Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Estopped By A Wrong Decision

    The Federal Circuit issued two companion decisions involving the same patent license arrangement, one that affected at least three district court decisions. Uniloc USA, Inc., Uniloc Luxembourg S.A., and Uniloc 2017 LLC, which I’ll just refer to as “Uniloc,” sued Apple, Motorola Mobility and Google for patent infringement. However, Uniloc had received funding from Fortress Credit Co. LLC and as part of the funding agreement Uniloc gave Fortress a patent license:

    Subject to the terms and conditions herein and in the Purchase Agreement, Licensor hereby grants to Licensee a non-exclusive, transferrable, sub-licensable, divisible, irrevocable, fully paid-up, royalty-free, and worldwide license to the Licensed Patents, including, but not limited to, the rights to make, have made, market, use, sell, offer for sale, import, export and distribute the inventions disclosed in the Licensed Patents and otherwise exploit the Licensed Patents in any lawful manner in Licensee’s sole and absolute discretion solely for the benefit of the Secured Parties (“Patent License”), provided that Licensee shall only use the Patent License following an Event of Default.

    Uniloc defaulted, although Fortress never claimed default and never exercised the license.

    The district court in the Apple case (Alsup, J.) held that, because of the default, Uniloc did not have standing for a patent infringement claim. As described by the Court of Appeals:

    The district court held that the Unilocs lacked standing to sue for infringement because Fortress had the theoretical right to sublicense the asserted patent to the alleged infringer, and the Unilocs, as a result, lacked the exclusionary right necessary to confer standing.

    Motorola Mobility and Google argued in their respective cases that the Apple decision collaterally estopped Uniloc from claiming that it had standing. The Federal Circuit agreed, and none of Uniloc’s theories why they shouldn’t be estopped—collateral estoppel wasn’t timely raised; Motorola Mobility waived the argument by characterizing the Apple decision as “not binding on this Court”; and Uniloc didn’t have an incentive to litigate the Apple judgment because it had a settlement opportunity with Apple—didn’t stick. The Motorola Mobility case was dismissed altogether but the Google case was not, to be discussed in a moment.

    Here’s the thing—the decision in the Apple lawsuit about Uniloc’s standing was just wrong. The appeals court decision, written by Judge Dyk, extended some grace to the district court:

    We recognize there is considerable force to Uniloc’s argument that, even if Fortress had been granted a license and an unfettered right to sublicense, Uniloc would have Article III standing. Patent owners and licensees do not have identical patent rights, and patent owners arguably do not lack standing simply because they granted a license that gave another party the right to sublicense the patent to an alleged infringer. But, we need not resolve the question of whether a patent owner who granted a right to sublicense lacks standing here.

    But Judge Lourie, in “additional views,” wanted to make sure that there was no doubt about it:

    I join the opinion of the court in all respects, except that I believe the paragraph at page 8, lines 11–23, beginning “[w]e recognize there is considerable force to Uniloc’s argument that, even if Fortress had been granted a license and an unfettered right to sublicense, Uniloc would have Article III standing,” is a regrettable understatement. In my view, there is more than considerable force to the argument; it is clear that Uniloc still had the right to sue unlicensed infringers after it granted the license.

    We normally do not opine on issues that are not necessary to decide a case, and our panel soundly affirms the district court on the ground of estoppel. But here, I believe the district court so misconstrued the license issue that something further needs to be said about it.

    The district court, respectfully, incorrectly dealt with this issue as one of determining what is an exclusive license, citing cases on whether an exclusive licensee alone has standing to sue without joining the owner of a patent. That is not the case before us. …

    The grant of a non-exclusive license with the right to sublicense, as here, gives the licensee the right to sublicense others. But the patentee still retains the right to sue unlicensed infringers. A non-exclusive license only grants a licensee freedom from suit; it does not divest the licensor of its right to sue or license other parties, or to practice the patent itself. See 14B Chisum on Patents 6240 (2022) (“A license may amount to no more than a covenant by the patentee not to sue the licensee for making, using or selling the patented invention, the patentee reserving the right to grant others the same right.”) …

    It is true that the licensee could preempt such a suit by granting a sublicense, immunizing the purported infringer. But that is a far cry from holding that the patent owner, simply by having granted a non-exclusive license with the right to sublicense, loses the power to sue an unlicensed infringer.

    Thus, while agreeing in full that Uniloc loses its appeal by being estopped from suing Motorola because it settled its suit with Apple rather than appealing it, it is not because it lost the power to sue by granting Fortress a non-exclusive license with the right to sublicense.

    But one sentence was all it took to dispose of Uniloc’s argument that the wrongness was a reason not to find there was collateral estoppel:

    [T]o the extent Uniloc argues that collateral estoppel should not apply because the decision in the Apple case is incorrect, this is simply not a proper basis to deny collateral estoppel. Generally, collateral estoppel cannot be denied because the decision was incorrect. See 18A Wright & Miller § 4465.2, at 750–51 (“[P]reclusion cannot be defeated simply by arguing that the prior judgment was wrong.”).

    However, Google was sued after Uniloc and Fortress entered into a Termination Agreement, terminating the problematic patent license Uniloc had granted. Google argued that the Termination Agreement didn’t terminate the license to Fortress because the license was irrevocable. The court of appeals shot that down quickly:

    On its face the License Agreement describes the license as “irrevocable.” But this does not suggest the license is irrevocable by mutual agreement. The term “irrevocable” in its context clearly refers to the license’s being “irrevocable” by the licensor.

    Under the relevant case law, the term “irrevocable” does not suggest that the license could not be eliminated by mutual agreement. Cases construing the term “irrevocable” agree that the term means only that the irrevocable thing cannot be unilaterally revoked by the party that granted the benefit. See In re Zimmerman (Cohen), 236 N.Y. 15, 139 N.E. 764, 766 (1923) (“The word ‘irrevocable,’ here used, means that the contract to arbitrate cannot be revoked at the will of one party to it …. It does not mean that the agreement to arbitrate is irrevocable by the mutual agreement or consent of the parties.”); Silverstein v. United Cerebral Palsy Ass’n, 17 A.D.2d 160, 232 N.Y.S.2d 968, 970-71 (1962) (“[L]ike any contract, the irrevocable offer may only be modified, released or rescinded by agreement of the parties. It cannot be unilaterally withdrawn, revoked or rescinded by the offeror.” (citations omitted)); Barclays Bank D.C.O. v. Mercantile Nat’l Bank, 481 F.2d 1224, 1238 (5th Cir. 1973) (noting that the grantor of an irrevocable letter of credit “could not modify the irrevocable credit without [the grantee’s] consent”); In re Huntington, ADV 11-4015, 2013 WL 6098405, at 8 (B.A.P. 9th Cir. Oct. 29, 2013) (noting that an irrevocable assignment cannot be revoked by one party, but can be revoked by mutual consent of all parties); *Carbonneau v. Lague, Inc., 134 Vt. 175, 352 A.2d 694, 696 (1976) (concluding that an irrevocable license was terminated by a voluntary agreement between all parties).

