Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Beware UGC

    In a contest that requires a creative contribution, the contest sponsor will generally require that the participant assign the copyright in the contributed work. LittleMismatched did no differently, but it ran into some trouble because its target demographic is young girls. Mix children and contract and it gets a little trickier.

    The plaintiff, I.C., was a second grade student. Defendant LittleMisMatched is a girls’ clothing brand that features mismatched but coordinated designs. LittleMisMatched ran a T-shirt design contest through I.C.’s school. The contest entry included a copyright assignment:

    By entering, you agree that your entry shall be a “work made for hire” with all rights therein, including, without limitation, the exclusive copyright, being the property of Sponsor. In the event the entry is considered not to be a “work made for hire,” by entering, you irrevocably assign to Sponsor all right, title, and interest in your Content, design and entry (including, without limitation, the copyright) to Sponsor, including in any and all media whether now known or hereafter devised, in perpetuity, anywhere in the world, with the right to make any and all uses thereof, including, without limitation, for purposes of advertising or trade. You agree Sponsor may use any non-winning entered design in its products, without compensation of any kind to you, the entrant.

    I.C. submitted this design:

    IC t-shirt design 2I.C. and her mother both signed the entry. I.C. was one of two winners in her school and was awarded a $100 gift card and five t-shirts with her design. LittleMisMatched then turned the design into an entire line of “Hi-Bye” goods, including socks, purses, tights, pants and earmuffs.

    LittleMissMatched shirt

    I.C. filed an application to register the copyright in her design, which was refused registration, and wrote to LittleMisMatched to disaffirm the contract. I.C. then sued.

    I.C. first alleged that there wasn’t mutual assent because of her youth. But

    I.C. (and her mother) signed a written agreement. Although she is a minor, “[she] who signs or accepts a written contract, in the absence of fraud or other wrongful act on the part of another contracting party, is conclusively presumed to know its contents and to assent to them, and there can be no evidence for the jury as to [her] understanding of its terms.” … If minors could simply claim that they never assented to the terms of written agreements due to their age, then the contracts of minors would generally be void. But the protection New York law provides to minors is to allow them the right to disaffirm a contract, as discussed below, not to find that no enforceable contract exists. “Infancy does not disable one from entering into contracts, and . . . [her] position and [her] acts are those of any responsible person.” Plaintiff cannot claim lack of mutual assent on the basis of her age alone.

    I.C. next claimed that the contract was voidable because of her infancy, but

    defendants correctly note that a minor cannot disaffirm a contract where doing so would put her in a better position than she otherwise would have been absent the contract. It has long been established under New York law that “[t]he privilege of infancy is to be used as a shield, and not as a sword.” …

    The Court finds that plaintiff is precluded from disaffirming the contract. Although the complaint alleges that plaintiff tendered the $100 gift card and t-shirts she received for winning the contest, repudiating the contract would nevertheless put her in a superior position than she would have occupied had she never entered the contest. Prior to submitting her contest entry, plaintiff owned a simple hand-drawn design on a template provided by Miss Matched. But by repudiating the contract after Miss Matched has created an entire catalogue of clothing and accessory lines using the design, plaintiff would regain ownership of the design at a significant advantage—after Miss Matched has spent resources developing and marketing that catalogue. Plaintiff may not retain this “fruit of the contract” under New York law.

    But the court entertained one theory—unconscionability. The party alleging the defect must show that the contract was both procedurally and substantively unconscionable, and I.C. was able to barely squeak in with the theory:

    Plaintiff offers several reasons as to why the contest rules are procedurally unconscionable, relying heavily on the purported disparity in bargaining power between I.C., a second grader, and Miss Matched, a sophisticated business, when she agreed to the terms of the contest rules. Plaintiff also argues that by conducting the contest through the auspices of the school, Miss Matched used the school’s position of authority to induce I.C.’s participation in the contest. Without the benefit of an evidentiary hearing, the Court agrees that the complaint contains sufficient factual allegations to plausibly claim procedural unconscionability…. Notwithstanding, the Court notes that I.C.’s mother also signed the submission form. I.C.’s mother is assumed to have read the terms of the contest before she signed the submission form. At the evidentiary hearing, the Court will evaluate all of the relevant facts related to the contract’s formation, not only whether the contract formation process between Miss Matched and I.C. was procedurally unconscionable—as alleged in the complaint and therefore accepted as true for purposes of this motion—but also whether the process was procedurally unconscionable between Miss Matched and I.C., as advised and supervised by her mother.

    Plaintiff also argues that the terms of the contest were substantively unconscionable because she was not provided compensation for sales of merchandise featuring the Hi/Bye design. The Court has doubts as to whether plaintiff can demonstrate substantive unconscionability. At the time Miss Matched created the contest, it expected to receive simple hand-drawn designs by elementary school children on a basic template it provided. Although the prizes awarded were relatively modest, I.C. only owned a simple drawing at the time she submitted her contest entry—one whose creation was prompted by the contest itself—rather than a design supporting an entire catalogue of merchandise. Nevertheless, because procedural and substantive unconscionability operate on a “sliding scale,” the prudent course is for the Court to defer judgment on substantive unconscionability, pending an evidentiary hearing, so that both procedural and substantive unconscionability can be evaluated together.

    Plaintiff’s complaint alleges facts sufficient to warrant an evidentiary hearing regarding the unconscionability of the contest rules.

    The goal of the contest was to get designs and LittleMissMatched succeeded remarkably well, albeit ending up defending a lawsuit. But its intentions couldn’t have been clearer.

    The opinion also reminds us of the notice requirement advising the Copyright Office of an infringement claim asserting a infringement of a work for which registration was refused.

    I.C. ex rel. Solovsky v. Delta Galil USA, No. 1:14-cv-7289-GHW (Sept. 26, 2015).

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  • But What’s the End Game?

    The U.S. government has been in a multi-year, multi-indictment quest to acquire the trademarks of the Mongols motorcycle club. You can find the whole complicated background here, but the short version is that, because of improper assignments, the government indicted the wrong party the first time around.

