Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Over Again for STOLI – But Just For Now

    Federal Treasury Enterprise Sojuzplodoimport first sued Spirits International B.V. over the STOLICHNAYA trademark 10 years ago, in October, 2004. Two lawsuits later, FTE still hasn’t survived an examination of its standing. The case has been dismissed a second in the district court, but even the district court thinks that an appeal is warranted: “In the short run, the parties to this action could benefit from a de novo appellate review of this decision—I have little doubt that FTE will seek such review.”

    Where we last stood,* after losing the first case FTE obtained an assignment of the STOLICHNAYA trademarks from the Russian government and sued again. The court ruled that all of FTE’s claims were barred except for one, for infringement of a registered trademark under Section 32. The defendants moved to dismiss this claim too, arguing that under the Russian Civil Code FTE was not a type of entity that was allowed to own trademarks. The court didn’t have enough information on Russian law to rule that the assignment was invalid, so the claim survived.

    The court has now heard testimony from experts on Russian law and reached a conclusion. Under Russian law, FTE is a “unitary enterprise,” which is a kind of  of entity that may only manage property, not own it. The question was whether trademarks are a kind of property that a unitary enterprise may not own, and the court concluded that they are. Therefore, FTE does not own the trademarks and does not have standing under Section 32 of the Lanham Act. I’ll leave you to read the detailed and complex opinion by the eminent Judge Scheindlin.

    But even Judge Scheindlin isn’t satisfied with the outcome:

    Based on the evidence before the Court, I find that FTE cannot hold exclusive rights to trademarks outside of operative management. This has not been an easy decision. I am somewhat uncomfortable telling a foreign government that a validly enacted decree cannot achieve the result that was clearly intended by its passage. I am also uncomfortable interpreting various sections of the laws of a foreign country—which I can only review in imperfect translation—when those sections have not yet been addressed and defined by the courts of that country. But Rule 44.1 requires me to determine the relevant foreign law in a dispute pending in a U.S. court. While I can rely on all available sources, and credit whatever expert testimony I choose, there is one thing I cannot do which would be the most helpful. I cannot certify these unsettled questions of Russian law to the Russian courts.

    So, even the judge agrees there is more to come.

    * For more information you can read the four earlier posts about it—caution, recursive link.

    Federal Treasury Enterprise Sojuzplodoimport v. Spirits Int’l B.V., No. 14-cv-0712 (SAS) (S.D.N.Y. Nov. 24, 2014).

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  • When Trademark and Estate Don’t Mix

    What a dispute. I’ve written before (recursive link) about the dispute over the ownership of the mark YOGI for at least tea. I say “at least” because what seems to be missing from the four (or more) lawsuits that involve the trademark is the concept that a trademark has something to do with goods and services or source identification.

    Here is the highly simplified story, taken from a number of court opinions. Harbhajan Singh Khalsa Yogiji, known as Yogi Bhajan, was the spiritual and religious leader of the Sikh religion in the United States. He was married to Inderjit Kaur Puri, known as Bibiji. When Yogi Bhajan died in 2004, the assets of his living trust were split between the Survivor’s Trust, for the benefit of Bibiji, and the Administrative Trust, for the benefit of 15 individuals who had been Yogi Bhajan’s assistants.

    Golden Temple of Oregon, LLC had been a licensee of the Living Trust for the name and likeness of Yogi Bhajan on cereals, tea and body care products. When Yogi Bhajan died, the bookkeeper instructed Golden Temple to split the royalty payments between the Survivor Trust and the Administrative Trust.

    In 2008, Golden Temple stopped using Yogi Bhajan’s name and likeness and stopped paying royalties, but continued to use the names “Yogi” and “Yogi Tea.” Bibiji entered into an arbitration with Golden Temple to decide if there was a trademark in “Yogi” and, if so, who owned the trademark. Bibiji suggested to the Administrative Trust that it participate but the Trustees declined, “seemingly in part because they thought that the term ‘Yogi’ was a generic term rather than a trademark and in part because they did not feel the Administrative Trust had the funds to take on any more litigation.” The arbitration panel held that there were trademarks and, as between Golden Temple and Bibiji, Bibiji owned them. The arbitration panel awarded the trademark registrations and applications to Bibiji (Bibiji by now had revoked the Survivor Trust). The arbitration decision specifically did not decide the relative rights of Bibiji and the Administrative Trust with respect to the use of YOGI.

    Then things start to get interesting. The Administrative Trust granted Golden Temple a license* to the trademarks. The Trustees were apparently concerned that the trademarks would be abandoned if they weren’t used (“The Trustees agreed to accept the lower royalty rate because there was concern about Golden Temple having a deadline to its use of the trademark …”) and because Golden Temple had experience selling the goods. The plan was that the Administrative Trust would sell its share of the mark to Golden Temple for $9.7 million.