    Google even conceded that its theory didn’t fly but floated some other arguments, none of which worked either. It claimed that the survival clause in the original patent license, which said that “[a]ny rights … which by their nature survive and continue after any expiration or termination of this Agreement will survive and continue and will bind the Parties …” meant the license survived. This was a no-go; while acknowledging that there might be some cases where a license grant might survive, this wasn’t one of them. Granted sublicenses also survived termination of the license agreement, but this exception showed that not all licenses did survive. Google has to litigate the patent suit.

    Perhaps Uniloc could have avoided this outcome by asking that the decision in the Apple case be vacated, but it did not. Collateral estoppel, for a wrong decision, still shut down their case.

    Uniloc USA, Inc. v. Motorola Mobility, No. 2021-1555, 2012-1795 (Fed. Cir. Nov. 4, 2022)
    Uniloc 2017 LLC v. Google LLC, No. 2021-1498, and a bunch more (Fed. Cir. Nov. 4, 2022)
    Uniloc USA, Inc. v. Apple, Inc., No. C 18-00358 WHA (N.D. Cal. Dec. 4, 2020)
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  • Why Newspapers Are Still Relevant

    For the legal notices.

    This kind of story requires a timeline. Grocery store chain Fairway Markets went into Chapter 11 bankruptcy. The chain had a copyright license for the use of photographs in the stores on “Store Furnishings” granted by photographer Ferguson and Katzman Photography, Inc. (“Katzman”).

    The license expired during the pendency of the bankruptcy. This is the sequence of events:

    April 18, 2018: Katzman grants a two-year non-exclusive license to use 30 photographs for advertising, promotion and store decor.
    Prior to the petition for bankruptcy: the debtors and a group of prepetition lenders developed a plan for a Chapter 11 bankruptcy that would result in the sale of the stores and a distribution center as going concerns.
    January 22, 2020: The debtors entered into a stalking horse asset purchase agreement with a group of companies collectively referred to as “Village” in furtherance of an auction of the assets.
    January 23, 2020: The debtors file voluntary petitions for relief under Chapter 11 simultaneously with a motion for entry of an order approving the auction and the process for it.
    February 21, 2020: The court approves the auction. The court requires the delivery of sale notices to all persons and entities known by the debtors to have asserted any lien, claim, encumbrance, or any interest in any asset, and known creditors. The debtors also have to publish the notice once in USA Today and The New York Times.
    February 27, 2020: The notices are published in USA Today and The New York Times for one day.
    March 16-25, 2020: The assets are auctioned.
    March 25, 2020: Village, as the successful bidder, and the debtors enter into a new asset purchase agreement.
    April 14, 2020: The court has a hearing on the Sales Order for approval of the asset sale to Village.
    April 19, 2020: The copyright license to the photographs ends.
    April 20, 2020: The court enters the Sale Order authorizing the sale of five stores. The Sales Order had a finding that the assets were “free and clear” of any types of claims or interests, and that Village relied on that finding in entering into the asset purchase agreement. The Order also said that any holder of interests or claims who did not object were deemed to have consented and “[f]ollowing the Closing, no holder of any Interest or Claim shall interfere with Buyer’s title or quiet use and enjoyment of the Acquired Assets based on or related to any such Interest or Claim or based on any actions that the Debtor may take in these chapter 11 cases.”
    May 13, 2020: The debtors and Village close the sale transaction.
    August 11, 2020: An agent for Katzman sends an email to Fairway stating that Katzman had learned that Fairway was displaying the photographs in its stores after the license expired. The email was returned as undelivered and Katzman made no further effort to contact Fairway.
    October 5, 2020: The court enters the confirmation order confirming the debtors’ reorganization plan. Any administrative expense claims must be filed within 35 days; failure to do so means that the claim will be “forever barred and discharged.”
    October 12, 2020: The debtors publish the confirmation order notice and administrative expense claims bar date in the New York Times.
    October 22, 2020: Katzman files a copyright suit in federal court (the same district as the bankruptcy court) against Fairway, Village and other store purchasers.
    October 30, 2020: The effective date of the plan of reorganization.
    November 6, 2020: Deadline for claims.
    November 6 2020: Copyright complaint served on Fairway.
    November 10, 2022: Copyright complaint served on Village.

    Village filed the motion in the copyright case for a stay pending the bankruptcy court’s review of the matter. Village claimed that it was entitled to an order from the bankruptcy court enforcing the Sale Order and enjoining the copyright case because: “(1) the Store Furnishings, containing the Subject Photography, are Acquired Assets as defined under the Sale Order; (2) Village obtained the Acquired Assets free and clear of any claim by Katzman; and (3) Katzman had constructive notice of the Sale Order and is deemed to have consented to it by failing to timely oppose it.”

    The Sales Order had an injunctive provision that “bars any claimholder from bringing any claims against Village ‘in any way relating to … the Acquired Assets or the Debtors’ businesses prior to the Closing Date.’” Village contended it purchased the Store Furnishings; Katzman claimed that the photographs, since they were only licensed, were not “Acquired Assets” that could have been sold in bankruptcy. The court held that the fixtures were indeed Acquired Assets, agreeing with Katzman that the Fairway license agreement was not an Acquired Asset, but nevertheless that “[i]nstead, Katzman granted the Debtors a non-exclusive license to the Subject Photography that expired as of April 19, 2020—before the parties executed the Village APA.”

    I’m not sure what non-exclusive license that could be, other than the one embodied in the formal written license that the court agrees wasn’t acquired. Nevertheless, the court may have stumbled into the correct result but under the wrong theory. No one disputed that the store fixtures were lawfully made pursuant to the license. The display of the photos in the store must have also been permitted by the original license. Even though the stores were not successors to the formal license and wouldn’t have a license defense, they still wouldn’t be liable unless an act of infringement occurred. What act of infringement was Village committing? Well, nothing—no new copies were being made and, as explained by the bankruptcy court in its discussion under post-closing infringement, Katzman’s theory that the continued use was an infringement of the right of display didn’t hold water. Katzman claimed that each time a customer viewed the Store Furnishings Village has violated Katzman’s display rights. This was an incorrect construction of the right of display, though. According to the Copyright Act,

    To perform or display a work ‘publicly’ means—

    (1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered …

    The act of display happened when it appeared at a place open to the public, not every time someone looked at it. Katzman relied on some inapposite case law involving websites for its argument that every view was in infringement, which the court rejected. So while the formal license may have contained a provision that the stores had to stop displaying the works when the license terminated, if the display would not have been a copyright infringement, then the duty to cease use was only enforceable through contract, not copyright. And Katzman had no contract to enforce against the Village and the stores. So the court’s theory of some undefined, different license was fairly inexplicable, but it nevertheless reached the correct outcome that there was no infringement—not by virtue of a license, but because no exercise of the copyright author’s exclusive rights was occurring.

