Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Jurisdiction Over a Patent Ownership Claim

    Predator International, Inc. v. Gamo Outdoor USA, Inc. is a Tenth Circuit decision involving a patent infringement claim. PatentlyO reports on the appellate posture, explaining why the appeal ended up at the Court of Appeals for the Tenth Circuit rather than the Federal Circuit. But I’m more interested in the ownership aspect of it.

    The original complaint, in federal court, pleaded patent, copyright and trade dress infringement and related state law claims. Shortly after the suit was filed there was a problem with patent ownership. The patent-in-suit was co-invented by Tom May and Lee Phillips, who formed the plaintiff company. In 2002 Phillips sold “all of [his] capital stock and rights and interests in Predator International, Inc.” to May. But after the lawsuit was filed Predator (now with new owners) learned that Phillips, who was not a party to the original suit, still claimed he owned the patent. Predator therefore dismissed the patent claim, but not the rest of the complaint, in favor of getting the patent ownership claim, a contract claim, sorted out in state court.

    The state court litigation expanded way beyond patent ownership. After Predator sued Phillips in state court, Phillips sold his ownership interest to the infringement defendant, Gamo, who moved to intervene. Phillips also brought a number of state law counterclaims against Predator, like for fraudulent misrepresentation and breach of fiduciary duty. After a number of Predator’s motions were denied, Predator then went back to federal court, moving for leave to file a supplemental complaint* for patent ownership against Gamo and to amend its existing complaint to add the patent infringement claim back in. Gamo moved for sanctions under Rule 11, which the trial court granted.

    So we’re in the Court of Appeals for the Tenth Circuit, not the Federal Circuit, since there is not yet a patent infringement claim.** The motions to supplement and amend could be denied if there was good reason, but “the district court stated inadequate reasons for deciding the motions were unwarranted.” First, it was not sanctionable “forum shopping” because there cannot be forum shopping for a patent infringement claim when the federal courts have exclusive jurisdiction over them. It was also not forum shopping on the ownership claim because there was not yet an unfavorable opinion from the state court. Predator was also justified in returning to federal court because it wasn’t going to be able to realize the efficiencies of litigating in state court it had anticipated.

    Second, although there was delay, Predator could have just filed a new lawsuit against Gamo and asked for it to be consolidated, so there was nothing unreasonable in asking the court to choose whether to allow it in this suit or force another. And finally, the district court said that Predator’s position on standing was no better now that it was before, but Predator’s dismissal of the patent infringement claim had been discretionary, not mandatory:

    In February 2010 Predator attempted to obtain from Phillips a written assignment of his patent-ownership rights. Phillips refused and claimed a 50% ownership interest in the patent. His claim of ownership presented a problem for Predator’s patent-infringement claim because a co-owner of a patent does not have standing to sue for infringement unless all other co-owners join the suit. See Israel Bio-Eng’g Project v. Amgen, Inc., 475 F.3d 1256, 1264-65 (Fed. Cir. 2007). The problem did not, however, require dismissal of Predator’s patent-infringement claim. See Kunkel v. Topmaster Int’l, Inc., 906 F.2d 693, 695 (Fed. Cir. 1990) (“merely because a question of contract law must be decided prior to reaching the infringement question does not defeat federal subject matter jurisdiction” (internal quotation marks omitted)). Although the infringement claim could not be decided before the ownership issue was resolved, the federal court could assume supplemental jurisdiction over the patent-ownership claim, see 28 U.S.C. § 1367(a) (district courts have supplemental jurisdiction “over all other claims that are so related to claims in the action within [the court’s] original jurisdiction that they form part of the same case or controversy”); Energy Recovery, Inc. v. Hauge, 133 F. Supp. 2d 814, 820 (E.D. Va. 2000) (“precisely because patent ownership represents a necessary predicate issue, it is sufficiently related to Plaintiff’s patent non-infringement claim to afford Plaintiff a basis for supplemental jurisdiction”); cf. Kunkel, 906 F.2d at 697 n.1 (under former version of 28 U.S.C. § 1367, district court in patent case would have pendent jurisdiction over claim of breach of patent-license contract).

    Sanctions were therefore unwarranted.

    Predator Int’l, Inc. v. Gamo Outdoor USA, Inc., No. 14-1454 (10th Cir. July 15,2015).

    * A supplemental pleading is one based on a transaction, occurrence or event that happened after the date of the pleading to be supplemented. Fed. R. Civ. P. 15(d).
    ** As PatentlyO points out, if on remand the district court reconsiders and allows the complaint to be amended again to add the patent claim, then appellate jurisdiction shifts back to the Federal Circuit.

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  • Yoiks

    Yoiks. So you license someone your trademark and have this language in the license agreement:

    [L]icensee hereby acknowledges the validity of the licensed mark and the exclusive ownership of the licensed mark by licensor, whether or not registered or recorded. Licensee agrees that it will not, at any time during the term of the License or thereafter, directly or indirectly challenge, contest or aid in challenging or contesting the validity or ownership by Licensor of the Licensed Mark, or the title or registration thereto or recording thereof, whether now existing or hereafter obtained.

    ….

    (a) upon the termination of the license … neither licensee nor any of its affiliates nor any other owner, operator or occupant of the hotel shall have the right, by virtue of this agreement or otherwise to continue using any licensed mark in the name of the hotel, in the operation, management or promotion of the hotel, or otherwise, and licensee and such other persons immediately shall cease and desist from any such use. Licensor shall have the right, at licensee’s expense, to remove from the hotel any signs or other indicia of any connection with the licensor or with the licensed mark.