    Golden Temple and the Administrative Trustees, who had not previously been involved in the suit, moved to vacate the arbitration award. The court denied the Trustees’ motion for lack of standing since the award did not prevent the Trustees from claiming their 50% ownership of the marks or exercising their ownership rights. Golden Temple also claimed that it was error to award the registrations to Bibiji but the court didn’t see that was a problem: “I am not persuaded that the panel improperly adjudicated the rights of the Trustees. Nothing in the award prevents the Trustees from seeking co-registration of the marks. The panel only determined the rights of the marks as between Golden Temple and Bibiji, e.g., the panel did not find that the Trustees are not co-owners of the marks.”

    And, most recently, the Court of Appeals of New Mexico has affirmed the division of the community estate of Yogi Bhajan. So, what we are left with is trademarks jointly owned by Bibiji and the Administrative Trust (unless they have already been assigned to Golden Temple, now known as East West Tea Co. LLC). The Court of Appeals also, in a roundabout way (since it was an estate case), ratified the license that the Trustees granted to Golden Temple:

    To the extent Bibiji is claiming that the Trustees’ interim licensing agreement with Golden Temple … somehow negatively impacted her half interest in the Yogi trademarks, the district court viewed the relationship between the parties regarding the trademarks as co-owners. We observe that because Bibiji and the Administrative Trust each owned a one-half interest in the trademarks, this contention of negative impact on Bibiji’s trademark interest is in the nature of a claim of trademark infringement by one co-owner against the other, not a claim of breach of fiduciary duty in the trust context. Since the only claims Bibiji asserted against the Trustees were claims of breach of fiduciary duty, these infringement claims seem to be misplaced. Nonetheless, because the parties litigated these claims without objection and because the district court decided them, we address them.

    The district court relied on case law stating that “[a]n owner does not infringe upon his co-owner’s rights in a trademark by exercising his own right of use. Likewise, he does not dilute those rights by exercising his own right of use.” This is legally correct, according to a leading treatise on the subject. “When parties are co-owners of a mark, one party cannot sue the other for infringement. A co-owner cannot infringe the mark it owns.”

    To the extent Bibiji had any claim that the Trustees had any additional duty to her regarding the trademarks, the district court put that claim to rest when it found that “[t]he Trustees’ decision to enter into the [i]nterim [l]icensing [a]greement … with [Golden Temple] was fiscally sound and preserved the marks’ financial potential.” The district court explained that if the Trustees had not entered into the agreement, “[Golden Temple] would have been forced to re-brand, which would have greatly diminished, and potentially destroyed,” the potential financial value of the trademarks. These findings are supported by the evidence summarized above. Given the cost of the present litigation to the Administrative Trust, it made sense for the Trustees to preserve the value of the trademarks through the interim licensing agreement and the tolling agreement rather than to expend additional trust funds to pursue litigation against Golden Temple and [second licensee] Amalgamated. We therefore reject Bibiji’s claim that the district court erroneously failed to find that the Trustees mismanaged assets.

    What a hot mess. What is notably missing from all the opinions is any recognition of what a trademark is. It seems to have gone wrong with the original division of the assets. At various points—the original division, during an untimely probate, and the subsequent breach of fiduciary duty claim, no one recognized that a trademark and an income stream from a trademark license are two separate rights. This is how the Court of Appeals described the the division of the trademarks:

    To the extent that Bibiji is arguing that the Trustees failed to accurately inventory and distribute her half interest in the trademarks, the district court found that all of “Yogi Bhajan’s intellectual property interests were properly inventoried and, in accordance with the Living Trust’s 2004 amendment, 50 [percent] of Yogi Bhajan’s intellectual property was distributed to Bibiji.” The district court further found that the intellectual property interests that were the subject of the pre-death licensing agreements with Golden Temple and Amalgamated “were inventoried on the [estate tax return] Form 706 by the contracts themselves, and are specifically listed on the contract exhibits.” And the district court found that “all [intellectual property] interests to which Bibiji was entitled were properly and promptly distributed to her, most especially the [Golden Temple] and Amalgamated royalties interests intended to provide Bibiji a stable source of income.” These findings were supported by the evidence summarized above and in the preceding section of this Opinion.