    Whether or not a license was necessary, Village also contended that section 363(f), as applied through the Sale Order, stripped Katzman and other claimholders of the right to assert claims “In any way relating to … the Acquired Assets or the Debtor’s businesses prior to the Closing date.” The wording the Sales Order was broad enough to strip Katzman of any rights it might have had pre-closing because Katzman

    provided multiple layers of implicit consent to the Debtors’ sale process and resulting outcomes, including the Sales Notice, Confirmation Order, Sales Order and the Injunction Motion. At multiple junctions, Katzman could have, but failed to, object to receiving publication notice of relevant deadlines, object to the Debtors’ sale, or otherwise attempt to enforce its copyright claims before the Court approved the ‘free and clear’ sale of the Acquired Assets.

    Well, maybe. The Sales Notice and Confirmation Order were during the licensed use, so I don’t think those should count against Katzman. As to the later notices, Katzman claimed that, because of its correspondence with Fairway about the termination, it was a known creditor and therefore should have received actual notice, but the court didn’t think so. The complaint wasn’t served until November and Katzman’s email bounced back, meaning that Fairway never received it. Katzman was therefore an unknown creditor and only entitled to publication notice, not actual notice.

    Finally, Katzman claimed that Village’s continued use the photo post-closing was an infringement, but this is where the court analyzed the right of display, holding that there was no copyright infrignement of the right of display (for the reasons explained above) by the stores’ continued use of the photographs.

    In re Old Market Group Holdings Corp., Case No. 20-10161 (JLG) (Bankr. S.D.N.Y. Sept. 21, 2022)Creative Commons License
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  • It’s a Really Good Idea to Get the Contract Signed

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

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

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

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

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

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

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

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

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

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

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

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

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

    But the partnership theory didn’t fly either.

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

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

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

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

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

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

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

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

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

    Get those contracts signed!

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

    Only assignees and some exclusive licensees have standing to bring a claim for patent infringement. In the category of “exclusive licensee,” there is some line drawing that goes on around the meaning of “exclusive.” Where an exclusive license is tantamount to an assignment, the exclusive licensee can sue without joining the owner. Where the assignor has reserved some rights – for example, the license grant is for only a particular field of use – the exclusive licensee has standing but the patent owner must also be joined. But what about the rights acquired through a security interest?

    Non-party OnAsset Intelligence, Inc. was the predecessor-in-interest to plaintiff Intellectual Tech LLC. In 2011 OnAsset granted a security interest in the patent-in-suit ‘247 patent to Main Street Capital Corporation. The Patent and Trademark Security Agreement said that if OnAsset defaulted, Main Street could, “at its option,” “sell, assign, transfer, pledge, encumber or otherwise dispose” of the ‘247 patent, but only so long as OnAsset was in default. (Sect. 6.) The agreement also gave Main Street an irrevocable appointment as OnAsset’s attorney-in-fact, with “the right (but not the duty)” to execute any agreement in OnAsset’s name necessary for Main Street to enforce, license, sell, assign, transfer, pledge, encumber, or otherwise transfer title in the ‘247 patent. (Sect. 3(j).) Main Street could only exercise this power while OnAsset was in default and only “[t]o facilitate [Main Street’s] … exercising” the rights Main Street accrued while OnAsset was in default of the 2011 Loan Agreement.

    In 2013 OnAsset did default, and in 2017 plaintiff IT was created to try to monetize the patent. OnAsset assigned the ‘247 patent to IT. Main Street agreed to enter into a period of forbearance on the default against OnAsset and IT entered into a Joint Agreement binding IT to the 2011 loan agreement between OnAsset and Main Street. IT also signed a security agreement that had the same terms as OnAsset’s original security agreement.

    In 2018 IT defaulted. In 2019 IT brought this infringement lawsuit, in other words, at a time when Main Street could sell, assign, transfer, pledge, encumber or dispose of the ‘247 patent. The defendant, Zebra Technologies Corporation, filed a motion for summary judgment that IT lacked standing to bring the patent infringement lawsuit.

    Zebra Technologies argued that OnAsset’s 2013 default automatically transferred the patent to Main Street, but the court disagreed. Texas law provides that, after default, a secured party “may take possession of the collateral,” not that the debtor is automatically divested of title to the collateral. Further, the secured party’s rights after a default can be defined in an agreement, and the language of the security interest in this case did not effect an automatic divestment, stating, Main Street “may, at its option” exercise its remedy of control of the use of the patent. There was no evidence that Main Street had done so.

    But did Main Street’s ability sell, assign, transfer, pledge, encumber or dispose of the ‘247 patent, because IT was in default, deprive IT of standing? Why, yes it did. The court turned to WaIV Solutions LLC v. Motorola, Inc. to evaluate whether IT had sufficient rights in the patent for constitutional standing. WiAV held “[I]f an exclusive licensee has the right to exclude others from practicing a patent, and a party accused of infringement does not possess, and is incapable of obtaining, a license of those rights from any other party, the exclusive licensee’s exclusionary right is violated.” WiAV, 631 F.3d at 1266-67.

    The Court holds that Main Street’s rights deprived IT of an exclusionary right at the time IT filed this Action. Zebra relies on WiAV, and the Uniloc opinions’ extension of WiAV, to argue that IT has no exclusionary right because Zebra could obtain a license on the asserted patent from Main Street. The Court agrees. On October 22, 2019, Main Street possessed an unfettered right to license the ’247 patent.4 Meaning Zebra had the “ability to obtain” a license to the ‘247 patent from Main Street. At the very least, IT has not provided contrary evidence regarding Zebra’s ability to obtain a license from Main Street. Because Zebra had that ability, IT could not have an exclusionary right against Zebra sufficient to engender Article III standing here.

    4 It could be argued that Main Street did not possess a right to license the ‘247 patent because Section 6 of the 2011 Patent and Trademark Security Agreement does not explicitly provide for a right to license, even though Section 3(j) grants a power of attorney to license in support of Section 6. Section 6 did, however, expressly provide a right to assign: the ‘247 patent; and the right to sue for “past infringement” of the ‘247 patent. Accordingly, Zebra could have obtained title to the ‘247 patent from Main Street, effectively licensing all of Zebra’s past and ongoing accused conduct, thereby depriving IT of constitutional standing just as if Main Street had an unconditional right to license.

    (Internal citations omitted.)