    (b) Licensor shall have the right (which right shall survive the termination of the license) to seek injunctive or other relief as may be available at law or in equity in a court of competent jurisdiction to enforce the provisions of this section and its other rights under this agreement.

    The licensee then continues to use the mark after the license agreement ends and you sue it for trademark infringement. You should be home free on a trademark infringement theory, right?

    According to the Supreme Court of New York, nope. (And for those of you not familiar with the New York court system, entertainingly the Supreme Court is the lowest court.) Waterscape is the trademark owner, 70 West the licensee, and the license was for continued use of a hotel name on the same premises:

    I find that Waterscape has failed to establish its entitlement to a preliminary injunction. Waterscape alleges that it has a common law trademark of “Cassa Hotel” and related and derived names, and has been using the term earlier than any other party. However, it has not provided sufficient evidence supporting these allegations to demonstrate ultimate success in its underlying infringement claim….

    Waterscape points out that 70 West contractually acknowledged Waterscape’s “ownership” of the Mark, and agreed to stop using the Mark upon termination of the license agreement. This contractual language does not constitute sufficient evidence that “Cassa Hotel” is indeed trademarked to Waterscape, that a trademark infringement likely occurred, or that Waterscape has suffered irreparable harm. Rather, Waterscape may have a sound breach of contract claim against 70 West (I note that 70 West claims that there was an oral/implied agreement for it to continue using the “Cassa Hotel” name after the license agreement term expired), and Waterscape may be able to pursue monetary damages from any such breach. The parties’ contractual language, however, is not dispositive of Waterscape’s request for a preliminary injunction.

    Well, except for the part where licensee acknowledged the validity too. and likelihood of confusion foregone when a licensee is no longer licensed. But what I think we have here is a demonstration of the significance of burden of proof. So the license agreement may prohibit the licensee from bringing an affirmative defense of invalidity, but the licensee may still point out that the plaintiff has failed to meet its initial burden of proof on all elements of its claim. Validity was pled, but the defendant made enough noise about the distinctiveness of “Cassa” that the court bought it.

    I have to think about how to revise that license paragraph to avoid this. It does not appear that a state trademark registration in New York provides any evidentiary benefits (your state results may differ), and a federal registration seems like overkill for a hotel in a single location. Hmmm.

    Waterscape Resort LLC v. 70 West 45th Street Holding LLC, Index No. 651214/2014 (N.Y. July 17, 2015). Docket here (after Recaptcha).

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  • § 21 Affirmance of Nic-Out

    I just went on a tirade against the manufacturer-distributor presumption, arguing that the doctrine is meant to apply where “distributor” means “reseller,” not the more complicated case where the so-called “distributor” has some say in how the goods are produced. And here is an example of the relationship the doctrine was meant for—properly applied by the Trademark Trial and Appeal Board and now affirmed in the district court.

    I previously reported on the opposition in Nahshin v. Product Source International, LLC. Nahshin is the Israeli manufacturer of a cigarette filter for removing nicotine. Product Source International (PSI) distributed in the US and registered the trademark, but Nahshin eventually petitioned to cancel the registration and won. PSI appealed to the district court under Section 21 of the Lanham Act, 15 U.S.C. § 1071. Nahshin counterclaimed for trademark infringement.

    What complicates the situation some is that there was originally a middleman, Safety Aid Supplies (SAS), who was reselling the Nahshin product to PSI. PSI filed its application to register the trademark at a time when PSI claimed to not know that Nahshin was the ultimate source, but thereafter, after ceasing its relationship with SAS, PSI contacted “P. Service,” a name it saw on the containers for the filters, and ultimately ended up with Nahshin. PSI worked with Nahshin to remove the name of SAS as the distributor and to put its own trademark application number (incorrectly called the registration number) on the box, a change that Nahshin willingly made:

     

    Prod Source Intl v Nahshin Exh G p 32

    Prod Source Intl v Nahshin Exh G p 32 closeup

    But none of that goes to ownership, only remedies. The district court agreed with the Board that Nahshin had enough sales before PSI was in the picture to establish its own common law US trademark rights and after that nothing else mattered.

    PSI had a shot at an acquiesence defense because of the package labeling, but there is no acquiescence defense where confusion is “highly likely or inevitable,” that is, “where, as here, there is a strong likelihood of confusion because two parties claim ownership of the exact same mark identifying the exact same product, acquiescence cannot bar a cancellation claim. This is so because the public interest in avoiding confusion in the marketplace must trump any inequity to the party relying on another’s acquiescence.”

    But acquiescence did mean that Nahshin wouldn’t be able to collect any damages for the infringement, although it can have PSI enjoined from any further infringement.

    Product Source International, LLC v. Nahshin, No. 1:14-cv-18 (E.D. Va. June 24, 2015)

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  • You Can’t Sue the Co-Owners of Your Trademark

    It seems like a simple concept, maybe so simple it isn’t litigated much. You can’t sue the co-owner of your trademark.

    It’s a band name case (what else?), over “Get the Led Out,” a cover band of Led Zepplin. In 2002 Plaintiff Paul Piccari conceived of the idea to form a band and thought up the name. He formed the band with defendants Paul Hammond and Paul Fariello. Co-plaintiff Frank Kielb, through his company FKE, Inc., was the manager of the band. In 2010 or 2011, the defendants forced Piccari out of the band and fired Kielb. Piccari claimed he never received payments after that for his share of the band proceeds and sued on a number of state law theories and for trademark infringement.