    See? It’s all about the contracts and the revenue stream, not the underlying rights that were being licensed. There is also the huge mistake of lumping them all together as “intellectual property”; in the very beginning no one was even thinking there were trademarks, rather, it was all about Yogi Bhajan’s name and likeness, that is, his right of publicity. Had the New Mexico court thought about the trademark as a separate asset from Yogi Bhajan’s right of publicity, and both of those separate assets from the revenue stream derived from the contracts that licensed them together, it might have reached a conclusion that was more consistent with what a trademark is, a sole source identifier. But there was no discussion whatsoever of the brand significance of YOGI or YOGI TEA, what consumer expectation is, who monitors the quality of the goods, with whom the customers associate the brand, or any other signals about ownership. A trademark is an indivisible asset—you can’t have warring factions deciding what the quality of the goods and services are.

    So we now have two entities free to license the same trademark, which, if they do not cooperate, will be the end of it as a mark. There will be different goods with different trade dress and consumers will eventually come to think of “Yogi Tea” as just a kind of tea. What a mess.

    * And what a mess of a “license.” Everything—copyright, right of publicity, trademark, recipes, are all lumped together and none given appropriate treatment under their respective legal doctrines. With respect to trademark, there is not even a passing reference to quality control.

    Yogi tea recipe clip

    Khalsa v. Puri, No. 32,600 (App. Ct. N.M. Nov. 19, 2014).
    Khalsa v. Puri, No. D-101-CV-2007-02431 (Dist. Ct. N.M. Oct. 16, 2012).
    Golden Temple of Oregon, LLC v. Puri, No. 3:11-cv-01358-HZ (D. Or. Aug. 7, 2013).
    Puri v. Golden Temple of Oregon, LLC, ASP No. 100614 (Arb. July 29, 2011).

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  • Having Documents Helps

    I usually write about ownership issues in the context of infringement claims. But I ran across a tax case where management (or actually, lack of management) of the ownership of the intellectual property ended up creating a tax deficiency on 29.6 million dollars.

    In 1976 William and Patricia Cavallaro started a contract manufacturing company, Knight Tool Co., Inc., that made custom tools and machine parts. Their sons were 15, 13 and 12 years old at the time. The sons all eventually joined the family business.

    Sometime before 1982, father William and son Ken saw an opportunity for a computerized liquid dispensing tool that could be sold to manufacturers. Engineers and employees at Knight worked on the initial prototypes and Knight began selling the machine under the name “CAM/ALOT” (for “computer-assisted machine” that would be used “a lot”). Knight spent so much time and attention on the project that it affected the stability of the company. Mrs. Cavallaro eventually insisted that Knight had to revert to its original tool-making business; Mr. Cavallaro agreed and the project was shelved.

    But not for long. Ken wasn’t willing to give up on the project, so he asked his parents if he and his brothers could take over the CAM/ALOT business. His parents agreed and in 1987 Camelot Systems, Inc. was incorporated, each son contributing $333.33 and owning equal share. When the family signed the formation documents, the lawyer handed the minutes book for the new corporation to Mr. Cavallaro but he handed the minutes book to Ken, saying “take it; it’s yours.”

    But of course $1000 isn’t enough to develop a product. It was Knight that kept investing in the development of the CAM/ALOT product; even Ken was on the Knight payroll instead of the Camelot payroll. Camelot had no bank accounts or its own books. Mr. and Mrs. Cavallaro’s position was that Camelot was the manufacturer and Knight the contractor, but the contemporaneous documents showed that Knight was the manufacturer and Camelot merely the seller, with Camelot bearing none of the business risk. There were no documents reflecting the transfer of any intellectual property rights from Knight to Camelot; the only evidence of ownership by Camelot was that some technical drawings and software were marked as copyrighted by Camelot. The CAM/ALOT trademark was originally registered by Knight and only assigned to Camelot more than ten years later when the two companies were merged. There were no patents on the original machine, but patent applications for later improvements identified Knight, not Camelot, as the assignee. In 1992, an accounting firm determined that Knight, not Camelot, was eligible for R&D tax credits and prepared tax returns reflecting that.

    Then we get to estate planning. Both the accounting firm and a law firm were involved. The law firm had a theory that the transfer of the minutes book was a transfer of the technology. The accounting firm originally disagreed, but everyone eventually fell in line. A confirmatory bill of sale was signed and the tax returns that had originally claimed the R&D credits for Knight were refiled, disclaiming them for Knight and claiming them for Camelot.

    In 1995 the two companies merge, with Camelot the surviving corporation. The shares of the new company were distributed according to the relative value of each company, that is, 19% of the combined entity to the former shareholders of Knight, Mr. and Mrs. Cavallaro, and 81% of the combined entity to the founding shareholders of Camelot, Ken, Paul, and James Cavallaro. This valuation was based on the assumption that Camelot owned the CAM/ALOT technology pre-merger.

