Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • The Complication of Government Forms

    Sound Choice logoWhen we file trademark applications electronically, there is a form declaration for the signatory. At the time Slep-Tone Entertainment filed its applications, this was the language:

    The undersigned, being hereby warned that willful false statements and the like so made are punishable by fine or imprisonment, or both, under 18 U.S.C. Section 1001, and that such willful false statements, and the like, may jeopardize the validity of the application or any resulting registration, declares that he/she is properly authorized to execute this application on behalf of the applicant; he/she believes the applicant to be the owner of the trademark/service mark sought to be registered, or, if the application is being filed under 15 U.S.C. Section 1051(b), he/she believes applicant to be entitled to use such mark in commerce; …

    This language proved to be problematic for Slep-Tone in Slep-Tone Entertainment Corp. v. Coyne. Slep-Tone’s use of its trademark was through a licensee, not by Slep-Tone directly.* The rub is that the Code of Federal Regulations says “(b) If the mark is not in fact being used by the applicant but is being used by one or more related companies whose use inures to the benefit of the applicant under section 5 of the Act, such facts must be indicated in the application.” And what’s missing from the fill-in-the-blank form and declaration language quoted above? Anything about use of the mark through a licensee.

    Defendant Coyle challenged the validity of the registration, claiming that it was fraudulently procured. The court first expressed doubt that failing to disclose use through a licensee would be fraudulent:

    As an initial matter, it is not clear that an applicant’s failure to disclose that a mark was used by a related company, standing alone, would constitute fraud on the USPTO. “Fraud in procuring a trademark registration … occurs when an applicant knowingly makes false, material representations of fact in connection with his application.” “To constitute ‘fraud’ the knowing misrepresentation to the PTO must be ‘material’ in the sense that but for the misrepresentation, the federal registration either would not or should not have issued…. And had Slep–Tone expressly stated in its application that it was relying on the related-company doctrine, the registration still would have issued. Accordingly, Slep–Tone’s alleged omission might not have been material in the first place.

    But it didn’t matter, because Slep-tone had in fact disclosed that its use was through a licensee, in the part of the application where you describe the specimen:

    Slep-tone imageCoyne tried, unsuccessfully, to argue that the disclosing a “licensee” isn’t the same as disclosing that a use was by a “related company.” The court relied on the Trademark Manual for Examining Procedure § 1201.03(a) to find that disclosing a “licensee” is good enough; the TMEP says “In an application under § 1(a) of the Trademark Act, the applicant should state in the body of the application that the applicant has adopted and is using the mark through its related company (or equivalent explanatory wording).”

    So Slep-Tone successfully defeated this attempt at claiming a fraudulent registration. And the PTO has fixed the problem systemically, so we don’t have to remember to make a reference to a licensee somewhere. This is the language of the declaration now:

    The signatory believes that: if the applicant is filing the application under 15 U.S.C. Section 1051(a), the applicant is the owner of the trademark/service mark sought to be registered; the applicant or the applicant’s related company or licensee is using the mark in commerce on or in connection with the goods/services in the application, and such use by the applicant’s related company or licensee inures to the benefit of the applicant; … and/or if the applicant filed an application under 15 U.S.C. Section 1051(b), Section 1126(d), and/or Section 1126(e), the applicant is entitled to use the mark in commerce; the applicant has a bona fide intention to use or use through the applicant’s related company or licensee the mark in commerce on or in connection with the goods/services in the application.

    SlepTone Enter. Corp.v. Coyne, No. 13 C 2290 (N.D. Ill. Jan. 8, 2015)

    * The fact that Slep-Tone claimed its only use was by a licensee puzzles me. Slep-Tone manufactures karaoke accompaniment tracks and sells them to karaoke jockeys (“KJs”) who are hired by bars and restaurants to provide karaoke entertainment. The main thrust of the many lawsuits Slep-Tone has filed is a claim that the KJs are making illicit copies of the tracks. But for trademark purposes (as distinguished from copyright purposes), the KJ is the purchaser of the original goods, not a licensee. A license would authorize the KJ to make new goods using the mark, but that’s not the relationship here.  So as I see it, Slep-Tone is fighting a battle it never needed to fight.

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  • Contracts 101

    Screenshot from 007 family memberPatent law heavily involves interpretation of language. In addition to the construction of the claims themselves, it has an almost unintelligible set of rules for distinguishing licenses from assignments and special rules for the language one must use to assign a patent. But in Fort. v. Innegra Technologies, LLC, we have a more interesting situation, where the outcome is a question, not of contract language, but contract performance.

    Brian Morin was the founder and president of NMFC, LLC, formerly known as Innegrity, LLC. He was also an inventor and employee. In 2004 he assigned a grandparent patent application, including “all divisions, and continuations thereof …”, to NMFC. In 2008, he entered into an employment agreement where he would receive a base salary of $140,000 and in which he automatically assigned any inventions.

    In 2009, Morin’s salary was cut by 15%. He then invented an improvement to the original patent application and the company filed the ‘007 Application, which was a continuation-in-part of a divisional of the original application. But Morin refused to execute the assignment and a year later he was fired, after which he filed suit in state court for failure to pay wages and breach of the employment agreement. BB&T bank then sold all of NMFC’s assets, including all patents and applications, to defendant Innegra Technologies in a UCC sale. Innegra then filed a state court action asking for a declaratory judgment against Morin that Innegra was the patent owner, not Morin. NMFC filed for bankruptcy under Chapter 7 and, amidst other procedural maneuvers, Morin assigned the ‘007 Application the bankruptcy trustee. He said this about why:

    Well, I can’t assign any rights that I don’t have. And I didn’t know if I had any, but to the extent that I had any, I didn’t want them. My position is that I don’t have any rights to it, and the only person I had ever assigned it to was Innegrity, LLC. So I assigned it to Innegrity, LLC, and if somebody else wanted to contend whether or not they owned it, I didn’t care because I had contracted to assign it to Innegrity.

