the “amendment” on or around March 4, it appears that those negotiations were embodied in the TPV agreement, which Lapham never executed and is therefore not legally binding. The fact that actual contract documentation was produced following the parties’ negotiations suggests that the discussions that Lapham references were in fact preliminary negotiations, and not separate oral contracts, as alleged. Lapham cannot reject each of the draft agreements that were offered to him in definite terms, and then turn around and enforce the ambiguous negotiations of those documents as though they were valid contracts. Without contractual obligations on either side, there could be no breach, and therefore Lapham’s claims must fail.

    The case was dismissed with prejudice. Wheeeeeeee!!

    Lapham v. Trolley Pub of NC, No. 1:16-cv-469 (E.D. Va. Dec. 12, 2016).

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    1. One might ask why an open container on a vehicle in the middle of the street is permitted but an open container on the sidewalk is not. One of those mysteries of life, I guess. ↩
    2. Lucky for them. The agreement, already executed by TPNC, didn’t have the clarification that only a license was being contributed. ↩
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  • I Think I Heard the Phone Ringing …

    John Welch put in the call, and I’ll pick up. If you didn’t read his post on Emerald Cities Collaborative, Inc v. Roese, go read it now.

    Section 10 of the Lanham Act limits the assignability of intent-to-use trademark applications. One can assign an ITU application only after the Amendment to Allege Use or the Statement of Use is filed, except where the ongoing and existing business to which the mark pertains is transferred. It’s the last provision that is usually litigated and I have railed against what I consider to be an overly narrow interpretation of what it requires.

    But in Emerald Cities Collaborative the trademark owner didn’t claim that there had been a transfer of a business. Instead, there was an agreement, which was executed and effective before an AAU/SOU was filed but designed to not be operative until after the SOU was filed. It didn’t work.

    The TTAB and the Federal Circuit both held that it was not a future assignment but was instead, in effect, a present assignment before the SOU was filed and therefore the improper assignment of an ITU application. I agree and found these two paragraphs of the agreement particularly damning:

    [4.2(c)] The products and services sold by Mr. Orlando [the original applicant] and his associated entities under the Mark shall at all times be of a high quality, as determined by ECC [the transferee] acting reasonably. If the products or services sold by Mr. Orlando and his associated entities under the Mark fail to meet such quality standards, Mr. Orlando shall immediately take corrective action to ensure that the products or services are of the appropriate quality ….

    [4.3] Mr. Orlando shall not challenge ECC’s use of the Mark or support challenges by third parties, whether before or after the Registration Date. Only ECC shall have the exclusive right to file oppositions or claims against the users of confusingly similar trademarks ….

    (Brackets added; emphasis in original.)

    Controlling the quality of the goods and services is almost the whole kettle of fish when you’re trying to figure out who owns a trademark. Memorializing in writing that the supposed owner doesn’t have control, and throw in the inability of the supposed owner to enforce its trademark rights as soon as the agreement is signed, is pretty compelling evidence that the putative owner isn’t really the owner.

    License cases have an analogous situation, where a court has to decide whether an exclusive licensee has standing under Section 32, which is for infringement of a registered trademark. A licensee can be considered the owner of a trademark for purposes of standing where it holds so many rights that it is effectively the owner: “[A] truly exclusive licensee, one who has the right even to exclude his licensor from using the mark … is equated with an assign[ee] since no right to use [the mark] is reserved to the licensor ….” Krasnyi Oktyabr, Inc. v. Trilini Imps., Civil Action No. CV-05-5359, 2007 U.S. Dist. LEXIS 23733, at *8-9 (E.D.N.Y. Mar. 29, 2007).