    The ownership record for the trademark registration is a fiasco and the parties’ briefs didn’t help matters. Piccari registered the trademark for band services in his own name, then assigned 50% ownership to Kielb (yes, it is titled “Assignment of Copyright,” oy) on July 3, 2012 nunc pro tunc to January 1, 2010. The document was recorded after the lawsuit was filed, on July 1, 2014. Meanwhile, in September 2012, the defendants recorded a “Declaration of Correction of Ownership,” claiming that the actual owners of the registration were Hammond, Paul Fariello, and another non-party band member named Adam Ferraioli, but not mentioning Piccari or Kielb. However, the ownership as listed in the TESS record, and as relied on by Piccari in his briefing, lists four people as owners, including plaintiff Piccari and defendants Hammond and Fariello. I’m guessing that because the Declaration says that at the time the application was filed there were four band members, including Piccari, and because the declaration was not signed by Piccari, the USPTO just added the new names without removing Piccari’s name.

    So by virtue of a fairly ridiculous effort to change ownership of a trademark without the record owner’s consent, we have a plaintiff and defendants as co-owners, with the resulting bonus of a thorough and useful explanation of why you can’t sue your co-owner. The court found that the purpose of the Lanham Act was to protect the public and the trademark owners from imitators seeking to capitalize on the owner’s hard-earned goodwill. But, a co-owner is not an imitator, and so not the kind of use the Lanham Act was intended to prevent. Further, use by a co-owner does not create confusion as to source because the information is accurate – they’re all the source. The court therefore construed the trademark infringement claims as claims for an accounting under state law and dismissed the Lanham Act claims.

    Piccari v. GTLO Prods., LLC, No. 14-06701 (E.D. Pa. June 24, 2015)

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  • Just Because You Don’t Manufacture Doesn’t Mean You’re a “Distributor”

    John Welch at The TTABlog summarizes a case that is characterized as a manufacturer-distributor dispute over the ownership of the mark “UVF861” for UV light bulbs. John does a thorough job summarizing the case, which I won’t repeat here. In its opinion, the TTAB applied the presumption that in a manufacturer-distributor relationship, the manufacturer owns the trademark. But the presumption can be rebutted, and it was here. John adds a personal comment, “If ever a case existed for rebutting the presumption of ownership, this was it.”

    Indeed, and in fact I suggest that the time for giving a manufacturer a presumption of ownership has passed. We should excise it from the jurisprudence altogether.

    It has been true for centuries that the trademark owner is not necessarily the manufacturer, Menendez v. Holt, 128 U.S. 514, 520 (U.S. 1888), but when did the presumption arise? The provenance wasn’t clear to me (having devoted an amount of time appropriate for researching a legal issue for a blog post, as compared to, say, a brief). This was the earliest reference I could find in an Article III court’s opinion:

    Professor McCarthy summarizes those principles and applies them in the context of a foreign manufacturer and his exclusive United States distributor in the following paragraph:

    It is well-settled that the question of ownership of a trademark as between the manufacturer of a product to which the mark is applied and the exclusive distributor of that product is a matter of agreement between them. In the absence of any such agreement, there is a legal presumption that the manufacturer is the owner of the mark. The general rule is also applied as between a foreign manufacturer and the exclusive United States distributor. That is, ownership of a trademark in the United States as between a foreign manufacturer and an exclusive United States distributor is a matter of agreement between them. In the absence of express or implied acknowledgement or transfer by the foreign manufacturer of rights in the United States, all rights to the trademark in the United States, are presumed to be in the foreign manufacturer. An exclusive U.S. distributor does not acquire ownership of a mark of a foreign manufacturer any more than a wholesaler can acquire ownership of a mark of an American manufacturer merely through the sale and distribution of goods bearing the manufacturer’s trademark.

    McCarthy, Trademarks and Unfair Competition, § 16.15 (1973). See also Audioson Vertriebs-GmbH v. Kirksaeter Audiosonics, Inc., 196 U.S.P.Q. 453 (TTAB 1977); Jean D’Albret v. Henkel-Khasana G.m.b.H., 185 U.S.P.Q. 317 (TTAB 1975); Bakker v. Steel Nurse of America, Inc., 176 U.S.P.Q. 447 (TTAB 1972); Compania Insular Tabacalera v. Camacho Cigars, Inc., 167 U.S.P.Q. 299 (TTAB 1970), Aff’d, 171 U.S.P.Q. 673 (D.C.1971).

    Hank Thorp, Inc. v. Minilite, Inc., 474 F. Supp. 228, 236 (D. Del. 1979).

    I don’t have access to McCarthy, much less a 1973 McCarthy. (A HT and free subscription to my blog if you can come up with it). But how is it that, apparently, the TTAB, an administrative tribunal, somehow has established a non-statutory legal presumption? The various TTAB opinions I looked at analyzed whether there was an assignment of the trademark by the foreign manufacturer to a US distributor permitting the US entity to register it, or were for a fact pattern where there was no argument that the US “distributor” had no input into the manufacture but rather was a mere reseller.

    The TTAB has also referred to the Paris Convention:

    The decisional law in the United States concerning [the presumption] fully implements Article 6 septies of the International Convention of Paris for the Protection of Industrial Property, as revised at Lisbon in 1958 and Stockholm in 1967 … [which] reads:

    (1) If the agent or representative of the person who is the proprietor of a mark in one of the countries of the Union applies, without such proprietor’s authorization, for the registration of the mark in his own name, in one or more countries of the Union, the proprietor shall be entitled to oppose the registration applied for or demand its cancellation . . . unless such agent or representative justifies his action.

    2) The proprietor of the mark shall, subject to the provisions of paragraph (1), above, be entitled to oppose the use of his mark by his agent or representative if he has not authorized such use.