    This opinion is from bankruptcy court, with the trustee seeking declaratory judgment against Innegra that the NMFC estate is the owner of the ‘007 application. It boils down to answering a simple question—who owned the ‘007 Application on September 7, 2011, the date of the BB&T sale? If it was NMFC, then the patent application was sold to Innegra. If it was Morin, then the trustee owns it, by assignment from Morin.

    It turns out to be a straight-up application of the law of contract performance. The trustee claimed that Morin was the owner on that date because NMFC had already breached the employment agreement by reducing his salary, excusing Morin performance on the assignment.

    And we go back to contract class. The failure to pay Morin his full salary wasn’t a breach that excused his performance of the patent assignment; in fact there wasn’t even enough evidence to survive summary judgment. There was no breach because the salary terms were modified with Morin’s agreement or acquiescence:

    The facts supporting this conclusion include Morin’s deposition testimony that he agreed to the pay reduction; his written acknowledgment of the pay reduction; his testimony that as of October 30, 2009, he had no expectation that Debtor would breach his Employment Agreement at all or to the extent that they did; his continued employment for more than a year following the pay reduction; the absence of a reference to the April 15, 2009 pay reduction in Morin’s State Court Complaint (other than his pursuit of past due wages, which is consistent with his agreement to have his remaining salary accrue as a debt); Morin’s testimony where he agreed that he chose to enforce and not rescind the Employment Agreement; Morin’s communication and cooperation with Debtor’s lawyer to file the 007 Application, which listed Debtor as the assignee; and Morin waiting until after the filing of his State Court Complaint and the BB & T Sale to file a change of correspondence with the U.S. Patent Office to have correspondence regarding the 007 Application directed to him instead of Debtor.

    Morin also hadn’t asked for rescission as a remedy at the time of the breach: while he refused to execute the agreement, he also said he chose to enforce and not rescind the contract, thus failing to give the prompt, unequivocal notice that he considered his obligations under the agreement suspended as required for rescission. Claiming a breach now is also contrary to his state court litigation, where he claimed the employment agreement was valid and enforceable. So the owner of the patent at the time of the BB&T sale was NMFC and therefore Innegra acquired the patent in the sale.

    The patent was also assigned by the original language in the 2004 assignment—the trustee argued that the assignment language that talked about the assignment of “continuation” applications didn’t include continuations-in-part. The court didn’t buy it, “The Trustee does not identify any cases where courts have held that an assignment must specifically reference the term ‘continuation-in-part’ to effectively assign rights to a continuation-in-part.”

    Fort v. Innegra Tech. LLC, C/A No. 11-06800-JW/ Adv. Pro. No. 13-80138-JW (Jan. 13, 2015).

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  • Not His First Time at the Rodeo

    In 1992, plaintiff Oleg Pogrebnoy began publishing a Russian language newspaper in New York titled in Cyrillic “KYPbEP,” which translates as “courier”; Pogrebnoy also later used the word “Kurier.” Pogrebnoy claimed ownership of the unregistered trademarks through a chain of transactions, starting with his own use in 1992, through five different companies (probably all companies he owned one way or another), and back to himself in November, 2010. This is Pogrebnoy’s second try at the suit; a 2008 complaint he filed in his own name was dismissed because the trademark was owned by Radony Inc., not Pogrebnoy personally. After the 2008 case was dismissed, Pogrebnoy had Radony assign the trademark back to him so he could pursue this action pro se. The district court originally dismissed this second suit for lack of standing too because Pogrebnoy couldn’t prove the full chain of title, but the 9th Circuit reversed. And we finally reach the substance of the claim.

    In 1994, Pogrebnoy and defendant Matusov entered into an oral agreement, the terms of which were not only disputed but the court also has this to say about the parties:

    22. The Court, having observed Pogrebnoy during his testimony, finds that Pogrebnoy is not a credible witness. He was evasive and combative while testifying. He also asserted his Fifth Amendment rights against self-incrimination when he initially declined to answer several questions. The Court also finds that Pogrebnoy frequently failed to observe corporate formalities, and has not always conducted his business dealings in an entirely ethical manner.

    23. The Court also concludes, based on its observations of Matusov’s testimony, that Matusov is not an entirely credible witness and that he too has not always conducted his business dealings in an entirely ethical manner.

    On to the facts. Pogrebnoy first sent defendant Vitaly Matusov copies of the New York KYPbEP paper to Los Angeles, where Matusov distributed them for 12 weeks to test the desirability of launching a Los Angeles version. After that, Pogrebnoy would provide Matusov with film negatives, and then later computer files, of the New York paper that Matusov would use in creating the Los Angeles newspaper. Both agreed that Matusov was to pay Pogrebnoy, although they claim different amounts and different bases: Pogrebnoy claiming it was a percentage of sales and Matusov claiming it was a flat fee. Matusov said he replaced most of the advertisements in the New York version with ads he sold for the Los Angeles market, and that he would use some, but not all, of the articles. Pogrebnoy would also sell ads for both the New York and Los Angeles market, and Matusov wouldn’t replace those.

    The parties had a falling out in 2007; Pogrebnoy claimed that Matusov wasn’t paying him the agreed-upon amount and demanded that Matusov turn the Los Angeles business over to him. When Matusov didn’t, Pogrebnoy said he was terminating the license to use his KYPbEP and Kurier trademarks and trade dress.

    But was there a license? First the legal effect if there was:

    10. … If Pogrebnoy and Matusov had agreed that Matusov would license the trademarks, and this agreement allowed Pogrebnoy to terminate that license, Defendants’ use of those marks after termination would be infringing. Additionally, if Defendants’ use of the marks and trade dress was pursuant to a license from Pogrebnoy, their use would inure to the benefit of Pogrebnoy, which would make Pogrebnoy the senior user in the Los Angeles market and establish Defendants’ infringement.