    IT was not granted leave to amend to add or substitute Main Street, since constitutional standing must exist at the time of filing and can’t be cured by the addition of a party with standing.

    Intellectual Tech LLC v. Zebra Tech. Corp., No. 6:19-cv-00628-ADA (W.D. Tex. May 20, 2022).

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  • Will the Real Huang Zhiyang Please Stand Up?

    Well here’s an interesting one. In July, 2020, Huang Zhiyang filed a suit in the Eastern District of Virginia to quiet title under 28 U.S.C. § 1655, the Computer Fraud and Abuse Act, the Federal Communications Privacy Act, and related Virginia common law claims, claiming that someone had hacked into his account and stolen the domain name 45.com. He said he paid $250,000 for it in April 2015. The public domain name records reflected his ownership until 2018, when the domain name registrar started to mask Whois records. Sometime in 2019 the domain name was transferred out of his control but remained at the same registrar. The registrar said it could not recover the domain name, so Huang Zhiyang turned to the court.

    18 U.S.C. § 1655 allows one to remove an incumbrance or cloud upon the title of personal property where the defendant cannot be served or does not voluntarily appear. There are three prerequisites:

    1. The suit must be one to enforce a legal or equitable lien upon, or claim to, the title to real or personal property, or to remove an encumbrance, lien or cloud upon the title of the property;
    2. The proceeding must be in aid of some pre-existing claim, not a claim to establish rights in the first instance; and
    3. The property in question must have a situs within the district in which the suit is brought.

    If personal service cannot be effected, 28 U.S.C. § 1655 allows service by publication upon court order. As ordered by the court in this case, Huang Zhiyang published the notice in the Washington Times six times in six weeks and the notice was also sent to the address in the Whois registration and to Verisign, the registry operator for the dot-com registry.

    No one appeared for the defendant, so the court ordered the transfer of the domain name to Huang Zhiyang.

    But … then another Huang Zhiyang shows up, asking to intervene in the action. It seems that the second Huang Zhiyang was checking his domain names only to discover that his valuable 45.com domain name was gone.1

    The court held an evidentiary hearing. Plaintiff Huang Ziyang didn’t show up. The second Huang Zhiyang provided many documents showing that he was the true domain name owner:

    Plaintiff claimed to have purchased the domain name 45.com on April 21, 2015 for $250,000 from Xiamen Shiwo Network Technology CO., Ltd., but unlike Intervenor presented no receipt or supporting documentation. The Whois records for 45.com from June 10, 2015, May 12, 2016, April 6, 2017, and April 14, 2018 that Plaintiff provided as exhibits to his Complaint accurately reflect that a Huang Zhiyang was the registrant of the Defendant Domain Name. However, Plaintiff has not proved that he is the Huang Zhiyang to which the records refer. The records include the home address and phone number of Huang Zhiyang, which match the address and phone number of Intervenor, as shown on his ID card, water bill and cellphone bill presented as the hearing. Plaintiff did not provide the Court with a copy of his identification showing his address, nor any documents showing his address and phone number.

    Intervenor Huang Zhiyang was declared the true owner of 45.com, the default judgment set aside and the domain name returned to him:

    [E]xtraordinary circumstances warrant granting relief from the default order under FRCP 60(b)(6) and returning the Defendant Domain Name to Intervenor. As required by law concerning motions for default judgments, the Court accepted Plaintiff’s representations, as made in the Complaint, that his name was Huang Zhiyang and that he was the rightful owner of Defendant Domain Name, based on documents that showed that the site was registered to a Huang Zhiyang. Plaintiff did not provide documentation of his identity. The Court was not aware that the archival records he submitted were incomplete, omitting the registrant’s email and phone number, which match the Intervenor’s email and phone number. In fact, the email address provided to the Court by Plaintiff’s former counsel and that Plaintiff used to communicate with chambers is whoisprotecte@gmail.com, which is not the email address associated with 45.com’s domain name registration. Plaintiff appears to have misrepresented himself as the registrant of domain name 45.com and made false allegations regarding his identity and ownership of the Defendant Domain Name. The evidence no longer supports entry of default judgment. Under the circumstances, Mr. Huang is entitled to have Defendant Domain Name transferred back to him.

    I’m kind of fascinated by this. Did the plaintiff just take advantage of the coincidence of sharing a name with the true owner? Was the plaintiff’s name Huang Zhiyang at all? How may other domain names has this person, or others like him, stolen in this way? It was just too easy – file a complaint in the true owner’s name, use the public records as evidence of your ownership, then, after all the domain name information got masked because of GDPR, start filing claims that your domain name was gone (of course it hadn’t gone anywhere, it was right where it belonged, with the true owner), and use a quiet title provision of federal law to get it “back” and transferred to a different registrar. I’d guess there is some review of § 1655 claims against domain names going on in the Northern District of Virginia.

    Zhiyang v. 45.com, Civ. No. 1:20-cv-00836 (N.D. Va. Jan. 13, 2021) (Report and Recommendation granting default judgment)
    Zhiyang v. 45.com, Civ. No. 1:20-cv-00836 (N.D. Va. Aug. 20, 2021) (Report and Recommendation granting granting relief from final judgment)

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    1. Estibot estimates the value of the domain name at $1.7 million and Saw.com at almost $2.5 million. ↩

  • The Opposition, Cancellation and District Court Trifecta

    Here we have multiple businesses originally operated by a husband and wife, now divorced and now adverse to each other, and the same rights to the same trademark litigated in three different venues.

    There are a couple of lessons here. One, put forward your best case at the TTAB. If you lose at the TTAB there may be, as happened in this case, issue preclusion in district court. (Oddly, the cancellation was not precluded by the opposition, but the case was dismissed on failure to state a claim without reaching claim preclusion.)

    Second, don’t give away federal trademark registrations as wedding presents.

    So diving in, here are the relevant players:

    • Dale Barnes – Ex-husband. Invented the BIOWORLD product. Had two former entities in his name, one named BioWorld, but that didn’t play a role in the decisions.
    • Diane Barnes – Ex-wife. Registered “Bio-World” logo in California in 1992 in her own name.
    • Phillip Barnes – Dale and Diane’s son.
    • Don Damschen – an employee who ultimately sided with Diane.
    • BioWorld Products – no formal formation, operated in California. Started in 1990 and both Dale and Diane participated in its operation.
    • BioWorld Products, LLC – formalizing the entity BioWorld Products (above) as a California limited liablity company on January 23, 1998 in Diane’s name only. In 2007, a transmutation agreement transmuted 100% of the personal property interests as community property of the marriage into Diane’s separate property. In 2010, was converted from an LLC to a corporation and became BioWorld Products, Inc. Also in 2010, filed a trademark application for BIOWORLD PRODUCTS, which registered on April 19, 2011.
    • BioWorld USA Inc. – a California corporation formed on September 14, 2015 by Don Damschen who became CEO; Diane became the administrative manager. This is the opposer in the opposition proceeding, petitioner in the cancellation, and defendant and counter-plaintiff in the district court lawsuit.
    • Advanced BioTech, LLC – a California limited liability company Dale formed on January 5, 2000. Worked cooperatively with BioWorld Products, LLC/Inc. for many years. This is the applicant and respondent in the opposition and cancellation filed by BioWorld USA, Inc. (above) and the plaintiff and counter-defendant in the district court lawsuit.