    Global Maschinen GmbH v. Global Banking Sys., 1985 TTAB LEXIS 41, *16-17, 227 U.S.P.Q. (BNA) 862, 866 (Trademark Trial & App. Bd. Oct. 8, 1985). But that’s still a different case; that is the situation where there is a senior foreign trademark and the Paris Convention simply provides that the foreign owner has standing to oppose or cancel the registration by its US agent.

    But the presumption is now even applied in cases where, as here, the US entity has some—or a lot of—involvement in the manufacturing process. I’ve suggested in the past that “Trying to shoehorn these relationships with different contours into a ‘manufacturer-distributor’ framework … simply muddies the waters. We should just look instead at the full scope of the relationship of the disputing parties and decide who the rightful owner is.” So to reiterate the practice tip: next time you need to advocate for the non-manufacturer, don’t assume that just because the other party is the manufacturer you must be the “distributor.” The party may more accurately be the contractor or licensor or inventor.

    But I’ll go further: it’s time to ditch the presumption altogether. It only encourages manufacturers to pursue weak claims and engage in wasteful litigation, like here. If the challenged entity is just a reseller, then under the standard factors considered in deciding ownership disputes the manufacturer will win hands down. The presumption, if it ever was a reasonable assumption about the parties’ relationship, has no place in our modern, complex manufacturing world.

    UVeritech, Inc. v. Amax Lighting, Inc., Cancellation No. 920570088 (TTAB June 20, 2015).

    Shameless plug: The Board cited to my article Who Owns the Mark? A Single Framework for Resolving Trademark Ownership Disputes, 96 Trademark Rep. 681 (2006).

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  • Patent Ownership in Germany

    Here’s an interesting little patent case involving the ownership of patents under foreign law, in this case German law. The plaintiff’s principal, Werner Schnaebele, worked in Germany for a predecessor of the defendant. He signed one employment agreement that didn’t have any provision for ownership of inventions conceived of by employees, meaning local law would apply; then a second agreement he signed stated expressly that the German Employees Inventions Act (Gesetz über Arbeitnehmererfindungen, in case you were wondering) would govern.

    The German Employees Inventions Act says that an employee retains the right to his or her invention but an employer can take ownership if, within four months of the existence of the invention, the employer serves the employee with a written declaration claiming the right to invention and it pays the employee a fee above and beyond the employee’s regular compensation. This didn’t happen for the patents-in-suit. Schaebele’s company later sued for a declaration of ownership of the patents.

    The defendant moved to dismiss under Fed. R. Civ. P. 12(b)(6), claiming that the claim didn’t sound in patent but was one under contract instead. It was really kind of a lame theory:

    [Defendant] Rockwell argues that [plaintiff] Auvesy’s claim for declaratory judgment sounds in contract. This is wrong. Auvesy does not, for example, seek affirmative relief for Rockwell’s failure to pay for Schnaebele’s invention. Indeed, such a claim would make little sense as it appears that Rockwell did not have a duty — under contract or under German law — to buy Schnaebele’s invention. Instead, Auvesy seeks a declaration that it owns the patents because Rockwell didn’t pay for the invention.

    (emphasis in original). A theory that Wisconsin law controlled ownership also didn’t fly either:

    State law, not federal law, typically governs patent ownership, but a contractual agreement to apply foreign law as to ownership is “just as valid as an agreement to apply the law of a particular state. [There is] no conflict between United States patent law and enforcing the intentions of the parties that the contract be interpreted under the laws of a foreign country.” Azakawa v. Link New Technology Int’l, Inc., 520 F.3d 1354, 1357-58 (Fed. Cir. 2008) (citing Int’l Nutrition Co. v. Horphag Research Ltd., 257 F.3d 1324 (Fed. Cir. 2001)).

    Framed as such, Rockwell’s motion largely falls apart. First, Rockwell argues that Auvesy’s claim for declaratory judgment is barred by Wis. Stat. § 893.43, which provides that breach of contract claims must be brought within six years of accrual. Auvesy’s claim is not for breach of contract, and it is not governed by Wisconsin law. Rockwell argues that Auvesy’s remaining claims are premised upon Auvesy’s alleged ownership interest in the patents. So they are, and for the reasons already stated, Auvesy states an actionable claim to ownership.

    Motion to dismiss denied.

    Auvesy GmbH & Co. KG v. Rockwell Automation, Inc., Case No. 14-C-1258 (E.D. Wisc. June 30, 2015).

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  • Common Law Rights and the Geographic Scope of Registration

    S890002Oh no, I don’t think so.

    The Camellia Grill was a New Orleans restaurant that closed in 2005 after Hurricane Katrina. Various aspects of the business were owned by various entities owned by Michael Shwartz; for our purposes we’ll just refer to them all as “Shwartz.”

    In August, 2007, Shwartz entered into several agreements with Hicham Khodr and various companies he wholly owned to sell the business. Two entities are relevant, Uptown Grill, LLC and Grill Holdings, LLC.

    On August 11, 2007 Shwartz sold the immovable property at the restaurant’s location, 626 Carrollton Avenue, to a Khodr entity. No aspect of this sale is disputed.

    On the same day, Shwartz executed a Bill of Sale to Khodr entity Uptown Grill. Exactly what was transferred is the subject of this lawsuit.

    Sixteen days later, on August 27, 2006, the parties entered into a license agreement, with Shwartz exclusively licensing the registered Camellia Grill trademarks to Khodr entity Grill Holdings nationwide for $1,000,000.

    The dates aren’t clear, but by 2011 Shwartz had alleged breach of the license agreement and gave Grill Holdings notice that the license agreement was terminated. He moved in Lousiana state court for a declaratory judgment of breach on the basis that Grill Holdings altered the trademarks without consent, sublicensed the trademarks without first providing notice, failed to pay royalties, and failed to provide financial statements. The trial court cancelled the license agreement and the appeals court affirmed.