    But there was no license:

    11. The Court concludes that Pogrebnoy has failed to establish by a preponderance of the evidence that he either expressly or implicitly granted to Defendants a license to use the trademarks and trade dress at issue in this litigation. Specifically, Pogrebnoy’s description of the oral contract between him and Matusov did not include any terms concerning a trademark and trade dress license. Nor has Pogrebnoy introduced sufficient evidence for this Court to conclude that it is more likely than not that the relationship between him and Matusov created an implied trademark and trade dress license. There simply is no evidence, let alone a preponderance of evidence, tending to indicate that Pogrebnoy and Matusov discussed any issues concerning trademark and trade dress rights or licenses when they negotiated their oral contract. Instead, as Matusov testified, it is more likely that the parties agreed that Pogrebnoy would provide the negatives from which Matusov would create the Los Angeles version of KYPBeP, utilizing the articles and page layouts supplied by Pogrebnoy, in exchange for payment from Matusov. Pogrebnoy has not satisfied his evidentiary burden to establish that in 1994 when he entered into the oral contract with Matusov that he knew or cared about trademark and trade dress rights.

    12. The Court further determines that there is insufficient evidence to support a conclusion that a trademark and trade dress license should be implied from the parties’ relationship and their course of conduct. The parties did not share accounting information, and Pogrebnoy and his companies were never liable for any of the printing, distribution, or other expenses incurred by the Los Angeles KYPBeP. Nor did Pogrebnoy and his companies ever review the Los Angeles KYPBeP before it was published. There is also no evidence to support a conclusion that Matusov would devote more than a decade to developing the Los Angeles KYPBeP if, after building the value of the newspaper, Pogrebnoy could unilaterally terminate the purported license and force Matusov out of the business. Instead, the evidence adduced at trial supports the conclusion that, at most, Pogrebnoy could terminate his obligation to supply the articles and page layouts that had been prepared by the New York KYPBeP.

    To sum it up, in the court’s opinion there was no evidence on any essential terms of a license agreement, nor any evidence that Pogrebnoy had any say over the quality of the Los Angeles newspaper. I’m not sure this is entirely correct: after all, other than the localized advertising it looks like the content was largely provided by Pogrebnoy—surely that is some control over the quality of the goods.

    And the court was swayed by Pogrebnov’s experience with the court system:

    13. This conclusion is further supported by the fact that after Pogrebnoy and Matusov entered into their oral contract, Pogrebnoy has been involved in several intellectual property disputes involving both copyright law, see Itar–Tass Russian News Agency v. Russian Kurier, Inc., 886 F.Supp. 1120 (S.D.N.Y. 1995), and trademark licensing, see Russian Kurier, Inc. v. Russian American Kurier, Inc., 899 F.Supp. 1204 (S.D.N.Y. 1995). The Court concludes that it is more likely than not that Pogrebnoy learned about the value of intellectual property rights and trademark licenses from those experiences. As a result, his “termination” of the purported license, some 13 years after entering the oral contract, is not sufficient evidence from which the Court can find the existence of an implied or express license. Instead, Pogrebnoy appears to be attempting to use the ambiguity in the original oral contract to take Defendants’ business from them. Pogrebnoy has failed to present sufficient evidence to establish that he is entitled to do so.

    Not one trademark, two, separated by a continent.

    Pogrebnoy v. Russian Newspaper Distrib., Inc. , No. CV 10-8532 PA (SSx) (C.D. Calif. Dec. 18, 2014).

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  • Wordiness Is Your Enemy

    Lawyers are wordy. Often the wordiness doesn’t matter that much, “I hereby demand that you cease and desist” instead of “you must stop now” both get the point across. But never, ever write a contract that is wordy without a good reason, because that can put you into litigation hell.

    Defendant 4EverYoung, Ltd., a UK company, had a Sales Distribution Agreement with plaintiff Derma Pen, LLC for distribution of a micro-needling device. Derma Pen terminated the agreement according to its provisions but then refused to comply with its post-termination obligations. Here’s the clause that causes 4EverYoung significant pain:

    As part of acknowledging the Distributors ownership of the Derma Pen Trademark in the US, The Distributor hereby acknowledges that should this distribution agreement be terminated in accordance with Section 11, the Distributor agrees to offer the Dermapen Trademark in the US for sale to 4EVER YOUNG and 4EVER YOUNG has the first right of refusal for such trademark. The Distributor and 4EVER YOUNG further agree that the value of the Dermapen US Trademark will be determined by independent auditors of which one will be appointed by both parties.

    Should a satisfactory agreement on the price of the Dermapen US Trademark not be obtained within 30 days from the appointment of each independent auditor, both the Distributor and 4EVER YOUNG agree that the value will be determined by the courts of the land that is governing this contract and their decision will be final and binding upon both parties.

    There was an identical provision for the dermapen.com domain name.

    What were the parties trying to do? My guess is that 4EverYoung wanted to make sure it could get the trademark rights in the US when the distributorship ended. But Derma Pen wasn’t going to give them up for nothing, and 4EverYoung didn’t want to get screwed on the price, so they provided a mechanism for coming up with a fair market value.

    So, can we all agree that this is horrible contract drafting? Let’s start with “As part of acknowledging the Distributors ownership of the Derma Pen Trademark in the US ….” Why say it? It implies there are other parts of the agreement that address the parties’ ownership in their respective territories, so what does this add? And if ownership isn’t clear in other provisions, this surely is a feeble way to get there.

    Going on, “the Distributor hereby acknowledges that should this distribution agreement be terminated in accordance with Section 11 ….” I don’t know what “The Distributor hereby acknowledges that” adds – it’s redundant to acknowledge that one has a duty to perform, because it is manifest in the fact that you entered into the agreement in the first place. But at least no harm, no foul.