    Some relevant events:

    • Sometime in 2013, Dale and Diane separated but their companies continued to work together.
    • On October 12, 2013, Diane/BioWorld Products gifted its trademark registration for BIOWORLD to Phillip Barnes without Dale’s knowledge. The registration then lapsed in 2018 while subject to a cancellation action by Advanced BioTech.1
    • About April 7, 2014, Dale dissolved the partnership arrangement between their two companies.
    • On September 1, 2016, BioWorld Products Inc. sold all its assets, including unidentified trademarks, to BioWorld USA; BioWorld Products then filed for bankruptcy.
    • Diane and Dale divorced in 2018, after the opposition was filed.

    Ok, with that as background, the dispute started when Advanced BioTech, LLC (Dale’s company) filed trademark applications for BIOWORLD and BIOWORLD PRODUCTS in 2017 and 2018 respectively. BioWorld USA Inc. (Diane’s company) opposed the registrations, claiming to be the owner of the trademark.

    It’s not clear from the opinion, but Dale apparently also claimed that he (or one of his companies) had always been the owner of the BIOWORLD mark. (The trademark applications claim a first use date of 1989.) The Board, however held that BioWorld Products was the owner during any relevant time period:

    [Dale] never explains why Diane was listed as the owner on the California fictitious business statement prior to the company’s formation; why Diane was listed as the President of the LLC that was formed; or why he signed the transmutation agreement in 2007, converting 100% of the ownership of the company to the sole property of Diane.

    Notwithstanding the couple’s subjective intentions at the time (which remain obscure) and Dale’s testimony in this case, it is clear from their actions at the time and the documentary evidence of record that Dale and Diane wanted the BioWorld Products company and all rights to it to be in Diane’s name, at least publicly. Dale’s contention that he never intended to relinquish his rights in the mark BIOWORLD is belied by the objective evidence in this case. Therefore, we find that Diane, not Dale, owned the company and mark during the early years of the company – that is, until she assigned it away.

    On its part, BioWorld USA had malleable theories for priority. In its Notice of Opposition, it claimed to use the BIOWORLD trademark “with permission of” (i.e., had a license from) Phillip Barnes. At trial, as supposed by the Board “likely as a result of the cancellation of Phillip Barnes’ trademark registration,” BioWorld USA claimed to have acquired the trademark rights when it purchased the assets of BioWorld Products. However, Advanced BioTech pointed out that BioWorld USA couldn’t have acquired the trademark rights from BioWorld Products because BioWorld Products had assigned the trademark to Phillip before that. BioWorld USA then shifted its argument, claiming that the assignment was of the federal registration and not also the common law rights, which were acquired from BioWorld Products. The Board didn’t buy it:

    Opposer’s argument that the assignment was limited to just the registration is unpersuasive, since the document states in no uncertain terms that “BioWorld Products Inc. has gifted the full rights to the trademark ‘BioWorld Products’ to Phillip Barnes” (emphasis added). “Give him this,” mentioned in the document, clearly refers to mark itself and not simply the registration listed below. It is simply inconsistent with, and contrary to trademark law that one can assign full rights in a mark, including its federal registration, while at the same time retaining separate common law rights.

    (Emphasis by the Board.)

    BioWorld USA also argued that the assignment to Phillip was invalid because it lacked an assignment of the goodwill. The absence of the word “goodwill” in the assignment also wasn’t the cure-all BioWorld USA hoped for:

    As to Opposer’s argument that the assignment was invalid because it does not mention the magic word “goodwill,” Opposer has presented no case precedent, nor are we aware of any such precedent, holding that the transfer of “full rights in a mark” does not encompass its goodwill. It is true that “[u]nlike patents or copyrights, trademarks are not separate property rights. They are integral and inseparable elements of the goodwill of the business or services to which they pertain.” A naked transfer of the mark alone – known as a transfer in gross – is invalid. However, in this case, Opposer has presented no evidence to show that the transfer was invalid. To the contrary, Opposer’s witnesses Diane and Don, treat the assignment in their testimony as if it was valid and that their use was based on permission, essentially a license back from Phillip to use the mark. Accordingly, we also treat the assignment as valid and find that following the assignment, Diane and BioWorld Products, Inc. no longer owned the mark. It follows, then, that BioWorld Products, Inc. had no ownership rights in the mark BIOWORLD PRODUCTS to transfer to Opposer through the Asset Purchase Agreement of September 1, 2016.

    (Internal citations omitted.)

    BioWorld USA therefore couldn’t rely on priority that accrued from any predecessor. It could rely on any common law rights it acquired after its incorporation on September 14, 2015 and before Advanced BioTech’s application filing dates, but its evidence was inadequate. The opposition therefore failed.

    Not content, BioWorld USA then filed a petition to cancel the same registrations. The petition was denied, but, surprisingly, not based on claim preclusion. The Board granted two motions to dismiss the petition, with leave to amend both times. The first time the petition was not sufficiently clear in alleging ownership and likelihood of confusion. The second time BioWorld USA alleged priority based on a newly acquired exclusive license from Phillip, but:

    A licensee cannot plead or claim priority based on the licensor’s use of the licensed mark. Moreno v. Pro Boxing Supplies, Inc., 124 USPQ2d 1028, 1036 (TTAB 2017) (holding that while a licensor can rely on its licensee’s use to establish priority, “a mere licensee, cannot rely on [its] licensor’s use to prove priority.”).[2] Accordingly, Petitioner has not pleaded priority and has therefore failed to state a cognizable claim of likelihood of confusion.

    Although BioWorld USA was given leave to amend, it did not do so and the petition to cancel was denied.

    And finally we get to district court. In this case, BioWorld USA wasn’t the instigator; Advanced BioTech was, on a misappropriation of trade secret claim. But BioWorld USA didn’t miss the opportunity to fight the trademark battle again.