    Ultimately the IRS investigates whether the parents had made an untaxed gift to the sons. The legal question was whether the merger was in the ordinary course of business, that is, a bona fide arm’s-length transaction free from donative intent.

    And there was no arm’s length transaction:

    If Camelot had offered itself to the market for acquisition claiming ownership of the CAM/ALOT technology, it is inconceivable that a hypothetical acquirer would do anything other than demand to see documentation of Camelot’s ownership interest—documentation that we have found does not exist. An unrelated hypothetical acquirer would never have been be satisfied with Camelot’s mere assertions of ownership, or its statements that an oral agreement effecting the transfer occurred at some point after Camelot’s incorporation. Instead, upon realizing no such documentation was available, an unrelated party either would have offered to purchase Camelot at a much lower price or (more likely) would have walked away from the deal altogether. Likewise, if Knight were dealing with an unrelated party which sold machines that had been manufactured at Knight’s risk by Knight employees on Knight premises using technology developed by Knight personnel, where Knight had owned the only public registrations of intellectual property and had claimed ownership of the technology in prior tax filings, it defies belief to suggest that Knight would have simply disclaimed the technology and allowed the unrelated party to take it. If an unrelated party had purchased Camelot before the merger and had then sued Knight to confirm its supposed acquisition of the CAM/ALOT technology, without doubt that suit would fail. Camelot did not even own the CAM/ALOT trademark registration.
     
    But these cases, unlike those hypothetical scenarios, involve parents who were benevolent to their sons and involve sons who could therefore proceed without the caution that normally attends arm’s-length commercial dealings between unrelated parties. The Cavallaros manifestly gave no thought in 1987 to the question of which entity would own what intangibles. They gave no thought thereafter to who was paying for the further development of the technology. When the question of technology ownership came up in the context of claims for R & D credits, the professionals comfortably assumed—without challenge—that of course Knight owned the technology. And when the question finally arose explicitly, it arose in an estate-planning context, when the question was “How can we best convey wealth to our sons?” and donative intent was front and center. In that context, the “confirmatory” bill of sale confirmed a fiction.
     
    There is no evidence of any arm’s-length negotiations occurring between the representatives or executives of the two companies. Instead (and despite a wholesale lack of evidence as to Camelot’s ownership of the technology), Knight agreed to take a less than 20% interest in the merged company, effectively valuing Camelot at four times the value of Knight…. Accordingly, we find that the merger transaction between Knight and Camelot was not engaged in at arm’s length and was not in the ordinary course of business.

    Instead, it was a $26.9 million gift.

    Cavallaro v. C.I.R., T.C. Memo. 2014-189 (2014).

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  • Remember the Details

    This case demonstrates why you follow up to make sure tasks get completed. Sometimes it’s the little details that get you …

    Vincent Heck is the sole member of plaintiff Clarity Software LLC, a company that distributes software. Heck wrote the original software, owned a couple of companies and licensed the software to those companies for distribution. Heck ran into financial trouble, owing money to Eric Wallace with the debt secured by the copyright in the software. In August, 2003, Wallace formed Clarity Software LLC and Heck contributed the ownership of the copyright in the software to the company to settle the debt.

    A few months later, Heck filed for personal bankruptcy. He didn’t schedule the software and his bankruptcy was discharged in November 2004. In 2008, Heck bought Clarity Software from Wallace and became the sole member. The present lawsuit was for infringement of the copyright in the software.

    So the little detail that was missed? There was no Clarity Software LLC actually formed in 2003, or more specifically there wasn’t enough evidence of the formation to overcome summary judgment. Here’s some excellent briefing by the defendant, listing all the things that had to have gone wrong for there to be no record of the formation:

    1. The unnamed attorney [hired by Wallace] prepared and actually sent the certificate of organization to the Pennsylvania Department of State.
    2. The Pennsylvania Department of State received, accepted and filed the certificate of organization.
    3. The Pennsylvania Department of State notified the attorney and/or Wallace of its acceptance of the certificate of organization, sent a copy to Wallace and/or his attorney,
    4. The Pennsylvania Department of State then lost the certificate of organization, along with all records of the submission and filing of the certificate of organization (e.g., the entire physical file and electronic database record for Clarity Software, LLC).
    5. Wallace subsequently provided the certificate of organization to PNC Bank when he opened Clarity Software, LLC’s bank account, but PNC lost it, even though PNC Bank still has the signature card that was completed when the account was opened.
    6. Wallace, the former President of the Pennsylvania Institute of Certified Public Accountants, lost his copy of the certificate of organization and all records of his communications with his attorney and the Department of State.
    7. Everyone else associated with Clarity Software, LLC[ ] lost the certificate of organization and all contemporaneous records.