    And now we get into the meat of the problem – “the Distributor agrees to offer the Dermapen Trademark in the US for sale to 4EVER YOUNG and 4EVER YOUNG has the first right of refusal for such trademark.” Why have a provision that makes the seller perform another act, in addition to terminating the contract, to get the ball rolling on the sale of the mark? Why not just say “Upon termination of this distribution agreement in accordance with Section 11, 4EVER YOUNG has the right to purchase the trademark,” followed by a mechanism for valuation? I can’t think of any reason you need to go through the exercise of making an offer, and my guess is that it comes about when someone thinks a lot of words makes it sound more lawyerly.

    And what a nightmare the language created for 4EverYoung. Even though Derma Pen terminated the agreement, and the agreement provides 4EverYoung with a pretty bulletproof mechanism for gaining ownership the trademark, Derma Pen sued 4EverYoung for trademark infringement and moved for a temporary restraining order and preliminary injunction. 4EverYoung at first dodged the bullet when the district court denied the motion: “4EverYoung has the right to purchase those rights and has made attempts to do so, to which Derma Pen has been non-responsive. Derma Pen’s rights in the trademark are waning and will be extinguished once 4EverYoung completes the purchase of the Domain Name and the United States trademark rights to Dermapen.” But the Court of Appeals reversed:

    We agree with Derma Pen, LLC, concluding that it is likely to prevail. The existing record would likely require findings that
    – Derma Pen, LLC owns the U.S. trademark rights until they are sold, and
    – no sale has taken place.
    Thus, Derma Pen, LLC likely remains the owner of the trademark and the district court erred in predicting the outcome.

    Luckily for 4EverYoung, it might still be able to avoid the preliminary injunction. While the preliminary injunction was on appeal, 4EverYoung moved for a order of specific performance to force the sale of the trademark. A December 30, 2014 decision parses the contract language to figure out exactly what performance is required, concluding “specific performance could require Derma Pen to make an offer to 4EverYoung and appoint an independent auditor, and to actively participate in and pay half the costs of filing in the United Kingdom to determine valuation.” So even when 4EverYoung gets an order of specific performance it will only kick the can a little down the road, ordering Derma Pen to make an offer. This is a hard-fought battle, with three decisions in three different courts in 11 days, so more process just gives Derma Pen more opportunity for further obstruction.

    The court’s clause-by-clause analysis of the entire provision is worth a read; in it you’ll also see that the parties’ use of “right of refusal” probably doesn’t mean what they intended it to mean.

    The third decision was in bankruptcy court. Derma Pen had filed for bankruptcy but the court found that the petition was a litigation tactic, an “improper attempt by the Debtor to re-start the contract and trademark battle with the Movants in a new court” rather than a good faith effort to reorganize, so it dismissed the case.

    Derma Pen has been a vigorous opponent and significantly delayed the inevitable, at least in part because of a poorly drafted contract provision. Don’t be that wordy writer.

    Derma Pen, LLC v. 4EverYoung Ltd., No. 2:13-CV-00729-DN-EJF (D. Utah Dec. 30, 2014).
    In re Derma Pen, LLC, No. 14-11894 (KJC) (Bankr. Del. Dec. 19, 2014).
    Derma Pen, LLC v. 4EverYoung Ltd., No. 13-4157 (10th Cir. Dec. 9, 2014).
    Derma Pen, LLC v. 4EverYoung Ltd., No. 2:13-CV-00729-DN-EJF (D. Utah Aug. 4, 2014).
    Derma Pen, LLC v. 4EverYoung Ltd., No. 2:13-CV-00729-DN-EJF (D. Utah Oct. 19, 2013).

     

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  • You Need to Decide Your Legal Theories Before Trial

    According to the Court of Appeals for the Fifth Circuit:

    The popular song Whoomp! (There It Is) was released in 1993. For more
    than half of the song’s existence—since 2002—the parties to this action have been litigating the question of who owns the composition copyright to the song.

    And at least part of the reason is a “never say die” defendant.

    The duo “Tag Team,” Cecil Glenn and Steven James, wrote and produced “Whoomp! (There It Is)”:

    Plaintiff Alvertis Isbell, aka Al Bell, was the president of Bellmark Records, a division of Isbell Records, Inc. He also owned a music publishing company, Alvert Music. In 1993 Tag Team entered into a recording contract with Bellmark Records that gave ownership of the entire copyright in the sound recording to Bellmark Records and 50% ownership of the copyright in the composition to “Bellmark’s affiliated designee publisher”:

    Isbell 4

    In 1997 Bellmark Records, but not Alvert Music, filed for Chapter 11 bankruptcy, which was converted to a Chapter 7 bankruptcy and the company liquidated. Defendant DM Records, Inc. purchased “all property of the company” and thereafter exploited the composition rights of “Whoomp!” Isbell, dba Alvert Music, then filed a copyright infringement action against DM Records that went to trial.

    After the close of evidence, both parties asked the district court to rule under Federal Rule of Civil Procedure 50(a) for judgment as a matter of law, in Alvert Music’s case that it was the owner of the 50% interest in the composition copyright, and in DM Records’ case that Isbell was not an intended third-party beneficiary of the agreement and therefore Bellmark, not Isbell dba Alvert Music, was the assignee. The court held that Alvert Music was the owner and the jury subsequently awarded over $2,000,000 in damages.

    Not one to give up, DM Records filed a request for reconsideration under Rule 50(b) floating a new theory, that, while Alvert Music was indeed 50% owner because it was “Bellmark’s affiliated designee publisher,” the agreement also assigned the other 50% to Bellmark, rather than ownership remaining with Tag Team. DM Records cited the next paragraph in the same agreement as the basis for its theory:

    Isbell 5

    If you can’t read the image, it says:

    and fifty percent (50%) of the right, title and interest of the undersigned Assignors, vested and contingent therein and thereto, subject to the terms and conditions of the Memorandum Agreement between Assignors and Assignee dated effective March 30, 1993 and for the term of the copyrights and all renewals and extensions thereof.