    First, the district court wouldn’t consider what, now, had become an assignment of the trademark from Phillip to BioWorld USA because it was entered into after the lawsuit was filed. BioWorld USA then lost, this time, on issue preclusion by both TTAB decisions. As to the opposition decision:

    BW USA’s claims opposing the registration of BIOWORLD PRODUCTS relate to its infringement counterclaim. To maintain a cause of action for trademark infringement, BW USA must show it has priority to the asserted marks and BioTech’s use of those marks creates a likelihood of confusion. Likewise, to maintain an opposition to federal registration, BW USA asserted likelihood of confusion with a mark to which it allegedly has superior rights. Therefore, BW USA’s infringement claim closely relates to its prior challenge to the registration of the BIOWORLD PRODUCTS mark. These factors illustrate how the TTAB November 2020 already addressed the issue as to whether BW USA own use constitutes sufficient market use to preempt BioTech’s federal rights, an issue identical to one raised by the counterclaim.

    {Internal citations omitted.)

    For the cancellation decision,

    The TTAB August 2021 decision further precludes BW USA from asserting common law rights to the BIOWORLD marks based on its status as a licensee. In both its petition for cancellation of the mark before the TTAB and in its current counterclaim, BW USA argues its written license executed in November 2020 allows it to “step into the shoes” of Phillip Barnes, as the owner of the marks. Specifically, BW USA argued to the TTAB that it was “asserting Phillip Barnes’ rights” because it obtained an “exclusive license” to use the mark in November 2020. BW USA likewise provided the Court with the November 2020 license to support its argument that it holds superior rights to the BIOWORLD marks over BioTech. However, the TTAB held that BW USA, as a licensee of Phillip Barnes, could not claim priority based on Phillip’s use of the BIOWORLD marks. Given the overlap in arguments, evidence, and application of law, BW USA raised an identical issue before the TTAB. … Therefore, the TTAB August 2021 decision meets step one of the issue preclusion analysis.

    Three strikes and out? Still the court of appeals to go, though.

    BioWorld USA, Inc. v. Advanced BioTech, LLC, Opp. No. 91236811 (TTAB Nov. 2, 2020)
    BioWorld USA, Inc. v. Advanced BioTech, LLC, Can. No. 92071532 (TTAB Aug. 17, 2021)
    Advanced BioTech, LLC v. BioWorld USA, Inc., No. 1:19-cv-01215 JLT SKO (E.D. Cal. Apr. 26, 2022)

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    1. This is mystifying. There doesn’t appear to be any income stream associated with the assignment. But there is a lot missing from this case, as the Board said, “We begin our analysis by remarking on the unsatisfactory state of the record before us, which has a number of holes not filled in by the parties, leading us to question the credibility of both parties and their witnesses to some degree. As with any dispute, the Board is charged with determining the relevant facts reflected in the record, which becomes more challenging when the parties have not been completely forthright.” ↩
    2. I think the Moreno decision is contrary to Federal Circuit law, but the TTAB denied a request for reconsideration. It doesn’t make any sense to me why, if a licensee has standing, they can’t also rely on the full scope of their licensor’s rights for their claim. ↩
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  • A Licensor and Licensee Have Ownership Rights, But Not of the Same Thing

    I raised an eyebrow reading the decision in Beard v. Helman. The court seems to have a misunderstanding about the difference between an owner and a licensee.

    After a casual conversation at a Renaissance fair, plaintiff Beard designed for defendant Helman a dragon image to be used for a boot button. There was originally an oral agreement for the use of the image. Because of the difficulty of manufacture, it took Helman a number of years to actually produce the button. When Beard learned of it, the two disputed the terms of the license – credit to be given, whether Beard would receive a pair boots or only just some manufactured buttons, and how the design would be promoted.

    The decision is largely a straight-up contract interpretation case: what was an offer, what was a counteroffer versus acceptance – good Contracts 101 stuff, ultimately to be decided by the jury.

    But this is what raised my eyebrow. Beard had offered Helman an exclusive license for use on boot buttons. The court held that the exchange of correspondence, between the parties, could have resulted a contract confirming the exclusive license – so far, so good. The court also noted, correctly, that an exclusive licensee has an ownership interest:

    Although ownership generally remains with the party who registers the copyright, where that individual provides another with an “exclusive license,” such a license is considered a transfer of the copyright ownership to the party that receives the license.[FN135]

    [FN135] 17 U.S.C. § 101. See also MacLean Assocs., Inc. v. Wm. M. Mercer-Meidinger-Hansen, Inc., 952 F.2d 769, 778 (3d Cir. 1991) (“The owner of a copyright can transfer ownership of the copyright by selling it or by exclusively licensing it”).

    …

    Here, it is undisputed that Beard granted Helman an oral license in 2008, and that license may have been exclusive. In 2020, both parties confirmed the existence of that license in writing during their email exchanges.

    These facts may be sufficient to establish a valid exclusive license for Helman to use the Image, as the oral license was later confirmed in writing. However, there remains a genuine dispute of material fact as to whether the license was in fact exclusive. Although Beard did state that he had granted Helman “exclusivity on the use of the [Image] and my art on your boot buttons,” it is not entirely clear that Beard—who is not a lawyer—meant to use the word “exclusive” in a legal sense. There is simply no information in the current record to indicate that either party intended for Helman to have an exclusive right to use the Image and, therefore, the Court cannot conclude as a matter of law that Beard lacks standing to pursue a claim of copyright infringement against Defendants.

    Wait, what? If you are the the licensor, you may not have standing to bring a claim against your exclusive licensee??

    Section 101 indeed characterizes an exclusive license as an ownership interest. But a license does not strip the licensor of any ownership interest or its right to bring an infringement claim. The rights owned are different – an assignment transfers legal title to the transferee while an exclusive license transfers an exclusive permission to use to the transferee. Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997, 1003 (9th Cir. 2015). The defendant, and thus the court, erred in characterizing the licensee’s ownership interest as of the same character as the licensor’s and assuming that there could only be one owner.

    Whether a licensee is an infringer is well-settled doctrine. A license is an affirmative defense to copyright infringement. Once the license is raised as a defense, the legal question becomes whether the complained-of behavior resulted in a copyright infringement. If the conduct falls within the license, the infringement claim is dismissed. If the conduct is not excused by the license and otherwise violates the Copyright Act, the plaintiff prevails absent another defense. William F. Patry, Patry on Copyright § 17:44 (Mar. 2022 update).

    The court’s acceptance of the framing as a matter of standing is short-circuiting the correct analysis. No harm here since the court didn’t dismiss, but let’s hope we don’t see it again.

    Beard v. Helman, No. 4:21-cv-0080 (M.D. Pa. Mar. 31, 2022)

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  • The Original Trademark Owner Accused of Infringement

    In Unisource Discovery, Inc. v. Unisource Discovery, LLC, we have a trademark ownership decision masquarading as a likelihood of confusion analysis. The same mark was used by two entities cooperatively for a number of years without any formal licensing arrangement. As happens there was a falling out, and now the two are dueling over who owns the trademark.