    So the government is back, this time indicting the Mongol Nation, “an unincorporated association of ‘full-patched’ members of the Mongols Outlaw Motorcycle Gang.” Notice what is characterized as two different entities, Mongol Nation and the Mongol Gang. The government alleges that Mongol Nation had a pattern of racketeering and conspiracy to racketeer under 18 U.S.C. § 1962(c) and (d) that included the use of the “Rider Image”

    Mongol Rider image

    and the MONGOLS “Word Image.”

    Mongol indictment clipIf you can’t read the image, it says

    33. In registering and holding the rights to the Word and Rider Marks, defendant MONGOL NATION furthered the criminal purposes of the Mongols Gang by furthering its control of the symbols, namely the Word Image and Rider Image, that the Mongols Gang used both to identify Mongols who would participate in criminal activity on behalf of the Mongols Gang and to intimidate others by identifying Mongols who would take criminal action against them on behalf of the Mongols Gang if they took action contrary to the interest of the Mongols Gang. In so acting, defendant MONGOL NATION conducted and participated in the conduct of the affairs of the Mongol Gang.

    The indictment called for forfeiture of the word and design marks “that, at one time, [were] registered with the USPTO ….” The indictment mentions by number only the original trademark registrations that are now dead, replaced with two new registrations the government doesn’t mention by number.

    Mongol Nation claimed that forfeiture was impermissible under trademark law and unconstitutional under the First, Fifth, and Eighth Amendments of the United States Constitution. But

    a pretrial motion to dismiss is not the appropriate time to determine the viability of a potential forfeiture of property after a potential conviction of Defendant Mongol Nation. Defendant has not provided any legal support for the proposition that dismissal of the Indictment or striking the request is the appropriate remedy for a flawed criminal forfeiture allegation. Further, there are many possible outcomes in the course of trial, conviction, and enforcement of any potential forfeiture, such that any adjudication of the constitutional issues would essentially constitute an advisory opinion.

    But it had greater success on the fundamental RICO theory, because it take two to have racketeering. Mongol Nation and the Mongol Gang weren’t legally distinct enough and so the indictment was dismissed.

    But what’s the end game here? The government has spent years trying to gain control of the Mongols trademarks but suppose it eventually does – then what? It doesn’t seem like an asset that the government can monetize. The MUSTANG RANCH trademark was seized for tax fraud and eventually successfully auctioned off, but that was a legal business. And seizing a trademark will hardly stop members of the Mongols from continuing to wear it – is the theory that by making the apparel they will be counterfeiters of the government-owned trademark? I just don’t get what the government hopes to accomplish by seizing the trademarks.

    U.S. v. Mongol Nation, No. CR 13-0106-DOC (Sept. 16, 2015).

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  • You Had One Job

    The court:

    Exploiting the patent-in-suit in these cases, U.S. Patent No. 5,781,788 (the ‘788 patent), was AVT’s sole reason for being. The only precondition to Plaintiff’s fulfilling its singular purpose was its acquisition of title to the ‘788 patent. Obtaining ownership of the patent was AVT’s sine qua non, the only thing Plaintiff absolutely had to accomplish in order to fulfill its destiny.

    At this simple task it proved an abysmal failure.

    I previously blogged on the title problem in Advanced Video Techs. LLC v. HTC Corp. In short, one of the transactions in the chain of title was missing; plaintiff AVT recorded a “Purchase Offer Agreement” but the transaction described in it never happened. The plaintiff filed several patent infringement suits, which were heavily litigated, before the title problem was discovered. The defendants moved to dismiss, which the court did.

    “The motions for sanctions followed as the night the day.” Four bases were alleged: Section 285 of the Patent Act, which allows a court to award attorneys’ fees when it is an “exceptional case”; 28 U.S.C. § 1927 when one “multiplies the proceedings in any case unreasonably and vexatiously”; the court’s inherent power to sanction, and Federal Rule of Civil Procedure 11 for an improper pleading. Section 285 can only be awarded against a party, but a court can sanction the attorneys under § 1927, its inherent power, or Rule 11.

    AVT was sanctioned under § 285. It claimed it had objectively reasonable bases for believing it had good title, but the court disagreed. AVT knew that the seller didn’t observe corporate formalities and yet never bothered to see whether the merger promised in the Purchase Offer Agreement actually happened.

    A claim that the purchase included a warranty didn’t go far either:

    As for the warranty and representation in the Intellectual Property Purchase Agreement: in ordinary circumstances, it might have been sufficient to create an objective belief in the average purchaser of intellectual property. But these were not ordinary circumstances. Epogy’s liability for breach of that warranty was limited to a refund of the sum that Gross paid for the ‘788 patent — a whopping $1,000, the price dictated by the fact that the patent had been allowed to expire prematurely. The very fact that liability for breach of the warranty was limited to a paltry sum suggests that Gross placed little faith in Chang’s representation. Furthermore, as Epogy was dissolving simultaneously with the transfer of its assets to Gross, there would be no viable way for Gross to obtain even that modest recompense.

    Several other theories were offered but the court didn’t buy any of them:

    To be perfectly frank, the only conclusion that can reasonably be drawn from everything that happened between May 2003 and November 2014 is that sometimes bluffing is a perfectly reasonable business decision. Bluffing is what AVT did: it bluffed by confidently asserting that it owned the patent, knowing that no one was likely to call its bluff and force it to prove what it knew it could not really prove. That cannot be equated with having an objectively reasonable belief that there was no defect in AVT’s title to the ‘788 patent.

    AVT tries to escape liability with its blame-shifting tua culpa, asserting that “AVT is the victim of another unrelated party’s inadvertent mistake.” On the contrary: AVT had a duty to investigate its chain of title before initiating this suit. And AVT failed to follow up on what turned out to be its well-founded concerns that it would not be able to prove title if ever put to the task. By failing to do that, AVT’s assertion of ownership of the ‘788 patent was objectively unreasonable.

    The attorneys escaped, though. The court was sympathetic:

    AVT’s counsel have represented that they did not possess the Gross-Cohen email until March 2014, and there is no evidence to suggest they were otherwise aware of the defect in title. I was once a practicing lawyer, and if my client came to me and told me he owned a patent, and showed me that the patent was registered to him at the PTO, I doubt very much whether I would have undertaken an extensive title search; lawyers are entitled to rely on their clients in such matters.