    To rise to the level of a property interest, the license must be truly exclusive in that the licensor retains no rights to use the mark and the licensee can exclude the licensor from use. Bliss Clearing Niagara, Inc. v. Midwest brake Bond Co., 339 F. Supp.2d 944, 960 (W.D. Mich. 2004); Fin. Inv. Co. (Bermuda) Ltd. 165 F.3d at 532 (quoting 3 Jerome Gilson, Trademark Protection & Practice § 8:16[1][b] (1997)); Quabaug Rubber Co., 567 F.2d at 159; ICEE Distribs., Inc., 325 F.3d at 598-99. A license may also be tantamount to an assignment where the license agreement grants exclusive use of the trademark without restrictions on the licensee’s ability to enforce it. Bliss Clearing Niagara, Inc., 339 F.Supp.2d at 960 (quoting Ultrapure Sys., Inc. v. Ham-Let Group, 921 F.Supp. 659, 665-66 (N.D. Cal. 1996)). Courts have found that a licensee has no property interest where (1) the license agreement imposes geographical limitations on the use of the trademark, Calvin Klein Jeanswear Co., v. Tunnel Trading, 2001 U.S. Dist. LEXIS 18738, 2001 WL 1456577, at *5 (S.D.N.Y. Nov. 16, 2001); (2) the licensing agreement requires the licensee to maintain the trademark’s quality and reserves the right to monitor the licensee’s product quality, Gruen Marketing Corp. v. Benrus Watch Co., Inc., 955 F. Supp. 979, 983 (N.D. Ill., 1997); (3) the rights and duties in the license agreement are inconsistent with an assignment, Fin. Inv. Co. (Bermuda) Ltd., 165 F.3d at 532, and (4) the license agreement states that the licensor retains ownership of the trademark. Ultrapure Sys., Inc., 921 F.Supp. at 665 (citing DEP Corp. v. Interstate Cigar Co., 622 F.2d 621, 623 (2d Cir.1980)).

    Experian Mktg. Sols., Inc. v. U.S. Data Corp., No. 8:09CV24, 2009 U.S. Dist. LEXIS 82075, at *9 (D. Neb. Sep. 9, 2009)

    Those were all the things that were going on here; in the agreement the purported future owner was the one presently controlling the quality of the goods and services, and the purported present owner’s inability to enforce its trademark rights was inconsistent with ownership. So I have no problem with this decision and find it very consistent with existing trademark ownership law.

    John posed the question: “Is there anything wrong with an agreement to assign a mark in the future, in terms of the Section 10 prohibition? Wouldn’t that invite abuse? Pamela Chestek, please pick up the white courtesy phone!”

    I’m of two minds on the anti-assignment provision altogether. It was added to prevent trafficking in trademarks. One of my minds says that it has interfered with legitimate business interests and operations much more often than it has prevented trafficking. My other mind recognizes the possibility that trafficking hasn’t been a problem precisely because of the anti-assignment provision.

    In any case though, the law is pretty clear that one can’t assign a bare intent-to-use application and we can only act within the confines of the law we have. That said, to answer John’s question (finally), I have no problem with a future assignment based on a condition precedent that the trademark be put in use by the applicant and the assignment perfected after the Statement of Use is filed. But that’s not what happened here; here, as the Federal Circuit said, “we must construe the Agreement as a whole.” And as a whole, it was in effect a present assignment.

    I also don’t know how to draft a future assignment that will both fully satisfy the business desire and successfully survive a challenge. The parties are in this situation because one wants to acquire the inchoate right to use a trademark from a stranger. The reason for acquiring the application rather than just filing a new one might be to gain a priority date, or simply to get the earlier-filed application out of the way. The acquiring party isn’t interested in the applicant’s business and is likely planning to use the trademark right away for its own goods and services, which may be unlike the applicant’s planned use.

    The scheme I’ve generally heard proposed for assigning an intent-to-use application is that the applicant retains ownership and licenses the mark to the future assignee. The future assignee’s use of the mark as a related company then becomes the very use that is needed to perfect the application. But this strikes me as likely to fail too, based on my assumption that the assignee isn’t going to allow the applicant to actually control the assignee’s use, making it a classic naked license.

    It was a creative effort here, but it made the fatal mistake of not allowing the applicant to control the quality of its own goods and services, the sina qua non of trademark ownership. Had the acquiring party allowed the applicant to put the mark in use in whatever way the applicant wanted (recall here that it appeared the applicant had the ability to use the mark, it just had to be under the acquiring party’s control), but simply prohibited the applicant from bringing a claim for infringement against the acquiring party’s use before the actual assignment, that might have worked. The naked license risk with this is negligible; the applicant has its own use and simply tolerates a single infringer for a short period of time. There is a risk though that if the two uses are too dissimilar the acquiring party won’t be able to “tack” its own use to the acquired application, thereby gaining the earlier constructive first use date, so the purpose for the acquisition may not be satisfied.