    While the lawsuit over the license agreement was pending appeal, the Shwartz entities sued the  Kohdr entities for trademark infringement and the Kohdr entities sued for a declaration of ownership of the trademarks. Kohdr’s theory was that it acquired ownership of the trademarks in the Bill of Sale.

    Recall that while the license agreement was with Grill Holdings, the Bill of Sale was with Uptown Grill, selling the following:

    Snip from Bill of Sale

    If you can’t read it, for $10,000 the Bill of Sale transfers:

    [I]nterest in and to the following tangible personal property located within or upon the real property described in Exhibit “A” . . . and within or upon the buildings and improvements located thereon:

    All furniture, fixtures and equipment, cooking equipment, kitchen equipment, counters, stools, tables, benches, appliances, recipes, trademarks, names, logos, likenesses, etc., and all other personal and/or movable property owned by Seller located within or upon the property described in Exhibit A annexed hereto and within or upon the buildings and improvements thereon.

    Uh oh. While the Bill of Sale is for “tangible personal property,” there it is, undeniably—sale of the trademarks.

    All of Shwartz’s efforts to undo what is plainly written failed. Despite the fact that the transferred property was “tangible” personal property, and a trademark is intangible, “in the interpretation of contracts, the specific controls the general.”

    The bill of sale didn’t recite the assignment of goodwill, but

    Courts have not required that contracts transferring ownership of trademarks explicitly mention the good will of the marks…. The Shwartz parties correctly note that trademarks may not be transferred without the good will of the business to which they are attached; they may not be sold in gross. The Shwartz parties go further, however, and seem to argue that good will cannot be transferred without its express mention in the contract. This argument misses the point…. The Bill of Sale transferred every single asset of Camellia Grill to Uptown Grill. It is clear to this Court that Camellia Grill was sold lock, stock, and barrel. Pursuant to well-settled trademark law, the Court must conclude that the good will of Camellia Grill was transferred with the sale of the entire business.

    And the last gasp, in Louisiana a court can consider extrinsic evidence where he literal interpretation leads to an absurd result. Here, the theory is that the $1,000,000 price tag on the license agreement and the $10,000 paid for the personal property, including the trademarks, are irreconcilable, producing an absurd result. But

    This fact alone does not render a result “absurd.” The Fifth Circuit has cautioned that, “although a business decision may be unwise, imprudent, risky, or speculative, it is not necessarily ‘absurd.’ We decline to allow contracting parties to escape the unfortunate and unexpected, though not objectively ‘absurd,’ consequences of a contract by subsequently characterizing their consequences as ‘absurd.’”

    The License Agreement also didn’t alter or modify the terms of the Bill of Sale. First, the court couldn’t look at the License Agreement to interpret the Bill of Sale because the Bill of Sale was clear and unambiguous and the License Agreement extrinsic evidence. Second, a subsequent license agreement with a different party couldn’t be used to modify the Bill of Sale.

    So that’s all expected, but now we get to the part that has me scratching my head. After concluding that Uptown Grill acquired the trademarks in the Bill of Sale, the question remained whether it was just the trademark for the Carrolton Avenue location or elsewhere too. The Bill of Sale was for property “within or upon” the premises:

    As outlined in this Order, the Bill of Sale clearly and unambiguously transferred the Camellia Grill trademarks to Uptown Grill. The Court has not been presented with any evidence indicating that Uptown Grill has divested itself of the trademarks. Accordingly, the Court concludes that Uptown Grill owns the trademarks “within or upon” the Camellia Grill location on Carrollton Avenue. The Court will separately issue a judgment in accord with this finding.

    Having determined that Uptown Grill has carried its burden to prove that it owns the trademarks, the secondary issue for this Court to address is whether the trademarks transferred to Uptown Grill in the Bill of Sale could be limited to the trademarks “within or upon” the Carrollton Avenue location. In other words, did [Shwartz] retain any interest in Camelia Grill trademarks following the Bill of Sale?

    The court concludes “no”:

    It is axiomatic that “ownership of trademarks is established by use, not by registration.” Indeed, even if one acquires ownership of a mark, he only acquires ownership of that mark within the geographic area in which he is currently using the mark. At the time of the Bill of Sale, [Shwartz] owned the rights to the Camellia Grill trademarks to the extent of its use of the marks.

    As mentioned above, there is absolutely no dispute that, [Shwartz] used the marks solely in connection with the Carrollton Avenue Camellia Grill restaurant. Indeed, at oral argument, counsel for [Shwartz] conceded that the marks had never been used outside of the Carrollton location. The Bill of Sale unambiguously transferred ownership of the marks associated with the Carrollton Avenue location to Uptown Grill. Because [Shwartz] only owned the marks in connection with the Carrollton Avenue Camellia Grill restaurant and those marks were sold in the Bill of Sale, the Court must conclude that [Shwartz] divested itself of all of its interest in the Camellia Grill trademarks.

    Well hold on Nelly—what about nationwide rights appurtenant to a federal trademark registration? Have we forgotten about the Dawn Donut rule, “§ 1072 affords nationwide protection to registered marks, regardless of the areas in which the registrant actually uses the mark”? Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358, 362 (2d Cir. N.Y. 1959). Uptown Grill may own the trademark “within or upon” the premises, but Shwartz had greater trademark rights than that—nationwide. Construing the sale of rights “within or upon” a single address to also be an assignment of rights nationwide is, in my view, too far a stretch. Understanding this distinction also makes it much easier to reconcile $10,000 for the assignment of the trademark at the Carrollton Avenue address with a $1,000,000 licensing agreement that includes the right to sublicense the trademarks nationwide.