    After the original cases were dismissed AVT applied in the Delaware Court of Chancery for the appointment of a Receiver, who executed an assignment of the patent and claims to AVT. AVT then filed new infringement suits, which are pending.

    Advanced Video Techs. LLC v. HTC Corp., No. 1:11 Civ. 06604 (CM); No. 1:11 Civ. 08908 (CM); No. 1:12 Civ. 00918 (CM) (S.D.N.Y. Aug. 28, 2015)

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  • Be Careful What You Sign – UPDATE

    Update:

    The Court of Appeals for the First Circuit affirmed that the hospital was the owner of the trademarks. Greene conceded that the Massachusetts General Hospital IP Policy was broad enough to cover the trademarks he adopted and used for a program associated with MGH. The court rejected his contract defenses of equitable estoppel, failure to reach a meeting of the minds and unilateral mistake.

    Green v. Ablon, Nos. 13-2237, 13-2294, 13-2369 (1st Cir. July 16, 2015) (Casetext).

    Original post:

    There is a pair of interesting decisions out of the District of Massachusetts about ownership of the marks “Collaborative Problem Solving,” “Collaborative Problem Solving Approach” (the “CPS Marks”), “Think:Kids” and “Think:Kids: Rethinking Challenging Kids” (the “Think:Kids” Marks). “Interesting” because it is a case where marks that preexisted a business relationship were lost by signing an employment agreement.

    The “Collaborative Problem Solving Approach” is a treatment approach for resolving problems between children with social, emotional and behavioral challenges and their caregivers. Plaintiff Ross Greene developed it in 1993. Also in 1993, he began working part-time as a clinical assistant in psychology at Massachusetts General Hospital (MGH) using the CPS approach as part of his outpatient therapy work. He successfully reapplied for his position ten times, the last time in 2007, repeatedly signing agreements that he would abide by MGH’s policies and in later agreements also stating that he had read the policies. The case is more complicated than just the Greene-MGH dispute; there is also a copyright dispute between Greene and the name defendant J. Stuart Ablon that I won’t go in to.

    In 2001 Greene registered “Collaborative Problem Solving Approach” on the Supplemental Register. In 2002, he and Ablon founded the “Collaborative Problem Solving Institute at MGH” (the “Institute”) as part of MGH’s Department of Psychiatry. In the same time period Greene and Ablon also founded two entities not affiliated with MGH that later merged into the surviving “Center for Collaborative Problem Solving, Inc.”

    In 2007, Ablon and Greene rebranded the Institute as “Think:Kids,” an effort that MGH paid for. The Institute filed trademark applications for “Think:Kids” and “Think:Kids: Rethinking Challenging Kids.”

    The Ablon-Greene relationship ultimately fell apart, with Ablon remaining at the Institute and Greene terminated by MGH in January, 2009. And so we argue over who owns the marks.

    MGH adopted an intellectual property policy in 1995 (after Greene was already employed by MGH), which was revised in 2002. Greene argued that the policies didn’t apply to him because he started at MGH before the IP policies were adopted, but his repeated reapplications for his position subjected him to the policies. This is the relevant language in the policies:

    1995 IP Policy

    [t]rademarks shall be owned by MGH if they are created by Members in the course of their employment or affiliation with an Institution or if they are used to identify any product or service originating with or associated with an Institution ….

    2002 IP Policy

    [t]rademarks shall be owned by an Institution if they are created by Members in the course of their employment or affiliation with an Institution, if they are used to identify any product or service originating with or associated with an Institution, or pertain to significant Institutional Activities.

    The court had no problem concluding that Greene’s applications incorporated the IP policies by reference and that under these policies MGH would own the CPS Marks and Think:Kids Marks–I commend you to the decision if you’re interested in the analysis. Note that it doesn’t matter that the CPS Marks may have preexisted Greene’s employment by MGH; the language “associated with” clearly captures marks that existed before the relationship. Be careful what you sign.

    The second decision is slightly more interesting. It was on MGH’s motion to enjoin Greene from claiming ownership of and using the CPS marks (Greene’s website here). Greene argued that MGH had to demonstrate a likelihood of success that there is likelihood of confusion, which would also require that MGH prove that the marks have secondary meaning (recall that Greene was only able to register the Collaborative Problem Solving Approach mark on the Supplemental Register). I agree with Greene–the statutory claim is for trademark infringement, there is no separate claim for declaration of ownership in the Lanham Act.

    But the court disagreed. The court held

    This is not a matter of trademark infringement, but of the rights that Greene surrendered to MGH as a result of his prior employment contracts ….  In other words, whether MGH can successfully bring a trademark infringement suit against Greene or anyone else is a different matter from whether Greene contractually is restricted from suing or claiming ownership of the marks ….

    The court relied on Murphy Door Bed Co. v. Interior Sleep Sys., Inc., 874 F.2d 95, 101-03 (2nd Cir. 1989) for the proposition that it didn’t need to address confusion. In Murphy Door Bed, the court found that “Murphy Bed” was generic but nevertheless enjoined the distributor from using the term because the terms of the distributor agreement prohibited it. The Greene court conveniently overlooked, though, that the MGH policies didn’t address use, only ownership.

    But it doesn’t really matter in the end; they were arguing about ownership of the same mark so confusion is, in my book, per se. I’m sure that’s what the court meant.

    Greene v. Ablon, No. 09-10937-DJC (D. Mass. Sept. 17, 2012) (summary judgment).
    Greene v. Ablon, No. 09-10937-DJC (D. Mass. Dec. 17, 2012) (preliminary injunction).

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  • Going to the Back-up Plan – UPDATE

    Update:

    The Court of Appeals for the First Sixth Circuit affirmed the lower court decision that there was an implied assignment of the trademark. The defendant challenged the decision on two bases. First, without using the word “abandoned,” the defendant argued that the trademark rights were lost when Taylor ceased business. But

    the owner of a business may retain the right to use its service mark even after the sale of the business, if the owner shows that she intended to resume producing substantially the same product or service, that she resumed doing so within a reasonable time, and that some portion of the company’s goodwill remains with the owner. [¶] Here, undisputed evidence showed that, after Coleman-Etter closed, Taylor continued to provide real-estate services in the same area without interruption, and that members of the community continued to associate her with Coleman-Etter and its intellectual property. In addition, Taylor redirected the old Coleman-Etter website to her new website, where she continuously displayed the skyline mark on the homepage. And only a little over a year after Coleman-Etter closed, she resumed using the skyline mark on her yard signs. Thus, Taylor’s rights to use the mark survived Coleman-Etter’s closure.