    DM Records’ counsel previously told the court that these two references to “50%” in the contract were about the same 50%, so the trial court held that DM Records had waived the new theory because it was raised for the first time on a Rule 50(b) motion. The court also found the argument “illogical,” because it would leave Tag Team with no ownership at all.

    Still not dissuaded, DM Records tried on more time, this time under Rule 60(b)(3) claiming that Isbell withheld a 2006 Security Agreement that assigned the copyright infringement claim to a company called Currency Corporation. By now the case was simultaneously before the Court of Appeals, so the appeals court inquired of the district court whether it was inclined to grant the motion. The district court was not, because the security agreement was not within the scope of DM Records’ discovery requests so Isbell had no obligation to provide it. DM Records appealed everything.

    And DM Records doesn’t fare any better with the Court of Appeals. Even though the court considered extrinsic evidence because the agreement was ambiguous, and the evidence was conflicting, under California law the court did not have to submit the contact interpretation to the jury. No credibility determination is required: “if, as here, there are pieces of evidence which, while each undisputed, raise differing inferences, it is within the province of the court to draw inferences based on the evidence.” The appeals court also confirmed that DM Records couldn’t bring a new theory on what the assignment meant under Rule 50(b) and, as to the 2006 Security Agreement, even if the failure to produce it was wrongful, the case was filed in 2002 so a 2006 agreement didn’t affect standing (but it would affect damages – ed.). And finally, the fact that the jury awarded Isbell 100% of DM Records’ royalties, even though Isbell was only half-owner of the copyright, wasn’t an error; the jury could have concluded that Isbell was the administrator for Tag Team and would pay them their share of the award.

    Isbell v. DM Records, Inc., No. 13-40878 (5th Cir. Dec. 18, 2014).

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  • Why Litigation Is So Expensive

    The USPTO has a number of different databases with information about trademarks—one for basic trademark registration data, searched by using the Trademark Electronic Search System (TESS), assignment records at Assignments on the Web (AOTW), and ex parte appeal, opposition and cancellation proceedings in the Trademark Trial and Appeal Board Inquiry System (TTABVUE). Two older databases, the Trademark Application and Registration Retrieval (TARR) and Trademark Document Retrieval (TDR) systems, have been replaced with the unified Trademark Status and Document Retrieval (TSDR) system. The TSDR system pulls together data about a trademark from a number of different databases and makes them available on one page. But the information displayed on a single page is still populated with data from the different systems.

    At least two of the databases have ownership information, the basic trademark database and the assignments database. Years ago, when one recorded an assignment the information would be added to the assignment database but it would not be reflected in the trademark database until the record was updated for other reasons. Now it’s done automatically, but not always, and not always correctly, particularly where there are multiple transactions recorded all at the same time. It’s also very clear that recording is a ministerial act that does not effect a change of ownership; ownership changes “by instruments in writing duly executed ….”

    Which is all background for a position taken by a defendant that gives litigation a bad name. Gibson Brands, Inc., owner of the Gibson guitar marks, sued John Hornby Skewes & Co. Ltd. (“JHS”) for trademark infringement. JHS looked at the TSDR records and found that the status page for five trademarks had Bank of America listed as the owner, not Gibson. It therefore amended its counterclaim to add a third-party claim against Bank of America.

    A week later Gibson coughed up printouts, this time from TESS searches of the trademark database, that listed Gibson (albeit Gibson Guitar, not Gibson Brands) as the owner of the marks. And finally three weeks later the Bank of America provided TSDR pages that also listed Gibson Guitar as the owner.

    JHS had no evidence other than the printouts, and five minutes’ worth of work would have shown that it was a simple data entry error.* The assignments database listings do not have a single abstract in their lengthy chains of title suggesting that Bank of America has anything but a security interest in the marks. Further, all of the underlying documents are available and JHS used some of them as evidence, therefore presumably had reviewed them all, and couldn’t find any suggestion in them of a change of ownership. All that JHS had was a single data field with bad data that was quickly corrected by Gibson.

    So what does the court do with all of this? First it takes judicial notice of the printouts, which is probably wrong to start. According to the authority cited by the court, it may take judicial notice of “matters of public record.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). But the printouts are not public record of anything except what data is in that particular field in whatever PTO database it came from, which says nothing about the underlying legal rights. The act of recording may be prima facie evidence of the document’s execution, but it is not evidence of the legal effect of the document.

    But no harm, no foul:

    Gibson and BOA essentially ask the Court to weigh the credibility of one judicially-noticeable iteration of a government website against the credibility of another. This the Court declines to do.

    The judicially-noticeable evidence presented is not so unambiguous that the Court may, on that ground alone, treat otherwise well-pled allegations as implausible.

    But JHS still loses, for a better reason than my belief that the JHS argument is frivolous—it’s also a nonsensical theory:

    [A] complaint does not state a plausible ground for relief if it is illogical or plainly at odds with common sense. JHS’s theory of the case is that BOA acquired ownership of the marks via one of the security agreements listed in the various USPTO documents or the deal to which the security agreement is ancillary. Assuming this to be true, JHS does not explain why BOA would come before this Court and aver, in filings subject to Rule 11, that USPTO records “unambiguously establish” that it “does not, and never has, owned the marks.”