    According to the facts as laid out by the magistrate in the Report and Recommendation, Defendant Cerasale started Unisource Discovery, LLC (“Unisource LLC”) in 2001 in California and began using the mark in question then. (The Wayback Machine shows the mark in use in the first grab of the page in 2001.) In 2006, Cerasale partnered with non-party Mijares to form Florida entity Unisource Discovery, Inc. (“Unisource, Inc.”). Mijares became CEO of Unisource Inc. and the two men were 50/50 owners. In 2008 Unisource, Inc. filed an application to register the trademark. In 2010, the parties signed a revised Shareholder Agreement where Cerasale’s share of the company was reduced to 40%. The interpretation of this agreement is the only fact disputed by the parties: Mijares claimed that the shareholder agreement assigned the mark to Unisource, Inc. and Cersale claimed that the agreement did not, only giving Unisource, Inc. the right to use the mark. The parties continued as they had before, until 2020 when there was a falling out.

    Unisource, Inc. sued Cersale and Unisource, LLC for trademark infringement. Somehow, the court reached the conclusion (on a preliminary injunction) that there was no confusion. The confusion factors used in the 11th Circuit went like this:

    1. Type of mark: Arbitrary and “entitled to the most protection”
    2. Similarity of the marks: The same
    3. Similarty of the goods: The same
    4. Similarity of channels of trade: The same
    5. Similarity of advertising media: No evidence
    6. Defendant’s intent: No intent by Unisource, LLC to benefit from the reputation of Unisource, Inc.
    7. Actual confusion: Evidence that one person entered information on the wrong website (there had previously been only one website, .com, but now there was a .net too) and as a result their order was mishandled. The court did not consider this evidence of trademark confusion.

    You would think that this would be a slam dunk for Unisource, Inc. based on factors 1-4 alone, but you would think wrong.

    Four factors (type of mark, similarity of marks, similarity of goods, and similarity of trade channels and customers) favor Plaintiff. One factor (similarity of advertising media) is neutral, since there is no record evidence regarding what advertising media, if any, Plaintiff and Defendants used. The remaining two factors (Defendants’ intent and actual confusion) heavily favor Defendants.

    Editor’s interjection: The absence of intent isn’t usually considered a factor in the accused’s favor, it just then becomes a neutral factor. But this is a tip-off that there’s something else going on here.

    With respect to Defendants’ intent, the evidence shows that Cerasale created the Unisource Mark; that the 2020 close corporation Shareholders Agreement did not transfer ownership of the Unisource Mark or the Unisource Name to Plaintiff, but merely gave Plaintiff the right to use them: that Plaintiff did not object to Defendants’ continued use of the Unisource Mark throughout the parties’ long business relationship; and that Plaintiff never sought a licensing agreement from Defendants. Thus, Defendants did not intend to derive a benefit from Plaintiff’s business reputation; rather, the parties engaged in the joint use of the Unisource Mark for their mutual benefit.

    Actual confusion is the strongest of the seven factors of likelihood of confusion. As discussed above, Plaintiff has failed to adduce evidence to support this factor.

    Based on the foregoing analysis, Plaintiff has failed to establish by a preponderance of the evidence that it has a substantial likelihood of success on the merits.

    The defendant certainly originally owned the mark, adopting it years before the plaintiff existed. The plaintiff therefore claimed that the shareholder agreement assigned the trademark. The agreement said this about the trademark:

    UNISOURCE DISCOVERY DIGITAL DOCUMENT RETRIEVAL is a registered US trademark of the Company. Without limiting the foregoing, the parties agree that the Company shall be entitled to use the trademark “Unisource Discovery”, as part of its corporate name, Unisource Discovery, Inc., or as a fictitious business name, or otherwise.

    Ok, well that’s a weird thing to say—you own the trademark but you’re allowed to use the trademark? As you can see the court doesn’t really go into any deep analysis about the agreement, but no one could say that it is clear language of transfer. Based on the court’s explanation in the “intent” prong, I don’t think there is any doubt that the decision was based on the belief that the defendant actually owned the mark, or perhaps the two companies were joint owners. If you don’t believe me, picture this—imagine if there was no relationship between the two companies. Identical mark, identical services, identical channels of trade—I can’t imagine the court could have concluded there was no confusion.

    But there is a problem if you analyze this case as an ownership one. You may have caught the fact that Unisource, Inc. owns a registration more than five years old. The Certificate of Registration is prima facie evidence of Unisource, Inc.’s ownership of the mark, 15 U.S.C. § 1057, and the registration cannot be cancelled based on improper ownership, 15 U.S.C. § 1064. So likelihood of confusion was certainly more expedient than trying to make an ownership claim.

    Unisource Discovery, Inc. v Unisource Discovery, LLC, No. 20-23276-CIV-GAYLES/OTAZO-REYES (S. D. Fla. Jan. 10, 2022) (Order adopting Report and Recommendation)

    Unisource Discovery, Inc. v Unisource Discovery, LLC, No. 20-23276-CIV-GAYLES/OTAZO-REYES (S. D. Fla. Feb. 25, 2022) (Report and Recommendation)
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  • So You Can Tack — Now What?

    It’s not unusual for those involved in charitable work to have trademark ownership issues. I suspect it is because the organizations are largely volunteer-driven without, at least at first, any formal business organization or structure. They are also often ideologically driven, which means that different views on the group’s direction will cause a schism.

    In Breaking Code Silence v. Papciak we don’t know what caused the falling out, it is only apparent there was one. There are two trademark applications of unknown relationship; one application lists as co-owners Chelsea R. Papciak, Jennifer Walker, Jenna Bulis, Emily Carter, and Rebecca Moorman. On the other, the owner was originally identified as Breaking Code Silence, Inc., a California corporation, later amended to Breaking Code Silence (no “Inc.”), a California “public benefit corporation.” The applications are largely for the same services surrounding institutional child abuse. The application filed by the individuals was filed on September 24, 2020 and claimed a first use date of November 26, 2019. The application filed by BCS was filed on May 5, 2021 and claimed a first use date of December 11, 2019. Both applications use the same specimen. There is also a declaration filed with a petition to revive the group application that might illuminate the situation, although I can’t make head or tails of.

    In the lawsuit, BSM claimed that an unnamed volunteer started using the trademark BREAKING CODE SILENCE in October 2010 with books, blogs, posts, and speaking engagements aimed at helping survivors of institutional child abuse. In 2019 “a group of survivors of troubled teen residential facilities joined together to formalize BCS as an organization” and in 2021 the legal entity Breaking Code Silence was formed. BCS alleges that

    Chelsea Papciak (also known as Chelsea Filer), Jennifer Walker, Jenna Bulis, and Martha Thompson “were involved with BCS from 2019 through early 2021.” In early 2021, “these Defendants publicly separated themselves from BCS and no longer actively participate in the organization.” However, these Defendants are using the BREAKING CODE SILENCE mark without Plaintiff BCS’s permission, including through Defendants Filer and Bulis representing themselves as officers at Breaking Code Silence.