    Second,

    Thomas contends that any implied assignment gave Taylor no rights because trademarks must be assigned with their associated goodwill. He says Coleman-Etter no longer had goodwill to assign after it closed under the rule of Hunt v. Street, 184 S.W.2d 553 (1945). But Hunt held only that the goodwill of a partnership evaporates when the partnership dissolves because of the unique nature of partnerships. Id. at 555. And Coleman-Etter was a solely owned corporation, not a partnership. So this argument fails.

    The award of $60,770 was affirmed and the case remanded to determine whether attorneys’ fees and costs should be awarded for the appeal too.

    Taylor v. Thomas, No. 14-5632 (Aug. 3, 2015) (Not recommended for publication) (Casetext)

    Original post:

    This is a blog about ownership of all types of intellectual property, but it is undoubtedly the ownership of trademarks that provides the most litigation fodder.  I think it is because no one thinks of the trademarks, or else they only become important in hindsight. Taylor v. Thomas is a typical example of what a court might have to deal with.

    Plaintiff Fontaine Taylor was the owner of a real estate brokerage firm called Coleman-Etter-Fontaine. The firm used a logo with red letters and a blue skyline silhouette:

    Taylor decided she didn’t want to run her own business but also didn’t want anyone else to own it. She therefore became a real estate agent for non-party Crye-Leike Realtors. In her agreement with Crye-Leike, Crye-Leike agreed that it would not use the marks without Taylor’s permission and that the Coleman-Etter-Fontaine name, service marks and goodwill would remain “Plaintiff’s property.” (This is how the court described it, based on the the Defendant’s Response to Statement of Undisputed Facts Supporting Plaintiff’s Motion for Partial Summary Judgment.) Taylor did, though, use the design herself on her website thefontaines.com:

    and later, after the infringement began, on her own yard signs:

    After the Coleman-Etter-Fontaine and Crye-Leike “merger” was announced, defendant Mark Thomas started using a sign that was similar to the Coleman-Etter-Fontaine sign:

    In his defense, he retorted that Taylor wasn’t the owner of the marks. As framed by the court, “there is no dispute as to whether the Service Mark was owned by Coleman-Etter-Fontaine prior to February or March of 2011. The dispute concerns if or when Plaintiff obtained ownership of the Service Mark from Coleman-Etter-Fontaine.”

    First, Taylor claimed that she owned the mark because she was the sole shareholder and owner of Coleman-Etter-Fontaine. She had McCarthy on her side, which states that:

    [i]f a corporation is using a mark, then a principle [sic] officer and shareholder is not the “owner.” It is presumed, however, that a real person who owns all the stock of a corporation controls the corporation so that use of the mark by the corporation inures to the benefit of the real person, who is presumed to be the “owner” of the mark.

    2 McCarthy on Trademarks and Unfair Competition § 16:36.

    But the court wasn’t buying it. It agreed with the defendant that construing trademark law to allow for individual ownership based on sole-shareholder status would conflict with Tennessee law governing corporations, where “even if one stockholder holds all of the stock in a corporation, the corporation and that single stockholder remain distinct legal entities.”

    Taylor had more luck though with the doctrine of implied assignment. “An assignment of a service mark need not be in writing to be valid. Where there is no written assignment, an assignment can be implied from conduct manifesting agreement.” The court found that Taylor’s conduct — retaining ownership in the Crye-Leike agreement, her continued use, and her exclusive control as the sole shareholder over the marks — was enough evidence to find there was an implied assignment of the mark from Coleman-Etter-Fontaine to Taylor.  She therefore owned the mark and her motion for partial summary judgment of ownership was granted.

    But here’s a can of worms that the court didn’t address. The Lanham Act has a writing requirement, as does Tennessee law: “Any mark and its registration hereunder shall be assignable with the good will of the business in which the mark is used, or with that part of the good will of the business connected with the use of and symbolized by the mark. Assignment shall be by instruments in writing duly ….”  Tennessee Code Annotated, Sections 47-25-507. (Here’s a post where the argument was raised about a similar provision under New Jersey law, but not decided.) Taylor later executed an assignment of the mark from the corporation to herself, although it was not nunc pro tunc, and it was dated after the infringement began. What do you think, how rigorous should we be with the writing requirement?

    Taylor v. Thomas, No. 2:12-cv-02309-JPM-cgc (W.D. Tenn. Jan. 22, 2013)

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  • Corporation versus Unincorporated Association

    One of the issues I often write about is what entity, exactly, owns a trademark. As described by the Trademark Trial and Appeal Board, “feuding members of extended family businesses, aging pop bands, or religious organizations riven by theological schisms” are frequent litigants because trademarks can be adopted with great informality and no documentation. Sometimes it turns out that the owning organization is an “unincorporated or voluntary association” (caution, recursive link), if the state law recognizes such an entity.

    It gets more complicated when the informal collection of individuals then decides it’s time to formalize and they incorporate. Having not realized that there was an existing entity, they also don’t think about any formality of transfer of assets. When the schism comes after that, who owns the mark?

    We have this fact pattern in HardRiders Motorcycle Club Association v. HardRiders, Inc. Individuals started a motorcycle club, known as “Hard Riders Motorcycle Club” and “Hard Riders of Houston” and had a bank account in the latter name. After an person was injured at an event, the club decided to incorporate under the name “HardRiders, Inc.” and thereafter used “HardRiders, Inc.,” “Hard Riders Motorcycle Club” and “Hard Riders of Houston,” always with the same logo. In preparation for going national, the organization decided to elect a board but some of the members were unhappy with the outcome and split off. They filed a federal trademark application and changed the ownership of the domain name at the registrar. HardRiders, Inc. sued and a jury awarded the trademark to HardRiders, Inc.