    What would be the benefit to BOA of pretending that it does not own the marks? Suppose the Court denies these motions and continues to the summary judgment stage. BOA, which in this hypothetical owns the marks, would then be in the position of having lied to the Court and would have opened itself up to discovery which would undoubtedly reveal that fact. What could possibly be its motivation in doing so? The best case scenario for BOA at that point would be that the Court erroneously finds that it is not the owner—a determination which would likely act as res judicata to preclude BOA from asserting its ownership rights in the marks in the future. Additionally, if JHS’s interests were harmed by BOA’s false statements in this matter, JHS could sue BOA for fraud. JHS does not explain what benefit accrues to BOA, if it is the owner, in taking such risks. Surely if BOA were the owner of the marks, and were apprised of a lawsuit that could result in cancellation of the marks, the rational course of action would be to intervene as the true owner, or at the very least to inform the Court in this motion that it is the true owner so that the counterclaims for cancellation against Gibson would be dismissed.

    Compared to JHS’s narrative, which requires obscure, gamesmanlike motives and wild risk-taking by a sophisticated business entity, BOA and Gibson’s explanation—a clerical error at the USPTO, now rectified—has the virtue of being both simple and likely. This is, indeed, a case where “[the third-party] defendant’s plausible alternative explanation is so convincing that [the third-party] plaintiff’s explanation is implausible.”

    I’m not sure how the bank came to be listed as owner, but there are two bank-to-bank transactions with Bank of America on the receiving end. This one now says on the summary page that it is a security interest, but the cover sheet for the document states, correctly, that it is “assignment of security interest,” so perhaps the word “assignment” triggered the change. There is a second transaction that is a bank merger, also a transaction type that will trigger a change to the owner field, although clearly in error if it is a bank merger and not a merger involving the trademark owner. My suspicion is that one of these two is what caused the error in the database. So the lesson is—keep an eye on what banks are recording against your trademarks. And don’t be a dick in litigation when there’s a clear data entry error.

    Gibson Brands, Inc. v. John Hornby Skewes & Co. Ltd., No. CV 14-00609 DDP (SSx) (N.D. Cal. Dec. 8, 2014).

    *According to Gibson Brands, JHS didn’t even have to do any homework, because it had been “notified multiple times, by both Gibson and Bank of America, that Bank of America owns nothing more than a security interest in the trademarks at issue.”

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  • The Effect of Reed Elsevier v. Muchnick

    Section 411 of the Copyright Act says that “no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.” In Reed Elsevier, Inc. v. Muchnick, the Supreme Court held that § 411 is a “claim processing rule” rather than a jurisdictional requirement, so that a registration (or at least attempt to register) is “a statutory condition that requires a party to take some action before filing a lawsuit,” but its absence does not deprive a court of jurisdiction over the claim. What this mostly means is that a challenge to the absence of a registration is not under Fed. R. Civ. P. 12(b)(1), for lack of subject matter jurisdiction, but rather under Fed. R. Civ. P. 12(b)(6) for failure to state a claim.

    Reed Elsevier didn’t address the vexing question of whether one must only have filed an application, or instead one must have received the Certificate of Registration, before the precondition is satisfied and neither will I—that’s just a timing issue. I’m more curious about under what circumstances a court will adjudicate a copyright-related claim when there is no certificate at all, as was the case for some of the works in Reed Elsevier. Is there any situation where the registration requirement is altogether excused?

    In Brainstorm Interactive, Inc. v. School Specialty, Inc., the court identified two equitable defenses that might excuse the requirement, waiver and equitable estoppel. Waiver was apparently the basis in Reed Elsevier, as well as in Paycom Payroll, LLC v. Richison, 758 F.3d 1198, 1203 (10th Cir. July 11, 2014) and Tattoo Art, Inc. v. TAT Int’l, LLC, 794 F. Supp. 2d 634, 657, 662-63 (E.D. Va. 2011) aff’d, 498 F. App’x 341 (4th Cir. 2012) (appeal blogged here). In Paycom Payroll, the parties agreed to compare the similarity of a later version of software than the one registered. Tattoo Art was a breach of license case where the defendant conceded that the works were copyrighted and the only infringement question was the scope of its license.

    But plaintiffs aren’t doing very well where the court examines the question. In Brainstorm, the plaintiff alleged it could not register the copyright in its works because defendant School Specialty had possession of the only master copies of the works. Brainstorm argued that the defendant was therefore equitably estopped from raising the registration requirement. The court  agreed that, in theory, equitable estoppel might excuse the precondition of registration, but not here:

    [T]he undisputed record demonstrates that Brainstorm has at least one copy of some of the products, and it could have registered those products, or preregistered those products even if the copyright office had demanded a second copy. Brainstorm’s utter failure to take any action to register the copyrights shows a complete lack of diligence on its part until after it brought suit, upending its reliance on defendant’s alleged failure to return the physical masters to excuse its lack of registration.

    As for the second point, assuming plaintiff could somehow blame defendant for its complete failure to register the copyrights, it is patently unreasonable for a company to give its only copy of an alleged valuable physical masters to a licensee for safekeeping. At the very least, plaintiff has failed to demonstrate that its actions were reasonable. Plaintiff had a range of reasonable options available to it: (1) secure copyright registrations before handing off its only copy of the physical master to defendant; (2) make a second copy of the physical masters; or (3) specifically require their return after the initial production run to register the copyrights at that time.

    In Beardmore v. Jacobson, the plaintiffs argued they didn’t have to register because it would mean making a commitment about whether the work had been assigned or not (which the court referred to as a “work for hire” arrangement) and therefore risk a claim for fraudulent registration, but that didn’t get any traction either:

    Plaintiffs’ concern regarding fraud within the copyright application is unfounded if they genuinely believe the APP is their sole property and was not made as a “work for hire.” The copyright application does not inquire whether or not other parties believe the work was made for hire. Even if it is later determined that the APP was a work made for hire, inadvertent errors in an application for copyright registration do not constitute application fraud. If Plaintiffs do not consider the APP to be a work for hire, they are not required to describe the APP as such on the copyright application simply because Defendant claims it is so, and it will not contain the “knowingly inaccurate information” that is required for copyright fraud.