    In addition, “Defendants have taken many of Plaintiff’s social media and email accounts and are holding them hostage and will not return them to Plaintiff despite numerous requests.” In April 2021, Defendants Bulis and Filer “filed a registration for a Florida Profit Corporation by the name of BREAKINGCODESILENCE INC.”–which is the final named Defendant. “This was done without the authorization of BCS, and after publicly falsely accusing BCS (a nonprofit) of attempting to profit from the troubled teen survivor movement.” Defendants also “continue to make public posts on social media alleging that Plaintiff is committing theft, bullying, and threatening survivors,” which “are causing the public to question Plaintiff’s integrity.”

    BCS therefore sued Chelsea Papciak Filer, Jennifer Walker, Jenna Bulis, Martha Johnson (not one of the trademark applicants) and BreakingCodeSilence, Inc. for trademark infringement.

    BCS had a problem, though; namely whether it owned a trademark for BREAKING CODE SILENCE. BCS claimed to have trademark rights originating in 2010, when the term was first used in a trademark way by a volunteer.1 But BCS hadn’t demonstrated that it was the successor to those rights:

    BCS does not plausibly allege that it is the owner of the mark through its own use. It does not claim to be the first one to commercially use the mark in the relevant market. As mentioned, BCS alleges an individual first used the mark in 2010 for “books, blogs, posts, and speaking engagements,” but BCS was not incorporated until 2021. And although an individual “volunteer of BCS” may have rights to the mark, BCS is a separate entity. Ordinarily, a corporation is regarded as a legal entity separate and distinct from its stockholders, officers and directors. Hence, additional facts are needed to show BCS owns the unregistered mark.

    To that end, BCS alleges the common law trademark rights stemming from 2010 “have been assigned to BCS.” Defendants argue this assignment allegation is a legal conclusion that is insufficient under Rule 12(b)(6). The Court agrees. The term “assignment” has a specific legal meaning, especially in the trademark context. The Complaint does not allege who transferred the rights to BCS, the date of the assignment, the scope of the assignment, or any other information. Without any supporting factual allegations, BCS does not plausibly allege it owns the unregistered mark through an assignment, which would give it the right to preclude Defendants’ alleged junior use.

    BCS was given leave to amend its complaint to correct the deficiency.

    That was an expedient resolution for the court, but identifying a predecessor-in-interest isn’t going to get the court any closer to figuring out who the owner is. Whether or not there is a chain of title going back to 2010, in 2019 there were individuals all acting collectively as BREAKING CODE SILENCE but who subsequently had a falling out. The correct question is which of two competing claimants owns the same trademark? Tacking back to 2010 doesn’t really help to solve who the rightful owner is now.

    The group application has a filing date prior to the public benefit corporation application and the latter has been refused registration based on the former. Even if the court evades deciding the fundamental question, it will just be punted to the Trademark Trial and Appeal Board instead, perhaps then again to the trial court in Papciak v. Breaking Code Silence.

    Breaking Code Silence v. Papciak, No. 21-cv-00918-BAS-DEB (S.D. Cal. Feb. 11, 2022)

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    1. In an affidavit filed in the case, the individual authenticated a Facebook post where he said that he was misled about whether he had used Breaking Code Silence as a trademark, distancing himself from the lawsuit and the plaintiff. ↩
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  • Assigning a Trademark Claim

    Plaintiff Delta Medical Systems, Inc. co-owned a trademark registration for NITREX for “medical gloves” with Delta Hospital Supply, Inc. and Delta Medical Supply Group, Inc. Delta Medical sued defendant DRE Health Corp. for trademark infringement. You may have seen this coming: DRE Health Corp. filed a motion to dismiss that the two other co-owners of the NITREX trademark were missing required parties.

    Under Federal Rule of Civil Procedure 19, a case may be dismissed for failure to join a required party if, in the party’s absence,

    (1) the court cannot accord complete relief among existing parties; (2) proceeding with the action may as a practical matter impair or impede the person’s ability to protect its interest in the action; or (3) proceeding with the action will subject a party to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the absent party’s interest in the action.

    After the motion to dismiss was filed, the three co-owners entered into a agreement where the two non-party co-owners assigned their interest in the claim to Delta Medical, effective about a week before the complaint was filed and containing the docket number for the lawsuit. Delta Medical said it was a memorialization of a prior oral agreement.1

    But assigning a claim isn’t the same as assigning a trademark. The other owners were required parties:

    As an initial matter, the Court need not decide whether the oral and written assignments by the Co-Owners to Delta Medical of their rights to the claims in this action are valid. Even if the assignments are valid, the Court nonetheless finds, at the first part of Rule 19’s test, that the Co-Owners are required parties under Rule 19(a). In the Agreement, the Co-Owners assigned to Delta Medical “all of [their] right, title, and interest in and to the trademark infringement claims” asserted in this action. But, the NITREX trademark registration lists Delta Medical and the Co-Owners as owners of the mark, and the Co-Owners did not purport to assign any of their other ownership rights in the NITREX trademark to Delta Medical. As such, proceeding with this action without the Co-Owners may, “as a practical matter impair or impede [their] ability to protect” their rights in the NITREX trademark. Defendants have represented that they intend to argue that the NITREX trademark is “invalid and subject to cancellation.” The Co-Owners’ interest in and ability to enforce or use their mark could thus be impaired during the litigation; indeed, the litigation could result in the invalidation and cancellation of their mark. In addition, proceeding with this action without the Co-Owners may subject Defendants to a “substantial risk of incurring double, multiple, or otherwise inconsistent obligations.”[2] Therefore, in consideration of the “pragmatic concerns, especially the effect on the parties,” the Court determines that the Co-Owners are required parties that must be joined. Notably, several other courts have determined that trademark co-owners were required parties under Rule 19(a) for similar reasons. See, e.g., Int’l Importers, Inc. v. Int’l Spirits & Wines, LLC, 2011 WL 7807548, at *7-8 (S.D. Fla. July 26, 2011) (collecting cases).

    However, Delta Medical had asked for leave to amend the complaint to add its co-owners if needed, so Delta Medical’s request to add plaintiffs was granted rather than dismissing the case.

    Delta Medical Sys., Inc. v. DRE Health Corp., Civ. No. 1:21-cv-01687-WMR (D. Ga. Nov. 8, 2021)

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    1. I don’t find that difficult to believe. They probably informally discussed whether to sue DRE Health Corp. and who the plaintiffs would be. ↩
    2. The court doesn’t explain how this can be, if the two absent co-owners assigned to Delta Medical their right to bring an infringement claim. ↩
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