    The linked opinion is an appeal of the jury verdict, claiming that there were two inconsistent jury findings. The jury held that defendant Hard Riders Motorcycle Club Association stated as an unincorporated association in 2000 and that it “still existed.” Nonetheless, the jury found that HardRiders, Inc. “held the superior right to the trademark (flames and colors), trade name (“Hard Riders”), and website address (“hardridersmc.com“) of the Hard Riders organization as of February 29, 2011.”

    The newly re-formed association claimed that the corporation couldn’t own the trademark because it hadn’t been formally assigned when the club incorporated.

    It is undisputed that no formal document of transfer was produced, but HRMCA [defendant Hard Riders Motorcycle Club Association] does not direct us to any case law or statute requiring a “formal” transfer of title in a common law trademark action. Moreover, case law cited by HRMCA suggests that no formal transfer of property is required when an unincorporated association incorporates, so long as the members of the unincorporated association and the corporation take some action to transfer the ownership of the property.

    There was plenty of evidence; the name on the back account was changed and there was testimony that the intent was to transfer all assets. “Viewing the evidence in the light most favorable to the verdict, the jury could have reasonably inferred that the club membership decided to incorporate to protect themselves from personal liability, and that that all of the club’s assets, including the Hard Riders name, the flames logo, and the website address, were transferred to HardRiders, Inc. for the purpose of protecting those assets.”

    There’s a bonus issue, too – relegated to a footnote, but it’s an important one. I wrote in the past about an “uh oh moment,” an argument that state law imposes a writing requirement for assignment of an unregistered trademark. The argument was made here too, but the court dismissed it:

    On rehearing, HRMCA points out that section 16.061 of the Texas Business and Commerce Code requires that an assignment of a trademark “must be made by a properly executed written instrument….” See Tex. Bus. & Com. Code § 16.061(b). However, HRMCA does not allege a statutory violation. Moreover, remedies provided under the code are available only to owners of registered marks, and HRMCA does not contend it owns a registered trademark. See id. § 16.104(a) (“An owner of a mark registered under this chapter may bring an action to enjoin the manufacture, use, display, or sale of any counterfeits or imitations of a mark.”); Sandy Int’l, Inc. v. Hansel & Gretel Children’s Shop, Inc., 775 S.W.2d 802, 806 (Tex. App.—Dallas 1989, no pet.) (absent evidence of a written assignment, plaintiff was not a registrant and lacked standing to seek relief for trademark infringement under Texas trademark statute).

    It’s a pretty non-responsive comment, but the defendant’s argument is fairly easy to skirt. The statute provides “A mark and its registration under this chapter are assignable with the goodwill of the business …. (b) An assignment must be made by a properly executed written instrument ….” I can read it as applying only to a mark associated with a registration, which really is the only sensible rule.

    Hard Riders Motorcycle Club Association v. HardRiders, Inc., No. 14-14-00234-CV (App. Ct. Tx. Aug. 25, 2015).

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  • Standing for Copyright Termination (Declaratory Judgment, That Is)

    The Copyright Act allows for the termination of any copyright grants given. There are different statutory provisions for it* depending on the date of the original grant (before or after January 1, 1978), whether the author is still alive, and with somewhat different conditions for termination, but they can all be terminated. When the author has died, the termination right can be exercised by the heirs listed in the Copyright Act.

    Which leads us to renowned soul singer Ray Charles. Ray Charles, the son of a sharecropper and handyman, elected to limit what his twelve children would receive from his estate. In 2002 he had each of his children sign a contract providing that:

    My father, Ray Charles Robinson, has told me that he will set up an irrevocable trust for my benefit, to be funded with $500,000. This gift is my entire inheritance from him and I understand that I will not inherit anything further under my father’s estate plan and that I am waiving any right to make a claim against his estate.

    Charles was as an employee when he created his musical works, meaning he did not own the copyright, but he did receive advance payments and future royalties. Charles founded a non-profit corporation, the Ray Charles Foundation, and on his death the Foundation was his sole beneficiary, with Charles devising “all of [Charles’s] rights in his works and rights under contracts, including the compositions that are the subject of” the lawsuit.

    Seven of the 12 children banded together and filed termination notices on their father’s work. You will spot one problem immediately, which is that Charles was purportedly an employee, his works “works made for hire,” and therefore there is no termination right to exercise. But I guess you start the challenge to the legal status of the works by filing a termination notice to create the dispute. In response the Foundation filed a declaratory judgment action with various claims that, if successful, would ensure it retains the income, for example a claim that the works WERE works made for hire, and that Charles had previously exercised his termination right.

    The children (the “Terminating Heirs”) moved to dismiss on the basis that the Foundation wasn’t the copyright owner whose rights were being terminated and therefore it didn’t have standing to bring suit. The Foundation argued that standing for termination wasn’t limited to just owners, and alternatively that it was a beneficial owner (a beneficial owner being one who receives income from a copyrighted work) which also gave it standing.

    The district court dismissed the suit on the basis that the Foundation wasn’t in the “zone of interest” protected by the termination provision, which, according to the statute, is enjoyed only by the authors, an author’s statutory heirs owning a termination interest, and grantees of transfers and their successors. The Foundation was none of these so it didn’t have statutory standing. The district court also didn’t entertain the “beneficial owner” concept because the complaint only alleged that the works were works made for hire, so the Foundation didn’t have any beneficial interest.

    The Court of Appeals for the Ninth Circuit reversed. It didn’t buy the “beneficial owner” argument either, holding that the concept of “beneficial owner,” used specifically in the statutory section describing the cause of action for infringement, didn’t apply to termination. But the Foundation was successful in convincing the appeals court it was in the zone of interest that the termination provision was intended for. First, the Foundation had a direct interest in the matter:

    It is undisputed that copyright ownership lies with Warner/Chappell, but just as the termination notices affect Warner/Chappell’s ownership of copyrights, they also directly affect the Foundation’s right to royalties. The Foundation is the sole recipient of royalties flowing from Charles’s copyright grants and effective termination would deprive it of the right to receive prospective royalties. We thus have little difficulty concluding that the Foundation is litigating its own stake in this controversy.