    Essentially, these are situations where there is a desire to do exactly what the statute was designed to prevent. That will take some clever drafting indeed to make it work. But no matter how an intent-to-use application is acquired, it behooves the acquiring party to file a second “safety” registration that isn’t tainted by the acquisition, because any ITU application that has been assigned is likely to be challenged.

    And would Rebecca Tushnet pick up the white courtesy phone? The PTO denied acknowledging the Section 15 declaration because there was a pending opposition.

    Emerald Cities Collaborative, Inc. v. Roese, No. 2016-1703 (Fed. Cir. Dec. 13, 2016).

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  • Open Source Software 2016 — from Compliance to Cooperation

    I am pleased to be speaking in San Francisco next week, December 21, at the Practicing Law Institute’s CLE on open source software “From Compliance to Cooperation.” Shane Curcuru, Vice President for the Apache Foundation, and I will be talking about trademarks in open source software. You can attend live at the PLI center in San Francisco or attend by webcast. Hope to see you there.

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  • Tolerated Infringement

    A trademark ownership dispute generally means taking a very mushy set of facts and deciding who has the superior claim. Generally, avoiding likelihood of confusion is the paramount interest, so the outcome will mean that one party will have to cease its use. But sometimes courts allow what I call “tolerated infringement,” concurrent uses that the court recognizes create confusion but nevertheless are allowed to continue.

    It arises in contract cases, where the parties have contracted for coexisting confusing uses. Where the parties later disagree about the deal they struck, courts will enforce the terms of the agreement even if the use is confusing. See, e.g., Times Mirror Magazines, Inc. v. Field & Stream Licenses Co., 103 F. Supp. 2d 711, 739 (S.D.N.Y. 2000) aff’d, 294 F.3d 383 (2d Cir. 2002) (“Balancing the risk of confusion and minimal harm that could result from the parties’ shared use of the Field & Stream mark against the public interest in enforcing contracts and protecting the reliance they induce, I conclude as a matter of law that the level of injury does not outweigh the public interest in holding parties to their commitments”); T & T Mfg. Co. v. A.T. Cross Co., 449 F. Supp. 813, 827 (D.R.I.), aff’d, 587 F.2d 533 (1st Cir. 1978), cert. denied, 441 U.S. 908, 99 S. Ct. 2000, 60 L. Ed. 2d 377 (1979) (“The balance [of the public interest against confusion, one of the significant purposes of trademark law, against the interest in enforcing contracts and protecting the reliance they induce] strongly favors enforcement of the contract. But having already found that a likelihood of confusion exists in this case, we must determine whether this necessarily makes the contract against public policy. I conclude that it is not.”). It also happens as the result of settlement of assets in bankruptcy, Vincent’s of Mott St., Inc. v. Quadami, Inc., 423 F. App’x 46, 51 (2d Cir. 2011) (interpreting a bankruptcy decision that allowed what the appeals court characterized as a co-existing unlicensed use of another’s trademark) and divorce, Widman’s Candy Co. v. Knutson, No. 3:07-cv-13, 2008 U.S. Dist. LEXIS 61245, at *6 (D.N.D. Aug. 8, 2008) (former son-in-law was allowed to continue to operate store after divorce; suit was for breach of purchase agreement after buyer of his business was sued by the family for trademark infringement).

    And now we have co-existing, confusing uses in a band name case – what else? And we get there through laches.

    The musical group Los Iracundos was formed in Uruguay in the early 1960’s. They recorded and toured throughout the world until 1989, when one of the original band members died. After that, the group splintered into three, two of which are involved in the suit.