    The court entered summary judgment that in 2003 there wasn’t any de jure Clarity Software for Heck to have contributed the software to. Clarity Software (finally properly formed in 2012) made the argument that there was a de facto limited liability company then, but the court concluded that the statute defining de facto entities applied only to corporations, not limited liability companies, and, even if the statute did apply, Clarity Software didn’t meet the legal standard to be a de facto company.

    Since Heck could not have assigned the software to Clarity Software, he still owned it at the time he filed for bankruptcy. And, since he didn’t schedule it (why would he, he didn’t think he owned it), the discharge of the bankruptcy did not abandon the software back to Heck and it was still owned by the trustee. And the case was dismissed for lack of standing.

    Clarity Software, LLC v. Financial Independence Group, LLC, No. 2:12-cv-1609-MRH (W.D. Pa. Sept. 30, 2014).

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  • It’s All About the Words

    Here’s a short one. We have co-inventors, the relevant one is James McGhie. He was an inventor on a patent of which the patent-in-suit was a continuation-in-part. McGhie assigned the original patent to the predecessor-in-interest of the plaintiff, but didn’t assign his ownership of the continuation-in-part. The plaintiff argued that the assignment of the parent included the continuation-in-part. Here’s the language:

    I do hereby sell, assign, transfer and set over unto the said ASSIGNEE, its successors and assigns, the full and exclusive right, title, and interest in and to said invention, in and to said application, and in and to any Letters Patent to be granted and issued thereon….

    Nope, not an assignment of the continuation-in-part. What’s the argument?

    Alpha One argues that under MHL Tek, LLC v. Nissan Motor Co., 655 F.3d 1266 (Fed.Cir.2011), the “applicable test” for determining the scope of an assignment is “whether the inventions claimed in the patent-in-suit were ‘inventions and discoveries’ set forth in the parent application.” But MHL Tek did not establish a generally applicable legal standard. In MHL Tek, the court considered an assignment provision which expressly assigned “inventions and discoveries in [the Parent Application].” Accordingly, MHL Tek teaches that the proper inquiry is the scope of the assignment. Here, the 2002 Assignment assigns only “said invention, in and to said application ….” The ′897 Patent is only a continuation-in-part of the 2002 Provisional. As such, the ′897 Patent is not clearly within the scope of the 2002 Assignment. Accordingly, Alpha One has not established that the 2002 Assignment provides it with ownership of the ′897 Patent.

    Alpha One argued alternatively that McGhie was contractually obligated to assign, but that’s not good enough: McGhie at best had only a duty to assign, which doesn’t create any present rights in the potential assignee that support standing. But it would appear that Alpha One was able to enforce that duty, after the opinion it got the assignment from McGhie.

    Alpha One Transporter, Inc. v. Perkins Motor Transport, Inc., No. 13-cv-2662-H-DHB (N.D. Calif. Sept. 11, 2014).

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  • The Promiscuous Licensor

    I recently took the federal courts to task for what I submit is a disconnect between the statutory definition of “abandonment” and the “naked license” defense. My argument is that trademark owners are simply being punished for behavior that is seen as too lax, without any regard for whether that laxness has actually effected a loss of distinctiveness, which is what an “abandonment” under the Lanham Act requires. On cue, we have a state court opinion comparing and contrasting the naked license defense under state law, Michigan in this case, and federal law.

    The fact pattern is what you would imagine when hearing the words “naked license.” Plaintiff Movie Mania Metro, Inc. first operated a video rental business in 1989. (As the court did, I will just refer to the “plaintiff,” since, referring to the plaintiff as “Movie Mania” when those words are used as a mark by multiple parties would confuse things even more.) The plaintiff registered (gigantic pdf alert) the trademark with the State of Michigan and then, according to the court, “acted as a promiscuous licensor.” In 1999 the plaintiff sold one location to another company, CLD, and allowed CLD to continue to use the mark for $1 in royalties per year. Further, “[T]he licensing agreement placed almost no restrictions on the use of the mark, nor did it contain standards on advertising or store operations, or include any requirements related to the rental or sale of merchandise.”

    In 2005 CLD sold the store to Adnan Samona. Samona asked the plaintiff if it could continue to use the name, which the plaintiff allowed without requiring any license agreement at all. In 2006 and 2007 Samona opened more stores with the “Movie Mania” name and the plaintiff imposed no restrictions on use of the mark. By the end of 2007 there were six Movie Mania stores, four owned by Samona and two by plaintiff. The plaintiff’s state trademark registration also expired in 2006.