    This conclusion is buttressed by comparing the Foundation’s interests to Warner/Chappell’s. The publisher’s interests will be prejudiced only if Charles’s heirs are successful in their efforts to terminate the existing grants and then either agree to grant copyright ownership to another publisher, or renegotiate grants with Warner/Chappell on terms less favorable to the publisher than the terms of the existing grants. Otherwise, it makes no difference to Warner/Chappell whether it continues to pay royalties to the Foundation under the current grants, or to Charles’s heirs under new grants…. Because Warner/Chappell’s interests are not necessarily at risk, it has diminished reason to litigate, particularly because challenging the Terminating Heirs might endanger its interests.

    The appeals court therefore had to decide whether the Foundation would have a claim under the standard recently articulated in Lexmark Int’l, Inc. v. Static Control Components, Inc., that is, “whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits.” The termination provisions of the Copyright Act are intended “to safeguard authors against unremunerative transfers and improve the bargaining position of the authors by giving them a second chance to negotiate more advantageous grants in their works after the works had been sufficiently exploited to determine their value.” The Foundation’s interest is in receiving royalties, and so, although not named in the statute, it is in the zone of interest:

    the Foundation alleges injury to its interest in continuing to receive the royalty stream generated by Charles’s works, which is the same interest that the Terminating Heirs seek to redirect to themselves. This interest is the one Congress contemplated, regulated, and protected in enacting the termination provisions. We therefore conclude that the Foundation does come within the zone of interests of § 203 and § 304(c).

    And the case claiming that there is no case continues.

    Ray Charles Found. v. Robinson, No. 13-55421 (9th Cir. July 31, 2015).

    * The chart was published in 2012 and has citations to the Code of Federal Regulations that aren’t currently accurate. The current CFR section for giving notices of termination is 37 CFR 201.10.

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  • How to Write a Well-Pleaded Complaint

    The Lanham Act provides a federal cause of action for trademark registration and infringement, including for infringement of unregistered (so-called “common law”) trademarks. It is well-accepted, though, that the Lanham Act doesn’t preempt state law on the subject; all states* have laws providing for registration at the state level and an infringement cause of action. State courts have concurrent jurisdiction with federal courts for Lanham Act claims, 3-11 Gilson on Trademarks § 11.03, but since it is a federal cause of action the defendant may elect to remove the case to the federal district court for that state rather than have it remain in state court. All of this means that most trademark infringement cases end up in federal court, the “overwhelming majority,” according to Gilson on Trademarks. 3-11 Gilson on Trademarks § 11.01.

    But not all. For a plaintiff to avoid ending up in federal court, it has to plead state law-only claims, a task that SSG Baseball, LLC successfully achieved. In SSG Baseball, LLC v. Select Sports Group, LLC, a majority of the owners of defendant Select formed SSG Baseball, L.P. (“SSG LP”). Select had a partial ownership interest in SSG LP. According to the complaint, Select was a sports agency representing football players and SSG LP was an agency representing baseball players.

    SSG LP was allowed to use the SELECT SPORTS GROUP trademark and when one of the SSG LP employees left to join Access Sports, LLC, Access was also allowed to use the name “SSG Baseball” (and perhaps the name “Select Sports Group,” the opinion isn’t clear) to ease the employee’s transition. Select later withdrew its permission. Access then changed its name to “SSG Baseball, LLC,” the plaintiff in the case.** SSG LLC claims that Select assigned the mark SELECT SPORTS GROUP BASEBALL to Access but, needless to say, the validity of the document is disputed.

    Select was the first to the registration office, with applications for SELECT SPORTS GROUP and the SSG logo. SSG LLC was second, with applications for SELECT SPORTS GROUP BASEBALL and SSG BASEBALL. The SSG LLC applications were refused registration based on a likelihood of confusion with the pending Select applications so SSG LLC opposed the Select applications.

    SSG LLC then filed a declaratory judgment action in Texas state court praying for a declaration of ownership of the common law SELECT SPORTS GROUP BASEBALL and SSG BASEBALL trademarks. Thereafter it sought suspension of the pending opposition, maintaining that the resolution of the state court action “will have a bearing on the Opposition.” (Emphasis in original.) In response Select removed the state lawsuit to federal court on the theory that it stated a cause of action under federal law. SSG LLC moved to remand the case back to state court.

    SSG LLC had the better side. The theory is the “well-pleaded complaint,” that is, “removal is not possible unless the plaintiff’s ‘well pleaded complaint’ raises issues of federal law sufficient to support federal question jurisdiction.” It makes the plaintiff “master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law. Therefore, even if federal claims are available, a plaintiff may remain in state court by relying exclusively on state law.” However, under the “artful pleading doctrine,” even though a plaintiff may have strategically omitted federal law claims, if it is in an area where federal law completely preempts the purported state law claim, the case can be removed. Rivet v. Regions Bank, 522 U.S. 470, 118 S.Ct. 921 (1998).

    As noted above trademark infringement can be a state law claim, so what part of the SSG LLC claim was exclusively federal? Although conceding that not all Lanham Act claims are preempted, Select claimed that the registration of trademarks with the PTO and the scope of the registrations is exclusively federal.†

    The court disagreed.

    Select has not demonstrated that Congress has completely preempted the entire area of trademark law such that any claim asserting ownership of, and the right to use, a state common law trademark, and seeking a declaration that the claimant is not infringing another party’s common law trademark rights, is necessarily federal in character. Select does not cite a single case that holds that such state claims are completely preempted. And the federal statutes that it cites deal with federal trademark registration. But SSG is not seeking trademark registration, and, as the court explains below, registration is not even required to bring a common law trademark claim under Texas law.

    Courts have held, however, that state-law trademark claims are not completely preempted.

    ***

    Although the decision in this lawsuit could affect (perhaps even determine) who is entitled to register the Marks, SSG is not suing for registration of the Marks or for a declaration that it, rather than Select, is entitled to register the Marks. At most, SSG is bringing a declaratory judgment action that could impact who is entitled to federal trademark registration. Select is therefore incorrect in asserting that “[b]ecause [SSG] is seeking a determination regarding the federal registration of its marks and [Select’s] marks and the scope of such registrations, its claims arise under federal law and were properly removed, notwithstanding [SSG’s] efforts at artful pleading to avoid revealing the true federal nature of its claims.” SSG is seeking no such determination.