    Yup, wrong.

    Uptown Grill v. Shwartz, No. 12-6560 (E.D. La. July 9, 2015)

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  • Tax Structuring Strikes Again

    Oh, adidas.

    adidas AG is a large multinational conglomerate headquartered in Germany. It reported that at the close of 2014 it had 154 subsidiaries, one of which is co-plaintiff adidas America, Inc.

    A few years ago adidas developed “miCoach,” an “interactive personal coaching and training system.” Parent adidas AG owns the company’s US patents but, as is often done, there is a complicated structure of intracompany license agreements, presumably designed to give the corporate enterprise an advantageous tax position. In the case of the miCoach patents, in 2009 adidas AG licensed the patents to non-party adidas International Trading B.V. (“adidas IT”), giving adidas IT a non-exclusive license to the patents to manufacture or have manufactured products covered by the patents. The patents weren’t listed by number.

    In 2011, adidas IT entered into a distribution agreement with adidas America, appointing adidas America “to act as [the] exclusive distributor for the sale” of adidas-branded products in the US. The agreement discussed adidas America’s enforcement of trademarks, but not patents.

    In 2014, adidas AG sued defendants Under Armour, Inc. and MapMyFitness, Inc. for patent infringement. adidas AG, adidas IT and adidas America then entered into a “Restatement and Clarification Agreement” supposedly clarifying the 2011 distribution agreement. The “clarification” was:

    For the avoidance of doubt, the parties agree and hereby restate and clarify that adidas AG and adidas [IT], by and through the License Agreement and the Distribution Agreement, have granted adidas America[], as the exclusive distributor of adidas products in the United States … , an exclusive license to all adidas brand intellectual property (which includes all … Patents identified in [Exhibit B] of the License Agreement ….

    To the extent that there is any ambiguity arising out of the language in the various Agreements regarding adidas America[‘s] exclusive license, the Parties agree that they intended and hereby confer (retroactively, if necessary) an exclusive license to adidas America[] to the adidas AG intellectual property (which includes any Mark or Patent as those terms are defined in the License Agreement that relates to a Licensed Product) ….

    adidas then added adidas America as a plaintiff to its patent infringement case. Three months later another company was added to the mix, when the original distribution agreement was terminated and adidas America and another subsidiary, Reebok International Ltd., were appointed as “joint exclusive distributors” instead.

    Under Armour filed a motion to dismiss adidas America from the patent infringement lawsuit on the basis that adidas America didn’t have standing. For purposes of patent standing, there are three categories of ownership: patent owner, exclusive licensee, and non-exclusive licensee. The first has the right to sue, an exclusive licensee must be joined by the assignee in any patent infringement suit, and the non-exclusive licensee has no standing at all. Here, the question was which of the latter two categories adidas America fell into.

    Normally answering this question requires investigating what rights various other parties might have to practice the patent, but the court had a much easier time here. There was a fundamental problem with the supposed patent license – the court couldn’t tell whether adidas was a licensee, exclusive or otherwise, of the patents asserted in the lawsuit:

    The patents that were the subject of the original Licensing Agreement between adidas AG and adidas IT were never identified by number, only by their associated commercial embodiments. Among these embodiments is the adidas miCoach product, the apparent competitor product to the Defendants’ accused products. But strangely, the Plaintiffs have never made any attempt to link the asserted patents to the miCoach product. Therefore, if it accepts (for the moment) that the described series of agreements succeeding in making adidas America an exclusive licensee to the intellectual property identified in the Licensing Agreement, the court is left only with the conclusion that adidas America is the exclusive licensee to the miCoach patents (in addition to the other named products’ patents). What these patents are, the court cannot say.

    From what the court can tell, the Plaintiffs looked at the accused products, identified the adidas patents they believed read on the accused products, and then simply assumed those patents are the same for the miCoach product. The Plaintiffs are not permitted to work backwards from the accused infringing products to satisfy their burden of establishing standing. The Plaintiffs make the conclusory statement that “[t]here is no dispute that [the licensing agreements] include[] the asserted patents, which relate to adidas America’s ‘miCoach’ products.” This is not true. The Defendants have never made such an acknowledgement. (D.I. 47 at 9 11.3 (“If one assumes that that the adidas MiCoach product embodies the inventions covered by the Asserted Patents (which Plaintiffs have not established ….”)).

    The Plaintiffs bear the burden of establishing that jurisdiction exists. As a preliminary matter – before the court even gets to the question of what type of interest adidas America may hold – the Plaintiffs must prove that adidas America holds some interest in the patents actually asserted. The Plaintiffs have made no showing that the asserted patents are tied to the adidas miCoach product, or any other product for that matter. It is not the court’s role to fill in gaps, which the Plaintiffs may consider obvious inferences. Rather, the Plaintiffs must come forward with evidence to overcome the presumption that jurisdiction is lacking. They have not done so.

    There’s a second problem – Reebok. adidas America doesn’t have the exclusive right to sell products with the asserted patents: “the Reebok Agreement conclusively demonstrates that adidas America is not the exclusive seller of products made according to the asserted patents. Thus, adidas America’s interest is not exclusionary. Although the Reebok Agreement was executed after adidas America joined as a co-plaintiff, the law makes clear standing must exist throughout the pendency of litigation.”

    adidas America is therefore dismissed from the suit. The lawsuit still goes on though, with adidas AG as the plaintiff, so where’s the harm? Damages. Without the exclusive licensee in the lawsuit, the plaintiff isn’t going to be able to obtain lost profits, just a reasonable royalty.