    In 2010 Samona closed one store and sold the rest of the business assets to the defendants. Defendant Zielke asked the plaintiff for permission to use the Movie Mania mark, but the plaintiff decided now was the time to demand a licensing agreement. The defendants refused and we have a trademark lawsuit.

    The Michigan Court of Appeals considered the naked license defense under both federal and state law. We start with a bit of history:

    Because naked licensing of a mark destroys the mark’s ability to serve as a source identifier for consumers—in other words, destroys the mark’s ability to function as a trademark—state courts held at common law that plaintiffs who engaged in naked licensing could not prevail in trademark-infringement actions against defendants who used the mark plaintiff nakedly licensed. In trademark-law terms, a mark that is the subject of naked licensing is not “distinctive,” and thus not a valid trademark that is properly protectable under trademark law.

    But then we have the passage of the Lanham Act in 1946. The court, absolutely wrongly, suggests that the common law standard survived under the Lanham Act until 1988, when the Trademark Law Revision Act was passed, at which point “Congress revised 15 USC §1127(2) and codified the concept of naked licensing in a specific context: ‘abandonment.’” Well, no, the definition of abandonment on which the court relies was in the original Lanham Act of 1946 in largely similar language. NB, however, that the court’s misreading is understandable: early post-Lanham Act naked licensing opinions simply used the common law standard for naked licensing without a firm fix on how it all fit into the new Lanham Act.

    But the point of the exercise is that the naked licensing defense has different statutory bases under federal and state law. Under federal law, the basis for the naked license defense is abandonment, where “any course of conduct of the owner, including acts of omission as well as commission, causes the mark to … lose its significance as a mark.” 15 U.S.C. § 1127(2). But Michigan state law doesn’t have this language. The only definition of abandonment in the Michigan Trademark Act is where the use has been discontinued with an intent not to resume use (the equivalent to the first definition of abandonment under the Lanham Act, for those of you keeping score).

    So, rather than a question of abandonment, under the Michigan Trademark Law naked licensing is a question of validity, an element of the plaintiff’s case-in-chief. Here, “defendants have offered convincing evidence—plaintiff’s naked licensing of the ‘Movie Mania’ mark— that ‘Movie Mania’ is not ‘distinctive’ and thus not valid”:

    Because plaintiff’s licensing arrangements placed little or no control or restrictions on the business operations of its licensees, it was impossible for consumers to use the “Movie Mania” mark to distinguish the videos and other merchandise on offer as coming from a particular source. Videos rented at Samona’s locations might have been of completely different quality or type than those on hand at plaintiff’s locations, and consumers had no ability, on the basis of the “Movie Mania” mark alone, to tell that the videos came from two separate providers. Accordingly, “Movie Mania” cannot be a valid mark because it is not distinctive, and thus does not function as a trademark: the mark does not “tell shoppers what to expect—and whom to blame if a given outlet falls short.”

    But as the court points out, we get to the same place whether it is characterized as abandonment or lack of distinctiveness:

    [L]abeling naked licensing as “abandonment” of a mark is simply another way of saying that naked licensing renders a trademark not valid. In each classification, the trademark holder’s conduct—uncontrolled licensing—causes the mark to lose its ability to function as a source identifier to consumers. Stated another way, naked licensing causes the trademark to lose all significance as a trademark. Calling the trademark “abandoned,” as 15 USC § 1127(2) does, or focusing on the mark’s validity, as the earlier cases did, are thus two ways of describing the same concept, and both mandate the same result….

    Movie Mania Metro, Inc. v. GZ DVD’s Inc., No. 311723 (Mich. Ct. App. Sept. 9, 2014).

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  • How to Put a Dead Stop to a Patent Infringement Suit … For Now

    I previously wrote about a Federal Circuit decision with a bit of an odd fact pattern. There was some kind of joint development between the University of New Mexico (UNM) and Sandia. A Sandia inventor assigned a resulting patent, the ‘998 patent, to UNM instead of his employer, Sandia. UNM then assigned the patent to Sandia. UNM (actually a successor in interest, STC.UNM) later asserted a different patent against defendant Intel. But the patent asserted had been terminally-disclaimed with the ‘998 patent, so, in order to have any case at all, STC.UNM had to say that Sandia was a co-owner, or the patent would have been unenforceable.

    But that decision created a new problem for STC.UNM, which is that all patent co-owners have to be joined but Sandia didn’t want to participate in the suit, preferring to remain “neutral.” STC.UNM therefore moved under Federal Rule of Civil Procedure 19 to have Sandia involuntarily joined.