    In fact, Select’s emphasis on the premise that SSG is asserting a registration-related remedy overlooks that SSG is asserting only a Texas common law trademark right. Although the elements of common law trademark infringement under Texas law are the same as those under federal trademark law, a Texas common law trademark infringement action does not even require that the trademark be registered.

    (Italics in original.)

    Select also argued that SSG LLC’s statement in the Opposition proceeding, that the state court case would affect the outcome of the opposition proceeding, judicially estopped SSG LLC from arguing that its claim did not arise under federal law. But

    The position that SSG took before the TTAB is not plainly inconsistent with any position that SSG is taking in this court in support of its remand motion, or vice versa. Before the TTAB, SSG asserted that this lawsuit could affect the trademark proceedings pending in the PTO. In particular, SSG represented that this lawsuit would likely have a direct bearing on the rights of the parties to register their respective trademarks, and in the appropriate description of services that each party should receive on their respective federal registrations. That position, however, is entirely consistent with an assertion that state law would determine who had the rights to the marks and was entitled to trademark protection. SSG did not represent that anything about this lawsuit arose under federal law. In fact, the TTAB’s conclusion that this case involves a dispute over the parties’ respective rights in the marks—while undoubtedly correct—says nothing about the nature (federal or state, statutory or common law) of the dispute.

    Indeed, ownership of a trademark (patents and copyrights too) is very often a matter of state law, whether it be contract, divorce or estate law. This is the right outcome. Something the court didn’t much doubt, awarding SSG LLC its attorneys’ fees because “Select did not have an objectively reasonable basis to remove this case.”

    SSG Baseball, LLC v. Select Sports Group, LLC, No. 3:15-CV-0966-D (Aug. 13, 2015).

    * I’m assuming all states do. If there is a state that doesn’t, please share.
    ** The Texas complaint claims that SSG LLC is a successor to SSG LP and doesn’t mention Access, but it doesn’t matter for purposes of the legal analysis.
    † Courts can “determine the right to registration, order the cancellation of registrations, in whole or in part, restore cancelled registrations, and otherwise rectify the register,” Lanham Act § 37, 15 U.S.C. § 1119, but the federal statute defines the conditions for registration.

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  • GUADEC 2015

    To quote the World Trademark Review:

    It is foolish in the extreme to ever underestimate the power of a passionate online community; if you do, what may seem like a minor blip in your trademark strategy could turn into a formidable obstacle should you come up against a cleverly-orchestrated and very determined campaign.

    I’m very excited to be going to Gothenburg, Sweden to attend and speak at GUADEC 2015, the GNOME conference. In “How the Power of Community Prevails — It’s Not Only About the Code,” I will be speaking on a little fun we had about eight months ago, where the GNOME community — the “passionate online community” mentioned above — stopped a trademark threat dead in its tracks through a brilliantly-executed social media campaign. The tale will be told.

     

  • The Copyright License As a Property Right

    There are a slew of lawsuits against textbook publishers alleging use of stock photography beyond the scope of the original license (recursive link). Whether one characterizes it as massive intentional infringement, or a simple failure of the publishers to track their use and true-up on their licenses, it looks like it is a pervasive practice in the industry to print more books than the quantity licensed and to sell in unlicensed territories. The publishers have been fighting tooth and nail, throwing up every defense they can, in order to avoid getting the substantive question of infringement.

    A legal challenge that plaintiff Minden Pictures has been fighting is whether a photo agency representing multiple photographers has standing for the copyright infringement claim. Over the course of several years and several lawsuits Minden Pictures had its photographers sign different agreements trying to get one that a court will agree is a basis for standing. In its first suit against Pearson Education, Inc., Minden Pictures claimed that two agreements gave it standing, the original Agency Agreements and subsequent Assignments. As covered here, the court refused to consider the Agency Agreements as a discovery sanction and held that the Assignments provided only a “bare right to sue,” not an ownership interest. The decision was appealed but voluntarily dismissed.

    Minden Pictures then sued John Wiley & Sons, relying on the Agency Agreements as its basis for standing. The Agency Agreements

    limit in some aspects, but preserve in others, the photographers’ ability to make use of their photographs themselves. The Agreements specify that the photographers “shall not issue any Licenses to any Images, except as provided under this Agreement.” But they reserve some authority for personal and, in some cases, commercial use. All of the Agreements permit the photographers to use the images “for personal promotion.” Some permit the photographers to issue licenses for the “editorial use of images in books and magazines.” A small number permit the photographers to license images for “commercial” uses, or for “advertising.” In other words, the Agreements generally permit the photographers to issue some licenses themselves, subject to the terms of the individual Agreements, but prohibit them from hiring a licensing agent other than Minden.

    The district court held that the Agency Agreements did not give Minden Pictures standing, holding that the Agency Agreements first, weren’t an assignment, and second, weren’t an exclusive license because the photographers retained some ability to license the same rights. Minden Pictures appealed and now the Court of Appeals for the Ninth Circuit has reversed.

    We start with a some clarification on a point that isn’t always clear, particularly in copyright, which is the difference between an assignment and a license:

    [T]he Copyright Act … specifies that the owner can transfer a right, or a share of such a right, via “an assignment, … exclusive license, or any other conveyance, … whether or not it is limited in time or place of effect.” Id. § 101. That is, either an assignment (which transfers legal title to the transferee) or an exclusive license (which transfers an exclusive permission to use to the transferee) qualifies as a “transfer” of a right in a copyright for the purposes of the Act.

    The court clarifies its point that the right to grant licenses is itself an exclusive right:

    First, we have no doubt — indeed, we do not understand Wiley to contest — that the Agency Agreements transferred an interest in a legally cognizable right in the photographers’ copyrights. The Agency Agreements explicitly permit Minden to reproduce, and to authorize the reproduction of, the copyrighted photographs. Reproduction is one of the six “exclusive rights” described in the Act. Further, Wiley does not appear to dispute that, as the photographers’ licensing agent, Minden had the right “to authorize” both the distribution and the display of the photographs by granting licenses to third parties such as Wiley. The right “to authorize” these acts is also an “exclusive right” under the Act. See id. § 106(3), (5). Minden thus had an interest in a legally cognizable right under the copyrights. The only question is what kind of interest Minden possessed.