    So as far as a I know we’re still waiting to see a case where a plaintiff has a legitimate excuse for not having first registered its copyright. If anyone has seen one, let us know in the comments.

    Brainstorm Interactive, Inc. v. School Specialty, Inc., No. 14-cv-50-wmc (W.D. Wisc. Dec. 5, 2014).

    Beardmore v. Jacobson, No. 4:13-CV-361 (S.D. Tex. July 14, 2014)

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  • Assigned from One’s Self to One’s Self

    The patent, copyright and trademark statutes are not paragons of clarity when it comes to assignment. They all require that assignments be in writing, which is fine as far as it goes. What seems to befuddle lawyers is what to do when the transfer is by operation of law. The Copyright Act acknowledges implicitly that there is such a thing as a transfer by operation of law (“A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing …”). A decision by the Court of Appeals for the Federal Circuit has construed the statutory section regarding assignment as simply silent on a transfer by operation of law, blessing a sale as the result of a security interest. But in United Tactical Systems, LLC v. Real Action Paintball, Inc. the Northern District of California was just stumped by the registered trademark PEPPERBALL for irritant projectiles used by military and law enforcement.

    PepperBall Technologies, Inc. was the owner of the mark but had money trouble and defaulted on loans. A new company, Advanced Tactical Ordnance Systems, LLC (“ATO”) also doing business as Phoenix International, Inc., was formed. ATO transitioned PepperBall Technologies by retaining most of the employees, trainers and suppliers of PepperBall Technologies as well as the telephone numbers, email and website. On January 9, 2012 Phoenix International purchased all of PepperBall Technologies’ tangible and intangible property at a UCC foreclosure sale, as memorialized in a transcript.

    ATO sued defendant Real Action Paintball, Inc. in Indiana and obtained a preliminary injunction for trademark infringement and false advertising, but the case was then dismissed for lack of personal jurisdiction. ATO, now known as United Tactical Systems, Inc. (“UTS”), sued Real Action Paintball again in the Northern District of California and asked for a new preliminary injunction. Shortly after the action was filed in Indiana, ATO filed this curious assignment with the PTO:

    ATO to ATO assignment

    If you can’t read it, it is an assignment from Advanced Tactical Ordnance Systems, LLC to Advanced Tactical Ordnance Systems, LLC—yeah, from itself to itself.

    Real Action Paintball claimed, successfully at least for purposes of a preliminary injunction, that UTS had not proved that it was the owner of the registered trademark. Only a “registrant,” which includes its successors and assigns, may sued for infringement under § 32 of the Lanham Act. The court held that UTS had not proven all the links in its chain of title, namely the one from PepperBall Technologies to ATO:

    Some courts have held that a business trade name and its marks are presumed to pass to its buyer, absent contrary evidence. However, other courts have stressed the importance of the “writing requirement” in determining the validity of trademark assignments. UTS provided no case law supporting the validity of transfer of the PepperBall mark. … [A]t this point there are too many unresolved issues and factual disputes for the Court to find that UTS has demonstrated a likelihood of success that it is the “registrant” within the meaning Lanham Act.

    But what about “by operation of law”? The trademark statute says this: “Assignments shall be by instruments in writing duly executed.” Like the Patent Act it makes no reference to “by operation of law.” Indeed, if there is an assignment of the mark, it has to be in writing. But there is the concept of transfer “by operation of law” separate and apart from an assignment: “It is doubtless the law, as in that case it is held, that ‘the property in a trade-mark will pass by assignment, or by operation of law, to any one who takes at the same time the right to manufacture or sell the particular merchandise to which the trade-mark has been attached….” Horton Mfg. Co. v. Horton Mfg. Co., 18 F. 816, 819 (C.C.D. Ind. 1883). And “Where the trademark involved is not a personal one and the transfer is made by operation of law through bankruptcy or a general assignment for the benefit of creditors, most courts have held that a trustee in bankruptcy has the power to sell the goodwill of a company and its symbolic trademarks with other assets of the bankrupt.” EH Yacht, LLC v. Egg Harbor, LLC, 84 F. Supp. 2d 556, 567 (D.N.J. 2000).

    I have no idea whether the way the foreclosure sale was done was lawful, but no one suggested it wasn’t. This trademark was transferred, the only problem was the plaintiff didn’t know how to document it.

    United Tactical Systems, LLC v. Real Action Paintball, Inc., No. 14-cv-04050-MEJ (N.D. Cal. Dec. 2, 2014).

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  • Not Clever Enough Yet

    Oh those patent trolls, cleverer and cleverer. To try to keep their cases in Texas, NPEs have rented empty office space in Texas and “anchored” lawsuits with Texas defendants, a tactic that the AIA put to an end. But never underestimate a plaintiff who wants the Texas venue.

    Azure Networks acquired patents and then collaborated with a local charity, the Court Appointed Special Advocates of Harrison County, to form Tri-County Excelsior Foundation, a Texas non-profit corporation. Azure donated multiple patents and applications to Tri-County, including the patent-in-suit. Tri-County then licensed back the patent to Azure, the defendants allege in order to further establish venue in the Eastern District of Texas and to offset Azure’s tax liability with a charitable donation.

    Azure and Tri-County sued for patent infringement and the defendants moved to dismiss Tri-County from the case. The defendants argued that so many rights were transferred back to Azure in the license agreement that it was a “virtual” assignment back to Azure, leaving Tri-County without standing.

    And the defendants were right. As Stephens Media learned with the Righthaven copyright cases, an assignment is meant to be a surrender of the fundamental rights attendant to ownership, so if you’re not really willing to surrender them then your assignment will fail. Azure had read the case law and tried to structure a license that would work, but the Federal Circuit wasn’t fooled.