    Make no mistake, this was a post hoc effort to manufacture a patent licensee solely for purposes of litigation and the court signalled it wasn’t falling for it. Recall that the original agreement was characterized as a “distribution agreement,” a very different animal from a patent license, and the court calls them on it: “Even if the court were to accept the Plaintiff’s assertion—outlined in the Clarification Agreement—that “exclusive distributor” meant “exclusive licensee….” More notably, the court notices “Oddly enough, the Reebok Agreement uses the same language of the original Distribution Agreement—focusing on distribution rather than exclusive licensing—even after the Clarification Agreement attempted to explain what was really mean by the arguably unclear language.” Perhaps litigation and tax need to chat a little more often.

    adidas AG v. Under Armour, Inc., No. 14-130-GMS (D. Del. June 15, 2015).

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  • When Is an Infringed Trademark “Registered”?

    A claim for trademark infringement can be brought under two different sections of the Lanham Act, Section 32 for infringement of registered trademarks and Section 43(a) for infringement of unregistered trademarks.* Registration provides some evidentiary benefits, like prima facie evidence of distinctiveness, so if a plaintiff doesn’t have a registered trademark then it will have to prove the facts at trial instead.

    What this means conceptually is that, for a claim of infringement under Section 32, there should be a two-step inquiry: (1) is the mark registered, which is a question of whether there is a valid registration for goods and services in which the plaintiff actually trades, considering both the mark and the goods and services; and (2) is there likelihood of confusion between these registered goods and services and the defendant’s goods and services? The concept of relatedness falls into the second question, not the first, that is, if I have a registration for, and actually use the mark THIRST-AID for beverage syrups, and the defendant is using THIRST-AID for beverages, the answer to the first question is “yes,” and the answer to the second question turns on whether consumers are likely to believe that beverage syrups and beverages come from the same source. It is incorrect to elide the two parts into only one question, that is, to frame it as a question of whether the registration somehow covers beverages too. It just doesn’t.

    Unfortunately, the court in National Financial Partners Corp. v. Paycom Software, Inc. didn’t get this right. Plaintiff National Financial Partners has six registrations in suit that include this logo:

    NFP logo colorDefendant Paycom adopted the below logo in two versions, although only applied to register the 3-D version on the left:

    Paycom logosThere was testimony that while the core services of the parties are somewhat different, they are related or may to some extent overlap:

    Paycom is correct that NFP and Paycom’s core businesses differ. Paycom is primarily a technology company that offers human resources software systems. NFP primarily offers financial services and brokerage and consulting services related to employer health plans, retirement plans, and executive benefits. Beginning in March 2013, however, NFP expanded its offerings to include human resources services. At the hearing, there was extensive testimony concerning whether NFP offers payroll and benefits administration services. Edward O’Malley, executive vice president and president of NFP’s insurance and brokers’ division, testified that with respect to “vendor and technology evaluation,” NFP “operate[s] primarily as consultants, where we go out and identify, based on the needs of the employer, the unique criteria of the employer or customer, what technologies best fit or suit their needs.” In other words, NFP generally identifies third parties to provide payroll and benefits administration technology for its clients. In fact, evidence was presented that NFP has recommended Paycom as a possible vendor to its clients. Although NFP does not offer payroll processing technology to most of its clients, O’Malley testified that NFP does have its own proprietary technology for processing payroll. This testimony arguably conflicted with Boester’s. When asked if NFP’s benefits group “actually [has] any of its own software,” Boester stated that the group has “leveraged other software.” The Court need not resolve this apparent conflict. Whether or not NFP outsources all or most of its payroll and benefits administration functions, NFP’s human resources services overlap with Paycom’s payroll and benefits administration business. Both target employers to assist with their human resources administration needs.

    But looking at what services NFP actually offers, and whether they overlap with what Paycom offers, aren’t relevant to whether NFP has a registration for them. If NFP and Paycom both sold motor oil, but NFP only registered its trademark for financial planning services, we would all readily agree that NFP’s use of the mark on motor oil was an unregistered use but that there was a valid claim for infringement of the unregistered trademark.

    The squirrelly reasoning also appears unnecessary, because apparently NFP has registered its trademark for services that it alleges Paycom also provides (assuming Paycom is actually providing the services for which it has a registration, yet another evidentiary short-cut, but we’ll just go with it):

    Paycom attempts to distinguish between NFP’s human resources services, which correspond to international class 36 of the Trademark Manual of Examining Procedure, and Paycom’s services, which correspond to international class 35. NFP’s marks are registered under class 35 and class 36. Even though NFP’s employee benefits brokerage and consulting services are listed under class 36, there is nonetheless overlap in the parties’ trademark registration classifications. More importantly, there is also overlap in the parties’ descriptions of their respective services. NFP’s registration application describes its services as including “brokerage and consulting services for employee benefits concerning insurance and finance, namely … consulting and administrative services for executive benefits plans.” Paycom’s application describes its services as including “payroll administration and management services; human resources management; [and] performing employee benefits administration.” In short, both parties list benefits administration as a service they provide.

    But the conclusion reached is analytically wrong:

    This overlap is sufficient for the Court to conclude that NFP’s trademarks cover the services offered by Paycom.

    The correct legal question isn’t “do NFP’s registrations ‘cover’ the services offered by Paycom,” but rather simply whether the services NFP alleges were infringed are registered. It may be a minor logical error but a significant legal one. One can only register a trademark for the goods and services with which a mark is actually used. Our clients already want to file their applications for, not only what they actually sell, but also everything they consider close, and trademark attorneys have to counsel them that they can’t do that because it begs a challenge that the application is fraudulent. It doesn’t help when a court blurs the lines, especially when the right reasoning would have reached the same result.