    Wiley argued that, because the photographers themselves retained the right to license, Minden Pictures’ right to license wasn’t exclusive. But

    This argument runs contrary to the divisibility principle embodied by the 1976 Act, and to the bulk of the caselaw and commentary in this field. Wiley’s argument is inconsistent with the notion that, under the 1976 Act, a single copyright, or right thereunder, may be divided between parties, with each co-owner entitled to sue to protect his or her interest in the right. As we recently explained in the context of copyright ownership, “the word ‘exclusive’ in [the Act] cannot mean that only sole owners possess ‘exclusive’ rights.” Corbello [v. DeVito, 777 F.3d 1058, 1065 (9th Cir. 2015]. “If an ‘exclusive right’ could only be possessed by a sole owner of a copyright, a co-owner would be unable to bring an infringement action to protect his interest.”

    We see no reason why the divisibility principle should not apply with equal force when the interest granted is an exclusive license to grant licenses to others.

    Okay, so there can be co-existing exclusive licensees. But how do we know whether a license is exclusive?

    The reason the Act prevents a holder of a “nonexclusive license” to use a copyrighted photograph from bringing an infringement action against others who use the same photograph is that such a licensee has no more than a privilege that protects him from a claim of infringement by the owner of the copyright. That is, because such a licensee has been granted rights only vis-à-vis the licensor, not vis-à-vis the world, he or she has no legal right to exclude others from using the copyrighted work, and thus no standing to bring an infringement suit. But when a licensee has been granted rights vis-à-vis the world — even if he or she shares those rights with another party, including the owner of the copyright — we see nothing in the Copyright Act that requires us to deem such an arrangement a mere “nonexclusive license” insufficient to give rise to standing to sue….

    Put more simply, we agree with the Seventh Circuit that the essence of an “exclusive” license under the Act is that “the copyright holder permits the licensee to use the protected material for a specific use and further promises that the same permission will not be given to others.” I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996).

    The court says that it is creating a rule consistent with what the Federal Circuit recently had to say about patent licensing in WiAV Solutions LLC v. Motorola, Inc. (blogged here). But WiAV is a little different, it held that “If the accused neither possesses nor can obtain such a license, the exclusive licensee’s exclusionary rights with respect to that accused party are violated by any acts of infringement that such party is alleged to have committed, and the injury predicate to constitutional standing is met.” In WiAV, this means examining the scope of the existing licenses to see whether the defendant could have obtained one elsewhere and, if it could not, the licensee had standing.

    In Minden Pictures, some of the photographers could have granted a license to the defendant too, but the Minden Pictures court did not remand to the district court to decide that factual question on a case-by-case basis. Rather, it held that, even where the defendants, in theory, could have taken a license from the photographer instead of the agency, the agency’s license was nevertheless exclusive:

    [T]he photographers have promised that Minden, and only Minden, will have the power, as the photographers’ licensing agent, to authorize third parties to reproduce, distribute, and display the photographs. That the photographers have retained some limited degree of authority to grant licenses themselves does not eliminate Minden’s interest in the copyright as the sole entity to act as the photographers’ licensing agent. It merely means that both Minden and the photographers, under the terms of the Agreements, can prevent those third parties who have not received permission to use the photographs from using them. To hold otherwise would be inconsistent with the divisibility principle embodied by the 1976 Act.

    So this standard is somewhat broader than under patent law, but justifiably so. The Patent Act has no concept of divisibility and it is a longstanding principle that the exclusive licensee whose exclusivity has been infringed can be a party only as long as it is joined by the patent owner. Indep. Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 466, 46 S.Ct. 166, 168 (1926).

    Unlike the Patent Act, however, the Copyright Act does expressly give an exclusive licensee an independent basis for standing:

    If the photographers had never entered into the Agency Agreements, but instead had issued licenses directly to Wiley, there would be no doubt that they could bring infringement actions over the violations Minden alleges in its complaint. We see no reason why, having appointed Minden to manage the commercial use of their photographs in the first instance as their licensing agent, the photographers should not also be able to rely on Minden to protect and defend the licenses that it has issued on their behalf. Nothing in the text of the Copyright Act, nor in the Agency Agreements, compels a contrary conclusion.

    One of the justifications for requiring both parties to be joined for patent infringement claims is to protect the defendant against multiple claims. After this decision it is a theoretical possibility with a copyright infringement claim, but the rules of joinder can be applied to avoid unfairness to the defendant. It also means that the the defendant cannot escape liability merely by pointing out that hypothetically it could have obtained a license elsewhere; instead, it will need to actually get that license.

    The Minden Pictures court gave a nod to the practical aspects in its decision, too:

    By honoring the parties’ contracting expectations, we also remove what would otherwise be a significant practical disadvantage in seeking to protect a copyrighted work. If Minden could not bring an infringement suit on behalf of the photographers for whom it serves as a licensing agent, those photographers would have to bring suit individually, either in individual actions or in a single suit under Federal Rule of Civil Procedure 20. Both procedural alternatives have significant disadvantages. In a suit against Wiley brought by an individual photographer, alleging infringement only as to his or her own photographs, the expenses of litigation would very likely dwarf any potential recovery. And in a suit under Rule 20, both the total cost of litigation and the burdens of coordination would be significant, given the complexities of litigating on behalf of thirty-some named plaintiffs. The practical disadvantages of these two alternatives compared with the prospect of licensing agents bringing suit as sole plaintiffs are likely obvious to defendants such as Wiley, and it is not implausible that Minden’s inability to bring an infringement suit would be an incentive to engage in infringing behavior.

    So for patents, a license is sufficiently exclusive for standing if the defendant could not have obtained a license from anyone else, which requires an examination of all the existing licenses. For copyright, a license is exclusive simply if the copyright owner’s grant to the licensee includes a promise not to grant the same right to anyone else.

    And the tide has just turned for the stock photography plaintiffs.

    Minden Pictures, Inc. v. John Wiley & Sons, Inc., No. 14-15267 (9th Cir. July 29, 2015).
    Minden Pictures, Inc. v. John Wiley & Sons, Inc., No. C-12-4601 EMC (N.D. Calif. Jan. 27, 2014).

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