    So what rights did Tri-County give back to Azure in the license agreement? Azure had the exclusive, worldwide, transferable right to practice any invention in any manner under the patent, the right to enforce it, and to sublicense it, including settling suits without Tri-County’s consent. Tri–County was obligated not to encumber the patent and to participate in litigation at Azure’s request and in Azure’s sole discretion. In exchange, Tri-County would get 33% of the proceeds from Azure’s litigation or licensing activities for the first five years and 5% after that. The license was to expire two years before the end of the patent term, but Tri–County had the option to renew for two one-year increments. Tri–County also reserved for itself “a royalty-free, personal, non-transferable, non-exclusive right” to practice the patent.

    The court noted that “Azure’s exclusive right to sue, exclusive license, and freedom to sublicense are factors that strongly suggest that the Agreement constitutes an effective assignment.” Tri-County’s lack of control over the litigation was also telling, since retaining control is “critical to demonstrating that the patent has not been effectively assigned.”

    Tri-County’s own right to practice the patent didn’t change the balance: “in this case, this factor has little force as Tri–County does not make or sell any products, and the evidence on record suggests that Tri–County will not make or sell any products in the future.” Tri-County could terminate the license for breach, including for Azure’s failure to exercise good-faith judgment in monetizing the patents, but “Tri–County does not explain—nor can we envision—how a general good-faith requirement that inures to the financial benefit of both parties, with nothing more, would allow Tri–County to trump Azure’s express and unilateral rights and exert control over Azure’s licensing or litigation decisions.”

    And the expiration of the agreement before the end of the patent term wasn’t enough to salvage the license either. “Such short patent term life following expiration, coupled with the rolling renewal cycle that can extend to the end of the patent’s term, provides another indicator that Tri–County transferred all substantial rights to the patent.”

    The Federal Circuit therefore affirmed district court’s dismissal of Tri-City from the suit. Although I’m not sure why it matters.

    Azure Networks, LLC v. CSR PLC, No. 2013-1459 (Fed. Cir. Nov. 6, 2014).

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  • Behind Every Movie is a Copyright Infringement Lawsuit

    Successful movies always seem to be accompanied by copyright infringement lawsuits, generally an optimistic author who believes his or her story was stolen and made into a movie. But in Gomba Music, Inc. v. Avant we have a very different twist, two different claimants to ownership of the copyright in music written by the subject of a documentary.

    In 1966, third-party defendant Sixto Rodriguez, a songwriter and singer, signed an “Exclusive Writer Agreement” with plaintiff Gomba Music, owned by Harry Balk. In the agreement, Sixto agreed to write exclusively for Gomba Music as a work for hire, with Gomba Music owning all copyrights, renewals and extensions.

    In 1970, Sixto performed on an album called “Cold Fact” that was released by the defendant’s record label. The album listed Jesus Rodriguez, purportedly Sixto’s brother, and an entity called “Sixth Prince, Inc.” as the songwriters. As you might guess though, Sixto was really the author of the songs. When the album was released Balk reviewed the credits, but since Sixto wasn’t listed he took no action. Sometime in the 70’s, Sixto assigned the copyright to defendant publisher Interior Music Corp.

    The album wasn’t a success in the U.S., but, unbeknownst to Sixto, it became enormously popular in South Africa. In 2012 the Oscar-winning film “Searching for Sugar Man” chronicled the story of finding Sixto. This is when Balk said he first became aware that Sixto was the songwriter for the Cold Fact album and sued Interior Music Corp.

    The original complaint was filed by Gomba Music, but Gomba Music had been administratively dissolved in 1971. Balk amended the complaint to add himself as a plaintiff, owner of the copyrights by operation of law.

    Which brings us to the first issue—whether indeed Balk had succeeded to the ownership of the copyrights. Note the date of the agreement, before 1978, and therefore to be decided under the Copyright Act of 1909. The 1909 Act provided that “copyright secured under this or previous Acts of the United States may be assigned, granted, or mortgaged by an instrument in writing signed by the proprietor of the copyright, or may be bequeathed by will”—no mention of transfer by operation of law.

    But, like with the currently-existing assignment provision of the Patent Act, the absence of “by operation of law” in the statute doesn’t mean the ownership can’t be transferred that way:

    section 28’s enumerated types of transfer, ‘assigned, granted, or mortgaged,’ denote voluntary action taken by the copyright proprietor, thus § 28 appears unconcerned with involuntary transfers imposed by law.

    Michigan law provided that upon dissolution a corporation’s assets are distributed to the shareholders, so since Balk was the sole shareholder he owned the copyrights.

    The next challenge was on timeliness. In the Sixth Circuit, a copyright infringement claim “accrues when a plaintiff knows of the potential violation or is chargeable with such knowledge.” There were two “potential violations” here, the original distribution of the album and the infringement occurring in the three years immediately preceding the complaint, that is, the use in the film.

    But the court declined to decide to which infringement claim the ownership claim relates, deciding instead whether Balk was “chargeable with such knowledge” that Interior Music claimed to be the copyright owner in 1971. “Chargeable with knowledge,” or constructive knowledge, only requires “storm warnings, not when he hears thunder and sees lightening.” That’s a low bar, but here we also have the possibility of fraudulent concealment, which tolls a limitations period. Fraudulent concealment occurs when there is (1) wrongful concealment of their actions by the defendants; (2) failure of the plaintiff to discover the operative facts that are the basis of his cause of action within the limitations period; and (3) plaintiff’s due diligence until discovery of the facts. It was a close question—Balk didn’t even ask Sixto whether he wrote the songs on the album—but combined with the fact that the album was, as far as Balk knew, a commercial failure, Balk had done enough to survive a motion to dismiss.

    Gomba Music, Inc. v. Avant, No. 14-CV-11767 (E.D. Mich. Nov. 24, 2014).

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