    National Financial Partners Corp. v. Paycom Software, Inc., No. 14 C 7424 (N.D. Ill. June 10, 2015).

    *Section 43(a) is more extensive than that, but go with it for today’s purposes.

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  • You Need to Take Care of the Little Details

    Every patent litigation starts with an examination of the chain of title, or at least it should. Often there are multiple inventors; every link for each one has to be there, and even the language of the employment agreement has to be just right. Even after that, every corporate assignment has to be done properly.

    In Advanced Video Technologies, LLC v. Blackberry Limited, we have three inventors on a patent for a “Full Duplex Single Chip Video Codec.” The court outlined a number of conveyances in the chain of title, but there was one in particular that sealed the fate of the plaintiff.

    One of the interim patent owners, AVC Technology, Inc., agreed to be purchased by Epogy Communications, Inc. The Purchase Offer Agreement provided that Epogy would purchase 90% or more of AVC and then do a statutory short-form merger:

    Epogy thereafter acquired 100% of the AVC shares but never effectuated the statutory short form merger. AVC was dissolved and 2½ months later Epogy assigned the patent, which ultimately ended up in the hands of the plaintiff.

    So who owns the patent?

    At first, AVT claimed that the patent rights were transferred when AVC was merged into Epogy in a short-form statutory merger. AVT now concedes that no such merger ever took place.

    Instead, AVT now argues that no short-form merger was needed, because Epogy acquired AVC’s assets (including its interest in the ‘788 patent) because Epogy purchased all of AVC’s stock before AVC dissolved. AVT cites no authority for this assertion, and understandably so, because Epogy did not acquire any of AVC’s assets simply by purchasing 100% of its stock. That is a well-settled proposition of corporate law in both Delaware (where AVC as incorporated) and California (where Epogy was incorporated)….

    So AVT insists that Epogy acquired ownership of the ‘788 patent from its wholly-owned subsidiary incident to AVC’s dissolution. Citing Del. Code. Ann. tit. 8, § 281(b), AVT states that, “it is black letter law that any assets remaining when a corporation is dissolved are to be distributed to stockholders.”…

    The problem with this argument is it misconstrues the way Delaware corporate law works.

    When a Delaware corporation files a certificate of dissolution, it does not simply evaporate. Rather, it “dissolves” only for the purpose of continuing to do business. By operation of law, Del. Ann. Code §278, the corporation remains continues [sic] in existence for a period of at least three years from the date of dissolution — more, if the period is extended by the Court of Chancery — for the limited purpose of allowing it to wind up its affairs. To that end, it can sue and be sued, dispose of or convey its property and discharge its liabilities. Only after all of that is done is a Delaware corporation permitted “to distribute to their stockholders any remaining assets” — that is, any assets that remain after satisfaction of all liabilities — pursuant to §281(b). Under § 281, stockholders are last in line; they are entitled to receive, not all the assets of a dissolved corporation, but only “remaining assets” — the assets that are left over after all other corporate creditors have been satisfied, or provision made for them to be satisfied….

    §281(b) requires that a dissolving corporation or some successor entity adopt a “plan of distribution” of the dissolving corporation’s assets at some time during “the period described in §278” — i.e., the three year statutory wind-down period….

    [O]wnership of the assets of a dissolved corporation do not devolve onto shareholders by operation of law immediately upon the filing of a certificate of dissolution; they have to be distributed according to a plan.

    So AVC’s assets did not automatically revert to Epogy, its 100% owner, when it filed its certificate of dissolution on November 1, 2002. AVT cites no authority for the proposition that title to AVC’s assets devolved onto its 100% shareholder by operation of law immediately upon the filing of a certificate of dissolution except §281(b), and §281(b) does not so provide.

    And therein lies the rub….

    Of course, AVC may not have had any obligations or pending claims to settle on the day it filed its Certificate of Dissolution; if so, a plan of dissolution, duly adopted by AVC’s Board, could undoubtedly have provided for a prompt distribution of some or all of AVC’s assets, including its interest in the ‘788 patent. But even on that assumption (and there is absolutely no evidence in the record on the point), AVC and its parent Epogy still had to comply with the statutory formality….

    In the absence of a plan, there could have been no distribution on or about November 1, 2002, the date of AVC’s dissolution. And in the absence of a distribution, AVC’s assets, including the ‘788 patent, were not acquired by AVC’s parent corporation, Epogy on November 1, 2002 — or at any time during at least the statutory wind-down period provided for in §278.

    Epogy’s purported assignment to the next owner was a mere 2½ months after AVC’s dissolution, so at that point in time Epogy could not have owned the patent it supposedly conveyed. Case dismissed.

    The case also has an interesting (to me, anyway) discussion of the assignment of an employment agreement. The patent-in-suit was not filed by the original employer, but by a successor. At least one of the inventors had a duty to assign inventions to the original employer. The original employer gave a security interest in its “Receivables,” which included “Accounts, Instruments, Documents, Chattel Paper and General Intangibles (as defined in the Uniform Commercial Code) …” The Uniform Commercial Code defines “General Intangibles” as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.” The court held that the employment agreement was a “General Intangible” and therefore it was acquired by the securing party when the securing party eventually seized the pledged assets. One of the co-inventors then purchased the pledged assets, transferred them to his company, and his company thereafter filed the patent application. By this time the inventor refused to cooperate, but the company showed to the satisfaction of the Patent Office that it owned the patent and successfully prosecuted it without her signature on a formal assignment. The assignment by this inventor was also challenged, but the court did not need to decide whether it was valid in light of the failure of the Epogy assignment.

    Advanced Video Technologies LLC v. Blackberry Limited, No. 11 Civ. 06604 (S.D.N.Y. April 28, 2015).

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