    The plaintiff was the group formed by the original drummer, which the court called Velazquez Inracundos. The defendant was the Pivetta Inracundos, which included several of the original band members (and at one point one original member switched bands). Pivetta Inracundos performed in the United States regularly between the mid-1990s and 2012. Velazquez Inracundos performed in South America, Central American and Europe, but didn’t perform regularly in the US until 2012. Velazquez testified that he was aware Pivetta Inracundos was performing in the US.

    One of the members of Pivetta Inracundos registered the LOS INRACUNDOS trademark in 1995 but the registration was cancelled in 2011 after the registrant failed to respond to a petition to cancel.1 Velazquez then registered the trademark. In September, 2013 Velazquez Inracundos sued Pivetta Inracundos.2

    There was a bench trial on the sole claim of trademark infringement. The court punted on ownership of the trademark, acknowledging that registration is not determinative and also noting that Pivetta Inracundos was using the trademark in the US well before Velazquez Inracundos.

    Instead, the court denied injunctive relief based on laches. Velazquez was aware of Pivetta Inracundos and its trademark registration “long before” Velazquez took steps to cancel the earlier registration, so there was a period of delay. The delay caused prejudice to the defendants since they had invested in using the name. The court concluded,

    24. [U]nderlying the whole dispute is a failure of solid proof as to who actually owned the right to the band name over the passage of time. The uncontested proof is that, after the death of Eduardo Franco, the band members went their separate ways and did not challenge — for many years — the ability of the others to use the Iracundos name. The Court received no evidence concerning the actual ownership of the group’s intellectual property or brand name.

    25. So, while Velazquez surely has a strong claim to use the name as an original member, Pivetta remains a part of a group that formerly possessed two other founding members and one of their sons (a la Jason Bonham, Sean Lennon, or Zac Starkey). Equitable considerations of this sort weigh both ways under these circumstances.

    26. No doubt there is a likelihood of consumer confusion in the future. The Court is concerned that music fans will have difficulty in determining whether the Velzaquez Iracundos or the Pivetta Iracundos are the “real” Los Iracundos. But neither party seriously advanced a consumer confusion argument at trial. Moreover, such confusion may well be inevitable given the parties’ lackadaisical use of the mark in the United States over the years. It provides little incentive to prohibit one side or the other from performing under the band’s brand name going forward.

    (Emphasis added.) Injunctive relief denied; both can tour as Los Iracundos.

    Velazquez v. Hernandez, No. CV 133-6549 MRW (C.D. Calif. Dec. 5, 2016).

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    1. This webpage claims that the petitioner for cancellation, Nilo Lauz, is an “imposter.” He is not a party in the case and not mentioned in the court’s opinion, although the court said that Velazquez “apparently caused the PTO to cancel” the registration. Golly, band name cases are so much fun. ↩
    2. Name defendant Celso Hernandez, sued “individually and doing business as Playa las Tunas Restaurant,” settled out early. ↩
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  • More on What Nunc Pro Tunc Means

    One of my most read posts is “What Nunc Pro Tunc Means.” It means “now for then” in Latin, which is hardly much help. Extensive Google research tells me that it’s used to correct judicial orders, but that’s not what brings readers to my blog. In the IP field we typically use “nunc pro tunc” in the context of an assignment of a patent, trademark or copyright. The nunc pro tunc assignment becomes the subject matter for a blog post when someone back-dates an assignment to try to cure a standing defect. That is, Plaintiff P sues for infringement of a patent it thought it owned. Smart Defendant D realizes Plaintiff P doesn’t own it because of some defect in the chain of title, so Plaintiff P responds by getting the true owner to sign a “nunc pro tunc” assignment, back-dating the assignment to a date before the lawsuit was filed. Pro tip—it doesn’t work. As quoted in my earlier post, “Permitting non-owners and licensees the right to sue, so long as they eventually obtain the rights they seek to have redressed, would enmesh the judiciary in abstract disputes, risk multiple litigation, and provide incentives for parties to obtain assignment in order to expand their arsenal and the scope of litigation. Inevitably, delay and expense would be the order of the day.”

    In re CTP Innovations is the next permutation of the effort. The case is a consolidated multi-district action combining various lawsuits brought by “non-practicing patent assertion entity” CTP Innovations, hence the unusual caption for an adversarial dispute. That is the court’s description of the plaintiff; consider whether that affected the court’s reasoning.