    A panel of the Federal Circuit held that substantive patent law gives a co-owner the right not to be joined and, since procedural law cannot abridge substantive law, the suit would be dismissed because not all co-owners could be joined. STC.UNM filed for a rehearing in banc, which was denied.

    But there were two strong dissents from the denial, one by Judge Newman and one by Judge O’Malley. Judge Newman’s dissent focused on the exceptionalism of categorically exempting patent suits from the reach of Rule 19. Judge O’Malley attacked the basic premise that all co-owners must be joined, arguing that it “is predicated upon a series of misinterpretations and misstatements of that purported authority.” Judge O’Malley’s dissent is, in my opinion, a good demonstration of how “black letter” law sometimes is the result of extensions of the law over time that eventually reach a place far different from where the rule started.

    Some theorize that its teed up for the Supreme Court (paywall).

    STC.UNM v. Intel Corp., No. 2013-1241 (Fed. Cir. Sept. 17. 2014)(denial of rehearing en banc).

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  • STOLICHNAYA Case Still Alive, Just Barely

    Oh, Federal Treasury Enterprise Sojuzplodoimport, without you I wouldn’t be so good at spelling “Stolichnaya.”* I’ve lost count of the opinions talking about who owns the STOLICHNAYA trademark and we’re now on the second lawsuit over it.

    It all stems from a disputed claim of ownership of the STOLICHNAYA mark in the United States. To tell the story briefly, the mark was originally owned by the Soviet Union and registered by an enterprise named V/O SPI, later renamed VVO-SPI, which exported the vodka to the United States. Beginning in 1990 and provoked by the collapse of the Soviet Union, the record trademark ownership ended up in the hands of defendant Spirits International B.V. According to FTE, one of the links in Spirits International’s chain of title has been voided by the Russian courts.

    FTE is owned by the Russian Federation, organized and operating under the laws of the Russian Federation. The Russian Federation formed FTE to assume the functions and operations of VVO-SPI, that is, to export STOLICHNAYA vodka. So what we end up with is two purported owners of the STOLICHNAYA trademark in the United States, plaintiff FTE and defendant Spirits International.

    And what a battle. In the first lawsuit, the first opinion of note was one confirming that even though Spirits International’s registration was incontestable, the validity of the assignment to Spirits International could be challenged. But after examining the grant given to FTE by the Russian government, the district court held, and the appeals court affirmed, that the Russian government had not transferred full ownership of the marks to FTE, so FTE wasn’t the registrant of the mark. Since FTE had dismissed all claims except for infringement of a registered mark, it didn’t have standing and the case was dismissed.

    Now FTE and the Russian government have a new document, one that assigns the trademarks in every way possible, and FTE has filed a new lawsuit against Spirits International.

    FTE’s new suit has now survived a motion to dismiss, but just barely. FTE brought eleven counts against the various defendants, for federal trademark infringement, federal unfair competition, federal trademark dilution, state law trademark infringement, state law unfair competition, state law trademark dilution, contributory trademark infringement, contributory unfair competition, contributory federal trademark dilution, federal rectification of the register, and federal cancellation of registration.** The only one that survived was the claim for which there was absence of standing the first time around, federal trademark infringement under § 32 of the Lanham Act. All of the other claims either had been pled in the original suit but dismissed so were barred by res judicata, or could have been pled in the original suit but weren’t so couldn’t be brought now.

    But even on the § 32 claim I think there’s an elephant in the room. The registrations FTE relies on for standing are the ones owned by Spirits International, but who owns them is really the gravamen of the case. Or, in other words, FTE will own a registered mark that is allegedly infringed once the court resolves the ownership issue in FTE’s favor. That’s an unusual posture for a § 32 claim and also internally inconsistent with the count for cancellation—if the Spirits International registrations are cancelled, what happens to FTE’s § 32 claim that relies on them?

    On the surviving § 32 claim, Spirits International argued that, despite the assignment, FTE’s charter and the Russian Civil Code did not give FTE the right of ownership. But the the court didn’t have enough information to rule that the assignment was invalid under the charter or Russian law, so “at this stage, FTE has alleged facts that plausibly show that the Russian Federation has assigned the Marks to FTE, giving FTE standing to sue under Section 32(1).”

    I mentioned the first time around that I didn’t understand why FTE asserted only a claim for infringement of a registered mark and not a claim under § 43(a). Standing under § 43(a) is much easier; a plaintiff needs to show only that it is likely to be damaged. I don’t understand why this claim was so easily conceded, although the current complaint says obliquely “FTE has granted [co-plaintiff] Cristall an exclusive license to produce vodka and other products bearing the STOLICHNAYA mark for sale in the United States,” but doesn’t say Cristall is actually making them yet. So if Cristall isn’t making vodka, FTE can’t allege it is damaged by a likelihood of confusion.†

    What a case.