    The court helpfully puts the chain of title in a chart for us:

    Date Event Rights Owner
    9/21/1999 Inventors assign patent rights to Banta Corporation (“Banta”) Banta Corporation
    In 2007 R.R. Donnelley acquires Banta (not its assets) Banta Corporation
    2007-2013 Banta operates as a subsidiary of R.R. Donnelley Banta Corporation
    2/12/2013 R.R. Donnelley (not Banta) executes assignment of rights to Media Innovations, LLC Banta Corporation
    3/5/2013 Media executes assignment of rights to CTP Innovations, LLC Banta Corporation
    5/24/2013 Banta executes assignment of rights to R.R. Donnelley nunc pro tunc to 1/3/2013 R.R. Donnelley & Sons Company
    6/14/2013 CTP files first of suits at issue R.R. Donnelley & Sons Company

    What we have then is a nunc pro tunc assignment that was executed before the lawsuit was filed. Ok, no problem there. But the question becomes whether that nunc pro tunc assignment also cured the defect down the chain, the assignment from Media Innovations to CTP Innovations. The court holds it does not:

    CTP contends that Banta’s May 24, 2013 execution of a nunc pro tunc assignment of the rights to the Patents in Suit to R.R. Donnelley was effective to retroactively close the gaps in the chain of title between R.R. Donnelley and Media and between Media and CTP. Certainly, contracting parties may agree to give retroactive effect to their agreements as between themselves. However, a nunc pro tunc agreement cannot be used to rewrite history so as to retroactively provide standing to sue for patent infringement. “[N]unc pro tunc assignments are not sufficient to confer retroactive standing.” Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998). “As a general matter, parties should possess rights before seeking to have them vindicated in court.” Id.

     

    Certainly, Banta had the ability to, and did, transfer the rights to the Patents in Suit to R.R. Donnelley on May 24, 2013. R.R. Donnelley then had the ability immediately to transfer those rights to CTP. Had R.R. Donnelley done so, CTP would have owned the rights prior to filing the instant lawsuits. Alternatively, on May 24, 2013, Banta could have transferred the patent rights to Media, and Media immediately could have assigned those rights to CTP and provide CTP standing to file the instant law suits. And, most simply, on May 24, 2013, Banta (then owning the patent rights) could have assigned the rights directly to CTP. However, Banta took none of these courses of action. Rather, Banta sought to retroactively provide CTP with the patent rights by means of a nunc pro tunc assignment of the rights to R.R. Donnelley.

    What I find helpful in the court’s explanation of nunc pro tunc is the concept that “contracting parties may agree to give retroactive effect to their agreements as between themselves [but a] nunc pro tunc agreement cannot be used to rewrite history.” A nunc pro tunc is a legal fiction between two parties, and enforceable between them, but that doesn’t mean anyone else is bound by the parties’ legal fiction.

    That said, I’m not convinced that the court has this one right. The court relied on Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010) (blogged here), a troubling decision (for me, anyway) that relied on a fine language distinction in deciding the effective date of an assignment. The CTP Innovations court acknowledged Abraxis was only “analogous” to the situation here. It had a similar fact pattern and outcome, but answered a different legal question.

    I’m not a big fan of “gotchas” in litigation. Of course the plaintiff must own the rights allegedly infringed, but the court didn’t give any rationale for essentially voiding an agreement that all the relevant parties (that is, those who owned, or thought they owned, the patent) appear to agree was the desired state of affairs. It was also all said and done before a single lawsuit was filed and, but for the court’s disregard for the private parties’ clear intent, any standing problem was cured before any of the lawsuits were file. The court pointed out the problem could have been fixed in any number of ways, except apparently the one way the patent owners elected to use. A single nunc pro tunc assignment makes sense to me; the court’s suggested alternatives were all more complicated, requiring two transactions instead of one, or else creating a different chain of title altogether.

    I suspect this one’s not over.

    In re CTP Innovations, LLC, MDL No. 14-MD-2581, (D. Md. Nov. 30, 2016).

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