    Federal Treasury Enter. Sojuzplodoimport v. Spirits Int’l B.V., No. 14-cv-0712 (SAS) (S.D.N.Y. Aug. 25, 2014).

    * I rank it up there with being able to pronounce “acetyl salicylic acid.”

    ** Cancellation and rectification of the register probably aren’t causes of action but a form of relief. Nike, Inc. v. Already, LLC, 09 CIV. 6366 RJS, 2011 WL 310321 (S.D.N.Y. Jan. 20, 2011) aff’d, 663 F.3d 89 (2d Cir. 2011) aff’d, 133 S. Ct. 721, 184 L. Ed. 2d 553 (U.S. 2013). But given the weird procedural posture of the case, I’d have pleaded them too and let the court sort it out later.

    † The reason the § 32 claim works is, under Dawn Donut, there is infringement, you just don’t get an injunction.

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  • A Partner is Not Hired to Invent

    Mirage Chair

    We have an interesting “employed to invent” story which arose in what I suspect can be the most common of situations—two people invent a product, form a company to commercialize it, file a patent application, and then have a falling out before the patent application is even completed. Who owns the patent?

    In Legacy Seating, Inc. v. Commercial Plastics Co., Michael Price and James Watters collaborated on creating the “Mirage Chair,” shown at right. Who actually invented it is a bit fuzzy; the application originally listed Watters as the sole inventor, after their falling out it was later changed to Price alone, and it finally listed the two as co-inventors.

    The design work was done in April and May 2008 and on May 29, 2008 the two men formed plaintiff Legacy Seating, Inc., with Price owning 50% and Watters’ wife owning 50%. During their meetings with the lawyer who set up the corporation, Price and Watters said they intended to apply for a design patent that Legacy would own.

    The relationship didn’t last long; the product wasn’t as successful as they expected. Price said he terminated Watters in July 2009 and bought him out in September 2009, but that Watters refused to recognize the buyout or the termination.

    Meanwhile we have the pending patent application. As you would expect, Watters refused to assign the patent application to Legacy. After the patent issued, Legacy brought a patent infringement suit against Commercial Plastics Co. (CPC), the company that had originally be manufacturing on behalf of Legacy but was now (presumably) selling the chairs without making any payment to Legacy on the sales.

    D618.006

    One cannot bring a patent infringement claim unless all co-owners are joined. CPC pointed out that while Price had assigned his patent rights to Legacy, Watters had not. Legacy therefore had to show that it owned Watters’ rights in the patent, even though he refused to sign the assignment. The theory by which this is done is “employed to invent.”

    When one is “employed to invent,” there is an implied-in-fact contract to assign patent rights, allowing the employer to become the “owner of that property which is developed and of any invention incident to it.”

    Here, the court took a two-step approach—since the invention was before Price and Watters incorporated Legacy Seating, was there a partnership that pre-existed Legacy Seating and, if so, was Watters an employee of it?

    Yes to the first; the joint work of Price and Watters and their later formation of Legacy Seating showed that, more probably than not, there was a partnership.

    The rub was whether there was an “employer-employee” relationship and there was not. Under Illinois law a person cannot be an employee and a partner at the same time in the same business. The two worked jointly developing the chair and procuring the mold manufacturer and production manufacturer, then Watters became a 50% owner of Legacy Seating (well, not quite, his wife was) and was President. He was therefore not an employee of the partnership, but a partner. And “Legacy cannot have it both ways—Watters may not be both a partner and an employee.”

    Legacy’s attempt to use some emails to prove that Watters assigned the invention didn’t work either. When asked to review the patent application and sign the power of attorney and assignment form, Watters’ response “It looks ok” is not a manifestation of an assent to the assignment—”the common sense reading of Watters’s response is that he was indicating that the application was correct, not assenting to the assignment or power of attorney documents.”

    The patent infringement claims was dismissed with leave to amend to add Watters as a plaintiff.

    Legacy Seating, Inc. v. Commercial Plastics Co., No. 13 C 02777 (N.D. Ill. Aug. 20, 2014).

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  • Let’s Kill the “Naked License” Defense

    Those of you who have been reading my blog for awhile know that I’m not a fan of the naked licensing defense. The Trademark Reporter was kind enough to print a Comment I wrote explaining why I dislike it so. Click on the image for a copy.

    104 TMR

    Thanks to The Trademark Reporter for granting permission to provide a copy of this article, which is Copyright © 2014 the International Trademark Association and reprinted with the permission of The Trademark Reporter®, 104 TMR 4 (July-August 2014).

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